UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended June 30, 2014
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission
file number: 333-190431
PULSE
EVOLUTION CORPORATION
(Exact
name of registrant as specified in its charter)
| Nevada |
|
333-190431 |
|
47-1336692 |
| (State
or other jurisdiction |
|
(Commission |
|
(IRS
Employer |
| of
incorporation) |
|
File
No.) |
|
Identification
No.) |
| 10521
SW Village Center Drive, Suite 201, Port St. Lucie, FL |
|
34987 |
| (Address
of principal executive offices) |
|
(Zip
Code) |
(772)
545-4100
Registrant’s
telephone number, including area code
Not
applicable
(Former
name or former address, if changed since last report)
Securities
registered under Section 12(b) of the Act: None.
Securities
registered under Section 12(g) of the Act: None.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ]
No [X]
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes
[ ] No [X]
Indicate
by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate
by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of the “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large
Accelerated Filer [ ] |
Accelerated
Filer [ ] |
| Non-Accelerated
Filer [ ] |
Smaller
reporting company [X] |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No
[X]
State
the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price
at which the common equity was sold as of the last business day of the registrant’s most recently completed second fiscal
quarter. $0 on December 31, 2013.
As
of October 7, 2014, 120,458,716 shares of the registrant’s common stock were outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
TABLE
OF CONTENTS
A
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K of Pulse Evolution Corporation., a Nevada corporation (the “Company”), contains “forward-looking
statements,” as defined in the United States Private Securities Litigation Reform Act of 1995. In some cases, you can identify
forward-looking statements by terminology such as “may”, “will”, “should”, “could”,
“expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”,
“predicts”, “potential” or “continue” or the negative of such terms and other comparable terminology.
These forward-looking statements include, without limitation, statements about our market opportunity, our strategies, competition,
expected activities and expenditures as we pursue our business plan, and the adequacy of our available cash resources. Although
we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Actual results may differ materially from the predictions discussed in these
forward-looking statements. The economic environment within which we operate could materially affect our actual results. Additional
factors that could materially affect these forward-looking statements and/or predictions are discussed in greater detail under
Item 1A – “Risk Factors” of this report and other factors discussed in the Company’s filings with the
Securities and Exchange Commission (“SEC”).
We
caution that the factors described herein and other factors could cause our actual results of operations and financial condition
to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue
reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such
statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.
New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess
the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any forward-looking statements.
PART
I
ITEM
1. BUSINESS
Company
Pulse
Evolution Corporation (“we”, “us”, “our”, the “Company”) was incorporated on May
31, 2013 under the laws of the State of Nevada under the name QurApps, Inc. During fiscal 2014, our controlling shareholder sold
his interest in our company on May 15, 2014. In anticipation of this change of control, we changed our name to Pulse Evolution
Corporation effective May 8, 2014 to better reflect our plans to produce specialized, high-impact applications of computer-generated
human likeness for utilization in entertainment, life sciences, education and telecommunication.
As
more fully disclosed in Our Corporate History below, we completed the initial closing under the Share Exchange Agreement
on September 30, 2014 pursuant to which Pulse Entertainment became a subsidiary of our company in which we own an 81.11% interest.
We plan to complete the acquisition of Pulse Entertainment remaining outstanding shares no later than October 31, 2014. Upon completion,
Pulse Entertainment will become our wholly owned subsidiary and our pro-forma shares of Common Stock outstanding giving effect
to the acquisition of Pulse Entertainment is expected to be approximately 143 million shares.
The
following description of our business includes the business of Pulse Entertainment except where otherwise noted.
Description
of the Business
Pulse
Entertainment is a creatively driven, digital production and intellectual property company, established to produce specialized,
high-impact applications of computer-generated human likeness for utilization in entertainment, life sciences, education and telecommunication.
Founded by leading producers of photorealistic digital humans, Pulse Entertainment develops “virtual humans” for live
and holographic concerts, advertising, feature films, branded content, medical applications and training. The Company’s
business model is focused on participation in intellectual property through the development, production and ownership of entertainment
properties featuring globally recognized animated virtual performers and through multi-year revenue-share relationships with living
celebrities and late celebrity estates. In late 2013, Pulse Entertainment entered into a multi-year agreement with the estate
of Michael Jackson to produce a photo-realistic digital likeness of the late celebrity and to participate in a share of revenues
that could be realized through performances of the ‘Virtual Michael Jackson’ in diverse entertainment and media applications.
In August 2014, the Company entered into a similar agreement with Authentic Brands Group, the principal owner of rights related
to the estate of the late celebrity Elvis Presley.
Pulse
Entertainment produced a computer-generated and animated human likeness of the late popular entertainer Michael Jackson that appeared
in a live performance at the Billboard Music Awards on May 18, 2014. The virtual performance of Michael contributed to the award
show’s highest television viewership in 13 years and an 11-year high in advertising in the demographic of viewers age 18
to 49. This production reached approximately 11 million television viewers during the initial ABC network broadcast, followed
by more than 51 million online views through YouTube and Vevo and generated more than 2,400 news articles and an estimated 98
billion internet impressions for the Michael Jackson hologram and more than 300 million internet impressions estimated for Pulse
Entertainment and members of its management. In addition, August and October, 2014 respectively, we entered into multi-year agreements
with the owner of the likeness, appearance, and publicity rights of Elvis Presley and Marilyn Monroe to develop entertainment
projects that utilize a realistic computer-generated image of these celebrities. We plan to use the computer-generated likeness
to create entertainment and branding revenue opportunities for us, generated from holographic performances in live shows and commercials
which we believe will provide us with a foundation for significant future growth in our core business.
Our
founding management team includes pioneers in the creation and presentation of advanced computer generated imagery, photo-realistic
human animation, and holographic virtual performances. They are also accomplished filmmakers and storytellers, who have produced
and exploited entertainment media consumed by audiences around the world for more than 20 years. Their works have been recognized
with numerous film industry awards and nominations, including Academy Awards® for Best Visual Effects issued by the
Academy of Motion Picture Arts and Sciences and similar awards issued by the Visual Effects Society. Our executives, visual effects
supervisors and digital artists have contributed materially to the visual imagery of more than 50 major motion pictures and film
properties including such notable films as Lord of the Rings, Transformers, Pirates of the Caribbean, Tron: Legacy,
and The Curious Case of Benjamin Button.
During the past 12 months,
we have entered into unique digital likeness rights agreements with the estates of Michael Jackson, Elvis Presley and Marilyn
Monroe. Revenues from the estates of these late celebrities rank them among the top earning celebrity estates in the world, with
estimated aggregate earnings in 2013 in excess of $200,000,000 as stated by Forbes.com in an October 23,
2014 web article. The revenues of these estates have been derived primarily from licensing the still and motion picture images
and recordings captured when the respective celebrities were alive. Further, they are based on clippings, outtakes and performances
from the lives and careers of the historical celebrities. We believe that our first live presentation of the Virtual Michael Jackson
performance demonstrated that we are able to re-launch the careers of deceased celebrities. More than staging an encore to their
historical careers of Michael Jackson, Elvis Presley and Marilyn Monroe, the virtual performances will be judiciously and compellingly
contemporized and made relevant to whole new audiences through new performance forms and media. We are poised to create virtual
celebrities that can do things and go places their historical originals never could, while remaining true to their original values,
identities, personalities and preferences.
We believe that our plans
for virtual performances of Michael Jackson, Elvis Presley and Marilyn Monroe provide us with the foundation for significant growth
in our core business.
We
believe that our plans for virtual performances of Michael Jackson, Elvis Presley and Marilyn Monroe provide us with the foundation
for significant growth in our core business.
Origins
of the Virtual Performance Industry
The
application of high-end virtual effects and animation technology has, historically, been limited to feature films and television
programming. The market for these services have been highly competitive domestically and, more importantly, internationally. Profit
margins within this industry have been severely challenged by offshore competition and the interests of the most talented and
accomplished virtual effects artists, many of whom are in North America, have been adversely impacted by the lack of profitable
business models that rely on such creativity and technology.
In
2012, a leading virtual effects company then under the leadership of Mr. Textor produced a computer-generated digital likeness
of the late rapper Tupac Shakur who was projected onstage, performing at the Coachella Valley Music Festival, in a holographic-like
manner, using a century old projection technique known as a ‘Pepper’s Ghost’ illusion. Following the live production,
millions of viewers around the world witnessed this unique performance signaling the emergence of a new entertainment medium.
Referred to by many as the ‘virtual performance’ industry, the creation of computer generated digital likenesses of
living and late celebrities represents significant new revenue opportunities for celebrities, celebrity estates and related owners
of intellectual property. Importantly, the industry also represents an attractive opportunity to maximize the value of North American
leadership in virtual effects creativity and technology through business models that extend beyond legacy short-term thin-margin
services models, aligning instead with long-term intellectual property participation utilizing this new medium. While there have
been a number of low visibility virtual performance productions, members of our team have been responsible for two globally watched
virtual performances that have defined an emerging form of entertainment we call the Virtual Performance Industry.
We
intend to further develop this emerging, globally relevant virtual performance industry in part because of our founders’
leadership in ground-breaking performances of photo-realistic digital humans in films, such as Tron: Legacy and The
Curious Case of Benjamin Button, and in Live Music concerts, such as the 2012 Coachella Valley Music Festival, which featured
the digital resurrection and holographic performance of late rapper Tupac Shakur and Pulse Entertainment’s digital
resurrection and holographic performance of the late pop performer Michael Jackson at the 2014 Billboard Music Awards ceremony
in May 2014.
The
Business
We
plan to leverage the expertise of our management and their relationships to develop, produce and exploit entertainment media in
three distinct and complementary marketing groups: Pulse Productions, The Head Shop, and On-Point. Each group discussed below
will focus on distinct opportunities that represent entertainment industry market areas that we believe offer the greatest opportunity
for growth:
PULSE
PRODUCTIONS – IP Investments – will become the investment and services marketing group that focuses on the production
of high quality photo-realistic, digital likeness performances. We will seek to represent the world’s Top Tier celebrities
and late celebrities in live holographic performances in venues around the world, and then seek to exploit the resulting production
in all media and markets worldwide. We expect to derive revenues within this group from two key activities: 1) the production
of computer-generated celebrity productions (we refer to this as “CG Celebrity Builds,”) and 2) the presentation of
virtual celebrities on the variety of screens and stages such as live concerts, Broadway-style theatrical productions, television
commercials, political events and advertising, short-form content and interactive internet and mobile applications (we refer to
the expected revenues from this aspect of our business as “Usage Fees and Ticket Sales”). Sources of revenues are
expected to be generated by 1) the creative and technical production of digital humans, 2) a share of box office receipts associated
with the performances, and 3) royalties and production revenues from the exploitation of digital likeness assets in a broad range
of media, including television, internet and mobile entertainment applications. While we intend to fund a portion of our production
costs from internal sources, we anticipate that a large portion of these costs will be funded by third parties, including affiliated
production companies, associated celebrity estates, corporate sponsors and other entertainment finance vehicles. We do not, however,
currently have any such funding or financing arrangements in place.
In
a limited number of situations, relating to the most globally recognized and demanded Top Tier celebrities, we will seek to partner
with the associated estates, invest in the development of the digital likeness assets and secure either digital asset ownership
or long-term revenue sharing agreements.
We
have completed our first production in this group with the highly acclaimed digital resurrection and holographic performance
of the late pop performer Michael Jackson at the 2014 Billboard Music Awards ceremony in May 2014 and have entered into multi-year
agreements with the owner of the likeness, appearance, and publicity rights of Elvis Presley and Marilyn Monroe to develop entertainment
projects that utilize a realistic computer-generated image of these celebrities. We plan to use the computer-generated likeness
to create entertainment and branding revenue opportunities for us, generated from holographic performances in live shows and commercials.
THE
HEAD SHOP – Computer Graphic (CG) Services – a services-only marketing group that intends to focus on the production
of photo-realistic, digital likeness performers, representing high impact celebrities and world figures whose associated celebrity
estates can be enhanced by digital likeness appearances. In addition to celebrity performers, we intend to offer to create animated
human heads, fictional or otherwise, for use in feature films, commercials, branded entertainment and theme parks that require
high visual fidelity and realistic digital head or human animation imagery. Sources of revenue are expected from 1) the technical
production of digital humans as requested by prospective client feature film studios, celebrity estates, third-party production
companies and advertising agencies, and 2) the occasional participation in box office receipts associated with the performances
of digital celebrities who become our clients.
ON-POINT
– Branded Entertainment – a marketing group that intends to resell or license virtual performance productions
that we acquire the rights to and digital human production capabilities to top corporations and advertising agencies, enabling
brands to exploit photo-realistic, digital likeness celebrities. Prospective customers are expected to include major studios and
mini-studios, television networks, wireless providers, and media agencies representing national and international brands, high-profile
celebrities and the managers of their estates.
Revenue
from this group is expected from sponsorship fees, digital likeness usage fees and co-production contributions from corporate
clients and advertising agencies that stand to benefit from the use of our prospective digital celebrities in television commercials,
live concerts and other forms of entertainment media that would be a part of an advertisers overall branding strategy.
Applications
of ‘Virtual Performers’
After
the appearance of the virtual Tupac Shakur at the Coachella Valley Music Festival in 2012, our founders saw the opportunities
for similar live ‘holographic’ concert performances of recognizable late celebrities that cater to their enduring
fan base. The overwhelming audience reception and reviews of this performance lead us to produce the late Michael Jackson performance
at the 2014 Billboard Music Awards. Celebrity estates and creative producers who engage us to produce holographic celebrity performances
are now able to visualize the opportunity to create a new revenue stream from the digital re-creation of their intellectual property.
Furthermore, we are able to digitally re-create all new performances in any entertainment or telecommunications medium. On stage,
in film or in digital media, the creative discussion of virtual performance has now expanded to create revenue opportunities across
a broad range of applications. In addition to Pulse Entertainment’s continuing relationship with the estate of Michael Jackson,
in August 2014 and October 2014, respectively, we entered into partner agreements with ABG EPE IP, LLC (“ABG”) and
the Monroe Estate to develop projects to utilize a realistic computer-generated image of Elvis Presley and Marilyn Monroe as discussed
below. Also, we are in discussions with leading celebrity estates and interested customers to use computer generated human characters
in applications such as live music concerts, Broadway-style theatrical productions, celebrity-focused tourist experiences, mobile
device entertainment and commercial advertising.
Michael
Jackson Visual Rights Partner Agreement
In
late 2013, Pulse Entertainment entered into a multi-year agreement with Optimum Products and the estate of Michael Jackson to
produce a photo-realistic digital likeness of the late celebrity and to participate in a share of revenues that could be realized
through performances of the ‘Virtual Michael Jackson’ in diverse entertainment and media applications. Under the terms
of the partner agreement we entered into with Optimum Products, we agreed to develop for the Michael Jackson Estate entertainment
projects to utilize a realistic computer-generated image of Michael Jackson. The likeness will be used to create entertainment
and branding revenue opportunities for us, generated from holographic performances in live shows and commercials. We have agreed
to create and make presentations to third parties regarding the commercial and live use of the virtual Michael Jackson including
entering into development agreements for the production and financing of the Michael Jackson entertainment projects.
Elvis
Presley Visual Rights Partner Agreement with ABG EPE IP, LLC
Under
the terms of the partner agreement (the “Elvis Partner Agreement”) we entered into with ABG effective as of August
1, 2014, we agreed to develop for ABG entertainment projects (the “Elvis Project” or “Elvis Projects”)
to utilize a realistic computer-generated image of Elvis Presley (“Virtual Elvis”). The likeness will be used to create
entertainment and branding revenue opportunities for us, generated from holographic performances in live shows and commercials.
ABG holds the likeness, appearance, and publicity rights of Elvis Presley (“Elvis IP Rights”). Under the terms of
the Elvis Partner Agreement, ABG has granted us exclusive rights to develop Elvis Projects for a limited period of time. We have
agreed to create and make presentations to third parties (the “Target” or “Targets”) regarding the commercial
and live use of the Elvis Projects including rights to license the Elvis IP Rights from ABG in connection with such use and enter
into development agreements with us for the production and financing of the Elvis Projects.
Under
the terms of the Elvis Partner Agreement, ABG has granted us a limited and nonexclusive worldwide license to the Elvis IP Rights,
to use, copy, modify, and create the Elvis Projects (the “Company Elvis License Rights”). We will retain ownership
over the technology, materials, and media used in the performance of the Elvis Projects, which is separable from the Elvis IP
Rights (“Company Elvis Materials”). ABG may use the Company Elvis Materials on a perpetual, irrevocable, assignable,
sub-licensable worldwide basis if ABG pays us certain royalties. ABG has the right to approve all elements of the Virtual Elvis
Projects we develop including any advertising elements which we are required to submit to them for approval.
We
agreed to pay an upfront royalty to ABG and certain minimum annual royalties for each year during the term of the Elvis Partner
Agreement based on revenues derived from live and non-live events from Virtual Elvis Projects. We are entitled to an Elvis IP
Royalty from ABG based on revenues generated from live and non-live events produced under the agreements with Targets. In addition,
we agreed to pay ABG a royalty for any transactions with a Target based on revenues.
The
Elvis Partner Agreement will be automatically terminated if we breach the same provision of the Elvis Partner Agreement twice,
however, ABG will still be entitled to certain royalties. After the first breach by us, ABG must give us written notice of the
breach. Further, ABG has the right to suspend its performance under and/or terminate the Elvis Partner Agreement if we (i) fail
to make a required payment to ABG (subject to a 5 business day cure period), (ii) breach the Elvis Partner Agreement (subject
to a 15 business day cure period), (iii) commit an act of gross negligence or wanton misconduct (subject to a 10 business day
cure period), (iv) file a bankruptcy petition or such petition is filed against us, (v) fail to generate the minimum net revenue
in any Contract Year. We have the right to suspend our performance under and/or terminate the Partner Agreement if ABG breaches
the Elvis Partner Agreement, subject to a cure period of 30 business days after ABG receives written notice from us.
ABG
has the right to exchange certain amounts we paid them for warrants to purchase our common stock exercisable at a fixed price
subject to certain anti-dilution rights in the event our total equity is diluted below the warrant exercise price. The Elvis Partner
Agreement contains general provisions dealing with confidentiality, insurance, indemnity, quality standards of the Projects, and
dispute resolution.
Marilyn
Monroe Visual Rights Partner Agreement
Under
the terms of the partner agreement (the “Monroe Partner Agreement”) we entered into with the Monroe Estate effective
as of October 6, 2014, we agreed to develop for the Monroe Estate entertainment projects (the “Monroe Project” or
“Monroe Projects”) to utilize a realistic computer-generated image of Marilyn Monroe (“Virtual Marilyn”).
The likeness will be used to create entertainment and branding revenue opportunities for us, generated from holographic performances
in live shows and commercials. The Monroe Estate holds the likeness, appearance, and publicity rights of Marilyn Monroe (“Monroe
IP Rights”). Under the terms of the Monroe Partner Agreement, the Monroe Estate has granted us exclusive rights to develop
Monroe Projects for a limited period of time. We have agreed to create and make presentations to third parties (the “Target”
or “Targets”) regarding the commercial and live use of the Monroe Projects including rights to license the Monroe
IP Rights from the Monroe Estate in connection with such use and enter into development agreements with us for the production
and financing of the Projects.
Under
the terms of the Monroe Partner Agreement, the Monroe Estate has granted us a limited and nonexclusive worldwide license to the
Monroe IP Rights, to use, copy, modify, and create the Monroe Projects (the “Company Monroe License Rights”). We will
retain ownership over the technology, materials, and media used in the performance of the Monroe Projects, which is separable
from the Monroe IP Rights (“Company Monroe Materials”). The Monroe Estate may use the Company Monroe Materials on
a perpetual, irrevocable, assignable, sub-licensable worldwide basis if the Monroe Estate pays us certain royalties. The Monroe
Estate has the right to approve all elements of the Virtual Marilyn Monroe Projects we develop including any advertising elements
which we are required to submit to them for approval.
We
agreed to pay an upfront launch fee to the Monroe Estate (the “Upfront Launch Fee”) which is subject to certain guarantees
and other rights and the Monroe Estate agreed to pay us a portion of revenues derived from Virtual Marilyn Monroe Projects we
secure. We also agreed to pay the Monroe Estate a royalty based on certain services we may provide to third parties which utilize
the Monroe IP Rights.
The
Monroe Partner Agreement will be automatically terminated if we breach the same provision of the Monroe Partner Agreement twice,
however, the Monroe Estate will still be entitled to certain royalties. After the first breach by us, the Monroe Estate must give
us written notice of the breach. Further, the Monroe Estate has the right to suspend its performance under and/or terminate the
Monroe Partner Agreement if we (i) fail to make a required payment to the Monroe Estate (subject to a 5 business day cure period),
(ii) breach the Monroe Partner Agreement (subject to a 15 business day cure period), (iii) commit an act of gross negligence or
wanton misconduct (subject to a 10 business day cure period), (iv) file a bankruptcy petition or such petition is filed against
us, (v) fail to generate the minimum net revenue in any Contract Year. We have the right to suspend our performance under and/or
terminate the Monroe Partner Agreement if the Monroe Estate breaches the Monroe Partner Agreement, subject to a cure period of
30 business days after the Monroe Estate receives written notice from us.
The
Monroe Partner Agreement contains general provisions dealing with confidentiality, insurance, indemnity, quality standards of
the Monroe Projects, and dispute resolution.
Other
Prospective Customers
Prospective
customers of computer-generated virtual performers span the entirety of the coveted “four-quadrant movie” audience
– that is, they are male and female, over and under 25 years of age. While younger audiences are proven early adopters of
emerging entertainment and technology, virtual performers also provide opportunities for older audiences to address their pent-up
demand for entertainers who are now deceased. For this reason, our initial focus will be to create compelling content for audiences
around the globe, regardless of their age or the entertainment medium.
Now,
more than ever, the creative producer can use an ever expanding set of technology tools to create entertaining shows and performances
that, in a world of digital distribution, has the potential to reach any corner in the world with the push of a button.
Our
management team is forming relationships with prospective customers, and will continue to leverage its experience and network
in the entertainment industry to build a clientele that includes content companies like Warner Brothers Studio, live performance
companies like Caesars Entertainment, talent agencies like the Creative Arts Agency, and media agencies like Media Vest USA.
Financing
and Co-Production Arrangements
We
expect to undertake the initial stages of the human animation and holographic-like production process ourselves. At some point
prior to or during the initial portions of the actual production stage of a digital likeness performance production, we plan to
enter into a co-production arrangement with third-party producer partners for the remaining portions of the production, which
we expect will provide for shared responsibility for financing of production costs, co-ownership and co-branding of the digital
likeness performances produced, and an allocation of the profits of each production and any related merchandise and other ancillary
products. Other than our agreement with the estate of Michael Jackson, we have not yet entered into any co-production arrangements
with respect to any of our prospective digital likeness performance projects. In addition, we will look to take advantage of opportunities
to limit our financial exposure to any individual project by utilizing third party sources of capital to finance a substantial
portion of the costs of such productions. Such financing sources may include, among others, motion picture studios, private domestic
and foreign capital partners, institutional lenders, production subsidies, incentives and credits and other industry-specific
sources of capital.
Work
and Accolades of our Team
Our
team represents a combination of artists and executives who have come together to form a unique company that specializes in character
creation and human animation. Many of our employees have worked, often in leadership roles, with talented artists, at accomplished
companies, delivering visually stunning characters and visual effects sequences. Our creative leadership team is anchored by individuals
who are recognized within the entertainment industry for their leadership of large-scale feature films and for the development
of memorable, award-winning animated characters, resulting in numerous industry awards for creative and technical excellence,
including:
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● |
One
Academy Award® nomination for Best Visual Effects in a feature film, The Chronicles of Narnia: The Lion, the
Witch and the Wardrobe (2005); |
Our
Executive Chairman, John Textor, has significant experience in the delivery of high-end visual effects and character animation,
having served as both Chairman and Chief Executive Officer of a leading visual effects company which, during his tenure, produced
visual effects and character animation for 25 major feature films and numerous creative projects, resulting in the multiple industry
awards, recognizing the company and, principally, its artists, including:
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● |
Academy
Award® for Best Visual Effects in a feature film, The Curious Case of Benjamin Button (2009); |
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BAFTA
Award (British Academy Awards) for Best Visual Effects in a feature film, The Curious Case of Benjamin Button
(2009); |
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Titanium
Lion Award from the Cannes Lions International Festival of Creativity for “Virtual 2Pac” (2012), the virtual performance
of a virtual Tupac Shakur at the Coachella Valley Music Festival; |
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● |
Two
Academy Award® nominations for Best Visual Effects in a feature film, Real Steel (2012) and Transformers:
Dark of the Moon (2012) |
Collectively,
our executives, visual effects supervisors and digital artists have contributed materially to numerous large-scale feature films,
including 2012, 47 Ronin, The A-Team, Back to the Future Part II, Batman Forever, Blades of Glory, The Chronicles of Narnia:
The Lion, the Witch and the Wardrobe, The Curious Case of Benjamin Button, Ender’s Game, Final Fantasy: The Spirits Within,
Flags of Our Fathers, Forrest Gump, G.I. Joe: The Rise of the Cobra, Girl with the Dragon Tattoo, The Golden Compass, Green Lantern,
Harry Potter and the Sorcerer’s Stone, The Hitcher, Hulk, I am Legend, I Robot, Jack the Giant Killer, Jurassic Park, Letters
from Iwo Jima, The Lord of the Rings: Two Towers, The Matrix Reloaded, Meet the Robinsons, Men in Black II, The Mummy: Tomb of
the Dragon, My Super Ex-Girlfriend, The Nativity Story, Pearl Harbor, Percy Jackson & the Olympians: The Lightning Thief,
Pirates of the Caribbean: At World’s End, Pirates of the Caribbean: Dean Man’s Chest, The Polar Express, Rango, Real
Steel, Rock of Ages, The Seeker: The Dark is Rising, The Smurfs, Speed Racer, Star Trek, Star Wars: Episode III - Revenge of the
Sith, Terminator 2: Judgment Day, The Texas Chainsaw Massacre: The Beginning, Thor, Transformers, Transformers: Dark of the Moon,
Transformers: Revenge of the Fallen, TRON: Legacy, War of the Worlds, The Watch, We Own the Night, X-Men 2, X-Men: First Class,
and Zodiac.
Live
Virtual Performances of Animated Human Characters
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● |
A
selection of significant live virtual performances members of our team have taken part in include: Virtual 2Pac - a
digital resurrection and holograph-like performance of the late rapper Tupac Shakur in front of a live audience at the Coachella
Valley Music Festival in 2012. The event was seen by more than 100 million viewers over YouTube in the weeks to follow, inspiring
a dramatic rise in Tupac music downloads, the re-appearance of Tupac in Billboard’s Top Album charts and demand across
the worldwide press for the digital return of many other late celebrities; |
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The
Michael Jackson Experience at the Billboard Music Awards - a digital resurrection of Michael Jackson, performing a new
posthumously released song, ‘Slave to the Rhythm’, along with roughly two dozen virtual projection dancers, live
dancers and live band members, in a large-scale holographic-like performance in front of a live audience at the globally broadcast
2014 Billboard Music Awards show. The event was seen by more than 11 million television viewers, 40 million viewers over YouTube
and Vevo, resulting in 2,400 news articles and roughly 98 billion internet impressions. |
Keys
to Success – Pulse Production Segment
We
have positioned our company to deliver the most visually stunning, globally recognized human animation and holographic performances
in the entertainment industry, in essence, benefitting from the revolution in virtual performance business space that its founders
helped start. The following are some of the key reasons:
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Global
Interest in a New Form of Entertainment: Inspired by the ground-breaking performances of photo-realistic digital humans
in films, such as Tron: Legacy and The Curious Case of Benjamin Button, and in Live Music concerts, such as
the 2012 Coachella Valley Music Festival which featured the return of late rapper Tupac Shakur as a ‘holographic’
performer and the 2014 Billboard Music Awards ceremony which featured the return of the late pop star Michael Jackson, audiences
and venue operators (even politicians) around the globe have made clear their interest in the digital resurrection of late
celebrities and people of historical significance; |
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Expected
Demand is Far in Excess of Industry Capacity: The demand for our human animation and holographic projection platform is
expected to be strong in every major country around the world. Managers of celebrity estates have shown interest in reviving
properties, boosting licensing fees and developing all-new sources of revenue. The emergence of digital resurrection and photo-realistic
human animation are expected to lead to demand within the world of politics, theme parks, professional sports, religion and
education. There are only a limited number of people and companies in the world who have a proven ability to produce a photo-realistic,
believable digital human. We believe that there is not enough production capability and capacity to meet demand for the foreseeable
future; |
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Globally
Recognized Leaders and Innovators: Our founders are recognized for their leadership of ground-breaking human animation
and holographic performance projects, making Pulse Entertainment a top choice of prospective customers and partners who will
want a company whose proven production capabilities in human animation are of the highest quality in the world; |
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Strategic
Focus on Rights Acquisition: Our key management’s reputation for leadership in human animation is expected position
us to be a solution of choice for the world’s leading celebrity properties in the early stages of this new industry.
It will be our focus to leverage our early leadership position effectively to secure long-term partnerships, production joint
ventures and ‘digital likeness’ rights with our celebrity property owners as a strategy to establish our company
as a long-term leader in the industry as technologies evolve and competition matures. |
Keys
to Success – Human Animation Group
We
believe that we are uniquely qualified to compete successfully in the human animation and head-replacement segment, the large
number of opportunities that do not require live ‘holographic’ projection, due to the following reasons:
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One
of a Kind Company: Our principals believe we are the only company in the entertainment visual effects or simulation industries
exclusively focused on photo-realistic human animation, and ‘head replacement’, thereby positioning ourselves
as an obvious choice for a large market of customers and partners that are accustomed to awarding multi-million dollar contracts
for human animation projects. Specialization in this industry is expected to provide early adopter leadership positioning,
and with it expected high margins and meaningful research and development benefits, for the foreseeable future; |
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‘New
Real Estate’ in the exploitation of likeness rights: While the value of likeness rights is well-established, the
concept of ‘digital likeness’ or ‘virtual likeness’ has only recently been discovered by a large market
of celebrity properties that can use our innovative methodology to transform those rights for future exploitation. Simply
stated, every living celebrity, and every celebrity estate, should be as concerned with their likeness in polygons and computer
generated imagery as they are in photographic stills and in film. We intend to develop a business model as the developer and
clearinghouse, with royalty participation, for the largest possible inventory of celebrity digital likeness assets; |
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Opportunity
for Multiple Streams of Revenue as re-usable digital humans can be licensed to applications in concerts, theatre, film
and television, advertising, video games, education and simulation (military and surgical). |
Producer
Participation and Residuals
Through
the Pulse Productions group, we are actively engaged in discussions with venue operators, concert promoters, Broadway theatrical
producers, celebrity performers and celebrity estates. In addition, we are in the early stages of show development, to establish
our company as a producer and owner of diverse entertainment properties. While this has long been a difficult challenge for pure
services companies in the visual effects arena, we will seek to leverage important core competencies to achieve producer or ownership
participation.
Roles
have been Reversed: Producers in the matured film industry have a clear idea of what they want and they often look to visual
effects companies for little more than a straightforward execution of their producer/director vision. In the emerging world of
virtual performances, producers are just learning what is possible and they are looking to us, not just for execution, but for
creative vision. There is always a moment when a ‘show is born’ and, historically, this did not happen in the offices
of the post-production vendors. Now, because this emerging landscape of virtual performances has been conceived, developed and
implemented first within the visual effects environment (under the leadership of our principals), the visual effects ‘vendor’
has now become the ‘producer’.
Technology
drives the Performance: The ‘producer’ role of our company is expected to become even more established as a production
moves from creative development to execution, principally because what once was a human acting performance, directed by a filmmaker
or theatrical director, has now become human animation that is the product of a proprietary technology pipeline, visual effects
supervision and a team of digital artists.
‘What
they Don’t Know’ – Realistic human animation is truly among the most difficult technical challenges in all
of entertainment. While filmmakers and theatrical producers may have developed an understanding of visual effects for feature
films, only a limited number of people who possess the necessary skills to execute this kind of work and, importantly, there are
even fewer that understand the processes and the costs involved. Quite a departure from the overall visual effects industry, this
gives us the opportunity to establish pricing and structure in a vacuum, while demand far exceeds industry capacity. Ownership
and producer participation are, therefore, achievable even in connection with the most high-profile celebrity properties.
Based
on these factors, we believe we are better positioned to become a producer and retain an ownership participation interest in the
virtual performance productions we create for our clients.
Intellectual
Property
We
also rely on a combination of copyright and trade secret laws in the United States and other jurisdictions as well as confidentiality
procedures and contractual provisions to protect our trade secrets, proprietary methodologies and our brand. We also enter into
confidentiality and invention assignment agreements with our employees and consultants and confidentiality agreements with other
third parties, and we rigorously control access to our work and methods.
Despite
our efforts, the steps we have taken to protect our proprietary rights may not be adequate to preclude misappropriation of our
proprietary information or infringement of our intellectual property rights, and our ability to police such misappropriation or
infringement is uncertain, particularly in countries outside of the United States.
Marketing
Strategy to Secure Revenues and Co-Productions
We
intend to achieve sales growth with lower marketing expense by way of two distinct advantages, the uniqueness of our offerings
as pioneers of a significant emerging industry and the close relationships, forged over many years, with the small number of large
studios, important venues and globally recognized late celebrities that have dominated the entertainment industry.
Services.
Marketing for our services will include:
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Direct
telephone outreach to a targeted group of large studios that have a high level of comfort with our principals; and |
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Direct
telephone outreach to a targeted group of leading producers and directors that have a high level of comfort with our principals. |
Productions.
Marketing for our production will include:
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Align
with the most important venue owners and operators in the leading performance markets around the globe, to assure potential
production partners and celebrities that we offer unmatched access to the largest audiences |
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Actively
promote Pulse Entertainment’s ability to attract the leading talent in facial animation, head replacement and overall
human effects, as necessary to convince celebrities and celebrity estates of superior quality in digital likeness |
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Communicate
all of the above through consistent, high-volume public relations efforts to fully establish and maintain Pulse Entertainment’s
reputation as pioneer and market leader in the global press |
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Immediate,
and on-going, outreach to the agents and managers of leading celebrity estates, asserting the above, to assert that the company
is the obvious (if not the only) choice as a partner in the exploitation of the new industry of virtual performance and digital
resurrection |
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Leverage
the success from early celebrity appearances to catalyze tremendous demand from venues seeking this new form of entertainment. |
Intellectual
Property
We
also plan to promote our company as the ideal partner for celebrity estates and owners of likeness rights by focusing on the following
strategies to achieve ownership of intellectual property or long-term license rights related to music and digital likeness:
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Advancement
of Legal Standards: We plan to continue working with entertainment counsel to establish the standards, legal definitions and
preferred language relating to ‘Digital Likeness Rights’, a concept that our principals have introduced into an
industry wide discussion as a result of their pioneering leadership in virtual performances. The advancement of this topic
not only positions the company as a market leader in a new form of entertainment, but the creation of new ‘rights real
estate’ which we believe will enable the company to secure multiple long-term digital likeness licenses (with leading
celebrity estates) well before future competitors have even focused on the existence of such rights. |
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Actionable
Production Proposals: Communication with managers and agents regarding specific virtual performance ideas (concerts, shows,
etc.) as a way to accelerate the discussion of rights and the successful licensing of such rights to the company. In short,
celebrity estates want royalty revenues from these break-through new performances and the company is one of the only options
they have to move forward. We believe that this position can be leveraged to secure long-term digital likeness rights of the
major celebrity properties before competitors enter the field. |
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Offer to Invest: As it is clear that most celebrity
estates are interested in royalty inflows, we will offer to invest in the construction of 3D models and the assets supportive
of digital likeness as a means to achieve long-term license rights. We believe there are multiple sources of capital, possibly
a company affiliated side fund that will help to develop these assets. |
Our
intellectual property strategies will be to obtain digital likeness rights for the leading celebrity estates prior to its competitors
who are not prepared to enter the market. Most managers, agents and attorneys for celebrity estates have not thought deeply and
specifically about this new category of rights exploitation. We are generating the interest celebrity managers, agents and attorneys
who are not aware of this new category of rights exploitation that have the potential for new revenue streams. We believe that
securing these intellectual property rights early on will give it a competitive advantage in the market.
Competition
We
have positioned ourselves as a producer of high-impact applications of computer-generated human likeness for utilization in entertainment,
life sciences, education and telecommunication. Our competition in the general visual effects services market includes Industrial
Light and Magic (purchased by Disney), Sony Pictures Imageworks Inc., Weta Digital Ltd., Rhythm & Hues Inc. and Framestore
CFC, as well as many smaller firms that specialize in visual effects. Many of these producers are larger than we are and have
greater financial resources than we do. We believe we can compete effectively with our competitors focusing on highly specialized
and complex human animation that continues to be performed by only a few competitors and is rewarded by healthy profit margins.
There is no assurance, however, that our ability to market our productions and services successfully will not be impacted by competition
that now exists or may later develop.
Employees
As
of October 7, 2014, we employed 40 full and part-time employees. We believe that our employee and labor relations are good. We
are currently not a party to any collective bargaining agreement.
Government
Regulation
We
are not currently subject to direct federal, state or local regulations, other than regulations applicable to businesses generally.
Our
Corporate History
Pulse
Evolution Corporation was incorporated on May 31, 2013 under the laws of the State of Nevada under the name QurApps, Inc. We changed
our name to Pulse Evolution Corporation effective May 8, 2014 to better reflect our plans to produce specialized, high-impact
applications of computer-generated human likeness for utilization in entertainment, life sciences, education and telecommunication.
On
May 31, 2013 (inception) the Company issued 6,000,000 shares of common stock to Alon Nigri our former Chief Executive Officer
and former sole director for cash of $18,000.
During
the month of February 2014, we sold 1,380,004 shares of our common stock at $0.03 per share to various investors for cash of $42,600
pursuant to our Registration Statement on Form S-1 declared effective by the SEC on October 7, 2013.
On
May 15, 2014, Alon Nigri, our controlling stockholder at the time, former Chief Executive Officer and former sole director (the
“Seller”), entered into and closed on a Share Purchase Agreement (the “Agreement”) with, Tradition Studios
IP Acquisition LLC, (Alternative)2 Holding AG, and Scenic Loop Holding, LLC (each a “Purchaser” and collectively,
the “Purchasers”) whereby the Purchasers purchased from the Seller a total of 53,612,600 shares of our common stock
for an aggregate of $107,225, representing approximately 80.68% of our issued and outstanding shares of common stock. The Purchasers
own or control as a group, Pulse Entertainment.
On
May 16, 2014, we signed a letter of intent to exchange at least a majority of our unissued shares of common stock for 100% of
the outstanding common stock of Pulse Entertainment, a related party.
Effective
on June 23, 2014, the Company amended and restated its articles of incorporation filed with the Secretary of State of the State
of Nevada in order to effectuate an increase in the number of authorized shares of common stock, par value $0.001 per share, from
75,000,000 to 300,000,000, increase the authorized blank check preferred stock to 100,000,000 shares and effectuate a 1 for 10
forward stock split of our issued and outstanding common stock (the “Forward Stock Split”). As a result of the Forward
Stock Split, every 1 share of our pre-Forward Split common stock was increased and reclassified into 10 shares of our common stock.
All references to shares of our common stock in this report on Form 10-K refers to the number of shares of common stock after
giving effect to the Forward Stock Split (unless otherwise indicated).
Beginning
on July 15, 2014, and continuing through September 23, 2014, we entered into a securities purchase agreements (the “Securities
Purchase Agreements”) with six investors who are unrelated parties to us whereby they agreed to purchase an aggregate of
4,855,000 shares of our Common Stock at prices ranging from $0.40 per share to $1.00 per share, for a total purchase price of
$2,225,000. The Securities Purchase Agreements provide piggyback registration rights for the Common Stock acquired by the investors
in the event that we register any of our Common Stock under the Securities Act of 1933, as amended (the “Securities Act”)
for sale to the public for cash in an underwritten offering, if the applicable registration form being used by us will permit
such registration. We are not required to register the Common Stock if registration is effected by us on behalf of another shareholder
that is exercising registration rights that prohibit registration of other securities or the Common Stock has already been registered.
On
September 26, 2014, we entered into a share exchange agreement (the “Share Exchange Agreement”) with Pulse Entertainment
shareholders, some of whom are officers and directors of our company, pursuant to which we agreed to issue up to 58,362,708 shares
of our unregistered common stock, net of certain share cancellations, to the shareholders of Pulse Entertainment holding 21,535,252
shares of its issued and outstanding common stock, such shares representing 100% of the issued and outstanding common stock of
Pulse Entertainment. The closing date must occur on or before October 31, 2014 and is conditioned upon certain, limited customary
representations and warranties, the approval of the holders of not less than 51% of the Pulse Entertainment common stock and Pulse
Entertainment’s completion of an audit of its June 30, 2014 financial statements.
On
September 30, 2014, we completed the initial closing under the Share Exchange Agreement pursuant to which we agreed to issue 35,827,309
shares of our unregistered Common Stock, net of cancellations, to the shareholders of Pulse Entertainment in exchange for 17,466,383
shares of its common stock. As part of the Share Exchange, certain of our shareholders who are also shareholders of Pulse Entertainment
agreed to cancel 60,910,113 shares of our common stock issuable to them in connection with the Share Exchange. Upon completion
of the initial closing, Pulse Entertainment became a subsidiary of our company in which we own an 81.11% interest. We plan to
complete the acquisition of an additional 4,068,869 shares of Pulse Entertainment common stock pursuant to the Share Exchange
Agreement by issuing 22,535,399 shares of our common stock no later than October 31, 2014. Upon completion of this part of the
acquisition, Pulse Entertainment will become our wholly owned subsidiary.
ITEM
1A. RISK FACTORS
An
investment in our common stock involves a high degree of risk. You should carefully consider the risks described below and the
other information in this report before making a decision to invest in our common stock. If any of the following risks and uncertainties
develop into actual events, our business, results of operations and financial condition could be adversely affected. In those
cases, the trading price of our common stock could decline and you may lose all or part of your investment.
Risks
Related to Our Business
Because
we have a limited operating history, we may not be able to successfully manage our business or achieve profitability.
We
have completed only one production featuring a digital version of Michael Jackson in May 2014 and as a result have limited operating
history upon which a potential investor can evaluate our prospects and the potential value of our common stock. The likelihood
of our success must be considered in light of the expenses, complications and delays frequently encountered in connection with
the establishment and expansion of a new business and the competitive environment in which we will operate. As of June 30, 2014,
we have incurred operating losses. No additional relevant operating history exists upon which an evaluation of our performance
can be made. Our performance must be considered in light of the risks, expenses and difficulties frequently encountered in establishing
new products and markets in the evolving, highly competitive human animation industry. If we cannot successfully manage our business,
we may not be able to generate future profits and may not be able to support our operations.
The
human animation industry is highly competitive and if we are unable to compete successfully, our business will be harmed.
The
human animation industry, although in its infancy, is expected to be an intensely competitive sector of the entertainment industry.
Multiple entities, including human animation companies, digital content production companies and animation studios are expected
to enter this segment of the entertainment industry to provide human animation services for the same clients or cross platform
advertising projects, and certain of these entities have greater financial, creative and managerial resources than we do. In addition,
large major digital likeness performance studios may develop or acquire the capability to provide such services in house. Moreover,
we believe foreign competitors and competitors with operations or subcontractors in countries such as South Korea, China and India
may become an increasing source of competition, due largely to their access to low-cost, high-skilled labor. If we are unable
to compete successfully against current or future competitors in the human animation industry, our expected revenues, margins
and market share could be adversely affected, any of which could significantly harm our business.
Our
success depends on certain key personnel.
Our
performance to date has been and will continue to be largely dependent on the talents, efforts and performance of our senior management
and key technical personnel, particularly John C. Textor and Frank Patterson, who generally have significant experience with our
company and substantial relationships and reputations within the entertainment industry. Certain of our executive officers and
top production executives will enter into employment and noncompetition agreements. However, while it is customary in the entertainment
industry to use employment agreements as a method of retaining the services of key executive personnel, these agreements do not
guarantee us the continued services of such employees. In addition, we do not currently have an employment agreement with Messrs.
Textor or Patterson, or with most of our key creative, technical and engineering personnel. The loss of our executive officers
or our other key personnel, particularly with little or no notice, could cause delays on projects and could have an adverse impact
on our client and industry relationships, our business, operating results or financial condition.
We
rely on highly skilled and qualified personnel, and if we are unable to continue to attract and retain such qualified personnel
it will adversely affect our businesses.
Our
success depends to a significant extent on our ability to identify, attract, hire, train and retain qualified creative, technical
and managerial personnel. We expect competition for personnel with the specialized creative and technical skills needed to create
our products and provide our services will continue to intensify as our competitors build or expand in-house digital likeness
and animation capabilities. We plan to hire individuals on a project-by-project basis, and individuals who work on one or more
projects for us may not be available to work on future projects. If we have difficulty identifying, attracting, hiring, training
and retaining such qualified personnel, or incur significant costs in order to do so, our business and financial results could
be negatively impacted.
We
intend to co-produce or invest in digital likeness performances, which involve substantial financial risk.
As
part of our growth strategy, we may co-produce or invest in digital likeness performances that require a substantial capital investment.
We cannot predict the financial success of any such performance because the revenue derived from a performance depends primarily
upon its acceptance by the public, which cannot be accurately predicted. The financial success of a digital likeness performance
also depends upon the public’s acceptance of competing live performances, the availability of alternative forms of entertainment
and leisure time activities, piracy and unauthorized copying and distribution of celebrities featured in our performances, general
economic conditions, and other tangible and intangible factors, none of which can be predicted with certainty.
We
expect to co-produce or invest in a limited number of such performances per year as part of our growth strategy. However, we have
only produced the Michael Jackson performance and do not have any agreements to produce others except for the agreement we have
entered into with ABG EPE IP, LLC (“ABG”) to develop entertainment projects utilizing computer-generated images of
Elvis Presley. In addition, the commercial failure of just one performance could have a material adverse effect on our results
of operations.
We
may not be able to implement our strategies of entering into the digital likeness performance production business effectively
or at all.
A
key feature of our growth strategy is to establish our company as a creator, producer and marketer of live concerts, Broadway-style
theatrical productions, television commercials, political events and advertising, short-form content and interactive internet
and mobile applications digital likeness performances and advertising. This strategy requires us to leverage the talents of our
key artistic personnel, their experience with digital likeness and animation production and our proprietary rights. As a company,
however, we have only completed one digital likeness performance. Entry into the digital likeness performance business presents
significant challenges and subjects our business to significant risks, including those risks set forth below. The inability to
successfully manage these challenges could adversely affect our potential success in the digital likeness production business.
Such failure would significantly limit our ability to grow our business and could deplete our working capital and limit our ability
to pursue our other planned businesses.
Our
successful entry into the digital likeness performance business faces various risks and challenges, including:
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the
success of our digital likeness performance business will be primarily dependent on audience acceptance of our performances,
which is extremely difficult to predict; |
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only
a relatively few “hit” performances are expected to account for a significant portion of total revenue and any
failure by us to produce “hit” digital performances could cause revenue generated from our proposed digital likeness
production business to fall below expectations; |
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the
production and marketing of digital likeness performance is capital-intensive and our capacity to generate cash from our performances
may be insufficient to meet our anticipated capital requirements; |
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delays
and increased expenditures due to creative problems, technical difficulties, talent availability, accidents, natural disasters
or other events beyond the control of the production companies; |
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the
entrance of additional digital likeness producers, which may result in increased competition for digital likeness audiences
and for talented computer graphics animators and technical staff; |
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the
costs of producing and marketing digital likeness performances may increase in the future, which may make it more difficult
for a performance to generate a profit or compete against live performances; |
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a
strike by one or more of the labor unions or similar groups that provide personnel essential to the production of digital
likeness performances could delay or halt our proposed digital likeness performance production activities; |
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we
have limited experience producing digital likeness performances and the strain on our personnel from the effort required to
produce such digital likeness performances and the time required for creative development of future digital likeness performances
may hinder our ability to consistently release digital likeness performances; and |
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the
profitability of a digital likeness performance depends in large part on the availability of one or more capable producers
who are able to arrange for appropriate advertising and promotion, proper performance dates and bookings in venues and any
decision by those producers not to show or promote one of the digital likeness performances which we may produce or to promote
competitors’ digital likeness performances to a greater extent than they promote ours, or our inability to enter into
profitable distribution arrangements with such producers, could have an adverse effect on our proposed digital likeness production
business. |
A
substantial part of our business relies upon the success and popularity of digital likeness performances. If other forms of entertainment
prove to be more attractive to consumers than digital likeness performances, our growth and operating results could be harmed.
A
substantial part of our business will rely on the popularity of digital likeness performances of top tier and late celebrities.
If other forms of digital likeness performances, or other entertainment with which digital likeness performances compete for consumers’
leisure time and disposable income, such as live performances, television, concerts, amusement parks and sporting events, become
more popular than digital likeness performances, our business and operating results could be harmed.
Acquisitions
we pursue in our industry and related industries could result in operating difficulties, dilution to our shareholders and other
consequences harmful to our business.
As
part of our growth strategy, we may selectively pursue strategic acquisitions in our industry and related industries. We may not
be able to consummate such acquisitions, which could adversely impact our growth. If we do consummate acquisitions, integrating
an acquired company, business or technology may result in unforeseen operating difficulties and expenditures, including:
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increased
expenses due to transaction and integration costs; |
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potential
liabilities of the acquired businesses; |
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potential
adverse tax and accounting effects of the acquisitions; |
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diversion
of capital and other resources from our existing businesses; |
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diversion
of our management’s attention during the acquisition process and any transition periods; |
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loss
of key employees of the acquired businesses following the acquisition; and |
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inaccurate
budgets and projected financial statements due to inaccurate valuation assessments of the acquired businesses. |
Foreign
acquisitions also involve unique risks related to integration of operations across different cultures and languages, currency
risks and the particular economic, political and regulatory risks associated with specific countries.
Our
evaluations of potential acquisitions may not accurately assess the value or prospects of acquisition candidates and the anticipated
benefits from our future acquisitions may not materialize. In addition, future acquisitions or dispositions could result in potentially
dilutive issuances of our equity securities, including our common stock, the incurrence of debt, contingent liabilities or amortization
expenses, or write-offs of goodwill, any of which could harm our financial condition.
Interruption
or failure of our information technology systems could impair our ability to effectively and timely provide our services and products,
which could damage our reputation and have an adverse impact on our operating results.
Our
future success is significantly dependent on our ability to provide digital likeness production services that consistently meet
our client’s product development schedules. We rely on our contractors and their software applications, hardware and other
information technology and communications systems for the development and provision of our digital likeness services and will
depend on such technologies for production of our prospective digital likeness performances. Our systems are vulnerable to damage
or interruption from earthquakes, hurricanes, terrorist attacks, floods, fires, power loss, telecommunications failures, computer
viruses or other attempts to harm our systems, and similar events. Our facilities are located in areas with a high risk of hurricanes
and are also subject to break-ins, sabotage and intentional acts of vandalism. Some of our systems are not fully redundant, and
our disaster recovery planning cannot account for all eventualities. The occurrence of a natural disaster or other unanticipated
problems at our Port St. Lucie, Florida facilities could result in lengthy interruptions in our projects and our ability to deliver
services. An error or defect in the software, a failure in the hardware, and a failure of our backup facilities could delay our
delivery of products and services and could result in significantly increased production costs, hinder our ability to retain and
attract clients and damage our brand if clients believe we are unreliable. Given our reliance on our industry relationships, it
could also result in a decrease in our prospective revenues and otherwise adversely affect our business and operating results.
We
cannot predict the effect that rapid technological change may have on our business or industry.
The
entertainment industry in general and the digital likeness segments thereof in particular, are rapidly evolving, primarily due
to technological developments. The rapid growth of technology and shifting consumer tastes prevent us from being able to accurately
predict the overall effect that technological growth may have on our potential revenue and profitability. Furthermore, because
we are required to provide advanced digital imagery products to continue to win business we must ensure that our production environment
integrates the latest tools and techniques developed in the industry. This requires us to either develop these capabilities by
acquiring or developing our own proprietary software and other intellectual property rights, which can result in substantial research
and development costs and substantial capital expenditures for new equipment, or to purchase third-party licenses, which can result
in significant expenditures. In the event we seek to obtain third-party licenses, we cannot guarantee that they will be available
or, once obtained, will continue to be available on commercially reasonable terms, or at all. If we are unable to develop and
effectively market new technologies that adequately or competitively address the needs of changes in our industry, it could have
an adverse effect on our business and growth prospects.
Our
revenue may be adversely affected if we fail to protect our proprietary rights or fail to enhance or develop new technology.
We
depend on our proprietary rights to develop and produce certain of our products and provide certain of our services. We rely on
a combination of copyright and trade secret protection and non-disclosure agreements to establish and protect our proprietary
rights. The efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any significant impairment
of our intellectual property rights could harm our business or our ability to compete.
We
generally enter into non-disclosure or license agreements with our employees, consultants and vendors, and generally control access
to and distribution of our technology and other proprietary information. Despite these precautions, it may be possible for a third
party to copy or otherwise obtain and use our proprietary information, without authorization, or to develop similar or superior
proprietary rights independently. The steps we take may not prevent misappropriation of our proprietary rights, and our non-disclosure
and license agreements may not be enforceable.
In
addition, we may be required to litigate in the future to enforce our intellectual property rights, to protect our trade secrets,
to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity.
Any such litigation could result in substantial costs and diversion of resources and could have an adverse effect on our business
and/or our operating results.
Third-party
technology licenses may not continue to be available to us in the future.
We
also rely on certain technology that we license from third parties, including software. These third-party technology licenses
may not in the future be available to us on commercially reasonable terms, or at all. The loss of any of these technology licenses
could result in delays in performance of work until we identify, license and integrate equivalent technology, and we may not be
able to identify, or license any such equivalent technology in a timely manner or at all. Any resulting delays in a performance
could damage our reputation and result in a decrease in our revenues during the period of delay, either of which could materially
adversely affect our business, operating results and/or financial condition.
Others
may assert intellectual property infringement claims against us.
Companies
in the digital likeness segment of the entertainment industry are subject to the possibility of claims that their products, services
or techniques misappropriate or infringe the intellectual property rights of third parties. Infringement or misappropriation claims
(or claims for indemnification resulting from such claims) against us may be asserted or prosecuted, regardless of their merit,
and any such assertions or prosecutions may adversely affect our business and/or our operating results. We are currently a defendant
in a lawsuit claiming that we misappropriated the Musion Eyeliner technology and related patents licensed by Hologram USA, Inc.
by using their projection illusion system to project our creation of a digital likeness of Michael Jackson that was performed
at the Billboard Music Awards on May 18, 2014. See “Legal Proceedings” included in this report. While this lawsuit
does not allege that the creation and production of visual effects or human animation imagery infringed on the plaintiffs’
proprietary rights and irrespective of the validity or the successful assertion of such claims, we would incur significant costs
and diversion of resources relating to the defense of such claims, which could have an adverse effect on our business and/or our
operating results. If any claims or actions are asserted against us, we may seek to obtain a license of a third-party’s
intellectual property rights; however, under such circumstances such a license may not be available on reasonable terms or at
all.
We
could be adversely affected by strikes or other union job actions.
Our
digital likeness projects generally utilize performers, directors, and choreographers who are members of the Screen Actors Guild-American
Federation of Television and Radio Artists, Directors Guild of America, and Stage Directors and Choreographers Society, respectively,
pursuant to industry-wide collective bargaining agreements. Many projects also employ members of a number of other unions, including,
among others, the International Alliance of Theatrical and Stage Employees. A strike by one or more of the unions or guilds that
provide personnel essential to the production of our projects could delay or halt our prospective production activities, which
could materially adversely affect our business, operating results and/or financial condition.
Our
agreement to manage the creation of a digital likeness of Michael Jackson and participate in certain future revenues allows the
counter party discretion in approving future uses of the work we created.
We
are a party to an agreement with Optimum Productions, an entity owned by the estate of Michael Jackson, which gives us the right
to manage the creation of a digital likeness of Michael Jackson and participate in certain future revenues for a period of five
years. While this agreement contains an agreement that defines the parties rights to participate in future revenues derived
from the digital likenesses of Michael Jackson we created, Optimum Productions retains the right to approve all future uses of
the Michael Jackson likeness. The failure of Optimum Productions to allow us the right to use these intellectual property rights
in the future could have a material adverse effect on our business, financial condition and results of operations.
We
need additional financing to fund acquisitions and our operations which we may not be able to obtain on acceptable terms. Additional
capital raising efforts in future periods may be dilutive to our then current shareholders or result in increased interest expense
in future periods.
We
will need to raise additional working capital to fund our plans to invest in development and acquisition of the digital likeness
assets. Our future capital requirements depend on a number of factors, including the number of performances we undertake and our
ability to manage the growth of our business and our ability to control our expenses. Also, if we raise additional capital through
the issuance of debt, this will result in increased interest expense. If we raise additional capital through the issuance of equity
or convertible debt securities, the percentage ownership of our company held by existing shareholders will be reduced and those
shareholders may experience significant dilution. As we will generally not be required to obtain the consent of our shareholders
before entering into acquisition transactions, shareholders are dependent upon the judgment of our management in determining the
number of, and characteristics of, stock issued as consideration in an acquisition. In addition, new securities may contain certain
rights, preferences or privileges that are senior to those of our common stock. We cannot assure you that we will be able to raise
the working capital as needed in the future on terms acceptable to us, if at all. If we do not raise capital as needed, we will
be unable to operate our business or fully implement our digital likeness development and acquisition expansion strategy.
The
inability to successfully manage the growth of our business may have an adverse effect on our operating results.
We
expect to experience growth in the number of employees and the scope of our operations. Such growth will result in increased responsibilities
for our management. If our management is unable to successfully manage expenses in a manner that allows us to both improve operations
and at the same time pursue potential market opportunities, the growth of our business could be adversely impacted, which may,
in turn, negatively affect our operating results or financial condition. In addition, we believe that a critical contributor to
our success has been our creative culture. As we attempt to grow and alter our business to focus increasingly on the creation,
production and marketing of visual imagery, and as we experience change in response to the requirements of being a public company,
we may find it difficult to maintain important aspects of our corporate culture, which could negatively affect our future success.
Changes
in U.S., regional or global economic conditions could adversely affect our profitability.
A
decline in economic conditions in the United States or in other regions of the world could lead to a decrease in discretionary
consumer spending, which in turn could adversely affect demand for digital likeness performances and box office revenue. In addition,
an increase in price levels generally, or in price levels in a particular sector such as the energy sector, could result in a
shift in consumer demand away from entertainment products such as digital likeness performances. Such events could cause a decrease
in the demand for the digital likeness services we offer as well as for the digital likeness performances we propose to produce,
either of which would have an adverse effect on our profitability and operating results.
Risks
Related to Our Common Stock
There
currently is only a minimal public market for our common stock. Failure to develop or maintain a trading market could negatively
affect the value of our common stock and make it difficult or impossible for you to sell your shares.
There
currently is only a minimal public market for shares of our common stock and an active market may never develop. Our common stock
is quoted on the OTC Pink tier operated by the OTC Market’s Group, Inc. under the symbol “PLFX”. We may not
ever be able to satisfy the listing requirements for our common stock to be listed on any stock exchange, including the trading
platforms of the NASDAQ Stock Market which are often more widely-traded and liquid markets. Some, but not all, of the factors
which may delay or prevent the listing of our common stock on a more widely-traded and liquid market include the following: our
stockholders’ equity may be insufficient; the market value of our outstanding securities may be too low; our net income
from operations may be too low; our common stock may not be sufficiently widely held; we may not be able to secure market makers
for our common stock; and we may fail to meet the rules and requirements mandated by, any of the several exchanges and markets
to have our common stock listed.
The
market price for our common stock is particularly volatile given our status as a relatively unknown company with a small and thinly
traded public float, limited operating history and lack of profits which could lead to wide fluctuations in our share price. You
may be unable to sell your common stock at or above your conversion price, which may result in substantial losses to you.
The
market for our common stock is characterized by significant price volatility when compared to seasoned issuers, and we expect
that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. The volatility in our
share price is attributable to a number of factors. First, as noted above, our common stock are sporadically and thinly traded.
As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately
influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in
the event that a large number of our common stock are sold on the market without commensurate demand, as compared to a seasoned
issuer which could better absorb those sales without adverse impact on its share price. Secondly, we are a speculative or “risky”
investment due to our limited operating history and lack of profits to date, and uncertainty of future market acceptance for our
potential products and services. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing
all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the
market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer. Many of these factors
are beyond our control and may decrease the market price of our common stock, regardless of our operating performance. We cannot
make any predictions or projections as to what the prevailing market price for our common stock will be at any time, including
as to whether our common stock will sustain their current market prices, or as to what effect that the sale of shares or the availability
of common stock for sale at any time will have on the prevailing market price.
The
application of the “penny stock” rules could adversely affect the market price of our common stock and increase your
transaction costs to sell those shares.
The
SEC has adopted rule 3a51-1 which establishes the definition of a “penny stock,” for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires:
| |
● |
that
a broker or dealer approve a person’s account for transactions in penny stocks, and |
| |
|
|
| |
● |
the
broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity
of the penny stock to be purchased. |
In
order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
| |
● |
obtain
financial information and investment experience objectives of the person, and |
| |
|
|
| |
● |
make
a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. |
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating
to the penny stock market, which, in highlight form:
| |
● |
sets
forth the basis on which the broker or dealer made the suitability determination, and |
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|
|
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● |
that
the broker or dealer received a signed, written agreement from the investor prior to the transaction. |
Generally,
brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make
it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
The
application of Rule 144 creates some investment risk to potential investors; for example, existing shareholders may be able to
rely on Rule 144 to sell some of their holdings, driving down the price of the shares you purchased.
The
SEC adopted amendments to Rule 144 which became effective on February 15, 2008 that apply to securities acquired both before and
after that date. Under these amendments, a person who has beneficially owned restricted shares of our common stock for at least
six months would be entitled to sell their securities provided that: (i) such person is not deemed to have been one of our affiliates
at the time of, or at any time during the three months preceding a sale, (ii) we are subject to the Exchange Act periodic reporting
requirements for at least 90 days before the sale and (iii) if the sale occurs prior to satisfaction of a one-year holding period,
we provide current information at the time of sale.
Persons
who have beneficially owned restricted shares of our common stock for at least six months but who are our affiliates at the time
of, or at any time during the three months preceding a sale, would be subject to additional restrictions, by which such person
would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of either
of the following:
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● |
1%
of the total number of securities of the same class then outstanding (80,306 shares of common stock as of the date of this
Report); or |
| |
|
|
| |
● |
the
average weekly trading volume of such securities during the four calendar weeks preceding the filing of a notice on Form 144
with respect to the sale; |
provided,
in each case, that we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale.
Such sales by affiliates must also comply with the manner of sale, current public information and notice provisions of Rule 144.
A
limited number of our shareholders own a large percentage of our stock, which will allow them to exercise significant influence
over matters subject to shareholder approval.
Our
executive officers, directors and their affiliated entities will beneficially own or control approximately 55.8% of the outstanding
shares of our common stock. Accordingly, these executive officers, directors and their affiliated entities, acting as a group,
will have substantial influence over the outcome of corporate actions requiring shareholder approval, including the election of
directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transaction.
These shareholders may also delay or prevent a change of control or otherwise discourage a potential acquirer from attempting
to obtain control of us, even if such a change of control would benefit our other shareholders. This significant concentration
of stock ownership may adversely affect the trading price of our common stock due to investors’ perception that conflicts
of interest may exist or arise.
We
do not pay dividends on our common stock.
We
have not paid any dividends on our common stock and do not anticipate paying dividends in the foreseeable future. We plan to retain
earnings, if any, to finance the development and expansion of our business.
ITEM
2. PROPERTIES
Our
corporate headquarters are located at 10521 SW Village Center Drive, Suite 201, Port St. Lucie, Florida where we occupy approximately
7,200 square feet pursuant to a lease that expires in February 2015. We have an option to extend this lease for a one year period.
ITEM
3. LEGAL PROCEEDINGS
On
May 29, 2014, Hologram USA, Inc., Musion Das Hologram Limited and Uwe Maass (the “Plaintiffs”) filed an amended complaint
in the U.S. District Court for the District of Nevada (Case No. 2:14-cv-00772-GMN-NJK). The complaint alleges that Plaintiffs
own, or control, certain patents related to the projection illusion technique, historically known as “Pepper’s Ghost.”
The Plaintiffs further allege that Pulse Evolution Corporation, Pulse Entertainment Corporation, John Textor, Dick Clark Productions,
Inc., John Branca and John McClain, as executors of the Estate of Michael J. Jackson, MJJ Productions, Inc. Musion Events, Ltd.
Musion 3D, Ltd., William James Rock and Ian Christopher O’Connell (collectively, the “Defendants”) infringed
on the Plaintiffs’ patent rights by using the Plaintiffs’ projection illusion system to project the visual imagery
developed and conceived by our company in connection with the a musical performance at the 2014 Billboard Music Awards in Las
Vegas Nevada featuring an image of the late Michael Jackson. The Plaintiffs have not alleged that our core business, the production
of visual effects or human animation imagery infringes their intellectual property rights. The complaint sought an order of the
Court temporarily and permanently enjoining the Defendants from carrying out the Michael Jackson performance, a judgment for infringement,
damages, attorneys’ fees and costs. The Plaintiffs’ Emergency Motion for Temporary Restraining Order filed in connection
with its May 15, 2014 complaint was denied on May 16, 2014 as the Court found that the Plaintiffs’ failed to establish that
they are likely to succeed on the merits of their patent infringement claims and that they are likely to suffer irreparable harm.
We
believe that our claims and defenses in this case are substantial because the visual imagery we develop and conceive is distinct
from the Plaintiffs’ projection system allowing us to use a variety of projection systems in our productions. Litigation
is, however, inherently unpredictable. The outcome of this lawsuit is subject to significant uncertainties and, therefore, determining
the likelihood of a loss and/or the measurement of any loss is complex. Consequently, we are unable to estimate the range of reasonably
possible loss. Our assessments are based on estimates and assumptions that have been deemed reasonable by management, but the
assessment process relies heavily on estimates and assumptions that may prove to be incomplete or inaccurate, and unanticipated
events and circumstances may occur that might cause us to change those estimates and assumptions.
We
are involved from time to time in routine litigation arising in the ordinary course of conducting our business. In the opinion
of management, no pending routine litigation will have a material adverse effect on our financial condition, results of operations
or cash flows.
ITEM
4. MINE SAFETY DISCLOSURES
Not
applicable.
Part
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our
common stock is quoted on the OTC Pink Tier of the OTC Markets Group and has been thinly traded under the symbol “PLFX”.
On October 7, 2014, the closing sale price for our common stock was $2.00 on the OTC Pink. Our stock has been thinly traded since
approval of our quotation on the OTC Markets Group by the Financial Industry Regulatory Authority (“FINRA”). There
can be no assurance that a liquid market for our common stock will ever develop.
As
of October 7, 2014, there were approximately 58 record holders, an unknown number of additional holders whose stock is held in
“street name” and 120,458,716 shares of common stock issued and outstanding.
We
have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future
earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable
future.
Recent
Sales of Unregistered Securities
None.
ITEM
6. SELECTED FINANCIAL DATA
Not
applicable to a smaller reporting company.
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Overview
Pulse
Evolution Corporation (“we”, “us”, “our”, the “Company”) was incorporated on May
31, 2013 under the laws of the State of Nevada under the name QurApps, Inc. During fiscal 2014 we were planning on developing
a mobile software food recipe app until our controlling shareholder sold his interest in our Company on May 15, 2014. In anticipation
of this change of control, we changed our name to Pulse Evolution Corporation effective May 8, 2014 to better reflect our plans
to produce specialized, high-impact applications of computer-generated human likeness for utilization in entertainment, life sciences,
education and telecommunication.
On
September 30, 2014, we completed the initial closing under the Share Exchange Agreement we entered into with Pulse Entertainment
and certain of its shareholders, some of whom are officers and directors of our company, pursuant to which we agreed to issue
35,827,309 shares of our unregistered common stock, net of cancellations, to certain shareholders of Pulse Entertainment in exchange
for 17,466,383 shares of its common stock (the “Share Exchange”). See “Item 1 Business – Our Corporate
History”. Upon completion of the initial closing, Pulse Entertainment became a subsidiary of our company in which we own
an 81.11% interest. We plan to complete the acquisition of an additional 4,068,869 shares of Pulse Entertainment common stock
pursuant to the Share Exchange Agreement by issuing 22,535,399 shares of our common stock no later than October 31, 2014. Upon
completion of this part of the acquisition, Pulse Entertainment will become our wholly owned subsidiary.
Pulse
Entertainment produced a computer-generated and animated human likeness of the late popular entertainer Michael Jackson that appeared
in a live performance at the Billboard Music Awards on May 18, 2014. The virtual performance of Michael contributed to the award
show’s highest television viewership in 13 years and an 11-year high in advertising in the demographic of viewers age 18
to 49. This production reached approximately 11 million television viewers during the initial ABC network broadcast, followed
by more than 51 million online views through YouTube and Vevo and generated more than 2,400 news articles and an estimated 98
billion internet impressions for the Michael Jackson hologram and more than 300 million internet impressions estimated for Pulse
Entertainment and members of its management. In addition, August and October, 2014 respectively, we entered into multi-year agreements
with the owner of the likeness, appearance, and publicity rights of Elvis Presley and Marilyn Monroe to develop entertainment
projects that utilize a realistic computer-generated image of these celebrities. These celebrities are among the world’s
most famous talent. We plan to use the computer-generated likeness to create entertainment and branding revenue opportunities
for us, generated from holographic performances in live shows and commercials which we believe will provide us with a foundation
for significant future growth in our core business.
During the past 12 months,
we have entered into unique digital likeness rights agreements with the estates of Michael Jackson, Elvis Presley and Marilyn
Monroe. Revenues from the estates of these late celebrities rank them among the top earning celebrity estates in the world, with
estimated aggregate earnings in 2013 in excess of $200,000,000 as stated by Forbes.com in an October 23,
2014 web article. The revenues of these estates have been derived primarily from licensing the still and motion picture images
and recordings captured when the respective celebrities were alive. Further, they are based on clippings, outtakes and performances
from the lives and careers of the historical celebrities. We believe that our first live presentation of the Virtual Michael Jackson
performance demonstrated that we are able to re-launch the careers of deceased celebrities. More than staging an encore to their
historical careers of Michael Jackson, Elvis Presley and Marilyn Monroe, the virtual performances will be judiciously and compellingly
contemporized and made relevant to whole new audiences through new performance forms and media. We are poised to create virtual
celebrities that can do things and go places their historical originals never could, while remaining true to their original values,
identities, personalities and preferences.
We believe that our plans
for virtual performances of Michael Jackson, Elvis Presley and Marilyn Monroe provide us with the foundation for significant growth
in our core business.
Plan
of Operations and Liquidity
As
of the date of this report, we have raised approximately $9.9 million since our inception and are highly dependent on raising
capital to fund our start-up and growth strategies. Our core business is the acquisition from estates and other rights holders
of certain intellectual property rights to create virtual celebrities, and the right to present, and license to others to present,
those virtual performers in live, and a variety of live-virtual and commercial formats. In execution of its business plan, we
have chosen to pursue a model whereby we provide virtual performers for appearances and collect royalties when we have an ownership
interest in the intellectual property rights for the virtual performer (the “Talent Model”). Under the Talent Model,
we may permit other producers to create performances that make use of virtual performers created by Pulse Entertainment.
As
of the date of this report, we have raised approximately $9.9 million since our inception. We believe that our current capital
resources are adequate for pursuing our core business in the coming year. However, to the extent that full development of the
Company’s growth opportunities requires forming strategic alliances, raising additional equity capital or raising production
capital in the form of equity or non-recourse debt, or other forms of financing, we are prepared to do so.
We
are also exploring and developing opportunities to act as a producer of events (the “Producer Model”), thereby enabling
us to exert significant creative and technological control over the performance productions, and to capture significantly greater
portions of the realizable economic value created by the virtual performance.
We
may in the future execute our business plan using a blend of the Talent and Producer Models. Under both models, we expect to earn
services revenues on all digital construction, animation, and production services that we provide, plus royalties when the work
involves intellectual property rights we hold. Under both models, we have significant discretion to determine to what extent the
creative and production resources, which are primarily labor costs, are engaged on an as-needed basis for each project or production
(“Contract Talent”), and to what extent we carry a concentration of creative and production resources in-house (“In-House
Talent”).
While
execution of the Producer Model enables us to capture more of the value created by the virtual performers, it also requires us
to raise significant amounts of production capital, which is similar to project financed equity or non-recourse debt into production
subsidiaries. Executing this model with In-house Talent gives us certain strategic advantages and flexibility in the development
of new concepts and application of new technologies, yet it also requires a higher employee headcount and the related operating
overhead.
Accounting
Treatment of the Merger
For
financial reporting purposes, the Share Exchange represents a “reverse merger” rather than a business combination
and Pulse Entertainment is deemed to be the accounting acquirer in the transaction. The Share Exchange is being accounted for
as a reverse-merger and recapitalization effective as of September 30, 2014. Pulse Entertainment is the acquirer for financial
reporting purposes and Pulse Evolution Corporation is the acquired company. Consequently, in reports we file with the SEC covering
accounting periods after September 30, 2014, the assets and liabilities and the operations will reflect the historical financial
statements prior to the Share Exchange will be those of Pulse Entertainment and will be recorded at the historical cost basis
of Pulse Entertainment, and the consolidated financial statements after completion of the Share Exchange will include the assets
and liabilities of our company and Pulse Entertainment, and the historical operations of Pulse Entertainment and the combined
operations with our company from the initial closing date under the Share Exchange Agreement. Furthermore, since the Share Exchange
occurred after our June 30, 2014 fiscal year end, the following discussion and analysis does not include the financial results
or operations of Pulse Entertainment. The unaudited pro forma balance sheet as of June 30, 2014 and unaudited pro forma statements
of operations for the period October 10, 2013 (inception) to June 30, 2014 of Pulse Entertainment and our company are included
in “— Results of Operations” presented below and in our Form 8-K filed with the SEC on October 7, 2014.
Results
of Operations
The
following comparative analysis on results of operations was based primarily on the comparative financial statements, footnotes
and related information for the periods identified below and should be read in conjunction with the financial statements and the
notes to those statements that are included elsewhere in this report. The results discussed below are for the year ended June
30, 2014 and the period from May 31, 2013 (inception) through June 30, 2013. For comparative purposes, we are comparing the year
ended June 30, 2014 to the period from May 31, 2013 (inception) through June 30, 2013.
Pulse
Evolution had no operating revenues since inception on May 31, 2013, through June 30, 2014. The activities have been financed
from the sales of common stock for aggregate proceeds of $60,600.
For
the years ended June 30, 2014 and 2013, we incurred operating expenses of $61,981 and $7,930, respectively. For the year ended
June 30, 2014, expenses consist of $20,800 of research and development costs, $8,435 of general administrative expenses and $32,746
of professional fees. Our May 31, 2013 (inception) through June 30, 2013 expenses consist of $7,930 of professional fees.
For
the years ended June 30, 2014 and May 31, 2013 (inception) through June 30, 2013, we incurred net losses of $61,981 and $7,930,
respectively.
General
and administrative expenses consist primarily of professional fees. General and administrative expenses were $41,181 for the year
ended June 30, 2014 compared to $7,930 for the period from inception on May 31, 2013 through June 30, 2013. The increase was due
to increased professional fees which consisted of legal and accounting fees, and transfer agent fees. Professional fees were $32,746
for the year ended June 30, 2014 compared to $7,930 for the period from inception on May 31, 2013 through June 30, 2013, an increase
of $24,816, or 413%. Transfer agent fees were $5,000 for the year ended June 30, 2014 compared to $0 for the period from inception
on May 31, 2013 through June 30, 2013, an increase of $5,000, or 100%. The increase results from our transition to using a transfer
agent.
Research
and development expenses consist of software development charges. These charges were $20,800 for the year ended June 30, 2014
compared to $0 for the period from inception on May 31, 2013 through June 30, 2013. The increase was due to software beginning
the development phase.
Pro
forma financial data
We
believe that the following unaudited pro forma balance sheet as of June 30, 2014 and unaudited pro forma statements of operations
for the period October 10, 2013 (inception) to June 30, 2014 for our company and Pulse Entertainment are meaningful to investors.
They are based on, and should be read in conjunction with:
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● |
Pulse
Entertainment Corporation’s (“Pulse Entertainment”) audited financial statements for the fiscal year ended
June 30, 2014; |
| |
|
|
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● |
Pulse
Evolution Corporation’s (“Pulse Evolution”) audited financial statements for the fiscal year ended June
30, 2014 which appear elsewhere in this report. |
The
pro forma financial statements give effect to the share exchange pursuant to the September 26, 2014 Share Exchange Agreement entered
into among Pulse Entertainment, its shareholders and Pulse Evolution as if the transaction had taken place on the date or at the
beginning of the period presented. Under the terms of the Share Exchange Agreement, Pulse Evolution exchanged 35,827,309 shares
of its common stock for 17,466,383 shares of Pulse Entertainment common stock representing 81.11% of the issued and outstanding
common stock of Pulse Entertainment.
The
unaudited pro forma financial statements are for informational purposes only, are not indications of future performance, and should
not be considered indicative of actual results that would have been achieved had the recapitalization transactions actually been
consummated on the dates or at the beginning of the periods presented.
| | |
Pulse Evolution Corporation | | |
Pulse Entertainment Corporation | | |
| | |
Pro Forma | |
| Pro Forma Balance Sheet Data: | |
June 30, 2014 | | |
June 30, 2014 | | |
Adjustments | | |
June 30, 2014 | |
| Current assets: | |
| | | |
| | | |
| | | |
| | |
| Cash and cash equivalents | |
$ | - | | |
$ | 1,539,719 | | |
$ | - | | |
$ | 1,539,719 | |
| Prepaid legal fees | |
| - | | |
| 134,675 | | |
| - | | |
| 134,675 | |
| Other prepaid expenses, other current assets and fixed assets | |
| - | | |
| 92,909 | | |
| - | | |
| 92,909 | |
| Investment in Pulse Entertainment Corporation | |
| - | | |
| - | | |
| - | | |
| - | |
| Total assets | |
| - | | |
$ | 1,767,303 | | |
$ | - | | |
$ | 1,767,303 | |
| | |
| | | |
| | | |
| | | |
| | |
| Liabilities and Shareholders’ Equity (Deficit) | |
| | | |
| | | |
| | | |
| | |
| Accounts payable and accrued liabilities | |
| 9,311 | | |
$ | 1,017,575 | | |
$ | - | | |
$ | 1,026,886 | |
| Shareholders’ equity (deficit): | |
| | | |
| | | |
| | | |
| | |
| Common stock | |
| 73,800 | | |
| 2,153 | | |
| (64,990 | )(1) | |
| 10,963 | |
| Additional paid in capital | |
| (13,200 | ) | |
| 9,224,263 | | |
| 64,990 | (1) | |
| 9,247,253 | |
| | |
| | | |
| | | |
| (28,800 | )(1) | |
| | |
| Subscription receivable | |
| - | | |
| (153,276 | ) | |
| - | | |
| (153,276 | ) |
| Accumulated deficit | |
| (69,911 | ) | |
| (8,323,412 | ) | |
| 69,911 | (1) | |
| (6,750,287 | ) |
| | |
| | | |
| | | |
| 1,573,125 | (1) | |
| | |
| Total shareholders’ equity (deficit) before non-controlling interest | |
| (9,311 | ) | |
| 749,728 | | |
| 1,614,236 | | |
| 2,354,653 | |
| Non-controlling interest | |
| - | | |
| - | | |
| (1,614,236 | (1) | |
| (1,614,236 | ) |
| Total shareholders’ equity (deficit) | |
| (9,311 | ) | |
| 749,728 | | |
| - | | |
| 740,417 | |
| Total liabilities and shareholders’ equity (deficit) | |
$ | - | | |
$ | 1,767,303 | | |
$ | - | | |
$ | 1,767,303 | |
(1) To record
equity transactions as if the acquisition of Pulse Entertainment Corporation had occurred on June 30, 2014.
The
table below sets forth the results of operations for the period ending June 30, 2014 as if Pulse Evolution Corporation had acquired
its majority ownership stake in Pulse Entertainment Corporation as of the beginning of the fiscal year:
| | |
| | |
| | |
| | |
Pro Forma | |
| Pro Forma Statement of Operations Data: | |
Pulse Evolution Corporation | | |
Pulse Entertainment
Corporation | | |
Adjustments | | |
For the Year Ended
June 30, 2014 | |
| |
| | |
| | |
| | |
| |
| Revenues | |
$ | - | | |
$ | 1,451,534 | | |
$ | - | | |
$ | 1,451,534 | |
| Operating costs and expenses: | |
| | | |
| | | |
| | | |
| | |
| Digital build, animation and production services | |
| - | | |
| 5,591,110 | | |
| - | | |
| 5,591,110 | |
| Selling, general and administrative | |
| 41,181 | | |
| 4,183,836 | | |
| - | | |
| 4,225,017 | |
| Research and development | |
| 20,800 | | |
| - | | |
| - | | |
| 20,800 | |
| Total operating expenses | |
| 61,981 | | |
| 9,774,946 | | |
| - | | |
| 9,836,927 | |
| Loss from operations | |
| (61,981 | ) | |
| (8,323,412 | ) | |
| - | | |
| (8,385,393 | ) |
| Loss before income taxes | |
| (61,981 | ) | |
| (8,323,412 | ) | |
| - | | |
| (8,385,393 | ) |
| Provision for income taxes | |
| - | | |
| - | | |
| - | | |
| - | |
| Net loss before non-controlling interest | |
| (61,981 | ) | |
| (8,323,412 | ) | |
| - | | |
| (8,385,393 | ) |
| Net loss attributable to non-controlling interests | |
| - | | |
| - | | |
| 1,573,125 | (2) | |
| 1,573,125 | |
| Net loss attributable to Pulse Evolution Corporation shareholders | |
$ | (61,981 | ) | |
$ | (8,323,412 | ) | |
$ | 1,573,125 | | |
$ | (6,812,268 | ) |
| | |
| | | |
| | | |
| | | |
| | |
| Weighted average number of shares outstanding: | |
| | | |
| | | |
| | | |
| | |
| Basic and fully diluted | |
| 105,428,307 | (1) | |
| | | |
| | | |
| 105,428,307 | (1) |
| | |
| | | |
| | | |
| | | |
| | |
| Net income per share attributable to Pulse Evolution Corporation shareholders: | |
| | | |
| | | |
| | | |
| | |
| Basic and diluted loss per share | |
$ | (0.0006 | ) | |
| | | |
| | | |
$ | (0.0646 | ) |
(1)
Basic and fully diluted weighted average number of shares has been adjusted to reflect the shares outstanding as if the share
exchange had been effectuated at the beginning of year.
(2)
Amounts charged to non-controlling interest for Pulse Entertainment Corporation pro forma results of operations prior to the acquisition
date as if the acquisition of Pulse Entertainment Corporation had occurred on June 30, 2014.
Liquidity
and Capital Resources
Liquidity
is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. At June 30, 2014
and 2013, we had a cash balance of $0 and $15,070, respectively. At June 30, 2014 and 2013, we had working capital of $(9,311)
and $10,070, respectively.
Net
cash used in operating activities was $57,670 for the year ended June 30, 2014, compared to $2,930 for the period from inception
(May 31, 2013) to June 30, 2013. The increase in cash used in operating activities of $54,740 was primarily a result of increases
in research and development fees of approximately $21,000 incurred in the development of the prior business and increases in professional
fees of approximately $33,000.
Net
cash used in investing activities was $0 for the year ended June 30, 2014 and for the period from May 31, 2013 (inception) to
June 30, 2013.
Net
cash provided by financing activities during the year ended June 30, 2014, was $42,600 compared to $18,000 for the period from
May 31, 2013 (inception) to June 30, 2013. Cash provided by financing activities was a result of additional sales of our common
stock.
Beginning
on July 15, 2014, and continuing through the date hereof, we have sold an aggregate of 4,855,000 shares of our common stock for
a total sales price of $2,225,000. We intend to use the proceeds for working capital purposes. On a consolidated basis, our Company
and Pulse Entertainment have raised approximately $9.935 million since their inceptions.
Cash
Requirements
Our
ability to fund our operations and meet our obligations on a timely basis is dependent on our ability to match our available financial
resources to our operating model (Talent vs. Producer) and our execution strategy (Contract Talent vs. In-House Talent). The decisions
we make with regard to operating model and execution strategy drive the level of capital required and the level of its financial
obligations.
If
we are unable to generate cash flow from operations and successfully raise sufficient additional capital through future debt and
equity financings or strategic and collaborative ventures with potential partners, we would likely have to reduce our dependence
on In-House Talent and limit many, if not all, of our activities as a producer. We have analyzed its liquidity requirements and
have determined that we have sufficient liquidity to execute our business plan under the Talent Model for the next 12 months.
Off
Balance Sheet Arrangements
We
have no off-balance sheet arrangements including arrangements that would affect liquidity, capital resources, market risk support
and credit risk support or other benefits.
Critical
Accounting Policies
We
prepare our financial statements in conformity with GAAP. The preparation of the financial statements requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
as of the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Critical
accounting policies are those we believe are both most important to the portrayal of our financial condition and results, and
require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect
of matters that are inherently uncertain. Judgments and uncertainties affecting the application of those policies may result in
materially different amounts being reported under different conditions or using different assumptions. We believe the following
policies to be the most critical in understanding the judgments that are involved in preparing our financial statements.
Revenue
Recognition
We
have entered into production services agreements with the estates of deceased celebrities that provide revenues based on certain
production services. Revenue is recognized on a straight-line basis over each contract period, as defined in each agreement. As
the production services are rendered, revenue is recognized.
Production
Costs
Production
costs consist primarily of amounts due to third-party providers that the Company uses to help create and deliver the Company’s
digital and live performance productions. Under the percentage-of-completion contract accounting method, Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 605-35, when the current estimates
using the percentage of completion method for determining total contract revenues costs indicate a loss, a provision for the entire
loss on the contract should be recognized.
Cash
Our
cash consists of funds deposited in bank accounts.
Income
Taxes
We
use the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recognized for
the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected
to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.
Earnings
per Share
The
basic earnings (loss) per share is calculated by dividing our net income available to common stockholders by the weighted average
number of common shares during the year. The diluted earnings (loss) per share is calculated by dividing the Company’s net
income (loss) available to common stockholders by the diluted weighted average number of shares outstanding during the year. The
diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted as of the first of the year
for any potentially dilutive debt or equity. The Company has not issued any options or warrants or similar securities since inception.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The
financial statements and schedules referred to in the index contained on page F-1 of this report are incorporated herein by reference.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM
9A. CONTROLS AND PROCEDURES
Internal
Control over Financial Reporting
Evaluation
of Disclosure Controls and Procedures
Our
management conducted an evaluation, with the participation of our Chief Executive Officer who is our principal executive officer
and our Chief Financial Officer who is our principal financial and accounting officer, of the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange
Act”)) as of the end of the period covered by this Annual Report on Form 10-K. Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that as a result of the material weakness in our internal control over financial
reporting described below, our disclosure controls and procedures were not effective as of June 30, 2014.
Management’s
Annual Report on Internal Control over Financial Reporting
Management
is responsible for the preparation of our consolidated financial statements and related information. Management uses its best
judgment to ensure that the consolidated financial statements present fairly, in material respects, our financial position and
results of operations in conformity with generally accepted accounting principles. Management is responsible for establishing
and maintaining adequate internal control over financial reporting as defined in the Securities Exchange Act of 1934. These internal
controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that disclosures
are adequate and that the judgments inherent in the preparation of financial statements are reasonable. There are inherent limitations
in the effectiveness of any system of internal controls including the possibility of human error and overriding of controls. Consequently,
an ineffective internal control system can only provide reasonable, not absolute, assurance with respect to reporting financial
information.
Our
internal control over financial reporting includes policies and procedures that: (i) pertain to maintaining records that, in reasonable
detail, accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary
for preparation of our financial statements in accordance with generally accepted accounting principles and that the receipts
and expenditures of company assets are made in accordance with our management and directors authorization; and (iii) provide reasonable
assurance regarding the prevention of or timely detection of unauthorized acquisition, use or disposition of assets that could
have a material effect on our financial statements.
Under
the supervision of management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation
of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission published in 1992 and subsequent guidance
prepared by the Commission specifically for smaller public companies. Based on that evaluation, our management concluded that
our internal controls over financial reporting were not effective as of June 30, 2014. We have identified the following material
weaknesses as of June 30, 2014:
| |
● |
The
Company did not maintain effective controls over certain aspects of the financial reporting process because we lacked a sufficient
complement of personnel with a level of accounting expertise and an adequate supervisory review structure that is commensurate
with the Company’s financial and disclosure reporting requirements. |
| |
|
|
| |
● |
The
Company did not timely file all required reports on Form 8-K. |
Remediation
of Material Weakness in Internal Control
We
believe the following actions we have taken since June 30, 2014 and are taking will be sufficient to remediate the material weaknesses
described above:
| |
● |
We
hired a Chief Financial Officer, a controller and an accounting manager with the requisite expertise in U.S. generally accepted
accounting principles and public company reporting, and |
| |
|
|
| |
● |
Management
has begun the implementation of policies and procedures that will be monitored and reviewed on a periodic basis to identify
and record transactions on a timely basis as they occur to make sure they are recorded accurately and to allow timely decisions
regarding required disclosure. |
Management
believes the actions described above will remediate the material weaknesses we have identified and strengthen our internal control
over financial reporting. As we work towards improvement of our internal control over financial reporting and implement the remediation
measures, we may supplement or modify these remediation measures as appropriate.
Our
management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls
and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the
design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered
relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within our Company have been detected.
This
annual report does not include an attestation report of our registered public accounting firm regarding internal control over
financial reporting. Management’s Report was not subject to attestation by the company’s registered public accounting
firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only Management’s Report
in this annual report.
Changes
in Internal Controls over Financial Reporting
There
have been no changes in our internal control over financial reporting during the quarter ended June 30, 2014 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM
9B. OTHER INFORMATION
None.
Part
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Set
forth below are the names and ages of our directors and executive officers and their principal occupations at present and for
at least the past five years.
| Name |
|
Age |
|
Positions
and Offices to be Held |
| John Textor |
|
49 |
|
Chairman of the
Board of Directors |
| Rene Eichenberger |
|
54 |
|
Vice-Chairman
of the Board of Directors |
| Frank Patterson |
|
53 |
|
Chief Executive
Officer and Director |
| Jim Berney |
|
48 |
|
President and
Head of Studio Production |
| William Krueger |
|
55 |
|
Executive Vice
President and Chief Financial Officer |
Our
directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until
removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until
removed by the board. All officers and directors listed above will remain in office until the next annual meeting of our stockholders,
and until their successors have been duly elected and qualified. There are no agreements with respect to the election of Directors.
Our Board of Directors appoints officers annually and each Executive Officer serves at the discretion of our Board of Directors.
John
Textor has been Chairman of our Board of Directors since May 2014 and the Chairman of the Board of Directors of Pulse
Entertainment since founding this company in October, 2013. Mr. Textor is an active, full-time resource to the Chief Executive
Officer and the President-Head of Studio. He will be principally responsible for special projects, strategic partnerships, rights
acquisition, venue partnerships and relationships with major media companies. Mr. Textor is currently active in the development
of entertainment properties across a broad spectrum of venues and technology platforms. In addition to his leadership in the extended
uses of photo-realistic, digital humans, he is also currently a Producer of Art Story, an original animated feature film
currently being developed by Disney veteran filmmaker Aaron Blaise. He was also Producer and Executive Producer of Ender’s
Game , a science fiction fantasy film released in November 2013. Mr. Textor was previously Chairman and CEO of Digital Domain
Productions and Chairman and CEO of its parent company, Digital Domain Media Group, having led its acquisition and restructuring
from May 2006 to August 2012. Together the companies were responsible for the visual effects of more than 80 large scale feature
films, 25 of which were completed during Mr. Textor’s leadership, including such films as Transformers , Flags
of our Fathers , Tron: Legacy , Real Steel and Pirates of the Caribbean at World’s End. During
Mr. Textor’s leadership, Digital Domain was re-established as a market leader in visual effects, winning multiple Academy
Awards, Clio advertising awards and, importantly, being recognized as the first visual effects company to deliver a believable
digital human actor in The Curious Case of Benjamin Button. This achievement, known as the ‘Holy Grail of Animation’,
earned the company a 2009 Academy Award for Achievement in Visual Effects. The hour long performance of the company’s digital
actor was so convincing to audiences and the Academy voters that the film also received an Academy Award for Best Make-up, though
the character performance was entirely digitally created. Other highlights during Mr. Textor’s tenure included the break-through
introduction of a digital Tupac Shakur at the Coachella Valley Music festival in 2012, the consummation of a joint venture for
the digital resurrection of Elvis Presley, the creation of a first of its kind, dual-enrollment Bachelor’s program with
Florida State University, completion of a $100 million joint venture agreement with the sovereign media authority of Abu Dhabi
and the transformation of Digital Domain into a film production company with the co-production of Ender’s Game.
As
the Chairman of the Board of Directors of our company, Mr. Textor brings our board his considerable experience in the strategic
planning and growth of entertainment properties and companies and qualifies him to continue to serve as a director or our company.
René
P. Eichenberger has served as the Vice Chairman of our Board of Directors of our company since May 2014 and has been the
Executive Vice Chairman of Pulse Entertainment Corp. since October 2013. He is also the Chairman of (Alternative)2 Holding AG,
a private equity company based in Zurich, Switzerland since 2005 and the Vice Chairman at Acron AG, an international real estate
investment firm headquartered in Zurich, since 2013. From 2011 to 2013, Mr. Eichenberger served as a member of the strategic advisory
council of the ClearSky Power and Technology Fund, a venture fund sponsored by Nextera/FPL, a leading clean energy company in
North America, and he served on the advisory board of Sterling Partners, a $6 billion private equity firm with offices in Baltimore,
Chicago and Miami. Starting his career as an attorney in Switzerland, Dr. Eichenberger served as General Counsel of Jet Aviation
from 1991 to 1998, which under his tenure relocated its worldwide headquarters from Zurich to West Palm Beach, Florida and was
subsequently, positioned as the global leader in general aviation and successfully sold to a private equity fund. In 1998, Mr.
Eichenberger founded Crossbow Ventures, a venture capital firm located in West Palm Beach. In 2004, he sold Crossbow to Horizon21
in Switzerland and subsequently served as CEO of Horizon21 Private Equity, which grew to over $3 billion in assets under management.
Mr. Eichenberger is the former Chairman of the Swiss-American Chamber of Commerce in Florida and served on the board of directors
of a number of privately-held companies in North America and Europe. Mr. Eichenberger holds a Ph.D. in law from the University
of Zurich and is a graduate of the Venture Capital Institute and of the Executive Program at Stanford University, Graduate School
of Business. Mr. Eichenberger’s experience in corporate governance, corporate finance, mergers and acquisitions and business
development, as well as his leadership role and board performance, has led our board to conclude that he should continue to serve
as a director.
As
the Vice Chairman of our company, Mr. Eichenberger brings our board his considerable experience in the strategic planning and
growth of companies and qualifies him to continue to serve as a director or our company.
Frank
Patterson. Mr. Patterson has served as Pulse Entertainment’s Chief Executive Officer since December, 2013 and as
Pulse Evolution’s Chief Executive Officer since May 2014. He has served on the faculty of three top-ranked U.S. film schools
including the position of dean of the Florida State University College of Motion Picture Arts, a position he currently holds and
has held since July 2003. Previously, he was on the faculty of Chapman University from January 2001 through June 2003, the University
of Texas from July 1999 through December 2000, and Florida State University from January 1990 through December 1999. Mr. Patterson
is a 25-year veteran of the entertainment industry who has produced, written and directed feature films, commercials, and a variety
of media content for some of the leading agencies in the nation. He most recently produced the Virtual Michael Jackson show on
the 2014 Billboard Music Awards, which aired on the ABC Network and widely viewed on YouTube. Throughout his career, Mr. Patterson
has founded several media production companies that produced film library assets and profited from the marketing and sale of motion
picture intellectual property in domestic and international markets, including The Houston Cinema Group, Inc. (1988-92), Envisage
Media Group, Inc. (1993-99), and Red Hills Motion Picture Releasing Company, LLC (7/2010-2/2011). Mr. Patterson is a highly regarded
educator, who was named by “The Hollywood Reporter” one of the nation’s top mentors to a generation of Hollywood
filmmakers. Mr. Patterson earned a Bachelor of Arts from the Film & Media Division at Baylor University in 1985 and a Master
of Arts from the Film & Media Division at Baylor University in 1987.
As
the Chief Executive Officer of our company, Mr. Patterson brings our board his considerable experience in the entertainment industry
and growth of companies and qualifies him to continue to serve as a director or our company.
Jim
Berney. Prior to joining our company in May 2014 as our President and Head of Studio Production, Mr. Berney has been Head
of Studio production at Pulse Entertainment since October 2013 and was Head of Studio at Digital Domain in august 2012. He was
previously an Academy Award ® -nominated visual effects supervisor at Sony Pictures Imageworks from August 2008 until June
2012, ultimately becoming responsible for creative supervision and direction for all artists at Sony’s Albuquerque visual
effects studio. In addition to his regular supervisory responsibilities on projects, he served as General Manager for the first
two years of the facility’s infancy. As visual effects supervisor, Mr. Berney worked on numerous notable films including
Green Lantern, I Am Legend, and The Chronicles of Narnia , for which he was nominated for an Academy Award for Outstanding
Visual Effects. Previously, Mr. Berney was the visual effects supervisor for Sony Imageworks from October 1995 until August 2008
and had worked on films including The Matrix Reloaded , The Matrix Revolutions , The Lord of the Rings: The Two
Towers , and Harry Potter and the Sorcerer’s Stone. Jim also served as CG supervisor for Hollow Man (2000
Academy Award ® nominee, Best Visual Effects). He received his Master’s degree in Computer Science from California Polytechnic,
San Luis Obispo, specializing in the research and development of a new global illumination paradigm. He holds two undergraduate
degrees in Computer Science and Economics from the University of California, Irvine, focusing in A.I. research. Berney also studied
computer architectures at the Royal Institute of Technology, Stockholm, Sweden.
William
Krueger. Mr. Krueger was appointed as our Chief Financial Officer on October 1, 2014. Prior to joining our company, Mr.
Krueger was the Executive Vice President and Chief Financial Officer of Pulse Entertainment since May 2014. Prior to joining Pulse
Entertainment, Mr. Krueger was the Managing Director, International, with Pritchett LP from September 2013 to April 2014. Pritchett
LP is a leading publisher, consulting and training firm in the areas of merger integration, organizational change, culture and
business process optimization. From December 2009 through August 2014, Mr. Krueger worked in Asia, Europe and the U.S. as a senior
advisor and interim executive for international companies facing strategic business development and financing challenges. From
March 2002 until December 2009, Mr. Krueger was based in Beijing and Hong Kong as Chairman and CEO of Xin De Capital Group, a
financial advisory and principal investment group active in real estate, water, power, telecoms, media, professional services
and on-line services in the Greater China market. Prior to forming Xin De Capital Group, Mr. Krueger was the CFO, and later CEO
and Member of its Board of Directors, of Xin De Telecom International Ventures Co, Ltd. from April 1996 to April 2002. Xin De
Telecom was a Siemens joint venture with T-Mobil and China International Trust and Investment Corporation. During this period,
Mr. Krueger was responsible for raising and managing $200 million invested in the start-up of China Unicom’s GSM mobile
telecom networks, and providing network operation support services. In addition, Mr. Krueger was responsible for negotiating agreements
between China Unicom and its joint venture partners that was an integral step in China Unicom’s initial public offering
in 2000. From 1986 to 1996 Mr. Krueger was engaged in financial and operations management and investment banking in Munich Germany
and New York. Mr. Krueger studied music and theater at Northwestern University where he received a Bachelor of Science degree
in 1981. Mr. Krueger earned a Master’s in Business Administration with a major in Finance from Kellogg School of Management
at Northwestern University in 1986.
Committees
of our Board of Directors
Our
securities are not quoted on an exchange that has requirements that a majority of our Board members be independent and we are
not currently otherwise subject to any law, rule or regulation requiring that all or any portion of our Board of Directors include
“independent” directors, nor are we required to establish or maintain an Audit Committee or other committee of our
Board of Directors.
We
have not established any committees, including an Audit Committee, a Compensation Committee or a Nominating Committee, any committee
performing a similar function. The functions of those committees are being undertaken by Board of Directors as a whole. Because
we have only three directors, none of whom are independent, we believe that the establishment of these committees would be more
form over substance.
We
do not have a policy regarding the consideration of any director candidates which may be recommended by our stockholders, including
the minimum qualifications for director candidates, nor has our Board of Directors established a process for identifying and evaluating
director nominees. We have not adopted a policy regarding the handling of any potential recommendation of director candidates
by our stockholders, including the procedures to be followed. Our Board has not considered or adopted any of these policies as
we have never received a recommendation from any stockholder for any candidate to serve on our Board of Directors. Given our relative
size and lack of directors and officers insurance coverage, we do not anticipate that any of our stockholders will make such a
recommendation in the near future. While there have been no nominations of additional directors proposed, in the event such a
proposal is made, all members of our Board will participate in the consideration of director nominees. In considering a director
nominee, it is likely that our Board will consider the professional and/or educational background of any nominee with a view towards
how this person might bring a different viewpoint or experience to our Board.
None
of our directors is an “audit committee financial expert” within the meaning of Item 401(e) of Regulation S-K. In
general, an “audit committee financial expert” is an individual member of the audit committee or Board of Directors
who:
| |
● |
understands generally
U.S. GAAP and financial statements, |
| |
|
|
| |
● |
is
able to assess the general application of such principles in connection with accounting for estimates, accruals and reserves, |
| |
|
|
| |
● |
has experience
preparing, auditing, analyzing or evaluating financial statements comparable to the breadth and complexity to our financial
statements, |
| |
|
|
| |
● |
understands internal
controls over financial reporting, and |
| |
|
|
| |
● |
understands audit
committee functions. |
Director
Compensation
John
Textor. In addition to Mr. Textor’s compensation as Chairman discussed in Item 11 of this report, we have paid Mr.
Textor $50,000 to serve in his role on the Board of Directors of the Company as Chairman of the Board for the fiscal year ending
June 30, 2015.
Rene
Eichenberger. In addition to Mr. Eichenberger’s compensation as Vice Chairman discussed in Item 11 of this report,
we have paid Mr. Eichenberger $25,000 to serve in his role on the Board of Directors of the Company as Vice Chairman of the Board
for the fiscal year ending June 30, 2015.
Frank
Patterson. In addition to Mr. Patterson’s compensation as Chief Executive Officer discussed in Item 11 of this report,
we have paid Mr. Patterson $25,000 to serve in his role on the Board of Directors of the Company as Executive Chairman of the
Board for the fiscal year ending June 30, 2015.
Compliance
with Section 16(a) of the Securities Exchange Act of 1934
Since
none of our securities have been registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934, our officers
and directors and persons who own more than 10% of our common stock are not required to file Section 16(a) beneficial ownership
reports.
ITEM
11. EXECUTIVE COMPENSATION
The
following table sets forth certain compensation information for: (i) our principal executive officer or other individual serving
in a similar capacity during fiscal 2014; (ii) our two most highly compensated executive officers other than our principal executive
officer who were serving as executive officers at June 30, 2014 whose compensation exceed $100,000; and (iii) up to two additional
individuals for whom disclosure would have been required but for the fact that the individual was not serving as an executive
officer at June 30, 2014. Compensation information is shown for the fiscal years ended June 30, 2014 and 2013:
Name and
Principal
Position | |
Year | | |
Salary ($) | | |
Bonus ($) | | |
Stock Awards ($) * | | |
Option Awards ($) * | | |
All Other Compensation ($) | | |
Total ($) | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Alon Nigri(1) | |
| 2014 | | |
| -0- | | |
| -0- | | |
| -0- | | |
| -0- | | |
| -0- | | |
| -0- | |
| | |
| 2013 | | |
| -0- | | |
| -0- | | |
| -0- | | |
| -0- | | |
| -0- | | |
| -0- | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Frank Patterson(2) | |
| 2014 | | |
| -0- | | |
| -0- | | |
| -0- | | |
| -0- | | |
| -0- | | |
| -0- | |
(1) Mr.
Nigri resigned as our Chief Executive Officer on May 15, 2014.
(2) Mr.
Patterson was appointed as our Chief Executive Officer on May 15, 2014.
Employment
Agreements with Executive Officers
John
Textor. We have agreed to employ Mr. Textor as our Chairman on an at-will basis. Mr. Textor will be paid an annual base
salary of $350,000 plus a performance-based cash bonus as determined by the Company’s Board of Directors from time to time.
In addition, Mr. Textor is also entitled to health and welfare benefits as may be in effect at the Company’s discretion
from time to time and reimbursement of out of pocket expenses for travel and business expenses in connection with his duties.
Rene
Eichenberger. We have has agreed to employ Mr. Eichenberger as our Vice Chairman on an at-will basis. Mr. Eichenberger
will be paid an annual base salary of $350,000 plus a performance-based cash bonus as determined by the Company’s Board
of Directors from time to time. In addition, Mr. Eichenberger is also entitled to health and welfare benefits as may be in effect
at the Company’s discretion from time to time and reimbursement of out of pocket expenses for travel and business expenses
in connection with his duties.
Frank
Patterson. We have has agreed to employ Mr. Patterson as its Chief Executive Officer on an at-will basis. Mr. Patterson
will be paid an annual base salary of $350,000 plus a performance-based cash bonus as determined by the Company’s Board
of Directors from time to time. In addition, Mr. Patterson is also entitled to health and welfare benefits as may be in effect
at the Company’s discretion from time to time and reimbursement of out of pocket expenses for travel and business expenses
in connection with his duties.
James
Berney. We have has agreed to employ Mr. Berney as its President and Head of Studio on an at-will basis. Mr. Berney will
be paid an annual base salary of $350,000 plus a performance-based cash bonus as determined by the Company’s Board of Directors
from time to time. In addition, Mr. Berney is also entitled to health and welfare benefits as may be in effect at the Company’s
discretion from time to time and reimbursement of out of pocket expenses for travel and business expenses in connection with his
duties.
William
Krueger. We have has agreed to employ Mr. Krueger as its Chief Financial Officer on an at-will basis. Mr. Krueger will
be paid an annual base salary of $240,000 plus a performance-based cash bonus as determined by the Company’s Board of Directors
from time to time. In addition, Mr. Krueger is also entitled to health and welfare benefits as may be in effect at the Company’s
discretion from time to time and reimbursement of out of pocket expenses for travel and business expenses in connection with his
duties. In addition, Pulse Evolution entered into a Consulting Services Agreement with Mr. Krueger effective as of July 1, 2014
to provide financial, organizational and commercial matters consulting services to our company. The term of the agreement is for
a period of 10 months. We agreed to pay Mr. Krueger $90,000 in cash and issue 2,769,246 shares of unregistered Common Stock subject
to certain events of forfeiture if Mr. Krueger terminates his employment during the term of the agreement without good reason
as provided for in the agreement.
Outstanding
Equity Awards at Fiscal Year-End
The
following tables set forth, for each person listed in the Summary Compensation Table set forth above, as of June 30, 2014:
With
respect to each option award -
| |
● |
the
number of shares of our common stock issuable upon exercise of outstanding options that have been earned, separately identified
by those exercisable and unexercisable; |
| |
|
|
| |
● |
the
number of shares of our common stock issuable upon exercise of outstanding options that have not been earned; |
| |
|
|
| |
● |
the
exercise price of such option; and |
| |
|
|
| |
● |
the
expiration date of such option; and |
| |
|
|
| |
● |
with
respect to each stock award - |
| |
|
|
| |
● |
the
number of shares of our common stock that have been earned but have not vested; |
| |
|
|
| |
● |
the
market value of the shares of our common stock that have been earned but have not vested; |
| |
|
|
| |
● |
the
total number of shares of our common stock awarded under any equity incentive plan that have not vested and have not been
earned; and |
| |
|
|
| |
● |
the
aggregate market or pay-out value of our common stock awarded under any equity incentive plan that have not vested and have
not been earned. |
Option
Awards and Warrant Awards
| | |
Number of | | |
Number of | | |
Equity Incentive | |
| | |
| |
| | |
Securities | | |
Securities | | |
Plan Awards: | |
| | |
| |
| | |
Underlying | | |
Underlying | | |
Number of | |
Weighted | | |
| |
| | |
Unexercised | | |
Unexercised | | |
Securities Underlying | |
Average | | |
| |
| | |
Options | | |
Options | | |
Unexercised | |
Exercise | | |
Expiration | |
| Name | |
Exercisable | | |
Unexercisable | | |
Unearned Options | |
Price | | |
Date | |
| Alon Nigri | |
| 0 | | |
| 0 | | |
0 | |
$ | - | | |
| 0 | |
| Frank Patterson | |
| 0 | | |
| 0 | | |
0 | |
$ | - | | |
| 0 | |
Stock
Awards
| | |
| | |
| | |
| |
| |
Equity Incentive |
|
| | |
| | |
| | |
| |
| |
Plan Awards: |
|
| | |
| | |
| | |
Number | |
| |
Market or |
|
| | |
Number of | | |
Market Value | | |
of Unearned | |
| |
Pay-Out Value of |
|
| | |
Shares That | | |
of Shares That | | |
Shares That | |
| |
Unearned Shares |
|
| Name | |
Have Not Vested | | |
Have Not Vested | | |
Have Not Vested | |
| |
Have Not Vested |
|
| Alon Nigri | |
| 0 | | |
$ | - | | |
| 0 | |
| $ |
- |
|
| Frank Patterson | |
| 0 | | |
$ | - | | |
| 0 | |
| $ |
- |
|
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
At
October 7, 2014, we had 120,458,716 shares of common stock issued and outstanding. The following table sets forth information
known to us as of October 7, 2014 relating to the beneficial ownership of shares of our voting securities by:
| |
● |
each
person who is known by us to be the beneficial owner of more than 5% of our outstanding voting stock; |
| |
|
|
| |
● |
each
director; |
| |
|
|
| |
● |
each
named executive officer; and |
| |
|
|
| |
● |
all
named executive officers and directors as a group. |
Unless
otherwise indicated, the business address of each person listed is in care of Pulse Evolution Corporation, 10521 SW Village Center
Drive, Suite 201 Port St. Lucie, FL 34987. The percentages in the table have been calculated on the basis of treating as outstanding
for a particular person, all shares of our common stock outstanding on that date and all shares of our common stock issuable to
that holder in the event of exercise of outstanding options, warrants, rights or conversion privileges owned by that person at
that date which are exercisable within 60 days of that date. Except as otherwise indicated, the persons listed below have sole
voting and investment power with respect to all shares of our common stock owned by them, except to the extent that power may
be shared with a spouse.
Effective
on June 23, 2014, the Company amended and restated its articles of incorporation filed with the Secretary of State of the State
of Nevada in order to effectuate an increase in the number of authorized shares of common stock, par value $0.001 per share, from
75,000,000 to 300,000,000, increase the authorized blank check preferred stock to 100,000,000 shares and effectuate a 1 for 10
forward stock split of our issued and outstanding common stock (the “Forward Stock Split”). As a result of the Forward
Stock Split, every 1 share of our pre-Forward Split common stock was increased and reclassified into 10 shares of our common stock.
All references to shares of our common stock in the following table and elsewhere in this report on Form 10-K refers to the number
of shares of common stock after giving effect to the Forward Stock Split (unless otherwise indicated).
| | |
Amount
and Nature of Beneficial Ownership (1) | | |
Percentage
of Class | |
| Executive Officers and Directors | |
| | | |
| | |
| John Textor(2) | |
| 33,806,955 | | |
| 28.1 | % |
| Rene Eichenberger(3) | |
| 12,461,607 | | |
| 10.4 | % |
| Frank Patterson(4) | |
| 12,461,607 | | |
| 10.4 | % |
| William Krueger(5) | |
| 2,769,246 | | |
| 2.3 | % |
| Jim Berney(6) | |
| 5,538,492 | | |
| 4.6 | % |
| All officers and directors a group (5 group) | |
| 67,037,907 | | |
| 55.8 | % |
| | |
| | | |
| | |
| 5% Shareholders | |
| | | |
| | |
| Michael Mortell(7) | |
| 9,980,930 | | |
| 8.3 | % |
| Enrique Steiger(8) | |
| 6,461,570 | | |
| 5.4 | % |
| Greg Centineo(9) | |
| 6,467,109 | | |
| 5.4 | % |
| |
(1) |
Beneficial
ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the
shares. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of our common stock held by them. Applicable percentage ownership
is based on 120,458,716 shares of our common stock outstanding as of October 7, 2014. |
| |
|
|
| |
(2) |
Consists
of 33,806,955 shares of our common stock owned by Tradition Studios Acquisition IP LLC (“Tradition Studios”).
The managing member of Tradition Studios Acquisition IP LLC is Mr. Textor who holds voting and investment power over the shares
of our common stock owned by Tradition Studios. |
| |
|
|
| |
(3) |
Consists
of 12,461,607 shares of our common stock owned by (Alternative)2 Holdings AG (“(Alternative)2”). The Chairman
of (Alternative)2 is Mr. Eichenberger who holds voting and investment power over the securities owned by this entity. |
| |
|
|
| |
(4) |
Consists
of 12,461,607 shares of our common stock owned by Scenic Loop Holdings, Inc. an entity owned and controlled by Mr. Patterson
who holds voting and investment power over the shares of our common stock owned by this entity. |
| |
|
|
| |
(5) |
Consists
of 2,769,246 shares of our common stock owned directly by Mr. Krueger. |
| |
|
|
| |
(6) |
Consists
of 5,538,492 shares of our common stock owned directly by Mr. Berney. |
| |
|
|
| |
(7) |
Mr.
Michael Mortell is the managing member of Yellow Brick Holdings LLC and managing director to each of the Pulse Filipe Holdings
I, LTD through Pulse Filipe Holdings XXIII, LTD entities with the exception of Pulse Filipe XXIV, LTD and Pulse Filipe XVII,
LTD which are managed by others. The shares attributed to Mr. Mortell in the table consist of (i) 2,192,243 shares of our
Common Stock beneficially owned by Yellow Brick Holdings LLC, (ii) 5,782,187 shares of our common stock beneficially owned
by The Presidio Group, and (iii) 2,006,500 shares of our common stock beneficially owned by the various Pulse Filipe Holdings
entities. Mr. Mortell holds voting and investment power with respect to all shares of our common stock beneficially owned
by the above-named entities and disclaims beneficial ownership of such securities except to the extent of any pecuniary interest
therein. Mr. Mortell’s address is 73 SW Flagler Avenue Stuart, FL 34994. |
| |
|
|
| |
(8) |
Consists
of 6,461,570 shares of our common stock owned directly by Mr. Steiger. |
| |
|
|
| |
(9)
|
Consists
of 6,467,109 shares of our common stock owned directly by Mr. Centineo. |
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related
Party Transactions
We
have specified the following transactions involving related parties that occurred in fiscal 2014 and 2013:
On
May 31, 2013, the Company offered and sold 6,000,000 shares of common stock to Alon Nigri, the President, Secretary and a Director
at May 31, 2013, at a purchase price of $0.003 per share, for aggregate proceeds of $18,000.
On
May 15, 2014, Alon Nigri, our controlling stockholder at the time, former Chief Executive Officer and former sole director (the
“Seller”), entered into and closed on a Share Purchase Agreement (the “Agreement”) with, Tradition Studios
IP Acquisition LLC, (Alternative)2 Holding AG, and Scenic Loop Holding, LLC (each a “Purchaser” and collectively,
the “Purchasers”) whereby the Purchasers purchased from the Seller a total of 53,612,600 shares of our common stock
for an aggregate of $107,225, representing approximately 80.68% of our issued and outstanding shares of common stock. The Purchasers
own or control as a group, Pulse Entertainment.
Pursuant
to the terms of the Share Exchange Agreement pursuant to which we agreed to issue 96,737,422 shares of our unregistered common
stock to the shareholders of Pulse Entertainment, a related party in exchange for 17,466,383 shares of common stock of Pulse Entertainment,
certain of our shareholders who are also shareholders of Pulse Entertainment and are executive officers or directors have agreed
to cancel 60,910,113 shares of our common stock issuable to them in connection with the exchange resulting in net shares issued
in connection with such exchange of 35,827,309.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The
board of directors of the Company selected Friedman, LLP, (“Freidman”) an independent registered public accounting
firm, to audit the financial statements for the year ended June 30, 2014 and Goldman Accounting Services CPA, PLLC, (or “Goldman”)
an independent registered public accounting firm, to audit the financial statements for the period from inception on May 31, 2013
through June 30, 2013. The board of directors approves in advance all audit and non-audit services to be provided by our independent
registered public accounting firm. All services reported in the audit, audit-related, tax and all other fees categories below
with respect to this Annual Report on Form 10-K for the year ended June 30, 2014 were approved by the board of directors.
The
following table summarizes the aggregate auditor fees that were allocated to us for independent auditing, tax and related services
for each of the last two fiscal years (in thousands):
| | |
2014
| | |
2013 | |
| Audit fees (1) | |
$ | 15,000 | | |
$ | 5,000 | |
| Audit-related fees (2) | |
| — | | |
| — | |
| Tax fees (3) | |
| — | | |
| — | |
| All other fees (4) | |
| — | | |
| — | |
| Total | |
$ | 15,000 | | |
$ | 5,000 | |
| (1) |
Audit
fees represent amounts billed for each of the years presented for professional services rendered in connection with those
services normally provided in connection with statutory and regulatory filings or engagements including comfort letters, consents
and other services related to SEC matters. In 2014 Friedman performed our audit. In 2013, Goldman provided services related
to our S-1 registration statement. In 2013, all of the fees reported related to our initial public offering. |
| |
|
| (2) |
Audit-related
fees represent amounts billed in each of the years presented for assurance and related services that are reasonably related
to the performance of the annual audit or quarterly reviews. No such services were rendered by Friedman or Goldman during
the year ended June 30, 2014 and from inception on May 31, 2013 through June 30, 2013. |
| |
|
| (3) |
Tax
fees represent amounts billed in each of the years presented for professional services rendered in connection with tax compliance,
tax advice and tax planning. No such services were rendered by Friedman or Goldman during the year ended June 30, 2014 and
from inception on May 31, 2013 through June 30, 2013. |
| |
|
| (4) |
All
other fees represent amounts billed in each of the years presented for services not classifiable under the other categories
listed in the table above. No such services were rendered by Friedman or Goldman during the year ended June 30, 2014 and from
inception on May 31, 2013 through June 30, 2013. |
Part
IV
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| (a)
|
1. |
Financial
Statements |
| |
|
|
| |
|
The
consolidated financial statements and Report of Independent Registered Public Accounting
Firm are listed in the “Index to the Financial Statements” on page F - 1
and included on pages F - 2 through F - 13. |
| |
|
|
| |
2. |
Financial Statement Schedules |
| |
|
|
| |
|
All
schedules for which provision is made in the applicable accounting regulations of the
Securities and Exchange Commission (the “Commission”) are either not required
under the related instructions, are not applicable (and therefore have been omitted),
or the required disclosures are contained in the financial statements included herein. |
| |
|
|
| |
3. |
Exhibits
(including those incorporated by reference). |
| |
|
|
|
Incorporated
by Reference |
|
Filed
or Furnished Herewith |
| Exhibit
Number |
|
Description |
|
Form |
|
File
Number |
|
Exhibit |
|
Filing
Date |
|
| 2.1 |
|
Share
Exchange Agreement among Pulse Evolution Corporation and Pulse Entertainment Corporation dated September 25, 2014. |
|
8-K |
|
333-190431 |
|
2.1 |
|
9/26/2014 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 3.1 |
|
Articles of Incorporation
of Registrant |
|
S-1 |
|
333-190431 |
|
3.1 |
|
8/7/13 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 3.2 |
|
Amendment to Articles
of Incorporation filed on May 8, 2014 with the Nevada Secretary of State. |
|
8-K |
|
333-190431 |
|
3.1 |
|
5/16/14 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 3.3 |
|
Form of Amended
and Restated Articles of Incorporation of Pulse Evolution Corporation as filed on May 22, 2014 with the Nevada Secretary of
State. |
|
8-K |
|
333-190431 |
|
3.1 |
|
6/30/14 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 3.4 |
|
Bylaws of the
Registrant |
|
S-1 |
|
333-190431 |
|
3.2 |
|
8/7/13 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 10.1 |
|
Lease Agreement
between Pulse Entertainment Corporation and Inland Diversified Port St. Lucie Square, LLC dated March 1, 2014. |
|
8-K |
|
333-190431 |
|
10.1 |
|
10/7/14 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 10.2 |
|
Asset Transfer
and Assignment Agreement between Pulse Entertainment Corporation and Tradition Studios I.P. Acquisition Inc. dated April 4,
2014. |
|
8-K |
|
333-190431 |
|
10.2 |
|
10/7/14 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 10.3 |
|
Form of Share
Purchase Agreement between Alon Nigri and certain purchasers. |
|
8-K |
|
333-190431 |
|
10.2 |
|
5/16/14 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 10.4 |
|
Form of Securities
Purchase Agreement. |
|
8-K |
|
333-190431 |
|
10.1 |
|
9/26/14 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 10.5* |
|
Partner Agreement
between ABG EPE IP, LLC and Pulse Evolution Corporation effective as of August 1, 2014.* |
|
8-K |
|
333-190431 |
|
10.2 |
|
9/26/14 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 10.6+ |
|
Consulting Services
Agreement between Pulse Evolution Corporation and William P. Krueger dated as of July 1, 2014. |
|
8-K |
|
333-190431 |
|
10.4 |
|
10/7/14 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 10.7 |
|
Partner Agreement between The Estate of Marilyn Monroe LLC and Pulse
Evolution Corporation effective as of October 1, 2014* |
|
8-K |
|
333-190431 |
|
10.1 |
|
10/10/14 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 31.1 |
|
Certification
of the Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) |
|
10-K |
|
|
|
|
|
|
|
X |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 31.2 |
|
Certification
of the Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) |
|
10-K |
|
|
|
|
|
|
|
X |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 32.1 |
|
Certification
of the Principal Executive Officer and Principal Financial and Accounting Officer pursuant to 18 U.S.C. 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
10-K |
|
|
|
|
|
|
|
X |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 101.INS** |
|
XBRL INSTANCE
DOCUMENT |
|
|
|
|
|
|
|
|
|
X |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 101.SC** |
|
XBRL TAXONOMY
EXTENSION SCHEMA |
|
|
|
|
|
|
|
|
|
X |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 101.CA** |
|
XBRL TAXONOMY
EXTENSION CALCULATION LINKBASE |
|
|
|
|
|
|
|
|
|
X |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 101.DE** |
|
XBRL TAXONOMY
EXTENSION DEFINITION LINKBASE |
|
|
|
|
|
|
|
|
|
X |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 101.LA** |
|
XBRL TAXONOMY
EXTENSION LABEL LINKBASE |
|
|
|
|
|
|
|
|
|
X |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| 101.PR** |
|
XBRL
TAXONOMY EXTENSION PRESENTATION LINKBASE |
|
|
|
|
|
|
|
|
|
X |
+ Management
contract or compensatory plan or arrangement.
*
Portions of this agreement have been omitted and redacted and separately filed with the Securities and Exchange Commission with
a request for confidential treatment.
**
XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of this Annual Report on Form 10-K
for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of
the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
Signatures
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
PULSE
EVOLUTION CORPORATION |
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| Dated:
October 10, 2014 |
By: |
/s/
Frank Patterson |
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|
Frank
Patterson, Chief Executive Officer |
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities indicated and on the date indicated.
| Signature |
|
Title |
|
Date |
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| /s/
Frank Patterson |
|
Chief
Executive Officer and Director (principal executive officer) |
|
October
10, 2014 |
| Frank
Patterson |
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|
| /s/
William P. Krueger |
|
Chief
Financial Officer (principal financial and accounting officer) |
|
October
10, 2014 |
| William
Krueger |
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| |
|
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|
|
| /s/
John Textor |
|
Chairman
of the Board of Directors |
|
October
10, 2014 |
| John
Textor |
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|
| |
|
|
|
|
| /s/
Rene Eichenberger |
|
Vice
Chairman of the Board of Directors |
|
October
10, 2014 |
| Rene
Eichenberger |
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|
|
|
PULSE
EVOLUTION CORPORATION
Index
to the Financial Statements
| |
|
Page |
| Report
of Independent Registered Public Accounting Firm |
|
F-2 |
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|
|
| Report
of Independent Registered Public Accounting Firm |
|
F-3 |
| |
|
|
| Balance
Sheets as of June 30, 2014 and 2013 |
|
F-4 |
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|
|
| Statements
of Operations for the Year Ended June 30, 2014 and for the Period from Inception on May 31, 2013 through June 30, 2013 |
|
F-5 |
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|
|
| Statements
of Stockholders’ Equity (Deficit) for the Year Ended June 30, 2014 and for the Period from Inception May 31, 2013 through
June 30, 2013 |
|
F-6 |
| |
|
|
| Statements
of Cash Flows for the Year Ended June 30, 2014 and for the Period from Inception May 31, 2013 through June 30, 2013 |
|
F-7 |
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|
|
| Notes
to the Financial Statements |
|
F-8 |
Report
of Independent Registered Public Accounting Firm
To the Board
of Directors and Shareholders
Pulse Evolution
Corporation
We
have audited the accompanying balance sheet of Pulse Evolution Corporation (“Company”) as of June 30, 2014 and
the related statements of operations, stockholders’ equity (deficit), and cash flows for the year then ended. These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pulse
Evolution Corporation at June 30, 2014, and the results of its operations and its cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of America.
| /s/
Friedman LLP |
|
| Marlton,
New Jersey |
|
| October
10, 2014 |
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board
of Directors and Stockholders of
Pulse Evolution Corporation (Formerly QurApps,
Inc.)
We
have audited the accompanying balance sheet of Pulse Evolution Corporation (Formerly QurApps, Inc. the “Company”)
as of June 30, 2013, and the related statements of operations, stockholders’ equity and cash flows for the period from May
31, 2013 (inception) through June 30, 2013. These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pulse
Evolution Corporation as of June 30, 2013, and the results of its operations and its cash flows for the period from May 31, 2013
(inception) through June 30, 2013, in conformity with accounting principles generally accepted in the United States of America.
The
Company plans to engage in developing and then marketing a mobile software application to consumers. There is substantial doubt
about the Company’s ability to continue as a going concern because of the Company’s uncertainty to raise capital and
the uncertainty of management’s ability to execute on its business plan. The financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
| /s/
Goldman Accounting Services CPA, PLLC |
|
| Goldman Accounting
Services CPA, PLLC |
|
| Suffern, NY |
|
| August 2, 2013 |
|
PULSE
EVOLUTION CORPORATION
Balance
Sheets
| | |
June 30, 2014 | | |
June 30, 2013 | |
| Assets | |
| | | |
| | |
| Current assets: | |
| | | |
| | |
| Cash | |
$ | - | | |
$ | 15,070 | |
| Total current assets | |
| - | | |
| 15,070 | |
| Total assets | |
$ | - | | |
$ | 15,070 | |
| | |
| | | |
| | |
| Liabilities and Stockholders’ Equity (Deficit) | |
| | | |
| | |
| Current liabilities: | |
| | | |
| | |
| Accounts payable and accrued liabilities | |
$ | 9,311 | | |
$ | 5,000 | |
| Total current liabilities | |
| 9,311 | | |
| 5,000 | |
| | |
| | | |
| | |
| Stockholders’ equity (deficit): | |
| | | |
| | |
| Preferred stock, 100,000,000 shares authorized at par value of $0.001 per share, 0 issued and outstanding at June 30,
2014 and 2013 | |
| - | | |
| - | |
| Common stock, 300,000,000 shares authorized at par value of $0.001 per share, 73,800,040 and
60,000,000 issued and outstanding at June 30, 2014 and 2013, respectively (as restated for change in par value and 1 to 10
forward stock split) | |
| 73,800 | | |
| 60,000 | |
| Additional paid-in capital (Discount on capital stock) | |
| (13,200 | ) | |
| (42,000 | ) |
| Accumulated deficit | |
| (69,911 | ) | |
| (7,930 | ) |
| Total stockholders’ deficit | |
| (9,311 | ) | |
| 10,070 | |
| Total liabilities and stockholders’
deficit | |
$ | - | | |
$ | 15,070 | |
The
accompanying notes are an integral part of these financial statements.
PULSE
EVOLUTION CORPORATION
Statements
of Operations
| | |
For the Year
Ended
June 30, 2014 | | |
From Inception
on May 31, 2013
through
June 30, 2013 | |
| Revenues | |
$ | - | | |
$ | - | |
| Cost of sales | |
| - | | |
| - | |
| Gross margin | |
| - | | |
| - | |
| | |
| | | |
| | |
| Operating expenses | |
| | | |
| | |
| General and administrative | |
| 41,181 | | |
| 7,930 | |
| Research and development | |
| 20,800 | | |
| - | |
| Total operating expenses | |
| 61,981 | | |
| 7,930 | |
| Net operating loss | |
$ | (61,981 | ) | |
$ | (7,930 | ) |
| | |
| | | |
| | |
| Basic and diluted loss per share | |
$ | (0.00 | ) | |
$ | (0.00 | ) |
| | |
| | | |
| | |
| Weighted average number of shares outstanding - Basic and Diluted (as restated for the 1
for 10 forward stock split) | |
| 64,192,895 | | |
| 60,000,000 | |
The
accompanying notes are an integral part of these financial statements.
PULSE
EVOLUTION CORPORATION
Statements
of Stockholders’ Equity (Deficit)
For
the period from Inception (May 31, 2013) through June 30, 2014
| | |
Common Stock | | |
Additional | | |
| | |
| |
| | |
Shares (as
restated for
1:10 forward
stock split) | | |
Par Value (as
restated for
$0.001 par) | | |
Paid-In
Capital
(Discount on
Capital Stock) | | |
Accumulated
Deficit | | |
Total
Stockholders’
Equity
(Deficit) | |
| Balance at May 31, 2013 | |
| - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| Common shares issued for cash at $0.001 per share | |
| 60,000,000 | | |
| 60,000 | | |
| (42,000 | ) | |
| - | | |
| 18,000 | |
| Net loss from inception on May 31, 2013 through June 30, 2013 | |
| - | | |
| - | | |
| - | | |
| (7,930 | ) | |
| (7,930 | ) |
| Balance at June 30, 2013 | |
| 60,000,000 | | |
| 60,000 | | |
| (42,000 | ) | |
| (7,930 | ) | |
| 10,070 | |
| Common shares issued for cash at $0.001 per share | |
| 13,800,040 | | |
| 13,800 | | |
| 28,800 | | |
| - | | |
| 42,600 | |
| Net loss | |
| - | | |
| - | | |
| - | | |
| (61,981 | ) | |
| (61,981 | ) |
| Balance at June 30, 2014 | |
| 73,800,040 | | |
$ | 73,800 | | |
$ | (13,200 | ) | |
$ | (69,911 | ) | |
$ | (9,311 | ) |
The
accompanying notes are an integral part of these financial statements.
PULSE
EVOLUTION CORPORATION
Statements
of Cash Flows
| | |
For the Year
Ended
June 30, 2014 | | |
From Inception on
May 31, 2013
through
June 30, 2013 | |
| Operating activities | |
| | | |
| | |
| Net loss | |
$ | (61,981 | ) | |
$ | (7,930 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
| Changes in operating assets and liabilities | |
| | | |
| | |
| Increase in accounts payable and accrued expenses | |
| 4,311 | | |
| 5,000 | |
| Net cash used in operating activities | |
| (57,670 | ) | |
| (2,930 | ) |
| Investing activities | |
| - | | |
| - | |
| Financing activities | |
| | | |
| | |
| Proceeds from issuance of common stock | |
| 42,600 | | |
| 18,000 | |
| Net cash provided by financing activities | |
| 42,600 | | |
| 18,000 | |
| Net (decrease) increase in cash | |
| (15,070 | ) | |
| 15,070 | |
| Cash at beginning of period | |
| 15,070 | | |
| - | |
| Cash at end of period | |
$ | - | | |
$ | 15,070 | |
The
accompanying notes are an integral part of these financial statements.
PULSE
EVOLUTION CORPORATION
Notes
to the Financial Statements
June
30, 2014
1.
Summary of Significant Accounting Policies
Nature
of Business
Pulse
Evolution Corporation was incorporated on May 31, 2013 under the laws of the State of Nevada under the name QurApps, Inc. During
fiscal 2014, the Company was planning on developing a mobile software food recipe app until the Company’s controlling shareholder
sold his interest in the Company on May 15, 2014. In anticipation of this change of control, the Company changed its name to Pulse
Evolution Corporation effective May 8, 2014.
The
Company is in the early stages of becoming a creatively driven, digital production and intellectual property company that expects
to produce specialized, high-impact applications of computer-generated human likeness for utilization in entertainment, life sciences,
education and telecommunication. Founded by leading producers of photorealistic digital humans, the Company plans to develop “virtual
humans” for live and holographic concerts, advertising, feature films, branded content, medical applications and training.
The Company’s business model is focused on participation in intellectual property through the development, production and
ownership of entertainment properties featuring globally recognized animated virtual performers and through multi-year revenue-share
relationships with living celebrities and late celebrity estates. In May 2014, the Company signed a letter of intent to exchange
at least a majority of its unissued shares of common stock for 100% of the outstanding common stock of Pulse Entertainment Corporation,
a related party (“Pulse Entertainment”). Pulse Entertainment is engaged in the business the Company plans to pursue.
In late 2013, Pulse Entertainment entered into a multi-year agreement with the estate of Michael Jackson to produce a photo-realistic
digital likeness of the late celebrity and to participate in a share of revenues that could be realized through performances of
the ‘Virtual Michael Jackson’ in diverse entertainment and media applications. In August 2014, the Company entered
into a multi-year agreement with Authentic Brands Group, the principal owner of rights related to the estate of the late celebrity
Elvis Presley to produce a photo-realistic digital likeness of the late celebrity and to participate in a share of revenues that
could be realized through performances of the ‘Virtual Elvis Presley’ in diverse entertainment and media applications.
In October 2014, the Company entered into a multi-year agreement with Authentic Brands Group, the principal owner of rights related
to the estate of the late celebrity Marilyn Monroe to produce a photo-realistic digital likeness of the late celebrity and to
participate in a share of revenues that could be realized through performances of the ‘Virtual Marilyn Monroe’ in
diverse entertainment and media applications.
Effective
on June 23, 2014, the Company amended and restated its articles of incorporation filed with the Secretary of State of the State
of Nevada in order to effectuate an increase in the number of authorized shares of common stock, from 75,000,000 to 300,000,000,
change in par value from $0.003 to $0.001 per share, increase the authorized blank check preferred stock to 100,000,000 shares
and effectuate a 1 for 10 forward stock split of our issued and outstanding common stock (the “Forward Stock Split”).
As a result of the Forward Stock Split, every 1 share of our pre-Forward Split common stock was increased and reclassified into
10 shares of our common stock. All references to shares of our common stock in these notes to financial statements refer to the
number of shares of common stock after giving effect to the Forward Stock Split (unless otherwise indicated).
Basis
of Presentation
These
financial statements and related notes are presented in accordance with accounting principles generally accepted in the United
States, and are expressed in US dollars. The Company’s fiscal year-end is June 30.
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Liquidity
The
Company has, since its inception in May of 2013, been highly dependent on raising capital to fund its start-up and growth strategies.
To date, the Company has raised capital from the sales of its common stock without restrictive covenants from institutional investors
and strategic partners (See Note 7 - Capitalization). On September 30, 2014, the Company and Pulse Entertainment Corporation (“Pulse
Entertainment”), a related party, completed an initial closing under the terms of a share exchange agreement they entered
into whereby the Pulse Entertainment became a subsidiary of the Company.
The
Company’s core business is the acquisition from estates and other rights holders of certain intellectual property rights
to create virtual celebrities, and the right to present, and license to others to present, those virtual performers in live, and
a variety of live-virtual and commercial formats.
In
execution of its business plan, the Company has chosen to pursue a model whereby it provides virtual performers for appearances
and collects royalties when the Company has an ownership interest in the intellectual property rights for the virtual performer
(the “Talent Model”). Under the Talent Model, the Company may permit other producers to create performances that make
use of virtual performers created by the Company.
The
Company is also exploring and developing opportunities to act as a producer of events (the “Producer Model”), thereby
enabling the company to exert significant creative and technological control over the performance productions, and to capture
significantly greater portions of the realizable economic value created by the virtual performance.
The
Company may in the future execute its business plan using a blend of the Talent and Producer Models. Under both models, the Company
expects to earn services revenues on all digital construction, animation, and production services that it provides, plus royalties
when the work involves intellectual property rights held by the Company. Under both models, the Company has significant discretion
to determine to what extent the creative and production resources, which are primarily labor costs, are engaged on an as-needed
basis for each project or production (“Contract Talent”), and to what extent the Company carries a concentration of
creative and production resources in-house (“In-House Talent”).
While
execution of the Producer Model enables the Company to capture more of the value created by the virtual performers, it also requires
the Company to raise significant amounts of production capital, which is similar to project financed equity or non-recourse debt
into production subsidiaries. Executing this model with In-house Talent gives the Company certain strategic advantages and flexibility
in the development of new concepts and application of new technologies, yet it also requires a higher employee headcount and the
related operating overhead.
Our
Company’s ability to fund our operations and meet our obligations on a timely basis is dependent on our ability to match
our available financial resources to our operating model (Talent vs. Producer) and our execution strategy (Contract Talent vs.
In-House Talent). The decisions the Company makes with regard to operating model and execution strategy drive the level of capital
required and the level of its financial obligations.
If
the Company is unable to generate cash flow from operations and successfully raise sufficient additional capital through future
debt and equity financings or strategic and collaborative ventures with potential partners, the Company would likely have to reduce
its dependence on In-House Talent and limit many, if not all, of its activities as a producer.
The
Company has analyzed its liquidity requirements and has determined that it has sufficient liquidity to execute its business plan
under the Talent Model for the next 12 months.
2.
Summary of Significant Accounting Policies
Revenue
Recognition
We
have entered into a production services agreement with the estate of a deceased celebrity that provide revenues based on certain
production services. Revenue is recognized on a straight-line basis over each contract period, as defined in each agreement. As
the production services are rendered, revenue is recognized.
Cash
The
Company’s cash consists of funds deposited in bank accounts.
Income
Taxes
The
Company uses the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recognized
for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected
to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.
Foreign
Currency Translation
The
Company has adopted the US dollar as its functional and reporting currency because most of its transactions are denominated in
US currency.
Fair
Value of Financial Instruments
ASC
Topic 820, Fair Value Measurements and Disclosures, establishes a three level fair value hierarchy that requires entities
to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels
of inputs used to measure fair value are as follows:
Level
1: Observable inputs such as quoted prices in active markets;
Level
2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level
3: Unobservable inputs in which there is little or no market data and require the reporting entity to develop its own assumptions.
The
carrying amount of receivables and accounts payable approximates fair value due to the short-term nature of these instruments.
Earnings
per Share
The
basic earnings (loss) per share is calculated by dividing the Company’s net income available to common stockholders by the
weighted average number of common shares during the year. The diluted earnings (loss) per share is calculated by dividing the
Company’s net income (loss) available to common stockholders by the diluted weighted average number of shares outstanding
during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted as
of the first of the year for any potentially dilutive debt or equity. The Company has not issued any options or warrants or similar
securities since inception.
Recent
Accounting Pronouncements
On
May 28, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09 (ASU 2014-09), Revenue
from Contracts with Customers. ASU 2014-09 will eliminate transaction- and industry-specific revenue recognition guidance under
current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require
that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also
will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer
contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill
a contract. ASU 2014-09 is effective for reporting periods beginning after December 15, 2016, and early adoption is not permitted.
Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption.
Management is currently evaluating the impact, if any, on adopting ASU 2014-09 on our results of operations or financial condition.
3.
Income Taxes
The
Company utilizes the liability method of accounting for deferred income taxes. Under this method, deferred tax liabilities and
assets are recognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax
basis of assets and liabilities. A valuation allowance is established against deferred tax assets because, based on the weight
of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company’s
policy is to record interest and penalties on uncertain tax positions as income tax expense. As of June 30, 2014, the Company
does not believe any material uncertain tax positions are present. Accordingly, interest and penalties have not been accrued due
to an uncertain tax position and the fact the Company has reported tax losses since inception.
Deferred
income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
A
reconciliation of the statutory U.S. federal rate to the Company’s effective tax rate is as follows:
| | |
June 30, 2014 | | |
From inception on
May 31, 2013
through
June 30, 2013 | |
| | |
| | |
| |
| U.S. federal statutory income tax rate | |
| 34.0 | % | |
| 34.0 | % |
| State taxes, net of federal benefit | |
| 3.6 | % | |
| - | |
| Change in valuation allowance | |
| (37.6 | )% | |
| (34.0 | )% |
| Effective tax rate | |
| 0.0 | % | |
| 0.0 | % |
The
components of the net deferred tax asset/ (liability) as of June 30, 2013 and June 30, 2014 is as follows:
| | |
June 30, 2014 | | |
From inception on
May 31, 2013
through
June 30, 2013 | |
| Net federal operating loss carry forward | |
$ | 23,770 | | |
$ | 2,696 | |
| Net state operating loss carry forward | |
| 2,250 | | |
| - | |
| Net deferred tax assets before valuation allowance | |
| 26,020 | | |
| 2,696 | |
| Valuation allowance | |
| (26,020 | ) | |
| (2,696 | ) |
| Net deferred tax assets after valuation allowance | |
$ | - | | |
$ | - | |
The
Company has determined, based upon the weight of available evidence, that it is more likely than not that the net deferred tax
asset will not be realized and, accordingly, has provided a full valuation allowance against it.
As
of June 30, 2014, the Company has federal net operating loss carry forward of approximately $69,911 and has state net operating
loss carry forward of $61,981. The federal and state net operating loss carry forwards will expire, if not utilized, by 2033.
Utilization of the net operating loss carry forward may be subject to an annual limitation due to the ownership change limitations
provided by Section 382 of the Internal Revenue Code of 1986, as amended and similar state provisions.
The
Company is not currently under examination at the Federal and state levels. Currently only the period from May 31, 2013 (inception)
to June 30, 2014 is subject to examination. At the date of the financial statements there were no known assessments.
4.
Litigation
On
May 29, 2014, Hologram USA, Inc., Musion Das Hologram Limited and Uwe Maass (the “Plaintiffs”) filed an amended complaint
in the U.S. District Court for the District of Nevada (Case No. 2:14-cv-00772-GMN-NJK). The complaint alleges that Plaintiffs
own, or control, certain patents related to the projection illusion technique, historically known as “Pepper’s Ghost.”
The Plaintiffs further allege that Pulse Evolution Corporation, Pulse Entertainment Corporation, John Textor, Dick Clark Productions,
Inc., John Branca and John McClain, as executors of the Estate of Michael J. Jackson, MJJ Productions, Inc. Musion Events, Ltd.
Musion 3D, Ltd., William James Rock and Ian Christopher O’Connell (collectively, the “Defendants”) infringed
on the Plaintiffs’ patent rights by using the Plaintiffs’ projection illusion system to project the visual imagery
developed and conceived by our company in connection with the a musical performance at the 2014 Billboard Music Awards in Las
Vegas Nevada featuring an image of the late Michael Jackson. The Plaintiffs have not alleged that the Company’s core business,
the production of visual effects or human animation imagery infringes their intellectual property rights. The complaint sought
an order of the Court temporarily and permanently enjoining the Defendants from carrying out the Michael Jackson performance,
a judgment for infringement, damages, attorneys’ fees and costs. The Plaintiffs’ Emergency Motion for Temporary Restraining
Order filed in connection with its May 15, 2014 complaint was denied on May 16, 2014 as the Court found that the Plaintiffs’
failed to establish that they are likely to succeed on the merits of their patent infringement claims and that they are likely
to suffer irreparable harm.
The
Company believes that its claims and defenses in this case are substantial because the visual imagery the Company develops and
conceives is distinct from the Plaintiffs’ projection system allowing the Company to use a variety of projection systems
in its productions. Litigation is, however, inherently unpredictable. The outcome of this lawsuit is subject to significant uncertainties
and, therefore, determining the likelihood of a loss and/or the measurement of any loss is complex. Consequently, the Company
is unable to estimate the range of reasonably possible loss. The Company’s assessments are based on estimates and assumptions
that have been deemed reasonable by management, but the assessment process relies heavily on estimates and assumptions that may
prove to be incomplete or inaccurate, and unanticipated events and circumstances may occur that might cause the Company to change
those estimates and assumptions.
The
Company is involved from time to time in routine litigation arising in the ordinary course of conducting its business. In the
opinion of the Company’s management, no pending routine litigation will have a material adverse effect on the Company’s
financial condition, results of operations or cash flows.
5.
Related-Party Transactions
The
Company’s officers and directors are involved in other business activities and in the future, such persons may face a conflict
in selecting between the Company and their other business interests. The Company has not formulated a policy for the resolution
of such conflicts.
On
May 31, 2013, the Company offered and sold 60,000,000 shares of common stock, restated for the 1 for 10 forward stock split, to
Alon Nigri, the President, Secretary and a Director at May 31, 2013, at a purchase price of $0.003 per share, for aggregate proceeds
of $18,000.
6.
Earnings (Loss) Per Share
Earnings
(loss) per share is calculated in accordance with ASC 260. Basic earnings (loss) per share is computed by dividing
net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings
(loss) per share is computed by dividing net income (loss) by the weighted average number of common shares plus the dilutive effect
of outstanding stock options under the Company’s equity incentive plans and warrants. For the year ended June 30, 2014 and
the period from inception of May 31, 2013 through June 30, 2013, diluted net loss per common share is the same as basic net loss
per share, since there are no dilutive securities outstanding.
The
net loss and weighted average common stock outstanding for purposes of calculating net loss per common share were computed as
follows:
| | |
For the year ended
June 30, 2014 | | |
From inception on
May 31, 2013
through June 30, 2013
(as restated for 10:1
forward stock split) | |
| Net loss | |
$ | 61,981 | | |
$ | 7,930 | |
| | |
| | | |
| | |
| Weighted average number of common shares outstanding used in computing basic and diluted earnings
per share | |
| 64,192,895 | | |
| 60,000,000 | |
| | |
| | | |
| | |
| Basic and diluted earnings (loss) per share | |
$ | (0.00 | ) | |
$ | (0.00 | ) |
7.
Capitalization
On June 23, 2014, the Company changed its
par value of $0.003 to $0.001 per share and effected a 1 for 10 forward stock split of its issued shares of common stock, all
common shares and par values outstanding were retroactively restated for all periods presented.
On
May 15, 2014, Alon Nigri, our controlling stockholder at the time, former Chief Executive Officer and former sole director (the
“Seller”), entered into and closed on a Share Purchase Agreement (the “Agreement”) with, Tradition Studios
IP Acquisition LLC, (Alternative)2 Holding AG, and Scenic Loop Holding, LLC (each a “Purchaser” and collectively,
the “Purchasers”) whereby the Purchasers purchased from the Seller a total of 53,612,600 shares of our common stock
for an aggregate of $107,225, representing approximately 80.68% of our issued and outstanding shares of common stock. The Purchasers
own or control as a group, Pulse Entertainment.
On
May 31, 2013 (inception) the Company issued 60,000,000 shares of common stock to its former President for cash of $18,000. On
March 5, 2014, the Company issued 13,800,040 shares of common stock to various third party shareholders for cash of $42,600.
8.
Subsequent Events
In
July 2014, the Company entered into a consulting services agreement with its Chief Financial Officer (“CFO”) to provide
certain financial management services effective for a period of ten months. Under the terms of the consulting agreement, the Company
is obligated to pay the CFO $90,000. The Company granted 2,769,246 shares of common stock to the CFO in lieu of the cash payment.
In
July, the Company entered into an Investor Introduction Agreement (“the II Agreement”) with an international advisory
services group (“the Advisor”). The Advisor is to support the Company in its fund raising process through introductions
of potential investors and to assist the Company in developing a coherent investor relations strategy. The II Agreement calls
for the Advisor to be paid a success fee in cash equal to up to eleven percent of all investments introduced by the Advisor through
September 30, 2014, subsequent to that date the fee for any such transactions is permanently reduced to five percent. In addition
the Advisor shall be entitled to shares equal to three percent of the underlying shares issued in any such transactions.
In
August 2014, the Company’s board of directors approved payments of director fees for fiscal year 2015. All director fees
totaling $100,000 were paid as of October 7, 2014 the date at which the financial statements were available.
In
August 2014, the Company entered into a multi-year agreement with ABG EPE IP, LLC (“ABG”) to develop for ABG entertainment
projects to utilize a realistic computer-generated image of Elvis Presley. The likeness will be used to create entertainment and
branding revenue opportunities for us, generated from holographic performances in live shows and commercials. ABG holds the likeness,
appearance, and publicity rights of Elvis Presley.
In
September 2014, the Company entered into an exclusive financial services and advisory agreement with a consultant to assist the
Company in its capital market strategies. Under the terms of the agreement, the Company is to pay the consultant three non-refundable
monthly payments of $30,000, and quarterly restricted stock grants equal to one-half of one percent of the outstanding shares
of common stock of the Company each quarter to a maximum of two and one-half percent of the outstanding shares of common stock.
The agreement also calls for a ten percent fee in the event that a qualified financing transaction, as defined in the agreement,
is closed. The fee is payable equally in cash and stock.
The
Company entered into a share exchange agreement on September 26, 2014 (the “Share Exchange Agreement”) with Pulse
Entertainment Corporation (“Pulse Entertainment”) in which the Company agreed to issue up to 58,362,708 shares of
its unregistered common stock, $0.001 par value (the “Common Stock”) to the shareholders of Pulse Entertainment holding
21,535,252 shares of its issued and outstanding common stock (the “Share Exchange”), such shares representing 100%
of the issued and outstanding common stock of Pulse Entertainment. Upon closing of the transaction, Pulse Entertainment will become
a subsidiary of our company and the total shares of common stock outstanding are expected to be 137,017,748.
On
September 30, 2014, the Company completed the initial closing under the Share Exchange Agreement pursuant to which it agreed to
issue 35,827,309 shares of its unregistered Common Stock, net of cancellations, to the shareholders of Pulse Entertainment in
exchange for 17,466,383 shares of its common stock. As part of the Share Exchange, certain of the Company’s shareholders
who are also shareholders of Pulse Entertainment agreed to cancel 60,910,113 shares of the Company’s common stock issuable
to them in connection with the Share Exchange. Upon completion of the initial closing, Pulse Entertainment became a subsidiary
of the Company in which the Company owns an 81.11% interest. The remaining 4,068,869 shares of Pulse Entertainment common stock
may be exchanged by the Pulse Entertainment Shareholders pursuant to the Share Exchange Agreement for 22,535,399 shares of the
Company’s unregistered common stock no later than October 31, 2014. In the event these shares are exchanged, Pulse Entertainment
will become a wholly owned subsidiary of the Company.
In
October 2014, the Company entered into a multi-year agreement with the Monroe Estate to develop for the Monroe Estate entertainment
projects to utilize a realistic computer-generated image of Marilyn Monroe. The likeness will be used to create entertainment
and branding revenue opportunities for us, generated from holographic performances in live shows and commercials. The Monroe Estate
holds the likeness, appearance, and publicity rights of Marilyn Monroe.
Exhibit
31.1
Rule
13a-14(a)/15d-14(a) Certification
I,
Frank Patterson, certify that:
1.
I have reviewed this Annual Report on Form 10-K for the fiscal year ended June 30, 2014 of Pulse Evolution Corporation (the
“registrant”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15-d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s board of directors
(or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
| Date:
October 10, 2014 |
/s/
Frank Patterson |
| |
Frank Patterson |
| |
Chief Executive
Officer (Principal Executive Officer) |
Exhibit
31.2
Rule
13a-14(a)/15d-14(a) Certification
I,
William Krueger, certify that:
1.
I have reviewed this Annual Report on Form 10-K for the fiscal year ended June 30, 2014 of Pulse Evolution Corporation (the
“registrant”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15-d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s board of directors
(or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
| Date:
October 10, 2014 |
/s/
William Krueger |
| |
William Krueger,
Chief Financial Officer (principal financial and accounting officer) |
Exhibit
32.1
Section
1350 Certification
In
connection with the Annual Report on Form 10-K of Pulse Evolution Corporation (the “Company”) for the fiscal year
ended June 30, 2014 as filed with the Securities and Exchange Commission (the “Report”), I Frank Patterson, Chief
Executive Officer and I, William Krueger, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations
of the Company.
| Date:
October 10, 2014 |
/s/
Frank Patterson |
| |
Frank Patterson,
Chief Executive Officer |
| |
|
| Date:
October 10, 2014 |
/s/
William Krueger |
| |
William Krueger,
Chief Financial Officer |
This
certification accompanies this Annual Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall
not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company
specifically incorporates it by reference.
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