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CROSS CLICK MEDIA INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations(Edgar Glimpses Via Acquire Media NewsEdge) Forward-Looking Statements Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements." These forward-looking statements generally are identified by the words "believes," "project," "expects," "anticipates," "estimates," "intends," "strategy," "plan," "may," "will," "would," "will be," "will continue," "will likely result," and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Management's Discussion and Analysis of Financial Condition and Results of Operations Company Overview On August 12, 2013, we acquired all of the issued and outstanding common stock of Co-Signer.com, Inc., a private Nevada corporation ("Co-Signer.com"). As a result of the acquisition, we divested our former consumer electronics business and began to focus on the business of Co-Signer.com, Inc. as our primary line of business. The Company reserves the right to explore and pursue other opportunities that may be presented to its management and provide additional revenues, market share or value for the Company and its shareholders. Co-Signer.com was incorporated on December 16, 2011 as a closely held Nevada corporation for the purpose of providing real estate financial services to tenants that were required to have a cosigner for their residential lease due to either no, poor or bad credit. The service is marketed as an added-value proposition for tenant screening services, property management associations or as a direct service to property management companies and landlords willing to accept commercialized cosigning services for "good people with less than perfect" credit." On June 18, 2014 we changed our name to CrossClick Media, Inc. from Co-Signer, Inc. pursuant to the full consent of our Board of Directors. Subsequently, FINRA approved the name and stock symbol change with an effective date of July 14, 2014. We transitioned our business focus from a real estate financial services holding company to a marketing and new media company featuring an affiliate network, call center, and an enterprise solutions division that can provide design, web development, ecommerce, data management and more through an integrated platform. With this new change in business model we have started reporting new revenues our first month of the new operations. We are based in the Greater Las Vegas area in Nevada. Services CrossClick Media, Inc. provides multiple marketing techniques for small business branding which can impact our clients' corporate image, grow your their service or product brands and engage their customers by driving purchases, establishing trust and building brand loyalty. We feature a nationwide affiliate network, along with a call center component for all inbound and outbound traffic supported by a robust IT and design team that can deliver innovative integrated solutions including web development, data management and harvesting, ecommerce and CRM/ERP solutions and design and editorial that will dynamically tell a company's story. Our client base will be focused on political organizations and small cap corporations seeking better public awareness, fundraising and campaign support, online and in-store marketing, IR and PR services, and innovative marketing to help brand their corporate identity, products and services. Within the first month of operations since the transition in business model we has generated revenue from our new line of business and have a few clients already receiving services on a daily or weekly basis. Our wholly-owned subsidiary, Co-Signer.com, provides credit-challenged tenants with a cosigner while providing residential landlords a contracted rent payment guarantee for a specified number of months within the 12 month lease period for their specified properties, one lease at a time. This lease payment assurance program remains flexible with defaulted rent paid for either a 3-month or 6-month period of time within the 12-month contract period, depending upon the requirement or election of the landlord. Co-Signer.com was established as a result of the 2008 financial and housing crises. Since the summer of 2007 to today, a large number of Americans have lost their jobs, their homes and/or their businesses resulting in having their personal wealth and credit scores severely reduced and damaging their credit history. Over this same time period, circumstances and events have occurred leaving more and more people unable to qualify for a residential lease. A survey by the Associated Press (July 2013) states that 80% of all adult Americans will experience near poverty or unemployment in their lifetime while a recent report by Experian stated that America is becoming more of a renter nation out of choice, and as such, the need for residential cosigning of leases will only grow. As a result of these circumstances, the need to have someone cosign for a residential lease has increased. In the case of many tenants, the family and friends who would have cosigned for them a few years ago are now unable to do so. Co-Signer.com seeks to meet the increased need for lease cosigners with the concept of commercializing residential rent guarantees (cosigning) as a professional financial service on a tenant-fee paid basis. Our service replaces the traditional need to rely on family and friends to cosign on a lease with an affordable and professional service that benefits both tenant and landlord; similar to the very same type of service that has been a mainstay in Australia's residential leasing industry for over the past twenty years. This surety service product directly benefits the landlord and those responsible for the collection of residential rents while being paid for by an independent second party, the tenant. Instead of looking for an individual to be their guarantor or co-signer, or having to pay a significantly larger security deposit or prepaid rent, a renter may qualify to purchase a lease guarantee from Co-Signer.com to satisfy the landlord's financial and credit requirements. Additional benefits are available to the paying tenant, including a credit reporting option on the tenant's rent payments during the contract period. 4 Table of Contents Over the past thirty seven (37) months, Co-Signer.com has continued to develop, refine and field-test its business model and rent guarantee programs in targeted markets across the United States. Co-Signer.com's management believes that the Company has a unique service ready to be distributed in the top twenty-five U.S. rental markets. In June 2014 the Company launched its test of an infield sales force in the Southern Michigan area. Test results will be disclosed in the third quarter of 2014. Co-Signer.com utilizes special underwriting parameters through its proprietary online application and processing service, and provides a friendly and easy online landlord relations platform. Co-Signer.com seeks to be the premiere solution for residential cosigning services and provides this service line under Co-Signer.com brand name. Based upon the acceptance by the real estate industry it has experienced to date, the management of Co-Signer.com believes its business model is sustainable whether the contracted service is for a residential lease for a single family home or an apartment lease in a multiple unit complex. Co-Signer.com's growth strategy is based on the expansion of its residential lease payment program and on bundling this program with tenant screening and residential placement services online. The Company's goal is to make the use of commercial rent assurance the U.S. industry standard and to focus its resources and market awareness efforts on landlords and property managers, educating them on the simplicity and value of the Company's service that facilitates housing for tenants and maximizes occupancy rates and cash flow for landlords. With almost 39,000,000 rental units in the United States and 1 out of every 4 adults having poor, bad, or no credit, the demand for commercialized cosigning services provides a real growth opportunity. Suppliers and Service Providers As of June 2014 CrossClick Media has contracted business operational services with Hostgator for server hosting services, Time Warner Cable for commercial VOIP and Internet services, VoxTeleSys for voice and call services and OPC Marketing for call center operations. In an exclusive website, database and IT services contract, Co-Signer.com retained Imagine Media Group, LLC, a high-level security approved U.S. military and government IT services provider, to develop and maintain its online presence, including database development, application processing and evaluation and an integrated tenant screening, sales and marketing program with all proprietary rights retained by Co-Signer.com. Imagine Media Group has been an experienced web site, database, and process developer for the banking, military and financial services industries for over the past 15 years. The agreement with Imagine Media Group was executed by LetUsCosign.com, Inc., a company previously acquired by Co-Signer.com. A renewed agreement was executed on July 1, 2013 for three years. In an affiliate agreement dated February 14, 2012, Co-Signer.com contracted with National Tenant Network, Inc. ("NTN") to provide tenant screening information and services through NTN's online portal, www.NTNOnline.com and to exclusively market each other's services to their clients and to the public. This annual agreement provides that Co-Signer.com will be the only rent guarantee service to be promoted by NTN through all of its marketing channels, including all online affiliates nationwide, while providing daily online tenant screening ratings to assist in the evaluation of tenants applying for Co-Signer.com's services. This agreement is cancelable with a 30 day written notice. NTN is recognized as a leading tenant screening service for the single-family residential leasing business throughout the United States, and it has been awarded for its marketing campaigns at industry events and for its presence online within the property management industry. Co-Signer.com's written agreement with NTN has formally expired. Co-Signer.com entered an agreement on January 6, 2014 with Contemporary Information Corporation (CIC), the nation's highest rated credit information service bureau, which provides comprehensive tenant screening services to over 10,000 property managers. On February 24, 2014 two marketing agreements were entered by CIC and Co-Signer.com that had one exclusively market the other nationally on a revenue sharing basis. In April of 2013, Co-Signer.com signed a consulting agreement with a marketing architect to lead the final development and deployment of its sales and marketing strategy and expand its brand recognition in the top twenty-five U.S. rental markets. The marketing consultant has over 15 years of experience helping private investors and business owners audit, develop and manage their portfolio of business brands. This contract concluded at the end of 2013. Expansion and Development Co-Signer.com currently has provided services to over seventy five tenant clients and over three dozen landlords and property management companies in targeted U.S. metropolitan markets. Co-Signer.com has developed a multi-level marketing plan to promote, sell and distribute its services to the following marketplaces and audiences: • Real estate brokers and realtors in the top 25 U.S. rental markets; • All realtors who service specialize in single-family and multi-residential short sales; • The top 500 property management companies in the U.S.; • The apartment association for each of the 50 U.S. states and the local chapters in the top 25 U.S. rental markets; and • The members of the National Association of Realtors, the National Apartment Association, and the National Association of Real Property Managers, an association specializing in the single-family home leasing industry. Results of Operations The closing of our acquisition of Co-Signer.com, Inc. has been characterized as a reverse capitalization; therefore, the results of operations presented are those of Co-Signer.com, Inc. The historical financial statements are the financial statements of Co-Signer.com, Inc. which have been presented to retroactively reflect the historic capitalization of the accounting acquiree. 5 Table of Contents Results of Operations for the Three Months ended June 30, 2014 and 2013. Revenue For the three months ended June 30, 2014, revenue was $51,451 compared to $13,467 for the three months ended June 30, 2013; an increase of $37,984 or 282%. The current quarter includes revenue from the operations of CrossClick Media, Inc. Operating Expenses Professional fees for the three months ended June 30, 2014 were $48,355, as compared to $10,350 for the three months ended June 30, 2013, an increase of $38,005 or 367%. Professional fees mainly consist of legal, auditor and other fees associated with the Company's quarterly filings and year end audit. Salaries and wage expense for the three months ended June 30, 2014 was $81,270, as compared to $23,982 for the three months ended June 30, 2013, an increase of $57,288 or 238%. The increase in the current period is attributed to changes within management personnel. Advertising and promotion expense for the three months ended June 30, 2014 was $26,732, as compared to $43,633 for the three months ended June 30, 2013, a decrease of $16,901 or 38.7%. Stock based compensation is a non-cash expense incurred from the issuance of shares of the Company's common stock, warrants and options which have been issued for services to both employees and other service providers. During the three months ended June 30, 2014, we incurred $235,396 of expense as a result of fair valuing options and warrants that were issued compared to $31,255 for the three months ended June 30, 2013, an increase of $204,141 or $653%. General and administrative expense for the three months ended June 30, 2014 was $61,271, as compared to $11,420 for the three months ended June 30, 2013, an increase of $49,851 or 437%. The increase can be attributed to an increase in the expense incurred for outside services, travel and increases in other general business expenses in conjunction with increased operations. Other income and expense During the three months ended June 30, 2014 we incurred $67,175 of expense for amortization of debt discount, derivative expense of $24,473 and had a loss on the change in fair value of our derivative liability of $172,126, compared to only $13,230 of amortization of debt discount in the prior year. These new losses are a result of the derivative accounting required for the issuance of convertible debt. In addition, interest expense increased $57,306, to $58,723 in the current period compared to $1,417 in the prior year. Net Loss Overall we recorded a net loss of $723,963 for the three months ended June 30, 2014, as compared to a net loss of $121,820 for the three months ended June 30, 2013, an increase of $602,143. As discussed above the increase in net loss can in part be attributed to stock issued for services, an increase in the amortization of debt discount, derivative and interest expense and the loss on the fair value of the derivative liability. Results of Operations for the Six Months ended June 30, 2014 and 2013. Revenue For the six months ended June 30, 2014, revenue was $63,048 compared to $34,035 for the six months ended June 30, 2013; an increase of $29,013 or 85.2%. The current quarter includes revenue from the operations of CrossClick Media, Inc. Cost of Revenue During the six months ended June 30, 2014 we had one client default their lease obligation for which we were liable. This resulted in a cost of revenue expense of $3,075. Operating Expenses Professional fees for the six months ended June 30, 2014 were $79,041, as compared to $16,515 for the six months ended June 30, 2013, an increase of $62,526. Professional fees mainly consist of legal, auditor and other fees associated with the Company's quarterly filings and year end audit. Salaries and wage expense for the six months ended June 30, 2014 was $121,164, as compared to $45,019 for the six months ended June 30, 2013, an increase of $76,145 or 169%. The increase in the current period is attributed to changes within management personnel. Advertising and promotion expense for the six months ended June 30, 2014 was $91,370, as compared to $57,873 for the six months ended June 30, 2013, an increase of $33,497 or 57.8%. Stock based compensation is a non-cash expense incurred from the issuance of shares of the Company's common stock, warrants and options which have been issued for services to both employees and other service providers. During the six months ended June 30, 2014, we incurred $117,123 of expense as a result of fair valuing options and warrants that were issued. We recorded $40,000 for the issuance of 1,000,000 shares of common stock to our CEO and $540,700 for issuance of shares to various service providers. During the six months ended June 30, 2013, stock-based compensation expense was $31,255. 6 Table of Contents General and administrative expense for the six months ended June 30, 2014 was $189,838, as compared to $32,336 for the six months ended June 30, 2013, an increase of $157,502. The increase can be attributed to an increase in the expense incurred for outside services, travel and increases in other general business expenses in conjunction with increased operations. Other income and expense During the six months ended June 30, 2014 we incurred $154,402 of expense for amortization of debt discount, derivative expense of $178,614 and had a loss on the change in fair value of our derivative liability of $30,916, compared to only $13,230 of amortization of debt discount in the prior year. These new losses are a result of the derivative accounting required for the issuance of convertible debt. There was also a loss on the issuance of debt of $260,000 and an increase in interest expense of $101,764. Net Loss Overall we recorded a net loss of $1,846,269 for the six months ended June 30, 2014, as compared to a net loss of $163,610 for the six months ended June 30, 2013, an increase of $1,682,659. As discussed above the increase in net loss can in part be attributed to stock issued for services, an increase in the amortization of debt discount, derivative and interest expense and the loss on extinguishment of debt. Liquidity and Capital Resources As of June 30, 2014, we had an accumulated deficit of $4,204,939 and a working capital deficit of $2,163,845. For the six months ended June 30, 2014, net cash used in operating activities was $393,658 and we netted $423,292 from financing activities. During the six months ended June 30, 2014, the Company purchased computers and other equipment for $4,462. On June 29, 2012, we issued a $488,489 Convertible Promissory Note and Security Interest in favor of a trade creditor representing the past due invoices of the creditor for professional fees. During the year ended December 31, 2013, the creditor advanced a total of $8,006 for payment of our operating expenses whereby increasing the principal balance of the note to $491,465. The note is collateralized through the granting of a Security Interest in all the current and future assets of the Company until such time the note is fully satisfied. The Security Interest was subsequently perfected by the holder through filing. As amended, the Convertible Promissory Note is now due in full on or before May 31, 2014. The conversion price of the Note, amended, is $0.075 per share. Additionally, certain accounts payable and accrued expenses of $278,962 due to the creditor for services provided subsequent to the issuance of the original obligation were added to the Note, making the current balance of the Note $812,249. In connection with our acquisition of Co-Signer.com., we also issued a total of $51,440 in 8% Secured Notes to a total of ten former shareholders of Co-Signer.com. The 8% Secured Notes are due in five years and accrue interest at an annual rate of eight percent (8%). Interest accrued under the 8% Secured Notes is due in semi-annual payments. All payments of interest due under the 8% Secured Notes may, at our option, be paid in shares of our common stock valued at a price per share equal to the average of the closing market prices for our common stock during five trading days immediately preceding the due date for such payment. Our obligations under the 8% Secured Notes are secured by a lien on all of our assets granted under Article 9 of the Uniform Commercial Code. On June 12, 2013, the Company executed a promissory note with Robert and Suzanne Roysden for $10,000. The loan has no stated interest rate and was due August 12, 2013. The note does not bear interest but did include a loan fee of $5,000. During the period ended June 30, 2014, $3,000 was repaid on the loan and the loan was extended with no specific terms of repayment. On September 23, 2013, we entered into a $400,000 Promissory Note (the "Note") with JMJ Financial ("JMJ"). The face amount of the Note includes an original issue discount of $40,000. The initial advance to be made under the Note by JMJ is $50,000. JMJ may, after making this initial advance, lend us additional sums under the terms of the Note in such amounts and at such dates as it chooses. The Note matures in one year from the date of issue. If repaid within ninety (90) days from the date of issue, the Note will not bear interest. Upon ninety days after the date of issue, a onetime interest charge of twelve percent (12%) of the principal amount will be applied. JMJ may convert all or part of the Note, at its discretion, into shares of our common stock. The conversion price is sixty percent (60%) of the lowest trading price for our common stock in the twenty-five trading days immediately preceding the conversion date. During the six months ended June 30, 2014, $53,600 of the note was converted into common stock leaving a balance of $1,400 plus accrued interest and fees is $7,222. On November 1, 2013, we entered into a $30,000, 9% Convertible Promissory Note with Charles J. Kalina III. The note bears interest at 9% and matures in two years. The loan is convertible at any time into shares of common stock at $0.075 per share beginning one year from the date of the note. In addition, the note requires the issuance of warrants to purchase 400,000 shares of common stock at a price of $.125, exercisable for three years. As of June 30, 2014, there is $1,783 of accrued interest. On November 1, 2013, we entered into a 9% Convertible Promissory Note with Stephen J. Smith for $16,000. The note bears interest at 9% and matures in two years. In addition, the note requires the issuance of warrants to purchase 266,667 shares of common stock at a price of $.125, exercisable for three years. As of June 30, 2014, there is $951 of accrued interest. On November 4, 2013, we obtained short term financing from a Lender under a 9% Convertible Note in the amount of $70,000 (the "Short-Term Note"). The Short-Term Note features an original issue discount of $6,700. The $63,300 in funding received from the Lender was used to pay off and retire a prior Convertible Promissory Note issued to Asher Enterprises, Inc., dated April 9, 2013. The Short-Term Note accrues interest at a rate of nine percent (9%) per year, with all principal and interest due in full within thirty days from the date of issue. The Short-Term Note is currently in default. At any time, the Short-Term Note may be converted, in whole or in part at the option of the holder, at a price of $0.075 per share. As of June 30, 2014 there is $4,108 of accrued interest. The Company received its second payment from JMJ towards the loan, of $22,000 (includes a 10% discount) on December 9, 2013. On April 16, 2014, we received an additional $44,000 (includes a 10% discount) under the Note, as documented by an Amendment to the Note dated April 16, 2014, and on June 23, 2014 we received another payment of $27,500 (includes a 10% discount). As of June 30, 2014, total accrued interest on these three new notes is $15,967. 7 Table of Contents We have also received short term financing from Asher Enterprises, Inc. ("Asher") under a series of Securities Purchase Agreements (the "SPAs") and a Convertible Promissory Notes (the "Notes"). The Notes bear interest at an annual rate of 8%, with principal and interest coming due approximately nine (9) months from issue. The Note may be converted in whole or in part, at the option of the holder, to shares of our common stock, par value $0.001, at any time following 180 days after the issuance dates of the Notes. The conversion price under the Notes is a 42% discount to the Market Price of our common stock on the conversion date. Our outstanding loans with Asher are as follows: Date Due Date Principal Amount January 8, 2014 October 10, 2014 $ 32,500 March 3, 2014 December 5, 2014 $ 37,500 Total $ 70,000 On January 27, 2014, the Company executed a convertible promissory note for $40,000 with Darren Magot, a member of the Board of Directors. The note includes a $2,500 loan origination fee, accrues interest at 8% and matures in 180 days. As of June 30, 2014 $3,000 has been repaid. The Note is convertible into common shares of our common stock at $.04 per share. In addition, we issued Mr. Magot warrants to purchase 1,000,000 shares of our common stock at $.05 per share, exercisable for three years. On February 13, 2014, we entered into a $250,000 Convertible Promissory Note (the "Note") with Black Mountain Equities, Inc. ("BME"). The face amount of the Note includes an original issue discount of $25,000. The initial advance to be made under the Note by BME is $25,000. BME may, after making this initial advance, lend us additional sums under the terms of the Note in such amounts and at such dates as it chooses. There is a one-time interest charge of ten percent (10%) and individual loans mature one year from the effective date of each payment. BME may convert all or part of the Note, at its discretion, into shares of our common stock. The conversion is equal to the lesser of a 40% discount to the lowest trading prices in the twenty-five (25) day trading price prior to the conversion date or at a fixed price if $0.025. On February 26, 2014, the Company issued a Convertible Promissory Note to GCEF Opportunity Fund, LLC in the amount of $72,500, includes an original issue discount of $7,500. The note bears a onetime 12% interest charge, is unsecured and matures in one year. The Note is convertible into common stock in whole or in part at any time with a conversion price equal to a 50% discount to the average bid price in the ten day trading price prior to the conversion date. In addition to the terms outlined above the Company issued to GCEF 5,000,000 shares of common stock. The stock was valued at $0.052, the closing price on the date of the note for non-cash expense of $260,000 which was recorded as a loss on the issuance of debt. On March 14, 2014, the Company issued a Convertible Promissory Note to Hanover Holdings I, LLC in the amount of $38,000. The note bears interest at a rate of 12% per annum, is unsecured and matures in eight months. The Note is convertible into common stock in whole or in part at any time with a conversion price equal to the lesser of a 45% discount to the lowest trading prices in the five day trading price prior to the conversion date or at a fixed price if $0.04. As of June 30, 2014 there is $1,358 of accrued interest. On April 16, 2014, we received additional funding under an 8% Convertible Promissory Note dated March 20, 2014 from KBM Worldwide, Inc. The principal amount of the Note is for $42,500. The Note bears interest at an annual rate of 8%, with principal and interest coming due on December 31, 2014. The Note may be converted in whole or in part, at the option of the holder, to shares of our common stock, par value $0.001, at any time following 180 days after the issuance dates of the Note. The conversion price under the Note is a 42% discount to the Market Price of our common stock on the conversion date. On June 5, 2014, the Company issued a Convertible Promissory Note to KBM Worldwide, Inc. in the amount of $32,500. The note bears interest at a rate of 8% per annum, is unsecured and matures on December 31, 2014. The Note is convertible into common stock in whole or in part 180 days after funding at a variable conversion price equal to a 42% discount to the average of the lowest three trading prices in the 10-day trading price prior to the conversion date. As of June 30, 2014 there is $150 of accrued interest on this note. On June 19, 2014, we borrowed the sum of $15,000 from Steven J. Smith under the terms of a Promissory Note. The note was due and payable within seven (7) days of funding with no stated rate of interest. On June 23, 2014, the Company received another payment on the original JMJ Financial convertible promissory note dated September 23, 2013 of $25,000. The Company recorded a debt discount in the amount of $27,500 (payment plus 10% original discount) in connection with the initial valuation of the beneficial conversion feature of the note to be amortized utilizing the effective interest method of accretion over the term of the note. The note is shown net of a debt discount of $26,897 at June 30, 2014 and has accrued interest and fees of $3,333. On June 25, 2014, the Company issued a Convertible Promissory Note to KBM Worldwide, Inc.in the amount of $32,500. The note bears interest at a rate of 8% per annum, is unsecured and matures on December 31, 2014. The Note is convertible into common stock in whole or in part 180 days after funding at a variable conversion price equal to a 42% discount to the average of the lowest three trading prices in the 10-day trading price prior to the conversion date. As of June 30, 2014 there is $43 of accrued interest on this note. We currently have little operating capital and will dependent on fundraising in order to expand our operations and market our services to a wider group of potential customers. We can offer no assurance that we will obtain financing in the near future or on terms that are acceptable to us. Additional financing through public or private equity financings or other financing sources may not be available on acceptable terms, or at all. 8 Table of Contents Off Balance Sheet Arrangements As of June 30, 2014, there were no off balance sheet arrangements. Going Concern We have negative working capital and have incurred losses since inception. These factors create substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustment that might be necessary if we are unable to continue as a going concern. Our ability to continue as a going concern is dependent on generating cash from the sale of our common stock and/or obtaining debt financing and attaining future profitable operations. Management's plans include selling our equity securities and obtaining debt financing to fund our capital requirement and ongoing operations; however, there can be no assurance we will be successful in these efforts. |