果冻APP传媒

Note 1. Nature of Operations and Going Concern

Overview 

 

果冻APP传媒 Group, Inc. (together with its subsidiaries, the "Company" or "果冻APP传媒") was founded in Colorado in 1987 as the International School of Information Management. On September 30, 2004, it was acquired by Higher Education Management Group, Inc. ("HEMG") and changed its name to 果冻APP传媒 University Inc. On March 13, 2012, the Company was recapitalized in a reverse merger (See Note 12). All references to the Company or 果冻APP传媒 before March 13, 2012 are to 果冻APP传媒 University, Inc. ("果冻APP传媒 University").

On April 5, 2013, the Company gave 120-day notice to CLS 123, LLC of its intent to terminate the agreement between the Company and CLS 123, LLC dated November 9, 2011. Moreover, at the end of the 120-day period, the Company shall no longer be offering the "Certificate in Information Technology with a specialization in Smart Home Integration" program. Accordingly, the activities related to CLS (or the "Smart Home Integration Certificate" program) are treated as discontinued operations. As this component of the business was not sold, there was no gain or loss on the disposition of this component (see below "Discontinued Operations").

On April 25, 2013, our Board of Directors approved a change in our fiscal year-end from December 31 to April 30, with the change to the calendar year reporting cycle beginning May 1, 2013. Consequently, we are filing a Transition Report on Form 10-KT for the four-month transition period ended April 30, 2013. References in this report to fiscal 2012 and 2011 indicate the calendar years ended December 31, 2012 and 2011, respectively. Financial information in these notes with respect to the four months ended April 30, 2012 is unaudited.

果冻APP传媒's mission is to become an institution of choice for adult learners by offering cost-effective, comprehensive, and relevant online education. One of the key differences between 果冻APP传媒 and other publicly-traded, exclusively online, for-profit universities is that approximately 87% of our degree-seeking students (as of April 30, 2013) were enrolled in graduate degree programs (Master or Doctorate degree program). Since 1993, we have been nationally accredited by the Distance Education and Training Council ("DETC"), a national accrediting agency recognized by the U.S. Department of Education (the "DOE").

Merger with Education Growth Corporation

On May 19, 2011, the Company closed an Agreement and Plan of Merger (the "Merger Agreement") wherein the Company acquired Education Growth Corporation, Inc. ("EGC"), a privately-held corporation formed in Delaware on January 21, 2011. EGC merged with and into 果冻APP传媒 University Inc. and 果冻APP传媒 University Inc. was the surviving corporation.

The consideration with respect to the merger with EGC consisted of 3,200,000 shares of common stock of the Company. EGC was not an operating company and it did not meet the definition of a business for business combination accounting. EGC did possess intellectual property and, accordingly, the merger was accounted for as an asset acquisition. Since the stockholders of EGC acquired more than a 10% voting interest in the Company, the asset acquisition was accounted for in accordance with Staff Accounting Bulletin, Topic 5G, "Transfers of Nonmonetary Assets by Promoters or Shareholders". Accordingly, the assets acquired in the merger have been recorded at the transferors' historical cost basis determined under GAAP. The net purchase price, including acquisition costs paid, was allocated to assets acquired and liabilities assumed as follows:

Current assets (including cash of $3,200)		$	3,200
Intangible assets			-
Liabilities assumed			-
Net purchase price		$	3,200

Intangible assets acquired include a proprietary database of education-specific media publishers, a database of key words and performance metrics specific to the internet search channel of the education market, and a proprietary lead database processing architecture.

Discontinued Operations

As of March 31, 2013, the Company decided to discontinue business activities related to its "Certificate in Information Technology with a specialization in Smart Home Integration" program so that it may focus on growing its full-time, degree-seeking student programs, which have higher gross margins. On April 5, 2013, the Company gave 120-day notice to CLS 123, LLC of its intent to terminate the agreement between the Company and CLS 123, LLC dated November 9, 2011. Thus, as of August 3, 2013, the Company shall no longer be offering the "Certificate in Information Technology with a specialization in Smart Home Integration" program. The termination of the "Smart Home Integration Certificate" program qualifies as a discontinued operation and accordingly the Company has excluded results for this component from its continuing operations in the consolidated statements of operations for all periods presented. All relevant footnotes have been revised as applicable to conform to the discontinued operations presentation. The following table shows the results of the "Smart Home Integration Certificate" program component included in the income from discontinued operations:

		For the Four Months Ended								For the Year Ended
		April 30,								December 31,
		2013				2012				2012				2011
						(Unaudited)
Revenues		$	140,732			$	1,077,875			$	2,332,283			$	2,131,693
Costs and expenses:
Cost of revenues			126,659				929,362				2,026,928				1,674,127
General and administrative			126,000				-				169,045				-
Total costs and expenses			252,659				929,362				2,195,973				1,674,127
Income (loss) from discontinued operations, net of income taxes		$	(111,927	)		$	148,513			$	136,310			$	457,566

The major classes of assets and liabilities of discontinued operations on the balance sheet are as follows:

		April 30,				December 31,
		2013				2012				2011
Assets
Cash and cash equivalents		$	-			$	67,750			$	-
Accounts receivable, net of allowance of $295,045, $169,045 and $0, respectively			113,822				322,026				632,135
Other current assets			-				3,438				-
Net assets from discontinued operations		$	113,822			$	393,214			$	632,135
Liabilities
Accounts payable		$	1,178			$	1,178			$	679,882
Accrued expenses			70,201				185,395				39,225
Deferred revenue			53,125				39,857				-
Net liabilities from discontinued operations		$	124,504			$	226,430			$	719,107

Going Concern

The Company had a net loss allocable to common stockholders of $1,402,982 and negative cash flows from operations of $918,941 for the four months ended April 30, 2013 and net loss allocable to common stockholders of $6,048,113 and negative cash flows from operations of $4,522,710 for the year ended December 31, 2012. While management expects operating trends to improve over the course of calendar year 2013, the Company's ability to continue as a going concern is contingent on securing additional debt or equity financing from outside investors. These matters raise substantial doubt about the Company's ability to continue as a going concern.

Management plans to continue to implement its business plan and to fund operations by raising additional capital through the issuance of debt and equity securities. During 2012, the Company raised $5,778,000 in gross funding including: (i) $1,706,000 from the sale of convertible notes and warrants under the Laidlaw arrangement (See Note 9), (ii) $600,000 from the sale of convertible notes to the Company's chief executive officer (the "CEO") (See Notes 9 and 15), and (iii) $3,472,000 from Units (consisting of common stock and warrants) (See Note 12). Since the beginning of 2013, the Company has received an additional $1,041,540 in funding from the sale of Units (consisting of shares of common stock and warrants). (See Note 12.) 果冻APP传媒 Group is planning to conduct a future offering in Fall of 2013 to raise up to $7 million from the sale of equity securities with the goal of meeting part of the NASDAQ's initial listing standards. These proceeds will be used to meet cash flow deficits and to accelerate the growth of the business.

The consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.