Report of Independent Registered Public
Accounting Firm
To the Board of Directors
Pollex, Inc.
Santa Clara, CA.
We have audited the accompanying balance
sheet of Pollex, Inc. as of December 31, 2015, and the related statements of operations, stockholders’ deficit, and cash
flows for the year then ended. Pollex, Inc.’s management is responsible for these financial statements. 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 Pollex, Inc. as of December 31, 2015, and
the results of its operations and its cash flows for the year ended December 31, 2015, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As discussed in Note B to the financial statements, the
Company incurred net losses of $418,868 for the year ended December 31, 2015, had negative working capital of $3,801,428 and an
accumulated deficit of $140,840,109 at December 31, 2015. These conditions raise substantial doubt about its ability to continue
as a going concern. Management’s plans regarding these matters are also described in Note B. The financial statements do
not include any adjustments that may result from the outcome of this uncertainty.
/s/ Cowan, Gunteski & Co., P.A.
April 1, 2016
Tinton Falls, NJ
Reply
to:
730 Hope Road Tinton Falls NJ 07724 Phone: 732.676.4100 Fax: 732.676.4101
40
Bey Lea Road, Suite A101 Toms River NJ 08753 Phone: 732.349.6880 Fax: 732.349.1949
Member
of CPAmerica International
www.CowanGunteski.com
NOTES TO FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE A – ORGANIZATION AND DESCRIPTION OF BUSINESS
Pollex, Inc. (the “Company”)
is an owned subsidiary of Joytoto Co., Ltd. (“Joytoto Korea”). Our operations are focused in Online Games by
acquiring new game licenses and by providing commercial service of such games in South Korea and the United States.
The Company is currently operating “The Great Merchant”.
NOTE B – GOING CONCERN
As indicated in the accompanying financial
statements, the Company incurred net losses of $372,885 and $418,868 for the years ended December 31, 2016 and 2015, respectively,
had negative working capital of $4,093,013 at December 31, 2016 and had an accumulated deficit of $141,212,994 at December 31,
2016. Management’s plans include raising capital through the equity markets to fund future operations and generating
revenue through its license agreement. Failure to raise adequate capital and generate adequate sales revenues could result in the
Company having to curtail or cease operations. Additionally, even if the Company does raise sufficient capital to support its operating
expenses, there can be no assurances that the revenue will be sufficient to enable it to develop business to a level where it will
generate profits and cash flows from operations. These matters raise substantial doubt about the Company’s ability to continue
as a going concern. However, the accompanying financial statements have been prepared on a going concern basis, which contemplates
the realization of assets and satisfaction of liabilities in the normal course of business. These 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.
NOTE C – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the 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 amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Cash Equivalents
The Company considers all highly-liquid investments
with an original maturity of three months or less to be cash equivalents. In addition, amounts on deposit with Paypal and Paymentwall,
a third-party payment processor, are considered cash equivalents in the amount of $9,160 as of December 31, 2016.
Revenue Recognition
The Company recognizes revenue from the sale
of products and services in accordance with Accounting Standards Codification (“ASC”) 605, “Revenue Recognition.”
Revenues are recognized when all of the following criteria have been met: persuasive evidence for an arrangement exists; delivery
has occurred or services have been rendered; the fee is fixed or determinable; and collectability is reasonably assured. The Company
recognizes revenues from the sale of micro-transactions of its game, The Great Merchant. All payments are made through Paypal and
Paymentwall.
POLLEX, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE C – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Deferred tax assets and liabilities are recognized
for the estimated 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
in effect for the year in which those temporary differences are expected to be recovered or settled.
The Company recognizes and measures uncertain
tax positions and records tax benefits when it is more likely than not that the tax position will be sustained on examination by
the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements
from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon
ultimate settlement. The Company recognizes interest and penalties as a component of income tax expense.
At December 31, 2016 and 2015, the Company
had not incurred any liability for the payment of tax related interest and there was no tax interest or penalties recognized in
the statements of operations.
Net Loss Per Common Share
Basic earnings per share (“EPS”)
is computed by dividing the income (loss) available to common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS is based on the weighted-average number of shares of common stock and common stock equivalents outstanding
during the periods. There are no potential dilutive common shares at December 31, 2016 and 2015.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards
Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09 –
Revenue From Contracts with
Customers
, to clarify the principles of recognizing revenue and create common revenue recognition guidance between U.S. Generally
Accepted Accounting Principles ("GAAP") and International Financial Reporting Standards. The core principle of the guidance
is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects
the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will
need to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations
in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction
price to each separate performance obligation. In August 2015, the FASB issued ASU 2015-14 –
Revenue from Contracts with
Customers (Topic 606): Deferral of the Effective Date
, deferring the effective date for one year to interim and annual periods
beginning after December 15, 2017. Early adoption is also permitted as of the original effective date (interim and annual periods
beginning after December 15, 2016) and retrospective application is required. Management is currently evaluating the impact of
this ASU on the consolidated financial statements.
POLLEX, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE C – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements (Continued)
In February 2016, the FASB issued a comprehensive
new lease standard ASU No. 2016-02, which will supersede previous lease guidance. The standard requires a lessee to recognize assets
and liabilities related to long-term leases that were classified as operating leases under previous guidance in its balance sheet.
An asset would be recognized related to the right to use the underlying asset and a liability would be recognized related to the
obligation to make lease payments over the term of the lease. The standard also requires expanded disclosures surrounding leases.
The standard is effective for fiscal periods beginning after December 15, 2018, and requires modified retrospective adoption, with
early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial
statements and related disclosures.
Reclassification
Certain amounts have been reclassified
for presentation purposes. The amounts of $380,761 from the year ended December 31, 2015 in accounts payable were reclassified
as advances from affiliate.
NOTE D – LICENSE AGREEMENTS
On April 18, 2007, the Company entered into
a master license agreement with Joytoto Korea granting the Company a 10 year license through April 2017 for up to 4 online games,
including The Great Merchant. This license is renewable for two additional 5 year terms for $10,000. Prior to the launch of the
Great Merchant in 2010, the Company determined that the master license agreement was fully impaired.
POLLEX, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE E – RELATED PARTY TRANSACTIONS
Certain expenses have been paid on behalf of
the Company by Joytoto Korea. The Company has recognized the expenses and corresponding payable to Joytoto Korea as due to affiliate.
The advances are non-interest bearing and have no specific repayment date.
For
the years ended December 31, 2016 and 2015, the Company also borrowed $5,155 and $28,720, respectively, from Joytoto Korea. For
the years ended December 31, 2016 and 2015, the Company repaid $34,423 and $1,000, respectively, to Joytoto Korea. At December
31, 2016 and 2015, $707,756 and $737,024 were due to Joytoto Korea.
On July 1, 2010, the Company entered into
a Service Agreement with Gameforyou, Incorporated, a wholly-owned subsidiary of Joytoto Korea. Under this
agreement, Gameforyou, Incorporated provides translation, customer support, and system operations and
maintenance. The Company is required to pay Gameforyou, Incorporated $10,000 in cash and $10,000 in cash or stock
each month. There has been no issuance of stock and any issuance of stock will be at the market value or
price determined by both parties and must be agreed by both parties. For the years ended December 31, 2016 and
2015, $240,000 and $240,000, respectively, were recognized in the Statement of Operations under this agreement.
During the year ended December 31, 2014, the
Company began making purchases of computer equipment for resale by a related company, BCasual, Incorporated (“BCasual”.)
At December 31, 2015, BCasual owed the Company $59,934 relating to these transactions. Effective December 31, 2015, Joytoto Korea
agreed to assume the amounts due from BCasual. As such, the payable to Joytoto Korea has been offset by the $59,934 which was due
from BCasual at December 31, 2015.
In June 2014, the Company entered a sublease
agreement with BCasual for its existing office space. BCasual agreed to pay the Company $1,250 per month under this agreement.
The agreement terminated on December 31, 2016.
NOTE F – LOANS PAYABLE
The loans payable consists of unsecured
borrowings from two notes from AK Interactive, Co. Ltd. and Mr. Seung Han Shin The terms of the promissory notes are one year
and bear interest at an annual rate of 6%. The notes may be repaid at any time prior to their due date without a prepayment
penalty. There is no collateral associated with these notes. For years ended December 31, 2016 and 2015, the accrued interest
was $73,148 and $72,948, respectively.
At December 31, 2016 and 2015, the Company
owed $1,215,799 under such notes which is payable on demand.
POLLEX, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE G - INCOME TAXES
At
December 31, 2016, the Company had an unused net operating loss carryforward of approximately $6,990,000 for
income tax purposes, which expires between 2027 and 2036. This net operating loss carryforward may result in future income tax
benefits of approximately $2,377,000
; however because realization
is uncertain at this time, a valuation allowance in the same amount has been established. 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.
Significant components of the Company’s deferred tax liabilities
and assets as of December 31, 2016, and 2015 are as follows:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred tax asset-
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
|
2,377,000
|
|
|
|
2,250,000
|
|
Valuation allowance
|
|
|
(2,377,000
|
)
|
|
|
(2,250,000
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
The income tax expense (benefit) differs from
the amount computed by applying the United States statutory corporate income tax rate as follows:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
U.S. statutory income tax rate
|
|
|
34
|
%
|
|
|
34
|
%
|
Change in valuation allowance of deferred tax assets
|
|
|
(34
|
)%
|
|
|
(34
|
)%
|
Net deferred tax asset
|
|
|
-
|
%
|
|
|
-
|
%
|
POLLEX, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2016 and 2015
NOTE H – COMMITMENTS AND CONTINGENCIES
Property Leases:
On September 5, 2012, the Company signed a
lease for office space in Santa Clara, California. The lease term was through September 30, 2015. The Company’s
made a deposit of $1,300 and the rent payments were $1,380 per month. In June 2014, the Company entered a sublease agreement with
BCasual for its’ existing office space. BCasual agreed to pay the Company $1,250 per month under this agreement. The lease
terminated on December 31, 2016.
On October 1, 2016, the Company signed a month-to-month
lease with rent payments of $3,255.
Rent expense for the years ended December 31,
2016 and 2015 was $3,255 and $1,860, respectively
Employment Agreements:
On March 21, 2014, the Company entered into
three-year employment agreement through March 21, 2017 with Mr. Seong Sam Cho, to serve as Chief Executive Officer, President and
Chairman for an annual salary of $1.00. For the years ended December 31, 2016 and 2015, the Company recorded $80,000 and $80,000,
respectively, for the fair value of the services contributed by Seong Sam Cho. Services include development and implementation
of the Company’s strategy, ensure that Company is organized and risks are monitored and managed, and effective communication
with shareholders and the public.
On April 6, 2017, the Company
entered into a new one year employment agreement through April 6, 2018 with Mr. Seong Sam Cho, to serve as Chief
Executive Officer, President and Chairman for an annual salary of $80,000.