As filed with the Securities and Exchange Commission on October 1, 2014

REGISTRATION NO. 333- 195914

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


AMENDMENT NO. 1
TO
FORM S-1


REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

U-VEND, INC.
(FORMERLY INTERNET MEDIA SERVICES, INC.)
(Exact name of registrant as specified in its charter)

Delaware
 
5960
 
22-3956444
(State or other jurisdiction of incorporation or organization)
 
(Primary Standard Industrial Classification Code Number)
 
(I.R.S. Employer Identification No.)


1507 7 th Street, #425
Santa Monica, CA 90401
(310) 295-1922
 (Address, including zip code, and telephone number,
including area code, of registrant’s principal executive officer)


Raymond Meyers
Chief Executive Officer
1507 7 th Street, #425
Santa Monica, CA 90401
(310) 295-1922
(Name, address, including zip code, and telephone number, including area code, of agent for service)


Copies to:
Law Office of Gary A Agron
 5445 DTC Pkwy, Suite 520
 Greenwood Village, CO 80111
(303) 770-7254

Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. þ

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

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 “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company þ
(Do not check if a smaller reporting company)
 
 

CALCULATION OF REGISTRATION FEE

         
  
  
  
Proposed
  
  
Amount to
Proposed
Maximum
  
Title of Each Class
be
Maximum
Aggregate
Amount of
of Securities to be
Registered
Offering Price
Offering Price
Registration
Registered
(1)
per Share ($)
($)(2)
Fee($)
Shares of Common
       
Stock, par value
8,346,076
$ 0. 45
$3,755,734
$483.74
$0.001
       
   
1
8,346,076 shares are being offered by a direct offering at the price of $ 0. 45 per share.
   
2
Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) of the Securities Act, based upon the fixed price of the direct offering.


The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
 
 
 

 
 
 
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities nor may offers to buy these securities be accepted until the registration statement filed with the Securities and Exchange Commission becomes effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION, DATED OCTOBER 1, 2014
U-VEND, INC (formerly known as INTERNET MEDIA SERVICES, INC.)
8,346,076 Shares of Common Stock

 
We are registering 8,346,076 shares of our common stock, par value $0.001 per share for sale by the selling stockholders set forth herein. Of such shares:

 
·
Up to 2,090,000 are issuable upon conversion of $95,000 of the $370,000 of the senior convertible notes issued to Cobrador Multi-Strategy Partners LP between June 2013 and June 2014 (collectively, the “Cobrador Notes”) and 6,000,000 shares upon partial exercise of the 22,200,000 warrants issued in conjunction with the Cobrador Notes (the “Cobrador Warrants”), subject to the terms and conditions of said Cobrador Notes and Cobrador Warrants.  Under the current terms of the Cobrador Notes and Cobrador Warrants, Cobrador Multi-Strategy Partners LP does not have the right to beneficially own (through the conversion of Cobrador Notes or the exercise of Cobrador Warrants) more than 4.99% of our outstanding shares of common stock within sixty (60) days following the date of this Registration Statement.  Such aggregate amount of shares as of the date of this Registration Statement is based on (i) 28% of the common stock initially issuable upon conversion of the Cobrador Notes, and (ii) 27% of the number of other shares of common stock otherwise initially issuable upon exercise of the Cobrador Warrants.  In addition to both economic and customary anti-dilution adjustments, the conversion price of the Cobrador Notes and the exercise prices of and number of shares issuable pursuant to the Cobrador Warrants are subject to additional adjustments including, but not limited to stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions, and the results of the Measuring Period (80% of the average of the Volume Weighted Average Price (VWAP) for the 10 trading days immediately following the date that the Registration Statement covering the resale of all the shares underlying the Notes and Warrants is declared effective).  The conversion price of the Cobrador Notes are subject to a floor price of $0.03 per share.  For the purposes of this Registration Statement, no Measuring Period adjustments were assumed.

 
·
256,076 shares of common stock issuable upon exercise of warrants issued to Automated Retail Leasing Partners, LLP (the “ARLP Warrants”) and their designees in connection with providing certain equipment leases to the Company.  Such aggregate amount of shares calculated by the Company as of the date of this Registration Statement represents 15% of the number of shares of common stock issuable upon exercise of the ARLP Warrants granted in connection with the lease financing transactions.

 The Cobrador Notes are referred to collectively in this prospectus as the “Notes.”  The Cobrador Warrants, and the ARLP Warrants are referred to collectively in this prospectus as the “Warrants.”

The selling stockholders identified in this prospectus, or their pledgees, donees, transferees or other successors-in-interest, may offer the shares from time to time through public or private transactions at prevailing market prices, at prices related to prevailing market prices or at privately negotiated prices. We will not receive any proceeds from the sale of the shares of common stock. However, we may receive proceeds in connection with the exercise of the Warrants, if they are exercised for cash. The selling stockholders will sell the shares of common stock in accordance with the “Plan of Distribution” set forth in this prospectus. The selling stockholders will bear all commissions and discounts, if any, attributable to the sales of shares of common stock. We will bear all costs, expenses and fees in connection with the registration of the shares of common stock.

Our common stock is currently traded in the over-the-counter market and is quoted on the OTC Pink under the symbol “UVND”. On September 1, 2014, the closing price for our common stock was $0.45.

 
1

 
 

In April 2014, the Company submitted an application to FINRA to change the name and stock symbol of the Company, and to effect a 1 for 200 reverse stock split of its common stock.  On May 16, 2014 these actions were effective.  This prospectus reflects the effect of these actions.

The shares being registered and other disclosures throughout this prospectus reflect the following amendments to the agreements previously disclosed:

 
1.
On April 30, 2014, the Exchange of Securities Agreement by and among Internet Media Services, Inc. and U-Vend Canada Inc. effective January 7, 2014, was amended to reflect the proposed reverse stock split ratio of 1 for 200.  Prior to the amendment the January 2014 Agreement used an estimated reverse stock ratio of 1 for 133.

 
2.
The first three issued Cobrador notes and warrant agreements were amended to reflect the proposed stock split ratio of 1 for 200.  A reverse stock split ratio of 1 for 50 and 1 for 133 was used in the first three Cobrador notes and warrants.  This registration statement reflects the amendment and has adjusted the shares being registered under the Cobrador Notes to be reflective of the 1 for 200 reverse stock split.
 
The purchase of the securities offered through this prospectus involves a high degree of risk. See the section of this prospectus entitled “Risk Factors.”

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

The date of this prospectus is October 1, 2014

 
2

 
 

 
TABLE OF CONTENTS

 
Page
ABOUT THIS PROSPECTUS
4
   
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
4
   
PROSPECTUS DELIVERY REQUIREMENTS
4
   
PROSPECTUS SUMMARY
4
   
SUMMARY FINANCIAL INFORMATION
6
   
RECENT DEVELOPMENTS
6
   
RISK FACTORS
14
   
USE OF PROCEEDS
21
   
SELLING STOCKHOLDERS
21
   
PLAN OF DISTRIBUTION
22
   
BUSINESS
24
   
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
26
   
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
29
   
MANAGEMENT
34
   
EXECUTIVE COMPENSATION
36
   
PRINCIPAL STOCKHOLDERS
37
   
SECURITY OWNERSHIP OF MANAGEMENT 38
   
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
38
   
DESCRIPTION OF SECURITIES
39
   
LEGAL MATTERS
41
   
EXPERTS
41
   
AVAILABLE INFORMATION 42
   
DISCLOSURE OF SEC POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
42
   
INDEX TO FINANCIAL STATEMENTS
F-1
 
 
3

 
 

ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement that we filed with the Securities and Exchange Commission (the “SEC”) using the SEC’s registration rules for a delayed or continuous offering and sale of securities. Under the registration rules, using this prospectus and, if required, one or more prospectus supplements, the selling stockholders named herein may distribute the shares of common stock covered by this prospectus. A prospectus supplement may add, update or change information contained in this prospectus.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Information contained in this prospectus contains “forward-looking statements.” These forward-looking statements are contained principally in the sections titled “Risk Factors,” “ Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” and are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology.

The forward-looking statements herein represent our expectations, beliefs, plans, intentions or strategies concerning future events, including, but not limited to: our future financial performance; our future operations; our competitive advantages; our brand image; our ability to meet market demands; the sufficiency of our resources in funding our operations; and our liquidity and capital needs.

Our forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that any projections or other expectations included in any forward-looking statements will come to pass. Moreover, our forward-looking statements are subject to various known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements.

Except as required by applicable laws, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

PROSPECTUS DELIVERY REQUIREMENTS

Until _______, 2014, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters.

PROSPECTUS SUMMARY

This summary provides an overview of all material information contained in this prospectus. It does not contain all the information you should consider before making a decision to purchase the shares our selling stockholders are offering. You should very carefully and thoroughly read the more detailed information in this prospectus and review our financial statements appearing elsewhere in this prospectus.

Unless the context otherwise requires, references in this prospectus to, “U-Vend”, “Company,” “we,” “our” and “us” refers to U-Vend, Inc., a Delaware corporation and its subsidiaries.

Business Overview

On January 7, 2014, we entered into an Exchange of Securities Agreement (“Agreement”) with U-Vend Canada, Inc. and the shareholders of U-Vend Canada, Inc.   U-Vend Canada, Inc. together with its wholly owned subsidiary, U-Vend USA LLC  is in the business of developing, marketing and distributing co-branded self-serve electronic kiosks, mall/airport co-branding islands, and digital advertising solutions throughout North America.

U-Vend Canada, Inc. was established in May 2009, and its subsidiary U-Vend USA LLC was formed in April 2010.  U-Vend is in the business of developing, marketing and distributing various self-serve electronic kiosks and mall/airport co-branded islands throughout North America. U-Vend has four market concentrations; Environmental, Retail, Service and Mall/Airport Islands with a primary focus on Environmental and Retail.  U-Vend seeks to place its kiosks in high-traffic host locations such as big box stores, restaurants, malls, airports, casinos, universities, and colleges.  Currently, U-Vend owns and operates its kiosks but intends to also provide the kiosks, through a distributor relationship, to entrepreneurs wanting to own their own business.  As of September 1, 2014, U-Vend owned and operated 78 kiosks and 2 freezers in the greater Chicago, IL area and markets products supplied by its co-branding partners.   
 
 
4

 
 
U-Vend’s “next-generation” vending kiosks incorporates advanced wireless technology, creative concepts, and ease of management.  All kiosks have been designed to be tech-savvy and can be managed on line 24 hours a day/7 days a week, accepting traditional cash input as well as credit and debit cards.  Host locations and suppliers have been drawn to U-Vend’s concept of product vending based on the advantages of reduced labor and lower product theft as compared to non-kiosk merchandising platforms.

U-Vend has developed solutions for the marketing of products through a variety of kiosk offerings.  These offerings include kiosks oriented for product recycling, solar powered waste bins, and cell phone charging kiosks.  U-Vend offers digital LCD monitors to most makes and models of their kiosk program. This allows the ability to offer digital advertising as a national and/or local loop basis and a corresponding additional revenue stream for U-Vend.  U-Vend has also designed a Mall and Airport Multipurpose Island, taking several of the self-serve kiosks and then bundled them into an "island", all in one central location, creating a destination concept within a mall and/or airport setting. The island is always partnered with a co-branding anchor as part of the overall concept.

Principal Executive Offices

Our mailing address for our executive offices is 1507 7 th Street, Unit 425, Santa Monica, CA 90401 and our telephone number is (310) 295-1922.  Our website is www.u-vend.com . Information contained on our website does not constitute part of this prospectus.

The Offering

Common stock offered by selling stockholders
 
8,346,076 shares of common stock. (1)
 
Common stock outstanding on September 1, 2014
 
 
9,371,082 shares of common stock. (2)
 
Terms of the Offering
 
 
The selling stockholders will determine when and how they will sell the common stock offered in this prospectus.
 
Use of Proceeds
 
 
We will not receive any proceeds from the sale of common stock offered by the selling stockholders under this prospectus. We may receive proceeds in connection with the exercise of the Warrants, if exercised for cash. We intend to use any such proceeds for working capital and other general corporate purposes. There is no assurance that any of the Warrants will ever be exercised for cash, if at all.
 
Risk Factors
 
 
The common stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. Risk Factors relating to our business and prospects include:
   
 
·       the limited operating history with our current business; significant losses incurred to date and “ going concern ” explanatory paragraph in our auditors’ report;
   
 
·       the need for substantial additional financing to become commercially viable;
   
 
·       restrictions on incurring additional debt and pledging our assets;
   
 
·       dependence upon the successful development, commercial launch and acceptance of our planned products and in the successful license of our technology;
   
 
·       effectiveness of the Company’s marketing strategy;
   
 
·       competition; and
   
 
·       our reliance on key members of management.
 
(1)
Of the 8,346,076 shares registered hereunder, up to 8,090,000 shares are issuable to Cobrador Multi-Strategy Partners LP upon conversion of the Cobrador Notes (up to 2,090,000 shares) and upon exercise of the Cobrador Warrants (up to 6,000,000 shares), subject to the terms and conditions of said Cobrador Notes and Cobrador Warrants, calculated by the Company as of the date of this registration statement based on the partial number of shares of common stock issuable upon conversion of the Cobrador Notes and the number of other shares of common stock issuable pursuant to the Notes, and (i) 256,076 shares of common stock representing shares initially issuable upon exercise of the ARLP Warrants.
 
(2)
Does not include (i) 13,250 shares of common stock issuable upon the exercise of outstanding warrants from the 2011-2012 private placement of securities, (ii) 1,350,669 shares of common stock issuable upon the exercise of outstanding warrants held by the pre-acquisition U-Vend Canada shareholders, (iii) 208,334  shares of common stock issuable upon the conversion of outstanding subordinated convertible notes (excluding the Cobrador Notes), (iv)1,716,702 shares of common stock issuable upon the exercise of outstanding warrants related to lease financing obligations with ARLP, (v) 41,667 shares of common stock issuable upon the exercise of outstanding warrants held by ARLP issued in connection with a short term 2014 Promissory Note, (vi) 1,911,480 shares of common stock issuable upon the exercise of outstanding warrants granted in financial advisors in connection with the merger with U-Vend Canada, Inc. on January 7, 2014, (vii)  360,650 shares of common stock issuable upon exercise of stock options granted under the Company’s 2011 Equity Incentive Plan, (viii) 4,639,350 additional shares of common stock reserved for issuance under the Company’s 2011 Equity Incentive Plan, (ix) 4,522,850 shares of common stock issuable under certain earn-out provisions of the January 2014 Exchange of Securities Agreement between Internet Media Services, Inc and U-Vend Canada, Inc., and (x) 22,200,000 shares of common stock issuable upon the exercise of  outstanding warrants held by Cobrador Multi-Strategy Partners, LP. and (xi) 520,833 shares of common stock issuable upon the exercise of outstanding warrants held by a director.

 
5

 
 
 
SUMMARY FINANCIAL INFORMATION

The following summary selected condensed consolidated financial information as of June 30, 2014 and for the six month periods ended June 30, 2014 and 2013 have been derived from our unaudited condensed consolidated financial statements and as of  and for the years ended December 31, 2013 and 2012, have been derived from our audited consolidated financial statements. The condensed consolidated financial information set forth below should be read in conjunction with “Management's Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes thereto included elsewhere in this prospectus.
 
               
For the Years
 
   
For the Six Months Ended
June 30,
   
Ended
December 31,
 
   
2014
   
2013
   
2013
   
2012
 
   
(unaudited)
   
(unaudited)
             
                         
Consolidated Statement of Operations Data:
                               
                                 
Sales, net
 
$
95,636
   
$
-
   
$
-
   
$
-
 
Operating loss
 
$
(710,017)
 
 
$
(178,991)
   
$
(339,885
)
 
$
(242,506
)
Other (expense)
 
$
(455,473)
)
 
$
(20,193)
 
 
$
(68,209
)
 
$
(142,449
)
Loss before income taxes
 
$
(1,165,490)
 
 
$
(199,184)
   
$
(408,094
)
 
$
(384,955
)
Income tax provision
 
$
-
   
$
-
 
 
$
(2,200
)
 
$
(4,185
)
Loss from continued operations
 
$
(1,165,490)
   
$
(199,184)
   
$
(410,294
)
 
$
(389,140
)
Income (loss) from discontinued operations
 
$
-
   
23,013
   
$
23,013
   
$
(37,858
)
Net loss
 
$
(1,165,490)
   
$
(176,171)
   
$
(387,281
)
 
$
(426,998
)
Loss per share, basic and diluted
 
$
(0.15)
   
$
(1.19)
   
$
(1.09
)
 
$
(3.51
)
Weighted average common shares outstanding
   
7,672,590
     
148,597
     
356,869
     
121,570
 
                                 

   
June 30,
   
December 31,
 
   
2014
   
2013
   
2012
 
   
(unaudited)
             
                   
Balance Sheet Data:
                 
                   
Cash
 
$
31,366
   
$
14,620
   
$
1,262
 
Total assets
 
$
1,685,152
   
$
197,603
   
$
226,983
 
Total liabilities
 
$
2,399,175
   
$
526,690
   
$
818,540
 
Total stockholders’ deficiency
 
$
(714,023)
   
$
(329,087
)
 
$
(591,557
)
Total liabilities and stockholders’ deficiency
 
$
1,685,152
   
$
197,603
   
$
226,983
 

 
RECENT DEVELOPMENTS

Reverse Stock Split, Name and Stock Symbol Change

On April 10, 2014, our Board of Directors approved a 1-for-200 reverse stock split of our outstanding shares of common stock, the change of our corporate name to U-Vend, Inc., and obtaining a new stock symbol.  These actions were approved by the holders of a majority of the outstanding shares of our common stock. The reverse stock split, change of the company name, and new stock symbol become effective on May 16, 2014.  This Amendment 1 to Form S-1 document has been prepared giving effect to the 1-for-200 reverse split.

Cobrador Notes
 
In August 2013, the Company entered into a Securities Purchase Agreement ("SPA") dated June 18, 2013 with Cobrador Multi-Strategy Partners, LP (“Cobrador”) pursuant to which Cobrador will provide $400,000 of financing through senior convertible notes and warrants.

 
6

 
 
As of September 1, 2014, the Company had received eleven financing tranches totaling $370,000 of principal in connection with this SPA.  The financing includes (i) principal advances up to $400,000 (ii) interest at 7% during the one year term of each principal tranche (iii) a conversion feature of $0.05 per share subject to a reset 10 days after this registration statement is deemed effective (iv) Series A warrants based on 150% of the debt conversion shares with a two year term from the date of grant and (v) Series B warrants based on 150% of the debt conversion shares with a five year term from the date of grant.

Pursuant to the SPA Cobrador purchased a note, Series A warrants and Series B warrants.  As discussed below, the notes are convertible into shares of the Company’s common stock and are entitled to earn interest which may be paid in cash or in common shares.  The shares underlying the principal, interest and warrants are subject to anti-dilution protection if the Company were to issues securities at an exercise price below the Cobrador exercise prices, the Cobrador conversion and exercise prices would be reduced to such amount.

The terms of the Cobrador Notes include a beneficial ownership limitation applicable to the conversion of the notes and the exercise of the Series A and Series B warrants, such that no holder may convert the notes or exercise the warrants if, after such conversion or exercise, the holder would beneficially own, together with affiliates, more than 4.99% of the then issued and outstanding shares of the Company’s common stock.

In connection with the issuance of the Cobrador Notes, the Company paid National Securities Corporation, the placement agent a fee of $29,600 and $15,000 was paid to Cobrador for administrative fees.

Conversion and Conversion Price Adjustments
The holders of the Cobrador Notes are entitled to convert the note into conversion shares at any time by delivery of a Notice of Conversion to the Company.  On or before the third trading day after receipt of the conversion notice, the Company must deliver such number of conversion shares.  The notes have an initial conversion price of $0.05 per share. The number of conversion shares will be determined by the amount of principal being converted plus any accrued and unpaid interest by the conversion price effective on the date of the conversion.  The conversion price may be reset on 10 th consecutive trading day following the date on which the Registration Statement is declared effective or earlier:
 
·
the date the Registrable Securities may first be sold under Rule 144; and
 
·
the date that any of the Registrable Securities are registered in a registration statement.

The conversion price is subject to reset at the lower of:
 
·
the existing conversion price; and
 
·
80% of the average of the volume-weighted average prices for each of the preceding 10 consecutive trading days.
At no time, however will the conversion price be reset below $0.03 per share as a result of the foregoing adjustment.

Rights Under the Cobrador Notes
Purchase Rights - The holders of the Cobrador Notes are entitled to purchase rights in the event the Company grants, issues or sells any options, convertible securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of common stock.  Each note holder will be entitled to acquire such number of additional securities which the holder could have acquired if the holder had held the number of shares of common stock acquirable upon conversion of the note.

Redemption Rights of the Holders – At their option the holders are entitled to redemption rights on all or any portion of the notes upon the occurrence of (a) a change of control of the Company or (b) certain triggering events constituting an event of default.

Mandatory Conversion – All the outstanding notes will be mandatorily convertible if at any time after  the measurement period the closing sale price of the common stock listed on the principal market on which the common stock is sold exceeds 250% of the conversion price for 20 consecutive trading days and certain other conditions as set forth in the SPA.

Miscellaneous – The holders of the notes are not entitled to voting rights in their capacities as such, except as required by law. The Company must initially reserve a number of shares of common stock equal to the entire conversion rate with respect to the entire conversion amount for each note as of the debt issuance date. Thereafter, the Company must take all actions necessary to reserve and keep available out of its authorized and unissued common stock such number of shares of common stock equal to the number of shares of common stock necessary to effect the conversion of all the notes.

 
7

 
 
The Cobrador Warrants

The Series A warrants have a term of 24 months from the date the principal is advanced to the Company.  The Series B warrants have a term of 60 months from the date the principal is advanced to the Company.  The Series A and B warrants are immediately exercisable upon issuance into a total of 22.2 million fully paid shares at an initial exercise price of $0.05 for the Series A shares and $0.06 for the Series B shares.

Exercise and Exercise Price Adjustments – The holder may exercise the Cobrador warrants at any time by delivering to the Company a written notice of exercise and payment amount equal to the effective exercise price multiplied by the number of exercise shares.  Upon receipt of the notice of exercise and payment, the Company will issue and deliver to the holder the number of common shares to which the holder is then entitled pursuant to the exercise.  The exercise price is subject to adjustment if the Company, at any time after the issuance date, pays a stock dividend, subdivides or combines one or more classes of its then outstanding common stock, or issues and sells any shares of common stock pursuant to a dilutive issuance.

The Series B warrants include a cashless exercise provision, at the six month anniversary date after the date of issuance, if the registration statement is not effective on such date.  The holder can elect in this instance to exercise the warrants in whole or in part and in lieu of making cash payment receive the net number of shares of common shares as defined in the agreement.

Miscellaneous – The holders of the notes are not entitled to voting rights in their capacities as such, except as required by law.

Registration Requirements Cobrador
In connection with the Cobrador Notes, the Company filed the registration statement on Form S-1 with the SEC covering the resale of certain of the conversion shares and the underlying warrant shares.

The Company and Cobrador have entered into a registration rights agreement covering the registration of common stock underlying the Senior Convertible Notes the Warrants. The Company is required to file a registration statement within 120 days after completion of the acquisition of U-Vend, Inc. (January 7, 2014) and meet an effectiveness deadline of 165 days after the closing date of the acquisition, 195 days if the Securities and Exchange Commission provides comment. If the Company fails to comply with the terms of the registration rights agreement, the Investor would be entitled to an amount in cash equal to one percent (1%) of the principal amount stated on the date of the failure and monthly thereafter until failure is cured and all registration rights have been paid. As of September 1, 2014, the Company has incurred 1.3 months of registration delay payments as this registration statement was not declared effective within 195 days of the merger date.

Automated Retail Leasing Partners, LLP Warrants

The Company entered into a term sheet dated October 15, 2013 with Automated Retail Leasing Partners LLP (“ARLP”) to provide for equipment lease financing in the aggregate amount of $1 million. The Company will use this financing to acquire certain equipment to be used in the direct income producing activities. Since the inception of this lease financing agreement, the Company has acquired leased equipment for $465,500 pursuant to financing by the Lessor. ARLP was induced to extend the equipment line with a 50% warrant coverage based on the principal extended to the Company. ARLP has advanced three tranches of financing since the agreement. Warrants granted in connection with these principal advances and their respective terms are:

 
·
November 1, 2013   986,250 warrants with an exercise price of $0.12 per share and a three year term
 
·
March 5, 2014          246,563 warrants with an exercise price of $0.20 per share and a three year term
 
·
June 1, 2014             483,889 warrants with an exercise price of $0.18 per share and a three year term.

Registration Requirements ARLP

In connection with the ARLP initial financing tranche on November 1, 2013, the Company filed the registration statement on Form S-1 with the SEC covering the resale of the certain of the underlying warrant shares.

The Company and ARLP entered into a registration rights agreement covering the registration of common stock underlying 986,250 common stock warrants. This agreement required the Company to file a registration statement within 120 days after completion of the acquisition of U-Vend, Inc. (January 7, 2014) and use its best efforts to have the registration statement declared effective within 165 days or within 195 days if the registration statement is subject to a full review by the Securities and Exchange Commission. If the Company fails to comply with the terms of the registration rights agreement, ARLP would be entitled to an amount in cash equal to one percent (1%) of the principal amount stated on the date of the failure and monthly thereafter until failure is cured and all registration rights have been paid. ARLP agreed to amend this provision effective April 8, 2014 and on such date waived any and all remedies associated with the Company’s past performance of its duties under the Registration Rights Agreement.

 
8

 
 
Additional Information Regarding the Cobrador and ARLP Securities
 
 Selling Security Holders:

 
% of  Offering
Dates the  underlying securities received
Dollar Value of the Shares Registered
Net Proceeds Received
Discount on underlying securities
Cobrador Multi-Strategy Partners, LP
97%
June 18, 2013 – June 3, 2014
$4,406,000
$404,500
$4,001,500
 
Automated Retail Leasing Partners, LLP
3%
November 1, 2013 – June 1, 2014
$588,979
none
none

The selling shareholders are not affiliates of the Company.
Pensco Trust Company, as custodian for the IRA of David E. Graber, has an investment in the Automated Retail Leasing Partners (ARLP).  Mr. Graber is the Principal of Cobrador Multi-Strategy Partners.
The selling shareholders are not in the business of buying and selling securities.

Total dollar value of the securities underlying the convertible notes using the number of underlying securities registered for resale and the price or prices per share for those securities on the date of the note sales .

$610,400 based upon 2,090,000 shares of common stock being registered and the closing prices ranging from of $0.16 to $0.32 per share on the date of closing for each tranche of the financing.
 
Payments made or potential required to be made in connection with the transaction :
 
Types of Payment related to the Cobrador Notes
 
Total Payments Made
 
Total Potential Payments
Interest Payment
 
$           13,642
 
$      28,992
Finder’s Fees or Commission (1)
 
$           29,600
 
$      44,600
 
 
(1)
Represents a Placement Agent Fee of $29,600 and Cobrador administrative fees of $15,000.
 
There are no fees required in connection with the ARLP transaction.
 
Total possible profit the selling shareholders could realize as a result of the conversion discount for the securities underlying the Cobrador Notes:
 
 
Market price per share @ issuance
Conversion price
Maximum shares @ $0.05
 
Face Value
 
Market value
Discount to market
June 18, 2013
$  1.42
$  0.05
1,000,000
$   50,000
$  1,420,000
$ 1,370,000
August 21, 2013
$  0.60
$  0.05
1,000,000
$   50,000
$    600,000
$    550,000
October 17, 2013
$  0.28
$  0.05
1,000,000
$   50,000
 $    280,000
$    230,000
November 15, 2013
$  0.32
$  0.05
400,000
$   20,000
$    128,000
$    108,000
December 26, 2013
$  0.14
$  0.05
600,000
$   30,000
$      84,000
$      54,000
January 8, 2014
$  0.14
$  0.05
1,000,000
$   50,000
$    140,000
$      90,000
February 19, 2014
$  0.16
$  0.05
500,000
$   25,000
$      80,000
$      55,000
March 7, 2014
$  0.32
$  0.05
500,000
$   25,000
$    160,000
$    135,000
April 1, 2014
$  0.32
$  0.05
500,000
$   25,000
$    160,000
$    135,000
May 1, 2014
$  0.28
$  0.05
500,000
$   25,000
$    140,000
$    115,000
June 3, 2014
$  0.30
$  0.05
400,000
$   20,000
$    120,000
$    100,000
Total
   
7,400,000
$ 370,000
$ 3,312,000
$ 2,942,000

 
9

 
 
The conversion price of the notes and the quantity and exercise prices of the Cobrador Warrants may be adjusted based on certain events including, but not limited to stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions.
 
The conversion price of the notes may be reset based upon the results of the Measuring Period (which is defined as the 10 trading days immediately following the date that the registration statement covering the resale of all the shares underlying the Note and Warrant is declared effective.)
 
The measurement period will determine the lower of:
- the conversion price or,
- a value measured at 80% of the average of the VWAPs for the 10 trading days immediately following the date that the registration statement covering the resale of all the shares underlying the Note and Warrant is declared effective.
 
The conversion price is subject to a floor price of $0.03 per share.
 
Total possible profit the selling shareholders could realize if the conversion price is reset to the floor of $0.03 per share for the securities underlying the Cobrador Notes:
 
 
Market price per share @ issuance
Conversion price @ floor
Maximum shares @ $0.03
 
Face Value
 
Market value
Discount to market
June 18, 2013
$  1.42
$  0.03
1,666,667
$   50,000
$  2,366,667
$ 2,316,667
August 21, 2013
$  0.60
$  0.03
1,666,667
$   50,000
$  1,000,000
$    950,000
October 17, 2013
$  0.28
$  0.03
1,666,667
$   50,000
 $     466,667
$    416,667
November 15, 2013
$  0.32
$  0.03
666,666
$   20,000
$     213,333
$    193,333
December 26, 2013
$  0.14
$  0.03
1,000,000
$   30,000
$     140,000
$    110,000
January 8, 2014
$  0.14
$  0.03
1,666,666
$   50,000
$     233,333
$    183,333
February 19, 2014
$  0.16
$  0.03
833,333
$   25,000
$     133,333
$    108,333
March 7, 2014
$  0.32
$  0.03
833,333
$   25,000
$     266,666
$    241,666
April 1, 2014
$  0.32
$  0.03
833,333
$   25,000
$     266,666
$    241,666
May 1, 2014
$  0.28
$  0.03
833,333
$   25,000
$     233,333
$    208,333
June 3, 2014
$  0.30
$  0.03
666,666
$   20,000
$     200,000
$    180,000
Total
   
12,333,331
$ 370,000
$  5,519,998
$ 5,149,998

 
Total possible profit the selling stockholder could realize as a result of the conversion discount for the securities underlying the warrants issued in connection with the Cobrador Notes:
 
 
SERIES A WARRANTS
Market price per share @ issuance
Exercise price
Maximum shares @ $0.05
Market value
Exercise cost of warrants
Possible Discount to market
June 18, 2013
$  1.42
$  0.05
1,500,000
$ 2,130,000
$   75,000
$ 2,055,000
August 21, 2013
$  0.60
$  0.05
1,500,000
$    900,000
$   75,000
$    825,000
October 17, 2013
$  0.28
$  0.05
1,500,000
 $    420,000
$   75,000
$    345,000
November 15, 2013
$  0.32
$  0.05
600,000
$    192,000
$   30,000
$    162,000
December 26, 2013
$  0.14
$  0.05
900,000
$    126,000
$   45,000
$      81,000
January 8, 2014
$  0.14
$  0.05
1,500,000
$    210,000
$   75,000
$    135,000
February 19, 2014
$  0.16
$  0.05
750,000
$    120,000
$   37,500
$      82,500
March 7, 2014
$  0.32
$  0.05
750,000
$    240,000
$   37,500
$    202,500
April 1, 2014
$  0.32
$  0.05
750,000
$    240,000
$   37,500
$    202,500
May 1, 2014
$  0.28
$  0.05
750,000
$    210,000
$   37,500
$    172,500
June 3, 2014
$  0.30
$  0.05
600,000
$    180,000
$   30,000
$    150,000
Total
   
11,100,000
$ 4,968,000
$ 555,000
$ 4,413,000

 
10

 
 
 
SERIES B WARRANTS
Market price per share @ issuance
Exercise price
Maximum shares @ $0.06
Market value
Exercise cost of warrants
Possible Discount to market
June 18, 2013
$  1.42
$  0.06
1,500,000
$ 2,130,000
$   90,000
$ 2,040,000
August 21, 2013
$  0.60
$  0.06
1,500,000
$    900,000
$   90,000
$    810,000
October 17, 2013
$  0.28
$  0.06
1,500,000
 $    420,000
$   90,000
$    330,000
November 15, 2013
$  0.32
$  0.06
600,000
$    192,000
$   36,000
$    156,000
December 26, 2013
$  0.14
$  0.06
900,000
$    126,000
$   54,000
$      72,000
January 8, 2014
$  0.14
$  0.06
1,500,000
$    210,000
$   90,000
$    120,000
February 19, 2014
$  0.16
$  0.06
750,000
$    120,000
$   45,000
$      75,000
March 7, 2014
$  0.32
$  0.06
750,000
$    240,000
$   45,000
$    195,000
April 1, 2014
$  0.32
$  0.06
750,000
$    240,000
$   45,000
$    195,000
May 1, 2014
$  0.28
$  0.06
750,000
$    210,000
$   45,000
$    165,000
June 3, 2014
$  0.30
$  0.06
600,000
$    180,000
$   36,000
$    144,000
Total
   
11,100,000
$ 4,968,000
$ 666,000
$ 4,302,000
 
The exercise price may be rest on the first trading day after the expiration of the measurement period.  If the conversion price is subject to adjustment as set forth in the agreement, it will be reset to the lower of:
 
 
-
the then existing exercise price; and
 
-
80% of the average of the volume-weighted average prices for each of the 10 consecutive trading days after the registration statement is declared
effective divided by 10.

The Series B warrants include a cashless exercise provision, at the six month anniversary date after the date of issuance, if the registration statement is not effective on such date.  The holder can elect in this instance to exercise the warrants in whole or in part and in lieu of making cash payment and receive the net number of shares of common shares as defined in the agreement. If all of the Cobrador Series B warrants are exercised on a cashless basis, the Company would not receive the $666,000 exercise cost of the warrants included in the table above. The number of underlying shares in a cashless exercise of the Series B warrants would be measured as a percentage determined based on the 5 day volume weighted-average price prior to the exercise date divided by the prior day volume weighted-average price times the original number of series B warrants in the initial grant.


Selling stockholder profit range on exercise of Cobrador Warrants assuming the conversion price does not get reduced to the floor during the measurement period and assuming cashless exercise is not requested for the Series B warrants:
 
 
Series A
Series B
Range of market price of the Company’s common stock on the date issuance
$1.42 to $0.14
$1.42 to $0.14
Exercise price
$0.05
$0.06
Maximum underlying shares
11,100,000
11,100,000
Market price for underlying shares
$4,968,000
$4,968,000
Conversion cost of Cobrador warrants
$555,000
$666,000
Total possible discount to market price
$4,413,000
$4,302,000

 
Selling stockholder profit range on exercise of Cobrador Warrants assuming the debt conversion price is adjusted to floor of $0.03 per share during the measurement period and assuming cashless exercise is not requested for the Series B warrants:
 
 
Series A
Series B
Range of market price of the Company’s common stock on the date issuance
$1.42 to $0.14
$1.42 to $0.14
Exercise price
$ 0.05
$ 0.06
Maximum underlying shares
18,500,000
18,500,000
Market price for underlying shares
$8,280,000
$8,280,000
Conversion cost of Cobrador warrants
$925,000
$1,110,000
Total possible discount to market price
$7,355,000
$7,170,000

 
11

 
 
Selling stockholder profit range on exercise of ARLP warrants:
 
 
November 1, 2013
March 5, 2014
June 1, 2014
Total
Market price of the Company’s common stock on the date issuance
$  0.40
$  0.20
$  0.30
 
Exercise price
$  0.12
$  0.20
$  0.18
 
Maximum underlying shares
986,250
246,563
483,889
1,716,702
Market price for underlying shares
$394,500
$49,313
$145,167
$588,980
Conversion cost of ARLP warrants
$118,350
$49,313
$87,100
$254,763
Total possible discount to market price
$276,150
0
$58,067
$334,217

 
Gross proceeds, possible payments and combined total possible profits on the Cobrador Securities assuming cashless exercise is not requested for the Series B warrants:
 
 
 
Initial investment Cobrador Notes
Initial Investment Cobrador Notes and warrant exercise @ original prices
Initial Investment Cobrador Notes and warrants using floor @ $ 0.03
Gross proceeds paid
$    370,000
$       370,000
$      370,000
Exercise Series A warrant proceeds
-
$       555,000
$      925,000
Exercise Series B warrant proceeds
-
$       666,000
$   1,110,000
Less: required payments
$      44,600
$         44,600
$        44,600
Possible net proceeds
$    325,400
$    1,546,400
$   2,360,400
       
Combined possible profit from conversion
$ 2,942,000
$  11,657,000
$ 19,674,998
Potential payments
$      73,592
$         73,592
$        73,592
Total discount and potential payments
$,3,015,592
$  11,730,592
$ 19,601,406
       
Discount and potential payment as a % of net proceeds
926%
759%
830%
Average discount and potential payment as a % of net proceeds over the term of the Cobrador notes
 
926%
 
759%
 
830%

 
There were no prior securities transactions between the Company or any of its predecessors and the selling shareholder, any affiliates of the selling shareholders, or any person with whom any selling shareholder has a contractual relationship regarding the transaction (or any predecessors of those persons).
 
   
Initial date of transaction with Cobrador
June 18,2013
   
Shares owned by non-affiliated owners
233,601
Number of shares registered for resale by the selling shareholders or affiliates in prior registration statements
0
Number of shares registered for resale by the selling shareholders or affiliates continued to be held
0
Number of shares sold in registered resale transactions by the selling shareholders or affiliates
0
Number of shares registered for resale on behalf of the selling shareholders in the current transaction
8,346,076

 
12

 

The Company’s ability to make payments due with respect to the Notes:
 
The Company believes that its business and financial strategy in conjunction with its revenue forecast and margin contribution will produce adequate cash flow to service the financial obligations in future periods. The Company is actively pursuing additional financing vehicles in order to maintain the growth and development of the business until positive cash flow from operations is achieved.  Should additional financing not be available, the Company will have to negotiate with its lenders to extend repayment of its indebtedness.  There can be no assurance that the Company will be able to successfully restructure its debt obligations in the event it fails to obtain additional financing.

The Company generated $62,000 in revenue from its distribution of self-serve electronic kiosks during the second quarter of 2014.  The Company currently operates 78 electronic kiosks and 2 Grab N Go freezers in the greater Chicago, Illinois region and markets products supplied by its co-branding partners. Management plans to continue its market development and revenue base through acquisition and through organic growth in the coming twelve month period. The Company estimates that its current cash requirement to support general and administrative efforts is approximately $50,000 per month. The Company estimates that it will require additional financing of approximately $1,000,000 during the next twelve months to achieve its strategic objectives.  We do not have commitments or firm plans to raise the additional financing and there can be no assurance that necessary additional financing will be available to the Company. Moreover, any such additional financing may dilute the interests of existing stockholders.  The absence of additional financing when needed, could cause the Company to scale down or delay the implementation of its business plans in whole or in part and curtail its business activities which could seriously harm the Company and its future prospects.

The face value of all outstanding senior convertible notes at September 1, 2014 is $370,000.  These notes obligate the Company to approximately $6,475 of interest payments on a quarterly basis.  The Cobrador notes have staggered maturity dates requiring principal repayment beginning in the fourth quarter of 2014.  Principal repayments on the Cobrador notes are currently scheduled as follows: October 2014 to December 2014 totaling $200,000; January 2015 to March 2015 totaling $100,000; April 2015 to June 2015 totaling $70,000. Management believes the due dates of the notes will be extended through the registration effectiveness date and will be converted to equity thereafter. To provide additional cash flows, the Company structured the senior convertible note issuance to include Series A and Series B warrants which expire with each funding tranche after two and five years, respectively.  These warrants are designed to generate approximately $1.2 million in additional working capital for the Company upon exercise. The Series B warrants include a cashless exercise provision, at the six month anniversary date after the date of issuance, if the registration statement is not effective on such date.  The holder can elect in this instance to exercise the warrants in whole or in part and in lieu of making cash payment receive the net number of shares of common shares as defined in the agreement.

The Company also has outstanding $125,000 in subordinated convertible notes and $125,000 in convertible notes acquired with the U-Vend Canada, Inc. merger in January 2014.  The subordinated convertible have a maturity in August of 2015 with interest due quarterly.  The convertible notes acquired with the U-Vend Canada merger mature in the third quarter of 2014.

Short sales by the selling stockholders:
 
We have been advised by the selling stockholders that in connection with sales of the shares of common stock or otherwise, the selling stockholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the shares of common stock in the course of hedging in positions they assume.  The selling stockholders may also sell shares of common stock short and deliver shares of common stock covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The selling stockholders may also loan or pledge shares of common stock to broker-dealers that in turn may sell such shares.  We have also been advised by the selling stockholders that no selling stockholder had a short position at the time such selling stockholder first became aware that the Company was contemplating a private placement.  Furthermore, during the period commencing on such date through the time of the public announcement of the private placement, no selling stockholder entered into any short sales with respect to the shares of common stock of the Company.
 
Calculation of shares registered hereunder:
 
The number of shares registered hereunder equals (i) 28% of the common stock initially issuable upon conversion of the Cobrador Notes at an initial conversion price of $0.05 per share, and (ii) 27% of the number of other shares of common stock otherwise initially issuable upon exercise of certain of the Series A Cobrador Warrants at an initial price of $0.05 per share, and (iii) 15% of the number of shares of common stock issuable upon the exercise of the ARLP warrants granted in connection with the lease financing transactions at an initial exercise price of $0.12 per share.
 
 
13

 

RISK FACTORS

An investment in our securities is subject to numerous risks, including the Risk Factors described below. Our business, operating results or financial condition could be materially adversely affected by any of the following risks.  The risks described below are not the only ones we face. Additional risks we are not presently aware of or that we currently believe are immaterial may also materially affect our business. In such case, we may not be able to proceed with our planned operations and your investment may be lost entirely. The trading price of our common stock could decline due to any of these risks.  In assessing these risks, you should also refer to the other information contained or incorporated by reference in this Form S-1, including our financial statements.  An investment in our securities should only be acquired by persons who can afford to lose their entire investment without adversely affecting their standard of living or financial security.

We have a limited operating history and may not be able to achieve financial or operational success.
 
We were founded in March 2007, initiated our first operating business in October 2009, exited from our first operating business in March 2013, and acquired our most recent operating business in January 2014.  We have a limited operating history with respect to this or any newly acquired business.  As a result, we may not be able to achieve sustained financial or operational success, given the risks, uncertainties, expenses, delays and difficulties associated with an early-stage business in an evolving market.
 
We have been the subject of a going concern opinion by our independent registered public accounting firm which has raised substantial doubt as to our ability to continue as a going concern.

Our independent registered public accounting firm added an explanatory paragraph to their audit opinion issued in connection with our consolidated financial statements which states that our financial condition raise substantial doubt as to our ability to continue as a going concern.  The Company incurred net comprehensive losses of $ 387,281 and $ 426,998 for the years ended December 31, 2013 and 2012 and $1,165,490 and $176,171 for the six (6) months (unaudited) ended June 30, 2014 and 2013, respectively.  As of December 31, 2013 and June 30, 2014 (unaudited), we had a total stockholders’ deficiency of $ 329,087 and $714,023, respectively.  These factors, among others, indicate that the Company may be unable to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.  Assurances cannot be given that adequate financing can be obtained to meet our capital needs.

The Company estimates that its current cash requirement to support general and administrative efforts is approximately $50,000 per month. The Company estimates that it will require additional financing of approximately $1,000,000 during the next twelve months to achieve its strategic objectives.  We do not have commitments or firm plans to raise the additional financing and there can be no assurance that necessary additional financing will be available to the Company. Moreover, any such additional financing may dilute the interests of existing stockholders.  The absence of additional financing when needed, could cause the Company to scale down or delay the implementation of its business plans in whole or in part and curtail its business activities which could seriously harm the Company and its future prospects. Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis to retain our current financing, to obtain additional financing and, ultimately, to attain profitability.

Our growth strategy includes acquisitions that entail significant execution, integration and operational risks.
 
We are pursuing a growth strategy based in part on acquisitions, with the objective of creating a combined company that we believe can achieve increased cost savings and operating efficiencies through economies of scale especially in the integration of administrative services.  We will seek to make additional acquisitions in the future to increase our revenue.
 
This growth strategy involves significant risks. There is significant competition for acquisition targets in our markets. Consequently, we may not be able to identify suitable acquisitions or may have difficulty finding attractive businesses for acquisition at reasonable prices. If we are unable to identify future acquisition opportunities, reach agreement with such third parties or obtain the financing necessary to make such acquisitions, we could lose market share to competitors who are able to make such acquisitions. This loss of market share could negatively impact our business, revenues and future growth.
 
Even if we are able to complete acquisitions, we may be unable to achieve the anticipated benefits of a particular acquisition, the anticipated benefits may take longer to realize than expected, or we may incur greater costs than expected in attempting to achieve anticipated benefits.
 
 
14

 
 
Any acquisition we make carries risks which could result in an adverse effect on our financial condition.  These risks include:
 
 
diversion of our attention from normal daily operations of our vending business to acquiring and assimilating new businesses;
 
 
the use of substantial portions of any cash we have available;
 
 
failure to understand the needs and behaviors of users for a newly acquired business or other product;
 
 
redundancy or overlap between existing products and services, on the one hand, and acquired products and services, on the other hand;
 
 
difficulty assimilating operations, technologies, products and policies of acquired businesses; and
 
 
assuming liabilities, including unknown and contingent liabilities, of acquired businesses.

If we are unable to develop and market new product offerings or fail to predict or respond to emerging trends, our revenue and any profitability will suffer.
 
Our future success will depend in part on our ability to modify or enhance our product offerings marketed through our vending kiosks to meet users’ demands.  If we are unable to predict preferences or industry changes, or if we are unable to modify our product offerings in a timely manner, we may lose revenue. New products may be dependent upon our ability to enter into new relationship with suppliers, which we may not be able to obtain in a timely manner, upon terms acceptable to us, or at all. We spend significant resources developing and enhancing our product offerings. However, new or enhanced product offerings may not be accepted by users. If we are unable to successfully source and market new product offerings in a timely and cost-effective manner, our revenue and any profitability will suffer.

If we fail to develop and diversify product offerings, we could lose market share.
 
The market for selling products through vending kiosks has a low barrier to entry which creates a high level of competition.  To remain competitive, we must continue to find, market, and sell new products through our vending kiosks.  The time, expense and effort associated with such development may be greater than anticipated, and any products actually introduced by us may not achieve consumer acceptance. Furthermore, our efforts to meet changing customer needs may require the development or licensing of products at great expense. If we are unable to develop and bring to market additional products, we could lose market share to competitors, which could negatively impact our business, revenues and future growth.
 
The increased security risks of online advertising and e-commerce may cause us to incur significant expenses and may negatively impact our credibility and business.
 
A significant prerequisite of online commerce, advertising, and communications is the secure transmission of confidential information over public networks. Concerns over the security of transactions conducted on the Internet, consumer identity theft and user privacy have been significant barriers to growth in consumer use of the Internet, online advertising, and e-commerce. A significant portion of our sales is billed directly to our customers’ credit card accounts. We rely on encryption and authentication technology licensed from third parties to effect secure transmission of confidential information. Encryption technology scrambles information being transmitted through a channel of communication to help ensure that the channel is secure even when the underlying system and network infrastructure may not be secure. Authentication technologies, the simplest example of which is a password, help to ensure that an individual user is who he or she claims to be by “authenticating” or validating the individual’s identity and controlling that individual’s access to resources. Despite our implementation of security measures, however, our computer systems may be potentially susceptible to electronic or physical computer break-ins, viruses and other disruptive harms and security breaches. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may specifically compromise our security measures. Any perceived or actual unauthorized disclosure of personally identifiable information regarding website visitors, whether through breach of our network by an unauthorized party, employee theft or misuse, or otherwise, could harm our reputation and brands, substantially impair our ability to attract and retain our audiences, or subject us to claims or litigation arising from damages suffered by consumers, and thereby harm our business and operating results. If consumers experience identity theft after using any of our websites, we may be exposed to liability, adverse publicity and damage to our reputation. To the extent that identity theft gives rise to reluctance to use our websites or a decline in consumer confidence in financial transactions over the Internet, our businesses could be adversely affected. Alleged or actual breaches of the network of one of our business partners or competitors whom consumers associate with us could also harm our reputation and brands. In addition, we could incur significant costs in complying with the multitude of state, federal and foreign laws regarding the unauthorized disclosure of personal information. For example, California law requires companies that maintain data on California residents to inform individuals of any security breaches that result in their personal information being stolen. Because our success depends on the acceptance of online services and e-commerce, we may incur significant costs to protect against the threat of security breaches or to alleviate problems caused by such breaches. Internet fraud has been increasing over the past few years, and fraudulent online transactions, should they continue to increase in prevalence, could also adversely affect the customer experience and therefore our business, operating results and financial condition.
 
 
15

 
 
We depend on key management, product management, technical and marketing personnel for continued success.
 
Our success and future growth depend, to a significant degree, on the skills and continued services of our management team, including Paul Neelin, our Chief Operations Officer and Raymond Meyers, our Chief Executive Officer.  Our ongoing success also depends on our ability to identify, hire and retain skilled and qualified technical and marketing personnel in a highly competitive employment market.  As we develop and acquire new products and services, we will need to hire additional employees.  Our inability to attract and retain well-qualified managerial, technical and sales and marketing personnel may have a negative effect on our business, operating results and financial condition.

We may be required to seek additional funding, and such funding may not be available on acceptable terms or at all.
 
We may need to obtain additional funding due to a number of factors beyond our expectations or control, including a shortfall in revenue, increased expenses, increased need for working capital due to growth, increased investment in capital equipment or the acquisition of businesses, services or technologies. If we do need to obtain funding, it may not be available on acceptable terms or at all. If we are unable to obtain sufficient funding, our business would be harmed. Even if we were able to find outside funding sources, we might be required to issue securities in a transaction that could be highly dilutive to our investors or we may be required to issue securities with greater rights than the securities we have outstanding today. We may also be required to take other actions that could lessen the value of our common stock, including borrowing money on terms that are not favorable to us. If we are unable to generate or raise capital that is sufficient to fund our operations, we may be required to curtail operations, reduce our services, defer or cancel expansion or acquisition plans or cease operations in certain jurisdictions or completely.
 
The termination, non-renewal or renegotiation on materially adverse terms of our contracts or relationships with one or more of our significant host locations, product suppliers and partners could seriously harm our business, financial condition and results of operations.
 
The success of our business depends in large part on our ability to maintain contractual relationships with our host locations in profitable locations.  Our typical host location agreement ranges from one to three years and automatically renews until we or the retailer gives notice of termination.  Certain contract provisions with our host locations vary, including product and service offerings, the commission fees we are committed to pay each host location, and the ability to cancel the contract upon notice after a certain period of time. We strive to provide direct and indirect benefits to our host locations that are superior to, or competitive with, other providers or systems or alternative uses of the floor space that our kiosks occupy. If we are unable to provide our retailers with adequate benefits, we may be unable to maintain or renew our contractual relationships on acceptable terms, causing our business, financial condition and results of operations to suffer.
 
If we cannot execute on our strategy and offer new automated retail products and services.
 
Our strategy is based upon leveraging our core competencies in the automated retail space to provide the consumer with convenience and value and to help retailers drive incremental traffic and revenue. To be competitive, we need to develop, or otherwise provide, new product and service offerings that are accepted by the market and establish third-party relationships necessary to develop and commercialize such product and service offerings. We are exploring new businesses to enter, and new products and services to offer, however, the complexities and structures of these new businesses could create conflicting priorities, constrain limited resources, and negatively impact our core businesses. We may use our financial resources and managements’ time and focus to invest in other companies offering automated retail services, or we may seek to grow businesses organically, or we may seek to offer new products on our current kiosks.  We may enter into joint ventures through which we may expand our product offerings.  Any new business opportunity also may have its own unique risks related to operations, finances, intellectual property, technology, legal and regulatory issues, corporate governance or other challenges, for which we may have limited or no prior experience. In addition, if we fail to timely establish or maintain relationships with significant retailers and suppliers, we may not be able to provide our consumers with desirable new products and services. Further, in order to develop and commercialize certain new products and services, we will need to create new kiosks or enhance the capabilities of our current kiosks, as well as adapt our related networks and systems through appropriate technological solutions, and establish market acceptance of such products or services. We cannot assure you that new products or services that we provide will be successful or profitable.
 
Failure to adequately comply with information security policies or to safeguard against breaches of such policies could adversely affect our operations and could damage our business, reputation, financial position and results of operations.
 
As our business expands to provide new products and services, we are increasing the amount of consumer data that we collect, transfer and retain as part of our business. These activities are subject to laws and regulations, as well as industry standards, in the United States and other jurisdictions in which our products and services are available. These requirements, which often differ materially and sometimes conflict among the many jurisdictions in which we operate, are designed to protect the privacy of consumers’ personal information and to prevent that information from being inappropriately used or disclosed. We maintain and review technical and operational safeguards designed to protect this information and generally require third party vendors and others with whom we work to do so as well. However, despite those safeguards, it is possible that hackers, employees acting contrary to our policies, third-party agents or others could improperly access relevant systems or improperly obtain or disclose data about our consumers, or that we may be determined not to be in compliance with applicable legal requirements and industry standards for data security, such as the Payment Card Industry guidelines. A breach or purported breach of relevant security policies that compromises consumer data or determination of non-compliance with applicable legal requirements or industry standards for data security could expose us to regulatory enforcement actions, card association or other monetary fines or sanctions, or contractual liabilities, limit our ability to provide our products and services, subject us to legal action and related costs and damage our business reputation, financial position, and results of operations.

 
16

 
 
Litigation, arbitration, mediation, regulatory actions, investigations or other legal proceedings could result in material rulings, decisions, settlements, fines, penalties or publicity that could adversely affect our business, financial condition and results of operations.
 
Our industry has in the past been, and may in the future continue to be, party to class actions, regulatory actions, investigations, arbitration, mediation and other legal proceedings. The outcome of such proceedings is often difficult to assess or quantify. Plaintiffs, regulatory bodies or other parties may seek very large or indeterminate amounts of money from us or substantial restrictions on our business activities, and the results, including the magnitude, of lawsuits, actions, settlements, decisions and investigations may remain unknown for substantial periods of time. The cost to defend, settle or otherwise finalize lawsuits, regulatory actions, investigations, arbitrations, mediations or other legal proceedings may be significant and such proceedings may divert management’s time.  In addition, there may be adverse publicity associated with any such developments that could decrease consumer acceptance of our products and services. As a result, litigation, arbitration, mediation, regulatory actions or investigations involving us may adversely affect our business, financial condition and results of operations
 
We are subject to substantial federal, state, local and foreign laws and government regulation specific to our business.
 
Our business is subject to federal, state, local and foreign laws and government regulation, including those relating to copyright law, access to kiosks in public places, consumer privacy and protection, data protection and information security, taxes, vehicle safety, weights and measures, payment cards and other payment instruments, food and beverages, sweepstakes, and contests. The application of existing laws and regulations, changes in laws or enactment of new laws and regulations, that apply, or may in the future apply, to our current or future products or services, changes in governmental authorities’ interpretation of the application of various government regulations to our business, or the failure or inability to gain and retain required permits and approvals could materially and adversely affect our business.
 
In addition, many jurisdictions require us to obtain certain licenses in connection with the operations of our businesses. There can be no assurance that we will be granted all necessary licenses or permits in the future, that current licenses or permits will be renewed or that regulators will not revoke current licenses or permits. Given the unique nature of our business and new products and services we may develop or acquire in the future, the application of various laws and regulations to our business is uncertain. Further, as governmental and regulatory scrutiny and action with regard to many aspects of our business increase, we expect that our costs of complying with the applicable legal requirements may increase, perhaps substantially.
 
Failure to comply with these laws and regulations could result in, among other things, revocation of required licenses or permits, loss of approved status, termination of contracts, administrative enforcement actions and fines, class action lawsuits, cease and desist orders and civil and criminal liability. The occurrence of one or more of these events, as well as the increased cost of compliance, could materially adversely affect our business, financial condition and results of operations.
 
If we cannot manage our growth effectively, we could experience a material adverse effect on our business, financial condition and results of operations.
 
As we begin to scale our business we may make errors in predicting and reacting to relevant business trends, which could have a material adverse effect on our business, financial condition and results of operations. For example, we may, among other things, over-install kiosks in certain geographic areas leading to non-accretive installations, and we cannot be certain that historical revenue ramps for new kiosks will be sustainable in the future.
 
This growth may place significant demands on our operational, financial and administrative infrastructure and our management. As our operations grow in size, scope and complexity, we anticipate the need to integrate, as appropriate, and improve and upgrade our systems and infrastructure, both those relating to providing attractive and efficient consumer products and services and those relating to our administration and internal systems, processes and controls.  This integration and expansion of our administration, processes, systems and infrastructure may require us to commit and will continue to cause us to commit, substantial financial, operational and technical resources to managing our business.
 
Managing our growth will require significant expenditures and allocation of valuable management and operational resources. If we fail to achieve the necessary level of efficiency in our organization, including otherwise effectively growing our business lines, our business, operating results and financial condition could be harmed.
 
Conversion of our convertible notes into common stock could result in additional dilution to our stockholders.

Upon satisfaction of certain conversion conditions (including conditions outside of our control, such as market price or trading price) and proper conversion of the Notes by a holder, we may be required to deliver shares of our common stock to a converting holder.  If additional shares of our common stock are issued due to conversion of some or all of the outstanding Notes, the ownership interests of existing stockholders would be diluted. Further, any sales in the public market of any shares of common stock issued upon conversion or hedging or arbitrage trading activity that develops due to the potential conversion of the Notes could adversely affect prevailing market prices of our common stock.

 
17

 
 
Competitive pressures could seriously harm our business, financial condition and results of operations.
 
The nature and extent of consolidations and bankruptcies, which often occur during or as a result of economic downturns, in markets where we install our kiosks, particularly the supermarket and other retailing industries, could adversely affect our operations, including our competitive position, as the number of installations and potential retail users of our kiosks could be significantly reduced. See the risk factor below entitled, “Events outside of our control, including the current economic environment, has negatively affected, and could continue to negatively affect, consumers’ use of our products and services.”
 
Our business can be adversely affected by severe weather, natural disasters and other events beyond our control, such as earthquakes, fires, power failures, telecommunication loss and terrorist attacks.
 
A catastrophic event that results in the destruction or disruption of any of our critical business or information technology systems could harm our ability to conduct normal business operations and our operating results. While we have taken steps to protect the security of critical business processes and systems and have established certain back-up systems and disaster recovery procedures, any disruptions, whether due to inadequate back-up or disaster recovery planning, failures of information technology systems, interruptions in the communications network, or other factors, could seriously harm our business, financial condition and results of operations.
 
In addition, our operational and financial performance is a direct reflection of consumer use of and the ability to operate and service our kiosks used in our business. Severe weather, natural disasters and other events beyond our control can, for extended periods of time, significantly reduce consumer use of our products and services as well as interrupt the ability of our employees and third-party providers to operate and service our kiosks.
 
Our failure to meet consumer expectations with respect to pricing our products and services may adversely affect our business and results of operations.
 
Demand for our products and services may be sensitive to pricing changes. We evaluate and update our pricing strategies from time to time, and changes we institute may have a significant impact on, among other things, our revenue and net income. 
 
We may be unable to attract new host locations, broaden current host relationships, and penetrate new markets and distribution channels.
 
In order to increase our kiosk installations, we need to attract new host locations, broaden relationships with current host locations, and develop operational efficiencies that make it feasible for us to penetrate low density markets and new distribution channels.  We may be unable to attract host locations or drive down costs relating to the manufacture, installation or servicing of our kiosks to levels that would enable us to operate profitably in lower density markets or penetrate new distribution channels. If we are unable to do so, our future financial performance could be adversely affected.
 
Payment of increased fees to host locations or other third party service providers could negatively affect our business results.
 
We face ongoing pricing pressure from our host locations to increase the commission fees we pay to them on our products and services or to make other financial concessions to win or retain their business. If we are unable to respond effectively to ongoing pricing-related pressures, we may fail to win or retain certain accounts. Our fee arrangements are based on our evaluation of unique factors with each retailer, such as total revenue, long-term, non-cancelable contracts, installation of our kiosks in high-traffic, geographic locations and new product and service commitments. Together with other factors, an increase in service fees paid, or other financial concessions made, to our retailers could significantly increase our direct operating expenses in future periods and harm our business.

Events outside of our control, including the current economic environment, have negatively affected, and could continue to negatively affect, consumers’ use of our products and services.
 
Our consumers’ use of many of our products and services is dependent on discretionary spending, which is affected by, among other things, economic and political conditions, consumer confidence, interest and tax rates, and financial and housing markets. With economic uncertainty still affecting potential consumers, we may be impacted by more conservative purchasing tendencies with fewer non-essential products and services purchases during the coming periods if the current economic environment continues. In addition, because our business relies in part on consumers initially visiting host locations to purchase products and services that are not necessarily our products and services, if consumers are visiting retailers less frequently and being more careful with their money when they do, these tendencies may also negatively impact our business.  Further, our ability to obtain additional funding in the future, if and as needed, through equity issuances or loans, or otherwise meet our current obligations to third parties, could be adversely affected if the economic environment continues to be difficult. In addition, the ability of third parties to honor their obligations to us could be negatively impacted, as retailers, suppliers and other parties deal with the difficult economic environment. Finally, there may be consequences that will ultimately result from the current economic conditions that are not yet known, and any one or more of these unknown consequences (as well as those currently being experienced) could potentially have a material adverse effect on our financial condition, operating results and liquidity, as well as our business generally.

 
18

 
 
Our future operating results may fluctuate.
 
Our future operating results will depend significantly on our ability to continue to drive new and repeat use of our kiosks, our ability to develop and commercialize new products and services, and our ability to successfully integrate acquisitions and other third-party relationships into our operations. Our operating results could fluctuate and may continue to fluctuate based upon many factors, including:
 
 
fluctuations in revenue generated by kiosk businesses;

 
fluctuations in operating expenses, such as transaction fees and commissions we pay to our host locations;

 
our ability to establish or maintain effective relationships with significant partners, host locations and suppliers on acceptable terms;

 
the amount of service fees that we pay to our host locations;

 
the transaction fees we charge consumers to use our services;

 
the commercial success of our host locations, which could be affected by such factors as general economic conditions, severe weather or strikes;

 
the successful use and integration of assets and businesses acquired or invested in;

 
the level of product and price competition;

 
the timing and cost of, and our ability to develop and successfully commercialize, new or enhanced products and services;

 
activities of, and acquisitions or announcements by, competitors; and;

 
the impact from any impairment of inventory, goodwill, fixed assets or intangibles related to our acquisitions and divestitures.
 
We depend upon third-party manufacturers, suppliers and service providers for our kiosks.
 
We depend on outside parties to manufacture our kiosks. We intend to continue to expand our installed base of kiosks. Such expansion may be limited by the manufacturing capacity of our third-party manufacturers and suppliers. Third-party manufacturers may not be able to meet our manufacturing needs in a satisfactory and timely manner. If there is an unanticipated increase in demand for our kiosks or our manufacturing needs are not met in a timely and satisfactory manner, we may be unable to meet demand due to manufacturing limitations which could seriously harm our business, financial condition and results of operations.

In addition, we rely on third-party service providers for substantial support and service efforts that we currently do not provide directly.  Any failure by us to maintain our existing support and service relationships or to establish new relationships on a timely basis or on acceptable terms could harm our business, financial condition and results of operations.

Risks Related to our Securities
 
Since our common stock is thinly traded it is more susceptible to extreme rises or declines in price, and you may not be able to sell your shares at or above the price paid.
 
Since our common stock is thinly traded, its trading price is likely to be highly volatile and could be subject to extreme fluctuations in response to various factors, many of which are beyond our control, including:
 
 
·
the trading volume of our shares; 
 
·
the number of securities analysts, market-makers and brokers following our common stock; 
 
·
changes in, or failure to achieve, financial estimates by securities analysts; 
 
·
new products or services introduced or announced by us or our competitors; 
 
·
actual or anticipated variations in quarterly operating results; 
 
·
conditions or trends in our business industries; 
 
·
announcements by us of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; 
 
·
additions or departures of key personnel; 
 
·
sales of our common stock; and 
 
·
general stock market price and volume fluctuations of publicly-traded, and particularly microcap, companies.
 
 
19

 
 
The stock markets often experience significant price and volume changes that are not related to the operating performance of individual companies, and because our common stock is thinly traded it is particularly susceptible to such changes. These broad market changes may cause the market price of our common stock to decline regardless of how well we perform as a company. In addition, securities class action litigation has often been initiated following periods of volatility in the market price of a company’s securities. A securities class action suit against us could result in substantial legal fees, potential liabilities and the diversion of management’s attention and resources from our business. Moreover, our shares are currently traded on the OTC Pink and, further, are subject to the penny stock regulations. Price fluctuations in such shares are particularly volatile and subject to manipulation by market-makers, short-sellers and option traders.
 
Our common stock may be considered “penny stock”, further reducing its liquidity.

Our common stock may be considered “penny stock”, which will further reduce the liquidity of our common stock.  Our common stock is likely to fall under the definition of “penny stock,” trading in the common stock is limited because broker-dealers are required to provide their customers with disclosure documents prior to allowing them to participate in transactions involving the common stock. These disclosure requirements are burdensome to broker-dealers and may discourage them from allowing their customers to participate in transactions involving our common stock, thereby further reducing the liquidity of our common stock.
 
"Penny stocks” are equity securities with a market price below $5.00 per share other than a security that is registered on a national exchange, included for quotation on the NASDAQ system or whose issuer has net tangible assets of more than $2,000,000 and has been in continuous operation for greater than three years. Issuers who have been in operation for less than three years must have net tangible assets of at least $5,000,000.
 
Rules promulgated by the Securities and Exchange Commission under Section 15(g) of the Exchange Act require broker-dealers engaging in transactions in penny stocks, to first provide to their customers a series of disclosures and documents including: 
 
 
A standardized risk disclosure document identifying the risks inherent in investment in penny stocks;
 
 
All compensation received by the broker-dealer in connection with the transaction;
 
 
Current quotation prices and other relevant market data; and a Monthly account statements reflecting the fair market value of the securities.

These rules also require that a broker-dealer obtain financial and other information from a customer, determine that transactions in penny stocks are suitable for such customer and deliver a written statement to such customer setting forth the basis for this determination.

Our directors and executive officers will continue to exert significant control over our future direction, which could reduce the sale value of our Company.
 
As of September 1, 2014 our Board of Directors and our executive officers own approximately 35 percent of our outstanding common stock.  Accordingly, these stockholders, if they act together, will have considerable influence over matters requiring approval of our stockholders, including the election of directors and approval of significant corporate transactions. This concentration of ownership, which could result in a continued concentration of representation on our Board of Directors, may delay, prevent or deter a change in control and could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our assets.
 
Investors should not anticipate receiving cash dividends on our common stock, thereby depriving investors of yield on their investment.

We have never declared or paid any cash dividends or distributions on our common stock and intend to retain future earnings, if any, to support our operations and to finance expansion. Therefore, we do not anticipate paying any cash dividends on the common stock in the foreseeable future.  Such failure to pay a dividend will deprive investors of any yield on their investment in our common stock.
 
Our indemnification of officers and directors and limitations on their liability could limit our recourse against them.
 
Our Certificate of Incorporation and Bylaws contain broad indemnification and liability limiting provisions regarding our officers, directors and employees, including the limitation of liability for certain violations of fiduciary duties.  Shareholders therefore will have only limited recourse against these individuals.
 
 
20

 
 
If we fail to implement and maintain proper and effective internal controls and disclosure controls and procedures, our ability to produce accurate and timely financial statements and public reports could be impaired, which could adversely affect our operating results, our ability to operate our business and investors’ views of us.
 
Section 404 of the Sarbanes-Oxley Act of 2002 requires the Company to evaluate the effectiveness of its internal control over financial reporting as of the end of each year, and to include a management report assessing the effectiveness of the Company’s internal control over financial reporting in each Annual Report on Form 10-K.

We have identified our disclosure controls and procedures were not effective and that material weaknesses exist in our internal control over financial reporting.  The material weaknesses consist of an insufficient complement of qualified accounting personnel and controls associated with segregation of duties and ineffective controls associated with identifying and accounting for complex and non-routine transactions in accordance with U.S. generally accepted accounting principles.  Due to the material weaknesses in internal control over financial reporting and disclosure controls and procedures, there may be errors in the Company’s financial statements and in the accompanying footnote disclosures that could require restatements. Investors may lose confidence in our reported financial information and disclosure, which could negatively impact our stock price.

To address the material weaknesses of the Company’s disclosure controls and procedures, in June 2014, the Company hired Ms. Kathleen Browne, CPA as its Chief Financial Officer.  Ms. Browne’s work experience includes 13 years in public accounting at Price Waterhouse and various corporate accounting and finance positions at stock exchange listed companies.  She has previous experience in assessing internal controls, including financial reporting, for weaknesses and implementing corrective measures.

We do not expect that our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be 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. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Over time, controls may become inadequate because changes in conditions or deterioration in the degree of compliance with policies or procedures may occur. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

We have additional common stock and preferred stock available for issuance, which, if issued, could adversely affect the rights of the holders of our common stock.

Our Certificate of Incorporation authorizes the issuance of up to 600,000,000 shares of our common stock and up to 10,000,000 shares of preferred stock.  The common stock and the preferred stock can be issued by the Board of Directors, without stockholder approval.  As of September 1, 2014, there were 9,371,082 shares of our common stock outstanding.  In addition, we had outstanding exercisable instruments that can be converted into approximately 40,417,268 shares of our common stock.
 
USE OF PROCEEDS

We will not receive any proceeds from the sale of the common stock offered through this prospectus by the selling stockholders. We may receive proceeds from the issuance of shares of our common stock upon the exercise of the Warrants, if exercised for cash. We intend to use any proceeds from exercise of the Warrants for working capital and other general corporate purposes.

We have agreed to bear the expenses (other than any underwriting discounts or commissions or agent’s commissions) in connection with the registration of the common stock being offered hereby by the selling stockholders.

SELLING STOCKHOLDERS

The shares of common stock being offered by the selling stockholders are the common stock either currently owned or issuable to the selling stockholders upon conversion of the Notes and exercise of the Warrants.  We are registering the shares of common stock in order to permit the selling stockholders to offer the shares for resale from time to time. Except for participation of certain selling stockholders in a financing completed from June 2013 through June 2014 the selling stockholders have not had any material relationship with us within the past three years.

The table below lists the selling stockholders and other information regarding the beneficial ownership (as determined under Section 13(d) of the Securities Exchange Act of 1934, and the rules and regulations thereunder) of the shares of common stock held by each of the selling stockholders. The second column lists the number of shares of common stock beneficially owned by the selling stockholders, based on their respective ownership of shares of common stock, Notes and Warrants, as of September 10, 2014, assuming conversion of the Notes and exercise of the Warrants held by each such selling stockholder on that date but taking account of any limitations on conversion or exercise set forth therein.  The third column lists the shares of common stock being offered by this prospectus by the selling stockholders and does not take in account any limitations on (i) conversion of the Notes set forth therein or (ii) exercise of the Warrants set forth therein.

 
21

 
 
In accordance with the terms of a registration rights agreement with the Investors, this prospectus generally covers the resale of the sum of (i) 110% of the maximum number of shares of common stock issuable upon conversion of the Notes, (ii) 110% of the maximum number of shares of common stock issuable upon exercise of the ARLP Warrants.  Because the conversion price of the Notes and the quantity and exercise prices of the Cobrador Warrants may be adjusted based on certain events including, but not limited to stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions, and the results of the Measuring Period (80% of the average of the VWAPs for the 10 trading days immediately following the date that the registration statement covering the resale of all the shares underlying the Note and Warrant is declared effective, subject to a floor price of $0.03 per share), the number of shares that will actually be issued may be more or less than the number of shares being offered by this prospectus. The fourth column assumes the sale of all of the shares offered by the selling stockholders pursuant to this prospectus.
 
Under the terms of the Notes and the Warrants, a selling stockholder may not convert the Notes or exercise the Warrants to the extent (but only to the extent) such selling stockholder or any of its affiliates would beneficially own a number of shares of our common stock which would exceed 4.99% of the outstanding shares of the Company. The number of shares in the second column reflects these limitations.  The selling stockholders may sell all, some or none of their shares in this offering. See “Plan of Distribution.”

Name of Selling
Stockholder )
 
Number of Shares of
Common
Stock Beneficially Owned Prior to
Offering
   
Maximum
Number of
Shares of
Common Stock
to
be Sold Pursuant
to this Prospectus
   
Number of Shares of
Common Stock Owned
After Offering
 
   
Number
   
Percent
   
Number
   
Number
   
Percent
 
Cobrador Multi Strategy Partners, LP (1)
   
467,617
     
4.99%
     
8,090,000
     
0
     
0
 
Automated Retail Leasing Partners (2)
   
467,617
     
4.99%
     
256,076
     
0
     
0
 
 
(1)
Includes 28% of the shares of common stock which may be issued upon conversion of the Cobrador Notes.  This total also includes the shares of common stock which may be issued upon exercise of the Cobrador Warrants, based on the Conversion and Exercise Prices in effect as of the date of this prospectus, based on expected amendments, and assumes that the Measuring Period and any common share adjustment has not occurred.  In addition to both economic and standard anti-dilution adjustments, the conversion price of the Cobrador Notes and the exercise prices of and number of shares issuable pursuant to the Cobrador Warrants are subject to additional adjustments including, but not limited to stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions, and the results of the Measuring Period (80% of the average of the VWAPs for the 10 trading days immediately following the date that the registration Statement covering the resale of all the shares underlying the Note and Warrant is declared effective, subject to a floor price of $0.03 per share). No note or warrant shall be convertible or exercisable, as applicable, if after such exercise the note holders would beneficially own more than 4.99% of such shares of common stock then outstanding (as defined under Section 13(d) of the Securities Act of 1933, as amended).  If these limits were disregarded the maximum number of shares that could be acquired upon conversion of the notes is 7.4 million and the maximum number of shares that could be acquired upon exercise of the underlying warrants is 22.2 million.   David E. Graber, in his capacity as manager of the general partner of Cobrador Multi Strategy Partners, LP, may be deemed to have investment and voting power over these shares.
(2)
256,076 shares of common stock representing 15% of shares issuable upon exercise of the ARLP Warrants.   No warrant shall be exercisable if after such exercise the holder would beneficially own more that 4.99% of common stock then outstanding.  If this limit was disregarded the maximum number of shares that could be acquired by ARLP is 1,758,369 through warrant conversions. Ms. Marilyn Kane makes the investment decision on behalf of Automated Retail Leasing Partners, LLP.

PLAN OF DISTRIBUTION

We are registering the shares of common stock held by selling stockholders or issuable upon conversion of or pursuant to the Notes and exercise of the Warrants to permit the resale of these shares of common stock by the selling stockholders from time to time after the date of this prospectus. We will not receive any of the proceeds from the sale by the selling stockholders of the shares of common stock, although we may receive proceeds from the exercise of the Warrants, if exercised for cash. We will bear all fees and expenses incident to our obligation to register the shares of common stock.

The selling stockholders may sell all or a portion of the shares of common stock held by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents. If the shares of common stock are sold through underwriters or broker-dealers, the selling stockholders will be responsible for underwriting discounts or commissions or agent’s commissions. The shares of common stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale or at negotiated prices. These sales may be affected in transactions, which may involve crosses or block transactions, pursuant to one or more of the following methods:

 
·
on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;
 
·
in the over-the-counter market;
 
·
in transactions otherwise than on these exchanges or systems or in the over-the-counter market;
 
·
through the writing or settlement of options, whether such options are listed on an options exchange or otherwise;
 
·
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
 
·
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
 
·
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
 
·
an exchange distribution in accordance with the rules of the applicable exchange;
 
·
privately negotiated transactions;
 
·
short sales made after the date the Registration Statement is declared effective by the SEC;
 
·
broker-dealers may agree with a selling security holder to sell a specified number of such shares at a stipulated price per share;
 
·
a combination of any such methods of sale; and
 
·
any other method permitted pursuant to applicable law.

 
22

 
 
The selling stockholders may also sell shares of common stock under Rule 144 promulgated under the Securities Act of 1933, if available, rather than under this prospectus. In addition, the selling stockholders may transfer the shares of common stock by other means not described in this prospectus. If the selling stockholders effect such transactions by selling shares of common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the selling stockholders or commissions from purchasers of the shares of common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved). In connection with sales of the shares of common stock or otherwise, the selling stockholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the shares of common stock in the course of hedging in positions they assume. The selling stockholders may also sell shares of common stock short and deliver shares of common stock covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The selling stockholders may also loan or pledge shares of common stock to broker-dealers that in turn may sell such shares.
 
The selling stockholders may pledge or grant a security interest in some or all of the Notes, Warrants or shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933, if necessary, the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus. The selling stockholders also may transfer and donate the shares of common stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

To the extent required by the Securities Act of 1933 and the rules and regulations thereunder, the selling stockholders and any broker-dealer participating in the distribution of the shares of common stock, may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act of 1933. At the time a particular offering of the shares of common stock is made, a prospectus supplement, if required, will be distributed, which will set forth the aggregate amount of shares of common stock being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the selling stockholders and any discounts, commissions or concessions allowed or re-allowed or paid to broker-dealers.

Under the securities laws of some states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the shares of common stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.

There can be no assurance that any selling stockholder will sell any or all of the shares of common stock registered pursuant to the registration statement, of which this prospectus forms a part.

The selling stockholders and any other person participating in such distribution will be subject to applicable provisions of the Securities Exchange Act of 1934, and the rules and regulations thereunder, including, without limitation, to the extent applicable, Regulation M of the Securities Exchange Act of 1934, which may limit the timing of purchases and sales of any of the shares of common stock by the selling stockholders and any other participating person. To the extent applicable, Regulation M may also restrict the ability of any person engaged in the distribution of the shares of common stock to engage in market-making activities with respect to the shares of common stock. All of the foregoing may affect the marketability of the shares of common stock and the ability of any person or entity to engage in market-making activities with respect to the shares of common stock.

We will pay all expenses of the registration of the shares of common stock, estimated to be approximately $40,000 in total, including, without limitation, SEC filing fees and expenses of compliance with state securities or “blue sky” laws; provided, however, a selling stockholder will pay all underwriting discounts and selling commissions, if any. We will indemnify the selling stockholders against liabilities, including some liabilities under the Securities Act of 1933 in accordance with the registration rights agreements or the selling stockholders will be entitled to contribution. We may be indemnified by the selling stockholders against civil liabilities, including liabilities under the Securities Act of 1933 that may arise from any written information furnished to us by the selling stockholder specifically for use in this prospectus, in accordance with the related registration rights agreements or we may be entitled to contribution.

Once sold under the registration statement, of which this prospectus forms a part, the shares of common stock will be freely tradable in the hands of persons other than our affiliates.

 
23

 
 
BUSINESS

Overview

U-Vend, Inc., formerly Internet Media Services, Inc., was incorporated in March 2007 as a Delaware corporation and herein we refer to the company as “we”, “us”, the “Company”, “IMS.”, or “U-Vend”.  We conduct our operations in Chicago, Illinois.  Our corporate office is located at 1507 7th Street, #425, Santa Monica, CA 90401 and our telephone number is (800) 467-1496. Our corporate website address is www.u-vend.com.   Information contained on our website is not a part of this Form S-1 filing.

Forward Looking Information
 
This report contains statements about future events and expectations that are characterized as “forward-looking statements.”  Forward-looking statements are based upon management’s beliefs, assumptions, and expectations.  Forward-looking statements involve risks and uncertainties that may cause our actual results, performance, and financial condition to be materially different from the expectations of future results, performance, and financial condition we express or imply in such forward-looking statements.  You are cautioned not to put undue reliance on forward-looking statements.  We disclaim any intent or obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.
 
Business Developments

On January 7, 2014, we entered into an Exchange of Securities Agreement (“Agreement”) by and between ourselves, U-Vend Canada, Inc. and the shareholders of U-Vend Canada, Inc.   U-Vend Canada, Inc. together with its wholly owned subsidiary, U-Vend USA LLC (collectively, “U-Vend”), is in the business of developing, marketing and distributing co-branded self-serve electronic kiosks, mall/airport co-branding islands, and digital advertising solutions throughout North America.  Pursuant to the Agreement, we have acquired all of the outstanding shares of U-Vend in exchange for shares of our common stock.  Certain shareholders of U-Vend Canada, Inc. will also have the ability to earn up to an additional shares of our common stock subject to certain earn-out provisions more fully described in the Agreement as described below.  The Agreement was approved by a written consent by the majority of the Company's stockholders and by the Company’s Board of Directors.

The Agreement allows for an earn-out based on 2014 and 2015 gross revenue targets. In the event that consolidated gross revenue during the calendar year 2014 exceeds $1,000,000 then the Company shall issue to Paul Neelin and Diane Hope, allocated to them on an equal basis and no other U-Vend Canada shareholders, an additional 2,261,425 shares of common stock.  In addition, in the event that consolidated gross revenue exceeds $2,000,000 during the calendar year 2015, the Company shall issue to Paul Neelin and Diane Hope, allocated to them on an equal basis and no other U-Vend Canada shareholders, an additional 2,261,425 shares of common stock.  These conditional shares are issued solely to Paul Neelin and Diane Hope in order to restore their ownership of the total shares issued for consideration to their approximate pre-merger ownership in U-Vend Canada.  In the event that consolidated gross revenue equals not less than 80% nor more than 99% of the $1,000,000 and $2,000,000 gross amounts described above, then the Company shall issue to Paul Neelin and Diane Hope and no other U-Vend Canada shareholders, allocated to them on an equal basis, additional shares of common stock computed by determining the percentage of gross revenue achieved relative to the target revenues described above. Any shortfall or overage of shares measured in 2014 can be combined to the actual revenue earned in 2015 to earn the maximum shares in the earn-out provision.  The issuance of the earn-out shares is conditional on U-Vend, Inc. providing access to a minimum level of financing needed to achieve the earn-out gross revenues.  In the event that the gross revenue targets are not obtained and the minimum level of financing was not provided during the respective period, then at the end of each period Paul Neelin and Diane Hope shall receive the additional shares described above.

U-Vend Canada, Inc. was first established in May 2009, with its subsidiary U-Vend USA LLC having been formed approximately one year later in April 2010.  U-Vend is in the business of developing, marketing and distributing various self-serve electronic kiosks and mall/airport co-branded islands throughout North America. U-Vend has four market concentrations; Environmental, Retail, Service and Mall/Airport Islands with a primary focus on Environmental and Retail.  U-Vend seeks to place its kiosks in high-traffic host locations such as big box stores, restaurants, malls, airports, casinos, universities, and colleges.  Currently, U-Vend owns and operates their kiosks but intends to also provide the kiosks, through a distributor relationship, to the entrepreneur wanting to own their own business.  As of June 30, 2014, U-Vend owned and operated 78 kiosks in the greater Chicago, IL area and markets products supplied by its co-branding partners.   

U-Vend’s “next-generation” vending kiosks incorporates advanced wireless technology, creative concepts, and ease of management.  All kiosks have been designed to be tech-savvy and can be managed on line 24 hours a day/7 days a week, accepting traditional cash input as well as credit and debit cards.  Host locations and suppliers have been drawn to U-Vend’s concept of product vending based on the advantages of reduced labor and lower product theft as compared to non-kiosk merchandising platforms.

 
24

 
 
U-Vend has developed solutions for the marketing of products through a variety of kiosk offerings.  These offerings include kiosks oriented for product recycling, solar powered waste bins, cell phone charging kiosks, and mall and airport islands.  U-Vend has the ability to add digital LCD monitors to most makes and models of their kiosk program. This allows the ability to offer digital advertising as a national and/or local loop basis and a corresponding additional revenue stream for U-Vend.  U-Vend has also designed a Mall and Airport Multipurpose Island, taking several of the self-serve kiosks and then bundled them into an "island", all in one central location, creating a destination concept within a mall and/or airport setting. The island is always partnered with a co-branding anchor as part of the overall concept.

On October 8, 2009, we completed an acquisition in the legal vertical market through the purchase of the assets and assumption of certain liabilities of LegalStore.com.  LegalStore.com is an Internet based company that primarily sells legal supplies and legal forms.   Despite sustained efforts from 2009 through 2012 to bring to market our customer relationship solutions product offerings, we were unable to secure the needed funding.  As a result, in early 2013 we elected to change the strategic direction of the Company.  On March 13, 2013, the Company entered into a stock sale agreement with Western Principal Partners LLC (“WPP”), a California Limited Liability Company. Pursuant to the Agreement, WPP purchased from the Company all the outstanding capital stock of the Company’s wholly-owned subsidiary, LegalStore.com, a Delaware Corporation. LegalStore.com was operating the Company’s e-commerce business.  The Agreement was approved by a written consent by the majority of the Company's stockholders.  In consideration of the sale, WPP agreed to pay to the Company total consideration of $210,000 including assumption of operating liabilities. Operating liabilities included, but are not limited to existing operating agreements, trade payables and certain tax obligations. The fair value of consideration received for the stock of LegalStore.com was less than the carrying value of the assets. As a result, an impairment charge was recorded as of December 31, 2012 in the amount of approximately $35,000, net of income tax effect.

The Industry and the Overall Market
 
U-Vend is both a distributor for vending kiosk operations and an operator of vending kiosks in conjunction with our co-branding partners.    The number of installations within the global vending machines market has been forecast to exceed 25 million units by 2018, driven by the demand for healthy vended foods, functional convenience foods, advances in technology such as cashless payment systems, decreasing equipment costs, and manufacturer's focus on extending product availability.
 
We believe the consumers' need for convenient purchases of food, drink and name-brand products will sustain this $7 billion industry.  Technology advancements have made retailing services through vending kiosks more cutting edge offering compelling benefits to modern time-pressed consumers. The development of vending kiosks over the years currently allows for the possibility to deliver anything from sports collectables to refreshments to music through a sophisticated, touch-screen operated ubiquitous vending kiosk.
 
In 2012, the top four operators were estimated to earn around a quarter of industry revenue, with major players including Compass Group and Aramark Corporation. The vending machine operators industry is highly competitive, as the industry is made up of several medium-sized companies, thousands of small businesses, and tens-of-thousands of partnerships and sole operators.
 
Products
 
U-Vend currently markets a portfolio of products via vending kiosks including all-natural snacks and smoothies, specialty ice-cream treats and sporting memorabilia.    We receive regular shipments of products to our depot which are maintained in either refrigerated or frozen state in the case of perishable products or in a secure area of our depots in the case of non-perishable goods.    In addition to our current portfolio of products, we continue to evaluate other products or services which we might be able to provide from our vending kiosks.
 
Competition
 
The vending industry is large, highly competitive, highly fragmented and consolidating as the market leaders acquire regional vending companies to fulfill their real-estate expansion plans or acquire privately-held service verticals.   We compete in both the vending machine distribution and vending operations segment of the industry with companies that offer the same services that we do. Many of our competitors are significantly larger public companies or operating subsidiaries of public companies and have significantly greater resources than we do.  In addition, many compete in geographic and product areas which we do not currently serve.  Because of the diversity of the classes of products offered and the geographic regions in which they are offered, it is likely that we do not compete with the same companies in all geographic or product areas.  Accordingly, it is not possible to estimate the precise number of competitors or to identify our competitive position. In addition, we may face new competition as we seek to expand into international markets and develop new products, services and enhancements.

 
25

 
 
Many of the competitors have greater experience than we do in operating in these international markets. Moreover, new products that we intend to develop, such as advertising, may subject us to competition from companies with significantly greater technological resources and experience. Many of our potential competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, marketing and public relations resources than we have. These competitors may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to consumers and businesses. Our competitors might succeed in developing technologies, products or services that are more effective, less costly or more widely used than those that have been or are being developed by us or that would render our technologies or products obsolete or noncompetitive. We cannot be certain that we will be able to compete effectively with current or future competitors. Competitive pressures could seriously harm our business, financial condition and results of operations and our ability to achieve sufficient cash flow.

Our Employees  
 
As of September 1, 2014, we had four full-time employees, one part-time employee, and one contracted position.  None of our employees are subject to collective bargaining agreements.  

Seasonality
 
We do not expect that our business will experience significant seasonality other than that resulting from vending kiosk sales within schools and other seasonal locations.  

Properties

We lease approximately 3,600 square feet of office and warehouse space at 2475 Devon Road, Elk Grove, IL. at a rate of $1,875 per month on a five year lease expiring October 2018.  This location is used to service our self-serve electronic kiosks in the Chicago area.  Our corporate mailing address is 1507 7th Street, Unit 425, Santa Monica, CA 90401.

Legal Proceedings

There are no material legal proceedings to which the Company or any of its subsidiaries is a party or of which any of their property is the subject.
 

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Effective on February 25, 2011, our common stock commenced its public listing on the OTC Bulletin Board (OTC: BB) and currently trades on the OTC Pink, where it trades under the symbol “UVND”.

The table below sets forth the range of quarterly high and low closing sales prices, adjusted for a 200 for 1 stock split effective May 16, 2014, for our common stock for 2014, 2013 and 2012. The quotations below reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions:

   
High
   
Low
 
Year ending December 31, 2014
           
First Quarter
 
$
0. 36
   
$
0. 06
 
Second  Quarter
 
$
0. 40
   
$
0. 14
 
 
   
High
   
Low
 
Year ending December 31, 2013
           
First Quarter
 
$
1.90
   
$
1.60
 
Second Quarter
 
$
6.40
   
$
0. 80
 
Third Quarter
 
$
1.60
   
$
0.40
 
Fourth Quarter
 
$
0. 40
   
$
0. 20
 

   
High
   
Low
 
Year ending December 31, 2012
           
First Quarter
 
$
30.00
   
$
8.00
 
Second Quarter
 
$
8.00
   
$
4 .00
 
Third Quarter
 
$
2.00
   
$
2.00
 
Fourth Quarter
 
$
2 .00
   
$
2.00
 

The last reported sales price of our common stock on the OTC Pink on September 1, 2014 was $0.45.

 
26

 
 
OTC Pink quotations reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual transactions.

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (i) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (ii) contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of securities’ laws; (iii) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (iv) contains a toll-free telephone number for inquiries on disciplinary actions; (v) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and; (vi) contains such other information and is in such form, including language, type, size and format, as the SEC shall require by rule or regulation.

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (i) bid and offer quotations for the penny stock; (ii) the compensation of the broker-dealer and its salesperson in the transaction; (iii) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (iv) a monthly account statements showing the market value of each penny stock held in the customer’s account.

In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.

These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock if it becomes subject to these penny stock rules. Therefore, because our common stock is subject to the penny stock rules, stockholders may have difficulty selling those securities.
 
Issued and Outstanding

Our certificate of incorporation authorizes 600,000,000 shares of Common Stock, par value $0.001 and 10,000,000 shares of Preferred Stock, par value $0.001. As of September 1, 2014, we had 9,371,082 shares of Common Stock, and 0 shares of Preferred Stock outstanding.

Stockholders

As of September 1, 2014, we had approximately 900 record holders of our common stock.  This number does not include the number of persons whose shares are in nominee or in “street name” accounts through brokers.

Dividends

We did not pay dividends during 2014 to date, 2013 or 2012.  We have never declared or paid any cash dividends or distributions on our common stock and intend to retain future earnings, if any, to support our operations and to finance expansion. Therefore, we do not anticipate paying any cash dividends on the common stock in the foreseeable future

Stock Transfer Agent and Warrant Agent

Our stock transfer agent is Corporate Stock Transfer, 3200 Cherry Creek Drive South, Suite 430, Denver, CO 80209. We act as our own warrant agent for our outstanding warrants.

Recent Issuances of Unregistered Securities
 
Senior Convertible Notes Payable issued with Warrants   
On May 1, 2014 and pursuant to the August 2013 Securities Purchase Agreement ("SPA") dated June 18, 2013 with Cobrador Multi-Strategy Partners, LP ("Investor") the Company completed a tenth ($25,000 in May, 2014) tranche of financing.  The senior convertible note issued in May, 2014 of $25,000 face value is convertible at $0.05 per share and include Series A warrants to purchase 750,000 shares of common stock and Series B warrants to purchase 750,000 shares of common stock.  The Series A warrants granted have an exercise price of $0.05 per share and have a 24 month term from date of grant. The Series B warrants granted have an exercise price of $0.06 per share and have a five year term from date of grant. All terms are consistent with previous financing transactions previously disclosed in the Company’s previous SEC filings including a 4.99% beneficial ownership limit of the Company’s common stock.  

 
27

 
 
On June 3, 2014 and pursuant to the August 2013 Securities Purchase Agreement ("SPA") dated June 18, 2013 with Cobrador Multi-Strategy Partners, LP ("Investor") the Company completed an eleventh ($20,000 in June, 2014) tranche of financing.  The senior convertible note issued in June 2014 of $20,000 face value is convertible at $0.05 per share and include Series A warrants to purchase 600,000 shares of common stock and Series B warrants to purchase 600,000 shares of common stock.  The Series A warrants granted have an exercise price of $0.05 per share and have a 24 month term from date of grant. The Series B warrants granted have an exercise price of $0.06 per share and have a five year term from date of grant. All terms are consistent with previous financing transactions previously disclosed in the Company’s previous SEC filings including a 4.99% beneficial ownership limit of the Company’s common stock.

As of September 1, 2014 the Company has received $370,000 of the $400,000 SPA.

Conversion of Lease Obligation   
During the second quarter of 2014, the Company’s equipment leasing partner, Automated Retail Leasing Partners (“ARLP”), was owed a total of $23,900 for equipment rent and interest charges.  In lieu of cash, ARLP requested payment in shares of the Company’s common stock.  The Company issued 208,881 shares of its common stock to ARLP for full payment of the $23,900.  Also during the second quarter of 2014, the Company issued 41,667 common shares to ARLP in satisfaction of outstanding account payable items of $10,000.

$50,000 Subordinated Convertible Notes Payable with Warrants – Firehole River Capital, LLC
On July 25, 2014, the Company issued a $50,000 subordinated convertible note with a one year maturity and 10% annual interest payable quarterly in cash or under certain conditions in shares of the Company’s common stock.  The proceeds of this financing is designated as for working capital and general corporate purposes.

The conversion price for the note is $0.30 per common share subject to an anti-dilution provision that would adjust the original conversion and exercise prices of the note and underlying warrants in the event of a financing at less than the conversion price then in effect.  In such an instance, the conversion price of these notes and warrants shall be similarly reduced to the new price. The note holder received 125,000 warrants in connection with this note.  The warrants have a 5 year term and an exercise price of $0.35 per share.  The exercise price of the warrants have anti-dilution provisions as described above.

The subordinated notes contain a mandatory conversion provision that will be effective in the instance that the Company’s common stock trades at a level equal to 250% of the conversion price for 20 consecutive trading days commencing 10 days after the satisfaction of the Rule 144 date.  Investors will have the right to receive accrued but unpaid interest in either cash or shares of the Company if a mandatory conversion occurs.

The note and warrant conversion contain beneficial ownership limitations that limit the note holder’s ownership to 4.99% of the total shares of the common stock then outstanding, as defined by Section 13(d) of the Securities Act of 1933, as amended.  The Company agreed to provide the note holder with piggy-back registration rights on any registration statement covering 110% of the maximum number of shares underlying the notes and warrants with the Securities and Exchange Commission.  The Company is obligated to keep current with its public filings such that the note holders can freely sell the common shares pursuant to Rule 144 without restriction beginning 6 months after the closing date.

$75,000 Subordinated Convertible Notes Payable with Warrants – Inspiration Vending LLC
On August 25, 2014, the Company issued a $75,000 subordinated convertible note with a one year maturity and 10% annual interest payable quarterly in cash or under certain conditions in shares of the Company’s common stock.  The proceeds of this financing is designated as for working capital and general corporate purposes.

The conversion price for the note is $0.30 per common share subject to an anti-dilution provision that would adjust the original conversion and exercise prices of the note and underlying warrants in the event of a financing at less than the conversion price then in effect.  In such an instance, the conversion price of these notes and warrants shall be similarly reduced to the new price. The note holder received 83,334 warrants in connection with this note.  The warrants have a 5 year term and an exercise price of $0.35 per share.  The exercise price of the warrants have anti-dilution provisions as described above.

The subordinated notes contain a mandatory conversion provision that will be effective in the instance that the Company’s common stock trades at a level equal to 250% of the conversion price for 20 consecutive trading days commencing 10 days after the satisfaction of the Rule 144 date.  Investors will have the right to receive accrued but unpaid interest in either cash or shares of the Company if a mandatory conversion occurs.

The note and warrant conversion contain beneficial ownership limitations that limit the note holder’s ownership to 4.99% of the total shares of the common stock then outstanding, as defined by Section 13(d) of the Securities Act of 1933, as amended.  The Company agreed to provide the note holder with piggy-back registration rights on any registration statement covering 110% of the maximum number of shares underlying the notes and warrants with the Securities and Exchange Commission.  The Company is obligated to keep current with its public filings such that the note holders can freely sell the common shares pursuant to Rule 144 without restriction beginning 6 months after the closing date.

 
28

 
 
Share Repurchased by the Registrant
As of September 1, 2014, the Company had not made any purchases or repurchases of our securities.

Securities authorized for issuance under equity compensation plans

On July 22, 2011, the Board of Directors of the Company approved the Company’s 2011 Equity Incentive Plan (the “Plan”) and on July 26, 2011, shareholders holding a majority of shares of the Company approved, by written consent, the Plan. The total number of shares of common stock available for issuance under the Plan is 5,000,000 shares. Awards may be granted to employees, officers, directors, consultants, agents, advisors and independent contractors of the Company and its related companies. Such options may be designated at the time of grant as either incentive stock options or nonqualified stock options. Stock based compensation includes expense charges related to all stock-based awards. Such awards include options, warrants and stock grants. Generally, the Company issues stock options that vest over three years and expire in 5 to 10 years.
 
The Company records share based payments under the provisions of ASC 718. Stock based compensation expense is recognized over the requisite service period based on the grant date fair value of the awards. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model on certain assumptions. The Company estimated the expected volatility based on data used by peer group of public companies. The expected term was estimated using the simplified method. The risk-free interest rate assumption was determined using the equivalent U.S. Treasury bonds yield over the expected term. The Company has never paid any cash dividends and does not anticipate paying any cash dividends in the foreseeable future. Therefore, the Company assumed an expected dividend yield of zero.

The following table sets forth information as of September 1, 2014 regarding equity compensation plans under which our equity securities are authorized for issuance.

Equity Plan Compensation Information

  Plan Category
 
Number of securities
to be issued upon
exercise of outstanding
options, warrants and
rights
   
Weighted average
exercise price of
outstanding
options, warrants
and rights
   
Number of securities remaining available for
future issuance under
equity compensation
Plans (excluding
securities reflected in
column (a))
 
   
(a)
   
(b)
   
(c)
 
Equity compensation plans approved by securities holders (1)
   
360,650
   
$
2.04
     
4,639,350
 
                         
Total
   
360,650
             
4,639,350
 

(1)  
Pursuant to our 2011 Equity Incentive Plan


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

FORWARD-LOOKING STATEMENTS
  
Certain statements contained herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “1995 Reform Act”).   U-Vend, Inc. (formerly Internet Media Services, Inc.) desires to avail itself of certain “safe harbor” provisions of the 1995 Reform Act and is therefore including this special note to enable us to do so.  Except for the historical information contained herein, this report contains forward-looking statements (identified by the words "estimate," "project," "anticipate," "plan," "expect," "intend," "believe," "hope," "strategy" and similar expressions), which are based on our current expectations and speak only as of the date made. These forward-looking statements are subject to various risks, uncertainties and factors that could cause actual results to differ materially from the results anticipated in the forward-looking statements, including, without limitation, those discussed under Part I, Item 1A “Risk Factors” in this Annual Report, and those described herein that could cause actual results to differ materially from the results anticipated in the forward-looking statements, and the following:
 
Our limited operating history with our business model.
The low cash balance and limited financing currently available to us. We may in the near future have a number of obligations that we will be unable to meet without generating additional income or raising additional capital.
Our limited cash resources may not be sufficient to fund continuing losses from operations
Our ability to effect a financing transaction to fund our operations which could adversely affect the value of our stock.
The failure of our products and services to achieve market acceptance.

 
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The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of our results of operations and financial condition and should be read in conjunction with the financial statements and footnotes that appear elsewhere in this report.

General
We were incorporated in March 2007 as a Delaware corporation and refer to ourselves herein as “we”, “us”, the “Company” or “U-Vend, Inc.”  Our corporate office is located at 1507 7th Street, #425, Santa Monica, CA 90401 and our telephone number is (800) 467-1496. Our corporate website address is  www.u-vend.com.   Information contained on our websites is not a part of this quarterly report.
 
Management’s Plans - Our independent registered public accounting firm added an explanatory paragraph to their audit opinion issued in connection with our consolidated financial statements which states that our financial condition raise substantial doubt as to our ability to continue as a going concern.  The Company incurred net comprehensive losses of $ 387,281 and $ 426,998 for the years ended December 31, 2013 and 2012 and $1,165,490 and $176,171 for the six (6) months (unaudited) ended June 30, 2014 and 2013, respectively.  As of December 31, 2013 and June 30, 2014 (unaudited), we had a total stockholders’ deficiency of $ 329,087 and $714,023, respectively.  These factors, among others, indicate that the Company may be unable to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.  Assurances cannot be given that adequate financing can be obtained to meet our capital needs.

The Company estimates that its current cash requirement to support general and administrative efforts is approximately $50,000 per month. The Company estimates that it will require additional financing of approximately $1,000,000 during the next twelve months to achieve its strategic objectives.  We do not have commitments or firm plans to raise the additional financing and there can be no assurance that necessary additional financing will be available to the Company. Moreover, any such additional financing may dilute the interests of existing stockholders.  The absence of additional financing when needed, could cause the Company to scale down or delay the implementation of its business plans in whole or in part and curtail its business activities which could seriously harm the Company and its future prospects. Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis to retain our current financing, to obtain additional financing and, ultimately, to attain profitability.

The Company generated $62,000 in revenue from its distribution of self-serve electronic kiosks during the second quarter of 2014.  The Company currently operates 78 electronic kiosks and 2 Grab N Go freezers in the greater Chicago, Illinois region and markets products supplied by its co-branding partners. Management plans to continue its market development and revenue base through acquisition and through organic growth in the coming twelve month period. The Company estimates that its current cash requirement to support general and administrative efforts is approximately $50,000 per month. The Company estimates that it will require additional financing of approximately $1,000,000 during the next twelve months to achieve its strategic objectives.  We do not have commitments or firm plans to raise the additional financing and there can be no assurance that necessary additional financing will be available to the Company. Moreover, any such additional financing may dilute the interests of existing stockholders.  The absence of additional financing when needed, could cause the Company to scale down or delay the implementation of its business plans in whole or in part and curtail its business activities which could seriously harm the Company and its future prospects.

The face value of all outstanding senior convertible notes at September 1, 2014 is $370,000.  These notes obligate the Company to approximately $6,475 of interest payments on a quarterly basis.  The Cobrador notes have staggered maturity dates requiring principal repayment beginning in the fourth quarter of 2014.  Principal repayments on the Cobrador notes are currently scheduled as follows: October 2014 to December 2014 totaling $200,000; January 2015 to March 2015 totaling $100,000; April 2015 to June 2015 totaling $70,000. Management believes the due dates of the notes will be extended through the registration effectiveness date and will be converted to equity thereafter. To provide additional cash flows, the Company structured the senior convertible note issuance to include Series A and Series B warrants which expire with each funding tranche after two and five years, respectively.  These warrants are designed to generate approximately $1.2 million in additional working capital for the Company upon exercise. The Series B warrants include a cashless exercise provision, at the six month anniversary date after the date of issuance, if the registration statement is not effective on such date.  The holder can elect in this instance to exercise the warrants in whole or in part and in lieu of making cash payment receive the net number of shares of common shares as defined in the agreement.

The Company also has outstanding $125,000 in subordinated convertible notes and $125,000 in convertible notes acquired with the U-Vend Canada, Inc. merger in January 2014.  The subordinated convertible have a maturity in August of 2015 with interest due quarterly.  The convertible notes acquired with the U-Vend Canada merger mature in the third quarter of 2014. The Company believes that its business and financial strategy in conjunction with its revenue forecast and margin contribution will produce adequate cash flow to service the financial obligations in future periods. The Company is actively pursuing additional financing vehicles in order to maintain the growth and development of the business until positive cash flow from operations is achieved.  Should additional financing not be available, the Company will have to negotiate with its lenders to extend repayment of its indebtedness.  There can be no assurance that the Company will be able to successfully restructure its debt obligations in the event it fails to obtain additional financing.
 
On January 7, 2014, U-Vend, Inc. (formerly Internet Media Services, Inc.) entered into an Exchange of Securities Agreement with U-Vend Canada, Inc., and the shareholders of U-Vend Canada, Inc (“U-Vend Canada”). The Company believes the merger with U-Vend Canada will provide it with business operations and also necessary working capital.  The Company is in discussion to raise additional capital to execute on its current business plans.  There is no assurance that future financing arrangements will be successful or that the operating results of U-Vend Canada will yield sufficient cash flow to execute the Company’s business plans or satisfy its obligations.  The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.  

Results of Operations for the six months ended June 30, 2014 and June 30, 2013

On January 7, 2014 the Company acquired the operations of U-Vend Canada, Inc. and management believes this merger will provide it with business operations and also working capital.  The Company is in discussions for raising additional capital to execute its current business plans.  Prior to the January 7, 2014 merger, the Company was considered a shell company without an active business operations subsequent to the disposition of Legalstore.com as described in Note 9 to the financial statements.

Revenue
The Company earned $95,636 in revenue for the six months ended June 30, 2014 and had no revenue from continuing operations in the comparable period in 2013. With the acquisition of U-Vend on January 7, 2014, the Company acquired an Operator Agreement with Mini Melts USA offering Mini Melts ice-cream products through the Company’s electronic kiosks. The agreement allows the Company to place these kiosks in high volume big box stores, sporting facilities and shopping malls though out the Chicago area. During the first half of 2014, the Company added 37 electronic kiosks in the greater Chicago, IL area generating sales for products supplied by our co-branding partners.  As of June 30, 2014, the Company had 78 electronic kiosks and 2 Grab N Go freezers in operation in the Chicago, IL area.  The Company has additional installations planned for the third and fourth quarters of 2014. The Company believes that the Mini Melts ice-cream revenues have a seasonality that is benefitted by warm weather during the summer months.  The Company does not have adequate historical experience to estimate the impact of this seasonality.

Cost of revenue and Gross Profit
During the six months ended June 30, 2014 the Company incurred direct product costs including material, freight, delivery, and depreciation of $53,981.  The Company realized a gross profit of $41,655 reflecting a margin of 44% in the six month period ended June 30, 2014.  There were no sales, cost of revenue or gross profits from continuing operations in the first half of 2013.

Operating Expenses
Total operating expenses for continuing operations were approximately $752,000 for the six months ended June 30, 2014 compared to approximately $179,000 in the prior year six month period.  This reflects an increase in total selling, general and administrative costs of approximately $573,000 compared to the six month period in 2013. The operating expenses incurred in 2014 reflect management’s investment in the acquisition and development of the electronic kiosk market and expects operating expenses will continue to increase as the business expands its geographic markets and product offerings in 2014 and 2015.

 
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Selling expenses of approximately $189,000 include approximately $81,000 in salaries and commissions and approximately $25,000 in travel and entertainment expenses that are directly related to the development of revenue growth and host location relationships.  Selling expenses also include $43,000 in non-cash amortization expense related to the MiniMelt Operating Agreement acquired with the merger in January 2014. Commission fees and service bureau fees paid to third parties totaled $27,000 and office support costs were approximately $13,000 in the first half of 2014.

General and administrative expenses totaled approximately $562,000 for the six month ended June 30, 2014. Non-cash expenses of $269,000 are included in general and administrative expenses in the first half of 2014 relate to common shares and warrants granted for services and for employee option expenses reflecting vesting of previously granted employee stock options. General and administrative expenses for the six month ended June 30, 2014 also include $165,000 in professional, consulting and advisory fees, $60,000 in salaries and benefits, and $68,000 of office, rent, insurance and supplies expense.

Other Expenses
Other expenses include: interest and amortization incurred on the debt obligations of the Company, changes to fair market value of warrant liabilities that include “down round” provisions, and other non-operating items. Total other expenses for continuing operations were approximately $455,000 for the six months ended June 30, 2014.

The Company evaluates financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. Certain warrants the Company has issued have a “down round provision” as a result the warrants are classified as derivative liabilities for accounting purposes. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair market value and then is revalued at each reporting date, with changes in fair value reported in the consolidated statement of operations. During the first half of 2014, the Company recognized a loss on the fair market value of warrant liabilities in the amount of approximately $278,000.

During the six months ended June 30, 2014 the Company recorded amortization on debt discount of $213,556, and amortization of deferred financing costs of $21,525 in connection with debt obligations, including debt acquired in the merger and the senior convertible debt agreement.

The Company recognized a gain of $112,000 on extinguishment of debt in the six month period ended June 30, 2014, resulting from changes to certain of the terms of certain of the Cobrador notes.  Certain of the terms of certain of the Cobrador notes were modified.  The notes issued on June 18, 2013, August 21, 2013 and October 17, 2013 each of which had a conversion price of $0.20 per share and were convertible into 750,000 shares of common stock were amended and reissued as notes convertible into 3,000,000 shares of the Company's common stock at a conversion price of $0.05 per share, subject to an adjustment with a minimum adjusted conversion price of $0.03 per share. In connection with the reissued notes, the Company amended the warrants that had been granted in connection with the originally issued note agreements dated June 18, 2013, August 21, 2013 and October 17, 2013. Series A warrants totaling 1.125 million with an exercise price of $0.20 per share and Series B warrants totaling 1.125 million with an exercise price of $0.24 per shares were amended and reissued.  The 4.5 million reissued Series A warrants have and exercise price of $0.05 per share and the 4.5 million reissued Series B warrants have an exercise price of $0.06 per share. For all 2013 and 2014 Cobrador notes the Series A warrants were amended to increase the term from 15 months to 24 months.  The Series B term remained at 5 years. The amendment and reissuance of the three notes and warrants has been accounted for as an extinguishment of the original notes and warrants and the reissuance of the replacement notes and warrants.

Interest expense for the six months ended June 30, 2014 was approximately $54,000 compared to approximately $20,000 in the six months ended June 30, 2013.  The increase in interest expense in 2014 is associated with the borrowings under the senior convertible debt, convertible debt acquired from U-Vend Canada, new promissory agreements entered into in 2014 and interest in connection with lease obligations.
 
Discontinued Operations
In 2013 the Company realized net income of $19,174 from the LegalStore.com operations that were sold in the first quarter of 2013. The total purchase price of $210,241 was offset by the net assets and liabilities transferred of $206,402 generating a $3,839 gain on the sale of LegalStore.com.  

Net Loss
As a result of the foregoing, our net loss for the six months ended June 30, 2014 increased by approximately $989,000 to approximately $1,165,000 compared to a net loss of approximately $176,000 incurred the six month period ended June 30, 2013.
 
Results of Operations for the three months ended June 30, 2014 and June 30, 2013

Revenue
The Company earned approximately $62,000 in revenue for the three months ended June 30, 2014 and had no revenue from continuing operations in the comparable period in 2013. With the merger with U-Vend Canada on January 7, 2014, the Company acquired 33 electronic kiosks generating sales for products supplied by our co-branding partners and now operates 78 electronic kiosks and 2 Grab N Go freezers in the greater Chicago, IL area.

 
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Cost of revenue and Gross Profit
During the three months ended June 30, 2014 the Company incurred direct product costs including material, freight, delivery, and depreciation of approximately $34,000.  The Company realized a gross profit of approximately $28,000 reflecting a margin of 45%. There were no sales, cost of revenue or gross profits from continuing operations in the six months ended June 30, 2013.

Operating Expenses
Total operating expenses for continuing operations were approximately $233,000 for the three months ended June 30, 2014 compared to approximately $103,000 in the prior year.  

Selling expenses of approximately $104,000 include approximately $32,000 in salaries and commissions and approximately $18,000 in travel and entertainment expenses that are directly related to the development of revenue growth and host location relationships.  Selling expenses also include $22,000 in non-cash amortization expense related to the MiniMelt Operating Agreement acquired with the merger in January 2014. Commission fees and service bureau fees paid to third parties totaled $18,000 and office support costs were $14,000 in the first half of 2014.

General and administrative expenses totaled $129,000 for the three month ended June 30, 2014.  General and administrative expenses for the three month ended June 30, 2014 also include $70,000 in professional, consulting and advisory fees, $36,000 in salaries and benefits, and $23,000 of office, rent, insurance and supplies expense.

Other Expenses
Total other expenses for continuing operations were approximately $370,000 for the three months ended June 30, 2014 compared to approximately $9,600 in the six month period ended June 30, 2013. The Company evaluates financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. Certain warrants the Company has issued have a “down round provision” as a result the warrants are classified as derivative liabilities for accounting purposes. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair market value and then is revalued at each reporting date, with changes in fair value reported in the consolidated statement of operations. During the three month period ended June 30, 2014, the Company recognized a loss on the fair market value of warrant liabilities in the amount of approximately $316,000.

During the three month period ended June 30, 2014 the Company recorded amortization on debt discount of approximately $118,000 and amortization of deferred financing costs of approximately $13,000 in connection with debt obligations, including debt acquired in the merger and the senior convertible debt agreement.

Interest expense for the three months ended June 30, 2014 was approximately $34,000 compared to approximately $10,000 in comparable period in 2013.  The increase in interest expense in 2014 is associated with the borrowings under the senior convertible debt, convertible debt acquired from U-Vend Canada, new promissory agreements entered into in 2014 and interest in connection with lease obligations.
 
Net Loss
As a result of the foregoing, our net loss for the three months ended June 30, 2014 increased by approximately $462,000 to $575,000 compared to a net loss of approximately $113,000 incurred the three month period ended June 30, 2013.

Liquidity and Capital Resources
At June 30, 2014, we had a working capital deficiency of approximately $998,000 compared to working capital deficiency of approximately $131,000 at December 31, 2013. The increase in the working capital deficiency is due to borrowings under the SPA of senior convertible notes, recorded net of unamortized discounts of $247,000, debt acquired in the merger with U-Vend Canada, and lease obligations entered into for revenue producing equipment. During the six months ended June 30, 2014, our operating activities from continuing operations used cash of approximately $216,000 compared to approximately $88,000 used during the six month period ended June 30, 2013.
 
During the six month period ended June 30, 2014, our operating losses from continuing operations, after adjusting for non-cash items, utilized approximately $414,000 of cash, and working capital items provided approximately $198,000 of cash. The principal component of these working capital changes was an increase in our accounts payable and accrued expenses. During the six month period ended June 30, 2013, our operating losses from continuing operations, after adjusting for non-cash items, utilized approximately $187,000 of cash, and working capital items provided approximately $91,000 of cash. The Company estimates that cash needs to support general and administrative efforts is approximately $50,000 per month.
 
During the six months ended June 30, 2014, we received $143,900 in proceeds from senior convertible notes net of financing costs, $10,000 from a promissory note used to satisfy operating costs and $50,000 in proceeds from a convertible note payable from a director. The Company also received $23,660 in cash proceeds resulting from the exercise of common stock warrants during the six months ended June 30, 2014.

 
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To allow us to continue the development of its business plans and satisfy its obligations on a timely basis, we will need to raise additional financing to fund our operations.  Should additional financing not be available, we will have to negotiate with our lenders to extend the repayment dates of its indebtedness. There can be no assurance, however, that we will be able to successfully restructure our debt obligations in the event we fail to obtain additional financing. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty

Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, an effect on our financial condition, financial statements, revenues or expenses.

Inflation
Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the last three years as we are generally able to pass the increase in our material and labor costs to our customers, or absorb them as we improve the efficiency of our operations.

Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes.  The consolidated financial statements for the fiscal year ended December 31, 2013, describe the significant accounting policies and methods used in the preparation of the consolidated financial statements.  Actual results could differ from those estimates and be based on events different from those assumptions.  Future events and their effects cannot be predicted with certainty; estimating therefore, requires the exercise of judgment. Thus, accounting estimates change as new events occur, as more experience is acquired or as additional information is obtained.  The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of our consolidated financial statements:

Business Combinations
Business combinations are recorded in accordance with FASB ASC 805 “Business Combinations.” Under the guidance, consideration transferred, including contingent consideration, and the assets and liabilities of the acquired business are recorded at their fair values on the date of acquisition. The excess of the purchase price over the estimated fair values is recorded as goodwill. If the fair value of the assets acquired exceeds the purchase price and the liabilities assumed then a gain on acquisition is recorded. FASB ASC 805 requires that for each business combination, one of the combining entities shall be identified as the acquirer and the existence of a controlling financial interest shall be used to identify the acquirer in a business combination.  In a business combination effected primarily by exchanging equity interests, the acquirer usually is the entity that issues its equity interests. In accordance with FASB ASC 805, if a business combination has occurred, but it is not clear which of the combining entities is the acquirer, U.S. GAAP requires considering additional factors in making that determination.  These factors include the relative voting rights of the combined entity, the composition of the governing body of the combined entity, the composition of senior management in the combined entity and the relative size of the combining entities. Under the guidance, all acquisition costs are expensed as incurred and in-process research and development costs are recorded at fair value as an indefinite-lived intangible asset. The application of business combination accounting requires the use of significant estimates and assumptions.
 
Fair Value of Financial Instruments
Financial instruments include cash, accounts receivable, accounts payable, accrued expenses, derivative warrant liabilities, promissory notes payable, capital lease obligation, contingent consideration liability, revolving note from related party, convertible notes payables, and senior convertible notes payable. Fair values were assumed to approximate carrying values for these financial instruments, except for derivative warrant liabilities, contingent consideration liability, convertible notes payable and senior convertible notes payable, since they are short term in nature or they are receivable or payable on demand. The senior convertible notes payable are recorded at face amount, net of any unamortized discounts. The convertible notes payable are measured at fair value each reporting period. The fair value was estimated using the trading price on June 30, 2014, since the underlying shares the debt could be converted into are trading in an active, observable market, and are considered similar to the debt itself, the fair value measurement qualifies as a Level 2 input. The determination of the fair value of the derivative warrant liabilities and contingent consideration liability include unobservable inputs and is therefore categorized as a Level 3 measurement.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 “Fair Value Measurement” establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:

·
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

·
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

·
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 
33

 
 
MANAGEMENT

Directors and Executive Officers
 
Name
Age
Position
Director/Officer Since
       
Raymond Meyers
57
Chief Executive Officer, President,
April 2008
   
Treasurer, and Director
 
       
Paul Neelin
54
Chief Operations Officer, Secretary and Director
January 2014
       
Kathleen Browne
59
Chief Financial Officer
June 2014
       
Alexander A. Orlando
51
Director
April 2008
       
Patrick White
61
Director
October 2009
       
Philip Jones
45
Director
October 2009
 
 
The principal occupations for at least the past five years of each of our directors and executive officers are as follows:
 
Raymond Meyers  founded IMS in March 2007 and has been Chief Executive Officer and President since the Company’s inception.  Mr. Meyers founded and operated several technology-based companies, with the most recent one being eBoz, Inc., an Internet marketing tools company, which he operated from November 2001 to April 2005 and sold to Web.com (NasdaqGM: WWWW), formerly Website Pros, Inc.,  in April 2005.  From April 2005 to December 2006 he was an employee of Web.com holding the position of General Manager, eBoz Division.  He was previously (from December 1996 to December 1999) CEO and President of ProtoSource Corporation, a NASDAQ listed company.  He is a graduate of Rutgers University with continuing education at UCLA. We believe that as a result of his service as our Founder, President and Chief Executive Officer since inception, which adds historical knowledge, operational expertise and continuity to our board of directors, and his extensive corporate management experience, including serving as the chief executive officer of a publicly-held company, he  provides the board with a deep understanding of all aspects of our business, both strategically and operationally, and therefore should serve on our board.

Paul Neelin  founded U-Vend Canada Inc. in 2009 and was subsequently acquired by Internet Media Services, Inc. in January 2014.  Mr. Neelin currently serves as the Company’s Chief Operations Officer and is responsible for  approving new product development, assisting in strategic acquisitions, managing brand partner relationships, and overseeing national and international growth .  He  offers a unique blend of executive acumen with over 30 years of entrepreneurial experience with several successful ventures. These include food and beverage design businesses and operations as both a franchisee and franchisor.  He was the Founder of a design and manufacturing company that designed and developed a series of mobile trailers taking brands to non-traditional venues.  Mr. Neelin successfully developed mobile trailers for McDonald's worldwide (Japan, Amsterdam, three Walt Disney Parks). Mobile trailers and carts were also designed for Coca-Cola, Kodak, Mr. Sub, Hagen Daz, and Labatt's breweries.  He was instrumental in laying the groundwork for the establishment of U-Vend. Having a strategic vision of modernizing vending, Mr. Neelin worked with several kiosk manufacturing companies testing various makes and models of kiosks before deciding and insisting on North American made equipment only. This standard is currently being used and will continue to be one of U-Vend’s core values moving forward.  We believe that as a result of his service as the Founder of U-Vend Canada Inc., Mr. Neelin possesses invaluable historical knowledge and operational expertise, and therefore should serve on our board.
 
Kathleen Browne joined U-Vend, Inc. as Chief Financial Officer on June 1, 2014. Ms. Browne is a senior financial executive with thirteen years of “Big Four” public accounting experience and over twenty years in executive/officer level finance positions.  Prior to joining U-Vend, Inc., Kathleen was owner of Browne Consulting, a financial and accounting advisory firm she founded in 2007.  From 2004 through 2007, Ms. Browne was Chief Financial Officer of NaturalNano, Inc., a publicly traded company based in Rochester, N.Y.  From 2001-2004 she was Corporate Controller and Chief Accountant for Paychex, Inc., a NASDAQ-listed payroll processing services company whose revenue exceeded $2.3 billion in 2013.   From 1996-2000, Kathleen was Vice President Finance, Controller and Chief Accounting Officer for W.R. Grace & Co., a global leader in the production and sale of specialty chemicals and materials.  From 1992-1996, she was Vice President/Director of Finance for Bausch & Lomb, one of the world’s largest suppliers of eye health products, which was listed on the NYSE until it was acquired by the private equity firm Warburg Pincus PLC in 2007.  Ms. Browne attended St. John Fisher in Pittsford, NY and graduated with a BS Accounting in 1977 .

 
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Alexander Orlando  holds the positions of Chief Financial Officer and Treasurer for Eagle International Institute, Inc. from March, 2008 to Present.  He was Vice President for eBoz, Inc., an Internet marketing tools company, from January 2000 to December 2007, Senior Executive for ITT Industries-Goulds Pumps from August 1998 to December 1999, General Manager and Controller for Foley-PLP from Jan 1995 to Aug 1998,   Managing Partner of Wagner's Tax and Consulting Services and owner of several Subway Sandwich Franchises and Real Estate Investments from 1995 to Present.  He is a graduate of Ithaca College with a BS in Finance and Accounting, with continuing education at Geneseo State College.  We believe Mr. Orlando should serve on our board of directors based on the perspective he brings to our board of directors from his exposure to the internal and external financial requirements and controls of both large and smaller technology companies, and the unique perspective he brings to the our board of directors from his entrepreneurial experiences.
 
Patrick White  was Chief Executive Officer and a Director of Document Security Systems, Inc. (“DSS”) from August 2002 to December 2012.  In addition, Mr. White was President of DSS from August 2002 until June 2006 and was Chairman of the Board of Directors of DSS from August 2002 until January 2008.  DSS is an NYSE AMEX listed company. Mr. White received his Bachelors of Science (Accounting) and Masters of Business Administration degrees from Rochester Institute of Technology.  We believe Mr. White is qualified to serve on our board of directors based on his extensive corporate management experience, including serving as the chief executive officer of a publicly-held company (DSS), and his experience with the organizational challenges involved with becoming and operating as a publicly-held company.
 
Philip Jones  is a CPA and holds an MBA from Rochester Institute of Technology.  He has 13 years experience in both the public and private accounting and finance sectors, including positions at Arthur Anderson  from 1996 to 1998 and PricewaterhouseCoopers from  2003 to  2004 , American Fiber Systems (Controller) from  2000 to  2003, and 2004 to 2005 , and Zapata (NYSE:ZAP)(Accounting Manager and Director of Finance) from  1998  to  2000 . Mr. Jones joined Document Security Systems, Inc. ("DSS") in 2005 as its Corporate Controller and has been its Chief Financial Officer since 2009.  DSS is an NYSE AMEX listed company.  We believe Mr. Jones should serve as a member of our board of directors based on his experience in the public and private accounting and finance sectors, and being Chief Financial Officer at a publicly traded company (DSS), which provides our board of directors with insights into the areas of corporate finance, cash management, and SEC reporting requirements.

There are no family relationships among our directors and executive officers.

Term of Office
 
Directors are elected to hold office until the next annual meeting of shareholders and until their successors are elected and qualified.  Annual meetings of the shareholders, for the selection of directors to succeed those whose terms expire, are held at such time each year as designated by the Board of Directors.  Officers of the Company are elected by the Board of Directors, which is required to consider that subject at its first meeting after every annual meeting of shareholders.  Each officer holds office until his successor is elected and qualified or until his earlier resignation or removal.

Committees of the Board of Directors
 
We do not have any committees of the Board of Directors.  We consider a majority of our Board members (consisting of Messrs. Jones, Orlando, and White) to be independent directors under NYSE AMEX rules.
 
Corporate Governance
 
We do not have an audit committee, compensation committee or nominating committee. As we grow and evolve as a SEC registrant, our corporate governance structure is expected to be enhanced.

Director Compensation

Our non-employee directors do not currently receive cash compensation for their services as directors although they are provided reimbursement for out-of-pocket expenses incurred in attending Board meetings. In order to attract and retain qualified persons to our Board, in July 2011, we granted our non-employee directors stock options through our Equity Incentive Plan. Each non-employee director received 2500 stock options at a strike price of $60.00, vesting equally over a three year period, and with an expiration date of ten years from date of grant.
 
 
35

 
 
EXECUTIVE COMPENSATION

As of December 31, 2013 there was no employment agreement with our executive officer, Mr. Meyers.  On January 7, 2014, the Company entered into employment agreements (“Employment Agreements”) with our two executive officers, Mr. Raymond Meyers and Mr. Paul Neelin.  Both employment agreements and are for a period of three years and may be extended by mutual consent.

Mr. Meyers,  in his capacity as Chief Executive Officer, is entitled to a monthly salary of not less than $5,000.  In addition, he is entitled to receive a commission on gross sales based on the Company achieving certain gross sales levels.  The commission payout is paid monthly and is calculated on the basis of US GAAP.  In any one calendar year, total sales commission paid to Mr. Meyers will be limited to $300,000.  The Employment Agreement may be terminated prior to such date, however, upon Mr. Meyers’s death, disability, by the Company for Cause (as defined in the Employment Agreement), by Mr. Meyers for Good Reason (as defined in the Employment Agreement) and voluntary termination by Mr. Meyers other than for Good Reason upon 30 days’ notice.  Upon termination by the Company for any reason other than Cause or by Mr. Meyers for Good Reason, Mr. Meyers will receive any accrued but unpaid salary through the date of termination and an amount equal to his salary at the time of termination payable for the remainder of the then-current term.  Upon termination by reason of Mr. Meyers’s death or disability, he will receive any accrued but unpaid salary through the date of termination and an amount equal to his salary at the time of termination payable for 1 year beginning 30 days after the date of termination.  Upon termination by the Company for Cause or voluntarily by Mr. Meyers for other than Good Reason, he will receive only accrued but unpaid salary through the date of termination.

Mr. Neelin, in his capacity of Chief Operations Officer,  is entitled to a monthly salary of not less than $10,000 and an annual bonus based upon performance goals established and approved by the Board of Directors.  The Employment Agreement may be terminated prior to such date, however, upon Mr. Neelin’s death, disability, by the Company for Cause (as defined in the Employment Agreement), by Mr. Neelin for Good Reason (as defined in the Employment Agreement) and voluntary termination by Mr. Neelin other than for Good Reason upon 30 days’ notice.  Upon termination by the Company for any reason other than Cause or by Mr. Neelin for Good Reason, Mr. Neelin will receive any accrued but unpaid salary through the date of termination and an amount equal to his salary at the time of termination payable for the remainder of the then-current term.  Upon termination by reason of Mr. Neelin’s death or disability, he will receive any accrued but unpaid salary through the date of termination and an amount equal to his salary at the time of termination payable for 1 year beginning 30 days after the date of termination.  Upon termination by the Company for Cause or voluntarily by Mr. Neelin for other than Good Reason, he will receive only accrued but unpaid salary through the date of termination.

Ms. Browne, in her capacity of Chief Financial Officer,  is entitled to a monthly salary of not less than $7,500 and an annual bonus based upon performance goals established and approved by the Board of Directors.  The Employment Agreement may be terminated prior to such date, however, upon Ms. Browne’s death, disability, by the Company for Cause (as defined in the Employment Agreement), by Ms. Browne for Good Reason (as defined in the Employment Agreement) and voluntary termination by Ms. Browne other than for Good Reason upon 30 days’ notice.  Upon termination by the Company for any reason other than Cause or by Ms. Browne for Good Reason, Ms. Browne will receive any accrued but unpaid salary through the date of termination and an amount equal to her salary at the time of termination payable for the remainder of the then-current term.  Upon termination by reason of Ms. Browne’s death or disability, she will receive any accrued but unpaid salary through the date of termination and an amount equal to her salary at the time of termination payable for 6 months beginning 30 days after the date of termination.  Upon termination by the Company for Cause or voluntarily by Ms. Browne for other than Good Reason, she will receive only accrued but unpaid salary through the date of termination.

We do not have key person life insurance on the lives of any of our executive officers.

The following table discloses compensation received by our Chief Executive Officer and then acting Chief Financial Officer, and our former Executive Vice-President, also referred to herein as our “named executive officers,” for the fiscal years ended December 31, 2013 and 2012.  Mr. Meyers earned a salary of $180,000 per annum for the calendar year 2013 of which $37,392 was paid during the year and $142,608 was earned but unpaid at December 31, 2013. No compensation was paid to or deferred for Mr. Meyers in the year ended 2012.  No compensation was paid or deferred for Mr. Buechler, the Company’s former Executive Vice President, in the years ended 2013 or 2012.

Summary Compensation Table

Name and Principal Position
Year
   
Salary
   
Bonus
   
Stock Awards
   
Option Awards
   
All Other Compensation
   
Total
 
                                         
Raymond J Meyers,
2013 
   
$
180,000
   
$
-
   
$
-
   
$
-
   
$
-
   
$
180,000
 
Chief Executive Officer, then acting Chief Financial Officer
2012
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
                                                     
Michael Buechler,
2013
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
Former Executive Vice President
2012
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 

 
36

 

Outstanding Equity Awards at September 1, 2014

Name
 
Number of
Securities
Underlying
Unexercised
Options
 
Number of
Securities
Underlying
Unexercised
Options
 
Option
Exercise
Price
 
Option Expiration
Date
   
(Exercisable)
 
(Un-exercisable)
       
                 
Raymond Meyers
 
2,500
 
-
 
$60.00
 
7/21/2016
Kathleen Browne
 
350,000
 
100,000
 
$0.30
 
9/10/2019

Director Compensation

Our non-employee directors do not currently receive cash compensation for their services as directors although they are provided reimbursement for out-of-pocket expenses incurred in attending Board meetings.  In order to attract and retain qualified persons to our Board, in July 2011, we granted our non-employee directors stock options through our Equity Incentive Plan.  Each non-employee director received 2,500 stock options at a strike price of $60.00, vesting equally over a three year period, and with an expiration date of ten years from date of grant. Directors were not compensated during the year ended December 31, 2013 or 2012.

Equity Incentive Plan 
 
On July 22, 2011, the Board of Directors of the Company approved the Company’s 2011 Equity Incentive Plan (the “Plan”) and on July 26, 2011, shareholders holding a majority of shares of the Company approved, by written consent, the Plan. The Plan provides for the grant of options intended to qualify as “incentive stock options” and “non-statutory stock options” within the meaning of Section 422 of the Internal Revenue Code of 1986, together with the grant of bonus stock and stock appreciation rights, at the discretion of our Board of Directors.  Incentive stock options are issuable only to our eligible officers, directors and key employees. Non-statutory stock options are issuable only to our non-employee directors and consultants. Upon stockholder approval of the Plan, a total of 5,000,000 shares of common stock or appreciation rights may be issued under the Plan.  The Plan will be administered by our full Board of Directors.  Under the Plan, the Board will determine which individuals shall receive options, grants or stock appreciation rights, the time period during which the rights may be exercised, the number of shares of common stock that may be purchased under the rights and the option price.  The Company has 350,650 options outstanding under the Plan to employees, directors and outside consultants.
 
Limitation on Liability and Indemnification of Officers and Directors
 
Our Certificate of Incorporation provides that liability of directors to us for monetary damages is eliminated to the full extent provided by Delaware law. Under Delaware law, a director is not personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director except for liability (i) for any breach of the director’s duty of loyalty to us or our stockholders; (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; (iii) for authorizing the unlawful payment of a dividend or other distribution on our capital stock or the unlawful purchases of our capital stock; (iv) a violation of Delaware law with respect to conflicts of interest by directors; or (v) for any transaction from which the director derived any improper personal benefit.

The effect of this provision in our Certificate of Incorporation is to eliminate our rights and our stockholders’ rights (through stockholders’ derivative suits) to recover monetary damages from a director for breach of the fiduciary duty of care as a director (including any breach resulting from negligent or grossly negligent behavior) except in the situations described in clauses (i) through (v) above. This provision does not limit or eliminate our rights or the rights of our security holders to seek non-monetary relief, such as an injunction or rescission, in the event of a breach of a director’s duty of care or any liability for violation of the federal securities laws.

PRINCIPAL STOCKHOLDERS

As of September 1, 2014, there are 9,371,082 shares of common stock outstanding.  This number and the table below do not include the shares that are contingently issuable to U-Vend shareholders subject to certain earn-out provisions. The following table sets forth certain information regarding the beneficial ownership of the outstanding common shares as of September 10, 2014 by (i) each person who owns beneficially more than 5% of our outstanding common stock; (ii) each of our executive officers and directors; and (iii) all of our executive officers and directors as a group. The shares listed include as to each person any shares that such person has the right to acquire within 60 days from the date hereof.  This table excludes people that have the right to common shares in excess of 5% but are limited to owning more than 4.99% of our outstanding common shares at any time.  Except as otherwise indicated, each such person has sole investment and voting power with respect to such shares, subject to community property laws where applicable. The address of our executive officers and directors is in care of us at 1507 7th Street, #425, Santa Monica, CA 90401.
 
 
37

 

SECURITY OWNERSHIP OF MANAGEMENT
 
Name of Beneficial Owner
 
Common Shares Beneficially Owned
 
Percentage Beneficially Owned
  Executive officers and directors
         
Raymond J. Meyers (1)
 
2,021,409
 
21.6
%
Paul Neelin (2)
 
259,162
 
2.8
%
Patrick White (3)
 
941,652
 
9.7
%
Philip Jones (1)
 
2,552
   
*
Alexander A. Orlando (1)
 
2,506
   
*
Kathleen Browne (8)
 
250,000
 
2.6
%
All executive officers and directors
         
as a group (six persons)
 
3,477,280
 
35.0
%
           
Greater than 5% stockholders
         
           
Bohlen Enterprises LLC (4)
 
525,564
 
5.6
%
2800 Middle Country Road
         
Lake Grove, NY 11755
         
           
Kevin and Barb Brady (5)
 
842,375
 
8.2
%
4214 Kane Crescent
         
Burlington, Ontario, Canada L7M-5C1
         
           
QSR Group, Inc. (6)
 
800,000
 
8.5
%
312 Grays Road, PO Box 56013, Fiesta RPO2
         
Stoney Creek, Ontario, Canada L8G-5C9
         
           
Dave Young (2) (7)
 
480,000
 
5.1
%
312 Grays Road, PO Box 56013, Fiesta RPO2
         
Stoney Creek, Ontario, Canada L8G-5C9
         
           
*Less than 1%
         
 
 
(1)
Includes 2,500 shares issuable upon exercise of options.
 
(2)
Does not include Mr. Neelin’s percentage of any shares issuable under certain earn-out provisions of the Agreement.  This amount also does not include any shares that would be transferred to Mr. Neelin in the event of forfeiture by Dave Young.  Mr. Young has 480,000 issued and outstanding shares that are subject to a three year vesting schedule through 2017.  Any shares not vested are transferable to Mr. Neelin.
 
(3)
Includes 2,500 shares issuable upon exercise of options and 312,500 issuable upon exercise of warrants.
 
(4)
Includes 12,500 shares issuable upon exercise of warrants.  Mr. Stephen Bohlen makes the investment decisions on behalf of Bohlen Enterprises LLC.
 
(5)
Includes 416,667 shares issuable upon exercise of warrants and 425,708 shares issuable upon conversion of debt.
 
(6)
Mr. Greg Hogarth makes the investment decision on behalf of QSR Group, Inc.
 
(7)
Includes 480,000 shares issued and outstanding that are subject to a three year vesting schedule.  Any shares that are not vested are transferable to Mr. Paul Neelin.
 
(8)
Total options granted of 350,000 shares: 250,000 of which were vested as of September 10, 2014.

 
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Revolving Credit Agreement
The Company has a revolving credit agreement with Mr. Raymond Meyers, a shareholder and chief executive officer of the Company. This credit agreement allows borrowings at the discretion of Mr. Meyers and extends through September 30, 2014. The outstanding balance on the credit agreement bears interest at an annual rate of 6% above one year LIBOR and is secured by all of the assets of the Company. In the event of default and upon the expiration of any applicable cure period, Mr. Meyers, in his sole discretion may request repayment in the form of newly issued common stock of the Company. As of June 30, 2014 the revolving credit line had no outstanding balance ($0 - December 31, 2013).   All future borrowings will be at the discretion of Mr. Meyers. 

 
38

 
 
Accrued Salary – Officers
During 2014, the Company recorded salary expense for officers as defined in the underlying employment agreements and as approved by the Company’s board of directors.     As of June 30, 2014, $209,311 of earned salary was unpaid to officers of the Company .

Promissory Note with Chief Operating Officer
During the first quarter of 2014, the Company issued a promissory note to a former shareholder of U-Vend Canada who is now the Company’s Chief Operating Officer .   The original amount of the note was $47,295 and has a term of 5 years and accrues interest at 20% per annum. The total debt outstanding on these promissory notes at June 30, 2014 was $45,258 .

Review, Approval and Ratification of Related Party Transactions
Given our small size and limited financial resources, we had not adopted formal policies and procedures for the review, approval or ratification of transactions with our executive officers, directors and significant stockholders.  However, we intend that such transactions will, on a going-forward basis, be subject to the review, approval or ratification of our board of directors, or an appropriate committee thereof.

DESCRIPTION OF SECURITIES

Capital Stock

Our authorized capital stock consists of 600,000,000 shares of common stock, par value $0.001 and 10,000,000 shares of preferred stock, par value $0.001.  As of September 1, 2014, the Company had 9,371,082 shares of common stock and no shares of Preferred Stock are outstanding.
 
Common Stock

The shares of common stock presently outstanding are fully paid and non-assessable. Each holder of common stock is entitled to one vote for each share owned on all matters voted upon by stockholders, and a majority vote is required for all actions to be taken by stockholders. In the event we liquidate, dissolve or wind-up our operations, the holders of the common stock are entitled to share equally and ratably in our assets, if any, remaining after the payment of all our debts and liabilities and the liquidation preference of any shares of preferred stock that may then be outstanding. The common stock has no preemptive rights, no cumulative voting rights, and no redemption, sinking fund, or conversion provisions.

Holders of common stock are entitled to receive dividends, if and when declared by the board of directors, out of funds legally available for such purpose, subject to the dividend and liquidation rights of any preferred stock that may then be outstanding.

Preferred Stock

Our board of directors has the authority, without further action by the stockholders, to issue shares of preferred stock in one or more series and to fix the rights, preferences and the number of shares constituting any series or the designation of such series. While our Certificate of Incorporation and bylaws do not contain any provisions that may delay, defer or prevent a change in control, the issuance of preferred stock may have the effect of delaying or preventing a change in control or make removal of our management more difficult.

The Company has the following convertible notes outstanding:
 
 
Face amount of notes
Interest rate
Maturity Dates
Debt Conversion price
Warrant coverage and terms
Cobrador Senior Secured Convertible Notes
$370,000
7%
December 2014 – June 2015
$0.05
11.1 million Series A with 2 year term and $0.05 exercise price and
11.1 million Series B with 5 year term and $0.06 exercise price
Convertible Promissory Note
$100,000
18%
September 2014
80% VWAP at conversion
416,667 warrants expiring September 2015 with an exercise price of $0.24
Convertible Promissory Note
$25,000
18%
Currently due and in discussion for revised due date
80% VWAP at conversion
104,167 warrants expiring July 2015 with an exercise price of $0.24
Subordinated Convertible Promissory Note
$50,000
10%
August 2015
$0.30
83,334 warrants with a 5 year term and $0.35 exercise price
Subordinated Convertible Promissory Note
$75,000
10%
August 2015
$0.30
125,000 warrants with a  5 year term and $0.35 exercise price

 
39

 

The Company had 27,962,935 warrant securities outstanding as summarized below.

   
Warrants
   
Exercise Price
 
Expiration
Warrants acquired in U-Vend merger 1/7/14
   
1,350,669
   
$
0.24
 
September 2015 – December 2016
2011 Common share private placement warrants
   
12,500
   
$
60.00
 
March 2018
2012 Private placements warrants
   
750
   
$
30.00
 
March - April 2015
2013 Series A warrants Senior Convertible Notes
   
6,000,000
   
$
0.05
 
June - December 2015
2013 Series B warrants Senior Convertible Notes
   
6,000,000
   
$
0.06
 
June - December 2018
2013 Lease obligation warrants
   
986,250
   
$
0.20
 
November 2016
2014 Warrants for services
   
834,000
   
$
0.05
 
July 2015
2014 Warrants for services
   
1,024,000
   
$
0.06
 
January 2019
2014 Warrants for services
   
35,000
   
$
0.24
 
January 2016
2014 Warrants for services
   
18,480
   
$
0.01
 
January 2016
2014 Series A warrants Senior Convertible Notes
   
5,100,000
   
$
0.05
 
January 2016- June 2016
2014 Series B warrants Senior Convertible Notes
   
5,100,000
   
$
0.06
 
January 2019- June 2019
2014 Lease obligation warrants
   
246,563
   
$
0.20
 
March 2017
2014 Lease obligation warrants
   
483,889
   
$
0.18
 
May 2017
2014 Issued with Promissory Note
   
41,667
   
$
0.24
 
May 2016
2014 Subordinated Convertible Notes
   
208,334
 
 
$
0.35
 
July-August 2019
2014 Issued in exchange for debt converted
   
312,500
   
$
0.24
 
July 2017
2014 Issued with Note Payable - Director     208,333     $ 0.24   February 2017


 
40

 
 

Transfer Agent

The transfer agent for our common stock is Corporate Stock Transfer, 3200 Cherry Creek South Drive, Suite 430, Denver, Colorado 80209, and their telephone number is (303) 282-4800.


LEGAL MATTERS

The validity of the common stock being offered hereby has been passed upon by the Law Office of Gary A. Agron, 5445 DTC Pkwy, Greenwood Village, Colorado 80111, and their telephone number is (303) 770-7254.


EXPERTS

The audited financial statements included in this prospectus have so been included in reliance upon the reports of Freed Maxick CPAs, P.C, upon the authority of said firm as experts in accounting and auditing in giving said report.

 
41

 
 
AVAILABLE INFORMATION

We have filed a registration statement on Form S-1 under the Securities Act of 1933 with the SEC with respect to the shares of our common stock offered through this prospectus. This prospectus is filed as a part of that registration statement, but does not contain all of the information contained in the registration statement and exhibits. Statements made in the registration statement are summaries of the material terms of the referenced contracts, agreements or documents of the company. We refer you to our registration statement and each exhibit attached to it for a more detailed description of matters involving the company. You may inspect the registration statement, exhibits and schedules filed with the SEC at the SEC’s principal office in Washington, D.C. Copies of all or any part of the registration statement may be obtained from the Public Reference Section of the SEC, 100 F Street, N.E. Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information on the operation of the public reference rooms. The SEC also maintains a web site at http://www.sec.gov that contains reports, proxy statements and information regarding registrants that files electronically with the SEC. Our registration statement and the referenced exhibits can also be found on this site.
 

DISCLOSURE OF SEC POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES

In accordance with the provisions in our Articles of Incorporation and Bylaws, we will indemnify an officer, director, or former officer or director, to the full extent permitted by law.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.

 
42

 
 
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

   
U-Vend, Inc (formerly Internet Media Services, Inc.) - Audited Consolidated Financial Statements :
 
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Balance Sheets at December 31, 2013 and 2012
F-3
Statements of Operations for the Years Ended December 31, 2013 and 2012
F-4
Statements of Changes in Stockholders' Deficit for the Years Ended December 31, 2013 and 2012
F-5
Statements of Cash Flows for the Years Ended December 31, 2013 and 2012
F-6
Notes to Consolidated Financial Statements
F-7
   
U-Vend Canada, Inc. - Audited Consolidated Financial Statements :
 
Report of Independent Registered Public Accounting Firm
F-18
Consolidated Balance Sheets at November 30, 2013 and 2012
F-19
Statements of Operations for the Years Ended November 30, 2013 and 2012
F-20
Statements of Changes in Stockholders' Deficit for the Years Ended November 30, 2013 and 2012
F-21
Statements of Cash Flows for the Years Ended November 30, 2013 and 2012
F-22
Notes to Consolidated Financial Statements
F-23
   
U -Vend, Inc. Condensed Consolidated Financial Statements (Unaudited) as of March 31, 2014 and 2013 and for the three month periods then ended
F-32
   
U-Vend, Inc. Condensed Consolidated Financial Statements (Unaudited)  as of June 30, 2014 and 2013 and for the three and six month periods then ended
F-44
 
 
F-1

 
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the Board of Directors and Stockholders
Internet Media Services, Inc. and Subsidiaries


We have audited the accompanying consolidated balance sheets of Internet Media Services, Inc. and Subsidiaries as of December 31, 2013 and 2012, and the related consolidated statements of operations, stockholders' deficiency, and cash flows for the years then ended.  These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits 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 consolidated 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 consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Internet Media Services, Inc. and Subsidiaries as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that Internet Media Services, Inc. and Subsidiaries will continue as a going concern.  As discussed in Note 1 to the consolidated financial statements, Internet Media Services, Inc. and Subsidiaries has suffered recurring losses from operations since inception and, as of December 31, 2013, has negative working capital and a stockholders’ deficiency. These factors raise substantial doubt about the Company's ability to continue as a going concern.  Management's plans in regard to these matters are also described in Note 1.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.


/s/ FREED MAXICK CPAs, P.C.

Buffalo, New York
April 15, 2014

 
F-2

 
 
 
INTERNET MEDIA SERVICES, INC.
CONSOLIDATED BALANCE SHEETS

   
As of
 
             
   
December  31,
   
December  31,
 
   
2013
   
2012
 
ASSETS
           
             
Current assets:
           
Cash
 
$
14,620
   
$
1,262
 
Prepaid expenses and other assets
   
4,114
     
10,169
 
Receivable from U-Vend, Canada, Inc.
   
162,536
     
-
 
Current assets of discontinued operations
   
-
     
116,460
 
Total current assets
   
181,270
     
127,891
 
                 
Deferred financing costs, net
   
16,333
     
-
 
                 
Non-current assets of discontinued operations
   
-
     
99,092
 
                 
Total assets
 
$
197,603
   
$
226,983
 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
               
                 
Current liabilities:
               
Accounts payable
 
$
35,192
   
$
39,026
 
Accrued expenses
   
28,032
     
61,340
 
Accrued salary - officer
   
142,608
     
-
 
Note payable - director
   
50,000
     
-
 
Senior convertible notes, net of discount of $143,751
   
56,249
     
-
 
Convertible notes payable
   
-
     
280,034
 
Revolving note from related party
   
-
     
281,228
 
Current liabilities of discontinued operations
   
-
     
156,912
 
Total current liabilities
   
312,081
     
818,540
 
                 
Warrant liabilities
   
214,609
     
-
 
                 
Commitments and contingencies (Note 9)
   
-
     
-
 
                 
Stockholders' deficiency:
               
Common stock, $.001 par value, 600,000,000 shares
               
authorized, 489,255,193 shares issued and outstanding (24,637,893 - 2012)
   
489,255
     
24,638
 
Additional paid-in capital
   
955,920
     
770,786
 
Accumulated deficit
   
(1,774,262
)
   
(1,386,981
)
Total stockholders' deficiency
   
(329,087
)
   
(591,557
)
                 
Total liabilities and stockholders' deficiency
 
$
197,603