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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

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FORM 10-K

 

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x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Annual Period Ended December 31, 2015

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from ___ to ___

 

Commission file number 001-35002

 

(Exact name of registrant as specified in its charter)

 

 

(Address of principal executive offices)   (Zip Code)

 

(Registrant’s telephone number)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.   Yes o No ☒

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes o No ☒

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes ☐   No ☒

 

DOCUMENTS INCORPORATED BY REFERENCE

 

 

 

TABLE OF CONTENTS

 

 

PART I

NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  All statements contained in this Annual Report on Form 10-K other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements.  The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," and similar expressions are intended to identify forward-looking statements.  We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs.  These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in Part I, Item 1A, "Risk Factors" in this Annual Report on Form 10-K.  It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make.  In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Annual Report on Form 10-K may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

We assume no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law.  Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Unless expressly indicated or the context requires otherwise, the terms “6D Global,” the “Company,” “we,” “us,” and “our” refer to 6D Global Technologies, Inc., a Delaware corporation, and, where appropriate, its wholly owned subsidiaries.

Item 1. – Business

Company Overview

6D Global Technologies, Inc. is a digital business solutions company serving the digital marketing and technology needs of global organizations.  6D Global’s services and products enable clients to create, measure, and optimize digital experiences for their audiences across marketing channels and devices.  These solutions help clients reduce the cost of content delivery and increase the return on their investments in digital communication.  6D Global’s digital technology services include consulting, web experience and content management, analytics, creative interfaces, mobile solutions, managed marketing services, and IT infrastructure staffing.

Strategically, 6D Global is focused primarily on becoming a deep subject matter expert across multiple touchpoints in the digital marketing and technology ecosystem, helping Chief Marketing Officers and Chief Information Officers drive critical change and growth for their organizations.

Company History

 

On September 29, 2014, CleanTech consummated an Agreement and Plan of Share Exchange (the “Exchange Agreement”) with Six Dimensions.  Pursuant to the Exchange Agreement, CleanTech acquired all of the issued and outstanding capital stock of Six Dimensions in exchange for shares of common stock of CleanTech at an exchange ratio of approximately 1.3 shares of CleanTech common stock for each share of Six Dimensions common stock (the “Exchange”).  Following the issuance of the Exchange shares, Six Dimensions became our wholly-owned subsidiary and Six Dimensions’ shareholders owned approximately fifty percent (50%) of our outstanding common stock.  Accordingly, the Exchange represented a change in control of CleanTech. Simultaneous with the Exchange, CleanTech completed a private placement equity offering.  In conjunction with the Exchange, CleanTech converted into a Delaware corporation, whereby it changed its name to 6D Global Technologies, Inc.

Also on September 29, 2014, in connection with the Exchange and pursuant to a Debt Conversion Agreement (“Debt Conversion Agreement”) between CleanTech and its largest creditor—NYGG (Asia) Ltd. (“NYGG Asia”)—CleanTech’s indebtedness to NYGG Asia was cancelled in exchange for the issuance of common stock to NYGG Asia.  The Debt Conversion Agreement further provided that CleanTech could not, without NYGG Asia’s prior written consent, issue any additional equity or debt securities or incur any additional indebtedness (other than in the ordinary course of business) for thirteen (13) months following September 29, 2014.  This conversion of debt to equity is accounted for as part of a reverse recapitalization, reflected as an increase in stockholders’ equity as of September 30, 2014.

The Exchange is being treated as a reverse recapitalization effected by a share exchange for financial accounting and reporting purposes, since substantially all of CleanTech's operations were disposed of prior to the consummation of the transaction. 6D Global is treated as the accounting acquirer, as its stockholders control 6D Global after the Exchange Agreement, even though CleanTech was the legal acquirer.  As a result, the assets, liabilities, and historical operations reflected in these financial statements are those of 6D Global, as if 6D Global had always been the reporting company and, on the date of the Exchange Agreement, changed its name and reorganized its capital stock.  Since CleanTech had no operations when the Exchange Agreement took place, the transaction was treated as a reverse recapitalization for accounting purposes, and no goodwill or other intangible assets were recorded by us as a result of the Exchange Agreement.  Historical common stock amounts and additional paid-in capital have been retroactively adjusted using the exchange ratio of approximately 1.3 shares of CleanTech common stock for each share of Six Dimensions common stock.

All references in these financial statements to common stock, common stock equivalents, and per share amounts related to dates prior to August 22, 2014, have been retroactively adjusted to give effect to all reverse stock splits.

Addressable Market

Consumers today increasingly demand personalized content and experiences in their online interactions, across multiple digital channels and devices.  Accordingly, any entity with an online presence must determine how best to attract, engage, acquire, and retain customers.  Delivering the broadest digital reach and best consumer experiences at any given moment requires the right combination of data, insights, and content.  Marketing executives are increasingly demanding technical solutions to optimize their customers’ experiences, demonstrate the success of their programs with objective metrics, and deliver the greatest return on their marketing spend.

Our market today includes predominantly mid-sized to Fortune 500 commercial, nonprofit, and public sector enterprises across virtually all industries, including, but not limited to, healthcare, consumer, education, government, manufacturing, and high tech.  Because organizations in virtually every sector of the economy perform or need the functions we support, we pursue opportunities across nearly all sectors.

Business Strategy and Solution Pillars

6D Global’s business strategy is to provide business-to-business (B2B) and business-to-business-to-consumer (B2B2C) solutions that address most major aspects of digital operations, including web interfaces/content management, mobile applications/integration, creative design, data analytics, and integrated marketing campaign consulting/execution.  Our business units provide expert professional and managed services across industries.  6D Global offers both deep technical solutions within each specialized area and integrated combinations of solutions to address a wide range of client needs across the digital landscape.

 

By combining creativity with science, we help our clients develop, personalize, manage, measure, optimize, and monetize their digital marketing content more efficiently and effectively—across every channel, with an end-to-end workflow and feedback loop. 6D Global’s present portfolio of service offerings includes:

 

The business units numbered 1 to 5, above, comprise our digital solutions operating in our CMS operating segment, which provides our clients with professional and managed services for web content management, marketing cloud operations, mobile applications, analytics, front-end user experience and design, and marketing automation.

 

The IT Infrastructure Staffing business unit constitutes our IT Staffing operating segment, which provides our clients with contract and contract-to-hire IT professional staffing services.

To support our strategic positioning and business strategy, we have expanded our geographical operations—including opening an office in Dublin, Ireland, in 2015—to facilitate 24-hour, seven-days-a-week support for our clients.

Growth Strategy

Our five-year growth strategy is to significantly expand our client base in the North American and European markets, while also expanding into new geographic areas, such as Asia and South America to provide our clients with global coverage and around the clock services since digital marketing never shuts off.  We intend to do this by focusing on our five current core digital solutions business units, leveraging our deep expertise and track record of successful engagements in these areas.  We believe the quality of our work and unique technical skills will attract new clients as well as win repeat projects with past and current clients.  At the same time, we intend to expand our core offerings and grow our brand with new service capabilities and software products that produce significant value for our clients.  We actively research acquisitions that will expand our geographical and service offerings or significantly add to our existing product lines.

Our multi-faceted product growth strategy includes:

 

·	developing products in-house and building a multi-year recurring revenue offering;

·	acquiring products to own and sell under our own brand;

·	becoming a value-added reseller (VAR) for other companies’ products; and

·	acquiring companies or business units with synergistic service and product lines.

We believe that software products will become a primary revenue source for us over time and that a growing portfolio of software products will generate profitable demand for associated maintenance, support, implementation, consulting, and education services that we, and possibly a channel of licensees and VARs, can provide.  We hope to create innovative software products and also acquire rights to, or ownership of, new products developed by other companies.

To add value for our clients, we established an internal center of excellence called “6D Labs.” 6D Labs is a suite of consulting and support services from a wide pool of experienced digital marketing professionals.  6D Labs provides flexible, on-demand solutions for virtually any type or volume of work.  Unlike traditional project work, where clients may pay for significant overhead and be bound to a rigid contract, 6D Labs offers clients simple staff augmentation.  Additionally, 6D Labs provides digital assessments and digital maturity tests, project management, requirements gathering, and business analysis. 

6D Global’s operating strategy also entails acquiring compelling and profitable small-to-mid-size agencies with an impressive portfolio, or building its own digital agency by hiring the best talent in disciplines such as web design/web development, search engine marketing, internet advertising, e-business/e-commerce consulting, and specialized advertising and marketing services for the digital space (Internet, kiosks, and lifestyle devices such as iPod, tablets, and mobile devices).

Acquisitions

During the first quarter of 2015, we acquired Topaz Interactive, LLC, an Oregon limited liability company doing business as “Storycode,” and SwellPath Inc., an Oregon corporation (“SwellPath”), both of which were highly synergistic to our business model and customer expansion strategy.  These acquisitions are more fully described in Note 3 – Acquisitions.

Storycode On March 4, 2015, 6D Global Technologies, Inc., acquired all of the issued and outstanding membership interest of Storycode pursuant to a Securities Purchase Agreement of that date.  Storycode provides mobile development and creative design services for medium and large businesses. Storycode creates mobile applications for the Adobe DPS/AEM Mobile platforms, featuring award-winning UX (user experience) and UI (user interface) designs.  Storycode was founded by accomplished entrepreneurs and technology industry executives who have over 45 years of combined experience in creative and digital marketing. Storycode employees joined us as part of our expanding team of technology experts.

SwellPath On March 20, 2015, 6D Global Technologies, Inc., entered into and consummated a Securities Purchase Agreement to acquire all of the issued and outstanding shares of SwellPath.  SwellPath is a professional services firm that delivers analytics consulting, search engine optimization, and digital advertising services to medium and large enterprises across North America.  SwellPath enables clients to align and maximize their digital marketing initiatives by tracking both on- and off-line campaigns and performing more effective targeting to enhance return on investment.  SwellPath complements our strategy to provide full-service digital marketing solutions for our clients, while leveraging our partnership with Adobe Systems Incorporated to expand our Adobe Analytics offering.

Competition

The market for all of our services is highly competitive.  We compete principally with systems consulting and implementation firms, boutique consulting firms that maintain specialized skills and/or are geographically focused, offshore consulting and outsourcing companies, and clients’ own IT departments.  We believe that the principal competitive factors in our markets include the ability to solve problems; the ability to provide creative concepts and solutions; expertise and talent with advanced technologies; availability of resources; the quality and speed of solutions; a deep understanding of user experiences; and the price of solutions.  We believe that we compete favorably when considering these factors and that our ability to deliver business innovation and outstanding value to our clients on time and on budget, along with our successful track record, distinguishes us from our competitors.

 

Research and Development

Because the industries in which we compete are characterized by rapid technological change, our ability to compete successfully depends upon maintaining expertise in our core business segments.  To enable our employees to provide expert, timely, competitive services to the marketplace, we provide ongoing training to enhance their skills and knowledge of key third party software.  Because these expenses are not categorized as Research and Development expense, we had no Research and Development expense for the years ended December 31, 2015 and 2014.

Employees

For the years ended December 31, 2015 and 2014, we had 104 and 53 employees, respectively, all of which were employed on a full-time basis, and none of which were unionized.

Item 1A. – Risk Factors

The following discussion of risk factors contains forward-looking statements.  These risk factors may be important to understanding any statement in this Form 10-K or elsewhere.  The following information should be read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes in Part II, Item 8, “Financial Statements and Supplementary Data” of this Form 10-K.

The business, financial condition and operating results of 6D Global can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below.  Any one or more of such factors could directly or indirectly cause our actual results of operations and financial condition to vary materially from past or anticipated future results of operations and financial condition.  Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, results of operations and stock price.

Because of the following factors, as well as other factors affecting our financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

Risks Related to our Digital Marketing Business (Content Management Systems)

We rely on the availability of licenses to third-party software and other licensed intellectual property.

Many of our products and services utilize software or other intellectual property licensed from third parties, and we otherwise use software and other intellectual property licensed from third parties in our business.  This exposes us to risks over which we may have little or no control.  For example, a licensor may have difficulties keeping up with technological changes or may stop supporting the software or other intellectual property that it licenses to us or our clients.  Also, it will be necessary in the future to renew licenses, expand the scope of existing licenses, or seek new licenses relating to various aspects of these products and services or otherwise relating to our business, which may result in increased license fees.  These licenses may not be available on acceptable terms, if at all.  The inability to obtain or maintain certain licenses or other rights, or to obtain or maintain such licenses or rights on favorable terms, could result in delays in releases of products and services and could otherwise disrupt our business until equivalent technology can be identified, licensed or developed, if at all, and integrated into our products and services or otherwise in the conduct of our business.  Moreover, the inclusion in our products and services of software or other intellectual property licensed from third parties on a nonexclusive basis may limit our ability to differentiate our products from those of our competitors.  Any of these events could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our future performance depends in part on support from independent software vendors, system integrators and other third-party software developers.

We depend on independent software vendors, system integrators and other third-party software vendors to create applications that will integrate with our own products and services.  This presents certain risks to our business, including that:

·	we cannot provide any assurance that these applications meet the same quality standards that we apply to our own development efforts, and to the extent they contain bugs or defects, they may create disruptions in our customers’ use of our software or negatively affect our brand;

·	these independent software vendors, system integrators and third-party software developers may not possess the appropriate intellectual property rights to develop and share their applications; and

·	some of these independent software vendors, system integrators and third-party software developers may use the insight they gain from using our software and from documentation publicly available to develop competing products or product features.

Many of these risks are not within our control to prevent, and our brand may be damaged if these applications do not perform to our customers’ satisfaction and that dissatisfaction is attributed to us.

The success of our business depends in large part on our ability to develop solutions and service offerings that keep pace with the changes in the markets in which we provide our services.

 

The professional services markets in which we operate are characterized by rapid technological changes, evolving industry standards, changing customer preferences and new product and service introductions.  Our future success will depend on our ability to develop solutions and service offerings that keep pace with changes in the markets in which we provide services.  We cannot be sure that we will be successful in developing new services addressing evolving technologies in a timely or cost-effective manner or, if these services are developed, that we will be successful in offering and deploying them in the marketplace.  In addition, we cannot be sure that products, services or technologies developed by others will not render our services non-competitive or obsolete.  Our failure to address the demands of the rapidly evolving technological environment could have a material adverse effect on our business, results of operations and financial condition.  Our ability to remain competitive will also depend on our ability to design and implement, in a timely and cost-effective manner, solutions for clients that both leverage their legacy systems and appropriately utilize newer technologies.  Our ability to implement solutions for our clients incorporating new developments and improvements in technology which translate into productivity improvements for our clients and to develop service offerings that meet current and prospective clients’ needs are critical to our success.

 

If we do not attract and retain qualified professional staff, we may be unable to adequately perform our client engagements and could be limited in accepting new client engagements.

 

Our business is labor intensive, and our success depends upon our ability to attract, retain, train and motivate highly skilled employees.  The improvement in demand for marketing and business and technology consulting services has further increased the need for employees with specialized skills or significant experience in marketing, business and technology consulting, particularly at senior levels.  We are expanding our operations, and these expansion efforts will be highly dependent on attracting a sufficient number of highly skilled people.  We may not be successful in attracting enough employees to achieve our expansion or staffing plans.  Furthermore, the industry turnover rates for these types of employees are high, and we may not be successful in retaining, training and motivating the employees we attract.  Any inability to attract, retain, train and motivate employees could impair our ability to manage adequately and complete existing assignments and to bid for or accept new client engagements.  Such inability may also force us to increase our hiring of expensive independent contractors, which may increase our costs and reduce our profitability on client engagements.  We must also devote substantial managerial and financial resources to monitoring and managing our workforce and other resources.  Our future success will depend on our ability to manage the levels and related costs of our workforce and other resources effectively.

 

Our business, financial condition and results of operations may be materially impacted by economic conditions and related fluctuations in client demand for marketing, business, technology and other consulting services.

The market for our consulting services and the technologies used in our solutions is prone to fluctuation with economic cycles — particularly in the United States, where we earn the majority of our revenues.  During economic cycles in which companies experience financial difficulties or uncertainty, clients and potential clients may cancel or delay spending on marketing, technology and other business initiatives, which could result in reduced demand for our services, assignment cancellations or delays, lower revenues and operating margins resulting from price reduction pressures for our services, and payment and collection issues with our clients.  Our efforts to down-size in a manner intended to mirror downturned economic conditions, could be delayed and costly, and could also result in us having inadequate people resources as economic conditions improve.  Any of these events could materially and adversely impact our business, financial condition and results of operations.

Our profitability will be adversely impacted if we are unable to maintain our pricing and utilization rates as well as control our costs.

 

Our profitability derives from and is impacted by three primary factors: (i) the prices for our services; (ii) our professionals’ utilization or billable time; and (iii) our costs.  To achieve our desired level of profitability, our utilization must remain at an appropriate rate, and we must contain our costs.  Should we reduce our prices in the future as a result of pricing pressures, or should we be unable to achieve our target utilization rates and costs, our profitability could be adversely impacted.

Our services may infringe the intellectual property rights of third parties, and create a liability for us as well as harm our reputation and client relationships.

 

The services that we offer to clients may infringe the intellectual property (“IP”) rights of third parties and result in legal claims against our clients and us.  These claims may damage our reputation, adversely impact our client relationships and create substantial liability for us.  Moreover, we generally agree in our client contracts to indemnify the clients for expenses or liabilities they incur as a result of third party IP infringement claims associated with our services, and the resolution of these claims, irrespective of whether a court determines that our services infringed another party’s IP rights, may be time-consuming, disruptive to our business and extraordinarily costly.  Finally, in connection with an IP infringement dispute, we may be required to cease using or developing certain IP that we offer to our clients.  These circumstances could adversely impact our ability to generate revenue as well as require us to incur significant expense to develop alternative or modified services for our clients

We may be unable to protect our proprietary methodology.

 

Our success depends, in part, upon our proprietary methodology.  We rely upon a combination of trade secrets, nondisclosures and other contractual arrangements.  We enter into confidentiality agreements with our employees, contractors, vendors and clients, and limit access to and distribution of our proprietary information.  However, we cannot be certain that the steps we take in this regard will be adequate to deter misappropriation of our proprietary information.

 

We are dependent on, and may be adversely impacted by, the performance of third parties on certain complex engagements.

 

Certain complex engagements may require that we partner with specialized software or systems vendors or other partners to perform services.  Often in these circumstances, we are liable to our clients for the performance of these third parties.  Should the third parties fail to perform timely or satisfactorily, our clients may elect to terminate the engagements or withhold payment until the services have been completed successfully.  Additionally, the timing of our revenue recognition may be affected or we may realize lower profits if we incur additional costs due to delays or because we must assign additional personnel to complete the engagement.  Furthermore, our relationships with our clients and our reputation generally may suffer harm as a result of these third parties’ unsatisfactory performance.

We may be liable to our clients for substantial damages caused by our unauthorized disclosures of confidential information, breaches of data security, failure to remedy system failures or other material contract breaches.

 

We frequently receive or have access to confidential information from our clients, including confidential client data that we use to develop or support solutions.  If any person, including one of our employees, misappropriates client confidential information, or if client confidential information is inappropriately disclosed due to a breach of our computer systems, including an attack by computer programmers or hackers who may develop or deploy viruses, worms, or other malicious software programs, system failures or otherwise, we may have substantial liabilities to our clients or their customers.  Further, any such compromise to our computer systems could disrupt our operations, as well as our clients’ operations.

 

Further, many of our assignments involve technology applications or systems that are critical to the operations of our clients’ businesses and handle very large volumes of transactions.  If we fail to perform our services correctly, we may be unable to deliver applications or systems to our clients with the promised functionality or within the promised time frame, or to satisfy the required service levels for support and maintenance.  Any such failures by us could result in claims for substantial damages by our clients against us.

We may be liable for breaches of confidentiality or data security, defects in the applications or systems we deliver or other material contract breaches that we may commit during the performance of our services (collectively, “Contract Breaches”).  In certain circumstances, we agree to unlimited liability for Contract Breaches.  Additionally, we cannot be assured that any insurance coverage will be applicable and enforceable in all cases, or sufficient to cover substantial liabilities that we may incur.  Further, we cannot be assured that contractual limitations on liability will be applicable and enforceable in all cases.  Accordingly, even if our insurance coverage or contractual limitations on liability are found to be applicable and enforceable, our liability to our clients for Contract Breaches could be material in amount and could materially and adversely affect our business, financial condition and results of operations.  Moreover, such claims may harm our reputation and cause us to lose clients.

Risks Related to our Temporary Employee Staffing Business (IT Staffing Business)

 

We face significant employment-related legal risk.

 

We employ people internally and in the workplaces of other businesses.  Many of these individuals have access to client information systems and confidential information.  An inherent risk of such activity includes possible claims of errors and omissions; intentional misconduct; release, misuse or misappropriation of client intellectual property, confidential information, funds, or other property; cyber security breaches affecting our clients and/or us; discrimination and harassment claims; employment of undocumented aliens; criminal activity; torts; or other claims.  Such claims may result in negative publicity, injunctive relief, criminal investigations and/or charges, civil litigation, payment by us of monetary damages or fines, or other material adverse effects on our business.  To reduce our exposure, we maintain insurance coverage for professional malpractice liability, fidelity, employment practices liability, and general liability in amounts and with deductibles that we believe is appropriate for our operations.  Our insurance coverage, however, may not cover all potential claims against us, may require us to meet a deductible or may not continue to be available to us at a reasonable cost.

 

In this regard, we face various employment-related risks not covered by insurance, such as wage and hour laws and employment tax responsibility.  U.S. Courts in recent years have been receiving large numbers of wage and hour class action claims alleging misclassification of overtime eligible workers and/or failure to pay overtime-eligible workers for all hours worked.  In addition, there appears to be a heightened state and federal scrutiny of independent contractor relationships, which could adversely affect us given that we utilize a significant number of independent contractors to perform our services.  An adverse determination of the independent contractor status of these firms could result in a substantial tax or other liabilities.

 

We may be adversely affected by government regulation of the staffing business, and of the workplace.

 

Our business is subject to regulation and licensing in many states.  There can be no assurance that we will be able to continue to obtain all necessary licenses or approvals or that the cost of compliance will not prove to be material.  If we fail to comply, such failure could materially adversely affect our financial results. 

 

A large part of our business entails employing individuals and placing such individuals in clients’ workplaces.  Increased government regulation of the workplace or of the employer-employee relationship could have a material adverse effect on us.

Significant legal actions could subject us to substantial uninsured liabilities.

 

Professional service providers are subject to legal actions alleging malpractice, breach of contract and other legal theories.  These actions may involve large claims and significant defense costs.  We may also be subject to claims alleging violations of federal or state labor laws. In addition, we may be subject to claims related to torts, intentional acts or crimes committed by our full-time employees or temporary staffing personnel.  In some instances, we are contractually obligated to indemnify clients against such risks.  A failure to observe the applicable standard of care, relevant 6D Global or client policies and guidelines, or applicable federal, state, or local laws, rules, and regulations could result in negative publicity, payment of fines, significant damage awards, or settlement expense.  To reduce our exposure, we maintain insurance coverage for professional malpractice liability, fidelity, employment practices liability and general liability, in amounts and with deductibles that we believe are appropriate for our operations.  Our insurance coverage, however, may not cover all claims against us or continue to be available to us at a reasonable cost.

Significant increases in payroll-related costs could adversely affect our business.

 

We are required to pay a number of federal, state and local payroll and related costs, including unemployment taxes, workers’ compensation and insurance premiums and claims, FICA, and Medicare, among others, related to our employees.  Significant increases in the effective rates of any payroll-related costs would likely have a material adverse effect on us.  Over the last few years, many of the states in which we conduct business have continued to significantly increase their state unemployment tax rates in an effort to increase funding for unemployment benefits.  Costs could also increase as a result of health care reforms or the possible imposition of additional requirements and restrictions related to the placement of personnel.  We may not be able to increase the fees charged to our clients in a timely manner or in a sufficient amount to cover these potential cost increases.

Risks Related to Our Business Generally

 

Our markets are highly competitive and we may not be able to continue to compete effectively.

The markets for the services we provide are highly competitive, rapidly evolving, and subject to rapid technological change.  We compete principally with large systems consulting and implementation firms, traditional and digital advertising and marketing agencies, offshore consulting and outsourcing companies, and clients’ internal information systems departments.  Other competitors include boutique consulting firms that maintain specialized skills or are geographically focused.  Many of the larger regional and national information technology consulting firms have substantially longer operating histories, more established reputations and potential vendor relationships, greater financial resources, sales and marketing organizations, market penetration, and research and development capabilities, as well as broader product offerings, greater market presence, and name recognition.  We may face increasing competitive pressures from these competitors.  This may place us at a disadvantage to our competitors, which may harm our ability to grow, maintain revenues, or generate net income.

In addition, a significant amount of information technology services are being provided by lower-cost non-domestic resources.  The increased utilization of these resources for U.S.-based projects could result in lower revenues and margins for U.S.-based information technology companies.  Our ability to compete utilizing higher-cost domestic resources and/or our ability to procure comparably priced offshore resources could adversely impact our results of operations and financial condition.

In addition, there are relatively low barriers to entry in these markets.  Therefore, new entrants may compete with us in the future.  For example, due to the rapid changes and volatility in our market, many well-capitalized companies, including some of our partners, that have focused on sectors of the software and services industry that are not competitive with our business may refocus their activities and deploy their resources to be competitive with us.

In recent years, there has been consolidation in our industry and we expect that there will be additional consolidation in the future.  As a result of this consolidation, we expect that we will increasingly compete with larger firms that have broader product offerings and greater financial resources than we have.  We believe that this competition could have a negative effect on our marketing, distribution and reselling relationships, pricing of services and products, and our product development budget and capabilities.  One or more of our competitors may develop and implement methodologies that result in superior productivity and price reductions without adversely affecting their profit margins.  In addition, competitors may win client engagements by significantly discounting their services in exchange for a client’s promise to purchase other goods and services from the competitor, either concurrently or in the future.  These activities may potentially force us to lower our prices and suffer reduced operating margins.  Any of these negative effects could significantly impair our results of operations and financial condition.

If we cannot keep pace with the intense competition in our marketplace, our business, financial condition and results of operations will suffer. 

We depend on the proper functioning of our information systems.

 

We are dependent on the proper functioning of information systems in operating our business.  Critical information systems are used in every aspect of our daily operations, most significantly, in the identification and matching of staffing resources to client assignments and in the customer billing and consultant or vendor payment functions.  Our information systems are vulnerable to fire or casualty theft, technical failures, terrorist acts, cyber security breaches, power loss, telecommunications failures, physical or software intrusions, computer viruses, and similar events.  If our critical information systems fail or are otherwise unavailable, we would have to accomplish these functions manually, which could prove difficult or impossible, causing a material adverse effect on our business.

 

Also, any theft or misuse of information resulting from a security breach could result in, among other things, loss of significant and/or sensitive information, litigation by affected parties, financial obligations resulting from such theft or misuse, higher insurance premiums, governmental investigations, negative reactions from current and potential future customers (including potential negative financial ramifications under certain customer contract provisions) and poor publicity and any of these could adversely affect our financial results

We may be unable to achieve anticipated benefits from the Exchange.

The Exchange involved changing our name and transitioning our core business.  We are devoting significant management attention and resources to transitioning 6D Global.  However, the Exchange may present certain risks to our business and operations including, among other things, risks that:

·	the transition of our core business may take longer, be more difficult, time-consuming or costly to accomplish than expected;

·	we may be unable to avoid unforeseen increased expenses associated with the Exchange;

·	there may be unanticipated changes in the markets for our core business;

·	branding or rebranding initiatives may involve substantial costs and may not be favorably received by customers;

·	there may be unanticipated downturns in business relationships with customers; and

·	there may be increases in the cost of material, energy and other production costs, or unexpected costs that cannot be recouped in product pricing.

Accordingly, there can be no assurance that the following eventualities will occur: (i) the Exchange will result in the realization of the full benefits of transitioning our core business that we currently expect; (ii) the potential benefits of transitioning will be achieved within the anticipated timeframe; or (iii) we will be able to implement new strategies to transform the newly renamed and rebranded company.  Failure to successfully transition the businesses may have a material adverse effect on our business and financial results.

Acquisitions could have negative consequences, which could harm our business.

 

As discussed in Part I, Item 1 of this Annual Report on Form 10-K under the heading “Business,” part of our business strategy entails acquiring companies or business units along with their synergistic product lines.  This strategy could require significant capital infusions and could involve many risks including, but not limited to, the following:

 

·	difficulty integrating the acquired company’s personnel, products, product roadmaps, technologies, systems, processes and operations, including product delivery, order management, and information systems;

·	difficulty in forming the acquired company’s financial policies and practices to our policies and practices and in implementing and maintaining adequate internal systems and controls over financial reporting and information systems of the acquired company;

·	diversion of management’s attention and disruption of ongoing business;

·	difficulty in combining service and technology offerings and entering into new markets or geographical areas in which we have no or limited direct experience and where our competitors may have stronger market positions;

·	loss of management, sales, technical or other key personnel;

·	revenue from the acquired companies not meeting our expectations, and the potential loss of the acquired companies’ customers, distributors, resellers, suppliers, or other partners;

·

delays or difficulties and the attendant expense in evaluating, coordinating, and combining administrative, sales, research and development and other operations, facilities, and relationships with third parties in accordance with local laws and other obligations while maintaining adequate standards, controls and procedures, including financial controls and controls over information systems;

·	incurring amortization expense related to intangible assets and recording goodwill and non-amortizable assets that will be subject to impairment testing and possible impairment charges;

·	dilution of existing stockholders as a result of issuing equity securities, including the assumption of any stock options or other equity awards issued by the acquired company;

·	overpayment for any acquisition or investment or unanticipated costs or liabilities;

·	responsibility for the liabilities of the acquired company, including any potential intellectual property infringement claims or other litigation; and

·	incurring substantial write-offs, restructuring charges, and transactional expenses.

Our failure to manage these risks and challenges could materially harm our business, financial condition, and results of operations. Further, if we do not successfully address these challenges in a timely manner, we may not fully realize all of the anticipated benefits or synergies on which the value of a transaction was based.  Future transactions could cause our financial results to differ from expectations of market analysts or investors for any given year, which could, in turn, cause a decline in our stock price.

 

The loss of one or more of our key personnel could harm our business.

 

Our success depends in large part upon the continued services of a number of key personnel, including our Chief Executive Officer.  The loss of the services of any of our key personnel could have a material adverse effect on our business, financial condition and results of operations.  Our employment arrangements with key personnel provide that employment is terminable at will by either party.  Competition for such personnel is intense.  If our key personnel resign to join a competitor or to form a competing company, the loss of such personnel and any resulting loss of existing or potential clients or employees to any such competitor could have a material adverse effect on our business, financial condition and results of operations.  We cannot be certain that any agreements we require our employees to enter into will be effective in preventing them from engaging in these actions or that courts or other adjudicative entities will substantially enforce these agreements.

 

We may not be able to recognize revenue in the period in which our services are performed, which may contribute to fluctuations in our revenue and margins.

 

We provide our services primarily under time-and-materials contracts.  All revenue is recognized pursuant to generally accepted accounting principles in the United States of America (“U.S. GAAP”).  These principles require us to recognize revenue once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable and collectability is reasonably assured.  If we perform our services prior to the period in which we are able to recognize the associated revenue, our revenue and margins may fluctuate from year to year.

We have significant fixed operating costs, which may be difficult to adjust in response to unanticipated fluctuations in revenues.

 

A high percentage of our operating expenses, particularly salary expenses, rent, depreciation expenses and amortization of purchased intangible assets, are fixed in advance of any particular year.  As a result, an unanticipated decrease in the number or average size of, or an unanticipated delay in the scheduling for, our assignments, may cause significant variations in operating results in any particular year, and could have a material adverse effect on operations for that year.

An unanticipated termination or decrease in size or scope of a major assignment, a client’s decision not to proceed with an assignment we anticipated or the completion during a year of several major client assignments could require us to maintain underutilized employees and could have a material adverse effect on our business, financial condition and results of operations.  Our revenues and earnings may also fluctuate from year to year because of such factors as:

 

·	the contractual terms and timing of completion of assignments, including achievement of certain business results;

·	any delays incurred in connection with assignments;

·	the adequacy of provisions for losses and bad debts;

·	the accuracy of our estimates of resources required to complete ongoing assignments; and

·	general economic conditions.

 

We rely on short-term engagements with most of our clients, and our clients may terminate their contracts with short notice.

Most of our customer relationships are not exclusive and most of our contracts may be terminated by our clients with limited advance notice and without significant penalty.  Our customers can reassess their commitments to us at any time in the future and/or develop their own competitive services.  Accordingly, our business agreements with these customers may not reduce the risk inherent in our business that customers may terminate their relationships with us in favor of relationships with our competitors, or for other reasons, or might not meet their contractual obligations to us.  A client’s termination of a contract for our services could result in a loss of expected revenues and additional expenses for staff that were allocated to that client’s assignment.  We may be required to maintain underutilized employees who were assigned to terminated contracts.  The unexpected cancellation or significant reduction in the scope of any of our large assignments, or client termination of one or more recurring revenue contracts, could have a material adverse effect on our business, financial condition and results of operations.

 

We face certain risks in collecting our trade accounts receivable and we have a small number of customers who account for a significant amount of our revenues.

 

We generate a significant amount of trade accounts receivable from our customers.  Delays or defaults in payments owed to us could have a material adverse effect on our financial condition and results of operations.  Factors that could cause a delay or default include business failures, turmoil in the financial and credit markets, sluggish or recessionary U.S. economic conditions, our exposure to customers in high-risk sectors such as the financial services industry, and declines in the credit worthiness of our customers.

For each of the years ended December 31, 2015 and 2014, we had two significant customers that individually accounted for more than 10% of our total revenues.  During 2015, for both clients we provided consultants to develop and install a value adding digital solution.  Our sales to our top five customers accounted for approximately 56% and 52% of revenues for the years ended December 31, 2015 and 2014, respectively.

For the years ended December 31, 2015 and 2014, we had approximately 56% and 57% of our accounts receivable balance held by five customers, respectively.  During each of the years ended December 31, 2015 and 2014, we had three customers accounting for more than 10% each of its accounts receivables balances, respectively.

We may not be able to maintain sufficient cash flow or borrowing capacity to support operations, and we cannot be certain that additional financing will be available on reasonable terms when required, or at all.

 

We may require additional financing from time to time to implement our growth strategy.  Any equity or debt financing, if available at all, may be on terms that are not favorable to us.  Even if we are able to raise capital through equity or debt financings, as to which there can be no assurance, the interest of existing stockholders in our company may be diluted, and the securities we issue may have rights, preferences and privileges that are senior to those of our common stock or may otherwise materially and adversely affect the holdings or rights of our existing stockholders.  If we cannot obtain adequate capital, we may not be able to fully implement our business strategy, and our business, results of operations and financial condition could be adversely affected.

We could be party to litigation that could adversely affect us by distracting management, increasing our expenses or subjecting us to material money damages and other remedies.

As discussed in Item 3 – Legal Proceedings, we have been sued in shareholder class action and derivative lawsuits regarding our financial disclosures and our Board’s oversight of our business, and as a publicly-traded company we cannot be assured that similar actions will not be brought against us in the future.  Regardless of whether any claims against us are valid, or whether we’re ultimately held liable for such claims, they may be expensive to defend and may divert time and money away from our operations and hurt our performance.  A significant judgment for any claims against us could materially and adversely affect our financial condition or results of operations.  Any adverse publicity resulting from these allegations may also materially and adversely affect our reputation or prospects, which in turn could adversely affect our results.

 

Our stock price may be volatile, which could result in substantial losses for investors.

Our common stock does not have substantial trading volume.  As a result, relatively small trades of our common stock may have a significant impact on the price of our common stock and, therefore, may contribute to the price volatility of our common stock.  Because of the limited trading volume in our common stock and the price volatility of our common stock, stockholders may be unable to sell their shares of common stock when they desire or at the price they desire.  The inability for our stockholders to sell their shares in a declining market because of such illiquidity or at a price they desire may substantially increase their risk of loss.

Our Chairman of the Board and Chief Executive Officer has significant voting power and may effectively control the outcome of any stockholder vote.

 

Tejune Kang, current Chairman of the Board of Directors and Chief Executive Officer of 6D Global, personally is in control of multiple Limited Liability Corporations (“LLCs”) that hold in the aggregate, approximately 29.8% of the outstanding shares of our common stock as of June 30, 2016.  NYGG (Asia), Ltd. holds, in the aggregate, approximately 44.9% of the outstanding shares of our common stock as of June 30, 2016.  In addition, on January 14, 2016, NYGG Asia entered into an agreement and proxy with the Company that will result in NYGG Asia’s shares being voted in the same proportion as the shares not held by NYGG Asia are voted.  This agreement will, however, terminate upon the delisting of our common stock from NASDAQ.  As a result, Mr. Kang has the ability to substantially influence and, so long as the NYGG Asia proxy remains in effect, effectively control the outcome of corporate actions requiring stockholder approval, including the election of directors.  This concentration of ownership may also have the effect of delaying or preventing a change in control of 6D Global, even if such a change in control would benefit other investors.

The following table sets forth certain information regarding our leased facilities as of December 31, 2015:

 

 

Discover’s suit was assigned to District Court Judge P. Kevin Castel.  Discover made a motion in the District Court for a pre-judgment attachment of the Company’s assets in aid of arbitration, and for a temporary restraining order pending a decision on its motion for attachment of the Company’s assets, which was initially granted by the court and then revised.  The Company opposed Discover’s attachment motion and cross-moved to compel arbitration of Discover’s claims in accordance with the terms of the SPA.

On October 30, 2015, Judge Castel completely denied Discover’s motion for an attachment of the Company’s assets and vacated the temporary restraining order.  The Court found that the plaintiff had not satisfied their burden of proof regarding any alleged wrongdoing by the Company, or its officers and directors.  As of the date of this filing, Discover has not filed for arbitration of its underlying claims.

The Company vigorously disputes Discover’s underlying claims and intends to aggressively defend them if any arbitration is filed by Discover.  The extent of the Company’s potential liability in this matter has not yet been determined.

 

With regard to the Company and its CEO, Mr. Cottam seeks damages arising from an alleged breach of contract, as well as purported material misstatements or omissions in violation of Section 10(b) of the Securities Exchange Act (15 U.S.C. § 78j(b)) and Rule 10b-5 promulgated thereunder (17 C.F.R. § 240.10b-5).  Specifically, the complaint alleges, among other things, that defendants induced Mr. Cottam to invest in a private offering of Company shares by misrepresenting (i) the nature of a reorganization facilitated by the offering; (ii) certain restrictions on the selling of Company shares; and (iii) the involvement of non-party Benjamin Wey in the offering.  Mr. Cottam further alleges that the Company and its CEO breached a subscription agreement by purportedly failing to issue Mr. Cottam the contracted for number of shares.

Plaintiff seeks an undetermined amount of compensatory and punitive damages allegedly sustained as a result of defendants’ purported breaches, misstatements, and omissions.

The Company and its CEO dispute the allegations made in the complaint and, if served, intend to mount an aggressive defense.  The extent of the potential liability in this matter has not yet been determined.

Item 4. – Mine Safety Disclosures

Not applicable.

PART II

Item 5. – Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock began trading in September 2014 under the symbol “SIXD”.  The following table sets forth the high and low closing sales prices of our common stock for the periods indicated.  Information from the commencement of trading on the NASDAQ through the year ended December 31, 2015 is the high and low closing sales prices of our common stock based upon reports of transactions on the NASDAQ Capital Market.  Information for all periods prior thereto is the high and low last sales prices of our common stock on the OTCQB Marketplace operated by the OTC Markets Group Inc. (the “OTCQB”) OTCQB based upon information provided by the OTCQB.  Quotations reflect inter-dealer prices, without retail mark-up, mark-down commission, and may not represent actual transactions.

 

As of March 29, 2016, our common stock was traded over-the-counter as a grey market security.  These securities are not currently traded on the OTCQX, OTCQB or OTC Pink marketplaces.  Broker-dealers are not willing or able to publicly quote grey market securities because of a lack of investor interest, company information availability or regulatory compliance.

Holders

As of June 30, 2016 we had 192 record holders of our common stock.  The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers or registered clearing agencies.

Dividend Policy

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None

Item 6. – Selected Financial Data

Not applicable

Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This section and other parts of this Annual Report on Form 10-K contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact.  Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms.  Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements.  Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of this Annual Report on Form 10-K under the heading “Risk Factors,” which are incorporated herein by reference.  The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K.

 

Overview

6D Global Technologies, Inc. is a digital business solutions company serving the digital marketing and technology needs of global organizations.  6D Global’s services and products enable clients to create, measure, and optimize digital experiences for their audiences across marketing channels and devices.  These solutions help clients reduce the cost of content delivery and increase the return on their investments in digital communication.  6D Global’s digital technology services include consulting, web experience and content management, analytics, creative interfaces, mobile solutions, managed marketing services, and IT infrastructure staffing.

Strategically, 6D Global is focused primarily on becoming a deep subject matter expert across multiple touchpoints in the digital marketing and technology ecosystem, helping Chief Marketing Officers and Chief Information Officers drive critical change and growth for their organizations.  Expanding our geographical operations including a new office in Dublin, Ireland opened in 2015 to facilitate twenty-four hour seven days a week support for our clients.

6D Global offers holistic information technology (“IT”) solutions for almost every aspect of its clients’ operations from supply chain, to analytics, to content management, and information security.  6D Global began as an IT consultancy serving the enterprise resource planning, or ERP, market – specializing primarily in the market-leading software applications vendor at that time, PeopleSoft.  We have since evolved into new focus areas, particularly since 2012, increasing the breadth of our offerings to include other essential information technology needs of today’s enterprises.  Each new practice we have launched is in a growing or emerging technology sector.  Currently, 6D Global’s business units provide business-to-business IT solutions in the form of professional services and managed services in the IT solutions industry.  6D Global’s present portfolio of service offerings includes: Mobile Application Development; Digital & Content Management; Marketing Data Analysis; Marketing and Creative Solutions; and IT Infrastructure Staffing.  We predominantly provide our services under time-and-material contracts and recognize revenues as services are provided.

Our market today includes predominantly mid-sized to Fortune 500 commercial, nonprofit, and public sector enterprises across virtually all industries, including, but not limited to, healthcare, consumer, education, government, manufacturing, and high tech.  Because organizations in virtually every sector of the economy perform or need the functions we support, we pursue opportunities across nearly all sectors.  Our contractual arrangements can vary in length of time based on our client’s requirements and our services are extended on a regular basis as client’s needs change and grow.  We continually recruit to increase our workforce and enhance our ability to staff existing and new contracts.  The effectiveness of our utilization of the workforce and continued investment in future growth may impact overall results.

On September 29, 2014, CleanTech consummated a share exchange (the “Exchange”) with Six Dimensions, Inc. pursuant to the Agreement and Plan of Share Exchange, dated as of June 13, 2013 between CleanTech, Six Dimensions and the shareholders of Six Dimensions.  The Exchange is being treated as a reverse recapitalization effected by a share exchange for financial accounting and reporting purposes, since substantially all of CleanTech's operations were disposed of prior to the consummation of the transaction.  6D Global is treated as the accounting acquirer as its stockholders control 6D Global after the Exchange Agreement, even though CleanTech was the legal acquirer.  As a result, the assets and liabilities and the historical operations that are reflected in these financial statements are those of 6D Global as if 6D Global had always been the reporting company and, on the date of the Exchange Agreement, changed its name and reorganized its capital stock.  Since CleanTech had no operations upon the Exchange Agreement taking place, the transaction was treated as a reverse recapitalization for accounting purposes and no goodwill or other intangible assets were recorded by us as a result of the Exchange Agreement.

On September 29, 2014, in connection with the Exchange, we completed a private placement equity offering to accredited investors from which we received $4,556,100 in gross proceeds and issued 2,201,031 shares of Common Stock.  On November 21, 2014, 6D Global completed an additional private placement equity offering to accredited investors from which we raised $1,052,498 in gross proceeds, and issued 508,453 shares of Common Stock.

 

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP, and our discussion and analysis of its financial condition and operating results require our management to make judgments, assumptions and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes.  Note 4, “Significant and Critical Accounting Policies and Practices” of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K describes the significant accounting policies and methods used in the preparation of our consolidated financial statements.  Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities.  Actual results may differ from these estimates and such differences may be material.

Management believes our critical accounting policies and estimates are those related to revenue recognition, allowances, leases and income taxes, complex financial instruments, business combinations and related goodwill and intangible assets.

 

Revenue Recognition

We provide our services primarily under time-and-materials contracts.  Revenues earned under time-and-material arrangements are recognized as services are provided.  We recognize revenue from the provision of professional services when it is realized or realizable and earned.  We consider revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the services have been rendered to the customer, (iii) the sales price is fixed or determinable and (iv) collectability is reasonably assured.  Appropriate allowances for returns and discounts are recorded concurrent with revenue recognition.

In accordance with U.S. GAAP guidance, Income Statement Characterization of Reimbursement Received for Out-of-Pocket Expenses, we classify reimbursed expenses as revenue and the related expense within cost of revenue in the accompanying consolidated statements of operations.

For fixed price service arrangements, we apply the proportional performance model or a ratable model to recognize revenue.  When customer acceptance provisions exist, we are generally able to reliably demonstrate that the service meets, or will meet upon completion, the customer acceptance criteria.  If circumstances exist which prevent us from verifying compliance with the acceptance provisions until the service has been completed, revenue is not recognized until compliance can be verified.

Revenues recognized in excess of the amounts invoiced to clients are classified as unbilled revenues in our consolidated balance sheets.

We may record deferred revenue in circumstances where the customer’s contract calls for pre-billing of services.  Amounts in deferred revenue are realized when the services are performed and the criteria noted above are met.

 

Allowance for Doubtful Accounts

 

Management’s estimate of the allowance for doubtful accounts is based on historical sales, historical loss levels, and an analysis of the collectability of individual accounts, and general economic conditions that may affect a client’s ability to pay.  We evaluated the key factors and assumptions used to develop the allowance in determining that it is reasonable in relation to the financial statements taken as a whole.  Although we believe the estimates we have made are reasonable, because they are based on estimates and judgment, they are inherently uncertain.  We have not experienced any significant adjustments; however, unknown factors or changes in the economy may affect our client’s ability to process payments timely in the future.

 

Leases

Lease agreements are evaluated to determine if they are capital leases meeting any of the following criteria at inception: (a) transfer of ownership; (b) bargain purchase option; (c) lease term is equal to 75 percent or more of the estimated economic life of the leased property; or (d) present value at the beginning of the lease term of the minimum lease payments, excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to be paid by the lessor, including any profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased property to the lessor at lease inception over any related investment tax credit retained by the lessor and expected to be realized by the lessor.

If at its inception a lease meets any of the four lease criteria above, the lease is classified by the lessee as a capital lease; and if none of the four criteria are met, the lease is classified by the lessee as an operating lease.

 

Income Taxes

We account for income taxes under the asset and liability method.  This approach requires the recognition of deferred tax assets and liabilities of the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.  The U.S. GAAP guidance for income taxes prescribes a two-step approach for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income tax return.  The first step evaluates an income tax position in order to determine whether it is more likely than not that the position will be sustained upon examination, based on the technical merits of the position.  The second step measures the benefit to be recognized in the financial statements for those income tax positions that meet the more likely than not recognition threshold. U.S. GAAP also provides guidance on derecognition, classification, recognition and classification of interest and penalties, accounting in interim periods, disclosers and transition.  Under U.S. GAAP, we may recognize a previously unrecognized tax benefits if the tax position is effectively (rather than “ultimately”) settled through examination, negotiation or litigation.  We reevaluate these uncertain tax positions on a quarterly basis.  This evaluation based on factors including, but not limited to, changes in facts and circumstances, changes in tax law, effectively settled issues, and new audit activity.  Any changes in these factors could result in changes to a tax benefit or tax provision.

 

 

 

Results of Operations

The following paragraphs set forth our results of operations for the periods presented.  The period-to-period comparison of financial results is not necessarily indicative of future results.

 

Revenues

Our revenue increased by approximately 8% to $12,789,892 during the year December 31, 2015, from $11,797,813 during the year ended December 31, 2014.  Revenues generated by two major segments of our business, Content Management Systems (“CMS”) and Information Technology Staffing (“IT Staffing”), were 88% and 12% respectively.  The increase in revenue was primarily due to an increase in the number of professional service projects and contracts with newly added clients as well as clients of the acquired businesses of 28% offset by the decrease in revenues from existing clients of 20% predominately related to the decrease of IT Staffing clients as we focus on the digital marketing service offerings.   We continue to expand our services being offered in multiple areas of the digital marketing segment through organic efforts and acquisitions and our sales and marketing efforts continue to lend to our ability to win more business.  6D Global is primarily focused on digital technology solutions and becoming a one stop provider to Chief Marketing Officers.  We anticipate these digital marketing service offerings will continue to drive growth in our client base and sales results.

Cost of revenues

Our cost of revenues increased by approximately 4% to $7,728,244 during the year ended December 31, 2015, from $7,425,857 during the year ended December 31, 2014.  The increase in cost of revenues was primarily a result of additional consultative staff hired through recruiting efforts and acquired companies to increase our ability to provide service to our clients reflected by increase in sales and share based compensation related to employee stock option grants.  We continually monitor the utilization of our salaried billable consultants.

 

The cost of revenues for the CMS and IT staffing segment were $6,492,446 and $1,235,798, respectively, for the year ended December 31, 2015.  The cost of revenues for the CMS and IT staffing segment were $3,620,396 and $3,805,461, respectively, for the year ended December 31, 2014.

Gross Margin

Our gross profit margin was 40% and 37% during the year ended December 31, 2015 and 2014, respectively.  Our gross margin increased due to a change in the mix of professional services in the project-based work provided to our clients in digital market space that realize higher gross margins, versus staffing solutions and service in other markets, partially offset by additional expense related to share based compensation from employee stock option grants.  We continually monitor the utilization of our salaried billable consultants as changes will directly affect the number of billable hours in a billing cycle, therefore causing fluctuations in gross margin percentages.

 

The gross margin for the CMS and IT staffing segment were $4,737,208 and $324,440, respectively, for the year ended December 31, 2015.  The cost of revenues for the CMS and IT staffing segment were $3,243,563 and $1,128,393, respectively, for the year ended December 31, 2014.

 

Operating Expenses

Our operating expenses encompass selling general and administrative expenses consisting primarily of compensation and related costs for personnel and costs related to our facilities, finance, human resources, information technology and fees for professional services.  Professional services are principally comprised of outside legal, audit, information technology consulting, marketing and outsourcing services as well as the costs related to being a publicly traded company.

 

Other Expenses, net

Other expenses, net consisted primarily of interest expense primarily related to our promissory notes and capital leases, accretion associated with acquisition related contingent consideration, loss on debt extinguishment, loss on derivative liability and other income (expense).

 

Income Taxes

For the year ended December 31, 2013, we were organized as a California limited liability company, and elected to be taxed as an S-Corporation under the Internal Revenue Code of 1986, as amended and applicable state statutes.  As a result of our S-Corporation status, the income of 6D Global flowed through to the stockholders, and was taxed at the individual, rather than the corporate-level.  Accordingly, we had no tax liability at the federal level (with limited exceptions) during the period that the S-Corporation election was in effect.  In addition, we elected to be treated as a Subchapter S-Corporation for corporate income tax purposes.  This treatment imposed individual income taxes on our stockholder’s respective shares of corporate profits, and resulted in a significantly reduced corporate-level state income tax.

 

The income allocable to each stockholder is subject to examination by federal and state taxing authorities.  In the event of an examination of the income tax returns of our stockholders, the tax liability of the stockholders could be changed if an adjustment in the income is ultimately determined by the taxing authorities.

In conjunction with our reorganization from a California LLC to a Nevada C-Corporation, effective June 27, 2014, we became subject to federal and state income taxes and had to recognize income tax expense and deferred taxes for financial statement purposes.  As a result, we recorded an income tax benefit as a deferred tax asset of $0 and $161,255 for the years ended December 31, 2015 and 2014, respectively, principally accounting for the difference in financial reporting and tax reporting as it relates to the deductibility of expenses and depreciation.  Minimum franchise taxes assessed by states and local agencies are reported in selling, general and administrative expenses in the statement of operations.

For certain transactions, we may be subject to accounting methods for federal income tax purposes that differ significantly from the accounting methods used in preparing our financial statements in accordance with U.S. GAAP.  Accordingly, the taxable income of 6D Global reported for federal income tax purposes may differ from the net income set forth in these financial statements.

 

Liquidity and Capital Resources

 

Capital Resources 

The following table summarizes total current assets, liabilities and working capital for the periods indicated:

 

		For the Year Ended December 31,
		2015				2014				Increase/(Decrease)
Current Assets		$	8,716,815			$	6,594,456			$	2,122,359
Current Liabilities		$	3,242,910			$	2,001,869			$	1,241,041
Working Capital		$	5,473,905			$	4,592,587			$	881,318

 

As of December 31, 2015 and 2014, we had a cash balance of $6,096,417 and $4,888,797, respectively.

		Years Ended December 31,
		2015				2014				Increase/(Decrease)
Net Cash (Used in) Provided by Operating Activities		$	(6,866,752	)		$	527,749			$	(7,394,501	)
Net Cash Used in Investing Activities		$	(1,011,433	)		$	(61,570	)		$	(949,863	)
Net Cash Provided by Financing Activities		$	9,085,805			$	4,417,007			$	4,668,798

Cash used in operating activities was $6,866,752 for the year ended December 31, 2015 compared to cash provided by operating activities of $527,749 for the year ended December 31, 2014.  The change is principally attributable to net loss of $17,111,290 for the year ended December 31, 2015 as compared to a net income of $470,565 for the year ended December 31, 2014, an increase of $396,664 in accounts receivable due to the increase in sales and the timing of client payments which are monitored by us on a regular basis, an increase of $105,799 in other receivables related to related to insurance proceeds recoverable, an increase in unbilled revenue of $429,665, an increase in prepaid expenses and other current assets of $143,866, an increase of $545,008 in restricted cash (see Note 10 - Letter of Credit and Restricted Cash), and an increase in deferred tax benefits of $459,512 due to the recording of a tax asset all offset by an increase of $842,147 in accounts payable and accrued liabilities, an increase in deferred revenues of $61,832, an increase in deferred rent of $13,986, an increase in stock based compensation of $1,424,672, an increase in the contingent consideration liability of $145,997, an increase in the loss on our derivative liability of $9,292,720, and depreciation and amortization of $564,839 due to the purchase of computer equipment, office expansion, and amortization related to acquired intangible assets during the year ended December 31, 2015.

 

Cash Used in Investing Activities

 

We define EBITDA as earnings before interest expense net of interest income, income taxes, depreciation and amortization.  We define Adjusted EBITDA as EBITDA, adjusted for stock based compensation, compensation expense of former principals of companies we acquired, certain acquisition related expenses, one-time fees related to certain contingent considerations, legal matters, and NASDAQ related proceedings fees. Loss on debt extinguishment, loss on derivative liability and other income items.

 

EBITDA and Adjusted EBITDA should not be considered an alternative to net income, operating income, net cash provided by operating activities or any other measure of operating performance or liquidity presented in accordance with U.S. GAAP.  EBITDA and Adjusted EBITDA exclude some, but not all, items that affect net income and net cash provided by operating activities, and the preparation of such measures may vary among other companies.  Therefore, EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

Off-Balance Sheet Arrangements

 

We do not have any outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts.  Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity.  We do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development services with us.

Contractual Obligations		Total				2016				2017				2018				2019				2020				Thereafter
Capital Lease Obligations		$	314,709			$	129,857			$	114,066			$	70,786			$	-			$	-			$	-
Notes payable			53,420				6,600				6,600				6,600				6,600				6,600				20,420
Operating Lease Obligations			5,270,662				1,148,759				1,117,905				968,639				792,846				476,112				766,401
Total		$	5,638,791			$	1,285,216			$	1,238,571			$	1,046,025			$	799,446			$	482,712			$	786,821

 

In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740) – Balance Sheet Classification of Deferred Taxes.” To simplify the presentation of deferred income taxes, the amendments in this Update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position.  The amendments in this Update apply to all entities that present a classified statement of financial position.  The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this Update.  For public business entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  For all other entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018.  Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period.  The amendments in this Update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented.  If an entity applies the guidance prospectively, the entity should disclose in the first interim and first annual period of change, the nature of and reason for the change in accounting principle and a statement that prior periods were not retrospectively adjusted.  If an entity applies the guidance retrospectively, the entity should disclose in the first interim and first annual period of change the nature of and reason for the change in accounting principle and quantitative information about the effects of the accounting change on prior periods.  We do not expect the adoption of ASU 2015-17 to have a significant impact on our consolidated results of operations, financial position or cash flows.

 

In January 2016, the FASB issued ASU 2016-01 – “Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities.”  ASU 2016-01, among other changes, requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income.  This Update also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment.  The amendments in ASU 2016-01 will become effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  We are currently evaluating the effect of the adoption of ASU 2016-01 will have on our consolidated results of operations, financial position or cash flows.

 

 

In March 2016, the FASB issued ASC 2016-09 – “Compensation – Stock Compensation (Topic 718) – Improvements to Employee Share-based Payment Accounting.”  The areas for simplification in this Update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  In addition to these simplifications, the amendments eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment.  This should not result in a change in practice because the guidance that is being superseded was never effective.  The amendments in ASC 2016-09 will become effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods.  Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.  An entity that elects early adoption must adopt all of the amendments in the same period.  We are currently evaluating the effect of the adoption of ASU 2016-09 will have on our consolidated results of operations, financial position or cash flows.

In April 2016 the FASB issued ASC 2016-10 – “Revenue from Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing.”  The core principle of the guidance in Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  To achieve that core principle, an entity should apply the following steps:

1.	Identify the contract(s) with a customer.

2.	Identify the performance obligations in the contract.

3.	Determine the transaction price.

4.	Allocate the transaction price to the performance obligations in the contract.

5.	Recognize revenue when (or as) the entity satisfies a performance obligation.

 

 

The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas.  The amendments in this Update affect the guidance in Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective.  The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09).  Accounting Standards Update 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year.  We are currently evaluating the effect of the adoption of ASU 2016-10 will have on our consolidated results of operations, financial position or cash flows.

Related Party Transactions

During the year ended December 31, 2014, 6D Global had a loan outstanding to its largest stockholder with a loan balance of $456,563 was eliminated as we treated the loan balance as a stockholder distribution.  No amounts were due from the related party at December 31, 2015 or 2014.

Item 7A. – Quantitative and Qualitative Disclosures About Market Risk

Not applicable

Item 8. – Financial Statements and Supplementary Data

 

PART III

Item 10. – Directors, Executive Officers and Corporate Governance

Directors and Executive Officers

Our directors and executive officers and their respective ages, positions, and biographical information are set forth below.  Our bylaws require not less than three independent directors and our current directors serve until our next annual meeting or until each is replaced by a qualified director.  There are no existing family relationships between our executive officers or directors.

Tejune Kang, Chairman of the Board and Chief Executive Officer

Mark Szynkowski, Chief Financial Officer

Prior to joining the Company, from December 2005 to July 2014, Mr. Szynkowski was Vice President of Finance for Epiq Systems, a provider of integrated technology products and services for the legal profession.  Prior to his tenure at Epiq Systems, Mr. Szynkowski served as Chief Financial Officer and Controller for multiple high-growth organizations and began his career with Ernst & Young.  Mr. Szynkowski graduated from Alfred University with a Bachelor degree in Accounting.

Bradley Timchuk, President and Chief Operations Officer

Prior to joining the Company, Mr. Timchuk was employed by TigerLogic Corporation, and served as its Chief Executive Officer from September 2014 until March 2015, in which role he was responsible for TigerLogic’s restructuring, strategic partnerships, and growth strategy.  Prior to that, Mr. Timchuk served as Executive Vice President of Worldwide Sales and Marketing at TouchCommerce, Inc., an online customer engagements solution company, from May 2012 through November 2013, and in various capacities at Fuel Industries, Inc., a private youth engagement agency, beginning in March 2010, including as Executive Vice President, Chief Executive Officer from November 2010 through September 2011, and in an advisory capacity through April 2012.  Mr. Timchuk has also served as Senior Vice President of Sales and Business Development for eFusion, Inc. Mr. Timchuk attended Mohawk College in Canada, where he studied Computer Electronics Technology.

Thomas J. Iaciofano, Vice President

Mr. Iaciofano is responsible for ensuring overall revenue and margin growth of 6D Global CMS segment, strategic acquisitions, product development, partnerships, and operations.  Prior to being named to his current position Mr. Iaciofano is responsible for ensuring overall revenue and margin growth of 6D Global CMS segment, strategic acquisitions, product development, partnerships, and operations.  Prior to being named to his current position Mr. Iaciofano was Director of the Content Management System (CMS) and Digital Asset Management (DAM) practice.  His team consists of solution delivery managers, technical architects, development leads, engineers, and subject matter experts.  He is also responsible for the opening and managing of 6D Labs, the Company’s center of excellence focused on solution delivery and support for technology implementations.  Mr. Iaciofano has over 13 years of experience in web and internet-based solution delivery as well as leading enterprise-level web-based content management systems. Prior to joining Six Dimensions in 2011, he held various leadership roles in web content management for higher education, commercial and the non-profit space.

Piotr A. Chrzaszcz, Director

Michael Bannout, Director

Mr. Bannout has served as the CEO and President of M. London Group, Inc. for the past 25 years, a privately owned men’s and women’s fashion accessories and apparel company, which he started in New York City as a small cut and sew manufacturing company and built into a multi-million dollar enterprise with world-wide distribution.  Mr. Bannout attended Brooklyn College in Brooklyn, NY.  Mr. Bannout’s substantial management, executive, and leadership experience gained from his extended service as CEO and President of his own company led the Board of Directors to conclude that Mr. Bannout should serve as a director of the Company.

Sarah Michael, Director

Ms. Michael is currently a Project Director of Hospitality House where she administers the financial analysis of private equity firms, REITs, hotel brands, and real estate owners and developers to reduce expenses and improve company efficiencies.  She provides conceptual strategy, operational expertise, financial underwriting, landlord representation and operator sourcing.  Formerly, Ms. Michael worked in the Commercial Real Estate Team at Nest Seekers International and served as the Vice President of healtheo360, an online healthcare social media company.  Ms. Michael holds a Bachelor of Science in Psychology from St. John’s University.  Ms. Michael’s strategic, operational, and financial underwriting experience led the Board of Directors to conclude that Ms. Michael should serve as a director of the Company.

Board Leadership Structure and Risk Oversight

The Board oversees the Company’s management in the competent and ethical operation of the Company, and assures that the long-term interests of the stockholders are being served.

Our Chairman of the Board is also the Chief Executive Officer of the Company.  We believe that by having this combined position, our Chief Executive Officer serves as a bridge between management and the Board, ensuring that both act with a common purpose. In addition, we believe that the combined position facilitates our focus on both long and short term strategies.  Further, we believe that the advantages of having a Chief Executive Officer with extensive knowledge of the Company, as opposed to a relatively less informed independent Chairman, outweigh potential disadvantages.  Additionally, we believe that our majority of independent directors provide sufficient independent oversight of our management.  We do not have a lead independent director.

We administer our risk oversight function through our Audit Committee as well as through our Board as a whole.  Our Audit Committee is empowered to appoint and oversee our independent registered public accounting firm, monitor the integrity of our financial reporting processes and systems of internal controls and provides an avenue of communication among our independent auditors, management, and our Board.

Board Committees

The Board has a standing Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee (the “Nominating Committee”).  The Board has determined that the Chairs and all committee members are independent under applicable NASDAQ and SEC rules for committee memberships.  The members of the committees are shown in the table below.

 

The Audit Committee is responsible for overseeing the Company’s corporate accounting, financial reporting practices, audits of financial statements, and the quality and integrity of the Company’s financial statements and reports.  In addition, the Audit Committee oversees the qualifications, independence and performance of the Company’s independent auditors.  In furtherance of these responsibilities, the Audit Committee’s duties include the following: evaluating the performance and assessing the qualifications of the independent auditors; determining and approving the engagement of the independent auditors to perform audit, reviewing and attesting to services and performing any proposed permissible non-audit services; evaluating employment by the Company of individuals formerly employed by the independent auditors and engaged on the Company’s account and any conflicts or disagreements between the independent auditors and management regarding financial reporting, accounting practices or policies; discussing with management and the independent auditors the results of the annual audit; reviewing the financial statements proposed to be included in the Company’s annual or transition report on Form 10-K; discussing with management and the independent auditors the results of the auditors’ review of the Company’s quarterly financial statements; conferring with management and the independent auditors regarding the scope, adequacy and effectiveness of internal auditing and financial reporting controls and procedures; and establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting control and auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

The Compensation Committee is responsible primarily for reviewing the policies, practices and procedures relating to the compensation of the officers and other managerial employees and the establishment and administration of employee benefit plans. It advises and consults with the officers of the Company as may be requested regarding managerial personnel policies.  The Compensation Committee also has such additional powers as may be conferred upon it from time to time by the Board.

The Nominating Committee is responsible for assisting the Board in identifying individuals qualified to become members of the Board and executive officers of the Company; selecting, or recommending that the Board select, director nominees for election as directors by the stockholders of the Company; developing and recommending to the Board a set of effective governance policies and procedures applicable to the Company; leading the Board in its annual review of the Board’s performance; recommending to the Board director nominees for each committee; making recommendations regarding committee purpose, structure and operations; and overseeing and approving a managing continuity planning process.  During the fiscal year ended December 31, 2015, there were no changes to the procedures by which holders of our common stock may recommend nominees to the Board.

The Audit Committee, Compensation Committee, and Nominating Committee operate under written charters adopted by the Board. Copies of these charters are available at http://ir.6dglobal.com/governance-docs.

Audit Committee Financial Expert

The Board has determined that Sarah Michael qualifies as an “audit committee financial expert” as defined under applicable SEC rules, and that all members of the Audit Committee meet the additional criteria for independence of audit committee members set forth in Rule 10A-3(b)(1) under the Exchange Act.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the Company’s officers and directors, and persons who own more than ten percent of a registered class of the Company’s equity securities, to file reports of securities ownership and changes in such ownership with the SEC.  Officers, directors and greater than ten percent stockholders also are required by SEC rules to furnish the Company with copies of all Section 16(a) forms they file.

Based solely upon a review of the copies of such forms furnished to the Company, and on written representations from the reporting persons, the Company believes that all officers, directors and beneficial owners of more than 10% of our common stock have filed their initial statements of ownership on Form 3 on a timely basis, and the officers, directors and beneficial owners of more than 10% of our common stock have also filed the required Forms 4 or 5 on a timely basis, with the exception of the following:

Code of Ethics

The Company has a code of business conduct and ethics (the “Code of Ethics”) that applies to all employees, including the Company’s principal executive officer, principal financial officer, and principal accounting officer, as well as to the Board.  The code is available at http://ir.6dglobal.com/governance-docs.  The Company intends to disclose any changes in, or waivers from, this code by posting such information on the same website or by filing a Form 8-K.

 

Item 11. – Executive Compensation

The following table presents a summary of the compensation paid to our executive officers during the fiscal years ended December 31, 2015 and 2014.  Except as listed below, there were no bonuses, other annual compensation, restricted stock awards or stock options or any other compensation paid to the named executive officers.

 

(1)	Matthew Sullivan Served as Executive Vice President until July, 2015.

(2)	Bradley Timchuk was appointed as President and Chief Operations Officer effective on May 1st, 2016

 

Employment Agreements

Mr. Kang, Mr. Szynkowski, and Mr. Timchuk are the only executive employees that currently have employment agreements with the Company.

Mr. Kang’s employment agreement was amended on March 17, 2016.  Under the amended employment agreement, Mr. Kang’s total compensation consists of a base salary of $220,000 (without any allowance or reimbursement of personal expenses), with an opportunity for a performance bonus based upon a combination of Company revenue and profitability targets.  If Mr. Kang’s employment is terminated for cause by the Company or if he terminates his employment without good reason, he will be entitled to receive his accrued base salary (and benefits, if Mr. Kang terminates without good reason), but will forfeit all stock options (whether vested or unvested).  If Mr. Kang’s employment is terminated without cause by the Company, if he terminates his employment with good reason, or if he terminates his employment in connection with a Change in Control, he will be entitled to a $55,000 lump sum payment and all of his unvested stock options will immediately vest.

Mr. Szynkowski was an at-will employee and did not have a written employment agreement with the Company during 2015.  On January 1, 2016, the Company entered into a written employment agreement with Mr. Szynkowski.  The employment agreement has a two-year term and provides for base compensation of $215,000, with an opportunity for a bonus of up to $21,500 based upon a combination of Company revenue and profitability targets.  If Mr. Szynkowski’s employment is terminated for cause by the Company, or if he terminates his employment without good reason, then he will be entitled to receive his accrued base salary through the date of termination (and benefits, if Mr. Szynkowski terminates without good reason), but will forfeit all stock options (whether vested or unvested).  If Mr. Szynkowski’s employment is terminated without cause by the Company, if he terminates his employment with good reason, or if his employment is terminated in connection with a change of control of the Company, he will be entitled to a $53,750 lump sum payment and all of his unvested stock options will immediately vest.

Mr. Timchuk entered into a written employment agreement with the Company on May 1, 2016, which has a two-year term and provides him with an annual base salary of $240,000 and the opportunity for a performance and a discretionary bonus.  In addition, pursuant to the employment agreement, the Company agreed to issue Mr. Timchuk, on May 1, 2016, stock options to purchase 200,000 shares of the Company’s common stock, to vest annually in five equal installments.  If Mr. Timchuk’s employment is terminated for cause by the Company or if he terminates his employment without good reason, then he will be entitled to receive his accrued base salary through the date of termination (and benefits, if Mr. Timchuk terminates without good reason), but will forfeit all stock options (whether vested or unvested).  If Mr. Timchuk’s employment is terminated without cause by the Company, or upon a change in control, or if Mr. Timchuk resigns for good reason, Mr. Timchuk is entitled to a severance payment of $60,000 and any unvested stock options will terminate and be null and void (except in the case of a Change in Control, in which case all granted but unvested stock options shall immediately vest).

Outstanding Equity Awards at Fiscal Year End

The following table sets forth information regarding equity awards held by our named executive officers as of December 31, 2015.

(1)	Bradley Timchuk began serving as President and Chief Operations Officer on May 1, 2016.

(2)	Matthew Sullivan served as Executive Vice President until July, 2015 upon which options and future stock grants were forfeited.

(3)	Stock options granted April 1, 2015 have a yearly vesting schedule over a 5-year period.

(1)	Adam Hartung served as a Director until April, 2016.

(2)	David S. Kaufman served as a Director until October, 2015.

(3)	Terry McEwen served as a director until November, 2015.

(4)	Anubhav Saxena served as a director until October, 2015.

(5)	Piotr A. Chrzaszcz began serving as a director on October 24, 2015.

(6)	Michael Bannout began serving as a director on October 27, 2015.

The Company has agreed to compensate its independent directors $5,000 for each full quarter for which they serve and actively participate in Board activities, such as attending meetings of the Board and committees of the Board.  For the fourth quarter of 2015 and forward, the Company agreed to compensate its independent directors $10,000 for director fee, $2,500 fee for being a chairman of the Nominating and Compensation Committee, $3,750 for Chairman of the Audit Committee, and $1,000 fee for being a member of each committee for each full quarter for which they serve and actively participate in Board and Committee activities.  Directors are also eligible to receive stock options as granted.  As discussed in more detail below under the heading “Equity Compensation Plan,” in February 2015, the Company and its stockholders adopted an Omnibus Compensation Plan.

During 2015 the Board held 4 meetings in person, 15 telephonic meetings and acted by written consent 1 time. One director attended in person or telephonically or by written consent 36% of all board and applicable meetings during the time they were active board members. All other directors attended in persons, telephonically or by written consent at least 75% of all board and applicable meetings during the time they are active board members.

Arrangements or Understandings

There was no arrangement or understanding between any of our directors and any other person pursuant to which any director was to be selected as a director.

Item 12. – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table shows certain information as of June 30, 2016 with respect to the beneficial ownership of the Company’s common stock by: (i) each person the Company believes beneficially holds more than 5% of the outstanding shares of the Company’s common stock based solely on the Company’s review of SEC filings; (ii) each director; (iii) each named executive officer; and (iv) all directors and executive officers as a group. Unless otherwise noted below, the address of each beneficial owner listed in the table is c/o 6D Global Technologies, Inc., 17 State Street, Suite 2550, New York, NY 10004.

We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws.

(1)

Pursuant to a stockholders’ agreement, Mr. Kang, Chairman and CEO of the Company and any successor to or designee of the CEO, was appointed as proxy of NYGG (Asia) Ltd., with the full power to vote NYGG (Asia) Ltd.’s shares in the same manner and in the same proportion as shares of common stock that are not held by NYGG (Asia) Ltd. are voted.  The stockholders’ agreement shall terminate upon delisting of the shares from NASDAQ or dilution of NYGG (Asia) Ltd.’s stake in the Company or its possible successor below 5% of the Company’s outstanding common stock.

(2)	The address of the beneficial owner is 12th Floor, Ruttonjee House, 11 Duddell Street, Central, Hong Kong, China.  See (1) above regarding stockholders’ agreement.

(3)	The address of the beneficial owner is PO Box 3477 San Ramon, CA 94583.

Equity Compensation Plan

The Company had no equity compensation plans in effect as of December 31, 2014, and therefore, there were no outstanding equity awards at fiscal year-end.  On January 22, 2015, the Board approved the Company’s 2015 Omnibus Incentive Plan (the “Plan”) pursuant to which the Company is authorized to issue up to 4,800,000 shares of Common Stock to qualified participants.  On January 27, 2015, NYGG (Asia), Ltd., Kang Kapital LLC, Kang Family LLC, and TKO, LLC, who collectively own 58,400,444 shares of Common Stock (representing 75.28 percent of the voting power of the Company on such date) executed a written consent adopting the Plan (the “Written Consent”).  The company filed and commenced mailing of an Information Statement on Schedule 14C on February 5, 2015, disclosing the adoption of the Plan by the Board and by the stockholders pursuant to the Written Consent.  In accordance with Rule 14c-2 of the Exchange Act, the Plan became effective on February 25, 2015.

As of March 29, 2016, the Company’s common stock was traded over-the-counter as a grey market security.  These securities are not currently traded on the OTCQX, OTCQB or OTC Pink marketplaces.  Broker-dealers are not willing or able to publicly quote grey market securities because of a lack of investor interest, company information availability or regulatory compliance.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth information regarding compensation plans under which securities of the Company are authorized for issuance, as of December 31, 2015:

(1)	Represents options issued pursuant to the Company’s 2015 Omnibus Incentive Plan.

 

Item 13. – Certain Relationships and Related Transactions, and Director Independence

Review, Approval or Ratification of Transactions with Related Persons

The Code of Ethics contains a policy for the review of transactions in which the Company conducts business with a relative or significant other of a director, officer, or employee of the Company (a “Related Party Transaction”).  The Related Party Transaction must be disclosed to the Company’s Chief Financial Officer to determine whether or not it is material to the Company.  In the event the Related Party Transaction is determined to be material, it must be reviewed and approved in writing by the Audit Committee in advance of the consummation of such Related Party Transaction.  Significant Related Party Transactions, including those involving the Company’s directors or executive officers, must be reviewed and approved in writing in advance by the Company’s Board of Directors.

Transactions with Related Persons

Six Dimensions Inc., the private company predecessor to the Company, had a loan outstanding to its largest stockholder/owner at the time, Tejune Kang, during the fiscal year ended December 31, 2014.  This loan bore interest at 2.64% with no definite repayment terms.  During the year ended December 31, 2014, interest totaled $46,433, which was included in the Company’s consolidated balance sheet.  During the year ended December 31, 2014, and prior to the Company becoming a reporting company, the loan balance of $456,563 was eliminated, as the Company treated the loan as a stockholder distribution.

Director Independence

The Board has determined that Sarah Michael, Piotr A. Chrzaszcz, and Michael Bannout are independent directors under the applicable laws and regulations of the SEC and the Listing Rules of NASDAQ.  Adam Hartung was an independent director under these applicable laws and regulations until his resignation in April 2016.  Anubav Saxena, Adam Hartung, and David Kaufman were independent directors under these applicable and regulations laws until their resignation in September 2015.  Terry McEwen was not an independent director under these applicable laws and regulations until his resignation in October 2015.  In making these determinations, the Board considered the types and amounts of the commercial dealings between the Company and the companies and organizations with which the directors are affiliated.

There are no family relationships among any of our directors or executive officers.

Item 14. – Principal Accountant Fees and Services

Principal Accounting Fees and Services

On October 22, 2014, the Company, with the approval of the Audit Committee, engaged BDO USA, LLP as the Company’s new independent registered public accounting firm.  Marcum LLP (“Marcum”) and Li and Company, PC (“Li & Co.”), were previously engaged at separate times as the independent accounting firm of Six Dimensions, LLC (“Six Dimensions”), the predecessor and now subsidiary of the Company, while it was a privately-held company.  On October 24, 2014, the Company notified and confirmed with Marcum that it had been dismissed as the independent accounting firm of Six Dimensions LLC.  Marcum was never engaged as the Company’s independent registered public accounting firm, nor had they issued any financial reports related to the Company prior to its dismissal. Li & Co. was previously engaged separately from Marcum as the independent accounting firm of Six Dimensions while it was a privately-held company.  On October 24, 2014 Six Dimensions notified Li & Co. that it had been dismissed as the independent accounting firm of Six Dimensions. Li & Co. was not engaged as the Company’s independent registered public accounting firm at any time.

On March 17, 2016, BDO USA, LLP resigned as the auditors to the Company.  On April 18, 2016, The Company engaged with SingerLewak LLP as the Company’s new independent registered public accounting firm.  SingerLewak LLP conducted the audit for years ending December 31, 2014 and December 31, 2015.

The following table sets forth all fees paid or accrued by the Company for the audit and other services provided by the Company’s public accounting firms for the years ended December 31, 2015 and December 31, 2014

(1)	BDO USA, LLP resigned as company auditor on March 17, 2016. SingerLewak LLP was engaged by the Company on April 18, 2016.

(2)	Audit fees relate to professional services rendered in connection with the audit of the Company’s annual financial statements and quarterly review of financial statements included in the Company’s Quarterly Reports on Form 10-Q.

(3)	Audit-related fees comprise fees for professional services that are reasonably related to the performance of the worldwide audit or review of the Company’s financial statements.

(4)	Tax fees relate to professional services rendered in connection with tax audits, international tax compliance, and international tax consulting and planning servicer.

(5)	Other Fees consist of fees for services other than the services reported in audit fees, audit-related fees, and tax fees.

PART IV

 

Item 15. – Exhibits, Financial Statement Schedules

 

(1)	Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 13, 2015.

(2)	Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on October 1, 2014.

(3)	Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on June 16, 2014.

(4)	Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on June 17, 2014.

(5)	Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on November 21, 2014.

(6)	Incorporated by reference to the Company’s Form 10-Q filed with the Securities and Exchange Commission on May 15, 2015.

(7)	Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 20, 2016.

(8)	Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on June 9, 2015.

* Filed Herewith

** This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended or the Exchange Act.

 

 

Signatures

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Tejune Kang his true and lawful attorney-in-fact, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

 

 

6D GLOBAL TECHNOLOGIES INC.

 

  CONSOLIDATED FINANCIAL STATEMENTS

 

 Contents

 

 

 

 

 

 

 

Board of Directors and Stockholders

6D Global Technologies, Inc.

New York, New York

 

 

6D GLOBAL TECHNOLOGIES, INC.

 

		December 31, 2015 (Audited)				December 31, 2014 (Audited)
Assets
Current Assets
Cash		$	6,096,417			$	4,888,797
Accounts receivable			1,713,112				1,316,448
Other receivable			105,799				-
Unbilled revenues			491,714				62,049
Deferred tax assets			-				161,255
Prepaid expenses and other current assets			309,773				165,907
Total Current Assets			8,716,815				6,594,456
Property and Equipment, net			473,051				154,917
Other Assets
Restricted cash			655,707				110,699
Security deposits			65,216				24,075
Internally developed software			208,749				-
Goodwill			8,218,940				-
Intangible assets, net			2,533,350				-
Total Other Assets			11,681,962				134,774
Total Assets		$	20,871,828			$	6,884,147
Liabilities, Redeemable Convertible Preferred Stock and Stockholders' (Deficit) Equity
Current Liabilities
Current maturities of capital lease liability		$	129,857			$	53,610
Current maturities of notes payable			6,600				6,600
Accounts payable and accrued liabilities			1,881,448				1,039,301
Due to factor			-				833,938
Short-term debt			623,642				-
Deferred revenue			257,586				68,420
Contingent consideration, current portion			343,777				-
Total Current Liabilities			3,242,910				2,001,869
Long-Term Liabilities
Capital lease liability, net of current maturities			184,852				111,130
Notes payable, net of current maturities			46,820				53,420
Security deposit payable			50,000				30,000
Deferred rent, net of current portion			69,415				55,429
Derivative liability			17,220,000				-
Contingent consideration, net of current portion			274,260				-
Total Long-Term Liabilities			17,845,347				249,979
Total Liabilities		$	21,088,257			$	2,251,848
Commitment and Contingencies (Note 18)
Redeemable convertible preferred stock net of issuance costs, par value $0.00001; 10,000,000 shares authorized; 1,088 and 0 shares issued and outstanding as of December 31, 2015 and 2014, respectively		$	1,458,318			$	-
Stockholders' (Deficit) Equity
Common stock, par value $0.00001; 150,000,000 shares authorized; 78,247,864 and 77,575,617 shares  issued and outstanding as of December 31, 2015 and 2014, respectively			783				776
Additional paid-in capital			16,007,516				5,203,279
Accumulated deficit			(17,683,046	)			(571,756	)
Total Stockholders' (Deficit) Equity			(1,674,747	)			4,632,299
Total Liabilities, Redeemable convertible preferred stock and Stockholders’ (Deficit) Equity		$	20,871,828			$	6,884,147

 

See accompanying notes to the consolidated financial statements.

 

6D GLOBAL TECHNOLOGIES, INC. 

 

		For the Year Ended
		December 31, 2015 (Audited)				December 31, 2014 (Audited)
Revenues		$	12,789,892			$	11,797,813
Cost of revenues			7,728,244				7,425,857
Gross margin			5,061,648				4,371,956
Operating expenses
Selling, general and administrative			9,801,377				3,309,079
Professional and legal fees			1,778,612				486,654
One-time professional and legal fees			911,456				-
Depreciation and amortization			564,839				82,342
Operating expenses			13,056,284				3,878,075
(Loss) income from operations			(7,994,636	)			493,881
Other expense (income)
Interest expense, net			281,411				147,069
Loss on debt extinguishment			-				57,502
Loss on derivative liability			9,292,720				-
Other income			(5,619	)			(20,000	)
Other expenses, net			9,568,512				184,571
(Loss) income before income tax benefit			(17,563,148	)			309,310
Income tax benefit			451,858				161,255
Net (loss) income		$	(17,111,290	)		$	470,565
Net (loss) income per common share – basic		$	(0.22	)		$	0.01
Weighted average common shares – basic			78,227,127				48,500,156
Net (loss) income per common share – diluted		$	(0.22	)		$	0.01
Weighted average common share - diluted			78,227,127				48,668,720

 

See accompanying notes to the consolidated financial statements.

6D GLOBAL TECHNOLOGIES, INC.

FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014 (Audited)

 

		Redeemable Convertible Preferred Stock								Stockholders’ (Deficit) Equity
		Stock				Amount				Common Stock								Additional paid-in capital				Accumulated deficit				Total (Deficit) Equity
										Stock				Amount
Balance at January 1, 2014			-			$	-				38,215,054			$	382			$	2,618			$	(539,950	)		$	(536,950	)
Promissory note conversion			-				-				300,001				3				402,499				-				402,502
Private placements, net of issuance costs			-				-				2,859,300				29				4,798,524				-				4,798,553
Reverse recapitalization			-				-				36,201,262				362				(362	)			-				-
Distribution to stockholders			-				-				-				-				-				(502,371	)			(502,371	)
Net income			-				-				-				-				-				470,565				470,565
Balance at December 31, 2014			-				-				77,575,617			$	776			$	5,203,279			$	(571,756	)		$	4,632,299
Acquisitions			-				-				600,000				6				9,379,565				-				9,379,571
Warrant exercise			-				-				72,247				1				-				-				1
Issuance of convertible preferred stock			1,088				10,000,000				-				-				-				-				-
Bifurcation of anti-dilution derivative			-				(7,927,280	)			-				-				-				-				-
Equity issuance costs			-				(614,402	)			-				-				-				-				-
Stock based compensation			-				-				-				-				1,424,672				-				1,424,672
Net loss			-				-				-				-				-				(17,111,290	)			(17,111,290	)
Balance at December 31, 2015			1,088			$	1,458,318				78,247,864			$	783			$	16,007,516			$	(17,683,046	)		$	(1,674,747	)