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PULSE NETWORK, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.

February 13, 2014

The following information should be read in conjunction with (i) the consolidated financial statements of The Pulse Network, Inc., a Nevada corporation, and the notes thereto appearing elsewhere in this Form 10-Q together with (ii) the more detailed business information and the March 31, 2013 audited financial statements and related notes included in the Company's most recent Amendment No. 1 to Annual Report on Form 10-K (File No. 000-54741), as filed with the SEC on February 4, 2014. Statements in this section and elsewhere in this Form 10-Q that are not statements of historical or current fact constitute "forward-looking" statements.

Results of operations for three months ended December 31, 2013 compared to three months ended December 31, 2012.

Net Sales and Cost of Sales

During the three months and nine months ended December 31, 2013 and 2012 the Company generated revenues from 3 primary business segments, being:

? Sales from usage of the Pulse Network Platform for management and support of client events or conferences.

? Sales to sponsors and attendees for conferences hosted by the Company.

? Sales from providing ongoing development and support for client content and digital marketing programs.

Three Months Ended December 31, 2013 and 2012

Total net sales for the three months ended December 31, 2013 decreased by 28.9% to $1,042,708 from $1,466,224 during the three months ended December 31, 2012. Sales from usage of the Pulse Network Platform decreased 42.7% due to the loss of certain clients. Sales to sponsors and attendees for conferences hosted by the company increased 3.2%. Sales from providing ongoing development and support for client content and digital marketing programs increased 34% due to acquiring additional clients.

Cost of sales for the three months ended December 31, 2013 decreased by 35.1% to $322,698 from $496,968 during the three months ended December 31, 2012. The decrease for the three months ended December 31, 2013 is mainly attributable to lower shipping, materials, and travel expense costs related to sales from the usage of the Pulse Network Platform. Also, costs for food and beverage, decorator, venue, audio visual and electrical costs related to sales to sponsors and attendees for conferences hosted by the company were reduced.

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Cost of sales also includes a $5,773 credit during the three month period ended December 31, 2013 to reverse stock based compensation recognized in the prior quarter that was related to unvested options that were forfeited this quarter. There was no stock based compensation recognized during the three months ended December 31, 2012.

Selling expenses for the three months ended December 31, 2013 increased by 20.3% to $137,441 from $114,159 for the three months ended December 31, 2012. The increase in selling and marketing expenses is attributable to additional sales employees and increase in meals and entertainment expenses from sales related travel for new business development.

Selling expenses also includes a $20,529 credit during the three month period ended December 31, 2013 to reverse stock based compensation recognized in the prior quarter that was related to unvested options that were forfeited this quarter. There was no stock based compensation recognized during the three months ended December 31, 2012.

General and administrative expenses for the three months ended December 31, 2013 increased by 7.1% to $706,027 from $658,988 for the three months ended December 31, 2012. The increase is mainly attributed to an increase in accounting fees, investor related fees, and officers payroll.

General and administrative expenses includes $10,651 of stock-based compensation expense for the three months ended December 31, 2013 compared to $0 for the three months ended December 31, 2012.

Nine Months Ended December 31, 2013 and 2012

Total net sales for the nine months ended December 31, 2013 decreased by 17.7% to $2,601,847 from $3,162,375 in the nine months ended December 31, 2012. Sales from usage of the Pulse Network Platform decreased 36.1% due to the loss of certain clients. Sales to sponsors and attendees for conferences hosted by the company increased 3.4%. Sales from providing ongoing development and support for client content and digital marketing programs increased 55.9% due to acquiring additional clients.

Cost of sales for the nine months ended December 31, 2013 decreased by 39.7% to $747,446 from $1,239,131 in the nine months ended December 31, 2012. The decrease for the nine months ended December 31, 2013 is mainly attributable to lower shipping, materials, and travel expense costs related to sales from the usage of the Pulse Network Platform. Also, costs for food and beverage, decorator, and venues related to sales to sponsors and attendees for conferences hosted by the company were reduced.

Cost of sales also includes $1,056 of stock-based compensation expense for the nine months ended December 31, 2013 compared to $0 for the nine months ended December 31, 2012.

Selling expenses for the nine months ended December 31, 2013 increased by 33.7 % to $439,775 from $328,886 for the nine months ended December 31, 2012. The increase in selling and marketing expenses is attributable to additional sales employees, stock-based compensation expense, and increase in meals and entertainment expenses from sales related travel for new business development.

Selling expenses also includes $10,529 of stock-based compensation expense for the nine months ended December 31, 2013 compared to $0 for the nine months ended December 31, 2012.

General and administrative expenses for the nine months ended December 31, 2013 increased by 10.6% to 2,109,378 from $1,907,882 for the nine months ended December 31, 2012. The increase is mainly attributable to an increase in officers payroll.

General and administrative expenses includes $32,278 of stock-based compensation expense for the nine months ended December 31, 2013 compared to $0 for the six months ended December 31, 2012.

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Liquidity and Capital Resources

For the nine months ended December 31, 2013 the Company's operating activities used cash totaling $146,522. The Company financed its operations with proceeds from the issuance of a convertible promissory note of $52,500, proceeds totaling $140,000 from the issuance of common stock and warrants, net proceeds from the bank line of credit of $20,000, and net advances from stockholders of 106,156. As a result, the Company had net working capital deficit of $2,549,920 at December 31, 2013 compared with working capital deficit of $1,880,991 at March 31, 2013.

Off-Balance Sheet Arrangements

As of December 31, 2013, the Company had no off balance sheet arrangements that have had or that would be expected to be reasonably likely to have a future material effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Subsequent Events

None through the date of this filing.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We have identified the policies below as critical to our business operations and to the understanding of our financial results:

Basis of Presentation - Unaudited Interim Financial Information - The Company prepares its unaudited interim consolidated financial statements and related notes in accordance with US GAAP for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission ("SEC") to Form 10-Q and Article 8 of Regulations S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended March 31, 2013 and notes thereto contained in the Company's Annual Report on Form 10-K filed with the SEC on July 1, 2013.

Principles of Consolidation - The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from these estimates.

Income Taxes - Income tax expense for the three and nine month periods ended December 31, 2013 is zero as a full valuation allowance on the tax benefits arising from the net operating losses was provided.

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The Company recognizes in its financial statements the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The Company' policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company did not have any unrecognized tax benefits or accrued interest and penalties during the three and nine month periods ending December 31, 2013 and does not anticipate having any unrecognized tax benefits over the next twelve months..

Stock Based Compensation - The Company follows the authoritative guidance for accounting for stock-based compensation. This guidance requires that new, modified and unvested share-based payment transactions with employees, such as grants of stock options and stock, be recognized in the financial statements based upon their fair value at the grant date and recognized as compensation expense over their vesting periods. The Company also follows the guidance for equity instruments issued to consultants.

Other Recently Issued, but Not Yet Effective Accounting Pronouncements - Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.


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Source: Edgar Glimpses


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