TABLE
OF CONTENTS
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
3
|
|
|
|
|
4
|
|
|
|
|
5
|
|
|
|
|
6
|
|
|
|
|
7
|
|
|
|
|
19
|
|
|
|
|
25
|
|
|
|
|
25
|
|
|
|
|
|
|
|
26
|
|
|
|
|
26
|
|
|
|
|
26
|
|
|
|
|
26
|
|
|
|
|
27
|
|
|
|
|
27
|
|
|
|
|
27
|
|
|
|
|
27
|
|
|
|
|
|
PART
I
ITEM
1. FINANCIAL STATEMENTS
SKYSHOP
LOGISTICS, INC. (FORMERLY SKYPOSTAL NETWORKS, INC.)
CONDENSED
CONSOLIDATED BALANCE SHEETS
AS
OF JUNE 30, 2010 AND DECEMBER 31, 2009
|
|
Unaudited
|
|
|
|
|
ASSETS
|
|
June
30, 2010
|
|
|
December
31, 2009
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
|
|
$
|
1,487,186
|
|
|
$
|
36,513
|
|
Accounts
receivable, net
|
|
|
642,398
|
|
|
|
1,140,021
|
|
Prepaid
expenses and other
|
|
|
241,295
|
|
|
|
61,135
|
|
TOTAL
CURRENT ASSETS
|
|
|
2,370,879
|
|
|
|
1,237,669
|
|
|
|
|
|
|
|
|
|
|
DUE
FROM STOCKHOLDER
|
|
|
37,224
|
|
|
|
1,974
|
|
PROPERTY
AND EQUIPMENT, net
|
|
|
91,045
|
|
|
|
97,770
|
|
INTANGIBLE
ASSETS, net
|
|
|
697,159
|
|
|
|
776,253
|
|
OTHER
ASSETS, net
|
|
|
325,555
|
|
|
|
79,269
|
|
TOTAL
ASSETS
|
|
$
|
3,521,862
|
|
|
$
|
2,192,935
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
858,723
|
|
|
$
|
1,648,305
|
|
Accrued
liabilities
|
|
|
1,051,220
|
|
|
|
772,217
|
|
Current
portion of amount due on non-compete agreements
|
|
|
386,171
|
|
|
|
333,137
|
|
Customer
deposits
|
|
|
735
|
|
|
|
1,603
|
|
Current
portion of put option payable
|
|
|
278,400
|
|
|
|
1,296,000
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
2,575,249
|
|
|
|
4,051,262
|
|
|
|
|
|
|
|
|
|
|
CONVERTIBLE
DEBT, LESS UNAMORTIZED DISCOUNTS OF $2,477,579
|
|
|
98,821
|
|
|
|
-
|
|
NON-COMPETE
AGREEMENTS, less current portion
|
|
|
98,000
|
|
|
|
173,500
|
|
EXCESS
OF VALUE OF PUT OPTIONS OVER THE ESTIMATED
|
|
|
|
|
|
FAIR
VALUE OF SHARES, less current portion
|
|
|
-
|
|
|
|
1,296,000
|
|
TOTAL
LIABILITIES
|
|
|
2,772,070
|
|
|
|
5,520,762
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Convertible
preferred stock, $.001 par value, 50,000,000 authorized,
|
|
|
11,425
|
|
|
|
-
|
|
11,425,160
issued and outstanding at June 30, 2010 and
|
|
|
|
|
|
|
|
|
none
issued and outstanding at December 31, 2009
|
|
|
|
|
|
|
|
|
Common
stock, $.001 par value, 150,000,000 authorized, 81,455,819
and
|
|
|
|
|
|
69,443,292
shares issued and 81,135,819 and 69,123,292 shares
|
|
|
|
|
|
outstanding
at June 30, 2010 and December 31, 2009, respectively
|
|
|
81,457
|
|
|
|
69,444
|
|
Additional
paid-in capital
|
|
|
27,004,346
|
|
|
|
21,308,161
|
|
Accumulated
deficit
|
|
|
(26,051,754
|
)
|
|
|
(24,299,296
|
)
|
Treasury
stock, at cost (320,000 shares at June 30, 2010 and December 31,
2009)
|
|
|
(320,000
|
)
|
|
|
(320,000
|
)
|
Accumulated
comprehensive income (loss)
|
|
|
13,614
|
|
|
|
(4,644
|
)
|
Non-controlling
interest
|
|
|
10,704
|
|
|
|
(81,492
|
)
|
TOTAL
STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
749,792
|
|
|
|
(3,327,827
|
)
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
$
|
3,521,862
|
|
|
$
|
2,192,935
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
SKYSHOP
LOGISTICS, INC. (FORMERLY SKYPOSTAL NETWORKS, INC.)
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)
|
|
Three
Months Ended June 30
|
|
|
Six
Months Ended June 30
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
REVENUES
|
|
$
|
2,316,410
|
|
|
$
|
2,170,082
|
|
|
$
|
3,819,403
|
|
|
$
|
4,745,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of delivery
|
|
|
1,859,215
|
|
|
|
1,901,218
|
|
|
|
3,206,411
|
|
|
|
4,022,216
|
|
General
and administrative
|
|
|
917,212
|
|
|
|
1,158,670
|
|
|
|
1,769,691
|
|
|
|
2,260,053
|
|
Stock
based compensation
|
|
|
50,749
|
|
|
|
149,731
|
|
|
|
90,197
|
|
|
|
255,857
|
|
TOTAL
OPERATING EXPENSES
|
|
|
2,827,176
|
|
|
|
3,209,619
|
|
|
|
5,066,299
|
|
|
|
6,538,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
LOSS
|
|
|
(510,766
|
)
|
|
|
(1,039,537
|
)
|
|
|
(1,246,896
|
)
|
|
|
(1,792,695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
EXPENSES/(INCOME)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
13,969
|
|
|
|
-
|
|
|
|
16,969
|
|
|
|
-
|
|
Amortization
of discounts
|
|
|
377,486
|
|
|
|
-
|
|
|
|
377,486
|
|
|
|
-
|
|
Changes
in excess of value of put option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
over
the estimated fair value of shares
|
|
|
(44,800
|
)
|
|
|
691,200
|
|
|
|
41,600
|
|
|
|
374,400
|
|
Other
|
|
|
22,352
|
|
|
|
210,991
|
|
|
|
(2,656
|
)
|
|
|
254,022
|
|
TOTAL
OTHER EXPENSES/(INCOME)
|
|
|
369,007
|
|
|
|
902,191
|
|
|
|
433,399
|
|
|
|
628,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
|
(879,773
|
)
|
|
|
(1,941,728
|
)
|
|
|
(1,680,295
|
)
|
|
|
(2,421,117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income attributable to non-controlling
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest
|
|
|
(22,626
|
)
|
|
|
8,143
|
|
|
|
(101,690
|
)
|
|
|
20,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
attributable to the controlling interest
|
|
|
(857,147
|
)
|
|
|
(1,949,871
|
)
|
|
|
(1,578,605
|
)
|
|
|
(2,441,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed
dividend on convertible preferred stock
|
|
|
(798,333
|
)
|
|
|
-
|
|
|
|
(798,333
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to common shareholders
|
|
$
|
(1,655,480
|
)
|
|
$
|
(1,949,871
|
)
|
|
$
|
(2,376,938
|
)
|
|
$
|
(2,441,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
77,073,559
|
|
|
|
62,264,511
|
|
|
|
73,624,692
|
|
|
|
62,157,926
|
|
Effect
of dilutive shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Diluted
|
|
|
77,073,559
|
|
|
|
62,264,511
|
|
|
|
73,624,692
|
|
|
|
62,157,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME/(LOSS) PER SHARE to common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.04
|
)
|
Diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.04
|
)
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
SKYSHOP
LOGISTICS, INC. (FORMERLY SKYPOSTAL NETWORKS, INC.)
CONDENSED
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
AND
COMPREHENSIVE LOSS
FOR
THE SIX MONTHS ENDED JUNE 30, 2010
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Preferred
|
|
|
|
|
|
Common
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Non-
|
|
|
Accumulated
|
|
|
|
|
|
|
Stock
|
|
|
Preferred
|
|
|
Stock
|
|
|
Common
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Treasury
|
|
|
Controlling
|
|
|
Comprehensive
|
|
|
Equity
|
|
|
|
Outstanding
|
|
|
Stock
|
|
|
Outstanding
|
|
|
Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
Stock
|
|
|
Interest
|
|
|
Income
|
|
|
(Deficit)
|
|
BALANCES
AT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER
31, 2009
|
|
|
-
|
|
|
$
|
-
|
|
|
|
69,123,292
|
|
|
$
|
69,444
|
|
|
$
|
21,308,161
|
|
|
$
|
(24,299,296
|
)
|
|
$
|
(320,000
|
)
|
|
$
|
(81,492
|
)
|
|
$
|
(4,644
|
)
|
|
$
|
(3,327,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components
of comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,578,605
|
)
|
|
|
-
|
|
|
|
(101,690
|
)
|
|
|
-
|
|
|
|
(1,680,295
|
)
|
Foreign
currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,824
|
|
|
|
18,258
|
|
|
|
26,082
|
|
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,654,213
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
compensation - vesting
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
65,597
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
65,597
|
|
of
employee and director shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for
|
|
|
-
|
|
|
|
-
|
|
|
|
345,000
|
|
|
|
345
|
|
|
|
24,255
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,600
|
|
director
fees payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000,000
|
|
|
|
1,000
|
|
|
|
99,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
trade
payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PuntoMio
Exchange
|
|
|
11,425,160
|
|
|
|
11,425
|
|
|
|
-
|
|
|
|
-
|
|
|
|
786,908
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
798,333
|
|
Disposition
of non-controlling
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,209
|
)
|
|
|
(173,853
|
)
|
|
|
-
|
|
|
|
186,062
|
|
|
|
-
|
|
|
|
-
|
|
interest
in PuntoMio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed
dividend from
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(798,333
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(798,333
|
)
|
PuntoMio
Exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption
of warrants included in
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(109,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(109,000
|
)
|
PuntoMio
preferred stock exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of adjustment of put option
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,355,200
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,355,200
|
|
payable
(see Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker
fee for 3% $2.26m
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(52,522
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(52,522
|
)
|
Convertible
Note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued with 3% $2.26m
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
375,268
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
375,268
|
|
Convertible
Note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature attributed
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,884,732
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,884,732
|
|
to
3% $2.26m Convertible Note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued with 3% $316k
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
52,538
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
52,538
|
|
Convertible
Note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature attributed
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
263,862
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
263,862
|
|
to
3% $316k Convertible Note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of 2% $402k & $95k
|
|
|
-
|
|
|
|
-
|
|
|
|
9,969,660
|
|
|
|
9,970
|
|
|
|
488,513
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
498,483
|
|
Convertible
Notes into common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
placement equity fee for conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
697,867
|
|
|
|
698
|
|
|
|
(698
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
of
2% $402k & $95k convertible notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
placement fees for 2% $95k
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,069
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,069
|
)
|
Convertible
Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued with 2% $95k
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,267
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,267
|
|
Convertible
Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature attributed
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38,000
|
|
to
2% $95k Convertible Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
placement fees for 2% $402k
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,522
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,522
|
)
|
Convertible
Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued with 2% $402k
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64,598
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64,598
|
|
Convertible
Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature attributed
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
160,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
160,800
|
|
to
2% $402k Convertible Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES
AT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JUNE
30, 2010
|
|
|
11,425,160
|
|
|
$
|
11,425
|
|
|
|
81,135,819
|
|
|
$
|
81,457
|
|
|
$
|
27,004,346
|
|
|
$
|
(26,051,754
|
)
|
|
$
|
(320,000
|
)
|
|
$
|
10,704
|
|
|
$
|
13,614
|
|
|
$
|
749,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
SKYSHOP
LOGISTICS, INC (FORMERLY SKYPOSTAL NETWORKS, INC.)
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(UNAUDITED)
|
|
2010
|
|
|
2009
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,680,295
|
)
|
|
$
|
(2,421,117
|
)
|
Adjustments
to reconcile net loss including noncontrolling interest
|
|
|
|
|
|
|
|
|
to
net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Discount
on 18% convertible note payable
|
|
|
3,000
|
|
|
|
-
|
|
Amoritization
of 3% and 2% convertible debt discounts
|
|
|
374,486
|
|
|
|
-
|
|
Amoritization
of 3% and 2% convertible debt issuance
|
|
|
39,320
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
95,632
|
|
|
|
99,391
|
|
Bad
debt expense
|
|
|
7,761
|
|
|
|
-
|
|
Stock
compensation expense
|
|
|
90,197
|
|
|
|
255,857
|
|
Revaluation
of put option liability
|
|
|
41,600
|
|
|
|
374,400
|
|
Changes
in assets and liabilities
|
|
|
|
|
|
|
|
|
Decrease
in accounts receivable
|
|
|
489,862
|
|
|
|
398,867
|
|
(Increase)
decrease in prepaids and other assets
|
|
|
(180,160
|
)
|
|
|
17,572
|
|
(Increase)
in due from stockholders
|
|
|
(35,250
|
)
|
|
|
(33,708
|
)
|
(Increase)
decrease in intangible assets and other assets
|
|
|
(25,329
|
)
|
|
|
363,907
|
|
Decrease
in accounts payable and accrued liabilities
|
|
|
(417,446
|
)
|
|
|
(78,077
|
)
|
Decrease
(increase) in customer deposits
|
|
|
(868
|
)
|
|
|
3,431
|
|
Decrease
in non-compete agreements
|
|
|
(19,707
|
)
|
|
|
(12,041
|
)
|
Net
cash used in operating activities
|
|
|
(1,217,197
|
)
|
|
|
(1,031,518
|
)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Cash
acquired in acquisition of LEL
|
|
|
-
|
|
|
|
11,753
|
|
Capital
expenditures
|
|
|
(6,212
|
)
|
|
|
(7,337
|
)
|
Net
cash (used in) provided by investing activities
|
|
|
(6,212
|
)
|
|
|
4,416
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Issuance
of capital stock, net of expenses
|
|
|
-
|
|
|
|
836,443
|
|
Warrants
(redeemed) exercised
|
|
|
(109,000
|
)
|
|
|
15,000
|
|
Proceeds
from Convertible Notes payable
|
|
|
3,007,000
|
|
|
|
-
|
|
Payments
of Convertible Notes payable
|
|
|
(250,000
|
)
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
2,648,000
|
|
|
|
851,443
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash
|
|
|
26,082
|
|
|
|
10,299
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
1,450,673
|
|
|
|
(165,360
|
)
|
Cash,
beginning of period
|
|
|
36,513
|
|
|
|
309,455
|
|
Cash,
end of period
|
|
$
|
1,487,186
|
|
|
$
|
144,095
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow
Information:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
6,592
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Non-Cash
Transactions:
|
|
|
|
|
|
|
|
|
Non-compete
agreement-LEL acquisition
|
|
$
|
-
|
|
|
$
|
100,000
|
|
Reduction
of noncompete payable in exchange for payment of legal
services
|
|
|
2,759
|
|
|
|
62,027
|
|
Common
stock issued for trade payable
|
|
|
100,000
|
|
|
|
23,722
|
|
Discount
recorded and fully amortized for 2% Convertible Notes
|
|
|
278,665
|
|
|
|
-
|
|
Discount
recorded for 3% Convertible Notes
|
|
|
2,576,400
|
|
|
|
-
|
|
Adjustment
to put option liability
|
|
|
2,355,200
|
|
|
|
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
SKYSHOP
LOGISTICS, INC. (FORMERLY SKYPOSTAL NETWORKS, INC.)
AS
OF AND FOR THE PERIOD ENDED JUNE 30, 2010
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
1. Organization and Basis of Presentation
On July
16, 2010, SkyPostal Networks, Inc., a Nevada corporation, changed its name to
SkyShop Logistics, Inc. (“the Company”) to better describe the
repositioning of its primary operations to that of an international e-commerce
service company. Through its trademarked name “PuntoMio”, the Company
is engaged in cross border shopping facilitation by providing services to
non-U.S. based shoppers accessing U.S. online merchant sites. The
service provides a U.S. address and calculates the “landed cost” including the
cost of shipping, customs and delivery for the buyer prior to the
purchase. Online merchants wishing to sell to international buyers
can eliminate the risks associated with foreign sales by utilizing the Company’s
Global e-Cart solutions and delivering the purchase to a U.S. address. The
Company’s subsidiary, SkyPostal, Inc., provides international, bar-coded, low
cost distribution of catalogs, books and publications below United States Postal
Service (“USPS”) costs with track and trace visibility. The Company
relies on its own proprietary integrated delivery network consisting of
commercial and cargo airlines, customs brokers, local private postal services
and delivery companies linked by its PosTrac mail and parcel tracking
system.
The
condensed consolidated financial statements for three and six months ended June
30, 2010 and 2009 included herein are not audited and have been prepared in
accordance with the instructions for Form 10-Q under the Securities Exchange Act
of 1934, as amended, (the “Exchange Act”) and Article 8 of Regulation S-X under
the Securities Act of 1933, as amended (the “Securities Act”). The condensed
consolidated balance sheet at December 31, 2009 has been derived from audited
consolidated financial statements; however, these Notes to Condensed
Consolidated Financial Statements do not include all of the information and
notes required by US generally accepted accounting principles (“GAAP”) for
complete consolidated financial statements. The accompanying
unaudited interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K for the year ended December 31, 2009
as filed with the US Securities and Exchange Commission (“SEC”). In the opinion
of Management, the accompanying consolidated financial statements reflect all
adjustments, consisting of only normal recurring adjustments, necessary for the
fair presentation of results for these interim periods and in order to make the
condensed financial statements not misleading.
Operating
results for the three and six months ended June 30, 2010 are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 2010.
Note
2. Liquidity, Financial Condition and Management Plans
Liquidity
and Financial Condition
As shown
in the accompanying condensed consolidated financial statements, the Company
incurred an operating loss of $510,766 and $1,246,896 for the three and six
months ended June 30, 2010. Cash flow from operations has been negative for each
of the last ten quarters through June 30, 2010. These factors indicate that the
Company’s ability to continue as a going concern is dependent on its ability to
continue to raise capital to support its ongoing restructuring and repositioning
efforts. There is no assurance that the Company will have access to
additional equity capital. The report from the Company’s independent
registered public accounting firm included with the audited consolidated
financial statements as of and for the year ended December 31, 2009 expressed
doubts about our ability to continue as a going concern. Management
believes that, based on its budget and forecast for the next 12 months, the
Company has sufficient cash on hand and projected cash flow to meet its cash
needs through June 30, 2011. These consolidated financial statements
do not include any adjustments that might result if the Company is unable to
continue as a going concern.
During
the first half of 2010 the Company entered into various transactions and
agreements impacting its current and future liquidity. In May 2010,
the Company entered into a Note Purchase Agreement whereby the Company agreed to
sell a 3% senior secured convertible note and warrants in exchange for proceeds
of $2,260,000. On May 19, 2010, the Company issued a $2.26 million
note maturing on May 19, 2013 that bears interest at an annual rate of 3% and
payable monthly beginning on June 1, 2010. These loan proceeds were
used to pay-off certain loan obligations, trade payables and
expenses. The balance of the proceeds will be used to support the
development of PuntoMio. The principal and accrued interest for this
note are convertible at any time at the option of the note holder into shares of
the Company’s common stock at a conversion price of $0.05 per
share. The warrants expire on May 19, 2013 and are exercisable into
9,040,000 shares of the Company’s common stock at an exercise price of $0.15 per
share. The note and related warrants are more fully described in Note
8 – Convertible Debt and Note 12 – Warrants. As of August 13, 2010,
none of the note holders of the $2.26 million convertible note have exercised
their option to convert any part of the note into stock or exercised warrants to
purchase common shares.
As
discussed in Note 7 – Commitment and Contingencies, in April 2010, a shareholder
agreed to modify the terms of the Shareholder Put Option and Non-Compete
Agreements. As a result of the change in terms of the Put Option, the
Company determined that the put rights requiring the Company’s purchase and
redemption of 2,560,000 shares had no value. On April 21, 2010, the
Company adjusted the liability related to the 2,560,000 shares valued at
$2,355,200 based on the closing trading price of the Company’s common shares,
with offset to additional paid in capital. The Company continues to
be contingently liable for the remaining 2,560,000 shares under the Put
Option. This adjustment resulted in a significant change to the
financial position of the Company. The adjustment reduced the
Company’s total current liabilities and working capital deficit, and increased
the Company’s equity capital.
On May
7
th
,
2010, the Company issued a senior secured convertible note payable for $150,000
to serve as a bridge loan in anticipation of the Note Purchase
Agreement. This note provided for conversion into shares of the
Company’s common stock at a conversion price of $0.05 per share. On
May 20
th
,
2010, the Company paid the convertible note in full with proceeds from the $2.26
million financing. There were no fees or interest incurred on this
convertible loan.
In April
2010, the Company issued 2% convertible notes totaling $95,000 with a conversion
feature to convert the principal and accrued interest from the notes into shares
of the Company’s common stock at a conversion price of $0.05 per
share. In March 2010, the Company issued 2% convertible notes
totaling $402,000 with a conversion feature to convert the principal and accrued
interest from the notes into shares of the Company’s common stock at a
conversion price of $0.05 per share. These convertible notes
were issued with warrants to purchase up to 1,988,000 shares of the Company‘s
common stock at an exercise price of $0.05 per share and expire on March 15,
2011. In May 2010, the holders of these notes exercised the right to
convert these notes for common stock. They converted the notes into
10,667,527 shares of the Company’s common stock. As of August 13,
2010, the convertible note holders have not exercised their
warrants. The terms of the convertible notes and related conversion
features are more fully described in Note 8 – Convertible Debt. The
terms of the associated warrants are more fully described in Note 12 –
Warrants.
During
March 2010, the Company issued a convertible note payable for $100,000 at 18%
annual interest and which is convertible into shares of the Company’s common
stock at a conversion price of $0.10 per share. The note was paid in full on May
20, 2010. During the life of the loan, the Company incurred and paid
a total of $6,592 in interest based on 1.5% monthly rate of outstanding
principal.
The
Company is exploring other alternatives for financing and raising additional
equity in the capital markets but there can be no assurances that these efforts
will be successful.
Management
Plans
Management
is constantly seeking opportunities to lower operating and administrative costs
and increase revenue in an effort to reduce the current negative cash flow,
including the following initiatives achieved in the twelve months ended December
31, 2009 and continued during the six months ended June 30, 2010:
|
●
|
Repositioning
of the Company’s core focus from low margin mail distribution to provision
of higher margin shopping facilitation services to foreign consumers and
U.S. merchants.
|
|
●
|
Increased
investment in its PuntoMio’s e-commerce technology, foreign co-marketing
banking relationships, internet marketing and international parcel post
service to foreign shoppers and U.S. online
merchants.
|
|
●
|
Repositioning
its sales strategy by focusing efforts on generating higher margin
international retail sales from and to Latin American
countries.
|
|
●
|
Re-negotiating
of contracts with certain key suppliers for better pricing and payment
terms.
|
Note
3. Summary of Significant Accounting Policies
Recent
Accounting Pronouncements
Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 105-10,
Generally Accepted Accounting
Principles — Overall
(“ASC 105-10”). ASC 105-10 establishes the
FASB Accounting Standards
Codification
(the “Codification”) as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with U.S.
generally accepted accounting principles (“GAAP”). Rules and interpretive
releases of the United States Securities and Exchange Commission (“SEC”) under
authority of federal securities laws are also sources of authoritative U.S. GAAP
for SEC registrants.
Management
does not believe that any recently issued, but yet effective, accounting
standards if currently adopted would have a material effect on accompanying
condensed consolidated financial statements.
Management
Use of Estimates
The
preparation of consolidated financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Such
estimates and assumptions impact, among others, the following: the amount of
uncollectible accounts receivable, the amount to be paid for the settlement of
liabilities related to cost of sales, the estimated useful lives for property
and equipment, the value assigned to the warrants granted in connection with the
various financing arrangements, valuation of the deferred tax asset, put option
liability, and calculation for stock compensation expense. Actual results could
differ from those estimates.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of SkyShop
Logistics, Inc. formerly SkyPostal Networks, Inc., as parent, and all entities
in which the Company has a controlling voting interest. The Company has a
controlling interest in SkyShop Logistics Group, Inc. doing business as
“PuntoMio”, SkyPostal, Inc. and Logistics Enterprises “LEL”. All significant
intercompany accounts and transactions between have been eliminated in
consolidation.
Reclassification
Certain
prior period amounts in the consolidated financial statements have been
reclassified to conform to the current period’s presentation.
Cash
Cash
primarily consists of demand deposits in interest and non-interest bearing
accounts. The carrying amount of these deposits approximates their fair value.
The Company’s balances maintained may, at times, exceed available depository
insurance limits. At June 30, 2010, the Company had $987,186 – an amount in
excess of the federally insured limits, but held by reputable financial
institutions.
Accounts
Receivable
Accounts
receivable are uncollateralized customer obligations due under normal trade
terms requiring payment within 30 days from the invoice date. Accounts
receivable are recorded at the stated amount of the transactions with the
Company’s customers. The allowance for doubtful accounts is the Company’s best
estimate of the amount of probable credit losses in the Company’s existing
accounts receivable. The Company determines the allowance based on the
customer’s creditworthiness, their payment history and the amount currently past
due. All balances are reviewed individually for collectability. Accounts
receivable are charged off against the allowance after all means of collection
have been exhausted. Accounts receivable are recorded at the invoice amount net
of allowance.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation of office and computer equipment, furniture and fixtures, computer
software and warehouse equipment is calculated using the straight-line method
over the estimated useful life of the asset generally ranging from three to
seven years. Leasehold improvements are amortized over the shorter of their
estimated useful lives or the related lease term, commencing the month after the
asset is placed in service. The costs of repair and maintenance are expensed
when incurred, while expenditures for improvements that significantly add to the
productive capacity or extend the useful life of an asset are
capitalized.
Impairment
of Long-Lived Assets
In
accordance with ASC No. 360-10,
Property, Plant and Equipment
long-lived assets, such as property and equipment, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of
the asset exceeds the fair value of the asset.
Assets to
be disposed of would be separately presented in the balance sheet and reported
at the lower of the carrying amount or fair value less costs to sell, and are no
longer depreciated. The assets and liabilities of a disposal group classified as
held for sale would be presented separately in the appropriate asset and
liability sections of the balance sheets.
Based on
Management’s analysis, no long-lived assets were deemed impaired during the six
months ended June 30, 2010.
Contingencies
The
Company accrues for contingent obligations, including legal costs, when the
obligation is probable and the amount can be reasonably estimated. As facts
concerning contingencies become known, the Company reassesses its position and
makes appropriate adjustments to the consolidated financial statements.
Estimates that are particularly sensitive to future changes include those
related to tax, legal, and other regulatory matters that are subject to change
as events evolve and additional information becomes available.
Fair
Value Measurements
The
Company has determined the estimated fair value amounts presented in these
consolidated financial statements using available market information and
appropriate methodologies. However, considerable judgment is required in
interpreting market data to develop the estimates of fair value. The estimates
presented in the consolidated financial statements are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
See Note 10- Fair Value Measurements.
Revenue
Recognition and Cost of Delivery
Revenue
is recognized upon delivery of a letter or a package in accordance with ASC
605-20,
Revenue and Expense
Recognition for Freight Service in Process.
Cost of Delivery
is comprised of postage, export line haul costs, clearance costs, and hand
delivery costs.
Foreign
Currency and Translation Policy
The
financial statements of our foreign operation, LEL, are stated in a foreign
currency, referred to as the functional currency. Under generally accepted
accounting principles in the United States of America, functional currency
assets and liabilities are translated into the reporting currency, U.S. Dollars,
using period end rates of exchange while revenues and expenses are translated at
average rates in effect during the period. Equity is translated at historical
rates and the resulting cumulative translation adjustments are included as a
component of accumulated other comprehensive income or loss.
Stock
Based Compensation Plan
The
Company accounts for stock based compensation according to ASC No. 505-50,
Equity-Based Payments to
Non-Employees
, and ASC No. 718,
Compensation-Stock
Compensation
. Stock-based compensation for awards granted prior to, but
not yet vested, as of January 1, 2006 are recorded as if the fair value method
required for pro forma disclosure under previous accounting standards were in
effect for expense recognition purposes, adjusted for estimated forfeitures. For
stock-based awards granted after January 1, 2006, we recognized compensation
expense based on the estimated grant date fair value method using the Lattice
option pricing model prior to April 2008 and the Black-Scholes option pricing
model thereafter. For these awards, we recognized compensation expense using a
straight-line amortization method (prorated). ASC No. 718 requires that
stock-based compensation expense be based on awards that are ultimately expected
to vest, after considering estimated forfeitures.
Loss
Per Share
Basic
loss per share is presented on the face of the consolidated statements of
operations. Basic earnings or loss per share “EPS” is calculated as the loss
attributable to common stockholders divided by the weighted average number of
shares outstanding during each period. Basic net income (loss) per share is
computed using the weighted average number of shares outstanding during the
period. Due to the Company’s losses from continuing operations, dilutive
potential common shares in the form of convertible notes, warrants and any
shares issuable under the five million stock compensation plan were excluded
from the computation of diluted loss per share, as inclusion would be
anti-dilutive for the periods presented.
Income
Taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment
date.
Business
Combinations and Non-controlling Interest
Effective
March 1, 2009, the Company acquired 70% of the outstanding common stock of LEL,
a Colombian logistics company. The Company used the acquisition method of
accounting to account and report the LEL acquisition.
On
September 30, 2009, the Company sold a 24.1% preferred equity interest in its
wholly owned subsidiary PuntoMio and Company warrants for cash proceeds of
$966,021 for cash. Effective April 30, 2010, the Company entered into
an equity exchange (“PuntoMio Exchange”) with the preferred interest holders of
PuntoMio. The Company exchanged eight preferred convertible shares of
the Company for every one PuntoMio preferred share. Simultaneous to
the PuntoMio Exchange, the Company bought back or redeemed 1,090,000 warrants
for $109,000. There is no longer a non-controlling interest in
PuntoMio as of June 30, 2010. The ownership percentage of the
non-controlling interest in LEL has not changed.
Note
4. Accounts Receivable and Concentration of Credit Risk
In the
normal course of business, the Company incurs credit risk from accounts
receivable by extending credit on a non-collateralized basis primarily to U.S.
and non-U.S. based customers. The Company performs periodic credit evaluations
of its customers’ financial condition as part of its decision to extend
credit. The Company maintains an allowance for potential credit losses based on
historical experience and other information available to Management. Accounts
receivable, net, consisted of the following at June 30, 2010 and December 31,
2009:
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Accounts
Receivable
|
|
$
|
692,083
|
|
|
$
|
1,183,573
|
|
Less:
Allowance for doubtful accounts
|
|
|
(49,685
|
)
|
|
|
(43,552
|
)
|
Accounts
Receivable, net
|
|
$
|
642,398
|
|
|
$
|
1,140,021
|
|
During
the three months ended June 30, 2010 and 2009, approximately 58% and 26%,
respectively, of the Company’s revenues were generated from two customers.
During the same period, approximately, 43% and 23%, respectively, of the
Company’s cost of sales was purchased from two vendors and one vendor,
respectively.
During
the six months ended June 30, 2010 and 2009, approximately 52% and 25%,
respectively, of the Company’s revenues were generated from two customers.
During the same period, approximately, 35% and 26%, respectively, of the
Company’s cost of sales was purchased from two vendors and one vendor,
respectively.
Note
5. Property and Equipment, net
Property
and equipment, net, consisted of the following at June 30, 2010 and December 31,
2009:
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Office
and computer equipment
|
|
$
|
171,345
|
|
|
$
|
167,698
|
|
Computer
software
|
|
|
206,066
|
|
|
|
204,153
|
|
Furniture
and fixtures
|
|
|
45,595
|
|
|
|
45,595
|
|
Warehouse
equipment
|
|
|
72,296
|
|
|
|
71,645
|
|
Leasehold
improvements
|
|
|
1,755
|
|
|
|
1,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
497,057
|
|
|
|
490,846
|
|
|
|
|
|
|
|
|
|
|
Less:
accumulated depreciation
|
|
|
(406,012
|
)
|
|
|
(393,076
|
)
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
$
|
91,045
|
|
|
$
|
97,770
|
|
Depreciation
expense for the three months ending June 30, 2010 and June 30, 2009 was $6,547
and $10,173, respectively. Depreciation expense for the six months
ending June 30, 2010 and June 30, 2009 was $12,936 and $17,692
respectively.
Note
6. Intangible Assets, net
Intangible
assets as of June 30, 2010 and December 31, 2009 are shown below:
|
|
2010
|
|
|
2009
|
|
Life
(yrs)
|
|
|
|
|
|
|
|
|
Trademarks
|
|
$
|
92,824
|
|
|
$
|
89,244
|
|
Indefinite
|
Customer
List-LEL
|
|
|
81,020
|
|
|
|
81,020
|
|
Three
|
Non-Compete-LEL
|
|
|
100,000
|
|
|
|
100,000
|
|
Three
|
Non-Compete-Shareholder
|
|
|
735,000
|
|
|
|
735,000
|
|
Seven
|
Subtotal
|
|
|
1,008,844
|
|
|
|
1,005,264
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Accumulated Amortization
|
|
|
(311,685
|
)
|
|
|
(229,011
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
Assets, net
|
|
$
|
697,159
|
|
|
$
|
776,253
|
|
|
Amortization
expense for the three months ending June 30, 2010 and June 30, 2009
was approximately $41,000 and $49,000, respectively. Amortization expense
for the six months ending June 30, 2010 and June 30, 2009 was approximately
$83,000 and $82,000, respectively.
The
Company has various registered trademarks in North America, Europe, Middle East
and Latin America under which the Company trades depending on the market and
co-marketing partner. The carrying value of the trademarks represents legal and
other costs related to development and registration of the Company’s trademarks.
Additional legal expenditures of $3,580, related to trademarks, were incurred
and capitalized during the six months ended June 30, 2010. This investment is
considered to have an indefinite life and as such is not amortized.
On
February 27, 2009, the Company acquired 70 percent of the outstanding common
stock of LEL. The purchase price was allocated to the tangible assets acquired
and the liabilities assumed based on their respective fair values and any excess
was allocated to the fair value of identifiable intangible assets, identified as
LEL’s customer list, amounting to $81,020. The Company also entered into a
non-compete agreement with a shareholder of LEL, which includes payments
totaling $100,000, comprised of 25 payments of $4,000 payable on a monthly
basis. The customer list and non-compete agreement were recorded as intangible
assets and are being amortized on a straight line basis over three years. The
Customer List-LEL, net and the Non-Compete-LEL, net amounted to $47,255, and
$58,330, respectively, as of June 30, 2010.
Simultaneous
with the Put Option Agreement, see Note 7 — Commitments and Contingencies,
entered into on April 1, 2007, the Company also entered into a non-compete
agreement with one of its shareholders. Under the Shareholder Non-Compete
Agreement, the shareholder was to receive quarterly payments beginning on
April 1, 2008 and ending on January 1, 2013. The non-compete agreement was
recorded as an intangible asset on the balance sheet in the amount of
$735,000 with an offsetting liability to recognize the cumulative future
payments in 2008. The non-compete is amortized on a straight line basis over the
term of the agreement and for a period of two years thereafter as stated
in the agreement for a total of seven years. At June 30, 2010, the net balance
of the non-compete agreement recorded as an intangible asset amounted to
$498,750.
Note
7. Commitments and Contingencies
Put
Option
On April
1, 2007, the Company and a shareholder entered into a Sale Option Agreement,
(the “Shareholder Put Option Agreement”), whereby 3,200,000 options (the “Put
Option”) were issued to the shareholder which, when exercised, obligate the
Company to purchase and redeem up to 3,200,000 shares of the Company’s common
stock at a cash exercise price of $1.00 per share. The shareholder had the right
to exercise at any time up to 3,200,000 shares in quarterly increments of up to
160,000 common shares beginning with the quarter ended April 1, 2008. The Put
Option expires on January 2, 2013.
The
Company accounted for the Put Option as a liability at inception since the Put
Option (a) embodied an obligation to repurchase the equity shares, and (b)
required the Company to settle the obligation by transferring assets. The Put
Option was measured initially at the fair value of the shares at inception. The
fair value was determined by the amount of cash that would be paid under the
conditions specified in the agreement if the shares were repurchased
immediately. The Company has made subsequent fair value adjustments to the
liability at each reporting period to reflect the fair value of the Company’s
common shares to be received if the Company were to sell the redeemed shares in
the market. Therefore, the fair value of the Put Option liability
consisted of the shares available under the Put Option at a cash exercise price
of $1.00 per share, less the market value of the Company’s common stock for such
shares on the reporting date.
On April
21, 2010, as a condition for entering into the 3% $2.26m Convertible Note (see
Note 8. – Convertible Debt), the shareholder agreed to a change of terms within
the Shareholder Put Option Agreement. The shareholder agreed to not
exercise the Put Option until the closing price for the Company’s common stock
on the principal market on which such common stock trades is greater than $1.00
(subject to adjustment for stock splits, stock dividends and similar events) for
60 consecutive days. Except for this change, the Shareholder Put
Option Agreement will remain in full force and effect in accordance with its
respective terms. From April 2007 to April 2010, the shareholder has
put 640,000 shares to the Company at an exercise price of $1.00 per share and
the Company has made payments totaling $320,000 to the
shareholder. As of April 21, 2010 immediately before the change in
terms, there were 320,000 shares to be redeemed, and 2,560,000 shares remaining
that may be put to the Company for purchase and redemption under the Put
Option. As a result of the change in terms, which restrict the
shareholders’s right to exercise the Put Option, the Company determined that the
put rights requiring the Company’s purchase and redemption of 2,560,000 shares
had no value. On April 21, 2010, the Company adjusted the liability
related to the 2,560,000 shares valued at $2,355,200 based on the closing
trading price of the Company’s common shares, with offset to additional paid in
capital. The Company continues to be contingently liable for the
remaining 2,560,000 shares under the Put Option. Should the
Company
’
s
trading price remain above $1.00 per common share for 60 consecutive days
reinstituting the Put Option rights, then fall below $1.00 per share, a
liability would be recognized and charged to earnings in the period. A summary
of the Put Option at December 31, 2009, the effect of elimination of a portion
of the liability at April 21, 2010 and the Put Option at June 30, 2010 is as
follows:
|
|
|
|
|
|
|
|
Effect
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
21, 2010
|
|
|
|
|
|
|
|
|
Six
Month
|
|
|
|
December
31, 2009
|
|
|
Adjustment
|
|
|
June
30, 2010
|
|
|
Change
in
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Put
Option exercised
and unpaid
|
|
|
320,000
|
|
|
$
|
288,000
|
|
|
|
|
|
|
|
|
|
320,000
|
|
|
$
|
278,400
|
|
|
$
|
(9,600
|
)
|
Remaining
Put Option
liability
|
|
|
2,560,000
|
|
|
|
2,304,000
|
|
|
|
-
|
|
|
$
|
(2,355,200
|
)
|
|
|
2,560,000
|
|
|
|
-
|
|
|
|
51,200
|
|
Total
Put Option
|
|
|
2,880,000
|
|
|
$
|
2,592,000
|
|
|
|
|
|
|
|
|
|
|
|
2,880,000
|
|
|
$
|
278,400
|
|
|
$
|
41,600
|
|
For the
three and six months ended June 30, 2010, the Company recognized in its
operating results adjustments to the fair value of the Put Option in the amount
of a gain of $44,800 and a loss of $41,600, respectively.
Non-Compete
Agreements
Simultaneous
with the Shareholder Put Option Agreement, the Company also entered into a
non-compete agreement (the “Shareholder Non-Compete Agreement”) whereby the
shareholder was to receive quarterly payments totaling $735,000 beginning April
1, 2008 and ending on January 1, 2013 pursuant to a schedule in the agreement.
The Shareholder Non-Compete Agreement was recorded as an intangible asset on the
balance sheet with an offsetting liability to recognize the cumulative future
payments. The agreed-upon value of the non-compete is being amortized
on a straight line basis over the term of the agreement and for a period of two
years thereafter as stated in the agreement for a total of seven years. See Note
6 - Intangible Assets.
On April
21, 2010, as a condition for entering into the 3% $2.26m Convertible Note (see
Note 8. – Convertible Debt), the shareholder agreed to a change of terms within
the Shareholder Non-Compete Agreement. The shareholder agreed to
waive any payments under the Non-Compete Agreement until the Company achieves
positive annualized net positive cash flow from operations (determined in
accordance with U.S. GAAP after deducting capital expenditures) of at least
$750,000 for three consecutive fiscal quarters. Except for this
change, the Shareholder Non-Compete Agreement will remain in full force and
effect in accordance with its respective terms. The Company remains
liable for the obligation.
At the
request of the shareholder, the Company made payments on behalf of the
shareholder of $2,208 and $4,967 during the three and six months ending June 30,
2010, respectively, reducing amounts owed under the Shareholder Non-Compete
Agreement.
At June
30, 2010, amounts due on the liability related to the Shareholder Non-Compete
Agreement are as follows:
|
Payment
Schedule
for
June
30,
|
|
Amount
|
|
|
2010
|
|
$
|
331,665
|
|
|
2011
|
|
|
77,000
|
|
|
2012
|
|
|
21,000
|
|
|
2013
|
|
|
-
|
|
|
Total
|
|
$
|
429,665
|
|
In
addition, at June 30, 2010, the Company’s current liability related to
non-compete agreements included $54,506 payable to a minority shareholder of
LEL. Through June 30, 2010, $45,494 has been paid on the LEL
non-compete agreement.
Litigation
The
Company may become a party to various claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of Management, there
were no matters that would have a material adverse effect on the Company’s
consolidated financial statements taken as whole as of June 30, 2010 and
December 31, 2009.
Note
8. Convertible Debt
During
the six months ended June 30, 2010, the Company entered into several convertible
note agreements. In March 2010, the Company entered into two
convertible debt agreements to raise working capital and continue the
development of PuntoMio.
3% Convertible Note -
$2,260,000 (“3% $2.26m Convertible Note”)
On May
18
th
2010, the Company entered into a Note Purchase Agreement and other agreements
with LBI Investments, LLC whereby the Company agreed to issue a 3% Senior
Secured Convertible Note and Warrant for cash proceeds of
$2,260,000. A broker fee on this transaction was agreed to at 14% of
the note principal and the Company concurrently entered into a $316,400
convertible note agreement for the broker fee.
The terms
of the 3% $2.26m Convertible Note agreements are:
|
●
|
The
note becomes due on May 19, 2013 and bears interest at 3% annually,
payable monthly beginning on June 1,
2010.
|
|
●
|
The
principal of the note and any accrued and unpaid interest are convertible
into shares of the common stock of the Company at conversion price of
$0.05 per share at any time at the option of the note holder. The
conversion price is adjustable in the event of any stock split, stock
dividend or other recapitalization of the
Company.
|
|
●
|
In
conjunction with the convertible debt agreements, warrants equivalent to
20% of the shares issuable upon conversion, or 9,040,000 shares were
issued with a strike price of $0.15 per share expiring May 19,
2013. The warrant exercise price is adjustable in the event of
any stock split, stock dividend or other recapitalization of the
Company. These warrants contain a cashless exercise
feature.
|
|
●
|
The
note agreements contain a registration rights agreement whereby the
holders may at any time demand registration under the Securities
Act.
|
|
●
|
The
convertible note is secured by a first priority lien on substantially all
of the Company’s and PuntoMio’s assets and a guarantee by
PuntoMio.
|
|
●
|
The
note agreements contain various provisions impacting the Company
including: (i) a stock reservation provision whereby the Company shall
reserve shares of common stock for issuance to the note and warrant holder
equal to the number of shares required upon conversion of the note and
exercise of the warrant; (ii) restrictions on the payment of dividends,
distributions, redemption of stock and warrants, and the making of loans;
(iii) participation rights in any subsequent securities offering; (iv)
indemnification of certain investor parties; and (v) appointment of four
members of our Board of Directors.
|
Proceeds
of this convertible note were tested for a beneficial conversion feature by
comparing the effective conversion price to the fair value of the Company’s
stock on the commitment date. After determination of the fair value of the
warrants, the Company recognized a beneficial conversion feature of $1,884,732
which was recorded as a discount to the convertible notes with an offset to
additional paid-in capital. The fair value of the warrants was determined
utilizing the Black-Scholes pricing model methodology using assumptions of
three years for expected term, volatility of 334.888%, no dividends and a
risk free interest rate of 1.59%. The discount related to the warrants for
common stock was determined to be $375,268 and recorded as a further reduction
to the carrying amount of the convertible debt offset against additional paid-in
capital. Both the beneficial conversion feature and warrant discounts
will be amortized over three years and charged to interest
expense. For the period from issuance to June 30, 2010, the Company
amortized $72,291 related to the discount for the beneficial conversion feature
and $14,394 related to the discount on the warrants. As of June 30,
2010, the entire $2,260,000 convertible note is outstanding and is carried at
$86,685 net of discounts in the accompanying consolidated balance
sheet.
3% Convertible Note -
$316,400 (“3% $316k Convertible Note”)
With
respect to the May 18, 2010 Note Purchase Agreement with LBI Investments, LLC,
the broker fee was 14% of the note principal. The Company entered into a
$316,400 convertible note agreement with the broker. The Company recorded the
broker fee payable by allocating the fair value of the fee related to the
warrant discount of $52,522 to additional paid-in capital and capitalizing the
remainder to Other Asset – Debt Issuance Cost for $263,878. The debt
issuance cost will be amortized to financing fees over the life of the
convertible note.
The terms
of the 3% $316k convertible note agreement are:
|
●
|
The
note becomes due on May 19, 2013 and bears interest of 3% annually,
payable monthly beginning on June 1,
2010.
|
|
●
|
The
principal of the note and accrued and unpaid interest are convertible into
shares of the Company’s common stock at a conversion price of $0.05 per
share.
|
|
●
|
The
notes provide for 20% warrant coverage with a strike price of $0.15 per
share and expire on May 19, 2013. Warrants to purchase
1,265,600 shares of common stock at $0.15 per share have been issued and
are outstanding at June 30, 2010.
|
The
Company tested the $316,400 convertible note for a beneficial conversion feature
by comparing the effective conversion price to the fair value of the Company’s
stock on the commitment date. The Company recognized a beneficial conversion
feature of $263,862 which was recorded as a discount to the convertible notes
with an offset to additional paid-in capital. The fair value of the warrants was
determined utilizing the Black-Scholes pricing model methodology using
assumptions of three years for expected term, volatility of 334.888%, no
dividends and a risk free interest rate of 1.59%. The discount related to the
warrants for common stock was determined to be $52,538 and recorded as a further
reduction to the carrying amount of the convertible debt offset against
additional paid-in capital. Both the beneficial conversion feature
and warrant discounts will be amortized over three years and charged to interest
expense. For the period from issuance to June 30, 2010, the
Company amortized $10,121 related to the discount for the beneficial conversion
feature and $2,015 related to the discount on the warrants. As of
June 30, 2010, the entire $316,400 convertible note is outstanding and is
carried at $12,136 net of discounts in the accompanying consolidated balance
sheet.
2% Convertible Notes -
$402,000 and $95,000
On March
15
th
2010, the Company entered into an agreement with Falcon Consulting to raise up
to $500,000 through the sale of convertible notes. In March and April 2010, the
Company entered into convertible note agreements with several investors of the
Company totaling $497,000. The terms of the convertible note agreements
are:
|
●
|
The
notes become due upon the earlier of July 15, 2010 or completion of a
financing event in the amount of $4,000,000 or
greater.
|
|
●
|
Annual
interest rate of 2%, payable annually and to accrue beginning on April 1,
2010.
|
|
●
|
The
convertible note holders have the option to convert the notes into shares
of the Company’s stock at a conversion ratio of $.05 per $1.00 of
principal outstanding, at any time.
|
|
●
|
The
notes provide for 20% warrant coverage with a strike price of $0.05 per
share expiring March 15, 2011. As of June 30, 2009, 1,988,000
warrants have been issued.
|
Proceeds
of $497,000 from these convertible notes were tested for a beneficial conversion
feature by comparing the effective conversion price to the fair value of the
Company’s stock on the commitment date. The Company recognized a beneficial
conversion feature of $198,800 which was recorded as a discount to the
convertible notes with an offset to additional paid-in capital. The fair value
of the warrants was determined utilizing the Black-Scholes pricing model
methodology using assumptions of one year for expected term, volatility of
390.53%, no dividends and a risk free interest rate of .41%. The discount
related to the warrants for common stock was determined to be $79,865 and
recorded as a further reduction to the carrying amount of the convertible debt
offset against additional paid-in capital.
In May
2010, the $497,000 convertible note holders converted the principal plus accrued
interest of $1,483 owed to them into 9,969,660 shares of common stock at the
$0.05 conversion price.
The
private placement agent, Falcon Consulting, earned a cash fee comprised of 7% of
the total monies raised or $34,790. The amount was allocated to
additional paid-in-capital and debt issuance costs based on the relative fair
values of the conversion feature and the warrants resulting in a $5,591 charged
to additional paid-in capital and the remaining $29,199 to debt issuance cost.
These amounts were being amortized through July 15, 2010; however, the remaining
amount of $21,595 was expensed upon conversion on May 19, 2010.
In
addition, Falcon Consulting was entitled to receive 7% of any common shares
issued upon conversion of the notes through July 15, 2010.
On May
20, 2010, Falcon earned 697,876 shares of common stock upon conversion of these
notes valued at $55,830 based on the closing trading price of the Company’s
common stock on that date. These shares were deemed to be placement
fees related to the sale of issuance of common stock and thus were charged to
additional paid-in capital. In total, 10,667,527 shares of common
stock were issued for the $497,000 convertible debt. None of this
debt is outstanding at June 30, 2010. The unamortized discounts of $147,027 and
$73,626 related to the remaining beneficial conversion features and the
warrants, respectively, were charged to interest expense.
18% Convertible Note Payable
- $100,000
On March
8
th
2010, the Company entered into a note agreement for $100,000. Terms of the note
payable were:
|
●
|
Discount
granted at issuance of 3% charged to interest
expense.
|
|
●
|
Interest
on the unpaid principal at 1.5% per month, which was payable
monthly.
|
|
●
|
Maturity
date was May 7, 2010, subsequently extended to June 7,
2010.
|
|
●
|
Note
was secured by the Company’s accounts receivable to the extent of the
amount owed.
|
|
●
|
Lender
had option to convert 100% of the note payable to Company’s common shares
at a conversion price of $0.10 per
share.
|
The
proceeds of $97,000 were received March 8
th
2010
and the convertible note was tested for a beneficial conversion feature at the
time of issuance by comparing the effective conversion price to the fair value
of the Company’s stock. The Company determined that the 18%, $100,000
convertible note payable did not have an embedded beneficial conversion feature
and thus did not recognize any reduction to the carrying amount of the
convertible debt. In May 2010, the Company paid the note payable with
$100,000 cash proceeds from the 3% $2.26m Convertible Note. The
Company incurred and paid $6,592 of interest expense related to this
note.
3% Convertible Note Payable
- $150,000
On May
7
th
2010, the Company entered into a convertible note agreement for $150,000. Terms
of this note payable were:
|
●
|
Interest
on the unpaid principal accrued at 3%
annually.
|
|
●
|
The
loan was due on demand.
|
|
●
|
Note
was secured by the Company’s assets including accounts receivable to the
extent of the amount owed.
|
|
●
|
Lender
had option to convert 100% of the note payable to Company’s common shares
at a conversion price of $0.05 per
share.
|
The
proceeds of $150,000 were received on May 8, 2010 and the convertible note was
tested for a beneficial conversion feature at the time of issuance by comparing
the effective conversion price to the fair value of the Company’s stock. The
Company determined that the 3%, $150,000 convertible note payable did have an
embedded beneficial conversion feature. However, the 3% $2.26m
Convertible Note was used to pay this 3% $150,000 note payable in full and since
the 3% $150,000 loan was repaid within twelve days as expected, the Company
reversed the discount and no interest was incurred or expensed.
Below is
a summary of convertible debt agreements entered into during the six months
ended June 30, 2010:
|
|
Amount
Due and Discounts at Issuance
|
|
|
Amount
Due and Discounts at June 30, 2010
|
|
Convertible Security
Description
|
|
Amount Due
|
|
|
Beneficial
Conversion
Feature
|
|
|
Warrants
|
|
|
Net Amount
|
|
|
Amount Due
|
|
|
Unacreted
Discounts
|
|
|
Net Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2%
$95k Convertible Notes
|
|
$
|
95,000
|
|
|
$
|
38,000
|
|
|
$
|
15,267
|
|
|
$
|
41,733
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
2%
$402k Convertible Notes
|
|
|
402,000
|
|
|
|
160,800
|
|
|
|
64,598
|
|
|
|
176,602
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
3%
$2.26m Convertible Note
|
|
|
2,260,000
|
|
|
|
1,884,732
|
|
|
|
375,268
|
|
|
|
-
|
|
|
|
2,260,000
|
|
|
|
2,173,315
|
|
|
|
86,685
|
|
3%
$316k Convertible Note
|
|
|
316,400
|
|
|
|
263,862
|
|
|
|
52,538
|
|
|
|
-
|
|
|
|
316,400
|
|
|
|
304,264
|
|
|
|
12,136
|
|
3%
$150k Convertible Note
|
|
|
150,000
|
|
|
|
60,000
|
|
|
|
-
|
|
|
|
90,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
18%
$100k Convertible Note
|
|
|
100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,323,400
|
|
|
$
|
2,407,394
|
|
|
$
|
507,671
|
|
|
$
|
408,335
|
|
|
$
|
2,576,400
|
|
|
$
|
2,477,579
|
|
|
$
|
98,821
|
|
Note
9. Stock-Based Compensation
Common
Stock Awards
The
Company recognized $50,749 and $149,731 of share-based compensation expense
during the three months ended June 30, 2010 and 2009, respectively, related to
the vesting of previously awarded stock. As of June 30, 2010,
the future compensation expense related to awarded, non-vested stock that will
be recognized is $165,539, and this amount is expected to be recognized over a
weighted average period of 1.63 years. At June 30, 2010, the
Company is obligated to issue 488,046 shares of common stock to employees and
directors whose stock grants vested during the six months ended June 30,
2010. A summary of the Company’s non-vested stock as of
December 31, 2009 and changes during the six months ended June 30, 2010 is
presented below:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Grant-
|
|
|
|
|
|
|
|
|
|
Grant
Date
|
|
|
Date
Fair Value
|
|
|
Unamortized
|
|
|
|
Shares
|
|
|
Fair
Value
|
|
|
(per
share)
|
|
|
Value
|
|
Nonvested
at December 31, 2009
|
|
|
688,046
|
|
|
$
|
-
|
|
|
$
|
0.55
|
|
|
$
|
380,023
|
|
Awarded
|
|
|
1,545,000
|
|
|
|
180,600
|
|
|
|
0.12
|
|
|
|
177,467
|
|
Vested
|
|
|
(833,046
|
)
|
|
|
-
|
|
|
|
0.49
|
|
|
|
(391,952
|
)
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Nonvested
at June 30, 2010
|
|
|
1,400,000
|
|
|
$
|
180,600
|
|
|
$
|
0.13
|
|
|
$
|
165,539
|
|
On June
18, 2010, 1,200,000 restricted shares with a three year vesting period were
awarded to members of the Board of Directors valued at $156,000 based on the
closing price of the Company’s common stock on that date. In
addition, on April 20, 2010 and May 10, 2010, our Board of Directors granted
45,000 and 300,000 shares of fully vested common stock to prior members of the
Board of Directors for work performed on behalf of the Company. These
shares were valued at $24,600 based on the closing trading price of the
Company’s common stock on the date of grant and charged to compensation
expense. In summary, the Company recognized $90,197 and $255,857 of
share-based compensation expense during the six months ended June 30, 2010 and
2009, respectively, related to the award and vesting of shares to directors and
employees.
The July
2008 stock compensation plan authorized 5,000,000 shares for issuance and since
then, a total of 1,845,000 shares have been granted. Therefore,
3,155,000 shares of common stock are available for issuance from the current
stock compensation plan.
Note
10. Fair Value Measurements
The
Company carries various assets and liabilities at fair value in the accompanying
consolidated balance sheets. Fair value is defined as the amount that would be
received for an asset or paid to transfer a liability (i.e., an exit price) in
the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. The
Company maximizes the use of observable inputs and minimizes the use of
unobservable inputs when measuring fair value. Three levels of inputs that may
be used to measure fair value are as follows:
Level I:
Quoted prices
(unadjusted) in active markets that are accessible at the measurement date for
identical assets and liabilities. The fair value hierarchy gives the highest
priority to Level 1 inputs.
Level II:
Observable prices
that are based on inputs not quoted on active markets but corroborated by market
data.
Level III:
Unobservable
inputs when there is little or no market data available, thereby requiring an
entity to develop its own assumptions. The fair value hierarchy gives the lowest
priority to Level 3 inputs.
The
following table presents the Company’s financial liabilities that are measured
at fair value on a recurring basis as of June 30, 2010 and December 31, 2009,
for each fair value hierarchy level.
|
|
Put
Option Liability
|
|
|
|
June 30, 2010
|
|
|
|
December 31, 2009
|
Level
I
|
|
$
|
278,400
|
|
|
$
|
2,592,000
|
Level
II
|
|
|
-
|
|
|
|
-
|
Level
III
|
|
|
-
|
|
|
|
-
|
Total
|
|
$
|
278,400
|
|
|
$
|
2,592,000
|
Note
11. Common and Preferred Stock
During
the three months ending June 30, 2010, the Company had several equity
transactions. The Company issued 1,000,000 shares of common stock
valued at $100,000 by the parties as partial settlement of a trade
payable. The Company converted 2% $497,000 convertible notes,
including related interest and fees into 10,667,527 shares of common stock, more
fully described in Note 8 Convertible Debt. Also, during the three
months ending June 30, 2010, the Board of Directors approved grants of 345,000
shares to Directors for their past service valued at $24,600 more fully
described in Note 9 – Stock-Based Compensation.
During
third quarter 2009, the Company sold units comprised of one preferred share of
PuntoMio, its subsidiary, plus one warrant to purchase one common share of the
Company, at an exercise price of $.10 expiring July 1, 2012, for $1.00 per unit
in a private placement. The Company sold 1,090,000 units of PuntoMio preferred
stock and warrants for the Company’s common stock and received proceeds of
$966,021 net of placement fees. In addition to the cash fee paid to the Falcon
Consulting, the private placement agent, the Company issued Falcon Consulting
284,345 PuntoMio preferred shares for their efforts in connection with the
private placement. The sale of PuntoMio preferred shares resulted in a
non-controlling interest of 24.1%.
Effective
April 30, 2010, the Company entered into an equity exchange agreement with the
non-controlling shareholders of PuntoMio (the PuntoMio
Exchange”). The PuntoMio Exchange provides for the exchange of the
entire subsidiary preferred equity interest for Company preferred convertible
stock at an exchange of 1:8. In addition to the PuntoMio Exchange,
the Company agreed to redeem 1,090,000 warrants expiring July 1, 2012 for $0.10
per warrant or $109,000. More information regarding the warrants
affected in the PuntoMio Exchange is more fully described in Note12 -
Warrants.
On April
30, 2010, the Company exchanged 1,428,145 preferred shares of a Company’s
subsidiary for 11,425,160 shares of the Company’s preferred convertible stock
and fully eliminated the non-controlling interest in the
subsidiary. The disposition of the non-controlling interest required
the Company to reclassify the losses accumulated from the sale of the
non-controlling interest through the PuntoMio Exchange date from Non-Controlling
Interest to Accumulated Deficit. From September 30, 2009 through
April 30, 2010, $173,853 losses were attributable to the non-controlling
interest. Furthermore, the equity attributable to the non-controlling
interest at inception of $57,401 was eliminated as part of the disposition of
the non-controlling interest in PuntoMio. The Company valued the
11,425,160 preferred convertible shares issued in the exchange based on the
closing trading price of the Company’s common stock on April 30,
2010. Despite certain preferences within the terms of the preferred
convertible stock (see below), the Company believes that the closing price on
the Company’s common stock on the date of the exchange provides a reasonable
approximation of the value of the preferred convertible stock. The
difference between the carrying value of the subsidiary stock and the value of
the common stock on commitment date in the amount of $798,333 was reflected as a
deemed dividend and was charged to additional paid-in capital.
Upon any
liquidation, dissolution or winding up of the Company, the holders of the
preferred convertible stock have preference to receive distribution before any
payment is made to common stockholders. The holders also have
preference to any dividends that may be declared and have equal equity interest
as common stockholders but do not have voting rights. Convertible
preferred stockholders have the right to convert to common stock on a 1:1 ratio
at anytime with written notice. Finally, the Company may force the
preferred convertible stockholder to convert their shares into common stock at
the stated 1:1 ratio if the stock trades at an amount greater than $0.30 for 20
consecutive trading days. If the Company, at any time after the issue
date, subdivides by stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise, the outstanding shares of common
stock into a greater number of shares, then after the date of record for
effecting such subdivision, the number of conversion shares issuable upon a
conversion of a preferred convertible share in effect immediately prior to such
subdivision will be proportionately increased. If the Company, at any time after
the issue date, combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) the outstanding shares of common
stock into a smaller number of shares, then, after the date of record for
effecting such combination, the number of conversion shares issuable upon a
conversion of a preferred convertible share in effect immediately prior to such
combination will be proportionately reduced.
Effective
July 16, 2010, the Company is authorized to issue 350,000,000 common shares (an
increase of 200,000,000 from 150,000,000 authorized shares at June 30. 2010)
with a par value of $0.001 and 50,000,000 preferred shares with par value
$0.001.
Note
12. Warrants
In May
2010, warrants were issued as part of the 3% $2.26m Convertible Note agreements.
The note agreements provide for the issuance of detachable warrants equivalent
to 20% of the shares issuable upon conversion of the notes, or 9,040,000
warrants, with an exercise price of $0.15 per share and expiring on May 19,
2013. In addition, a broker fee resulted from the issuance of the 3%
$2.26m convertible note amounting to 14% of the principal of the notes, or
$316,400, and the Company entered into convertible note and warrant agreements
for this obligation. In May 2010, 1,265,600 warrants were issued as
part of the 3% $316k Convertible Note issuance with a strike price of $0.15 per
share and expiring on May 19, 2013. These warrants
contain anti-dilution provisions and a cashless exercise feature. As
of June 30, 2010, 10,305,600 warrants to purchase an equivalent number of common
shares related to the 3% $2.26m Convertible Note and broker fee remain
outstanding. These warrants were recorded and valued in conjunction with their
respective issuance of convertible notes – See Note 8 – Convertible
Debt.
During
March and April 2010, warrants were issued as part of the 2% $402,000 and 2%
$95,000 Convertible Note agreements. The note agreements provide for the
issuance of detachable warrants equivalent to 20% of the principal of the notes
with a strike price of $0.05 per share and expiring March 15,
2011. As of June 30, 2010, 1,988,000 warrants to purchase 1,988,000
common shares at $0.05 per share are outstanding. These warrants were
recorded and valued in conjunction with the issuance of the convertible notes –
See Note 8 – Convertible Debt.
In 2009,
1,090,000 warrants were issued as part of the third quarter 2009 private
placement with an exercise price of $0.10 per share and an expiration date of
July 1, 2012. These warrants were valued by an independent service at $174,400.
These warrants were redeemed on April 30, 2010 for $109,000.
Falcon
Consulting and others earned 2,653,195 warrants with an exercise price of $0.50
as fees for 2008 private placement and bridge loans. These warrants were
valued by an independent service at $188,144 and have an expiration date of
March 11, 2011. During 2009, 456,029 of these warrants were cancelled
and in exchange for the issuance of 100,000 common shares. At June
30, 2010 and December 31, 2009, 2,197,166 warrants payable to Falcon Consulting
remain outstanding. A summary of all warrants outstanding at June 30,
2010 and changes to warrants issued during the six months then ended, is as
follows:
|
|
|
|
|
|
|
|
Proceeds
Upon
|
|
|
|
|
Warrants
|
|
|
|
|
|
Exercise
or Redemption
|
|
|
Outstanding
at December 31, 2009
|
|
|
3,287,166
|
|
|
$
|
0.37
|
|
|
$
|
1,207,583
|
|
March
11, 2011 and July 1, 2012
|
Awarded
|
|
|
1,608,000
|
|
|
|
0.05
|
|
|
|
80,400
|
|
March
15, 2011
|
Awarded
|
|
|
380,000
|
|
|
|
0.05
|
|
|
|
19,000
|
|
March
15, 2011
|
Awarded
|
|
|
9,040,000
|
|
|
|
0.15
|
|
|
|
1,356,000
|
|
May
19, 2013
|
Awarded
|
|
|
1,265,600
|
|
|
|
0.15
|
|
|
|
189,840
|
|
May
19, 2013
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Redeemed
|
|
|
(1,090,000
|
)
|
|
|
(0.10
|
)
|
|
|
(109,000
|
)
|
July
1, 2012
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding
at June 30, 2010
|
|
|
14,490,766
|
|
|
|
|
|
|
$
|
2,743,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
13. Subsequent Events
On July
16, 2010, a majority of the voting shareholders approved the Company name change
to SkyShop Logistics, Inc. and an increase in the authorized shares of common
stock available for issuance at $0.001 par value, from 150,000,000 to
350,000,000 shares.
ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Special
Note About Forward Looking Statements
This
report contains certain “forward-looking statements” within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act,
which are based on management’s exercise of business judgment, as well as
assumptions made by and information currently available to management. When used
in this document, the words “
may
,” “
will
,” “
anticipate
,” “
believe
,” “
estimate
,” “
expect
,” “
intend
” and words of
similar import, are intended to identify any forward-looking statements. You
should not place undue reliance on these forward-looking statements. These
statements reflect our current view of future events and are subject to certain
risks and uncertainties. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, the Company’s
actual results could differ materially from those anticipated in these
forward-looking statements. The Company undertakes no obligation, and does not
intend, to update, revise or otherwise publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof, or to reflect the occurrence of any unanticipated events. Although the
Company believes that its expectations are based on reasonable assumptions, it
can give no assurance that its expectations will materialize.
Company
Overview
The
Company has repositioned its core business to focus on the growing cross-border
business to consumer B2C e-commerce market. The Company provides a
shopping facilitator service to foreign consumers buying on U.S. merchant sites
by providing them a U.S. address to use when making purchases. It also offers
U.S. online merchants the ability to handle cross border orders without the
merchant taking on the inherent risks of cross-border sales. The Company’s
PuntoMio (
www.puntomio.com
)
shopping facilitation service is marketed through foreign banks and credit card
issuers who offer their credit card clients the ability to easily shop on the
U.S. online merchants. This generates additional transaction fees for the banks
and helps differentiate their card product from others in the market. The
Company provides shoppers with product price and merchant rating comparisons,
conversion of U.S. clothing sizes, and it provides shoppers with a total landed
cost calculation of their purchase that includes shipping costs and duties and
taxes. PuntoMio provides an online tracking system on shipping and
delivery services through its SkyPostal, Inc. subsidiary. It provides shoppers
with a low cost and reliable alternative to the express couriers and the postal
service.
The
Company’s SkyPostal, Inc. subsidiary provides international, bar-coded, low cost
distribution of catalogs, books and publications below USPS costs with track and
trace visibility. The Company relies on its own proprietary
integrated delivery network consisting of commercial and cargo airlines, customs
brokers, local private postal services and delivery companies linked by its
PosTrac mail and parcel tracking system. Its customers consist of U.S. mail
order merchants, book sellers, publishers, mail consolidators in the U.S.,
Europe and European public postal administrations. It offers a unique service to
mailers that have large mailings to Latin American consumers and require
assistance in database clean up. Its proprietary mail bar-coding technology
indicates when the mailing piece was delivered and provides an electronic list
of undeliverable items so that the mailer can enhance their mailing
list.
The
Company operates facilities in Miami, Florida and Bogota, Colombia for the
sorting and consolidating of mail and parcels for shipment to specific countries
in Latin America. The facilities in Bogota, in particular, provide the Company
with certain competitive advantages with respect to faster delivery times to
Latin America and also lower sorting and handling costs than in the U.S.
Management believes that faster delivery times provide a meaningful differential
advantage with respect to the decision making of customers. The Company
outsources its mail sorting facility in London, which processes mail and parcels
originating in Europe and bound for Latin America.
LEL was
acquired effective March 1, 2009. The results of operations for the
six months ended June 30, 2010 include the results of LEL for six months,
whereas the results of operations for the period ended June 30, 2009 include
only four months of operations in these consolidated financial
statements.
Results
of Operations for the Three Months Ended June 30, 2010 as Compared to the
Three Months Ended June 30, 2009.
The
following table sets forth, for the periods indicated, statements of operations
information from our unaudited condensed consolidated statements of operations
with changes from the same three month period in 2009.
|
|
Three
Months Ended June 30,
|
|
|
Change
|
|
|
|
2010
|
|
|
2009
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
REVENUES
|
|
$
|
2,316,410
|
|
|
$
|
2,170,082
|
|
|
$
|
146,328
|
|
|
|
6.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of delivery
|
|
|
1,859,215
|
|
|
|
1,901,218
|
|
|
|
(42,003
|
)
|
|
|
(2.2
|
%)
|
General
and administrative
|
|
|
917,212
|
|
|
|
1,158,670
|
|
|
|
(241,458
|
)
|
|
|
(20.8
|
%)
|
Stock
based compensation
|
|
|
50,749
|
|
|
|
149,731
|
|
|
|
(98,982
|
)
|
|
|
(66.1
|
%)
|
TOTAL
OPERATING EXPENSES
|
|
|
2,827,176
|
|
|
|
3,209,619
|
|
|
|
(382,443
|
)
|
|
|
(11.9
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
LOSS
|
|
|
(510,766
|
)
|
|
|
(1,039,537
|
)
|
|
|
528,771
|
|
|
|
(50.9
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
EXPENSES/(INCOME)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
13,969
|
|
|
|
-
|
|
|
|
13,969
|
|
|
|
|
|
Amortization
of discounts
|
|
|
377,486
|
|
|
|
-
|
|
|
|
377,486
|
|
|
|
|
|
Changes
in excess value of put option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
over
the estimated fair value of shares
|
|
|
(44,800
|
)
|
|
|
691,200
|
|
|
|
(736,000
|
)
|
|
|
(106.5
|
%)
|
Other
|
|
|
22,352
|
|
|
|
210,991
|
|
|
|
(188,639
|
)
|
|
|
(89.4
|
%)
|
TOTAL
OTHER EXPENSES/(INCOME)
|
|
|
369,007
|
|
|
|
902,191
|
|
|
|
(533,184
|
)
|
|
|
(59.1
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
|
(879,773
|
)
|
|
|
(1,941,728
|
)
|
|
|
1,061,955
|
|
|
|
(54.7
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income attributable to the non-controlling
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest
|
|
|
(22,626
|
)
|
|
|
8,143
|
|
|
|
(30,769
|
)
|
|
|
(377.9
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
attributable to the controlling interest
|
|
|
(857,147
|
)
|
|
|
(1,949,871
|
)
|
|
|
1,092,724
|
|
|
|
(56.0
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed
dividend on convertible preferred stock
|
|
|
(798,333
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to common shareholders
|
|
$
|
(1,655,480
|
)
|
|
$
|
(1,949,871
|
)
|
|
$
|
294,391
|
|
|
|
(15.1
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
77,073,559
|
|
|
|
62,264,511
|
|
|
|
14,809,048
|
|
|
|
23.8
|
%
|
Effect
of dilutive shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Diluted
|
|
|
77,073,559
|
|
|
|
62,264,511
|
|
|
|
14,809,048
|
|
|
|
23.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME/(LOSS) PER SHARE to common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
0.01
|
|
|
|
(63.9
|
%)
|
Diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
0.01
|
|
|
|
(63.9
|
%)
|
Revenue
The
Company generates revenue on the tonnage of mail and parcels delivered, measured
in kilograms plus service fees charged to non-U.S. based consumers for
processing customs and duties and sales commissions earned from
merchants. Revenue during the three months ended June 30, 2010
compared to the three months ended June 30, 2009 increased by 6.7% as a result
of a 1.1% increase of tonnage and an increase in rates charged to customers
implemented during 2
nd
quarter 2010. The tonnage increase is primarily attributable to the
increase of mail and parcels to Latin America.
Management
believes that overall industry mail tonnage will continue to decrease while
parcel volumes from the U.S. and Europe into Latin America will increase due to
an increase in general demand for U.S. products. Management believes this demand
will drive the growth of fees earned from customs and duties processing,
delivery and merchant fees. In addition, Management believes that
higher margin, e-commerce consumer business originating in Latin America, Europe
and Middle East, will continue to increase as the Company continues to grow its
consumer customer base through co-marketing agreements with banks and credit
card issuers in those regions where the growth in cross-border shopping is
greatest. Revenue growth will also be generated from U.S. merchant
agreements wherein the Company assumes the management of foreign shopper
transactions that the merchants prefer to outsource.
The
following schedule highlights the Company’s U.S. and foreign sourced revenue,
including the revenues of PuntoMio and LEL, for the three months ended June 30,
2010 and 2009:
|
|
Three
Months Ended June 30,
|
|
|
Change
|
|
Region
|
|
2010
|
|
|
Percent
of
Total
|
|
|
2009
|
|
|
Percent
of
Total
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
1,309,550
|
|
|
|
56.5
|
%
|
|
$
|
1,209,987
|
|
|
|
55.8
|
%
|
|
|
99,563
|
|
|
|
8.2
|
%
|
Foreign
|
|
|
1,006,860
|
|
|
|
43.5
|
%
|
|
|
960,095
|
|
|
|
44.2
|
%
|
|
|
46,765
|
|
|
|
4.9
|
%
|
Total
|
|
$
|
2,316,410
|
|
|
|
|
|
|
$
|
2,170,082
|
|
|
|
|
|
|
|
146,328
|
|
|
|
6.7
|
%
|
Operating Expenses
Cost of
Delivery. The total cost of delivery per kilo decreased by 2.2% compared to the
same period in the prior year primarily due to positive results of pricing
renegotiations with key vendors. In addition, the Company phased-out
low margin business at the end of 2009 therefore 2010 sales are comprised of
better margin sales resulting in an increase of gross margin of
7.4%. The Company expects gross margin to continue to improve in the
next twelve months as the PuntoMio volume grows and better margins are realized
on mail business into Latin America, Europe, and the Middle East. The
cost per kilogram will vary with the price of oil and the margin between revenue
and delivery costs would be adversely affected by any significant increases in
oil prices.
General
and Administrative. This expense decreased by $241,000 during the three months
ended June 30, 2010 primarily due to reductions in salaries and benefits of
$100,000, reduction in rent, telephone and utilities of $38,000, reductions in
public company costs such as audit, reporting, investor relations and Board of
Director meeting costs of $74,000, as well as reduction of consultant, IT
expenses and travel costs of $31,000 compared to the same period in
2009.
Stock
Based Compensation. This expense decreased by $99,000 during the three months
ended June 30, 2010 compared to the same period in 2009. The decrease
in stock compensation expense is primarily due to stock granted in 2008 of which
the majority has vested. The 2010 amount includes $24,600 of stock
compensation expense due to 345,000 shares granted to former members of the
Board of Directors for prior work performed without vesting restrictions that
was not granted during the same period in 2009. During the three
months ended June 30, 2010, 1,200,000 shares were granted to four new members of
the Board of Directors with a three year vesting schedule, thus stock
compensation is expected to increase in future periods.
Other Expenses
Interest.
The Company incurred and paid $3,592 of interest expense from the 18%, 100,000
note payable entered into in March 2010. In addition, the Company
accrued $10,377 of interest expense related to the various convertible debt
agreements entered into during 1
st
and
2
nd
quarters of 2010 that did not exist in 2009. See financial statement
Note 8 – Convertible Debt for full discussion on all convertible
debt.
Amortization
of Debt Issuance Discount. The Company incurred $377,486 of non-cash, debt
issuance discount from the various convertible debt agreements entered into
during the 1
st
and
2
nd
quarters of 2010 that did not exist in 2009. See financial statement
Note 8 – Convertible Debt for full discussion on all convertible
debt.
Revaluation
of Put Option Liability. The Company records a mark to market adjustment every
reporting period to adjust the fair value of the put option liability (see Put
Option and Non-Compete Agreements below). During the three months
ended June 30, 2010, the stock price of the Company increased from $0.07 at
March 31, 2010 to $0.13 at June 30, 2010, resulting in an increase to earnings
of $44,800. During the three months ended June 30, 2009, the stock price
decreased by $0.24 resulting in a charge to earnings of $691,200.
Other. These
are other income and expenses, which consist of non-operating items such as
depreciation, amortization and financing fees. Other expenses decreased by
$189,000 during the three months ended June 30, 2010 primarily due to a
charge of $149,000 to income related to loss on deposit that occurred during the
three months ended June 30, 2009 but did not occur during the same period of
2010. In addition, during the three months ended June 30, 2009, the
Company incurred $22,000 of acquisition expenses related to the LEL acquisition
that did not exist in the same period in 2010. Finally, amortization
expense decreased in 2010 as a result of certain intangible assets fully written
off in previous periods that do not exist in 2010.
Results
of Operations for the Six Months Ended June 30, 2010 as Compared to the Six
Months Ended June 30, 2009.
The
following table sets forth, for the periods indicated, statements of operations
information from our unaudited condensed consolidated statements of operations
with changes from the same six month period in 2009.
|
|
Six
Months Ended June 30,
|
|
|
Change
|
|
|
|
2010
|
|
|
2009
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
REVENUES
|
|
$
|
3,819,403
|
|
|
$
|
4,745,431
|
|
|
$
|
(926,028
|
)
|
|
|
(19.5
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of delivery
|
|
|
3,206,411
|
|
|
|
4,022,216
|
|
|
|
(815,805
|
)
|
|
|
(20.3
|
%)
|
General
and administrative
|
|
|
1,769,691
|
|
|
|
2,260,053
|
|
|
|
(490,362
|
)
|
|
|
(21.7
|
%)
|
Stock
based compensation
|
|
|
90,197
|
|
|
|
255,857
|
|
|
|
(165,660
|
)
|
|
|
(64.7
|
%)
|
TOTAL
OPERATING EXPENSES
|
|
|
5,066,299
|
|
|
|
6,538,126
|
|
|
|
(1,471,827
|
)
|
|
|
(22.5
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
LOSS
|
|
|
(1,246,896
|
)
|
|
|
(1,792,695
|
)
|
|
|
545,799
|
|
|
|
(30.4
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
EXPENSES/(INCOME)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
16,969
|
|
|
|
-
|
|
|
|
16,969
|
|
|
|
|
|
Amortization
of discounts
|
|
|
377,486
|
|
|
|
-
|
|
|
|
377,486
|
|
|
|
|
|
Changes
in excess value of put option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
over the estimated fair value of shares
|
|
|
41,600
|
|
|
|
374,400
|
|
|
|
(332,800
|
)
|
|
|
(88.9
|
%)
|
Other
|
|
|
(2,656
|
)
|
|
|
254,022
|
|
|
|
(256,678
|
)
|
|
|
(101.0
|
%)
|
TOTAL
OTHER EXPENSES/(INCOME)
|
|
|
433,399
|
|
|
|
628,422
|
|
|
|
(195,023
|
)
|
|
|
(31.0
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
|
(1,680,295
|
)
|
|
|
(2,421,117
|
)
|
|
|
740,822
|
|
|
|
(30.6
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income attributable to the non-controlling
|
|
|
|
|
|
|
|
|
|
|
|
|
|
interest
|
|
|
(101,690
|
)
|
|
|
20,009
|
|
|
|
(121,699
|
)
|
|
|
(608.2
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
attributable to the controlling interest
|
|
|
(1,578,605
|
)
|
|
|
(2,441,126
|
)
|
|
|
862,521
|
|
|
|
(35.3
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed
dividend on convertible preferred stock
|
|
|
(798,333
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to common shareholders
|
|
$
|
(2,376,938
|
)
|
|
$
|
(2,441,126
|
)
|
|
|
64,188
|
|
|
|
(2.6
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
73,624,692
|
|
|
|
62,157,926
|
|
|
|
11,466,766
|
|
|
|
18.4
|
%
|
Effect
of dilutive shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Diluted
|
|
|
73,624,692
|
|
|
|
62,157,926
|
|
|
|
11,466,766
|
|
|
|
18.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCOME/(LOSS) PER SHARE to common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.03
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.01
|
)
|
|
|
17.8
|
%
|
Diluted
|
|
$
|
(0.03
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.01
|
)
|
|
|
17.8
|
%
|
Revenue
The
Company generates revenue on the tonnage of mail and parcels delivered, measured
in kilograms plus service fees charged to non-U.S. based consumers for
processing customs and duties and sales commissions earned from
merchants. Revenue during the six months ended June 30,
2010 compared to the six months ended June 30, 2009 decreased by 19.5% as a
result of a 21.8% decrease in tonnage primarily during the first quarter of
2010, and a 2.9% increase in rates charged to customers implemented during
2
nd
quarter 2010. The tonnage decrease and reduction in U.S. sourced
revenue is primarily attributable to low margin, high volume business that was
phased out at the end of 2009 and does not exist in 2010. Going
forward, the Company is focused on maintaining and growing higher margin
business specifically, mail and parcels origination and into Latin America.
Management believes that overall industry mail tonnage will continue to decrease
while parcel volumes from the U.S. and Europe into Latin America will increase
due to general demand increase for U.S. products. Management believes this
demand will drive the growth of fees earned from customs and duties processing,
delivery and merchant fees. In addition, Management believes that
higher margin, e-commerce consumer business originating in Latin America, Europe
and Middle East, will continue to increase as the Company continues to grow its
consumer customer base through co-marketing agreements with banks and credit
card issuers in those regions where the growth in cross-border shopping is
greatest. Revenue growth will also be generated from U.S. merchant
agreements wherein the Company assumes the management of foreign shopper
transactions that the merchants prefer to outsource.
The
following schedule highlights the Company’s U.S. and foreign sourced revenue
including the revenues of PuntoMio and LEL, for the six months ended June 30,
2010 and 2009:
|
|
Six
Months Ended June 30,
|
|
|
Change
|
|
Region
|
|
2010
|
|
|
Percent
of Total
|
|
|
2009
|
|
|
Percent
of Total
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
1,848,781
|
|
|
|
48.4
|
%
|
|
$
|
2,848,773
|
|
|
|
60.0
|
%
|
|
|
(999,992
|
)
|
|
|
(35.1
|
)%
|
Foreign
|
|
|
1,970,622
|
|
|
|
51.6
|
%
|
|
|
1,896,658
|
|
|
|
40.0
|
%
|
|
|
73,964
|
|
|
|
3.9
|
%
|
Total
|
|
$
|
3,819,403
|
|
|
|
|
|
|
$
|
4,745,431
|
|
|
|
|
|
|
|
(926,028
|
)
|
|
|
(19.5
|
)%
|
Operating Expenses
Cost of
Delivery. Total cost of delivery in dollar terms decreased by 20.3% and as a
result of better renegotiated rates with key vendors the gross margin increased
by .8% compared to the same period in the prior year. The Company
expects gross margin to improve in the next twelve months as the parcel and mail
business into Latin America, Europe, and Middle East continues to
grow. The cost per kilogram will vary with the price of oil and the
margin between revenue and delivery costs would be adversely affected by any
significant increases in oil prices.
General
and Administrative. This expense decreased by $490,000 during the six months
ended June 30, 2010 primarily due to reductions in salaries and benefits of
$246,000, rent, telephone and utilities of $84,000, reductions in public company
costs such as audit, reporting, and investor relations costs of $85,000, as well
as reduction of IT expenses and travel costs of $77,000 compared to the same
period in 2009.
Stock
Based Compensation. This expense decreased by $166,000 during the six months
ended June 30, 2010 compared to the same period is 2009. The decrease
in stock compensation expense is primarily due to stock granted in 2008 of which
the majority has vested. The 2010 amount includes $24,600 of stock
compensation expense due to 345,000 shares granted to former members of the
Board of Directors for prior work performed without vesting restrictions that
was not granted during the same period in 2009. During the six months ended June
30, 2010, 1,200,000 shares were granted to four new members of the Board of
Directors with a three year vesting schedule, accordingly, stock compensation is
expected to increase in future periods.
Other Expenses
Interest.
The Company incurred and paid $6,592 of interest expense from the 18%, 100,000
Note entered into in March 2010. In addition, the Company accrued
$10,377 of interest expense related to the various convertible debt agreements
entered into during 1
st
and
2
nd
quarters of 2010 that did not exist in 2009. See financial statement
Note 8 – Convertible Debt for full discussion on all convertible
debt.
Amortization
of Debt Issuance Discount. The Company incurred $377,486 of debt issuance
discount from the various convertible debt agreements entered into during the
1
st
and
2
nd
quarters of 2010 that did not exist in 2009. See financial statement
Note 8 – Convertible Debt for full discussion on all convertible
debt.
Revaluation
of Put Option Liability. The Company records a mark to market adjustment every
reporting period to adjust the fair value of the put option liability (see Put
Option and Non-compete Agreements below). During the six months ended June 30,
2010, the stock price of the Company increased from $0.10 at December 31, 2009
to $0.13 at June 30, 2010 resulting in a decrease to earnings of approximately
$42,000. During the six months ended June 30, 2009, the stock price
decreased by $0.13 resulting in a charge to earnings of $374,400.
Other. These
are other income and expenses, which consist of non-operating items such as
depreciation, amortization and financing fees. Other expenses
decreased by $257,000 during the six months ended June 30, 2010 compared to
the same period in 2009 primarily due to a charge of $149,000 to income in 2009
for a loss on a deposit. In addition, during the six months ended
June 30, 2009, the Company incurred $43,000 of acquisition related expense
related to the acquisition of LEL that did not occur in 2010. In
2010, the Company was able to negotiate reduced payments to satisfy past due
amounts and therefore recognized $35,000 of gain from the write-off of trade
payables. The balance of the reduction in other expenses is due to
currency gains during the six months ended June 30, 2010 compared to the same
period in 2009.
Net
Income (Loss) Attributable to the Non-Controlling Interest
The loss
amounts of $22,626 and $101,690 for the three and six months ended June 30,
2010, are the portion of earnings (loss) attributable to the non-controlling
shareholder in LEL, who holds a 30% common equity interest, and shareholders
whom held a 24.1% preferred equity interest in PuntoMio for the period through
April 30, 2010. The Company acquired a 70% interest in LEL
effective March 1, 2009. The change of the Company’s equity interest
in PuntoMio from 100% to 75.9% occurred effective September 30, 2009 as a result
of the third quarter capital raise for PuntoMio. During the three
months ended June 30, 2009, earnings attributable to the non-controlling
interest of $8,143 was only related to the results of LEL since the sale of
preferred equity interest did not occur until September 30,
2009. Effective April 30, 2010, the Company entered into an exchange
agreement with the holders of the preferred equity interest in PuntoMio and at
June 30, 2010, the Company possesses 100% equity interest in
PuntoMio. The earnings (loss) attributable to the non-controlling
interest of $22,626 and $101,690 for the three and six months ended June 30,
2010 contain one month and four months of loss attributable to the PuntoMio
non-controlling interest, respectively.
Put
Option and Non-Compete Agreements
The
Company entered into a put option agreement and a non-compete agreement with a
shareholder on April 1, 2007, referred to herein as the “Shareholder Put Option
Agreement” and “Shareholder Non-Compete Agreement.” The Company’s Put Option
payable has been adjusted on each reporting date determined by the share price
of the Company’s common stock on the reporting date. Due to
fluctuation in the trading price of the Company’s common shares, and adjustment
to the Put Option liability outstanding, during the three months ended June 30,
2010 and 2009, the Company recognized a fair value adjustment representing the
change in the excess value of the Put Option over the estimated fair value of
the common shares to be redeemed resulting in a gain of $44,800 and loss of
$691,200, respectively, related to the Shareholder Put Option
Agreement. Similarly, the Company recognized losses of $41,600 and
$374,400 for the six months ended June 30, 2010 and 2009, respectively, due to
decreases in the trading price of the Company’s common stock and the adjustment
to the Put Option liability over the respective six month period.
On April
21, 2010, the shareholder agreed to modify the terms of the Shareholder Put
Option and Non-Compete Agreements. As a result of the change in terms
of the Put Option, which restrict the shareholders
’
s right to
exercise the Put Option, the Company determined that the put rights requiring
the Company
’s
purchase and redemption of 2,560,000 shares had no value.
Since
inception, the Company has periodically paid down amounts due on the Shareholder
Non-Compete and at June 30, 2010 and December 31, 2009 is $429,665 and $434,633,
respectively.
In
addition, the Company has a non-compete with LEL’s shareholder referred to as
the LEL’s minority shareholder, referred to as the “LEL
Non-Compete”. As compensation for the minority shareholder agreeing
not to compete with the Company for one year after any separation, the Company
agreed to make 25 monthly payments of $4,000 commencing April 2009, one month
after closing of the LEL acquisition. At June 30, 2010, the liability
related to the LEL Non-Compete agreement was $54,506, of which all is classified
as current.
Please
refer to Note 7 - Commitments and Contingencies of the Consolidated Financial
Statements for a full discussion of information regarding the Put Option and
Non-Compete Agreements.
Deemed Dividend
As further discussed in Note 11,
the Company recorded a deemed dividend in connection with the issuance of its
convertible preferred stock in the exchange for preferred shares of its
subsidiary, PuntoMio.
Liquidity
The
Company’s primary recurring sources of liquidity is the cash provided through
its on-going operations and issuance of debt and equity securities. Proceeds
from issuances of debt and equity securities over the last two years have been
used for the development of new products and services, fund operations and other
corporate needs. For the six month period ended June 30, 2010, cash increased by
$1,450,673 compared to a decrease of $165,360 during the same period in
2009. The primary sources of cash during the six months ended June
30, 2010 were the issuances of convertible debt.
The
following table summarizes the Company’s Consolidated Statement of Cash
Flows:
|
|
Six
Months Ended June 30,
|
|
Net
cashed provided by (used) in:
|
|
2010
|
|
|
2009
|
|
Operating
activities
|
|
$
|
(1,217,197
|
)
|
|
$
|
(1,031,518
|
)
|
Investing
activities
|
|
|
(6,212
|
)
|
|
|
4,416
|
|
Financing
activities
|
|
|
2,648,000
|
|
|
|
851,443
|
|
The cash
used by operating activities during the six months ended June 30, 2010 of
$1,217,197 was primarily due to the net loss incurred of $1,552,295, adjusted
for amortization of convertible debt discount of $374,486 and depreciation and
amortization of $95,632 offset with decrease in accounts receivable of $489,862,
decrease in accounts payable of $417,446, increase in prepaids and other assets
of $180,160, and decrease in non compete of $19,707. The decrease in
accounts payable includes 1,000,000 shares of the Company’s common stock valued
at $100,000 issued to reduce amounts due to one of the Company’s key
vendors. As of June 30, 2010, $52,963 remain payable to the key
vendor. In addition, cash from issuance of convertible debt was used
to pay trade payables. The increase in prepaids and other assets is
primarily related to the recognition of $263,878 discount related to the 3%
$316,400 convertible debt that will be amortized to interest expense over three
years.
The cash
used by investing activities of $6,212 during the six months ended June 31, 2010
was primarily due to the purchase of computers and other fixed
assets.
The cash
provided by financing activities during the six months ended June 30, 2010 is
from convertible debt proceeds. See financial statements Note 8 – Convertible
Debt for full discussion. The proceeds from issuance of convertible
debt were used to pay trade payables, settle $250,000 of other convertible debt,
redeem warrants in the amount of $109,000, and fund the day-to-day operations of
the business and development of new services including the PuntoMio
technology.
Given the
conditions in international financial markets, which affect many companies,
there can be no assurances of the Company’s continuing ability to raise
additional capital through the issuance of debt or equity securities in order to
reduce or eliminate the continuing negative cash flow.
Financial
Condition
As
discussed in Note 7 – Commitment and Contingencies, in April 2010, a shareholder
agreed to modify the terms of the Shareholder Put Option and Non-Compete
Agreements. The shareholder agreed not exercise the Put Option until
the closing price for the Company’s common stock on the principal market on
which such common stock trades is greater than $1.00, (subject to adjustment for
stock splits, stock dividends and similar events) for 60 consecutive
days. As a result of the change in terms of the Put Option, which
restricts the stockholder
’
s right to
exercise the Put Option, the Company determined that the put rights requiring
the Company’s purchase and redemption of 2,560,000 shares had no
value. On April 21, 2010, the Company adjusted the liability related
to the 2,560,000 shares effectively eliminating for the remaining Put Option
liability, valued at $2,355,200 based on the closing trading price of the
Company’s common shares, with offset to additional paid in
capital. The Company continues to be contingently liable for the
remaining 2,560,000 shares under the Put Option. Should the Company’s
trading price remain above $1.00 per common share for 60 consecutive days
re-instituting the Put Option rights, then fall below $1.00 per share, a
liability would be recognized and charged to earnings in the
period. This adjustment resulted in a significant change to the
financial position of the Company. The adjustment reduced the
Company’s total current liabilities and working capital deficit, and increased
the Company’s equity capital by $2,355,200.
As of
June 30, 2010, the Company had cash on hand of $1,487,186 and current assets of
$2,370,879, compared to $36,513 of cash on hand and current assets of $1,237,669
at December 31, 2009. At June 30, 2010, the Company’s current
liabilities exceeded current assets by $204,370 compared to a deficit of
$2,813,593 at December 31, 2009. The improvement is primarily
attributable to the Put Option adjustment and proceeds from convertible
debt. As listed on the Consolidated Statement of Changes in
Stockholders Equity, the Company’s capital structure benefited from the
adjustment to the Put Option liability, the valuation of the preferred shares
included PuntoMio Exchange and various discounts associated with beneficial
conversion features within preferred debt. The discounts associated
with beneficial conversion features will be amortized to interest expense over
the life of the debt. Through June 30, 2010, the Company has an accumulated
deficit of $25,923,754.
As of
June 30, 2010, the Company owes $2,576,400 on two convertible notes shown on the
Balance Sheet at $98,821 net of discounts. The convertible debt is
fully described in financial statement Note 8 – Convertible Debt.
I
TEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This Item
3 is not applicable to us as, pursuant to Item 305(e) of Regulation S-K, a
smaller reporting company is not required to provide the information required by
Item 305 of Regulation S-K.
I
TEM 4. CONTROLS AND
PROCEDURES
(a)
Evaluation of Disclosure
Control and Procedures
We
carried out an evaluation required by Exchange Act Rule 13a-15(b) and Rule
15d-15(b) under the supervision and with the participation of our management,
including our Principal Executive Officer and Principal Financial Officer, of
the effectiveness of our disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30,
2010.
Disclosure
controls and procedures are designed with the objective of ensuring that (i)
information required to be disclosed in an issuer’s reports filed under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC rules and forms and (ii) information is accumulated
and communicated to management, including our Principal Executive Officer and
Principal Financial Officer, as appropriate to allow timely decisions regarding
required disclosures.
The
evaluation of our disclosure controls and procedures included a review of our
objectives and processes and effect on the information generated for use in this
quarterly report on Form 10-Q. This type of evaluation is done quarterly so that
the conclusions concerning the effectiveness of these disclosure controls and
procedures can be reported in our periodic reports filed with the
SEC.
Based on
their evaluation, our Principal Executive Officer and Principal Financial
Officer have concluded that our disclosure controls and procedures are
effective.
A new
audit chairman was appointed effective July 16, 2010 and the new chairman has
initiated a review of the Company internal controls, business policies, and
operating procedures.
(b)
Internal Control Over
Financial Reporting
There
have been no changes in the Company’s internal controls over financial reporting
that occurred during the Company’s second quarter of the fiscal year 2010 that
materially affected, or are reasonably likely to materially affect, the
Company’s internal controls over financial reporting.
PART
II - OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
None.
ITEM
1A. RISK FACTORS
An
investment in the Company’s common stock is speculative and involves a high
degree of risk. You should carefully consider the risk factors described in the
Company’s Annual Report on Form 10-K filed on March 31, 2010 and other
information in this report before purchasing any shares of the Company’s common
stock. Such factors may have a significant impact the Company’s business,
operating results, liquidity and financial condition. As a result of the
identified risk factors, actual results could differ materially from those
projected in any forward-looking statements. Additional risks and
uncertainties not presently known to the Company, or that are currently
considered to be immaterial, may also impact the Company’s business, operating
results, liquidity and financial condition. If any such risks occur, the
Company’s business, operating results, liquidity and financial condition could
be materially affected in an adverse manner. In addition, the trading price of
the Company’s stock, when and if a market develops for the Company’s stock,
could decline.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
During
the three months ended June 30, 2010, the Company entered into several
convertible debt agreements that mature more than one year from the date of
issuance, which were exempt from registration pursuant to Rule 506 of Regulation
D of the Securities Act. The exemption is based on the fact that
there were less than 35 purchasers of convertible notes and all purchasers were
either, or reasonably believed to be, accredited investors or purchasers with
such knowledge and experience in financial and business matters to be capable of
evaluating the merits and risks of the convertible debt
agreements. These convertible debt agreements are more fully
described in Part I, Note 8 of the Company’s consolidated financial statements
and are specifically incorporated herein by reference. On April 30, 2010, the
Company exchanged 1,428,145 preferred shares of a Company’s subsidiary for
11,425,160 shares of the Company’s preferred stock and fully eliminated the
non-controlling interest in the subsidiary. In conjunction with this exchange,
the Company redeemed 1,090,000 warrants outstanding for $109,000.
Securities
Authorized For Issuance Under Equity Compensation Plan
At
June 30, 2010, under plans approved by the Board of Directors, the Company
had outstanding to management, employees and directors stock grants of common
stock, as shown below.
|
|
|
|
|
|
|
|
|
|
Plan
Category
|
|
Number
of
securities
to
be issued
upon
vesting
|
|
|
Weighted-
average
price
of
outstanding
unvested
securities
granted
|
|
|
Number
of securities
remaining
available
for future
issuance
under
equity
compensation
plans
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans approved by security holders
|
|
|
1,400,000
|
|
|
$
|
0.20
|
|
|
|
3,155,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
The
688,046 shares to vest in 2010 and 2011 were granted under the August 1, 2006
stock compensation plan. None of these are attributable to executive officers.
The 2006 plan was replaced by the plan in effect as of July 1,
2008. Effective July 1, 2008 as voted on in the 2008 proxy,
shareholders authorized an equity compensation plan comprised of 5,000,000
shares. Since inception of the 2008 plan, 1,845,000 shares have been granted and
therefore 3,155,000 shares are available for issuance at June 30,
2010.
ITEM
3. DEFAULTS IN SENIOR SECURITIES
None.
ITEM
4. REMOVED AND RESERVED
ITEM
5. OTHER INFORMATION
On June
28, 2010, the Company filed a Schedule 14A Proxy Statement describing various
matters for vote by securities holders. Information in that Proxy
Statement is hereby incorporated by reference.
On July
30, 2010, the Company filed a Current Report on Form 8-K with regard to the
submission of matters to a vote of securities holders. Information in
that Current Report is hereby incorporated by reference.
I
TEM 6.
EXHIBITS