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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO
_________________
Commission file number 0-27368
PREDICT IT, INC.
(Exact name of issuer as specified in its charter)
Delaware 84-1433978
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
268, West 44th Street,
New York, New York 10036
(Address of principal executive offices) (Zip Code)
(212) 217-1200
Issuer's telephone number, including area code
---------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes ___
No X
---------------------------------
The number of shares outstanding of the issuer's common stock is 11,982,402 (as
of July 31, 2000).
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PREDICT IT, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
QUARTER ENDED JUNE 30, 2000
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ITEMS IN FORM 10-Q
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Part I Page
Item 1. Financial Statements...............................................3
Item 2. Management's Discussion and Analysis of............................7
Financial Condition and Results of Operation
Part II
Item 6. Exhibits and Reports on Form 8-K..................................10
Signatures........................................................12
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PART I
Item 1. FINANCIAL STATEMENTS
PREDICT IT INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
------------------------------------------------
2000 1999
------------------------- --------------------
<S> <C> <C>
Revenues:
User fees & other revenue $ 13,027 $ -
Advertising & sponsorship revenue 94,939 6,190
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107,966 6,190
Costs and expenses:
Site development/maintenance 169,225 46,353
Selling, general, and administrative 1,900,664 437,021
Amortization of acquired intangible 122,338 -
Interest expense, net 35,627 (15,783)
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2,227,854 467,591
------------------------- --------------------
Net loss $ (2,119,888) $(461,401)
========================= ====================
Net loss per share - basic and diluted $(0.18) $(0.06)
========================= ====================
Weighted average number of shares outstanding 11,482,402 7,780,000
========================= ====================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
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2000 1999
------------------------- --------------------
<S> <C> <C>
Revenues:
User fees and other revenue $ 14,281 $ 2,800
Advertising & sponsorship revenue $ 295,539 6,987
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309,820 9,787
Costs and expenses:
Site development/maintenance 551,708 85,061
Selling, general, and administrative 3,684,977 551,560
Amortization of acquired intangible 244,676 -
Interest expense, net 220,793 (15,783)
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4,702,154 620,838
------------------------- --------------------
Net loss $ (4,392,334) $ (611,051)
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Net loss per share - basic and diluted $ (0.38) $ (0.09)
========================= ====================
Weighted average number of shares outstanding 11,446,239 6,455,125
========================= ====================
</TABLE>
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PREDICT IT INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
June 30, 2000
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Current assets:
Cash $885,204
Accounts receivable, net of allowance of $5,200 59,447
Prepaid expenses and other current assets 136,469
Deferred promotional expense 125,001
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Total current assets 1,206,121
Capitalized software costs, net of accumulated amortization of $363,970 741,587
Computer equipment, net of accumulated depreciation of $215,844 648,954
Registered user base, net of accumulated amortization of $489,322 978,702
Other assets 104,975
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TOTAL ASSETS $3,680,339
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 288,349
Accrued expenses 190,044
Capital lease obligations-- current portion 39,289
Deferred Revenue 134,301
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Total current liabilities 651,983
Long-term liabilities:
Capital lease obligations-- non-current portion 48,142
Other Long term liabilities 7,938
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TOTAL LIABILITIES 708,063
Stockholders' equity:
Preferred stock, 10,000,000 shares authorized, 1,000,000 shares Series A, $0.01 par value, issued and 3,000,000
outstanding (stated at liquidation preference)
Preferred Stock, 10,000,000 shares authorized, 546,750 shares Series B, $10 par value, issued and outstanding 5,467,500
(stated at a par value, liquidation preference $30 per share)
Common stock, $.01 par value, 75,000,000 shares authorized, 11,482,402 shares issued and outstanding (exclusive 114,825
of 500,000 shares held in escrow)
Additional paid-in capital 3,171,432
Deficit (8,180,943)
Unearned compensation (600,538)
Total stockholders' equity 2,972,276
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,680,339
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</TABLE>
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PREDICT IT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months Ended June 30,
-------------------------------------------
2000 1999
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Cash flows from operating activities:
<S> <C> <C>
Net loss $ (4,392,334) $ (611,051)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization expense 641,417 18,698
Compensation expense related to option grant - 5,729
Amortization of unearned compensation 156,684 -
Amortization of debt discount 193,248 -
Changes in:
Accounts receivable 10,172 (8,134)
Deferred promotional expense 124,998 -
Prepaid expenses and other assets (59,911) (46,887)
Accounts payable and accrued expenses (315,472) 171,166
Deferred Revenue 134,301 -
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Net cash used in operating activities (3,506,897) (470,479)
Cash flows from investing activities:
Purchase of computer equipment
(219,136) (54,056)
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Net cash used in investing activities (219,136) (54,056)
Cash flows from financing activities:
Assumption of capital lease - 17,713
Issuance of common and preferred stock 2,701,689 3,261,977
Loans from stockholders 1,300,000 -
Loan repayments to stockholders (100,000) -
Payments on capital lease obligations (28,484) -
Proceeds from sale of warrants 3,458 -
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Net cash used by financing activities 3,876,663 3,279,690
Net (decrease)/increase in cash 150,630 2,755,155
Cash -- beginning of period 734,574 113,772
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Cash -- end of period $ 885,204 $ 2,868,927
=====================================
Supplemental disclosure of cash flow information:
Interest paid during the period
$ 11,444
Supplemental disclosure of noncash investing and financing activities:
Issuance of common stock as settlement for accounts payable $ 246,062
Acquisition of Virtual Stock Exchange $ 1,416,054
Assumption of capital leases in relation to Virtual Stock Exchange $ 17,713
Conversion of loans payable, net of debt discount, to preferred stock $ 1,451,826
Conversion of accrued interest on convertible debt to equity $ 38,958
</TABLE>
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PREDICT IT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of reporting
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, such statements include all adjustments (consisting only of normal
recurring items), which are considered necessary for a fair presentation of the
Company's financial position at June 30, 2000, the results of its operations,
and cash flows for the six months then ended. The results of operations for the
six months ended June 30, 2000 are not necessarily indicative of the operating
results for the full year. It is suggested that these financial statements be
read in conjunction with the financial statements and related disclosures for
the year ended December 31, 1999 included in the Company's Form SB-2 which was
declared effective May 16, 2000.
2. Revenue Recognition
Advertising revenue has been earned from arrangements under which fees
are based on the number of occasions a user views an advertisement
("impression"). Revenue based on number of impressions is recognized (i) at the
time the guaranteed number of impressions occur or (ii) as impressions occur
over the term of the contract, where the contract provides for the Company to
earn a portion of the contract revenues based on the number of impressions which
occur as a percentage of the guaranteed number of impressions. Revenue
applicable to the portion of guaranteed impressions which have not occurred at
the balance sheet date is not recognized. Any revenues which may be earned under
fixed fee arrangements will be recognized in the month that the advertisements
are exhibited.
3. Barter Transactions
During the six month period ended June 30, 2000, the Company recorded
advertising barter transactions valued at $82,930. As the Company has
historically received or paid cash for similar advertising transactions, it has
recorded revenues at the lower of the estimated fair value of the advertising
surrendered or the estimated fair value of the advertising received based on
historical experience for similar cash transactions. Barter expenses are equal
to the revenue recorded ($82,930) and are included in selling, general and
administrative expenses in the accompanying statements of operations.
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4. Earnings per share
Basic and Diluted Net Loss per share are based upon the weighted
average number of common shares outstanding during the period. Common Stock
equivalents have not been included as they are not dilutive.
5. Capital Transactions
In March 2000, the Company commenced an offering of up to 80 Units (a
minimum of 40 Units), each Unit consisting of 10,000 shares of Series B
convertible preferred stock ("Series B Stock"), having a stated value of $10.00
per share and seven-year warrants to purchase 200,000 shares of the Company's
common stock at an exercise price of $1.00 per share, subject to certain
adjustments. The purchase price per Unit is $100,000. The Series B Stock will
automatically convert into common stock upon the occurrence of certain events,
including a public offering of the Company's securities. On April 14, 2000, the
Company completed the offering of 43 units of which, 23 units were issued upon
conversion of $2,300,000 in loans and 20 units were sold for net proceeds of
approximately $1,684,000. On June 1, 2000 the Company raised an additional
$1,160,750 and issued to shareholders 11.6 units consisting of an aggregate of
116,075 shares of Series B Preferred Stock and warrants to purchase an aggregate
of 2,320,000 shares of common stock at an exercise price of $1.00 per share. In
addition, on July 18, 2000 the Company raised an additional $825,000 and issued
to shareholders 8.25 units consisting of an aggregate of 82,500 shares of Series
B Preferred Stock and warrants to purchase an aggregate of 1,650,000 shares of
common stock at an exercise price of $1.00 per share.
6. Other Items
Effective as of June 22, 2000, the Board of Directors of the Company
approved the repricing of outstanding stock options previously granted to Mr.
Andrew Merkatz, the President of the Company. The repricing provided for the
exercise price of 1,583,442 options to be reduced from a range of $1.02 to $3.75
per share to $.5312 per share, to reflect the closing price of the Company's
common stock as of the close of business on such date. The repricing did not
affect the term or vesting period of the options.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company is a leading provider of consumer to consumer prediction
applications targeting the online sports and financial markets. The Company's
flagship product, Predict It, is based on an innovative, patent-pending
prediction exchange system which objectively documents and rewards users based
on their ability to predict future events. The Predict It application is
currently focused primarily on the sports information marketplace but the
underlying technologies are easily applied to other categories including
Finance, Politics, and Entertainment. The Company's second product is the
VirtualStockExchange, a rewards based stock market simulation where players
compete against one another in customizable private and
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public competitions for cash and other valuable prizes. Consumers may access
Predict It directly via its web sites at www.predictit.com and
www.virtualstockexchange.com or through its network of over 60 sports, finance,
news, portal, and community affiliate sites. Predict It is based in New York's
Silicon Alley. The Company is publicly traded on the OTC Electronic Bulletin
Board under the symbol "PRIT".
On June 16, 2000, the Company signed a two-year sponsorship and
licensing agreement with Sportsbook.com, one of the leading online bookmakers.
Under the agreement, PredictIt.com, the Company's online sports prediction
exchange, will include banner advertising for and links to Sportsbook.com
throughout the Company's website. The Company will also license to
Sportsbook.com a co-branded version of the Predict It application. The
non-exclusive sponsorship is a two-year commitment under which Predict It will
receive a minimum of $1 million, which may be increased based on the success of
the sponsorship.
The following discussion compares the Company's results of operations
for the three and six months ended June 30, 2000, with those for the three and
six months ended June 30, 1999.
Three Months Ended June 30, 2000 compared to Three Months Ended June 30, 1999
Results of Operations
The Company had a net loss of $2,119,888 for the quarter ended June 30,
2000 as compared to a net loss of $461,401 for the quarter ended June 30, 1999.
The increased loss is the result of increased selling, general and
administrative expenses, partially offset by increased advertising revenues.
Revenues
The Company had revenues of $107,966 for the three months ended June
30, 2000, compared to revenues of $6,190 for the three months ended June 30,
1999. The increased revenues were attributable to growth in the Company's
established user base, the acquisition of Virtual Stock Exchange on June
30,1999, increased sponsorship revenue generated from sporting events and the
introduction of a dedicated sales force.
Site Development and Maintenance Expense
Site development and maintenance expense consists primarily of web site
hosting, maintenance and amortization related to capitalized software costs.
Site development and maintenance expense was $169,225 for the three months ended
June 30, 2000, which includes $138,000 of amortization expense related to
capitalized software costs. Site development and maintenance expense was $46,353
for the three months ended June 30, 1999.
Selling, General and Administrative Expense
Selling, General and Administrative costs increased $1,463,643 from
$437,021 for the three months ended June 30, 1999 to $1,900,664 for the three
months ended June 30, 2000. This
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increase is primarily due to increased staffing costs, operating costs and
professional fees. Staffing costs increased from $110,148 to $1,308,183
representing an increase in head count from 6 full time employees at June 30,
1999 to 36 full time employees at June 30, 2000. Operating costs increased from
$34,000 in the three months ended June 30, 1999 to $73,000 in the three months
ended June 30, 2000 primarily due to increased rent, utilities, and insurance
expenses. Professional fees for the three months ended June 30, 2000 and 1999
were $141,000 and $109,000, respectively. This increase is primarily due to
professional fees resulting from increased regulatory filing expenses.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Results of Operations
The Company had a net loss of $4,392,334 for the six months ended June
30, 2000 as compared to a net loss of $611,051 for the six months ended June 30,
1999. The increased loss is the result of increased selling, general and
administrative expenses, partially offset by increased advertising revenues.
Revenues
The Company had revenues of $309,820 for the six months ended June 30,
2000, compared to revenues of $9,787 for the six months ended June 30, 1999. The
increased revenues were attributable to growth in the Company's established user
base, the acquisition of Virtual Stock Exchange on June 30,1999, the
introduction of a dedicated sales force and increased sponsorship revenue
generated from sporting events including the Superbowl, NCAA 2000 Men's Division
I basketball tournament and the Euro 2000 soccer tournament.
Site Development and Maintenance Expense
Site development and maintenance expense consists primarily of web site
hosting, maintenance and amortization related to capitalized software costs.
Site development and maintenance expense was $551,708 for the six months ended
June 30, 2000, which includes $276,000 of amortization expense related to
capitalized software costs and $183,000 in website development costs. Site
development and maintenance expense was $51,746 for the six months ended June
30, 1999.
Selling, General and Administrative Expense
Selling, General and Administrative costs increased $3,133,417 from
$551,560 for the six months ended June 30, 1999 to $3,684,977 for the six months
ended June 30, 2000. This increase is primarily due to increased staffing costs,
operating costs, professional fees and marketing costs. Staffing costs increased
from $189,000 to $2,239,000 representing increases in head count from 6 full
time employees at June 30, 1999 to 36 full time employees at June 30, 2000.
Operating costs increased from $50,000 in the six months ended June 30, 1999 to
$171,000 in the six months ended June 30, 2000 primarily due to increased rent,
utilities, and insurance expenses. Professional fees for the six months ended
June 30, 2000 and 1999 were $296,000 and
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$119,000, respectively. The increase is primarily due to professional fees
resulting from increased regulatory filing expenses. Marketing and Business
development costs increased from $5,000 to $668,000. This increase is due
primarily to increased advertising and promotion of the Company's Sports Brand
and the amortization of payments made in connection with a distribution
agreement entered into with Sportsline.com.
Liquidity and Capital Resources
At June 30, 2000 the Company had cash of $885,204. On July 19, 2000 the
Company completed a private offering of units consisting of shares of Series B
Preferred Stock and warrants to purchase shares of the Company's common stock
that had commenced on March 13, 2000. As a result of this offering the Company
raised $6,300,000 and issued to new and existing shareholders 63 units
consisting of an aggregate of 629,250 shares of Series B Preferred Stock and
warrants to purchase an aggregate of 12,585,000 shares of common stock. A total
of 23 of these units were issued to our former noteholders as a result of their
conversion of promissory notes totaling $2,300,000.
The Company believes that cash generated from the private placement and
from operations will be sufficient to fund the working capital requirements of
the Company for the fiscal year-ending December 31, 2000.
Forward-Looking Statements
This report contains certain forward-looking statements reflecting
management's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements, all of which are difficult to predict and many
of which are beyond the control of the Company, but not limited to the risk that
the Company will not achieve the projected levels of profitability and revenues,
and those risks and uncertainties detailed in the Company's periodic reports and
registration statements filed with the Securities and Exchange Commission.
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. Description
27.1 Financial Data Schedule*
(b) Reports on Form 8-K
(1) On June 29, 2000, the Company filed a Current Report on Form 8-K which
contained information under Item 5, "Other Events," reporting the approval by
the Company's Board of Directors of a repricing of outstanding stock options
previously granted to Mr. Andrew Merkatz,
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* Filed herewith.
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the President of the Company.
(2) On July 17, 2000, the Company filed a Current Report on Form 8-K which
contained information under Item 5, "Other Events," reporting the approval by
the Company's Board of Directors of an extension of the Company's private
offering of units consisting of Shares of Series B Preferred Stock and warrants
to purchase shares of the Company's common stock until July 21, 2000.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereto duly
authorized.
Registrant:
PREDICT IT, INC.
Date: August___, 2000 By:
-------------------------------
Name:
Title:
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