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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 MARCH
31, 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
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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 June 7, 2000)
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PREDICT IT, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-QSB
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
QUARTER ENDED MARCH 31, 2000
ITEMS IN FORM 10-QSB
Page
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Facing page
Part I
Item 1. Consolidated Financial Statements. 3
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operation
Part II
Item 1. Legal Proceedings and Claims. N/A
Item 2. Changes in Securities and Use of Proceeds N/A
Item 3. Default Upon Senior Securities. N/A
Item 4. Submission of Matters to a vote of Security Holders N/A
Item 5. Other Information. 9
Item 6. Exhibits and Reports on Form 8-K. 9
Signatures 11
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PART I
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
PREDICT IT INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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2000 1999
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<S> <C> <C>
Revenues:
User Fees $ 1,254 $ 2,800
Advertising 200,600 797
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201,854 3,597
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Costs and expenses:
Site development/maintenance 382,483 38,708
Selling, general, and administrative 1,784,313 114,539
Amortization of acquired intangible 122,338 --
Interest expense, net 185,166 --
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2,474,300 153,247
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Net loss $ (2,272,446) $ (149,650)
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Net loss per share-- basic and diluted $ (0.20) $ (0.03)
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Weighted average number of shares outstanding $ 11,410,075 $ 4,898,144
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</TABLE>
See notes to the Financial Statements
3
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PREDICT IT INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 453,383 $ 734,574
Accounts receivable, net of allowance of $14,000 70,995 69,619
Prepaid expenses and other current assets 141,724 77,565
Deferred promotional expense 187,501 250,000
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Total current assets 853,603 1,131,758
Capitalized software costs, net of accumulated amortization of
$225,773 and $87,581 respectively 879,781 1,017,976
Computer equipment, net of accumulated depreciation of $151,663 and
$95,490 respectively 636,462 550,172
Registered user base, net of accumulated amortization of $367,014 and
$244,676 respectively 1,101,040 1,223,378
Other assets 103,965 103,965
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Total assets $ 3,574,851 $ 4,027,249
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable to stockholders, net of debt discount of $849,355 and
$438,222 respectively $ 1,410,645 $ 561,778
Notes payable, stockholders 75,000 100,000
Accounts payable 704,580 666,624
Accrued expenses 457,957 420,200
Capital lease obligations-- current portion 65,423 64,142
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Total current liabilities 2,713,605 1,812,744
Long-term liabilities:
Capital lease obligations-- non-current portion 39,898 51,773
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Total liabilities 2,753,503 1,864,517
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Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized, 1,000,000
shares Series A issued and outstanding (stated at
liquidation preference) 3,000,000 3,000,000
Common stock, $.01 par value, 25,000,000 shares authorized, 11,482,402
shares issued and outstanding (exclusive of 500,000 shares held in
escrow) 114,824 113,034
Additional paid-in capital 4,446,459 3,595,529
Deficit (6,061,055) (3,788,609)
Unearned compensation (678,880) (757,222)
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Total stockholders' equity 821,348 2,162,732
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Total liabilities and stockholders' equity $ 3,574,851 $ 4,027,249
=============== ===============
</TABLE>
See notes to the Financial Statements
4
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PREDICT IT INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,272,446) $ (149,650)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense 316,703 9,565
Compensation expense related to option grant -- 5,729
Amortization of unearned compensation 78,342 --
Amortization of debt discount 152,067
Changes in:
Accounts receivable (1,376) --
Deferred promotional expense 62,499
Prepaid expenses and other assets (64,156) (20,680)
Accounts payable and accrued expenses 321,775 (38,635)
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Net cash used in operating activities (1,406,592) (193,671)
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Cash flows from investing activities
Purchase of computer equipment (142,463) --
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Net cash used in investing activities (142,463) --
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Cash flows from financing activities
Issuance of capital stock -- 250,000
Loans from stockholders 1,300,000 --
Loan repayments to stockholders (25,000) --
Payments on capital lease obligations (10,594) --
Proceeds from sale of warrants 3,458 --
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Net cash provided by financing activities 1,267,864 250,000
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Net (decrease)/increase in cash (281,191) 56,329
Cash-- beginning of period 734,574 113,772
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Cash-- end of period $ 453,383 $ 170,101
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Supplemental disclosure of cash flow information
Interest paid $ 5,004 0
Supplemental disclosure of non-cash investing and financing activities:
Issuance of common stock as settlement for accounts payable $ 246,062 0
</TABLE>
See notes to the Financial Statements
5
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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 March 31, 2000, the results of its operations,
and cash flows for the three months then ended. The results of operations for
the three months ended March 31, 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 the ads are exhibited.
3. Barter Transactions
During the three month period ended March 31st 2000, the Company recorded
advertising barter transactions valued at $43,732. 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 ($43,732) 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 is
convertible from time to time by the holders and will automatically convert into
common stock upon the occurrence of certain events, including a public offering
of the Company's securities that raises gross proceeds to the Company in excess
of $15 million at a price per share of at least $4.00 (as adjusted for stock
splits and the like). As part of this offering, on April 14, 2000 the Company
raised $4,300,000 and issued to new and existing shareholders an aggregate of
430,001 shares of Series B Stock and warrants to purchase an aggregate of
8,600,020 shares of common stock. A total of 23 Units were issued to our former
noteholders as a result of their conversion of promissory notes totaling
$2,300,000. In addition, on June 1, 2000, the Company raised an additional
$1,160,000 and issued to new shareholders an aggregate of 116,000 shares of
Series B Stock and warrants to purchase an aggregate of 2,320,000 shares of
common stock.
6. Subsequent Events
On April 3, 2000, the Company increased the number of authorized common
shares from 25,000,000 to 75,000,000 and the number of preferred shares from
5,000,000 to 10,000,000.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Predict It, Inc. is a provider of online community gaming technologies that
enhance the usability and increase the customer retention rate or "stickiness"
of destination websites.
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 exclusively on the sports information
marketplace but may ultimately be extended into other categories including
Finance,
7
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Politics, and Entertainment. The Company's second product is the
VirtualStockExchange, a reward based stock market simulation where players
compete against one another in customizable private and public competitions for
cash and other valuable prizes.
The Company distributes its products through its own websites and through more
than 60 online media partners. Predict It Inc. is publicly traded on the OTC
Electronic Bulletin Board under the symbol "PRIT."
Results of Operations
The Company had a net loss of $2,272,446 for the quarter ended March 31, 2000 as
compared to a net loss of $149,650 for the quarter ended March 31, 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 $201,854 for the three months ended March 31, 2000,
compared to revenues of $3,597 for the three months ended March 31, 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 $ 382,483 for the three months ended
March 31, 2000, which includes $194,000 of development work expensed as incurred
and $138,192 of amortization expense related to capitalized software costs. Site
development and maintenance expense was $39,708 for the three months ended March
31, 1999 which includes $8,000 of amortization expense related to capitalized
software costs.
Selling, general and administrative expense
Selling, general and administrative costs increased $1,669,774 from $114,539 for
the three months ended March 31, 1999 to $1,784,313 for the three months ended
March 31, 2000. Staffing costs increased from $79,000 to $930,000. Staffing
costs of $930,000 includes approximately $136,000 of expenses related to the
recruitment of personnel. Operating costs increased from $16,000 in the three
months ended March 31,1999 to $143,000 in the three months ended March 31, 2000
primarily due to increased rent, utilities and insurance expenses.
8
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Professional fees for the three months ended March 31, 2000 and 1999 were
$155,000 and $9,000, respectively. The increase is primarily due to professional
fees resulting from increased regulatory filing expenses.
Interest Expense
Interest Expense for the three-month period ended March 31, 2000 of
approximately $185,000 includes $152,000 of interest expense related to the debt
discount associated with warrants issued in connection with loans received.
Liquidity and Capital Resources
At March 31, 2000 the Company had cash of $453,000. On March 13, 2000, we
commenced a private offering of Units, each Unit consisting of 10,000 shares of
Series B convertible preferred stock ("Series B Stock") and warrants to purchase
200,000 shares of our common stock at an exercise price of $1.00 per warrant
share. As a part of this offering, on April 14, 2000 the Company raised
$4,300,000 and issued to new and existing shareholders an aggregate of 430,001
shares of Series B Stock and warrants to purchase an aggregate of 8,600,020
shares of common stock. A total of 23 Units were issued to our former
noteholders as a result of their conversion of promissory notes totaling
$2,300,000. In addition, on June 1, 2000, the Company raised an additional
$1,160,000 and issued to new shareholders an aggregate of 116,000 shares of
Series B Stock and warrants to purchase an aggregate of 2,320,000 shares of
common stock.
The Company believes that cash generated from the private placement and from
operations will be sufficient to fund the working capital requirements of
Predict It, Inc. 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
Predict It, Inc 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 5. Other Information
9
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On April 3, 2000, the Company increased the number of authorized common shares
from 25,000,000 to 75,000,000 and the number of preferred shares from 5,000,000
to 10,000,000.
On June 1, 2000, the Company amended its Certificate of Designations,
Preferences and Rights of Series B Convertible Preferred Stock to modify the
conversion price of the Series B Stock.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. Description
3.1 Certificate of Incorporation as Amended
3.1.1 Certificate of Amendment of Certificate of
Incorporation
4.6 Certificate of Designations, Preferences
and Rights of Series B Convertible
Preferred Stock (as amended)
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended March 31, 2000.
10
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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: June 8, 2000 By:_____________________________
Name:
Title:
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