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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 SEPTEMBER 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________________ TO
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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 X No ___
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The number of shares outstanding of the issuer's common stock is 11,982,402 (as
of November 15th, 2000).
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<PAGE>
PREDICT IT, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
QUARTER ENDED SEPTEMBER 30, 2000
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ITEMS IN FORM 10-QSB
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Part I Page
Item 1. Consolidated Financial Statements .................................3
Item 2. Management's Discussion and Analysis of............................8
Financial Condition and Results of Operation
Part II
Item 2. Changes in Securities and Use of Proceeds....................10
Item 6. Exhibits and Reports on Form 8-K..................................10
Signatures........................................................11
<PAGE>
PART I
Item 1. FINANCIAL STATEMENTS
PREDICT IT INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
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2000 1999
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<S> <C> <C>
Revenues:
User fees & other revenue $ 49,329 $ 661
Advertising & sponsorship revenue 205,399 86,222
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254,728 86,883
Costs and expenses:
Site development/maintenance 214,974 75,637
Selling, general, and administrative 1,694,187 817,268
Amortization of acquired intangible 122,338 122,338
Interest expense, net (4,164) (14,555)
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2,027,334 1,000,688
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Net loss $ (1,772,607) $ (913,805)
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Net loss per share - basic and diluted $(0.15) $ (0.08)
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Weighted average number of shares outstanding 11,482,402 11,200,000
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Nine Months Ended
September 30,
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2000 1999
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Revenues:
User fees and other revenue $ 63,610 $ 3,461
Advertising & sponsorship revenue $ 500,938 93,209
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564,548 96,670
Costs and expenses:
Site development/maintenance 766,682 160,698
Selling, general, and administrative 5,379,164 1,368,828
Amortization of acquired intangible 367,014 122,338
Interest expense, net 216,629 (30,338)
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6,729,489 1,621,526
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Net loss $ (6,164,941) $ (1,524,856)
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Net loss per share - basic and diluted $ (0.54) $ (0.17)
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Weighted average number of shares outstanding 11,458,293 8,790,775
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<PAGE>
PREDICT IT INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
September 30, 2000
(Unaudited)
ASSETS
Current assets:
<S> <C>
Cash $300,915
Accounts receivable, net of allowance of $20,208 14,873
Prepaid expenses and other current assets 126,609
Deferred promotional expense 62,503
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Total current assets 504,900
Capitalized software costs, net of accumulated amortization of $502,165 603,392
Computer equipment, net of accumulated depreciation of $287,449 690,663
Registered user base, net of accumulated amortization of $611,690 856,364
Other assets 101,981
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TOTAL ASSETS $2,757,300
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 354,902
Accrued expenses 243,228
Capital lease obligations-- current portion 23,540
Deferred Revenue 103,557
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Total current liabilities 725,227
Long-term liabilities:
Capital lease obligations-- non-current portion 33,520
Other Long term liabilities 2,646
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TOTAL LIABILITIES 761,393
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, 629,251 shares Series B, $10 par value, issued and outstanding 6,292,500
(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 3,064,332
Deficit (9,953,551)
Unearned compensation (522,196)
Total stockholders' equity 1,995,910
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,757,300
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<PAGE>
PREDICT IT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine months Ended September 30,
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2000 1999
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Cash flows from operating activities:
<S> <C> <C>
Net loss $ (6,164,941) $ (1,524,856)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization expense 973,555 156,227
Compensation expense related to option grant - 5,729
Amortization of unearned compensation 235,026 104,445
Amortization of debt discount 193,248 -
Changes in:
Accounts receivable 54,745 (29,795)
Deferred promotional expense 187,497 -
Prepaid expenses and other assets (47,057) (249,591)
Accounts payable and accrued expenses (195,738) 757,384
Deferred Revenue 103,557 -
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Net cash used in operating activities (4,660,108) (780,457)
Cash flows from investing activities:
Purchase of computer equipment (332,451) (160,272)
Costs incurred to develop software _ (645,000)
Acquisition costs, net of cash acquired _ (34,501)
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Net cash used in investing activities (332,451) (839,323)
Cash flows from financing activities:
Assumption of capital lease - 17,713
Issuance of common and preferred stock 3,419,588 3,148,498
Loans from stockholders 1,300,000 -
Loan repayments to stockholders (100,000) -
Payments on capital lease obligations (64,146) (34,276)
Proceeds from sale of warrants 3,458 -
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Net cash provided by financing activities 4,558,900 3,131,935
Net (decrease)/increase in cash (433,659) 1,512,155
Cash -- beginning of period 734,574 113,772
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Cash -- end of period $ 300,915 $ 1,625,927
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Supplemental disclosure of cash flow information:
Interest paid during the period
$ 16,444
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>
<PAGE>
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 September 30, 2000, the results of its
operations, and cash flows for the nine months then ended. The results of
operations for the nine months ended September 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.
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
applicable to a going concern, which principles assume continuity of operations
and that assets will be realized and liabilities will be discharged in the
normal course of business. For the nine months ended September 30, 2000 the
Company incurred losses from continuing operations of $6,165,000 and as of
September 30, 2000 had a working capital deficiency of $ 220,000. In November
2000, the Company reduced its staff from 30 full-time employees to four in an
effort to reduce its costs and preserve its remaining capital. The Company is
currently exploring alternatives, including raising additional financing, and/or
a sale of the Company or certain of its assets. There can be no assurance that
the Company will be successful in its pursuit of any of these alternatives. If
additional funds cannot be raised or a sale does not occur, the Company will be
required to consider alternative courses of action including, without
limitation, winding down the operations of the Company or filing a voluntary
petition to seek protection under the bankruptcy laws. This raises substantial
doubt about the Company's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
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 nine month period ended September 30, 2000, the Company
recorded advertising barter transactions valued at $97,171. 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 ($97,171) and are included in selling, general and
administrative expenses in the accompanying statements of operations.
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
On September 19, 2000, Predict It, Inc. entered into a letter of intent
to merge with Hollywood Stock Exchange ("HSX") setting forth the principal terms
of the proposed transaction between Predict It, Inc. and HSX. On November 3,
2000, Predict It Inc. ceased negotiations regarding its proposed merger with
HSX.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company is a 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 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".
Recent Developments
On September 19, 2000, the Company entered into a letter of intent to
merge with Hollywood Stock Exchange ("HSX") setting forth the principal terms of
the proposed transaction between the Company and HSX. On November 3, 2000, the
Company issued a press release stating that it had ceased negotiations regarding
its proposed merger with HSX and had reduced its staff from 30 full-time
employees to four. The Company is currently exploring alternatives, including
raising additional financing, and/or a sale of the Company or certain of its
assets. There can be no assurance that the Company will be successful in its
pursuit of any of these alternatives. If additional funds cannot be raised or a
sale does not occur, the Company will be required to consider alternative
courses of action, including, without limitation, winding down operations or
filing a voluntary petition to seek protection under the bankruptcy laws.
The following discussion compares the Company's results of operations
for the three and nine months ended September 30, 2000, with those for the three
and nine months ended September 30, 1999.
Three Months Ended September 30, 2000 compared to Three Months Ended September
30, 1999
Results of Operations
The Company had a net loss of $1,772,607 for the quarter ended
September 30, 2000 as compared to a net loss of $913,805 for the quarter ended
September 30, 1999. The increased loss is the result of increased selling,
general and administrative expenses, which were partially offset by increased
advertising revenues.
Revenues
The Company had revenues of $254,728 for the three months ended
September 30, 2000, compared to revenues of $86,883 for the three months ended
September 30, 1999. The increased revenues were attributable to the introduction
of a dedicated sales force, growth in the Company's established user base,
increased sponsorship revenue generated from sporting events and customized
stock simulations, and the recognition of revenue related to our two year
sponsorship and licensing agreement with Sportsbook.com.
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 $215,000 for the three months ended
September 30, 2000, which includes $138,000 of amortization expense related to
capitalized software costs. Site development and maintenance expense was $76,000
for the three months ended Septemeber 30, 1999.
Selling, General and Administrative Expense
Selling, General and Administrative costs increased $877,000 from
$817,000 for the three months ended September 30, 1999 to $1,694,000 for the
three months ended September 30, 2000. This increase is primarily due to
increased staffing costs and increased operating costs. Staffing costs increased
from $426,000 to $1,000,000 representing an increase in head count from 10 full
time employees at September 30, 1999 to 39 full time employees at September 30,
2000. Operating costs increased from $40,000 in the three months ended September
30, 1999 to $82,000 in the three months ended September 30, 2000 primarily due
to increased rent, utilities, and insurance expenses.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999
Results of Operations
The Company had a net loss of $6,164,941 for the nine months ended
September 30, 2000 as compared to a net loss of $1,524,856 for the nine months
ended September 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 $565,000 for the nine months ended
September 30, 2000, compared to revenues of $97,000 for the nine months ended
September 30, 1999. The increased revenues were attributable to the introduction
of a dedicated sales force, 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 from customized stock market
simulations and from the recognition of revenue related to our two year
sponsorship and licensing agreement with Sportsbook.com.
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 $767,000 for the nine months ended
September 30, 2000, which includes $415,000 of amortization expense related to
capitalized software costs and $183,000 in website development costs. Site
development and maintenance expense was $76,000 for the nine months ended
September 30, 1999.
Selling, General and Administrative Expense
Selling, General and Administrative costs increased $4,010,000 from
$1,369,000 for the nine months ended September 30, 1999 to $5,379,000 for the
nine months ended September 30, 2000. This increase is primarily due to
increased staffing costs, operating costs and marketing costs. Staffing costs
increased from $616,000 to $3,238,000 representing increases in head count from
10 full time employees at September 30, 1999 to 39 full time employees at
September 30, 2000. Operating costs increased from $89,000 in the nine months
ended September 30, 1999 to $253,000 in the nine months ended September 30, 2000
primarily due to increased rent, utilities, and insurance expenses. Marketing
and Business development costs increased from $251,000 to $898,000. 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.
On November 9, 2000, we announced that we had reduced our staff from
30 full-time employees to four.
Liquidity and Capital Resources
At September 30, 2000 the Company had cash of $301,004.
On June 1, 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. As a result of this offering the Company raised
$1,167,500 and issued 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 completed a private offering of additional units. As a
result of this offering the Company raised $825,000 and issued 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.
The Company does not currently have sufficient cash available to
satisfy all of its commitments. The Company is actively seeking additional
capital to fund its future operations through private debt or equity financings,
or collaborative licensing or other arrangements with strategic partners. There
can be no assurance that such financing can be obtained or, if it is obtained,
that the terms thereof will be acceptable. In the meantime, the Company has
scaled back operations substantially, having terminated 26 employees in
November. If funds are not obtained shortly, we may have no choice but to halt
operations and may seek protection under the bankruptcy laws.
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 obtain additional financing, and those risks and
uncertainties detailed in the Company's periodic reports and registration
statement filed with the Securities and Exchange Commission.
<PAGE>
PART II
Item 2. Changes in Securities and Use of Proceeds
On June 1, 2000 the Company completed a private placement of
securities to accredited investors, pursuant to which the Company issued 11.6
units consisting of an aggregate of 116,075 shares of Series B Preferred Stock,
$.01 par value per share and warrants to purchase an aggregate of 2,320,000
shares of Common Stock, $.01 par value per share, at an exercise price of $1.00
per share, for an aggregate consideration of $825,000. Each share of Series B
Preferred Stock is convertible into twenty shares of Common Stock, subject to
certain customary anti-dilution adjustments made from time to time pursuant to
the amended certificate of designation of the Series B Preferred Stock. This
private placement was exempt from registration pursuant to Rule 506 promulgated
under the Securities Act of 1933, as amended.
On July 18, 2000 the Company completed a private placement of
securities to accredited investors, pursuant to which the Company issued 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, for an aggregate consideration of $825,000.
This private placement was exempt from registration pursuant to Rule 506
promulgated under the Securities Act of 1933, as amended.
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 September 21, 2000, the Company filed a Current Report on Form 8-K which
contained information under Item 5, "Other Events," reporting that the Company
had entered into a letter of intent to merge with HSX setting forth the
principal terms of the proposed transaction between the Company and HSX.
(2) On November 9, 2000, the Company filed a Current Report on Form 8-K which
contained information under Item 5, "Other Events," reporting it had ceased
negotiations regarding its proposed merger with HSX and had reduced its staff
from 30 full-time employees to four. The Company further disclosed that it is
currently exploring alternatives, including raising additional financing, and/or
a sale of the Company or certain of its assets, and that if additional funds
cannot be raised or a sale does not occur, the Company may need to wind down
operations or seek protection under the bankruptcy laws.
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* Filed herewith.
<PAGE>
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: November 17, 2000 By:/s/ Andrew Merkatz
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Name: Andrew Merkatz
Title: President
