x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended June 30, 2011
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OR |
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ________________ to ________________
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Nevada
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86-0879433
|
|
(State or other jurisdiction of
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(I.R.S. Employer
|
|
incorporation or organization)
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Identification No.)
|
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324 Datura Street, Ste. 114
West Palm Beach, FL
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33401
|
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer | o | Accelerated filer | o | |
Non-accelerated filer | o | Smaller reporting company | x | |
(Do not check if a smaller reporting company) |
Class
|
Outstanding at August 15, 2011
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Common Stock, $0.001 par value per share
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16,668,281 Shares
|
|
Page
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PART I. FINANCIAL INFORMATION
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3 |
Item 1 Financial Statements
|
3 |
Condensed Consolidated Balance Sheets as of June 30, 2011 (Unaudited) and December 31, 2010
|
3 |
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2011 and 2010 (Unaudited)
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4 |
Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2011 (Unaudited)
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5 |
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010 (Unaudited)
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6 |
Notes to Unaudited Condensed Consolidated Financial Statements
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7 |
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations
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21 |
Item 3 Quantitative and Qualitative Disclosures about Market Risk
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32 |
Item 4 Controls and Procedures
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32 |
PART II. OTHER INFORMATION
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33 |
Item 1 Legal Proceedings
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33 |
Item 1A Risk Factors
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33 |
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
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33 |
Item 3 Defaults Upon Senior Securities
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33 |
Item 4 (Removed and Reserved)
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33 |
Item 5 Other Information
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33 |
Item 6 Exhibits
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33 |
SIGNATURES
|
34 |
INDEX TO EXHIBITS
|
35 |
June 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
ASSETS
|
(Unaudited)
|
|||||||
CURRENT ASSETS:
|
||||||||
Cash and cash equivalents
|
$ | 11,192,510 | $ | 13,546,572 | ||||
Accounts receivable, net of allowance of $9,400 and $16,000, at June 30, 2011 and
December 31, 2010, respectively
|
3,081,726 | 1,361,024 | ||||||
Notes receivable - current portion, including $10,855 and $3,633 of accrued interest,
at June 30, 2011 and December 31, 2010, respectively
|
434,457 | 314,221 | ||||||
Restricted cash
|
275,000 | 275,000 | ||||||
Other current assets
|
202,039 | 113,841 | ||||||
Total current assets
|
15,185,732 | 15,610,658 | ||||||
Goodwill
|
4,529,645 | - | ||||||
Property and equipment, net
|
746,338 | 645,728 | ||||||
Notes receivable - long-term portion
|
57,480 | 156,079 | ||||||
Other assets, net of accumulated amortization of $167,571 and $0, at June 30, 2011
and December 31, 2010, respectively
|
126,893 | 40,324 | ||||||
Total assets
|
$ | 20,646,088 | $ | 16,452,789 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
CURRENT LIABILITIES:
|
||||||||
Accounts payable, includes $230,058 and $0 due to TechFront at June 30, 2011
and December 31, 2010, respectively
|
$ | 385,019 | $ | 286,990 | ||||
Accrued expenses
|
671,782 | 414,249 | ||||||
Deferred revenue
|
73,129 | - | ||||||
Accrued dividends
|
319,455 | 278,750 | ||||||
Unearned grant income
|
11,859 | 12,364 | ||||||
Total current liabilities
|
1,461,244 | 992,353 | ||||||
Notes payable, net of unamortized discount of $1,501,099 and $1,643,241, at
June 30, 2011 and December 31, 2010, respectively
|
6,570,788 | 6,272,545 | ||||||
Total liabilities
|
8,032,032 | 7,264,898 | ||||||
COMMITMENTS AND CONTINGENCIES (see Note 7)
|
||||||||
STOCKHOLDERS’ EQUITY :
|
||||||||
Preferred stock, $.001 par value; authorized - 5,000,000 shares; 0 and 25,000 shares
of Series A Convertible issued and outstanding at June 30, 2011 and December 31,
2010 Liquidation preference of $2,500,000.
|
- | 25 | ||||||
Common stock, $.001 par value; authorized - 50,000,000 shares; 16,645,781 shares
issued and outstanding at June 30, 2011 and 15,287,280 shares issued and
outstanding at December 31, 2010
|
16,647 | 15,287 | ||||||
Additional paid-in capital
|
182,292,819 | 175,276,319 | ||||||
Accumulated deficit
|
(169,933,329 | ) | (166,096,889 | ) | ||||
Accumulated other comprehensive income
|
237,919 | (6,851 | ) | |||||
Total stockholders’ equity
|
12,614,056 | 9,187,891 | ||||||
Total liabilities and stockholders’ equity
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$ | 20,646,088 | $ | 16,452,789 |
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
REVENUES
|
$ | 1,841,647 | $ | 1,156,116 | $ | 4,085,211 | $ | 1,478,086 | ||||||||
OPERATING EXPENSES:
|
||||||||||||||||
Sales and marketing
|
253,045 | 207,198 | 575,097 | 380,894 | ||||||||||||
Product development and content
|
1,919,955 | 976,460 | 3,627,419 | 1,840,137 | ||||||||||||
Games expenses
|
262,469 | - | 262,469 | - | ||||||||||||
General and administrative
|
1,360,875 | 1,617,040 | 2,794,759 | 3,312,233 | ||||||||||||
Depreciation and amortization
|
218,740 | 85,183 | 355,200 | 192,843 | ||||||||||||
TOTAL OPERATING EXPENSES
|
4,015,084 | 2,885,881 | 7,614,944 | 5,726,107 | ||||||||||||
LOSS FROM OPERATIONS
|
(2,173,437 | ) | (1,729,765 | ) | (3,529,733 | ) | (4,248,021 | ) | ||||||||
OTHER INCOME (EXPENSE):
|
||||||||||||||||
Interest income
|
17,474 | 57 | 34,034 | 402 | ||||||||||||
Interest expense
|
(151,219 | ) | (150,700 | ) | (301,205 | ) | (300,604 | ) | ||||||||
Other income
|
573 | 534 | 1,169 | 1,059 | ||||||||||||
TOTAL OTHER INCOME (EXPENSE)
|
(133,172 | ) | (150,109 | ) | (266,002 | ) | (299,143 | ) | ||||||||
LOSS BEFORE INCOME TAXES
|
(2,306,609 | ) | (1,879,874 | ) | (3,795,735 | ) | (4,547,164 | ) | ||||||||
Income taxes
|
- | - | - | |||||||||||||
NET LOSS
|
$ | (2,306,609 | ) | $ | (1,879,874 | ) | $ | (3,795,735 | ) | $ | (4,547,164 | ) | ||||
Preferred stock dividends
|
(12,830 | ) | (27,875 | ) | (40,705 | ) | (55,750 | ) | ||||||||
NET LOSS ALLOCABLE TO COMMON SHAREHOLDERS
|
$ | (2,319,439 | ) | $ | (1,907,749 | ) | $ | (3,836,440 | ) | $ | (4,602,914 | ) | ||||
NET LOSS PER COMMON SHARE ALLOCABLE TO
|
||||||||||||||||
COMMON SHAREHOLDERS
|
||||||||||||||||
BASIC AND DILUTED
|
$ | (0.14 | ) | $ | (0.15 | ) | $ | (0.23 | ) | $ | (0.36 | ) | ||||
WEIGHTED AVERAGE NUMBER OF SHARES
|
||||||||||||||||
OUTSTANDING:
|
||||||||||||||||
BASIC AND DILUTED
|
16,037,343 | 12,963,227 | 16,344,063 | 12,881,396 | ||||||||||||
NET LOSS
|
$ | (2,306,609 | ) | $ | (1,879,874 | ) | $ | (3,795,735 | ) | $ | (4,547,164 | ) | ||||
Foreign currency translation adjustment
|
213,296 | 825 | 244,770 | 411 | ||||||||||||
COMPREHENSIVE LOSS
|
$ | (2,093,313 | ) | $ | (1,879,049 | ) | $ | (3,550,965 | ) | $ | (4,546,753 | ) |
Accumulated
|
||||||||||||||||||||||||||||||||
Additional
|
Other
|
Total
|
||||||||||||||||||||||||||||||
Preferred Stock
|
Common Stock
|
Paid-in
|
Accumulated
|
Comprehensive
|
Stockholders'
|
|||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
Income (Loss)
|
Equity
|
|||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Balance—December 31, 2010 | 25,000 | $ | 25 | 15,287,280 | $ | 15,287 | $ | 175,276,319 | $ | (166,096,889 | ) | $ | (6,851 | ) | $ | 9,187,891 | ||||||||||||||||
Vesting of stock options for
compensation
|
1,658,941 | 1,658,941 | ||||||||||||||||||||||||||||||
Vesting of warrants
|
178,903 | 178,903 | ||||||||||||||||||||||||||||||
Exercise of stock options
|
532,851 | 534 | 840,206 | 840,740 | ||||||||||||||||||||||||||||
Exercise of warrants
|
140,000 | 140 | 629,860 | 630,000 | ||||||||||||||||||||||||||||
Issuance of common stock
for acquisition
|
348,723 | 349 | 2,730,152 | 2,730,501 | ||||||||||||||||||||||||||||
Contingent issuance of common
stock for acquisition
|
978,750 | 978,750 | ||||||||||||||||||||||||||||||
Issuance of common stock for
conversion of preferred stock
|
(25,000 | ) | (25 | ) | 336,927 | 337 | (312 | ) | - | |||||||||||||||||||||||
Foreign currency translation
adjustment
|
244,770 | 244,770 | ||||||||||||||||||||||||||||||
Preferred stock dividends
|
(40,705 | ) | (40,705 | ) | ||||||||||||||||||||||||||||
Net loss
|
(3,795,735 | ) | (3,795,735 | ) | ||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
Balance—June 30, 2011
|
- | $ | - | 16,645,781 | $ | 16,647 | $ | 182,292,819 | $ | (169,933,329 | ) | $ | 237,919 | $ | 12,614,056 |
For the Six Months Ended June 30, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities:
|
||||||||
Net loss
|
$ | (3,795,735 | ) | $ | (4,547,164 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
Depreciation and amortization
|
355,200 | 192,843 | ||||||
Repricing of warrants
|
- | 147,813 | ||||||
Vesting of stock options for compensation
|
1,658,941 | 2,949,956 | ||||||
Vesting of warrants
|
178,903 | - | ||||||
Issuance of common stock for professional services
|
- | 26,334 | ||||||
Grant income
|
(1,131 | ) | (828 | ) | ||||
Bad debt expense (recovery)
|
(6,600 | ) | (18,669 | ) | ||||
Amortization of discounts on notes payable and debt issuance costs
|
144,504 | 144,504 | ||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
(1,714,102 | ) | (50,346 | ) | ||||
Accrued interest on notes receivable
|
(7,222 | ) | - | |||||
Other current assets and other assets
|
(141,113 | ) | 90,314 | |||||
Accounts payable and accrued expenses
|
106,650 | 112,811 | ||||||
Deferred revenue
|
73,129 | 297,679 | ||||||
Net cash used in operating activities
|
(3,148,576 | ) | (654,753 | ) | ||||
Cash flows from investing activities:
|
||||||||
Acquisition of XTFT Games S/S LTDA
|
(500,000 | ) | - | |||||
Purchase of property and equipment
|
(163,969 | ) | (140,011 | ) | ||||
Loan payments received from BRC
|
25,585 | |||||||
Loan disbursement to Hollywood Creations
|
(40,000 | ) | - | |||||
Net cash used in investing activities
|
(678,384 | ) | (140,011 | ) | ||||
Cash flows from financing activities:
|
||||||||
Proceeds from exercise of stock options and warrants
|
1,470,740 | 283,000 | ||||||
Net cash provided by financing activities
|
1,470,740 | 283,000 | ||||||
Effect of foreign currency exchange rate on cash
|
2,158 | 411 | ||||||
Net decrease in cash and cash equivalents
|
(2,354,062 | ) | (511,353 | ) | ||||
Cash and cash equivalents at beginning of period
|
13,546,572 | 1,028,267 | ||||||
Cash and cash equivalents at end of period
|
$ | 11,192,510 | $ | 516,914 | ||||
Supplemental Disclosure of Cash Flow Information:
|
||||||||
Cash paid for interest
|
$ | - | $ | - | ||||
Cash paid for income taxes
|
$ | - | $ | - | ||||
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
|
||||||||
Reduction in exercise prices of outstanding warrants recorded as additional paid-in capital
|
$ | 1,605,382 | ||||||
Preferred stock dividends accrued and charged to accumulated deficit
|
$ | 40,705 | $ | 55,750 |
Goodwill
|
$ | 3,780,618 | ||
Property and equipment
|
119,760 | |||
Other assets
|
191,887 | |||
Total assets acquired
|
4,092,265 | |||
Accounts payable and accrued liabilities
|
(383,014 | ) | ||
Total liabilities assumed
|
(383,014 | ) | ||
Issuance of common stock, 348,723 shares
|
2,730,501 | |||
Contingent issuance of common stock for acquisition
|
978,750 |
Stock options
|
8,012,298 | |||
Warrants
|
4,225,000 | |||
Totals
|
12,237,298 |
Property and equipment
|
$ | 119,760 | ||
Other assets
|
191,887 | |||
Total assets acquired
|
311,647 | |||
Accounts payable and accrued liabilities
|
(383,014 | ) | ||
Total liabilities assumed
|
(383,014 | ) | ||
Goodwill
|
4,280,618 | |||
Total purchase price
|
$ | 4,209,251 |
(Unaudited)
|
||||||||
Revenues
|
Net Income (Loss)
|
|||||||
XtFt actual for the six months ended June, 2011
|
$ | - | $ | (750,778 | ) | |||
Supplemental consolidated pro forma information for the year ended December 31, 2010
|
$ | 7,280,412 | $ | (7,907,515 | ) |
BRC
|
Hollywood Creations
|
Total
|
||||||||||
Notes Receivable
|
$ | 224,415 | $ | 256,667 | $ | 481,082 | ||||||
Accrued Interest
|
- | 10,855 | 10,855 | |||||||||
Notes Receivable, including accrued interest
|
$ | 224,415 | $ | 267,522 | $ | 491,937 | ||||||
Notes Receivable, current portion
|
$ | 166,935 | $ | 267,522 | $ | 434,457 | ||||||
Notes Receivable, long-term portion
|
57,480 | - | 57,480 | |||||||||
Total Notes Receivable
|
$ | 224,415 | $ | 267,522 | $ | 491,937 |
June 30, 2011
|
December 31, 2010
|
|||||||
Computer equipment
|
$ | 2,608,549 | $ | 2,338,831 | ||||
Vehicles
|
19,186 | 18,248 | ||||||
Office furniture and equipment
|
167,313 | 133,217 | ||||||
Other equipment
|
10,030 | 9,540 | ||||||
2,805,078 | 2,499,836 | |||||||
Less accumulated depreciation
|
(2,058,740 | ) | (1,854,108 | ) | ||||
Property and equipment—net
|
$ | 746,338 | $ | 645,728 |
MATT
|
RSI
|
Total
|
||||||||||
Notes Payable, face amount
|
$ | 5,000,000 | $ | 2,000,000 | $ | 7,000,000 | ||||||
Discounts on Notes:
|
||||||||||||
Revaluation of Warrants
|
(1,341,692 | ) | (263,690 | ) | (1,605,382 | ) | ||||||
Termination of Jet Rights
|
(878,942 | ) | - | (878,942 | ) | |||||||
Accumulated Amortization
|
872,365 | 110,860 | 983,225 | |||||||||
Total Discounts
|
(1,348,269 | ) | (152,830 | ) | (1,501,099 | ) | ||||||
Accrued Interest
|
765,634 | 306,253 | 1,071,887 | |||||||||
Notes Payable, net
|
$ | 4,417,365 | $ | 2,153,423 | $ | 6,570,788 |
Remainder of 2011
|
$ | 128,738 | ||
2012
|
137,518 | |||
2013
|
39,655 | |||
2014
|
- | |||
2015
|
- | |||
Thereafter
|
- | |||
$ | 305,911 |
Weighted
|
||||||||||||
Average
|
||||||||||||
Number of
|
Weighted-
|
Remaining
|
Aggregate | |||||||||
Stock
|
Average
|
Contractual
|
Intrinsic | |||||||||
Options
|
Options
|
Exercise Price
|
Life
|
Value | ||||||||
Outstanding at December 31, 2010 (1) (2)
|
7,236,111 | $ | 1.63 | |||||||||
Granted (3)
|
981,000 | $ | 7.33 | |||||||||
Exercised (4)
|
(532,851 | ) | $ | 1.58 | ||||||||
Forfeited or expired
|
(115,000 | ) | $ | 3.34 | ||||||||
Outstanding at June 30, 2011 (5)
|
7,569,260 | $ | 2.26 |
7.4
|
$ |
37,631,594
|
||||||
Exercisable at June 30, 2011 (6)
|
5,376,128 | $ | 1.33 |
6.8
|
$ |
31,736,965
|
(1)
|
Includes 272,198 outstanding options to purchase common stock at a weighted average exercise price of $2.62 per share being held by consultants.
|
(2)
|
Includes 1,649,000 performance-based options, of which 1,007,040 have been expensed.
|
(3)
|
Includes no outstanding options to purchase common stock being held by consultants.
|
(4)
|
Includes 125,834 outstanding options to purchase common stock at a weighted average exercise price of $1.23 per share being held by consultants.
|
(5)
|
Includes 146,364 outstanding options to purchase common stock at a weighted average exercise price of $3.82 per share being held by consultants.
|
(6)
|
Includes 87,313 outstanding options to purchase common stock at a weighted average exercise price of $3.36 per share being held by consultants.
|
For the Six Months Ended
|
||||||||
June 30,
|
||||||||
2011
|
2010
|
|||||||
Risk-free interest rate:
|
2.18% | 2.61% | ||||||
Expected term:
|
5.9 |
5.7 Years
|
||||||
Expected dividend yield:
|
- | - | ||||||
Expected volatility:
|
80% | 92% |
Weighted
|
||||||||||||
Average
|
||||||||||||
Number of
|
Weighted-
|
Remaining
|
Aggregate
|
|||||||||
Stock
|
Average
|
Contractual
|
Intrinsic
|
|||||||||
Options
|
Options
|
Exercise Price
|
Life
|
Value
|
||||||||
Outstanding at December 31, 2010
|
443,038 | $ | 1.34 | |||||||||
Granted
|
- | $ | - | |||||||||
Exercised
|
- | $ | - | |||||||||
Forfeited or expired
|
- | $ | - | |||||||||
Outstanding at March 31, 2011
|
443,038 | $ | 1.34 |
8.4
|
$ |
2,618,355
|
||||||
Exercisable at March 31, 2011
|
443,038 | $ | 1.34 |
8.4
|
$ |
2,618,355
|
Risk-free interest rate:
|
3.24%
|
Expected term:
|
6.08 years
|
Expected dividend yield:
|
—
|
Expected volatility:
|
105.68%
|
Risk-free interest rate:
|
0.87% |
Expected term:
|
3.0 years
|
Expected dividend yield:
|
— |
Expected volatility:
|
79.02% |
Outstanding at December 31, 2010
|
4,465,000 | |||
Granted
|
— | |||
Exercised
|
(140,000 | ) | ||
Expired
|
(100,000 | ) | ||
Outstanding at June 30, 2011
|
4,225,000 | |||
Exercisable at June 30, 2011
|
4,225,000 |
|
Highlights of the second quarter of 2011 included:
|
●
|
Our website and social network added 4.6 million registered users during the second quarter of 2011, bringing total registered members to a record 38.2 million at the end of June. Retention metrics showed considerable improvement, on average, return visitors viewed 33.2 pages and spent 18.8 minutes on-site, representing 11% and 42% month-over-month increases, respectively.
|
●
|
Our cross platform distributed social media advertising and contest platform, reported record engagement results for a campaign with reseller partner Sony Pictures Television Ad Sales Latin America (“SPT Ad Sales”). The campaign drove over 13 million engagements, doubling the previous record. Designed to support the Mexican launch of a new consumer product, the campaign served as the promotional component of a broader media push that included television, radio and Internet advertising. The campaign invited participants to share their entries across their social profiles to win points and compete for prizes. In addition, participants could double their points for performing “high value” tasks. In six weeks the campaign generated over 13 million engagements, which represents the main success metric for DSM campaigns and is defined as the sum total of views, votes, entries, comments and shares generated in that period. Highlights from the results include over 1.8 million shares – socially and by email – with Facebook and Twitter dominating social sharing behavior.
|
●
|
Quepasa announced an agreement with PRISA DIGITAL, the leading media company in the production and distribution of digital news, and entertainment in the Spanish and Portuguese speaking world. The agreement will bring components of Quepasa’s social media advertising technology to PRISA’s existing network of European, US and Latin American advertisers. The agreement allows PRISA’s sales force to include in their portfolio Quepasa’s social media advertising platform – Quepasa Contests. This product offering will be a part of PRISA’s new offering called PRISA’s Earned Media. In addition, PRISA will represent Quepasa’s display ad inventory.
|
●
|
During the second quarter of 2011, Quepasa Games announced the launch of its first social game offering, Wonderful City – Rio, across multiple social networking platforms. Wonderful City - Rio invites users to build their own virtual Rio de Janeiro, adapting the popular city-building game concept for Latin American audiences. The games were launched on the following social networking sites as follows:
|
|
•
|
DSM Revenues: We recognize DSM revenues over the period of the contest or as the service are provided. Approximately 86% and 68% of our revenue came from DSM campaigns in the six months ended June 30, 2011 and 2010, respectively
|
|
•
|
Website Development Revenue: We recognize website development revenues as the service is provided. Approximately 3% and 23% of our revenue came from website development in the six months ended June 30, 2011 and 2010, respectively.
|
|
•
|
Display Advertising Revenue: Display advertising revenue is generated when an advertiser purchases a placement within our quepasa.com website. We recognize revenue related to display advertising upon delivery. Consistent with GAAP, we recognize advertising revenue from customers that are advertising networks on a net basis, while advertising revenues earned directly from advertisers are recognized on a gross basis. Approximately 5% and 7% of our revenue came from display advertising in the six months ended June 30, 2011 and 2010, respectively.
|
|
•
|
Royalty Revenue: We recognize royalty revenues on a net basis, as reported to us by third parties. Approximately 1% and 0% of our revenue came from royalties in the six months ended June 30, 2011 and 2010, respectively.
|
|
•
|
Game Revenue: Game revenue for internally developed games is recognized on a gross basis for consumable goods at the time of sale and for durable goods ratably over the estimated average playing period. Any adjustments arising from changes in the estimates playing period would be applied prospectively on the basis that such changes are caused by new information indicating a change in the game player behavior patterns. Game revenue from third party developed games is recorded net of revenue sharing payments and costs to the third party. Approximately 5% and 0% of our revenue came from games in the six months ended June 30, 2011 and 2010, respectively.
|
|
•
|
Sales and Marketing Expenses: Sales and marketing expenses consist primarily of salaries and expenses of marketing and sales personnel, and other marketing-related expenses including our mass media-based branding and advertising.
|
|
•
|
Product Development and Content Expenses: Product development and content expenses consist of personnel costs associated with the development, testing and upgrading of our website and systems, content fees, and purchases of specific technology, particularly software and hardware related to our infrastructure upgrade.
|
|
•
|
Games Expenses: Games expenses consist of advertising fees, payment processing service charges, hosting fees for game internet access, foreign taxes and direct expenses for advertising games on other social networks.
|
|
•
|
General and Administrative Expenses: General and administrative expenses consist primarily of costs related to corporate personnel, occupancy costs, general operating costs and corporate professional fees, such as legal and accounting fees.
|
|
•
|
Depreciation and Amortization Expenses: Our depreciation and amortization are non-cash expenses which consist primarily of depreciation related to our property and equipment and amortization of contracts.
|
|
•
|
Other Income (Expense): Other income (expense) consists primarily of interest earned, interest expense and earned grant income. We have invested our cash in AAA rated, fully liquid interest-bearing instruments. Interest expense relates to our Notes Payable. Earned grant income represents the amortized portion of a cash grant received in 2006 from the Mexican government for approved capital expenditures. The grant is being recognized on a straight-line basis over the useful lives of the purchased assets.
|
For the three months ended June 30,
|
||||||||||||||||
2011
|
2010
|
Change ($)
|
Change (%)
|
|||||||||||||
REVENUES
|
$ | 1,841,647 | $ | 1,156,116 | $ | 685,531 | 59 | % | ||||||||
Sales and marketing
|
253,045 | 207,198 | 45,847 | 22 | % | |||||||||||
Product development and content
|
1,919,955 | 976,460 | 943,495 | 97 | % | |||||||||||
Game expenses
|
262,469 | - | 262,469 | |||||||||||||
General and administrative
|
1,360,875 | 1,617,040 | (256,165 | ) | -16 | % | ||||||||||
Depreciation and amortization
|
218,740 | 85,183 | 133,557 | 157 | % | |||||||||||
Operating Expenses
|
4,015,084 | 2,885,881 | 1,129,203 | 39 | % | |||||||||||
LOSS FROM OPERATIONS
|
(2,173,437 | ) | (1,729,765 | ) | (443,672 | ) | -26 | % | ||||||||
OTHER INCOME (EXPENSE):
|
||||||||||||||||
Interest income
|
17,474 | 57 | 17,417 | 30556 | % | |||||||||||
Interest expense
|
(151,219 | ) | (150,700 | ) | (519 | ) | -100 | % | ||||||||
Other income
|
573 | 534 | 39 | 7 | % | |||||||||||
TOTAL OTHER INCOME (EXPENSE)
|
(133,172 | ) | (150,109 | ) | 16,937 | 11 | % | |||||||||
NET LOSS
|
$ | (2,306,609 | ) | $ | (1,879,874 | ) | $ | (426,735 | ) | -23 | % |
|
•
|
a decrease in stock based compensation of $618,365 due to the full vesting of general and administrative employee stock options during 2010; is partially offset by:
|
|
•
|
an increase in legal and accounting expenses of approximately $70,000 primarily due to approximately $60,000 of costs incurred in the proposed myYearbook acquisition, and the other contract negotiations;
|
|
•
|
a net increase in salary and related payroll expenses of approximately $57,000 attributable to increased salaries and administrative headcount in the US and XtFt;
|
|
•
|
an increase in travel expenses of approximately $50,000;
|
|
•
|
an increase in dues and subscriptions of approximately $46,000 primarily attributable to NYSE AMEX reporting fees;
|
|
•
|
an increase in recruiting expenses of approximately $42,000 attributable to the hiring of three new US employees;
|
|
•
|
an increase in rent expenses of approximately $36,000 attributable to the increase of $15,000 for expanded office space and parking fees for new employees in the Los Angeles office, approximately $10,000 increase of rental costs for data center in Mexico and approximately $11,000 for the XtFt office space in Brazil.
|
|
•
|
and an increase in other administrative expense of approximately $18,000 for the XtFt attributable to new subsidiary’s local accounting services, other professional fees, office supplies, overtime meals and travel.
|
For the three months ended
June 30,
|
||||||||
2011
|
2010
|
|||||||
Sales and marketing
|
$ | 128,614 | $ | 81,497 | ||||
Product and content development
|
214,386 | 194,850 | ||||||
General and administrative
|
621,610 | 1,239,975 | ||||||
Total Stock Based Compensation
|
$ | 964,610 | $ | 1,516,322 |
2011
|
2010
|
|||||||
Vesting of stock options
|
$ | 964,610 | $ | 1,516,322 | ||||
Vesting of warrants
|
- | - | ||||||
Re-pricing of warrants
|
- | - | ||||||
Issuance of common stock for professional services
|
- | - | ||||||
Total Stock Based Compensation
|
$ | 964,610 | $ | 1,516,322 |
|
Comparison of the six months ended June 30, 2011 with the six months ended June 30, 2010
|
For the six months ended June 30,
|
||||||||||||||||
2011
|
2010
|
Change ($)
|
Change (%)
|
|||||||||||||
REVENUES
|
$ | 4,085,211 | $ | 1,478,086 | $ | 2,607,125 | 176 | % | ||||||||
OPERATING EXPENSES
|
||||||||||||||||
Sales and marketing
|
575,097 | 380,894 | 194,203 | 51 | % | |||||||||||
Product development and content
|
3,627,419 | 1,840,137 | 1,787,282 | 97 | % | |||||||||||
Game expenses
|
262,469 | - | 262,469 | |||||||||||||
General and administrative
|
2,794,759 | 3,312,233 | (517,474 | ) | -16 | % | ||||||||||
Depreciation and amortization
|
355,200 | 192,843 | 162,357 | 84 | % | |||||||||||
Operating Expenses
|
7,614,944 | 5,726,107 | 1,888,837 | 33 | % | |||||||||||
LOSS FROM OPERATIONS
|
(3,529,733 | ) | (4,248,021 | ) | 718,288 | 17 | % | |||||||||
OTHER INCOME (EXPENSE):
|
||||||||||||||||
Interest income
|
34,034 | 402 | 33,632 | 8366 | % | |||||||||||
Interest expense
|
(301,205 | ) | (300,604 | ) | (601 | ) | -100 | % | ||||||||
Other income
|
1,169 | 1,059 | 110 | 10 | % | |||||||||||
TOTAL OTHER INCOME (EXPENSE)
|
(266,002 | ) | (299,143 | ) | 33,141 | 11 | % | |||||||||
NET LOSS
|
$ | (3,795,735 | ) | $ | (4,547,164 | ) | $ | 751,429 | 17 | % |
|
•
|
a decrease in stock based compensation of $1,428,013 due the full vesting of general and administrative employee stock options during 2010; is partially offset by:
|
|
•
|
an increase in brokerage commissions of $300,000 incurred in the XtFt acquisition;
|
|
•
|
an increase in legal and accounting expenses of approximately $171,000 due to costs incurred in the XtFt acquisition, in the proposed myYearbook acquisition, and other contract negotiations;
|
|
•
|
an increase in dues and subscriptions of approximately $112,000 attributable to NYSE AMEX reporting fees;
|
|
•
|
an increase in travel expenses of approximately $104,000;
|
|
•
|
a net increase in salary and related payroll expenses of approximately $72,000 attributable to increased administrative headcount in the US and to additions from the new subsidiary XtFt;
|
|
•
|
and an increase in recruiting expenses of approximately $55,000 attributable to the hiring of three new US employees.
|
For the six months ended June 30,
|
||||||||
2011
|
2010
|
|||||||
Sales and marketing
|
$ | 270,685 | $ | 152,357 | ||||
Product and content development
|
403,005 | 379,578 | ||||||
General and administrative
|
1,164,154 | 2,592,167 | ||||||
Total Stock Based Compensation
|
$ | 1,837,844 | $ | 3,124,102 |
2011
|
2010
|
|||||||
Vesting of stock options
|
$ | 1,658,941 | $ | 2,949,955 | ||||
Vesting of warrants
|
178,903 | - | ||||||
Re-pricing of warrants
|
- | 147,813 | ||||||
Issuance of common stock for professional services
|
- | 26,334 | ||||||
Total Stock Based Compensation
|
$ | 1,837,844 | $ | 3,124,102 |
For the Six Months Ended
June 30,
|
||||||||
2011
|
2010
|
|||||||
Net cash used in operating activities
|
$ | (3,148,576 | ) | $ | (654,753 | ) | ||
Net cash used in investing activities
|
$ | (678,384 | ) | $ | (140,011 | ) | ||
Net cash provided by financing activities
|
$ | 1,470,740 | $ | 283,000 |
June 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
Cash and cash equivalents
|
$ | 11,192,510 | $ | 13,546,572 | ||||
Total assets
|
$ | 20,646,088 | $ | 16,452,789 | ||||
Percentage of total assets
|
54% | 82% |
Games Revenue
|
$ | 238,039 | ||
Change in deferred revenue
|
73,129 | |||
Bookings
|
$ | 311,168 |
For the six months ended June 30,
|
||||||||
2011
|
2010
|
|||||||
LOSS FROM OPERATIONS
|
(3,529,733 | ) | (4,248,021 | ) | ||||
NON CASH OPERATING EXPENSES
|
||||||||
Stock based compensation expense
|
1,837,844 | 3,124,102 | ||||||
Depreciation and amortization
|
355,200 | 192,843 | ||||||
TOTAL NON CASH OPERATING EXPENSES
|
2,193,044 | 3,316,945 | ||||||
NET CASH EARN (BURN)
|
(1,336,689 | ) | (931,076 | ) | ||||
NET MONTHLY CASH EARN (BURN) RATE
|
(222,782 | ) | (155,179 | ) |
●
|
The growth of our business,
|
●
|
belief regarding our working capital being sufficient to operate our business beyond 12 months,
|
●
|
capital expenditures, and
|
●
|
our liquidity.
|
Quepasa Corporation
|
||
August 15, 2011
|
|
/s/ John Abbott
|
John Abbott
|
||
Chief Executive Officer
(Principal Executive Officer)
|
||
|
||
August 15, 2011
|
/s/ Michael Matte
|
|
Michael Matte
|
||
Chief Financial Officer
(Principal Financial Officer)
|
Incorporated by Reference
|
Filed or Furnished
|
|||||||||
Exhibit No.
|
Exhibit Description
|
Form
|
Date
|
Number
|
Herewith
|
|||||
3.1
|
Certificate of Restated Articles of Incorporation
|
10-QSB
|
8/15/07
|
3.1
|
||||||
3.2
|
Certificate of Amendment – Officer Liability Protection
|
10-Q
|
8/9/10
|
3.2
|
||||||
3.3
|
Certificate of Designation
|
10-Q
|
7/25/08
|
3.2
|
||||||
3.4
|
Amended and Restated Bylaws
|
8-K
|
7/3/07
|
3.2
|
||||||
3.5
|
Amendment to Amended and Restated Bylaws
|
8-K
|
5/14/10
|
3.1
|
||||||
4.1
|
Form of Hollywood Note
|
8-K
|
9/24/10
|
4.1
|
||||||
31.1
|
Certification of Principal Executive Officer (Section 302)
|
Filed
|
||||||||
31.2
|
Certification of Principal Financial Officer (Section 302)
|
Filed
|
||||||||
32.1
|
Certification of Principal Executive Officer and Principal Financial Officer (Section 906)
|
Furnished
|
||||||||
101.INS | XBRL Instance Document * | |||||||||
101.SCH | XBRL Taxonomy Extension Schema Document * | |||||||||
101.CAL | XBRL Taxonomy Calculation Linkbase Document * | |||||||||
101.LAB | XBRL Taxonomy Labels Linkbase Document * | |||||||||
101.PRE | XBRL Taxonomy Presentation Linkbase Document * | |||||||||
101.DEF | XBRL Definition Linkbase Document * |
Date: August 15, 2011
|
||||
/s/ John Abbott
|
||||
John Abbott
Chief Executive Officer
(Principal Executive Officer)
|
Date: August 15, 2011
|
||||
/s/ Michael Matte
|
||||
Michael Matte
Chief Financial Officer
(Principal Financial Officer)
|
1.
|
The quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
|
2.
|
The information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ John Abbott
|
||||
John Abbott
Chief Executive Officer
(Principal Executive Officer)
|
||||
Dated: August 15, 2011
|
1.
|
The quarterly report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and
|
2.
|
The information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Michael Matte
|
||||
Michael Matte
Chief Financial Officer
(Principal Financial Officer)
|
||||
Dated: August 15, 2011
|
Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) (USD $)
|
Jun. 30, 2011
|
Dec. 31, 2010
|
---|---|---|
Allowance Accounts receivable (in Dollars) | $ 9,400 | $ 16,000 |
Notes receivable accrued interest (in Dollars) | 10,855 | 3,633 |
Accumulated Amortization (in Dollars) | 167,571 | 0 |
Accounts payable, due to TechFront (in Dollars) | 230,058 | 0 |
Unamortized discount (in Dollars) | $ 1,572,562 | $ 1,643,241 |
Preferred stock par value (in Dollars per share) | $ 0.001 | $ 0.001 |
Preferred stock, shares issued | 0 | 25,000 |
Preferred stock, shares outstanding | 0 | 25,000 |
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Preferred stock, Liquidation preference (in Dollars per share) | $ 2,500,000 | $ 2,500,000 |
Common stock par value (in Dollars per share) | $ 0.001 | $ 0.001 |
Common stock shares issued | 16,645,781 | 15,287,280 |
Common stock, shares outstanding | 16,645,781 | 15,287,280 |
Common stock, shares authorized | 50,000,000 | 50,000,000 |
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) (USD $)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
|
REVENUES | $ 1,841,647 | $ 1,156,116 | $ 4,085,211 | $ 1,478,086 |
OPERATING EXPENSES: | Â | Â | Â | Â |
Sales and marketing | 253,045 | 207,198 | 575,097 | 380,894 |
Product development and content | 1,919,955 | 976,460 | 3,627,419 | 1,840,137 |
Games expenses | 262,469 | Â | 262,469 | Â |
General and administrative | 1,360,875 | 1,617,040 | 2,794,759 | 3,312,233 |
Depreciation and amortization | 218,740 | 85,183 | 355,200 | 192,843 |
TOTAL OPERATING EXPENSES | 4,015,084 | 2,885,881 | 7,614,944 | 5,726,107 |
LOSS FROM OPERATIONS | (2,173,437) | (1,729,765) | (3,529,733) | (4,248,021) |
OTHER INCOME (EXPENSE): | Â | Â | Â | Â |
Interest income | 17,474 | 57 | 34,034 | 402 |
Interest expense | (151,219) | (150,700) | (301,205) | (300,604) |
Other income | 573 | 534 | 1,169 | 1,059 |
TOTAL OTHER INCOME (EXPENSE) | (133,172) | (150,109) | (266,002) | (299,143) |
LOSS BEFORE INCOME TAXES | (2,306,609) | (1,879,874) | (3,795,735) | (4,547,164) |
NET LOSS | (2,306,609) | (1,879,874) | (3,795,735) | (4,547,164) |
Preferred stock dividends | (12,830) | (27,875) | (40,705) | (55,750) |
Foreign currency translation adjustment | 213,296 | 825 | 244,770 | 411 |
COMPREHENSIVE LOSS | (2,093,313) | (1,879,049) | (3,550,965) | (4,546,753) |
NET LOSS ALLOCABLE TO COMMON SHAREHOLDERS | (2,319,439) | (1,907,749) | (3,836,440) | (4,602,914) |
NET LOSS PER COMMON SHARE ALLOCABLE TO | Â | Â | Â | Â |
BASIC AND DILUTED (in Dollars per share) | $ (0.14) | $ (0.15) | $ (0.23) | $ (0.36) |
WEIGHTED AVERAGE NUMBER OF SHARES | Â | Â | Â | Â |
BASIC AND DILUTED (in Shares) | 16,037,343 | 12,963,227 | 16,344,063 | 12,881,396 |
NET LOSS | (2,306,609) | (1,879,874) | (3,795,735) | (4,547,164) |
Preferred stock dividends | (12,830) | (27,875) | (40,705) | (55,750) |
Foreign currency translation adjustment | 213,296 | 825 | 244,770 | 411 |
COMPREHENSIVE LOSS | $ (2,093,313) | $ (1,879,049) | $ (3,550,965) | $ (4,546,753) |
Document And Entity Information
|
6 Months Ended | |
---|---|---|
Jun. 30, 2011
|
Aug. 15, 2011
|
|
Document and Entity Information [Abstract] | Â | Â |
Entity Registrant Name | Quepasa Corporation | Â |
Document Type | 10-Q | Â |
Current Fiscal Year End Date | --12-31 | Â |
Entity Common Stock, Shares Outstanding | Â | 16,668,281 |
Amendment Flag | false | Â |
Entity Central Index Key | 0001078099 | Â |
Entity Current Reporting Status | Yes | Â |
Entity Voluntary Filers | No | Â |
Entity Filer Category | Smaller Reporting Company | Â |
Entity Well-known Seasoned Issuer | No | Â |
Document Period End Date | Jun. 30, 2011 | |
Document Fiscal Year Focus | 2011 | Â |
Document Fiscal Period Focus | Q2 | Â |
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Note 6 - Notes Payable
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Text Block] |
Note
6—Notes Payable
On
January 25, 2008, the Company and MATT Inc. entered into a
Note Purchase Agreement (the “MATT
Agreement”). Pursuant to the terms of the
MATT Agreement: (i) MATT Inc. invested $5,000,000
in Quepasa and Quepasa issued MATT Inc. a subordinated
promissory note due October 16, 2016 with 4.46% interest per
annum (the “MATT Note”); (ii) the exercise price
of MATT Inc.’s outstanding Series 1 Warrant to purchase
1,000,000 shares of the Company’s common stock was
reduced from $12.50 per share to $2.75 per share; (iii) the
exercise price of MATT Inc.’s outstanding Series 2
Warrant to purchase 1,000,000 shares of the Company’s
common stock was reduced from $15.00 per share to $2.75 per
share; and (iv) the Amended and Restated Support Agreement
between the Company and MATT Inc. was terminated, which
terminates MATT Inc.’s obligation to provide the
Company with the use of a corporate jet for up to 25 hours
per year through October 2016. Debt issuance costs
of $24,580 related to this transaction have been capitalized
within the Other Assets section of the balance sheet and will
be amortized to interest expense over the life of the
note. The balance of deferred debt issuance costs
was $14,924 included on the balance sheet in Other Assets at
June 30, 2011.
On
January 25, 2008, the Company and Richard L. Scott
Investments, LLC (“RSI”) entered into a Note
Purchase Agreement (the “RSI
Agreement”). Pursuant to the terms of the
RSI Agreement: (i) RSI invested $2,000,000 in
Quepasa and Quepasa issued RSI a subordinated promissory note
due March 21, 2016 with 4.46% interest per annum (the
“RSI Note”); (ii) the exercise price of
RSI’s outstanding Series 2 Warrant to purchase 500,000
shares of the Company’s common stock was reduced from
$4.00 per share to $2.75 per share; and (iii) the exercise
price of RSI’s outstanding Series 3 Warrant to purchase
500,000 shares of the Company’s common stock was
reduced from $7.00 per share to $2.75 per
share. Debt issuance costs of $15,901 related to
this transaction have been capitalized within the Other
Assets section of the balance sheet and will be amortized to
interest expense over the life of the note. The
balance of deferred debt issuance costs was $9,216 included
on the balance sheet in Other Assets at June 30, 2011.
Notes
payable consist of the following at June 30, 2011:
|
Note 11 - Related Party Transactions
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Related Party Transactions Disclosure [Text Block] |
Note
11—Related Party Transactions
Alonso
Ancira serves on our Board of Directors as a non-employee
director. Mr. Ancira also serves on the Board of
Directors of the Organization, is the Chairman of the Board
of Directors of MATT Inc., our largest shareholder and is the
Chairman of the Board of Directors of Altos Hornos de Mexico,
S.A.B. de C.V. (“AHMSA”), which owns MATT Inc. We
have participated in several significant transactions with
MATT Inc., the Organization and AHMSA, Note 6 - Notes
Payable, Note 8 – Preferred Stock, and Note 10 –
Warrants. These transactions between the Company
and any of the companies listed above do not qualify as
related party transactions for accounting purposes under
GAAP.
During
the six months ended June 30, 2011 and 2010, we earned
$3,430,000 and $434,167 of
DSM revenue, respectively and $120,000 and $337,500,
respectively, of Website Development revenue from
AHMSA. During the six months ended June 30, 2010, we
earned $572,321
of DSM revenue from MATT Inc. on behalf of the
Municipality of Ixtapa in Mexico without commission or
fees. Accounts
receivable of approximately $2.8 and $1.2 million were from
AHMSA at June 30, 2011 and December 31, 2010,
respectively.
In
connection with our December 21, 2010 private placement, MATT
Inc. purchased 333,333 shares and Malcolm Jozoff, an outside
director, purchased 6,666 shares of our common stock on the
same terms and conditions as other investors.
Mr.
Lars Batista, a recently appointed director of the Company,
was a large shareholder of XtFt and received 132,516 shares
of our common stock as part of the acquisition, Note
2. Additionally, a corporation controlled by Mr.
Batista’s brother received a $300,000 brokerage fee in
connection with this acquisition.
|
Note 2 - Business Acquisition
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combination Disclosure [Text Block] |
Note
2—Business Acquisition
On
March 2, 2011, we completed a Stock Purchase Agreement (the
“Agreement”) with XtFt Games S/S Ltda
(“XtFt”), the owner of substantially all of the
assets and business of TechFront Desenvolvimento de Software
S/S Ltda, a Brazilian company (“TechFront”). The
Company acquired XtFt to obtain its game development
expertise and existing and future intellectual
properties.
We
acquired all of the outstanding equity interests of
XtFt. The shares issued to XtFt’s owners
were calculated contractually based on $3,700,000 of our
common stock (348,723 shares) at $10.61 per share which was
based on the average closing price per share for the 10
trading days prior to the date of closing the
Agreement. The acquisition date value of the shares
issued of $2,730,501 was calculated using the fair market
value of the 348,723 shares, at $7.83, the quoted trading
price per share at the acquisition date. We paid a
$300,000 brokerage fee and approximately $81,000 of legal and
other costs directly attributable to the acquisition which
were expensed as incurred and included in general and
administrative expenses for the six months ended June 30,
2011. XtFt may receive a potential earnout fee of
250,000 shares of our common stock based on XtFt achieving
specific performance milestones. An additional
cost of acquisition of $978,750 for the contingent earn out
provision as calculated using the fair market value of the
probable shares to be granted based on the terms of the
Agreement at a price per share valued at the date of
acquisition.
In
connection with the Agreement, on February 1, 2011, we
entered into a Secured Revolving Line of Credit Agreement
(“Credit Agreement”) with TechFront and agreed to
lend up to $500,000. Advances under the Credit
Agreement may be used to pay off certain Techfront loans
specified in the Agreement. The secured revolving
line of credit shall become due and payable on February 1,
2017. The Credit Agreement is secured by certain
U.S. and Brazilian Trademarks of TechFront. Prior
to the acquisition date, $500,000 was advanced to TechFront
under the Credit Agreement. The collectability of
this amount was deemed by management to be doubtful
immediately upon the date of the first advance and therefore
in substance to be additional cost of acquisition.
The
purchase price was allocated first to record identifiable
assets and liabilities at fair value and the remainder to
goodwill as follows:
The
amounts of Xtft’s revenue and net loss included in the
unaudited Company’s consolidated statement of
operations for the six months ended June 30, 2011, and the
unaudited supplemental pro forma revenue and net loss of the
combined entity that give effect to the acquisition had it
occurred January 1, 2010 are as follows.
In
preparing the unaudited pro forma information, various
assumptions were made, and the Company does not purport this
information to be indicative of what would have occurred had
acquisition been made as of January 1, 2010, nor is it
indicative of the results of future combined
operations.
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Note 8 - Series A Preferred Stock
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6 Months Ended |
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Jun. 30, 2011
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Preferred Stock [Text Block] |
Note
8—Series A Preferred Stock
On
June 30, 2008, the Company entered into a transaction with
Mexicans & Americans Thinking Together Foundation, Inc.
(“the Organization”) terminating the Corporate
Sponsorship and Management Services Agreement (the
“CSMSA”). In consideration for the
termination, the Company issued the Organization 25,000
shares of Preferred Stock, par value $0.001, with a
liquidation preference of $2,500,000. The
Preferred Stock was convertible (i) at the election of the
Company; (ii) at the liquidation; or (iii) at the election of
the Organization after one year. The
Preferred Stock was convertible into the number of shares of
common stock which result from dividing the stated value of
$100 per share by the fair market value of a share of common
stock at the conversion date. Dividends on the
Preferred Stock accrued from the date of issuance at the rate
per annum of 4.46% on the Stated Value and are
cumulative. The Dividends were payable in a lump
sum at liquidation or conversion at the request of the
Organization. Accrued dividends were $319,455 and
$278,750 at June 30, 2011 and December 31, 2010,
respectively. On May 12, 2011 the Preferred Stock was
converted into 336,927 shares of common stock at the election
of the Organization and dividend accrual terminated at the
date of the conversion.
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Note 9 - Stock-Based Compensation
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Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block] |
Note
9—Stock-Based Compensation
Effective
January 1, 2006, we adopted the fair value recognition
provisions of ASC 718, “Compensation
– Stock Compensation”, using the
modified-prospective transition method. Since all share-based
payments made prior to January 1, 2006 were fully vested,
compensation cost recognized during the three months ended
June 30, 2011 and 2010 represents the compensation cost for
all share-based payments granted subsequent to January 1,
2006 based upon the grant-date fair value using the
Black-Scholes option pricing model.
The
fair values of share-based payments are estimated on the date
of grant using the Black-Scholes option pricing model, based
on weighted average assumptions. Expected volatility is based
on historical volatility of our common stock. The risk-free
rate is based on the U.S. Treasury yield curve in effect over
the expected term at the time of grant. Compensation expense
is recognized on a straight-line basis over the requisite
service period of the award.
In
December 2007, the Securities and Exchange Commission
(“SEC”) issued guidance which allows companies,
in certain circumstances, to utilize a simplified method in
determining the expected term of employee stock option grants
when calculating the compensation expense to be recorded
under GAAP for employee stock options. The simplified method
can be used after December 31, 2007 only if a company’s
stock option exercise experience does not provide a
reasonable basis upon which to estimate the expected option
term. During 2010 and 2011, we continued to use the
simplified method to determine the expected option term since
our stock option exercise experience does not provide a
reasonable basis upon which to estimate the expected option
term.
The
assumptions used in calculating the fair value of stock-based
awards represent our best estimates, but these estimates
involve inherent uncertainties and the application of
management judgment. As a result, if factors change and we
use different assumptions, our stock-based compensation
expense could be materially different in the future.
Stock
Option Plans
2006
Stock Incentive Plan
On
June 27, 2007, the stockholders approved the 2006 Stock
Incentive Plan (the “2006 Plan”), providing for
the issuance of up to 3,700,000 shares of common stock plus
an additional number of shares of common stock equal to the
number of shares previously granted under the 1998 Stock
Option Plan that either terminate, expire, or lapse after the
date of the Board of Directors’ approval of the 2006
Plan.
In
2008, our Board of Directors and stockholders approved an
amendment to the 2006 Plan to authorize the issuance of an
additional 2,000,000 shares of common stock. In
November 2009, our Board of Directors approved an amendment
to the 2006 Plan to authorize the issuance of an additional
2,000,000 shares of common stock. On June 4, 2010,
our stockholders ratified this amendment to the 2006
Plan. In June 2011, our Board of Directors
and stockholders approved an amendment to the 2006 Plan to
authorize the issuance of an additional 2,000,000 shares of
common stock. As of June 30, 2011, there were
2,039,249 shares of common stock available for grant under
the 2006 Plan. Pursuant to the terms of the 2006
Plan, eligible individuals may be granted incentive stock
options, non-qualified stock options, stock appreciation
rights, restricted stock, or stock grant awards.
A
summary of stock option activity under the 2006 Stock
Incentive Plan during the year ended June 30, 2011 is as
follows:
The
weighted-average grant date fair value of options granted
during the six months ended June 30, 2011 and 2010 was $7.35
and $3.02, respectively. The total intrinsic value
of options exercised during the six months ended June 30,
2011 and 2010 was $4,430,200 and $319,100, respectively. The
fair value of each stock option is estimated on the date of
grant using the Black-Scholes option pricing model with the
following weighted-average assumptions:
Non-Plan
Options
The
Board of Directors has approved and our stockholders have
ratified the issuance of stock options outside of our stock
incentive plans. A summary of Non-Plan option
activity during the three months ended June 30, 2011 is as
follows:
There
were no non-plan options granted during the three months
ended June 30, 2011 or 2010. The total intrinsic
value of non-plan options exercised during the three months
ended June 30, 2011 and 2010 was $0 and $17,200,
respectively.
On
July 8, 2009, the Board of Directors authorized an option
exchange of 5,751,937 existing stock options to a new
exercise price of $1.00 per share in order to provide
incentive for certain key employees. Some of the
exchanged options were granted to our named executive
officers including: 2,268,466 to John Abbott, Chief Executive
Officer, 1,826,971 to Michael Matte, the Chief Financial
Officer and 732,500 to Louis Bardov, the Chief Technology
Officer. The financial impact of this transaction
was an increase of $1,052,010 in
stock based compensation to be amortized over the remaining
life of the options. The option exchange was
subject to meeting performance standards set by our Chief
Executive Officer, which have now been
met.
We
recognized stock-based compensation expense for the vesting
of options of $1,658,941 and $1,516,322 for the six months
ended June 30, 2011 and 2010, respectively.
As
of June 30, 2011, there was $6,095,377 in total unrecognized
compensation cost, which is expected to be recognized over a
period of three years.
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Note 7 - Commitments and Contingencies
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Commitments and Contingencies Disclosure [Text Block] |
Note
7—Commitments and Contingencies
Operating
Leases
The
Company leases building space for its operating offices in
the United States, Mexico, and Brazil. Minimum
future commitments under non-cancelable operating lease
having a remaining term in excess of one year as of June 30,
2011 are as follows:
Litigation
From
time to time, we are party to certain legal proceedings that
arise in the ordinary course and are incidental to our
business. We operate our business online, which is subject to
extensive regulation by federal and state governments.
Recently, we received a subpoena from the New York Attorney
General seeking records relating to our operations including
specific information regarding our e-mail marketing
practices. We intend to co-operate and supply those documents
we believe are directly relevant to the inquiry, although our
attorneys have advised us that the New York Attorney
General’s inquiry is pre-empted by federal law in the
absence of any deceptive acts. Our attorneys have further
advised us that they do not believe our e-mail marketing
involves any deceptive practices. However, we cannot make
assurances that the New York Attorney General will agree or
that other regulators may not challenge aspects of our
business. In such event, defending this or any other action
would cause us to incur substantial expenses and divert our
management's attention. If we are unsuccessful, we may have
to change our e-mail marketing practices which could impair
our ability to obtain new users. Any change in our email
marketing or defense of a regulatory investigation or action
could reduce our future revenues and increase our costs and
adversely affect our future operating
results. Future events or circumstances, currently
unknown to management, will determine whether the resolution
of pending or threatened litigation or claims will ultimately
have a material effect on our consolidated financial
position, liquidity or results of operations in any future
reporting periods.
From
time to time, we are party to certain legal proceedings that
arise in the ordinary course and are incidental to our
business. There are currently no such pending
proceedings to which we are a party that our management
believes will have a material adverse effect on the
Company’s consolidated financial position or results of
operations. However, future events or
circumstances, currently unknown to management, will
determine whether the resolution of pending or threatened
litigation or claims will ultimately have a material effect
on our consolidated financial position, liquidity or results
of operations in any future reporting periods.
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Note 3 - Notes Receivable
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Loans, Notes, Trade and Other Receivables Disclosure [Text Block] |
Note
3—Notes Receivable
On
March 27, 2008, we entered into a Loan Agreement with BRC
Group, LLC (“BRC”) for a maximum amount of
$600,000. A dispute arose and on April 6, 2009, BRC filed a
complaint in the U.S. District Court for the Northern
District of California. The loan receivable balance at April
6, 2009 was $350,000. We filed an answer with
counterclaims alleging a default by BRC and to accelerate the
note.
In
February 2010, we entered into a settlement agreement (the
“Settlement”) with BRC effective as of
September 22, 2009. Under the Settlement,
BRC’s indebtedness to us was reduced from $350,000 to
$250,000, evidenced by a new promissory note (the
“Note”) dated September 22,
2009. The Note contains a repayment term of 18
months commencing June 1, 2011, bearing interest at the
rate of 4% per annum, such interest to begin accruing
February 1, 2011. BRC commenced
repayments on June 1, 2011 in accordance with the terms of
the Note. As collateral for the Note, BRC issued us a warrant
(the “Warrant”) permitting us to receive up to a
30% membership interest in BRC upon default. If
BRC defaults under the Note and the Warrant is exercised, BRC
shall have 90 days to repurchase the membership interest for
the balance of the remaining principal and interest to
date.
As
a result of the Settlement, we recognized a loss of $100,000
in the Other Income (Expense) line of the Statement of
Operations and Comprehensive Income (Loss) for the third
quarter of 2009. As a result of the change in the
prior note from non-interest bearing to an interest bearing
note, we wrote off a discount of $52,602 in 2009 which had
been calculated using a 12.75% imputed interest rate, with an
equal value assigned to Warrant Rights, included in the Other
Assets line of the balance sheet.
As
a result of the Settlement and the Note, both parties agreed
to a mutual release of the current litigation between the
parties by filing a dismissal of the litigation with
prejudice. Furthermore, both parties agreed to
terminate all prior agreements between each other entered
into before September 22, 2009, along with all duties
rights and obligations thereunder.
On
September 20, 2010, we entered into a Note Purchase Agreement
with Hollywood Creations, Inc. (“Hollywood”) and
agreed to lend Hollywood $650,000 in three separate equal
installments. This agreement relates to an
arrangement for Quepasa’s exclusive right and license
to market and distribute games developed by Hollywood to
Quepasa end users. Those rights will be subject to
a revenue sharing agreement. Each loan will be evidenced by a
6% Convertible Promissory Note due one year from the date of
issuance (“Note”). The Note may be
converted (i) automatically if a Qualified Financing occurs
on or before the Maturity Date, into preferred stock issued
in such Qualified Financing; or (ii) if no Qualified
Financing occurs on or before the Maturity Date, upon our
election into common stock. A Qualified Financing
is a transaction (or series of transactions) in which
Hollywood issues and sells shares of its preferred stock for
aggregate gross proceeds of at least $2 million with the
principal purpose of raising capital. Under the automatic
conversion provision, the Note may be converted at a price
per share equal to the lower of (i) 80% of the price per
share paid by the other purchasers of the Preferred Stock
sold in the Qualified Financing or (ii) the amount obtained
by dividing (A) $5,000,000 by (B) the number of shares of
Hollywood’s capital stock outstanding immediately prior
to the Qualified Financing (assuming full conversion and
exercise of all convertible and exercisable securities then
outstanding (except for the Notes), and including any shares
reserved for future issuance pursuant to an equity incentive
or similar plan), with no fractional shares. Under
the voluntary conversion provision, the Note may be converted
at a price per share equal to 80% of the most recent price
paid for Common Stock sold by Hollywood in an arm’s
length private transaction. If no such transactions have
occurred, the voluntary conversion price shall be equal to
80% of the average of (i) the amount reasonably determined by
a qualified independent appraiser who shall be selected in
good faith by the Board of Directors of Hollywood and (ii)
the amount reasonably determined by a qualified independent
appraiser who shall be selected in good faith by Quepasa;
such appraisals shall be completed within thirty (30) days of
the Conversion Notice. In the year ended December 31, 2010,
we lent the first $216,667 installment and Hollywood issued
us a Note due on September 20, 2011.
The
second and third installments are subject to certain
milestones being met with respect to the development,
delivery and integration of certain social web games and
skill-based wagering titles on our website. Once the
applicable milestone is met, Hollywood may request the second
and third loans of $216,667 each. We have the
right not to lend the second or third installments and also
have a put arrangement permitting us to make the additional
advances.
On
February 11, 2011, the agreement with Hollywood was amended
by permitting the Company to make a $40,000 advance toward
the second installment of $216,667. On March 4,
2011, we lent the additional $40,000 and Hollywood issued us
a Note due on September 20, 2011.
Notes
receivable consist of the following at June 30, 2011:
|
Note 4 - Restricted Cash
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Restricted Assets Disclosure [Text Block] |
Note
4—Restricted Cash
In
2010, we launched a DSM contest with significant cash prizes.
Under state laws, we are required to hold funds equal to the
total prize amount in separate trust accounts that require
written notice from the state to be released. The required
notice is obtained by providing the details of the prize
payments to each state at the conclusion of the contest. The
final prize drawing for this contest will be on or about
August 7, 2011. The balance of restricted cash was $275,000
at June 30, 2011.
|
Note 12—Subsequent Events
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Subsequent Events [Text Block] |
Note
12—Subsequent Events
During
July, 2011, warrants totaling 25,000 were exercised for
$112,500.
On
July 14, 2011 Xtft’s name was changed to Quepasa Games
S/S Ltda (“Quepasa Games”).
On
July 19, 2011, the Company, IG Acquisition Company
(“Merger Sub”), a wholly-owned subsidiary
of the Company, and Insider Guides, Inc., doing
business as myYearbook.com (“myYearbook”),
entered into an Agreement and Plan of Merger (the
“Merger Agreement”), providing for the
acquisition of myYearbook by Quepasa. The Merger Agreement
provides that, upon the terms and subject to the conditions
set forth in the Merger Agreement, myYearbook will be merged
with and into Merger Sub (the “Merger”).
Following the Merger, Merger Sub will change its name to
Insider Guides, Inc.
Subject
to the terms and conditions of the Merger Agreement, which
has been approved by the boards of directors of the
respective parties, if the Merger is completed, security
holders of myYearbook securities will
receive $100 million consisting of approximately $18 million
in cash and $82 million in Quepasa common stock. The number
of shares of Quepasa common stock to be issued will be based
upon the Transaction Share Price, which will be the lesser of
(A) $10 per share and (B) the average of (i) $7.5715 and (ii)
the average closing price of Quepasa common stock on the 20
trading days ending with the trading day three days prior to
the closing of the Merger. The Transaction Share Price may be
lower than or higher than the market price as of the time of
closing. In order to fund the $18 million cash portion of the
Merger consideration, Quepasa is obligated to raise at least
$10 million and up to $18 million in a financing
transaction.
In
connection with the approval by the Quepasa board of
directors the compensation committee granted $1,782,500
options to myYearbook employees including 450,000 to Mr.
Geoffrey Cook, Chief Executive Officer of myYearbook who
will, assuming the closing of the Merger, become Chief
Operating Officer of Quepasa. The exercise price
of these five-year options will be the closing price of
Quepasa common stock as of the closing of the
Merger. In addition, Matt Inc. provided Quepasa
with a $5 million financing commitment giving it the right to
invest $5 million at the lesser of: (i)The
Transaction Sales Price and (ii) 85% of the average closing
price of Quepasa’s common stock during the 20 trading
day period ending with trading day three days prior to the
closing of the Merger.
The
closing of the Merger is subject to a number of conditions
including approval by the Quepasa shareholders of the shares
to be issued to myYearbook shareholders and to be issued in
connection with the related financing, approval of the Merger
by the myYearbook shareholders’ effectiveness of a Form
S-4 registration statement, raising of at least $10 million
in a financing transaction and various customary closing
conditions. For further details on the proposed
Merger, see the Form 8-K filed with the Securities and
Exchange Commission on July 20, 2011.
On August 3, 2011, a class action complaint was filed by
Michelle Kaffko (the "Plaintiff") against the Company in the
United States District Court of Nevada. The complaint
alleges that the Company sent unauthorized text messages to
thousands of consumers by using equipment that had the
capacity to generate random telephone numbers. The
Plaintiff is seeking, for herself and on the behalf of the
members of the class, $500 for each alleged violation.
The Company did not send the unauthorized texts and intends
to vigorously defend against this baseless lawsuit.
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Note 5 - Property and Equipment
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Property, Plant and Equipment Disclosure [Text Block] |
Note
5—Property and Equipment
Property
and equipment consist of the following:
Depreciation
expense was $192,061 and $192,843 for the six months ended
June 30, 2011 and 2010, respectively.
|
Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit) (Unaudited) (USD $)
|
Total
|
Preferred Stock [Member]
|
Common Stock [Member]
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Additional Paid-in Capital [Member]
|
Retained Earnings [Member]
|
Accumulated Other Comprehensive Income (Loss) [Member]
|
---|---|---|---|---|---|---|
Balance—December 31, 2010 at Dec. 31, 2010 | $ 9,187,891 |  |  |  |  |  |
Vesting of warrants | 178,903 | Â | Â | 178,903 | Â | Â |
Exercise of stock options | 840,740 | Â | 534 | 840,206 | Â | Â |
Exercise of stock options (in Shares) | Â | Â | 532,851 | Â | Â | Â |
Exercise of warrants | 630,000 | Â | 140 | 629,860 | Â | Â |
Exercise of warrants (in Shares) | Â | Â | 140,000 | Â | Â | Â |
Issuance of common stock for acquisition | 2,730,501 | Â | 349 | 2,730,152 | Â | Â |
Issuance of common stock for acquisition (in Shares) | Â | Â | 348,723 | Â | Â | Â |
Contingent issuance of common stock for acquisition | 978,750 | Â | Â | 978,750 | Â | Â |
Issuance of common stock for conversion of preferred stock | Â | (25) | 337 | (312) | Â | Â |
Issuance of common stock for conversion of preferred stock (in Shares) | Â | (25,000) | 336,927 | Â | Â | Â |
Foreign currency translation adjustment | 244,770 | Â | Â | Â | Â | 244,770 |
Preferred stock dividends | (40,705) | Â | Â | Â | (40,705) | Â |
Net loss | (3,795,735) | Â | Â | Â | (3,795,735) | Â |
Vesting of stock options for compensation | 1,658,941 | Â | Â | 1,658,941 | Â | Â |
Balance—June 30, 2011 at Jun. 30, 2011 | $ 12,614,056 |  | $ 16,647 | $ 182,292,819 | $ (169,933,329) | $ 237,919 |
Balance—June 30, 2011 (in Shares) at Jun. 30, 2011 |  |  | 16,645,781 |  |  |  |
Note 1 - Description of Business and Summary of Significant Accounting Policies
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Business Description and Accounting Policies [Text Block] |
Note
1—Description of Business and Summary of Significant
Accounting Policies
Quepasa
Corporation, a Nevada corporation (the
“Company”), was incorporated in June 1997. The
Company is a social media technology company which owns and
operates Quepasa.com. Revenues are generated from
display advertising, the DSM contest platform, website
development, games internally developed and distributed to
ours and other sites, third party developed games introduced
to the site, and royalty revenue.
The
Quepasa.com community provides users with access to an
expansive, multilingual menu of resources that promote social
interaction, information sharing, and other topics of
interest to users. We offer online marketing
capabilities, which enable marketers to display their
advertisements in different formats and in different
locations on our website. We work with our
advertisers to maximize the effectiveness of their campaigns
by optimizing advertisement formats and placement on the
website. The Quepasa.com website is operated and
managed by the Company’s wholly owned Mexico-based
subsidiary, Quepasa.com de Mexico. The Company
acquired XtFt Games S/S Ltda (“XtFt”), on March
2, 2011. The Company’s wholly owned
Brazilian based subsidiary manages game development and
creation of intellectual properties.
Interim
Financial Information
The
accompanying unaudited condensed consolidated financial
statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (the
“SEC”) for interim financial information and with
the instructions to Form 10-Q. Accordingly, they
do not include all of the information required to be included
in a complete set of consolidated financial statements in
accordance with accounting principles generally accepted in
the United States of America. In the opinion of
management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation
have been included. Operating results for the
three months and six months ended June 30, 2011 are not
necessarily indicative of the results that may be expected
for the fiscal year ending December 31, 2011. The
accompanying unaudited condensed consolidated financial
statements should be read in conjunction with the
consolidated financial statements and related notes included
in the Company’s 2010 Annual Report filed with the SEC
on Form 10-K on February 7, 2011.
Principles
of Consolidation
The
accompanying consolidated financial statements include our
accounts and the accounts of our wholly-owned subsidiaries,
Quepasa.com de Mexico, Quepasa Serviços em Solucoes de
Publicidade E Tecnologia Ltda (inactive), and XtFt Games S/S
Ltda (from March 2, 2011). All intercompany
accounts and transactions have been eliminated in
consolidation.
Reclassifications
Certain
prior period amounts in the consolidated financial statements
have been reclassified to conform to the current
period’s presentation. $226,285
for hosting, server storage, bandwidth and
software licenses was reclassified from general and
administrative expense to product development and content
expense for the six months ended June 30, 2010.
Use
of Estimates
The
preparation of consolidated financial statements in
conformity with accounting principles generally accepted in
the United States of America requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the
reporting period. Most significant estimates in
the accompanying consolidated financial statements include
the estimated lives and playing periods that we use for games
revenue recognition, the allowance on accounts receivable,
valuation of notes receivable, valuation of deferred tax
assets, valuation of the discount on notes payable, valuation
of equity instruments granted for services, valuation of
re-pricing of warrants, accounting for business combinations
and evaluating goodwill and long-lived assets for
impairment. Actual results could differ from those
estimates.
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments purchased
with an original maturity of three months or less to be cash
and cash equivalents. The Company continually
monitors its positions with, and the credit quality of, the
financial institutions it invests with.
Cash
and cash equivalents are maintained at financial institutions
and, at times, balances may exceed federally insured
limits. The Company has never experienced any
losses related to these balances. Such amounts on
deposit in excess of federally insured limits at June 30,
2011 approximated $10.9 million.
Condensed
Consolidated Statement of Cash Flows – Supplemental
Disclosure
Non-Monetary
transactions:
On
March 2, 2011, the following assets and liabilities of
XtFt Games S/S Ltda were acquired:
Goodwill
Goodwill
represents the excess of the Company’s purchase price
of XtFt Games S/S Ltda over the fair value of identifiable
assets acquired and liabilities assumed. The Company
evaluates the recoverability of goodwill annually and
whenever events or circumstance make it more likely than not
that impairment may have occurred. Several factors are used
to evaluate goodwill, including management’s plans for
future operations and recent operating results. In the event
facts and circumstances indicate the carrying value of
goodwill is impaired, the goodwill carrying value will be
reduced to its implied fair value through a charge to
operating expenses.
Other
Assets
Other
assets primarily consist of customer contracts, debt issue
costs and deposits. Customer contracts recorded at
fair value from the acquisition of XtFt Games S/S Ltda are
amortized using straight-line method over the life of the
individual contracts. Debt issue costs,
principally loan origination and related fees, are deferred
and amortized over the life of the respective debt using the
straight-line method.
Fair
Value of Financial Instruments
We
measure our financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of
our financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable and
accrued liabilities, the carrying amounts approximate fair
value due to their short maturities. Amounts recorded for
notes payable, net of discount, also approximate fair value
because current interest rates available to us for debt with
similar terms and maturities are substantially the same.
Fair
Value Measurements
Effective
January 1, 2008, we adopted accounting guidance for
financial assets and liabilities. The adoption did not have a
material impact on our results of operations, financial
position or liquidity. This standard defines fair value,
provides guidance for measuring fair value and requires
certain disclosures. This standard does not require any new
fair value measurements, but rather applies to all other
accounting pronouncements that require or permit fair value
measurements. This guidance does not apply to measurements
related to share-based payments. This guidance discusses
valuation techniques, such as the market approach (comparable
market prices), the income approach (present value of future
income or cash flow), and the cost approach (cost to replace
the service capacity of an asset or replacement cost). The
guidance utilizes a fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value
into three broad levels.
The
following is a brief description of those three
levels:
Level
1: Observable inputs such as quoted prices
(unadjusted) in active markets for identical assets or
liabilities.
Level
2: Inputs other than quoted prices which are observable,
either directly or indirectly. These include quoted prices
for similar assets or liabilities in active markets and
quoted prices for identical or similar assets or liabilities
in markets that are not active.
Level
3: Unobservable inputs in
which little or no market data exists, therefore developed
using estimates and assumptions developed by us, which
reflect those that a market participant would
use.
Net
Loss per Share
Basic
net loss per share is computed by dividing net loss
attributable to common stockholders by the weighted average
number of shares of common stock outstanding during the
applicable period. Diluted net loss per share is
determined in the same manner as basic net loss per share,
except that the number of shares is increased to include
potentially dilutive securities using the treasury stock
method. Since the Company incurred a net loss in
all periods presented, all potentially dilutive securities
were excluded from the computation of diluted loss per share
since the effect of including them is anti-dilutive.
The
following table summarizes the number of potentially dilutive
securities outstanding as of June 30, 2011 which may dilute
future earnings per share:
Significant
Customers and Concentration of Credit Risk
During
the six months ending June 30, 2011 and 2010, one customer
comprised 87% and 91% of total revenues, respectively, see
Note 11. One customer comprised 92% and 90% of
total accounts receivable as of June 30, 2011 and December
31, 2010, respectively, see Note 11.
Revenue
Recognition
We
recognize revenue when
persuasive evidence of an arrangement exists, delivery has
occurred or services have been rendered, the purchase price
is fixed or determinable and collectability is reasonably
assured. We recognize revenue in accordance
with ASC 605, “Revenue
Recognition,” ASC 605-25, “Multiple-Element
Arrangements,” and ASC
605-45 “Principal
Agent Considerations.”
During
the year ended December 31, 2010, we signed two contracts
with Altos Hornos de Mexico, S.A.B. de C.V.
(“AHMSA”), which owns MATT Inc., which qualify as
Multiple-Element Arrangements. The first was a $3.5 million
contract to develop a website and a series of environmental
campaigns using our DSM Technology, with multiple delivery
dates from May 2010 through February 2011. The
second was a $3.0 million contract to develop a website and a
legislative campaign using our DSM Technology, with multiple
delivery dates from June through December
2010. The revenue from these contracts is being
allocated between DSM and Website Development as separate
units of accounting based on their relative selling
price. The selling price for DSM was determined
using the ad impressions and click through rate that other
advertising would require to generate similar engagements,
since the DSM is a relatively new concept we developed. The
selling price for Website Development was determined using
the projected hours and prevailing rates for website
development plus the cost of hardware, third party vendors
and premium for use of our development
resources.
During
the three months ended June 30, 2011 and 2010, we performed
transactions with several partners that qualify as Principal
Agent Considerations. We recognize revenue net of amounts
retained by third party entities pursuant to revenue sharing
agreements with advertising networks for Display Advertising
and with other partners for Royalties on product
sales.
During
the three months ended June 30, 2011 and 2010, our revenue
was generated from five principal sources: revenue earned
from the sale of DSM campaigns, website development services,
display advertising on our website, royalty revenue, and
games.
DSM
Revenues: We recognize DSM revenues over the period of
the contest or as the services are
provided. Approximately 86% and 76% of our revenue
came from DSM campaigns during the six months ended June 30,
2011 and 2010, respectively.
Website
Development Revenue: We recognize website development
revenues as the service is provided. Approximately
3% and 0% of our revenue came from website development during
the six months ended June 30, 2011 and 2010,
respectively.
Display
Advertising Revenue: Display advertising revenue is
generated when an advertiser purchases a banner placement
within our Quepasa.com website. We recognize
revenue related to display advertisements upon
delivery. Consistent
with GAAP, we recognize advertising revenue from customers
that are advertising networks on a net basis, while
advertising revenues earned directly from advertisers are
recognized on a gross basis. Approximately
4% and 23% of our revenue came from display advertising
during the six months ended June 30, 2011 and 2010,
respectively.
Royalty
Revenue: Royalty revenue is generated as a percentage
of product sales from certain partnership arrangements. We
recognize royalty revenues on a net basis, as reported to us
by third parties. Approximately 1% and 0% of our
revenue came from royalties during the six months ended June
30, 2011 and 2010, respectively.
Game
Revenue: Game revenue is recognized when persuasive
evidence of an arrangement exists, the sales price is fixed
or determinable, collectability is reasonably assured, and
the service has been rendered. For the purpose of determining
when the service has been provided to the player, we
determine an implied obligation exists to the paying player
to continue displaying the purchased virtual items within the
online game over the estimated average playing period of a
paying player. The virtual goods are categorized
as either consumable or durable. Consumable goods represent
goods that are consumed immediately by a specific player
action and have no residual value. Revenue from consumable
goods is recognized at the time of sale. Durable goods add to
the player’s game environment over the playing
period. Durable items, that otherwise do not have
a limitation on repeated use, are recorded as deferred
revenue at time of sale and recognized as revenue ratably
over the estimated average playing period of a paying
player. For these items, the Company considers the
average playing period that the paying players typically play
the game, currently to be 18 months. If we do not have the
ability to differentiate revenue attributable to durable
virtual goods from the consumable virtual goods for a
specific game, we recognize revenue on the sale of the
virtual goods for the game ratably over the estimated average
playing period that paying players typically play the game.
Any adjustments arising from changes in the estimates of the
average playing period would be applied prospectively on the
basis that such changes are caused by new information
indicating a change in the game player behavior
patterns.
As
the Company controls the game process and acts as a principal
in the transaction, revenue for internally developed games is
recognized on gross basis from sales proceeds reported by pay
aggregators which are net of payment rejections, charge-backs
and reversals. The related games costs including the payment
services, pay aggregator fees and advertising services, and
taxes are recorded as cost of sales. The revenue from third
party developed games is recorded net of revenue sharing
payments and costs to the third party as the Company is
considered to be acting as agent in these transactions.
Approximately 5% of our revenue came from games during the
six months ended June 30, 2011. No
significant game revenue was generated during the six months
ended June 30, 2010.
Recent
Accounting Pronouncements
We
have implemented all new accounting pronouncements that are
in effect and that may impact our financial statements and do
not believe that there are any other new accounting
pronouncements that have been issued that might have a
material impact on our financial position or results of
operations.
|
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