Attached files
| file | filename |
|---|---|
| EX-31.1 - CERTIFICATION - Vape Holdings, Inc. | f10q0311ex31i_peoplestring.htm |
| EX-32.1 - CERTIFICATION - Vape Holdings, Inc. | f10q0311ex32i_peoplestring.htm |
| EX-32.2 - CERTIFICATION - Vape Holdings, Inc. | f10q0311ex32ii_peoplestring.htm |
| EX-31.2 - CERTIFICATION - Vape Holdings, Inc. | f10q0311ex31ii_peoplestring.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2011
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to .
Commission File Number 333-163290
PEOPLESTRING CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 90-0436540 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 157 Broad Street, Suite 109, Red Bank, New Jersey 07701 |
| (Address of principal executive offices) (Zip Code) |
| (732) 741-2840 |
| (Registrant’s telephone number, including area code) |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ¨
Indicate by check mark whether the registrant has submitted and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer ¨ Smaller reporting company x
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Number of shares of Common Stock outstanding at May 16, 2010:
| Common Stock, par value $0.00001 per share | 34,618,500 | |
| (Class) | (Number of Shares) |
PEOPLESTRING CORPORATION
FORM 10-Q
MARCH 31, 2011
INDEX TO FORM 10-Q
| PAGE | ||
|
PART I. FINANCIAL INFORMATION
|
||
|
1
|
||
|
2
|
||
|
3
|
||
|
4
|
||
|
5
|
||
|
6
|
||
|
10
|
||
|
13
|
||
|
13
|
||
|
PART II. OTHER INFORMATION
|
||
|
15
|
||
|
15
|
||
|
15
|
||
|
15
|
||
|
15
|
||
|
15
|
||
|
15
|
||
|
16
|
||
|
E-1
|
||
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information included in this Quarterly Report on Form 10-Q and other filings of the Registrant under the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as information communicated orally or in writing between the dates of such filings, contains or may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements in this Quarterly Report on Form 10-Q, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from expected results. Among these risks, trends and uncertainties are the availability of working capital to fund our operations, the competitive market in which we operate, the efficient and uninterrupted operation of our computer and communications systems, our ability to generate a profit and execute our business plan, the retention of key personnel, our ability to protect and defend our intellectual property, the effects of governmental regulation and other risks identified in the Registrant’s filings with the Securities and Exchange Commission from time to time.
In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms or other comparable terminology. Although the Registrant believes that the expectations reflected in the forward-looking statements contained herein are reasonable, the Registrant cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither the Registrant, nor any other person, assumes responsibility for the accuracy and completeness of such statements. The Registrant is under no duty to update any of the forward-looking statements contained herein after the date of this Quarterly Report on Form 10-Q.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted from the following financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). It is suggested that the following consolidated financial statements be read in conjunction with the year-end consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the years ended December 31, 2010 and 2009 of PeopleString Corporation (“PeopleString” or the “Company”).
The results of operations for the three months ended March 31, 2011 and 2010 are not necessarily indicative of the results of the entire fiscal year or for any other period.
PEOPLESTRING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
March 31, 2011
|
December 31, 2010
|
|||||||
|
ASSETS
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 274,425 | $ | 449,893 | ||||
|
Accounts receivable - net of allowance of $5,200 and $5,350, respectively
|
136,192 | 162,665 | ||||||
|
Prepaid expenses and other current assets
|
27,299 | 678 | ||||||
|
Total current assets
|
$ | 437,916 | $ | 613,236 | ||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable
|
$ | 25,043 | $ | 30,905 | ||||
|
Accrued expenses
|
273,610 | 281,736 | ||||||
|
Total current liabilities
|
298,653 | 312,641 | ||||||
|
Stockholders' equity:
|
||||||||
|
Common stock, $0.00001 par value - authorized 250,000,000 shares; issued and outstanding 34,618,500 and 33,900,000 shares, respectively
|
346 | 339 | ||||||
|
Additional paid in capital
|
680,273 | 585,626 | ||||||
|
Deficit
|
(541,356 | ) | (285,370 | ) | ||||
|
Total stockholders' equity
|
139,263 | 300,595 | ||||||
|
Total liabilities and stockholders' equity
|
$ | 437,916 | $ | 613,236 | ||||
See notes to unaudited consolidated financial statements.
PEOPLESTRING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
|
For the Three Months Ended
|
||||||||
|
March 31,
|
||||||||
|
2011
|
2010
|
|||||||
|
Revenues
|
$ | 276,301 | $ | 411,186 | ||||
|
Operating expenses:
|
||||||||
|
Cost of revenues
|
179,593 | 185,513 | ||||||
|
Research, development, sales, general and administrative
|
352,997 | 232,687 | ||||||
|
Total operating expenses
|
532,590 | 418,200 | ||||||
|
Loss from operations
|
(256,289 | ) | (7,014 | ) | ||||
|
Other income:
|
||||||||
|
Interest income
|
303 | 300 | ||||||
|
Loss before provision for income taxes
|
(255,986 | ) | (6,714 | ) | ||||
|
Provision for income taxes
|
- | - | ||||||
|
Net loss
|
$ | (255,986 | ) | $ | (6,714 | ) | ||
|
Net loss per common share:
|
||||||||
|
Basic and diluted
|
$ | (0.01 | ) | $ | (0.00 | ) | ||
|
Weighted average common shares outstanding:
|
||||||||
|
Basic and diluted
|
34,459,267 | 33,900,000 | ||||||
See notes to unaudited consolidated financial statements.
PEOPLESTRING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited)
|
Common Stock
|
Additional
|
|||||||||||||||||||
|
No. of
|
Paid-In
|
|||||||||||||||||||
|
Total
|
Shares
|
Amount
|
Capital
|
Deficit
|
||||||||||||||||
|
Balance, January 1, 2010
|
$ | 247,951 | 33,900,000 | $ | 339 | $ | 585,626 | $ | (338,014 | ) | ||||||||||
|
Net earnings
|
52,644 | - | - | - | 52,644 | |||||||||||||||
|
Balance, December 31, 2010
|
300,595 | 33,900,000 | 339 | 585,626 | (285,370 | ) | ||||||||||||||
|
Stock-based compensation expense
|
4,842 | - | - | 4,842 | - | |||||||||||||||
|
Issuance of common stock for services (valued at $0.13 per share)
|
89,812 | 718,500 | 7 | 89,805 | - | |||||||||||||||
|
Net loss
|
(255,986 | ) | - | - | - | (255,986 | ) | |||||||||||||
|
Balance, March 31, 2011
|
$ | 139,263 | 34,618,500 | $ | 346 | $ | 680,273 | $ | (541,356 | ) | ||||||||||
See notes to unaudited consolidated financial statements.
PEOPLESTRING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
|
For the Three Months Ended
|
||||||||
|
March 31,
|
||||||||
|
2011
|
2010
|
|||||||
|
Cash flows from operating activities:
|
||||||||
|
Net loss
|
$ | (255,986 | ) | $ | (6,714 | ) | ||
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
|
Non-cash stock-based compensation
|
94,654 | - | ||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Decrease (increase) in accounts receivable, net
|
26,473 | (34,533 | ) | |||||
|
(Increase) decrease in prepaid expenses and other current assets
|
(26,621 | ) | 454 | |||||
|
(Decrease) increase in accounts payable
|
(5,862 | ) | 15,906 | |||||
|
(Decrease) increase in accrued expenses
|
(8,126 | ) | (27,657 | ) | ||||
|
Net cash used in operating activities
|
(175,468 | ) | (52,544 | ) | ||||
|
Net change in cash and cash equivalents
|
(175,468 | ) | (52,544 | ) | ||||
|
Cash and cash equivalents - beginning of period
|
449,893 | 390,889 | ||||||
|
Cash and cash equivalents - end of period
|
$ | 274,425 | $ | 338,345 | ||||
|
Supplementary information:
|
||||||||
|
Cash paid during the period for:
|
||||||||
|
Interest
|
$ | - | $ | - | ||||
|
Income taxes
|
$ | - | $ | - | ||||
|
Non-cash transactions during the year for:
|
||||||||
|
Common stock issued for services
|
$ | 89,812 | $ | - | ||||
|
Common stock options
|
$ | 4,842 | $ | - | ||||
See notes to unaudited consolidated financial statements.
5
PEOPLESTRING CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated balance sheet as of March 31, 2011, and the consolidated statements of operations, stockholders’ equity and cash flows for the periods presented herein have been prepared by PeopleString Corporation (“PeopleString” or the “Company”) and are unaudited. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position, results of operations, changes in stockholders' equity and cash flows for all periods presented have been made. The information for the consolidated balance sheet as of December 31, 2010 was derived from audited financial statements. The results of operations for the three months ended March 31, 2011 are not necessarily indicative of the results to be expected for the year ending December 31, 2011.
These Notes to Unaudited Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and related notes included in PeopleString’s 2010 Annual Report on Form 10-K for the year ended December 31, 2010.
ORGANIZATION
PeopleString was incorporated in the State of Delaware on January 2, 2009. The Company was formed to develop technology that would allow users of social networks to earn incentives through online and offline activities by the user and his or her network. In March 2009, PeopleString’s incentive-based social network was introduced to the market.
RewardString Corporation (“RewardString”), incorporated in the State of Delaware, was formed in late 2010 to develop technology relating to social media marketing. At March 31, 2011, PeopleString owned more than 50% of RewardString’s outstanding common stock. RewardString is currently PeopleString’s only subsidiary.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company’s significant accounting policies are summarized in Note 1 of the Company’s annual report on Form 10-K for the period ended December 31, 2010. There were no significant changes to these accounting policies during the three months ended March 31, 2011 and the Company does not expect that the adoption of other recent accounting pronouncements will have a material impact on its financial statements.
NOTE 2. EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share are computed by dividing net earnings (loss) by the weighted average number of common shares outstanding during the specified period. Diluted earnings (loss) per common share are computed by dividing net earnings (loss) by the weighted average number of common shares and potential common shares outstanding during the specified period. All potentially dilutive securities, which include common stock options, have been excluded from the computation, as their effect is antidilutive.
NOTE 3. FAIR VALUE MEASUREMENTS
The Company utilizes the accounting guidance for fair value measurements and disclosures for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the condensed consolidated financial statements on a recurring basis or on a nonrecurring basis during the reporting period. The fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based upon the best use of the asset or liability at the measurement date. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability. The accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as follows:
Level 1 - Observable inputs such as quoted market prices in active markets.
Level 2 - Inputs other than quoted prices in active markets that are either directly or indirectly observable.
Level 3 - Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions.
As of March 31, 2011 and December 31, 2010, the Company held certain financial assets that are measured at fair value on a recurring basis. These consisted of cash and cash equivalents. The fair value of the cash and cash equivalents is determined based on quoted market prices in public markets and is categorized as Level 1. The Company does not have any financial assets measured at fair value on a recurring basis as Level 2 or Level 3 and there were no transfers in or out of Level 2 or Level 3 during the three months ended March 31, 2011 and the year ended December 31, 2010.
PEOPLESTRING CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth by level, within the fair value hierarchy, the Company’s financial assets accounted for at fair value on a recurring basis as of March 31, 2011 and December 31, 2010:
|
Assets at Fair Value at Period End, Using
|
||||||||||||||||
|
Quoted Prices in Active Markets for Identical Assets
|
Significant Other
Observable Inputs
|
Significant Unobservable Inputs
|
||||||||||||||
|
Assets:
|
Total
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
|
Cash and cash equivalents
|
||||||||||||||||
|
March 31, 2011
|
$ | 274,425 | $ | 274,425 | $ | - | $ | - | ||||||||
|
December 31, 2010
|
$ | 449,893 | $ | 449,893 | $ | - | $ | - | ||||||||
The Company has other financial instruments, such as receivables, accounts payable and other liabilities which have been excluded from the table above. Due to the short-term nature of these instruments, the carrying value of receivables, accounts payable and other liabilities approximate their fair values. The Company did not have any other financial instruments within the scope of the fair value disclosure requirements as of March 31, 2011 and December 31, 2010.
NOTE 4. INCOME TAXES
PeopleString applies the provisions of the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) 740, “Income Taxes” (ASC 740). A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Valuation allowances as of March 31, 2011 have been applied to offset the deferred tax assets in recognition of the uncertainty that such tax benefits will be realized as PeopleString may incur losses.
Components of deferred income tax assets are as follows:
|
March 31, 2011
|
||||
|
Deferred tax assets - current
|
Tax Effect
|
|||
|
Benefit due to loss carryforward
|
$ | 189,475 | ||
|
Valuation allowance
|
(189,475 | ) | ||
| $ | - | |||
The Company will file income tax returns in all jurisdictions in which it has reason to believe it is subject to tax. The Company is subject to examination by various taxing jurisdictions. To date, there have been no examinations. Nonetheless, any tax jurisdiction may contend that a filing position claimed by the Company regarding one or more of its transactions is contrary to that jurisdiction’s laws or regulations. Significant judgment is required in determining the worldwide provisions for income taxes. In the ordinary course of business of a global business, the ultimate tax outcome is uncertain for many transactions. It is the Company’s policy to establish provisions for taxes that may become payable in future years as a result of an examination by tax authorities. The Company establishes the provisions based upon management’s assessment of exposure associated with permanent tax differences and tax credits applied to temporary difference adjustments. The tax provisions are analyzed periodically (at least quarterly) and adjustments are made as events occur that warrant adjustments to those provisions.
NOTE 5. ACCRUED EXPENSES
PeopleString’s incentive-based social network allows users to earn money based on their online and offline activities. PeopleString makes payments to premium and free users who have an earned balance of at least $25, have been active users in the past 90 days and select a payment option. Network earnings are monitored by PeopleString’s management. For the three months ended March 31, 2011 and 2010, PeopleString made payments totaling $93,446 and $122,355, respectively. In addition, for active users, PeopleString accrues amounts earned, but not yet paid. Accrued expenses for network earnings at March 31, 2011 and 2010 were $258,227 and $143,864, respectively.
Other accrued expenses at March 31, 2011 and 2010 were $15,383 and $18,983, respectively, primarily for professional fees.
NOTE 6. COMMON STOCK
In January 2011, PeopleString issued 668,500 shares of its common stock, valued at $0.13 per share, in consideration for marketing services provided by 33 vendors. PeopleString recorded expense of $83,562 in connection with the issuance of these shares. Fair market value was based on the most recent prior private placement per share purchase price.
7
PEOPLESTRING CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Also in January 2011, PeopleString issued 50,000 shares of its common stock, valued at $0.13 per share, in consideration for investment banking services provided by Buckman, Buckman & Reid. PeopleString recorded expense of $6,250 in connection with the issuance of these shares. Fair market value was based on the most recent prior private placement per share purchase price.
NOTE 7. SHARE-BASED COMPENSATION
Equity Incentive Plan:
PeopleString adopted its 2009 Equity Incentive Plan, approved by a majority of PeopleString stockholders at the 2009 annual meeting of stockholders, and amended and approved by a majority of the stockholders of PeopleString in 2010 (the “Equity Incentive Plan”). Under the Equity Incentive Plan, incentive and nonqualified stock options and rights to purchase PeopleString’s common stock may be granted to eligible participants. Options granted under the Equity Incentive Plan are generally priced to be at least 100% of the fair market value of PeopleString’s common stock at the date of the grant. Options granted under the Equity Incentive Plan are generally granted for a term of three to ten years. Options granted under the Equity Incentive Plan generally vest between one to five years.
In January 2011, PeopleString granted incentive stock options to purchase 4,475,000 shares of PeopleString’s common stock under its Equity Incentive Plan to certain of PeopleString’s employees. The incentive stock options were granted at an exercise price of $0.20 per underlying share and vest over a period of one or two years. In addition, PeopleString granted non-qualified stock options to purchase 10,949,500 shares of PeopleString’s common stock under its Equity Incentive Plan to certain of PeopleString’s consultants. The non-qualified stock options were granted at an exercise price of $0.20 or $0.60 per underlying share and vest over a period of two years.
For the three months ended March 31, 2011 and 2010, PeopleString recorded stock-based option compensation expense of $4,842 and $0, respectively. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Stock-based compensation expense was recorded net of estimated forfeitures.
The number of stock options outstanding as of January 1, 2011 and changes to such number during the three months ended March 31, 2011 is as follows:
|
Shares
|
Weighted Average
Exercise Price
|
Weighted Average Remaining Contractual Term
|
Aggregate
Intrinsic Value
|
|||||||||||||
|
Options outstanding at January 1, 2011
|
- | $ | - | - | $ | - | ||||||||||
|
Options granted
|
15,424,500 | $ | 0.45 | |||||||||||||
|
Options exercised
|
- | $ | - | |||||||||||||
|
Options cancelled/forfeited/expired
|
(85,000 | ) | $ | 0.20 | ||||||||||||
|
Options outstanding at March 31, 2011
|
15,339,500 | $ | 0.45 | 3.2 | $ | 3,086,975 | ||||||||||
|
Options exercisable at March 31, 2011
|
937,500 | $ | 0.20 | 4.8 | $ | 421,875 | ||||||||||
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the aggregate difference between the closing stock prices of PeopleString’s common stock at the specified dates and the exercise prices for in-the-money options) that would have been received by the option holders if all in-the-money options had been exercised on the specified dates.
Options granted during the three months ended March 31, 2011 and 2010 were 15,424,500 and 0, respectively.
No options were exercised, and no cash received from option exercises and purchases of shares for the three months ended March 31, 2011 and 2010. No tax benefit was attributable to options exercised in the three months ended March 31, 2011 and 2010.
During the three months ended March 31, 2011 and 2010, options to purchase a total of 85,000 and 0, respectively, shares of PeopleString’s common stock were forfeited or expired with an aggregate intrinsic value of $42,500 and $0, respectively, at the date of expiration.
The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model, consistent with the provisions of ASC 718. Because option-pricing models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options. PeopleString has limited relevant historical information to support the expected exercise behavior because no exercises have taken place.
8
PEOPLESTRING CORPORATION AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the weighted-average assumptions used to estimate the fair values of the stock options granted in the periods presented:
|
Three Months Ended
|
||||||||
|
March 31,
|
||||||||
|
2011
|
2010
|
|||||||
|
Risk-free interest rate
|
0.5 | % | - | % | ||||
|
Expected volatility
|
38.6 | % | - | % | ||||
|
Expected life (in years)
|
1.6 | - | ||||||
|
Dividend yield
|
- | - | ||||||
The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected life of the awards in effect at the time of the grant. PeopleString estimates the volatility of its common stock at the date of the grant based on historical volatility, expected volatility and publicly traded peer companies. The expected life of stock options granted under the Equity Incentive Plan is based on the judgment of management, historical experience and publicly traded peer companies. PeopleString has no history or expectations of paying cash dividends on its common stock.
NOTE 8. RELATED PARTY TRANSACTIONS
Technology License and Shared Services Agreement:
On April 2, 2009, PeopleString entered into a verbal agreement with BigString, a related party, to license BigString’s messaging technology and share the cost of certain common services. At March 31, 2011, BigString was a significant, non-majority stockholder of PeopleString’s common stock. The agreement renews annually, is subject to adjustment periodically, and may be terminated at will by either party upon three days notice. Under the agreement, BigString provides messaging services to PeopleString users. The licensing fee was based on BigString’s experience providing services to other third parties and was determined by BigString’s management. Based on volume, BigString charges PeopleString fees that are higher in aggregate than BigString charges other third parties for outsourced messaging services. For the three months ended March 31, 2011 and 2010, the amount incurred by PeopleString for the licensing was $10,500 and $10,500, respectively.
Shared services costs are quantified based on management’s estimate of the percentage of time devoted to each company. Payments are due quarterly. In 2009, the shared services included hosting, insurance, rent, payroll and miscellaneous general and administrative expenses, and were primarily paid by BigString. In 2010, the shared services included hosting, insurance, rent and miscellaneous general and administrative expenses, and were primarily paid by PeopleString by year-end. For the three months ended March 31, 2011 and 2010, the amount expensed to BigString by PeopleString for the shared expense was $(23,073) and $37,121, respectively. PeopleString’s management determined, in their sole discretion, based on their subjective estimate of the amount of time devoted to each company, the amount incurred and paid for the shared services that is allocated to PeopleString.
On August 3, 2009, PeopleString entered into a verbal agreement with Digital BobKat, LLC, a limited liability company in which Robert S. DeMeulemeester, an officer and director of PeopleString, has an interest, to provide business consulting services, including, but not limited to, management, product development, marketing, research, advertising and general business and administrative procedures and processes. The agreement renews annually, is subject to adjustment periodically, and may be terminated at will by either party upon three days notice. Payments are due monthly and are based on fair market value of the services provided, similar to the terms of a transaction with an unrelated party. Expenses for the three months ended March 31, 2011 and 2010 were $21,929 and $30,595, respectively.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Leases:
PeopleString shares office space with BigString and made payments to BigString for the shared office space. Beginning June 1, 2010, PeopleString paid for its shared office space directly to BigString’s landlord. PeopleString leases a secondary office and hosting facilities. Future minimum lease payments for operating leases are approximately as follows:
|
Minimum
|
||||
|
Years Ending
|
Lease
|
|||
|
December 31,
|
Payments
|
|||
|
2011
|
$ | 15,450 | ||
Rental expenses were $5,623 and $4,544 for the three months ended March 31, 2011 and 2010, respectively.
Excluding shared services and a licensing fee to BigString, computer co-location, power and Internet access expenses were $10,817 and $9,262 for the three months ended March 31, 2011 and 2010, respectively.
Other Commitments:
In the ordinary course of business, PeopleString may provide indemnifications to customers, vendors, lessors, marketing affiliates, directors, officers and other parties with respect to certain matters. It is not possible to determine the aggregate maximum potential loss under these indemnification agreements due to the limited history of prior indemnification claims and unique circumstances involved in each agreement. To date, PeopleString has not incurred material costs as a result of obligation under these agreements and has not accrued any liabilities related to such agreements.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
We have provided below information about PeopleString Corporation’s (“PeopleString” or the “Company”) financial condition and results of operations for the three months ended March 31, 2011 and 2010. This information should be read in conjunction with PeopleString’s unaudited consolidated financial statements for the three months ended March 31, 2011 and 2010, including the related notes thereto, which begin on page 1 of this report. These unaudited consolidated financial statements should be read in conjunction with the year-end consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2010 of the Company. The following discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.
Background
PeopleString was incorporated in the State of Delaware on January 2, 2009. The Company was formed to develop technology that would allow users of social networks to earn incentives through online and offline activities by the user and his or her network. In March 2009, PeopleString’s incentive-based social network was introduced to the market.
RewardString Corporation (“RewardString”), incorporated in the State of Delaware, was formed in late 2010 to develop technology relating to social media marketing. At March 31, 2011, PeopleString owned more than 50% of RewardString’s outstanding common stock. RewardString is currently PeopleString’s only subsidiary.
Overview
PeopleString began as a technology firm, that created an incentive-based social network which allows users to aggregate and share the revenue generated from their online activities, communication and social networking through its website located at www.PeopleString.com. The Company’s “InstaPortal” technology helps users design slices of Internet sites they wish to capture and have those slices appear in a convenient, home page. PeopleString has also developed a service, PeopleDeals & Marketplace Platform, which enables marketers, from local merchants to global brands, to utilize social media as part of their marketing operations. In addition to aggregating deals for consumers by criteria, such as geographical location or interest, the PeopleDeals Platform encourages consumers to share deals within their networks through PeopleString’s “shareItUp” technology.
The PeopleString Social Network allows individuals, entrepreneurs and small businesses to manage and aggregate their personal, business and social communications into one user-friendly online dashboard. PeopleString provides the tools necessary to manage and streamline social networking into an easy-to-use command center with useful features. Revenues are generated through the use of email, Internet searches, watching videos, shopping rewards programs and our proprietary, opt-in direct mail program.
The multi-tiered affiliate program has significantly helped increase membership and revenues in our business. Rather than using traditional advertising and marketing methods, we chose to create a multi-tiered affiliate program to develop new customers. Once a user is referred and signed up, they are part of the multi-tiered affiliate program. Every time the user earns money, whether it be by viewing an ad, performing an Internet search, shopping through our Web site, receiving a piece of direct mail or using one of our premium services, the initial user that referred the new user will earn money, as well as those in the tiered affiliate program above them for five levels.
In January 2011, we introduced an InstaPortal technology that allows users to view continuously updating slices of their favorite websites on their PeopleString homepage. Increased ‘stickiness’ on the PeopleString website may lead to increased traffic, page views and advertising, affiliate and product/services revenue.
In April 2011, the PeopleDeals & Marketplace Platform was introduced to allow businesses to utilize new social marketing tools to create direct social connections between the businesses and consumers in order to increase brand awareness, customer loyalty and/or increased sales. Merchants create unique social applications, attract and retain customers and leverage their social connections. Merchants can leverage their social connections through PeopleString, email and other social networks, such as Facebook and Twitter, to reach potential customers with special offers.
PeopleString’s patent pending “shareItUp” technology allows any business to instantly create social coupons and deals that change in value the more they are shared. By leveraging their customers’ social networks, business can amplify their marketing by encouraging customers to share the message into new social circles. The coupon and deal incentives, combined with trusted recommendations from friends, can motivate consumer trial and cross-purchase transactions both online and in-store.
PeopleString offers multiple tiers of the PeopleDeals Platform. A basic, free service has been set up as a trial for local merchants who are contemplating moving their marketing from local mail, such as Valpak or Clipper Magazine, to an online, social platform. A professional service allows merchants to create and modify deals instantly based on real-time feedback while avoiding revenue reductions of up to 75% which may occur with some online deal sites, such as Groupon or LivingSocial. The deluxe service provides convenience by letting businesses outsource their social media campaigns. Finally, the enterprise service provides the flexibility often needed by large businesses to customize their promotional efforts to target select consumers with their amplified reach.
We promote our service and products primarily through word of mouth by our members to potential members. We augment this viral marketing with tools that our members can leverage to help recruit additional members, including hosted landing pages and collateral. We also allow ‘up-line’ members to volunteer to lead webinars where they can work more closely with potential members.
While we have not advertised to date, we may initiate branding and/or direct response campaigns in the future, including messaging and email tag lines, organic search, paid search, banners, blogs, social networks, video and other viral tactics, multimedia, print, and radio as well as through alliances with marketing affiliates.
Our promotions may also include partnerships, hosting, private label, co-branded solutions and software as a service (“SaaS”). Web publishers and content sites may offer our services to their existing registered member base as well as all future members that register. Web publishers and content sites are responsible for marketing. PeopleString receives advertising revenue associated with these marketing affiliations and may also receive premium fees when registered members upgrade service. In conjunction with contracts to provide services to marketing affiliates, PeopleString may be obligated to make payments, which may represent a portion of revenue, to its marketing affiliates.
In order for us to grow our business and increase our revenue, it is critical for us to attract and retain new users. For us to increase our revenue, we need to establish a large customer base. A large customer base of our free services provides us with more opportunities to sell our premium services, which could result in increased revenue. In addition, a large customer base may allow us to increase our advertising rates and attract other Internet based advertising and marketing firms to advertise and form marketing affiliations with us, which could result in increased advertising and product fee revenues.
Certain criteria we review to measure our performance is set forth below:
· the number of first time users of our social network;
· the number of repeated users of our social network;
· the number of free users;
· the number of paid users; and
· the number of referrals by each of our users.
Critical Accounting Policies
PeopleString’s discussion and analysis of financial condition and results of operations are based upon PeopleString’s unaudited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these unaudited consolidated financial statements requires PeopleString to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, PeopleString evaluates its estimates, including but not limited to those related to such items as costs to complete performance contracts, income tax exposures, accruals, depreciable/useful lives, allowance for doubtful accounts and valuation allowances. PeopleString bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates
PeopleString believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.
Revenue Recognition. PeopleString derives revenue from online services, electronic commerce, advertising and data network services. PeopleString also derives revenue from marketing affiliations. PeopleString recognizes revenue in accordance with the guidance contained in the ASC 605, “Revenue Recognition.”
Consistent with the provisions of ASC 605-45-05, PeopleString generally recognizes revenue associated with its advertising and marketing affiliation programs on a gross basis due primarily to the following factors: PeopleString is the primary obligor; has general inventory risk; has latitude in establishing prices; has discretion in supplier selection; performs part of the service; and determines specifications.
Consistent with ASC 605-50-15, PeopleString accounts for cash considerations given to customers, for which it does not receive a separately identifiable benefit or cannot reasonably estimate fair value, as a reduction of revenue rather than an expense. Accordingly, any corresponding distributions to customers are recorded as a reduction of gross revenue.
PeopleString records its allowance for doubtful accounts based upon an assessment of various factors, including historical experience, age of the accounts receivable balances, the credit quality of customers, current economic conditions and other factors that may affect customers’ ability to pay.
Research and Development. PeopleString accounts for research and development costs in accordance with accounting pronouncements, including ASC 730, “Research and Development” and ASC 985, “Software.” PeopleString has determined that technological feasibility for its software products is reached shortly before the products are released. Research and development costs incurred between the establishment of technological feasibility and product release have not been material and have accordingly been expensed when incurred.
Stock-Based Compensation. PeopleString accounts for stock-based compensation under ASC 718, “Compensation-Stock Compensation” (“ASC 718”). The compensation cost for the portion of awards is based on the grant-date fair value of those awards as calculated for either recognition or pro forma disclosures under ASC 718.
PeopleString has one stock-based compensation plan under which incentive and nonqualified stock options or rights to purchase stock may be granted to employees, officers, directors and other eligible participants. PeopleString issues shares of its common stock, warrants to purchase common stock and non-qualified stock options to non-employees as stock-based compensation. PeopleString accounts for the services using the fair market value of the consideration issued.
Accounting for Derivatives. PeopleString evaluates its options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC 815-15-10, “Hedging and Derivatives-Embedded Derivatives” and related interpretations including ASC 815-40-05, “Hedging and Derivatives-Contracts in Entity’s Own Equity.”
Recent Accounting Pronouncements. PeopleString’s significant accounting policies are summarized in Note 1 of PeopleString’s consolidated financial statements for the years ended December 31, 2010 and 2009. There were no significant changes to these accounting policies during the years ended December 31, 2010 and 2009 and PeopleString does not expect that the adoption of other recent accounting pronouncements will have a material impact on its financial statements.
Results of Operations
For the Three Months Ended March 31, 2011 and 2010
Net Earnings (Loss). For the three months ended March 31, 2011, net loss was $255,986, as compared to a net loss of $6,714 for the three months ended March 31, 2010. The $249,272 increase in net loss was primarily attributable to a $134,885 decrease in revenues and $114,390 increase in operating expenses.
Revenues. For the three months ended March 31, 2011, revenues were $276,301, a $134,885 decrease from revenues of $411,186 earned in the three months ended March 31, 2010. Of the revenues generated for the three months ended March 31, 2011, $116,917 was generated from product and service fees and $159,385 was generated from advertisers and affiliates, as compared to $287,083 from product and service fees and $124,103 from advertisers and affiliates for the three months ended March 31, 2010.
|
·
|
The $170,167 decrease in product and service fees for the three months ended March 31, 2011 over the same prior year period was primarily due to the completion of product testing in 2010 which was not renewed and a pause in premium subscriptions as the Company introduced new products and services, including InstaPortal, PeopleDeals and shareItUp.
|
|
·
|
Advertising and affiliate revenues are paid based on a mix of impressions, clicks and actions. The $35,282 increase in advertising and affiliate fees for the three months ended March 31, 2011 over the same prior year period was primarily due to higher traffic driven by a higher number of users and greater amount of time spent on PeopleString’s site by its members.
|
Operating Expenses. For the three months ended March 31, 2011, operating expenses were $532,590, a $114,390 increase from operating expenses of $418,200 incurred in the three months ended March 31, 2010.
|
·
|
Cost of revenues: Cost of revenues for the three months ended March 31, 2011 were $179,593, as compared to $185,513 for the same prior year period. The $5,920 decrease in cost was primarily attributable to decreased network payments to users.
|
|
·
|
Research, development, sales, general and administrative: Research, development, sales, general and administrative expenses for the three months ended March 31, 2011 were $352,997, as compared to $232,687 for the same prior year period. The $120,310 increase in expense was primarily attributable to increased hosting, professional, staffing and associated overhead expenses.
|
Other Income. For the three months ended March 31, 2011, other income was $303, a $3 increase over other income of $300 in the three months ended March 31, 2011. The increase was primarily attributable to higher average cash balances.
Income Taxes. For the three months ended March 31, 2011 and 2010, PeopleString has applied valuation allowances to offset the deferred tax assets in recognition of the uncertainty that such tax benefits will be realized.
|
·
|
At December 31, 2010, PeopleString had available net operating loss carry forwards of approximately $0.3 million for federal and state income tax reporting purposes which expire in various years through 2030. The principal items giving rise to deferred taxes are timing differences between book and tax assets, other expenditures and a net operating loss carryforward. Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, the annual utilization of a company’s net operating loss and research credit carry forwards may be limited, and, as such, PeopleString may be restricted in using its net operating loss and research credit carry forwards to offset future federal income tax expense.
|
Liquidity and Capital Resources
PeopleString’s operating and capital requirements have exceeded its cash flow from operations while PeopleString has been building its business. Since inception through March 31, 2011, PeopleString has used $245,090 in operating and investing activities. PeopleString has also received $519,515 of investments from PeopleString’s stockholders.
PeopleString’s cash balance as of March 31, 2011 was $274,425, which was a decrease of $175,468 from the cash balance of $449,893 as of December 31, 2010. This decrease to the cash balance was primarily attributable to the net loss, partially offset by non-cash stock-based compensation.
Management believes PeopleString’s current cash balance of $303,185 at May 10, 2011 is sufficient to fund the minimum level of operations for the next twelve months.
PeopleString may seek additional equity financing and/or debt financing. It is also possible that PeopleString will seek to borrow money from traditional lending institutions, such as banks.
PeopleString expects to continue development of its offerings. PeopleString also expect sales, marketing and advertising expenses and cost of revenues to increase as it promotes and grows its products and services. However, if PeopleString’s revenue and cash balance are insufficient to fund its operations, it will seek additional funds. There can be no assurance that such funds will be available to PeopleString or that adequate funds for its operations, whether from debt or equity financings, will be available when needed or on terms satisfactory to PeopleString. PeopleString’s failure to obtain adequate additional financing may require it to delay or curtail some or all of its business efforts and could cause PeopleString to seek bankruptcy protection. Any additional equity financing may involve substantial dilution to PeopleString’s then-existing stockholders.
PeopleString’s current officers and directors have not, as of the date of this filing, loaned any funds to PeopleString. There are no formal commitments or arrangements to advance or loan funds to PeopleString or repay any such advances or loans.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PeopleString is a smaller reporting company and is therefore not required to provide this information.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on management’s evaluation, our chief executive officer and chief financial officer concluded that, as of March 31, 2011, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
(b) Changes in internal control over financial reporting.
We review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.
There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
PeopleString is not a party to, and none of its property is the subject of, any pending legal proceedings. To PeopleString’s knowledge, no governmental authority is contemplating any such proceedings.
Item 1A. Risk Factors
PeopleString is a smaller reporting company and is therefore not required to provide this information.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. (Removed and Reserved.)
Item 5. Other Information
None.
Item 6. Exhibits
See Index of Exhibits commencing on page E-1.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| PeopleString Corporation | |||
| Registrant | |||
|
Dated: May 16, 2011
|
By:
|
/s/ Darin M. Myman | |
|
Darin M. Myman
President and Chief Executive Officer
(Principal Executive Officer)
|
|||
|
Dated: May 16, 2011
|
By:
|
/s/ Robert S. DeMeulemeester | |
|
Robert S. DeMeulemeester
Executive Vice President, Chief Financial Officer
and Treasurer (Principal Financial and Accounting Officer)
|
INDEX OF EXHIBITS
|
Exhibit No.
|
Description of Exhibit
|
|
31.1
|
Section 302 Certification of Chief Executive Officer.
|
|
31.2
|
Section 302 Certification of Chief Financial Officer.
|
|
32.1
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
|
|
32.2
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
|
E-1