PR Complete Holdings, Inc - FORM 10-Q

Attached files

file	filename
EX-31.1 - EXHIBIT 31.1 - PR Complete Holdings, Inc	v235423_ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - PR Complete Holdings, Inc	v235423_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - PR Complete Holdings, Inc	v235423_ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - PR Complete Holdings, Inc	v235423_ex32-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

¨ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

¨ 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 000-54190

YESDTC HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Nevada (State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

300 Beale Street, Suite 613 San Francisco, CA (Address of principal executive offices)		94105 (Zip Code)

Registrant’s telephone number, including area code (925) 922-2560

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.0001 per share

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer o	Accelerated filer o
	Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

As of September 20, 2011, there were 273,816,317, shares of Common Stock, par value $0.0001 per share, outstanding.

YESDTC HOLDINGS, INC.

Table of Contents

		Pages

Part I	FINANCIAL INFORMATION

Item 1.	Financial Statements.

	Condensed Consolidated Balance Sheets as of June 30, 2011 (Unaudited) and December 31, 2010	3

	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010 (Unaudited)	4

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010 (Unaudited)	5

	Notes to Unaudited Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	22

Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	25

Item 4.	Controls and Procedures.	25

Part II	OTHER INFORMATION

Item 1.	Legal Proceedings	25

Item 1A.	Risk Factors	25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25

Item 3.	Defaults Upon Senior Securities	25

Item 4.	(Removed and Reserved)	25

Item 5.	Other Information	26

Item 6.	Exhibits	26

	Signatures	26

YESDTC HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2011			December 31, 2010
	Unaudited
Assets
Current Assets

Cash and cash equivalents	$	7,598		$	14,224
Accounts receivable, net of allowance of $370,912 and $0, respectively		—			37,471
Inventories		—			68,287
Prepaid expenses		96,179			298,295
Total Current Assets		103,777			418,277

Debt issue costs, net		653			4,492

Total Assets	$	104,430		$	422,769

Liabilities and Stockholders’ Deficit

Current Liabilities
Reserve for sales returns	$	22,351		$	4,342
Accrued expenses		121,297			92,888
Accounts payable, related party		45,000			15,000
Short term notes payable		180,000			—
Short term convertible notes payable and put premium, net of discount of $35,962		89,488			—
Short term loans- related party		18,500			240,000
Warrant liability		301,400			1,041,200
Embedded conversion option liability		215,971			950,000
Senior secured convertible notes, net of debt discount of $18,667 and $75,555 at June 30, 2011 and December 31, 2010, respectively		67,833			84,445
Senior secured convertible notes due to related parties, net of debt discount of $18,889 at December 31, 2010		—			21,111
Total Current Liabilities		1,061,840			2,448,986

Commitments and Contingencies (Note 14)

Stockholders' deficit
Series A convertible preferred stock, par value $0.0001; 100,000,000 shares authorized; 42,400 issuable at June 30, 2011 and none outstanding at December 31, 2010		212,000			—
Common stock, par value $0.0001; 900,000,000 shares authorized; 249,855,963 and 141,300,000 issued and outstanding at June 30, 2011 and December 31, 2010, respectively		24,986			14,130
Common stock issuable, par value $0.0001; 6,483,756 shares at June 30, 2011 and 27,662,353 shares at December 31, 2010, respectively		648			2,767
Additional paid-in-capital		3,703,071			2,174,182
Accumulated deficit		(4,898,115	)		(4,200,629	)
Total Stockholders' Deficit		(957,410	)		(2,026,217	)
Total Liabilities and Stockholders' Deficit	$	104,430		$	422,769

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

YESDTC HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three months ended June 30, 2011			Three months ended June 30, 2010			Six months ended June 30, 2011			Six months ended June 30, 2010

Revenues	$	76,689		$	—		$	526,685		$	—
Cost of Sales		205,500			—			314,627			—

Gross profit/(loss)		(128,811	)		—			212,058			—

Operating Expenses:
Sales and marketing		69,010			76,176			409,361			142,987
General and administrative		1,053,606			436,282			1,868,585			766,096
Total operating expenses		1,122,616			512,458			2,277,946			909,083

Operating loss		(1,251,427	)		(512,458	)		(2,065,888	)		(909,083	)

Other income/ (expense)

Interest expense		(45,924	)		(28,691	)		(105,427	)		(57,382	)
Change in fair value of embedded conversion option liability		439,029			3,000,000			734,029			1,500,000
Change in fair value of warrant liability		416,480			3,288,000			739.800			1,644,000
Total other income/(expense)		809,585			6,259,309			1,368,402			3,086,618

Net income/(loss)	$	(441,842	)	$	5,746,851		$	(697,486	)	$	2,177,535

Net income/(loss) per common share – basic	$	(0.00	)	$	0.04		$	(0.00	)	$	0.02

Net income/(loss) per common share – diluted	$	(0.00	)	$	0.02		$	( 0.00	)	$	0.01

Weighted average common shares outstanding – basic		247,564,644			141,924,727			228,719,298			141,759,182

Weighted average common shares outstanding – diluted		247,564,644			256,724,727			228,719,298			256,559,182

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

YESDTC HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six months ended June 30, 2011			Six months ended June 30, 2010
Cash Flows From Operating Activities
Net income/(loss)	$	(697,486	)	$	2,177,535
Adjustments to reconcile net income/(loss) to net cash used in operating activities:
Amortization of offering costs from the issuance of convertible notes		3,839			2,450
Amortization of debt discount from the issuance of convertible notes		87,766			50,000
Amortization of stock based compensation issued for services		589,123			550,417
Issuance of common stock in exchange for services		562,000			—
Contributed services		25,000			—
Reserve for product obsolescence		14,498			—
Reserve for doubtful accounts		370,912			—
Contributed services related to prior issuance of common stock to founders		—			8,900
Change in fair value of warrant liability		(734,029	)		(1,644,000	)
Change in fair value of embedded conversion option liability		(739,800	)		(1,500,000	)

Changes in operating assets and liabilities:
Accounts receivable		(333,441	)		—
Inventory		53,789			—
Prepaid expenses		25,000			15,000
Return for sales accruals		18,009			—
Accrued expenses		44,527			(30,440	)
Accounts payable to related party		30,000			(20,641	)
Total Adjustments		17,192			(2,580,536	)
Net Cash Used In Operating Activities		(680,293	)		(390,779	)

Cash Flows From Investing Activities
Net Cash Provided By (Used In) Investing Activities		—			—

Cash Flows From Financing Activities
Proceeds from sale of short term notes		180,000			—
Proceeds from sale of preferred stock		212,000			—
Proceeds from sale of short term notes, related party		218,000			—
Subscriptions received from the sale of common stock		16,667			—
Proceeds from issuance of convertible notes		77,500			—
Repayments of short term notes, related party		(30,500	)		—
Net Cash Provided by Financing Activities		673,667			—

Net Increase/(Decrease) In Cash and Cash Equivalents		(6,626	)		(390,779	)
Cash and Cash Equivalents – Beginning of period		14,224			447,626
Cash and Cash Equivalents – End of Period	$	7,598		$	56,847

Supplemental Disclosures of Cash Flow Information

Cash paid during the period for:
Interest	$	—	$	—
Income taxes	$	—	$	—

Non-cash investing and financing activities:
Conversion short term notes and accrued interest, related party to common stock	$	413,659	$	—
Conversion of senior secured convertible notes and accrued interest to common stock	$	78.263	$	—
Conversion of senior secured convertible notes and accrued interest , related party to common stock	$	42,500	$	—
Accrued interest , capital contribution	$	3,838	$	—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Note 1.

Organization and Nature of Business

YESDTC Holdings, Inc. (referred to as “YESDTC”, the “Company’’, “we”, “our” or “us”) was initially formed as YesDTC, Inc. a Delaware corporation on November 13, 2009. We subsequently recapitalized on December 11, 2009 through a reverse merger and recapitalization with PR Complete Holdings, Inc. (“PR” or the “Company”) with YesDTC, Inc. as the surviving subsidiary of PR. PR was founded as an unincorporated business in September 2006 and incorporated under the laws of the State of Nevada on May 22, 2008, and subsequently became a public shell company, as defined by the Securities and Exchange Commission (“SEC”). The name of PR was changed to YesDTC Holdings, Inc. prior to the merger.

We are a direct-to-consumer global marketer and distributor of consumer goods and products. YesDTC is a direct-to-consumer venture marketing company specializing in the creation of innovative, high quality direct-response-television (DRTV) and internet marketing programs to reach a broad based consumer audience of domestic and international customers. We are in the business of identifying, marketing, selling and distributing consumer goods and household items directly to consumers via DRTV and internet media outlets, including high-quality television infomercials. The Company brings a unique set of skills to the business of successful consumer product marketing. Specifically, YesDTC was established to provide financing for DRTV and internet based marketing campaigns; develop and produce the creative content of these media ads by the Company’s team of experts; and arrange all aspects of advertisement broadcasting, including interfacing with media buyers.

Note 2.

Summary of Significant Accounting Policies and Basis of Presentation

Going concern: As reflected in the accompanying unaudited condensed consolidated financial statements, the Company has a net loss of $697,486, and net cash used in operations of $680,293 for the six months ended June 30, 2011. Additionally, as of June 30, 2011 the Company had a working capital deficit, stockholders’ deficit and an accumulated deficit of $958,063, $957,410 and $4,898,115. These matters raise substantial doubt about our ability to continue as a going concern. Our unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible effects on recoverability and classification of assets or the amounts and classification of liabilities that may result from our inability to continue as a going concern.

Historically, we have financed our working capital and capital expenditure requirements primarily from long-term notes and sales of common stock. Although we have a working capital deficit of $958,063 at June 30, 2011, a majority of the working capital deficit results from the derivative liabilities and we believe that with our ability to raise additional funds, we have sufficient funds and have future cash flows to continue in operation at least through the June 30, 2012. The forecast that our financial resources will last through that period is a forward-looking statement that involves significant risks and uncertainties. It is reasonably possible that should we require additional financing, we will not be able to obtain it to continue operations. Furthermore, any additional equity or convertible debt financing will be dilutive to existing shareholders and may involve preferential rights over common shareholders. Debt financing, with or without equity conversion features, may involve restrictive covenants. We may seek additional equity and/or debt financing to sustain our growth strategy although as of the date of these condensed consolidated financial statements, our financial projections do not indicate that our existing operations and our expected growth plans will require us to.

Our business plan is based on our ability to generate future revenues from the sale of products which we expect to be able to market and sell through our distribution channels. However, the time required for us to become profitable from operations is highly uncertain, and we cannot assure you that we will achieve or sustain operating profitability or generate sufficient cash flow to meet our planned capital expenditures, working capital and debt service requirements.

Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and with the rules and regulations of the U.S Securities and Exchange Commission for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. The unaudited condensed consolidated financial statements reflect all normal recurring adjustments, which, in the opinion of management, are considered necessary for a fair presentation of the results for the periods shown. The results of operations for the periods presented are not necessarily indicative of the results expected for the full fiscal year or for any future period. The information included in these unaudited condensed consolidated financial statements should be read in conjunction with Management’s Discussion and Analysis and Plan of Operation contained in this report and the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Use of Estimates: The preparation of the unaudited condensed 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, the disclosure of contingent assets and liabilities, and the amounts of revenues and expenses. Actual results could differ from those estimates. Significant estimates in the accompanying unaudited condensed consolidated financial statements include allowance for doubtful accounts, valuation of inventories, valuation of discounts on debt, valuation of the liabilities for derivative instruments, valuation of equity based instruments issued for other than cash, estimates of the reserve for sales returns, and the valuation allowance for deferred tax assets.

YESDTC HOLDINGS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011

Principles of Consolidation: The unaudited condensed consolidated financial statements include the accounts of YesDTC Holdings, Inc. and its subsidiary. All significant inter-company balances and transactions have been eliminated in the consolidation.

Concentration of Credit Risk: Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash and cash equivalents. At times, our cash and cash equivalents may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. At June 30, 2011 and December 31, 2010, we had no cash deposits that exceeded federally insured limits.

Inventories: Inventories consist of finished goods and are recorded at lower of cost or market, determined on a first-in-first out basis.

Fair value of financial instruments and fair value measurements: We measure our financial and non-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.

Upon inception, we adopted accounting guidance for financial and non-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 that 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.

YESDTC HOLDINGS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011

Financial Assets and Liabilities: We currently measure and report at fair value liabilities for price adjustable warrants and price adjustable embedded conversion options in convertible debt. The fair value liabilities for price adjustable warrants and embedded conversion options has been recorded as determined utilizing the Black-Scholes option pricing model. The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2011 and December 31, 2010:

	Balance at June 30, 2011		Quoted priced in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs
			(Level 1)		(Level 2)		(Level 3)

Liabilities:
Fair value liability for warrant liabilities	$	301,400	$	-	$	-	$	301,400
Fair value liability for embedded conversion options		215,971		-		-		215,971
Total financial liabilities	$	517,371	$	-	$	-	$	517,371

	Balance at December 31, 2010		Quoted priced in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs
			(Level 1)		(Level 2)		(Level 3)

Liabilities:
Fair value liability for warrant liabilities	$	1,041,200	$	-	$	-	$	1,041,200
Fair value liability for embedded conversion options		950,000		-		-		950,000
Total financial liabilities	$	1,991,200	$	-	$	-	$	1,991,200

Following is activity through June 30, 2011 from inception (November 13, 2009) of the fair value measurements using significant unobservable Level 3 inputs:

Balance at November 13, 2009 (Inception)	$	-
Change in fair value of derivative liability charged to other expense	$	10,480,000
Ending balance at December 31, 2009	$	10,480,000
Change in fair value of derivative liability recorded as other income		(8,488,800	)
Ending balance at December 31, 2010	$	1,991,200
Change in fair value of derivative liability recorded as other income		(1,473,829	)
Ending balance at June 30, 2011	$	517,371

Non-Financial Assets and Liabilities: We currently have no non-financial assets and liabilities recorded at fair value.

Segment Information: The FASB has established standards for reporting information on operating segments of an enterprise in interim and annual financial statements. The Company operates in one segment which is the business of direct-to-consumer services. The Company’s chief operating decision-maker reviews the Company’s operating results on an aggregate basis and manages the Company’s operations as a single operating segment.

YESDTC HOLDINGS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011

Revenue Recognition: The Company recognizes revenue, net of actual and estimated returns, from sales to customers when all of the components of the sale have been completed including the shipment of the item and in some cases the receipt of cash. For certain products, the Company believes that collection is not probable until it receives the cash associated with an order at which point it recognizes the revenue associated with the corresponding sale. The Company applies the revenue recognition principles set forth in ASC 605 which provides for revenue to be recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the price is fixed or determinable, and (iv) collectability is reasonably assured.

Basic and Diluted Net Income/(Loss) Per Share: Basic net loss per share is computed on the basis of the weighted average number of common shares outstanding during each year. Diluted net loss per share is computed on the basis of the weighted average number of common shares and common stock equivalents outstanding. Common stock equivalents having an anti-dilutive effect on diluted net income (loss) per share are excluded from the calculation.

At June 30, 2011 the following common stock equivalents were outstanding, all of which were excluded from the computation of diluted net earnings per share since the effect was anti-dilutive and which may dilute future earnings per share:

	June 30, 2011
Series A convertible preferred stock		42,400,000
Options to purchase common stock		27,000,000
Warrants to purchase common stock		87,365,669
Convertible debt (1)		21,625,000
Total		178,390,669

(1)

Excludes the convertible debt sold to an investor in March and May 2011 as the conversion price, under the terms of the note cannot be reasonable known. However, if price per share outstanding at June 30, 2011 ($0.0055) were used and after the application of the 39% discount to that price, the notes would be convertible into approximately 14.1 million common shares.

At June 30, 2010, a reconciliation of basic and diluted weighted average shares was as follows;

Basic			141,759,182
Options to purchase common stock			10,000,000
Warrants to purchase common stock			54,800,000
Convertible debt			50,0000,000
Total			256, 559,182

Reclassifications. Certain accounts in the prior year condensed consolidated financial statements have been reclassified for comparative purposes to conform to the presentation in the current year condensed consolidated financial statements. These reclassifications have no effect on the previously reported net loss.

Recent Accounting Pronouncements:

In May 2011, FASB issued ASU No. 2011-04, Fair Value Measurement (ASC Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirement in U.S. GAAP and IFRS's. This update provides amendments to ASC Topic 820 so that fair value has the same meaning in U.S. GAAP and in IFRSs and that their respective fair value measurement and disclosure requirements are the same. The adoption of this update did not have a material effect on the financial position, results of operations or cash flows of the Company.

In June 2011, FASB issued ASU No. 2011-05, Comprehensive Income (ASC Topic 220), Presentation of Comprehensive Income. This update provides amendments to ASC 220 to increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS). Most notably, the update eliminates the option to present components of other comprehensive income (loss) as part of the statement of changes in stockholders’ equity (deficit). The amendment is effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company currently displays comprehensive income (loss) in its statement of operations and accordingly, doesn't anticipate the adoption of this update having a material effect on the financial position, results of operations or cash flows of the Company.

YESDTC HOLDINGS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011

Other ASUs which are not effective until after June 30, 2011 are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

Note 3.

Accounts receivable

The Company’s accounts receivable is comprised of:

	June 30, 2011			December 31, 2010
Trade receivables	$	370,912		$	37,471
Allowance for doubtful accounts		(370,912	)		—
Total	$	—		$	37,471

Bad debt expense for the periods ended June 30, 2011 and 2010 was $370,912 and $0, respectively. Refer to Note 14 for a discussion of the termination of the Wordsmart license agreement.

Note 4.

Inventory

The Company’s inventory is comprised of:

	June 30, 2011		December 31, 2010
Inventory held for resale	$	—	$	68,287
Total	$	—	$	68,287

For the six months ended June 30, 2011 and during Fiscal Year 2010, the Company recorded a write-down of inventory of $14,498 and $150,000 due to obsolescence. Refer to Note 14, respectively, for additional disclosure regarding certain minimum annual purchases related to inventory held for resale.

Note 5.

Prepaid expenses

The Company’s prepaid expenses are comprised of:

	June 30, 2011		December 31, 2010
Stock compensation expense, net of amortization	$	96,179	$	273,295
Prepaid royalties		—		25,000

Total	$	96,179	$	298,295

Refer to Note 14 for a discussion of the termination of the Wordsmart license agreement and the write off of prepaid royalties during the quarter ended June 30, 2011.

YESDTC HOLDINGS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011

Note 6.

Accrued Expenses

Accrued expenses consist of the following:

	June 30, 2011		December 31, 2010

Professional fees	$	70,007	$	14,459
Accrued liquidated damages		24,000		12,000
Accrued Interest		11,264		15,702
Website related expenses		5,526		23,731
Product royalties		—		1,656
Rent		—		14,840
Other		10,500		10,500
Total	$	121,296	$	92,888

Refer to Note 14 for a discussion of the termination of the Wordsmart license agreement and the write off of accrued product royalties during the quarter ended June 30, 2011.

Note 7.

Short Term Loans

At June 30, 2011 and December 31, 2010, the Company’s had short term loans as follows of:

	June 30, 2011		December 31, 2010
Short term loans	$	180,000	$	—
Total	$	180,000	$	—

In February 2011, the Company issued three 10% promissory notes due on various dates in May 2011 with Sonoma Winton, LLC. (“Sonoma”), an entity controlled by Brittany L. Noel, the daughter of our CEO. The notes are unsecured. As of June 30, 2011, the Company had accrued, but unpaid interest of approximately $7,000 related to the notes.

Note 8.

Short Term Loans – Related Party

At June 30, 2011 and December 31, 2010, the Company’s has loans due to its President and Chief Executive Officer (“CEO”) as follows of:

	June 30, 2011		December 31, 2010
Short term loans	$	18,500	$	240,000
Total	$	18,500	$	240,000

From September 2010 through April 2011, we entered into a series of unsecured promissory notes with our CEO whereby he loaned the Company a total of $503,000 with the most recent note having been issued for $5,000 on April 12, 2011. The loans bear an interest rate of 10% and are generally due ninety days from their issuance date. In November and December 2010 and in January through March 2011, the company repaid a principal amount of $45,000 and $30,500, respectively, related to these loans and converted a total amount of $409,000 in 2011 as discussed below.

On March 14, 2011, Mr. Noel converted $97,000 of his 2010 promissory notes and $20,000 of his 2011 promissory notes at $0.015 per share which resulted in Mr. Noel being issued 7,800,000 common shares. Mr. Noel waived repayment of approximately $3,010 of accrued but unpaid interest which was recognized as a gain in contributed capital. Mr. Noel was also issued warrants to purchase an aggregate of 7,800,000 shares of the Company’s common stock at an exercise price of $0.015 per share for a term of 3 years. The Company recognized approximately $115,000 associated with the issuance of the warrants in the six months ended June 30, 2011. The warrants to purchase common stock granted to Mr. Noel were valued using the Black-Scholes valuation model with the following assumptions: volatility of 270% based on a historical volatility analysis, expected term of 1.5 years was computed using the simplified method based on the option term, zero expected dividends, and risk free interest rate of 1.24%.

YESDTC HOLDINGS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011

On March 7, 2011, Mr. Noel converted $118,000 of his 2011 promissory notes at a rate of $0.0254 to 4,645,669 common shares. Mr. Noel waived repayment of approximately $828 of accrued but unpaid interest which was recognized as a gain in contributed capital. In connection with the conversion of the promissory notes, Mr. Noel was also issued warrants to purchase an aggregate of 4,645,669 shares of the Company’s common stock at an exercise price of $0.0254 per share for a term of 3 years. The Company recognized approximately $116,000 associated with the issuance of the warrants in the six months ended June 30, 2011. The warrants to purchase common stock granted to Mr. Noel were valued using the Black-Scholes valuation model with the following assumptions: volatility of 270% based on a historical volatility analysis, expected term of 1.5 years was computed using the simplified method based on the option term, zero expected dividends, and risk free interest rate of 1.24%.

On January 7, 2011, Mr. Noel converted a total of $174,000 of 2010 promissory notes together with accrued but unpaid interest of $4,656 into an aggregate of 7,114,613 shares of the Company’s common stock at a conversion rate of $0.02511 which was equal to the quoted market price on the January 7, 2011.

Note 9.

Senior Secured Convertible Notes

In December 2009, the Company issued 5% senior secured convertible promissory notes due December 2011 having an aggregate principal amount of $200,000 and five-year warrants exercisable into 50,000,000 shares of our common stock at an exercise price of $0.10 per share. The notes are convertible into 50,000,000 shares of our common stock. The notes are secured by a security interest in substantially all assets of the Company, pursuant to a security agreement. All of the shares of common stock underlying the notes and warrants are subject to anti-dilution provisions and a registration rights agreement under which we are obligated to file a registration statement covering such shares within 180 days of the closing date of the financing and to use our best efforts to cause such registration statement to be declared effective within 365 days of the closing date. Holders of our securities issued in the financing also have the right to seek “piggyback” registration of their shares in certain circumstances. Mr. Noel, our President and Chief Executive Officer purchased $40,000 of the notes convertible into 10,000,000 common shares and warrants are exercisable into 10,000,000 shares of our common stock at an exercise price of $0.10 per share under the same terms and conditions as our other investors.

On various dates in the six months ended June 30, 2011, holders of $113,500 of senior secured convertible notes, including our CEO who converted his entire note in the principal amount of $40,000, dated December 19, 2009 converted the notes and accrued interest into an aggregate of 30,212,348 million shares of the Company’s common stock. The notes were converted at a rate of $0.004 per share as described in the note agreements. The Company recognized as interest expense $49,778 of capitalized debt discount initially capitalized upon their issuance in 2009 as part of the recognition of the conversion of these notes in the six months ending June 30, 2011.

Pursuant to the terms of the notes, the subscribers have the right, so long as the notes are not fully repaid, to convert the notes into shares of the Company’s common stock at a conversion price of $0.004 per share, as may be adjusted. The notes contain anti-dilution provisions, including but not limited to if the Company issues shares of its common stock at less than the then existing conversion price, the conversion price of the Bridge Notes will automatically be reduced to such lower price. The notes contain limitations on conversion, including the limitation that the holder may not convert its note to the extent that upon conversion the holder, together with its affiliates, would own in excess of 4.99% of the Company’s outstanding shares of common stock (subject to an increase upon at least 61-days’ notice by the subscriber to the Company of up to 9.99%) (See Note 11).

The warrants contain anti-dilution provisions, including but not limited to if the Company issues shares of its common stock at less than the then existing conversion price, the conversion price of the warrants will automatically be reduced to such lower price. The warrants contain limitations on exercise, including the limitation that the holders may not convert their warrants to the extent that upon exercise the holder, together with its affiliates, would own in excess of 4.99% of the Company’s outstanding shares of common stock (subject to an increase upon at least 61-days’ notice by the subscriber to the Company of up to 9.99%)(See Note 11).

The warrants may be exercised on a “cashless” basis commencing 12 months after their issuance, only with respect to underlying shares not included for unrestricted public resale in an effective registration statement on the date notice of exercise is given by the holder.

YESDTC HOLDINGS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011

Pursuant to the terms of the subscription agreement, the Company agreed to file a registration statement covering the resale of the shares of common stock underlying the notes and the warrants no later than 180 days from the closing of the offering and to have such registration statement declared effective no later than 365 days from the closing of the offering. If the Company does not timely file the registration statement or cause it to be declared effective by the required dates, then: (i) the exercise price of the warrants is reduced to $0.05 per share and (ii) each subscriber shall be entitled to liquidated damages equal to 1% of the aggregate purchase price paid by such subscriber for the notes and warrants for each month that the Company does not file the registration statement or cause it to be declared effective.

Under the terms of the notes, we were required to file a registration statement to register the shares of common stock underlying the notes and the warrants no later than 180 days from the closing of the offering and to have such registration statement declared effective no later than 365 days from the closing of the offering. We have not filed the required registration statement and as a result (i) the exercise price of the warrants has been reduced to $0.05 per share and (ii) each subscriber is entitled to liquidated damages equal to 1% of the aggregate purchase price paid by such subscriber for the notes and warrants for each month that the Company does not file the registration statement or cause it to be declared effective. At June 30, 2011 and 2010, we have recorded a charge of $24,000 and $0, respectively, related to accrual of the liquidated damages due to the holders.

The Company also granted the subscribers, until the later of one year from the closing or so long as the notes are outstanding, a right of first refusal in connection with future sales by the Company of its common stock or other securities or equity linked debt obligations, except in connection with certain circumstances.

Due to the price protection feature of the convertible note embedded conversion option and the warrants issued with the notes, both the embedded conversion options and warrants were determined to be derivative liabilities to be bifurcated and reflected at fair value on the accompanying condensed consolidated balance sheet. (see Note 11) The fair value liability of the warrants was $5,000,000 and was allocated $200,000 to debt discount and $4,800,000 to other expense. The entire $5,000,000 fair value of the embedded conversion options was charged to other expense. Prior to the conversions noted above, the debt discount was being amortized to interest expense over the two-year debt term which totaled approximately $26,000 and $50,000 for the six months ended June 30, 2011 and, 2010, respectively.

In connection with the notes, the Company incurred placement agent fees totaling $9,800. These financing costs are recorded as an other asset, debt issue costs and are being amortized ratably through December 2011.

Note 10.

Short Term Convertible Notes Payable

In March and May 2011, the Company issued two 8% convertible promissory notes of $37,500 and $40,000 due December 12, 2011 and March 12, 2012, respectively, having an aggregate principal amount of $77,500. The notes are convertible into shares of our common stock based on a discount to the conversion date average trading price of our common stock after applying a 39% discount. The notes are not eligible to be converted until 180 days from the date of the note or approximately September 10, 2011 and November 27, 2011.

The notes contain anti-dilution provisions, including but not limited to if the Company issues shares of its common stock at less than the then existing conversion price, the conversion price of the notes will automatically be reduced to such lower price. The notes contain limitations on conversion, including the limitation that the holder may not convert its note to the extent that upon conversion the holder, together with its affiliates, would own in excess of 4.99% of the Company’s outstanding shares of common stock (subject to an increase upon at least 61-days’ notice by the subscriber to the Company of up to 9.99%).

The Company also granted the subscribers, as long as the notes are outstanding, a right of first refusal in connection with future sales by the Company of convertible securities or other securities or equity linked debt obligations, except in connection with certain circumstances.

Due to the variable conversion price feature of the convertible notes, it was determined to be a stock settled note and we recorded a put premium and offsetting debt discount of $47,950 which we recorded as a component on the loan balance on the accompanying condensed consolidated balance sheet. The debt discount will be charged to interest expense over six months which is equal to the conversion lockout period of the notes and accordingly, the notes will be accreted to its total stock settled liability of $125,450. As of June 30, 2011, the Company has recognized $11,988 of the discount as interest expense.

In connection with the notes, the Company incurred legal fees totaling $5,000 which were recorded as an expense in the six months ended June 30, 2011.

YESDTC HOLDINGS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011

Note 11.

Derivative Liabilities

In June 2008, the FASB issued an accounting standard related to the accounting for derivative financial instruments indexed to a company’s own stock. Under this standard, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The conversion feature of the Company’s notes, warrants issued with the notes, and warrants issued in the private placement of common stock and for services (see Notes 9 and 12) do not have fixed settlement provisions because their conversion and exercise prices, respectively, may be lowered if the Company issues securities at lower prices in the future. The Company was required to include the reset provisions in order to protect the note holders from the potential dilution associated with future financings. In accordance with this standard, the conversion feature of the notes was separated from the host contract, the notes, and recognized as an embedded derivative instrument. Both the conversion feature of the notes and the warrants have been re-characterized as derivative liabilities. The fair value of these liabilities are re-measured at the end of every reporting period with the change in value reported in the statement of operations as other expense or income. The derivative liabilities were initially valued in 2009 on the issuance dates using the Black-Scholes option pricing model and the following assumptions:

	December 31, 2009
Debenture conversion feature:
Risk-free interest rate		1.38	%
Expected volatility		1,042	%
Expected life (in years)		2
Expected dividend Yield		-

Warrants:
Risk-free interest rate		1.38	%
Expected volatility		1,042	%
Expected life (in years)		5
Expected dividend Yield		-

Fair value at issuance date:
Debenture embedded conversion feature	$	5,000,000
Warrants	$	5,480,000

The risk-free interest rate was based on rates established by the Federal Reserve. The Company based expected volatility on the historical and current volatility for its common stock. The expected life of the Debentures’ conversion option was based on the maturity of the Debentures and the expected life of the warrants was based on their full contractual term. The expected dividend yield was based upon the fact that the Company has not historically paid dividends, and does not expect to pay dividends in the future.

The warrants issued with the private placement and for services were recorded as equity as part of the cash sale and then the fair value ($450,000 and $30,000, respectively) was immediately reclassified to liabilities. Due to the high volatility assumptions used in the Black-Scholes computation, there was no change in fair value of the derivative liabilities from the issuance date through December 31, 2009.

During the six months ended June 30, 2011 and 2010 the change in fair value of the embedded conversion option liability and warrant liability was approximately $734,000, $740,000, $1.5 million and $1.6 million, respectively, reflected as other income in the accompanying condensed consolidated unaudited financial statements.

YESDTC HOLDINGS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011

The derivative liabilities were valued at June 30, 2011 using the following assumptions under the Black-Scholes model:

	June 30, 2011

Warrants:
Risk-free interest rate		0.18	%
Expected volatility		270	%
Expected life (in years)		3.5
Expected dividend Yield		-

The embedded conversion option liabilities were valued at June 30, 2011 using the following assumptions under the Black-Scholes model:

	June 30, 2011

Warrants:
Risk-free interest rate		0.18	%
Expected volatility		240	%
Expected life (in years)		0.5
Expected dividend Yield		-

Note 12.

Capital Stock

Issuance of Series A Convertible Preferred Stock

The Company is authorized to issue 100,000,000 shares of preferred stock at a par value of $0.0001.

In January 2011, the Company designated Series A Convertible Preferred Stock. The Series A is convertible into 1,000 shares of common stock for each Series A share, has a liquidation preference at $5.00 per share stated value over any other classes of capital stock, votes on an as converted basis and accrues dividends at a rate of 10% of stated value of shares outstanding whether or not declared by the Board. A holder of Series A may not convert if upon such conversion the holder, together with its affiliates, would own in excess of 4.99% of the Company’s outstanding shares of common stock (subject to an increase upon at least 61-days’ notice by the subscriber to the Company of up to 9.99%).

On January 11, 2011, the Company completed an offering of Series A Convertible Preferred Stock to two investors one of which is our CEO’s brother, Mark Noel. The two investors purchased 42,400 preferred shares for an aggregate purchase price of $212,000 or $0.20 per preferred share. The preferred shares are convertible into 42,400,000 shares of our common stock $0.0001 par value. As part of the offering the investors were also issued 20,120,000 warrants with an exercise price of $0.05, subject to reduction as described in the offering documents. The warrants shall be exercisable until three (3) years after their issue date.

Common Stock

The Company is authorized to issue 900,000,000 shares of common stock at a par value of $0.0001. The holders of common stock are entitled to one vote per share. The holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the board of directors out of legally available funds. Upon liquidation, dissolution or winding-up, the holders of the Company’s common stock are entitled to share ratably in all assets that are legally available for distribution. The holders of the Company’s common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of the Company’s common stock are subject to, and may be adversely affected by, the rights of the holders of any series of preferred stock, which may be designated solely by action of the board of directors and issued in the future.

YESDTC HOLDINGS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011

Sale of Common Stock for Cash

On December 27, 2010, the Company entered into a subscription agreement with two accredited investors pursuant to which the Company issued and sold an aggregate of 2,500,000 shares of the Company’s common stock for proceeds of $50,000, or $0.02 per share.

On November 19, 2010, the Company entered into a subscription agreement with one accredited investor pursuant to which the Company issued and sold 2,500,000 shares of the Company’s common stock for proceeds of $50,000, or $0.02 per share.

On November 17, 2010, the Company entered into a subscription agreement with one accredited investor pursuant to which the Company issued and sold 7,500,000 shares of the Company’s common stock for proceeds of $150,000, or $0.02 per share.

In March 2011, the Company issued 25,000,000 shares to the investors from the November and December 2010 investment rounds. The shares were issued as anti-dilution shares but as there were no anti-dilution provisions in the original agreements, the Company recognized an expense of approximately $438,000 associated with the issuance as of June 30, 2011 based on the quoted trading price of $0.0175 on the March 2011 issuance date.

Sale of Common Stock in Exchange for Services

Investor services agreements

In September and November 2010 and in May 2011, we entered into agreements with seven separate service providers to provide a variety of investor related services over periods ranging from six to twelve months. The resulting agreements required us to issue 23 million restricted common shares which we valued at $410,950. The shares vest ratably over the service periods. The shares value was recorded as a prepaid asset. The agreements are terminable by either party with various notice periods. The Company will recognize the expense of $410,950 associated with the grants over the contract periods. The expense was determined using the fair value of the common stock on the day of the grant ranging from $0.0078 to $0.0315. For the six months ended June 30, 2011 and 2010, we recognized approximately $245,000 and $0 related to these grants.

Marketing agreement

In February 2010, the Company entered into an agreement to purchase certain direct response advertising services from a vendor for product campaigns focused on the United States and certain international locations. In exchange for the services to be provided, the Company agreed to pay the vendor:

1) An initial set up fee of $40,000 paid in full as of March 31, 2010.

2) 500,000 common shares which vest monthly for 12 months beginning February 1, 2010.

3) Monthly fees of $5,000 in cash and the equivalent of $5,000 in fully vested common shares.

As of June 30, 2011, the Company has fully recognized the expense of approximately $85,000 associated with the 500,000 share grant. The monthly $5,000 of stock-based expense is recognized as the related shares become due, all other costs associated with the agreement are expensed as they are incurred. The expense for the 500,000 shares was determined using the $0.17 per share closing stock price on the day of the grant which was the contract date of February 11, 2010. Since the inception of this agreement, the Company has become obligated to issue 5,618,688 common shares (2,604,737 shares in 2011), respectively, to the vendor as payment of the $5,000 monthly stock-based fees. For the six months ended June 30, 2011 and 2010, we recognized approximately $30,000 and $25,000, respectively, related to these grants.

Consulting agreement with our CFO

In January 2010, our CFO, when he joined the Company, signed a one-year consulting agreement, to perform accounting related services, which includes monthly payments of $5,000 and allows the CFO to purchase 1,500,000 restricted common shares at a price of $0.0001. The shares vest ratably over two years. The agreement is terminable by either the Company or our CFO with 10 days notice. The Company recognized the expense of $150,000 associated with the grant over the contract period through December 2010. The expense was determined using the fair value of the common stock on the day of the grant which was equivalent to the $0.10 per share price paid by investors in the PIPE transaction concluded in December 2009 which was last sale of common shares to a third party.

YESDTC HOLDINGS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011

Common Stock Issued for Conversion of Debt

In 2011 holders of $113,500 of senior secured convertible notes, including our CEO who converted his entire note in the principal amount of $40,000, dated December 19, 2009 converted the notes and $7,623 of related accrued interest into an aggregate of 30,212,348 million shares of the Company’s common stock. (see Note 9)

In 2011 our CEO converted $409,000 of his short term loan and $4,659 of related accrued interest into 19,560,282 common shares as more fully described in Note 7.

Contributed Capital

Upon formation through the period ended December 31, 2010, the Company’s Chief Executive Officer has not taken a salary or other benefits. From inception through the period ended December 31, 2009, the value of these amounts was determined to be de minimis. For the 2011 fiscal year, we have valued these services at $50,000 and recorded them as compensation expense on a quarterly basis and $25,000 was recorded as of June 30, 2011. Management believes its estimate of the value of services provided by the CEO is reasonable.

Common Stock Options Issued in Exchange for Services

Compensation to the Board of Directors

In September 2010, for services rendered, the Board of Directors approved the issuance of 2 million options to purchase our common stock exercisable at $0.02 per share which were immediately vested to each of our five outside directors which resulted in a total of 10 million options to purchase our common stock to be issued. The Company recognized the expense of approximately $299,000 associated with the options in the period they were issued. The options to purchase common stock granted to the vendor were valued using the Black-Scholes valuation model with the following assumptions: volatility of 253% based on a historical volatility analysis, expected term of 5 years based on the option term, zero expected dividends, and risk free interest rate of 0.74%.

Direct Response Marketing Services Agreement with a Related Party

In January 2010, the Company entered into an agreement with Mr. Jon Schulberg, a member of the board of directors, to provide direct response advertising and marketing services. The agreement provides that Mr. Schulberg and his company Schulberg Media Works will perform certain agency creation production and management services. In exchange for the services, Mr. Schulberg will receive 10 million options to purchase our common stock exercisable at $0.07 per share. The options will vest quarterly beginning June 30, 2010 and became fully vested as of March 31, 2011. In addition to the options, Mr. Schulberg invoices the Company for services performed with an agreed upon discount of 20%. Mr. Schulberg is also be entitled to a 3% royalty fee on campaigns and product launches which Mr. Schulberg or his company produces and manages, to date no such commissions have been earned. Had the Company achieved $8 million in revenue for 2010, we would have been obligated to issue Mr. Schulberg an additional 10 million options to purchase our common stock if the Company which would have had have an exercise price of $0.07. The Company recognized the expense of $1,000,000 associated with the first 10,000,000 options over the vesting period. The options to purchase common stock granted to the vendor were valued using the Black-Scholes valuation model with the following assumptions: volatility of 723% based on a historical volatility analysis, expected term of 5 years based on the option term, zero expected dividends, and risk free interest rate of 1.40%. We determined that the common stock options had a fair value of $0.10 per share. We recognized $800,000 in 2010 and in 2011, the remaining expense of $200,000 related to this grant was recognized.

In September 2010, for additional direct response advertising and marketing services to be rendered by Mr. Schulberg, we issued Mr. Schulberg 4 million options to purchase our common stock exercisable at $0.02 per share which were immediately vested. The Company recognized the expense of approximately $120,000 associated with the options in the period they were issued. The options to purchase common stock granted to the vendor were valued using the Black-Scholes valuation model with the following assumptions: volatility of 253% based on a historical volatility analysis, expected term of 5 years based on the option term, zero expected dividends, and risk free interest rate of 0.74%.

Services Agreement with our General Manager

YESDTC HOLDINGS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011

In September 2010, in addition to the 2 million options he received for his board of directors service, we issued Mr. Kirsebom 3 million options to purchase our common stock for investor relations and marketing services to be rendered by Mr. Kirsebom, our general manager and a member of the board of directors, exercisable at $0.02 per share which were immediately vested. The Company recognized the expense of approximately $90,000 associated with the options in September 2010. The options to purchase common stock granted were valued using the Black-Scholes valuation model with the following assumptions: volatility of 253% based on a historical volatility analysis, expected term of 5 years based on the option term, zero expected dividends, and risk free interest rate of 0.74%.

The Company uses the Black-Scholes option pricing model to value options granted to employees, directors and consultants. Compensation expense, including the effect of forfeitures, is recognized over the period of service, which is generally the vesting period. Stock-based compensation for the amortization of stock options granted under the Company’s stock option plans totaled approximately $708,000 during the year ended December 31, 2010. No options were issued in the three and six months ended June 30, 2011. Stock-based compensation is included in general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.

The fair values of stock option grants were calculated on the dates of grant using the Black-Scholes option pricing model and the following weighted average assumptions:

	September 2010 Grant Date

Risk-free interest rate		0.74	%
Expected volatility		253	%
Expected life (in years)		5
Expected dividend yield		0	%
Weighted average per share grant date fair value	$	0.06

The risk-free interest rate was based on rates established by the Federal Reserve for the expected term. The Company’s expected volatility was based upon the historical volatility for its common stock. The expected life of the Company’s options was determined using the simplified method (as these options have the same characteristics whether employee or non-employee options) as a result of limited historical data regarding the Company’s activity. The dividend yield is based upon the fact that the Company has not historically paid dividends, and does not expect to pay dividends in the future.

Note 13.

Stock Warrants

The Company has issued warrants to purchase shares of common stock which expire at various dates through December 2014. Changes in warrants outstanding for the six months ended June 30, 2011 was as follows:

	Number of Warrants		Weighted Average Exercise Price
Warrants outstanding as of December 31, 2010		54,800,000	$	0.10
Issued during 2011		32,565,669		0.035
Exercised during 2011		—		—
Forfeited/expired		—		—
Warrants outstanding as of June 30, 2011		87,365,669	$	0.06

There is no intrinsic value associated with the Company’s warrants outstanding or exercisable as of June 30, 2011.

The number of shares issuable upon the exercise of outstanding warrants, and the proceeds upon the exercise of such warrants, will be lower if a warrant holder elects to exercise on a cashless basis.

The 87,365,669 warrants include 20,120,000 issued in connection with the sale of the Series A Convertible Preferred and 12,445,669 issued to our CEO in connection with the conversion of short term notes in 2011 and, 50,000,000 issued with senior secured convertible notes, 4,500,000 issued with common stock in the private placement and 300,000 issued with common stock to a legal services provider all in 2009.

YESDTC HOLDINGS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011

The Company uses the Black-Scholes valuation model to value options or warrants granted to employees, directors and consultants. Compensation expense, including the effect of forfeitures, is recognized over the period of service, generally the vesting period. The fair values of stock warrant grants were calculated on the dates of grant using the Black-Scholes option valuation model and the following weighted average assumptions:

	Six months ended June 30, 2011

Risk-free interest rate		1.24	%
Expected volatility		269.9	%
Expected life (in years)		1.5
Expected dividend yield		0	%

The risk-free interest rate is based on rates established by the Federal Reserve. The Company’s expected volatility was based upon the historical and current volatility for its common stock. The expected life of the Company’s options was determined using the contractual life for non-employee warrants. The dividend yield is based upon the fact that the Company has not historically paid dividends, and does not expect to pay dividends in the future.

The 12,445,669 warrants issued to our CEO in 2011 in connection with his debt conversion were valued at $230,489 and recognized immediately as compensation due to their immediate vesting.

Note 14.

Commitments and Contingencies

Lease Obligations. The Company has no operating lease obligations.

Minimum Purchase Commitments. The Company entered into a 6 year distribution agreement in December 2009 with a vendor to purchase and distribute certain products in Japan. The contract called for minimum purchase commitments as follows:

Year Ending December 31,	Units		Amounts

2011		180,000		1,800,000
2012		216,000		2,160,000
2013		259,000		2,590,000
		655,000	$	6,550,000

The Company did not purchase the required minimum amounts in 2010 and has not purchased any materials in 2011. We are currently in negotiation with the vendor to amend the purchase requirements and the sole remedy of the vendor for the Company not meeting the minimum purchase commitment is that the vendor may cancel the distribution agreement. As of June 30, 2011 the vendor has not taken any such actions.

A company controlled by our CEO, Mr. Noel, performs consulting services for the vendor and is paid in fully vested common stock for those services. Mr. Noel is not a control person of the vendor and is not an officer or director of the vendor, and the vendor does not consider Mr. Noel, Allay or the Company, individually or in the aggregate, to be in a position to exercise control over the business or affairs of the vendor a result of the ownership of the securities or otherwise. Other than pursuant to the terms of such securities, there are no restrictions on the disposition of shares by any of the foregoing persons of entities.

YESDTC HOLDINGS, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2011

On June 1, 2011, the Company’s license and distribution contract with WordSmart Corporation for the distribution of the WordSmart product was terminated by the mutual agreement of the companies due to the Company’s inability to secure adequate financing to appropriately market the product and to unusually high credit card decline rates for customer monthly payments due to the Company. The termination released the Company from any future liability for the product as well as to WordSmart Corporation. As of June 30, 2011, the Company recorded a reserve for accounts receivables in the amount of $370,912, wrote off prepaid license fees of $200,000 and reversed accrued product liabilities of approximately $22,000. The Company plans to pursue its receivables but cannot estimate the amount which will eventually be collected from accounts in arrears. While the Company expects to incur no additional liabilities relating to the WordSmart program, the exact extent of any future potential liabilities relating to the winding down of the WordSmart program are not currently estimable.

Note 15.

Related Parties

The company converted to common stock $409,000 certain short term notes due to our CEO at market prices. As part of the transaction he was also issued 3 year warrants (see Note 7).

Senior convertible notes of $40,000 held by our CEO were converted to 10,587,105 common shares in 2011 (see Note 9).

At June 30, 2011, there were accounts payable of $45,000 due to our CFO.

The Company incurred approximately $52,000 and $0 of expenses in the six months ended June 30, 2011 and 2010 to related parties who are affiliated with Directors of the Company.

Note 16.

Subsequent Events

Shares Issued in Exchange for Services

As part of the Marketing Agreement disclosed in Note 11, in July and August 2011 the Company became obligated to issue 1,351,598 common shares to the vendor as payment of $5,000 monthly stock-based fees.

Conversion of senior secured debt

On July 25, 2011, an investor converted $15,000 of senior secured convertible notes dated December 19, 2009 into an aggregate of 6,000,000 million shares of the Company’s common stock. The notes were converted at a rate of $0.004 per share as described in the note agreements.

Sale of Series B preferred stock

The Company is designating 250,000 Series B convertible preferred shares, par value $0.0001 with a stated value of $2.00 and dividends of 10% whether or not declared by the Board and voting rights on as converted basis. The Series B shares convertible into common stock at a rate of 1,000 common shares to 1 preferred share. The Series B contains certain price protection provisions which may reduce the conversion rate if the Company sells shares for less than $0.002.

On August 25, 2011 the Company entered into a Subscription Agreement with an accredited investor. Pursuant to that agreement, the Company agreed to issue 50,000 shares of a newly created Series B Convertible Preferred Stock in exchange for $100,000 or $2.00 per preferred share ($0.002 per common share on as converted basis). When created and issued, the 50,000 shares of Series B Convertible Preferred Stock will be convertible into 50 million shares of the company's common stock. In addition, the Company agreed to issue warrants granting the investor a right to purchase 70 million shares of common stock at a price of $0.01. The warrant expires five years from the date of issue.

The agreement agreements contain a 9.99% ownership limitation which prohibits the investor from converting the Series B Convertible Preferred Stock and Series B Warrants if such conversion would increase the investor’s beneficial ownership of the Company’s common stock over 9.99%.

As additional consideration for the investment, on August 25, 2011, the Company entered into an amendment to the subscription agreement dated December 28, 2009 with the investor. Under the terms of the agreement, the Company agreed to modify the conversion price of the remaining balance of notes held by an affiliate of the investor from $0.004 to $0.002. The amendment was made pursuant to the price protection provisions of the original December 2009 subscription agreement and accordingly there is no accounting effect as of the amendment date. As a result of the amendment, the $8,000 of convertible notes held by the investor are convertible into 4,000,000 shares of the Company’s common stock. In addition, the Company agreed to lower the exercise price of warrants held by the investor from $0.01 to $0.002 also under the original price protection provisions of the warrants.

As additional consideration for the investment, on August 25, 2011 the Company entered into an amendment of the Series A Preferred subscription agreement. Under the terms of the amendment the Company agreed to modify the conversion price of the Series A financing from $0.005 to $0.002, subject to obtaining the requisite stockholder consent in compliance with SEC review and notice requirements. In addition, the Company agreed to lower the exercise price of Series A Warrant held by the investor from $0.05 to $0.01. As a result of the amendment, once effective, the 40,000 shares of Series A preferred stock held by the investor will be convertible into 106,000,000 shares of the Company’s common stock. Based on the facts and circumstances, management determined that these modifications represent a modification of the original contract and are compensatory in nature. As a result, for the period ending September 30, 2011, the Company will recognize an expense of approximately $460,000 based on the quoted trading price of $0.0072 on the August 2011 issuance date.

As additional consideration for the investment, on August 25, 2011 the Company entered into an amendment to Convertible Promissory Notes dated March 8, 2011 and May 31, 2011. Under the terms of the amendment, the Company agreed to modify the conversion price of the $77,500 in the notes held by the investor to the lower of the applicable rate pursuant to the terms of the notes, or $0.002. Management has determined that the modification does not qualify as a debt modification for accounting purposes since the modification changed the nature of the debt from stock settled debt to debt to be accounted for under derivative accounting. The put premium will be reclassified to additional paid in capital and the debt will be bifurcated into debt and embedded conversion option derivative liability.

Sale of common stock

On September 1, 2011, the Company entered into a Subscription Agreement for common stock with Sonoma. Pursuant to the agreement, Sonoma paid $81,000 for 10,125,000 shares of common stock at the above market per-share purchase price of $0.008. As additional consideration for the financing, Sonoma was issued a warrant to purchase an additional 10,125,000 shares at an exercise price of $0.008. The warrant expires three years from the date of issue.

On August 26, 2011 Emerging Growth Research, LLC, an entity controlled by our CEO, Joseph Noel, repaid loans due to Sonoma in the amount of $82,000.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis summarizes the significant factors affecting our condensed consolidated results of operations, financial condition and liquidity position for the six months ended June 30, 2011. This discussion and analysis should be read in conjunction with our audited financial statements and notes thereto included in our Annual Report on Form 10-K for our year-ended December 31, 2010 and the condensed consolidated unaudited financial statements and related notes included elsewhere in this filing. 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.

Forward-Looking Statements

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. Investors are cautioned that such forward-looking statements involve risks and uncertainties including without limitation the following: (i) our plans, strategies, objectives, expectations and intentions are subject to change at any time at our discretion; (ii) our plans and results of operations will be affected by our ability to manage growth and competition; and (iii) other risks and uncertainties indicated from time to time in our filings with the Securities and Exchange Commission (“SEC”).

In some cases, you can identify forward-looking statements by terminology such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘could,’’ ‘‘expects,’’ ‘‘plans,’’ ‘‘intends,’’ ‘‘anticipates,’’ ‘‘believes,’’ ‘‘estimates,’’ ‘‘predicts,’’ ‘‘potential,’’ or ‘‘continue’’ or the negative of such terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We are under no duty to update any of the forward-looking statements after the date of this Report.

Overview

YesDTC is a direct-to-consumer venture marketing company specializing in the creation of innovative, high quality direct-response-television (DRTV) and internet marketing programs to reach a broad based consumer audience of domestic and international customers. The Company brings a unique set of skills to the business of successful consumer product marketing. Specifically, YesDTC was established to provide financing for DRTV and internet based marketing campaigns; develop and produce the creative content of these media ads by the Company’s team of experts; and arrange all aspects of advertisement broadcasting, including interfacing with media buyers.

Characteristics of our Revenues and Expenses

We began generating revenues in July 2010 with the launch of our first product. We are currently marketing two products through our network and are actively pursuing others.

Sales and marketing expenses primarily consist of the costs of our marketing initiatives and business development expenses.

General and administrative expenses include costs attributable to corporate overhead and the overall support of our operations. Our primary costs include charges related to common stock and options to purchase common stock issued for services and recognized as compensation, accounting, legal and other professional services, and other general operating expenses.

Market Information

We operate in one segment which is the business of direct-to-consumer services. Although we provide services in multiple markets, these operations have been aggregated into one reportable segment based on the similar economic characteristics among all markets, including the nature of the services provided and the type of customers purchasing such services.

Three and Six Months Ended June 30, 2011 Compared to Three and Six Months Ended June 30, 2010

Revenues and Cost of Revenues. We began marketing and selling our products in July 2010. For the three and six months ended June 30, 2011 we marketed a total of two products during the period which resulted in revenues of approximately $77,000 and $527,000. While we are in the formation stage of our business, we had begun to lay the groundwork for future initiatives and expect additional products in 2011. We had no revenues for the six months ended June 30, 2010.

Cost of Goods Sold. Cost of goods sold for the three and six months ended June 30, 2011 totaled approximately $206,000 and $315,000 compared to $0 for the three and six months ended June 30, 2010. These costs relate to the purchase and distribution of our products through our 3rd party distribution network as well as royalties due on our products.

Sales and Marketing. Sales and marketing expenses for the three and six months ended June 30, 2011 totaled approximately $69,000 and $409,000 compared to approximately $76,000 and $143,000 for the three and six months ended June 30, 2010. The increase of approximately$266,000, or 186%, for the six months ended June 30, 2011 is primarily related to the cost of custom designed direct-to-consumer marketing campaigns, website services and fees to establish a range of services for product campaigns.

General and Administrative. General and administrative expenses for the three and six months ended June 30, 2011 were approximately $1.1 million and $1.9 million and as compared to approximately $436,000 and $766,000 for the three and six months ended June 30, 2010. The increase of approximately $1.1 million, or 145%, is principally related to the recognition of charges related to the issuance of common stock in exchange for services rendered of approximately $562,000 and costs associated with legal and consulting services associated with the start-up of our business.

Interest Expense. Interest expense for the three and six months ended June 30, 2011 was approximately $46,000 and $105,000 as compared to approximately $29,000 and $57,000 for the three and six months ended June 30, 2010. The increase of approximately $48,000 or 84% is primarily related to the amortization of amounts recognized as debt discounts from the issuance of warrants as part of a financing, interest on the face amount of notes, and amortization of debt issue costs.

Change in fair value of embedded conversion option. Change in fair value of the embedded conversion option for the three and six months ended June 30, 2011 was approximately $439,000 and $734,000 as compared to approximately $3 million and $1.5 million for the three and six months ended June 30, 2010. These costs relate to the recognition of changes in the fair value of the embedded conversion option derivative liability of the convertible debt which was sold as part of a financing.

Change in fair value of warrant liability. Change in fair value of warrant liability for the three and six months ended June 30, 2011 was approximately $416,000 and $740,000 as compared to approximately $3.3 million and $1.6 million for the three and six months ended June 30, 2010. These costs relate to the recognition of changes in the fair value of the warrant derivative liability issued as part of a financing.

Liquidity and Capital Resources

We have historically met our liquidity and capital requirements primarily through the public sale and private placement of equity securities and debt financing. Cash and cash equivalents totaled approximately $8,000 at June 30, 2011.

Net Cash Used in Operating Activities. Net cash used in operating activities for the six months ended June 30, 2011 totaled approximately $680,000 as compared to $391,000 from the comparable prior years period. The use of cash was primarily related to costs associated royalty prepayments, the establishment of our distribution network, the payment of accrued liabilities and expenses related to the basic infrastructure required to get the business off the ground.

Net Cash Provided By/Used in Investing Activities. We did not use cash in investing activities for the six months ended June 30, 2011 or 2010.

Net Cash Provided By Financing Activities. Net cash provided by financing activities for the six months ended June 30, 2011 totaled approximately $674,000. The cash provided was the result of proceed from the sale of short term notes to our CEO ($218,000), the sale of Series A convertible preferred stock ($212,000), the sale of short term notes to outside investors ($180,000) and proceeds from the sale of 8% convertible notes ($77,500), respectively. We did not generate any cash from financing activities for six months ended June 30, 2010.

Working Capital. As of June 30, 2011, we had working capital deficit of approximately $958,000 including approximately $517,000 of liabilities related to derivative liabilities incurred as a result of financing activities. Based on our current operating activities and plans, we believe our existing working capital and our ability to sell stock or notes to investors will enable us to meet our anticipated cash requirements for at least the next twelve months.

Critical Accounting Policies

The preparation of 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, the disclosure of contingent assets and liabilities, and the amounts of revenues and expenses. Critical accounting policies are those that require the application of management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In preparing the financial statements, we utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming our estimates and judgments, giving appropriate consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to other companies in our industry. We believe that of our significant accounting policies, the following may involve a higher degree of judgment and estimation, or are fundamentally important to our business.

Revenue Recognition. The Company recognizes revenue, net of actual and estimated returns, from sales to customers when all of the components of the sale have been completed including the shipment of the item and in some cases the receipt of cash. For certain products, the Company believes that collection is not probable until it receives the cash associated with an order at which point it recognizes the revenue associated with the corresponding sale. The Company applies the revenue recognition principles set forth in ASC 605 which provides for revenue to be recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the price is fixed or determinable, and (iv) collectability is reasonably assured.

Stock Based Awards. With our formation in 2009, we implemented ASC 718-10 which requires the fair value of all stock-based employee compensation awarded to employees and service providers to be recorded as an expense over the related vesting period. The statement also requires the recognition of compensation expense for the fair value of any unvested stock option and warrant awards outstanding at the date of adoption.

Off-Balance Sheet Arrangements. We have no off-balance sheet arrangements, financings, or other relationships with unconsolidated entities known as ‘‘Special Purposes Entities.’’

Recent Accounting Pronouncements

Other ASUs which are not effective until after June 30, 2011 are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable

Item 4. Controls and Procedures.

We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based upon our evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective, as of the six months ended June 30, 2011, in ensuring that material information that 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 the Securities and Exchange Commission rules and forms.

Changes in Internal Control over Financial Reporting

There were no changes in our system of internal controls over financial reporting during the six months ended June 30, 2011 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.

From time to time, the Company may become involved in litigation relating to claims arising out of its operations in the normal course of business. We are not involved in any pending legal proceeding or litigation and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on the Company.

ITEM 1A. RISK FACTORS.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

This transaction did not involve any underwriters, underwriting discounts or commissions or any public offering and we believe was exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(2) thereof and/or Regulation D promulgated thereunder.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

There were no reportable events under this Item 3 during the quarterly period ended June 30, 2011.

ITEM 4. (REMOVED AND RESERVED).

ITEM 5. OTHER INFORMATION.

There were no reportable events under this Item 5 during the quarterly period ended June 30, 2011.

ITEM 6. EXHIBITS.

Exhibit No.		Description
31.1		Section 302 Certification of Principal Executive Officer.
31.2		Section 302 Certification of Principal Financial Officer.
32.1		Section 906 Certification of Principal Executive Officer.
32.2		Section 906 Certification of Principal Financial Officer.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

YESDTC HOLDINGS, INC.

Date: September 21, 2011	By:	/s/ Joseph A. Noel

	Joseph A. Noel
	Chief Executive Officer, President, Treasurer, Secretary and Director
	(Principal Executive Officer)

Date: September 21, 2011	By:	/s/ William J. Bush

	William J. Bush
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

EXHIBIT INDEX

Exhibit No.		Description
31.1		Section 302 Certification of Principal Executive Officer
31.2		Section 302 Certification of Principal Financial Officer
32.1		Section 906 Certification of Principal Executive Officer
32.2		Section 906 Certification of Principal Financial Officer

PR Complete Holdings, Inc - FORM 10-Q - September 21, 2011

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