Attached files
| file | filename |
|---|---|
| EX-32.2 - EXHIBIT 32-2 - PENNY AUCTION SOLUTIONS INC | s103004_ex32-2.htm |
| EX-31.2 - EXHIBIT 31-2 - PENNY AUCTION SOLUTIONS INC | s103004_ex31-2.htm |
| EX-32.1 - EXHIBIT 32-1 - PENNY AUCTION SOLUTIONS INC | s103004_ex32-1.htm |
| EX-31.1 - EXHIBIT 31-1 - PENNY AUCTION SOLUTIONS INC | s103004_ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 February 29, 2016.
¨ 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: 000-55004
Penny Auction Solutions, Inc.
(Exact name of registrant as specified in its charter)
| Nevada | 27-3332009 | |
|
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
| 330 A Street, Suite 156, San Diego, CA | 92101 | |
| (Address of principal executive offices) | (Zip Code) |
(866) 275-5260
(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 ¨ No x
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 x 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. (Check one):
| 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
The number of shares outstanding of the Registrant’s Common Stock on April 14, 2016 was 25,117,106.
PENNY AUCTION SOLUTIONS, INC.
FORM 10-Q
Quarterly Period Ended February 29, 2016
SPECIAL NOTE REGARDING FORWARD—LOOKING STATEMENTS
On one or more occasions, we may make forward-looking statements in this Quarterly Report on Form 10-Q regarding our assumptions, projections, expectations, targets, intentions or beliefs about future events. Words or phrases such as “anticipates,” “may,” “will,” “should,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “targets,” “will likely result,” “will continue” or similar expressions identify forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified in our Annual Report on Form 10-12/A filed with the Securities and Exchange Commission (“SEC”) on October 29, 2015. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made on related subjects in our subsequent annual, periodic and current reports and other documents filed or furnished with the SEC.
Unless the context requires otherwise, references to “we,” “us,” “our,” and the “Company” refer specifically to Penny Auction Solutions, Inc.
| 1 |
PART I - FINANCIAL INFORMATION
PENNY AUCTION SOLUTIONS, INC. & SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
| February 29, | August 31, | |||||||
| 2016 | 2015 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 17,567 | $ | 63,268 | ||||
| Prepaid expenses | 1,627 | 7,089 | ||||||
| Security deposits | 3,928 | 2,350 | ||||||
| Total current assets | 23,122 | 72,707 | ||||||
| Property and equipment, net | 791 | 889 | ||||||
| Total assets | $ | 23,913 | $ | 73,596 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable, related party | $ | 5,205 | $ | 3,500 | ||||
| Accounts payable | 112,421 | 124,569 | ||||||
| Deferred revenues | 121,166 | 121,166 | ||||||
| Accrued expenses, related parties | 16,614 | 13,364 | ||||||
| Accrued expenses | 40,831 | 39,341 | ||||||
| Due to officer, related party | 35,356 | 35,356 | ||||||
| Current maturities of notes payable, including $54,124 currently in default | 213,793 | 219,693 | ||||||
| Total current liabilities | 545,386 | 556,989 | ||||||
| Notes payable, less current maturities | 100,000 | 100,000 | ||||||
| Total liabilities | 645,386 | 656,989 | ||||||
| Stockholders' equity (deficit): | ||||||||
| Preferred stock, $0.001 par value, 5,000,000 shares authorized, no shares issued and outstanding at February 29, 2016 and August 31, 2015, respectively | - | - | ||||||
| Common stock, $0.001 par value, 495,000,000 shares authorized, 25,052,106 and 23,687,106 shares issued and outstanding at February 29, 2016 and August 31, 2015, respectively | 25,052 | 23,687 | ||||||
| Additional paid-in capital | 1,514,983 | 1,343,735 | ||||||
| Subscriptions payable, consisting of -0- and 60,000 shares at February 29, 2016 and August 31, 2015, respectively | - | 6,000 | ||||||
| Accumulated (deficit) | (2,161,508 | ) | (1,956,815 | ) | ||||
| Total stockholders' equity (deficit) | (621,473 | ) | (583,393 | ) | ||||
| Total liabilities and stockholders' equity (deficit) | $ | 23,913 | $ | 73,596 | ||||
See accompanying notes to financial statements.
| 2 |
PENNY AUCTION SOLUTIONS, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three | For the Three | For the Six | For the Six | |||||||||||||
| Months Ended | Months Ended | Months Ended | Months Ended | |||||||||||||
| February 29, | February 28, | February 29, | February 28, | |||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Revenue | $ | - | $ | - | $ | - | $ | - | ||||||||
| Cost of goods sold | - | - | - | - | ||||||||||||
| Gross profit | - | - | - | - | ||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | 45,290 | 14,968 | 82,993 | 16,220 | ||||||||||||
| Professional fees | 54,851 | 56,870 | 110,425 | 287,703 | ||||||||||||
| Depreciation | 49 | - | 98 | - | ||||||||||||
| Total operating expenses | 100,190 | 71,838 | 193,516 | 303,923 | ||||||||||||
| Net operating loss | (100,190 | ) | (71,838 | ) | (193,516 | ) | (303,923 | ) | ||||||||
| Other income (expenses): | ||||||||||||||||
| Interest expense | (5,547 | ) | (4,663 | ) | (11,177 | ) | (8,943 | ) | ||||||||
| Total other income (expenses) | (5,547 | ) | (4,663 | ) | (11,177 | ) | (8,943 | ) | ||||||||
| Net loss | $ | (105,737 | ) | $ | (76,501 | ) | $ | (204,693 | ) | $ | (312,866 | ) | ||||
| Weighted average number of common shares outstanding - basic and fully diluted | 25,052,106 | 65,903,244 | 24,821,378 | 83,462,745 | ||||||||||||
| Net loss per share - basic and fully diluted | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.00 | ) | ||||
See accompanying notes to financial statements.
| 3 |
PENNY AUCTION SOLUTIONS, INC. & SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Six | For the Six | |||||||
| Months Ended | Months Ended | |||||||
| February 29, | February 28, | |||||||
| 2016 | 2015 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (204,693 | ) | $ | (312,866 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 98 | - | ||||||
| Imputed interest on non-interest bearing related party debts | 1,113 | 1,106 | ||||||
| Shares issued for services, related parties | 46,000 | 28,000 | ||||||
| Shares issued for services | 19,500 | 233,534 | ||||||
| Decrease (increase) in assets: | ||||||||
| Prepaid expenses | 5,462 | (447 | ) | |||||
| Security deposits | (1,578 | ) | - | |||||
| Increase (decrease) in liabilities: | ||||||||
| Accounts payable, related party | 1,705 | - | ||||||
| Accounts payable | (12,148 | ) | 10,364 | |||||
| Accrued expenses, related parties | 3,250 | (1,337 | ) | |||||
| Accrued expenses | 1,490 | 16,493 | ||||||
| Net cash used in operating activities | (139,801 | ) | (25,153 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from sale of common stock | 100,000 | 30,000 | ||||||
| Repayments on due to officer, related party | - | (4,335 | ) | |||||
| Repayments on notes payable | (5,900 | ) | - | |||||
| Net cash provided by financing activities | 94,100 | 25,665 | ||||||
| NET CHANGE IN CASH | (45,701 | ) | 512 | |||||
| CASH AT BEGINNING OF YEAR | 63,268 | 1,602 | ||||||
| CASH AT END OF YEAR | $ | 17,567 | $ | 2,114 | ||||
| SUPPLEMENTAL INFORMATION: | ||||||||
| Interest paid | $ | 8,575 | $ | 2,665 | ||||
| Income taxes paid | $ | - | $ | - | ||||
| Non-cash investing and financing activities: | ||||||||
| Accounts payable converted to promissory notes | $ | - | $ | 104,124 | ||||
| Common stock issued in settlement of accrued interest | $ | - | $ | 18,466 | ||||
See accompanying notes to financial statements.
| 4 |
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 – Nature of Business and Significant Accounting Policies
Nature of Business
Penny Auction Solutions, Inc. (“we,” “us,” “our,” and the “The Company”) was formed in the state of Nevada on August 25, 2010 to establish a network of international internet auction sites whereby customers purchase bidding credits (“pennies”) that enable them to bid on goods at a fraction of their market value. The Company expects to generate revenues from the online sale of the “pennies” that are consumed in the bidding process regardless of whether the bid has resulted in a successful purchase, as well as the sale of “advertisements” or “banner ads” on its internet site directed toward internet users, bargain shoppers and gaming aficionados.
Basis of Presentation
The interim condensed consolidated financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to not make the information presented misleading.
These statements reflect all adjustments, which in the opinion of management, are necessary for fair presentation of the information contained therein. Except as otherwise disclosed, all such adjustments are of a normal recurring nature. It is suggested that these interim condensed consolidated financial statements be read in conjunction with the audited financial statements for the year ended August 31, 2015, which are included in the Company’s Form 10-12/A as filed with the SEC on October 29, 2015. The Company follows the same accounting policies in the preparation of interim reports.
The Company has adopted a fiscal year end of August 31.
Principles of Consolidation
The consolidated financial statements herein contain the operations of the wholly-owned subsidiary of Bidwinfun.com, Inc. (“Bidwinfun.com”). All significant inter-company transactions have been eliminated in the preparation of these financial statements. The parent company, Penny Auction Solutions, Inc. and its subsidiary, Bidwinfun.com will be collectively referred to herein as the “Company”, or “Penny Auction Solutions”.
The accompanying consolidated financial statements include the accounts of Bidwinfun.com, Inc., a wholly-owned subsidiary under common control and ownership:
| State of | Abbreviated | |||||
| Name of Entity | Incorporation | Relationship | Reference | |||
| Bidwinfun.com, Inc. | New York | Subsidiary(1) | Bidwinfun.com |
(1)Wholly-owned subsidiary.
(2)On December 30, 2015, the Company amended the Articles of Incorporation of the wholly-owned subsidiary to change the subsidiary’s corporate name from Nail Bidder, Inc. to Bidwinfun.com, Inc.
Bidwinfun.com, Inc. was acquired on March 28, 2012 as part of a Securities Purchase Agreement (“SPA”). Pursuant to the SPA, we purchased all of Bidwinfun.com’s assets and assumed all of its liabilities, including all of its cash, intellectual property, its business trade name, website (nailbidder.com), goodwill, trade payables and loans due to officer in consideration for 340,000 shares of our common stock, with a fair value of $17,000, which was delivered at the closing. Bidwinfun.com operated a penny auction website similar to the planned operations of Penny Auction Solutions. The website auctions temporarily terminated shortly after the acquisition and have not yet recommenced due to a lack of operating funds.
These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein. The Company follows the same accounting policies in the preparation of interim reports.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
| 5 |
Penny Auction Solutions, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Segment Reporting
Under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280-10-50, the Company operates as a single segment and will evaluate additional segment disclosure requirements as it expands its operations.
Fair Value of Financial Instruments
Under FASB ASC 820-10-05, the Financial Accounting Standards Board establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement reaffirms that fair value is the relevant measurement attribute. The adoption of this standard did not have a material effect on the Company’s financial statements as reflected herein. The carrying amounts of cash, accounts payable and accrued interest reported on the balance sheet are estimated by management to approximate fair value primarily due to the short term nature of the instruments. The Company also had debt instruments that required fair value measurement on a recurring basis.
Revenue Recognition
The Company generates revenue from the online sale of “pennies” that are consumed in the bidding process regardless of whether the bid has resulted in a successful purchase, as well as, the sale of “advertisements” or “banner ads” on its internet site directed toward internet users, bargain shoppers and gaming aficionados, and the sale of goods sold at auction. The Company recognizes revenue using four basic criteria that must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured, which is typically after receipt of payment and delivery, net of any credit card charge-backs and refunds. Determination of criteria (3) and (4) are based on management’s judgment regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund, and for unused bid pennies, until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required. Revenues on membership fees are also deferred and recognized ratably over the membership period.
Deferred revenues from the online sale of unused “pennies” were $121,166 and $121,166 at February 29, 2016 and August 31, 2015, respectively.
Advertising and Promotion
All costs associated with advertising and promoting products are expensed as incurred.
Website Development Costs
The Company accounts for website development costs in accordance with ASC 350-50, “Accounting for Website Development Costs” (“ASC 350-50”), wherein website development costs are segregated into three activities:
| 1) | Initial stage (planning), whereby the related costs are expensed. | |
| 2) | Development (web application, infrastructure, graphics), whereby the related costs are capitalized and amortized once the website is ready for use. Costs for development content of the website may be expensed or capitalized depending on the circumstances of the expenditures. | |
| 3) | Post-implementation (after site is up and running: security, training, admin), whereby the related costs are expensed as incurred. Upgrades are usually expensed, unless they add additional functionality. |
The Company has not capitalized any website development costs related to its penny auction platform during the six months ended February 29, 2016 and the year ended August 31, 2015, respectively, related to its online penny auction platform.
Income Taxes
The Company recognizes deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities using the enacted tax rates and laws that are expected to be in effect when the differences are expected to be recovered. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.
Basic and Diluted Loss Per Share
The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding plus potential dilutive securities. For the periods presented, there were no outstanding potential common stock equivalents and therefore basic and diluted earnings per share result in the same figure.
| 6 |
Penny Auction Solutions, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Stock-Based Compensation
Under FASB ASC 718-10-30-2, all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The Company recognized $65,500 and $261,534 for services and compensation for the six months ended February 29, 2016 and February 28, 2015, respectively.
Recent Accounting Pronouncements
In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-16, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities. The provisions of the update require equity investments to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment. The update also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. It also eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities, and eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost on the balance sheet. ASU No. 2016-16 requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. It also requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The update requires separate presentation of financial assets and financial liabilities by category and form on the balance sheet or the accompanying notes to the financial statements. In addition, the update clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, the amendments in the update are effective for fiscal years beginning after December 15, 2017, including interim periods. The adoption of this ASU is not expected to have a material impact on the Company’s financial statements.
In November 2015, the FASB issued an ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). Under current GAAP, deferred income tax assets and liabilities are separated into current and noncurrent amounts in the balance sheet. ASU 2015-17 requires all deferred assets and liabilities be classified as noncurrent in the balance sheet. The standard will be effective for periods beginning after December 15, 2016, including interim periods within that reporting period. The adoption of this ASU is not expected to have a material impact on the Company’s financial statements.
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805), Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”), which require an acquiring Company to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. GAAP requires that during the measurement period, the acquirer retrospectively adjust the provisional amounts recognized at the acquisition date with a corresponding adjustment to goodwill. Those adjustments are required when new information is obtained about facts and circumstances that existed as of the acquisition date that if known, would have affected the measurement of the amounts initially recorded. To simplify the accounting for adjustments made to provisional amounts recognized in a business combination, the amendments in the update eliminate the requirement to retrospectively account for those adjustments. This ASU is effective for public entities for fiscal years beginning after December 15, 2015, including interim periods within those years. Disclosure of the nature and reason for the change should be made in the first period, including interim periods, there is a measurement period adjustment.
In August, 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”). The amendment in this ASU defers the effective date of ASU No. 2014-09 for all entities for one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods with that reporting period.
In April 2015, the FASB issued ASU No. 2015-03, Interest–Imputation of Interest (Subtopic 835-30) (“ASU 2015-03”), which changes the presentation of debt issuance costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. For public business entities, ASU 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, ASU 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. Early adoption is permitted for financial statements that have not been previously issued. The new guidance should be applied on a retrospective basis. The Company will adopt ASU 2015-03 on its balance sheets retrospectively during the interim period ending March 31, 2016.
| 7 |
Penny Auction Solutions, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). This guidance clarifies that an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The amendments in this update are effective for annual reporting periods ending after December 15, 2016, and annual and interim periods thereafter, and early application is permitted. The Company is currently in the process of evaluating the impact of adoption of ASU 2014-15 on its financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and early application is not permitted. ASU 2014-09 allows for either full retrospective or modified retrospective adoption. We do not expect the adoption of the new provisions to have a material impact on our financial condition or results of operations.
No other new accounting pronouncements, issued or effective during the six months ended February 29, 2016, have had or are expected to have a significant impact on the Company’s financial statements.
Note 2 – Going Concern
As shown in the accompanying consolidated financial statements, the Company has incurred continuous losses from operations, had an accumulated deficit of $2,161,508, the Company’s current liabilities exceeded its current assets by $522,264 and had cash on hand of $17,567 as of February 29, 2016. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is currently seeking additional sources of capital to fund short term operations through debt or equity investments, including loans from officers and directors. The Company, however, is dependent upon its ability to secure equity and/or debt financing and there are no assurances that the Company will be successful, therefore, without sufficient financing it would be unlikely for the Company to continue as a going concern.
The financial statements do not include any adjustments that might result from the outcome of any uncertainty as to the Company’s ability to continue as a going concern. The financial statements also do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 3 – Fair Value of Financial Instruments
Under FASB ASC 820-10-5, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and FASB ASC 820-10-50 details the disclosures that are required for items measured at fair value.
The Company has cash and debts that must be measured under the new fair value standard. The Company’s financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. The three levels are as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 - Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 - Unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability.
| 8 |
Penny Auction Solutions, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following schedule summarizes the valuation of financial instruments at fair value on a recurring basis in the balance sheets as of February 29, 2016 and August 31, 2015:
| Fair Value Measurements at February 29, 2016 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | 17,567 | $ | - | $ | - | ||||||
| Total assets | 17,567 | - | - | |||||||||
| Liabilities | ||||||||||||
| Due to officer, related party | - | 35,356 | - | |||||||||
| Notes payable | - | 313,793 | - | |||||||||
| Total Liabilities | - | 349,149 | - | |||||||||
| $ | 17,567 | $ | (349,149 | ) | $ | - | ||||||
| Fair Value Measurements at August 31, 2015 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | 63,268 | $ | - | $ | - | ||||||
| Total assets | 63,268 | - | - | |||||||||
| Liabilities | ||||||||||||
| Due to officer, related party | - | 35,356 | - | |||||||||
| Notes payable | - | 319,693 | - | |||||||||
| Total Liabilities | - | 355,049 | - | |||||||||
| $ | 63,268 | $ | (355,049 | ) | $ | - | ||||||
There were no transfers of financial assets or liabilities between Level 1 and Level 2 inputs for the six months ended February 29, 2016 and the year ended August 31, 2015.
Level 2 liabilities consist of demand notes and promissory notes. No fair value adjustment was necessary for the six months ended February 29, 2016 and the year ended August 31, 2015.
Note 4 – Related Party
Employment Agreement, CEO
On January 1, 2015, the Company entered into an employment agreement with the Company’s CEO, Michael Holt, which consists of an annual salary of $78,500 payable in monthly increments, and carrying no specific term. The Company recognized $39,250 and $13,083 of compensation expense during the six months ended February 29, 2016 and February 28, 2015, respectively. A total of $16,614 and $8,033 remained unpaid as of February 29, 2016 and February 28, 2015, respectively.
Consulting Agreement, CFO
On February 20, 2015, the Company entered into a consulting agreement with the Company’s newly appointed CFO, Bob van Leyen over a two year term, which is based on the amount of funding the Company receives beginning with the commencement of the agreement. Prior to the Company’s receipt of cumulative funding of $150,000, Mr. van Leyen shall receive compensation at the rate of $300 per hour (“Stage 1”) and subsequent to the cumulative receipt of $150,000 of financing, Mr. van Leyen shall be compensated at the rate of $250 per hour (“Stage 2”), payable in monthly increments. During Stage 1, the entire hourly rate may be paid in stock in lieu of cash at a rate of $0.10 per share with no cap on the amount of compensation. During Stage 2, Mr. van Leyen will be compensated equally in cash and stock in lieu of cash at a rate of $0.10 per share, initially, or $125 per hour in cash and $125 per hour in stock, with a maximum cash compensation of $5,000 per month. The Company, at its sole discretion, may change the conversion rate from time to time; however this cannot be done retroactively. On May 11, 2015 the minimum funding level of $150,000 had been achieved and Mr. van Leyen became entitled to the mixed cash/stock rate of $250 per hour as described above. The Company recognized $64,500 of compensation expense, consisting of $21,000 of cash compensation and $43,500 of stock-based compensation. A total of $5,205 of the cash compensation remained unpaid as of February 29, 2016.
| 9 |
Penny Auction Solutions, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Debts
As disclosed in Note 6, the Company received loans at various dates from August 25, 2010 (inception) through the period presented herein, consisting of net outstanding balances of $35,356 and $35,356 at February 29, 2016 and August 31, 2015, respectively, to establish a Company bank account and cover expenses paid to form the Corporation and retain professionals to audit and file our reports with the SEC. The loans were provided by, “The Auction Coach.Com, LLC”, a single member LLC owned by our former CEO, Corey Park. The Company has issued an unsecured promissory note to The Auction Coach.Com, LLC, bearing interest at 8% and due on demand.
An unsecured, non-interest bearing, note in the amount of $14,869 is owed to the former officer of our wholly-owned subsidiary. Interest expense of $1,112 and $1,106 has been imputed and recorded to Additional Paid-In Capital during the six months ended February 29, 2016 and February 28, 2015, respectively.
Common Stock Issuances
On February 24, 2016, the Company issued 77,500 shares of common stock to Bob van Leyen, the Company’s CFO, as compensation in lieu of cash for services provided during the month ended February 29, 2016. The fair value of the common stock in total was 7,750 based on recent sales of common stock to independent third parties at $0.10 per share.
On February 1, 2016, the Company issued 25,000 shares of common stock to one of the Company’s directors, as compensation in lieu of cash for services provided. The fair value of the common stock was $2,500 based on recent sales of common stock to independent third parties at $0.10 per share.
On January 31, 2016, the Company issued 77,500 shares of common stock to Bob van Leyen, the Company’s CFO, as compensation in lieu of cash for services provided during the month ended January 31, 2016. The fair value of the common stock in total was $7,750 based on recent sales of common stock to independent third parties at $0.10 per share.
On January 6, 2016, the Company issued 65,000 shares of common stock to Bob van Leyen, the Company’s CFO, as compensation in lieu of cash for services provided during the month ended December 31, 2015. The fair value of the common stock in total was $6,500 based on recent sales of common stock to independent third parties at $0.10 per share.
On January 6, 2016, the Company issued 55,000 shares of common stock previously granted to Bob van Leyen, the Company’s CFO, as compensation in lieu of cash for services provided during the month ended November 30, 2015. The fair value of the common stock in total was $5,500 based on recent sales of common stock to independent third parties at $0.10 per share.
On November 18, 2015, the Company issued 125,000 shares of common stock to Bob van Leyen, the Company’s CFO, as compensation in lieu of cash for services provided during the month ended October 31, 2015 and previous. The fair value of the common stock in total was $12,500 based on recent sales of common stock to independent third parties at $0.10 per share.
On October 14, 2015, the Company issued 35,000 shares of common stock to Bob van Leyen, the Company’s CFO, as compensation in lieu of cash for services provided during the month ended September 30, 2015. The fair value of the common stock in total was $3,500 based on recent sales of common stock to independent third parties at $0.10 per share.
On September 7, 2015, the Company issued 60,000 shares of common stock previously granted to Bob van Leyen, the Company’s CFO, as compensation in lieu of cash for services provided during the month ended August 31, 2015. The fair value of the common stock in total was $6,000 based on recent sales of common stock to independent third parties at $0.10 per share and was presented as a subscriptions payable at August 31, 2015.
| 10 |
Penny Auction Solutions, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5 – Deferred Revenues
Deferred revenues consist of the following at February 29, 2016 and August 31, 2015, respectively:
| February 29, | August 31, | |||||||
| 2016 | 2015 | |||||||
| Bid “pennies” previously sold to customers still retained in customer accounts | $ | 121,166 | $ | 121,166 | ||||
The Company generates revenue from the online sale of “pennies” that are consumed in the bidding process regardless of whether the bid has resulted in a successful purchase. Deferred revenues consist of purchased “pennies” that have not yet been consumed during the bidding process. They are still held in the customer accounts.
Note 6 – Due to Officer
Due to officer consists of the following at February 29, 2016 and August 31, 2015, respectively:
| February 29, | August 31, | |||||||
| 2016 | 2015 | |||||||
| 8% unsecured demand notes from a related party, “The Auction Coach.Com, LLC”, a single member LLC owned by our former CEO and major shareholder, Corey Park. | $ | 35,356 | $ | 35,356 | ||||
The Company recognized interest expense of $1,414 and $1,414 during the six months ended February 29, 2016 and February 28, 2015, respectively.
| 11 |
Penny Auction Solutions, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 7 – Notes Payable
Notes Payable consists of the following at February 29, 2016 and August 31, 2015, respectively:
| February 29, | August 31, | |||||||
| 2016 | 2015 | |||||||
| Unsecured, non-interest bearing note payable, matures on December 31, 2017 issued to memorialize the unpaid cash component of our commitment fee with Kodiak Capital as more fully described in the note below. On March 1, 2015, the original debt of $500,000 was modified to $100,000, along with the extended maturity date of December 31, 2017, resulting in a gain on debt extinguishment of $400,000 during the year ended August 31, 2015. | $ | 100,000 | $ | 100,000 | ||||
| Unsecured note payable bearing interest at 8%, due on demand, originated on February 23, 2012. The note was repaid in full on December 4, 2015. | - | 3,700 | ||||||
| Unsecured note payable bearing interest at 8%, due on demand, originated on August 30, 2012 | 500 | 500 | ||||||
| Unsecured note payable bearing interest at 8%, due on demand, originated on September 17, 2012 | 5,000 | 5,000 | ||||||
| Unsecured note payable bearing interest at 8%, due on demand, originated on October 25, 2012 | 5,000 | 5,000 | ||||||
| Unsecured note payable bearing interest at 8%, due on demand, originated on December 20, 2012 | 2,500 | 2,500 | ||||||
| Unsecured note payable bearing interest at 8%, due on demand, originated on February 1, 2013. A total of $2,200 of principal was repaid on various dates from January 30, 2016 through February 7, 2016. | 6,800 | 9,000 | ||||||
| Unsecured note payable non-interest bearing, due on demand | 14,869 | 14,869 | ||||||
| Unsecured note payable bearing interest at 8%, due on demand, originated on March 22, 2013 | 20,000 | 20,000 | ||||||
| Unsecured note payable bearing interest at 8%, due on demand, originated on August 29, 2013 | - | - | ||||||
| Unsecured note payable bearing interest at 8%, due on demand, originated on November 1, 2014 in satisfaction of $50,000 of outstanding accounts payable. | 50,000 | 50,000 | ||||||
| Unsecured note payable bearing interest at 8%, due on demand, originated on November 7, 2014 in exchange and consolidation of the two previous loans originating on December 30, 2010 and August 29, 2013 | 55,000 | 55,000 | ||||||
| Unsecured note payable bearing interest at 10%, due on January 23, 2016, as amended and currently in default, originated on January 23, 2015 in satisfaction of $54,124 of outstanding accounts payable to our securities attorney, Indeglia & Carney, LLP | 54,124 | 54,124 | ||||||
| Total notes payable | 313,793 | 319,693 | ||||||
| Less: current portion | 213,793 | 219,693 | ||||||
| Notes payable, less current portion | $ | 100,000 | $ | 100,000 | ||||
The Company recognized interest expense of $9,763 and $7,529 during the six months ended February 29, 2016 and February 28, 2015, respectively. The Company repaid $8,575 of interest during the six months ended February 29, 2016. No repayments were made during the comparative period.
| 12 |
Penny Auction Solutions, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 8 – Put Rights Financing and Equity Line of Credit
Pursuant to an equity purchase agreement with Kodiak Capital dated March 1, 2015, which replaced the original purchase agreement dated September 1, 2010 (as subsequently amended on December 28, 2010 and March 14, 2012), we have the right to “put” to Kodiak Capital up to $5,000,000 in price of shares of our common stock (i.e., we can compel Kodiak Capital to purchase our common stock at a pre-determined formula). This arrangement may commonly be referred to as an equity line of credit.
In conjunction with our original investment agreements with Kodiak Capital, we issued 1,960,000 commitment shares of common stock on August 30, 2010 and 2,940,000 shares of our common stock pursuant to the addendum on December 28, 2010 to Kodiak Capital and its designee, split equally, as a commitment fee. The fair value of the common stock was $98,000 and $147,000 based on recent sales of common stock to independent third parties at $0.05 per share for the issuances at August 30, 2010 and December 28, 2010, respectively. The shares are restricted stock as defined in Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”). On July 21, 2015, a total of 1,978,944 of these shares were voluntarily cancelled by Kodiak and returned to treasury. We also issued a $500,000 promissory note, which was modified on March 1, 2015, down to $100,000 with a revised maturity date of December 31, 2017 to memorialize the unpaid cash component of our commitment fee.
The purchase agreement provides, in part, that following notice to Kodiak Capital, we may put to Kodiak Capital up to $5,000,000 in shares of our common stock for a purchase price equal to 85% percent of the lowest closing bid price of the common stock during the five consecutive trading days immediately following the date of our notice to Kodiak Capital of an election to put shares pursuant to the investment agreement. The aggregate dollar value that we will be permitted to put will be either: (a) $1,000,000 or (b) 200% of the average daily volume in the U.S. market of our common stock for the three trading days prior to the notice of our put, multiplied by the average of the three daily closing bid prices immediately preceding the date of the put notice. Kodiak Capital has indicated that it will resell those shares in the open market, resell our shares to other investors through negotiated transactions, or hold our shares in its portfolio.
Kodiak Capital will only purchase shares when we meet the following conditions:
| · | a registration statement under the Securities Act has been declared effective and remains effective for the resale of the common stock subject to the purchase agreement; |
| · | our common stock has not been suspended from trading for a period of five consecutive trading days and we have not been notified of any pending or threatened proceeding or other action to delist or suspend our common stock; |
| · | we have complied with our obligations under the purchase agreement and the attendant registration rights agreement; |
| · | no injunction has been issued and remains in force, and no action has been commenced by a governmental authority which has not been stayed or abandoned, prohibiting the purchase or the issuance of our common stock; and |
| · | we have not filed a petition in bankruptcy, either voluntarily or involuntarily, and there shall not have been commenced any proceedings under any bankruptcy or insolvency laws. |
The purchase agreement will terminate when any of the following events occur:
| · | Kodiak has purchased an aggregate of $5,000,000 of our common stock or thirty-six months after the effective date; |
| · | we file or otherwise enter an order for relief in bankruptcy; or |
| · | our common stock ceases to be registered under the Securities Act. |
As we draw down on the equity line of credit, shares of our common stock may be sold into the market by Kodiak Capital. The sale of these additional shares could cause our stock price to decline. In turn, if the price of our common stock declines and we issue more puts, more shares may go into the market, which could cause a further drop in the price of our common stock.
Note 9 – Changes in Stockholders’ Equity (Deficit)
The Company has authorized 495,000,000 shares of $0.001 par value common stock, of which 25,052,106 shares were issued and outstanding as of February 29, 2016. Additionally, the Company has 5,000,000 authorized shares of $0.001 par value preferred stock.
Common Stock
On February 24, 2016, the Company issued 77,500 shares of common stock to Bob van Leyen, the Company’s CFO, as compensation in lieu of cash for services provided during the month ended February 29, 2016. The fair value of the common stock in total was 7,750 based on recent sales of common stock to independent third parties at $0.10 per share.
| 13 |
Penny Auction Solutions, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
On February 16, 2016, a shareholder voluntarily cancelled and returned 350,000 shares of common stock to treasury.
On February 1, 2016, the Company issued a total of 95,000 shares of common stock amongst eight service providers, as compensation in lieu of cash for services provided. The fair value of the common stock in total was $9,500 based on recent sales of common stock to independent third parties at $0.10 per share.
On February 1, 2016, the Company issued 25,000 shares of common stock to one of the Company’s directors, as compensation in lieu of cash for services provided. The fair value of the common stock was $2,500 based on recent sales of common stock to independent third parties at $0.10 per share.
On January 31, 2016, the Company issued 77,500 shares of common stock to Bob van Leyen, the Company’s CFO, as compensation in lieu of cash for services provided during the month ended January 31, 2016. The fair value of the common stock in total was $7,750 based on recent sales of common stock to independent third parties at $0.10 per share.
On January 6, 2016, the Company issued 100,000 shares of common stock to a service provider, as compensation in lieu of cash for services provided. The fair value of the common stock in total was $10,000 based on recent sales of common stock to independent third parties at $0.10 per share.
On January 6, 2016, the Company issued 65,000 shares of common stock to Bob van Leyen, the Company’s CFO, as compensation in lieu of cash for services provided during the month ended December 31, 2015. The fair value of the common stock in total was $6,500 based on recent sales of common stock to independent third parties at $0.10 per share.
On January 6, 2016, the Company issued 55,000 shares of common stock previously granted to Bob van Leyen, the Company’s CFO, as compensation in lieu of cash for services provided during the month ended November 30, 2015. The fair value of the common stock in total was $5,500 based on recent sales of common stock to independent third parties at $0.10 per share.
On November 18, 2015, the Company issued 125,000 shares of common stock to Bob van Leyen, the Company’s CFO, as compensation in lieu of cash for services provided on October 31, 2015 and previous. The fair value of the common stock in total was $12,500 based on recent sales of common stock to independent third parties at $0.10 per share.
On October 27, 2015, the Company sold 250,000 shares of common stock to an accredited investor, in exchange for proceeds of $25,000 based on a sales price of $0.10 per share.
On October 14, 2015, the Company issued 35,000 shares of common stock to Bob van Leyen, the Company’s CFO, as compensation in lieu of cash for services provided on September 30, 2015. The fair value of the common stock in total was $3,500 based on recent sales of common stock to independent third parties at $0.10 per share.
On September 25, 2015, the Company sold 250,000 shares of common stock to an accredited investor, in exchange for proceeds of $25,000 based on a sales price of $0.10 per share.
On September 7, 2015, the Company issued 60,000 shares of common stock previously granted to Bob van Leyen, the Company’s CFO, as compensation in lieu of cash for services provided on August 31, 2015. The fair value of the common stock in total was $6,000 based on recent sales of common stock to independent third parties at $0.10 per share and was presented as a subscriptions payable at August 31, 2015.
On September 2, 2015, the Company sold 500,000 shares of common stock to an accredited investor, in exchange for proceeds of $50,000 based on a sales price of $0.10 per share.
Note 10 – Subsequent Events
Common Stock
On March 31, 2016, the Company issued 65,000 shares of common stock previously granted to Bob van Leyen, the Company’s CFO, as compensation in lieu of cash for services provided during the month of March 31, 2016. The fair value of the common stock in total was $6,500 based on recent sales of common stock to independent third parties at $0.10 per share.
| 14 |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Overview and Outlook
We are a development stage online pay-to-bid penny auction company. We were formed as a Nevada corporation on August 25, 2010. We consummated the purchase of our first penny auction website, Bidwinfun.com, Inc., formerly Nail Bidder, Inc., (www.nailbidder.com) in March 2012.
Our primary near-term objectives from an operational standpoint are as follows:
Our highest near-term priority is to reestablish our Nailbidder auction site (www.nailbidder.com). We acquired this auction site in 2012 and only a few additional tasks need to be completed by us in order for it to become operational and generate revenues. These tasks include, amongst others, retesting the system, reestablishing relationships with the site’s past customers and developing a marketing plan. The estimated timeframe needed to reestablish the Nailbidder site and ramp up operations is approximately three months after we receive appropriate funding. We anticipate that the total amount needed for this phase is $55,000, which we have not raised as of the date of this registration statement. Another important milestone to reach with respect to Nailbidder is to enable international auctions. We believe it will take approximately six months after we obtain additional funding (estimated at $95,000 beyond the $55,000 referenced above) to establish this functionality. Based on the foregoing, we anticipate that for Bidwinfun.com to achieve full functionality usable on a worldwide basis and allowing appropriate scaling, we will require approximately $150,000 in funding and need to hire additional employees and engage various IT contractors.
In order to continue growing beyond the Bidwinfun.com site, we have plans to develop a new Penny Auction (PA) platform (“PA Enterprise Model”). This enterprise model will be a top priority for us once the Nailbidder site has been successfully reestablished. The development time for this system is expected to take approximately 18 months after development is commenced and will require approximately $400,000 in funding. The PA Enterprise Model would encompass all of the necessary components to enable us to deploy a new website (for a new county) every 90 to 120 days. The model would also encompass better website design for customer interface and the development of a total back office support system that would be almost completely automated. The back office system would manifest in savings and efficiencies for our operations and provide for faster and more accurate training of our personnel. The PA Enterprise Model will be a template for implementing each new branded site in the future. This approach would allow us to leave Nailbidder intact and functioning throughout the development phase of the PA Enterprise Model and keep a steady and increasing stream of revenue from its operations.
Another high priority activity will be the development of a PA Mobile Platform. The development time for a mobile platform is expected to take approximately 18 months after development is commenced and will require approximately $350,000 in funding. The primary activities associated with this strategy include hiring a mobile computing development company, developing penny auction mobile products and services, and hiring a small number of internal support personnel. We expect that there will be a large and growing population of mobile application users in the coming years and our goal is to not only provide a full penny auction experience via our traditional websites, but to also serve the needs of our members through the ability to interact with mobile computing devices. These devices include but are not limited to: cell phones, tablets and internet appliances. The majority of the funding would be used in creating the mobile platforms for a host of devices to allow users to interact with their mobile device and still experience almost the same functionality of a traditional website. The other major expenditure would be deployment of the platforms and the marketing of the new applications.
Management believes that by using the proper marketing strategies, it is possible to attract customers to penny auction websites at a rapid rate. We are in the process of engaging one or more public relation firms to assist us with developing long-term marketing strategies based on our online business model. We have also built relationships with several individuals who have experience in our industry. We plan to hire some of these individuals as consultants in order to gain insight from their experiences.
We are focused on developing successful marketing campaigns to attract and retain customers, including several “membership based” reward systems which management believes will assist with long-term, sustained growth and profitability.
Management believes that we have a focused strategy, an experienced management team, and a successful business concept. Additional investment capital is required in order to implement our business model and grow the business to an international level.
| 15 |
Results of Operations for the Three Months Ended February 29, 2016 and February 28, 2015:
| For the | ||||||||||||
| Three Months Ended | ||||||||||||
| February 29, | February 28, | Increase / | ||||||||||
| 2016 | 2015 | (Decrease) | ||||||||||
| Revenues | $ | - | $ | - | $ | - | ||||||
| Cost of goods sold | - | - | - | |||||||||
| Gross profit | - | - | - | |||||||||
| General and administrative | 45,290 | 14,968 | 30,322 | |||||||||
| Professional fees | 54,851 | 56,870 | (2,019 | ) | ||||||||
| Depreciation | 49 | - | 49 | |||||||||
| Total operating expenses | 100,190 | 71,838 | 28,352 | |||||||||
| Net operating loss | (100,190 | ) | (71,838 | ) | 28,352 | |||||||
| Total other income (expense) | (5,547 | ) | (4,663 | ) | 884 | |||||||
| Net loss | $ | (105,737 | ) | $ | (76,501 | ) | $ | 29,236 | ||||
Revenue and Cost of Goods Sold:
We had no revenues and no cost of goods sold during the three months ended February 29, 2016 and February 28, 2015, as we did not have any penny auction websites operating during these periods.
Operating Expenses:
Operating expenses for the three months ended February 29, 2016 increased to $100,190 from $71,838 for the three months ended February 28, 2015, an increase of $28,352 or 39%. The primary reason for this increase is the increased officer compensation from $-0- for the three months ended February 28, 2015 to $30,125 for the three months ended February 29, 2016, an increase of $30,125 of compensation expense paid, or accrued to officers over the previous fiscal three months as we ramped up efforts to implement our business plan and began to pay our officers compensation.
Other Income (Expenses):
Other income (expenses) for the three months ended February 29, 2016 increased to $5,547 from $4,663 for the comparable period in 2015, an increase of $884 or 19%. The increase is due to additional interest expense on increased borrowings over the previous fiscal three months.
Net Loss:
Net loss for the three months ended February 29, 2016 increased to $105,737 from $76,501 for the three months ended February 28, 2015, an increase of $29,236 or 38%. The primary reason for the increased net loss is the increased compensation to officers and consultants over the previous fiscal three months as we re-commenced efforts to implement our business plan.
| 16 |
Results of Operations for the Six Months Ended February 29, 2016 and February 28, 2015:
| For the | ||||||||||||
| Six Months Ended | ||||||||||||
| February 29, | February 28, | Increase / | ||||||||||
| 2016 | 2015 | (Decrease) | ||||||||||
| Revenues | $ | - | $ | - | $ | - | ||||||
| Cost of goods sold | - | - | - | |||||||||
| Gross profit | - | - | - | |||||||||
| General and administrative | 82,993 | 16,220 | 66,773 | |||||||||
| Professional fees | 110,425 | 287,703 | (177,278 | ) | ||||||||
| Depreciation | 98 | - | 98 | |||||||||
| Total operating expenses | 193,516 | 303,923 | (110,407 | ) | ||||||||
| Net operating loss | (193,516 | ) | (303,923 | ) | (110,407 | ) | ||||||
| Total other income (expense) | (11,177 | ) | (8,943 | ) | 2,234 | |||||||
| Net loss | $ | (204,693 | ) | $ | (312,866 | ) | $ | (108,173 | ) | |||
Revenue and Cost of Goods Sold:
We had no revenues and no cost of goods sold during the six months ended February 29, 2016 and February 28, 2015, as we did not have any penny auction websites operating during these periods.
Operating Expenses:
Operating expenses for the six months ended February 29, 2016 decreased to $193,516 from $303,923 for the six months ended February 28, 2015, a decrease of $110,407 or 36%. The primary reason for this decrease is the decreased stock-based compensation from $261,534 for the six months ended February 28, 2015 to $65,500 for the six months ended February 29, 2016, a net decrease of $196,034, as diminished by $60,250 of compensation expense paid, or accrued to officers over the previous fiscal six months as we ramped up efforts to implement our business plan and began to pay our officers compensation.
Other Income (Expenses):
Other income (expenses) for the six months ended February 29, 2016 increased to $11,177 from $8,943 for the comparable period in 2015, an increase of $2,234 or 25%. The increase is due to additional interest expense on increased borrowings over the previous fiscal six months.
Net Loss:
Net loss for the six months ended February 29, 2016 decreased to $204,693 from $312,866 for the six months ended February 28, 2015, a decrease of $108,173 or 35%. The primary reason for this decrease is the decreased stock-based compensation from $261,534 for the six months ended February 28, 2015 to $65,500 for the six months ended February 29, 2016, a net decrease of $196,034, as diminished by $60,250 of compensation expense paid, or accrued to officers over the previous fiscal six months as we ramped up efforts to implement our business plan and began to pay our officers compensation.
| 17 |
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes total assets, accumulated deficit, stockholders’ equity and working capital at February 29, 2016 compared to August 31, 2015.
| February 29, | August 31, | Increase / | ||||||||||
| 2016 | 2015 | (Decrease) | ||||||||||
| Total Assets | $ | 23,913 | $ | 73,596 | $ | (49,683 | ) | |||||
| Total Liabilities | $ | 645,386 | $ | 656,989 | $ | (11,603 | ) | |||||
| Accumulated Deficit | $ | (2,161,508 | ) | $ | (1,956,815 | ) | $ | 204,693 | ||||
| Stockholders’ Equity (Deficit) | $ | (621,473 | ) | $ | (583,393 | ) | $ | 38,080 | ||||
| Working Capital (Deficit) | $ | (522,264 | ) | $ | (484,282 | ) | $ | 37,982 | ||||
Our principal source of operating capital has been provided from debt financing, loans from officers, and issuance of equity securities.
Equity Financing
On October 27, 2015, the Company sold 250,000 shares of common stock to an accredited investor, in exchange for proceeds of $25,000 based on a sales price of $0.10 per share.
On September 25, 2015, the Company sold 250,000 shares of common stock to an accredited investor, in exchange for proceeds of $25,000 based on a sales price of $0.10 per share.
On September 2, 2015, the Company sold 500,000 shares of common stock to an accredited investor, in exchange for proceeds of $50,000 based on a sales price of $0.10 per share.
Off-Balance Sheet Arrangements
As of February 29, 2016, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations liquidity, capital expenditures or capital resources.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
The Company has had recurring net losses, an accumulated deficit, and a working capital deficiency. These conditions raise substantial doubt about its ability to continue as a going concern. Management plans to try to implement its business plan and improve operating results through cost reductions. We cannot assure that we will have sufficient capital to finance our growth and business operations or that such capital will be available on terms that are favorable to us or at all. We are currently incurring operating deficits that are expected to continue for the foreseeable future.
The unaudited consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Critical Accounting Policies
We have identified the following policies below as critical to our business and results of operations. Our reported results are impacted by the application of the following accounting policies, certain of which require management to make subjective or complex judgments. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact quarterly or annual results of operations. For all of these policies, management cautions that future events rarely develop exactly as expected, and the best estimates routinely require adjustment. Specific risks associated with these critical accounting policies are described in the following paragraphs.
| 18 |
Principles of Consolidation
The consolidated financial statements herein contain the operations of the Company’s wholly-owned subsidiary of Bidwinfun.com. All significant inter-company transactions have been eliminated in the preparation of these financial statements. The parent company, Penny Auction Solutions, Inc. and its subsidiary, Bidwinfun.com will be collectively referred to herein as the “Company”, or “Penny Auction Solutions”.
The accompanying consolidated financial statements include the accounts of Bidwinfun.com, Inc., a wholly-owned subsidiary under common control and ownership:
| State of | Abbreviated | |||||
| Name of Entity | Incorporation | Relationship | Reference | |||
| Bidwinfun.com, Inc. | New York | Subsidiary(1) | Bidwinfun.com |
(1)Wholly-owned subsidiary.
(2)On December 30, 2015, the Company amended the Articles of Incorporation of its wholly-owned subsidiary to change the subsidiary’s corporate name from Nail Bidder, Inc. to Bidwinfun.com, Inc.
Bidwinfun.com, Inc. was acquired on March 28, 2012 as part of a Securities Purchase Agreement (“SPA”). Pursuant to the SPA, we purchased all of Bidwinfun.com’s assets and assumed all of its liabilities, including all of its cash, intellectual property, its business trade name, website (nailbidder.com), goodwill, trade payables and loans due to officer in consideration for 340,000 shares of our common stock, with a fair value of $17,000, which was delivered at the closing. Bidwinfun.com operated a penny auction website similar to the planned operations of Penny Auction Solutions. The website auctions temporarily terminated shortly after the acquisition and have not yet recommenced due to a lack of operating funds.
These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein. The Company follows the same accounting policies in the preparation of interim reports.
Revenue Recognition
The Company generates revenue from the online sale of “pennies” that are consumed in the bidding process regardless of whether the bid has resulted in a successful purchase, as well as, the sale of “advertisements’ or “banner ads” on its internet site directed toward internet users, bargain shoppers and gaming aficionados, and the sale of goods sold at auction. The Company recognizes revenue using four basic criteria that must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured, which is typically after receipt of payment and delivery, net of any credit card charge-backs and refunds. Determination of criteria (3) and (4) are based on management’s judgment regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund, and for unused bid pennies, until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required. Revenues on membership fees are also deferred and recognized ratably over the membership period.
Deferred revenues from the online sale of unused “pennies” were $121,166 and $121,166 at November 30, 2015 and August 31, 2015, respectively.
Stock-Based Compensation
Under FASB ASC 718-10-30-2, all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The Company recognized $65,500 and $261,534 for services and compensation for the six months ended February 29, 2016 and February 28, 2015, respectively.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
Not applicable.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation as of February 29, 2016, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(f) and 15d–15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during our most recent quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
In the ordinary course of business, we may become subject to lawsuits and other claims and proceedings that might arise from litigation matters or regulatory audits. Such matters are subject to uncertainty and outcomes are often not predictable with assurance. Our management does not presently expect that such matters will have a material adverse effect on the Company’s financial condition or results of operations. We are not currently involved in any pending or threatened material litigation or other material legal proceedings, nor have we been made aware of any penalties from regulatory audits, except as we have previously disclosed, or may in the future disclose.
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following issuances of equity securities by the Company as payment for services in lieu of cash occurred during the three month period ended February 29, 2016:
Common Stock Issued for Services
On February 24, 2016, the Company issued 77,500 shares of common stock, restricted in accordance with Rule 144, to Bob van Leyen, the Company’s CFO, as compensation in lieu of cash for services provided during the month ended February 29, 2016. The issuance was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, and the investor was accredited and familiar with our operations and there was no solicitation in connection with the issuance.
On February 1, 2016, the Company issued a total of 95,000 shares of common stock, restricted in accordance with Rule 144, amongst eight service providers, as compensation in lieu of cash for services provided. The issuance was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, and the investor was accredited and familiar with our operations and there was no solicitation in connection with the issuance.
On February 1, 2016, the Company issued 25,000 shares of common stock, restricted in accordance with Rule 144, to one of the Company’s directors, as compensation in lieu of cash for services provided. The issuance was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, and the investor was accredited and familiar with our operations and there was no solicitation in connection with the issuance.
On January 31, 2016, the Company issued 77,500 shares of common stock, restricted in accordance with Rule 144, to Bob van Leyen, the Company’s CFO, as compensation in lieu of cash for services provided during the month ended January 31, 2016. The issuance was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, and the investor was accredited and familiar with our operations and there was no solicitation in connection with the issuance.
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On January 6, 2016, the Company issued 100,000 shares of common stock, restricted in accordance with Rule 144, to a service provider, as compensation in lieu of cash for services provided. The issuance was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, and the investor was accredited and familiar with our operations and there was no solicitation in connection with the issuance.
On January 6, 2016, the Company issued 65,000 shares of common stock, restricted in accordance with Rule 144, to Bob van Leyen, the Company’s CFO, as compensation in lieu of cash for services provided during the month ended December 31, 2015. The issuance was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, and the investor was accredited and familiar with our operations and there was no solicitation in connection with the issuance.
On January 6, 2016, the Company issued 55,000 shares of common stock previously granted, restricted in accordance with Rule 144, to Bob van Leyen, the Company’s CFO, as compensation in lieu of cash for services provided during the month ended November 30, 2015. The issuance was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, and the investor was accredited and familiar with our operations and there was no solicitation in connection with the issuance.
Item 3. Defaults Upon Senior Securities
On February 26, 2016 we were presented with a notice of default on an unsecured note payable in the amount of $54,124, bearing interest at 10% that was due on January 23, 2016. The note was originally issued in satisfaction of $54,124 of outstanding accounts payable to our securities attorney, Indeglia & Carney, LLP. Commensurate with the notice of default, Indeglia & Carney, LLP also formally terminated their representation of the Company.
Item 4. Mine Safety Disclosures
Not applicable.
On December 30, 2015, the Company amended the Articles of Incorporation of its wholly-owned subsidiary to change the subsidiary’s corporate name from Nail Bidder, Inc. to Bidwinfun.com, Inc.
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| Exhibit No. | Description | |
| 2.1 | Stock Purchase Agreement by and among Penny Auctions Solutions, Inc., Nail Bidder, Inc. and the stockholders of Nail Bidder, Inc. (incorporated by reference to Exhibit 2.1 of our registration statement on Form 10-12G filed with the Securities and Exchange Commissioner on July 11, 2013) | |
| 3.1 | Articles of Incorporation (incorporated by reference to Exhibit 3.1 of our registration statement on Form S-1 filed with the Securities and Exchange Commissioner on February 3, 2011) | |
| 3.2 | Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.2 of our registration statement on Form S-1 filed with the Securities and Exchange Commissioner on February 3, 2011) | |
| 3.3 | Bylaws (incorporated by reference to Exhibit 3.3 of our registration statement on Form S-1 filed with the Securities and Exchange Commissioner on February 3, 2011) | |
| 3.4 | Certificate of Withdrawal of Certificate of Designation of Series A Preferred Stock (incorporated by reference to Exhibit 3.4 of our registration statement on Form 10-12G filed with the Securities and Exchange Commissioner on July 11, 2013) | |
| 4.1 | Specimen Certificate for Common Stock (incorporated by reference to Exhibit 4.1 of our registration statement on Form S-1 filed with the Securities and Exchange Commissioner on February 3, 2011) | |
| 4.2 | Equity Purchase Agreement with Kodiak Capital Group, LLC, a Delaware limited liability company, dated March 1, 2015 (incorporated by reference to Exhibit 4.2 of our registration statement on Form 10-12G filed with the Securities and Exchange Commissioner on September 4, 2015) | |
| 4.3 | Registration Rights Agreement with Kodiak Capital Group, LLC, a Delaware limited liability company, dated March 1, 2015 (incorporated by reference to Exhibit 4.3 of our registration statement on Form 10-12G filed with the Securities and Exchange Commissioner on September 4, 2015) | |
| 21.1 | Subsidiaries (incorporated by reference to Exhibit 21.1 of our Form 10-Q filed with the Securities and Exchange Commissioner on January 19, 2016) | |
| 31.1* | Section 302 Certification of Chief Executive Officer | |
| 31.2* | Section 302 Certification of Chief Financial Officer | |
| 32.1* | Section 906 Certification of Chief Executive Officer | |
| 32.2* | Section 906 Certification of Chief Financial Officer | |
| 101.INS* | XBRL Instance Document | |
| 101.SCH* | XBRL Schema Document | |
| 101.CAL* | XBRL Calculation Linkbase Document | |
| 101.DEF* | XBRL Definition Linkbase Document | |
| 101.LAB* | XBRL Labels Linkbase Document | |
| 101.PRE* | XBRL Presentation Linkbase Document |
* Filed herewith
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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.
| PENNY AUCTION SOLUTIONS, INC. | ||
| Date: April 14, 2016 | /s/ Michael Holt | |
| Michael Holt, Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: April 14, 2016 | /s/ Bob van Leyen | |
| Bob van Leyen, Chief Financial Officer | ||
| (Principal Financial Officer) |
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