þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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THE PAWS PET COMPANY, INC.
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(Exact Name of Registrant as Specified in Its Charter)
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Illinois
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20-3191557
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(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification No.)
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2001 Gateway Place, Suite 410
San Jose, CA USA
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95110
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(Address of Principal Executive Offices)
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(Zip Code)
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(408) 248 6000
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(Registrant’s Telephone Number, Including Area Code)
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o (Do not check if a smaller reporting company)
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Smaller reporting company þ
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Page
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Part I
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FINANCIAL INFORMATION
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|||||
|
||||||
Item 1.
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Financial Statements (Unaudited)
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|||||
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Condensed Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010
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3 | ||||
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Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2011 and 2010
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4 | ||||
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Condensed Consolidated Statements of Cash Flows for nine months ended September 30, 2011 and 2010
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5 | ||||
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Notes to Condensed Consolidated Financial Statements
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6 | ||||
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||||||
Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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18 | ||||
Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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26 | ||||
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||||||
Item 4.
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Controls and Procedures
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26 | ||||
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||||||
Part II
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OTHER INFORMATION
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|||||
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||||||
Item 1.
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Legal Proceedings
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26 | ||||
Item 1A.
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Risk Factors
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27 | ||||
Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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27 | ||||
Item 3.
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Defaults Upon Senior Securities
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27 | ||||
Item 4.
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[Removed & Reserved]
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27 | ||||
Item 5.
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Other Information
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27 | ||||
Item 6.
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Exhibits
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28 | ||||
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||||||
SIGNATURE
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29 |
September 30,
2011 |
December 31,
2010 |
|||||||
ASSETS
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(Unaudited)
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(Audited)
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||||||
Current assets:
|
||||||||
Cash and cash equivalents
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$ | 23,805 | $ | 1,511,057 | ||||
Receivable due from credit card clearing house
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69,550 | 123,134 | ||||||
Prepaid expenses
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11,239 | 119,354 | ||||||
Deferred financing fee
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427,073 | - | ||||||
Total current assets
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531,667 | 1,753,545 | ||||||
Property and equipment, at cost
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256,199 | 168,546 | ||||||
Less: accumulated depreciation and amortization
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(83,967 | ) | (38,587 | ) | ||||
Property and equipment, net
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172,232 | 129,959 | ||||||
Security deposits and other
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24,779 | 30,787 | ||||||
Total assets
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$ | 728,678 | $ | 1,914,291 | ||||
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
|
||||||||
Current liabilities:
|
||||||||
14% debenture
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$ | - | $ | 250,000 | ||||
Accounts payable
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257,300 | 550,216 | ||||||
Accrued expenses
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632,261 | 342,159 | ||||||
Unearned revenue
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148,220 | 125,603 | ||||||
Warrant liability
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6,143,013 | - | ||||||
Total current liabilities
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7,180,794 | 1,267,978 | ||||||
Convertible debentures, net of debt discount of $567,310 and $695,807 at September 30, 2011 and December 31, 2010, respectively.
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257,690 | 304,193 | ||||||
Commitments and contingencies
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- | - | ||||||
Stockholders' (deficit) equity:
|
||||||||
Series A preferred stock, 10,000,000 shares authorized, none issued and outstanding at September 30, 2011 and December 31, 2010, respectively.
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- | - | ||||||
Common stock, no par value, 100,000,000 shares authorized, 45,607,273 and 34,314,615 issued and outstanding at September 30, 2011 and December 31, 2010, respectively.
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- | - | ||||||
Additional paid-in capital
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8,997,518 | 6,407,128 | ||||||
Accumulated deficit
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(15,707,324 | ) | (6,065,008 | ) | ||||
Total stockholders' (deficit) equity
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(6,709,806 | ) | 342,120 | |||||
Total liabilities and stockholders' (deficit) equity
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$ | 728,678 | $ | 1,914,291 |
Three months ended September 30,
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Nine months ended September 30,
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|||||||||||||||
2011
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2010
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2011
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2010
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|||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Revenue
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$ | 577,691 | $ | 356,057 | $ | 1,489,450 | $ | 872,594 | ||||||||
Cost of revenue
|
363,940 | 590,871 | 1,530,393 | 1,164,477 | ||||||||||||
Gross income (loss)
|
213,751 | (234,814 | ) | (40,943 | ) | (291,883 | ) | |||||||||
Operating expense:
|
||||||||||||||||
Sales, general and administration
|
900,278 | 1,862,228 | 2,788,147 | 2,274,393 | ||||||||||||
Loss from operations
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(686,527 | ) | (2,097,042 | ) | (2,829,090 | ) | (2,566,276 | ) | ||||||||
Other income (expense):
|
||||||||||||||||
Interest income
|
4 | 3 | 8 | 182 | ||||||||||||
Interest expense
|
(82,122 | ) | (73,707 | ) | (569,099 | ) | (80,474 | ) | ||||||||
Loss on extinguishment of debt
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- | - | (571,122 | ) | - | |||||||||||
Warrant liability valuation, net
|
7,166,847 | - | (5,673,013 | ) | - | |||||||||||
Other income (expense), net
|
7,084,729 | (73,704 | ) | (6,813,226 | ) | (80,292 | ) | |||||||||
Income (loss) before income taxes
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6,398,202 | (2,170,746 | ) | (9,642,316 | ) | (2,646,568 | ) | |||||||||
Provision (benefit) for income taxes
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- | - | - | - | ||||||||||||
Net income (loss)
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$ | 6,398,202 | $ | (2,170,746 | ) | $ | (9,642,316 | ) | $ | (2,646,568 | ) | |||||
Net income (loss) per share, basic and diluted
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$ | 0.14 | $ | (0.06 | ) | $ | (0.23 | ) | $ | (0.09 | ) | |||||
Weighted average shares used in calculation of basic and diluted net income (loss) per share
|
44,750,634 | 34,244,506 | 41,864,799 | 30,843,566 |
Nine months ended September 30,
|
||||||||
2011
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2010
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|||||||
(Unaudited) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net loss
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$ | (9,642,316 | ) | $ | (2,636,622 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
Depreciation and amortization
|
45,380 | 13,670 | ||||||
Equity based compensation
|
32,394 | - | ||||||
Warrant valuation, net
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6,143,013 | - | ||||||
Loss on extinguishment of 14% debenture
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571,122 | - | ||||||
Accelerated amortization of debt discount from conversion of debenture
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325,399 | - | ||||||
Amortization of debt discount
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145,731 | 55,121 | ||||||
Warrants issued in lieu of cash for services rendered by non-employees
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169,062 | - | ||||||
Common shares issued in lieu of cash to Intellicell for license fee
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82,500 | - | ||||||
Common shares issued in lieu of cash for services rendered by non-employees
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413,073 | 885,000 | ||||||
Common shares issued in lieu of cash compensation to employees
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- | 376,497 | ||||||
Changes in certain assets and liabilities:
|
||||||||
Receivable due from credit card clearing house
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53,584 | - | ||||||
Prepaid expenses
|
108,115 | (27,315 | ) | |||||
Deferred financing fee
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(427,073 | ) | - | |||||
Security deposits and other
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6,008 | (12,166 | ) | |||||
Accounts payable
|
(292,916 | ) | 43,345 | |||||
Accrued expenses
|
344,708 | 360 | ||||||
Unearned revenue
|
22,617 | 21,693 | ||||||
Net cash used in operating activities
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(1,899,599 | ) | (1,280,417 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases of property and equipment
|
(87,653 | ) | (37,747 | ) | ||||
Net cash used in investing activities
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(87,653 | ) | (37,747 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds from issuance of common stock
|
500,000 | 270,000 | ||||||
Proceeds from issuance of debt
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- | 1,250,000 | ||||||
Net cash provided by financing activities
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500,000 | 1,520,000 | ||||||
Net change in cash and cash equivalents
|
(1,487,252 | ) | 201,836 | |||||
Cash and cash equivalents at beginning of period
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1,511,057 | 171,257 | ||||||
Cash and cash equivalents at end of period
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$ | 23,805 | $ | 373,093 | ||||
Supplementary disclosure of cash flow information
|
||||||||
Cash paid during the year for:
|
||||||||
Income taxes
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$ | 800 | $ | - | ||||
Interest expense
|
$ | - | $ | 1,982 | ||||
Non-cash transactions:
|
||||||||
Conversion of 8% convertible debentures to 1.3 million shares of common stock
|
$ | 525,000 | $ | - | ||||
Derivative warrant valuation APIC component
|
$ | 470,000 | $ | - | ||||
Issuance of 14% convertible debenture with warrants in exchange for 14% debenture
|
$ | 350,000 | $ | - | ||||
Derivative liability discount from issuance of 14% convertible debenture with warrants
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$ | 342,632 | $ | - | ||||
Extinguishment of 14% debenture exchanged for 14% convertible debenture
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$ | 250,000 | $ | - | ||||
Common shares issued in 2011 in lieu of cash for 2011 interest due
|
$ | 88,615 | $ | - | ||||
Common shares issued in 2011 for services rendered in 2010 by non-employees
|
$ | 298,824 | $ | - | ||||
Common shares issued in 2011 in lieu of cash for 2010 interest due
|
$ | 157,062 | $ | - |
Market Served
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Airport
|
||
● |
Atlanta
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DeKalb–Peachtree Airport, Atlanta, GA.
|
|
● |
Baltimore
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Baltimore/Washington International Airport, Baltimore, MD
|
|
● |
Chicago
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Midway Airport, Chicago, IL.
|
|
● |
Denver
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Rocky Mountain Metropolitan Airport, Broomfield, CO.
|
|
● |
Fort Lauderdale
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Hollywood International Airport, Fort Lauderdale, FL.
|
|
● |
Los Angeles
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Hawthorne Executive Airport, Hawthorne, CA.
|
|
● |
New York
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Republic Airport, Farmingdale, NY.
|
|
● |
Omaha
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Epply Airport, Omaha, NE.
|
|
● |
Phoenix
|
Falcon Field Airport, Mesa, AZ.
|
●
|
Level 1 – Inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
|
|
●
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Level 2 – Inputs use other inputs that are observable, either directly or indirectly. These inputs include quoted prices for similar assets and liabilities in active markets as well as other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.
|
|
●
|
Level 3 – Inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability.
|
Septernber 30,
2011 |
December 31,
2010 |
|||||||
Principal amount 8% convertible debenture
|
$ | 475,000 | $ | 1,000,000 | ||||
Principal amount 14% convertible debenture
|
$ | 350,000 | ||||||
Unamortized debt discount
|
(567,310 | ) | (695,807 | ) | ||||
Net carrying amount
|
$ | 257,690 | $ | 304,193 | ||||
Equity component (recognized in Additional paid-in capital)
|
$ | 790,131 | $ | 790,131 |
Three months ended September 30,
|
Nine months ended September 30,
|
|||||||||||||||
2011
|
2010* | 2011 | 2010* | |||||||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
Numerator:
|
||||||||||||||||
Net income (loss), basic
|
$ | 6,398,202 | $ | (2,170,746 | ) | $ | (9,642,316 | ) | $ | (2,646,568 | ) | |||||
Effect of interest expense and discount amortization
|
- | (1) | - | $ | - | (1) | $ | - | ||||||||
Net income (loss), dilutive
|
6,398,202 | (2,170,746 | ) | (9,642,316 | ) | (2,646,568 | ) | |||||||||
Denominator:
|
||||||||||||||||
Weighted shares outstanding, basic
|
44,750,634 | 34,244,506 | 41,864,799 | 30,843,566 | ||||||||||||
Effect of dilutive securities:
|
||||||||||||||||
Convertible debentures and warrants
|
- | (1) | - | - | (1) | - | ||||||||||
Weighted shares outstanding, dilutive
|
44,750,634 | 34,244,506 | 41,864,799 | 30,843,566 | ||||||||||||
Net income (loss) per share, basic
|
$ | 0.14 | $ | (0.06 | ) | $ | (0.23 | ) | $ | (0.09 | ) | |||||
Net income (loss) per share, dilutive
|
$ | 0.14 | $ | (0.06 | ) | $ | (0.23 | ) | $ | (0.09 | ) |
|
Market Served
|
Airport
|
|
·
|
Atlanta
|
DeKalb–Peachtree Airport, Atlanta, GA.
|
|
·
|
Baltimore
|
Baltimore/Washington International Airport, Baltimore, MD
|
|
·
|
Chicago
|
Midway Airport, Chicago, IL.
|
|
·
|
Denver
|
Rocky Mountain Metropolitan Airport, Broomfield, CO.
|
|
·
|
Fort Lauderdale
|
Hollywood International Airport, Fort Lauderdale, FL.
|
|
·
|
Los Angeles
|
Hawthorne Executive Airport, Hawthorne, CA.
|
|
·
|
New York
|
Republic Airport, Farmingdale, NY.
|
|
·
|
Omaha
|
Epply Airport, Omaha, NE.
|
|
·
|
Phoenix
|
Falcon Field Airport, Mesa, AZ.
|
Three months ended September 30,
|
2011 over 2010
|
|||||||||||||||||||||||
2011
|
2010
|
$ | % | |||||||||||||||||||||
Revenue
|
$ | 577,691 | 100 | % | $ | 356,057 | 100 | % | $ | 221,634 | 62 | % | ||||||||||||
Cost of revenue
|
363,940 | 63 | % | 590,871 | 166 | % | (226,931 | ) | -38 | % | ||||||||||||||
Gross income (loss)
|
213,751 | 37 | % | (234,814 | ) | -66 | % | 448,565 | -191 | % | ||||||||||||||
Operating expenses:
|
||||||||||||||||||||||||
Sales, general and administration
|
900,278 | 156 | % | 1,862,228 | * | (961,950 | ) | -52 | % | |||||||||||||||
Loss from operations
|
(686,527 | ) | -119 | % | (2,097,042 | ) | * | 1,410,515 | -67 | % | ||||||||||||||
Other income (expense):
|
||||||||||||||||||||||||
Interest income
|
4 | 0 | % | 3 | 0 | % | 1 | 18 | % | |||||||||||||||
Interest expense
|
(82,122 | ) | -14 | % | (73,707 | ) | -12 | % | (8,415 | ) | 11 | % | ||||||||||||
Loss on extingishment of debunture
|
- | 0 | % | - | * | - | * | |||||||||||||||||
Derivative warrant valuation expense, net
|
7,166,847 | * | - | * | 7,166,847 | * | ||||||||||||||||||
Other income (expense), net
|
7,084,729 | 1226 | % | (73,704 | ) | -21 | % | 7,158,433 | * | |||||||||||||||
Income (loss) before income taxes
|
6,398,202 | 1108 | % | (2,170,746 | ) | -610 | % | 8,568,948 | -395 | % | ||||||||||||||
(Provision) benefit for income taxes
|
- | * | - | * | - | * | ||||||||||||||||||
Net income (loss)
|
$ | 6,398,202 | 1108 | % | $ | (2,170,746 | ) | -610 | % | $ | 8,568,948 | -395 | % | |||||||||||
Net income (loss) per share, basic
|
$ | 0.14 | $ | (0.06 | ) | |||||||||||||||||||
Net income (loss) per share, diluted
|
$ | 0.14 | $ | (0.06 | ) | |||||||||||||||||||
Weighted average shares used in calculation of basic net income (loss) per share
|
44,750,634 | 34,244,506 | ||||||||||||||||||||||
Weighted average shares used in calculation of diluted net income (loss) per share
|
44,750,634 | 34,244,506 |
Nine months ended September 30,
|
2011 over 2010
|
|||||||||||||||||||||||
2011
|
2010
|
$ | % | |||||||||||||||||||||
Revenue
|
$ | 1,489,450 | 100 | % | $ | 872,594 | 100 | % | $ | 616,856 | 71 | % | ||||||||||||
Cost of revenue
|
1,530,393 | 103 | % | 1,164,477 | 133 | % | 365,916 | 31 | % | |||||||||||||||
Gross income (loss)
|
(40,943 | ) | -3 | % | (291,883 | ) | -33 | % | 250,940 | -86 | % | |||||||||||||
Operating expenses:
|
||||||||||||||||||||||||
Sales, general and administration
|
2,788,149 | 187 | % | 2,274,393 | 261 | % | 513,756 | 23 | % | |||||||||||||||
Loss from operations
|
(2,829,092 | ) | -190 | % | (2,566,276 | ) | -294 | % | (262,816 | ) | 10 | % | ||||||||||||
Other income (expense):
|
||||||||||||||||||||||||
Interest income
|
8 | 0 | % | 182 | 0 | % | (174 | ) | -96 | % | ||||||||||||||
Interest expense
|
(569,099 | ) | -38 | % | (80,474 | ) | -7 | % | (488,625 | ) | * | |||||||||||||
Loss on extingishment of debunture
|
(571,122 | ) | * | - | * | (571,122 | ) | * | ||||||||||||||||
Derivative warrant valuation expense, net
|
(5,673,013 | ) | * | - | * | (5,673,013 | ) | * | ||||||||||||||||
Other income (expense), net
|
(6,813,227 | ) | -457 | % | (80,292 | ) | -9 | % | (6,732,935 | ) | * | |||||||||||||
Income (loss) before income taxes
|
(9,642,319 | ) | -647 | % | (2,646,568 | ) | -303 | % | (6,995,751 | ) | 264 | % | ||||||||||||
(Provision) benefit for income taxes
|
- | * | - | * | - | * | ||||||||||||||||||
Net income (loss)
|
$ | (9,642,319 | ) | -647 | % | $ | (2,646,568 | ) | -303 | % | $ | (6,995,751 | ) | 264 | % | |||||||||
Net income (loss) per share, basic
|
$ | (0.23 | ) | $ | (0.09 | ) | ||||||||||||||||||
Net income (loss) per share, diluted
|
$ | (0.23 | ) | $ | (0.09 | ) | ||||||||||||||||||
Weighted average shares used in calculation of basic net income (loss) per share
|
41,864,799 | 30,843,566 | ||||||||||||||||||||||
Weighted average shares used in calculation of diluted net income (loss) per share
|
41,864,799 | 30,843,566 |
Three months ended September 30,
|
Nine months ended September 30,
|
|||||||||||||||||||||||||||||||
2011
|
%
|
2010
|
%
|
2011
|
%
|
2010
|
%
|
|||||||||||||||||||||||||
Cash and non-cash items in Net income (loss):
|
||||||||||||||||||||||||||||||||
Cash
|
$ | (514,471 | ) | -8.0 | % | $ | (969,524 | ) | 44.7 | % | $ | (2,467,850 | ) | 25.6 | % | $ | (1,214,926 | ) | 45.9 | % | ||||||||||||
Non-cash
|
6,912,673 | 108.0 | % | (1,201,222 | ) | 55.3 | % | (7,174,466 | ) | 74.4 | % | (1,431,642 | ) | 54.1 | % | |||||||||||||||||
Net income (loss)
|
$ | 6,398,202 | 100.0 | % | $ | (2,170,746 | ) | 100.0 | % | $ | (9,642,316 | ) | 100.0 | % | $ | (2,646,568 | ) | 100.0 | % |
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Summary of non-cash items:
|
||||||||||||||||
Derivative warrant valuation income (expense), net
|
$ | 7,166,847 | $ | - | $ | (5,673,013 | ) | $ | - | |||||||
Loss on extinguishment of 14% debenture
|
- | - | (571,122 | ) | - | |||||||||||
Accelerated amortization of debt discount from conversion of debenture
|
- | - | (325,399 | ) | - | |||||||||||
Warrants issued for services rendered by non-employees
|
- | (885,000 | ) | (169,062 | ) | (885,000 | ) | |||||||||
Amortization of debt discount
|
(64,817 | ) | (55,121 | ) | (145,731 | ) | (55,121 | ) | ||||||||
Common shares issued for interest payable in lieu of cash
|
(15,179 | ) | - | (88,615 | ) | - | ||||||||||
Equity based compensation
|
(32,394 | ) | (32,394 | ) | ||||||||||||
Depreciation and amortization
|
(18,034 | ) | (13,670 | ) | (45,480 | ) | (17,593 | ) | ||||||||
Common shares issued in lieu of cash for license fee
|
(82,500 | ) | (82,500 | ) | ||||||||||||
Common shares issued for services rendered by non-employees
|
(41,250 | ) | - | (41,250 | ) | (97,431 | ) | |||||||||
Common shares issued in lieu of cash to employees
|
(247,431 | ) | - | (376,497 | ) | |||||||||||
Total non-cash
|
$ | 6,912,673 | $ | (1,201,222 | ) | $ | (7,174,466 | ) | $ | (1,431,642 | ) | |||||
Non-cash dilutive per share amount
|
$ | 0.15 | $ | (0.04 | ) | $ | (0.17 | ) | $ | (0.05 | ) |
Exhibit No. | Description | |
3.1
|
Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the registration statement Form SB-2, File No. 333-130446, initially filed with the SEC on December 19, 2005, as amended)
|
|
3.2
|
Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to registration statement Form SB-2, File No. 333-130446, initially filed with the SEC on December 19, 2005, as amended)
|
|
3.3
|
Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the current report on Form 8-K filed with the SEC on October 25, 2010)
|
|
3.4
|
Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the current report on Form 8-K filed with the SEC on August 4, 2011)
|
|
10.1
|
Form of Share Exchange Agreement, dated as of June 25, 2010, among the Registrant, The PAWS Pet Company, Inc., a Florida corporation (“PAWS”), the stockholders of PAWS, and Joseph A. Merkel, Kevin T. Quinlan, and Bellevue Holdings, Inc. (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed with the SEC on July 1, 2010)
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|
10.2
|
Form of 8% Convertible Debenture (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed with the SEC on August 17, 2010)
|
|
10.3
|
Form of Subscription Agreement for 8% Convertible Debentures and Share Purchase Warrants (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K filed with the SEC on August 17, 2010)
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10.4
|
Form of Common Stock Subscription Agreement (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed with the SEC on November 9, 2010)
|
10.5
|
Securities Purchase Agreement, dated as of June 3, 2011 (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed with the SEC on June 6, 2011)
|
|
10.6
|
Warrant to Purchase Common A Stock (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K filed with the SEC on June 6, 2011)
|
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10.7
|
Amended and Restated Certificate of Designation of Series A Preferred Stock (incorporated by reference to Exhibit 10.3 to the current report on Form 8-K filed with the SEC on June 6, 2011)
|
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10.8
|
Registration Rights Agreement dated June 3, 2011 (incorporated by reference to Exhibit 10.4 to the current report on Form 8-K filed with the SEC on June 6, 2011)
|
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10.9
|
Form of Lock-Up Agreement (incorporated by reference to Exhibit 10.5 to the current report on Form 8-K filed with the SEC on June 6, 2011)
|
|
10.10
|
Form of 14% Convertible Debenture (incorporated by reference to Exhibit 10.10 to the registration statement on Form S-1 filed with the SEC)
|
10.11
|
Laboratory Services License Agreement dated August 26, 2011 (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed with the SEC on September 1, 2011)
|
|
16.1
|
Letter from Cordovano and Honick LLP regarding the resignation of the independent accountant (incorporated by reference to Exhibit 16.1 to the current report on Form 8-K filed with the SEC on August 31, 2010)
|
|
21.1
|
Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to the annual report on Form 10-K for the year ended December 31, 2010)
|
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31.1*
|
Certification of Chief Executive Officer pursuant to Section 302, of the Sarbanes-Oxley Act of 2002.
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31.2*
|
Certification of Chief Financial Officer pursuant to Section 302, of the Sarbanes-Oxley Act of 2002.
|
|
32.1*
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32.2*
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
EX-101.INS**
|
XBRL INSTANCE DOCUMENT
|
EX-101.SCH**
|
XBRL TAXONOMY EXTENSION SCHEMA
|
EX-101.CAL**
|
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
|
EX-101.DEF**
|
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
|
EX-101.LAB**
|
XBRL TAXONOMY EXTENSION LABEL LINKBASE
|
EX-101.PRE**
|
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
|
*
|
filed herewith
|
**
|
furnished and not filed herewith.
|
THE PAWS PET COMPANY, INC.
|
|||
|
By:
|
/s/Andrew C. Warner
|
|
Andrew C. Warner
|
|||
Chief Financial Officer
|
1.
|
I have reviewed this quarterly report on Form 10-Q of The PAWS Pet Company, Inc.;
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.
|
/s/ Dan Wiesel
|
|
|||
Dan Wiesel
|
|
|||
Chief Executive Officer
|
|
1.
|
I have reviewed this quarterly report on Form 10-Q of The PAWS Pet Company, Inc.;
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting.
|
/s/ Andrew C. Warner
|
|
|||
Andrew C. Warner
|
|
|||
Chief Financial Officer
|
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2)
|
The information contained in this Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Dan Wiesel
|
|
Dan Wiesel
|
|
Chief Executive Officer
|
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2)
|
The information contained in this Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Andrew C. Warner | |
Andrew C. Warner
|
|
Chief Financial Officer
|
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Convertible debentures, debt discount | $ 567,310 | $ 695,807 |
Series A preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Series A preferred stock, issued | 0 | 0 |
Series A preferred stock, outstanding | 0 | 0 |
Common stock, no par value | $ 0 | $ 0 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, issued | 45,607,273 | 34,314,615 |
Common stock, outstanding | 45,607,273 | 34,314,615 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Revenue | $ 577,691 | $ 356,057 | $ 1,489,450 | $ 872,594 |
Cost of revenue | 363,940 | 590,871 | 1,530,393 | 1,164,477 |
Gross income (loss) | 213,751 | (234,814) | (40,943) | (291,883) |
Operating expense: | ||||
Sales, general and administration | 900,278 | 1,862,228 | 2,788,147 | 2,274,393 |
Loss from operations | (686,527) | (2,097,042) | (2,829,090) | (2,566,276) |
Other income (expense): | ||||
Interest income | 4 | 3 | 8 | 182 |
Interest expense | (82,122) | (73,707) | (569,099) | (80,474) |
Loss on extinguishment of debt | (571,122) | |||
Warrant liability valuation, net | 7,166,847 | (5,673,013) | ||
Other income (expense), net | 7,084,729 | (73,704) | (6,813,226) | (80,292) |
Income (loss) before income taxes | 6,398,202 | (2,170,746) | (9,642,316) | (2,646,568) |
Provision (benefit) for income taxes | ||||
Net income (loss) | $ 6,398,202 | $ (2,170,746) | $ (9,642,316) | $ (2,646,568) |
Net income (loss) per share, basic and diluted | $ 0.14 | $ (0.06) | $ (0.23) | $ (0.09) |
Weighted average shares used in calculation of basic and diluted net income (loss) per share | 44,750,634 | 34,244,506 | 41,864,799 | 30,843,566 |
Document and Entity Information | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | Nov. 14, 2011 | |
Document Information [Line Items] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Sep. 30, 2011 | |
Document Fiscal Year Focus | 2011 | |
Document Fiscal Period Focus | Q3 | |
Trading Symbol | PAWS | |
Entity Registrant Name | PAWS PET COMPANY, INC. | |
Entity Central Index Key | 0001346973 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 45,607,273 |
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Subsequent Events | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Subsequent Events |
6. Subsequent Events
None.
|
Equity | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Equity |
2. Equity
Preferred
Stock Authorized
On
May 27, 2011, the Company filed an amended and restated Certificate
of Designations of Preferences, Rights and Limitations of
Series A Preferred Stock (the “Certificate of Designations”) with
the Secretary of State of the State of Illinois. A summary of the
Certificate of Designations is set forth below:
Ranking and Voting. The Preferred Stock ranks, with respect
to rights upon liquidation, winding-up or dissolution,
(i) senior to the Common Stock, and any other classes of stock
or series of preferred stock of the Company other than a class or
series of preferred stock intended to be listed for trading and
(ii) junior to and all existing and future indebtedness of the
Company.
No right of Conversion. The Preferred Stock is not
convertible into Common Stock.
Dividends and Other Distributions. Commencing on the date of
issuance of any such shares of Preferred Stock, holders of
Preferred Stock shall be entitled to receive dividends on each
outstanding share of Preferred Stock, which shall accrue at a rate
equal to 10% per annum from the date of issuance. Accrued dividends
shall be payable upon redemption of the Preferred Stock. So long as
any shares of Preferred Stock are outstanding, no dividends or
other distributions may be paid, declared or set apart with respect
to any junior securities other than dividends or other
distributions payable on the Common Stock solely in the form of
additional shares of Common Stock. After payment of dividends at
the annual rates set forth above, any additional dividends declared
shall be distributed ratably among all holders of Preferred Stock
and Common Stock in proportion to the number of shares of Common
Stock that would be held by each such holder of Preferred Stock as
if the Preferred Stock were converted into Common Stock by taking
the Series A Liquidation Value (as defined below) divided by the
market price of one share of Common Stock on the date of
distribution.
Liquidation. Upon any liquidation, dissolution or winding up
of the Company after payment or provision for payment of debts and
other liabilities of the Company and any liquidation preferences to
the senior securities, before any distribution or payment is made
to the holders of any junior securities, the holders of Preferred
Stock shall first be entitled to be paid out of the assets of the
Company available for distribution to its stockholders an amount
with respect to the Series A Liquidation Value, after which
any remaining assets of the Company shall be distributed ratably
among the holders of the Preferred Stock and the holders of junior
securities, as if the Preferred Stock were converted into Common
Stock by taking the Series A Liquidation Value divided by the
market price of one share of Common Stock on the date of
distribution.
Redemption. The Company may redeem, for cash or by an offset
against any outstanding note payable from Socius to the Company
that was issued by Socius, any or all of the Preferred Stock at any
time at a redemption price per share equal to $10,000 per share of
Preferred Stock, plus any accrued but unpaid dividends with respect
to such share of Preferred Stock (the “Series A Liquidation
Value”).
On
June 2, 2011, the Company’s Board of Directors designated
1,200,000 shares as Series A preferred stock. At November 8, 2011,
no shares of Series A preferred stock were
outstanding.
Socius CG
II, Ltd. Financing
On
June 3, 2011, the Company entered into a securities purchase
agreement with Socius CG II, Ltd. (“Socius”), pursuant
to which it secured $500,000 of immediate funding through the
issuance and sale of 2,253,470 shares of common stock and a warrant
to purchase up to 20,476,707 shares of common stock at an initial
exercise price of $1.02 (subject to anti-dilution
adjustment). In addition, Socius agreed to purchase up to an
additional $5 million in non-convertible Series A Preferred Stock
(“Preferred Stock”) from the Company over the next two
years, subject to the Company meeting certain
conditions.
Subject
to the terms and conditions of the securities purchase agreement,
beginning 75 days after the closing of the initial purchase, at the
Company’s sole discretion, the Company may submit to Socius a
tranche notice to purchase a certain dollar amount of the
Company’s Preferred Stock at $10,000 per share. The maximum
amount that may be funded under any tranche cannot exceed 20% of
the cumulative trading volume of the common stock for the 10
trading day-period prior to the applicable tranche notice
date.
In
connection with the securities purchase agreement, the Company
agreed to issue on the 75 day anniversary of the initial purchase
by Socius, 1,126,735 shares of common stock to Socius as
consideration for executing the securities purchase agreement. The
fair value of the consideration was $371,823 using the August 18,
2011 common stock closing price of $0.33 per share and was recorded
as a deferred financing fee.
In
addition, with the closing of the Socius financing, the Company
approved the issuance of an aggregate of 1,800,000 shares of common
stock as contingent consideration valued at $1,260,000 using the
June 3, 2011 common stock closing price of $0.70 per share to two
non-employee consultants. The share issuance was recorded as APIC
and as financing cost charged to APIC.
In
connection with the issuance of the warrant to purchase up to
20,476,707 shares of common stock at an initial exercise price of
$1.02 (subject to full ratchet, anti-dilution adjustment), using
the Black Scholes option pricing model that valued the warrants at
$0.70 and $0.65 per share at June 3 and June 30, 2011 respectively,
the Company recorded a charge to operations of $12,839,860 and to
additional paid in capital of $470,000. In connection
with this transaction the Company recorded deferred financing fees
of $843,957 at June 30, 2011. At September 30, 2011, the deferred
financing fees were $427,073. The value of the derivative warrant
liability is $6,143,013 and $13,309,860 at September 30, 2011 and
June 30, 2011, respectively.
Common
Stock Issued
In
January 2011, the Company issued an aggregate of 188,939 shares of
common stock valued, using the closing stock price, at $288,143 as
compensation for services rendered by non-employees and 1,300,000
shares of common stock pursuant to the conversion of aggregate
$525,000 principal amount of the 8% convertible
debentures.
On
February 14, 2011, the Company elected to issue 104,708 shares of
common stock valued, using the closing stock price, at $157,062 in
lieu of cash to satisfy the interest payable at January 1, 2011 to
the convertible debentures holders.
On
February 15, 2011, the Company issued 8,545 shares of common stock
valued, using the Black Scholes pricing option model, of $10,681 as
compensation for services rendered by non-employees.
On
June 3, 2011, the Company issued 2,253,470 shares of common stock
to Socius for cash consideration of $500,000 and 1,800,000 shares
of common stock valued, using the closing stock price, at
$1,260,000 for financing fees paid to non-employees.
On
June 6, 2011, the Company elected to issue 40,884 shares of common
stock valued, using the closing stock price, at $44,973 in lieu of
cash to satisfy the interest payable at April 1, 2011 to the
convertible debentures holders.
On
June 30, 2011, the Company elected to issue 43,800 shares of common
stock valued, using the closing stock price, at $28,469 in lieu of
cash to satisfy the interest payable at July 1, 2011.
On
August 18, 2011, the Company issued 1,126,735 shares of common
stock as compensation to Socius for investment services related to
the financing noted above and recorded a deferred financing fee of
$371,823
On
August 19, 2011, the Company issued 125,000 shares of common stock
as compensation to Corporate Profile LLC for investor relations
services and recorded an expense of $41,250.
On
August 26, 2011, the Company issued 250,000 shares of common stock
as compensation to Intellicell Bioscience, Inc. for license fees
and recorded an expense of $82,500.
On
September 30, 2011, the Company elected to issue 50,557 shares of
common stock valued, using the closing stock price, at $15,179 in
lieu of cash to satisfy the interest payable at October 1,
2011.
Warrants
On
January 4, 2011, the Company issued a warrant with an exercise
price of $1.00 for the purchase of 100,000 shares of common stock
valued at $1.50 per share using the Black Scholes option pricing
model, or $150,000, as settlement of services rendered by
non-employee in 2010.
On
February 4, 2011, the Company issued a warrant with an exercise
price of $1.00 purchase of 16,575 shares of common stock valued at
$1.15 per share using the Black Scholes option pricing model, or
$19,061, as settlement of services rendered by non-employee in
2010.
The
aggregate intrinsic value of the warrants for purchase of common
stock related to Socius, non-employees and the convertible
debentures outstanding of 23,,168,232 and 1,700,000 shares is $0
and $850,000 at September 30, 2011 and December 31, 2010,
respectively.
Stock
Incentive Plan
In
2010, the
Company adopted its Stock Incentive Plan (the "Plan"). Under the
Plan, at September 30, 2011 we had 4,000,000 shares approved and
reserved and at December 31, 2010 we had 4,000,000 shares reserved
for the issuance of stock options to employees, officers, directors
and outside advisors. Under the Plan, the options may be granted to
purchase shares of common stock at fair market value at the date of
grant.
On
July 28, 2011, the Company granted 1,072,000 options to purchase
shares of common stock to officers and employees with an exercise
price of $0.17 at the date of grant. The options awarded vest from
zero to three years. Using the Black Scholes pricing
option model and the estimated forfeiture rate, the expense of
share based awards at the grant date is $182,240. The option award
value will generally be expensed to operations over the option
award’s vesting schedule.
At
September 30, 2011, $ 32,394 has been charged to operations
including $11,892 related to options that vest in approximately one
year or less. At September 30, 2011, 2,978,000 shares are reserved
for future issuance, the unamortized share based award expense is $
149,848 and 50,000 shares have been exercised or
forfeited.
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) In Millions | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | |
Conversion of 8% convertible debentures, common stock shares | 1.3 | 0 |
Debt Obligations | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Obligations |
3. Debt Obligations
Extinguishment of 14%
Debenture
In
June 2010, Pet Airways, Inc. (Florida) issued a $250,000 principal
amount unsecured debenture, with an interest rate of 14% per annum
and a maturity date of June 18, 2011 (“14% debenture”).
Interest on the 14% debenture is payable quarterly starting January
1, 2011. At the Company’s option, interest due may be settled
in cash or shares of Company common stock.
On
June 3, 2011, the Company extinguished the $250,000 principal
amount 14% debenture in exchange for a $350,000 principal amount
convertible debenture with a coupon interest rate of 14% per annum,
a conversion price of $0.50 per share of common stock and a
maturity date of August 14, 2013 (“14% convertible
debenture”) and a warrant to purchase 875,000 shares of
common stock at an exercise price of $0.50 per share with an
expiration date of June 3, 2016. The extinguishment of the $250,000
principal amount 14% debenture resulted in a total loss on the
extinguishment of debt of $571,122 including $10,128 of accrued
interest payable.
The
14% convertible debenture and warrant described above are subject
to derivative liability accounting. Using the Black-Scholes option
pricing model, a fair value of the debenture’s beneficial
conversion feature and warrant component derivative was determined
to be $342,632 and has been recorded as APIC and debt discount.
Using the Black-Scholes option pricing model, a fair value of the
detached warrant was determined to be $481,250 and has been
recorded as APIC and element of the total loss on the
extinguishment of debt.
Convertible
Debentures
In
August 2010, in a series of transactions, the Company issued five
unsecured, convertible debentures, with an aggregate principal
balance of $500,000, with interest rates of 8% per annum and a
maturity date of August 2013. The debentures are convertible into
shares of the Company’s stock at a conversion price of $0.50
per share. Also, in August 2010, the Company issued an
unsecured, convertible debenture in the principal amount of
$500,000 with an interest rate of 8% and a maturity date of August
2013. The debenture is convertible into shares of the
Company’s stock at a conversion price of $0.40 per share.
Interest on the above debentures is payable quarterly. At the
Company’s option, interest due may be settled in cash or
shares of Company common stock.
In
January 2011, the debenture holders of aggregate $525,000 principal
amount of 8% convertible debentures elected to convert their
debentures into 1,300,000 shares of common stock.
At
September 30, 2011, an aggregate of $475,000 and $350,000 principal
amount 8% and 14% convertible debentures, respectively, were
outstanding.
At September 30, 2011 and December 31, 2010, the aggregate $825,000
and $1,000,000 convertible debentures if-converted shares of common
stock issuable at conversion rates ranging from $0.40 to $0.50 per
share resulted in 1,825,000 and 2,250,000 shares and have a fair
market value of $547,500 and $3,375,000 using the common stock
closing prices of $0.30 and $1.50 per share.
Debt
Discount
On
January 17, 2011, the Company amortized to interest expense
$325,399 of the debt discount related to the conversion of
aggregate $525,000 principal amount unsecured 8% convertible
debentures into 1,300,000 shares of common stock.
On
June 3, 2011, the Company issued a 14% convertible debenture and
detached warrant that was subject to derivative liability
accounting. Using the Black-Scholes option pricing model, a fair
value of the debenture’s beneficial conversion feature and
warrant component derivative was determined to be $342,632 and has
been recorded as debt discount and APIC.
For
the three and nine month period ended September 30, 2011, the
Company amortized to interest expense using the effective interest
method $64,817 and $145,730, respectively, of the debt discount
related to the convertible debentures.
At
September 30, 2011 and December 31, 2010, the aggregate unamortized
debt discount was $567,310 and $695,807, respectively. The
unamortized debt discount at September 30, 2011 is being amortized
to interest expense using the effective interest method through the
earlier of the conversion date or the maturity dates of the
convertible debentures. The total effective interest rate on the
liability component was 14 percent for the period ended September
30, 2011.
The
following table summarizes the principal, unamortized debt discount
and equity components of the Company’s convertible debentures
derivative liability net carrying amount:
|
Commitments and Contingencies | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Commitments and Contingencies |
4. Commitments and Contingencies
The
Company leases space for certain of its offices and airport
facilities under leases expiring from one month to three years
after September 30, 2011. Rent expense was $321,010 and $163,099
for the nine months ended September 30, 2011 and 2010,
respectively. Amounts of minimum future annual rental commitments
under non-cancelable operating leases in each of the five periods
ending September 30, 2011 through 2015 are $274,248, $208,659,
$90,049, $14,380, respectively, and zero in later
years.
The
Company, from time to time, is involved in legal proceedings,
claims, and litigation that occur in connection with its business.
The Company routinely assesses its liabilities and contingencies in
connection with these matters based upon the latest available
information and, when necessary, seeks input from its third-party
advisors when making these assessments. Consistent with SEC rules
and requirements, described below are material pending legal
proceedings (other than ordinary routine litigation incidental to
the Company’s business), material proceedings known to be
contemplated by governmental authorities, other proceedings arising
under federal, state, or local environmental laws and regulations
(including governmental proceedings involving potential fines,
penalties, or other monetary sanctions in excess of $10,000) and
such other pending matters that we may determine to be
appropriate.
On
June 23, 2011, the Company filed a complaint in the Superior Court
of The State of California, County of Santa Clara against Evan
Bines and Alpine Capital Partners, Inc., for (a) breach of oral
contract and (b) negligent misrepresentation from the breach of a
contract to provide at least $2 million in financing for the
Company conditional upon the Company completing a reverse merger
with a public entity. The Company is asking the court in a jury
trial for judgment against Evan Bines and Alpine Capital Partners,
Inc. for (1) compensatory damages in an amount proven at trial, (2)
the return of all unearned shares in the merged entity (now known
as The PAWS Pet Company, Inc.) as compensation for the merger
transaction, (3) consequential damages in an amount proven at
trial, (4) interest commencing from the date of breach, (5)
punitive and exemplary damage, (6) recoverable attorneys’
fees and (7) any other relief.
Except
as noted above, there are no other proceedings in which any of the
Company’s directors, officers or affiliates, or any
registered or beneficial shareholder, is an adverse party or has a
material interest adverse to the Company’s
interest.
The Company offers flight insurance to its
customers at different levels of coverage. The Company is
self-insured and has not accrued a reserve against potential
loss.
|
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Net loss per share | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss per share |
5. Net loss per share
The
Company computes net loss per share in accordance with U.S.
generally accepted accounting principles. Basic net loss per share
is computed by dividing net loss attributable to common
stockholders (numerator) by the weighted average number of
common shares outstanding (denominator) during the period. Diluted
net loss per share gives effect to all dilutive potential common
shares outstanding during the period including stock options,
warrants, and convertible debentures using the treasury
stock method.
The
following is a reconciliation of the weighted average number of
common shares used to calculate basic net loss per share to the
weighted average common and potential common shares used to
calculate diluted net loss per share for the three and nine months
ended September 30, 2011 and 2010:
(1) The
three and nine month period ended September 30, 2011, weighted
shares outstanding excludes 23,168,282 shares issuable upon
exercise of warrants and 2,600,000 shares issuable for the
conversion of debt due to a loss from continuing
operation.
*
For comparability during this reportable period, the shares in the
denominator for the three and nine month periods ended September
30, 2010 are present on a post-acqusition and post-share exchanged
pro-forma basis.
|
Summary of Significant Accounting Policies | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Significant Accounting Policies | 1.
Summary of Significant Accounting Policies
Basis of
Presentation
The
accompanying unaudited condensed consolidated financial
statements of The PAWS Pet Company, Inc. (the
“Company”), formerly known as Pet Airways, Inc., and
its wholly owned subsidiary Pet Airways, Inc., have been prepared
in accordance with accounting principles generally accepted in the
United States of America for interim financial information and the
rules and regulations of the Securities and Exchange Commission for
interim financial information. In the opinion of the
Company’s management, the accompany condensed consolidation
financial statements reflect all adjustments, consisting of normal,
recurring adjustments, considered necessary for a fair presentation
of the results for the interim periods ended September 30, 2011 and
2010. Although
management believes that the disclosures in these unaudited
condensed consolidated financial statements are adequate to make
the information presented not misleading, certain information and
footnote disclosures normally included in financial statements that
have been prepared in accordance with accounting principles
generally accepted in the United States of America have been
condensed or omitted pursuant to the rules and regulations of the
Securities Exchange Commission. Financial results for the Company
and airlines in general, can be seasonal in nature. In recent
years, the Company’s revenues, as well as its overall
financial performance, have been better in its second and third
quarters than in its first and fourth quarters. Air travel is also
significantly impacted by, but not limited to general economic
conditions, the amount of disposable income available to consumers
and unemployment levels. The results for the nine and three months
ended September 30, 2011 are not necessarily indicative of the
results to be expected for the year ending December 31, 2011.
These unaudited condensed consolidated financial statements should
be read in conjunction with the audited consolidated financial
statements and footnotes thereto included in the Annual Report on
Form 10-K for the year ended December 31, 2010.
Certain
prior period amounts have been reclassified or adjusted to conform
to the current presentation. These
reclassifications and adjustments had no material impact on the
consolidated financial position, results of operations and net cash
flows from operations for all periods
presented.
Going
Concern Matters
The
accompanying unaudited condensed consolidated financial statements
have been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. The Company does not
presently have adequate cash from operations or financing
activities to meet its long-term financing needs. For
the periods ended September 30, 2011 and December 31, 2010, the
Company had $23,805 and $1,511,057, respectively, in cash and cash
equivalents to use in executing its business plan. For
the nine months ended September 30, 2011, the Company generated
$1,489,450 in revenues and recorded a net loss of $(9,642,316)
including non-cash charges of $(5,673,012) in derivative warrant
valuation expense from the issuance of a warrant and $(571,122) in
loss on extinguishment of debt. For the year ended
December 31, 2010, the Company generated $1,348,491 in revenues and
recorded a net loss of $(4,055,905). As a result of these and other
factors, the Company’s independent registered accountants
have included an explanatory paragraph in their audited
consolidated financial statements and footnotes in the Annual
Report on Form 10-K for the year ended December 31, 2010 as to the
substantial doubt about the Company’s ability to continue as
a going concern. As further described in Footnote 2
“Equity” to the unaudited condensed consolidated
financial statements, on June 3, 2011 the Company issued 2,253,470
shares of common A stock (“common stock”) and a warrant
to purchase 20,476,707 shares of common stock at a price of $1.02
per share to Socius CG II, Ltd. (“Socius”) for cash of
$500,000 and secured an equity line of credit for up to $5 million
subject to the Company meeting certain conditions.
The
Company will require up to $3 million in additional working capital
to continue its operations during the next 12 months and to support
its long-term growth strategies, so as to enhance its service
offerings and benefit from economies of scale. The Company’s
working capital requirements and the cash flow provided by future
operating activities, if any, will vary greatly from quarter to
quarter, depending on the volume of business and competition in the
markets it serves. If the Company does not meet the conditions
permitting drawdowns under its financing arrangement with Socius,
the Company may be required to seek alternative funding through one
or more sources and credit facilities, if available, or through the
sale of debt or issuance of additional equity securities. However,
there is no assurance that funding of any type would be available
to the Company, or that it would be available at rates and on terms
and conditions that would be financially acceptable and viable to
the Company in the long term. If the Company is unable to raise any
necessary additional financing when needed, the Company may be
required to suspend operations, sell assets or enter into a merger
or other combination with a third party, any of which could
adversely affect the value of its common stock, or render it
worthless. If the Company issues additional debt or equity
securities, such securities may enjoy rights, privileges and
priorities (including but not limited to coupon rates, conversion
rights, rights to fixed or preferential dividends, anti-dilution
rights or preference as to the distribution of assets upon a
liquidation) superior to those enjoyed by holders of the
Company’s common stock, thereby diluting the value of the
Company’s common stock.
The
Company’s prospects must be considered in light of the risks,
expenses and difficulties encountered by companies at an early
stage of development, particularly given that the Company has
limited financial resources. The Company may not be successful in
addressing such risks and difficulties.
Business
Overview
The
Company through its wholly-owned subsidiary, Pet Airways, Inc.
operates an airline designed specifically for the comfortable and
safe transportation of pets by traveling in the main cabin of the
aircraft. Pet owners can book their pets on flights online at the
Company’s website or can book with its agents by phone.
Flights can be booked up to three months before the scheduled
departure date. Payment for the flights is made with credit card.
On the day of the scheduled flight, pet owners drop off their pets
at one of the Company’s facilities located at the departure
airport. The Company’s airport facilities are for the pets
delivered for a flight and functions foremost as a staging,
inspection, exchange and observation area for the Company’s
staff and the pets under its care pending there flight departure or
scheduled layover. The Company places the pet passengers into a
pet-friendly carrier and then board the carrier into the main cabin
of the aircraft. Pet passengers fly in the main cabin of the
specially-outfitted aircraft rather than, as is the case for a
traditional commercial airline, flying in the cargo bay or flying
as carry-on baggage placed under a passenger’s seat. The
Company carries domesticated animals. The number of pets carried
per flight can vary based on the size of pet, but generally the
Company can carry around 40 pets per flight. Historically, the
Company carries mainly dogs and cats. The Company can carry pets of
all sizes from small dogs and cats weighing less than 15 lbs. to
dogs that weigh 180 lbs. and have maximum height from the ground to
shoulder of 34 inches. After drop off, pet owners can track flight
progress through the Company’s website. Throughout the
flight, the air quality and temperature of the aircraft are
monitored ensuring that the pet passengers are safe and comfortable
at all times. The Company has a pet attendant on each flight that
is responsible for monitoring the pet passengers during the flight.
Upon arrival at the destination airport, pet passengers are
unloaded from the plane directly into one of the Company’s
airport facilities for pick up.
The
Company does not own its own aircraft. The Company has a
relationship with Suburban Air Freight, Inc. based in Omaha,
Nebraska who has two Beechcraft 1900 aircraft configured to carry a
maximum weight limit of approximately 5,400 lbs. of pets. The
Company relies on Suburban Air to provide the aircraft, pilot and
ensure the aircraft complies with all appropriate FAA regulations.
The Company does not have a written agreement with Suburban Air,
however under the non-written agreement, provides the aircraft,
pilot, ensures the aircraft complies with all appropriate FAA
regulations and operates the flights according to the
Company’s schedule. Suburban Air invoices the Company on a
weekly basis for these services including the cost of the pilot,
providing the aircraft, airport fees and fuel costs. The Company
generally flies one aircraft on its coast-to-coast
service.
As
of September, 30, 2011, the Company served the following nine
markets and airports in the United States and offers a scheduled
coast-to-coast service.
With
the exception of Omaha, the Company is either a tenant or a
sub-tenant of the respective airport authority. At Omaha, the
Company has access to office and hanger space at the Suburban Air
facility as part of its non-written agreement with Suburban
Air. Suburban Air is responsible for all flight
operations aspects at the airports including air traffic control
and landing rights. Any fee associated with use of the airport
landing strip and administration is paid by Suburban Air, who in
turn invoices the Company.
In
addition to Pet Airways operations, the Company evaluates
additional pet related products and services that it could add to
broaden its product offering. These may include the sale of
non-transportation related pet products and services such as pet
foods, pet supplements, pet toys, pet clothing and medical services
for pets. However, there can be no assurance that the
Company will add any non-transportation related pet products or
services to its business or that if it does, that it will be
successful.
Organizational
History
The
Company was incorporated in the State of Illinois on June 6, 2005
as American Antiquities, Inc. In June 2010, the Company formed Pet
Airways, Inc., a Florida corporation, (“Pet Airways, Inc.
(Florida)”) by the conversion of successor entity Panther Air
Cargo, LLC (“Panther Air”) a limited liability company.
Effective the date of the conversion, Panther Air began operating
as Pet Airways, Inc. (Florida).
On
August 13, 2010, the Company completed a reverse acquisition
transaction through a share exchange with Pet Airways, Inc.
(Florida) (the “Acquisition”), whereby the Company
acquired 100% of the issued and outstanding capital stock of Pet
Airways, Inc. (Florida) in exchange for 25,000,000 shares of the
Company’s common stock, which constituted approximately 73%
of its issued and outstanding capital stock on a post-acquisition
basis as of and immediately after the consummation of the
Acquisition.
Panther
Air Cargo, LLC was formed as a limited liability company in the
State of Florida in February 2005. From 2005 through 2009, Panther
Air Cargo d/b/a Pet Airways evaluated the market for pet air
travel, including reservation systems and processes. It also
considered whether it should own its own planes or contract with
third parties. It also evaluated the optimal ways to configure the
aircraft for safe pet travel and the initial markets to commence
flight operations in. Pet Airways began flight operations in July
2009 and from the period July 2009 to March 2010 operated a weekly
scheduled service. In March 2010 Pet Airways suspended flight
operations to upgrade its on line reservation system and to raise
additional capital. In June 2010, Pet Airways resumed flight
operation after it implemented its new reservation system and
raised additional capital by issuing a series of convertible
debentures, shares of common stock and warrants. Immediately prior
to the Acquisition, Panther Air Cargo, LLC was converted to Pet
Airways, Inc., a Florida corporation.
As
a result of the Acquisition, Pet Airways, Inc. (Florida) became a
wholly-owned subsidiary of the Company’s and the controlling
stockholders of Pet Airways, Inc. (Florida) became the
Company’s controlling stockholders. Also, upon completion of
the Acquisition, the Company changed its name from American
Antiquities, Inc. to Pet Airways, Inc. and commenced
trading under the symbol “PAWS” on the OTCQB. The
OTCQB market tier of the OTC market helps investors identify
companies that are current in their reporting obligations with the
Securities and Exchange Commission (the “SEC”). OTCQB
securities are quoted on OTC Markets Group's quotation and trading
system. On July 27, 2011, the Company filed Articles of Amendment
to amend its Articles of Incorporation to change its name to The
PAWS Pet Company, Inc.
The
share exchange transaction was treated as a reverse acquisition,
with Pet Airways, Inc. (Florida) as the acquirer and The PAWS Pet
Company, Inc. as the acquired party. Unless the context suggests
otherwise, references in this report to business and financial
information for periods prior to the consummation of the reverse
acquisition, refer to the business and financial information of Pet
Airways, Inc. and its predecessors. For accounting purposes, the
acquisition of Pet Airways, Inc. has been treated as a
recapitalization with no adjustment to the historical book and tax
basis of the companies’ assets and liabilities.
Critical
Accounting Policies and Estimates
The
preparation of the Company’s unaudited condensed consolidated
financial statements requires the Company to make estimates and
assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. The Company based these
estimates and assumptions on historical experience and evaluates
them on an on-going basis to ensure they remain reasonable under
current conditions. Actual results could differ from those
estimates. Critical accounting policies and estimates are
summarized below.
Revenue
Recognition
The
Company recognizes revenue when the earning process is completed.
In the Company’s business, the earning process is complete
when the scheduled flight service, or a replacement flight service,
purchased by the buyer has been delivered. Revenue from tickets
sold prior to schedule flights is initially recorded as unearned
revenue, net of any discounts, and is recognized as revenue in the
period when the scheduled service has been provided or offered to
the buyer as agreed. In the ordinary course of the Company’s
business, a portion of the tickets sold are sometimes not used by
the buyer on the agreed date of the flight. In such cases, for a
nominal change fee, the Company will issue to holders of unused
tickets a “voucher” which stated value can be applied
toward the purchase of a flight for up to one year. Accordingly,
the change fee is earned when the voucher is issued and the stated
voucher value remains unearned until recorded as revenue upon the
earlier of the vouchers expiration date or delivery of the flight
service that it was applied to. Tickets purchased for scheduled
flights that are cancelled by the Company may be refunded or
applied towards another flight at the buyer's request. Refunds
processed are removed from unearned revenue. Any inconvenience cost
incurred by the Company for the benefit of the buyer is charged to
cost of revenue when incurred. Cancelled scheduled flights
requiring refunds or additional costs to accommodate the
buyer’s revised travel plans have not been a significant
issue since resumption of flights in June 2010. Unearned revenue
consists of tickets and vouchers for future scheduled flights that
have not been completed or provided as agreed.
Fees
charged by the credit card processors for handling the ticket sales
are recorded to cost of sales at the time the tickets are sold due
to the relatively short period of time between the sale of a ticket
and providing the scheduled transportation service.
Derivative
Liabilities
The
Company has utilized convertible debentures with warrants to
purchase shares of common stock to settle certain liabilities and
fund operations resulting in the recording of a derivative
liability. Current guidance for valuing and classifying
transactions of this type included Accounting Standards
Codification (“ASC”) 470-20 "Debt with Conversion
and Other Options". Accordingly, the Company has used
the Black-Scholes option-pricing model as its method of determining
the fair value of the convertible debenture issued with a warrant.
The resulting calculation of the beneficial conversion feature
(BCF) and warrant equity component are recorded to additional paid
in capital (“APIC”) with an offset discount to the
principal value of the convertible debenture. The Company has used
the effective yield interest method for amortizing the discount to
interest expense over the maturity term of the convertible
debenture. The Company records to interest expense the unamortized
discount value associated with a debenture converted in a
period.
The
Company accounts for certain its Warrants (see Note 2, Equity,
Socius CG II, Ltd. Financing) as derivatives under the guidance of
ASC 815-10,
Accounting for Derivative Instruments and Hedging
Activities, and ASC 815-40, Contracts in an
Entity’s Own Stock.
Accruals
for Contingent Liabilities
The
Company makes estimates of liabilities that arise from various
contingencies for which values are not fully known at the date of
the accrual or during the periodic financial planning and analysis
cycle. These contingencies may include, but are not limited, to
accruals for reserves for costs and awards involving legal
settlements, cost associated with planned changes in workforce or
operating levels, costs associated with reduced flight services
from Suburban Air, the building out of leased premises, vacating
leased premises or abandoning leased equipment, and costs involved
with the discontinuance of a segment of a business. Events may
occur that are resolved over a period of time or on a specific
future date. Management makes estimates using the facts available
of the probability of the outcomes and range of cost, if
measureable, of these occurrences and charges them to expense in
the appropriate periods. If the ultimate resolution of any event is
different than management’s estimate caused by a change in
facts or material operating assumptions, compensating entries to
earnings may be required.
Equity
Based Compensation
The
Company applies ASC 718-10 Stock
Compensation and ASC 505-50
Equity Based
Payments to Non-Employees in accounting for stock options
issued to employees and non-employees, respectively. For stock
options and warrants issued to non-employees, the Company applies
the same standard, which requires the recognition of compensation
cost based upon the fair value of stock options and warrant at the
grant date using the Black-Scholes option pricing model. The
Company’s determination of fair value of share-based payment
awards on the date of grant using the option-pricing model is
affected by its equity price as well as assumptions regarding its
expected equity price volatility over the term of the awards, the
selection of a risk free interest rate, the ultimate disposition of
the award and the impact of the award on earnings per
share. For example, in calculating the expected equity
price volatility, the Company may consider using
its historical experience only, its experience plus that
of a publicly trade index volatility experience, or a blended
volatility experience for public peer companies. The
Company also evaluates carefully the expected life term of an award
though the vesting of awards to date have been
immediate. Finally, the Company attempts to use a risk
free rate that is widely quoted and pertinent across a broad range
of transactions.
Cash and
Cash Equivalents
The
Company considers all highly liquid debt instruments and other
short-term investments with maturity of three months or less, when
purchased, to be cash equivalents. The Company maintains
cash and cash equivalent balances at financial institutions that
are insured by the Federal Deposit Insurance
Corporation.
Use of
Estimates
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 and 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 these
estimates.
Reservation System
Development Costs
The
Company accounts for reservation system (“website”)
development costs in accordance with ASC 350-50
“Website
Development Costs.” All costs incurred in
the planning stage are expensed as incurred. Costs
incurred in the website application and infrastructure development
stage are accounted for in accordance with ASC 350-50, which
requires the capitalization of certain costs that meet specific
criteria. Costs incurred in the day to day operation of
the website are expensed as incurred.
Fair
Value Measurements
The
Company has adopted a single definition of fair value, a framework
for measuring fair value, and expanded disclosures concerning fair
value. In this valuation, the exchange price is the price in an
orderly transaction between market participants to sell an asset or
transfer a liability at the measurement date and fair value is a
market-based measurement and not an entity-specific
measurement.
The
Company utilizes the following hierarchy in fair value
measurements:
Depreciation,
Amortization and Capitalization
The
Company records depreciation and amortization, when appropriate,
using the straight-line method over the estimated useful life of
the assets (three to five years). Expenditures for
maintenance and repairs are charged to expense as
incurred. Additions, major renewals and replacements
that increase the property's useful life are
capitalized. Property sold or retired, together with the
related accumulated depreciation is removed from the appropriate
accounts and the resultant gain or loss is included in operating
income or loss.
Long-Lived
Assets
The
Company periodically evaluates whether events and circumstances
have occurred that may warrant revision of the estimated useful
life of its trademark costs. If and when such factors,
events or circumstances indicate possible impairment to its
trademark costs, the Company would make an estimate of
undiscounted cash flows over the remaining lives of the respective
assets in measuring recoverability from future
operations. The Company incurred no impairment losses
during the periods presented.
Income
Taxes
The
Company follows ASC 740, Income Taxes.
Deferred tax assets or liabilities are recorded to reflect the
future tax consequences of temporary differences between the
financial reporting basis of assets and liabilities and their tax
basis at each year-end. These amounts are adjusted, as appropriate,
to reflect enacted changes in tax rates expected to be in effect
when the temporary differences reverse.
The
Company records deferred tax assets and liabilities based on the
differences between the financial statement and tax bases of assets
and liabilities and on operating loss carry forwards using enacted
tax rates in effect for the year in which the differences are
expected to reverse. A valuation allowance is provided when it is
more likely than not that some portion or all of a deferred tax
asset will not be realized.
Recent
Accounting Pronouncements
In
January 2010, the FASB issued ASC Update No.
2010-06, Improving Disclosure about
Fair Value Measurements (ASU 2010-06). ASU
2010-06 requires additional disclosures regarding fair value
measurements, amends disclosures about post-retirement benefit plan
assets and provides clarification regarding the level of
disaggregation of fair value disclosures by investment
class. ASU 2010-06 is effective for interim and annual
reporting periods beginning after December 15, 2009, except for
certain Level 3 activity disclosure requirements that will be
effective for reporting periods beginning after December 15,
2010. The adoption of this standard did not have an
impact on the Company’s consolidated financial position or
results of operations.
In
December 2010, the FASB issued ASC Update No.
2010-29, Business Combination
(ASU 2010-29). ASU 2010-29 specify that if a public
entity presents comparative financial statements, the entity should
disclose revenue and earnings of the combined entity as though the
business combination(s) that occurred during the current year had
occurred as of the beginning of the comparable prior annual
reporting period only. ASU 2010-29 also expand the
supplemental pro forma disclosures under Topic 805 to include a
description of the nature and amount of material, nonrecurring pro
forma adjustments directly attributable to the business combination
included in the reported pro forma revenue and earnings. ASU
2010-29 clarify the acquisition date that should be used for
reporting the pro forma financial information disclosures in Topic
805 when comparative financial statements are presented. ASU
2010-29 also improve the usefulness of the pro forma revenue and
earnings disclosures by requiring a description of the nature and
amount of material, nonrecurring pro forma adjustments that are
directly attributable to the business combination(s). ASU 2010-29
is effective prospectively for business combinations for which the
acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2010. Early
adoption is permitted. The adoption of this standard will not have
a material impact on the Company’s consolidated financial
position or results of operations.
In
May 2011, the FASB issued ASC Update No.
2011-04, Fair Value Measurement
(ASU 2011-04). ASU 2011-04 will result in common fair value
measurement and disclosure requirements in U.S. GAAP and IFRSs.
Consequently, the amendments change the wording used to describe
many of the requirements in U.S. GAAP for measuring fair value and
for disclosing information about fair value measurements. For many
of the requirements, the Board does not intend for ASU No. 2011-04
to result in a change in the application of the requirements in
Topic 820. Some of ASU 2011-04 clarifies the Board’s intent
about the application of existing fair value measurement
requirements. Other amendments change a particular principle or
requirement for measuring fair value or for disclosing information
about fair value measurements. ASU 2011-04 is to be applied
prospectively. For public entities, ASU 2011-04 is
effective during interim and annual periods beginning after
December 15, 2011. Early application by public entities
is not permitted. The adoption of this standard will not
have a material impact on the Company’s consolidated
financial position or results of operations.
In
June 2011, the FASB issued ASC Update No.
2011-05, Comprehensive Income
(ASU 2011-05). ASU 2011-05 provides that an entity has
the option to present the total of comprehensive income, the
components of net income, and the components of other comprehensive
income either in a single continuous statement of comprehensive
income or in two separate but consecutive statements. In
both choices, an entity is required to present each component of
net income along with total net income, each component of other
comprehensive income along with a total for other comprehensive
income, and a total amount for comprehensive income. In
a single continuous statement, the entity is required to present
the components of net income and total net income, the components
of other comprehensive income and a total for other comprehensive
income, along with the total of comprehensive income in that
statement. In the two-statement approach, an entity is
required to present components of net income and total net income
in the statement of net income. The statement of other
comprehensive income should immediately follow the statement of net
income and include the components of other comprehensive income and
a total for other comprehensive income, along with a total for
comprehensive income. Regardless of whether an entity
chooses to present comprehensive income in a single continuous
statement or in two separate but consecutive statements, the entity
is required to present on the principal of the financial statements
reclassification adjustments for items that are reclassified from
other comprehensive income to net income in the statement(s) where
the components of net income and the components of other
comprehensive income are presented. ASU 2011-05 should
be applied retrospectively. For public entities, ASU
2011-05 is effective for fiscal years, and interim periods within
those years beginning after December 15, 2011. Early
adoption is permitted, because compliance with ASU 2011-05 is
already permitted. ASU 2011-05 does not require any transition
disclosures. The adoption of this standard will not have a material
impact on the Company’s consolidated financial position or
results of operations.
Management
does not believe that any recently issued, but not yet effective,
accounting standards if currently adopted would have a material
effect on the accompanying condensed consolidated financial
statements.
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