Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. YESDTC HOLDINGS, INC. (1449527) 10-Q published on Sep 21, 2011 at 5:16 pm
Reporting Period: Jun 29, 2011
In June 2011, FASB issued ASU No. 2011-05, Comprehensive Income (ASC Topic 220), Presentation of Comprehensive Income. This update provides amendments to ASC 220 to increase the prominence of items reported in other comprehensive income and to facilitate convergence of U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS). Most notably, the update eliminates the option to present components of other comprehensive income (loss) as part of the statement of changes in stockholders’ equity (deficit). The amendment is effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company currently displays comprehensive income (loss) in its statement of operations and accordingly, doesn't anticipate the adoption of this update having a material effect on the financial position, results of operations or cash flows of the Company.
Other ASUs which are not effective until after June 30, 2011 are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
On June 1, 2011, the Company’s license and distribution contract with WordSmart Corporation for the distribution of the WordSmart product was terminated by the mutual agreement of the companies due to the Company’s inability to secure adequate financing to appropriately market the product and to unusually high credit card decline rates for customer monthly payments due to the Company. The termination released the Company from any future liability for the product as well as to WordSmart Corporation. As of June 30, 2011, the Company recorded a reserve for accounts receivables in the amount of $370,912, wrote off prepaid license fees of $200,000 and reversed accrued product liabilities of approximately $22,000. The Company plans to pursue its receivables but cannot estimate the amount which will eventually be collected from accounts in arrears. While the Company expects to incur no additional liabilities relating to the WordSmart program, the exact extent of any future potential liabilities relating to the winding down of the WordSmart program are not currently estimable.
On August 25, 2011 the Company entered into a Subscription Agreement with an accredited investor. Pursuant to that agreement, the Company agreed to issue 50,000 shares of a newly created Series B Convertible Preferred Stock in exchange for $100,000 or $2.00 per preferred share ($0.002 per common share on as converted basis). When created and issued, the 50,000 shares of Series B Convertible Preferred Stock will be convertible into 50 million shares of the company's common stock. In addition, the Company agreed to issue warrants granting the investor a right to purchase 70 million shares of common stock at a price of $0.01. The warrant expires five years from the date of issue.
As additional consideration for the investment, on August 25, 2011 the Company entered into an amendment of the Series A Preferred subscription agreement. Under the terms of the amendment the Company agreed to modify the conversion price of the Series A financing from $0.005 to $0.002, subject to obtaining the requisite stockholder consent in compliance with SEC review and notice requirements. In addition, the Company agreed to lower the exercise price of Series A Warrant held by the investor from $0.05 to $0.01. As a result of the amendment, once effective, the 40,000 shares of Series A preferred stock held by the investor will be convertible into 106,000,000 shares of the Company’s common stock. Based on the facts and circumstances, management determined that these modifications represent a modification of the original contract and are compensatory in nature. As a result, for the period ending September 30, 2011, the Company will recognize an expense of approximately $460,000 based on the quoted trading price of $0.0072 on the August 2011 issuance date.
As additional consideration for the investment, on August 25, 2011 the Company entered into an amendment to Convertible Promissory Notes dated March 8, 2011 and May 31, 2011. Under the terms of the amendment, the Company agreed to modify the conversion price of the $77,500 in the notes held by the investor to the lower of the applicable rate pursuant to the terms of the notes, or $0.002. Management has determined that the modification does not qualify as a debt modification for accounting purposes since the modification changed the nature of the debt from stock settled debt to debt to be accounted for under derivative accounting. The put premium will be reclassified to additional paid in capital and the debt will be bifurcated into debt and embedded conversion option derivative liability.