UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 5, 2008
IFTH Acquisition Corp.
(Exact Name of Registrant as Specified in Charter)
Delaware | 000-22693 | 11-2889809 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
1690 SOUTH CONGRESS AVENUE, SUITE 200 DELRAY BEACH, FLORIDA | 33445 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code:561-805-8000
(Former Name or Former Address, if Changed Since Last Report) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
• | our ability to successfully implement our business strategy; |
• | our expectation that we will incur losses, on a consolidated basis, for the near future; |
• | our ability to fund our operations; |
• | our ability to attract and retain key management and other personnel; |
• | our ability to protect the confidentiality of our proprietary information and know-how; |
• | our ability to replace subscribers we lose in the ordinary course of business; |
• | our ability to maintain our indirect relationship with the three credit reporting repositories, which we have access to through the three credit reporting and monitoring resellers that purchase such services wholesale from the three repositories, as well as other key providers; |
• | our ability to compete successfully with our competitors; |
• | our ability to protect and maintain our computer and telephone infrastructure; |
• | our ability to maintain the security of our data; |
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• | changes in federal, state and foreign laws and regulations; |
• | because our common stock may be a “penny stock,” it may be more difficult for investors to sell shares of our common stock, and the market price of our common stock may be adversely affected; |
• | directors, executive officers, principal stockholders and affiliated entities own a significant percentage of our capital stock, and they may make decisions that you do not consider to be in your best interests or in the best interests of our stockholders; and |
• | compliance with changing regulations concerning corporate governance and public disclosure may result in additional expenses. |
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• | changing subscriber preferences; |
• | competitive price pressures; |
• | general economic conditions; |
• | subscriber dissatisfaction; |
• | cancellation of subscribers due to credit card declines; and |
• | credit or charge card holder turnover. |
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AND RESULTS OF OPERATION OF IFTH
AND RESULTS OF OPERATION OF NCRC
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Name | Age | Position | ||||
William J. Caragol | 41 | Chief Executive Officer, President, Acting Chief Financial Officer and Director | ||||
Scott R. Silverman | 44 | Chairman of the Board of Directors | ||||
Michael E. Krawitz | 39 | Director |
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• | each of our directors; |
• | each of our named executive officers; |
• | all of our executive officers and directors as a group; and |
• | each person, each person, or group of affiliated persons, known to us to be the beneficial owner of more than 5% of our outstanding shares of common stock. |
Number of | ||||||||
Shares | Percent of | |||||||
Beneficially | Outstanding | |||||||
Owned(1) | Shares | |||||||
Name and Address of Beneficial Owner | (#) | (%) | ||||||
Five percent stockholders: | ||||||||
R & R Consulting Partners, LLC and Scott R. Silverman(2) | 4,120,000 | 47.9 | % | |||||
William J. Caragol(3) | 3,570,000 | 43.8 | % | |||||
Blue Moon Energy Partners, LLC | 2,570,000 | 31.5 | % | |||||
Jerome C. Artigliere(4) 48 Stumpfield Road Kensington, New Hampshire 03833 | 500,000 | 5.8 | % | |||||
Kevin H. McLaughlin(5) | 425,000 | 5.0 | % | |||||
Named Executive Officers and Directors: | ||||||||
William J. Caragol(3) | 3,570,000 | 43.8 | % | |||||
Michael J. Feder(6) | — | * | ||||||
Michael E. Krawitz(7) | 450,000 | 5.2 | % | |||||
Jonathan F. McKeage(8) | 120,000 | 1.5 | % | |||||
J. Robert Patterson(9) | 300,000 | 3.6 | % | |||||
Scott R. Silverman(2) | 4,120,000 | 47.9 | % | |||||
Executive Officer and Directors as a group (3 persons)(10) | 5,570,000 | 61.6 | % |
* | Less than 1% | |
(1) | In determining the number and percentage of shares beneficially owned by each person, shares that may be acquired by such person pursuant to options exercisable within 60 days after December 8, 2008, are deemed outstanding for purposes of determining the total number of outstanding shares for such person, but are not deemed outstanding for such purposes with respect to all other stockholders. To our knowledge, except as otherwise indicated, beneficial ownership includes sole voting and dispositive power with respect to all shares. |
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(2) | Includes 2,570,000 shares directly owned by Blue Moon of which Mr. Silverman is a manager and controls a member of Blue Moon, R & R Consulting Partners, LLC, and 450,000 shares of our common stock issuable upon the exercise of stock options that are currently exercisable or exercisable within 60 days of December 8, 2008. Mr. Silverman has sole voting power and sole dispositive power over all 4,120,000 shares. | |
(3) | Includes 2,570,000 shares directly owned by Blue Moon, of which Mr. Caragol is a manager and member. Mr. Caragol has sole voting power and sole dispositive power over all 3,570,000 of these shares. | |
(4) | Includes 500,000 shares of our common stock issuable upon the exercise of stock options that are currently exercisable or exercisable within 60 days of December 8, 2008. | |
(5) | Based on Schedule 13G/A filed with the SEC on February 1, 2006, includes 425,000 shares of our common stock issuable upon the exercise of stock options that are currently exercisable or exercisable within 60 days of December 8, 2008, over which Mr. McLaughlin has sole voting and dispositive power. | |
(6) | Mr. Feder, our former acting interim chief financial officer, ceased being a named executive officer on October 24, 2008. | |
(7) | Includes 450,000 shares of our common stock issuable upon the exercise of stock options that are currently exercisable or exercisable within 60 days of December 8, 2008. | |
(8) | Mr. McKeage, our former chief executive officer, ceased being a named executive officer on July 2, 2008. The information included in the table is based solely on the Form 4 filed with the SEC on January 24, 2008 by Mr. McKeage. | |
(9) | Mr. Patterson, our former vice president, chief financial officer and treasurer, ceased being a named executive officer on March 21, 2008, and ceased being a director on July 22, 2008. Includes 300,000 shares of our common stock issuable upon the exercise of stock options that are currently exercisable or exercisable within 60 days of December 8, 2008. | |
(10) | All securities represent shares of our common stock and shares of our common stock issuable upon the exercise of stock options that are currently exercisable or exercisable within 60 days of December 8, 2008 by our current directors and executive officer. |
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• | each person who served as our chief executive officer in fiscal 2008; and |
• | each person who served as our chief financial officer in fiscal 2008. |
Stock | Option | All Other | ||||||||||||||||||||||||||
Name and | Salary | Bonus | Awards | Awards | Compensation | Total | ||||||||||||||||||||||
Principal Position | Year | ($) | ($) | ($)(1) | ($)(1) | ($) | ($) | |||||||||||||||||||||
Jonathan F. McKeage Former President and Chief Executive Officer | 2008 | $ | 54,976 | — | $ | 6,250 | (3) | — | $ | 4,500 | (2) | $ | 65,726 | |||||||||||||||
2007 | $ | 157,500 | — | $ | 25,000 | (3) | — | $ | 9,000 | (2) | $ | 166,500 | ||||||||||||||||
2006 | $ | 103,846 | — | $ | 18,750 | (3) | — | $ | 6,320 | (2) | $ | 160,166 | ||||||||||||||||
Michael J. Feder Former Acting Chief Financial Officer | 2008 | — | — | — | $ | 2,738 | (4) | — | $ | 2,738 | ||||||||||||||||||
2007 | — | — | — | — | — | — | ||||||||||||||||||||||
2006 | — | — | — | — | — | — | ||||||||||||||||||||||
J. Robert Patterson Former Vice President, Chief Financial Officer and Treasurer | 2008 | $ | 152,404 | (5) | — | — | $ | 7,458 | (6) | $ | 4,500 | (2) | $ | 164,362 | ||||||||||||||
2007 | $ | 150,000 | — | — | — | $ | 9,000 | $ | 159,000 | |||||||||||||||||||
2006 | $ | 132,500 | — | — | — | $ | 9,000 | $ | 141,500 |
(1) | Reflects the dollar amount recognized for financial statement reporting purposes with respect to the fiscal year in accordance with FAS 123R. | |
(2) | Consists of an automobile allowance paid to the executive officers in equal monthly amounts. | |
(3) | Includes 100,000 shares of restricted stock, which fully vested on January 17, 2008. | |
(4) | Includes 100,000 stock options which will vest on July 25, 2009. | |
(5) | Includes $54,808 consisting of three months salary and accrued vacation pay in connection with Mr. Patterson’s resignation as an executive officer of the Company effective March 21, 2008. | |
(6) | Includes 50,000 stock options that vested immediately upon the July 25, 2008 grant date. |
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All Other | ||||||||||||||||||||
Option | Grant | |||||||||||||||||||
Awards: | Exercise | Date Fair | ||||||||||||||||||
Date of Board | Number of | or Base | Value of | |||||||||||||||||
or | Securities | Price of | Stock and | |||||||||||||||||
Compensation | Underlying | Option | Option | |||||||||||||||||
Grant | Committee | Options | Awards | Awards | ||||||||||||||||
Name | Date | Action | (#) | ($/Sh) | ($) | |||||||||||||||
Jonathan F. McKeage | — | — | — | — | — | |||||||||||||||
Michael J. Feder | 07/25/2008 | 07/25/2008 | 100,000 | $ | 0.21 | $ | 14,917 | (1) | ||||||||||||
J. Robert Patterson | 07/25/2008 | 07/25/2008 | 50,000 | $ | 0.21 | $ | 7,458 | (1) |
(1) | The grant date fair value of the equity award was determined under the Black Scholes pricing model in accordance with FAS 123R. |
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Option Awards | ||||||||||||||||||||
Equity | ||||||||||||||||||||
Incentive | ||||||||||||||||||||
Plan | ||||||||||||||||||||
Awards: | ||||||||||||||||||||
Number of | Number of | |||||||||||||||||||
Securities | Number of | Securities | ||||||||||||||||||
Underlying | Securities | Underlying | ||||||||||||||||||
Unexercised | Underlying | Unexercised | Option | |||||||||||||||||
Options | Unexercised | Unearned | Exercise | Option | ||||||||||||||||
(#) | Options(#) | Options | Price | Expiration | ||||||||||||||||
Name | Exercisable | Unexercisable | (#) | ($) | Date | |||||||||||||||
Jonathan F. McKeage | — | — | — | — | — | |||||||||||||||
Michael J. Feder | — | 100,000 | (1) | — | $ | 0.21 | 07/25/2018 | |||||||||||||
J. Robert Patterson | 100,000 | — | — | $ | 0.28 | 06/28/2010 | ||||||||||||||
100,000 | — | — | $ | 0.34 | 03/23/2012 | |||||||||||||||
50,000 | — | — | $ | 0.41 | 09/26/2013 | |||||||||||||||
50,000 | — | — | $ | 0.21 | 07/25/2018 |
(1) | The option fully vests on July 25, 2009. |
Option Awards | Stock Awards | |||||||||||||||
Number of Shares | Number of Shares | |||||||||||||||
Acquired on | Value Realized on | Acquired on | Value Realized on | |||||||||||||
Exercise | Exercise | Vesting | Vesting | |||||||||||||
Name(1) | (#) | ($) | (#) | ($) | ||||||||||||
Jonathan F. McKeage | — | — | 50,000 | $ | 13,000 | (2) |
(1) | None of our other named executive officers exercised stock options or had restricted stock vest during fiscal 2008. | |
(2) | Represents the aggregate dollar amount realized upon vesting by multiplying the number of shares of stock by the market value of the underlying shares on the vesting date of January 17, 2008, or $0.26. |
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• | Any non-equity incentive compensation; |
• | All vested shares awarded under our 2001 Flexible Stock Plan and 1998 Stock Option Plan; |
• | Any vested company contributions contributed under our former 401(k) plan; and |
• | Any unused vacation pay. |
• | The executive officer will continue to vest in all outstanding options or other stock-based compensation award and retain such options for the remainder of the outstanding term. |
• | While not defined, the board of directors or a committee thereof may grant the retiring named executive officer with other compensation that may vary depending upon position held, length of service and other factors. |
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Change in | ||||||||||||||||||||||||||||
Pension Value | ||||||||||||||||||||||||||||
Fees | and | |||||||||||||||||||||||||||
Earned | Non-Equity | Nonqualified | ||||||||||||||||||||||||||
or Paid | Stock | Option | Incentive Plan | Deferred | All Other | |||||||||||||||||||||||
in Cash | Awards | Awards | Compensation | Compensation | Compensation | Total | ||||||||||||||||||||||
Name | ($) | ($)(1) | ($)(1) | ($) | Earnings | ($) | ($) | |||||||||||||||||||||
Jeffrey S. Cobb(2) | $ | 550 | — | $ | 10,196 | (3) | — | — | — | $ | 10,746 | |||||||||||||||||
Charles L. Doherty(2) | $ | 550 | — | $ | 7,458 | (4) | — | — | — | $ | 8,008 | |||||||||||||||||
Michael E. Krawitz(5) | — | — | $ | 5,746 | (6) | — | — | — | $ | 5,746 | ||||||||||||||||||
Kay E. Langsford(7) | — | — | $ | 2,738 | (8) | — | — | — | $ | 2,738 | ||||||||||||||||||
Scott R. Silverman(9) | — | $ | 6,250 | (10) | $ | 13,691 | (11) | — | — | — | $ | 13,691 |
(1) | The dollar amount of this award reflected in the table represents the amount recognized in fiscal 2008 for financial statement reporting purposes in accordance with FAS 123R. | |
(2) | Messrs. Cobb and Doherty resigned from our board of directors effective July 22, 2008. As of September 30, 2008, Messrs. Cobb and Doherty held option awards to purchase 387,500 and 487,500 shares of our common stock, respectively. | |
(3) | On July 25, 2008, Mr. Cobb received 150,000 stock options, 50,000 of which vested immediately upon the July 25, 2008 grant date, and have a grant date fair value computed in accordance with FAS123R of $7,458, and 100,000 of which will vest on July 25, 2009 and have a grant date fair value computed in accordance with FAS 123R of $14,916. | |
(4) | On July 25, 2008, Mr. Doherty received 50,000 stock options that vested immediately upon the July 25, 2008 grant date and have a grant date fair value computed in accordance with FAS123R of $7,458. | |
(5) | Mr. Krawitz was appointed to our board of directors effective July 23, 2008. As of September 30, 2008, Mr. Krawitz held option awards to purchase 650,000 shares of our common stock. | |
(6) | On July 25, 2008, Mr. Krawitz received 200,000 stock options that will vest on July 25, 2009 and have a grant date fair value computed in accordance with FAS123R of $29,833. | |
(7) | Ms. Langsford was appointed to our board of directors effective July 23, 2008 and resigned effective December 3, 2008. As of September 30, 2008, Ms. Langsford held option awards to purchase 100,000 shares of our common stock. | |
(8) | On July 25, 2008, Ms. Langsford received 100,000 stock options that will vest on July 25, 2009 and have a grant date fair value computed in accordance with FAS123R of $14,916. | |
(9) | Mr. Silverman was appointed chairman of our board of directors in January 2006. As of September 30, 2008, Mr. Silverman held 100,000 shares of our common stock and option awards to purchase 950,000 shares of our common stock. | |
(10) | On January 17, 2006, Mr. Silverman received 100,000 shares of restricted stock, which fully vested on January 17, 2008 and has a grant date fair value computed in accordance with FAS123R of $50,000. | |
(11) | On July 25, 2008, Mr. Silverman received 500,000 stock options that will vest on July 25, 2009 and have a grant date fair value computed in accordance with FAS123R of $74,584. |
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AND RELATED STOCKHOLDER MATTERS
High | Low | |||||||
2007 | ||||||||
First Quarter | $ | 0.40 | $ | 0.20 | ||||
Second Quarter | 0.28 | 0.20 | ||||||
Third Quarter | 0.25 | 0.20 | ||||||
Fourth Quarter | 0.28 | 0.18 | ||||||
2008 | ||||||||
First Quarter | $ | 0.23 | $ | 0.17 | ||||
Second Quarter | 0.30 | 0.19 | ||||||
Third Quarter | 0.30 | 0.19 | ||||||
Fourth Quarter | 0.35 | 0.18 |
Number of Securities | ||||||||||||
Remaining Available for | ||||||||||||
Number of Securities to be | Weighted Average | Future Issuance under | ||||||||||
Issued upon Exercise of | Exercise Price of | Equity Compensation Plans | ||||||||||
Outstanding Options, | Outstanding Options, | (Excluding Securities | ||||||||||
Warrants and Rights | Warrants and Rights | Reflected in Column (a)) | ||||||||||
Plan Category | (a) | (b) | (c) | |||||||||
Equity compensation plans approved by security holders | 4,920,000 | $ | 0.27 | 5,205,000 | (1) | |||||||
Equity compensation plans not approved by securities holders(2) | 950,000 | $ | 0.70 | — | ||||||||
Total | 5,870,000 | $ | 0.35 | 5,205,000 | ||||||||
(1) | The 2001 Flexible Stock Plan initially had 2,500,000 shares of common stock reserved for issuance. This number is subject to an annual increase of 25% of the number of outstanding shares of common stock as of January 1 of each year, but may not exceed 10,000,000 in the aggregate. As of September 30, 2008, there were 5,205,000 shares of common stock available for future issuance under the 2001 Flexible Stock Plan. | |
(2) | Consists of grants made outside of our equity plans and have outstanding options exercisable for 950,000 shares of our common stock. |
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AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
AND FINANCIAL DISCLOSURE
(a) | Financial statements of business acquired and pro forma financial information. | ||
(b) | See the Exhibit Index filed as part of this Current Report on Form 8-K. |
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National Credit Report.com, LLC | ||||
Financial Statements | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
F-1
National Credit Report.com, LLC
/s/ Eisner LLP | ||
December 10, 2008 |
F-2
September 30, | December 31, | |||||||||||
2008 | 2007 | 2006 | ||||||||||
(unaudited) | ||||||||||||
ASSETS | ||||||||||||
Current assets: | ||||||||||||
Cash | $ | 24,068 | $ | 170,967 | $ | 19,113 | ||||||
Trade account receivable | 4,846 | 16,745 | 23,324 | |||||||||
Prepaid expenses | — | 239 | 1,000 | |||||||||
Total current assets | 28,914 | 187,951 | 43,437 | |||||||||
Property and equipment, net | 20,402 | 19,317 | 4,244 | |||||||||
Other assets | 43,938 | 19,169 | 10,000 | |||||||||
$ | 93,254 | $ | 226,437 | $ | 57,681 | |||||||
LIABILITIES AND MEMBERS’ CAPITAL | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable and accrued expenses | $ | 25,027 | $ | 40,147 | $ | 26,913 | ||||||
Deferred revenue | 11,205 | 19,961 | 23,809 | |||||||||
Guaranteed payment payable | 5,000 | — | — | |||||||||
Current portion of long-term debt | 3,217 | 3,020 | — | |||||||||
Total current liabilities | 44,449 | 63,128 | 50,722 | |||||||||
Long-term debt | 5,104 | 5,301 | — | |||||||||
Total liabilities | 49,553 | 68,429 | 50,722 | |||||||||
Commitments and contingencies | ||||||||||||
Members’ capital (deficit): | ||||||||||||
Managing members | (1,807 | ) | 85 | (54,134 | ) | |||||||
Limited members | 45,508 | 157,923 | 61,093 | |||||||||
43,701 | 158,008 | 6,959 | ||||||||||
Total members’ capital | ||||||||||||
$ | 93,254 | $ | 226,437 | $ | 57,681 | |||||||
F-3
Nine-months ended | ||||||||||||||||
September 30, | Years ended December 31, | |||||||||||||||
(unaudited) | ||||||||||||||||
2008 | 2007 | 2007 | 2006 | |||||||||||||
Revenues | $ | 327,378 | $ | 478,806 | $ | 595,874 | $ | 990,007 | ||||||||
Cost of revenues | 107,154 | 231,644 | 297,834 | 458,832 | ||||||||||||
Gross profit | 220,224 | 247,162 | 298,040 | 531,175 | ||||||||||||
Costs and expenses: | ||||||||||||||||
Subscriber acquisition costs | 185,048 | 103,115 | 171,093 | 321,184 | ||||||||||||
General and administrative | 229,621 | 126,360 | 226,489 | 203,693 | ||||||||||||
Total costs and expenses | 414,669 | 229,475 | 397,582 | 524,877 | ||||||||||||
(Loss) income from operations | (194,445 | ) | 17,687 | (99,542 | ) | 6,298 | ||||||||||
Other income (expense): | ||||||||||||||||
Interest income (expense) | (2 | ) | 62 | 3,039 | (36 | ) | ||||||||||
Other income | 5,214 | — | 10,052 | — | ||||||||||||
Total other income (expense) | 5,212 | 62 | 13,091 | (36 | ) | |||||||||||
Net (loss) income | $ | (189,233 | ) | $ | 17,749 | $ | (86,451 | ) | $ | 6,262 | ||||||
F-4
Managing | Limited | Total Members’ | ||||||||||
Member | Members | Capital | ||||||||||
Balance at December 31, 2005 | $ | (242,790 | ) | $ | 58,527 | $ | (184,263 | ) | ||||
Net income | 4,196 | 2,066 | 6,262 | |||||||||
Contributions by members | 184,460 | 500 | 184,960 | |||||||||
Balance at December 31, 2006 | (54,134 | ) | 61,093 | 6,959 | ||||||||
Net loss | (865 | ) | (85,586 | ) | (86,451 | ) | ||||||
Contributions by members | 950 | 236,550 | 237,500 | |||||||||
Transfer (see Note D) | 54,134 | (54,134 | ) | — | ||||||||
Balance at December 31, 2007 | 85 | 157,923 | 158,008 | |||||||||
Net income (unaudited) | (1,892 | ) | (187,341 | ) | (189,233 | ) | ||||||
Contributions by members (unaudited) | — | 74,926 | 74,926 | |||||||||
Balance as of September 30, 2008(unaudited) | $ | (1,807 | ) | $ | 45,508 | $ | 43,701 | |||||
F-5
Nine-months ended | Years ended | |||||||||||||||
September 30, | December 31, | |||||||||||||||
(unaudited) | ||||||||||||||||
2008 | 2007 | 2007 | 2006 | |||||||||||||
Cash flow activities from operating activities: | ||||||||||||||||
Net (loss) income | $ | (189,233 | ) | $ | 17,749 | $ | (86,451 | ) | $ | 6,262 | ||||||
Adjustments to reconcile net (loss) income to net cash used in operating activities: | ||||||||||||||||
Depreciation | 1,604 | 774 | 2,119 | 1,210 | ||||||||||||
Share-based compensation | 12,500 | — | — | — | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Trade account receivable | 11,899 | 734 | 6,579 | (13,559 | ) | |||||||||||
Prepaid expenses | 239 | 42 | 761 | 10,028 | ||||||||||||
Other assets | (5,000 | ) | (11,521 | ) | (9,169 | ) | — | |||||||||
Accounts payable and accrued expenses | (15,120 | ) | (3,559 | ) | 13,234 | (198,757 | ) | |||||||||
Deferred revenue | (8,756 | ) | (7,014 | ) | (3,848 | ) | (24,898 | ) | ||||||||
Guaranteed payment payable | 5,000 | — | — | — | ||||||||||||
Net cash used in operating activities | (186,867 | ) | (2,795 | ) | (76,775 | ) | (219,714 | ) | ||||||||
Cash flows from investing activities: | ||||||||||||||||
Acquisition of property and equipment | (2,689 | ) | (6,010 | ) | (8,294 | ) | — | |||||||||
Other assets | (19,769 | ) | — | — | — | |||||||||||
Net cash used in investing activities | (22,458 | ) | (6,010 | ) | (8,294 | ) | — | |||||||||
Cash flows from financing activities: | ||||||||||||||||
Contributions from members | 62,426 | 237,503 | 237,500 | 184,960 | ||||||||||||
Payments of capital lease obligations | — | — | (577 | ) | — | |||||||||||
Net cash provided by financing activities | 62,426 | 237,503 | 236,923 | 184,960 | ||||||||||||
Increase (decrease) in cash | (146,899 | ) | 228,698 | 151,854 | (34,754 | ) | ||||||||||
Cash, beginning of period | 170,967 | 19,113 | 19,113 | 53,867 | ||||||||||||
Cash, end of period | $ | 24,068 | $ | 247,811 | $ | 170,967 | $ | 19,113 | ||||||||
Supplemental non-cash activity: | ||||||||||||||||
Acquisition of property and equipment financed through capital lease obligations | $ | — | $ | — | $ | 8,898 | $ | — | ||||||||
F-6
[1] | Revenue Recognition | ||
The Company earns revenue from the following sources: |
[a] | Revenue from the sale of a single credit report is recognized when the credit report is delivered to the customer. Revenue from the sale of annual subscriptions for credit monitoring and credit protection is recognized ratably over each subscriber’s annual subscription period. The Company also offers credit monitoring and credit protection on a month-to month basis. In certain circumstances, the Company sells a bundled offer whereby a customer receives a single credit report and monitoring. In such circumstances, the Company allocates a portion of the associated revenue to the credit report with the balance recognized ratably over the subscription period. | ||
[b] | Commission revenue from the sale of credit reports, credit monitoring, and credit protection to a customer, as per the terms of a written agreement, gives another company the rights to the Company’s credit reporting vendor. Commission revenue is comprised of commissions earned by the Company for the credit reports, credit monitoring, and credit protection services provided to this customer. Commission revenue is recognized when the credit reports, credit monitoring, and credit protection services have been provided to the customer. Generally, the Company invoiced its customers on a monthly basis for costs incurred from their credit reporting vendor plus a 12% commission. For the year ended December 31, 2007 and 2006, gross commission revenue was approximately $274,600 and $150,300, respectively. For the unaudited nine-months ended September 30, 2008 and 2007, gross commission revenue was approximately $88,286 and $203,654, respectively. |
[2] | 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 those estimates. Such estimates include the allowance for doubtful accounts and the useful lives of assets. |
F-7
Notes to the Financial Statements
[3] | Concentration of Credit Risk | ||
The Company maintains its cash in one financial institution during the years ended December 31, 2007 and 2006. Balances were insured up to Federal Deposit Insurance Corporation (“FDIC”) limits of $100,000 per institution. At December 31, 2007 and 2006, the Company had bank balances of approximately $71,000 and nil in excess of such insurance limits, respectively. At September 30, 2007 and 2008, the Company had bank balances of approximately nil and $148,000 in excess of such insurance limits, respectively. | |||
The Company’s trade receivables are potentially subject to credit risk. The Company extends credit to its customers based upon an evaluation of the customers’ financial condition and credit history. The Company generally does not require collateral. | |||
The Company utilizes a single provider which services its ongoing operations under a one-year agreement. In addition, the provider has cancellation rights upon providing the Company 60 days notice. A loss or non-renewal of this agreement could significantly impact the Company’s ability to continue its business operations. | |||
[4] | Trade Account Receivable | ||
Trade account receivable consist primarily of receivables from commission sales earned from its marketing partner. The Company records a provision for doubtful receivables to allow for any amounts which may be unrecoverable and is based upon an analysis of the Company’s prior collection experience, customer creditworthiness, and current economic trends. | |||
[5] | Property and Equipment | ||
Property and equipment are stated at cost. Depreciation and amortization (including equipment held under capital leases) are computed using the straight-line method over the estimated useful lives of 4 to 7 years. | |||
[6] | Subscriber Acquisition Costs | ||
Subscriber acquisition costs represent marketing expenses used to acquire subscribers. Subscriber acquisition costs are expensed in the period incurred. | |||
[7] | Share-Based Compensation | ||
Effective January 1, 2006, the Company adopted Financial Accounting Standards Board (“FASB”) SFAS No. 123 (revised 2004), Share Based Payment, or FAS 123R, using the modified prospective transition method. Under this method, stock-based compensation expense is recognized using the fair-value based method for all awards granted on or after the date of adoption. Compensation expense for new awards granted after January 1, 2006 is recognized over the requisite service period based on the grant-date fair value of those options. Prior to adoption, the Company did not issue stock-based compensation. | |||
FAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. | |||
During the unaudited nine-month period ended September 30, 2008, web design and hosting expense of $12,500 was recorded as 69,445 membership interest units were issued for services rendered to the Company in lieu of cash. As of September 30, 2008, all services have been provided to the Company. The stock-based compensation expense is reflected in the statement of operations in general and administrative expense for the unaudited nine-months ended September 30, 2008. | |||
[8] | Income Taxes | ||
The Company is treated as a partnership for income tax purposes. The members are required to report their respective share of the Company’s taxable income or loss in their income tax returns and are liable for any related taxes thereon. Accordingly, no provision for federal income taxes is made in the financial statements of the Company. |
F-8
Notes to the Financial Statements
�� | ||||||||||||||||
September 30, | December 31, | Estimated | ||||||||||||||
2008 | 2007 | 2006 | Useful Lives | |||||||||||||
(unaudited) | ||||||||||||||||
Furniture and fixture | $ | 7,412 | $ | 5,191 | $ | — | 7 Years | |||||||||
Computer equipment | 9,619 | 9,152 | 6,048 | 5 Years | ||||||||||||
Leased property | 8,898 | 8,898 | — | 4 Years | ||||||||||||
25,929 | 23,241 | 6,048 | ||||||||||||||
Less accumulated depreciation | (5,527 | ) | (3,924 | ) | (1,804 | ) | ||||||||||
$ | 20,402 | $ | 19,317 | $ | 4,244 | |||||||||||
F-9
Notes to the Financial Statements
Years ending December 31: | ||||
2008 | $ | 3,217 | ||
2009 | 3,217 | |||
2010 | 2,218 | |||
Total minimum lease payments | 8,652 | |||
Less amount representing interest | (331 | ) | ||
Present value of net minimum lease payments | 8,321 | |||
Less current portion | (3,020 | ) | ||
Long-term portion | $ | 5,301 | ||
Years ending December 31: | ||||
2008 | $ | 27,574 | ||
2009 | 27,574 | |||
2010 | 22,978 | |||
$ | 78,126 | |||
F-10
F-11
At June 30, 2008
(dollars in thousands)
Pro Forma Adjustments | ||||||||||||||||
NCRC | Pro Forma | |||||||||||||||
Addition | Pro Forma | With | ||||||||||||||
Historical | (a) | Adjustment | NCRC | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 1,124 | $ | 24 | $ | — | $ | 1,148 | ||||||||
Accounts receivable, net | 3 | 5 | — | 8 | ||||||||||||
Marketable securities, available for sale | 345 | — | — | 345 | ||||||||||||
Pre-paid expenses and other | 6 | — | — | 6 | ||||||||||||
Total current assets | 1,478 | 29 | — | 1,507 | ||||||||||||
Property and equipment, net | 0 | 20 | — | 20 | ||||||||||||
Goodwill and other assets, net | 0 | 44 | 432 | (b) | 476 | |||||||||||
TOTAL ASSETS | $ | 1,478 | $ | 93 | 432 | $ | 2,003 | |||||||||
LIABILITIES | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable and accrued liabilities | $ | 166 | $ | 25 | $ | — | $ | 191 | ||||||||
Gauranteed payment payable | 8 | — | — | 8 | ||||||||||||
Other liabilities | 0 | 20 | — | 20 | ||||||||||||
Total current liabilities | 174 | 45 | — | 219 | ||||||||||||
Note payable, stockholder | 0 | 5 | — | 5 | ||||||||||||
TOTAL LIABILITIES | 174 | 50 | — | 224 | ||||||||||||
Stockholders’ equity | 1,304 | 43 | 432 | (b) | 1,779 | |||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,478 | $ | 93 | $ | 432 | $ | 2,003 | ||||||||
F-12
STATEMENT OF OPERATIONS
Nine Months Ended June 30, 2008
(dollars in thousands, except per share data)
NCRC | Pro Forma | |||||||||||
Addition | With | |||||||||||
Historical | (c) | NCRC | ||||||||||
Revenue | $ | — | $ | 327 | $ | 327 | ||||||
Cost of revenue | — | 107 | 107 | |||||||||
Gross profit | — | 220 | 220 | |||||||||
Operating expenses | 574 | 415 | 989 | |||||||||
Loss from operations | (574 | ) | (195 | ) | (769 | ) | ||||||
Interest (income) and other expense | (10 | ) | (5 | ) | (15 | ) | ||||||
Other expenses | (10 | ) | (5 | ) | (15 | ) | ||||||
Loss before income taxes | (564 | ) | (190 | ) | (754 | ) | ||||||
Net loss from continuing operations | $ | (564 | ) | $ | (190 | ) | $ | (754 | ) | |||
Net loss per common share from continuing operations — basic and diluted | $ | (0.11 | ) | $ | — | $ | (0.12 | ) | ||||
Weighted average number of shares outstanding — basic and diluted | 5,104 | — | 6,104 |
F-13
STATEMENT OF OPERATIONS
Twelve Months Ended September 30, 2007
(dollars in thousands, except per share data)
NCRC | Pro Forma | |||||||||||
Addition | With | |||||||||||
Historical | (d) | NCRC | ||||||||||
Revenue | $ | — | $ | 599 | $ | 599 | ||||||
Cost of revenue | — | 298 | 298 | |||||||||
Gross profit | — | 301 | 301 | |||||||||
Operating expenses | 715 | 397 | 1,112 | |||||||||
Loss from operations | (715 | ) | (96 | ) | (811 | ) | ||||||
Interest (income) and other expense | (120 | ) | (13 | ) | (133 | ) | ||||||
Other expenses | (120 | ) | (83 | ) | (203 | ) | ||||||
Loss before income taxes | (595 | ) | (83 | ) | (678 | ) | ||||||
Income tax provision | — | — | — | |||||||||
Net loss from continuing operations | $ | (595 | ) | $ | (83 | ) | $ | (678 | ) | |||
Net loss per common share from continuing operations — basic and diluted | $ | (0.12 | ) | $ | — | $ | (0.11 | ) | ||||
Weighted average number of shares outstanding — basic and diluted | 5,014 | — | 6,014 |
F-14
(a) | Balance sheet presented as of September 30, 2008 (unaudited). | |
(b) | Purchase of all of the issued and outstanding membership interests in NCRC from the sellers of NCRC for 1.0 million shares of IFTH common stock, par value $0.01 per share. In conjunction with the transaction, IFTH issued 3.0 million stock options to the sellers of NCRC in consideration of their continued involvement with the operations of NCRC. The common shares issued and stock options granted in the transaction were valued at $475,000, at fair value, as of the date of the acquisition. Based on the preliminary allocation, the purchase price was allocated to the tangible assets acquired and intangible assets, primarily goodwill. The goodwill reflected represents the excess of the fair value over the net assets. | |
(c) | Statement of operations presented for the nine months ended September 30, 2008 (unaudited). | |
(d) | Statement of operations presented for the year ended December 31, 2007. | |
(e) | The shares issued to Mr. Silverman which vested upon completion of the NCRC acquisition will result in compensation expense in the period earned. Accordingly, such amounts have been excluded from the pro-forma financial results. |
F-15
Exhibit Number | Description | |
2.1 | Securities Purchase Agreement, dated as of December 5, 2008, by and among IFTH Acquisition Corp., National Credit Report.com, LLC, Jared Shaw, Ivan Posniak, Andrew Larkin, John Thau, Adam Cohen, and Safeguard Acquisition, LLC | |
99.1 | Press Release, dated December 5, 2008 |
IFTH Acquisition Corp. | ||||
By: | /s/ William J. Caragol | |||
Name: | William J. Caragol | |||
Title: | Chief Executive Officer, President and Acting Chief Financial Officer |
Exhibit Number | Description | |
2.1 | Securities Purchase Agreement, dated as of December 5, 2008, by and among IFTH Acquisition Corp., National Credit Report.com, LLC, Jared Shaw, Ivan Posniak, Andrew Larkin, John Thau, Adam Cohen, and Safeguard Acquisition, LLC | |
99.1 | Press Release, dated December 5, 2008 |