AlphaTrade.com
930 West First Street, Ste 116
North Vancouver, BC Canada V7P 3N4
December 02, 2009
United States Securities and Exchange Commission
Attn: Andrew Mew, Accounting Branch Chief
Millwood Hobbs, Staff Accountant
100 F Street N.E., Stop 4561
Washington, D.C. 20549
RE: Form 10-K/A for the Fiscal Year Ended December 31, 2008
Form 10-K/A for the Fiscal Year Ended December 31, 2007
Filed April 7, 2009 and March 23, 2009
Forms 10-Q/A for Fiscal Quarters Ended March 31, 2009 and June 30, 2009
Forms 10-Q/A for Fiscal Quarters Ended March 31, 2008, June 30, 2008, and September 30, 2008
Filed March 23, 2009
File No. 0-25631
Dear Mr. Mew, et al:
We have reviewed the comments from your letter dated October 6, 2009 and have formulated responses as outlined below. Please feel free to contact us at your convenience should additional explanation and/or clarification be required.
Form 10-K/A for the Fiscal Year Ended December 31, 2008
1. Please explain to us why you filed the April 7, 2009 amendment to the Form 10-K filed on April 6, 2009. In future filings, please provide an explanatory note disclosing the reason for filing the amendment.
COMPANY RESPONSE: The 10-K filing made by the Company on April 6, 2009 did not include the Report of Independent Registered Public Accounting Firm. The 10-K/A filed April 7, 2009 corrected this omission. In the future, the Company will provide an explanatory note discussing the reasons for filing amendments.
2. Where a comment below requests additional disclosures to be included, please show us in your supplemental response what the revised disclosures will look like. Also, please note that the comments as shown below should apply to the 2007 Form 10-K/A, the 2008 Forms 10-Q/A, and the subsequent related filings to the extent they are applicable.
COMPANY RESPONSE: The Company will respond to the Commission's requests for additional disclosures, and will include the updated disclosures within the context of the responses.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, page 20
General
3. Your current disclosures do not provide information or insights on your critical accounting estimates regarding the nature of the significant types of estimates you make, the amounts of the material estimates, and how these estimates impact your results of operations for all periods presented. For example, it appears that during each accounting period, you estimate the revenue amounts to recognize on certain long-term advertising contracts and that the recent restatements for 2007 and for subsequent 2008 interim periods relate to adjustments to revenues and deferred revenues that requires significant estimates. Please revise your disclosure to include the types of assets, liabilities, and expenses that you currently estimate, the assumptions you use, and how you determine the amounts estimated. If there are no significant estimates, please indicate so in your disclosure. See SEC Release No. 33-8350.
COMPANY RESPONSE: The Company has revised its disclosure so as to more fully discuss and reveal the types of assets, liabilities, revenues, and expenses we estimate, including our assumptions and the methods used to determine these estimates, pursuant to the Commission's request. Please seeExhibit B.
Results of Operations for the twelve-months ended December 31, 2008 and 2007, page 22
4. We note your disclosures that "[t]he companies agreed to cancel $240,000 of the compensation for 2007." In that regard, explain to us why you did not record the $240,000 as expenses and contribution to additional paid-in capital in 2007. Refer to SAB Topic 1.B.1.
COMPANY RESPONSE: The Company has amended its Statements of Operations and related disclosures so as to record the "cancelled" $240,000 in compensation as expensed to and credited to additional paid-in capital in 2007. Please see revised disclosure inExhibit A.
5. We note your disclosures that "[t]he shares were valued at market value for accounting purposes but discounted by the consultants for their services. We hope to be able to pay for more services with cash in 2009 so that we can reduce the expense effect of this discounting." Explain to us, in plain English, the meaning of your statement including the reason why the market value of the shares issued was discounted. We may have further comment.
COMPANY RESPONSE: It has been the experience of the Company that when attempting to pay for professional services rendered to the Company in shares of our common stock, the professionals often demand an amount shares such that the aggregate market value of the shares issued exceeds the total amount of the payable being satisfied. As the market price of the Company's common stock is volatile, and as it can at times be difficult to sell-off large chunks of shares quickly, these professional entities often demand a number of shares above and beyond the amount required to mathematically satisfy the open payable, so as to compensate themselves for the trouble and difficulty of selling the Company's shares. Therefore, often times, on the date of issuance, the aggregate value of the shares issued is greater than the value of the open payable. The Company is obligated by GAAP to record the shares issued at market value, and therefore records an expense larger than the amount of the original professional entity's invoice. In other words, the "market value of the shares was discounted" by the professional entities receiving the shares, not by the Company in its accounting procedures. For this reason, the Company hopes to be able to make more of its future payments for professional fees in cash, and satisfy fewer of these obligations through issuances of common stock.
Item 8. Financial Statements
Audited Financial Statements for Fiscal Years Ended December 31, 2008 and 2007
Report of Independent Registered Public Accounting Firm, page F-3
6. We note your financial statements have been audited by Chisholm, Bierwolf & Nilson, LLC. If true, please have your audit firm confirm this same firm registered with the PCAOB as Chisholm, Bierwolf, Nilson & Morrill, LLC and advise us of the date of the name change. In future filings, please have your accountants sign their name exactly as registered with the PCAOB. Otherwise, please amend the filing to include audited financial statements audited by an auditor currently registered with the PCAOB as required by Rule 2.01 of Regulation S-X.
COMPANY RESPONSE: The audit firm of Chisholm, Bierwolf & Nilson, LLC ("the audit firm") officially changed its name to Chisholm, Bierwolf, Nilson & Morrill, LLC on January 1, 2009. The audit firm sent its audit opinion to us in a PDF file on its new letterhead and signed the report appropriately; however, during the Edgar process the name was not changed to the correct name in the actual 10-K document. In future filings we will ensure that the name of the audit firm is accurately represented within the 10-K.
Balance Sheets, page F-5
7. Tell us and disclose the component amounts of accrued expenses. To the extent that total accrued expenses or a component thereof exceeds 10% of the total, they should be separately presented from accounts payable. Refer to Rule 8-03 of Regulation S-X.
COMPANY RESPONSE: The Company's accrued expenses as of December 31, 2008 and 2007 constitute less than 10% of total liabilities, and therefore have been grouped with accounts payable for financial statement presentation. The accrued expenses totaled $164,031 and $142,826 as of December 31, 2008 and 2007, respectively, which is less than 10% of the ,$2,161,854 of accounts payable and accrued expenses.
Statement of Stockholders' (Deficit) page F-8
8. We note your presentation line item "Amortization of prepaid expenses" of $30,000 under stock subscription receivable column. Explain to us the nature of this item and your accounting.
COMPANY RESPONSE: During the 2006 fiscal year the Company issued common stock to a related party for prepaid services. These prepaid services were recorded as equity and amortized as professional fees over the term of the agreement.
9. Refer to the stock subscription receivable roll forward from ($30,000) as of 12/31/06 to $45,080 as of 12/31/08. Explain to us what the $45,080 stock subscription payable represents.
COMPANY RESPONSE: The $45,080 stock subscription payable represents transactions in which cash was received by the Company, for which common stock has not yet been issued. Of this total, $28,500 was received by the Company during the 2007 fiscal year, and $16,580 was received during the 2008 fiscal year.
Statement of Cash Flows, page F-9
10. Explain to us why you consider the significant line item "Investment received as payment for accounts receivable" to be cash outflow item within cash flows from operating activities. It appears it is a non-cash disclosure item rather than an adjustment to net income in arriving at cash flow from operating activities. Please advise us or revise.
COMPANY RESPONSE: The Company has accounted for its investments received as payment for accounts receivable as an operating activity due to the fact that the Company's investments are part of the recording of revenues, and the receipt of investment certificates are directly related to collections of receivables. In this way, the receipt of investment certificates is a significant aspect of the Company's operations cycle. The Company's investments represent the collection of revenues, not the earning of investment income, as would require presentation within the Investing section of the Statement of Cash Flows.
Note 1 - Organization and Summary of Significant Accounting Policies, page F-10
General
11. Please disclose your accounting policy on how you determined the fair values of the equity instruments or shares issued to non-employees for products and services. Refer to EITF 96-18.
COMPANY RESPONSE: The Company determined the fair values of equity instruments or shares issued to non-employees for products and services by noting the market value of the stock as listed on online financial listings on the date of issuance, pursuant to EITF 96-18. The Company has revised its disclosure so as to more clearly state this accounting policy in footnote 1Q - Common Stock Issued for Products and Services.
12. Tell us and disclose your accounting policy for loss contingencies (recognition and measurement) given your significant litigation disclosures. Refer to SFAS 5.
COMPANY RESPONSE: The Company accounts for loss contingencies relating to its litigation based upon the likelihood of a negative result, and if the amount of the result can be reasonably estimated. The Company has revised its related disclosure in footnote 1R - Loss Contingencies, so as to more clearly state this policy.
13. Tell us and disclose what operating segment you have identified within your operations. Identify them in your disclosures and provide all of the applicable disclosures as required by paragraph 26(a) of SFAS 131. If you aggregate them into one reportable segment, please disclose this fact and explain to us why you believe they meet the criteria outlined in paragraph 17.
COMPANY RESPONSE: The Company continues to aggregate its operations into one reportable business segment, pursuant to paragraph 17 of SFAS 131. The Company records and earns revenues from both subscriptions and advertising. Each class of revenue is produced in a similar manner and marketed to similar customers. Distribution methods are similar. Because of these factors, the Company has determined it to be unnecessary to segregate these two revenue streams as independent business segments. The Company has revised its disclosure in Footnote 1S - Operating Segments, so as to disclose this policy.
h. Revenue Recognition and Deferred Revenue, page F-11.
14. Please provide your accounting policy addressing how you determined the amount of the advertising revenues to be recorded in the event that the consideration is or consists of marketable securities similar to what you had told us in your response letter dated June 12, 2007.
COMPANY RESPONSE: As disclosed in its filings, the Company often receives marketable securities as consideration for its services. Often times these securities are received as a prepayment on services the Company is to provide over the course of a contracted length of time. When received, these securities are recorded at market value on the date of receipt as deferred revenue. This deferred revenue is then amortized to earnings on a straight-line basis over the term of the contract. The Company's disclosures have been revised so as to more clearly state this policy. Please seeExhibit B.
15. We note your disclosures that "revenues are recognized over the term of the contract." In this regard, please tell us and disclose in more detail how they are earned over the term of the contract and the type of revenue streams that falls under this policy.
COMPANY RESPONSE: Both subscription revenues and advertising revenues are earned by the Company over contractually agreed-upon time periods. Pursuant to SAB 104, the Company records deferred revenues when prepayments are received, and amortizes the deferred revenues as earnings on a pro-rata basis over the term of the contracts. As the Company provides services in equal increments of the term of the contract, this "straight-line" amortization has been deemed appropriate by the Company. The Company has revised its disclosure in footnote 1H - Revenue Recognition and Deferred Revenue, so as to more clearly describe our policies. Please also see Exhibit B.
16. Tell us and disclose in more detail your revenue recognition policy for licenses revenues and how they are recognized over the term of the license.
COMPANY RESPONSE: When the Company contracts to license its technology to a third-party, the license agreements stipulates a certain time period through which the licensing may occur, and payment is typically received by the Company prior to the beginning of the licensing period. When payment is received, it is recorded as deferred revenue, and amortized to earnings on a pro-rata basis over the term of the licensing agreement. Please seeExhibit B.
m. Accounts Receivable and Bad Debts, page F-15
17. Please provide a roll forward schedule of your accounts receivable balance from 12/31/07 to 12/31/08 given its significant change from $28,047 to $1,172,064. In addition, tell us and disclose your accounting policy on provision for allowance for bad debts. Explain to us how you consider the allowance of $3,450 for both FY 2007 and 2008 to be reasonable given the significant change in the account receivable amounts.
COMPANY RESPONSE: Pursuant to the restatement of the Company's 2007 financial statements the Company changed its accounting policy with respect to certain advertising contracts generating accounts receivable for which marketable securities we expected to be received as consideration. Prior to the change the Company would record income upon receipt of the securities. Pursuant to the policy change the Company began to record accounts receivable at such time the services were appropriately agreed upon. This accounting policy change is the primary factor behind the significant increase in accounts receivable from 12/31/07 to 12/31/08. The Company's policy for evaluating accounts receivable and calculating an appropriate allowance for bad debts is to review each receivable individually on a quarterly basis. At such time collection of the receivable is determined to be doubtful, or if the promised securities have fallen in value to the point where their liquidation would not satisfy the balance of the receivable, the Company allows for the account in full. At December 31, 2007, the Company's allowance for bad debts of $3,450 was deemed to be reasonable and appropriate with respect to the $28,047 in accounts receivable. The Company has revised its footnote 1M - Accounts Receivable and Bad Debts, to more clearly state this policy. Please seeExhibit B.
n. Marketable securities Available for sale page F-16
18. Tell us and disclose your accounting policy for other than temporary impairment of your available for sale marketable securities by security type. Refer to SAB Topic 5M and FSP FAS 115-1.
COMPANY RESPONSE: As of December 31, 2008 and 2007, all of the Company's investments are classified as "available for sale." The Company accounts for other-than-temporary impairment of its available-for-sale marketable securities by recording changes to market values as other comprehensive income/losses on a quarterly basis. The Company evaluates all of its securities on a quarterly basis with respect to impairment issues. The Company has revised its related disclosure at footnote 1N - Marketable Securities - Available for Sale, so as to more clearly state this policy. SeeExhibit B.
19. Please indicate, if true, in your disclosure that all of your marketable securities available for sale are equity securities and advise us. If not, please disclose the make-up of your total between debt and equity securities and provide disclosures related to debt securities in accordance with paragraph 20 of SFAS 115.
COMPANY RESPONSE: All of the Company's available-for-sale securities are equity securities. The Company has revised its related disclosure at footnote 1N - Marketable Securities - Available for Sale, so as to more clearly state this fact. SeeExhibit B.
20. Refer to your marketable securities available for sale roll forward schedule. Please separately present gross unrecognized holding gains from gross unrecognized holding losses by security type in accordance with paragraph 19 of SFAS 115.
COMPANY RESPONSE: The Company has recorded no gross unrecognized holding gains on any of its available-for-sale marketable securities. All changes to the market values of the investments were recorded as unrecognized holding losses, and charged to other comprehensive income (losses) on a quarterly basis. SeeExhibit B.
21. In addition, please provide all of the disclosures as required by paragraph 17 and Appendix A of FSP FAS 115-1.
COMPANY RESPONSE: The Company has revised its disclosure as required by paragraph 17 and Appendix A of FSP FAS 115-1, pursuant to the Commission's request. SeeExhibit B.
Note 8. Basic (loss) Per Share, page F-24.
22. We note your dual presentation of basic and diluted earnings per share data. Please explain to us the nature of this presentation. If your dual presentation includes comprehensive income (loss) per share data, please remove them from this section.
COMPANY RESPONSE: The Company presents basic and fully diluted income (loss) per share data so as to disclose the effects of outstanding stock options and warrants. The presentation does not include comprehensive income (loss) per share data.
Note 10 - Gain on Settlement of Debt, page F-25
23. We note you recorded $307,974 as a gain on the settlement of debt. Tell us and disclose with further details regarding the debt settlement and support your accounting with relevant accounting literature. Your response should give insights into the nature of the advertising liabilities involved and how they were incurred and recorded. To the extent the counterparty to the liabilities was a related party as defined by SFAS 57, explain to us why you did not account for the gain as a capital transaction. Revise your disclosure hereto indicate if the creditor is a related party. Revise MD & A operating results discussion to provide impact of this item on your financial statements.
COMPANY RESPONSE: During the year ended December 31, 2008 the Company incurred a liabilities pertaining to its advertising operations. Through various legal negotiations, these liabilities were settled and satisfied for an amount less than the amount of the originally-recorded liability. The result was recorded as a gain on settlement of debt in the amount of $307,974. The Company has revised its related disclosures at footnote 10 - Gain on Settlement of Debt, so as to more clearly explain the details of these transactions. SeeExhibit B.
Item 9A. Control and Procedures, page 24.
24. We note your disclosures of the material weakness in internal control over financial reporting. In that regard, tell us and disclose your remedial plan in place or to be implemented to cure the material weakness.
COMPANY RESPONSE: Due to its limited number of employees, the Company has determined that it cannot adequately segregate critical control duties to the extent where these control functions do not represent a material weakness. Until such time that the Company is able to sustain a greater employee base, it cannot provide assurances that its internal controls over financial reporting do not have material weaknesses. The Company has revised its disclosures so as to more clearly state this fact. See Exhibit B.
25. Explain to us the meaning of your statement here and similar statements in subsequent Forms 10-Q and 2007 Forms 10Q/A that "there have been no significant changes in our internal control or in other factors which could significantly affect internal controls subsequent to the date we carried out our evaluation." Confirm, if true, that there is no change in your internal control over financial reporting during the fourth fiscal quarter or the latest fiscal quarter that has materially affected, or are reasonable likely to materially affect, your internal control over financial reporting or revise to disclose the change. Refer to Item 308(T)(b) of Regulation S-K.
COMPANY RESPONSE: The Company's statement that "there have been no significant changes in our internal control or in other factors which could significantly affect internal controls subsequent to the date we carried out our evaluation" is meant simply to state that the Company has made no material changes in its internal control processes and procedures during the periods through which the Company has analyzed its procedures. The Company confirms that there was no change in our internal control over financial reporting during the fourth fiscal quarter or the latest fiscal quarter that has materially affected, or was reasonably likely to materially affect, our internal control over financial reporting.
Form 10-Q for the fiscal second quarter ended June 30, 2009
Item 1. Financial Statements
Unaudited Interim Condensed Financial Statements
Statements of Operations and Other Comprehensive Income (Loss), page 5
26. Please remove the comprehensive basic and fully diluted earning (loss) per share data from the statements of operations and other comprehensive income (loss).
COMPANY RESPONSE: The Company has removed the comprehensive basic and fully diluted earnings (loss) per share data from its Statements of Operations and other comprehensive income (loss), pursuant to the Commission's request. See Exhibit M.
27. We note your presentation of a $240,000 loss recognized related to debt settlement including the nature of the liabilities settled and explain your accounting. Revise your MD&A operating results discussion to provide impact of this transaction on your financial statements.
COMPANY RESPONSE: The Company has updated its MD&A operating results discussion so as to provide a more clear and detailed disclosure of the impact of this transaction on our financial statements. See Exhibit M.
Note 6. Lawsuit Settlements
Professional Bull Riders, Inc. v Alphatrade.com, page 12
28. We note your disclosures of the settlement terms with PBR on May 21, 2009. In that regard, advise us and disclose where you have recorded the related settlement liability in the financial statements as of June 30, 2009. If not please explain.
COMPANY RESPONSE: The Company has not recorded a liability pursuant to the settlement with PBR, due to the fact that the amount of the amount to be paid to PBR pursuant to the judgment is not yet readily determinable. The judgment states that the Company is to pay an amount equal to the lesser of $100,000 or 30% of the Company's net profit for each of its 2009, 2010, and 2011 fiscal years. The Company will record the portion of the PBR judgment liability relating to the 2009 fiscal year at such time it is known what the Company's net profit is for that year, and will make the corresponding accruals for the 2010 and 2011 fiscal years at such time the respective information is known to the Company. See Exhibit M.
Item 2. Management's Discussion and Analysis of Financial Condition or Plan of Operations
Results of Operations page 14.
29. We note you recorded a large provision for bad debt of $1,031,477 for the six month period ended June 30, 2009. However, you did not explain the drivers/factors behind the large provision. Please explain to us and revise your operating results discussion to provide substantive reasons behind the provision. Clarify for us if the provision represents any out of period adjustment amounts, and if so, advise us why it is appropriate to record the adjustments in the current period. In addition, present the provisions a non-cash adjustment to net income in arriving at the cash flow from operating activities in your cash flow statements.
COMPANY RESPONSE: This provision was created based on two factors. When the Company entered into the contracts, it believed that the amounts were receivable. Based on the Company's historical collections, the original provision was deemed appropriate. When the Company subsequently restated its 2007 filings, it had become known which specific contracts had not been collected. With this hindsight, bad debt expense was taken in the periods when the contracts were identified as doubtful. With this knowledge (which came a significant time after the receivables were originally recorded), the Company was able to make the appropriate adjustments to the 2007 filing and formulate a more accurate provisions and analysis policy going forward. This hindsight resulted in the expense of a large portion of receivables during the first quarter of 2009, since this was when the Company was able to identify the particular contract receivables as being doubtful. The Company also began to allow more aggressively against receivables due to the worsening economy and a trend toward higher uncollectability of accounts receivable.
Item 3. Control and Procedures, page 15
30. We note that your disclosure control and procedures are effective as of June 30, 2009 as compared to ineffective as of December 31, 2008. In addition, we note no disclosure in the nature of any change in your internal control over financial reporting based on your disclosures. Please advise us how you reasonably conclude that your disclosure control and procedures are effective as of June 30, 2009, given the disclosures of apparent no change in your internal control over financial reporting.
COMPANY RESPONSE: The Company has updated and revised its disclosure so as to correctly state that its disclosure controls and procedures were deemed to have been ineffective as of June 30, 2009. See Exhibit M.
Exhibits 31.1 and 31.2
31. Please revise your certifications to strictly comply with SEC rules. For example, you have excluded the introductory language in paragraph 4 referring to responsibility for establishing and maintaining internal control over financial reporting as well as paragraph 4(b0. Refer to SEC Release 33-8238 (June 2003). Your certifications should appear exactly as set forth in current Item 601(b) (31) of Regulation S-K. Similarly, revise all of your certifications within prior 3/31/09 Form 10-Q and within 2008 Forms 10-Q/A.
COMPANY RESPONSE: The Company has revised its Exhibits 31.1 and 31.2 certifications so as to strictly comply with SEC rules for its 2009 Forms 10-Q/A and 2008 Forms 10-Q/A.
Form 10-Q, for the fiscal first quarter ended March 31, 2009
32. We note your disclosures that based on that evaluation, our chief executive officer and principle financial officer concluded that our disclosure controls and procedures are not adequate to cause the material information required to be disclosed by us . . . Please clarify for us the meaning of the phrase "not adequate." It does not appear that your certifying officers have reached a conclusion that your disclosure controls and procedures are effective. Please confirm to us, and please revise to address your officers' conclusions regarding the effectiveness of your disclosure controls and procedures.
COMPANY RESPONSE: The Company has revised its disclosures in Item 3 - Controls and Procedures, so as to state that its disclosure controls and procedures were ineffective as of March 31, 2009. See Exhibit L.
Form 10-K/A, for the fiscal year ended December 31, 2007
Item 8. Financial Statements
Audited Financial Statements for Fiscal Year Ended December 31, 2007 and 2006
General
33. Please label all of the 2007 numbers, as applicable, as restated in footnotes 8 and 9.
COMPANY RESPONSE: The Company has labeled all of the 2007 numbers as restated in footnotes 8 and 9, pursuant to the Commission's request. Please seeExhibit A.
Notes to the Financial Statements
Note - Restated Financial statements, page F-23
34. We note you restated the 2007 financial statements for unearned advertising revenues or deferred revenue but had been recorded as advertising revenues in previously issued 2007 financial statements. In that regard, please tell us and disclose in more detail the facts and circumstances leading to the restatement including the significant terms of the advertising contracts involved. Also, revise to provide a more transparent accounting policy regarding how the advertising revenues are earned and how the policy complies with the guidance under SAB 104
COMPANY RESPONSE: The Company, in conjunction with its prior auditors, determined that its 2007 financial statements had been materially misstated due to the Company's accounting policy with respect to certain advertising contracts. The Company had been recording payments received pursuant to advertising contracts as revenues upon receipt. It was subsequently determined that these cash receipts relating to advertising contracts should be recorded as deferred revenues, and amortized to revenues on a pro-rata basis over the term of the advertising contract. SAB 104 states that revenue cannot be earned until, among other things, "delivery has occurred or services have been rendered." It was determined that the Company had been recording revenues prior to having actually provided the related advertising services. The restatement of the 2007 financial statements corrects this error. The Company has revised its applicable disclosures so as to more thoroughly describe the nature of the accounting error, and the revenue recognition policies currently in place. Please seeExhibit A.
Form 10-Q/A for the fiscal quarter ended September 30, 2008
Item 1 Financial Statements
Note 3 Restated Financial Statements pages 12 through 14
35. Please provide "as originally reported" and "as restated" amounts for each income statements and balance sheet line item for the three-month period ended September 30, 2008 in addition to the nine-month period ended September 30, 2008. Similarly, revise your Form 10-Q/A for the quarterly period ended June 30, 2008 accordingly.
COMPANY RESPONSE: The Company has provided "as originally reported" and "as restated" amounts for each income statements and balance sheet line item for the three and nine-month periods ended September 30, 2008. The Company has also made corresponding revisions to the June 30, 2008 income statements and balance sheet, pursuant to the Commission's request. Please see Exhibit K.
36. We note your disclosure that revenues for the quarter ended September 30, 2008 approximately $2.2 million of advertising revenues were reversed since collectability was not reasonably assured. Please explain to us and disclose in further detail the facts and circumstances leading to the reversal of these revenues and support your accounting with relevant accounting literature. Please clarify in your disclosures and summarize for us the prior reporting periods affected by these reversals. If the reversal affects prior periods in which you did not restate the related financial statements, please explain to us why restatements for those prior periods are not considered necessary. Explain to us why you did not discuss the collectability issues in Note 11 to Form 10-K/A for the fiscal year ended December 31, 2007 and clarify if the collectability issues related to or affect the restatement of deferred revenues as discussed in the 2007 Form 10K/A. If so, please explain. We may have further comments.
COMPANY RESPONSE: The Company elected to reverse $2.2 million in advertising revenues (pertaining to a contract with a single entity) in the quarter ended September 30, 2008 due to the fact that the contract lacked the necessary factors to be considered earned revenue, and collectability was not reasonably assured. This reversal was determined to be necessary as a result of the Company reviewing with its auditors its accounting policy for advertising revenues for which marketable securities were expected to be received as consideration. Under the terms of the Company's revised revenue recognition policy, the Company will record revenue on these advertising transactions only at such time that collection of the contracted total is reasonably assured. The Company now interprets this clause more aggressively than prior to the reversal of revenues. The reversal has no bearing on prior periods in which the Company did not restate its financial statements, as collectability analyses of receivables were deemed to have been appropriate at the time of the filings. The Company has revised its related disclosures in all its filings made subsequent to and including the 2007 Form 10-K/A.
37. It appears that you have significant adjustments to General and administrative expense line item in all 2008 Forms 10-Q/A in connection with the correction of an accounting error related to the collectability issue of advertising revenues. Please explain to us in detail and disclose how the correction of the revenues amount affect your General and administrative expenses for the periods affected.
COMPANY RESPONSE: The Company adjusted the General and administrative expense line item in its 6/30/08 and 9/30/08 Forms 10-Q/A pursuant to correcting an accounting error relating to the collectability of advertising revenues. The Company did not adjust its General and administrative expense line item in its 3/31/08 Form 10-Q/A. As the Company performed its analysis of the accounting error it was noted that certain related expenses had not been properly recorded. These expenses amounted to $100,000 for the three months ended June 30, 2008, and an additional $100,000 for the three months ended September 30, 2008. The Company has revised its disclosure with respect to its correction of accounting error so as to more clearly state the rationale for adjusting the General and administrative expense figures.
Yours truly,
ALPHATRADE.COM
Per:
GORDON J. MUIR
CEO/Director
EXHIBIT A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A - December 31, 2007
(Amendment No. 1)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Result of Operations for the twelve months ended December 31, 2007 and 2006
The total compensation expense to these entities was $480,000 in 2006 and $480,000 in 2007. The companies agreed to cancel $240,000 of the compensation for 2007, which was therefore recorded as a contribution to capital. Similarly, the related party cash compensation is expected to be $240,000 in 2008. During 2006, the companies were also awarded bonuses of 1,000,000 preferred shares each. The preferred shares are convertible into common shares on a 10 for 1 basis. We recognized an additional $3,080,011 in expense for the fair value of these preferred shares in 2006.
We incurred a net loss of $4,736,540 for the year ended December 31, 2006 compared to $4,814,003 for the year ended December 31, 2007. Included in the loss for 2006 and 2007 was $4,603,954 and $1,447,061, respectively as the value of options and shares issued for services. Excluding these non-cash expenses, the losses for 2006 and 2007 would have been $132,586 and $3,366,942, respectively. Due to our improved cash position we hope to minimize the practice of issuing shares of stock for services which will serve to also decrease our related party expense.
ALPHATRADE.COM FINANCIAL STATEMENTS December 31, 2007 and 2006 Restated Page F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors AlphaTrade.com Vancouver, BC Canada We have audited the accompanying balance sheets of AlphaTrade.com at December 31, 2007 and 2006 and the related statements of operations, stockholders' equity (deficit) and cash flows for the years then ended . These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the PCAOB (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AlphaTrade.com at December 31, 2007 and 2006 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 10 to the financial statements, the Company has recorded significant losses from operations, and is dependent on financing to continue operations, which together raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 10. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. As discussed in Note 11 to the financial statements, management has discovered an error in recording revenue from several advertising agreements that provided services into 2008, resulting in deferred revenue at December 31, 2007 of $885,600. The effects to the financial statements are described in Note 11. Accordingly, the financial statements have been restated to correct this error. Chisholm, Bierwolf & Nilson, LLC Bountiful, Utah January 18, 2008 except for Notes 8, 9 & 11 dated March 17, 2009
ALPHATRADE.COM Balance Sheets (Continued) LIABILITIES AND STOCKHOLDERS' (DEFICIT) -------------------------------------- December 31, 2007 2006 ------------ ------------ CURRENT LIABILITIES (restated) Accounts payable and accrued expenses $ 2,404,822 $ 547,139 Related party payables 2,190,414 714,295 Deferred revenue 1,130,178 241,332 ----------- ------------ Total Current Liabilities 5,725,414 1,502,766 ----------- ------------ Total Liabilities 5,725,414 1,502,766 ----------- ------------ COMMITMENTS STOCKHOLDERS' (DEFICIT) Convertible preferred stock: $0.001 par value; 10,000,000 shares authorized, 2,000,000 Class A and 2,000,000 Class B shares issued and outstanding 4,000 4,000 Common stock: $0.001 par value 100,000,000 shares authorized; 48,589,773 and 40,425,027 shares issued and outstanding, respectively 48,590 40,425 Additional paid-in capital 32,959,057 30,853,661 Prepaid expenses-related parties - (30,000) Stock subscription payable 28,500 - Accumulated other comprehensive income (1,647,531) (717,860) Accumulated deficit (35,925,750) (31,111,747) ----------- ----------- Total Stockholders' (Deficit) (4,533,134) (961,521) ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS'(DEFICIT) $ 1,192,280 $ 541,245 =========== =========== The accompanying notes are an integral part of these financial statements. Page F-5
ALPHATRADE.COM Statements of Operations Years Ended December 31, ------------------------------ 2007 2006 -------------- -------------- REVENUE (restated) Subscription revenue $ 3,064,459 $ 2,817,955 E-Trax revenue 88,846 76,491 Advertising revenue 1,926,276 1,256,656 Advertising revenue-related party - 243,900 Other revenue 13,644 994 ------------- ------------- Total Revenue 5,093,225 4,395,996 COST OF SALES Financial content 1,727,258 1,750,533 Other cost of sales 5,377 5,486 ------------- ------------- Total Cost of Sales 1,732,635 1,756,019 ------------- ------------- Gross profit 3,360,590 2,639,977 ------------- ------------- EXPENSES Related party compensation 480,000 3,560,011 Professional fees 1,668,878 1,956,125 Research and development 439,456 411,595 Marketing expense 4,511,673 902,167 General and administrative expenses 818,362 503,409 ------------- ------------- Total Expenses 7,918,369 7,333,307 ------------- ------------- LOSS FROM OPERATIONS (4,557,779) (4,693,330) OTHER INCOME (EXPENSE) Interest expense (212,001) - Gain (loss) on marketable securities (44,223) (43,209) ------------- ------------- Total Other Income (Expense) (256,224) (43,209) ------------- ------------- NET LOSS (4,814,003) (4,736,539) ------------- ------------- UNREALIZED LOSS ON AVAILABLE FOR SALE SECURITIES (929,671) (903,660) ------------- ------------- TOTAL COMPREHENSIVE LOSS $ (5,743,674) $ (5,640,199) ============= ============= BASIC AND DILUTED NET LOSS PER SHARE Net loss per share $ (0.09) $ (0.13) ============= ============= Comprehensive loss per share $ (0.11) $ (0.16) ============= ============= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 48,589,773 35,408,202 ============= ============= The accompanying notes are an integral part of these financial statements. Page F-6
ALPHATRADE.COM
Statements of Stockholders' (Deficit)(Continued)
(restated)
Preferred Stock Common Stock Additional Stock Other
---------------- ------------------ Paid-In Subscription Comprehensive Accumulated
Shares Amount Shares Amount Capital Payable Income Deficit
--------- ------ ---------- ------- ----------- ---------- ------------- -------------
Balance,
December 31, 2006 4,000,000 $4,000 40,425,027 $40,425 $30,853,661 $ - $ (717,860) $(31,111,747)
Common stock issued
for services at an
average price of
$0.20 per share - - 5,877,246 5,877 1,052,066 - - -
Value of common stock
options issued under
the 2007 stock
option plan - - - - 131,540 - - -
Value of stock purchase
warrants granted - - - - 207,728 - - -
Contributed capital - - - - 19,850 - - -
Common stock issued
for cash at $0.20
per share - - 2,287,500 2,288 454,212 28,500 - -
Executive compensation
contributed by related
party - - - - 240,000 - - -
Net loss for year ended
December 31, 2007 - - - - - - (929,671) (4,814,003)
---------- ------ ---------- ------- ----------- -------- ----------- -------------
Balance,
December 31, 2007 4,000,000 $4,000 48,589,773 $48,590 $32,959,057 $ 28,500 $ (1,647,531) $ (35,925,750)
========= ====== ========== ======= =========== ========= ============ =============
The accompanying notes are an integral part of these financial statements.
ALPHATRADE.COM
Statements of Cash Flows
Years Ended
December 31,
-------------------------
2007 2006
(restated)
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(4,814,003) $(4,736,539)
Adjustments to reconcile net loss to
net cash used by operating activities:
Common and preferred stock issued for
services 1,087,943 4,220,853
Common stock options and warrants issued
for services 359,118 383,101
Depreciation expense 15,614 12,916
Investments received as payment for
accounts receivable (1,724,320) (958,339)
Loss on sale of investments 44,223 43,209
Services contributed by related party 240,000 -
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 36,719 (58,936)
(Increase) decrease in prepaid expenses 6,398 192,312
Increase (decrease) in accounts payable
and accrued expenses 1,857,683 198,264
Increase (decrease) in deferred revenue 888,846 35,060
Increase is related party payable 1,476,119 284,368
----------- -----------
Net Cash (Used) by Operating Activities (525,660) (383,731)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of investments 70,794 49,331
Purchase of fixed assets (23,697) (3,935)
----------- -----------
Net Cash Provided by Investing Activities 47,097 45,396
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock issued for cash 456,500 338,250
Stock subscriptions payable 28,500 -
----------- -----------
Net Cash Provided by Financing Activities 485,000 338,250
----------- -----------
The accompanying notes are an integral part of these financial statements.
Page F-9
ALPHATRADE.COM
Notes to the Financial Statements
December 31, 2007 and 2006
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
h. Revenue Recognition and Deferred Revenue
The Company recognizes subscription fees revenue and advertising
revenue when the services have been provided. The Company generally
receives its monthly subscriptions in the month prior to the service
being provided, accordingly the Company had deferred revenue of
$244,578 at December 31, 2007. Cost of sales is comprised of data feed
expenses charged by various stock market exchanges. The Company had no
customer which accounted for 10% of the revenue during the years ended
December 31, 2007 and 2006.
The Company occasionally licenses its technology to some customers.
The Company recognizes its license revenue over the term of the
license.
The Company develops modified products for customers. The Company
recognizes development revenue as the services are performed.
The Company records deferred revenue when it receives cash receipts in advance of performing the related service. These advance payments received are considered a current liability, and are amortized to revenue over the term of the service contract.
NOTE 5 - RELATED PARTY TRANSACTIONS
Compensation
------------
During the year ended December 31, 2006, two companies owned for the
benefit of the two officers of the Company received cash of $480,000
which was recorded as related party compensation. A bonus of $34,000
was also awarded to each company in 2006.
During the year ended December 31, 2007, two companies owned for the benefit of the two officers of the Company received cash of $240,000 which was recorded as related party compensation. No bonus was awarded for 2007. An additional $240,000 was agreed not to be paid, and was record as a contribution to capital during the 2007 fiscal year.
NOTE 8 - INCOME TAXES
2007 (Restated) 2006
--------------- ---------------
Deferred tax assets:
NOL carryover $ 5,122,748 $ 3,381,747
Contribution carryover 4,678 4,678
Capital loss 79,759 79,759
Depreciation 2,284 2,284
Accrued expenses 34,320 34,320
Deferred tax liabilities: - -
Valuation allowance (5,243,789) (3,502,788)
-------------- --------------
Net deferred tax asset $ - $ -
============== ==============
The income tax provision differs from the amount of income tax
determined by applying the U.S. federal and state income tax rates of
39% to pretax income from continuing operations for the years ended
December 31, 2007 and 2006 due to the following:
ALPHATRADE.COM
Notes to the Financial Statements
December 31, 2007 and 2006
NOTE 8 - INCOME TAXES (Continued)
2007 (Restated) 2006
-------------- --------------
Book Loss $ (1,783,861) $ (1,863,172)
Stock for services/options 564,354 1,795,542
Accrued bonus - 30,420
Capital loss - 31,252
Related-party compensation 91,200 -
Valuation allowance 1,128,307 5,958
------------ ------------
$ - $ -
============ ============
NOTE 9 - BASIC (LOSS) PER SHARE
Basic (loss) per share is calculated by dividing the Company's net
loss applicable to common shareholders by the weighted average number
of common shares during the period. Diluted earnings per share is
calculated by dividing the Company's net income available to common
shareholders by the diluted weighted average number of shares
outstanding during the year. The diluted weighted average number of
shares outstanding is the basic weighted number of shares adjusted for
any potentially dilutive debt or equity. The Company had 81,570,347
and 68,440,500 in such common stock equivalents outstanding as of
December 31, 2007 and 2006, respectively. Common stock equivalents
include convertible preferred stock and stock purchase options and
warrants.
2007 2006
------------- -------------
Loss (numerator) $ (4,814,003) $ (4,736,539)
------------ ------------
Comprehensive Loss (numerator) (5,743,674) (5,640,199)
------------ ------------
Shares (denominator) 48,549,773 35,408,202
------------ ------------
Per share amount $ (0.09) $ (0.13)
------------ ------------
Per share amount $ (0.11) $ (0.16)
============ ============
NOTE 11 - RESTATED FINANCIAL STATEMENTS
The Company's financial statements for the year ended December 31,
2007 have been restated to record $885,600 of advertising revenues as
deferred revenues. The Company determined that all of the services to
be provided under the terms of the advertising agreements had not beencompleted as of December 31, 2007. These advertising agreements called for the Company to provide services over an extended period of time. The Company has revised its revenue recognition policy so as to appropriately recognize revenues under these contracts as they are earned. Accordingly the Company is now recording deferred revenue when payments for services are received, and amortizing the deferred revenue on a pro-rata basis over the lives of the contracts. Therefore, revenues previously recorded for the year ended December 31, 2007 have been deferred to 2008 in these restated financial statements, so as to correspond to when the services were actually performed.
In addition, the financial statements are restated to as to correctly record a $240,000 value for professional services contributed to the Company by a related party.
The following summarized financial statements compare of the Company's
original and restated financial statements.
Balance Sheet Original Restated
Cash $ 153,760 $ 153,760
Accounts receivable - trade, net 28,047 28,047
Prepaid expenses 750 750
Marketable securities-available for sale 5,232 5,232
Marketable securities-available for
sale-related party 658,858 658,858
----------- -----------
Total Current Assets 846,647 846,647
----------- -----------
PROPERTY AND EQUIPMENT, NET 45,633 45,633
----------- -----------
OTHER ASSETS
Investments, at cost 300,000 300,000
----------- -----------
Total Other Assets 300,000 300,000
----------- -----------
TOTAL ASSETS $ 1,192,280 $ 1,192,280
=========== ===========
F-23
ALPHATRADE.COM
Notes to the Financial Statements
December 31, 2007 and 2006
NOTE 11 - RESTATED FINANCIAL STATEMENTS (CONTINUED)
Original Restated
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,404,822 $ 2,404,822
Related party payables 2,190,414 2,190,414
Deferred revenue 244,578 1,130,178
----------- -----------
Total Current Liabilities 4,839,814 5,725,414
----------- -----------
Total Liabilities 4,839,814 5,725,414
----------- -----------
COMMITMENTS
STOCKHOLDERS' (DEFICIT)
Convertible preferred stock: $0.001 par value;
10,000,000 shares authorized, 2,000,000 Class A
and 2,000,000 Class B shares issued and outstanding 4,000 4,000
Common stock: $0.001 par value 100,000,000 shares
authorized; 48,589,773 and 40,425,027 shares
issued and outstanding, respectively 48,590 48,950
Additional paid-in capital 32,719,057 32,959,057
Stock subscription payable 28,500 28,500
Accumulated other comprehensive income (1,647,531) (1,647,531)
Accumulated deficit (34,800,150) (35,925,750)
----------- -----------
Total Stockholders' (Deficit) (3,647,534) (4,533,134)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'(DEFICIT) $ 1,192,280 $ 1,192,280
=========== ===========
NOTE 11 - RESTATED FINANCIAL STATEMENTS (CONTINUED)
Statement of Operations (Continued)
Original Restated
----------- -----------
EXPENSES
Related party compensation 240,000 480,000
Professional fees 1,668,878 1,668,878
Research and development 439,456 439,456
Marketing expense 4,511,673 4,511,673
General and administrative expenses 818,362 818,362
----------- -----------
Total Expenses 7,678,369 7,918,369
----------- -----------
LOSS FROM OPERATIONS (3,432,179) (4,557,779)
OTHER INCOME (EXPENSE)
Interest expense (212,001) (212,001)
Gain (loss) on marketable securities (44,223) (44,223)
----------- -----------
Total Other Income (Expense) (256,224) (256,224)
----------- -----------
NET LOSS (3,688,403) (4,814,003)
----------- -----------
UNREALIZED LOSS ON AVAILABLE FOR SALE SECURITIES (929,671) (929,671)
----------- -----------
TOTAL COMPREHENSIVE LOSS $(4,618,074) $(5,743,674)
=========== ===========
BASIC AND DILUTED NET LOSS PER SHARE
Net loss per share $ (0.08) $ (0.09)
=========== ===========
Comprehensive loss per share $ (0.10) $ (0.11)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 48,589,773 48,589,773
=========== ===========
EXHIBIT B
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K - December 31, 2008 - Amendement No. 1
ALPHATRADE.COM
--------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates, including those related to uncollectible receivables, revenue recognition, deferred revenue, and contingencies. We base our estimates on historical performance and on various other assumptions that we believe to be reasonable under the circumstances. These estimates allow us to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
We believe the following accounting policies are our critical accounting policies because they are important to the portrayal of our financial condition and results of operations and they require critical management judgments and estimates about matters that may be uncertain. If actual results or events differ materially from those contemplated by us in making these estimates, our reported financial condition and results of operations for future periods could be materially affected.
Revenue Recognition
The Company follows the guidance of SAB 104 in recognizing subscription
fees revenue and advertising revenue when the services have been
provided. Revenues are recognized when they are realized, realizable
and earned. Revenues are recognized on a pro-rata basis in consistent,
equal increments over the term of contract.
Advertising revenues are often earned under contracts extending beyond
a financial reporting period. The Company generally receives its
monthly subscriptions in the month prior to the service being provided.
Accordingly the Company had deferred revenue of $737,010 and $1,130,178
at December 31, 2008 and 2007, respectively. Cost of sales is comprised
of data feed expenses charged by various stock market exchanges. The
Company had no customer which accounted for 10% of the revenue during
the years ended December 31, 2008 and 2007.
The Company occasionally licenses its technology to some customers. The
Company recognizes its license revenue over the term of the license.
The Company also develops modified products for customers. The Company
recognizes development revenue as the services are performed.
The Company records deferred revenue when it receives cash receipts in
advance of performing the related service. These advance payments
received are considered a current liability.
Accounts Receivable and Bad Debts
The Company estimates bad debts utilizing the allowance method, based
upon past experience and current market conditions. At December 31,
2008 and 2007, the Company had an allowance for bad debts of $3,450 and
$3,450, respectively.
Result of Operations for the twelve months ended December 31, 2008 and 2007
The total compensation expense to these entities was $480,000 in 2008 and
$480,000 in 2007. The 2007 compensation was not paid, but was contributed to the Company. Accordingly, the Company recorded a credit of $240,000 to additional paid-in capital during the year ended December 31, 2007. Similarly, the related party cash compensation is expected to be
$480,000 in 2009.
We realized a net income of $834,369 for the year ended December 31, 2008
compared to a net loss of $4,814,003 for the year ended December 31, 2007.
Included in the net income for 2008 and the loss for 2007 was $770,113 and
$1,447,061 respectively as the value of options and shares issued for services.
Excluding these non-cash expenses, the net income for 2008 and loss for 2007
would have been $1,604,482 and $3,366,942, respectively. Due to our improved
cash position we hope to minimize the practice of issuing shares of stock for
services which will serve to also decrease our related party expense.
ITEM 9A. CONTROLS AND PROCEDURES.
Management's Report on Internal Control over Financial Reporting
Due to its limited number of employees, the Company has determined that it cannot adequately segregate critical control duties to the extent where these control functions do not represent a material weakness. Until such time that the Company is able to sustain a greater employee base, it cannot provide assurances that its internal controls over financial reporting do not have material weaknesses.
ALPHATRADE.COM
FINANCIAL STATEMENTS
December 31, 2008 and 2007
ALPHATARADE.COM
Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
---------------------------------------------
December 31, December 31,
2008 2007
------------ ------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,161,854 $ 2,404,822
Related party payables 2,746,262 2,190,414
Deferred revenues 737,010 1,130,178
----------- -----------
Total Current Liabilities 5,645,126 5,725,414
----------- -----------
TOTAL LIABILITIES 5,645,126 5,725,414
----------- -----------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' (DEFICIT)
Preferred shares: $0.001 par value, 10,000,000
shares authorized: 2,000,000 Class A and
2,000,000 Class B shares issues and outstanding 4,000 4,000
Common shares: $0.001 par value, 100,000,000
shares authorized: 54,076,023 and 48,589,773
shares issues and outstanding, respectively 54,076 48,590
Stock subscription payable 45,080 28,500
Additional paid-in capital 33,921,184 32,959,057
Accumulated other comprehensive income (1,742,626) (1,647,531)
Accumulated deficit (35,091,381) (35,925,750)
----------- -----------
Total Stockholders' (Deficit) (2,809,667) (4,533,134)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 2,835,459 $ 1,192,280
=========== ===========
The accompanying notes are an integral part of these financial statements.
ALPHATRADE.COM
Statements of Operations and Other Comprehensive Income (Loss)
For the Years Ended
December 31,
-------------------------
2008 2007
------------ ------------
REVENUES
Subscription revenue $ 3,027,619 $ 3,064,459
Advertising revenue 2,851,003 1,926,276
Other revenue 196,409 102,490
----------- -----------
Total Revenues 6,075,031 5,093,225
----------- -----------
COST OF SALES
Financial content 1,854,268 1,727,258
Other cost of sales 2,839 5,377
----------- -----------
Total Cost of Sales 1,857,107 1,732,635
----------- -----------
GROSS PROFIT 4,217,924 3,360,590
----------- -----------
OPERATING EXPENSES
Management expense 480,000 480,000
Professional fees 1,127,880 1,668,878
Research and development 468,884 439,456
Marketing expense 678,551 4,511,673
General and administrative 338,749 818,362
----------- -----------
Total Operating Expenses 3,094,064 7,918,369
----------- -----------
INCOME (LOSS) FROM OPERATIONS 1,123,860 (4,557,779)
----------- -----------
OTHER INCOME (EXPENSE)
Realized gains (losses) on sale of
marketable securities (223,068) (44,223)
Gain on settlement of debt 307,974 -
Interest expense (374,397) (212,001)
----------- -----------
Total Other Income (Expense) (289,491) (256,224)
----------- -----------
NET INCOME (LOSS) BEFORE INCOME TAXES 834,369 (4,814,003)
INCOME TAX EXPENSE - -
----------- -----------
The accompanying notes are a integral part of these financials statements.
F-6
ALPHATRADE.COM
Statements of Operations and Other Comprehensive Income (Loss)
(Continued)
For the Years Ended
December 31,
-------------------------
2008 2007
------------ ------------
NET INCOME (LOSS) $ 834,369 $(4,814,003)
=========== ===========
OTHER COMPREHENSIVE INCOME (LOSS) $ (95,095) $ (929,671)
TOTAL COMPREHENSIVE INCOME (LOSS) $ 739,274 $(5,743,674)
=========== ===========
BASIC EARNINGS (LOSS) PER SHARE $ 0.02 $ (0.09)
=========== ===========
FULLY DILUTED INCOME (LOSS) PER SHARE $ 0.01 $ (0.09)
=========== ===========
BASIC WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 51,175,987 48,589,773
=========== ===========
FULLY DILUTED WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 81,175,987 48,589,773
=========== ===========
The accompanying notes are a integral part of these financials statements.
F-7
ALPHATRADE.COM
Statements of Stockholders' (Deficit)
Preferred Stock Common Stock Additional Stock Other Total
---------------- ------------------ Paid-In Subscription Comprehensive Accumulated Stockholders'
Shares Amount Shares Amount Capital Receivable Income Deficit Equity
--------- ------ ---------- ------- ----------- ---------- ------------- ------------- --------------
Balance,
December 31, 2006 4,000,000 $4,000 40,425,027 $40,425 $30,853,661 $ (30,000) $ (717,860) $(31,111,747) $ (961,521)
Common stock issued
for cash at $0.18 per share - - 2,287,500 2,288 454,212 28,500 - - 485,000
Common stock issued
for services at
$0.20 per share - - 5,877,246 5,877 1,052,066 - - - 1,057,943
Value of stock
purchase warrants
granted - - - - 207,728 - - - 207,728
Value of stock
options issued
under the 2007
stock option plan - - - - 131,540 - - - 131,540
Contributed capital - - - - 19,850 - - - 19,850
Amortization of
prepaid expense - - - - - 30,000 - - 30,000
Executive compensation
contributed by
related party - - - - 240,000 - - - 240,000
Net income for the
year ended December
31, 2007 - - - - - - (929,671) (4,814,003) (5,743,674)
--------- ------ ---------- ------- ----------- --------- ------------ ------------ -------------
Balance,
December 31, 2007 4,000,000 4,000 48,589,773 48,590 32,959,057 28,500 (1,647,531) (35,925,750) (4,533,134)
Common stock issued
for cash at $0.15
and $0.20 per share - - 1,075,000 1,075 196,425 16,580 - - 214,080
Common stock issued
for services at $0.02
to $0.21 per share - - 4,411,250 4,411 475,040 - - - 479,451
Value of stock
purchase warrants
vested - - - - 25,652 - - - 25,652
Value of stock options
issued under stock
option plans - - - - 265,010 - - - 265,010
Net income for the
year ended
December 31, 2008 - - - - - - (95,095) 834,369 739,274
--------- ------ ---------- ------- ----------- --------- ------------ ------------ -------------
Balance,
December 31, 2008 4,000,000 $4,000 54,076,023 $54,076 $33,921,184 $ 45,080 $ (1,742,626) $(35,091,381) $ (2,809,667)
========= ====== ========== ======= =========== ========= ============ ============ =============
The accompanying notes are a integral part of these financials statements.
F-8
ALPHATRADE.COM
Statements of Cash Flows
For the Year Ended
December 31,
---------------------------
2008 2007
CASH FLOWS FROM OPERATING ACTIVITIES ------------- -------------
Net income (loss) $ 834,369 $ (4,814,003)
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Depreciation expense 18,435 15,614
Value of stock options and warrants granted 290,662 359,118
Loss on sale of investments 223,068 44,223
Gain on settlement of debt (307,974) -
Contribution of executive compensation - 240,000
Investments received as payment for accounts
receivable (1,204,004) (1,724,320)
Common stock issued for services 479,451 1,087,943
Changes in operating assets and liabilities:
Changes in accounts receivable (1,144,017) 36,719
Changes in prepaid expenses (250) 6,398
Changes in deferred revenues (393,168) 888,846
Changes in related party payables 555,848 1,476,119
Changes in accounts payable and accrued expenses 65,006 1,857,683
------------ ------------
Net Cash Used in Operating Activities (582,574) (525,660)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of securities 288,962 70,794
Purchase of fixed assets (18,578) (23,697)
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Net Cash Provided by Investing Activities 270,384 47,097
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CASH FLOWS FROM FINANCING ACTIVITIES
Common stock issued for cash 197,500 456,500
Stock subscriptions payable 16,580 28,500
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Net Cash Provided by Financing Activities 214,080 485,000
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NET DECREASE IN CASH (98,110) 6,437
CASH AT BEGINNING OF PERIOD 153,760 147,323
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CASH AT END OF PERIOD $ 55,650 $ 153,760
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ 64,513 $ 212,001
Income Taxes $ - $ -
NON CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for services $ 479,451 $ 1,087,943
Value of stock options and warrants vested $ 290,662 $ 359,118
Increase of investments from non-cash receipt of
advertising revenues $ 1,501,911 $ 1,724,320
The accompanying notes are an integral part of these financial statements.
F-9
ALPHATRADE.COM
Notes to the Financial Statements
December 31, 2008 and 2007
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
h. Revenue Recognition and Deferred Revenue
The Company follows the guidance of SAB 104 in recognizing subscription
fees revenue and advertising revenue when the services have been
provided. Revenues are recognized when they are realized, realizable
and earned. Revenues are recognized ratably, in consistent and equal
increments, over the term of contract.
l. Financial Content
m. Accounts Receivable and Bad Debts
The Company evaluates accounts receivable for potential bad debts utilizing the allowance method, based upon past experience and current market conditions, on a quarterly basis. At such time collection of the receivable is determined to be doubtful, or if the promised securities have fallen in value to the point where their liquidation would not satisfy the balance of the receivable, the Company allows for the account in full. At December 31, 2008 and 2007, the Company had an allowance for bad debts of $3,450 and $3,450, respectively.
n. Marketable Securities-Available for SaleThe Company occasionally receives marketable securities as compensation for its advertising services. The Company's marketable securities are classified as "available for sale" because it is managements' intent to sell them within the year. All of the Company's available for sale securities are equity securities. Accordingly, the Company originally recognizes the shares at the fair value of the services performed. The shares are evaluated quarterly using the specific identification method. Any unrealized holding gains or losses, or other-than-temporary impairments, are reported as Other Comprehensive Income and as a separate component of stockholder's equity. Realized gains and losses are included in earnings.
A company related to the Company by common management issued shares of common stock for advertising services, which are classified as available for sale.
Marketable Securities-Available for Sale are as follows:
Balance, December 31, 2006 $ 284,458
Marketable securities received
for services in 2007 1,724,320
Realized losses (44,223)
Unrealized losses (1,300,465)
Balance, December 31, 2007 $ 664,090
Marketable securities received
for services in 2008 1,201,911
Transfer of investments at cost 300,000
Realized losses (223,068)
Unrealized losses (381,984)
Balance, December 31, 2008 $ 1,560,949
Marketable Securities-Available
for Sale $ 1,558,876
Marketable Securities-Available
for sale-related party 2,093
Balance, December 31, 2008 $ 1,560,949
q. Common Stock Issued for Products and Services
The Company will at times issue shares of its common stock to non-employees in exchange for various services and/or products. The Company determines the fair value of the common stock by noting the closing market quote on the date of issuance.
r. Loss Contingencies
The Company has been involved in various legal disputes in which judgment and/or outcome is uncertain. The Company accounts for loss contingencies relating to its litigation based upon the likelihood of a negative result, and if the amount of the result can be reasonably estimated.
s. Operating Segments
The Company aggregates its operations into one reportable business segment, pursuant to paragraph 17 of SFAS 131. The Company records and earns revenues from both subscriptions and advertising. Each class of revenue is produced in a similar manner and marketed to similar customers. Distribution methods are similar. Because of these factors, the Company has determined it to be unnecessary to segregate these two revenue streams as independent business segments.
NOTE 10- GAIN ON SETTLEMENT OF DEBT
During the year ended December 31, 2008 the Company incurred a liabilities pertaining to its advertising operations. Through various legal negotiations, these liabilities were settled and satisfied for an amount less than the amount of the originally-recorded liability. The result was recorded as a gain on settlement of debt in the amount of $307,974.