UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2012
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to _________
Commission file number: 001-33968
PSYCHIC FRIENDS NETWORK, INC.
(A Development Stage Company)
Nevada 45-4928294
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
2360 Corporate Circle, Suite 400, Henderson, NV 89074-7722
(Address of principal executive offices, including zip code)
(702) 608-7360
(Issuer's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-5 (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The issuer has 84,032,543 outstanding shares of common stock outstanding as of
December 31, 2012.
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements ........................................ 3
Item 2. Management's Discussion And Analysis Of Financial Condition
And Results Of Operation .................................... 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk... 19
Item 4. Controls And Procedures ..................................... 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ........................................... 20
Item 2. Unregistered Sales Of Equity Securities And Use Of Proceeds.. 20
Item 3. Defaults Upon Senior Securities ............................. 20
Item 4. Mine Safety Disclosures ..................................... 20
Item 5. Other Information ........................................... 20
Item 6. Exhibits .................................................... 20
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
CONDENSED BALANCE SHEETS................................................... 4
CONDENSED STATEMENTS OF OPERATIONS ........................................ 5
CONDENSED STATEMENTS OF CASH FLOWS ........................................ 6
NOTES TO THE CONDENSED FINANCIAL STATEMENTS ............................... 7
3
Psychic Friends Network, Inc.
(Formerly "Web Wizard, Inc.")
(A Development Stage Company)
CONDENSED BALANCE SHEETS
December 31, September 30,
2012 2012
---------- ----------
ASSETS
CURRENT ASSETS
Cash $ 361,120 $ 499,898
Prepaid expenses 1,000 1,000
---------- ----------
TOTAL CURRENT ASSETS 362,120 500,898
INTANGIBLE ASSETS
Website development (net of $8,630 and $5,503
of accumulated amortization, respectively) 54,620 41,247
---------- ----------
TOTAL ASSETS $ 416,740 $ 542,145
========== ==========
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 27,630 $ 37,697
---------- ----------
TOTAL CURRENT LIABILITIES 27,630 37,697
---------- ----------
TOTAL LIABILITIES 27,630 37,697
---------- ----------
STOCKHOLDERS' EQUITY
Common stock; 750,000,000 shares authorized at $0.001 par
value; 84,032,543 and 84,016,334 issued and outstanding
at December 31, 2012 and September 30, 2012, respectively 84,033 84,017
Additional paid-in capital 897,892 875,065
Deficit accumulated during development stage (592,815) (454,634)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 389,110 504,448
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 416,740 $ 542,145
========== ==========
The accompanying notes are an integral part of these
condensed financial statements.
4
Psychic Friends Network, Inc.
(Formerly "Web Wizard, Inc.")
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
From inception
For the Three Months Ended (May 9, 2007)
----------------------------------- through
December 31, December 31, December 31,
2012 2011 2012
------------ ------------ ------------
REVENUE $ 462 $ -- $ 1,896
------------ ------------ ------------
OPERATING EXPENSES
Payroll expenses 37,705 -- 129,284
Depreciation and amortization 3,127 8,630
General and administrative 41,708 4,708 117,692
Consulting fees 43,093 -- 184,745
Legal and professional 12,765 3,300 153,710
------------ ------------ ------------
TOTAL OPERATING EXPENSES 138,398 8,008 594,061
------------ ------------ ------------
NET LOSS FROM OPERATIONS (137,936) (8,008) (592,165)
OTHER EXPENSE
Bank charges and interest 245 -- 650
------------ ------------ ------------
TOTAL OTHER EXPENSE 245 -- 650
------------ ------------ ------------
NET LOSS BEFORE INCOME TAXES (138,181) (8,008) (592,815)
PROVISION FOR INCOME TAX -- -- --
------------ ------------ ------------
NET LOSS FOR THE PERIOD $ (138,181) $ (8,008) $ (592,815)
============ ============ ============
BASIC AND DILUTED (LOSS)
PER COMMON SHARE $ (0.00) $ (0.00)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES (BASIC AND DILUTED) 84,022,212 82,250,000
============ ============
The accompanying notes are an integral part of these
condensed financial statements.
5
Psychic Friends Network, Inc.
(Formerly "Web Wizard, Inc.")
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
From inception
For the Three Months Ended (May 9, 2007)
---------------------------- through
December 31, December 31, December 31,
2012 2011 2012
---------- ---------- ----------
OPERATING ACTIVITIES
Net loss $ (138,181) $ (8,008) $ (592,815)
Adjustments to reconcile net loss from operations:
Stock-based compensation for options issued 17,190 -- 113,369
Amortization 3,127 -- 8,630
Common stock issued for services 5,653 -- 5,653
Change in operating assets and liabilities:
Increase in prepaid expenses -- -- (1,000)
Increase (Decrease) in accounts payable and accrued liabilities (10,067) 5,590 27,630
---------- ---------- ----------
NET CASH USED IN OPERATING ACTIVITIES (122,278) (2,418) (438,533)
---------- ---------- ----------
INVESTING ACTIVITIES
Capitalization of website development costs (16,500) -- (63,250)
---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (16,500) -- (63,250)
---------- ---------- ----------
FINANCING ACTIVITIES
Proceeds from issuance of common stock -- -- 804,900
Proceeds from related parties -- 2,400 58,003
---------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES -- 2,400 862,903
---------- ---------- ----------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (138,778) (18) 361,120
CASH AND CASH EQUIVALENTS
-BEGINNING OF PERIOD 499,898 108 --
---------- ---------- ----------
CASH AND CASH EQUIVALENTS
-END OF PERIOD $ 361,120 $ 90 $ 361,120
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ -- $ -- $ --
========== ========== ==========
Cash paid for taxes $ -- $ -- $ --
========== ========== ==========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued in asset acquisition $ -- $ -- $ 58,003
========== ========== ==========
Liabilities assumed in asset acquisition $ -- $ -- $ 400
========== ========== ==========
The accompanying notes are an integral part of these
condensed financial statements.
6
PSYCHIC FRIENDS NETWORK, INC.
(fka: Web Wizard, Inc.)
(A Development Stage Company)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
December 31, 2012 and September 30, 2012
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Psychic Friends Network, Inc. (OTC:PFNI) hereinafter, ("the Company") was
incorporated in the State of Nevada on May 9, 2007 under the name "Web Wizard,
Inc.". On February 17, 2012 the Company's board passed a motion to change the
corporate name to "Psychic Friends Network, Inc." pursuant to an asset purchase
agreement executed on January 27, 2012. As part of this agreement, all of the
assets of PFN Holdings were purchased. These assets are an integral part of the
Company's business development and ultimately the realization of the Company's
anticipated cash flows.
The Company is in the business of providing daily horoscopes and live psychic
advice by telephone, internet or our soon to be released mobile application. Our
website is www.psychicfriendsnetwork.com. First time customers will be offered
promotions and are able to choose their psychic friend by specialties. They also
are able to establish an ongoing relationship with their advisor, or they can
choose to try someone new the next time they call. We will strive to stay on the
cutting edge of technology in an effort to deliver our content. Currently this
includes Facebook applications, and twitter pages, that reward our customers
with free credits towards readings for sharing, liking or tweeting about PFN. We
will also be giving all of our psychics their own website, to find new
customers.
BASIS OF PRESENTATION
The Company is considered to be a development stage company and has not
generated significant revenues from operations. There is no bankruptcy,
receivership, or similar proceedings against our company.
The accompanying unaudited interim financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America and the rules and regulations of the United States Securities and
Exchange Commission for interim financial information.
Certain information or footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted, pursuant to the
rules and regulations of the Securities and Exchange Commission for interim
financial reporting. Accordingly, they do not include all the information and
footnotes necessary for a comprehensive presentation of financial position,
results of operations, or cash flows. It is management's opinion, however, that
all material adjustments (consisting of normal recurring adjustments) have been
made which are necessary for a fair financial statement presentation. The
interim results for the three months ended December 31, 2012 are not necessarily
indicative of results for the full fiscal year. It is suggested that these
financial statements be read in conjunction with the audited financial
statements and notes thereto included in the Company's annual report on Form
10-K for the year ended September 30, 2012.
GOING CONCERN
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. Its ability to continue as a going concern is
dependent upon the ability of the Company to obtain the necessary financing to
meet its obligations and pay its liabilities arising from normal business
operations when they come due. Furthermore, as of December 31, 2012, the Company
has accumulated losses from inception (May 9, 2007) of $592,815. Likewise, net
cash of $438,533 has been used in operations during the same period. The outcome
of these matters cannot be predicted with any certainty at this time and raise
substantial doubt that the Company will be able to continue as a going concern.
These financial statements do not include any adjustments to the amounts and
classification of assets and liabilities which may be necessary should the
Company be unable to continue as a going concern. Management believes that the
Company will need to obtain additional funding by borrowing funds from its
directors and officers, or a private placement of common stock through various
sales and public offerings.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Company have been prepared in accordance with
generally accepted accounting principles in the United States of America.
Because a precise determination of many assets and liabilities is dependent upon
future events,
7
PSYCHIC FRIENDS NETWORK, INC.
(fka: Web Wizard, Inc.)
(A Development Stage Company)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
December 31, 2012 and September 30, 2012
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the preparation of financial statements involves the use of estimates, which
have been made using judgment. Actual results may vary from these estimates.
The financial statements have, in management's opinion, been prepared within the
framework of the significant accounting policies summarized below:
DEVELOPMENT STAGE COMPANY
The Company is considered to be in the development stage, as defined under
Accounting Codification Standard, (ASC 915) "Development Stage Entities". Since
its formation, the Company has not yet realized any revenues from its planned
operations.
RECLASSIFICATIONS
The Company reclassified $4,690 and $19,067 in "Transfer and filing fees"; $-0-
and $1,500 in "Travel and entertainment", to "General and administrative"
expenses for the three months ended December 31, 2011 and for the period from
inception (May 9, 2007) through December 31, 2012, respectively to conform to
the current presentation. The reclassifications had no effect on the Company's
financial condition, results of operation, or cash flows.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid financial instruments purchased with a
maturity of three months or less to be cash equivalents.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments, consisting of cash and
accounts payable and accrued liabilities, is equal to fair value due to their
short-term to maturity. Unless otherwise noted, it is management's opinion that
the Company is not exposed to significant interest, currency or credit risks
arising from these financial instruments.
REVENUE RECOGNITION
The Company recognizes revenue on an accrual basis. The Company generally earns
revenue through the online sale of service minutes. These purchases obligate the
Company to arrange a telephonic conversation with a designated service provider
of the customers choosing. The Company remits a portion of the fee to the
service provider and retains the balance. At the time of sale, the formal
arrangements are made and the Company has fulfilled its obligation. Furthermore,
the Company's portions of any fees collected are non-refundable. Revenue is
generally realized or realizable and earned when all of the following criteria
are met: 1) persuasive evidence of an arrangement exists between the Company and
our customer(s); 2) services have been rendered; 3) our price to our customer is
fixed or determinable; and 4) collectability is reasonably assured. For the
three months ended December 31, 2012 and 2011, the Company recognized revenues
of $462 and $-0- for which each of the four aforementioned criteria were
satisfied.
8
PSYCHIC FRIENDS NETWORK, INC.
(fka: Web Wizard, Inc.)
(A Development Stage Company)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
December 31, 2012 and September 30, 2012
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
PER SHARE DATA
In accordance with "ASC 260 - Earnings per Share", the basic loss per common
share is computed by dividing net loss available to common stockholders by the
weighted average number of common shares outstanding. Diluted loss per common
share is computed similar to basic loss per common share except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if the potential common shares had been issued and
if the additional common shares were dilutive. At December 31, 2012 and
September 30, 2012, the Company had no stock equivalents that were anti-dilutive
and excluded in the loss per share computation.
STOCK-BASED COMPENSATION
The Company records stock based compensation in accordance with the guidance in
ASC Topic 718 which requires the Company to recognize expenses related to the
fair value of its employee stock option awards. This eliminates accounting for
share-based compensation transactions using the intrinsic value and requires
instead that such transactions be accounted for using a fair-value-based method.
Accordingly, the Company recognized expenses of $17,190 and $-0- during the
three months ended December 31, 2012 and 2011, respectively (see Note 4).
WEBSITE DEVELOPMENT COSTS
The Company capitalizes its costs to develop its website and when preliminary
development efforts are successfully completed, management has authorized and
committed project funding, and it is probable that the project will be completed
and the website will be used as intended. Such costs are amortized on a
straight-line basis over the estimated useful life of the related asset, which
approximates three years. Costs incurred prior to meeting these criteria,
together with costs incurred for training and maintenance, are expensed as
incurred. Costs incurred for enhancements that are expected to result in
additional material functionality are capitalized and expensed over the
estimated useful life of the upgrades.
The Company capitalized website costs of $16,500 during the three months ended
December 31, 2012. The Company's capitalized website amortization is included in
depreciation and amortization in the Company's consolidated statements of
operations, and totaled $3,127 for the period.
ADVERTISING COSTS
Advertising costs are to be expensed as incurred in accordance to Company
policy; for the three months ended December 31, 2012 and 2011, advertising
expenses totaled $11,410 and $-0-, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
Management has evaluated all recent accounting pronouncements issued by the FASB
(including its Emerging Issues Task Force), the American Institute of Certified
Public Accountants, and the SEC did not, or are not believed by management to,
have a material impact on the Company's present or future financial position,
results of operations or cash flows.
9
PSYCHIC FRIENDS NETWORK, INC.
(fka: Web Wizard, Inc.)
(A Development Stage Company)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
December 31, 2012 and September 30, 2012
NOTE 3 - INTANGIBLE ASSET
The following table presents the detail of other intangible assets for the
periods presented:
Gross
Carrying Accumulated Net Carrying Weighted-Average
Amount Amortization Amount Remaining Life
------ ------------ ------ --------------
December 31, 2012:
Capitalized website
development costs $63,250 $(8,630) $54,620 2.60 years
------- ------- ------- ----------
TOTAL $63,250 $(8,630) $54,620 2.60 years
======= ======= ======= ==========
NOTE 4 - STOCKHOLDERS' EQUITY
OPTIONS AND WARRANTS
During July 2012, the Company's shareholders approved its 2012 Stock Option Plan
("the Plan"). Under the Plan, the Company may issue up to 8,250,000 shares at
its discretion. On September 17, 2012, the Company granted 200,000 stock options
to a director of the Company which shall vest on September 17, 2013. The options
expire ten (10) years following the vesting date and carry a strike price of
$0.35
These options were valued using the Black-Scholes model and the following
inputs: 1 year vesting term, 10 year life, volatility of 139.6%, interest rate
of 1.85%, and 0% forfeiture rate. The resulting value was $0.34 per option for a
total value of $68,259. Accordingly, during the three months ended December 31,
2012 and 2011, the Company recognized expense of $17,190 and $-0-, respectively,
for options granted during the years pursuant to ASC Topic 718. Unrecognized
stock option compensation expense of $48,581 at December 31, 2012 will be
recognized during the year ended September 30, 2013.
A summary of the status of the options granted at December 31, 2012 and
September 30, 2012 and changes during the periods then ended is presented below:
December 31, 2012 September 30, 2012
------------------------ -------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
------ -------------- ------ --------------
Outstanding at 200,000 $0.35 -- $ --
beginning of period
Granted -- -- 200,000 0.35
Exercised -- -- -- --
Expired or canceled -- -- -- --
------- ----- ------- -----
Outstanding at end
Of period 200,000 $0.35 200,000 $0.35
======= ===== ======= =====
Exercisable -- $ -- -- $ --
------- ----- ------- -----
The options outstanding at December 31, 2012 and September 31, 2012 have a
weighted average exercise price of $0.35 per share and have a remaining useful
life of 9.72 years.
10
PSYCHIC FRIENDS NETWORK, INC.
(fka: Web Wizard, Inc.)
(A Development Stage Company)
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
December 31, 2012 and September 30, 2012
NOTE 5 - SUBSEQUENT EVENTS
The Company has evaluated events subsequent to the balance sheet date through
the issuance date of these financial statements in accordance with FASB ASC 855
and has determined there are no such events that would require adjustment to, or
disclosure in, the financial statements
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
This report contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. All statements other than
statements of historical fact are "forward-looking statements" for purposes of
federal and state securities laws, including, but not limited to, any
projections of earnings, revenue or other financial items; any statements of the
plans, strategies and objections of management for future operations; any
statements concerning proposed new services or developments; any statements
regarding future economic conditions or performance; any statements or belief;
and any statements of assumptions underlying any of the foregoing.
Forward-looking statements may include the words "may," "could," "estimate,"
"intend," "continue," "believe," "expect" or "anticipate" or other similar
words. These forward-looking statements present our estimates and assumptions
only as of the date of this report. Except for our ongoing securities laws, we
do not intend, and undertake no obligation, to update any forward-looking
statement. Although we believe that the expectations reflected in any of our
forward-looking statements are reasonable, actual results could differ
materially from those projected or assumed in any or our forward-looking
statements. Our future financial condition and results of operations, as well as
any forward-looking statements, are subject to change and inherent risks and
uncertainties. The factors impacting these risks and uncertainties include, but
are not limited to; increased competitive pressures from existing competitors
and new entrants; our ability to efficiently and effectively finance our
operations; deterioration in general or regional economic conditions; adverse
state or federal legislation or regulation that increases the costs of
compliance; ability to achieve future sales levels or other operating results;
the fact that our accounting policies and methods are fundamental to how we
report our financial condition and results of operations, and they may require
management to make estimates about matters that are inherently uncertain; the
psychic services market; our ability to develop a fully-functioning web portal;
changes in U.S. GAAP or in the legal, regulatory and legislative environments in
the markets in which we operate; inability to efficiently manage our operations;
the inability of management to effectively implement our strategies and business
plans; and the other risks and uncertainties detailed in this report.
Throughout this report references to "we", "our", "us", "PFN", "the Company",
and similar terms refer to Psychic Friends Network, Inc.
OVERVIEW
CORPORATE HISTORY AND BACKGROUND
We were incorporated on May 9, 2007 under the laws of the state of Nevada. Our
registered offices are located at 2360 Corporate Circle, Suite 400, Henderson,
NV, 89074-7722 and our sales, customer service and administrative offices are
located at 5209 Wilshire Blvd., Los Angeles, CA 90036. Our website is
www.psychicfriendsnetwork.com.
Our original business was providing web services and products that enabled small
and medium-sized businesses to establish, maintain, promote and optimize their
Internet presence. We were not able to secure sufficient revenue or financing to
continue our original business and this business has been discontinued.
On January 27, 2012 we changed our business to that providing psychic
consultation services under the trade name "The Psychic Friends Network".
12
ACQUISITION OF PSYCHIC FRIENDS NETWORK
On January 27, 2012, we entered into an agreement to acquire certain assets
related to providing psychic consultation services under the trade name "The
Psychic Friends Network". On March 30, 2012 we closed such asset purchase with
PFN Holdings, Inc. pursuant to which we acquired a number of assets related to
providing psychic consultation services under the trade name "The Psychic
Friends Network" in exchange for 50,600,000 shares of our common stock. In
conjunction with this acquisition, our prior sole director and officer Ya Tang
Chao cancelled 50,000,000 shares of our common stock.
In conjunction with the asset purchase, we also entered into a financing
agreement with Right Power Services Ltd., a British Virgin Islands company.
Pursuant to the financing agreement, Right Power Services provided us with a
total of $745,000 in equity financing.
BUSINESS
OUR SERVICES AND PLAN OF OPERATION
We are an entertainment company that plans to provide live psychic advice via
telephone and the internet, as well as daily and weekly horoscopes. We plan to
generate revenue via "per minute'" or "on demand" phone charges as well as
web-based fees. In addition, we are in the process of adding several new
channels to generate revenue, including mobile applications, and internet audio,
video and text chat. Our business is reliant on a large volume of small
customers and, therefore, we are not dependent on any one group of customers.
Our management operated a phone service during the 1990's under the brand "The
Psychic Friends Network". At the peak of its popularity in the 1990's, The
Psychic Friends Network averaged 14,000 calls per day, and the average customer
spent approximately $350-$400 over a 12-month period. Unfortunately, due to
certain legislative and regulatory changes which allowed customers to retain
their phone service while not paying for 900 number charges, the company was
forced to file for bankruptcy reorganization protection in 1998. By 1999, our
officers Mike and Marc Lasky had repurchased all of the material intellectual
property assets from the bankruptcy trustee. These assets were subsequently
transferred to PFN Holdings.
Since we acquired the PFN Holdings' assets, we are in the process of finishing
the development of a new updated commercial ready website as the platform for
our services. In the meantime, we are and will continue to explore the latest
web developments and technology and we may consider a hosted website solution as
a test platform for our services so that we can test marketing and business
continuity options. As a web development company, we will continue to explore
the latest in web technologies and will consider the platforms that meet our
customer demands. The main focus of our website is to capitalize on current
technologies and social media as well as increasing the overall experience for
our customers.
When we commercially launch our website, we anticipate that we will be able to
provide customers with multiple connections to our psychic advisors, including
toll free and click to call telephone services, audio, video and text chat
internet services, and mobile phone applications and SMS services.
Currently, our website is not fully operational, yet it is capable of providing
limited services in the area of connecting customers for one-on-one telephone
calls with psychics. When fully operational, the one-on-one call service is the
core business of The Psychic Friends Network. People can call from the comfort
of their homes, offices, or wherever they choose, and they will be instantly
connected to their favorite Master Psychic, for a confidential reading. Callers
have the option to choose a psychic by category, such as, Tarot, Astrology, Love
& Relationships, Money and Career, Dreams or even Past Lives. They may also
13
choose to speak to the next available psychic or to speak to the same psychic
each time they call, which allows them to establish an ongoing relationship,
simply by calling that psychic's extension. Callers can choose to pay by credit
card, debit card, pay by check, or by using pre-paid Gift Cards. The prices that
we charge are flexible, so that we are able to test multiple pricing points to
see what will optimize profits. We plan to offer first time caller promotional
rates. The key is to get new callers in the door. Historically, we found that
over 65% of our callers end up calling back. We believe this is primarily due to
the stringent selection process we have for choosing the psychics we engage for
our service.
With the advent of new technologies, like Mobile applications, VOIP, and social
media tools, we will be able to offer psychics from all over the world, and
accept international calls from customers. We believe that these technological
improvements will allow us to capture a large audience. As part of the website
we are developing, we will be including a number of services which we were not
previously able to offer. These are currently under development and include:
* ONE-ON-ONE WEB-BASED READINGS: A new feature that we plan to offer is
the ability for customers to connect to their psychic through our new
"Skype" like feature. This means that the customer can log into their
account and in real time check the bios, specialty categories and
availability of all of our psychics. Once they find their account and
then choose their available psychic, they will be able to instantly
chat with that psychic. We plan on integrating the ability to text
chat, audio only chat and video chat. The video chat feature will
allow customers to see the psychics and see the psychic's action, such
as Tarot cards being flipped for the reading. In addition to the
improvement in the customer service experience, this service will also
allow us to increase the efficiency of our scheduling. If the psychic
is unavailable, a customer can actually log in to their account and
schedule a reading in the near future. This is advantageous to the
customer as well as the psychic, who does not have to sit by their
computer and phone, hoping for calls to come in. Like our phone-based
readings, customers will have the option to pay by credit card, debit
card, personal check, or by using pre-paid gift cards. They can choose
to pre-pay for minute packages as well as get discounted monthly
subscription rates. The purchases can be made online or by calling in
over the phone.
* MOBILE APPLICATIONS: Thanks to the advances in mobile technology, we
plan to offer several ways for our customers to get our Psychic
branded content through mobile phones in ways which we were not able
to take advantage of previously. This includes PSMS, Bill to mobile,
and Mobile Applications for the iPhone, Blackberrry and Android based
phones.
* PSMS or Premium SMS, allows the caller to send a text message with our
branded keywords, to our short code. Through this type of service, we
will be able to offer a daily horoscope sent to our customers' mobile
phones. The billing for this service will show up as a monthly item on
their mobile phone invoice. We also plan to offer live psychic advice
through mobile devices that allow users to send a text to one of our
live psychics and receive an immediate reply. We anticipate that we
will be charging $0.99 per message received, also billed directly
through the customer's mobile phone invoice.
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* Bill to Mobile is a new service that we plan to offer, which will
allow our customers to pay via their mobile phone, instead of by
credit card, debit card, or check. This will be a convenient way for
customers to pay for our services, instead of having to find a credit
card or other form of payment.
* We anticipate that mobile applications will become a major part of our
psychic content offerings. We have begun developing various mobile
applications that our customers will be able to download directly from
the application stores on their mobile phones. We plan to offer live
psychic readings, as well a Astrological content. The applications
will be free to download, but after a short free trial, the content
will be paid.
During the 1990's and early 2000's, our management operated Psychic Friends
Network, a company involved in connecting customers for one on one telephone
calls with psychics under the same trademark: "The Psychic Friends Network".
This company only had market presence in the U.S and Canada; made up primarily
of women, 30-60 years old, and skewed towards African Americans. We believe that
the our target market is much larger today, due in part to new technologies like
the Internet, mobile phones and social media. We believe that our new offerings
will expand our market to individuals from 18-65, of all races. This market will
likely still be predominated by women, but we believe that more men will be
interested in our Internet and social media offerings than they would be in one
on one phone interaction. We believe that the market for psychic services is
substantial. An example of the size of the potential market, and also a
potential advertising venue for our services, is a syndicated radio show called
Coast to Coast. The show attracts an estimated 4.5 million listeners every
night, making it the most listened to late night show in North America.
In addition, we can now access customers in international jurisdictions because
of the new technologies that allow anyone to connect directly to one of our
psychics at the push of a button in real time. Additionally, many of the new
markets which will have access to our services, such as China and India, already
have strong traditions or connections to psychic phenomenon.
During the peak of The Psychic Friends Network, the company was averaging 14,000
calls per day, and 90% of the callers were generated through TV advertising.
Currently, there are virtually no psychic phone services being advertised on
television. The few competitors that we have are almost exclusively adverting on
the Internet. This provides us an opportunity to take advantage of a vastly
underserved market.
We plan to advertise and market our services via the following avenues:
INFOMERCIALS - we anticipate that paid advertisements on television/radio will
be used to provide information about our services and direct traffic to our
different mediums.
WEB-BASED ANALYTICS - we plan to use advertisements, social media and search
engine optimization to help inform our target audience as well as make us stand
out from our peers.
WORD OF MOUTH - from historical experience, we believe that our clients will
tend to be repeat customers and friends of past customers. Word of mouth and
positive client experiences are a very important source of marketing and based
on providing a high level of service. With the strength of our brand name both
psychics and customers are very excited about the re-launch.
15
RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations
should be read in conjunction with the unaudited interim financial statements
included herewith. This discussion should not be construed to imply that the
results discussed herein will necessarily continue into the future, or that any
conclusion reached herein will necessarily be indicative of actual operating
results in the future.
FOR THE THREE MONTHS ENDED DECEMBER 31, 2012 AND 2011:
REVENUE
We generated $462 in revenue during the three months ended December 31, 2012 and
no revenue during the three months ended December 31, 2011. The limited revenue
in 2012 was due to some initial psychic service calls we handled while our
website is still reaching full operative mode.
OPERATING EXPENSES
During the three months ended December 31, 2012, total operating expenses for
the Company were $138,398 compared to $8,008 for the three months ended December
31, 2011. The increase in expenses was due to the commencement of business
operations and related payroll, as well as website development and increased
professional fee costs incurred as an operating public company versus a shell
public company.
NET LOSS
Our net loss for the three months ended December 31, 2012 was $138,181 as
compared to a net loss of $8,008 for the three months ended December 31, 2011.
This increase in net loss was due to our increased operating expenses and
limited offsetting revenue.
FROM INCEPTION (MAY 9, 2007) TO DECEMBER 31, 2012:
REVENUE
We generated limited revenues in the amount of $1,896 during the period from May
9, 2007 (inception) to December 31, 2012. Of these, only $462 were revenues were
generated in our operations as Psychic Friends Network.
OPERATING EXPENSES
Total operating expenses for the period from May 9, 2007 (inception) through
December 31, 2012 were $594,061.
NET LOSS
Our accumulative net loss for the period from May 9, 2007 (inception) to
December 31, 2012 was $592,815.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2012, we have yet to generate any material revenues from our
business operations as our website has yet to fully commercially launch.
16
As of December 31, 2012, we had $361,120 in cash and $416,740 in total assets,
of which $54,620 (net of $8,630 accumulated amoritzation) which was due to
website development. Our total liabilities were $27,630.
OFF BALANCE SHEET ARRANGEMENTS
We do not have any off balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity or
capital expenditures or capital resources that is material to an investor in our
securities.
CRITICAL ACCOUNTING POLICIES
The financial statements of the Company have been prepared in accordance with
generally accepted accounting principles in the United States of America.
Because a precise determination of many assets and liabilities is dependent upon
future events, the preparation of financial statements involves the use of
estimates, which have been made using judgment. Actual results may vary from
these estimates.
The financial statements have, in management's opinion, been prepared within the
framework of the significant accounting policies summarized below:
DEVELOPMENT STAGE COMPANY
The Company is considered to be in the development stage, as defined under
Accounting Codification Standard, (ASC 915) "Development Stage Entities". Since
its formation, the Company has not yet realized any revenues from its planned
operations.
RECLASSIFICATIONS
The Company reclassified $4,690 and $19,067 in "Transfer and filing fees"; $-0-
and $1,500 in "Travel and entertainment", to "General and administrative"
expenses for the three months ended December 31, 2011 and for the period from
inception (May 9, 2007) through December 31, 2011, respectively to conform to
the current presentation. The reclassifications had no effect on the Company's
financial condition, results of operation, or cash flows.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid financial instruments purchased with a
maturity of three months or less to be cash equivalents.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
17
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments, consisting of cash and
accounts payable and accrued liabilities, is equal to fair value due to their
short-term to maturity. Unless otherwise noted, it is management's opinion that
the Company is not exposed to significant interest, currency or credit risks
arising from these financial instruments.
REVENUE RECOGNITION
The Company recognizes revenue on an accrual basis. The Company generally earns
revenue through the online sale of service minutes. These purchases obligate the
Company to arrange a telephonic conversation with a designated service provider
of the customers choosing. The Company remits a portion of the fee to the
service provider and retains the balance. At the time of sale, the formal
arrangements are made and the Company has fulfilled its obligation. Furthermore,
the Company's portions of any fees collected are non-refundable. Revenue is
generally realized or realizable and earned when all of the following criteria
are met: 1) persuasive evidence of an arrangement exists between the Company and
our customer(s); 2) services have been rendered; 3) our price to our customer is
fixed or determinable; and 4) collectability is reasonably assured. For the
three months ended December 31, 2012 and 2011, the Company recognized revenues
of $462 and $-0- for which each of the four aforementioned criteria were
satisfied.
PER SHARE DATA
In accordance with "ASC 260 - Earnings per Share", the basic loss per common
share is computed by dividing net loss available to common stockholders by the
weighted average number of common shares outstanding. Diluted loss per common
share is computed similar to basic loss per common share except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if the potential common shares had been issued and
if the additional common shares were dilutive. At December 31, 2012 and
September 30, 2012, the Company had no stock equivalents that were anti-dilutive
and excluded in the loss per share computation.
STOCK-BASED COMPENSATION
The Company records stock based compensation in accordance with the guidance in
ASC Topic 718 which requires the Company to recognize expenses related to the
fair value of its employee stock option awards. This eliminates accounting for
share-based compensation transactions using the intrinsic value and requires
instead that such transactions be accounted for using a fair-value-based method.
Accordingly, the Company recognized expenses of $17,190 and $-0- during the
three months ended December 31, 2012 and 2011, respectively (see Note 4).
WEBSITE DEVELOPMENT COSTS
The Company capitalizes its costs to develop its website and when preliminary
development efforts are successfully completed, management has authorized and
committed project funding, and it is probable that the project will be completed
and the website will be used as intended. Such costs are amortized on a
straight-line basis over the estimated useful life of the related asset, which
approximates three years. Costs incurred prior to meeting these criteria,
together with costs incurred for training and maintenance, are expensed as
incurred. Costs incurred for enhancements that are expected to result in
additional material functionality are capitalized and expensed over the
estimated useful life of the upgrades.
18
The Company capitalized website costs of $16,500 during the three months ended
December 31, 2012. The Company's capitalized website amortization is included in
depreciation and amortization in the Company's consolidated statements of
operations, and totaled $3,127 for the period.
Advertising Costs
Advertising costs are to be expensed as incurred in accordance to Company
policy; for the three months ended December 31, 2012 and 2011, advertising
expenses totaled $11,410 and $0, respectively.
Recent Accounting Pronouncements
Management has evaluated all recent accounting pronouncements issued by the FASB
(including its Emerging Issues Task Force), the American Institute of Certified
Public Accountants, and the SEC did not, or are not believed by management to,
have a material impact on the Company's present or future financial position,
results of operations or cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer (our
principal executive officer, principal financial officer and principle
accounting officer) to allow for timely decisions regarding required disclosure.
As of the end of the quarter covered by this report, we carried out an
evaluation, under the supervision and with the participation of our Chief
Executive Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on that evaluation, our management,
including our Chief Executive Officer have concluded that, as of the end of the
period covered by this report, our disclosure controls and procedures are not
effective in ensuring that information required to be disclosed in our Exchange
Act reports is (1) recorded, processed, summarized and reported in a timely
manner, and (2) accumulated and communicated to our management, including our
Chief Executive Officer, as appropriate to allow timely decisions regarding
required disclosure.
(B) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no significant changes in the Company's internal control over
financial reporting during the three months ended December 31, 2012.
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PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not currently a party to any legal proceedings nor are we aware of any
threatened proceedings against us.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
N/A
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibit
Number Description
------ -----------
31* Certification of Principal Executive Officer and Principal Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32* Certification of Principal Executive Officer and Principal Financial
Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
101* Interactive data files pursuant to Rule 405 of Regulation S-T.
----------
* Filed herewith
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PSYCHIC FRIENDS NETWORK, INC.
Date: February 14, 2013 By: /s/ Marc Lasky
-------------------------------------
Marc Lasky
Chief Executive and Financial Officer
(Principal Executive Officer and
Principal Financial and Accounting
Officer)
21