SEC Company Response from FINANCIALCONTENT INC (CIK 0001100360) — Dec 23, 2005
FINANCIALCONTENT INC (CIK 0001100360)
Date: Dec. 23, 2005 · CIK: 0001100360 · Accession: 0000931731-05-000271
AI Filing Summary & Sentiment
Referenced dates: November 22, 2005
Letter
400 Oyster Point Blvd., Suite 435 South San Francisco, CA 94080 Telephone: 650.837.9850 Facsimile: 650.745.2677 www.financialcontent.com December 22, 2005 Securities and Exchange Commission BY FACSIMILE Division of Corporate Finance TOTAL NO. OF PAGES: 10 Washington, D.C. 20549 FAX NO.: 1-202-772-9205 Attn: Robert Carroll CONFIRMATION BY EDGAR
Re: FinancialContent, Inc. Form 10KSB for Fiscal Year Ended June 30, 2005 Filed October 4, 2005
Dear Mr. Carroll:
I write to respond to your comments in your letter dated November 22, 2005 in regards to the abovereferenced matter.
Item 1. Explanation re change of amortization of CNET contracts:
Under the Asset Purchase Agreement between FinancialContent, Inc. and CNET Networks, Inc. dated July 18, 2005, we acquired the rights to CNET's Private Wire client contracts. In negotiating the purchase of these contracts, CNET disclosed the revenues attributable to each contract, the terms of each contract, and which contracts required the clients consent for assignment. CNET did not, however, disclose the specific names of the clients.
When determining the appropriate useful life of these contracts, we asked ourselves three questions: (1) do we intend and have the ability to renew or extend the contracts?; (2) are there substantial costs associated with the renewal?; and (3) will we make material modifications to the existing contract terms and conditions?
Generally speaking, the initial terms of the contracts we were acquiring had expired and were terminable at-will by the client. Other contracts would require the client approve the assignment of the contract from CNET to us. Prior to closing the transaction with CNET, we had not contacted any of CNET's clients. We were confident, however, in our ability to convert these clients, and assumed we would convert up to 50% of the CNET clients to our service.
Based on these assumptions, we placed an estimated useful life on these intangibles at 3 years. However, the retention rate of these contracts far exceeded our expectations as we have retained approximately 75% of these clients. Accordingly, in asking ourselves the same set of questions as we initially did, we determined that the actual useful life of these contracts should be restated to 5 years.
Item 2. Proposed language re liquidity and capital resources:
To date, we have financed our operations primarily through the revenues earned by FinancialContent Services and equity and debt financing. As of June 30, 2005, we had approximately $17,142 of cash, cash equivalents and short-term investments, and working capital deficit of $598,862. The working capital deficit increased by $356,068 (146.7%) from the previous fiscal year as a result of the Company borrowing $218,100 from a related party and an increase in management fees of $88,708. <PAGE>
Net cash used in operating activities was ($168,332) for the year ended June 30, 2005 compared to ($794,233) for the year ended June 30, 2004. Net loss for the year ended June 30, 2005 was $915,952 compared to $1,673,726 for the same period ended 2004. The decreased loss in net cash used in operating activities of operating losses of $625,901 (78.8%) is primarily the result of using the cash proceeds from the sale of our preferred stock to pay our liabilities during the year ended June 30, 2004 to reduce accounts payable by $81,639, payroll tax liabilities by $218,102, accrued liabilities and expenses by $88,932, and accrued interest by $86,440.
Net cash used in investing activities decreased from $237,469 in 2004 to $27,719, a decrease of $209,750 (88.3%). For the year ended June 30, 2005 we purchased equipment totaling $27,719. For the year ended June 30, 2004, our investing activities consisted of the following: $175,000 in cash to CNet, Inc., for purchasing certain contracts, and $62,469 for purchase of new equipment. The acquisition of the Cnet contracts were considered to be a key for our future growth. The acquisition of these contracts has increased our overall revenue significantly.
For the year ended June 30, 2004, we generated net cash provided by financing activities of $1,034,475. For the year ended June 30, 2005, we generated net cash provided by financing activities of $199,487. Financing activities for the period ended 2005 were primarily a result of advances from related parties. We generated cash for the period ended 2004 primarily through the sale of our series B and C convertible preferred stock.
Over the next twelve months, management is of the opinion that sufficient working capital will be obtained from operations and external financing to meet our operating needs. The following is a discussion of future cash requirements.
Based on annualized first quarter 2005-06 results with organic growth projected at 30%, we project the following income and expenses over the next 12 months:
Operating Revenue 2,192,871
Cost of Sales 367,885 ------------- Gross Operating Profit 1,824,986
Selling, General & Administrative Expense 1,351,165
Management Fees 120,000
Consultant Expense - Stock Issuance 201,400
Research & Development Expense 29,547 ------------- EBITDA - Op Inc Before Depreciation 122,874
Depreciation / Amortization 228,110 ------------- Operating Profit (Loss) After Depreciation (105,236)
-2- <PAGE>
Our future capital requirements depend on numerous factors, including continuing and growing market acceptance of the service offered by FinancialContent Services, and the timing and rate of expansion of FinancialContent Services' business. We believe that our expenditures will continue to increase in the foreseeable future relative to the growth of our business. To ensure the viability and growth of our business, however, we will continue to rely upon external financing as we have in the past. If additional funds are raised through the issuance of equity securities or through convertible notes, dilution to existing shareholders will result.
Item 3. Proposed changes to 8A:
Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period ended June 30, 2005, (the "Evaluation Date"). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the period ended in this report.
Limitations on the Effectiveness of Internal Controls
Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity's disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors or mistakes or intentional circumvention of the established process.
There were no changes in the Company's internal controls over financial reporting, known to the Chief Executive Officer or the Chief Financial Officer that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
-3- <PAGE>
Item 4. Clarification to Consolidated Statement of Operations: <TABLE> <CAPTION>
2005 2004 ----------- ----------- <S> <C> <C> Revenues: Net revenues $ 1,275,899 $ 985,335 Costs of revenues (depreciation is excluded from cost of sales) (279,259) (135,018) ----------- ----------- 996,640 850,317 ----------- -----------
Operating Expenses: Business development 24,355 7,673 General and administrative 1,677,036 2,106,584 Amortization and depreciation 213,380 330,803 ----------- ----------- Total Operating Expenses 1,914,771 2,445,060 ----------- -----------
Loss from Operations (918,131) (1,594,743) ----------- -----------
Other Income (Expense): Gain (loss) on investment 96 (9,465) Settlement of investment agreement -- (146,000) Other income 60,174 54,165 Interest expense (6,948) (72,061) ----------- -----------
Total Other Income(Expense) 53,322 (173,361) ----------- -----------
Net loss before taxes (864,809) (1,768,104)
Provision for income tax (1,600) (1,600) ----------- -----------
Net loss from continuing operations (866,409) (1,769,704) ----------- -----------
Gain on extinguishment of net liabilities of discontinued operations, net of taxes of $0 -- 133,478 ----------- -----------
Net loss (866,409) (1,636,226)
Preferred stock dividend (49,543) (37,500) ----------- -----------
Net loss attributable to common stockholders (915,952) (1,673,726) ----------- -----------
Other comprehensive income: Unrealized gain/(loss) on securities (2,619) 280 ----------- -----------
Comprehensive Loss $ (918,571) $(1,673,446) =========== ===========
Net loss per share from continuing operations (basic and diluted) (0.09) (0.21) Net earnings per share from discontinued operations (basic and diluted) -- 0.02 ----------- ----------- Total loss per share (basic and diluted) $ (0.09) $ (0.19) =========== ===========
Shares used in per share calculation (basic and diluted) 9,817,254 8,895,084 =========== =========== </TABLE>
-4- <PAGE>
Item 5. Proposed language re explanation of revenue recognition:
G. Revenue Recognition
The Company's primary source of revenues is through providing access to financial data (e.g., stock quotes) to other Internet properties on a monthly subscription basis and customization charges which we recognize upon collection. Fees received are amortized over the term of the service contract on a straight line basis. Fees received prior to the delivery of service are recorded as deferred revenue which the Company will then record as revenue when the content is delivered to the customer.
Item 6. Explanation re Foreign Currency and International Operations
We currently have no foreign exchange activity. The $117,509 entry for discontinued operations on our consolidated balance sheet is what we believe to be the fair ultimate settlement value of any outstanding claims from said operations. Additionally, any amount in the translation adjustment of equity upon ceasing foreign operations is not material to ongoing operations or balance sheet as a whole.
Item 7. Explanation re Barter Transactions
In accounting for our barter transactions we relied upon APB Opinion No. 29, "Accounting for Nonmonetary Transactions," which is based on the principle that exchanges of nonmonetary assets should be measured based on fair value of the assets given up or received, whichever is more clearly evident. We base our barter transactions on the market value of the services we given up in the barter exchange.
Attached hereto are the journal entries related to our bartered transactions.
Item 8. Proposed revised presentation re Stock Option Plan
Stock Option Plan (Section 4 of Footnotes)
Show Raw Text
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.txt
<TEXT>
Financial
CONTENT
400 Oyster Point Blvd., Suite 435
South San Francisco, CA 94080
Telephone: 650.837.9850
Facsimile: 650.745.2677
www.financialcontent.com
December 22, 2005
Securities and Exchange Commission BY FACSIMILE
Division of Corporate Finance TOTAL NO. OF PAGES: 10
Washington, D.C. 20549 FAX NO.: 1-202-772-9205
Attn: Robert Carroll CONFIRMATION BY EDGAR
Re: FinancialContent, Inc.
Form 10KSB for Fiscal Year Ended June 30, 2005
Filed October 4, 2005
Dear Mr. Carroll:
I write to respond to your comments in your letter dated November 22, 2005 in
regards to the abovereferenced matter.
Item 1. Explanation re change of amortization of CNET contracts:
Under the Asset Purchase Agreement between FinancialContent, Inc. and CNET
Networks, Inc. dated July 18, 2005, we acquired the rights to CNET's Private
Wire client contracts. In negotiating the purchase of these contracts, CNET
disclosed the revenues attributable to each contract, the terms of each
contract, and which contracts required the clients consent for assignment. CNET
did not, however, disclose the specific names of the clients.
When determining the appropriate useful life of these contracts, we asked
ourselves three questions: (1) do we intend and have the ability to renew or
extend the contracts?; (2) are there substantial costs associated with the
renewal?; and (3) will we make material modifications to the existing contract
terms and conditions?
Generally speaking, the initial terms of the contracts we were acquiring had
expired and were terminable at-will by the client. Other contracts would require
the client approve the assignment of the contract from CNET to us. Prior to
closing the transaction with CNET, we had not contacted any of CNET's clients.
We were confident, however, in our ability to convert these clients, and assumed
we would convert up to 50% of the CNET clients to our service.
Based on these assumptions, we placed an estimated useful life on these
intangibles at 3 years. However, the retention rate of these contracts far
exceeded our expectations as we have retained approximately 75% of these
clients. Accordingly, in asking ourselves the same set of questions as we
initially did, we determined that the actual useful life of these contracts
should be restated to 5 years.
Item 2. Proposed language re liquidity and capital resources:
To date, we have financed our operations primarily through the revenues
earned by FinancialContent Services and equity and debt financing. As
of June 30, 2005, we had approximately $17,142 of cash, cash
equivalents and short-term investments, and working capital deficit of
$598,862. The working capital deficit increased by $356,068 (146.7%)
from the previous fiscal year as a result of the Company borrowing
$218,100 from a related party and an increase in management fees of
$88,708.
<PAGE>
Net cash used in operating activities was ($168,332) for the year ended
June 30, 2005 compared to ($794,233) for the year ended June 30, 2004.
Net loss for the year ended June 30, 2005 was $915,952 compared to
$1,673,726 for the same period ended 2004. The decreased loss in net
cash used in operating activities of operating losses of $625,901
(78.8%) is primarily the result of using the cash proceeds from the
sale of our preferred stock to pay our liabilities during the year
ended June 30, 2004 to reduce accounts payable by $81,639, payroll tax
liabilities by $218,102, accrued liabilities and expenses by $88,932,
and accrued interest by $86,440.
Net cash used in investing activities decreased from $237,469 in 2004
to $27,719, a decrease of $209,750 (88.3%). For the year ended June 30,
2005 we purchased equipment totaling $27,719. For the year ended June
30, 2004, our investing activities consisted of the following: $175,000
in cash to CNet, Inc., for purchasing certain contracts, and $62,469
for purchase of new equipment. The acquisition of the Cnet contracts
were considered to be a key for our future growth. The acquisition of
these contracts has increased our overall revenue significantly.
For the year ended June 30, 2004, we generated net cash provided by
financing activities of $1,034,475. For the year ended June 30, 2005,
we generated net cash provided by financing activities of $199,487.
Financing activities for the period ended 2005 were primarily a result
of advances from related parties. We generated cash for the period
ended 2004 primarily through the sale of our series B and C convertible
preferred stock.
Over the next twelve months, management is of the opinion that
sufficient working capital will be obtained from operations and
external financing to meet our operating needs. The following is a
discussion of future cash requirements.
Based on annualized first quarter 2005-06 results with organic growth
projected at 30%, we project the following income and expenses over the
next 12 months:
Operating Revenue 2,192,871
Cost of Sales 367,885
-------------
Gross Operating Profit 1,824,986
Selling, General & Administrative Expense 1,351,165
Management Fees 120,000
Consultant Expense - Stock Issuance 201,400
Research & Development Expense 29,547
-------------
EBITDA - Op Inc Before Depreciation
122,874
Depreciation / Amortization 228,110
-------------
Operating Profit (Loss) After Depreciation (105,236)
-2-
<PAGE>
Our future capital requirements depend on numerous factors, including
continuing and growing market acceptance of the service offered by
FinancialContent Services, and the timing and rate of expansion of
FinancialContent Services' business. We believe that our expenditures
will continue to increase in the foreseeable future relative to the
growth of our business. To ensure the viability and growth of our
business, however, we will continue to rely upon external financing as
we have in the past. If additional funds are raised through the
issuance of equity securities or through convertible notes, dilution to
existing shareholders will result.
Item 3. Proposed changes to 8A:
Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated
the effectiveness of our disclosure controls and procedures (as such
term is defined in Rules 13a-15 and 15d-15 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of
the period ended June 30, 2005, (the "Evaluation Date"). Based upon
that evaluation, the Chief Executive Officer and the Chief Financial
Officer concluded that our disclosure controls and procedures were
effective as of the period ended in this report.
Limitations on the Effectiveness of Internal Controls
Disclosure controls and procedures, no matter how well designed and
implemented, can provide only reasonable assurance of achieving an
entity's disclosure objectives. The likelihood of achieving such
objectives is affected by limitations inherent in disclosure controls
and procedures. These include the fact that human judgment in
decision-making can be faulty and that breakdowns in internal control
can occur because of human failures such as simple errors or mistakes
or intentional circumvention of the established process.
There were no changes in the Company's internal controls over financial
reporting, known to the Chief Executive Officer or the Chief Financial
Officer that occurred during the most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
-3-
<PAGE>
Item 4. Clarification to Consolidated Statement of Operations:
<TABLE>
<CAPTION>
2005 2004
----------- -----------
<S> <C> <C>
Revenues:
Net revenues $ 1,275,899 $ 985,335
Costs of revenues (depreciation is excluded from cost of sales) (279,259) (135,018)
----------- -----------
996,640 850,317
----------- -----------
Operating Expenses:
Business development 24,355 7,673
General and administrative 1,677,036 2,106,584
Amortization and depreciation 213,380 330,803
----------- -----------
Total Operating Expenses 1,914,771 2,445,060
----------- -----------
Loss from Operations (918,131) (1,594,743)
----------- -----------
Other Income (Expense):
Gain (loss) on investment 96 (9,465)
Settlement of investment agreement -- (146,000)
Other income 60,174 54,165
Interest expense (6,948) (72,061)
----------- -----------
Total Other Income(Expense) 53,322 (173,361)
----------- -----------
Net loss before taxes (864,809) (1,768,104)
Provision for income tax (1,600) (1,600)
----------- -----------
Net loss from continuing operations (866,409) (1,769,704)
----------- -----------
Gain on extinguishment of net liabilities of discontinued
operations, net of taxes of $0 -- 133,478
----------- -----------
Net loss (866,409) (1,636,226)
Preferred stock dividend (49,543) (37,500)
----------- -----------
Net loss attributable to common stockholders (915,952) (1,673,726)
----------- -----------
Other comprehensive income:
Unrealized gain/(loss) on securities (2,619) 280
----------- -----------
Comprehensive Loss $ (918,571) $(1,673,446)
=========== ===========
Net loss per share from continuing operations (basic and diluted) (0.09) (0.21)
Net earnings per share from discontinued operations (basic and diluted) -- 0.02
----------- -----------
Total loss per share (basic and diluted) $ (0.09) $ (0.19)
=========== ===========
Shares used in per share calculation (basic and diluted) 9,817,254 8,895,084
=========== ===========
</TABLE>
-4-
<PAGE>
Item 5. Proposed language re explanation of revenue recognition:
G. Revenue Recognition
The Company's primary source of revenues is through providing access to
financial data (e.g., stock quotes) to other Internet properties on a
monthly subscription basis and customization charges which we recognize
upon collection. Fees received are amortized over the term of the
service contract on a straight line basis. Fees received prior to the
delivery of service are recorded as deferred revenue which the Company
will then record as revenue when the content is delivered to the
customer.
Item 6. Explanation re Foreign Currency and International Operations
We currently have no foreign exchange activity. The $117,509 entry for
discontinued operations on our consolidated balance sheet is what we believe to
be the fair ultimate settlement value of any outstanding claims from said
operations. Additionally, any amount in the translation adjustment of equity
upon ceasing foreign operations is not material to ongoing operations or balance
sheet as a whole.
Item 7. Explanation re Barter Transactions
In accounting for our barter transactions we relied upon APB Opinion No. 29,
"Accounting for Nonmonetary Transactions," which is based on the principle that
exchanges of nonmonetary assets should be measured based on fair value of the
assets given up or received, whichever is more clearly evident. We base our
barter transactions on the market value of the services we given up in the
barter exchange.
Attached hereto are the journal entries related to our bartered transactions.
Item 8. Proposed revised presentation re Stock Option Plan
Stock Option Plan (Section 4 of Footnotes)