UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C., 20549
Form 10-Q/A
(Mark One)
[X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2010
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to _____________
Commission File Number: 333-1418158
PURESPECTRUM, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 41-2233202
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
340 Eisenhower Drive
Building 600, Suite 610
Savannah, Georgia 31406
-----------------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (912) 961-4980
-----------------------
Indicate by check mark whether the Registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 website, if any, every interactive data file required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (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 [ ] 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. (Check one):
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 ]
Common Stock $0.0001 Par Value as of March 31, 2010: 282,000,885 shares issued
and outstanding.
Available Information
---------------------
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K and all amendments to those reports that we file with the Securities
and Exchange Commission, or SEC, are available at the SEC's public reference
room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain
information on the operation of the public reference room by calling the SEC at
1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains
reports, proxy, and information statements and other information regarding
reporting companies. This Amended Quarterly Report of Form 10-Q/A is filed to
correct several entries in (a) the Condensed Statement of Cash Flow (Unaudited)
for the period ended March 31, 2009 and (b) the table setting forth information
about stock options and warrants outstanding at March 31, 2009 and December 31,
2009 formign a part of Note 8 of the Notes to the Condensed Financial
Statements."
TABLE OF CONTENTS
-----------------
Page
----
PART I
ITEM 1. Condensed Financial Statements (unaudited)
Condensed Balance Sheets as of March 31, 2010 and December 31, 2009 1
Condensed Statements of Operations for the Three Months Ended
March 31, 2010 and 2009 2
Condensed Statements of Cash Flows for the Three Months Ended
March 31, 2010 and 2009 3
Condensed Statements of Changes in Stockholders' Deficit for the Period
From December 31, 2009 through March 31, 2010 4
Notes to Condensed Financial Statements 5-8
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 9
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk (Not Applicable) 11
ITEM 4T. Controls and Procedures 11
PART II
ITEM 1. Legal Proceedings 12
ITEM 1A. Risk Factors (Not Applicable) 12
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 12
ITEM 3. Defaults Upon Senior Securities 13
ITEM 4. [Removed and Reserved]
ITEM 5. Other Information 13
ITEM 6. Exhibits 13
SIGNATURES 14
PART I
Item 1. Condensed Financial Statements
PureSpectrum, Inc.
Condensed Balance Sheets
December 31,
March 31, 2010 2009
--------------- ---------------
(Unaudited)
Assets
Current Assets
Cash $ 250 $ 609
Accounts Receivables 3,916 3,146
Inventory 1,269,499 1,121,705
Other Current Assets 52,034 42,529
--------------- --------------
Total Current Assets 1,325,699 1,167,989
Furniture & Equipment, net of accumulated depreciation 236,722 229,237
Other Assets
Patents, net of accumulated amortization 565,880 566,072
Trademarks 145,232 144,672
--------------- --------------
Total Assets $ 2,273,533 $ 2,107,970
=============== ==============
Liabilities and Stockholders' Deficit
Current Liabilities
Checks Drawn In Excess of Bank Balance 110,106 4,706
Accounts Payable 827,625 1,164,927
Accrued Expenses 75,098 106,855
Payroll Liabilities 75,059 64,634
Convertible Debt, current portion, net of discount $366,257 and $62,500, respectively 140,489 276,485
Notes Payable-Related parties, current portion 329,757 266,761
--------------- --------------
Total Current Liabilities 1,558,134 1,884,368
--------------- --------------
Long-term Liabilities
Accounts Payable, satisfied by common stock issuance 454,195 400,000
Accrued expenses, satisfied by common stock issuance - 48,338
Convertible Debt, net of discount of $0 and
$94,000, respectively, satisfied by common stock issuance - 66,000
Notes Payable-Related parties, satisfied by common stock issuance - 18,867
Convertible Debentures, net of discount $922,350 and $1,006,200, respectively 195,650 111,800
--------------- --------------
Total Long-term Liabilities 649,845 645,005
--------------- --------------
Stockholders' Deficit
Preferred Stock, $0.0001 Par Value, 50,000,000 Shares Authorized, No Shares Issued or
Outstanding - -
Common Stock, $0.0001 Par Value, 900,000,000 Shares Authorized, 282,000,885 and
215,455,090 Shares Issued and Outstanding at March 31, 2010 and December 31, 2009,
respectively 28,201 21,546
Additional Paid In Capital 16,560,949 13,875,015
Prepaid Loan Costs - (106,805)
Accumulated Deficit (16,523,596) (14,211,159)
--------------- --------------
Total Stockholders' Deficit 65,554 (421,403)
--------------- --------------
Total Liabilities and Stockholders' Deficit $ 2,273,533 $ 2,107,970
=============== ==============
The accompanying notes are an integral part of the condensed financial statements.
1
PureSpectrum, Inc.
Condensed Statements of Operations (Unaudited)
For the three months ended March 31,
2010 2009
----------- -----------
Revenues $ 9,079 $ -
Cost of Goods Sold 6,497 -
----------- -----------
Gross Profit on Sales $ 2,582 $ -
----------- -----------
Expenses
Share Based Compensation 262,738 -
Research and Development 131,743 168,092
Other General and Administrative Expenses 1,210,756 1,156,389
----------- -----------
Total Expense 1,605,237 1,324,481
----------- -----------
Net Loss from Operations (1,602,655) (1,324,481)
----------- -----------
Other (Expense) Income
Interest Income - 1
Interest Expenses (709,782) (134,016)
----------- -----------
Total Other (Expense) Income (709,782) (134,015)
----------- -----------
Net Loss $(2,312,437) $(1,458,496)
=========== ===========
Weighted Average Basic & Fully
Diluted Outstanding Shares 222,189,477 165,972,413
Basic & Fully Diluted Loss per Share $ (0.01) $ (0.01)
The accompanying notes are an integral part of the condensed financial
statements.
2
PureSpectrum, Inc.
Condensed Statements of Cash Flow (Unaudited)
For the three months ended March 31
2010 2009
--------------- -----------------
Operating activities
Net loss $ (2,312,437) $ (1,458,496)
--------------- -----------------
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 11,681 2,988
Share based compensation 262,738 -
Amortization of detachable warrants issued with convertible debt 378,410 74,010
Amortization of the beneficial conversion feature 173,864 51,083
Services exchanged for common stock 135,000 242,400
Stock issued for commitment fee collateral 250,000
Amortization of prepaid loan costs 106,805 -
Loss on disposal of assets - 2,854
(Increase) decrease in:
Accounts receivables (770) -
Inventory 7,310 -
Other current assets (9,506) (12,378)
Increase (decrease) in:
Accounts payable (240,027) 83,871
Accrued expenses 15,773 204,386
Payroll liabilities 10,425 (24,999)
--------------- -----------------
Total adjustments 1,101,703 624,215
--------------- -----------------
Net cash used by operating activities (1,210,734) (834,281)
--------------- -----------------
Investing Activities
Purchase of furniture and equipment (17,718) (90,052)
--------------- -----------------
Net cash used by investing activities (17,718) (90,052)
--------------- -----------------
`
Cash Flows from Financing Activities
Increase in Checks Drawn in Excess of Bank Balance 105,400 -
Proceeds from borrowing 218,000 250,000
Deferred stock sales - 394,500
Repayment of borrowing (5,000) -
Proceeds from issuance of common stock 329,593 390,000
Proceeds from exercise of options and warrants 580,100 -
--------------- -----------------
Net cash provided by financing activities 1,228,093 1,034,500
--------------- -----------------
Net (Decrease) Increase in Cash (359) 120,205
Cash at Beginning of Period 609 312
--------------- -----------------
Cash at End of Period $ 250 $ 120,517
--------------- -----------------
Supplemental disclosures of cash flow information and
noncash investing and financing activities:
Debt and accrued interest converted to common stock $ 221,979 $ -
--------------- -----------------
Satisfaction of accounts payable through issuance of common stock $ 200,000 $ -
--------------- -----------------
Cancellation of PSPM shares not exchanged for PSRU shares $ 7 $ -
--------------- -----------------
Detachable warrants issued with convertible debt $ 271,763 $ 96,750
--------------- -----------------
Beneficial conversion feature of convertible debt $ 406,416 $ 153,250
--------------- -----------------
Property and equipment additions included in accounts payable $ 422 $ -
--------------- -----------------
Inventory additions included in accounts payable $ 155,104 $ -
--------------- -----------------
Intangible asset additions included in accounts payable $ 1,394 $ 188,990
--------------- -----------------
The accompanying notes are an integral part of the condensed financial statements.
3
PureSpectrum, Inc.
Condensed Statements of Changes in Stockholders' Deficit
For the Period From December 31, 2008 through March 31, 2010
Additional Prepaid Total
Common Common Paid Loan Accumulated Stockholders'
Shares Amount in Capital Costs Deficit Deficit
------------------------------------------------------------------------------------
Balance - December 31, 2008 161,576,019 $ 161,576 $ 6,509,750 $ - $ (6,895,273) $ (223,947)
Effect of C-Reorganization on 12/31/08
balance as a result of a change in par value of
common stock from $0.001 to $0.0001 - (145,418) 145,418 -
Stock Issued for Cash 13,757,446 1,376 2,380,556 2,381,932
Stock Issued for Services 15,100,000 1,510 489,490 491,000
Share Based Compensation - - 770,342 770,342
Stock Issued upon Exercise of Warrants &
Options 20,018,190 2,002 537,492 539,494
Warrants issued with Beneficial Conversion
Feature associated with convertible debt - - 2,579,408 2,579,408
Stock issued for convertible debentures
redeemed 2,879,999 288 431,712 432,000
Stock issued to debt conversion 123,436 12 30,847 30,859
Effect of C-reorganization on common stock,
additional paid in capital and stockholders
deficit 2,000,000 200 - 200
Prepaid Loan Costs (213,611) (213,611)
Less: Amortization 106,806 106,806
Net Loss - - - (7,315,886) (7,315,886)
-------------------------------------------------------------------------------------
Balance - December 31, 2009 215,455,090 $ 21,546 $ 13,875,015 $ (106,805) $(14,211,159) $ (421,403)
Stock Issued for Cash (Unaudited) 12,571,312 1,257 328,336 329,593
Stock Issued for Services (Unaudited) 2,616,667 262 134,738 135,000
Share Based Compensation (Unaudited) 262,738 262,738
Issuance of warrants and BCF associated with
convertible debt (Unaudited) 678,179 678,179
Stock issued upon exercise of warrants and
options (Unaudited) 19,694,662 1,970 578,130 580,100
Stocks issued upon accounts payable and
debt conversion (Unaudited) 21,498,564 2,150 419,829 421,979
Stock issued upon redemption of convertible
debentures (Unaudited) 233,333 23 34,977 35,000
Stock issued for commitment fee collateral
(Unaudited) 10,000,000 1,000 249,000 250,000
Amortization of Prepaid Loan Costs
(Unaudited) 106,805 106,805
Cancellation of expired stock (Unaudited) (68,743) (7) 7 -
Net Loss (Unaudited) ( 2,312,437) ( 2,312,437)
-------------------------------------------------------------------------------------
Balance - March 31, 2010 (Unaudited) 282,000,885 $ 28,201 $ 16,560,949 $ - $(16,523,596) $ 65,554
=====================================================================================
The accompanying notes are an integral part of the condensed financial statements.
4
NOTES TO CONDENSED FINANCIAL STATEMENTS (unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements were prepared in accordance with
instructions for Form 10-Q and, therefore, do not include information or
footnotes necessary for a complete presentation of financial condition, results
of operations, and cash flows in conformity with U.S. generally accepted
accounting principles (US GAAP). All adjustments, consisting of normal recurring
accruals, which, in the opinion of management, are necessary for fair
presentation of the financial statements, have been included. The results of
operations for the period ended March 31, 2010, are not necessarily indicative
of the results which may be expected for the entire fiscal year or for any other
period. For further information, refer to the financial statements and footnotes
thereto for the year ended December 31, 2009 included in PureSpectrum Inc.'s
Form 10-K.
Certain prior year amounts have been reclassified to conform to the 2010
presentation.
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
The Company's management does not believe that recent codified pronouncements by
the Financial Accounting Standards Board (FASB) will have a material impact on
the Company's current or future financial statements.
NOTE 3 - SUMMARY OF ORGANIZATION
PureSpectrum, Inc. (the "Company"), formerly International Medical Staffing,
Inc., is a Delaware corporation incorporated on March 21, 2007. The Company is
in the business of developing, marketing, licensing, and contract manufacturing
of lighting technology for use in residential, commercial, and industrial
applications worldwide.
The Company is authorized to issue 950 million shares, consisting of (a) 900
million shares of common stock, par value $0.0001 per share and (b) 50 million
shares of preferred stock, par value $0.0001 per share, which may be issuable in
one or more series. Each common share is entitled to one vote and shareholders
have no preemptive or conversion rights. As of March 31, 2010, and December 31,
2009, there were 282,000,885 and 215,455,090 common shares issued and
outstanding, respectively. The Company's Board of Directors may, without further
action by the shareholders, direct the issuance of preferred stock for any
proper corporate purpose with preferences, voting powers, conversion rights,
qualifications, special or relative rights and privileges which could adversely
affect the voting power or other rights of shareholders of common stock. As of
March 31, 2010, and December 31, 2009, there were no shares of the Company's
preferred stock issued or outstanding.
NOTE 4 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with US
GAAP, which contemplate continuation of the Company as a going concern and the
realization of assets and liquidation of liabilities in the normal course of
business. The Company has incurred net losses from operations of $2,312,437 for
the three months ended March 31, 2010. In addition, at March 31, 2010, the
Company has an accumulated deficit of $16,523,596 and negative working capital
of $232,435
These factors, among others, raise substantial doubt about the Company's ability
to continue as a going concern.
The Company recorded its first revenues in October 2009 and is no longer a
development stage company. The Company has not yet generated sufficient working
capital to support its operations. The Company's ability to continue as a going
concern is dependent, among other things, on its ability to minimize costs,
enter into revenue generating contracts and obtain additional revenues to
eventually attain a profitable level of operations.
The Company has been engaged in developing, marketing, licensing, and contract
manufacturing of fluorescent lighting technology for use in residential,
commercial, and industrial applications worldwide. There can be no assurance
that the Company will be successful in the commercialization of the fluorescent
lighting technology that will generate sufficient revenues to sustain the
operations of the Company.
5
Management plans to obtain additional capital investments to enable the Company
to continue operations and increase revenues in 2010. There is no assurance that
management will be able to successfully generate revenue and/or reduce expenses
sufficient to attain profitability, or continue to attract the capital necessary
to support the business.
NOTE 5 - NET LOSS PER SHARE
Basic net loss per share is computed by dividing net loss attributable to
commons shareholders by the weighted average number of common shares outstanding
for the period, without consideration for common stock equivalents. Diluted net
loss per share reflects the potential dilution that could occur if securities
were exercised or converted into common stock using the treasury stock method.
Diluted net loss per share is computed by dividing the net loss by the weighted
average number of common share equivalents outstanding for the period determined
using the treasury-stock method. For purposes of this calculation, convertible
preferred stock, stock options and warrants are considered to be common stock
equivalents and are only included in the calculation of diluted net loss per
share when their effect is dilutive.
Three months ended
March 31,
-----------------------------
2010 2009
------------- -------------
Actual
Numerator:
Net loss attributable to common stockholders $ (2,312,437) $ (1,458,496)
============= =============
Denominator:
Weighted average common shares 222,189,477 165,972,413
============= =============
Basic net loss per common share $ (0.01) $ (0.01)
============= =============
Historical outstanding anti-dilutive securities not included in diluted net loss per
share calculation
Convertible debt 31,311,942 1,152,074
Common stock options 7,115,713 39,844,158
Common stock warrants 15,000,000 7,500,000
------------- -------------
53,427,655 48,496,232
============= =============
NOTE 6 - NOTES PAYABLE - RELATED PARTIES
Notes payable consist of the following:
March 31, 2010 December 31, 2009
----------------- -------------------
Notes payable, unsecured, to officer at 5% interest, payable upon demand $ 35,400 $ 35,400
Note payable, unsecured, to shareholder at 5% interest, payable upon demand 26,250 26,250
Note payable, unsecured, to officer at 12% interest, payable upon demand,
satisfied by common stock issuance - 18,867
Note payable, unsecured, to officer at 5% interest, payable upon demand 268,107 205,111
----------------- -------------------
329,757 285,628
Less current portion 329,757 266,761
----------------- ------------------
Long-term portion - 18,867
----------------- ------------------
6
NOTE 7 - CONVERTIBLE DEBT
Convertible debt consists of the following:
March 31, 2010 December 31, 2009
--------------- -----------------
Convertible notes issued to investors, net of discount of $0
and $125,000, as of March 31, 2010 and December 31, 2009,
respectively $ 125,000 $ 125,000
Convertible note issued to investor, net of discount of
$231,746 and $0, as of March 31, 2010 and December 31, 2009,
respectively - 213,985
Convertible note issued to an investor, net of discount of
$134,511 as of March 31, 2010 15,489 -
Convertible debentures issued to investors, net of discount of
$922,350 and $1,037,700, as of March 31, 2010 and December
31, 2009, respectively 195,650 115,300
--------------- -----------------
336,139 454,285
Less current portion 140,489 276,485
--------------- -----------------
Long-term portion 195,650 177,800
=============== =================
NOTE 8 - OPTIONS AND WARRANTS
Options and warrants generally vest immediately upon grant. The Company has
historically issued warrants related to raising capital. As of March 31, 2010,
the Company has 7,115,713 options outstanding and exercisable and 15,000,000
warrants outstanding and exercisable.
Information about stock options and warrants outstanding at March 31, 2010 and
December 31, 2009 is summarized below:
Information about stock options and warrants outstanding at March 31, 2010 and
December 31, 2009 is summarized below:
Weighed Average Exercise Weighed Average Remaining
Shares Price Per Share Contractual Life
------------------------- ------------------------ -------------------------
Stock Stock Stock
Warrants Options Warrants Options Warrants Options
------------------------- ------------------------ -------------------------
Outstanding at December 31, 2009 17,500,000 15,980,713 0.73 0.14 3.37 2.85
Granted 13,000,000 6,550,000 0.88 0.04 3.30 -
Exercised (11,500,000) (8,625,000) 0.03 0.03 2.60 2.80
Cancelled or Expired (4,000,000) (6,790,000) 1.25 0.06 - 2.90
------------------------- ------------------------ -------------------------
Outstanding at March 31, 2010 15,000,000 7,115,713 1.25 0.23 3.88 2.96
Exercisable at March 31, 2010 15,000,000 7,115,713 1.25 0.23 3.88 2.96
========================= ======================== =========================
The weighted average assumptions used to value stock based compensation in
connection with the disclosure for warrants and stock options under the FASB
Accounting Standards Codification Topic 718, "Compensation - Stock
Compensation," are as follows for the period ended March 31, 2010:
Warrants Options
-------- -------
Risk free interest rate 2.0% 2.2%
Expected term 3.60 years 2.51 years
Expected dividend yield 0.0% 0.0%
Expected Volatility 54.3% 54.3%
7
NOTE 9 - OPERATING LEASES AND OTHER COMMITMENTS AND CONTINGENCIES
Rental of office space and data processing equipment under operating leases were
approximately $23,907 and $18,371 for the three months ended March 31, 2010 and
2009, respectively.
NOTE 10 - RELATED PARTY TRANSACTIONS
A member of the Board of Directors is also a partner in the firm that functions
as the Company's primary outside legal counsel. During the three months ended
March 31, 2010, the firm billed the Company $14,200 in legal fees.
In January 2010, an officer provided $68,000 in loans to and was repaid
approximately $5,000 by the Company. The loans are payable upon demand and
accrue interest at 5% per annum payable quarterly.
NOTE 11 - SUBSEQUENT EVENTS
On April 1, 2010, the Company issued an Amended and Restated Secured Convertible
Promissory Note which amended the Note issued to the same party in January 2009
in the amount of $125,000 plus an additional $150,000 The note is secured by
the Company's tangible and intangible assets (other than patents and
trademarks). In conjunction with the issuance of the note, the Company issued
to the lender four year stock purchase warrants as follows: 3,000,000 with an
exercise price of $1.00 per share, 3,000,000 with an exercise price of $1.25 per
share, and 3,000,000 with an exercise price of $1.50 per share. As of May 10,
2010, all debt has been converted to 15,876,623 shares of common stock.
In April 2010, the Company issued 12,638,888 shares of common stock in exchange
for the cancellation of a $275,000 promissory note which had been issued in
recognition of an account payable balance due to certain vendors.
On April 14, 2010, the Company was sued by a vendor who alleged that the Company
failed to pay $179,690 for certain marketing and advertising services rendered
during 2009. At March 31, 2010, a total of $179,195 is included in the accounts
payable balance. On May 11, 2010, the company issued a promissory note for
$190,000 in recognition of this balance plus interest and attorney fees, which
was then cancelled in exchange for 14,615,384 shares of common stock.
On April 21, 2010, the Company issued an Amended and Restated Secured
Convertible Promissory Note in the amount of $75,000. The note is due October
21, 2010 and is convertible at any time after April 21, 2010 to common stock at
50% of the average daily closing prices of the Company's stock for the five
consecutive trading days before the conversion date, but not to exceed $0.25 per
share and not to be lower than $0.001 per share. The note is secured by the
Company's tangible and intangible assets (other than patents and trademarks). In
conjunction with the issuance of the note, the Company issued to the lender four
year stock purchase warrants as follows: 1,000,000 with an exercise price of
$1.00 per share, 1,000,000 with an exercise price of $1.25 per share, and
1,000,000 with an exercise price of $1.50 per share.
On April 30, 2010, the Company issued a Secured Convertible Promissory Note in
the amount of $75,000. The note is due October 29, 2010 and is convertible at
any time after April 30, 2010 to common stock at 50% of the average daily
closing prices of the Company's stock for the five consecutive trading days
before the conversion date, but not to exceed $0.25 per share and not to be
lower than $0.001 per share. The note is secured by the Company's tangible and
intangible assets (other than patents and trademarks). In conjunction with the
issuance of the note, the Company issued to the lender four year stock purchase
warrants as follows: 1,000,000 with an exercise price of $1.00 per share,
1,000,000 with an exercise price of $1.25 per share, and 1,000,000 with an
exercise price of $1.50 per share.
8
ITEM 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
From time to time, including in this quarterly report, the Company or its
representatives have made and may make forward-looking statements, orally or in
writing, including those contained herein. Such forward-looking statements may
be included in, without limitation, reports to stockholders, press releases,
oral statements made with the approval of an authorized executive officer of the
Company and filings with the Securities and Exchange Commission. The words or
phrases "anticipates," "expects," "will continue," "believes," "estimates,"
"projects," or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The results contemplated by the Company's forward-looking statements
are subject to certain risks and uncertainties that could cause actual results
to vary materially from anticipated results, including without limitation,
material availability and cost of materials, especially steel, availability and
cost of labor, demand for the Company's products, competitive conditions
affecting selling prices and margins, capital costs and general economic
conditions. Such risks and uncertainties are discussed in more detail in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2009.
The Company's forward-looking statements represent its judgment only on the
dates such statements were made. By making any forward-looking statements, the
Company assumes no duty to update them to reflect new, changed or unanticipated
events or circumstances.
Plan of Operation
During the first quarter of 2010, the Company continued its efforts to develop,
identify and introduce high-quality, high-performance dimmable energy efficient
lighting products, including multiple styles and wattages of Compact Fluorescent
Lamps (CFL), dimmable electronic ballasts for linear fluorescent fixtures (LFL),
dimmable LFLs and wireless lighting control systems for continuous dimming in
LFLs. This product combination of CFL bulbs and LFL products is designed to
address both the residential/retail consumer market and the
commercial/industrial retrofit and new installation markets, both of which seek
a combination of energy efficiency, reliable dimming capability and dependable
longevity.
As previously reported, in the fall of 2009, we broadened our product
development strategy from our effort to commercialize strictly proprietary CFLs
and LFL products to include high performance CFL and LFL products and
technologies made or developed by other manufacturers. As of the date of this
report, nine of our proprietary CFLs and three of our proprietary LFL ballasts
are undergoing UL testing. In addition during the first quarter of 2010, we
introduced several new nonproprietary products and established critical
relationships with distributors and retailers within the lighting market. More
specifically, we sold our first CFL offering, a non-proprietary 20-watt dimmable
bulb, through online sources such as Amazon.com and thus far have received
generally exemplary customer reviews while experiencing very few product
returns. Through marketing and selling the 20-watt dimmable CFL, we believe that
we have elevated awareness of the importance of dimming for energy efficient
lighting with the view to positioning our brand as a leader in the dimmable
energy efficient lighting category. Also, in preparation for the completion and
introduction of the Company's full product line, we have disseminated pricing
and terms/conditions for purchase to distributors nationwide. During the first
quarter of 2010, the Company continued its preparation for large volume sales by
finalizing a third party logistics agreement with Ferguson Enterprises, designed
to guarantee timely nationwide fulfillment of purchase orders going forward.
With respect to the LFL products market, during the first quarter of 2010, we
have undertaken to build relationships within the commercial/industrial
marketplace by submitting multiple bids for retrofits and new installation
projects utilizing our initial LFL product offerings, a step dimming ballast and
dimming LFL fixtures. As large commercial/industrial facilities continue to
search for greater energy efficiency, demand for dimmable LFLs is expected to
continue to grow giving us a chance to be recognized as a leading provider of
dimmable energy efficient commercial/industrial lighting.
These initiatives require time and working capital. As a result, the Company has
yet to experience the sales volume that was anticipated during the first quarter
of 2010. There is no assurance that the Company's expanded product development
strategy will ultimately be successful in generating sufficient revenues to
finance operations going forward, including the efforts to bring to market
proprietary products.
9
Results of Operations
Revenues
For the three months ended March 31, 2010, we recognized $9,079 in revenues
compared to no revenues for the three months ended March 31, 2009. Expenses
Expenses
For the three months ended March 31, 2010, our expenses were $1,605,237 compared
with $1,324.481 for the three months ended March 31, 2009. These expenses were
primarily comprised of professional and consulting fees ($389,877 for 2010
compared to $421,175 for 2009), compensation ($326,703 for 2010 compared to
$199,517 for 2009), research and development expenses ($131,743 for 2010
compared to $168,092 for 2009), other general and administrative expenses
($331,553 for 2010 compared to $84,057 for 2009), as well as share based
compensation ($262,738 for 2010 compared to an expense of $0 for 2009). The
increases in most categories reflect an overall expansion of our business in
2010 in an effort to bring proprietary products to market and identifying,
evaluating and entering into agreements to purchase and resell non-proprietary
products.
Net Income (loss)
For the three months ended March 31, 2010, our net loss was $2,312,437 compared
with a net loss of $1,458,496 for the three months ended March 31, 2009. This
was due to the overall expansion of the company as discussed above.
Liquidity and Capital Resources
Our balance sheet as of March 31, 2010 shows that we had $250 cash on hand. As
of March 31, 2010, our current assets were $1,325,699 and our current
liabilities were $1,558,134, resulting in negative working capital of $232,435.
Assuming that the average monthly sales volume of our products during the first
quarter of 2010 continues for the rest of 2010, we estimate that we will require
approximately $4,500,000 to fund our operations for the calendar year 2010.
During this quarter, we have raised approximately $1,128,000 through the
exercise of warrants and the sale of shares of common stock and convertible
notes in private placements. There is no assurance that we will be able to
obtain the necessary funds required for continued operations. There is no
assurance that additional financing will be available to us when needed or if
available, that it can be obtained on commercially reasonable terms. If we are
not able to obtain additional financing on a timely basis, we will not be able
to meet our obligations as they become due and we will be forced to decrease or
cease operations. The issuance of additional equity securities by us could
result in significant dilution in the equity interests of our current
stockholders. Obtaining additional loans, including commercial loans, assuming
those loans would be available, will increase our liabilities and future cash
commitments.
Going Concern
Our financial statements contain a note regarding concern about our ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of that uncertainty.
Off Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely
to have a current or future effect on our financial condition, changes in our
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date the financial statements and the reported amounts of
revenue and expenses during the period. Accordingly, actual results could differ
from those estimates. Note 1 of the "Notes to Financial Statements" in our
annual report on Form 10-K for the year ended December 31, 2009, includes a
summary of the significant accounting policies and methods used in the
preparation of our financial statements. For the period ended March 31, 2010,
there were no significant changes to our critical accounting policies.
10
ITEM 3. - Quantitative And Qualitative Disclosures About Market Risk
Not applicable.
ITEM 4(T). - Controls and Procedures.
(a) Disclosure Controls and Procedures.
As of March 31, 2010, under the supervision and with the participation of the
Company's Chief Executive Officer and Acting Chief Financial Officer, management
has evaluated the effectiveness of the design and operations of the Company's
disclosure controls and procedures. Based on that evaluation, the Chief
Executive Officer and Acting Chief Financial Officer concluded that the
Company's disclosure controls and procedures were not effective as of March 31,
2010 as a result of the material weakness in internal control over financial
reporting discussed below.
(b) Changes in Internal Control over Financial Reporting.
No change in the Company's internal control over financial reporting occurred
during the three months ended March 31, 2010, that materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting, except that on March 21, 2010, Gregory J. McLean, the
Company's Chief Financial Officer, had resigned and was replaced by Susan W.
Norton as Acting Chief Financial Officer.
Management's Report on Internal Control over Financial Reporting.
The Company's management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal control over
financial reporting is a process designed by, or under the supervision of, our
Chief Executive Officer and Vice President of Administration and Chief Financial
Officer to provide reasonable assurance regarding the reliability of our
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America. Internal control over financial reporting includes
policies and procedures that (i) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the Company's transactions; (ii)
provide reasonable assurance that transactions are recorded as necessary for
preparation of our financial statements and that receipts and expenditures of
the Company's assets are made in accordance with authorizations of our
management and directors; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
is not intended to provide absolute assurance that a misstatement of the
Company's financial statements would be prevented or detected.
The Company's management conducted an evaluation of the effectiveness of our
internal control over financial reporting as of March 31, 2010 using the
criteria set forth in the Internal Control over Financial Reporting - Guidance
for Smaller Public Companies issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based upon the evaluation, Management concluded that
the Company's internal control over financial reporting was not effective as of
March 31, 2010, because of material weaknesses in its internal control over
financial reporting. A material weakness is a control deficiency that results in
a more than remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected on a timely basis
by employees in the normal course of their assigned functions. Management
concluded that we have several material weaknesses in our internal control over
financial reporting because of inadequate segregation of duties over
authorization, review and recording of transactions as well as the financial
reporting of such transactions. Due to the Company's limited resources,
management has not developed a plan to mitigate the above material weaknesses.
Despite the existence of these material weaknesses, we believe the financial
information presented herein is materially correct and in accordance with the
generally accepted accounting principles.
11
PART II
ITEM 1. - Legal Proceedings
As of March 31, 2010, the Company was not involved in any legal proceedings. As
described in Note 11 to the financial Statements included in this Report, the
complaint filed by a vendor on April 14, 2010, was settled as of May 11, 2010.
ITEM 1A. Risk Factors
Not applicable.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
On January 11, 2010, a $18,867 loan, together with $11,075 in interest,
previously made by an officer to the Company, was converted into 732,380 shares
of the Company's common stock. These shares of common stock were issued in a
transaction exempt from registration under Section 4(2) of the Securities Act of
1933, as amended (the "Securities Act").
As previously reported, on February 5, 2010, the Company entered into a
preferred stock purchase agreement with Socius Capital Group, LLC ("Socius").
In connection therewith, the Company issued to Socius 10,000,000 shares of
common stock in payment of a $250,000 commitment fee. These shares of common
stock were issued in a transaction exempt from registration under Section 4(2)
of the Securities Act.
On March 9, 2010, March 29, 2010 and March 31, 1010, respectively, the Company
issued 1,485,714, 7,765,235 and 1,515,235 shares of common stock, respectively,
in exchange for the cancellation of promissory notes in the amounts of $73,771,
$155,305 and $30,305, respectively, each of which had been issued in recognition
of an account payable balance due to a vendor. These shares of common stock
were issued in transactions exempt from registration under Section 3(a)(9) of
the Securities Act.
On March 12, 2010 the Company issued a secured convertible promissory note in
the principal amount of $150,000. The note is due September 12, 2010 and is
convertible at any time after September 12, 2010 to common stock at 50% of the
average daily closing prices of the Company's stock for the five consecutive
trading days before the conversion date, but not to exceed $0.25 per share. The
note is secured by the Company's tangible and intangible assets (other than
patents and trademarks). In conjunction with the issuance of the note, the
Company issued to the lender four year stock purchase warrants as follows:
3,000,000 with an exercise price of $1.00 per share, 3,000,000 with an exercise
price of $1.25 per share, and 3,000,000 with an exercise price of $1.50 per
share. These warrants were issued in a transaction exempt from registration
under Section 4(2) of the Securities Act.
On March 18, 2010, the Company issued 2,100,000 and 100,000 shares of common
stock, respectively, in exchange for services rendered. These shares were
issued in transactions exempt from registration under section 4(2) of the
Securities Act.
On March 29, 2010, the Company issued 10,000,000 shares of common stock in
exchange for the forgiveness of $300,000 in indebtedness. These shares were
issued in a transaction exempt from registration under Section 4(2) of the
Securities Act.
On March 29, 2010, the Company issued 8,571,429 shares of common stock for
$150,000 in cash. These shares were issued in a transaction exempt from
registration under Section 4(2) of the Securities Act.
12
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4 - [Removed and Reserved]
ITEM 5. - Other Information
There is no information that was required to be disclosed by the Company on Form
8-K during the first quarter of 2010, that was not reported.
ITEM 6. - Exhibits
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32.1 Certifications of the Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has caused this amended report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PURESPECTRUM, INC.
By: /s/ Lee L. Vanatta By: /s/ Susan W. Norton
--------------------------------------- ----------------------------------------------
Lee L. Vanatta Susan W. Norton
President and Chief Executive Officer Vice President and Acting Chief Financial Officer
(Principal Executive Officer) (Principal Financial and Accounting Officer)
DATE: May 26, 2010
14