Quest Resource Holding Corp quarterly report, Q2 FY2012

Business context and reporting period

This is YouChange Holdings Corp.’s Form 10-Q for the quarter and six months ended December 31, 2011 (fiscal 2012 second quarter), with comparative periods ended December 31, 2010. The filing describes a development-stage e-waste technology and services venture, developing a consumer website and electronic tracking system and planning to earn revenue through refurbishment, resale, recycling, and partner services. The filing identifies the registrant as YouChange Holdings Corp., not Quest Resource Holding Corp.; verify that this is the intended filing.

Financial performance and position

At December 31, cash was $5,269, total assets $287,346, and current liabilities $253,518. Management reported a working-capital deficit of approximately $231,032. Total liabilities were $278,518, versus $188,928 at June 30, 2011. The balance sheet reports $25,000 of short-term notes payable, $13,126 of short-term convertible notes net of discount, $25,000 of long-term convertible notes, and $65,500 of related-party notes and advances payable. Shareholders’ equity was $8,828.

Changes, outlook, risks, and unusual items

• Revenue began in fiscal 2012, but remained minimal; the company characterized operations as limited and the business as still in development. Six-month net loss narrowed year over year, while operating cash use increased modestly. Six-month financing cash inflow was $113,000, compared with $233,000 a year earlier; cash fell from $66,264 at June 30 to $5,269.
• Management stated it needs approximately $500,000 to continue the proposed business and maintain reporting-company status over the next 90–120 days, and at least $1.0 million to establish a base of operations and execute its business plan. Funding is expected from debt or equity, but success and acceptable terms are not assured. Failure to obtain capital could force cessation of operations; equity funding could dilute shareholders.
• The filing raises substantial doubt about the company’s ability to continue as a going concern. Management says it may defer obligations, which could lead vendors to demand advance payment or stop supplying services.
• Two notes were reported in default as of the filing: a $10,000 convertible note issued in October 2011 and a $25,000 note issued in November 2011. A separate $37,500 balance due to former BSFG shareholders remained unpaid; the company reported a verbal waiver of default.
• The company held approximately $96,000 in secured advances to Feature Marketing, bearing 24% interest, and management believed they were fully collectible. The Feature Marketing acquisition had been rescinded; the company retained a fulfillment agreement.
• Other items: $29,500 of software development costs were capitalized during the six months; 436,337 shares were issued upon conversion of notes and accrued interest, alongside other share issuances for services. The company reported no legal proceedings and no material changes to previously disclosed risk factors. Management considered disclosure controls effective.

Important facts for investors to verify

• Whether this YouChange Holdings Corp. filing is actually the intended filing for Quest Resource Holding Corp.
• Current cash runway, financing progress, and the company’s ability to raise the stated funding amounts.
• Status, repayment terms, and consequences of the two reported defaults and the overdue BSFG balance.
• Collectability and repayment schedule for Feature Marketing advances, and the assumptions supporting management’s no-allowance assessment.
• Whether reported early revenue can scale into sustainable operations, and the timing and cost to complete the e-waste tracking platform and partner network.