Item 1. Financial Statements.
AMERICA’S SUPPLIERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
255,200
|
|
|
$
|
378,069
|
|
Certificates of deposit
|
|
|
51,135
|
|
|
|
251,133
|
|
Accounts receivable
|
|
|
265,861
|
|
|
|
312,811
|
|
Inventory
|
|
|
158,066
|
|
|
|
45,620
|
|
Prepaid expenses and other current assets
|
|
|
231,192
|
|
|
|
218,576
|
|
Total current assets
|
|
|
961,454
|
|
|
|
1,206,209
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
372,918
|
|
|
|
393,276
|
|
Deposits and other assets
|
|
|
37,250
|
|
|
|
37,250
|
|
Total assets
|
|
$
|
1,371,622
|
|
|
$
|
1,636,735
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,141,111
|
|
|
$
|
1,275,244
|
|
Accrued expenses and other current liabilities
|
|
|
178,959
|
|
|
|
158,161
|
|
Accrued taxes
|
|
|
231,174
|
|
|
|
-
|
|
Line of credit
|
|
|
150,000
|
|
|
|
-
|
|
Total current liabilities
|
|
|
1,701,244
|
|
|
|
1,433,405
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
Preferred stock $0.001 par value, 1,000,000 shares authorized, no shares outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001 par value, 50,000,000 shares authorized, 13,970,339 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively
|
|
|
13,970
|
|
|
|
13,970
|
|
Additional paid in capital
|
|
|
6,744,491
|
|
|
|
6,743,799
|
|
Accumulated deficit
|
|
|
(7,088,083
|
)
|
|
|
(6,554,439
|
)
|
Total stockholders' equity (deficit)
|
|
|
(329,622
|
)
|
|
|
203,330
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity (deficit)
|
|
$
|
1,371,622
|
|
|
$
|
1,636,735
|
|
See accompanying notes to unaudited condensed
consolidated financial statements.
AMERICA’S SUPPLIERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(unaudited)
|
|
Three Months Ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,106,203
|
|
|
$
|
3,094,349
|
|
Advertising revenue
|
|
|
79,688
|
|
|
|
138,028
|
|
Cost of goods sold
|
|
|
(2,100,222
|
)
|
|
|
(2,050,427
|
)
|
Gross profit
|
|
|
1,085,669
|
|
|
|
1,181,950
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
767,223
|
|
|
|
779,145
|
|
General and administrative
|
|
|
851,808
|
|
|
|
657,125
|
|
Total operating expenses
|
|
|
1,619,031
|
|
|
|
1,436,270
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(533,362
|
)
|
|
|
(254,320
|
)
|
Other income (expense)
|
|
|
(848
|
)
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(534,210
|
)
|
|
|
(254,263
|
)
|
Income tax benefit
|
|
|
566
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(533,644
|
)
|
|
$
|
(254,263
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.02
|
)
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
13,970,339
|
|
|
|
13,970,339
|
|
See accompanying notes to unaudited condensed
consolidated financial statements.
AMERICA’S SUPPLIERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(unaudited)
|
|
Three Months Ended March 31,
|
|
|
|
2014
|
|
|
2013
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(533,644
|
)
|
|
$
|
(254,263
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
36,266
|
|
|
|
35,115
|
|
Bad debt expense
|
|
|
2,907
|
|
|
|
8,708
|
|
Stock-based compensation
|
|
|
692
|
|
|
|
2,032
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
44,043
|
|
|
|
(102,948
|
)
|
Inventory
|
|
|
(112,446
|
)
|
|
|
5,791
|
|
Prepaid and other current assets
|
|
|
(12,616
|
)
|
|
|
50,582
|
|
Accounts payable
|
|
|
(134,133
|
)
|
|
|
(472,325
|
)
|
Accrued expenses
|
|
|
20,798
|
|
|
|
37,117
|
|
Accrued taxes
|
|
|
231,174
|
|
|
|
-
|
|
Deferred revenue
|
|
|
-
|
|
|
|
4,159
|
|
Net cash used in operating activities
|
|
|
(456,959
|
)
|
|
|
(686,032
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Maturities of certificates of deposit
|
|
|
199,998
|
|
|
|
-
|
|
Purchases of property and equipment
|
|
|
(15,908
|
)
|
|
|
(6,496
|
)
|
Net cash provided by (used in) investing activities
|
|
|
184,090
|
|
|
|
(6,496
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activity
|
|
|
|
|
|
|
|
|
Proceeds from line of credit
|
|
|
150,000
|
|
|
|
50,000
|
|
Net cash provided by financing activity
|
|
|
150,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
(122,869
|
)
|
|
|
(642,528
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
378,069
|
|
|
|
777,650
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
255,200
|
|
|
$
|
135,122
|
|
See accompanying notes to unaudited condensed
consolidated financial statements.
AMERICA’S SUPPLIERS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
Note 1: Organization and Basis of Presentation
Background
On December 14, 2009, America’s Suppliers,
Inc. (“ASI” or the “Company”) was incorporated under the laws of the State of Delaware. ASI is an internet-based
provider of general merchandise through its wholly-owned subsidiaries, DollarDays International, Inc. (“DollarDays”)
and WowMyUniverse Inc. (“Wow”). DollarDays is a wholesaler of general merchandise to small independent resellers through
its website, www.DollarDays.com. Wow is a retailer of general merchandise that focuses its business on sales to retail consumers
through its website, www.WowMyUniverse.com. Orders are placed by customers through the websites of DollarDays and Wow, and upon
receiving full payment for those orders, the related merchandise is shipped directly to the customer by third-party suppliers.
Basis of Presentation
In the opinion of management, the accompanying
unaudited condensed consolidated financial statements include all adjustments, consisting of only normal recurring accruals, necessary
for a fair statement of financial position, results of operations and cash flows. The information included in this Quarterly Report
on Form 10-Q (this “Quarterly Report”) should be read in conjunction with the consolidated financial statements and
the accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 Annual
Report”). The accounting policies are described in the “Notes to the Consolidated Financial Statements” in the
2013 Annual Report and have been updated, as necessary, in this Quarterly Report. The year-end consolidated balance sheet data
presented for comparative purposes was derived from audited consolidated financial statements, but does not include all disclosures
required by accounting principles generally accepted in the United States (“GAAP”). The results of operations for the
three months ended March 31, 2014 are not necessarily indicative of the operating results for the full year or for any other subsequent
interim period.
Note 2: Summary of Significant Accounting
Policies
Revenue Recognition
Revenue is recognized when the four criteria
for revenue recognition are met: (1) persuasive evidence of an arrangement exists; (2) shipment or delivery has occurred; (3) the
price is fixed or determinable; and (4) collectability is reasonably assured. Cash payments received in advance of product
shipment are deferred as reflected as a deferred revenue liability in the accompanying consolidated balance sheets. Allowances
for sales returns and discounts are recorded as a component of revenues in the period the allowances are recognized.
All amounts billed to customers for shipping
and handling costs are included in revenues in the consolidated statements of operations. Actual shipping costs incurred
are reflected as a component of the cost of goods sold in the accompanying consolidated statements of operations. Total
shipping expense included in cost of goods sold for the three months ended March 31, 2014 and 2013 was $424,705 and $413,909, respectively.
The Company has evaluated the provisions
of GAAP Accounting Standards Codification Topic 605-45 regarding reporting revenue gross as a principal or net as an agent, noting
that the task force determined that it is a matter of judgment and a preponderance of the evidence as to whether a company satisfies
the gross versus net indicators. As a result of its analysis, the Company has determined that it qualifies for gross
revenue recognition.
Advertising revenue is recognized as the
service is provided on our websites.
Accounts Receivable
Accounts receivable represent amounts earned
but not collected in connection with the Company’s revenues. Trade receivables are carried at their estimated collectible
amounts and generally consist of amounts due from credit card transactions.
The Company follows the allowance method
of recognizing uncollectible accounts receivable. The allowance method recognizes bad debt expense as a percentage of accounts
receivable based on a review of individual accounts outstanding, and prior history of uncollected accounts receivable. The allowance
for doubtful accounts at March 31, 2014 and December 31, 2013 was, in both instances, $0 as the Company expected to collect substantially
all amounts due. Bad debt expense was $2,907 and $8,708 for the three months ended March 31, 2014 and 2013, respectively.
The Company follows the allowance method
of recognizing sales returns. The allowance method recognizes sales returns as a percentage of sales based on a prior history of
sales returns. The allowance for sales returns at March 31, 2014 and December 31, 2013 was, in both instances, $0. Expenses for
sales returns for the three months ended March 31, 2014 and 2013 was $57,319 and $57,415, respectively.
Note
3: Going concern
The
Company incurred a net loss of $533,644 for the period ended March 31, 2014 and has an accumulated deficit of $7,088,083, and
limited
liquid resources as at March 31, 2014. In addition,
due to the potential obligations arising from the initial results of a tax audit conducted by the State of Arizona, (see Note
5), the Company may need to identify additional sources of outside funding to fund its on-going operations. As such, there is
substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities
that might result should the Company be unable to continue as a going concern.
Note 4: Fair Value of Financial Instruments
Fair value measurements are performed in
accordance with the guidance provided by GAAP Accounting Standards Codification Topic 820 (“ASC 820”). ASC 820 defines
fair value as the price that would be received from selling an asset, or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters
or derived from such prices or parameters. Where observable prices or parameters are not available, valuation models are applied.
ASC 820 establishes a fair value hierarchy
that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair
value. Assets and liabilities recorded at fair value in the financial statements are categorized based upon the hierarchy of levels
of judgment associated with the inputs used to measure their fair value. Hierarchical levels directly related to the amount of
subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:
Level 1 – Quoted prices
in active markets for identical assets or liabilities that an entity has the ability to access.
Level 2 – Observable inputs
other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted
prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can
be corroborated by observable market data.
Level 3 – Unobservable
inputs that are supportable by little or no market activity and that are significant to the fair value of the asset or liability.
The Company’s financial instruments
include cash and cash equivalents, certificates of deposit and short term receivables and payables. The carrying value of these
instruments approximates fair value due to the short-term nature of such instruments.
Note 5: Accrued Taxes
The Arizona Department of Revenue
(the “Department”) has advised ASI of the initial results of the Sales and Use Tax Audit it conducted of each of
DollarDays and Wow. The Department proposed that each of DollarDays and Wow owed additional Sales and Use Tax for certain
periods, and together owed approximately $231,100 for back taxes, penalties, and interest. The Company has accrued a tax
liability for additional Sales and Use taxes that may be assessed and ultimately deemed owing by the Department in the
aggregate amount of $231,100 for the tax periods from December 1, 2009 through November 30, 2013. The Company does not
believe that DollarDays and Wow underpaid or underreported their tax obligations to the extent set forth in the
Department’s initial conclusion. While the Company may resolve the tax audit and ultimately may be assessed with a
lesser tax obligation than that set forth in the Department’s initial assessment, the Company has accrued for the total
possible liability in the three month period ended March 31, 2014.
Note 6: Line of Credit and Related
Party Payments
The Company had a line of credit with a major financial institution
totaling $225,000, which expired on March 26, 2014. The Company is in discussions with the financial institution to potentially
extend the maturity date of the line of credit; however it is not expected that the line of credit will be extended or otherwise
renewed. If the line of credit is not extended or otherwise renewed, the Company intends to satisfy all outstanding obligations
under the line of credit with its existing cash reserves. As of March 31, 2014 and December 31, 2013 the balance outstanding,
was $150,000 and $0, respectively on this line of credit. Interest expense recorded during the three months ended March 31, 2014
and 2013 was $431 and $0, respectively. This line of credit is personally guaranteed (the “Guarantee”) by Christopher
Baker, the Chairman of the Board of Directors of the Company. In November 2013, the Company agreed to make quarterly payments to
Mr. Baker for the Guarantee. Each quarterly payment will equal 1.5% of the total available amount under the line of credit, or
$3,375, and will be made for each quarter in the immediately following quarter (collectively, the “Quarterly Payments”).
Notwithstanding the foregoing, the initial payment made to Mr. Baker equaled $10,125 and constituted consideration for Mr. Baker’s
providing the Guarantee from March 26, 2013 through December 31, 2013. This initial payment was made to Mr. Baker in the fourth
quarter of the 2013 fiscal year.
If the line of credit is extended beyond the maturity
date and Mr. Baker agrees to continue providing the Guarantee for any such extended term, the Company intends to continue making
the Quarterly Payments to Mr. Baker.
Note 7: Equity Compensation
Stock Options
The Company has historically granted stock
options to certain of its suppliers and employees, and in connection with certain financing transactions.
The following table summarizes the Company’s
stock option activity during the three months ended March 31, 2014:
|
|
Number of Units
|
|
|
Weighted-
Average Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual Term
(in years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2013
|
|
|
1,018,086
|
|
|
$
|
0.22
|
|
|
|
2.4
|
|
|
$
|
15,350
|
|
Grants
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeitures / Expired
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercises
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2014
|
|
|
1,017,086
|
|
|
$
|
0.19
|
|
|
|
2.1
|
|
|
$
|
66,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable at March 31, 2014
|
|
|
954,786
|
|
|
$
|
0.20
|
|
|
|
2.1
|
|
|
$
|
59,324
|
|
The Company recognized expenses relating
to stock option awards of $692 and $2,032 during the three months ended March 31, 2014 and 2013, respectively. The Company’s
future expense relating to unvested option awards (net of estimated forfeitures) is $3,347 as of March 31, 2014, and will be recognized
over a weighted average period of 1.5 years.
The following table sets forth exercise
prices of outstanding options at March 31, 2014.
Exercise
|
|
Number of
Shares
|
|
|
|
|
Price
|
|
Outstanding
|
|
|
Exerciseable
|
|
|
|
|
|
|
|
|
$0.12 - $0.20
|
|
$
|
1,016,086
|
|
|
$
|
953,786
|
|
7.50
|
|
$
|
1,000
|
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,017,086
|
|
|
|
954,786
|
|
A summary of the status of the Company’s
nonvested shares as of March 31, 2014, and changes during the three months ended March 31, 2014, is presented below:
Nonvested Shares
|
|
Shares
|
|
|
Weighted-
Average Grant-
Date Fair Value
|
|
December 31, 2013
|
|
|
104,600
|
|
|
$
|
0.052
|
|
Granted
|
|
|
|
|
|
|
|
|
Vested
|
|
|
(42,300
|
)
|
|
|
|
|
March 31, 2014
|
|
|
62,300
|
|
|
$
|
0.082
|
|
Warrants
The following table summarizes the Company’s
warrant activity for the three months ended March 31, 2014:
|
|
Number of Units
|
|
|
Weighted-
Average Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual Term
(in years)
|
|
|
Intrinsic
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2013
|
|
|
450,000
|
|
|
$
|
0.19
|
|
|
|
2.0
|
|
|
$
|
3,000
|
|
Forfeitures
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercises
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2014
|
|
|
450,000
|
|
|
$
|
0.19
|
|
|
|
1.8
|
|
|
$
|
25,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exerciseable at March 31, 2014
|
|
|
450,000
|
|
|
$
|
0.19
|
|
|
|
1.8
|
|
|
$
|
25,500
|
|
The following table sets forth exercise
prices of outstanding warrants at March 31, 2014:
Exercise Price
|
|
|
Number of
Shares
|
|
$
|
0.18
|
|
|
|
150,000
|
|
$
|
0.20
|
|
|
|
300,000
|
|
|
|
|
|
|
450,000
|
|
Note
8: Net Loss Per Share
Basic net loss per share is computed based
on the weighted average number of common shares outstanding and excludes any potential dilution. Diluted loss per share excludes
the potential dilution from the exercise or conversion of securities into common stock as such amounts are antidilutive. Accordingly,
basic net loss per common share is equal to diluted net loss per common share for the three months ended March 31, 2014 and 2013,
respectively.
The following potentially dilutive securities
were excluded from the computation of diluted net loss per shares for the three months ended March 31, 2014 and 2013, as the effects
were antidilutive:
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
1,017,086
|
|
|
|
998,086
|
|
Warrants
|
|
|
450,000
|
|
|
|
1,722,628
|
|
Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations.
Forward-Looking Information
Unless otherwise indicated, the terms
“America’s Suppliers,” the “Company,” “we,” “us” and “our” refer
to America’s Suppliers, Inc. and its subsidiaries.
The statements contained in this Quarterly
Report that are not historical fact are forward-looking statements (as such term is defined in the Private Securities Litigation
Reform Act of 1995), within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, which include statements regarding our plans, strategies, objectives, expectations, intentions
and resources. The forward-looking statements contained herein are based on current expectations that involve a number of risks
and uncertainties. These statements can be identified by the use of forward-looking terminology such as “believes,”
“expects,” “may,” “will,” “should,” “intend,” “plan,” “could,”
“is likely” or “anticipates,” or the negative thereof, or other variations thereon or comparable terminology,
or by discussions of strategy that involve risks and uncertainties. These forward-looking statements are not historical facts but
only predictions. No assurances can be given that the future results indicated, whether expressed or implied, will be achieved.
While sometimes presented with numerical specificity, these projections and other forward-looking statements are based upon a variety
of assumptions relating to the business of the Company, which, although considered reasonable by the Company, may not be realized.
Because of the number and range of assumptions underlying the Company’s projections and forward-looking statements, many
of which are subject to significant uncertainties and contingencies that are beyond the reasonable control of the Company, some
of the assumptions inevitably will not materialize, and unanticipated events and circumstances may occur subsequent to the date
of this report. These forward-looking statements are based on current expectations and the Company assumes no obligation to update
this information. Therefore, the actual experience of the Company and the results achieved during the period covered by any particular
projections or forward-looking statements may differ substantially from those projected. Consequently, the inclusion of projections
and other forward-looking statements should not be regarded as a representation by the Company or any other person that these estimates
and projections will be realized, and actual results may vary materially. There can be no assurance that any of these expectations
will be realized or that any of the forward-looking statements contained herein will prove to be accurate.
You should not place undue reliance
on forward-looking statements because they involve known and unknown risks, uncertainties, and other factors that are, in some
cases, beyond our control and that could materially affect actual results, levels of activity, performance or achievements. Factors
that could materially affect our actual results, levels of activity, performance or achievements include, but are not limited to,
those detailed under the caption “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December
31, 2013, as filed with the Securities and Exchange Commission on March 24, 2014 and include, but are not limited to, the following
items:
|
·
|
the risk factors included in this report, including the Arizona Department of Revenue tax audit
and the potential that the Company may determine to de-register its common stock under the Securities Exchange Act of 1934, as
amended;
|
|
·
|
adverse changes in the cost of, or demand for our goods and services;
|
|
·
|
availability of capital and credit at commercially reasonable terms and conditions and our ability
to meet cash needs;
|
|
·
|
any inability to achieve, or continue to sustain, our expected levels of operating performance;
and
|
|
·
|
increases in competition.
|
If any of these risks or uncertainties
materialize, or if our underlying assumptions prove to be incorrect, actual results may vary significantly from what we projected.
Overview
America’s Suppliers, Inc. develops
software programs that allow the Company to provide general merchandise to resale businesses and retail consumers through the websites
of its wholly-owned subsidiaries, DollarDays International Inc. (“DollarDays”) and WowMyUniverse Inc. (“Wow”).
The websites for DollarDays and Wow are www.DollarDays.com and www.WowMyUniverse.com, respectively.
DollarDays’ objective is to provide a one-stop, discount,
on-line shopping destination for general merchandise for smaller distributors, retailers and non-profit organizations nationwide
that are seeking single and small cased-sized lots at bulk prices. We launched the DollarDays website to sell merchandise in October
2001. The site offers customers an opportunity to shop for bargains conveniently, while offering our suppliers an alternative sales
channel. We believe the DollarDays website offers a unique benefit to smaller businesses in that they are able to purchase goods
from wholesalers and importers in single and small case-sized lots, with no minimum purchase requirements, at discounted prices.
We believe the prevailing reason DollarDays has been able to obtain bulk pricing for single case-sized lots is its ability to reach
smaller distributors, retailers and non-profit organizations that most general merchandise suppliers cannot economically reach.
We provide all the logistics and customer support to serve this sales channel and grow DollarDays’ customer base.
We continually add new products to DollarDays’ website
in order to create an atmosphere that encourages customers to visit frequently and purchase products before the available inventory
sells out. Through its on-line catalog, DollarDays offers approximately 270,000 products, including up to 10,000 closeout items
at further discounted prices. Closeout merchandise is typically available in inconsistent quantities and prices.
We accept orders, either online or via
telephone, collect payment in the form of credit or debit card, PayPal or similar means, and coordinate with manufacturers, importers
and closeout specialists regarding delivery particulars. PayPal refers to the online payment platform located at www.paypal.com
and its localized counterparts. Our proprietary software and service procedures allow us to sell merchandise to a single
customer, and bill as a singer order, items purchased and delivered from multiple suppliers. We do not take possession
of inventory, but we are responsible for processing customer claims and returns.
DollarDays’ website has a registered
base of approximately 230,000 small businesses and receives approximately 3 million monthly page views. We receive an
average of approximately 5,000 orders per month. Our target customers are smaller businesses and not-for-profit companies.
During 2010, we established a majority-owned
subsidiary to develop a retail online business to sell directly to consumers. Later in 2010 Wow became a wholly owned subsidiary.
We experienced limited sales through test marketing in 2010 and early 2011 and Wow engaged in limited operations until 2011 when
it then began full operations. To date Wow has generated limited revenues and we are continuing to evaluate our options as we consider
efforts to potentially expand its business.
Results of Operations
Revenue
Revenue
|
|
2014
|
|
|
2013
|
|
|
Change from
Prior Year
|
|
|
Percent Change
from Prior Year
|
|
Three Months Ended
|
|
$
|
3,106,203
|
|
|
$
|
3,094,349
|
|
|
$
|
11,854
|
|
|
|
0.4
|
%
|
Revenues for the three months ended March
31, 2014, were comparable with revenues for the three months ended March 31, 2013.
Advertising Revenue
Advertising Revenue
|
|
2014
|
|
|
2013
|
|
|
Change from
Prior Year
|
|
|
Percent Change
from Prior Year
|
|
Three Months Ended
|
|
$
|
79,688
|
|
|
$
|
138,028
|
|
|
$
|
(58,340
|
)
|
|
|
(42.3
|
)%
|
Advertising revenues decreased during the
three months ended March 31, 2014 as compared to the three months ended March 31, 2013 due primarily to a decrease in advertisers
who do not target DollarDays’ core customer base.
Cost of Goods Sold
Cost of Goods Sold
|
|
2014
|
|
|
2013
|
|
|
Change from
Prior Year
|
|
|
Percent Change
from Prior Year
|
|
Three Months Ended
|
|
$
|
2,100,222
|
|
|
$
|
2,050,427
|
|
|
$
|
49,795
|
|
|
|
2.4
|
%
|
Cost of goods sold increased during the
three months ended March 31, 2014 as compared to the three months ended March 31, 2013, due primarily to increased revenues derived
from heavy discounting early in 2014. Gross margin as a percentage of revenue, excluding advertising revenue, was 32.4% and 33.7%
for the three months ended March 31, 2014 and March 31, 2013, respectively.
Factors that may influence the cost of
goods sold include our general sales volume, negotiated terms with suppliers and general economic conditions.
Sales and Marketing
Sales and Marketing
|
|
2014
|
|
|
2013
|
|
|
Change from
Prior Year
|
|
|
Percent Change
from Prior Year
|
|
Three Months Ended
|
|
$
|
767,223
|
|
|
$
|
779,145
|
|
|
$
|
(11,922
|
)
|
|
|
(1.5
|
)%
|
Sales and marketing expense includes fees
for attracting users to our sites, including search engine optimization, telemarketing and other marketing efforts as well as promotional
activities to increase sales by end users. Sales and marketing expenses for the three months ended March 31, 2014 were comparable
to the three months ended March 31, 2013.
Factors influencing sales and marketing
expenses include strategic decisions with respect to the cost-effectiveness of each of our marketing activities.
General and Administrative
General and Administrative
|
|
2014
|
|
|
2013
|
|
|
Change from
Prior Year
|
|
|
Percent Change
from Prior Year
|
|
Three Months Ended
|
|
$
|
851,808
|
|
|
$
|
657,125
|
|
|
$
|
194,683
|
|
|
|
29.6
|
%
|
General and administrative expenses include
management fees, salaries and other compensation expenses, rent, utilities, general office expenses, insurance and other costs
necessary to conduct business operations.
General and administrative expenses increased
in the three months ended March 31, 2014 as compared to the three months ended March 31, 2013 due to an increase of approximately
$225,000 in accrued other taxes attributable to the State of Arizona tax assessment, partially offset by a decrease in (i) insurance
costs of approximately $14,000, (ii) professional services of approximately $6,500, (iii) bad debt expense of approximately $5,800
and (v) other expenses of approximately $4,000,
Factors that influence the amount of general
and administrative expenses include the amount and extent by which we compensate our consultants, executives and directors with
stock-based or other compensation, the rate of growth of our business and the extent to which we outsource or bring certain activities
in-house.
Other Income (Expense)
Other Income (Expense)
|
|
2014
|
|
|
2013
|
|
|
Change from
Prior Year
|
|
|
Percent Change
from Prior Year
|
|
Three Months Ended
|
|
$
|
(848
|
)
|
|
$
|
57
|
|
|
$
|
(905
|
)
|
|
|
(1587.7
|
)%
|
Other expense for the three months ended
March 31, 2014 consisted of interest expense on the line of credit of $431, and a commitment fee charged on the line of credit
of $417. Other income for the three months ended March 2013 consisted of interest income on cash balances and short-term investments.
Net Loss
Net loss
|
|
2014
|
|
|
2013
|
|
|
Change from
Prior Year
|
|
|
Percent Change
from Prior Year
|
|
Three Months Ended
|
|
$
|
(533,644
|
)
|
|
$
|
(254,263
|
)
|
|
$
|
(279,381
|
)
|
|
|
109.9
|
%
|
Net loss for the three months ended March
31, 2014 increased as compared to the net loss incurred for the three months ended March 31, 2013. This increase in net loss is
primarily due to a decrease in net revenue and an increase in cost of goods sold, and general and administrative costs, partially
offset by a decrease in sales and marketing costs, each of which is described above.
Liquidity and Capital Resources
Our operating cash outflows were $456,959
for the three months ended March 31, 2014, as compared to outflows of $686,032 for the three months ended March 31, 2013, constituting
a decrease in cash used by operations of $229,073. The change in net operating cash outflows is attributable to an increase in
net loss of $279,381, an increase in inventory of $118,237, a decrease in prepaid and other assets of $63,198, partially offset
by a decrease in accounts receivable of $146,991, an increase in accounts payable and accrued expense of $321,873, an increase
in accrued taxes of $231,174, and other minor changes in non-cash charges and operating assets and liabilities.
Investing
cash inflows for the three months ended March 31, 2014 consisted of $199,998 of cash received from the maturities of certificates
of deposit, offset by $15,908 of purchases of equipment to support our business operations. Investing cash outflows for the three
months ended March 31, 2013 consisted of $6,496 of purchases of equipment.
Financing inflows for the three months
ended March 31, 2014 and March 31, 2013 consisted of the proceeds from draws upon a line of credit in the amount of $150,000 and
$50,000, respectively.
The Company has negative working
capital of $739,790 as of March 31, 2014 as compared to $227,196 as of December 31, 2013. In April 2014, the Company was
advised by the Arizona Department of Revenue (the “Department) that the Department had conducted a Sales and Use Tax
Audit with respect to each of DollarDays and Wow, and its initial conclusion was that DollarDays and Wow had additional tax
obligations, which together with interest and penalties, totaled approximately $231,100. If the Company is unable to
demonstrate to the Department that DollarDays and Wow did not significantly underpay or under-report their respective tax
obligations and either company is required to pay significant additional tax obligations, such payment obligations will
likely significantly strain the Company’s financial resources and could result in the Company having to significantly
decrease its business operations. Although we hope to continue to grow revenues from our existing business and improve our
operation margins, we cannot guarantee that we will generate sufficient operating cash flows to fund our planned activities
and current and potential obligations. We cannot be sure that additional financing will be available when needed, or that, if
available, financing will be obtained on terms favorable to us or our stockholders. Having insufficient funds may require us
to delay, scale back or eliminate some or all of our operating efforts than we would otherwise choose. If we raise additional
funds by incurring new debt obligations, the terms of the debt will likely require significant cash payment obligations as
well as covenants and specific financial ratios that may restrict our ability to operate our business.
Off-balance sheet arrangements
We did not have any off-balance sheet arrangements
at March 31, 2014.