UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
[X] |
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2013
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[ ] |
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT |
For the transition period from ________ to ________
Commission File Number: 000-52635
ACCELERIZE NEW MEDIA, INC.
(Exact name of registrant as specified in its charter)
|
Delaware |
20-3858769 |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
2244 WEST COAST HIGHWAY, SUITE 250
NEWPORT BEACH,
CALIFORNIA 92663
(Address of principal executive offices)
(949) 515 2141
(Registrant’s Telephone Number, including Area Code)
Indicate by check mark whether the registrant (1) has 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 Web site, 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 [X] No [ ]
Indicate by check mark whether the registrant is 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.
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Large accelerated filer ☐ |
Accelerated filer ☐ |
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Non-accelerated filer ☐ (Do not check if smaller reporting company) |
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]
The number of shares outstanding of the registrant’s Common Stock, $0.001 par value per share, as of August 7, 2013, was 56,863,791.
When used in this quarterly report, the terms “Accelerize,” “the Company,” “ we,” “our,” and “us” refer to Accelerize New Media, Inc., a Delaware corporation.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
This quarterly report on Form 10-Q contains certain forward-looking statements. Forward-looking statements may include our statements regarding our goals, beliefs, strategies, objectives, plans, including product and service developments, future financial conditions, results or projections or current expectations. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or "continue," the negative of such terms, or other comparable terminology. These statements are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause actual results to be materially different from those contemplated by the forward-looking statements. These factors include, but are not limited to, our ability to implement our strategic initiatives, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. The business and operations of Accelerize New Media, Inc. are subject to substantial risks, which increase the uncertainty inherent in the forward-looking statements contained in this report. Except as required by law, we undertake no obligation to release publicly the result of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Further information on potential factors that could affect our business is described under “Item 1A. Risk Factors” in our annual report on Form 10-K as filed with the Securities and Exchange Commission, or the SEC, on March 7, 2013. Readers are also urged to carefully review and consider the various disclosures we have made in this report and in our annual report on Form 10-K.
ACCELERIZE NEW MEDIA, INC.
INDEX
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Page | |
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PART I - FINANCIAL INFORMATION: |
1 | |
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Item 1. |
Financial Statements (Unaudited) |
1 |
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Item 2. |
Management’s Discussion and Analysis And Results of Operations |
16 |
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Item 4. |
Controls and Procedures |
23 |
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PART II - OTHER INFORMATION: |
23 | |
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| Item 5. | Other Information | 23 |
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Item 6. |
Exhibits |
23 |
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SIGNATURES |
24 | |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ACCELERIZE NEW MEDIA, INC. CONSOLIDATED BALANCE SHEETS June 30, December 31, ASSETS 2013 2012 (Unaudited) Current Assets: Cash Accounts receivable, net of allowance for bad debt of $25,394 and $18,208 Prepaid expenses and other assets Total current assets Property and equipment, net of accumulated depreciation of $66,755 and $38,918 Note receivable, net of original issuance discount of -0- and $62,000 Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses Deferred revenues Convertible notes payable and accrued interest Notes payable and accrued interest, net of debt discount of $3,435 and $21,293 Total current liabilities Stockholders' Equity: Common stock; $0.001 par value; 100,000,000 shares authorized; 56,820,291 and 55,992,605 issued and outstanding Additional paid-in capital Accumulated deficit Accumulated other comprehensive loss Total stockholders’ equity Total liabilities and stockholders’ equity
(1)
$
906,640
$
231,926
869,140
673,818
100,517
42,783
1,876,297
948,527
90,876
52,297
-
88,000
$
1,967,173
$
1,088,824
$
241,704
$
284,526
51,255
24,616
176,244
176,244
49,819
123,081
519,022
608,467
56,820
55,991
16,939,865
16,267,461
(15,547,339
)
(15,843,095
)
(1,195
)
-
1,448,151
480,357
$
1,967,173
$
1,088,824
(1) Derived from audited financial statements
See Notes to Unaudited Consolidated Financial Statements.
ACCELERIZE NEW MEDIA, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Three-month periods ended Six-month periods ended June 30, June 30, 2013 2012 2013 2012 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenues: Operating expenses: Cost of revenue Research and development Selling, general and administrative Total operating expenses Operating income (loss) Other income (expense): Interest income Interest expense Income (loss) from continuing operations Discontinued operations Income (loss) from discontinued operations Gain from the disposal of discontinued operations Income (loss) from discontinued operations, net Less dividends series A and B preferred stock Net income (loss) attributable to common stock Earnings per share: Basic Continuing operations Discontinued operations Net income (loss) per share Diluted Continuing operations Discontinued operations Net income (loss) per share Basic weighted average common shares outstanding Diluted weighted average common shares outstanding See Notes to Unaudited Consolidated Financial Statements.
$
2,259,395
$
1,294,720
$
4,422,802
$
2,343,085
328,296
235,124
635,280
368,526
365,075
274,975
678,698
495,879
1,532,430
717,161
2,895,053
1,586,867
2,225,801
1,227,260
4,209,031
2,451,272
33,594
67,460
213,771
(108,187
)
1,078
-
14,745
-
(14,495
)
(45,708
)
(33,121
)
(99,088
)
(13,417
)
(45,708
)
(18,376
)
(99,088
)
20,177
21,752
195,395
(207,275
)
-
27,444
-
(28,518
)
38,611
-
100,361
-
38,611
27,444
100,361
(28,518
)
-
-
-
83,232
$
58,788
$
49,196
$
295,756
$
(152,561
)
$
0.00
$
0.00
$
0.00
$
(0.00
)
$
0.00
$
0.00
$
0.00
$
(0.00
)
$
0.00
$
0.00
$
0.01
$
(0.00
)
$
0.00
$
0.00
$
0.00
$
(0.00
)
$
0.00
$
0.00
$
0.00
$
(0.00
)
$
0.00
$
0.00
$
0.00
$
(0.00
)
56,644,643
55,719,575
56,337,069
48,923,639
75,346,900
61,587,751
72,369,773
48,923,639
ACCELERIZE NEW MEDIA, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Three-month periods ended Six-month periods ended June 30, June 30, 2013 2012 2013 2012 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Net income (loss) Foreign currency translation gain (loss) Total other comprehensive gain (loss) Comprehensive income (loss) See Notes to Unaudited Consolidated Financial Statements.
$
58,788
$
49,196
$
295,756
$
(152,561
)
86
-
(1,195
)
-
86
-
(1,195
)
-
58,874
49,196
294,561
(152,561
)
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ACCELERIZE NEW MEDIA, INC. |
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CONSOLIDATED STATEMENTS OF CASH FLOWS |
(Unaudited) (Unaudited) Cash flows from operating activities: Net income (loss) from continuing operations Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities: Depreciation Amortization of debt discount Provision for bad debt Fair value of services in lieu of proceeds from note receivable Fair value of options Amortization of original issuance discount Changes in operating assets and liabilities: Accounts receivable Other assets Prepaid expenses Accrued interest Accounts payable and accrued expenses Deferred revenues Net cash provided by (used in) continuing operations Net cash provided by discontinued operations Net cash provided by operating activities Cash flows provided by (used in) investing activities: Proceeds from sale of lead generation business Capital expenditures Net cash provided by (used in) investing activities Cash flows provided by (used in) financing activities: Principal repayments on notes payable Proceeds from exercise of warrants and options Net cash provided by (used in) financing activities Effect of exchange rate changes on cash Net increase (decrease) in cash Cash, beginning of period Cash, end of period Supplemental disclosures of cash flow information: Cash paid for interest Cash paid for income taxes Non-cash investing and financing activities: Write-off of note receivable, net of original issuance discount Preferred stock dividends Conversion of Series A Preferred Stock Conversion of Series B Preferred Stock Conversion of notes payable to common stock
Six-month periods ended
June 30
2013
2012
$
195,395
$
(207,275
)
27,837
12,252
17,858
75,562
7,186
(63,631
)
120,250
-
251,235
108,356
(11,889
)
-
(202,508
)
(53,301
)
(8,319
)
(3,200
)
(49,674
)
(10,300
)
(1,120
)
(990
)
(42,361
)
127,673
26,638
4,896
330,528
(9,958
)
-
15,383
330,528
5,425
80,000
-
(66,416
)
(11,022
)
13,584
(11,022
)
(90,000
)
(180,000
)
421,996
125,887
331,996
(54,113
)
(1,394
)
-
674,714
(59,710
)
231,926
104,750
$
906,640
$
45,040
$
22,205
$
45,624
$
-
$
-
$
19,889
$
-
$
-
$
83,232
$
-
$
32,339
$
-
$
3,565,813
$
-
$
452,500
See Notes to Unaudited Consolidated Financial Statements.
ACCELERIZE NEW MEDIA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND DESCRIPTION OF BUSINESS
Accelerize New Media, Inc., or the Company, a Delaware corporation, incorporated on November 22, 2005, is a Software-as-a-Service platform providing online tracking and analytics solutions for advertisers and online marketers.
The Company provides software solutions for businesses interested in expanding their online advertising presence.
In September 2012, the Company sold its online marketing services business to a third party to allocate more resources to its software solutions business.
The balance sheet presented as of December 31, 2012 has been derived from our audited consolidated financial statements. The unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been omitted pursuant to those rules and regulations, but we believe that the disclosures are adequate to make the information presented not misleading. The unaudited consolidated financial statements and notes included herein should be read in conjunction with the annual financial statements and notes for the year ended December 31, 2012 included in our Annual Report on Form 10-K filed with the SEC on March 7, 2013. In the opinion of management, all adjustments, consisting of normal, recurring adjustments and disclosures necessary for a fair presentation of these interim statements have been included. The results of operations for the six-month period ended June 30, 2013 are not necessarily indicative of the results for the year ending December 31, 2013.
Principles of Consolidation
The accompanying unaudited consolidated financial statements include the results of operations of Cake Marketing UK Ltd. from inception (November 2012) through June 30, 2013. All material intercompany accounts and transactions between the Company and its subsidiaries have been eliminated in consolidation.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of unaudited consolidated 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reporting amounts of revenues and expenses during the reported period. Actual results will differ from those estimates. Included in these estimates are assumptions about recovery of assets from discontinued operations and assumptions used in Black-Scholes-Merton, or BSM, valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate.
Reclassification
The financial statements for 2012 have been reclassified to reflect the Company’s discontinued operations.
Cash and Cash Equivalents
The Company considers all highly liquid temporary cash investments with an original maturity of three months or less when purchased, to be cash equivalents.
Accounts Receivable
The Company’s accounts receivable are due primarily from advertisers and marketers. Collateral is generally not required. The Company also maintains allowances for doubtful accounts for estimated losses resulting from the inability of the Company’s customers to make payments. The Company periodically reviews these estimated allowances, including an analysis of the customers’ payment history and creditworthiness, the age of the trade receivable balances and current economic conditions that may affect a customer’s ability to make payments. Based on this review, the Company specifically reserves for those accounts deemed uncollectible. When receivables are determined to be uncollectible, principal amounts of such receivables outstanding are deducted from the allowance.
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June 30, 2013 |
December 31, 2012 |
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Allowance for doubtful accounts |
$ | 25,394 | $ | 18,208 | ||||
Concentration of Credit Risks
The Company is subject to concentrations of credit risk primarily from cash and cash equivalents and accounts receivable.
The Company’s cash and cash equivalents accounts are held at a financial institution and are insured by the Federal Deposit Insurance Corporation, or the FDIC, up to $250,000. During the six-month period ended June 30, 2013, the Company has reached bank balances exceeding the FDIC insurance limit. To reduce its risk associated with the failure of such financial institutions, the Company periodically evaluates the credit quality of the financial institution in which it holds deposits.
The Company's accounts receivable are due from customers, generally located in the United States, Canada, and Europe. None of the Company’s customers accounted for more than 10% of its accounts receivable at June 30, 2013 or December 31, 2012. The Company does not require any collateral from its customers.
The Company’s note receivable was due from the purchaser of its online marketing services division. The Company has a security interest in all of the assets sold to the purchaser.
Revenue Recognition
The Company recognizes revenue on arrangements in accordance with ASC Topic 605, Revenue Recognition. Revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collectability of the resulting receivable is reasonably assured.
The Company’s Software-as-a-Service, or SaaS, revenues are generated from a set-up fee and monthly license fee, supplemented by per transaction fees paid by customers for monthly platform usage. The initial term of the customer contract is generally one year and each party may cancel the contract within that period with a 30-day notice. The Company does not provide any general right of return for its delivered items. Services associated with the set-up fees do not have standalone value to the Company’s customers. Accordingly, the value attributed to the set-up fees are recognized over the longer of the initial contract term or the period the customer is expected to benefit from payment of the set-up fees. The value attributed to the monthly license fees as well as the fees associated with monthly transaction-based platform usage are recognized in the corresponding period.
The Company allocates the foregoing arrangement consideration based on the relative selling price of the deliverables. The Company uses its estimated selling price in its allocation of arrangement consideration.
Effective September 2012, the Company discontinued its online marketing services.
Product Concentration
The Company generates its revenues from software licensing.
Fair Value of Financial Instruments
The Company accounts for assets and liabilities measured at fair value on a recurring basis in accordance with ASC Topic 820, Fair Value Measurements and Disclosures, or ASC 820. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own
assumptions.
Marketable securities consist of equity securities of a publicly-traded company. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within our fair value hierarchy. The Company regarded the decline in fair value of its marketable securities to be “other than temporary;” accordingly the unrealized loss was recorded in the net income from discontinued operations in the Company’s statements of operations as these securities were sold in connection with the disposition of the Company’s online marketing services division.
Additional Disclosures Regarding Fair Value Measurements
The carrying value of cash and cash equivalents, accounts receivable, note receivable, accounts payable and accrued expenses, note and convertible promissory notes payable approximate their fair value due to the short term maturity of these items.
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC 815, Accounting for Derivative Instruments and Hedging Activities, or ASC 815.
ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with ASC 470-20, Debt with Conversion and Other Options. Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note.
ASC 815-40, Contracts in Entity’s own Equity, provides that, among other things, generally, if an event is not within the entity’s control, such contract could require net cash settlement and shall be classified as an asset or a liability.
The Company needs to determine whether the instruments issued in the transactions are considered indexed to the Company’s own stock. While the Company’s 12% convertible promissory notes, or 12% Convertible Notes Payable, and the warrants issued in connection with the Company’s 12% note payable, or 12% Note Payable, did not provide variability involving sales volume, stock index, commodity price, revenue targets, among other things, they do provide for variability involving future equity offerings and issuance of equity-linked financial instruments. While the instruments did not contain an exercise contingency, the settlement of the 12% Convertible Notes Payable and the warrants issued in connection with the 12% Note Payable would not equal the difference between the fair value of a fixed number of shares of the Company’s Common Stock and a fixed stock price. Accordingly, they are not indexed to the Company’s stock price.
However, the Company believes that there is no value to the derivative liabilities associated with such instruments at June 30, 2013 because the Company believes that it will not issue additional consideration, beyond that already granted, to the holders of the 12% Convertible Notes Payable, a substantial number of which converted their 12% Convertible Note Payable during the first quarter of 2012, and due to the likelihood that the Company will trigger the subsequent financing reset provision of the warrants issued in connection with the 12% Note Payable is more remote than possible, but certainly not probable. Additionally, the risk-neutral probability that the Company’s price of its common stock would be less than the warrants at expiration is low (ranges from 0% to 34% at June 30, 2013).
Advertising
The Company expenses advertising costs as incurred.
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Six-month periods ended, |
||||||||
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June 30, 2013 |
June 30, 2012 |
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Advertising expense |
$ | 18,785 | $ | 25,070 | ||||
Income Taxes
Income taxes are accounted for in accordance with the provisions of ASC Topic 740, Accounting for Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized, but no less than quarterly.
Foreign Currency Translation
The Company's reporting currency is U.S. Dollars. The functional currency of the Company’s subsidiary in the United Kingdom is the respective local currency. The translation from the applicable foreign currency to U.S. dollars is performed for balance sheet accounts using exchange rates in effect at the balance sheet date and for revenue and expense accounts using the average exchange rate in effect during the period. The resulting translation adjustments are recorded as a component of Accumulated Other Comprehensive Income (Loss). Foreign Currency translation gain and losses arising from exchange rate fluctuation on transactions denominated in a currency other than the functional currency are included in the Consolidated Statements of Operations.
Software Development Costs
Costs incurred in the research and development of software products and significant upgrades and enhancements thereto during the preliminary project stage and the post-implementation operation stage are expensed as incurred. Costs incurred for maintenance and relatively minor upgrades and enhancements are expensed as incurred. Costs associated with the application development stage of new software products and significant upgrades and enhancements thereto are capitalized when 1) management implicitly or explicitly authorizes and commits to funding a software project and 2) it is probable that the project will be completed and the software will be used to perform the function intended. The Company believes that, using its current process for developing software, it is probable the software project will be completed and the software products and significant upgrades and enhancements thereto will be used to perform the function intended only when substantial testing has been performed and the feedback from such testing is positive, which is concurrent with the end of the application development stage; accordingly, no software development costs have been capitalized at June 30, 2013.
Share-Based Payment
The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation-Stock Compensation, or ASC 718. Under the fair value recognition provisions of this topic, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, which is the vesting period.
The Company has elected to use the BSM option-pricing model to estimate the fair value of its options, which incorporates various subjective assumptions including volatility, risk-free interest rate, expected life, and dividend yield to calculate the fair value of stock option awards. Compensation expense recognized in the statements of operations is based on awards ultimately expected to vest and reflects estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Segment Reporting
The Company generated revenues from one source in the six-month period ended June 30, 2013: SaaS. The Company generated revenues from two sources in 2012: 1) SaaS, and 2) online marketing services. The online marketing services division was discontinued in September 2012, and accordingly, the financial statements were adjusted retroactively to reflect only the operations of the SaaS division as continuing operations. The Company's chief operating decision maker evaluates the performance of the Company based upon revenues and expenses by functional areas as disclosed in the Company's statements of operations.
Recent Accounting Pronouncements
Recent accounting pronouncements have been issued but deemed by management to be outside the scope of relevance to the Company.
Basic and Diluted Earnings Per Share
Basic earnings per share are calculated by dividing income available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of common and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of shares issuable upon the exercise of stock options and warrants (calculated using the modified-treasury stock method).
Three months ended Six months ended June 30, June 30, 2013 2012 2013 2012 Numerator: Net income (loss) from continuing operations Preferred stock dividends Numerator for basic earnings per share- net income (loss) from continuing operations attributable to common stockholders - as adjusted Net income (loss) from discontinued operations Denominator: Denominator for basic earnings per share--weighted average shares Effect of dilutive securities- when applicable: Stock options Warrants Denominator for diluted earnings per share--adjusted weighted-average shares and assumed conversions Earnings (loss) per share: Basic Continuing operations, as adjuted Discontinued operations Net earnings (loss) per share- basic Diluted Continuing operations, as adjuted Discontinued operations Net earnings(loss) per shares-diluted Weighted-average anti-dilutive common share equivalents when income from continuing or discontinued operations in period N/A Weighted-average anti-dilutive common share equivalents when loss from continuing or discontinued operations in period N/A N/A N/A
$
20,177
$
21,752
$
195,395
$
(207,275
)
-
-
-
83,232
$
20,177
$
21,752
$
195,395
$
(124,043
)
$
38,611
$
27,444
$
100,361
$
(28,518
)
56,644,643
55,719,575
56,337,069
48,923,639
13,245,665
5,320,270
11,747,420
-
5,456,592
547,906
4,285,284
-
75,346,900
61,587,751
72,369,773
48,923,639
$
0.00
$
0.00
$
0.00
$
(0.00
)
$
0.00
$
0.00
$
0.00
$
(0.00
)
$
0.00
$
0.00
$
0.01
$
(0.00
)
$
0.00
$
0.00
$
0.00
$
(0.00
)
$
0.00
$
0.00
$
0.00
$
(0.00
)
$
0.00
$
0.00
$
0.00
$
(0.00
)
9,730,706
26,264,079
12,400,259
32,132,255
Property and Equipment
Property and equipment are recorded at cost and are depreciated on a straight-line basis over their estimated useful lives of three years. Maintenance and repairs are charged to expense as incurred. Significant renewals and betterments are capitalized.
Property and equipment consist of the following at:
|
June 30, 2013 |
December 31, 2012 |
|||||||
|
Computer equipment and software |
$ | 87,463 | $ | 54,087 | ||||
|
Office furniture and equipment |
70,168 | 37,128 | ||||||
| 157,631 | 91,215 | |||||||
|
Accumulated depreciation |
(66,755 |
) |
(38,918 |
) | ||||
| $ | 90,876 | $ | 52,297 | |||||
|
Six-month periods ended |
||||||||
|
June 30, 2013 |
June 30, 2012 |
|||||||
|
Depreciation expense |
$ | 27,837 | $ | 12,252 | ||||
NOTE 3: DISCONTINUED OPERATIONS
In September 2012, the Company completed the sale of its online marketing services division to a third-party, or the Buyer. The total consideration received on the sale date by the Company is as follows:
|
● |
$150,000 paid to the Company in cash at closing; |
|
● |
$50,000 paid by the Buyer to a lender of the Company in cash at closing, on behalf of the Company; |
|
● |
A note receivable with a face value of $162,000, which matures in February 2015, provided that the Buyer was able to satisfy this obligation by paying $100,000 plus accrued interest by January 1, 2013, which it did not do; and |
|
● |
A note receivable of $500,000, which matures in December 2014. The $500,000 note receivable may be satisfied with in-kind services provided by the Buyer over a 27-month period, or cash. The in-kind services are of a nature and a cost to be agreed by both parties. |
Because of the contingent nature of the $500,000 note receivable, the Company recognized any gain from the disposal of discontinued operations associated with such note if and when the services are provided by the Buyer. As of June 10, 2013, $130,250 in in-kind services had been received in lieu of the note receivable.
Additionally, for purposes of computing the gain on disposal of the online marketing services division, the Company used $100,000 of the $162,000 note receivable.
The components of the gain from disposal of discontinued operations are as follows:
Six-month periods ended June 30, 2013 2012 Services received in lieu of note receivable Write-down of note receivable Gain from disposal of discontinued operations
$
120,250
$
-
(19,889
)
-
$
100,361
$
-
The components of the loss from discontinued operations are as follows:
Six-month periods ended June 30, 2013 2012 Revenues Operating expenses (Loss) from discontinued operations
$
-
$
375,183
$
-
$
(403,701
)
$
-
$
(28,518
)
NOTE 4: NOTE RECEIVABLE
As part of the consideration received from the Buyer of the Company’s online marketing services division, the Company received on the sale date a note receivable with a face value of $162,000 and a maturity date of February 15, 2015. The note bears interest at an annual rate of 5%. The Buyer was able to satisfy this obligation by paying $100,000 plus accrued interest by January 1, 2013, which it did not do. The note provides for monthly principal repayments of $6,000, plus accrued interest, commencing in November 2012.
The excess of the face value of the note receivable of $162,000 over the payment of $100,000 which could have satisfied the obligation by January 1, 2013 is recorded as original issue discount. The original issue discount amounted to $50,111 at March 31, 2013.
June 2013 Amendment
On June 10, 2013, the Company modified the terms of the $162,000 note receivable and $500,000 note receivable by 1) cancelling the $162,000 note upon receipt of a $50,000 payment in June 2013, and 2) applying the remaining $70,427 balance of the $162,000 note to the remaining $380,699 balance of the $500,000 note receivable. Upon application of the $70,427 balance to the remaining $380,699 balance of the $500,000 note receivable, the total outstanding balance, including accrued interest, of $451,127 of the $500,000 note receivable was cancelled. In connection with this cancellation, the Buyer agreed to pay $451,127, which may be paid with in-kind services, plus interest accruing quarterly at a rate of 3.25% per annum pursuant to a note receivable on December 27, 2014.
Because of the contingent nature of the $451,127 note receivable, the Company wrote down the value of the pre-existing $162,000 note receivable to $0, and will recognize any gain from the disposal of discontinued operations associated with such note if and when the in-kind services are provided by the Buyer. As of June 30, 2013, no in-kind services have been received in payment of the $451,127 note receivable.
NOTE 5: PREPAID EXPENSES
At June 30, 2013 and December 31, 2012, the prepaid expenses consisted primarily of prepaid insurance, rent, and consulting services.
NOTE 6: DEFERRED REVENUES
The Company’s deferred revenues consist of prepayments made by certain of the Company’s customers. The Company decreases the deferred revenues by the amount of the services it renders to such clients when provided.
|
June 30, 2013 |
December 31, 2012 |
|||||||
|
Deferred revenues |
$ | 51,255 | $ | 24,616 | ||||
NOTE 7: CONVERTIBLE NOTES PAYABLE AND NOTE PAYABLE
12% Convertible Notes Payable
The Company had 12% convertible promissory notes, including accrued interest, aggregating $176,244 outstanding at June 30, 2013 and December 31, 2012. The 12% Convertible Notes Payable bear interest at 12% per annum. Accrued interest may be payable, at the note holder’s option, in cash or in shares of Common Stock. If the accrued interest is paid in shares of Common Stock, the number of shares issuable to satisfy the accrued interest is primarily based on the closing price, as quoted on the OTCBB of the trading day immediately prior to the interest payment date. The interest payable commenced June 1, 2009 and is payable every quarter thereafter, until the obligations under the 12% Convertible Notes Payable are satisfied. The 12% Convertible Notes Payable mature ten days after the maturity date of the Company’s 12% Note Payable. Effective May 29, 2009, on the maturity date, each holder has the option of having the 12% Convertible Notes Payable repaid in cash or shares of Common Stock as follows: 1) if the average closing price of the Common Stock on the last five trading days prior to the maturity date is $0.50 or more, then the holder may elect to have the principal paid in shares of Common Stock. In such case, the number of shares of Common Stock to be issued to the holder shall be determined by dividing the principal amount outstanding on the maturity date by $0.50, or 2) if the average closing price of the Common Stock on the last five trading days prior to the maturity date is less than $0.50, then the principal may only be paid in cash. The Company may prepay the 12% Convertible Notes Payable without premium. Each note holder may convert, at his option, the outstanding principal of the 12% Convertible Notes Payable, after July 1, 2009 and prior to September 11, 2013 at the lesser of: 1) $0.40 or 2) the effective price per share of a subsequent financing of the Company occurring prior to the maturity date. The 12% Convertible Notes Payable are subordinated to the 12% Note Payable and mature 10 days following the maturity of the 12% Note Payable.
12% Note Payable
During 2011, the Company issued a note payable, aggregating $500,000. The 12% Note Payable bears interest at a rate of 12% per annum and was scheduled to mature on March 31, 2012. Interest is payable monthly. Effective April 1, 2011, the Company made monthly principal payments of $20,000. In connection with the issuance of the 12% Note Payable, the Company granted warrants to the holder to purchase 283,019 shares of the Company’s Common Stock. The exercise price for the warrants was equal to the lower of (i) $0.53 per share, or (ii) the price per share at which the Company sells or issues its Common Stock after the issue date of the 12% Note Payable in a transaction or series of transactions in which the Company receives at least $500,000. The exercise price of such warrants, adjusted for subsequent financing reset provision, may not have been less than $0.35 per share.
August 2011 Amendment
During August 2011, the Company modified the terms of the 12% Note Payable by 1) extending the maturity to December 31, 2012, 2) increasing the amount borrowed under the 12% Note Payable by an additional $100,000, 3) amending the payment schedule for principal payments from monthly commencing on April 1, 2011 to monthly commencing on January 1, 2012, 4) increasing the monthly principal payments to $30,000, 5) cancelling the initial warrants issued in January 2011, and 6) granting 600,000 warrants to the holder at an exercise price of $0.35 per share with an expiration date of August 23, 2016.
The Company accounted for the cancellation of the initial warrants in January 2011 and the grant of 600,000 warrants in August 2011, as a modification of terms for the grants of 283,019 warrants issued in January 2011, and a new grant of 316,981 warrants. As a result of the grants and modification of warrants, the Company recognized as a beneficial conversion feature and debt discount of $141,257, which is reflected in the accompanying unaudited consolidated financial statements as additional paid-in capital and corresponding debt discount.
September 2012 Amendment
During September 2012, the Company further modified the terms of the 12% Note Payable by 1) prepaying $50,000 of outstanding principal, 2) extending the maturity date to September 1, 2013, 3) reducing the monthly principal repayment to $15,000, 4) cancelling the 600,000 warrants granted to the holder in August 2011 in connection with the prior amendment and 5) granting 650,000 warrants to the holder at an exercise price of $0.35 per share with an expiration date of August 23, 2016.
The Company accounted for the cancellation of the warrants granted in August 2011 and the issuance of warrants in September 2012 as a new grant of 50,000 warrants. As a result of the grant of warrants, the Company recognized $9,850 as debt discount, which is reflected in the accompanying unaudited consolidated financial statements as additional paid-in capital and corresponding debt discount.
The Company made principal repayments of $90,000 and $180,000 on its 12% Note Payable during the six-month periods ended June 30, 2013 and 2012, respectively.
|
Six-month periods ended |
||||||||
|
June 30, 2013 |
June 30, 2012 |
|||||||
|
Interest and amortization expense associated with the 12% Convertible Notes Payable and 12% Note Payable |
$ | 33,121 | $ | 90,802 | ||||
NOTE 8: STOCKHOLDERS’ EQUITY
Common Stock
A summary of the issuance of shares of Common Stock, related consideration and fair value of transaction, for the six-month period ended June 30, 2012 is as follows:
|
Number of Shares of Common Stock |
Carrying Value at Issuance |
Carrying Value at Issuance (per share) |
||||||||||||
|
Payment of Preferred Stock dividends |
182,418 | $ | 83,231 | $ | 0.15 | - | 0.49 | |||||||
|
Conversion of Series A Preferred Stock into Common Stock |
2,393,334 | $ | 322,339 | $ | 0.15 | |||||||||
|
Conversion of Series B Preferred Stock into Common Stock |
11,662,500 | $ | 3,565,814 | $ | 0.35 | |||||||||
|
Exercise of warrants |
524,250 | $ | 125,888 | $ | 0.15 | - | 0.35 | |||||||
|
Conversion of 12% Notes Payable to Common Stock |
1,131,250 | $ | 452,500 | $ | 0.40 | |||||||||
A summary of the issuance of shares of Common Stock, related consideration and fair value of transaction, for the six-month period ended June 30, 2013 is as follows:
|
Number of Shares of Common Stock |
Carrying Value at Issuance |
Carrying Value at Issuance (per share) |
||||||||||||
|
Exercise of warrants |
842,769 | $ | 420,975 | $ | 0.15 | - | 0.65 | |||||||
|
Exercise of options |
2,917 | $ | 1,021 | $ | 0.35 | |||||||||
Preferred Stock- Series A
Between August 2006 and October 2006 the Company issued 54,000 shares of 10% Series A Convertible Preferred Stock, or Series A Preferred Stock, with a par value of $0.001 per share, resulting in gross proceeds of $728,567 to the Company after financing fees of $81,433.
The holders of the Series A Preferred Stock were entitled to cumulative preferential dividends at the rate of 10% per annum, payable quarterly in arrears on each of September 1, December 1, March 1, and June 1, commencing on the first quarter after the issuance date beginning September 1, 2006 in cash or shares of the Company’s Common Stock. If the Company elected to pay any dividend in shares of Common Stock, the number of shares of Common Stock to be issued to each holder equaled the quotient of (i) the dividend payment divided by (ii) $0.15 per share.
The shares of Series A Preferred Stock were convertible into shares of common stock, at any time, at the option of the holder and a conversion price of $0.15 per share, at an initial rate of conversion of 100 shares of common stock for each one share of Series A Preferred Stock, subject to anti-dilution provisions in the case of stock splits, dividends or if the Company issues shares of common stock or other securities convertible into shares of common stock at an effective price less than $0.15 per share.
Following conversions of all outstanding shares of Series A Preferred Stock up to and through March 23, 2012, no shares of Series A Preferred Stock were outstanding at June 30, 2013.
Preferred Stock- Series B
Between June 2007 and September 2007, the Company issued 118,875 shares of 8% Series B Convertible Preferred Stock, or Series B Preferred Stock, with a par value of $0.001 per share, which generated net proceeds of $3,244,563 to the Company, after financing fees of $516,063 and conversion of notes payable of $400,000.
The holders of the Series B Preferred Stock were entitled to cumulative preferential dividends at the rate of 8% per annum, payable quarterly in arrears on each of September 1, December 1, March 1, and June 1, commencing on December 1, 2007. If the Company elected to pay any dividend in shares of Common Stock, the number of shares of Common Stock to be issued to each holder equaled to the higher of (i) the average of the closing bid prices for the common stock over the five trading days immediately prior to the dividend date or (ii) $0.35.
The shares of Series B Preferred Stock were convertible into shares of common stock, at any time, at the option of the holder and a conversion price of $0.35 per share, at an initial rate of conversion of 100 shares of common stock for each one share of Series B Preferred Stock, subject to anti-dilution provisions in the case of stock splits, dividends or if the Company issues shares of common stock or other securities convertible into shares of common stock at an effective price less than $0.35 per share. The rights of the holders of the Series B Preferred Stock were subordinate to the rights of the holders of Series A Preferred Stock.
Following mandatory conversion of all outstanding shares of Series B Preferred Stock on March 31, 2012, no shares of Series B Preferred Stock were outstanding at June 30, 2013.
Warrants
During September 2012, in connection with the amendment of the 12% Note Payable, the Company granted additional warrants to purchase 50,000 shares of the Company’s Common Stock at an exercise price of $0.35 per share with an expiration date of August 23, 2016. As a result of the grant of warrants, the Company recognized a debt discount of $9,850, which is reflected as additional paid-in capital and corresponding debt discount.
Stock Option Plan
On December 15, 2006, the Company's Board of Directors and stockholders approved the Accelerize New Media, Inc. Stock Option Plan, or the Plan. The total number of shares of capital stock of the Company that may be subject to options under the Plan is 22,500,000 shares of common stock, following an increase from 10,000,000 shares to 15,000,000 shares of common stock in May 2011, and from 15,000,000 shares to 22,500,000 shares of Common Stock on March 27, 2012, from either authorized but unissued shares or treasury shares. The individuals who are eligible to receive option grants under the Plan are employees, directors and other individuals who render services to the management, operation or development of the Company or its subsidiaries and who have contributed or may be expected to contribute to the success of the Company or a subsidiary. Every option granted under the Plan shall be evidenced by a written stock option agreement in such form as the Board shall approve from time to time, specifying the number of shares of common stock that may be purchased pursuant to the option, the time or times at which the option shall become exercisable in whole or in part, whether the option is intended to be an incentive stock option or a non-incentive stock option, and such other terms and conditions as the Board shall approve.
The share-based payment is based on the fair value of the outstanding options amortized over the requisite period of service for option holders, which is generally the vesting period of the options.
Because the period on which the Company can base the computation of its historical volatility is shorter than the terms used to value the options granted by the Company, the expected volatility is based on the historical volatility of publicly-traded companies comparable to the Company.
The Company generally recognizes its share-based payment over the vesting terms of the underlying options.
|
Six-month periods ended |
||||||||
|
June 30, 2013 |
June 30, 2012 |
|||||||
|
Weighted-average grant date fair value |
$ | 0.59 | $ | 0.14 | ||||
|
Fair value of options, recognized as selling, general, and administrative expenses |
$ | 125,454 | $ | 108,356 | ||||
|
Number of options granted |
942,500 | 10,750,000 | ||||||
The total compensation cost related to non-vested awards not yet recognized amounted to approximately $1,442,000 at June 30, 2013 and the Company expects that it will be recognized over the following weighted-average period of 24 months.
If any options granted under the Plan expire or terminate without having been exercised or cease to be exercisable, such options will be available again under the Plan. All employees of the Company and its subsidiaries are eligible to receive incentive stock options and non-qualified stock options. Non-employee directors and outside consultants who provided bona-fide services not in connection with the offer or sale of securities in a capital raising transaction are eligible to receive non-qualified stock options. Incentive stock options may not be granted below their fair market value at the time of grant or, if to an individual who beneficially owns more than 10% of the total combined voting power of all stock classes of the Company or a subsidiary, the option price may not be less than 110% of the fair value of the common stock at the time of grant. The expiration date of an incentive stock option may not be longer than ten years from the date of grant. Option holders, or their representatives, may exercise their vested options up to three months after their employment termination or one year after their death or permanent and total disability. The Plan provides for adjustments upon changes in capitalization.
The Company’s policy is to issue shares pursuant to the exercise of stock options from its available authorized but unissued shares of common stock. It does not issue shares pursuant to the exercise of stock options from its treasury shares.
NOTE 9: COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes changes in equity related to foreign currency translation adjustments. The following table sets forth the reconciliation from net income (loss) to comprehensive income (loss) for the six-month periods ended June 30, 2013 and 2012:
Six months ended June 30, 2013 2012 Net income (loss) Other comprehensive loss: Foreign currency translation adjustment Comprehensive income (loss)
$
295,756
$
(152,561
)
(1,195
)
-
$
294,561
$
(152,561
)
The following table sets forth the balance in accumulated other comprehensive loss as of June 30, 2013 and December 31, 2012, respectively:
|
June 30, |
December 31, |
|||||||
|
2013 |
2012 |
|||||||
|
Foreign currency translation losses |
$ | (1,195 | ) | $ | - | |||
|
Accumulated other comprehensive loss |
$ | (1,195 | ) | $ | - | |||
NOTE 10: SEGMENTS
During the six-month period ended June 30, 2012, the Company operated in two segments. In September 2012, the Company discontinued its online marketing services division and as of September 27, 2012, operates in one business segment. The accompanying unaudited consolidated financial statements have been retroactively adjusted to reflect the operations of the SaaS business segment. The percentages of sales for the SaaS division by geographic region for the six-month periods ended June 30, 2013 and 2012 were approximately as follows:
|
Six-month periods ended June 30, |
||||||||
|
2013 |
2012 |
|||||||
|
United States |
89% | 93% | ||||||
|
Europe |
9% | 4% | ||||||
|
Canada |
1% | 2% | ||||||
|
Other |
1% |
* |
||||||
* less than 1%
Note 11: SUBSEQUENT EVENT
On August 7, 2013, the Company satisfied all its remaining obligations under the 12% Note payable, and, accordingly, the 12% Convertible Notes Payable mature on August 17, 2013, which is 10 days following the Company’s satisfaction of its obligations under the 12% Note Payable.
ITEM 2. Management's Discussion and Analysis and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes included elsewhere in this report and our Annual Report on Form 10-K for the year ended December 31, 2012. Certain statements in this discussion and elsewhere in this report constitute forward-looking statements. See “Cautionary Statement Regarding Forward Looking Information" elsewhere in this report. Because this discussion involves risk and uncertainties, our actual results may differ materially from those anticipated in these forward-looking statements.
Overview
We are a provider of software solutions for businesses interested in expanding their online advertising presence. We own and operate www.cakemarketing.com and www.getcake.com, an internally-developed Software-as-a-Service, or SaaS, platform. Cake is a hosted software solution that provides an all-inclusive suite of management services for online marketing campaigns. From tracking and reporting to lead distribution, our software enables advertisers, affiliate marketers and lead generators a fully scalable and accurate platform developed with a combination of innovative technology and an imaginative approach to doing business online.
In September 2012 we decided to discontinue our Online Marketing Services Division, in order to focus our efforts and resources on our SaaS products and services. Our Online Marketing Services Division included an extensive portfolio of approximately 5,500 URLs, also known as domain names. Our URL portfolio was used to build consumer-based financial portals, microsites, blogs, and landing pages used for lead generation initiatives. We also owned and developed various financial portals, and websites that provided to subscribers real-time alerts based on reports filed with the Securities and Exchange Commission and offered advertisers access to an audience of active investors, financial planners, registered advisors, journalists, investment bankers and brokers. After careful review by our management, it became clear that although the Online Marketing Services Division was a substantial source of revenue for us, it was only marginally profitable, and required substantial management attention and financial resources, which would otherwise be invested in our SaaS division. Commencing September 27, 2012, we discontinued offering online marketing services.
In connection with the decision to discontinue our Online Marketing Services Division, we sold the assets related thereto on September 27, 2012 for a purchase price of up to $862,000, payable as follows: On September 27, 2012, a third party, or the Buyer, paid us $150,000 in cash and paid $50,000 to Agility Capital II, LLC, or Agility, for our benefit in connection with a principal payment under our loan agreement with Agility as further described herein. The Buyer was also required to pay us up to $162,000 in twenty-seven equal monthly installments of $6,000 plus interest thereon at 5% per annum commencing on November 15, 2012 evidenced by a promissory note. The Buyer was further obligated to pay us $500,000 plus interest thereon at 3.25% per annum on December 27, 2014 evidenced by a promissory note, provided that the Buyer may render certain services to us of a nature and at a cost to be agreed with us, and the aggregate amount of all invoices rendered by the Buyer to us for such services shall be applied to and reduce the outstanding principal of such promissory note. The terms of these promissory notes were amended on June 10, 2013 as follows: Upon receipt of a $50,000 payment in June 2013, the $162,000 promissory note was cancelled. The remaining balance $70,427 balance of this note was combined with the remaining $380,699 balance of the $500,000 promissory note. Upon application of the $70,427 balance to the remaining $380,699 balance of the $500,000 note receivable, the total outstanding balance, including accrued interest, of $451,127 was cancelled. In connection with this cancellation the Buyer agreed to pay $451,127, plus accrued interest accruing quarterly at 3.25% per annum on December 27, 2014, evidenced by a promissory note, provided that the Buyer may render certain services to us of a nature and at a cost to be agreed with us, and the aggregate amount of all invoices rendered by the Buyer to us for such services shall be applied to and reduce the outstanding principal of such promissory note. To our knowledge, certain of the members of the Buyer are our shareholders, though these members did not at the time of the sale own in the aggregate more than five percent of the membership interests in the Buyer. The purchase price for the sale was negotiated at arms’ length between us and the Buyer. As security for the obligations of the Buyer, the Buyer granted us a security interest in the assets sold to the Buyer.
During November 2012, we formed Cake Marketing UK Ltd, a private limited company, which is our wholly-owned subsidiary located in the United Kingdom in order to better provide our services in the European market.
Our principal offices are located at 2244 West Coast Highway, Suite 250, Newport Beach, CA 92663. Our telephone number there is: (949) 515-2141. Our corporate website is: www.accelerizenewmedia.com, the contents of which are not part of this quarterly report.
Our Common Stock is quoted on the Over-the-Counter Bulletin Board and OTCQB Marketplace under the symbol “ACLZ”.
Business Environment
SaaS
The business environment for our SaaS platform is characterized as follows:
|
● |
Larger advertisers are evaluating mission-critical software, such as ours, to manage their online performance-based initiatives. Such companies are factoring whether it is more beneficial to them to either develop their own technology or license it from third-parties, such as us; |
|
● |
Advertisers are requesting more in-depth data related to performance of their online initiatives across publishers and channels as well as deploying our types of solutions, suited for channels with unique characteristics, such as mobile and social channels; |
|
● |
As the online performance-based market grows, there are new entrants as solution providers, who are competing mostly on price and on richness of features and performance tools; |
|
● |
We believe that our existing and potential customer base continues to look for more measurable results in their online performance-based growth and more flexible contractual terms; and |
|
● |
We believe there are opportunities to increase our number of clients in Western and Central Europe, where companies are adopting and implementing online performance-based initiatives. |
|
ACCELERIZE NEW MEDIA, INC. |
|
CONSOLIDATED RESULTS OF OPERATIONS |
|
Increase/ |
Increase/ |
Increase/ |
Increase/ |
|||||||||||||||||||||||||||||
|
Three-month periods ended |
(Decrease) |
(Decrease) |
Six-month periods ended |
(Decrease) |
(Decrease) |
|||||||||||||||||||||||||||
|
June 30, |
in $ 2013 |
in % 2013 |
June 30, |
in $ 2013 |
in % 2013 |
|||||||||||||||||||||||||||
|
2013 |
2012 |
vs 2012 |
vs 2012 |
2013 |
2012 |
vs 2012 |
vs 2012 |
|||||||||||||||||||||||||
|
Revenue: |
$ | 2,259,395 | $ | 1,294,720 | 964,675 | 74.5 | % | $ | 4,422,802 | $ | 2,343,085 | 2,079,717 | 88.8 | % | ||||||||||||||||||
|
Operating expenses: |
||||||||||||||||||||||||||||||||
|
Cost of revenues |
328,296 | 235,124 | 93,172 | 39.6 | % | 635,280 | 368,526 | 266,754 | 72.4 | % | ||||||||||||||||||||||
|
Research and development |
365,075 | 274,975 | 90,100 | 32.8 | % | 678,698 | 495,879 | 182,819 | 36.9 | % | ||||||||||||||||||||||
|
Selling, general and administrative |
1,532,430 | 717,161 | 815,269 | 113.7 | % | 2,895,053 | 1,586,867 | 1,308,186 | 82.4 | % | ||||||||||||||||||||||
|
Total operating expenses |
2,225,801 | 1,227,260 | 998,541 | 81.4 | % | 4,209,031 | 2,451,272 | 1,757,759 | 71.7 | % | ||||||||||||||||||||||
|
Operating (loss) income |
33,594 | 67,460 | 33,866 | -50.2 | % | 213,771 | (108,187 | ) | (321,958 | ) | -298 | % | ||||||||||||||||||||
|
Other income (expense): |
||||||||||||||||||||||||||||||||
|
Interest income |
1,078 | - | (1,078 | ) |
NM |
14,745 | - | (14,745 | ) |
NM |
||||||||||||||||||||||
|
Interest expense |
(14,495 | ) | (45,708 | ) | 31,213 | -68.3 | % | (33,121 | ) | (99,088 | ) | 65,967 | -66.6 | % | ||||||||||||||||||
| (13,417 | ) | (45,708 | ) | (32,291 | ) | -70.6 | % | (18,376 | ) | (99,088 | ) | (80,712 | ) | -81.5 | % | |||||||||||||||||
|
Income (loss) from continuing operations |
20,177 | 21,752 | 1,575 | -7 | % | 195,395 | (207,275 | ) | (402,670 | ) | -194 | % | ||||||||||||||||||||
|
Discontinued operations |
||||||||||||||||||||||||||||||||
|
Loss from discontinued operations |
- | 27,444 | (27,444 | ) |
NM |
- | (28,518 | ) | 28,518 |
NM |
||||||||||||||||||||||
|
Gain from the disposal of discontinued operations |
38,611 | - | 38,611 |
NM |
100,361 | - | 100,361 |
NM |
||||||||||||||||||||||||
|
Income (loss) from discontinued operations, net |
38,611 | 27,444 | 11,167 | 41 | % | 100,361 | (28,518 | ) | 128,879 | -452 | % | |||||||||||||||||||||
|
Net income (loss) |
$ | 58,788 | $ | 49,196 | $ | (9,592 | ) | 19 | % | $ | 295,756 | $ | (235,793 | ) | $ | (531,549 | ) | -225 | % | |||||||||||||
|
NM: Not Meaningful |
Discussion of Results for Three-Month and Six-Month Periods Ended June 30, 2013 and 2012
Revenues
Three-Months Ended % Six-Months Ended % June 30, Change June 30, Change 2013 2012 2013 2012 Revenues
$
2,259,395
$
1,294,720
74.5
%
$
4,422,802
$
2,343,085
88.8
%
We generate revenues from a set-up fee and a monthly license fee, supplemented by per-transaction fees paid by customers for monthly platform usage.
The increase in our software licensing revenues during the three and six-month periods ended June 30, 2013, when compared to the prior year periods, is due to the increased number of customers using our SaaS products and services, as well as increased monthly revenues from our existing customers resulting from higher usage of our SaaS platform. Our number of average clients increased 65% and 64% during the three and six-month periods ended June 30, 2013, respectively, when compared to the prior year periods, and our average monthly fee per customer increased 6% and 15% during the three and six-month periods ended June 30, 2013, respectively, when compared to the prior year periods. The increase in the number of customers using our SaaS products and services during the three and six-month periods ended June 30, 2013 is primarily due to the increased resources we have devoted to customer acquisition for our SaaS products. The higher usage by our existing customers of the same products is primarily due to higher market acceptance among our larger users who generate a higher volume of transactions.
We believe that our SaaS revenues will continue to increase sequentially for the remainder of 2013.
Cost of Revenues
Three-Months Ended % Six-Months Ended % June 30, Change June 30, Change 2013 2012 2013 2012 Cost of Revenues
$
328,296
$
235,124
39.6
%
$
635,280
$
368,526
72.4
%
Cost of revenues consists primarily of web hosting and domain registration fees. Web hosting fees are partially correlated to our revenues, depending on each specific agreement we have with our clients.
During the three and six-month periods ended June 30, 2013, when compared to the prior year periods, cost of revenues significantly increased, reflecting higher web hosting costs incurred to support our increased number of clients requesting dedicated servers and platform usage by our clients from non-dedicated servers.
We believe that our cost of revenues will continue to increase with our anticipated revenues for the remainder of 2013.
Research and Development Expenses
Three-Months Ended % Six-Months Ended % June 30, Change June 30, Change 2013 2012 2013 2012 Research and Development
$
365,075
$
274,975
32.8
%
$
678,698
$
495,879
36.9
%
Research and development expenses consist primarily of payroll expenses and related benefits and facility costs associated with enhancement of our SaaS products.
Our research and development expenses increased during the three and six-month periods ended June 30, 2013, when compared to the prior year periods, due to increased staff assigned to the enhancement of our software services, which translated into increased payroll costs and related benefits.
We believe that our research and development expenses will continue to increase sequentially as we continue to enhance some of the features of our SaaS platform for the remainder of 2013.
Selling, General, and Administrative Expenses
Three-Months Ended % Six-Months Ended % June 30, Change June 30, Change 2013 2012 2013 2012 Selling, general, administrative
$
1,532,430
$
717,161
113.7
%
$
2,895,053
$
1,586,867
82.4
%
Selling, general, and administrative expenses primarily consist of payroll expenses associated with supporting customer acquisition activities, as well as other general and administrative expenses, including payroll expenses necessary to support our existing and anticipated growth in our revenues, and legal expenses and professional fees.
The increase in selling, general and administrative expenses during the three and six-month periods ended June 30, 2013, when compared with the prior year periods, is primarily due to the increased number of employees assigned to support customer acquisition activities, such as training and account management, which resulted in increased payroll costs and related benefits. Additionally, as we started to expand into Europe in the last quarter of 2012, we incurred increased up-front expenses related to developing and integrating our operations in Europe prior to a commensurate increase in revenues. Furthermore, we have increased our efforts in investor relations in the last quarter of 2012 to help increase the volume of trading of our common stock, which has also contributed to the increase in our selling, general, and administrative expenses during the three and six-month periods ended June 30, 2013.
We believe that our selling, general, and administrative expenses will continue to increase sequentially as we continue to hire employees to increase our training and account management capacity, as well as continue to develop and integrate our European operations and continue to expand our investor relations efforts for the remainder of 2013.
Interest Income
Three-Months Ended % Six-Months Ended % June 30, Change June 30, Change 2013 2012 2013 2012 Interest Income NM NM
$
1,078
$
-
$
14,745
$
-
Interest income consists of interest payments associated with our note receivable and the amortization of the related original issuance discount.
The increase in interest income during the three and six-month periods ended June 30, 2013, when compared to the prior year period, is due to the issuance of our note receivable during September 2012.
Due to the amendment of the note receivable during the six months ended June 30, 2013, we do not expect to recognize any further interest income for the remainder of 2013.
Interest Expense
Three-Months Ended % Six-Months Ended % June 30, Change June 30, Change 2013 2012 2013 2012 Interest Expense
$
14,495
$
45,708
-68.3
%
$
33,121
$
99,088
-66.6
%
Interest expense consists of interest charges and amortization of debt discount associated with our 12% Convertible Notes Payable and 12% Note Payable.
The decrease in interest expense during the three and six-month periods ended June 30, 2013, when compared to the prior year periods, is primarily due to a decrease in the effective interest rate of interest-bearing obligations as a result of (i) the higher amortization of debt discount during the six-month period ended June 30, 2012 resulting from the higher costs of modification of the 12% Note Payable which were incurred during the 2011 fiscal year and which were amortized through December 2012, (ii) the amortization of the modification of certain 12% Convertible Notes Payable aggregating $462,500 which were satisfied during the six-month period ended June 30, 2012 and (iii) the lower costs of modification, when compared to the prior year period, of the 12% Note Payable incurred in September 2012 which was amortized during the six-month period ended June 30, 2013 and, to a lesser extent, a decrease in the weighted-average principal balance of our interest-bearing obligations, of which a substantial portion was converted into shares of our common stock during the six-month period ended June 30, 2012.
We believe that our interest expense will continue to decrease as our obligations under such notes will be satisfied in September 2013.
Income (loss) from discontinued operations
Three-Months Ended % Six-Months Ended % June 30, Change June 30, Change 2013 2012 2013 2012 Income (loss) from discontinued operations NM NM Gain from the disposal of discontinued operations NM NM Income (loss) from discontinued operations
$
-
$
27,444
$
-
$
(28,518
)
38,611
-
100,361
-
$
38,611
$
27,444
$
100,361
$
(28,518
)
The net income (loss) from discontinued operations consists of revenues and operating expenses from our online marketing services division, which was sold in September of 2012, as well as gains related to the sale during the three and six-month periods ended June 30, 2013.
The income (loss) from discontinued operations during the three and six-month periods ended June 30, 2012 consisted primarily of revenues and expenses from our discontinued online marketing services division. The gain during the three and six-month periods ended June 30, 2013 resulted from gains on the $500,000 note receivable issued by the Buyer to us, offset by the write-down of the $162,000 note receivable related to its cancellation. We anticipate recognizing additional gains for the remainder of 2013 relating to the $451,127 note receivable issued by the Buyer to us following the cancellation of the $500,000 note receivable issued in connection with the sale of our online marketing services division.
Liquidity and Capital Resources
Ending balance at Average balance during June 30, six-months ended June 30, 2013 2012 2013 2012 Cash Accounts receivable Accounts payable and accrued expenses Convertible notes payable excluding debt discount Notes payable, excluding debt discount
$
906,640
$
45,040
$
569,283
$
74,895
869,140
474,702
771,479
416,236
241,704
540,995
263,115
477,159
176,244
194,713
176,244
419,042
49,819
323,014
86,450
415,429
At June 30, 2013 and June 30, 2012, 90% and 78%, respectively, of our total assets consisted of cash and cash equivalents and accounts receivable.
We extend unsecured credit in the normal course of business to our customers. The determination of the appropriate amount of the reserve for uncollectible accounts is based upon a review of the amount of credit extended, the length of time each receivable has been outstanding, and the specific customers from whom the receivables are due.
The objective of liquidity management is to ensure that we have ready access to sufficient funds to meet commitments while implementing our growth strategy. Our primary sources of liquidity historically include the sale of our securities and other financing activities, such as the issuance of a note payable of $500,000 in January 2011. We also completed the sale of our online marketing services division in September 2012, which generated $322,000 between September 2012 and June 2013. We believe we have sufficient cash to fund our operations for the next 12 months.
We do not have any material commitments for capital expenditures. We routinely purchase computer equipment and technology to maintain or enhance the productivity of our employees and such capital expenditures have ranged between $66,416 and $11,022, respectively, during the six-month periods ended June 30, 2013 and 2012.
Six-Month Periods Ended June 30, 2013 2012 Cash flows from operating activities Net income (loss) from continuing operations Non-cash adjustments Fair value of options Fair value of services in lieu of proceeds from note receivable Amortization of debt discount Depreciation Other Changes in assets and liabilities Accounts receivable Accounts payable and accrued expenses Deferred revenues Prepaid expenses Other Net cash provided by (used in) continuing operations Net cash provided by discontinued operations Net cash provided by operating actvities Cash flows provided by (used in) investing activities Proceeds from sale of discontinued operations Capital expenditures Cash flows provided by (used in) financing activities Repayment of notes payable Proceeds from exercise of warrants Other Effect of exchange rate changes on cash Net variation in cash
$
195,395
$
(207,275
)
251,235
108,356
120,250
-
17,858
75,562
27,837
12,252
(4,703
)
(63,631
)
(202,508
)
(53,301
)
(42,361
)
127,673
26,638
4,896
(49,674
)
(10,300
)
(9,439
)
(4,190
)
330,528
(9,958
)
-
15,383
330,528
5,425
80,000
-
(66,416
)
(11,022
)
13,584
(11,022
)
(90,000
)
(180,000
)
420,975
125,887
1,021
-
331,996
(54,113
)
(1,394
)
-
$
674,714
$
(59,710
)
Six-months ended June 30, 2013
The increase in accounts receivable as of June 30, 2013 is primarily due to a commensurate increase in revenues. The decrease in accounts payable and accrued expenses during the six-month period ended June 30, 2013 is primarily due to faster payment processing to our vendors due to increased cash flows from operations.
Cash provided by investing activities during the six-month period ended June 30, 2013 consists of proceeds from the sale of our online marketing services business of $80,000, offset by recurring purchases of computer equipment and furniture of approximately $66,000.
Cash provided by financing activities during the six-month period ended June 30, 2013 resulted primarily from the proceeds from the exercise of warrants of approximately $421,000, offset by the principal repayments on our notes payable of $90,000.
The increase in cash flows from operating activities during the six-month period ended June 30, 2013 is due to an increase in revenues during the six month period ended June 30, 2013, offset by a lesser increase in correlated web-hosting and payroll costs, an increase in non-cash expenses, such as the fair value of options, and by an increase in accounts receivable and due to commensurate increases in revenue.
Six-months ended June 30, 2012
The decrease in accounts receivable as of June 30, 2012 is primarily due to new processes implemented during the three-month period ended March 31, 2012 to accelerate the receipts related to accounts receivable. The increase in accounts payable and accrued expenses during the six-month period ended June 30, 2012 is primarily due to slower payment processing to certain vendors reflecting our liquidity condition.
Cash used in investing activities during the six month period ended June 30, 2012 consists of recurring purchases of computer equipment of approximately $11,000.
Cash provided by financing activities of approximately $54,000 during the six month period ended June 30, 2012 resulted from the proceeds from the exercise of warrants of approximately $126,000, offset by the principal repayments on our notes payable of $180,000.
Cash provided by operating activities during the six month period ended June 30, 2012 is due primarily to higher accounts payable and accrued expenses by extending the payment terms to some of our vendors.
Capital Raising Transactions
Exercise of warrants
We generated proceeds of $420,975 from the exercise of 824,769 warrants during the six-month period ended June 30, 2013.
Loan Agreement
We are party to a loan agreement, as amended, or the Loan Agreement, with Agility, which provided for us to borrow up to $600,000 from Agility. We owe $52,500 to Agility at June 30, 2013. The loan accrues interest at a rate of 12% per annum, requires monthly principal payments of $15,000, and matures on September 1, 2013. The Loan Agreement contains a covenant requiring us to achieve specified revenue levels. The Loan Agreement contains additional covenants restricting our ability to pay dividends, purchase and sell assets outside the ordinary course of business and incur additional indebtedness. We are currently in compliance with all covenants under the Loan Agreement. The occurrence of a material adverse effect will be an event of default under the Loan Agreement, in addition to other customary events of default. In connection with the Loan Agreement, we granted Agility a security interest in all of our personal property and intellectual property. Also in connection with the Loan Agreement, we issued to Agility warrants to purchase 650,000 shares of our common stock at $0.35 per share, subject to certain anti-dilution and price adjustments. The warrants expire on August 23, 2016. Upon a default under the Loan Agreement, the number of shares of common stock that Agility may purchase will increase up to a maximum of 350,000 shares.
Other outstanding obligations at June 30, 2013
12% Convertible Notes Payable
The Company had 12% convertible promissory notes aggregating $174,500 outstanding at June 30, 2013. The 12% Convertible Notes Payable bear interest at 12% per annum. Accrued interest may be payable, at the note holder’s option, in cash or in shares of Common Stock. If the accrued interest is paid in shares of Common Stock, the number of shares issuable to satisfy the accrued interest is primarily based on the closing price, as quoted on the OTCBB of the trading day immediately prior to the interest payment date. The interest payable commenced June 1, 2009 and is payable every quarter thereafter, until the obligations under the 12% Convertible Notes Payable are satisfied. The 12% Convertible Notes Payable mature ten days after the maturity date of the Company’s 12% Note Payable. Effective May 29, 2009, on the maturity date, each holder has the option of having the 12% Convertible Notes Payable repaid in cash or shares of Common Stock as follows: 1) if the average closing price of the Common Stock on the last five trading days prior to the maturity date is $0.50 or more, then the holder may elect to have the principal paid in shares of Common Stock. In such case, the number of shares of Common Stock to be issued to the holder shall be determined by dividing the principal amount outstanding on the maturity date by $0.50, or 2) if the average closing price of the Common Stock on the last five trading days prior to the maturity date is less than $0.50, then the principal may only be paid in cash. The Company may prepay the 12% Convertible Notes Payable without premium. Each note holder may convert, at his option, the outstanding principal of the 12% Convertible Notes Payable, after July 1, 2009 and prior to September 11, 2013 at the lesser of: 1) $0.40 or 2) the effective price per share of a subsequent financing of the Company occurring prior to the maturity date. The 12% Convertible Notes Payable are subordinated to the Loan Agreement with Agility and mature 10 days after the maturity of the 12% Note Payable.
Warrants
As of June 30, 2013, 9,517,150 shares of our Common Stock are issuable pursuant to the exercise of warrants.
Options
As of June 30, 2013, 18,479,583 shares of our Common Stock are issuable pursuant to the exercise of options.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer, who is also our principal executive and financial officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based upon that evaluation, our Chief Executive Officer concluded that, as of June 30, 2013, our disclosure controls and procedures were effective in ensuring that material information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such material information is accumulated and communicated to our management, including our Chief Executive Officer, who serves as our principal executive and financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
During the quarter ended June 30, 2013, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 5. Other Information
Termination of Agility Loan Agreement; Maturity Date triggered for holders of 12% Convertible Notes Payable
Given the timing of the event, the following information is included in this Form 10-Q pursuant to Item 8.01 “Other Events” of Form 8-K in lieu of filing a Form 8-K.
On August 7, 2013, we fully paid Agility all remaining amounts due to it under the Loan Agreement and accordingly, the Loan Agreement and Agility’s security interest in our property have terminated. As a result of the termination of the Loan Agreement, the 12% Convertible Notes Payable shall mature on August 17, 2013, since they mature 10 days following the termination of the Loan Agreement.
Item 6. Exhibits
|
10.1 |
Amendment Number One to Asset Purchase Agreement, dated June 10, 2013, between Accelerize New Media, Inc. and Emerging Growth LLC (incorporated by reference to the Company’s Current Report on Form 8-K (file no. 000-52635) filed on June 10, 2013). |
|
31.1 |
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Rule 13a-14(a) and15d-14(a).* |
|
|
|
|
32.1 |
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. 1350.** |
|
|
|
|
101. |
The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statements of Cash Flows, and (iv) related notes to these financial statements.* |
|
* |
Filed herewith. |
|
** |
Furnished herewith. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
ACCELERIZE NEW MEDIA, INC. |
| |
|
|
|
|
|
|
Dated: August 13, 2013 |
By: |
/s/ Brian Ross |
|
|
|
|
Brian Ross President and Chief Executive Officer (principal executive and principal financial officer) |
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