UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT
PURSUANT TO SECTION
13 OR 15(d) OF
THE SECURITIES
EXCHANGE ACT OF
1934
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For the fiscal year ended December 31, 2011
OR
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TRANSITION REPORT
PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from to
Commission file number 0-27012
AMERICA’S SUPPLIERS, INC.
(Exact name of Registrant as specified in
its charter)
Delaware
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27-1445090
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(State or other jurisdiction of
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(I.R.S. employer
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incorporation or organization)
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identification number)
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7575 E. Redfield Road
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Suite 201
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Scottsdale, AZ
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85260
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(Address of principal executive offices)
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(Zip Code)
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(480) 922-8155
(Registrant’s telephone number)
Securities registered pursuant to Section
12(b) of the Act:
None
Securities registered pursuant to Section
12(g) of the Act:
Common Stock ($0.001par value)
Indicate by check mark if
the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
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No
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Indicate by check mark if
the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
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No
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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
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No
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Indicate by check mark whether
the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes
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No
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Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment of this Form 10-K.
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Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
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Accelerated filer
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Non-accelerated
filer
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Smaller reporting company
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Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
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No
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The aggregate market value
of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $2,708,177 as of June 30,
2011, based upon the closing sale price of the registrant’s common equity reported for such date on the pink sheets. Ordinary
shares held by each officer and director and by each person who owns 10% or more of the outstanding ordinary share capital have
been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of March 1, 2012,
there were 13,709,933 shares of common stock $0.001 par value outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of our definitive Proxy Statement for
our 2012 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.
TABLE OF CONTENTS
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Page
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PART I
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Item 1.
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Business
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4
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Item 1A.
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Risk Factors
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11
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Item 1B.
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Unresolved Staff Comments
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18
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Item 2.
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Properties
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18
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Item 3.
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Legal Proceedings
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18
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Item 4.
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Mine Safety Disclosures
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18
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PART II
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Item 5.
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Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
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18
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Item 6.
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Selected Financial Data
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20
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Item 7.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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21
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Item 7A.
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Quantitative and Qualitative Disclosures About Market Risk
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25
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Item 8.
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Financial Statements and Supplementary Data
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25
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Item 9.
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Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
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25
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Item 9A.
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Controls and Procedures
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25
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Item 9B.
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Other Information
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26
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PART III
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Item 10.
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Directors, Executive Officers and Corporate Governance
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27
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Item 11.
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Executive Compensation
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27
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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27
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Item 13.
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Certain Relationships and Related Transactions, and Director Independence
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27
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Item 14.
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Principal Accounting Fees and Services
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27
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PART IV
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Item 15.
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Exhibits and Financial Statement Schedules
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27
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Signatures
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28
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PART I
Forward-Looking Information
Unless otherwise indicated, the terms “America’s
Suppliers,” “ASI,” “Insignia Solutions plc,” “Insignia,” the “Company,”
“we,” “us,” and “our” refer to America’s Suppliers, Inc. and its subsidiaries. In this
Annual Report on Form 10-K, we may make certain forward-looking statements, including statements regarding our plans, strategies,
objectives, expectations, intentions and resources that are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. We do not undertake to update, revise or correct any of the forward-looking information. The following
discussion should also be read in conjunction with the audited consolidated financial statements and the notes thereto.
The statements contained in this Annual
Report on Form 10-K 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. 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. The Company
wishes to caution the reader that these forward-looking statements that are not historical facts are 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.
Item 1 —
Business
History
Organization
On December 14, 2009, America’s Suppliers,
Inc., a Delaware corporation (“ASI” or the “Company”), became the holding company of Insignia Solutions
plc, a public limited company incorporated in England and Wales (“Insignia”), pursuant to a scheme of arrangement
under Section 897 of the UK Companies Act of 2006 that was approved by the Insignia stockholders on November 30, 2009 and the
High Court of Justice in England and Wales on December 14, 2009 (the “Scheme of Arrangement”). Pursuant
to the Scheme of Arrangement, every ordinary share, 1 pence par value per share, of Insignia (the “Ordinary Shares”)
was exchanged and cancelled at a ratio of ten Ordinary Shares for one share of common stock, $.001 par value per share (the “Common
Stock”), of ASI (the “Exchange Ratio”). All outstanding Insignia options and warrants were assumed
by ASI, adjusted as per the Exchange Ratio, and such options and warrants are now exercisable for shares of ASI Common Stock. Insignia
is now a wholly-owned subsidiary of ASI. The securities issued in the transaction were issued in reliance on an exemption
from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 3(a)(10) promulgated thereunder.
Insignia was incorporated under the laws of
England and Wales on November 20, 1985 under the name Diplema Ninety Three Limited. The Company changed its name to Insignia Solutions
Limited on March 5, 1986 and commenced operations on March 17, 1986. Until April 2007, Insignia developed, marketed
and supported software technologies that enabled mobile operators and phone manufacturers to update, upgrade and configure the
firmware of mobile devices using standard over-the-air (“OTA”) data networks.
In April 2007, Insignia sold substantially
all of its assets to Smith Micro Software, Inc. From April 2007 until June 23, 2008, Insignia did not generate any
revenues from operations and operated as a shell company.
On June 23, 2008, DollarDays International
LLC (“DollarDays”) entered into a series of transactions to effect a reverse merger with Insignia (the “Merger”). These
transactions consisted of the following:
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DollarDays
was formed as a
Delaware limited
liability company
on November 5,
2001. On
June 20, 2008,
DollarDays contributed
all of its assets
and liabilities
to DollarDays International,
Inc., a Delaware
corporation, (“DDI
Inc.”) pursuant
to a contribution
agreement. In
return for DollarDays’
assets and liabilities,
DDI Inc. issued
100% of its common
stock to DollarDays. Following
the contribution,
DDI Inc. became
the operating company,
and DollarDays
had no assets or
liabilities except
for the DDI Inc.
common stock issued
to it.
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DDI
Inc. merged with
Jeode, Inc., a
Delaware corporation
and a wholly-owned
subsidiary of Insignia,
whereby DDI Inc.
was the surviving
corporation and
a wholly-owned
subsidiary of Insignia. In
exchange for all
of the DDI Inc.
capital stock,
Insignia was required
to: (1) issue 73,333,333
American Depository
Shares (“ADSs”)
to DDI Inc. stockholders,
(2) issue a warrant
to purchase 8,551,450
ADSs with an exercise
price of $.01 per
ADS to Peter Engel,
the then-existing
Chief Executive
Officer of DDI
Inc., (3) issue
a warrant to purchase
3,603,876 ADSs
with an exercise
price of $.13 per
ADS to a financial
advisor of DDI
Inc. and (4) issue
options to purchase
7,360,533 ADSs,
in replacement
of DDI Inc. options.
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The
combined entity
was to issue an
aggregate of 7,682,926
ADSs to a new investor
DollarDays (“Amorim”)
in exchange for
$550,000 in cash
and conversion
of a $450,000 note.
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Under the agreement and plan of merger, Insignia
shareholders maintained approximately 37.1% ownership of the combined company, DDI Inc. shareholders obtained 56.7%, and Amorim
obtained 6.2% of the combined company stock. The Merger is accounted for as a reverse merger whereby DDI Inc. is the
accounting acquirer resulting in a recapitalization of DDI Inc. equity.
The above share amounts in the Merger transaction
have been exchanged according to the Exchange Ratio resulting in 7,333,333 shares to DDI Inc. stockholders, 855,145 warrants to
Peter Engel, 360,387 warrants to a financial advisor to DDI Inc., 736,053 options in replacement of DDI Inc. options, and 768,292
shares to Amorim.
Operations
Dollar Days
We, through our wholly-owned subsidiary DDI
Inc., develop software programs that allow us to provide general merchandise from third party manufacturers and suppliers for
resale to businesses through our website at
www.DollarDays.com
. We have been recognized as a leader in the Internet
wholesale market of discounted merchandise by a leading business periodical and numbers trade associations. Our objective
is to provide a one-stop discount shopping destination for general merchandise for smaller distributors, retailers and non-profits
nationwide seeking single and small cased-sized lots at bulk prices. We launched our first website in October 2001. The
site offers customers an opportunity to shop for bargains conveniently, while offering our suppliers an alternative sales channel. We
believe our 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 lots, with no minimum purchase requirements at discounted prices. We believe the
prevailing reason our business has been able to obtain bulk pricing for single case lots is our ability to reach smaller distributors,
retailers and non-profits that most general merchandise suppliers cannot economically reach. We provide all the logistics and
customer support to serve this sales channel and grow our customer base.
We continually add new, limited inventory
products to our website in order to create an atmosphere that encourages customers to visit frequently and purchase products before
the inventory sells out. Through our Internet catalog, we offer approximately 150,000 products, including up to 25,000
closeout items at further discounted prices. Closeout merchandise is typically available in inconsistent quantities
and prices.
We accept orders, either online or via telephone
sales staff, collect payment in the form of credit or debit card, PayPal or similar means, and coordinate with manufacturers,
importers and close-out 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.
Our 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 audience is smaller businesses.
Our historical success has resulted largely
from the size of our community of active users. We had approximately 35,000 unique customers place an order with us
in 2011 as compared to approximately 29,500 unique customers who placed an order with us in 2010. We believe our sales
and marketing efforts make inefficient markets more efficient because:
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Our
website includes
more than 150,000
items on any given
day and makes available
to our users a
wide variety of
goods; and
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We
bring buyers and
sellers together
for lower costs
than traditional
intermediaries.
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We have had increased success throughout the
years by attracting repeat customers. In 2009, 2010 and 2011, the sales volume of individuals who purchased through
our website four times or more were 40%, 40% and 41%, respectively.
WowMyUniverse.com
During 2010, we established a majority-owned
subsidiary,
WowMyUniverse.com
to develop a retail online business to sell directly to consumers. On October 1, 2010, this
subsidiary became wholly owned as we acquired the non-controlling interest in exchange for our interest in an unconsolidated subsidiary.
During 2010, most of our activities related
to WowMyUniverse.com consisted of website development and marketing activities. While we experienced limited sales through test
marketing in 2010 and early 2011, we began full operations in the second half of 2011. Revenues from WowMyUniverse.com were approximately
$185,000 in 2011.
Products and Services
Manufacturer, Supplier and Distribution
Relationships
It is difficult to establish wholesale and
closeout buying relationships with manufacturers and vendors. Trust and experience gained through past interactions
are important. We believe our business model reduces the risk to the manufacturer because its discounted products are
sold alongside its full-priced products. We enter into standardized contracts with each of our suppliers. Our
supplier relationships provide us with both private label and recognized brand-name products. The table below identifies
some of the brand names often found on our website.
Avon
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Fruit of the Loom
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3M
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Black & Decker
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Gillette
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Tommy Hilfiger
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Calvin Klein
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Revlon
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Tonka
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Colgate
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Kellogg’s
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Victoria’s Secret
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Disney
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NFL
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Ziploc
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Our manufacturer and supplier relationships
are based on historical experience with manufacturers, vendors and liquidation wholesalers. We are not obligated or entitled to
receive merchandise on a long–term or short-term basis, nor do our contractual terms guarantee the availability of merchandise. We
control the terms on which products are sold through our website.
Online Products
Our customers can locate products on our website
by utilizing our proprietary search function or by navigating through online departments. The departments section is currently
organized into approximately 32 main categories:
America’s Boutique Suppliers
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Custom Imprinting
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Medical Products
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Arts & Crafts
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Electronics & Media
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Office & School Supplies
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As Seen on TV
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Food Pantry
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Pallet Assortment
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Automotive
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Gift Baskets
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Party Supplies
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Baby Care
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Hardware
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Pets
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Bath and Body
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Holiday & Seasonal
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Religious
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Books & Calendars
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Dome Décor
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Sports & Outdoors
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Candles & Home Fragrance
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Housewares
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Stationary & Gift Wrap
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Cleaning Supplies
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Jewelry
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Store Fixtures
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Clothing
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Lawn & Garden
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Toys & Games
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Cosmetics & Fragrances
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Licensed Team Products
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Our categories change as our business evolves
and from time to time we need to add or subtract categories to better serve our suppliers and customers. Each of the departments
has multiple categories that more specifically define the products offered within that department. For example, the
“Toys & Games” department currently has the following product categories:
Action Figures
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Games
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Remote Control Toys
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Action Toys
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Glow in the Dark
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Sport Related Toys
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Bingo Accessories
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Licensed Toys
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Stuffed Animals
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Building Toys
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Novelty & fake Money
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Teddy Bears
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Cars, Trucks & Vehicles
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Novelty Toys
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Toy Animals
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Costume Dress Up/Make Believe
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Outdoor Toys
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Toy Musical Instruments
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Dolls & Doll Accessories
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Playing Cards & Accessories
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Water Guns
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Electronic Toys
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Puppets
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Flashing Novelties
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Puzzles
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Categories are typically further divided into
subcategories to facilitate product identification. Individual products can be accessed and viewed from the category
or subcategory pages. These specific product pages include product descriptions, color photographs and pricing information.
The number of total products we offer has
grown from less than 5,000 in 2001, to more than 150,000 products in 2011. The number of products and product categories
change throughout the year, as we periodically reorganize our departments and/or categories to better reflect our current product
offerings.
Sales and Marketing
We use a variety of methods to target our
consumer audience, including online campaigns, direct marketing, and trade-shows. However, our primary marketing consists
of online marketing, including advertising through portals, keywords, search engines, affiliate marketing programs, banners, and
email campaigns. We seek to identify and eliminate campaigns that do not meet our expectations. We generally develop
these campaigns internally.
Marketing
Our marketing initiatives include, but are
not limited to, the following:
Web Positioning
: In
order to maintain favorable positioning and to increase the likelihood of our website being “found” by customers looking
for wholesale merchandise, we maintain a proactive search engine optimization effort to assure continued high search engine placement. We
currently have over 350,000 web pages indexed in various search engines, including Google, Bing, Yahoo, MSN and AOL. Part
of the continuing search engine optimization program involves evolution of page content and product descriptions for maximum indexing
and rank possibilities. We believe our newer categories and higher priced products in existing categories help to increase
search engine visibility and should, therefore, increase visitor counts. Approximately 75%, 75% and 73% of our gross
sales in 2011, 2010 and 2009, respectively, came from “organic” (i.e., unpaid) search engine traffic.
Website Design
: We continually
evaluate our website and make improvements as deemed necessary. Periodically, we intend to re-design our website as
market factors and technological advances necessitate.
Banner Ads
: We
place banner ads in many relevant wholesale directories.
Pay-Per-Click Advertising
: Pay-per-click
companies provide advertising space on various relevant websites and charge us based on actual user clicks on our ads. We
monitor the results of our various pay-per-click programs and evaluate alternative advertising outlets.
Promotions
: We
offer both broad based promotions on our website available to all users, and targeted promotions transmitted via email directly
to select customers. Promotions include, but are not limited to, price discounts, free merchandise or premiums, discount
coupons, free shipping, and combinations of different promotions. Free shipping promotions have been our most popular
campaigns.
E-mail Campaigns
: We
send approximately 3 million emails per month offering a variety of promotions, as previously discussed.
Platinum Program
: Under
this subscription service, in return for a $49 joining fee and a $15.95 additional monthly fee, customers can receive a number
of discounts and savings on goods, services, freight and other products sold on our website. Our platinum program participants
purchased more products through our website than non-participants and made purchases more frequently than prior to participating
in the program.
Affiliates
: We
promote an “affiliate” program, where we pay a sales commission to affiliates for customers recommended to our website
by such affiliates. Approximately 700 affiliates have DollarDays’ banners on their websites.
Distributors
: We
encourage Internet entrepreneurs to “clone” our website under the respective entrepreneurs’ names. These
“clones”, for which such entrepreneurs pay us a $99 annual fee and a $15.99 monthly fee, reflect our website at
www.DollarDays.com
in every aspect except for the difference in name. We have approximately 300 distributors
who promote their websites, while we handle all related sales, promotional efforts, customer service, collection and other back
office matters in the same manner we handle orders pertaining to our own website. We pay distributors a commission
on all sales generated through their independent websites.
Sales
No single customer accounts for more than
5% of our sales. We utilize internal staffing and outsourced resources to have sales and support coverage 24 hours
per day, seven days a week. The primary function of the sales staff is to field incoming calls and make outgoing calls
to solicit new customers, obtain additional sales from infrequent purchasers and re-contact lapsed customers.
To facilitate our sales process, as part of
our overall software program we have implemented a vendor management system (“VMS”), which is an interface between
us and our vendors. The VMS is the primary platform for a vendor to place and remove its product on our website, as
well as providing inventory tracking ability for the vendor. Once a product is listed on the website, customers and
sales staff are able to place and fulfill orders.
We have established the DollarDays Institute,
which coordinates with our vendors, via regular telephone seminars, on how to better describe and illustrate their products and
how to best utilize our VMS to their advantage. Management believes the visual and verbal depiction of the products
on our website is crucial to sales and establishing a loyal consumer base. If a product’s picture is inadequate
or its description incomplete or unpersuasive, the product is unlikely to sell. We believe the DollarDays Institute
enables our vendors to better promote their products, and consequently, increase sales.
Our product mix changes daily based on the
availability of the products we buy and sell.
Our primary distribution channel is online
sales to small businesses, non-profits and home-based businesses located in the United States. During 2011 and 2010,
sales to domestic customers accounted for approximately 93% of our net sales, respectively.
Vendor Relations
Our ability to service our customers quickly
and efficiently is contingent upon vendor response time in fulfilling orders for in-stock merchandise and promptly informing us
of out-of-stock products. To facilitate our vendor relationships, we enter into agreements with them whereby they agree
to the following:
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Participation
in the VMS program
to automatically
convey information
about out-of-stock
items, price changes,
new products, changes
in product description
and other important
information to
be reflected by
the vendor on our
website;
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Use
of one of our pre-approved
shippers; and
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Payment
of a 2.5% marketing
fee, which is automatically
deducted from their
invoice.
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Our merchandising department monitors vendors
for compliance with the terms of their respective agreements. In the event a vendor does not comply with the terms
of the agreement, such vendor’s products may be removed from our website and replaced with products from a more suitable
vendor.
We have over 400 vendors and no single vendor
accounts for more than 10% of our sales.
Customer Service and Sales
We are committed to providing superior customer
service. We staff our customer service and sales department with dedicated in-house professionals who respond to phone
and e-mail inquiries on products, ordering, shipping status and returns. Our customer service and sales staff processes
approximately 2,500 calls per week and up to approximately 3,000 calls per week during peak periods.
Technology
We use our internally developed software to
support our operations. We have developed intuitive user interfaces and customer tools to create a user-friendly website
and developed transaction processing, database and network applications that help enable our users to reliably and securely complete
transactions on our sites. Our technology infrastructure simplifies the storage and processing of large amounts of
data, eases our operation, and automates much of the administration. Our Internet hosting provider utilizes
a distributed protection system to catch and mitigate attacks launched against our servers in addition to regular vulnerability
testing. The application sites are hosted using multiple virtual machines spread across multiple physical servers for performance,
stability, and protection from hardware failure. Static files such as imagery are mirrored to a content distribution network for
low latency delivery to visitors.
We also use a third-party application to provide
search, navigation and merchandising techniques to guide customers through our website. We currently employ two full-time
IT engineers to monitor and maintain the functionality of our website with domain specialists available in an on-call basis.
We have also developed a web-based e-commerce
property specially tailored for vendors listing products on our website. The technology is designed to permit our vendors
to list their own products on our website, subject to our approval, and remove such products once the respective inventory is
depleted. This technology eases the burden on merchandising personnel to maintain accurate product information
and available quantities. The system also provides a means for vendors to provide immediate tracking and short-ship information
to speed collection of funds from customers.
Essential systems are backed up on a regular
basis mirrored to multiple secure off-site locations for disaster recovery.
We are continually improving our technology
to enhance the customer experience and increase efficiency, scalability, and security.
Competition
The online wholesale market is rapidly evolving,
intensely competitive and has relatively low barriers to entry, as new competitors can launch websites at relatively low costs. We
believe competition in the online wholesale market is based predominately on:
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product
quality and selection;
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ease
of shopping experience;
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order
processing and
fulfillment;
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company
brand recognition.
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Our wholesale services compete with other
online retailers and traditional wholesalers, liquidation “brokers”, importers and manufacturers that sell general
merchandise, some of which may specifically adopt our methods and target our customers. We currently or potentially
compete with a variety of companies that can be divided into several broad categories:
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local
wholesalers tailored
to service and
supply small independent
retailers that
carry “fast-selling”
general brands,
provide personal
delivery and who
often have interpersonal
relations with
smaller retailers;
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catalog
sellers, including
suppliers from
whom we purchase
product, such as
SMC;
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online
general retailers
with discount departments
such as Amazon.com,
Inc., eBay, Inc.
and Buy.com, Inc.;
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online
specialty retailers
such as BlueNile
and BackCountry;
and
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traditional
small business
wholesalers such
as Costco Wholesale
Corporation.
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As the market for online wholesale and liquidation
grows, we believe that companies involved in online retail, as well as traditional retailers and liquidation brokers, will increase
their efforts to develop services that compete with our online services. We are unable to anticipate which other companies
are likely to offer products and services in the future that will compete with us.
In addition, many of our current and potential
competitors have greater brand recognition, longer operating histories, larger customer bases and significantly greater financial,
marketing and other resources than we do, and may enter into strategic or commercial relationships with larger, more established
and well-financed companies. Some of our competitors could devote greater resources to marketing and promotional campaigns
and devote substantially more resources to their websites and systems development than we can. New technologies
and the continued enhancement of existing technologies also may increase competitive pressures. We cannot ensure that
we will be able to compete successfully against current and future competitors or address increased competitive pressures.
Intellectual Property
We own the rights associated with the trademarks
“America’s Suppliers”, “DollarDays”, “DollarDay$” and the logo for DollarDays. We
have filed trademark applications with the United States Patent and Trademark Office seeking registration of certain service marks
and trademarks. We regard our domain names and similar intellectual property as critical to our success. We
rely on a combination of laws and contractual restrictions with our employees, customers, suppliers, affiliates and others to
establish and protect our proprietary rights. Despite these precautions, it may be possible for a third party to copy
or otherwise obtain and use our intellectual property without authorization. There can be no assurance that our applications
will be successful or that we will be able to secure significant protection for our service marks or trademarks in the United
States or elsewhere. In addition, we cannot ensure that others will not independently develop similar intellectual
property. Although we have registered and are pursuing the registration of our key trademarks in the United States
and internationally, some of our trade names are not eligible to receive trademark protection. In addition, effective
trademark protection may not be available or may not be sought by us in every country in which our products and services are made
available online, including the United States.
Third parties may in the future recruit our
employees who have had access to our proprietary technologies, processes and operations. These recruiting efforts expose
us to the risk that such employees will misappropriate our intellectual property.
Legal and Regulatory Matters
From time to time, we may receive claims of
and become subject to consumer protection, employment, intellectual property and other commercial litigation related to the conduct
of our business. Also, we may receive related inquiries from state and federal agencies which might relate to our business
practices, or the activity of our customers or suppliers. Such regulatory matters and commercial litigation could be
costly and time consuming and could divert our management and key personnel from our business operations. The uncertainty
of litigation increases these risks. In connection with such litigation or regulatory inquiries, we may be subject
to significant damages or equitable remedies or fines relating to the operation of our business and the sale of products on our
website. Any such litigation may materially harm our business, prospects, results of operations, financial condition
or cash flow. We are not aware of any outstanding litigation or any pending or threatened litigation that would be
expected to have a material adverse effect on our financial condition or results of operations.
These and other types of claims could result
in increased costs of doing business through legal expenses, adverse judgments, settlements or require us to change our business
practices.
Additional litigation may be necessary in
the future to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of
the proprietary rights of others. Any litigation, regardless of outcome or merit, could result in substantial costs
and diversion of management and technical resources, any of which could materially harm our business.
Government Regulation
Our services are subject to federal and state
consumer protection laws, including laws protecting the privacy of non-public consumer information and regulations prohibiting
unfair and deceptive trade practices. In particular, under federal and state financial privacy laws and regulations,
we must provide notice to consumers of our policies on sharing non-public information with third parties, provide advance notice
of any changes to our policies and, with limited exceptions, give consumers the right to prevent sharing of their non-public personal
information with unaffiliated third parties. Furthermore, the growth and demand for online commerce could result in
more stringent consumer protection laws that impose additional compliance burdens on online companies. These consumer
protection laws could result in substantial compliance costs and could interfere with the conduct of our business.
In many states, there is currently great uncertainty
whether or how existing laws governing issues such as property ownership, sales and other taxes, libel and personal privacy apply
to the Internet and commercial online services and whether additional laws and regulations will be enacted. In addition,
new state tax regulations may subject us to additional state sales and income taxes. New legislation or regulation,
the application of laws and regulations from jurisdictions whose laws do not currently apply to our business, or the application
of existing laws and regulations to the Internet and commercial online services could result in significant additional taxes on
our business. These taxes could have an adverse effect on our cash flows and results of operations. Furthermore,
there is a possibility we may be subject to significant fines or other payments for any past failures to comply with these requirements.
The Consumer Product Safety Improvement Act
(the “Act”) became effective February 10, 2009. This law prohibits resellers from selling children’s’
products that exceed specified levels of lead and certain other chemicals. Resellers are not required to test the products
themselves. However, if they do sell such products, they could be subject to civil and/or criminal penalties. Since
the merchandise sold through our website it is shipped directly from the manufacturer/importer to the retailer, we never take
physical possession of any merchandise and could not test the products. Accordingly, to minimize our risk, we have
undertaken the following steps:
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We
have discontinued
all items which,
in our judgment,
have any significant
likelihood of being
out of compliance
with the Act. The
limited exception
to this is that
certain closeouts
may date back to
a period before
testing was commonplace. We
have discontinued
all items we believe
constitute a significant
risk of containing
inappropriate chemicals;
and
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We
have requested
that all our vendors
certify that the
products they sell
are in compliance
with the Act. They
have all complied
except for certain
vendors of close-outs
who cannot know
whether the products
they are buying
may have been produced
before these maximum
levels of permissible
lead and other
chemicals were
established.
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Employees
As of December 31, 2011, we had a total of
39 full-time employees. We have never had a work stoppage, and none of our employees are represented by a labor union. We
consider our employee relationships to be positive.
Reports to Security Holders
We file reports with the Securities and Exchange
Commission, or SEC, including annual reports, quarterly reports and other information we are required to file pursuant to US federal
securities laws. You may read and copy materials we file with the SEC at the SEC’s Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. You may obtain information from the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that
file electronically with the SEC, which is
http://www.sec.gov
.
Item 1A –
Risk Factors
Although we have recently achieved profitability,
we have a history of significant losses. If we do not maintain profitability, our financial condition and our stock price could
suffer.
We have a history of losses and accumulated
deficit. We have recently achieved profitability; however, we may not be able to sustain or increase profitability on a quarterly
or annual basis in the future. If our revenues grow more slowly than we anticipate, or if our operating expenses exceed our expectations,
our financial results would be harmed.
We will continue to incur significant operating
expenses and capital expenditures to continue to improve our software and technologies, and:
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enhance our
distribution and
order fulfillment
capabilities;
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further improve
our order processing
systems and capabilities;
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expand our
customer service
capabilities to
better serve our
customers’
needs;
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expand or modify
our product offerings;
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increase our
general and administrative
functions to support
our operations;
and
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maintain or
increase our sales,
branding and marketing
activities, including
maintaining existing,
or entering into
new online marketing
or marketing analytics
arrangements, and
continuing or increasing
our direct mail
campaigns.
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Because we may incur many of these expenses
before we receive any revenues from our efforts, our losses may be greater than the losses we would incur if we developed our
business more slowly. Further, we base our expenses in large part on our operating plans and future revenue projections. Many
of our expenses are fixed in the short term, and we may not be able to quickly reduce spending if our revenues are lower than
we project. Therefore, any significant shortfall in revenues would likely harm our business, prospects, operating results and
financial condition. In addition, we may find that these efforts are more expensive than we currently anticipate, which would
further increase our losses. Also, the timing of these expenses may contribute to fluctuations in our quarterly operating results.
A downturn in general economic conditions
may adversely affect our results of operations.
The success of our operations depends to a
significant extent upon a number of factors relating to discretionary consumer spending, including economic conditions affecting
disposable consumer income such as employment, business conditions, interest rates and taxation. There can be no assurance that
consumer spending will not be adversely affected by economic conditions, thereby impacting our growth, financial condition and
results of operations.
We may experience significant fluctuations
in our operating results and growth rate.
We may not be able to accurately forecast
our growth rate. We base our expense levels and investment plans on sales estimates. A significant portion of our expenses and
investments is fixed, and we may not be able to adjust our spending quickly enough if our sales are less than expected.
Our revenue growth may not be sustainable,
and our percentage growth rates may decrease. Our revenue and operating profit depends on the continued growth of demand for our
products and services, and our business is affected by general economic and business conditions worldwide. A softening of demand,
whether caused by changes in customer preferences or a weakening of the U.S. or global economies, may result in decreased revenue
or growth.
Our net sales and operating results will also
fluctuate for many other reasons, including due to risks described elsewhere in this section and the following:
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our
ability to retain
and increase sales
to existing customers,
attract new customers
and satisfy our
customers’
demands;
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our
ability to expand
our network of
vendors;
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our
ability to access
vendor merchandise
and fulfill orders;
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the
introduction of
competitive websites,
products and services;
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changes
in usage of the
Internet and e-commerce,
both domestically
and internationally;
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timing,
effectiveness and
costs of expansion
and upgrades to
our systems and
infrastructure;
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the
success of our
geographic, service
and product line
expansions;
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the
outcomes of legal
proceedings and
claims;
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variations
in the mix of products
and services we
sell;
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variations
in our level of
merchandise and
vendor returns;
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the
extent to which
we offer free shipping,
continue to reduce
product prices
worldwide, and
provide additional
benefits to our
customers;
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increases
in the prices of
fuel and gasoline,
as well as increases
in the prices of
other energy products
and commodities
like paper and
packing supplies;
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the
extent to which
operators of networks
between our customers
and our website
charge fees to
grant our customers
unimpaired and
unconstrained access
to our online services;
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our
ability to collect
amounts that may
become owed to
us;
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the
extent to which
use of our services
is affected by
spyware, viruses,
“phishing”
and other spam
emails, “denial
of service”
attacks, data theft,
computer intrusions
and similar events;
and
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terrorist
attacks and armed
hostilities.
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We are dependent on a limited number of
shipping companies.
We rely on a limited number of shipping companies
to deliver inventory to us and completed orders to our customers. If we are not able to negotiate acceptable terms
with these companies or they experience performance problems or other difficulties, it could negatively impact our operating results
and customer experience. In addition, our ability to ship completed orders to customers may be negatively affected
by inclement weather, fire, flood, power loss, earthquakes, labor disputes, acts of war or terrorism, acts of God and similar
factors. Third parties either drop-ship or otherwise fulfill our customers’ orders, and we are increasingly reliant
on the reliability, quality and future procurement of their services. The inability of these other companies to accurately forecast
product demand would result in unexpected costs and other harm to our business and reputation.
Our business could suffer if we are unsuccessful
in making, integrating and maintaining acquisitions and investments.
We may acquire, or invest in or enter into
joint ventures with additional companies. These transactions create risks such as:
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disruption
of our ongoing
business, including
loss of management
focus on existing
businesses;
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problems
retaining key personnel;
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additional
operating losses
and expenses of
the businesses
we acquired or
in which we invested;
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the
potential impairment
of amounts capitalized
as intangible assets
as part of the
acquisition;
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the
potential impairment
of customer and
other relationships
of the company
we acquired or
in which we invested
or our own customers
as a result of
any integration
of operations;
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the
difficulty of incorporating
acquired technology
into our offerings
and unanticipated
expenses related
to such integration;
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the
difficulty of integrating
a new company’s
accounting, financial
reporting, management,
information, human
resource and other
administrative
systems to permit
effective management,
and the lack of
control if such
integration is
delayed or not
implemented;
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the
difficulty of implementing
the controls, procedures
and policies appropriate
for a larger public
company;
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potential
unknown liabilities
associated with
a company we acquire
or in which we
invest; and
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for
foreign transactions,
additional risks
related to the
integration of
operations across
different cultures
and languages,
and the economic,
political, and
regulatory risks
associated with
specific countries.
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Finally, as a result of future acquisitions
or mergers, we may need to issue additional equity securities, spend our cash, or incur debt, contingent liabilities, or amortization
expenses related to intangible assets, any of which could reduce our profitability and harm our business.
We may not be able to adequately develop
WowMyUniverse.com.
During 2010, we made investments in a retail
website, WowMyUniverse.com. We may experience negative cash flows in the future as we continue to develop this business. We may
not have adequate cash flows from our other operations to fund the development of this business. Our experience in developing
online businesses is limited to the wholesale marketplace, and our relative lack of experience in retail commerce may be detrimental
to the success of WowMyUniverse.com. We may face exposure to business conditions and risks that are unforeseen as a result of
this lack of experience.
The loss of key senior management personnel
could negatively affect our business.
We depend on our senior management and other
key personnel, including our Chairman and Chief Executive Officer. The loss of these individuals or any of our other
current or future executive officers or key employees could harm our business, future operating prospects and results of operations.
Additionally, we do not currently maintain
“key person” life insurance policies on the lives of any of our executive officers. This lack of insurance
means that we may not have adequate compensation for the loss of the services of these individuals.
Our vendor relationships subject us to
a number of risks.
We have significant vendors that are important
to our sourcing, manufacturing and related ongoing servicing of merchandise and content. We do not have long-term arrangements
with most of our vendors to guarantee availability of merchandise, content, components, or services. If our current
vendors were to stop selling merchandise, components or services to us on acceptable terms, we may be unable to procure adequate
replacements from other vendors in a timely and efficient manner or on acceptable terms, or at all.
We depend on our relationships with third
party vendors for the products that we sell on our website. If we fail to maintain these relationships, our business will suffer.
At December 31, 2011, we had fulfillment partner
relationships with approximately 400 vendors whose products we offer for sale on our website. We depend on our fulfillment partners
to provide the product selection we offer. We plan to continue to expand the number of fulfillment partner relationships and the
number of products offered for sale by our fulfillment partners on our website. In general, we agree to offer the third
parties’ products on our website and these third parties agree to provide us with information about their products, honor
our customer service policies and ship the products directly to the customer. If we do not maintain our existing relationships
or build new relationships with third parties on acceptable commercial terms, we may not be able to offer a broad selection of
merchandise, and customers may refuse to shop at our website. In addition, manufacturers may decide not to offer particular products
for sale on the Internet. If we are unable to maintain our existing fulfillment partner relationships, or build new ones, or if
other product manufacturers refuse to allow their products to be sold via the Internet, our business and prospects would suffer
severely.
We depend upon third-party delivery services to deliver our
products to our customers on a timely and consistent basis. Deterioration in our relationship with any one of these third parties
could decrease our ability to track shipments, cause shipment delays and increase shipping costs.
We rely upon multiple third parties for the
shipment of our products. We cannot be sure these relationships will continue on terms favorable to us, if at all. Unexpected
increases in shipping costs or delivery times could harm our business, prospects, financial condition and results of operations.
If our relationships with these third parties are terminated or impaired or if these third parties are unable to deliver products
for us, whether through labor shortage, slow down or stoppage, deteriorating financial or business condition, responses to terrorist
attacks or for any other reason, we would be required to use alternative carriers for the shipment of products to our customers.
In addition, conditions such as adverse weather can prevent carriers from performing their delivery services, which can have an
adverse effect on our customers’ satisfaction with us. In any of these circumstances, we may be unable to engage alternative
carriers on a timely basis, upon favorable terms, or at all. Changing carriers would likely have a negative effect on our business,
operating results and financial condition. Potential adverse consequences include:
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reduced visibility
of order status and
package tracking;
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delays in order
processing and product
delivery;
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increased cost
of delivery, resulting
in reduced gross
margins; and
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reduced shipment
quality, which may
result in damaged
products and customer
dissatisfaction.
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A significant number of merchandise returns
could harm our business, financial condition and results of operations.
We allow our customers to return products.
If merchandise returns are significant, our business, prospects, financial condition and results of operations could be harmed.
We modify our policies relating to returns from time to time and any policies intended to reduce the number of product returns
may result in customer dissatisfaction and fewer repeat customers.
If the products that we offer on our website
do not reflect our customers’ tastes
and preferences, our sales and profit margins may decrease.
Our success depends in part on our ability
to offer products that reflect consumers’ tastes and preferences. Consumers’ tastes are subject to frequent, significant
and sometimes unpredictable changes. Because some of the products we sell consist of manufacturers’ and retailers’
excess inventory, we have limited control over some of the specific products we are able to offer for sale. If our merchandise
fails to satisfy customers’ tastes or respond to changes in customer preferences, our sales could suffer. In addition, any
failure to offer products in line with customers’ preferences could allow our competitors to gain market share. This could
have an adverse effect on our business, prospects, results of operations and financial condition.
We will have to attract and retain customers.
Our success depends on our ability to attract
and retain customers. We have relationships with online services, search engines, directories and other website and e-commerce
businesses to provide content, advertising banners and other links that direct customers to our website. We rely on these relationships
as significant sources of traffic to our website and to generate new customers. If we are unable to develop or maintain these
relationships on acceptable terms, or to develop suitable alternatives, our ability to attract new customers may be impaired and
our financial condition could be harmed. We cannot assure you we will be able to increase our revenues, if at all, in a cost-effective
manner.
Further, many online advertisers on whom we
may wish to, or presently do, rely on for services, may be reluctant to enter into or maintain relationships with us because our
competitors may be more attractive advertising clients. Additionally, failure to achieve sufficient traffic or generate sufficient
revenue from purchases originating from online advertisers may cause online advertisers to terminate their relationship with us.
Without these relationships, our revenues, business, prospects, financial condition and results of operations could suffer.
We may not be able to compete successfully
against existing or future competitors.
The online liquidation services market is
rapidly evolving and intensely competitive. Barriers to entry are minimal, and current and new competitors can launch new websites
at a relatively low cost.
We expect the online liquidation services
market to become even more competitive as traditional liquidators and online retailers develop services that compete with ours.
In addition, manufacturers and retailers may decide to create their own websites to sell their own excess inventory and the excess
inventory of third parties. Competitive pressures created by any one of our competitors, or by our competitors collectively, could
harm our business, prospects, financial condition and results of operations.
Further, as a strategic response to changes
in the competitive environment, we may from time to time make certain pricing, service or marketing decisions or acquisitions
that could harm our business, prospects, financial condition and results of operations. To the extent we enter new lines of businesses,
we expect that we would be competing with many established businesses.
Many of our current and potential competitors
have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing
and other resources than we do. In addition, online retailers and liquidation e-tailers may be acquired by, receive investments
from or enter into other commercial relationships with larger, well-established and well-financed companies. Some of our competitors
may be able to secure merchandise from manufacturers on more favorable terms, devote greater resources to marketing and promotional
campaigns, adopt more aggressive pricing or inventory availability policies and devote substantially more resources to website
and systems development than we do. Increased competition may result in reduced operating margins, loss of market share and a
diminished brand. We cannot assure you we will be able to compete successfully against current and future competitors.
Our operating results depend on our website,
network infrastructure and transaction-processing systems. Capacity constraints or system failures would harm our business and
reputation.
Any system interruptions that result in the
unavailability of our website or reduced performance of our transaction systems would reduce our transaction volume and the attractiveness
of our services to both our customers and vendors and can be expected to harm our business, prospects, operating results and financial
condition.
We use internally developed software and systems
for our website and certain aspects of our transaction processing systems. We have experienced periodic systems interruptions
due to server failure, which we believe will continue to occur from time to time. If the volume of traffic on our website or the
number of purchases made by customers substantially increases, we will need to further expand and upgrade our technology, transaction
processing systems and network infrastructure.
Our transaction processing systems and network
infrastructure may be unable to accommodate increases in traffic in the future. We may be unable to project accurately the rate
or timing of traffic increases or successfully upgrade our systems and infrastructure to accommodate future traffic levels. In
addition, we may be unable to upgrade and expand our transaction processing systems in an effective and timely manner or to integrate
any newly developed or purchased functionality with our existing systems. Any such difficulties with our transaction processing
systems or other difficulties upgrading, expanding or integrating various aspects of our systems may cause unanticipated system
disruptions, slower response times, and degradation in levels of customer service, additional expense, impaired quality and speed
of order fulfillment or delays in reporting accurate information.
If the facility where substantially all
of our computer and communications hardware is located fails, our business, results of operations and financial condition will
be harmed.
Our success, and in particular, our ability
to successfully receive and fulfill orders and provide high-quality customer service, largely depends on the efficient and uninterrupted
operation of our computer and communications systems. We have computer and communications hardware located in the eastern and
western United States that are backed up regularly. Although we have designed our back-up system in an effort to be able to provide
limited back-up website functionality in the event of a failure of our main facility, our systems and operations are vulnerable
to damage or interruption from fire, flood, power loss, telecommunications failure, terrorist attacks, acts of war, break-ins,
earthquake and similar events, and our back-up systems are not designed to handle the volume of transactions normally handled
by our primary systems. Our disaster recovery plan may be inadequate, and our business interruption insurance may be insufficient
to compensate us for losses that may occur. Despite the implementation of network security measures, our servers are vulnerable
to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions, delays, loss
or public disclosure of critical data or the inability to accept and fulfill customer orders. The occurrence of any of the foregoing
risks could harm our reputation, business, prospects, financial condition and results of operations.
We may be unable to protect our proprietary
technology or keep up with that of our competitors.
Our success depends to a significant degree
upon the protection of our software and other proprietary intellectual property rights. We may be unable to deter misappropriation
of our proprietary information, detect unauthorized use or take appropriate steps to enforce our intellectual property rights.
In addition, our competitors could, without violating our proprietary rights, develop technologies that are as good as or better
than our technology.
Our failure to protect our software and other
proprietary intellectual property rights or to develop technologies that are as good as our competitors’ could put us at
a disadvantage to our competitors. These failures could harm our business, results of operations and financial condition.
We may be accused of infringing intellectual
property rights of third parties.
Third parties may claim we infringe their
intellectual property rights. The ready availability of damages, royalties and potential for injunctive relief has increased the
defense litigation costs of patent infringement claims. Such claims, whether or not meritorious, may result in significant expenditure
of financial and managerial resources, and the payment of damages or settlement amounts. Additionally, we may become subject to
injunctions prohibiting us from using software or business processes we currently use or may need to use in the future, or requiring
us to obtain licenses from third parties when such licenses may not be available on terms acceptable to us or at all. In addition,
we may not be able to obtain on favorable terms, or at all, licenses or other rights with respect to intellectual property we
do not own in providing e-commerce services.
If we do not respond to rapid technological
changes, our services could become obsolete and we could lose customers.
To remain competitive, we must continue to
enhance and improve the functionality and features of our business. We may face material delays in introducing new services, products
and enhancements. If this happens, our customers may forgo the use of our website and use those of our competitors. The Internet
and the online commerce industry are rapidly changing. If competitors introduce new products and services using new technologies
or if new industry standards and practices emerge, our existing website and our proprietary technology and systems may become
obsolete. Our failure to respond to technological change or to adequately maintain, upgrade and develop our computer network and
the systems used to process customers’ orders and payments could harm our business, prospects, financial condition and results
of operations.
We may not be able to obtain trademark
protection for our service marks or trademarks, which could impede our efforts to build brand identity.
We have filed trademark applications with
the Patent and Trademark Office seeking registration of certain service marks and trademarks. There can be no assurance that our
applications will be successful or that we will be able to secure significant protection for our service marks or trademarks in
the United States or elsewhere. Our competitors or others could adopt product or service marks similar to our marks, or try to
prevent us from using our marks, thereby impeding our ability to build brand identity and possibly leading to customer confusion.
Any claim by another party against us or customer confusion related to our trademarks, or our failure to obtain trademark registration,
could negatively affect our future business prospects. We may need to apply for future trademark protection and there
can be no assurance that our future applications will be successful or that we will be able to secure significant protection for
our service marks or trademarks in the United States or elsewhere.
Our business and reputation may be harmed
by the listing or sale of pirated, counterfeit or illegal items by third parties.
We have received in the past, and we anticipate
we will receive in the future, communications alleging that certain items listed or sold through our website infringe third-party
copyrights, trademarks and trade names or other intellectual property rights or that we have otherwise infringed third parties’
past, current or future intellectual property rights.
We may be unable to prevent third parties
from listing unlawful goods, and we may be subject to allegations of civil or criminal liability for unlawful activities carried
out by third parties through our website. Any costs incurred as a result of liability or asserted liability relating to the sale
of unlawful goods could harm our revenues, business, prospects, financial condition and results of operations.
Resolving litigation or claims regarding patents
or other intellectual property, whether meritorious or not, could be costly, time-consuming, cause service delays, divert our
management and key personnel from our business operations, require expensive or unwanted changes in our methods of doing business
or require us to enter into costly royalty or licensing agreements, if available. As a result, these claims could harm our business.
Negative publicity generated as a result of the foregoing could damage our reputation, harm our business and diminish the value
of our brand name.
We may be liable if third parties misappropriate
our customers’ personal information.
If third parties are able to penetrate our
network security or otherwise misappropriate our customers’ personal information or credit card information, or if we give
third parties improper access to our customers’ personal information or credit card information, we could be subject to
liability. This liability could include claims for unauthorized purchases with credit card information, impersonation or other
similar fraud claims or damages for alleged violations of state or federal laws governing security protocols for the safekeeping
of customers’ personal information. This liability could also include claims for other misuses of personal information,
including unauthorized marketing purposes. Liability for misappropriation of this information could adversely affect our business.
In addition, we could incur additional expenses if new regulations regarding the use of personal information are introduced or
if government agencies investigate our privacy practices.
We rely on encryption and authentication technology
licensed from third parties to provide the security necessary to effect secure transmission of confidential information such as
customer credit card numbers. We cannot assure you that advances in computer capabilities, new discoveries in the field of cryptography
or other events or developments will not result in a compromise or breach of the algorithms we use to protect customer transaction
data. If any such compromise of our security were to occur, it could harm our reputation, business, prospects, financial condition
and results of operations. A party who is able to circumvent our security measures could misappropriate proprietary information
or cause interruptions in our operations. We may be required to expend significant capital and other resources to protect against
such security breaches or to alleviate problems caused by such breaches. We cannot assure you that our security measures will
prevent security breaches or that failure to prevent such security breaches will not harm our business, prospects, financial condition
and results of operations.
Our success is tied to the continued use
of the Internet and the adequacy of the Internet infrastructure.
Our future revenues and profits, if any, substantially
depend upon the continued widespread use of the Internet as an effective medium of commercial business. Factors which could reduce
the widespread use of the Internet include:
|
·
|
actual
or perceived lack
of security of information
or privacy protection;
|
|
·
|
possible
disruptions, computer
viruses or other
damage to Internet
servers or to users’
computers;
|
|
·
|
significant
increases in the
costs of transportation
of goods; and
|
|
·
|
governmental
regulation.
|
Credit card fraud could adversely affect
our business.
We do not carry insurance against the risk
of credit card fraud, so the failure to adequately control fraudulent credit card transactions could reduce our net revenues and
our gross margin. We have implemented technology to help us detect the fraudulent use of credit card information. However, we
may in the future suffer losses as a result of orders placed with fraudulent credit card data even though the associated financial
institution approved payment of the orders. Under current credit card practices, we may be liable for fraudulent credit card transactions
because we do not obtain a cardholder’s signature. If we are unable to detect or control credit card fraud, our liability
for these transactions could harm our business, results of operation or financial condition.
If one or more states successfully assert
that we should collect sales or other taxes on the sale of our merchandise or the merchandise of third parties that we offer for
sale, our business could be harmed.
We do not currently collect sales or other
similar taxes for physical shipments of goods into states, other than Arizona. One or more local, state or foreign jurisdictions
may seek to impose sales tax collection obligations on us even though we are engaged in online commerce, and have no physical
presence in those jurisdictions. The location of our fulfillment centers and customer service center networks, or any other operations
of the Company, establishing a physical presence in states where we are not now present, may result in additional sales and other
tax obligations. Our business could be adversely affected if one or more states or any foreign country successfully asserts that
we should collect sales or other taxes on the sale of our merchandise.
Existing or future government regulation
could harm our business.
Today there are relatively few laws specifically
directed towards conducting business on the Internet. However, due to the increasing popularity and use of the Internet, many
laws and regulations relating to the Internet are being debated at the state and federal levels. These laws and regulations could
cover issues such as user privacy, freedom of expression, pricing, fraud, quality of products and services, taxation, advertising,
intellectual property rights and information security. Applicability to the Internet of existing laws governing issues such as
property ownership, copyrights and other intellectual property issues, taxation, libel, obscenity and personal privacy could also
harm our business. For example, United States and foreign laws regulate our ability to use customer information and to develop,
buy and sell mailing lists. The vast majority of these laws was adopted prior to the advent of the Internet and do not contemplate
or address the unique issues raised thereby. Those laws that do reference the Internet are only beginning to be interpreted by
the courts and their applicability and reach are therefore uncertain. These current and future laws and regulations could harm
our business, results of operation and financial condition.
The Consumer Product Safety Improvement Act
became effective February 10, 2009 and prohibits resellers from selling children’s products that exceed specified levels
of lead and certain other chemicals. Resellers are not required to test the products themselves, however, if they do
sell such products, they could be subject to civil and/or criminal penalties. Since the merchandise sold through our
website it is shipped directly from the manufacturer/importer to the retailer, we never take physical possession of any merchandise
and could not test the products. Accordingly, to minimize our risk, we have undertaken the following steps:
|
·
|
We
have discontinued
all items which,
in our judgment,
have any significant
likelihood of being
out of compliance
with the Act. The
limited exception
to this is that
certain closeouts
may date back to
a period before
testing was commonplace. We
have discontinued
all items we believe
constitutes a significant
risk of containing
inappropriate chemicals. However,
some products or
a garment with an
inappropriate thread
or button may slip
through; and
|
|
·
|
We
have insisted that
all our vendors
certify that the
products they sell
are in compliance
with the Act. They
have all complied
except for certain
vendors of close-outs
who cannot know
whether the products
they are buying
may have been produced
before these maximum
levels of permissible
lead and other chemicals
were established.
|
Despite our efforts, it is possible we may
become subject to litigation under the Consumer Product Safety Improvement Act. Any such litigation could be expected
to harm our reputation and may impact our future business prospects and results of operations.
Laws or regulations relating to privacy
and data protection may adversely affect the growth of our Internet business or our marketing efforts.
We are subject to increasing regulation at
the federal, state and international levels relating to privacy and the use of personal user information. For example, we are
subject to various telemarketing laws that regulate the manner in which we may solicit future suppliers and customers. Such regulations,
along with increased governmental or private enforcement, may increase the cost of growing our business. In addition, many jurisdictions
have laws that limit the uses of personal user information gathered online or offline or require companies to establish privacy
policies. The Federal Trade Commission has adopted regulations regarding the collection and use of personal identifying information
obtained from children under 13. Proposed legislation in this country and existing laws in foreign countries require companies
to establish procedures to notify users of privacy and security policies, obtain consent from users for collection and use of
personal information, and/or provide users with the ability to access, correct and delete personal information stored by us. Additional
legislation regarding data security and privacy has been proposed in Congress. These data protection regulations may restrict
our ability to collect demographic and personal information from users, which could be costly or harm our marketing efforts, and
could require us to implement new and potentially costly processes, procedures and/or protective measures.
We may be subject to product liability
claims if people or property are harmed by the products we sell or if the products do not comply with government regulations.
Although we do not take legal title to any
of the merchandise sold on our website, some of the products we sell may expose us to product liability claims relating to personal
injury, death or property damage, and may require product recalls or other actions. If the products we sell do not comply with
government regulations, we may also be exposed to product liability claims. Although we maintain liability insurance,
we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be
available to us on economically reasonable terms, or at all. In addition, some of our agreements with vendors and sellers do not
indemnify us from product liability.
We are subject to payment related risks.
We accept payments using a variety of methods,
including credit card, debit card, credit accounts (including promotional financing), gift certificates, direct debit from a customer’s
bank account, physical bank check and payment upon delivery. For certain payment methods, including credit and debit cards, we
pay interchange and other fees, which may increase over time and raise our operating costs and lower our profit margins. We rely
on third parties to provide payment processing services, including the processing of credit cards, debit cards, electronic checks,
and promotional financing, and it could disrupt our business if these companies become unwilling or unable to provide these services
to us. We are also subject to payment card association operating rules, certification requirements and rules governing electronic
funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply
with these rules or requirements, we may be subject to fines and higher transaction fees and lose our ability to accept credit
and debit card payments from our customers, process electronic funds transfers, or facilitate other types of online payments,
and our business and operating results could be adversely affected.
We recently reincorporated our company
from a UK company to a Delaware company pursuant to an exemption under the Securities Act of 1933, as amended, and the SEC did
not pass upon either the adequacy or procedural requirements of the reincorporation.
On December 14, 2009, we reincorporated from
a company formed under the laws of England and Wales to a Delaware corporation. The ordinary shares of the UK based
company were exchanged for shares of common stock in the Delaware based company at a ratio of 10 ordinary shares for one share
of common stock. The securities issued in the transaction were issued in reliance on an exemption from the registration
requirements of the Securities Act, pursuant to Section 3(a)(10) promulgated thereunder. Therefore, no U.S. governmental agency,
state or federal, has reviewed the adequacy or procedural aspects of the reincorporation. In the event any such procedural requirements
were not fully met, the exemption relied upon by the Company may not be available, which could require the Company to expend substantial
time and resources to properly register the common stock, during which time holders may not be able to dispose of common stock
in the public market or on otherwise acceptable terms.
The market for our common stock may be
illiquid, and the price of our common stock might be volatile.
Shares of our common stock are currently traded
on the Pink Sheets, and it is not expected that our Common Stock will be traded on a national securities exchange like the New
York Stock Exchange or NASDAQ in the near future. Historically, the market for securities traded on the Pink Sheets
has been less liquid than the markets for securities traded on national securities exchanges. Because of such illiquidity and
the fact that our Common Stock would be valued by market-makers (if a material market develops) based on market forces which consider
various factors beyond our control, there can be no assurance that the market value of the shares at any given time would be the
same or higher than the public purchase price of our shares. In addition, the market price, if a material market develops,
could decline if the yields from other competitive investments exceed the actual dividends paid by us on our shares. The market
price of our Common Stock may be volatile in the future based on a variety of factors, including changes in general economic conditions,
developments in securities and other financial markets, our operating results, and other factors discussed in this report and/or
currently unknown to the Company.
Our common stock may be subject to the “penny stock”
rules as promulgated under the Exchange Act.
In the event that no exclusion from the definition
of “penny stock” under the Exchange Act is available, then any broker engaging in a transaction in our Common Stock
will be required to provide its customers with a risk disclosure document, disclosure of market quotations, if any, disclosure
of the compensation of the broker-dealer and its sales person in the transaction, and monthly account statements showing the market
values of our securities held in the customer’s accounts. The bid and offer quotation and compensation information
must be provided prior to effecting the transaction and must be contained on the customer’s confirmation of sale. Certain
brokers are less willing to engage in transactions involving “penny stocks” as a result of the additional disclosure
requirements described above, which may make it more difficult for holders of our Common Stock to dispose of their shares.
Item 1B —
Unresolved
Staff Comments
None.
Item 2 —
Properties
ASI, through its wholly-owned subsidiary DollarDays,
leases approximately 5,500 square feet in Scottsdale, Arizona, which houses the Company’s corporate headquarters and all
business functions. The lease term expires October 31, 2017. Rent payable in 2012 is $69,862. ASI
believes this facility is adequate to meet its current operating needs.
Item 3 —
Legal Proceedings
Neither the Company (including its subsidiaries)
nor any of our property is a party, or otherwise subject, to any material pending legal proceedings, other than ordinary routine
litigation incidental to our business.
Item 4 —
Mine Safety
Disclosures
Not Applicable
PART II
Item 5 —
Market for
Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Market Price of Common Stock (and Predecessor
Securities)
The following table sets forth the high and
low sales prices for our Common Stock for the respective periods indicated, as reported by Pink Sheets and/or the OTCBB, as applicable:
Common Stock Prices
|
|
2011 Quarters Ended
|
|
|
|
Dec 31
|
|
|
Sept 30
|
|
|
June 30
|
|
|
Mar 31
|
|
Quarterly per share stock price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
0.225
|
|
|
|
0.2
|
|
|
|
0.35
|
|
|
|
0.42
|
|
Low
|
|
|
0.12
|
|
|
|
0.12
|
|
|
|
0.12
|
|
|
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Quarters Ended
|
|
|
|
Dec 31
|
|
|
Sept 30
|
|
|
June 30
|
|
|
Mar 31
|
|
Quarterly per share stock price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
0.35
|
|
|
|
0.25
|
|
|
|
0.51
|
|
|
|
0.2
|
|
Low
|
|
|
0.09
|
|
|
|
0.1
|
|
|
|
0.04
|
|
|
|
0.01
|
|
As of December 31, 2011 our transfer agents
reported there were approximately 128 holders of record of our Common Stock. In addition we believe a substantial number
of holders of Common Stock are held in nominee or street name by brokers.
Dividends
We have not declared or paid any cash dividends
on our Common Stock, and our present policy is to retain earnings for use in our business. As of December 31, 2011 and 2010, we
had accumulated deficits of approximately $6.7 million, and accordingly, we do not expect to pay dividends on our Common Stock
for the foreseeable future.
Securities Authorized for Issuance Under
Equity Incentive Compensation Plans
1995 Incentive Stock Option Plan
We have a 1995 Incentive Stock Option Plan
for U.S. employees (the “1995 Plan”), which provide for the issuance of stock options to employees and outside consultants
of ASI to purchase shares of Common Stock. As of the date of this report, no shares are available for issuance under the 1995
Plan. Stock options were generally granted at prices of not less than 100% of the fair market value of the ordinary
shares on the date of grant. Options granted under our option plans generally vest over a four-year period. Options are exercisable
until the tenth anniversary of the date of grant unless they lapse before that date.
|
|
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)
|
|
|
Weighted-average exercise
price of outstanding
options, warrants and
rights
(b)
|
|
|
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
|
|
Equity compensation plans approved by security holders
|
|
|
382,599
|
|
|
$
|
1.77
|
|
|
|
0
|
|
Equity compensation plans not approved by security holders
|
|
|
0
|
|
|
|
n/a
|
|
|
|
0
|
|
Total
|
|
|
382,599
|
|
|
$
|
1.77
|
|
|
|
0
|
|
2009 Long Term Incentive Compensation Plan
We have a 2009 Long Term Incentive Compensation
Plan (the “2009 Plan”), which provides for the issuance of stock options, warrants and other securities to employees
and outside consultants of ASI to purchase shares of Common Stock. A maximum of 2,000,000 shares may be issued under the 2009
Plan. Stock options are generally granted at prices of not less than 100% of the fair market value of the common stock
on the date of grant. Options granted under our option plans generally vest over a four year period. Options are exercisable until
the tenth anniversary of the date of grant unless they lapse before that date.
|
|
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)
|
|
|
Weighted-average exercise
price of outstanding
options, warrants and
rights
(b)
|
|
|
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
|
|
Equity compensation plans approved by security holders
|
|
|
460,086
|
|
|
$
|
0.20
|
|
|
|
1,539,914
|
|
Equity compensation plans not approved by security holders
|
|
|
630,000
|
|
|
$
|
0.20
|
|
|
|
n/a
|
|
Total
|
|
|
1,090,086
|
|
|
|
0.20
|
|
|
|
1,539,914
|
|
The tables above reflect the status of the Company’s equity
compensation plans as of December 31, 2011.
Recent Sales of Unregistered Securities
None.
Item 6 —
Selected Financial Data
Not required for smaller reporting companies.
Item 7 —
Management’s
Discussion and Analysis of Financial Condition and
Results of Operations
Except for the historical information contained
in this Annual Report on
Form 10-K, the matters discussed herein are forward-looking statements.
Words such as “anticipates,”
“believes,” “expects,” “future,” and “intends,” and
similar expressions
are used to identify forward-looking statements. These and other
statements regarding matters that are not historical are
forward-looking statements.
These matters involve risks and uncertainties that could cause actual results to
differ
materially from those in the forward-looking statements. Factors that could
cause or contribute to such differences in
results and outcomes include without
limitation those discussed below as well as those discussed elsewhere in this Report.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management’s
analysis only as of the date hereof. We assume
no obligation to update these forward-looking statements to reflect actual
results
or changes in factors or assumptions affecting such forward-looking statements.
Executive Overview
We develop software programs that allow us
to provide general merchandise for resale to businesses through our website at
www.DollarDays.com
. We have been
recognized as a leader in the Internet wholesale market of discounted merchandise by a leading business periodical and trade associations. Our
objective is to provide a one-stop discount shopping destination for general merchandise for smaller distributors, retailers and
non-profits nationwide seeking single and small cased-sized lots at bulk prices. We launched our first website in October
2001. The site offers customers an opportunity to shop for bargains conveniently, while offering our suppliers an alternative
sales channel. We believe our 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 lots, with no minimum purchase requirements at discounted prices. We
believe the prevailing reason our business has been able to obtain bulk pricing for single case lots is our ability to reach smaller
distributors, retailers and non-profits that most general merchandise suppliers cannot economically reach. We provide all the
logistics and customer support to serve this sales channel and grow our customer base.
We continually add new, limited inventory
products to our website in order to create an atmosphere that encourages customers to visit frequently and purchase products before
the inventory sells out. Through our Internet catalog, we offer approximately 150,000 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
sales staff, collect payment in the form of credit or debit card, PayPal or similar means, and coordinate with manufacturers,
importers and close-out 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.
Our 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 audience is smaller businesses.
Recent Developments
New Business Ventures
In December 2009, we entered into a series
of agreements to develop WowMyUniverse.com, Inc. (“Wow”), a retail online business to sell directly to consumers,
and Business Calcium, Inc. (“Business Calcium”), a website development company. Under these agreements, we were obligated
to pay an aggregate of $260,000 beginning in January 2010, consisting of $60,000 for consulting fees and $200,000 in exchange
for a 25% equity interest in Business Calcium and a 90% interest in Wow. As part of these agreements, Business Calcium owned the
remaining 10% interest in Wow. As of December 31, 2011, all amounts were paid under this agreement.
From inception through September 30, 2010,
Business Calcium and Wow incurred net operating losses of $96,219 and $98,153, respectively, as these entities were in the development
stage and had yet to generate revenues. Business Calcium was accounted for as an equity-method investment and our proportionate
share of their losses were $24,055 which is reflected in other income (expense) in the accompanying consolidated income statement.
Wow was accounted for as a consolidated subsidiary, and the non-controlling interest in Wow’s losses were $9,187 from inception
through September 30, 2010.
On October 1, 2010, we entered into an agreement
with Business Calcium to exchange our 25% investment in Business Calcium and a $50,000 promissory note for Business Calcium’s
10% non-controlling interest in WOW. The unsecured note bears interest at 6% annually and, together with accrued interest, is
reflected as a note receivable on the consolidated balance sheets included herein. The debtor is currently delinquent on its payments
but the Company expects to collect the entire balance of the note receivable.
During 2010 and 2011, most of our activities related to WowMyUniverse.com
consisted of website development and marketing activities. Total Sales for WowMyUniverse.com were $185,000 for the year ended
December 31, 2011.
Loss from Coupon Promotion
We have been utilizing various promotional
campaigns over the past twelve months that have yielded substantial increases in revenues. However, we encountered unforeseen
losses during the three months ended June 30, 2011 related to one of these campaigns. On April 12, 2011, we launched a promotional
campaign on our website (www.dollardays.com) providing for free shipping in connection with orders of school supplies. On that
date, certain coupon sites suggested that their patrons combine the free shipping offer with coupons previously distributed in
March for $20 for a Facebook promotion. Within 90 minutes, 23 coupon sites picked up this social marketing, which resulted in
an overwhelming and unexpected customer response. We honored customer orders that were placed while we were addressing the error
in our ordering system. This error resulted in losses of approximately $214,000 during the three months ended June 30, 2011 comprised
of coupon redemption costs and shipping costs of the products. We have implemented additional operational controls to prevent
similar occurrences in the future.
Critical Accounting Estimates and Assumptions
The preparation of our consolidated financial
statements in conformity with accounting principles generally accepted in the United States of America requires our management
to make certain 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 reported amounts of revenues and expenses during the reporting
period. As such, in accordance with the use of accounting principles generally accepted in the United States of America,
our actual realized results may differ from management’s initial estimates as reported. Summaries of our significant
accounting policies are detailed in the notes to the consolidated financial statements, which are an integral component of this
filing.
The following summarizes critical estimates
made by management in the preparation of the consolidated financial statements.
Accounts Receivable
Accounts receivable represent amounts earned
but not collected in connection with the Company’s sales. 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 December 31, 2011 and 2010 was $0 as the Company expected to collect substantially all amounts due. Bad
debt expense for the years ended December 31, 2011 and 2010 was $27,876 and $4,554, 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 December 31, 2011 and 2010 was $0 and $17,601, respectively. Sales
returns expense for the years ended December 31, 2011 and 2010 was $416,207 and $444,205, respectively.
Property and Equipment
Property and equipment are stated at cost,
net of accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over
the estimated useful lives of the respective assets, generally three to five years. Leasehold improvements and assets recorded
under capital leases are amortized on a straight-line basis over the shorter of the assets' useful lives or lease terms. Depreciation
and amortization expense was $91,542 and $81,481 for the years ended December 31, 2011 and 2010, respectively.
The Company capitalizes website development
costs in accordance with the provisions of Accounting Standards Codification (“ASC”) 350. Generally, the
Company capitalizes costs incurred to develop its website applications and infrastructure. Capitalized website development
costs totaled $100,086 and $71,000 for the years ended December 31, 2011 and 2010, respectively.
Long-lived Assets
In accordance with ASC 360, which requires
that long-lived assets to be held and used be reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.
We evaluate our long-lived assets for impairment
whenever changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted cash flows expected
to be generated by the asset. If assets are considered to be impaired, the impairment to be recognized is measured by the amount
by which the carrying amounts exceed the fair values of the assets. Assets to be disposed of are reported at the lower of carrying
values or fair values, less costs of disposal. No impairment of our long-lived assets existed at December 31, 2011 and 2010.
Deferred Financing Costs
In 2010, the Company paid $40,000 in nonrefundable
fees to an investment bank to pursue capital raise opportunities and reflected this amount as deferred financing costs in the
accompanying consolidated balance sheet at December 31, 2010. In 2011, the Company ceased pursuing such financing activities and
the amount was expensed in the accompanying consolidated statement of operations for the year ended December 31, 2011.
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 balance sheets. Allowances
for sales returns and discounts are recorded as a component of net sales in the period the allowances are recognized.
All amounts billed to customers for shipping
and handling costs are included in net revenues in the accompanying statements of operations. Actual shipping costs
incurred are reflected as a component of cost of sales in the accompanying statements of operations. Total shipping
expense included in cost of sales was $2,265,472 and $1,872,401 for the years ended December 31, 2011 and 2010, respectively.
We evaluated the provisions of ASC 605 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 our analysis, we determined that it qualifies for “gross” revenue recognition.
Income Taxes
We account for income taxes under an asset
and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in its financial statements or tax returns. In estimating future tax consequences,
we generally consider all expected future events other than enactments of changes in the tax law or rates.
Fair Value of Financial Instruments
Our financial instruments include cash and
cash equivalents, short-term investments, receivables and payables and short-term debt. The fair value of the short-term
instruments approximates fair value due to the short-term maturities of such instruments.
Stock- Based Compensation
Effective January 1, 2006, the Company adopted
the provisions of ASC 718, and accounts for equity-based compensation cost as measured at the grant date based on the fair value
of the award. The Company elected the modified-prospective method upon the adoption of ASC 718.
The Company uses the Black-Scholes option
pricing model to determine the fair value of stock options and employee stock purchase plan shares. The assumption
for the expected term was determined using the simplified method outlined in Staff Accounting Bulletin No. 110. The
risk-free interest rate is based on the US Treasury rates at the date of grant with maturity dates approximately equal to the
expected term at the grant date. The historical volatility of a representative group of peer companies’ stock is used as
the basis for the volatility assumption.
Results of Operations
During the year ended December 31, 2011, we
generated net income totaling $92,907 from our primary operating subsidiary, DollarDays. We have recently made investments in
new business ventures as outlined above which have reduced our profitability, yet we have generated net income on a consolidated
basis for four consecutive quarters. While there can be no assurance that we will continue to generate profits in the future,
we are excited about the growth of our core business and the potential of our new investments.
Net Revenues
Net Revenues
|
|
2011
|
|
|
2010
|
|
|
Change from
Prior Year
|
|
|
Percent Change
from Prior Year
|
|
Year Ended December 31
|
|
$
|
16,826,121
|
|
|
$
|
15,409,064
|
|
|
$
|
1,417,057
|
|
|
|
9.2
|
%
|
Net revenues increased from 2010 to 2011 due
to improved marketing and targeted advertising efforts and the launch of WowMyUniverse.com. Sales from Wow increased by approximately
$169,000 in 2011 as compared to 2010. While we cannot give absolute assurance, we believe that improved general economic conditions
also have contributed to an increase in net revenues.
Factors that influence future revenue growth
include general economic conditions, our ability to attract vendors that offer compelling products and the impact of our marketing
activities.
Cost of Goods Sold
Cost of Goods Sold
|
|
2011
|
|
|
2010
|
|
|
Change from
Prior Year
|
|
|
Percent Change
from Prior Year
|
|
Year Ended December 31
|
|
$
|
11,338,604
|
|
|
$
|
10,399,870
|
|
|
$
|
938,734
|
|
|
|
9.0
|
%
|
Cost of goods sold increased from 2010 to 2011 due primarily to
increased sales. Gross margin was 33.6% in 2010 and 2011. However, during 2011 we experienced favorable growth in margins which
was offset by the impacts of the coupon promotion described above for which we experienced gross margin of ($72,000) on sales
of approximately $143,000.
Factors which may influence the cost of goods
sold include our general sales volumes, negotiated terms with vendors and general economic conditions.
Sales and Marketing Expenses
Sales and Marketing
|
|
2011
|
|
|
2010
|
|
|
Change from
Prior Year
|
|
|
Percent Change
from Prior Year
|
|
Year Ended December 31
|
|
$
|
3,598,236
|
|
|
$
|
3,013,803
|
|
|
$
|
584,433
|
|
|
|
19.4
|
%
|
Sales and marketing expenses include fees
for attracting users to our site, including search engine optimization, telemarketing and other marketing efforts as well as promotional
activities to increase sales by end users. Sales and marketing expenses increased from 2010 to 2011 due to increases
in marketing, targeted advertising and web search optimization efforts as well as the impacts of the coupon promotion described
above for which we incurred additional promotion costs of $142,000. As our revenue growth exceeded that of sales and marketing
expenditures, we believe that we are making improvements in the efficiency and effectiveness of our sales and marketing efforts.
Factors influencing sales and marketing expenses
include strategic decisions with respect to the cost-effectiveness of each of our marketing activities.
General and Administrative Expenses
General and Administrative
|
|
2011
|
|
|
2010
|
|
|
Change from
Prior Year
|
|
|
Percent Change
from Prior Year
|
|
Year Ended December 31
|
|
$
|
2,117,113
|
|
|
$
|
1,986,423
|
|
|
$
|
130,690
|
|
|
|
6.6
|
%
|
General and administrative expenses includes
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 from 2010 to 2011 due primarily
to an increase in stock based compensation of approximately $89,000, increased board fees of $114,000 (which were previously suspended
for cost savings purposes) and increased software and hosting expenses of $57,000, partially offset by a reduction in attorney’s
fees and miscellaneous costs associated with our new business ventures.
Factors that can 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)
|
|
2011
|
|
|
2010
|
|
|
Change from
Prior Year
|
|
|
Percent Change
from Prior Year
|
|
Year Ended December 31
|
|
$
|
6,419
|
|
|
$
|
(28,375
|
)
|
|
$
|
34,794
|
|
|
|
122.6
|
%
|
Other income (expense) in 2011 consisted of
interest income. Other income (expense) in 2010 consisted of a loss of $24,055 associated with our equity-method investment in
Business Calcium which we have divested in October 2010, and other miscellaneous losses.
Net Income (Loss)
Net Income (Loss)
|
|
2011
|
|
|
2010
|
|
|
Change from
Prior Year
|
|
|
Percent Change
from Prior Year
|
|
Year Ended December 31
|
|
$
|
5,395
|
|
|
$
|
224,435
|
|
|
$
|
(219,040
|
)
|
|
|
(97.6
|
)%
|
Net income (loss) decreased from 2010 to 2011
due primarily to the impacts of the coupon promotion described above.
Liquidity and Capital Resources
Our operating cash flows decreased by $775,052
to $(8,945) for the year ended December 31, 2011 as compared to $766,107 for the year ended December 31, 2010. This decrease was
attributable to a decrease in net income of $228,227, and a decrease of $685,532 in the management of working capital and other
assets and liabilities, partially offset by a $138,707 increase in non-cash charges and other adjustments.
Cash flows from investing activities were
$266,955 for the year ended December 31, 2011, consisting of $500,000 of maturities in short term investments, $30,000 of loans
to Business Calcium and $203,045 of purchases of equipment. Cash outflows from investing activities were ($406,993) for the year
ended December 31, 2010, consisting of $115,000 of purchases of short term investments, $100,395 of cash investments in Business
Calcium (which was divested in October 2010), $20,000 of loans to Business Calcuim and $171,598 of purchases of equipment and
website development costs, primarily associated with WowMyUniverse.com.
There were no cash flows from financing for
the year ended December 31, 2011. Financing cash outflows were ($40,000) for the year ended December 31, 2010 and represent deferred
financing costs paid to a third party to assist us with raising capital to expand our WowMyUniverse.com operations.
The Company intends to generate operating
cash flows through the growth of its existing business, the improvement of operating margins and by growth through acquisitions.
Although there can be no assurance, management believes that such measures and its existing cash on hand and liquid assets will
provide it with enough liquidity to operate its current business and continue as a going concern in the short term.
The Company has the following obligations
under non-cancelable lease commitments as of December 31, 2011:
2012
|
|
|
111,485
|
|
2013
|
|
|
98,635
|
|
2014
|
|
|
78,731
|
|
2015
|
|
|
76,341
|
|
2016
|
|
|
78,631
|
|
Thereafter
|
|
|
67,156
|
|
Total
|
|
$
|
510,979
|
|
Off Balance Sheet Arrangements
The Company did not have any off-balance sheet
arrangements at December 31, 2011 and 2010.
New Accounting Pronouncements
We do not expect the adoption of recently
issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.
Item 7A
— Quantitative and Qualitative
Disclosures About Market Risk
Not required for smaller reporting companies.
Item 8
— Financial Statements
and Supplementary Data
The financial statements included in this
report under this item are set forth beginning on Page F-1 of this report, immediately following the signature pages.
Item 9 —
Changes in and
Disagreements with Accountants on Accounting and
Financial Disclosure
None
Item 9A — Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered in this report, our disclosure
controls and procedures were effective to ensure that information required to be disclosed in reports filed under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control
over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)).
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness
of our internal control over financial reporting as of December 31, 2011. In making this assessment, we used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control — Integrated
Framework. Based on our assessment using those criteria, our management concluded that our internal control over financial reporting
was effective as of December 31, 2011.
Item 9B —
Other Information
None.
PART III
Item 10 —
Directors,
Executive Officers and Corporate Governance
The information required by this item is incorporated
by reference from the information to the Company’s definitive proxy statement for the Annual Meeting of Shareholders to
be held later this year.
Item 11 —
Executive
Compensation
The information required by this item is incorporated
by reference from the information to the Company’s definitive proxy statement for the Annual Meeting of Shareholders to
be held later this year.
Item 12 —
Security Ownership
of Certain Beneficial Owners and Management
and Related Stockholder Matters
The information required by this item is incorporated
by reference from the information to the Company’s definitive proxy statement for the Annual Meeting of Shareholders to
be held later this year.
Item 13 —
Certain
Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated
by reference from the information to the Company’s definitive proxy statement for the Annual Meeting of Shareholders to
be held later this year.
Item 14 —
Principal
Accounting Fees and Services
The information required by this item is incorporated
by reference from the information to the Company’s definitive proxy statement for the Annual Meeting of Shareholders to
be held later this year.
PART IV
Item 15 — Exhibits and Financial
Statement Schedules
(a) Documents filed as part of this report:
1.
Financial Statements and
Reports
The consolidated financial statements included
in Part II, Item 8 of this Annual Report on Form 10-K are filed as part of this Report.
2. Financial Statements Schedule
Other financial statement schedules have been
omitted because either the required information (i) is not present, (ii) is not present in amounts sufficient to require submission
of the schedule or (iii) is included in the Consolidated Financial Statements and Notes thereto under Part II, Item 8 of this
Annual Report on Form 10-K.
3.
Exhibits
The exhibit list in the Index to Exhibits
is incorporated herein by reference as the list of exhibits required as part of this Report.
SIGNATURES
Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on March 14, 2012.
|
AMERICA’S SUPPLIERS, INC.
|
|
|
|
|
By:
|
/s/ Marc Joseph
|
|
|
Marc Joseph
|
|
|
President and Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
|
|
|
|
By:
|
/s/ Michael Moore
|
|
|
Michael Moore
|
|
|
Chief Financial Officer (Principal Financial and Accounting Officer)
|
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities
and on the dates indicated:
Signature
|
|
Capacity
|
|
Date
|
|
|
|
|
|
/s/ Christopher Baker
|
|
Chairman
|
|
March 14, 2012
|
Christopher Baker
|
|
|
|
|
|
|
|
|
|
/s/ Marc Joseph
|
|
Director
|
|
March 14, 2012
|
Marc Joseph
|
|
|
|
|
|
|
|
|
|
/s/ Vincent Pino
|
|
Director
|
|
March 14, 2012
|
Vincent Pino
|
|
|
|
|
|
|
|
|
|
/s/ Justiniano Gomes
|
|
Director
|
|
March 14, 2012
|
Justiniano Gomes
|
|
|
|
|
|
|
|
|
|
/s/ Eric Best
|
|
Director
|
|
March 14, 2012
|
Eric Best
|
|
|
|
|
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Document
|
|
Page
|
Report of Independent Registered Public Accounting Firm
|
|
F-2
|
Consolidated Balance Sheets
|
|
F-3
|
Consolidated Statements of Operations
|
|
F-4
|
Consolidated Statements of Changes in Shareholders’ Equity (Deficit)
|
|
F-5
|
Consolidated Statements of Cash Flows
|
|
F-6
|
Notes to Consolidated Financial Statements
|
|
F-7
|
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors
America’s Suppliers, Inc.
Scottsdale, Arizona
We have audited the accompanying consolidated
balance sheets of America’s Suppliers, Inc. and its subsidiaries (collectively the “Company”) as of December
31, 2011 and 2010 and the related consolidated statements of operations, changes in shareholders’ equity (deficit) and
cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance
with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the consolidated financial position of America’s Suppliers,
Inc. and its subsidiaries as of December 31, 2011 and 2010 and the consolidated results of their operations and their cash flows
for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/
MALONEBAILEY, LLP
|
|
www.malone-bailey.com
|
Houston, Texas
|
March 13, 2012
|
AMERICA’S SUPPLIERS, INC.
CONSOLIDATED BALANCE SHEETS
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
655,219
|
|
|
$
|
397,209
|
|
Certificates of deposit
|
|
|
425,031
|
|
|
|
900,000
|
|
Accounts receivable, net
|
|
|
148,905
|
|
|
|
85,479
|
|
Inventory
|
|
|
38,908
|
|
|
|
1,318
|
|
Note receivable - current portion
|
|
|
53,008
|
|
|
|
-
|
|
Prepaid expenses and other current assets
|
|
|
62,462
|
|
|
|
71,273
|
|
Total current assets
|
|
|
1,383,533
|
|
|
|
1,455,279
|
|
Property and equipment, net
|
|
|
467,263
|
|
|
|
355,760
|
|
Deferred financing costs
|
|
|
-
|
|
|
|
40,000
|
|
Note receivable
|
|
|
-
|
|
|
|
20,000
|
|
Deposits and other assets
|
|
|
7,250
|
|
|
|
37,264
|
|
Total assets
|
|
$
|
1,858,046
|
|
|
$
|
1,908,303
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,679,366
|
|
|
$
|
1,540,510
|
|
Accrued expenses
|
|
|
138,143
|
|
|
|
504,902
|
|
Deferred revenue
|
|
|
30,000
|
|
|
|
8,569
|
|
Other liabilities
|
|
|
2,931
|
|
|
|
4,487
|
|
Total current liabilities
|
|
|
1,850,440
|
|
|
|
2,058,468
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity (deficit):
|
|
|
|
|
|
|
|
|
Preferred shares, $0.001 par value, 1,000,000 shares authorized, no shares outstanding at December 31, authorized, no shares outstanding at December 31, 2011 and December 31, 2010
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001 par value, 50,000,000 shares authorized, 13,970,339 and 14,255,857 shares issued and outstanding at December 31, 2011 and December 31, 2010, respectively
|
|
|
13,970
|
|
|
|
14,256
|
|
Additional paid in capital
|
|
|
6,703,625
|
|
|
|
6,550,963
|
|
Accumulated deficit
|
|
|
(6,709,989
|
)
|
|
|
(6,715,384
|
)
|
Total shareholders' equity (deficit)
|
|
|
7,606
|
|
|
|
(150,165
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity (deficit)
|
|
$
|
1,858,046
|
|
|
$
|
1,908,303
|
|
See accompanying notes to consolidated
financial statements.
AMERICA’S SUPPLIERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
Year ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
16,826,121
|
|
|
$
|
15,409,064
|
|
Advertising revenue
|
|
|
238,547
|
|
|
|
243,842
|
|
Cost of goods sold
|
|
|
11,338,604
|
|
|
|
10,399,870
|
|
Gross profit
|
|
|
5,726,064
|
|
|
|
5,253,036
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
3,598,236
|
|
|
|
3,013,803
|
|
General and administrative
|
|
|
2,117,113
|
|
|
|
1,986,423
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
5,715,349
|
|
|
|
5,000,226
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
10,715
|
|
|
|
252,810
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Loss from equity investment
|
|
|
-
|
|
|
|
(24,055
|
)
|
Other income (expense)
|
|
|
6,419
|
|
|
|
(4,320
|
)
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
6,419
|
|
|
|
(28,375
|
)
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
17,134
|
|
|
|
224,435
|
|
Income tax expense
|
|
|
(11,739
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
5,395
|
|
|
|
224,435
|
|
Less: net loss attributable to noncontrolling interest
|
|
|
-
|
|
|
|
(9,187
|
)
|
|
|
|
|
|
|
|
|
|
Net income attributable to America's Suppliers, Inc.
|
|
$
|
5,395
|
|
|
$
|
233,622
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
-
|
|
|
$
|
0.02
|
|
Diluted
|
|
$
|
-
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
Basic
|
|
|
13,430,054
|
|
|
|
12,964,732
|
|
Diluted
|
|
|
13,600,289
|
|
|
|
13,191,093
|
|
See accompanying notes to consolidated
financial statements.
AMERICA’S SUPPLIERS, INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid in
|
|
|
Accumulated
|
|
|
Controlling
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Interest
|
|
|
Total
|
|
Balance at December 31, 2009
|
|
|
12,925,348
|
|
|
|
12,925
|
|
|
|
6,574,345
|
|
|
|
(6,949,006
|
)
|
|
|
-
|
|
|
|
(361,736
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of noncontrolling interest in subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,187
|
|
|
|
9,187
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
233,622
|
|
|
|
(9,187
|
)
|
|
|
224,435
|
|
Issuance of unvested shares
|
|
|
1,180,509
|
|
|
|
1,181
|
|
|
|
(1,181
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Issuance of vested shares
|
|
|
150,000
|
|
|
|
150
|
|
|
|
(150
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Stock based compensation - warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
23,968
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,968
|
|
Stock based compensation - stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
7,917
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,917
|
|
Stock based compensation - stock awards
|
|
|
-
|
|
|
|
-
|
|
|
|
31,591
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31,591
|
|
Reacquisition of noncontrolling interest in
subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
(85,527
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(85,527
|
)
|
Balance at December 31, 2010
|
|
|
14,255,857
|
|
|
$
|
14,256
|
|
|
$
|
6,550,963
|
|
|
$
|
(6,715,384
|
)
|
|
$
|
-
|
|
|
$
|
(150,165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,395
|
|
|
|
|
|
|
|
5,395
|
|
Cancelled unvested shares
|
|
|
(285,518
|
)
|
|
|
(286
|
)
|
|
|
286
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Stock based compensation - stock options
|
|
|
|
|
|
|
|
|
|
|
37,780
|
|
|
|
|
|
|
|
|
|
|
|
37,780
|
|
Stock based compensation - stock awards
|
|
|
|
|
|
|
|
|
|
|
114,596
|
|
|
|
|
|
|
|
|
|
|
|
114,596
|
|
Balance at December 31, 2011
|
|
|
13,970,339
|
|
|
$
|
13,970
|
|
|
$
|
6,703,625
|
|
|
$
|
(6,709,989
|
)
|
|
$
|
-
|
|
|
$
|
7,606
|
|
See accompanying notes to consolidated financial
statements.
AMERICA’S SUPPLIERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,395
|
|
|
$
|
233,622
|
|
Adjustments to reconcile net income to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Loss from equity investment
|
|
|
-
|
|
|
|
24,055
|
|
Loss attributable to noncontrolling interest
|
|
|
-
|
|
|
|
(9,187
|
)
|
Depreciation and amortization
|
|
|
91,542
|
|
|
|
81,481
|
|
Bad debt expense
|
|
|
27,876
|
|
|
|
4,554
|
|
Loss on disposal of fixed assets
|
|
|
-
|
|
|
|
8,708
|
|
Stock-based compensation
|
|
|
152,376
|
|
|
|
63,476
|
|
Write-off of deferred financing costs
|
|
|
40,000
|
|
|
|
-
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(91,302
|
)
|
|
|
(21,926
|
)
|
Inventory
|
|
|
(37,590
|
)
|
|
|
(1,318
|
)
|
Prepaid and other current assets
|
|
|
8,811
|
|
|
|
3,856
|
|
Deposits and other assets
|
|
|
4,983
|
|
|
|
(5,013
|
)
|
Accounts payable
|
|
|
138,856
|
|
|
|
502,730
|
|
Accrued expenses
|
|
|
(366,759
|
)
|
|
|
(109,929
|
)
|
Accrued interest on note receivable
|
|
|
(3,008
|
)
|
|
|
-
|
|
Deferred revenue
|
|
|
21,431
|
|
|
|
(7,674
|
)
|
Other liabilities
|
|
|
(1,556
|
)
|
|
|
(1,328
|
)
|
Net cash provided by (used in) operating activities
|
|
|
(8,945
|
)
|
|
|
766,107
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of certificates of deposit
|
|
|
-
|
|
|
|
(115,000
|
)
|
Maturities of certificates of deposit
|
|
|
500,000
|
|
|
|
-
|
|
Investment in Business Calcium
|
|
|
-
|
|
|
|
(100,395
|
)
|
Loans to Business Calcium
|
|
|
(30,000
|
)
|
|
|
(20,000
|
)
|
Purchases of property and equipment
|
|
|
(203,045
|
)
|
|
|
(171,598
|
)
|
Net cash provided by (used in) investing activities
|
|
|
266,955
|
|
|
|
(406,993
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Payment of deferred financing costs
|
|
|
-
|
|
|
|
(40,000
|
)
|
Net cash used in financing activities
|
|
|
-
|
|
|
|
(40,000
|
)
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents
|
|
|
258,010
|
|
|
|
319,114
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
397,209
|
|
|
|
78,095
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
|
655,219
|
|
|
|
397,209
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash paid for income taxes
|
|
$
|
11,739
|
|
|
$
|
-
|
|
See accompanying notes to consolidated financial
statements.
AMERICA’S SUPPLIERS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1: BACKGROUND
On December 14, 2009, America’s
Suppliers, Inc., a Delaware corporation (“ASI” or the “Company”), became the holding company of Insignia
Solutions plc, a public limited company incorporated in England and Wales (“Insignia”), pursuant to a scheme of arrangement
under Section 897 of the UK Companies Act of 2006 that was approved by the Insignia stockholders on November 30, 2009 and the High
Court of Justice in England and Wales on December 14, 2009 (the “Scheme of Arrangement”). Pursuant to the
Scheme of Arrangement, every ordinary share, 1 pence par value per share, of Insignia (the “Ordinary Shares”) was exchanged
and cancelled at a ratio of ten Ordinary Shares for one share of common stock, $0.001 par value per share (the “Common Stock”),
of ASI (the “Exchange Ratio”). All data for common stock, options and warrants have been adjusted to reflect
the one-for-ten reverse split for all periods presented. In addition, all common stock prices and per share data for all periods
presented have been adjusted to reflect the one-for-ten reverse stock split. Insignia is now a wholly-owned subsidiary
of ASI.
Insignia commenced operations in 1986
and until April 2007 developed, marketed and supported Mobile Device Management (“MDM”) software technologies that
enable mobile operators and phone manufacturers to configure, update and upgrade mobile devices using standard over-the-air data
networks.
In April 2007 Insignia sold substantially
all its assets to Smith Micro Software, Inc. From April 2007 until June 23, 2008, Insignia did not generate any revenues
from operations and operated as a shell company.
On June 23, 2008, DollarDays International LLC (“DollarDays”)
entered into a series of transactions to effect a reverse merger with Insignia (the “Merger”). These transactions
consisted of the following:
|
·
|
DollarDays formed a wholly owned Delaware
corporation DollarDays International, Inc. (“DDI Inc.”) and contributed all its assets and liabilities in exchange
for 100% of the stock of DDI Inc.
|
|
·
|
DDI Inc. merged with Jeode, Inc., a Delaware
corporation and a wholly-owned subsidiary of Insignia, whereby DDI Inc. was the surviving corporation and a wholly-owned subsidiary
of Insignia and Insignia issued 7,333,333 American Depository Receipts (“ADSs”), which were common stock equivalents
of Insignia in exchange for all of the outstanding common stock of DDI Inc.
|
|
·
|
The combined entity issued 768,292 ADSs
to a new investor in exchange for $550,000 and the conversion of a note payable of $450,000.
|
Under the agreement and plan of merger,
Insignia shareholders maintained approximately 37.1% ownership of the combined company, DDI Inc. shareholders obtained 56.7%, and
a new investor obtained 6.2% of the combined company stock. The Merger is accounted for as a reverse merger whereby
DDI Inc. is the accounting acquirer resulting in a recapitalization of DDI Inc. equity. Accordingly, the Company has
retroactively restated all equity and per share amounts for periods prior to the Merger to reflect the equivalent amounts based
on the exchange ratio set forth in the Merger.
DDI Inc., through its website, www.DollarDays.com,
is an Internet based wholesaler of general merchandise to small independent resellers. Orders are placed by customers
through the website where, upon successful payment, the merchandise is shipped directly from the vendors’ warehouses.
The consolidated financial statements
set forth herein include the accounts and results of ASI, DDI Inc. and the results of Insignia and its subsidiaries beginning with
the date of acquisition of the Merger. Because DDI Inc. is the accounting acquirer in the Merger, all historical financial
information for periods prior to June 23, 2008 are those of DDI Inc. and do not reflect the activities of Insignia. All
intercompany amounts are eliminated in consolidation.
Certain reclassifications have
been made to prior period reported amounts to conform to current year presentation.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and principles
of consolidation
The consolidated financial statements
are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States
of America and include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts
and transactions are eliminated in consolidation.
Use of estimates
The preparation of 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 amounts reported in the consolidated financial statements. Actual results could differ from
those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid
investments with original maturities of three months or less to be cash equivalents. Cash and cash equivalents consist of cash
on deposit with domestic banks and, at times, may exceed federally insured limits.
Short Term Investments
Short term investments consist principally
of certificates of deposits (“CDs”) with original maturities more than three months. The Company invests
in CDs issued by domestic banks and, at times, may exceed federally insured limits.
Accounts Receivable
Accounts receivable represent amounts
earned but not collected in connection with the Company’s sales. 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 December 31, 2011 and 2010 was $0 as the Company expected to collect substantially all amounts due. Bad
debt expense for the years ended December 31, 2011 and 2010 was $27,876 and $4,554, 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 December 31, 2011 and 2010 was $0 and $17,601, respectively. Sales returns expense
for the years ended December 31, 2011 and 2010 was $416,207 and $444,205, respectively.
Inventory
Substantially all of the Company’s
sales orders are shipped directly from the Company’s vendors. Accordingly, such inventory is not reflected on the consolidated
financial statements at December 31, 2011 and 2010, respectively. Inventory consists of product returns and other miscellaneous
items and are carried at the lower of cost or market.
Property and Equipment
Property and equipment are stated at
cost, net of accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method
over the estimated useful lives of the respective assets, generally three to five years. Leasehold improvements and assets recorded
under capital leases are amortized on a straight-line basis over the shorter of the assets' useful lives or lease terms. Depreciation
and amortization expense was $91,542 and $81,481 for the years ended December 31, 2011 and 2010, respectively.
The Company capitalizes website development
costs in accordance with the provisions of Accounting Standards Codification (“ASC”). Generally, the Company capitalizes
costs incurred to develop its website applications and infrastructure. Capitalized website development costs totaled $100,086 and
$71,000 for the years ended December 31, 2011 and 2010, respectively.
Long-lived Assets
In accordance with ASC 360-10, which
requires that long-lived assets to be held and used be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
The Company evaluates its long-lived
assets for impairment annually whenever changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted
cash flows expected to be generated by the asset. If assets are considered to be impaired, the impairment to be recognized is measured
by the amount by which the carrying amounts exceed the fair values of the assets. Assets to be disposed of are reported at the
lower of carrying values or fair values, less costs of disposal. The Company recognized no impairment loss at December 31, 2011
or 2010.
Deferred Financing Costs
In 2010, the Company paid $40,000 in
nonrefundable fees to an investment bank to pursue capital raise opportunities and reflected this amount as deferred financing
costs in the accompanying consolidated balance sheet at December 31, 2010. In 2011, the Company ceased pursuing such financing
activities and the amount was expensed in the accompanying consolidated statement of operations for the year ended December 31,
2011.
Deferred Rent
The Company is a lessee under an operating
lease with escalating lease payments (see Note 7). In accordance with the provisions of ASC 840, rent expense is recognized
on a straight line basis over the life of lease. Deferred rent was $2,931 and $4,487 at December 31, 2011 and 2010,
respectively, and is included in other current liabilities in the accompanying consolidated balance sheets.
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 net sales in the period the allowances
are recognized.
All amounts billed to customers for
shipping and handling costs are included in net revenues in the consolidated statement of operations. Actual shipping
costs incurred are reflected as a component of cost of sales in the accompanying consolidated statements of operations. Total
shipping expense included in cost of sales was $2,265,472 and $1,872,401 for 2011 and 2010, respectively.
The Company has evaluated the provisions
of ASC 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 website in accordance with the terms of the advertising arrangement.
Advertising
The Company’s advertising activities
consist of telemarketing, search engine optimization; Internet based advertising and other advertising activities. The
Company expenses advertising costs as incurred. Advertising expense was $1,241,892 and $1,036,871 for 2011
and 2010, respectively.
Income Taxes
The Company accounts for income taxes
under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in its financial statements or tax returns. In estimating future
tax consequences, the Company generally considers all expected future events other than enactments of changes in the tax law or
rates.
Prior to the Merger, the Company was
an LLC, a pass-through entity for income tax purposes. In connection with the Merger, the Company formed a wholly owned
Delaware corporation and contributed all its assets and liabilities in exchange for 100% of the stock of DDI Inc. No
provision for income taxes have been reflected on the books of the Company prior to the Merger based on the pass-through nature
of the Company.
Fair Value of Financial Instruments
The Company’ financial instruments
include cash and cash equivalents, short term investments, short term receivables and payables and short-term debt. The
fair value of the short-term instruments approximates fair value due to the short-term maturities of such instruments. Fair
value for the convertible debt instruments and other short-term debt instruments cannot be reasonably estimated as no market exists
for such instruments and competitive market rates for similar instruments cannot be determined with any reasonable assurance.
As the total number of ordinary shares
to be issued exceeded the authorized number of ordinary shares at December 31, 2008, the Company recognized a liability of $134,252
at December 31, 2008 for the fair value of unauthorized, unissued shares based on the quoted market prices available at the date
of the legal commitment. The fair value of the liability for unauthorized, unissued shares was recorded at market value
as of December 31, 2008, and a corresponding gain of $3,036 was recognized due to changes in the fair value of the liability during
2009. The Company issued all remaining shares to be issued during 2009. This unissued shares liability was
reclassified to equity in 2009 due to the authorized share increase and reverse stock split.
Stock- Based Compensation
The Company uses the Black-Scholes option
pricing model to determine the fair value of stock options and employee stock purchase plan shares. The assumption for
the expected term was determined using the simplified method outlined in Staff Accounting Bulletin No. 110. The risk-free
interest rate is based on the US Treasury rates at the date of grant with maturity dates approximately equal to the expected term
at the grant date. The historical volatility of a representative group of peer companies’ stock is used as the basis for
the volatility assumption.
Concentrations of credit risk
Financial instruments that potentially
subject the Company to a concentration of credit risk principally consist of cash and cash equivalents and short-term investments.
The Company invests its excess cash primarily in certificates of deposits with federally insured quality financial institutions.
Recently Issued Accounting Pronouncements
The Company does not expect the adoption
of recently issued accounting pronouncements to have a significant impact on its results of operations, financial position or cash
flow.
NOTE 3: BUSINESS VENTURES
In December 2009, the Company began
to develop WowMyUniverse.com, Inc. (“Wow”), a retail online business to sell directly to consumers, and Business Calcium,
Inc. (“Business Calcium”), a website development company. Under related agreements, we paid $260,000 in 2010 for a
25% equity interest in Business Calcium and a 90% interest in Wow. Business Calcium owned the remaining 10% interest in Wow.
From inception through September 30,
2010, Business Calcium and Wow incurred net operating losses of $96,219 and $98,153, respectively, as these entities were in the
development stage and had yet to generate revenues. Business Calcium was accounted for as an equity-method investment and our proportionate
share of their losses were $24,055 which is reflected in other income (expense) in the accompanying consolidated income statement.
Wow was accounted for as a consolidated subsidiary, and the non-controlling interest in Wow’s losses were $9,187 from inception
through September 30, 2010.
On October 1, 2010, we exchanged our
25% investment in Business Calcium and a $50,000 promissory note for Business Calcium’s 10% non-controlling interest in WOW,
so that henceforth, we own 100% of WOW and none of Business Calcium. The unsecured note bears interest at 6% annually and, together
with accrued interest, is reflected as a note receivable on the accompanying consolidated balance sheets. The debtor is currently
delinquent on its payments but the Company expects to collect the entire balance of the note receivable. In accordance with ASC
810-10-45, the Company has recorded the difference between the carrying value of the WOW non-controlling interest of $0 and the
carrying value of our investment in Business Calcium of $85,527 as a reduction to shareholders’ equity.
During 2010 and 2011, most of our activities related to WowMyUniverse.com
consisted of website development and marketing activities. Total Sales for WowMyUniverse.com were $185,000 for the year ended December
31, 2011.
NOTE 4: EARNINGS PER SHARE
Basic income (loss) per share is computed
based on the weighted average number of common shares outstanding and excludes any potential dilution. Diluted income (loss) per
share reflects potential dilution from the exercise or conversion of securities into common stock. The effects of certain stock
options and warrants are excluded from the determination of the weighted average common shares outstanding for diluted income per
share in each of the periods presented as the effects were anti-dilutive or the exercise price for the outstanding options exceeded
the average market price for the Company’s common stock.
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to America's Suppliers
|
|
$
|
5,395
|
|
|
$
|
233,622
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
|
|
13,430,054
|
|
|
|
12,964,732
|
|
Add incremental shares for:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
-
|
|
|
|
-
|
|
Warrants
|
|
|
170,235
|
|
|
|
226,361
|
|
Diluted weighted average common shares outstanding
|
|
|
13,600,289
|
|
|
|
13,191,093
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
-
|
|
|
$
|
0.02
|
|
Diluted
|
|
$
|
-
|
|
|
$
|
0.02
|
|
The following dilutive securities were excluded from the
computation of weighted average common shares outstanding as the effects were antidilutive:
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
1,022,685
|
|
|
|
886,176
|
|
Warrants
|
|
|
867,483
|
|
|
|
717,483
|
|
Restricted stock
|
|
|
260,345
|
|
|
|
1,180,509
|
|
NOTE 5: PROPERTY AND EQUIPMENT
The following table sets forth information with respect to
property and equipment at December 31, 2011 and 2010:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
Software and website development costs
|
|
$
|
517,290
|
|
$
|
380,791
|
|
Computer equipment
|
|
|
225,350
|
|
|
158,804
|
|
Leasehold improvements
|
|
|
37,718
|
|
|
37,718
|
|
|
|
|
780,358
|
|
|
577,313
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation and amortization
|
|
|
(313,095
|
)
|
|
(221,553
|
)
|
|
|
$
|
467,263
|
|
$
|
355,760
|
|
NOTE 6: LINE OF CREDIT
The Company has a $150,000 revolving
line of credit with a financial institution. As of December 31, 2011 and 2010, the balance outstanding on the line of credit was
$0. Interest payments are due monthly at an annual rate of 6%. The line of credit has no stated maturity
date.
NOTE 7: LEASES
Operating Leases
The Company leases office space in Scottsdale,
Arizona under an operating lease that expires in 2012. Rent expense under this lease totaled $133,754 and $126,992 for
the years ended December 31, 2011 and 2010, respectively.
The Company is a party to various leases
for office and communications equipment extending through 2014. Lease expense related to these leases was $41,622 and
$33,403 for 2011 and 2010, respectively.
Future minimum annual lease payments
under the operating lease agreements are as follows for each of the years ended December 31:
2012
|
|
|
111,485
|
|
2013
|
|
|
98,635
|
|
2014
|
|
|
78,731
|
|
2015
|
|
|
76,341
|
|
2016
|
|
|
78,631
|
|
Thereafter
|
|
|
67,156
|
|
Total
|
|
$
|
510,979
|
|
NOTE 8: STOCK OPTIONS
The Company maintains a 2009 Long Term
Incentive Compensation Plan, which provides for the issuance of stock options to employees and outside consultants of the Company
to purchase shares of Common Stock. As of the date of this report, 1,000,000 shares were authorized for issuance under the 2009
Plan. Stock options are generally granted at prices of not less than 100% of the fair market value of the common stock
on the date of grant. Options granted under our option plans generally vest over a four year period. Options are exercisable until
the tenth anniversary of the date of grant unless they lapse before that date.
During 2010, the Company granted an
aggregate of 460,086 stock options under the 2009 Plan to certain employees and officers. The aggregate grant date fair value of
the awards was $25,107 based on the following assumptions: volatility of 69%, risk-free rate of return of 0.87%, stock price of
$0.15 and expected term of 3.4 years. The Company recognized $14,168 of stock-based compensation expense during the year ended
December 31, 2011 related to these awards.
During February 2011, the Company granted
180,000 stock options at a strike price of $0.20 to members of its Board of Directors. The grant date fair value of the awards
was $19,856, which was determined using a Black Scholes option pricing model using the following assumptions: volatility of 64%,
risk-free rate of return of 2.2%, stock price of $0.20 and expected term of 5 years. The options expire in 2016. As these awards
were immediately vested, the Company expensed the entire grant date fair value of the award in February 2011. No other awards
were granted during the year ended December 31, 2011. The following sets forth a summary of stock options:
|
|
Number of
Units
|
|
|
Weighted-
Average Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual Term
(in years)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
574,776
|
|
|
$
|
2.28
|
|
|
|
|
|
Grants
|
|
|
460,086
|
|
|
|
0.20
|
|
|
|
|
|
Forfeitures
|
|
|
(148,686
|
)
|
|
|
3.29
|
|
|
|
|
|
Exercises
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Outstanding at December 31, 2010
|
|
|
886,176
|
|
|
$
|
1.03
|
|
|
|
3.1
|
|
Grants
|
|
|
180,000
|
|
|
|
0.20
|
|
|
|
|
|
Forfeitures
|
|
|
(43,491
|
)
|
|
|
2.84
|
|
|
|
|
|
Exercises
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Outstanding at December 31, 2011
|
|
|
1,022,685
|
|
|
$
|
0.81
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exerciseable at December 31, 2011
|
|
|
746,633
|
|
|
$
|
1.03
|
|
|
|
2.2
|
|
The following sets forth exercise price
information for options outstanding at December 31, 2011:
Exercise
|
|
Number of
Shares
|
|
|
|
|
Price
|
|
Outstanding
|
|
|
Exerciseable
|
|
|
|
|
|
|
|
|
$0.01 - $0.89
|
|
|
640,086
|
|
|
|
364,034
|
|
$0.90 - $2.00
|
|
|
374,599
|
|
|
|
374,599
|
|
$2.01 - $4.00
|
|
|
5,500
|
|
|
|
5,500
|
|
$4.01 - $7.00
|
|
|
-
|
|
|
|
-
|
|
$7.01 - $10.00
|
|
|
1,000
|
|
|
|
1,000
|
|
$10.01+
|
|
|
1,500
|
|
|
|
1,500
|
|
|
|
|
1,022,685
|
|
|
|
746,633
|
|
The options have no intrinsic value
as of December 31, 2011. The future expense relating to unvested awards (net of estimated forfeitures) is $10,939 at December 31,
2011 which will be recognized over a period of 1.7 years.
NOTE 9: COMMON STOCK
On February 25, 2009, the Company granted
of an aggregate of 1,475,636 common shares as follows:
|
·
|
Twenty percent at the date of grant;
|
|
·
|
Twenty percent following the first anniversary of the date of grant conditional upon the achievement of a closing price not less than $0.60 and daily volume of 5,000 shares for 25 days of the 30 day period immediately prior to the anniversary date;
|
|
·
|
Thirty percent following the second anniversary of the date of grant conditional upon the achievement of a closing price not less than $1.00 and daily volume of 5,000 shares for 25 days of the 30 day period immediately prior to the anniversary date; and
|
|
·
|
Thirty percent following the third anniversary of the date of grant conditional upon the achievement of a closing price not less than $1.50 and daily volume of 5,000 shares for 25 days of the 30 day period immediately prior to the anniversary date.
|
At December 31, 2010, the Company included
295,127 shares as outstanding in connection with the grants described above. The Company estimated the grant date fair value to
be $47,220 (net of estimated forfeitures) based on the stock price at the date of grant and an estimated 25% probability of achieving
the performance criteria. The Company recognized stock based compensation of $7,703 for 2010 related to these awards.
During 2010, Peter Engel, the Company’s
existing CEO and Chairman, unexpectedly passed away. In recognition of his contributions to the Company, the Board of Directors
approved an amendment to his restricted stock award from February 25, 2009, allowing his estate to vest in 79,172 shares by waiving
the conditional closing price not less than $0.60 and daily volume of 5,000 shares for 25 days of a 30-day period. The Company
recognized an additional expense of $638 during the year ended December 31, 2010 related to this amendment.
During 2010, the Company issued an aggregate
of 150,000 common shares to members of its Board of Directors. These awards were made in lieu of cash compensation for service
on the Board of Directors and vested on December 31, 2010. The Company recognized $23,250 of expense during 2010 related to these
awards.
On June 10, 2011, as consideration
for services rendered, the Company modified the restricted stock award granted February 25, 2009 to waive the performance criteria
and establish a time-based vesting schedule, with 634,645 shares immediately vested and the remaining to be vested in February
2012.
The Company accounted for this
as a share-based payment modification in accordance with the provisions of the FASB Accounting Standards Codification (“ASC”)
Section 718. As such, the Company computed the fair value of the restricted stock immediately before and after the modification,
and is expensing the incremental difference of $120,824, together with the unrecognized compensation cost attributable to the original
grant of $1,738 on a pro rata basis over the remaining service period. As of December 31, 2011, 260,345 shares remain unvested.
The unvested shares are included in shares outstanding at December 31, 2011, but are excluded from the weighted average shares
outstanding computation for basic earnings per share in accordance with ASC 260.
The Company recognized total expense
of $114,596 during the year ended December 31, 2011 related to restricted stock awards, inclusive of the effects of the modification.
The Company has an aggregate of $8,913 of future expense related to nonvested awards which will be recognized in the first quarter
of 2012. An aggregate of 285,518 shares were cancelled during the year ended December 31, 2011 as the respective individuals were
terminated.
NOTE 10: WARRANTS
The following table summarizes warrants outstanding:
|
|
Number of
Units
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Weighted-
Average
Remaining
Contractual Term
(in years)
|
|
|
Intrinsic
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
1,707,447
|
|
|
$
|
1.46
|
|
|
|
|
|
|
|
|
|
Grants
|
|
|
300,000
|
|
|
|
0.20
|
|
|
|
|
|
|
|
|
|
Forfeitures
|
|
|
(434,819
|
)
|
|
|
4.31
|
|
|
|
|
|
|
|
|
|
Exercises
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010
|
|
|
1,572,628
|
|
|
$
|
0.44
|
|
|
|
2.9
|
|
|
$
|
68,412
|
|
Grants
|
|
|
150,000
|
|
|
|
0.18
|
|
|
|
|
|
|
|
|
|
Forfeitures
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercises
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2011
|
|
|
1,722,628
|
|
|
$
|
0.41
|
|
|
|
2.1
|
|
|
$
|
64,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exerciseable at December 31, 2011
|
|
|
1,722,628
|
|
|
$
|
0.41
|
|
|
|
2.1
|
|
|
$
|
64,136
|
|
During 2010, the Company issued an aggregate
of 300,000 warrants to members of its Board of Directors in lieu of cash compensation. The grant date fair value of the warrants
was $23,968 based on the following assumptions: volatility of 69%, risk-free rate of return of 2.01%, stock price of $0.15-$0.18
and expected term of 5 years. These awards were fully expensed during the year ended December 31, 2010 as all awards vested at
the date of grant.
During July 2011, the Company granted
150,000 fully vested warrants to its Chief Executive Officer for prior services rendered. The grant date fair value of these warrants
was $11,673 using the following assumptions: volatility of 70%, risk-free rate of return of 1.7%, stock price of $0.18 and expected
term of 2.5 years. These awards were fully expensed during the year ended December 31, 2011 as all awards vested at the date of
grant.
NOTE 11: INCOME TAXES
Deferred income taxes reflect the net
tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
Current (benefit)/liability
|
|
$
|
11,739
|
|
|
$
|
46,721
|
|
Deferred provision
|
|
|
-
|
|
|
|
(46,721
|
)
|
Net income tax provision
|
|
$
|
11,739
|
|
|
$
|
-
|
|
Income taxes for years ended December
31, are summarized as follows:
A reconciliation of the differences
between the effective and statutory income tax rates for years ended December 31, is as follows:
|
|
2011
|
|
|
2010
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal statutory rates
|
|
$
|
5,826
|
|
|
|
34
|
%
|
|
$
|
76,308
|
|
|
|
34
|
%
|
State income taxes
|
|
|
1,199
|
|
|
|
7
|
%
|
|
|
15,711
|
|
|
|
7
|
%
|
Permanent differences
|
|
|
6,493
|
|
|
|
38
|
%
|
|
|
4,520
|
|
|
|
2
|
%
|
Return to provision adjustments
|
|
|
248,615
|
|
|
|
1451
|
%
|
|
|
-
|
|
|
|
0
|
%
|
Changes in valuation allowance, including the utilization of net operating loss
carryforwards
|
|
|
(262,133
|
)
|
|
|
(1530
|
)%
|
|
|
(96,538
|
)
|
|
|
(43
|
)%
|
Alternative minimum tax
|
|
|
11,739
|
|
|
|
69
|
%
|
|
|
-
|
|
|
|
0
|
%
|
Effective rate
|
|
$
|
11,739
|
|
|
|
69
|
%
|
|
$
|
0
|
|
|
|
0
|
%
|
At December 31, deferred income tax
assets and liabilities were comprised of:
|
|
2011
|
|
|
2010
|
|
Deferred tax assets (liabilities) - current:
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
$
|
72,125
|
|
|
$
|
75,970
|
|
Book-tax differences in operating assets
|
|
|
90,427
|
|
|
|
5,155
|
|
Total current deferred tax assets (liabilities)
|
|
|
162,552
|
|
|
|
81,125
|
|
Deferred tax assets (liabilities) - long-term:
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
(4,316
|
)
|
|
|
-
|
|
Net operating loss carryforwards
|
|
|
397,942
|
|
|
|
737,186
|
|
Total net deferred tax assets
|
|
|
556,178
|
|
|
|
818,311
|
|
Valuation allowance
|
|
|
(556,178
|
)
|
|
|
(818,311
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
A full valuation allowance has been
established against all net deferred tax assets as of December 31, 2011 based on estimates of recoverability. While the Company
has optimistic plans for its business and has recently achieved profitability, it determined that such a valuation allowance was
necessary given the uncertainty with respect to future operations.
The Company has net operating loss carryforwards
totaling approximately $971,000 which expire between 2013 and 2015 for state purposes and between 2023 and 2025 for federal purposes,
respectively.
NOTE 12: COMMITMENTS AND
CONTINGENCIES
From time to time, the Company is party
to certain legal proceedings incidental to the conduct of its business. Management believes that the outcome of pending legal proceedings
will not, either individually or in the aggregate, have a material adverse effect on its business, financial position, and results
of operations, cash flows or liquidity.
NOTE 13: CONCENTRATIONS
OF CREDIT RISK
The Company maintains cash balances
at banks in the United States. Accounts are insured by the Federal Deposit Insurance Corporation up to $250,000. From
time to time, bank balances may exceed federally insured limits.
NOTE 14: EMPLOYEE BENEFIT
PLANS
The Company has a 401(k) plan covering
all full-time employees and participants may contribute a percentage of their compensation to the plan. The Company
does not currently match or make contributions to the plan. Employee contributions are fully vested and non-forfeitable. The
assets of the plan are held separately from those of the Company and are independently managed and administered.
NOTE 15: SUBSEQUENT EVENTS
On January 13, 2012, the Company approved the issuance of
stock options to purchase an aggregate of 141,000 shares of the Company’s common stock at a purchase price of $0.15 per share.
The options vest as follows: twenty percent on the grant date, and twenty percent, thirty percent and thirty percent on the first,
second and third successive anniversaries of the grant date, respectively. The Company has not yet calculated the impacts of this
grant on its financial conditions or results of operations for the year ended December 31, 2012.
INDEX TO EXHIBITS
Exhibit Number
|
|
Exhibit Title
|
2.1
|
|
Agreement and Plan of Merger By and Among Insignia Solutions plc, Jeode Inc. and DollarDays International, Inc., dated June 23, 2008, incorporated by reference to Exhibit 2.1 filed with the Registrant’s Current Report on Form 8-K on March 18, 2009
|
|
|
|
2.2
|
|
Scheme of Arrangement, whereas America’s Suppliers, Inc., a Delaware corporation became the holding company of Insignia Solutions plc, a public limited company incorporated in England and Wales, incorporated by reference to the Registrant’s Definitive Proxy Statement filed on December 10, 2009
|
|
|
|
3.1
|
|
Registrant’s Certificate of Incorporation, incorporated by reference to Exhibit 3.1 filed with the Registrant’s Definitive Proxy Statement on December 10, 2009
|
|
|
|
3.2
|
|
Registrant’s By-Laws, incorporated by reference to Exhibit 3.2 filed with the Registrant’s Definitive Proxy Statement on December 10, 2009
|
|
|
|
10.1*
|
|
Registrant ’ s 2009 Long-Term Incentive Compensation Plan, incorporated by reference to Exhibit 4.1 filed with the Registrant’s Form S-8 Registration Statement (No. 333-176223) on August 11, 2011
|
|
|
|
10.2*
|
|
Registrant’s Form of Stock Award Agreement, incorporated by reference to Exhibit 4.2 filed with the Registrant’s Form S-8 Registration Statement (No. 333-176223) on August 11, 2011
|
|
|
|
10.3*
10.4 *
|
|
Employment Agreement, dated as of November 11,
2010, by and between the Registrant and Marc Joseph, incorporated by reference to Exhibit 10.1 filed with the Registrant’s
Current Report on Form 8-K filed on November 17, 2010
Employment Agreement, dated as of November 30,
2010, by and between the Registrant and Michael Moore, incorporated by reference to Exhibit 10.1 filed with the Registrant’s
Current Report on Form 8-K filed on November 30, 2010
|
|
|
|
14.1
|
|
Code of Ethics, incorporated by reference to Exhibit 14.1 filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2005, filed on July 7, 2006
|
|
|
|
21†
23†
|
|
List of Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting
Firm
|
|
|
|
31.1†
|
|
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
31.2†
|
|
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32.1†
|
|
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32.2†
|
|
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
101
|
|
The following financial statements from America’s
Suppliers, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2011, formatted in XBRL (Extensible Business
Reporting Language); (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements
of Changes in Shareholders’ Equity (Deficit), (iv) Consolidated Statements of Cash Flows, and (v) the Notes to Consolidated
Financial Statements, tagged as blocks of text**
|
†
|
|
Filed or furnished herewith.
|
|
|
|
*
|
|
Compensatory plan or arrangement.
|
|
|
|
**
|
|
In accordance with Rule 406T of Regulation S-T, the XBRL related to information in Exhibit 101 to this Annual Report on Form 10-K shall not be deemed to be “filed” for purposes of Section 18 of Exchange Act,or otherwise subject to the liability of that section, and shall not be part of any registration or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
|
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