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ACLZ > SEC Filings for ACLZ > Form 10-Q on 14-Nov-2012All Recent SEC Filings

Show all filings for ACCELERIZE NEW MEDIA INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for ACCELERIZE NEW MEDIA INC


14-Nov-2012

Quarterly Report


ITEM 2. Management's Discussion and Analysis and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes included elsewhere in this report and our Annual Report on Form 10-K for the year ended December 31, 2011. Certain statements in this discussion and elsewhere in this report constitute forward-looking statements. See ''Cautionary Statement Regarding Forward Looking Information'' elsewhere in this report. Because this discussion involves risk and uncertainties, our actual results may differ materially from those anticipated in these forward-looking statements.

Overview

We are a provider of software solutions for businesses interested in expanding their online advertising presence. We own and operate www.cakemarketing.com, an internally-developed Software-as-a-Service, or SaaS, platform. Cake Marketing is a hosted software solution that provides an all-inclusive suite of management services for online marketing campaigns. From tracking and reporting to lead distribution, our patent-pending software enables advertisers, affiliate marketers and lead generators a fully scalable and accurate platform developed with a combination of innovative technology and an imaginative approach to doing business online.

In February 2011 we decided to discontinue our Lead Generation Division, in order to focus our efforts and resources on our SaaS products and services. After careful review by our management, it became clear that although the Lead Generation Division was a substantial source of revenue for us, it was only marginally profitable, and required substantial management attention and financial resources, which would otherwise be invested in more profitable channels. In addition, we decided to discontinue our Lead Generation Division to avoid potential conflicts of interest with our SaaS customers, who are providing similar lead generation services. Subsequently, we sold certain assets related to our Lead Generation Division. Commencing March 1, 2011, we discontinued offering lead generation marketing services.

In September 2012 we decided to discontinue our Online Marketing Services Division, in order to focus our efforts and resources on our SaaS products and services. Our Online Marketing Services Division included an extensive portfolio of approximately 5,500 URLs, also known as domain names. Our URL portfolio was used to build consumer-based financial portals, microsites, blogs, and landing pages used for lead generation initiatives. We also owned and developed various financial portals, and websites that provides to subscribers real-time alerts based on reports filed with the Securities and Exchange Commission and offered advertisers access to an audience of active investors, financial planners, registered advisors, journalists, investment bankers and brokers. After careful review by our management, it became clear that although the Online Marketing Services Division was a substantial source of revenue for us, it was only marginally profitable, and required substantial management attention and financial resources, which would otherwise be invested in our SaaS division. Commencing September 27, 2012, we discontinued offering online marketing services.

In connection with the decision to discontinue our Online Marketing Services Division, we sold the assets related thereto on September 27, 2012 for a purchase price of up to $862,000, payable as follows: On September 27, 2012, Emerging Growth, LLC, a Delaware limited liability company, or the Buyer, paid us $150,000 in cash and paid $50,000 to Agility Capital II, LLC, or Agility, for our benefit in connection with a principal payment under our loan agreement with Agility as further described below. The Buyer shall also pay us up to $162,000 in twenty-seven equal monthly installments of $6,000 plus interest thereon at 5% per annum commencing on November 15, 2012 evidenced by a promissory note, provided that if the Buyer pays us an aggregate of $100,000 plus accrued but unpaid interest by January 1, 2013 pursuant to such promissory note, no further installment payments shall be paid to us. The Buyer shall further pay us $500,000 plus interest thereon at 3.25% per annum on December 27, 2014 evidenced by a promissory note, provided that the Buyer may render certain services to us of a nature and at a cost to be agreed with us, and the aggregate amount of all invoices rendered by the Buyer to us for such services shall be applied to and reduce the outstanding principal of such promissory note. To our knowledge, certain of the members of the Buyer are our shareholders, though these members do not currently own in the aggregate more than five percent of the membership interests in the Buyer. The purchase price for the sale was negotiated at arms' length between us and the Buyer. As security for the obligations of the Buyer, the Buyer granted us a security interest in the assets sold to the Buyer.

Our principal offices are located at 2244 West Coast Highway, Suite 250, Newport Beach, CA 92663. Our telephone number there is: (949) 515-2141. Our corporate website is: www.accelerizenewmedia.com, the contents of which are not part of this quarterly report.

Business Environment

SaaS
The business environment for our SaaS platform is characterized as follows:

? Larger advertisers are evaluating mission-critical software, such as ours, to manage their online performance-based initiatives. Such companies are factoring whether it is more beneficial to them to either develop their own technology or license it from third-parties, such as us;

? As the online performance-based market grows, there are new entrants as solution providers, who are competing mostly on price and less on richness of features and performance tools;

? We believe that our existing and potential customer base continues to look for more measureable results in their online performance-based growth and more flexible contractual terms; and,
? We believe there are opportunities to increase our number of clients in Western and Central Europe, where companies are adopting and implementing online performance-based initiatives.


                           ACCELERIZE NEW MEDIA, INC.
                             RESULTS OF OPERATIONS

                                                                      Increase/       Increase/                                          Increase/        Increase/
                                    Three-month periods ended        (Decrease)       (Decrease)        Nine-month periods ended         (Decrease)       (Decrease)
                                          September 30,               in $ 2012       in % 2012               September 30,              in $ 2012        in % 2012
                                       2012              2011          vs 2011         vs 2011            2012             2011           vs 2011          vs 2011

Revenue:                          $    1,570,948      $  670,348         900,600            134.3 %   $   3,914,033     $ 1,492,108        2,421,925            162.3 %

Operating expenses:
Cost of revenues                         251,219          36,816         214,403            582.4 %         619,745         134,193          485,552            361.8 %
Research and development                 370,269         141,924         228,345            160.9 %         724,065         382,402          341,663             89.3 %
Selling, general and
administrative                           742,420         674,847          67,573             10.0 %       2,471,369       1,512,493          958,876             63.4 %
Total operating expenses               1,363,908         853,587         510,321             59.8 %       3,815,179       2,029,088        1,786,091             88.0 %

Operating income (loss)                  207,040        (183,239 )      (390,279 )          213.0 %          98,854        (536,980 )        635,834            118.4 %

Other expense:
Interest expense                         (40,908 )       (61,026 )       (20,118 )          -33.0 %        (139,996 )      (366,484 )       (226,488 )          -61.8 %

Net income (loss) from
continuing operations                    166,132        (244,265 )      (410,397 )             NM           (41,142 )      (903,464 )       (862,322 )            -95 %

Discontinued operations
(Loss) income from discontinued
operations                               (19,049 )       (44,906 )        25,857              -58 %         (47,567 )        46,031          (93,598 )             NM
Unrealized loss - marketable
securities                                     -         (12,000 )        12,000           -100.0 %               -         (12,000 )         12,000           -100.0 %
Gain from the disposal of
discontinued operations                  295,883               -          20,000               NM           295,883          36,621           20,000               NM
Net income (loss) from
discontinued operations                  276,834         (56,906 )        57,857               NM           248,316          70,652          177,664              251 %


Net income (loss)                 $      442,966      $ (301,171 )   $  (744,137 )             NM     $     207,174     $  (832,812 )   $ (1,039,986 )             NM

NM: Not Meaningful


Discussion of Results for Three-Month and Nine-Month Periods Ended September 30, 2012 and 2011

Revenues

              Three-Months Ended            %             Nine-Months Ended             %
                 September 30,           Change             September 30,             Change
              2012           2011                           2012            2011

Revenues   $ 1,570,948     $ 670,348       134.3 %   $ 3,914,033     $ 1,492,108          162 %

We generate our SaaS revenues from a set-up fee and monthly license fee, supplemented by per transaction fees that customers pay for monthly platform usage.

The increase in our software licensing revenues during the three-month and nine-month periods ended September 30, 2012, when compared to the prior year periods, is due to the increased number of customers using our SaaS products and services, as well as increased revenues from our existing customers resulting from higher usage of our SaaS platform. Our number of average clients increased 102% and 130% during the three-month and nine-month periods ended September 30, 2012, respectively, when compared to the prior year and our average monthly fee per customer increased 106% and 13% during the three-month and nine-month periods ended September 30, 2012, respectively, when compared to the prior year periods. The increase in the number of customers using our SaaS products during the three-month and nine-month periods ended September 30, 2012 is primarily due to the increased resources we have devoted to customer acquisition for our SaaS products. The higher usage by our existing customers of the same products is primarily due to the higher market acceptance among our larger users who generate a higher volume of transactions.

We believe that our Saas revenues will continue to increase sequentially for the remainder of 2012.

Cost of Revenues

                     Three-Months Ended           %           Nine-Months Ended           %
                        September 30,          Change           September 30,          Change
                      2012          2011                        2012          2011

Cost of Revenues   $  251,219     $ 36,816       582.4 %   $ 619,745     $ 134,193       361.8 %

Cost of revenue consists primarily of web hosting and domain registration fees.

For the three and nine months ended September 30, 2012, when compared to the prior year periods, cost of revenue significantly increased reflecting the higher web hosting fees and domain registration costs incurred to support our increased number of clients and platform usage.

We believe that our cost of revenues will continue to increase commensurate with our anticipated increase in revenues for the remainder of 2012.

Research and Development Expenses

Three-Months Ended % Nine-Months Ended %
September 30, Change September 30, Change
2012 2011 2012 2011

Research and Development $ 370,269 $ 141,924 160.9 % $ 724,065 $ 382,402 89.3 %

Research and development expenses consist primarily of payroll expenses and related benefits and facility costs associated with enhancement of our software services.


Our research and development expenses increased during the three-month and nine-month periods ended September 30, 2012, when compared to prior year periods, due to increased staff assigned to the enhancement of our software services, which translated into increased payroll costs and related benefits.

We believe that our research and development expenses will continue to increase sequentially as we continue to enhance some of the features of our Saas platform for the remainder of 2012.

Selling, General, and Administrative Expenses

Three-Months Ended % Nine-Months Ended %
September 30, Change September 30, Change
2012 2011 2012 2011

Selling, general, administrative $ 742,420 $ 674,847 10.0 % $ 2,471,369 $ 1,512,493 63.4 %

Selling, general, and administrative expenses primarily consist of payroll expenses associated with supporting customer acquisition activities, as well as other general and administrative expenses, including payroll expenses necessary to support our existing and anticipated growth in our revenues, and legal expenses and professional fees.

The increase in selling, general and administrative expenses during the three-month and nine-month periods ended September 30, 2012, when compared to prior year periods, is primarily due to an increased number of employees assigned to support customer acquisition activities, such as training and account management, which resulted in increased payroll costs and related benefits.

We believe that our selling, general, and administrative expenses will continue to increase sequentially as we continue to hire to increase our training and account management capacity for the remainder of 2012. Additionally, we have recently granted options to three of our executive officers which start vesting in the fourth quarter of 2012. Upon vesting of such options we will record an additional stock-based compensation of approximately $105,000 per quarter.

Interest

             Three-Months Ended           %            Nine-Months Ended            %
                September 30,          Change            September 30,           Change

2012 2011 2012 2011

Interest $ 40,908 $ 61,026 -33.0 % $ (139,996 ) $ (366,484 ) -61.8 %

Interest expense consists of interest charges and amortization of debt discount associated with our convertible notes payable and note payable.

For the three months ended September 30, 2012, when compared to the prior year period, interest expense decreased primarily due to lower interest-bearing principal balances.

For the nine months ended September 30, 2012, when compared to the prior year period, interest expense decreased primarily due to inducement to holders of certain convertible promissory notes which amounted to $159,000 which occurred in the three-month period ended March 31, 2011, which were not granted during the three-month and nine-month periods ended September 30, 2012, a decrease in the amortization of debt discount on our convertible notes payable, which matured earlier in 2012, and, to a lesser extent, a decrease in the weighted-average principal balance of our interest-bearing obligations, of which a substantial portion was converted into shares of our common stock during the three-month period ended March 31, 2012.

We believe that our interest expense will continue at the same levels as the first nine-months of 2012 for the remainder of 2012.


Net income (loss) from discontinued operations

                                Three-Months Ended           %            Nine-Months Ended            %
                                   September 30,           Change           September 30,           Change
                                2012          2011                          2012          2011

(Loss) income from
discontinued operations       $ (19,049 )   $ (44,906 )      -58.0 %   $ (47,567 )   $  46,031            NM
Unrealized loss on
marketable securities                 -       (12,000 )       -100 %           -       (12,000 )        -100 %
Gain from the disposal of
discontinued operations         295,883             -           NM       295,883        36,621            NM
Net income (loss) from
discontinued operations         276,834       (56,906 )         NM       248,316        70,652           251 %

The net income (loss) from discontinued operations consists of revenues and operating expenses from our online marketing services and lead generation divisions, which were sold in September of 2012 and February of 2011, respectively, as well as a gain on those sales during the three-month and nine-month periods ended September 30, 2011 and 2012.

The income from discontinued operations during the three months ended September 30, 2012 and nine-months ended September 30, 2011 consisted primarily of revenues and expenses from our discontinued online marketing services division, and, to a lesser extent during 2011, the contingent receipts resulting pursuant to the disposition of our lead generation division. We do not anticipate receiving additional proceeds related to our former lead generation division or our online marketing services division.

Liquidity and Capital Resources

Sources of liquidity and capital resources
                                                       Ending balance at         Average balance during first
                                                         September 30,                  nine months of
                                                      2012          2011           2012                2011
Cash                                                $ 187,753     $  63,046         125,400             150,559
Accounts receivable                                   592,872       452,093         522,483             354,817

Accounts payable and accrued expenses                 533,314       234,079         383,697             274,388
Convertible notes payable excluding debt discount     184,613       655,145         419,879             916,466
Notes payable, excluding debt discount                154,373       505,200         329,787             252,600

At September 30, 2012 and 2011, 78% and 83%, respectively, of our total assets consisted of cash and cash equivalents and accounts receivable.

We extend unsecured credit in the normal course of business to our customers. The determination of the appropriate amount of the reserve for uncollectible accounts is based upon a review of the amount of credit extended, the length of time each receivable has been outstanding, and the specific customers from whom the receivables are due.

The objective of liquidity management is to ensure that we have ready access to sufficient funds to meet commitments while implementing our growth strategy. Our primary sources of liquidity include the sale of our securities and other financing activities, such as the issuance of a note payable of $500,000 in January 2011. We also completed the sale of our online marketing services division, which generated $200,000 in September 2012. We cannot ascertain that we have sufficient funds from operations to fund our ongoing operating requirements through December 31, 2012. We may need to raise funds to enhance our working capital and use them for strategic purposes. If such need arises, we intend to generate proceeds from either debt or equity financing.

We do not have any material commitments for capital expenditures. We routinely purchase computer equipment and technology to maintain or enhance the productivity of our employees and such capital expenditures have ranged between $40,000 and $28,000 during the nine-month periods ended September 30, 2012 and 2011.


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