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DUBL > SEC Filings for DUBL > Form 10-Q/A on 19-Jun-2013All Recent SEC Filings

Show all filings for DUBLI, INC.

Form 10-Q/A for DUBLI, INC.


19-Jun-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

FORWARD LOOKING STATEMENTS

Introductory Note

Caution Concerning Forward-Looking Statements

The discussion contained in this Form 10-Q/A, contains forward-looking statements that involve risks and uncertainties. The issuer's actual results could differ significantly from those discussed herein. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "the Company believes," "management believes" and similar language, including those set forth in the discussions under "Notes to Financial Statements" and "Management's Discussion and Analysis or Plan of Operation" as well as those discussed elsewhere in this Form 10-Q/A. The forward-looking statements reflect our current view about future events and are subject to risks, uncertainties and assumptions. We wish to caution readers that certain important factors may have affected and could in the future affect our actual results and could cause actual results to differ significantly from those expressed in any forward-looking statement. The following important factors could prevent us from achieving our goals and cause the assumptions underlying the forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements:

our inability to establish and maintain a large growing base of business associates;

our inability to develop brand awareness for our online auctions;

our failure to maintain the competitive bidding environment for our online auctions;

our failure to adapt to technological change;

an assertion by a regulatory agency that one or more of our auctions constitute some form of "gaming" or a "lottery";

increased competition;

increased operating costs;

changes in legislation applicable to our business; and

our failure to improve our internal controls.

See also the risks discussed in our Form 10-K/A for the fiscal year ended September 30, 2011 and those discussed in other documents we file with the Securities and Exchange Commission.

However, other factors besides those referenced could adversely affect our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by us herein speak as of the date of this Form 10-Q/A. We do not undertake to update any forward-looking statement, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

INTRODUCTION

The following discussion and analysis summarizes the significant factors affecting: (i) our consolidated results of operations for the three and nine months ended June 30, 2012 compared to the three and nine months ended June 30, 2011; and (ii) our financial liquidity and capital resources. This discussion and analysis should be read in conjunction with our consolidated financial statements and notes included in this Form 10-Q.

Overview

DubLi, Inc. has created a framework for attracting and maintaining consumers through a web based shopping and entertainment community. The foundation of MediaNet is grounded in innovative technology, a global platform and an expertise in understanding and capitalizing on global economic trends and changing consumer behaviors. The central hub of the MediaNet Group community is DubLi.com from which all other components of the business model are derived.

DubLi.com is a global shopping and entertainment web portal that features two reverse auctions, Xpress and Unique Bid from which the Company's own currency, DubLi Credits, are banked, sold and spent. The Company supports four different auction websites in the US, Europe, Australia and a global portal in which people from all other countries can participate. In addition, DubLi.com features an online shopping mall which supplements the DubLi auction sites. From this mall, consumers shop at national, brand name merchants and earn cash back rebates on these purchases. The Company has developed its own dynamic search feature that is designed to return only relevant results to the person engaging in the search. Supporting the growth of DubLi.com is the Company's sales and marketing engine, DubLi Network, a network marketing association of independent Business Associates who are engaged in direct selling of the Company's products and services. The global auction allows the Company's network marketing Business Associates to market to every person in the world while simultaneously developing an extensive clientele.

How We Generate Revenue:

Revenue recognized from the sales of DubLi Credits made up 69.2% of our revenue in the first nine months of fiscal year 2012. We charge $0.80 retail for each DubLi credit that is used to bid down the price of our products on both the Xpress and Unique bid reverse auctions. The revenue earned from the usage of the credits and the breakage from unused expired credits permits us to sell products and electronic gift cards at discounted prices. Breakage of expired credits purchased in the prior year is a part of our revenue as we recognized an amount of breakage equal to 47.7% of our revenue. All remaining unused credits are categorized as a liability until used or expired. 77.4% of all DubLi Credits sold in first nine months of fiscal year 2012 were sold to the Business Associates affiliated with our network marketing company. The Business Associates purchase the DubLi credits at an average discounted price of $0.63 which enables them to earn an average of $0.17 per unit profit upon resale to their customers. The remaining 22.8% were sold directly from the DubLi.com website at the full retail value of $0.80. In the first nine months of fiscal year 2012, revenue from annual subscription fees paid by our Business Associates made up 11.3% of our revenue. We also sell training and advertising packages and conferences and events to our Business Associates which made up 8.2% of our revenue during the first nine months of fiscal 2012.

During 2011, we introduced three new subscription services which offer streaming music and entertainment and a new VIP and Smart Shopper shopping and rebate programs for a monthly subscription price. In conjunction with these new service offerings, we introduced our new corporate mascot, the "Dubot," an online assistant that demonstrates our service offerings. Sales of the subscription packages: VIP Package, Music On-Demand and the Smart Shopper Package produced 8.9% of our revenue in the first nine months of fiscal year 2012.

We also earn commission income from the online shops and stores affiliated with our online shopping mall from the sales they make to our customers. We split those commissions with our customers in the form of cash back rebates. An immaterial amount of our revenue was from these commissions in the first nine months of fiscal year 2012. During 2011, we introduced new versions of our online malls, previously only available in the US and Australia. The new mall is a search engine and online community for shoppers. We initially launched the new online shopping malls in three markets; Germany, the US and Australia in the first and second quarters. We later launched the malls in Spain and Denmark in the third and fourth quarters and the Global Mall was launched in October, just after our fiscal year ended.

We believe the factors that influence the success of our programs include the following:

the appeal of the products and services we market and auction;

the number of visits to our sites and customer retention;

the number of merchants affiliated with our online shopping mall;

the continued expansion of our network marketing organization;

the success of our Business Associates and our contribution to their success;

the amounts we pay our Business Associates;

the development of new products and services;

the development of new advertising and marketing programs;

the development of partner programs; and

Trends in Our Business

We had a significant increase in sales volume during the third quarter of fiscal 2012 due to changes we made in the DubLi Xpress auction. Its rise in popularity is attributed to a bonus discount system that we added during the previous quarter. In addition to the discounts generated by the auction bidders themselves, the Company randomly adds a bonus discount to 90% of the auctions. That discount is not revealed until the bidder clicks the "buy now" button. This added feature has created large volumes but at reduced profit margins. The Company intends to develop this strategy as a business driver for its other offerings. The increased website traffic has increased sales and usage of DubLi credits and we expect sales of memberships to follow.

Shopping transactions continue to shift from offline to online as the digital economy evolves. This has contributed to the rapid growth of our business since inception, resulting in increased revenues, and we expect that our business will continue to grow. However, our revenue growth rate may not be sustainable over time, as a result of a number of factors, including increasing competition, the difficulty of maintaining growth rates as our revenues increase to higher levels, and increasing maturity of the online shopping market. We plan to continue to invest aggressively in our core areas of strategic focus.

The main focus of our shopping programs is to provide a fun and entertaining experience to our users, reflecting our commitment to constantly improve their overall web experience. As a result, we expect to continue to take steps to improve and increase the products offered on our website. These steps include the development of electronic gift cards, cash back shopping programs, and adventure based vacation auctions, sweepstakes and an expanded global online shopping mall that provides a true worldwide shopping experience.

Both seasonal fluctuations in internet usage and traditional retail seasonality have affected, and are likely to continue to affect, our business. Internet usage generally slows during the summer months, and shopping typically increases significantly in the fourth quarter of each calendar year. These seasonal trends have caused, and will likely continue to cause, fluctuations in our quarterly results.

We also continue to invest in our systems, data centers, corporate facilities, information technology infrastructure, and employees. We expect to increase our hiring in 2012 and provide competitive compensation programs for our employees. Our full-time employee and contractor headcount was 22 at September 30, 2009, 40 at September 30, 2010, 50 at September 30, 2011, and 51 at June 30, 2012. We expect; (i) acquisitions will become an important component of our strategy and use of capital; (ii) partner programs will become an important component of our strategy as we seek out partners with large retail customer bases who are interested in earning incremental revenue by private labeling our shopping and entertainment website, and(iii) cost of revenues will increase in dollars and may increase as a percentage of revenues in future periods, primarily as a result of forecasted increases in traffic acquisition costs, data center costs, credit card and other transaction fees, content acquisition costs, and other costs.

As we expand our shopping programs and other products to international markets, we continue to increase our exposure to fluctuations in foreign currency to US dollar exchange rates.

Recent Developments

The Company launched its Global online shopping mall in October 2011 and its first partner program during the third quarter of 2012. Throughout the fourth quarter of fiscal year 2011 and continuing through the third quarter of fiscal year 2012, we continued to increase sales volumes as a result of the introduction of electronic gift cards onto the Xpress Auction on DubLi.com

Organization of Information

Management's discussion and analysis provides a narrative on our financial performance and condition that should be read in conjunction with our consolidated financial statements and the accompanying notes included elsewhere in this report. It includes the following sections:

Use of estimates and critical accounting policies

Results of operations

Liquidity and capital resources

Contractual obligations

Operating results are not necessarily indicative of results that may occur in future periods.

Use of Estimates and Critical Accounting Policies

Management's use of estimates and assumptions: The preparation of the consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates, judgments and assumptions that affect the reported amounts of the assets and liabilities, disclosure of contingent assets and liabilities, deferred income, accruals for incentive awards and unearned auction Credits at the date of the consolidated financial statements, and the reported amounts of revenue and expense during the reporting periods. Examples, though not all-inclusive, include estimates and assumptions of: loss contingencies; depreciation or amortization of the economic useful life of an asset; stock-based compensation forfeiture rates; estimating the fair value and impairment of assets; potential outcome of future tax consequences of events that have been recognized in our consolidated financial statements or tax returns; estimates of incentive awards and unearned auction Credits and determining when investment impairments are other-than temporary. The Company bases its estimates on historical experience and on various assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may materially differ from these estimates under different assumptions and conditions. The following items in our consolidated financial statements require significant estimates and judgments:

Revenue recognition and deferred revenue: Product Sales and Services - The Company recognizes revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition ("ASC 605-10"). ASC 605-10 requires that four basic criteria be met before revenue can be recognized: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the selling price is fixed and determinable; and (iv), collectability is reasonably assured. Determination of criteria (iii) and (iv) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue that is subject to refund, and, for which the product has not been delivered or the service has not been rendered. The Company's revenue recognition policies for each of its products and services are as follows:

Goods and services sold at auction - Revenue is recognized after receipt of payment and product shipment net of credit card charge-backs and refunds. Prior to June 2011, Xpress auctions consisted of name brand products and services purchased for resale from retailers, wholesalers and manufacturers. In June 2011, the Company changed the format to exclusively offer electronic gift cards that are redeemable for cash. In an Xpress auctions, the Gift Card up for auction is displayed with a starting price, which is the lowest available value of the Gift Card (the "Starting Price"). Each time a person makes a bid (which costs him or her one Credit), the price, is decreased by either US$0.20, AU$0.20 or 0.20 and the reduced price becomes visible to the person making a bid and to no other person. The bidder can choose to purchase the Gift Card at the reduced price so shown or can opt to wait in the hopes that others will make bids and drive down the price. The actual purchase price is always less than the starting price and often represents a substantial discount to the starting price. During 2012 the Company began adding additional discounts to each gift card to supplement the discounts created by the bidders. The Company also created a "cash organizer" for each bidder's user account where they may store the redeemed cash value of each gift card. The bidder has the option to withdraw his funds from the organizer and take delivery of the cash proceeds at any time. The bidder may take his cash proceeds at the end of each auction onto his DubLi branded MasterCard, via bank transfer or accumulate the funds in the cash organizer. The bidder may also use the cash value accumulated in the organizer to purchase DubLi Credits, additional gift cards or other DubLi subscription services and as a result the cash organizer re-circulates large volumes of transactions within the system. The Company records the liability for the balances in the bidder's cash organizer accounts and reports it on the consolidated balance sheet as customer deposits. The Company's proprietary gift cards provide the purchaser with a right to receive cash in the amount of the gift card; the transactions are an exchange of one type of cash equivalent for another. As such, the value of the gift card is deducted from the proceeds the Company receives, with only the net amount recognized as revenue. The sales of the proprietary electronic gift cards are not considered revenue generating activities. Also included in the face value of the gift card is a cash incentive equal to the difference between the face value of a proprietary gift card and the agreed upon sale price (i.e., winning bid amount) and is recognized as a reduction of the related revenue.

Products and Third Party Electronic Gift Cards sold at auction - Prior to June 2011, Xpress auctions consisted of name brand products and services purchased for resale from retailers, wholesalers and manufacturers. Revenue for such sales was recognized after receipt of payment and shipment of the goods or delivery of the services based on the agreed-upon purchase price plus the cost of any DubLi credits used in the auction.

Proprietary Electronic Gift Cards sold at auction - In June 2011, the Company changed the format to exclusively offer electronic gift cards that are redeemable for cash or can be used in future auctions. Because of the cash redemption feature, revenue is recognized only for the DubLi Credits used or broken less the bidding discounts plus the handling fees. Essentially, the value of the gift card is netted against the gross sales price of the transaction.

"DubLi Credits" - Consumers bid on the Company's online auctions by purchasing "DubLi Credits" either directly on DubLi.com or from DubLi's independent Business Associates who are members of the DubLi Marketing Network. All proceeds from the sales of "DubLi Credits" are recorded as deferred revenue until used by the consumer in the bidding process and the related revenue is earned. Purchases of DubLi Credits are non-refundable after three days. Unused Credits remaining in closed and inactive Business Associate accounts are recorded as revenue as if earned 30 days after the account is closed. Management makes this adjustment to reduce the deferred revenue liability and to increase revenue recognized based upon the remote possibility of future redemption. Unused Credits in consumers' accounts are expired and broken after one year.

Subscription Fees - "DubLi Business Associates" pay a $175 annual subscription fee for the marketing and training services provided by DubLi Network. All proceeds from the sales of subscription fees are recorded as deferred revenue and recorded as revenue ratably over the twelve month service period plus any promotional extensions.

Subscription Fees - DubLi Customers who purchase the "VIP", "Music-on-Demand" or the "Smart Shopper" packages pay a monthly subscription fee of $28.95, $9.95 and $4.95, respectively, for those services. All proceeds from the sales of subscription fees are recorded as deferred revenue and recorded as revenue ratably over the monthly service period.

Co-op Advertising is a service that we provide to Business Associates whereby they can pool their marketing funds in order to participate in television and telemarketing advertising campaign managed by the Company. Each advertising campaign runs for a specific term and all customers acquired during the campaign will be allocated and commissionable to Business Associates pro-rata based upon their percentage contribution to the program. The revenue will be recognized ratably over the campaign period as the funds are spent. The Company retains a 25% service charge for producing and managing the program for the business associates.

Direct cost of revenues and deferred expense: Included in Direct Cost of Revenues are the costs of goods sold and commissions and incentive bonuses earned by Business Associates on the sales of DubLi Credits. Commissions are based upon each Business Associate's volume of Credit sales and that of other Business Associates who are sponsored by the subject Business Associate. Commissions are paid to Business Associates at the time of the sale of the Credits and are recognized as a deferred expense described as "Prepaid customer acquisitions costs" until the Credits are used or expire as breakage and then are charged to expense in direct proportion to the revenue then recognized. Incentive bonuses are paid either monthly or quarterly and the related expense is recorded when the Business Associate meets the stated sales goal for each particular promotional event.

Management regularly reviews estimates. Revisions to the estimates are reflected in results of operations as a change in accounting estimate in the period in which the facts that give rise to the revision become known by management.

Stock-based compensation: We recognize compensation expense in the consolidated statements of operations for the fair value of all share-based payments to employees and directors, including grants of employee stock options and other share based awards. For stock options, we use the Black-Scholes option valuation model and the single-option award approach and straight-line attribution method. Using this approach, the compensation cost is amortized on a straight-line basis over the vesting period of each respective stock option, generally four years. We estimate forfeitures and adjust this estimate periodically based on the extent to which future actual forfeitures differ, or are expected to differ, from such estimates.

Income Taxes: We make estimates and judgments in determining the need for a provision for income taxes, including the estimation of our taxable income or loss for each full fiscal year. We have accumulated significant deferred tax assets. Deferred income taxes reflect the tax effects of net operating loss and tax credit carryovers and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Realization of certain deferred tax assets is dependent upon future earnings, if any. We are uncertain as to the timing and amount of any future earnings. Accordingly, we offset these net deferred tax assets with a valuation allowance. We may, in the future determine that more of our deferred tax assets will likely be realized, in which case we will reduce our valuation allowance in the quarter in which such determination is made. If the valuation allowance is reduced, we may recognize a benefit from income taxes in our statement of operations in that period. We classify interest recognized in connection with our tax positions as interest expense, when appropriate.

Results of Operations



The following tables sets forth certain of our results of operations for the
periods indicated:



                                                                        Three months ended
                                           June 30,                 Increase         Percent               Percent Revenue
                                     2012            2011          (Decrease)         Change            2012             2011
                                  (Restated)      (Restated)       (Restated)       (Restated)       (Restated)       (Restated)
Revenues                         $  4,160,330     $ 7,642,402     $ (3,482,072 )          -45.6 %          100.0 %          100.0 %
Direct cost of revenues             4,286,421       4,145,648          140,773              3.4 %          103.0 %           54.2 %
Gross profit                         (126,091 )     3,496,754       (3,622,845 )         -103.6 %           -3.0 %           45.8 %
Selling, general and
administrative                      3,313,261       2,608,592          704,669             27.0 %           79.6 %           34.1 %
(Loss) income from operations      (3,439,352 )       888,162       (4,327,514 )         -487.2 %          -82.7 %           11.6 %
Other (expense) income                   (552 )       (13,888 )         13,336            -96.0 %            0.0 %           -0.2 %
(Loss) income from operations
before income taxes                (3,439,904 )       874,274       (4,314,178 )         -493.5 %          -82.7 %           11.4 %
Income taxes-benefit (expense)              -               -                -                               0.0 %            0.0 %
Net (loss) income                  (3,439,904 )       874,274       (4,314,178 )         -493.5 %          -82.7 %           11.4 %
Foreign currency translation
adjustment                            180,650          (3,713 )        184,363          -4965.3 %            4.3 %            0.0 %
Comprehensive (loss) income      $ (3,259,253 )   $   870,561     $ (4,129,814 )         -474.4 %          -78.3 %           11.4 %

                                                                          Nine months ended
                                            June 30,                  Increase         Percent               Percent Revenue
                                      2012             2011          (Decrease)         Change            2012             2011
                                   (Restated)       (Restated)       (Restated)       (Restated)       (Restated)       (Restated)
Revenues                          $  9,493,539     $ 13,696,921     $ (4,203,382 )          -30.7 %          100.0 %          100.0 %
Direct cost of revenues              8,983,039        6,536,736        2,446,303             37.4 %           94.6 %           47.7 %
Gross profit                           510,500        7,160,185       (6,649,685 )          -92.9 %            5.4 %           52.3 %
Selling, general and
administrative                       9,831,809        8,398,227        1,433,582             17.1 %          103.6 %           61.3 %
Loss from operations                (9,321,309 )     (1,238,042 )     (8,083,267 )          652.9 %          -98.2 %           -9.0 %
Other (expense) income                  (2,824 )        (17,689 )         14,865            -84.0 %            0.0 %           -0.1 %
Loss from operations before
income taxes                        (9,324,133 )     (1,255,731 )     (8,068,402 )          642.5 %          -98.2 %           -9.2 %
Income taxes-benefit (expense)               -                -                -                               0.0 %            0.0 %
Net loss                            (9,324,133 )     (1,255,731 )     (8,068,402 )          642.5 %          -98.2 %           -9.2 %
Foreign currency translation
adjustment                             195,378          325,705         (130,327 )          -40.0 %            2.1 %            2.4 %
Comprehensive (loss)              $ (9,128,754 )   $   (930,026 )   $ (8,198,728 )          881.6 %          -96.2 %           -6.8 %

. . .

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