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GPAY > SEC Filings for GPAY > Form 10-K on 12-Dec-2013All Recent SEC Filings

Show all filings for GOLD PARTY PAYDAY INC

Form 10-K for GOLD PARTY PAYDAY INC


12-Dec-2013

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following description of our financial condition and results of operations in conjunction with the consolidated financial statements and accompanying notes included in this annual report beginning on page F-1.

This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like "believe," "expect," "estimate," "anticipate," "intend," "project" and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.

Overview

We organize events and parties in which guests bring their unwanted jewelry, scrap gold and silver, coins and other gold and silver items to sell to us. Our events are centered around home and office parties hosted primarily by individuals. We will also support organizations by holding fundraising events hosted by churches and other charitable or religious organizations. A Gold Party Payday event host typically receives 10% of the gross proceeds received at the event. The host will also receive a bonus equal to 5% of the gross proceeds received at the first party or event that is booked by a guest who attended the original event. To date, we have organized 26 parties, purchasing approximately $22,100 in gold and silver items. In May and June 2012, we sold approximately $4,000 in gold items and, in August 2013, we sold approximately $10,500 in gold items to a metal refiner and we are currently holding approximately $3,500 in additional gold and silver items in inventory. We have generally tried to hold one to two parties per month on average in fiscal 2013, and are currently scheduling appointments for fiscal 2014. Two to 15 people have attended each of our parties and we expect that number of guests to be consistent at future events.

Event guests have their items tested, measured, weighed and appraised at the party and they receive an offer on the spot, based on the quality and quantity of the precious metals contained in the items and prevailing gold and silver prices. Event guests who accept the offer and sell their items to us receive a corporate check at that time. We keep purchased items separated for at least three days in case a seller changes his or her mind and wants a refund minus a 10% processing fee.

We pay an event guest based on the estimated appraised value of the items purchased, less a deduction determined by reference to the competitive discounts charged by jewelry stores and pawnshops in the central Kentucky area, as well as mail-in gold services. Following the event, we deliver the purchased items to a refinery to melt down the items into a solid form to produce pure gold, silver and other precious metals. This solid form is then tested for purity and payment from the refinery to us will be based on the true value of the metal. We estimate that we will be paid approximately 90% to 95% of the daily gold spot value, given the volume of gold and silver items we have, based on our sales of gold items in 2012. We expect this payout ratio to remain consistent throughout fiscal 2014. We are paid by the refinery approximately three business days following melting and testing. Our gross profit would represent the difference between the sales proceeds received from the refinery and the cost of scrap gold and silver and bullion coins purchased from guests, less any other costs classified as cost of goods sold.

Revenue Recognition

We seek to derive revenues in two different ways.

First, we estimate our inventory using a scrap gold/silver calculator after the gold and silver items purchased from individuals at parties are measured, tested and weighed. We will use publicly available sources to obtain daily spot prices to input into these calculations.

We will then ship the inventory to the refineries and will keep such inventory as an asset until it has been received, weighed and had its purity tested by the refinery. The refinery agrees to pay us at a certain percentage of the spot price of gold and silver being used the day that the refinery melts and tests the metal and we recognize the revenue when the collectability is reasonably assured. We assess the collectability based on a number of factors, including the refinery's creditworthiness. We do not request collateral from the refinery. If we determine that collection of accounts receivable resulting from the sales of the gold and silver is not reasonably assured, we will defer the revenue recognition and recognize revenue at the time collection becomes reasonably assured, which is generally upon receipt of cash.

Our gross profit bears the risk of change, either upwards or downwards because the spot price of gold and silver is used the day that the refinery melts and tests the metal, not the date that it was purchased and recorded as inventory.

Some refineries offer a "lock-in" price over the telephone. During periods of volatility in the spot prices of gold and silver, the lock-in method may be preferred as compared with waiting five to ten business days for gold and silver to be delivered to the refinery and melted, weighed and tested to determine the value.

The second way is when gold and silver prices are low, we buy gold and silver bullion/coins for several clients. We follow Section 605-45-45 (formerly EITF 99-19) ("ASC Section 605-45-45") of the FASB Accounting Standards Codification for revenue recognition for this revenue stream by reporting revenue on a net basis, since we (a) do not act as principal in the transaction, (b) take no title to the products, (c) have no risks and rewards of ownership, such as the risk of loss for collection, delivery or returns, and (d) do act as an agent or broker (including performing services, in substance, as an agent or broker) with compensation on a commission or fee basis on sales. We determined that we should report revenue based on the net amount billed to a customer when considering each of the following eight indicators of gross revenue reporting listed in ASC Paragraph 605-45-45-4 through 605-45-45-14 as specified (1) we are not the primary obligor in the arrangement; (2) we have no general inventory risk (before customer order is placed or upon customer return); (3) we have no latitude in establishing price; (4) we do not change the product or perform part of the service; (5) we have discretion in supplier selection (i.e., we have multiple suppliers for the products ordered by a customer and discretion to select the supplier that will provide the product(s) or service(s) ordered by a customer); (6) we are not involved in the determination of product or service specifications (i.e., we do not determine the nature, type, characteristics or specifications of the product(s) or service(s) ordered by the customer); (7) we have no physical loss inventory risk of purchased inventories after customer order; and (8) we have no credit risk.

Revenue classified as commission fee revenue consists of the sale of gold bullion coins which were purchased by us on behalf of clients.

The cost of goods sold, which is only for the first revenue stream described above, consists of scrap gold and silver and bullion coins purchased, plus the shipping costs to deliver them to the precious metal refineries.

Limited Operating History

We are considered a development stage company in accordance with the guidance contained in the Codification Topic No. 915, "Development Stage Entities." We are still devoting substantially all of our efforts toward establishing our business, and our planned principal operations have commenced in a limited capacity. All losses accumulated since inception have been considered as part of our development stage activities.

We have commenced limited operations and will require additional capital to recruit personnel to operate our business and to implement our business plan.

Matters that May or Are Currently Affecting Our Business

The main challenges and trends that could affect or are affecting our financial results include:

Decrease in gold and silver prices - Gold and silver prices have historically been subject to fluctuations and are affected by numerous factors beyond our control. Stronger gold and silver prices have resulted in a greater interest by Americans in selling their unwanted jewelry, scrap gold and silver, coins and other gold and silver items. There can be no assurance that this interest will continue at its current level and, when gold and silver prices do decrease, we expect fewer Americans will be interested in selling their gold and silver items, resulting in a lack of supply of goods to us and more competitive conditions, which will negatively impact our financial results.

Direct competition with jewelry stores and pawnshops - Some jewelry stores and pawnshops benefit from occupying "brick and mortar" storefronts, being located in retail areas and utilizing print and other advertising in a given community, thus being more visible to potential sellers of gold and silver items, than we are. In addition, most of these jewelry stores and pawnshops have greater financial resources than we do. These additional resources may allow these competitors to continue in the business longer than we can under adverse market conditions.

Availability of additional capital - Our growth will depend on the availability of additional capital. We have limited commission fee revenue and losses and we may be dependent on non-banking or traditional sources of capital, which tend to be more expensive. Any increase in cost of goods sold will further tighten cash reserves.

Results of Operations

In May 2012, we sold approximately $3,400 in gold items, in July 2012, we sold approximately $600 in gold items and, in August 2013, we sold approximately $10,500 in gold items to a metal refiner. Costs associated with these sales were $3,600 for the fiscal year ended September 30, 2012 and $14,375 for the fiscal year ended September 30, 2013.

For the period from August 16, 2011 (date of inception) to September 30, 2013, we had $120 in commission fee revenue earned during the development stage, all of which occurred in fiscal years 2011 and 2012, and $14,565 in revenue earned during the development stage, of which $10,544 in revenue occurred in fiscal 2013. The commission fee revenue was generated in prior fiscal years from the purchase of gold bullion coins for clients, which is not our normal revenue generating activity of organizing events and parties in which guests bring their unwanted jewelry, scrap gold and silver, coins and other gold and silver items to sell to us.

The above revenue less the direct cost of goods sold yielded a gross profit of $490 in fiscal 2012 and a loss of $(3,831) in fiscal 2013. Operating expenses for fiscal 2013 were $40,655, as compared to $29,226 in fiscal 2012, due to high professional fees ($36,751 in fiscal 2013 versus $28,822 in fiscal 2012) and general and administrative expenses ($3,904 in fiscal 2013 versus $404 in fiscal 2012). For fiscal 2013, our net loss was $(44,974) and, in fiscal 2012, was $(28,736).

No income tax provision was made during the period from August 16, 2011 (date of inception) to September 30, 2013.

Liquidity and Capital Resources

As of September 30, 2013, we had $606 cash on hand. We anticipate that our cash position is not sufficient to fund current operations. We have no lending relationships with commercial banks and are dependent upon the completion of one or more financings or equity raises to fund our continuing operations. We anticipate that we will seek additional capital through debt or equity financings. While we are aggressively pursuing financing, there can be no assurance that we will be successful in our capital raising efforts. Any additional equity financing may result in substantial dilution to our stockholders.

Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business for the foreseeable future. Since inception, we have generated minimal commission fee revenue and accumulated operating losses. In addition, we do not have sufficient working capital to meet current operating needs for the next 12 months, as described above. All of these factors raise substantial doubt about our ability to continue as a going concern.

As of the date of this annual report, our officers and directors have loaned $7,100 to us, with no formal commitments or arrangements to advance or loan any additional funds to us in the future.

Seasonality

Although our operating history is limited, we do not consider our business to be seasonal.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.

Cash Requirements

We believe that our $606 in cash on hand at September 30, 2013, limited cash flow from operations to date from our sale of approximately $10,500 in gold items to a precious metal refiner in August 2013 and current inventory of approximately $3,500 in additional gold and silver items will meet part of our present cash needs. However, we will require additional cash resources, by selling equity or seeking loans, to meet our expected capital expenditure and working capital needs. We estimate that we will require approximately $25,000, or approximately $2,000 per month, in capital to continue as a going concern over the next 12 months.

The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand or continue our business operations and could harm our overall business prospects.

These conditions indicate a material uncertainty that casts significant doubt about our ability to continue as a going concern. We require additional debt or equity financing to have the necessary funding to continue operations and meet our obligations. We have continued to adopt the going concern basis of accounting in preparing our financial statements.

Impact of Recently Issued Accounting Standards

In January 2013, the FASB issued ASU No. 2013-01, "Balance Sheet (Topic 210):
Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities." This ASU clarifies that the scope of ASU No. 2011-11, "Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities." applies only to derivatives, repurchase agreements and reverse purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in FASB Accounting Standards Codification or subject to a master netting arrangement or similar agreement. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013.

In February 2013, the FASB issued ASU No. 2013-02, "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." The ASU adds new disclosure requirements for items reclassified out of accumulated other comprehensive income by component and their corresponding effect on net income. The ASU is effective for public entities for fiscal years beginning after December 15, 2013.

In February 2013, the Financial Accounting Standards Board, or FASB, issued ASU No. 2013-04, "Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for which the Total Amount of the Obligation Is Fixed at the Reporting Date." This ASU addresses the recognition, measurement, and disclosure of certain obligations resulting from joint and several arrangements including debt arrangements, other contractual obligations, and settled litigation and judicial rulings. The ASU is effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2013.

In March 2013, the FASB issued ASU No. 2013-05, "Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity." This ASU addresses the accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. The guidance outlines the events when cumulative translation adjustments should be released into net income and is intended by FASB to eliminate some disparity in current accounting practice. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013.

In March 2013, the FASB issued ASU 2013-07, "Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting." The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). If a plan for liquidation was specified in the entity's governing documents from the entity's inception (for example, limited-life entities), the entity should apply the liquidation basis of accounting only if the approved plan for liquidation differs from the plan for liquidation that was specified at the entity's inception. The amendments require financial statements prepared using the liquidation basis of accounting to present relevant information about an entity's expected resources in liquidation by measuring and presenting assets at the amount of the expected cash proceeds from liquidation. The entity should include in its presentation of assets any items it had not previously recognized under U.S. GAAP but that it expects to either sell in liquidation or use in settling liabilities (for example, trademarks). The amendments are effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. Entities should apply the requirements prospectively from the day that liquidation becomes imminent. Early adoption is permitted.

We do not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on our consolidated financial statements.

Emerging Growth Company

We are an "emerging growth company" under the federal securities laws and will be subject to reduced public company reporting requirements. In addition,
Section 107 of the JOBS Act also provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an "emerging growth company" can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are choosing to take advantage of the extended transition period for complying with new or revised accounting standards.

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