UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF |
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2013
or
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 333-143039
SAVEDAILY, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 20-8006878 |
| (State or other jurisdiction of | (I.R.S. Employer Identification No.) |
| incorporation or organization) |
3020 Old Ranch Parkway, Suite 140
Seal Beach, California 90740
(Address of principal executive offices)
(562) 795-7500
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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¨ Nox
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company
| Large accelerated filer | ¨ | Accelerated filer
| ¨ |
Non-accelerated filer (Do not check if a smaller reporting company) | ¨ | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes¨ Nox
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date.
| Class | Outstanding as of May 14, 2013 |
| Common Stock, $0.001 par value | 49,522,723 |
TABLE OF CONTENTS
| Heading | Page | |
| PART I — FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 3 |
| Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 10 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 14 |
| Item 4. | Controls and Procedures | 14 |
| PART II — OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 14 |
| Item 1A. | Risk Factors | 15 |
| Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 15 |
| Item 3. | Defaults Upon Senior Securities | 15 |
| Item 4. | Mine Safety Disclosure | 15 |
| Item 5. | Other Information | 15 |
| Item 6. | Exhibits | 15 |
| Signatures | 15 |
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying unaudited balance sheet of SaveDaily, Inc. at March 31, 2013 and related unaudited statements of operations and cash flows for the three months ended March 31, 2013 and 2012 have been prepared by management in conformity with United States generally accepted accounting principles. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2012 financial statements included in the Report on Form 10-K filed on April 11, 2013. Operating results for the period ended March 31, 2013, are not necessarily indicative of the results that can be expected for any subsequent period.
| 3 |
| SaveDaily, Inc. | ||
| Consolidated Balance Sheets | ||
| (rounded to hundreds) | ||
| (unaudited) |
| Assets | March 31 2013 | December 31 2012 | ||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 48,400 | $ | 111,400 | ||||
| Receivables, net | 92,200 | 127,500 | ||||||
| Prepaid expenses | 196,400 | 89,900 | ||||||
| Total current assets | 337,000 | 328,800 | ||||||
| Property and equipment (net) | 161,500 | 172,700 | ||||||
| Other assets | 32,600 | 30,200 | ||||||
| Total assets | $ | 531,100 | $ | 531,700 | ||||
| Liabilities and Stockholders' Deficit | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 382,900 | $ | 373,900 | ||||
| Accounts payable-related parties | 244,000 | 231,700 | ||||||
| Accrued interest-related party | 33,000 | 70,100 | ||||||
| Other accrued expenses | 488,000 | 397,800 | ||||||
| Judgment payable | 779,200 | 946,700 | ||||||
| Related party debt due within one year | 149,600 | 200,000 | ||||||
| Deferred income | 173,500 | 228,100 | ||||||
| Total current liabilities | 2,250,200 | 2,448,300 | ||||||
| Convertible debt-related party | 3,000,000 | 2,200,000 | ||||||
| Total Debt | 5,250,200 | 4,648,300 | ||||||
| Stockholders' Deficit: | ||||||||
| Common stock-100,000,000 authorized $0.001 par value | ||||||||
| 49,522,723 issued & outstanding (47,653,973 in Dec) | 49,570 | 47,700 | ||||||
| Additional paid in capital | 28,220,040 | 27,904,910 | ||||||
| Subscriptions receivable-related parties | (317,400 | ) | (317,400 | ) | ||||
| Unamortized deferred compensation | (411,610 | ) | (536,310 | ) | ||||
| Accumulated deficit | (32,259,700 | ) | (31,215,500 | ) | ||||
| Total Stockholders' Deficit | (4,719,100 | ) | (4,116,600 | ) | ||||
| Total Liabilities and Stockholders' Deficit | $ | 531,100 | $ | 531,700 | ||||
See notes to unaudited interim consolidated financial statements.
| 4 |
| SaveDaily, Inc. | ||
| Consolidated Statements of Operations | ||
| (rounded to hundreds) | ||
| (unaudited) |
| Three Months Ended March 31, 2013 | Three Months Ended March 31, 2012 | |||||||
| Net Sales of services | $ | 346,300 | $ | 273,700 | ||||
| Costs Applicable to Sales of Services | 76,400 | 31,800 | ||||||
| Gross Profit | 269,900 | 241,900 | ||||||
| Selling, general and administrative expenses | 652,000 | 457,300 | ||||||
| Equity compensation | 124,700 | 107,000 | ||||||
| Product design and development costs | 176,800 | 101,000 | ||||||
| Professional fees | 320,300 | 296,400 | ||||||
| Total Operating Expenses | 1,273,800 | 961,700 | ||||||
| Loss Before Other Expense and Income Taxes | (1,003,900 | ) | (719,800 | ) | ||||
| Other Expense | ||||||||
| Interest Expense | (39,500 | ) | (289,500 | ) | ||||
| Loss from continuing operation before income taxes | (1,043,400 | ) | (1,009,300 | ) | ||||
| Income Taxes | 800 | 800 | ||||||
| Net Loss | $ | (1,044,200 | ) | $ | (1,010,100 | ) | ||
| Basic and Diluted Net Income Per Common Share | $ | (0.02 | ) | $ | (0.02 | ) | ||
| Weighted Average Common Shares Outstanding (Basic) | 48,328,417 | 44,320,264 | ||||||
See notes to unaudited interim consolidated financial statements.
| 5 |
| SaveDaily, Inc. | ||
| Consolidated Statements of Cash Flows | ||
| (rounded to hundreds) | ||
| (unaudited) |
| Three Months Ended March 31, 2013 | Three Months Ended March 31, 2012 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net Loss | $ | (1,044,200 | ) | $ | (1,010,100 | ) | ||
| Adjustments required to reconcile net loss to cash flows | ||||||||
| from operating activities: | ||||||||
| Allowance for doubtful accounts | - | 5,600 | ||||||
| Accretion of debt discount and amortization of prepaid loan costs | - | 253,700 | ||||||
| Amortization of deferred loan costs | - | 38,200 | ||||||
| Amortization of deferred compensation | 124,700 | 107,000 | ||||||
| Depreciation | 16,000 | 1,600 | ||||||
| Expenses paid by the issuance of equity instruments | 4,500 | - | ||||||
| Changes in Operating Assets and Liabilities: | ||||||||
| Accounts Receivable | 35,300 | 1,900 | ||||||
| Prepaid expenses | (106,500 | ) | (14,200 | ) | ||||
| Other assets | (2,400 | ) | (1,400 | ) | ||||
| (Decrease) in deferred income | (54,600 | ) | 37,000 | |||||
| Payments made on McGaughy settlement | (167,500 | ) | - | |||||
| Accounts Payable | 9,000 | (49,700 | ) | |||||
| Accrued Expenses | 65,400 | 248,900 | ||||||
| Net cash used by operating activities | (1,120,300 | ) | (381,500 | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Purchase of equipment and leasehold improvements | (4,800 | ) | (4,600 | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from sale of common stock | 312,500 | 30,000 | ||||||
| Payments made on long term debt | (50,400 | ) | - | |||||
| Loan proceeds | 800,000 | 100,000 | ||||||
| Net cash generated by financing activities | 1,062,100 | 130,000 | ||||||
| Net Change In Cash | (63,000 | ) | (256,100 | ) | ||||
| Cash and cash equivalents-Beginning | 111,400 | 431,000 | ||||||
| Cash and cash equivalents-Ending | $ | 48,400 | $ | 174,900 | ||||
| See notes to unaudited interim consolidated financial statements. | ||||||||
| Supplemental disclosure: | ||||||||
| Cash paid for income taxes | $ | 800 | $ | 800 | ||||
| Cash paid for interest | $ | - | $ | 600 | ||||
| Non-cash financing activities: | ||||||||
| Common stock issued for conversion of loans | $ | - | $ | 375,000 | ||||
| 6 |
| SaveDaily, Inc. | ||||||||
| Consolidated Statements of Stockholders' Deficit | ||||||||
| (unaudited) |
| Common Stock | ||||||||||||||||||||||||||||
| Shares | Common Stock Amount | Additional Paid-In Capital | Subscriptions Receivable | Deferred Compensation | Accumulated Deficit | Total | ||||||||||||||||||||||
| Balance at December 31, 2012 | 47,653,973 | $ | 47,700 | $ | 27,904,910 | $ | (317,400 | ) | $ | (536,310 | ) | $ | (31,215,500 | ) | $ | (4,116,600 | ) | |||||||||||
| Shares issued for cash | 1,843,750 | 1,840 | 310,660 | 312,500 | ||||||||||||||||||||||||
| Shares issued for services | 25,000 | 30 | 4,470 | 4,500 | ||||||||||||||||||||||||
| Compensation expense recognized in 2013 | 124,700 | 124,700 | ||||||||||||||||||||||||||
| Net Loss | (1,044,200 | ) | (1,044,200 | ) | ||||||||||||||||||||||||
| Balance at March 31, 2013 | 49,522,723 | $ | 49,570 | $ | 28,220,040 | $ | (317,400 | ) | $ | (411,610 | ) | $ | (32,259,700 | ) | $ | (4,719,100 | ) | |||||||||||
See notes to unaudited interim consolidated financial statements.
| 7 |
SAVEDAILY, INC.
Notes to Interim Consolidated Financial Statements
March 31, 2013
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
On August 22, 2011, Nine Mile Software, Inc., a Nevada corporation (“Nine Mile” and the “Company”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with SD Acquisition Inc., a California corporation and a wholly-owned subsidiary of Nine Mile (“Merger Sub”), and SaveDaily.com, Inc., a California corporation, pursuant to which Merger Sub would be merged (the “Merger”) into SaveDaily.com, Inc., and SaveDaily.com, Inc. would become a wholly-owned subsidiary of Nine Mile. The Merger was accounted for as a recapitalization with SaveDaily.com, Inc. being treated as the acquiring company for accounting purposes. Pursuant to the Merger the Company changed its name to SaveDaily, Inc.
In connection with the Merger, the Company acquired 100% of the issued shares of SaveDaily.com, Inc., in a share exchange where 1.0812286 shares of the Company were issued to the shareholders of SaveDaily.com, Inc. in exchange for each share of SaveDaily.com, Inc. for a total issuance of 33,000,000 common shares.
SaveDaily.com, Inc., a wholly-owned subsidiary of the Company as a result of the Merger was incorporated under the laws of the state of California on May 27, 1999. SaveDaily.com, Inc. is a registered investment adviser subject to regulations under the Securities and Exchange Commission. SaveDaily.com, Inc. provides a fully electronic solution for saving and investments to assist its customers in meeting their financial goals. SaveDaily.com, Inc. has two primary sources of revenue: money management (including distribution, marketing and advisory fees) and membership fees.
On August 8, 2012, the shareholders voted to increase the common stock authorization from 50 million shares to 100 million shares effective June 12, 2012. The Certificate of Amendment reflecting the change was filed with the Nevada Secretary of State August 9, 2012.
NOTE 2 – BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows as of March 31, 2013 have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's December 31, 2012 audited financial statements which can be found in the Form 10-K filed by the Company on April 11, 2013. The results of operations for the three-month period ended March 31, 2013 are not necessarily indicative of the operating results for the full year.
Reclassification: Certain reclassifications have been made to prior year amounts to conform to the current period presentation. The reclassifications had no effect on net loss, cash flows or stockholders’ deficit.
NOTE 3 – LIQUIDITY
The Company has experienced annual operating losses since 1999. As of March 31, 2013 the Company had a negative working capital of $ 1,913,200 and a stockholders’ deficit of $ 4,719,100. During the three months ended March 31, 2013 net cash used by operating activities was $ 1,120,300. These factors raise substantial doubt about the ability of the Company to continue as a going concern. The accompanying consolidated financial statements have been prepared on the basis that the Company will continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. As a result, the Company may be dependent upon further financing, related party loans, or expansion of existing revenue streams and development of additional revenue streams.
In June 2012 the Company entered into a Financing and Security Agreement. Under the agreement SaveDaily may receive up to $4,000,000. On October 17, 2012 the Company approved an Addendum to the June 27, 2012 agreement pursuant to which the lender waived all financial performance covenants and interest from July 1, 2012 until January 1, 2014. At March 31, 2013 the company had $1,000,000 of unused credit under this agreement. An additional $1,500,000 was committed on May 14, 2013.
In addition in October, 2012 the company arranged to pay the “Dent” (see part II Item 1. Legal Proceedings) indemnification through the execution of a Securities Purchase Agreement for 7,325,000 shares of the Company’s common stock for $1,250,000. At March 31, 2013 the company had $625,000 of unused credit under this agreement.
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NOTE 4 – RECENT EQUITY TRANSACTIONS
On January 22, 2013 we issued 25,000 shares in exchange for services. The closing per-share value was $0.18 on January 22, 2013. The value of these services was $4,500.
SAVEDAILY PARTNERS, L.P. has agreed to provide the necessary funds to indemnify Dent from a judgment arising from the McGaughy Lawsuit. SAVEDAILY PARTNERS, L.P. executed a Securities Purchase Agreement for 7,325,000 shares of the Company’s common stock for total of $1,250,000. In February, 2013 we issued another 1,843,750 shares for proceeds of $312,500 under this agreement. The funds were used to pay the second installment to McGaughy (see Part II Item 1. Legal Proceedings).
In 2011, the Company adopted the “2011 Equity Incentive Plan”. The purpose of the Plan is to promote the long-term success of the Company and the creation of stockholder value by offering Participants the opportunity to share in such long-term success by acquiring a proprietary interest in the Company. The Plan seeks to achieve this purpose by providing for discretionary long-term incentive awards in the form of Options (which may be Incentive Stock Options or Nonstatutory Stock Options), Stock Appreciation Rights, Stock Grants, Restricted Stock Units and Cash Bonus Awards. The aggregate number of Shares reserved for Awards under the Plan is 10,000,000. During the three months ended March 31, 2013 we did not grant any awards under this plan. We continue to amortize deferred compensation derived from previously issued awards. Amortization of deferred compensation was $124,700 and $107,000 for the three-month periods ended March 31, 2013 and 2012, respectively.
All holders of shares of common stock are entitled to receive dividends if and when declared and are entitled to one vote for each share on all matters submitted to a vote of the shareholders. These rights and preferences of the common shareholders remain unchanged. We have not designated or issued any preferred shares.
NOTE 5 - RELATED PARTY DEBT
Related party amounts outstanding consist of the following as of March 31, 2013 and December 31, 2012, respectively:
| March 31 | Dec 31 | |||||||
| Accrued expenses | $ | 244,000 | $ | 231,700 | ||||
| Accrued interest | 33,000 | 70,100 | ||||||
| Convertible Note payable to related parties | ||||||||
| with the entire principal due June, 2017 | 3,000,000 | 2,200,000 | ||||||
| Note payable to related party bearing interest | ||||||||
| at 8% with the entire principal due April, 2013 | 149,600 | 200,000 | ||||||
| Less current portion | (426,600 | ) | (501,800 | ) | ||||
| Due after one year | $ | 3,000,000 | $ | 2,200,000 | ||||
NOTE 6– COMMITMENTS AND CONTINGINCIES
Settlement Agreement with Silvercross LP
On March 25, 2013 the company entered into a Debt Settlement Agreement. The purpose of the Agreement was to structure a payment schedule that would provide for payments to be spread out over four months. The full amount of the original note was due April 15, 2013. The Agreement stipulates four monthly payments of beginning March 25, 2013 and extending through June 15, 2013. The initial payment was $85,000 and is followed by three monthly payments each of $50,000.
| 9 |
Settlement Agreement with McGoughy
On March 22, 2013 the company entered into a Settlement Agreement. The Agreement stipulates three quarterly payments of $278,250 due June 30, Sept 30 and December 31, 2013. (see Part II Item 1. Legal Proceedings)
NOTE 7 – RECENTLY ISSUED ACCOUNTING STANDARDS
The Company has adopted all accounting pronouncements effective before March 31, 2013 which are applicable to the Company and does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the accompanying consolidated financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-looking Statements
This Form 10-Q and other reports filed by Registrant from time to time with the Securities and Exchange Commission (collectively the “ Filings ”) contain or may contain forward looking statements and information that are based upon beliefs of, and information currently available to, Registrant’s management as well as estimates and assumptions made by Registrant’s management. When used in the filings the words “anticipate”, “believe”, “estimate”,“expect”, “future”, “intend”, “plan” or the negative of these terms and similar expressions as they relate to Registrant or Registrant’s management identify forward looking statements. Such statements reflect the current view of Registrant with respect to future events and are subject to risks, uncertainties, assumptions and other factors relating to Registrant’s industry, Registrant’s operations and results of operations and any businesses that may be acquired by Registrant. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned. Although Registrant believes that the expectations reflected in the forward looking statements are reasonable, Registrant cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, Registrant does not intend to update any of the forward-looking statements to conform these statements to actual results. The following discussion should be read in conjunction with Registrant’s financial statements.
Plan of Operation
SaveDaily developed and owns a proprietary financial services platform, the most recent version being in production for about three years, helping financial intermediaries succeed in bringing suitable and affordable investment services to everyday savers and investors. In the view of SaveDaily management, the mass market demographic is in need of affordable access to the relationships and investment strategies typically reserved only for affluent investors. SaveDaily was founded to provide persons of all income levels the information and tools necessary to invest and self-manage their short and long term investment goals.
The everyday saver is often under-served because the acquisition and maintenance of their accounts are often unprofitable or only marginally profitable for financial institutions and brokerage houses. SaveDaily's proven proprietary technology is a low cost, private label solution for these financial institutions designed specifically to serve the mass market - commonly referred to as the small investor and mass affluent investor, making up 90% of the investing population. Our private label platform offers mutual funds and any daily-valued product investments for both qualified and non-qualified account types.
The SaveDaily platform provides straight-through processing, record keeping and all-electronic money movement. With a complete end-to-end technological infrastructure solution, the financial services, defined contribution, and asset management market users gain a feature-rich, low cost, efficient, easy to use, and easy to deploy servicing platform. This open architecture, omnibus trading platform is flexible and unencumbered by laborious manual processes. Management believes that by remaining mutual fund, bank and clearing firm agnostic, SaveDaily’s platform is well positioned in our market. SaveDaily delivers mutual funds as its feature set, and at a price point our partners need to provide superior services to their investor clients at increased profit levels. Leveraging its scalable, all-electronic, sub-accounting and money movement platform, SaveDaily believes that it currently offers the industry's lowest cost, private-labeled, investment solutions to large banks, community banks, credit unions, and broker dealers. By helping these entities bring their investors private-labeled solutions, delivered under their respective brands, and leveraging virtually any third party money manager(s), investors in our service sets enjoy access to advisory services generally not readily available to this investor class.
| 10 |
By using our platform products, business partners of SaveDaily gain the ability to attract new customers, retain existing customers, lower servicing costs, and derive new revenue streams by incorporating a customizable mutual fund investing solution into their existing offerings. SaveDaily enables partner organizations to accelerate time-to-market by providing turn-key solutions and a robust Applications Programming Interface that supports tight integration between SaveDaily's investor platform and their existing infrastructure, at any back-office or consumer touch point.
By utilizing SaveDaily's proprietary platform products clients are able to initiate brokerage services with consumer-direct offerings, augment existing programs with financial advisors, more efficiently oversee portfolio management of trust funds, 401(k) Plans, 403(b) Plans, Safe Harbor IRA Rollovers, and provide for managed fund accounts. SaveDaily offers a full-service record keeping facility, providing participants with daily valuations and full-featured web access, all while maintaining compliance with pre-determined mutual fund models or approved product lists. All tax reporting, performance reporting, confirmation, and statement delivery is to be provided by SaveDaily directly to investors, or integrated into existing partner operations, for a seamless flow of regulated information to the investors
The Company
SaveDaily, Inc., formerly Nine Mile Software, Inc., a Nevada Corporation, conducts its business through its wholly owned subsidiary, SaveDaily.com, Inc., a California corporation incorporated on May 27, 1999. References herein to “SaveDaily”, unless otherwise note, refer to SaveDaily.com, Inc., the operating entity. SaveDaily produces and supports proprietary record keeping and workflow software solutions in the financial services industry that market products and services to everyday savers and investors. Mass market and mass affluent savers and investors typically have investable assets of less than $100,000 and generally make up the bulk of the retail client services by the banking industry, the qualified and defined benefits industry, and the debit card industry - all of which are target markets.
SaveDaily has had a history of losses and does not yet operate at break-even cash flow. Since its inception, SaveDaily has received more than $14.6 million in equity from private sources. Over the course of nine years, working in conjunction with key firms within the financial services industry, SaveDaily developed a series of proprietary components into a fully integrated platform of technology solutions. We currently have 19 full-time and 6 part-time employees.
Our solutions, though continuing to evolve and be refined, are mature. We have been actively marketing these solutions since about 2008. Through various online portals, SaveDaily offers investments and record-keeping services directly to clients via our website located at www.savedaily.com, as well as indirectly to clients of business partners through a variety of white-labeled interfaces deployed with financial institution partners supporting investment accounts of all tax types. SaveDaily’s solutions operate successfully in our defined markets, enabling clients to find educational information, investment and account type wizards, and open and transact mutual fund investments in individual, joint, custodial, IRA (Individual Retirement Account), ESA (Educational Saving Account), and HSA (Health Saving Account) accounts.
SaveDaily has formed strategic joint ventures to provide investment services to ethnically, religiously, and socio-economically focused communities, including African-American, Latino-American, and economically underserved and un-banked communities. In these communities, SaveDaily provides managed accounts of all tax types in conjunction with our strategic partners, who are themselves focused in these market places.
SaveDaily has partnered with UMB Bank, N.A. to provide Safe Harbor Automatic Rollover IRAs to terminated participants of qualified retirement plans, and has entered into over 1,500 agreements with retirement plan sponsors to handle their Safe Harbor Automatic Rollover IRAs.
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SaveDaily also partners with third party administrators (TPAs) to create and offer a 401K/Qualified plan record-keeping platform aimed at TPAs, payroll associations and financial advisors. The platform was created to be private labeled by distribution partners, with SaveDaily providing record-keeping, trading, settlement and customer support.
SaveDaily launched an HSA investment sub-account product in 2007. This product is designed to link with existing banks and other entities that provide or manage direct deposit account support for HSAs. In September 2007, SaveDaily was selected as the investment solution for the largest HSA provider in the country, which began deployment of the company's solution to its client base in October 2008.
Results of Operations and Liquidity and Capital Resources
Net Sales of Services (“Revenue”)
The Company has three primary sources of revenue: membership fees that are account based and calculated based on a fixed fee for a specified time period and/or the amount of assets under management (AUM) for a particular account; money management fees, including distribution, marketing and advisory fees; and partner integration fees.
Revenue for the three months ended March 31, 2013 increased $72,600 to $346,300 or 26.5% compared to $273,700 for the three months ended March 31, 2012. For the three months ended March 31, 2013 total membership fees increased $61,300 to $310,600 or 24.6% compared to $249,300 for the three months ended March 31, 2012. For the three months ended March 31, 2013 account based membership fees increased $43,200 to $216,900 or 24.9% compared to $173,700 for the three months ended March 31, 2012. Custodial and set-up fees accounted for $22,800 of the $43,200 increase. The company did not charge its customers for these types of fees for the three months ended March 31, 2012. For the three months ended March 31, 2013 AUM based membership fees increased $18,100 to $93,700 or 23.9% compared to $75,600 for the three months ended March 31, 2012. AUM based fees increased as the company’s assets under management as of March 31, 2013 grew to approximately $212 million or 29.3% from approximately $164 million as of March 31, 2012. For the three months ended March 31, 2013 money management fees increased $6,800 to $25,700 or 36.0% compared to $18,900 for the three months ended March 31, 2012 and partner integration fees increased $4,500 to $10,000 or 81.8% compared to $5,500 for the three months ended March 31, 2012. For the three months ended March 31, 2013 as a percentage of revenue, membership fees were 89.7% (62.7% account based and 27.0% AUM based), money management fees were 7.4% and partner integration fees were 2.9%, compared to 91.1% (63.5% account based and 27.6% AUM based) 6.9% and 2.0% for the three months ended March 31, 2012, respectively.
Costs Applicable to Revenues for Services
Costs applicable to sales of services consist primarily of trust account fees and bank service charges, data center hosting costs, and compensation expenses for customer support personnel. For the three months ended March 31, 2013 these costs increased $44,600 to $76,400 or 140.3% compared to $31,800 for the three months ended March 31, 2012. Costs related to the company’s data center accounted for $43,900 of the $44,600 increase.
Operating Expenses
For the three months ended March 31, 2013 operating expenses increased $312,100 to $1,273,800 or 32.5% compared to $961,700 for the three months ended March 31, 2012. Selling, general and administrative expenses increased $194,700 to $652,000 or 42.6% compared to $457,300 for the three months ended March 31, 2013. The growth was due to increases in compensation and benefits of $59,400, increased travel and related costs of $56,200, additional dues and subscriptions of $26,900 and increased depreciation expense of $14,400. All other SG&A expenses increased a net of $37,800. Equity compensation increased $17,700 or 16.5% to $124,700 compared to $107,000 for the three months ended March 31, 2012. Professional fees increased $23,900 or 8.1% to $320,300 compared to $296,400 for the three months ended March 31, 2012. The growth in professional fees resulted from increases in consulting, compliance and investor relations partially offset by decreases in legal and public relations expenses.
Product design and development costs increased by $75,800 to $176,800 or 75.0% in 2013 compared to $101,000 for the three months ended March 31, 2012. The increase was due to increased staffing levels in 2013. We expect to continue to increase design and development expenditures as we develop enhanced features to our software platform to meet the needs of new and existing customers.
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Interest expense, net
For the three months ended March 31, 2013 interest expense decreased $250,000 to $39,500 or 86.4% compared to $289,500 for the three months ended March 31, 2012. For the three months ended March 31, 2013 the components of interest expense included $17,500 interest on current Notes Payable plus interest of $13,600 related to a litigation settlement and $12,300 of fees related to the sale of additional equity offset by $3,900 of interest income. The components of the $289,500 net interest expense included $255,400 for the amortization of discounted notes, amortization of deferred loan costs totaling $38,200 offset by $4,100 of interest income.
Liquidity
At March 31, 2013, cash and cash equivalents totaled $48,400. We had total liabilities of $5,250,200 including $3,000,000 of long term debt and a stockholders’ deficit of $4,719,100, compared to total cash and cash equivalents of $111,400, total liabilities of $4,648,300 including $2,200,000 of long term debt and total stockholders' deficit of $4,116,600 at December 31, 2012. These factors raise substantial doubt about the ability of the Company to continue as a going concern. The accompanying consolidated financial statements have been prepared on the basis that the Company will continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. As a result, the Company may be dependent upon further financing, related party loans, or expansion of existing revenue streams and development of additional revenue streams.
Net cash used in operating activities was $1,120,300 for the three months ended March 31, 2013 compared to $381,500 for the three months ended March 31, 2012. The higher rate of cash used by operating activities for the three months ended March 31, 2013 was due to an increase in the net loss plus adjustments of $295,000 and a $443,800 reduction to operating assets and liabilities.
The Company has negotiated a financing and security agreement which provides up to $4,000,000 of debt based on certain terms and conditions and which it believes will provide sufficient working capital to fund the Company’s operations for the next 12 months. We currently have $1,000,000 of unused credit on this line. See Note 3-Liquidity. An additional $1,500,000 was committed on May 14, 2013.
Inflation
In the opinion of management, inflation has not and will not have a material effect on our operations in the immediate future. Management will continue to monitor inflation and evaluate the possible future effects of inflation on our business and operations.
Off-balance Sheet Arrangements
We have no off-balance sheet arrangements.
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| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
This item is not required for a smaller reporting company.
| Item 4. | Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures. Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Disclosure and control procedures are also designed to ensure that such information is accumulated and communicated to management, including the chief executive officer and principal accounting officer, to allow timely decisions regarding required disclosures.
Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information 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. During the three months ended March 31, 2013, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934).
PART II — OTHER INFORMATION
| Item 1. | Legal Proceedings |
McGaughy Lawsuit. On September 7, 2011, Melvin McGaughy (“McGaughy”) filed a complaint in United States District Court, Central District of California (the “McGaughy Complaint”) against Harry S. Dent, Jr. (“Dent”) for breach of personal guaranty. Dent is a director of the Company and a shareholder in the Company. On July 23, 2012, Judge James V. Selna granted a Motion for Summary Judgment in favor of the Plaintiffs in the total amount of $903,607, plus attorneys’ fees and costs, against Dent. On October 17, 2012 pursuant to its Bylaws, the Company resolved to indemnify Harry S. Dent, Jr. for the judgment rendered in the McGaughy Lawsuit. Contemporaneously, SaveDaily Partners, L.P., a Delaware limited partnership has agreed to provide the necessary funds to satisfy the judgment through a Securities Purchase Agreement for 7,325,000 shares of the Company’s common stock for $1,250,000. The Company had accrued an obligation of $1,230,200 in connection with the indemnification of which $779,200 remains outstanding at March 31, 2013.
On April 12, 2012, McGaughy filed a complaint in the Orange County Superior Court (the “McGaughy State Court Complaint) against SaveDaily.com, Inc. (“SaveDaily”) for breach of promissory note and money lent. The McGaughy State Court Complaint alleges that the SaveDaily borrowed $500,000 on August 26, 2002, and did not pay back the full amount when the note came due. McGaughy is seeking the unpaid balance on the note, as well as default interest. The damages sought by McGaughy in the McGaughy State Court Complaint are the same damages McGaughy sought against Dent and are a cross-claim and subset there. On March 22, 2013 the company entered into a Settlement Agreement. The Agreement stipulates three quarterly payments of $278,250 due June 30, Sept 30 and December 31, 2013.
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| Item 1A. | Risk Factors |
This item is not required for a smaller reporting company.
| Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds |
On January 22, 2013 we issued 25,000 shares in exchange for services valued at $4,500. The closing per-share value was $0.18 on January 22, 2013.
In February, 2013 we issued 1,843,750 shares for proceeds of $312,500 under the SAVEDAILY PARTNERS, L.P. Securities Purchase Agreement. The funds were used to pay the second installment to McGaughy
| Item 3. | Defaults Upon Senior Securities |
None.
| Item 4. | Mine Safety Disclosures Not applicable |
| Item 5. | Other Information |
None.
| Item 6. | Exhibits |
| Exhibit 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| Exhibit 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| Exhibit 32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| Exhibit 32.1 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURES
Pursuant to the requirements 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.
| SAVEDAILY, INC. | ||
| Date: May 15, 2013 | By:/S/ Jeff mahony | |
| Jeff Mahony, | ||
| Chief Executive Officer | ||
| Date: May 15, 2013 | By:/S/ Michael F. Cronin | |
| Michael F. Cronin, | ||
| Chief Financial Officer | ||
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