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BILLMYPARENTS, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our consolidated financial statements and the notes presented herein. In addition to historical information, the following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed in this Quarterly Report and our other periodic reports filed with the Securities and Exchange Commission. Overview and Financial Condition Discussions with respect to our Company's operations included herein refer to our operating subsidiary, BillMyParents-CA. Our Company purchased BillMyParents-CA on October 16, 2007. We have no other operations than those of BillMyParents-CA. We are a Colorado corporation and operate in one business segment. Results of Operations Revenues Our Company had total revenues of $247,497 and $235,176, for the three months ended December 31, 2012 and 2011, respectively. Revenues consist of fees charged to our customer prepaid cardholders for monthly maintenance fees, ATM fees, load fees and other insignificant revenues. We continue to not charge our cardholders for new card initiation fees. We charge maintenance fees on our issued cards ("ICs") to cardholders on a monthly basis pursuant to the terms and conditions in our cardholder agreements. We charge ATM fees to cardholders when they withdraw money or conduct other transactions at certain ATMs in accordance with the terms and conditions in our cardholder agreements. Other revenues (currently insignificant) consist primarily of fees associated with optional products or services, which we may offer to consumers during the card activation process. Our aggregate new card fee revenues vary based upon the number of ICs activated and the activities associated therewith. Our aggregate monthly maintenance fee revenues vary primarily based upon the number of active cards in our portfolio and the average fee assessed per account. Our average monthly maintenance fee per active account depends upon the extent to which fees are waived based on promotional considerations. Our aggregate ATM fee revenues vary based upon the number of cardholder ATM transactions and the average fee per ATM transaction. 12 Our prepaid card product offerings are marketed primarily to parents, enabling them to link and communicate with younger cardholders (generally their children or other young people in their care) in order to guide responsible spending. Our products have been designed with significant features that we hope consumers will find compelling. Going forward we plan to market our products (both online, in traditional retail settings and with strategic partners) to the public as a convenient and safe youth payment system. While we are optimistic about the prospects for our prepaid card products, there can be no assurance about whether or when they will turn out to be a successful or if they will generate sufficient revenues to fund our operations over future periods. Operating Expenses In order to better represent our financial results and to make them comparable to leading companies in the prepaid card industry, we classify our operating expenses into four major categories: 1) selling and marketing; 2) personnel related; 3) processing; and 4) general and administrative expenses. We do not allocate common expenses to any of these expense categories. Selling and marketing expenses Selling and marketing expenses totaled $4,654,948 for the three months ended December 31, 2012 ($1,492,478 for the three months ended December 31, 2011). This amounted to an increase of $3,162,470 from fiscal 2012 to fiscal 2013 or 211.9%. The following is a detail of the significant components of selling and marketing expenses for the respective periods. FY 13, Q1 FY 12, Q1 Change % Change Marketing consulting $ 106,725 $ 219,382 $ (112,657) (51.4)% Public relations 38,645 34,923 3,722 10.7 % Direct marketing 30,685 1,138,376 (1,107,691) (97.3)% Marketing programs 4,478,429 71,095 4,407,334 6199.2 % Market research 349 28,162 (27,813) (98.8)% Other 115 540 (425) (78.7)% $ 4,654,948 $ 1,492,478 $ 3,162,470 211.9 % Decreases in marketing consulting in the most recent quarter over the prior year's corresponding quarter's totals were due to reduced expenditures for marketing agencies in the current year. Our levels of direct marketing were substantially reduced in the current quarter while we focused more on our account engagement (e.g. revenue per card) and our shift in focus to an endorser-based marketing model. Marketing programs in the current year included the recognition of $3,750,000 in expense in connection with payment made and accrued in connection with a new endorsement agreement signed in November 2012. Personnel related expenses 13 Personnel related expenses totaled $5,412,358 for the three months ended December 31, 2012 ($1,955,128 for the three months ended December 31, 2011). This amounted to an increase of $3,457,230 from fiscal 2012 to fiscal 2013 or 176.8%. The following is a detail of the significant components of personnel related expenses for the respective periods. FY 13, Q1 FY 12, Q1 Change % Change Salaries and wages $ 703,731 $ 493,680 $ 210,051 42.5 % Share based compensation 4,516,678 1,355,933 3,160,745 233.1 %Consulting and outside services 109,864 34,200 75,664 221.2 % Other 82,085 71,315 10,770 15.1 % $ 5,412,358 $ 1,955,128 $ 3,457,230 176.8 % Overall increases in personnel related expenses reflected the addition of employees and consultants over the prior fiscal year, including a new President and Controller as well as provisions for bonuses accrued during the quarter. Stock based compensation was significantly higher in the most recently completed quarter compared to the prior comparable quarter due to option and warrant grants made to directors, executive officers and endorsers in the most recently completed quarter( and in prior periods that vested in the current quarter). Other personnel related expenses include employer taxes, employee benefits and other employee related costs. Processing expenses Processing expenses totaled $387,354 for the three months ended December 31, 2012 ($911,127 for the three months ended December 31, 2011). This resulted in a decrease of $523,773 and a percentage decrease of 57.5% for the corresponding period in fiscal 2012. The following is a detail of the significant components of processing expenses for the respective periods. FY 13, Q1 FY 12, Q1 Change % Change Card processing $ 29,387 $ 90,320 $ (60,933) (67.5)% Fraud losses 4,169 32,190 (28,021) (87.0)% Account initiation 382 102,584 (102,202) (99.6)% Card creation 13,876 136,722 (122,846) (89.9)%Account holder communications 11,666 17,656 (5,990) (33.9)% Merchant credit card fees 78,074 86,893 (8,819) (10.1)% Contracted software development 185,998 264,114 (78,116) (29.6)% Customer service 47,832 109,418 (61,586) (56.3)% Other 15,970 71,230 (55,260) (77.6)% $ 387,354 $ 911,127 $ (523,773) (57.5)% Decreases in processing expenses were the result of a decrease in our account holder base compared to the comparable quarter in fiscal 2012 as well as more favorable rates with our new processor. Our plan is to continue to reduce such costs on a per account basis over time. Contracted software development expenses decreased compared to the prior fiscal year due to expenses incurred in fiscal 2012 in connection with the completed transition to our new card processor. Card creation and account initiation expenses were down significantly in the current quarter due to the reduction in accounts added compared to the prior year's quarter. Customer service costs were reduced due to our bringing much of the customer service function in house (with the related personnel expense included in salaries and wages above). 14 General and administrative expenses General and administrative expenses totaled $314,644 for the three months ended December 31, 2012 ($234,015 for the three ended December 31, 2011). This resulted in an increase for our 2013 first fiscal quarter compared to fiscal 2012 of $80,629 (34.5%). The following is a detail of the significant components of general and administrative expenses for the respective periods. FY 13, Q1 FY 12, Q1 Change % Change Accounting $ 55,424 $ 44,743 $ 10,681 23.9 % Insurance 17,881 16,996 885 5.2 % Investor relations 33,151 28,171 4,980 17.7 % Investor relations consulting - 49,998 (49,998) (100.0)% Legal fees - general counsel 98,768 26,569 72,199 271.7 % Rent 20,594 8,325 12,269 147.4 % Travel and lodging 36,959 17,533 19,426 110.8 % Seminars 5,292 3,422 1,870 54.6 % Telecommunications 21,318 11,712 9,606 82.0 % Other 25,257 26,546 (1,289) (4.9)% $ 314,644 $ 234,015 $ 80,629 34.5 % Investor relations consulting results from the issuance of stock to investor relations consultants for services performed on our Company's behalf (a noncash expense). We had no such issuances in fiscal 2013. Legal expenses are up over the prior year in connection with increased security related work we underwent in during the three months ended December 31, 2012. Travel related expenses have increased due to much of our senior management being located in locations outside of where our operations remain situated (San Diego, CA). Rent was up over the prior year due to a second office in Des Moines, IA (no comparable location existed in fiscal 2012) and due to increased space leased in our San Diego, CA headquarters. Total operating expenses Total operating expenses for the three months ended December 31, 2012 and 2011, were $10,769,304 and $4,592,748, respectively. The increase in operating expenses totaled $6,176,558 in our first quarter fiscal 2013 compared to first quarter fiscal 2012 or 134.5%. Included in the total operating expenses were noncash expenses (primarily for stock based compensation) totaling $4,516,678 and $1,355,931 for the three months ended December 31, 2012 and 2011, respectively. Nonoperating Income and Expense For the three months ended December 31, 2012 interest income totaled $1,044 ($1,450 for fiscal 2012), while we incurred no interest expense in either fiscal 2013 or fiscal 2012. We recognized a gain from the change in the fair value of derivative liabilities of $9,387,924 for the three months ended December 31, 2012 compared to a gain of $105,667 in the comparable period in fiscal 2012. The gain is the result of the decrease in the value of derivative liabilities outstanding at December 31, 2012 from September 30, 2012. Net Loss and Net Loss per Share For the three months ended December 31, 2012, our net loss totaled $1,132,839 ($4,250,455 for the three months ended December 31, 2011). Our basic and diluted net loss per share was $0.01 and $0.04 for the three months ended December 31, 2012 and 2011, respectively. Common stock equivalents and outstanding options and warrants were not included in the calculations due to their anti-dilutive effects. 15 Liquidity and Capital Resources We have primarily financed our operations to date through the sale of unregistered equity (accompanied by warrants to purchase shares of our common stock) and in prior years with the issuance of notes payable. At December 31, 2012, our total assets were $6,802,835, while we had negative working capital of $11,346,929. Total liabilities were $18,136,483 (all of which were current) and our stockholders' deficiency totaled $20,735,977. Also included in current liabilities were amounts arising in connection with derivative liabilities totaling $14,580,310. These liabilities represent the fair value of the warrants. Any future settlement of these securities could result either: 1) upon their expiration unexercised; or 2) upon their exercise and receipt of cash by our Company of the cash proceeds of their exercise (assuming the exercise is not effected on a cashless basis allowed by the outstanding warrants accounted for as derivatives). During the three months ended December 31, 2012, we entered into subscription agreements with 63 accredited investors pursuant to which we issued 13,719,975 shares of our common stock. We also issued five-year warrants to purchase up to an additional 8,125,000 shares of our common stock with an exercise price of $0.50 per share and five-year warrants to purchase an additional 1,398,744 shares of our common stock with an exercise price of $0.60 per share. The common stock and warrants were issued in exchange for gross proceeds totaling $5,487,990 ($4,866,192 net of cash commissions and related expenses totaling $621,798) in fiscal 2013. We also issued five-year warrants to purchase up to a total of up to 1,371,998 shares of our common stock with an exercise price of $0.50 per share to Maxim who assisted us in connection with the transactions. We may raise additional funding through the sale of unregistered common stock and warrants although there can be no assurance that we will be successful in raising such funds. This description of our recent financing and our future plans does not constitute an offer to sell or the solicitation of an offer to buy our securities, nor shall such securities be offered or sold in the United States absent registration or an applicable exemption from the registration requirements and certificates evidencing such shares contain a legend stating the same. Our cash and cash equivalents balance at December 31, 2012 totaled $6,605,567. During the three months ended December 31, 2012, positive cash flows resulted from the sale of unregistered common stock and warrants to purchase common stock described above, offset by negative cash flows from operating activities totaling $3,779,536. Plan of Operations We do not currently expect to purchase any significant property or equipment, or to have substantial changes in the number of our employees for the next twelve months. We expect however to continue to incur costs in improving, maintaining and marketing our prepaid card products during fiscal 2013. We expect that our greatest cost to be incurred during fiscal 2013 will be in the area of customer account acquisition. Going Concern As noted above (and by our independent registered public accounting firm in its report on our consolidated financial statements as of and for the year ended September 30, 2012), there exists substantial doubt about our ability to continue as a going concern for twelve months after the date of these financial statements. Our unaudited condensed financial statements do not contain any adjustments related to the outcome of this uncertainty. Critical Accounting Policies Management's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which are prepared in accordance with accounting principles that are generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, related disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We continually evaluate our estimates and judgments and we base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known. There were no changes in our critical accounting policies during fiscal 2013. 16 |