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[February 04, 2013]
SAASMAX, INC. - 10-Q/A - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(Edgar Glimpses Via Acquire Media NewsEdge) FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 2 of Part I of this report include forward-looking statements. These forward looking statements are based on our management's current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "proposed," "intended," or "continue" or the negative of these terms or other comparable terminology. You should read statements that contain these words carefully, because they discuss our expectations about our future operating results or our future financial condition or state other "forward-looking" information. Many factors could cause our actual results to differ materially from those projected in these forward-looking statements, including but not limited to: variability of our revenues and financial performance; risks associated with product development and technological changes; the acceptance our products in the marketplace by existing and potential future customers; general economic conditions. You should be aware that the occurrence of any of the events described in this Quarterly Report could substantially harm our business, results of operations and financial condition, and that upon the occurrence of any of these events, the trading price of our securities could decline. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, growth rates, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this Quarterly Report to conform these statements to actual results.
Introduction Overview SaaSMAX, Inc. is a Nevada Corporation incorporated January 19, 2011, with its principal place of business in San Diego, California. SaaSMAX is a development stage company that is developing and launching an online business-to-business marketplace (the "SaaSMAX Marketplace") and channel management tools for the rapidly growing software-as-a-service ("SaaS") market.
Software-as-a-Service, sometimes referred to as "on-demand software," is a software delivery model in which software is delivered over the Internet through a web browser. With SaaS Applications ("SaaS Apps"), software and data is hosted on virtual servers (often referred to as "cloud-based" or "cloud computing"). Cloud computing fundamentally changes the way business software applications are developed and deployed. SaaS App developers no longer need to create and manage their own infrastructure of servers, storage, network devices, operating system software and development tools in order to create a business application. Instead, the entire software infrastructure is managed by third parties who specialize in infrastructure management, and developers use a remote management connection/console to access the development environment. SaaS App users can gain access to a multitude of business applications via an Internet browser or mobile device, and are able to take advantage of a robust, secure, scalable and highly available application at a relatively low cost, without the cost and complexity of managing the application.
11 Table of Contents While practically every Internet service (such as a Web search engine or web-based Email) is driven by some underlying software, the terms "SaaS" or "SaaS Apps" are often used in the context of business software. Independent Software Vendors ("ISVs" or "App Vendors") of SaaS Apps or traditional software applications develop and sell software apps that run on one or more operating system platforms. The companies that make the operating platforms encourage and lend support to ISVs, often with special "business partner" programs. Some ISVs focus on a particular operating platform like Apple iPhones' iOS for which there are tens of thousands of ISV applications. Other ISVs specialize in a particular application area, such as customer relationship management or business intelligence, for example, and integrate with multiple platforms.
The Company intends to become a sales distribution channel for SaaS, by offering a Marketplace for SaaS Apps and by facilitating, improving and increasing the Sales Value Chain for SaaS ISVs. The "Sales Value Chain" refers to the value-adding activities and the participants that are involved in selling a software product to an end-user. For example, a software application is typically developed and sold by an ISV. That ISV may offer to sell licenses for its software application directly to an end user, or it may contract with a wholesaler, distributor or retailer (collectively referred to herein as "Reseller") which then markets and resells that software application to end users. Moreover, when software applications require customization or user training before they are employed by the end user, ISV's will seek to partner with independent VARs, service providers, solution providers, systems integrators or other types of consultants (collectively referred to herein as "Solution Providers") who will provide those services to the end users.
With SaaS Apps, there is no physical delivery of a software product. Instead, a SaaS App is available and ready-to-use when it is accessed on-line. As a result of this non-physical, direct-to-end-customer deployment method, there is no product that can be accounted for physically. This may lead to a situation where a Solution Provider in the Sales Value Chain is ignored during a sales transaction and, in such a case, may not be compensated by the SaaS App Vendor for referring the end-user.
In traditional software sales, the Solution Provider usually has a pre-existing relationship with the end-user and is therefore the trusted advisor to the end-user for most software purchases. For SaaS App Vendors, we believe that the Sales Value Chain must also incorporate the Solution Providers for software purchases. We believe that when completed and implemented, the SaaSMAX Marketplace will provide SaaS App Vendors with the tools to track sales and manage reseller programs for each Solution Provider interested in their SaaS App.
Our SaaSMAX Marketplace is intended to be a "B2B" or "business to business" solution to be implemented between SaaS App Vendors and SaaS Solution Providers, which will enable SaaS App Vendors to market, promote and manage the sales and distribution of their SaaS App to participants in the Sales Value Chain and to business users around the world.
12 Table of Contents SaaSMAX management believes that the SaaSMAX Marketplace will: · Make it easier and more efficient for SaaS App Vendors to promote their SaaS Apps, sell licenses, find new customers, and build a channel of Solution Providers.
· Be the first SaaS marketplace that will enable SaaS App Vendors to sell, market, manage and monitor their sales and marketing efforts in real time across the SaaS Sales Value Chain.
· Be a valuable, efficient business and educational tool for SaaS Solution Providers, enabling them to thoroughly research each listed SaaS App and gain access to online demos, technical specifications, peer ratings, support, pricing, commission plans and much more.
· Make it easier for Solution Providers to find SaaS Apps for their customers and earn commissions from SaaS App Vendors for reselling or referring their SaaS Apps to end user customers.
· Include a Solution Provider Directory which will contain the business profiles of Solution Providers, to enable end user businesses to identify and do business with Solution Providers, and to enable SaaS App Vendors to network with Solution Providers.
In late 2011 the SaaSMAX Marketplace entered into its beta test-phase ("SaaSMAX Beta,"). During the Beta phase, our primary focus has been and will continue to be to recruit several dozen SaaS Apps Vendors and several dozen Solution Providers to use our service. During SaaSMAX Beta we have been and will continue to: i) study the use of our service; ii) adjust the business pricing model; iii) add features and functionality; iv) plan and prepare marketing campaigns; v) adjust our standard service agreement to meet the expressed needs and wants of participating SaaS App Vendors and Solution Providers. Once management is satisfied with the results of SaaSMAX Beta, we will commercially launch SaaSMAX. We intend to continually develop new features and functionality for the SaaSMAX Marketplace into the foreseeable future, and have identified several additional potential product opportunities that stem from what we have learned to date.
13 Table of Contents Results of Operations The following discussion should be read in conjunction with our interim consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report.
Revenues and Cost of Goods Sold During the three months ended September 30, 2012 SaaSMAX began recognizing minimal revenues and corresponding cost of goods sold resulting from marketing services provided to App Vendors as well as management fees earned from App Vendors through SaaSMAX Solution Providers. We are still a development stage company and do not expect to begin generating substantial revenues until 2013.
Salaries and Professional Fees Salaries and professional fees for the three months and nine months ended September 30, 2012 increased approximately 530% and 532%, respectively when compared to the previous periods in 2011. The increases are primarily attributable to the marketing of the SaaSMAX Marketplace as well as business development services. As the development of the SaaSMAX Marketplace was substantially completed in October 2011, the Company has begun focusing its attention on the marketing and promotion of the product. Such costs totaled approximately $78,000 and $150,000 during the three and nine months ended September 30, 2012, respectively. Additionally, during February 2012, the Company's Chief Executive Officer, Dina Moskowitz, began receiving a salary for her services thus increasing the amounts expensed for salaries and professional fees when comparing the 2012 period to 2011.
Salaries and professional fees for the period from January 19, 2011 (inception) through September 30, 2012 totaled approximately $314,000 and consisted primarily of marketing, business development costs and management salaries discussed above, as well as, legal and accounting fees incurred as a result of the Registration Statement on Form S-1 initially filed with the SEC during May 2011. The registration statement was declared effective on October 14, 2011 and accordingly, costs incurred for legal and accounting fees are expected to decrease, however, as a result of the filing requirements necessary as a public company, such costs are expected to continue being a significant part of our operating expenses.
Research and Development Research and development costs have decreased 29% and 62% during the three and nine months ended September 30, 2012 in comparison to the 2011 periods. Such costs in 2011 related to the development of the SaaSMAX Marketplace. Once technological feasibility of the product was established in October 2011, we began capitalizing the majority of the costs related to the continued development of the product that are expected to be recovered against future revenues. Costs incurred in 2012 relate to research and development of improved functions within the SaaSMAX Marketplace. The Company expects to continue to incur expenses related to research and product development as it improves and expands the SaaSMAX Marketplace.
Research and Development costs for the period from January 19, 2011 (inception) through September 30, 2012 totaled approximately $91,000 and related primarily to the development of the SaaSMAX Marketplace.
14 Table of Contents General and Administrative Expenses General and administrative expenses for the three and nine months ended September 30, 2012 increased 69% and 144%, respectively when compared to the previous periods in 2011. The increases primarily result from costs incurred to become DTC eligible during 2012, as well as, increases in depreciation and travel and entertainment.
General and administrative expenses for the period from January 19, 2011 (inception) through September 30, 2012 totaled approximately $88,000. Such costs relate primarily to corporate costs associated with the Registration Statement on Form S-1 initially filed with the SEC during May 2011 as well as costs incurred to become DTC eligible during 2012 totaling approximately $22,000. Also included are costs related to travel, trade show, automotive, internet services and general office expenses.
Other Expense Other expense for the three and nine months ended September 30, 2012 and the period from January 19, 2011 (inception) through September 30, 2012 totaled $10,537, respectively and related to primarily to the amortization of the debt discount on our convertible promissory notes.
Net Loss During the three and nine months ended September 30, 2012 and the period from January 19, 2011 (inception) through September 30, 2012 the Company incurred a net loss of $153,521, $319,029 and $501,050, respectively, due to the operating expenses described above.
Capital Resources and Liquidity As of September 30, 2012, we had $37,397 of cash and working capital deficit of approximately $13,000 compared to $33,158 of cash and working capital of approximately $23,000 as of December 31, 2011.
Net cash used in operating activities during the nine months ended September 30, 2012 and 2011 and the period from January 19, 2011 (inception) through September 30, 2012 totaled approximately $191,000, $114,000 and $337,000, respectively and is primarily attributable to the payment of development, legal, accounting, advertising, management salaries and corporate fees which are offset by stock based compensation expense.
Net cash used in investing activities during the nine months ended September 30, 2012 and 2011 and the period from January 19, 2011 (inception) through September 30, 2012 totaled approximately $20,000, $1,400 and $41,000, respectively and resulted from the purchase of capitalized software and the capitalization of the SaaSMAX marketplace upon reaching technological feasibility.
Net cash provided by financing activities during the nine months ended September 30, 2012 and 2011 and the period from January 19, 2011 (inception) through September 30, 2012 totaled $215,000, $200,100 and $415,100, respectively and resulted primarily from the Company's sale of common stock. Additionally, $75,000 was received throughout the third quarter of 2012 in the form of convertible promissory notes.
We currently rely on cash flows from financing activities to fund our capital expenditures and to support our working capital requirements. On July 1, August 15, September 26, and October 26, 2012 we entered into four separate Convertible Promissory Notes for $25,000 each (total of $100,000 (the "Convertible Note(s)") with a shareholder of the Company (the "Holder"). The Convertible Notes bear interest at 8% per annum and are due and payable on the one year anniversary date of each Convertible Note. The Holder of the Convertible Notes may at any time prior to the Maturity Date, convert the principal amount of the Convertible Note into shares of common stock of the Company on the basis of one share of such stock for each $0.35 (the "Conversion Price") in unpaid principal and accrued interest. The Company may at any time compel the conversion of the Convertible Note or any such portion into shares of common stock at the Conversion Price. The Conversion Price will be reduced upon the issuance of additional shares of commons stock, options or convertible securities (the "Additional Shares of Common Stock") with consideration per share less than the applicable Conversion Price in effect on the date of, and immediately prior to the Additional Shares of Common Stock.
15 Table of Contents During January 2012 proceeds of $75,000 were received from the sale of 214,286 shares of common stock. On April 5, 2012, pursuant to a Private Placement Memorandum (the "Private Offering"), the Company offered for sale 818,816 units ("Units") at a purchase price of $1.84 per Unit. Each Unit consists of: i) two shares of common stock, and ii) one redeemable warrant (the "Warrant[s]") entitling the holder to purchase one share of common stock (the "Warrant Shares"), at an exercise price of $1.84, for a period of 24 months. The Private Offering was terminated on May 10, 2012. The Company had sold 21,739 Units pursuant to the Private Offering resulting in proceeds of $40,000. Additionally, on April 5, 2012, proceeds of $25,000 were received from the sale of 71,428 shares of common stock to an independent accredited investor at $0.35 per share.
During 2011, proceeds of $200,100 were received from the sale of 1,000,500 shares of common stock.
We will need to secure additional financing in the future to continue to develop the product, attract customers, and start generating revenues.Our business plans estimate that we will need to raise additional capital to fund our operations during 2012 and there can be no assurance that we will be able to raise any or all of the capital. We began generating a nominal amount of revenue during the third quarter of 2012. However, there can be no assurance that we will be able to generate revenue sufficient to sustain or grow the operations. Please see the section entitled "Risk Factors" included in our Annual Report on Form 10-K for the period ended December 31, 2011.
Off-Balance Sheet Arrangements There are no 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, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Inflation We do not believe our business and operations have been materially affected by inflation.
Critical Accounting Policies and Estimates There are no material changes to the critical accounting policies and estimates described in the audited financial statements for the period ended December 31, 2011 included in our Annual Report on Form 10-K filed with the SEC.
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