UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2014

 

☐  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:

 

Discount Coupons Corporation

(Exact name of Registrant as specified in its charter)

 

Florida		27-3261246
(State of incorporation)		(IRS Employer ID Number)

 

3225 S. Macdill Ave. Suite #129 - 198 Tampa, Florida 33629

(Address of principal executive offices)

 

Telephone (919) 610-4400

 

(Registrant’s telephone number)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

All Correspondence to:

 

Craig A. Huffman, Esquire

Securus Law Group

13046 Racetrack Road, Number 243

Tampa, Florida 33626

Office: (888) 914-4144

Email: craig@securuslawgroup.com

 

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 preceding 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 ☐    No ☒

 

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 (ss.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☒ 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. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
(Do not check if a smaller reporting company)

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

 

As of September 18, 2014, there were 31,182,330 shares of common stock, par value $0.00001 per share, outstanding. 

 

 

 

TABLE OF CONTENTS

 

		Page
PART I FINANCIAL INFORMATION
Item 1.	Financial Statements:	3
	Balance Sheets at June 30, 2014 (Unaudited) and December 31, 2013	3
	Statements of Operations for the three and six months ended June 30, 2014 and 2013 (Unaudited) and from August 16, 2010 (Inception) to June 30, 2014 (Unaudited)	4
	Statements of Cash Flows for the three months ended June 30, 2014 and 2013 (Unaudited) and from August 16, 2010 (Inception) to June 30, 2014 (Unaudited)	5
	Notes to financial statements	7
Item 1A.	Risk Factors	19
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	22
PART II
Item 1.	Legal Proceedings	22
Item 2.	Unregistered Sales of Equity Securities	22
Item 3.	Defaults Upon Senior Securities	22
Item 4.	Mine Safety Disclosures	22
Item 5.	Other Information	22
Item 6.	Exhibits	23
Signatures		24

 

 

    DISCOUNT COUPONS CORPORATION

(a Development Stage Company)

Balance Sheets  

 

		June 30,				December 31,
		2014				2013
		(Unaudited)
ASSETS
Current assets
Cash		$	58,660			$	5,172
Accounts receivable			12,726				-
Deposits and prepaids			93,882				16,349
Total current assets			165,268				21,521
Property and intangible assets, net of accumulated depreciation			79,467				31,821
Goodwill			421,187				374,241
Total assets		$	665,922			$	427,583
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable		$	267,070			$	249,773
Accrued expenses			192,974				216,459
Unearned revenue			3,367				-
Convertible bridge loans			116,000				119,000
Convertible notes payable			260,852				190,000
Total current liabilities			840,263				775,232
Stockholders' equity (deficit)
Preferred stock, $0.00001 par value, 2,000,000 shares authorized; no shares issued and outstanding			-				-
Common stock, $0.00001 par value; 50,000,000 shares authorized, 27,600,902 and 21,586,804 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively			280				217
Additional paid-in capital			9,742,300				7,588,510
Deficit accumulated during the development stage			(9,916,921	)			(7,936,376	)
Total stockholders' equity (deficit)			(174,341	)			(347,649	)
Total liabilities and stockholders' equity (deficit)		$	665,922			$	427,583

 

The accompanying notes are an integral part of these financial statements. 

 

 

DISCOUNT COUPONS CORPORATION

(a Development Stage Company)

Statements of Operations (continued)

(Unaudited) 

 

																		Period From August 16, 2010
		For the Three Months Ended								For the Six Months Ended								(Inception) to
		June 30,								June 30,								June 30,
		2014				2013				2014				2013				2014
						Restated								Restated
Revenues:
Coupon revenues		$	8,856			$	9,992			$	9,952			$	23,189			$	268,116
Service revenues			42,977				-				85,744								116,586
Sales refunds			-				(20,000	)			-				(20,000	)			(20,000	)
Total revenue			51,833				(10,008	)			95,696				3,189				364,702
Cost of sales			(100	)			-				(200	)			-				(28,119	)
Gross profit			51,733				(10,008	)			95,496				3,189				336,583
Operating expenses:
Research and development			-				-				-				-				86,356
Professional fees			547,543				740,010				1,439,778				795,182				5,744,630
Selling			40,604				178,445				73,022				232,826				1,394,614
General and administrative			139,364				228,378				288,617				336,161				1,657,680
Total expenses			727,511				1,146,833				1,801,417				1,364,169				8,883,280
Net operating (loss)			(675,778	)			(1,156,841	)			(1,705,921	)			(1,360,980	)			(8,546,697	)
Other income (expense):
Interest expense			(198,396	)			(91,907	)			(231,771	)			(149,658	)			(740,832
Loss on extinguishment of debt			(31,157	)			-				(49,370	)			-				(712,329
Forgiveness of accrued interest			813				-				6,517				-				82,937
Total other income (expense)			(228,740	)			(91,907	)			(274,624	)			(149,658	)			(1,370,224	)
Net (loss)		$	(904,518	)		$	(1,248,748	)		$	(1,980,545	)		$	(1,510,638	)		$	(9,916,921	)
Net loss per share, basic and fully diluted		$	(0.03	)		$	(0.11	)		$	(0.08	)		$	(0.14	)
Weighted average number of common shares outstanding, basic and fully diluted			25,974,905				11,319,782				25,005,949				11,157,303

 

 

The accompanying notes are an integral part of these financial statements.

 

 

DISCOUNT COUPONS CORPORATION

(a Development Stage Company)

Statements of Cash Flows

(Unaudited)  

 

										Period From August 16, 2010
		For the Six Months Ended								(Inception) to
		June 30,								June 30,
		2014				2013				2014
						Restated
Cash flows from operations
Net (loss)		$	(1,980,545	)		$	(1,510,638	)		$	(9,916,921	)
Adjustment to reconcile net loss to net cash:
Depreciation and amortization			11,654				6,192				50,983
Stock-based compensation			-				956,000				2,344,737
Stock, options and warrants issued for services			1,663,081				16,000				4,215,362
Stock issued in lieu of refund			-				20,000				20,000
Interest expense			231,771				119,587				664,112
Loss on extinguishment of debt			49,370				-				712,329
Forgiveness of accrued interest			(6,517	)			-				(82,937	)
Changes in operating assets and liabilities:			-				-				-
Accounts receivable			(12,726	)			-				(12,726	)
Deposits and prepaid expenses			(77,533	)			(6,600	)			(93,882	)
Deferred revenue			3,367				-				3,367
Accounts payable and accrued expenses			(6,188	)			139,297				384,988
Net cash used for operating activities			(124,266	)			(260,162	)			(1,710,588	)
Cash flows from investing activities
Net cash received in asset acquisition			2,754				-				47,987
Purchases of computer equipment and software			-				-				(37,150	)
Net cash provided by investing activities			2,754				-				10,837
Cash flows from financing activities
Proceeds from sale of treasury and common stock			7,500				1,000				839,111
Proceeds from borrowings on notes payable			173,500				175,000				936,500
Proceeds from exercise of stock options			-				-				800
Principal payments on notes payable			(6,000	)			-				(18,000	)
Net cash provided by financing activities			175,000				176,000				1,758,411
Net increase (decrease) in cash			53,488				(84,162	)			58,660
Cash, beginning of period			5,172				84,187				-
Cash, end of period		$	58,660			$	25			$	58,660
Supplemental disclosures:
Cash paid during the period for:
Interest		$	-			$	-			$	-
Income taxes		$	-			$	-			$	-
Non-cash investing and financing transactions:
Common stock issued for asset acquisitions		$	9,000			$	-			$	390,241
Notes payable converted into common stock		$	193,500			$	-			$	703,002

 

The accompanying notes are an integral part of these financial statements.

 

 

DISCOUNT COUPONS CORPORATION

(A Development Stage Company)

NOTES TO FINANCIALSTATEMENTS

JUNE 30, 2014

 

1.	Nature of operations

 

Discount Coupons Corporation (the “Company”, “we”, “us” or “our”) provides web-based advertising and promotion services to the business and consumer community through various websites.  Revenue is generated from the sale of discount coupons from its merchant clients to customers registering on the website to receive offers via e-mail.  The Company operates globally via the Internet.  The Company also manages other daily deal websites for a percentage of revenue.

 

The Company is a Florida corporation and was organized in August, 2010.  Through June 30, 2014, the Company has been primarily engaged in developing its website and a base of merchant voucher offerings for consumer consumption, recruiting personnel, raising capital, and identifying similar companies for acquisition.

 

The Company is a new enterprise in the development stage as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 915, Development Stage Entities.  This stage is characterized by significant expenditures for the design and development of the Company’s offerings.  Once the Company’s planned principal operations commence, its focus will be on marketing vouchers to the general public through direct marketing and third-party partnerships and affiliations.

 

2.	Going concern

 

The accompanying financial statements have been prepared on the basis that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  Since inception, the Company has primarily devoted its efforts to the development and implementation of its web-based business.  Operations have been funded through the private placement of equity securities and debt financing.  These successful funding efforts have allowed the Company to reach its current state of development despite incurring losses typical with an emerging technology company.  At June 30, 2014, the Company had $58,660 in cash and $674,995 in negative working capital.  Additionally, for the six months ended June 30, 2014, the Company incurred a net loss of $1,980,545.

 

Management anticipates incurring additional losses prior to reaching a positive operating cash flow and intends to finance its operations through additional notes payable and equity funding.  Significant additional funding is needed. The Company is in the process of raising capital but there are no assurances such funding will be available.

 

If adequate funding cannot be obtained, the Company may be unable to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

3.	Basis of presentation

 

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and Rule 8.03 of Regulation S-X. The accompanying condensed financial statements do not include all of the information and notes required by GAAP. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. In the opinion of management, all adjustments (including normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the six-months ended June 30, 2014 are not necessarily indicative of the results to be expected for the year ending December 31, 2014.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the related disclosures.  Such estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates. The Company’s significant accounting estimates include accounting for stock based compensation and the valuation and impairment of intangible assets and goodwill.

 

Restatement

 

The Company has restated its financial statements for the three and six months ended June 30, 2013 (see Note 12).

 

 

DISCOUNT COUPONS CORPORATION

(A Development Stage Company)

NOTES TO FINANCIALSTATEMENTS

JUNE 30, 2014

 

Loss Per Common Share

 

The Company complies with the accounting and disclosure requirements of FASB ASC 260, “Earnings Per Share.” Basic earnings per common share ("EPS") calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the period.  Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding.  During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation. The Company’s common stock equivalents are as follows:

 

		For the six months ended June 30,
		2014				2013
Common shares indexed to stock options			15,248,031				4,090,746
Common shares indexed to warrants			2,441,840				2,441,840
Common shares indexed to convertible instruments			1,894,571				766,000
			19,584,442				7,298,586

 

Recently issued Accounting Pronouncements

 

The Company does not believe that any recently issued or proposed accounting pronouncements not yet adopted will have a material impact on the financial statements.

 

4.	Equipment and software

 

Computer equipment and intangible assets, net, consisted of the following:

 

		June 30,				December 31,
		2014				2013
Office equipment		$	896			$	896
Purchased mailing lists and trademarks			93,300				34,000
Software			36,254				36,254
			130,450				71,150
Less:  accumulated depreciation and amortization			(50,983	)			(39,329	)
		$	79,467			$	31,821

 

Depreciation and amortization expense was $11,654 and $6,192 for the six months ended June 30, 2014 and 2013, respectively.

 

 

DISCOUNT COUPONS CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2014

 

5.	Business Combinations

 

Go Charleston Deals, LLC

 

On March 31, 2014, the Company completed its acquisition of the operations of Go Charleston Deals, LLC (“GCD”), which operates a Daily Deal site focusing on merchants and clients in the Charleston, South Carolina market. The Company issued a $50,000 convertible note in exchange for GCD’s assets, which include mailing lists and other intangibles. In addition to the note, the company is contingently required to issue the following common stock consideration:

 

·         25,000 shares if GCD’s gross billings exceed $100,000 in the first 12 months after closing; plus

·         25,000 shares if GCD’s gross billings exceed $150,000 for the same 12 month period; plus

·         25,000 shares if GCD’s gross billings exceed $200,000 for the same 12 month period; plus

·         25,000 shares if GCD’s gross billings exceed $250,000 for the same 12 month period

 

The Company does not believe that it will be required to issue the additional shares. The gross billings for GCD for the six months ended June 30, 2014 amounted to $12,072.

 

All Deals Local, LLC

 

On March 31, 2014, the Company completed its acquisition of the operations of All Deals Local, LLC (“ADL”), a Daily Deal site focusing on merchants and clients in the Three Village/Port Jefferson area of Long Island, New York. The Company issued a $50,000 convertible note and 50,000 shares of common stock in exchange for ADL’s assets, which include cash, mailing lists and other intangibles. In addition to the note, the company is contingently required to issue the following common stock consideration:

 

·         25,000 shares if GCD’s gross billings exceed $75,000 in the first 12 months after closing; plus

·         25,000 shares if GCD’s gross billings exceed $100,000 for the same 12 month period;

 

The Company does not believe that it will be required to issue the additional shares. The gross billings for GCD for the six months ended June 30, 2014 amounted to $12,261.

 

The results of operations for GCD and ADL are included in the Statements of Operations from the date of acquisition. In connection with these transactions, the consideration paid, the assets acquired, and the liabilities assumed were recorded at fair value on the date of acquisition, as summarized in the following table.

 

		GCD				ADL
Fair value of total consideration paid:
Common stock issued upon closing (1)		$	-			$	9,000
Convertible note			50,000				50,000
			50,000				59,000
Fair value of identifiable assets acquired:
Intangible assets (mailing lists)			32,600				26,700
Cash			-				2,754
Total assets acquired			32,600				29,454
Fair value of net identifiable assets (liabilities) acquired			32,600				29,454
Goodwill resulting from transaction		$	17,400			$	29,546

 

(1) The common stock issued to ADL was valued at $0.18 per share, which was the quoted market price on the date of acquisition.

 

 

DISCOUNT COUPONS CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2014 

 

5.	Business Combinations (continued)

 

Goodwill of $17,400 and $29,546 for GCD and ADL, respectively, was recorded after adjusting for the fair value of net identifiable assets acquired.  The goodwill from the acquisition represents the inherent long-term value anticipated from the synergies and business opportunities expected to be achieved as a result of the transaction. The intangible assets are being amortized over their estimated life, currently expected to be three years.

 

Our unaudited pro forma results of operations for the six months ended June 30, 2014 as if the above acquisitions had occurred on January 1, 2014 are as follows. The pro forma information is not indicative of results that would have occurred or which may occur in the future:

 

REVENUE		$	107,130
NET LOSS		$	(1,969,111	)
NET LOSS PER SHARE		$	(0.08	)

 

6.	Convertible bridge loans

 

During the years ended December 31, 2013 and 2012, the Company issued $176,750 and $206,250, respectively, face value convertible bridge loans to investors (“Bridge Loans”). Of the aggregate $383,000 in Bridge Loans, $11,250 were loans from related parties. The Bridge Loans accrue interest at the rate of 10% per annum and had a maturity date of August 31, 2013.  The debt holders have the option to convert the Bridge Loans into common stock at a fixed conversion price of $0.50 per share. In connection with the Bridge Loans, the Company issued 771,600 common stock purchase warrants to acquire shares of its $0.00001 par value common stock at an exercise price of $0.50 per share. 

 

The Company evaluated the terms and conditions of the Bridge Loans and warrants under the guidance of ASC 815, Derivatives and Hedging. The conversion feature met the definition of conventional convertible for purposes of applying the conventional convertible exemption. The definition of conventional contemplates a fixed number of shares being issuable under the arrangement. The instruments are convertible into a fixed number of shares and there are no down round anti-dilution protection features contained in the contracts. Additionally, the warrants did not contain any provisions or features that would preclude equity classification and may be settled with unregistered shares. The Company also evaluated if a beneficial conversion existed and determined that it was immaterial.

 

The following tables reflect the allocation of the proceeds of the Bridge Loans:

 

			2012				2013
		$	206,250			$	176,750
Convertible Bridge Loans			Face Value				Face Value				Totals
Proceeds		$	206,250			$	176,750			$	383,000
Paid-in capital (warrants)			(90,893	)			(77,149	)			(168,042	)
Carrying value		$	115,357			$	99,601			$	214,958

 

Conversion of Bridge Loans

 

On August 31, 2013 (the maturity date), Bridge Loan holders with an aggregate principal balance of $262,000 agreed modify the conversion option from $0.50 per share to a conversion option in which the principal balance of $262,000 would be convertible into 602,596 shares of common stock. This inducement amounted to a conversion price of approximately $0.43 per share. Additionally, the bridge loan holders agreed to forgive accrued interest amounting to $16,167.

 

 

DISCOUNT COUPONS CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2014

 

6.	Convertible bridge loans (continued):

 

Extension of Bridge Loans

 

The remaining principal balance of $121,000 was still outstanding as of the maturity date. The holders of these Bridge Loans agreed to extend the maturity date of their Bridge Loans and reduce the conversion price of the Bridge Loans. These amendments gave rise to an extinguishment because the difference in cash flows was greater than 10%. As a result, the Company recorded a loss on extinguishment of debt in the amount of $111,209 in 2013. In addition, during December 2013, $2,000 of the principal was repaid.

 

During the six months ended June 30, 2014, $3,000 of the principal was repaid. As of June 30, 2014 and December 31, 2013 the outstanding principal balance of the remaining convertible Bridge Loans amounted to $116,000 and $119,000, respectively. Interest expense on the Bridge Loans for the six months ended June 30, 2014 amounted to $5,826. As of June 30, 2014 and December 31, 2013, the debt discount was fully amortized. Accrued interest related to these loans amounted to $17,238 and $11,412 as of June 30, 2014 and December 31, 2013, respectively. As of June 30, 2014 and December 31, 2013, $10,000 of the outstanding loans was from a related party.

 

7.	Convertible notes payable

 

Investor loans issued in 2010 and 2011

 

Between September 27, 2010 and July 21, 2011, the Company issued notes payable to third party investors with an aggregate face value of $447,500 (“Investor Loans”). Of the aggregate $447,500 in Investor Loans, $88,333 were loans from related parties. The notes have a common maturity date of August 31, 2013, payable at face value plus accrued interest at maturity.  The notes accrue interest at the rate of 7% per annum.

 

Interest on these notes was calculated using an effective interest rate of 7.51% and 12.63% generating a debt discount in the amount of $224,063.  Interest expense on the Investor Loans for the six months ended June 30, 2014 and 2013 amounted to $5,326 and $59,700, respectively, including amortization of the discount of $0 and $44,166, respectively. As of June 30, 2014 and December 31, 2013, the debt discount was fully amortized. During 2013, $10,000 of the principal was repaid.

 

Modification and conversion of investor loans in 2013

 

On August 31, 2013 (the maturity date), holders of investor loans with an aggregate principal balance of $247,500 agreed to add a conversion option to the contracts which provided that the principal balance of $247,500 would be convertible into 569,252 shares of common stock. This amounted to a conversion price of approximately $0.43 per share. Additionally, the holders agreed to forgive accrued interest amounting to $60,252. Under ASC 470-50-40-10, when a modification or an exchange of debt instruments adds a substantive conversion option, extinguishment accounting is required. As a result, the Company recorded a loss on extinguishment of debt amounting to $116,176 (the difference between the reacquisition price of $393,250 and the net carrying amount of $277,074). The $247,500 in principal was converted into 569,252 shares of common stock on August 31, 2013.

 

Extension of investor loans in 2013

 

The remaining principal balance of $200,000 was still outstanding as of the maturity date. The holders of these Investor Loans agreed to extend the maturity date of their notes and added a conversion option to the notes. These amendments gave rise to an extinguishment because of the addition of a conversion option. As a result, the Company recorded a loss on extinguishment of debt in the amount of $435,574 in 2013.

 

Modification and conversion of investor loans in 2014

 

On January 1, 2014, an Investor Loan holder with a principal balance of $5,000 agreed to an amendment that modified the conversion option from $0.50 per share to a conversion option in which the principal balance of $5,000 would be convertible into 26,250 shares of common stock. This amounted to a conversion price of approximately $0.19 per share. Additionally, the Investor Loan holder agreed to forgive accrued interest amounting to $164. In accordance with ASC 470-50-40-10, a test was performed to see if the modification resulted in a 10% change in cash flows. This amendment gave rise to an extinguishment because the difference in cash flows was greater than 10%. As a result, the Company recorded a loss on extinguishment of debt in the amount of $1,194 (the difference between the reacquisition price of $6,607 and the net carrying amount of $5,413). The $5,000 in principal was converted into 26,250 shares of common stock on January 1, 2014.-10-

 

 

DISCOUNT COUPONS CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2014

 

7.	Convertible notes payable (continued):

 

On February 18, 2014, an Investor Loan holder with a principal balance of $5,000 agreed to an amendment that modified the conversion option from $0.50 per share to a conversion option in which the principal balance of $5,000 would be convertible into 11,956 shares of common stock. This amounted to a conversion price of approximately $0.42 per share. Additionally, the Investor Loan holder agreed to forgive accrued interest amounting to $931. In accordance with ASC 470-50-40-10, a test was performed to see if the modification resulted in a 10% change in cash flows. This amendment did not give rise to an extinguishment because the difference in cash flows was not greater than 10%. The $5,000 in principal was converted into 11,956 shares of common stock on February 18, 2014.

 

On March 31, 2014, an Investor Loan holder with a principal balance of $15,000 agreed to an amendment that modified the conversion option from $0.50 per share to a conversion option in which the principal balance of $15,000 would be convertible into 192,575 shares of common stock. This amounted to a conversion price of approximately $0.08 per share. Additionally, the bridge loan holder agreed to forgive accrued interest amounting to $4,609. In accordance with ASC 470-50-40-10, a test was performed to see if the modification resulted in a 10% change in cash flows. This amendment gave rise to an extinguishment because the difference in cash flows was greater than 10%. As a result, the Company recorded a loss on extinguishment of debt in the amount of $17,019 (the difference between the reacquisition price of $35,446 and the net carrying amount of $18,427). The $15,000 in principal was converted into 192,575 shares of common stock on March 31, 2014.

 

On April 25, 2014, a Bridge Loan holder with a principal balance of $20,000 agreed to an amendment that modified the conversion option from $0.15 per share to a conversion option in which the principal balance of $20,000 would be convertible into 297,331 shares of common stock. This amounted to a conversion price of approximately $0.07 per share. Additionally, the bridge loan holder agreed to forgive accrued interest amounting to $813. In accordance with ASC 470-50-40-10, a test was performed to see if the modification resulted in a 10% change in cash flows. This amendment gave rise to an extinguishment because the difference in cash flows was greater than 10%. As a result, the Company recorded a loss on extinguishment of debt in the amount of $31,157 (the difference between the reacquisition price of $55,652 and the net carrying amount of $24,495). The $20,000 in principal was converted into 297,331 shares of common stock on April 25, 2014.

 

As of June 30, 2014 and December 31, 2013, the outstanding principal balance of the Investor Loans issued in 2010 and 2011 amounted to $142,000 and $190,000, respectively. Loans issued in 2014 in connection with Business Combination

 

During the six months ended June 30, 2014, the Company issued (i) a $50,000 face value convertible note as part of the consideration for the ADL business acquisition (“ADL Note”) and (ii) a $50,000 face value convertible note as part of the consideration for the GCD business acquisition (“GCD Note”). Both notes bear an interest rate of 10% and mature in September 2014. The note holders have the option to convert the notes into common stock at a fixed conversion price. The ADL Note has a conversion price of $0.50 per share whereas the GCD Note has a conversion price of $1.00 per share.

 

The Company evaluated the terms and conditions of the convertible notes under the guidance of ASC 815, Derivatives and Hedging. The conversion features met the definition of conventional convertible for purposes of applying the conventional convertible exemption. The definition of conventional contemplates a fixed number of shares issuable under the arrangement. The instruments were convertible into a fixed number of shares and there were no down round anti-dilution protection features contained in the contracts. The Company was required to consider whether the new hybrid contracts embodied a beneficial conversion feature (“BCF”). Neither of the notes resulted in a BCF because the conversion prices were not in the money on the inception dates.

 

As of June 30, 2014, the outstanding balance of the ADL Note and GCD Note was $100,000. Interest expense on the ADL Note and GCD Note for the six months ended June 30, 2014 was $2,740.

 

Investor Loans issued in 2014

 

During the six months ended June 30, 2014, the Company issued convertible notes for an aggregate face value of $173,500 along with 517,000 shares of common stock as consideration. Each of the notes bear an interest rate of 10% and mature in September 2014. The note holders have the option to convert the notes into common stock at a fixed conversion price. Of the $173,500 in convertible notes, $148,500 in principal was converted simultaneously after being issued.

 

 

DISCOUNT COUPONS CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2014

 

7.	Convertible notes payable (continued):

 

The Company evaluated the terms and conditions of the convertible notes under the guidance of ASC 815, Derivatives and Hedging. The conversion features met the definition of conventional convertible for purposes of applying the conventional convertible exemption. The definition of conventional contemplates a fixed number of shares issuable under the arrangement. The instruments were convertible into a fixed number of shares and there were no down round anti-dilution protection features contained in the contracts. The Company was required to consider whether the new hybrid contracts embodied a beneficial conversion feature (“BCF”). Each of the notes resulted in a BCF because the conversion price was in the money on each of the inception dates. The instruments issued in connection with the $173,500 convertible note financing are detailed in the following table:

 

Issue Date			Face Value				Common Stock Consideration				Shares Indexed to Conversion Option				Stock Options Issued
February 1, 2014		$	50,000				100,000				500,000				-
April 1, 2014			15,000				200,000				75,000				-
April 1, 2014			6,000				12,000				74,000				-
April 11, 2014			7,000				14,000				86,000				-
April 15, 2014			7,000				14,000				111,000				-
April 22, 2014			10,000				20,000				80,000				-
April 24, 2014			2,000				4,000				25,000				-
April 28, 2014			10,000				20,000				123,000				-
April 29, 2014			5,000				10,000				61,428				-
May 21, 2014			1,500				3,000				22,000				-
June 17, 2014			10,000				20,000				122,857				-
June 30, 2014			50,000				100,000				614,286				714,285
		$	173,500				517,000				1,894,571				714,285

 

The allocation of proceeds related to the $173,500 convertible note financing is detailed in the following table:

 

Issue Date			Face Value (Proceeds)				Deferred Finance Fees				Common Stock Consideration				Beneficial Conversion Feature				Convertible Notes
February 1, 2014		$	50,000				22,000				11,000				16,000				45,000
April 1, 2014			15,000				40,000				40,000				-				15,000
April 1, 2014			6,000				8,400				2,400				6,000				6,000
April 11, 2014			7,000				10,220				3,220				7,000				7,000
April 15, 2014			7,000				9,800				2,800				7,000				7,000
April 22, 2014			10,000				3,800				3,800				5,200				4,800
April 24, 2014			2,000				2,800				800				2,000				2,000
April 28, 2014			10,000				14,000				4,000				10,000				10,000
April 29, 2014			5,000				7,000				2,000				5,000				5,000
May 21, 2014			1,500				2,100				600				1,500				1,500
June 17, 2014			10,000				2,800				2,800				7,200				2,800
June 30, 2014			50,000				8,000				8,000				-				50,000
		$	173,500				130,920				81,420				66,900				156,100

 

The following table summarizes the activity related to the investor loans issued in 2014:

 

Investor Loans issued in 2014		2013
Issued		$	173,500
Converted			(148,500	)
Face value as of June 30, 2014			25,000
Unamortized discount			(6,148	)
Carrying value as June 30, 2014		$	18,852

 

Interest expense on the Investor Loans issued in 2014 for the six months ended June 30, 2014 was $217,397, of which $172,359 related to the amortization of deferred finance cost, $44,752 related to the amortization of debt discount. -12- 

 

 

DISCOUNT COUPONS CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2014

 

7.	Convertible notes payable (continued):

 

The following table illustrates the carrying values for the convertible notes payable as of June 30, 2014 and December 31, 2013:

 

		June, 30				December 31,
Convertible Notes Payable		2014				2013
Investor Loans issued in 2010 and 2011		$	142,000			$	190,000
Loans issued with business combinations			100,000				-
Investor Loans issued in 2014			25,000				-
Unamortized discount			(6,148	)			-
Carrying value		$	260,852			$	190,000

 

Accrued interest related to convertible notes payable amounted to $28,898 and $26,943 as of June 30, 2014 and December 31, 2013, respectively. 

 

8.	Capital and treasury stock:

 

2014 stock transactions

 

During the six months ended June 30, 2014:

 

·

the Company sold 12,500 shares of common stock for $0.60 per share;

 

·

the Company issued 3,210,772 shares of common stock in exchange for services of which 1,625,000 shares were issued to employees and 1,585,772 shares were issued to consultants.  The shares issued to employees for services were valued based on the market price on the date of grant and are being expensed over the service periods. The shares issued to consultants were initially valued at the market price on the date of the grant with the value adjusted periodically if material and are being expensed over the service periods. The aggregate value of the shares issued for services was $1,031,720 of which $598,000 was issued for future services.

 

·

the Company issued 50,000 shares of stock for asset acquisitions, which were valued at the market price of $0.18 per share or $9,000.

 

·

the Company issued 517,000 shares of stock in connection with multiple note purchase agreements as describe in Note 7, which were valued at $81,420, which were based on the market prices on the inception dates of the notes.

 

·

the Company issued 2,223,826 shares of common stock in exchange for the conversion of loans with a face value of $193,500.

 

9.	Stock options

 

At June 30, 2014 and December 31, 2013, 15,248,031 and 6,083,746 options were exercisable at a weighted average price of approximately $0.11 and $0.27, respectively.

 

The following is a summary of all option activity through June 30, 2014: 

 

										Average
		Number of				Weighted				Remaining
		Options				Average				Term
		Outstanding				Price				(in years)
Options outstanding at December 31, 2013			6,083,746				0.27				8.0
Granted in 2014			9,164,285				0.01				7.0
Exercised			-
Options outstanding at June 30, 2014			15,248,031			$	0.11				7.5
Exercisable at June 30, 2014			15,248,031			$	0.11				7.5

 

DISCOUNT COUPONS CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2014

 

9.	Stock options (continued)

 

	Options Outstanding and Exercisable
									Weighted
					Number				Average				Weighted
					Outstanding at				Remaining				Average
	Exercise				June 30,				Contractual				Exercise
	Price				2014				Life				Price
$	0.01				9,164,285				7.0				0.01
$	0.08				1,125,746				7.8				0.08
$	0.20				1,993,000				6.9				0.20
$	0.38				2,965,000				8.8				0.38
					15,248,031				7.4			$	0.11

 

During the six months ended June 30, 2014, the Company issued 7,107,895 options in lieu of payment for accrued payroll and expenses amounting to $226,506. Additionally, during the six months ended June 30, 2014, the Company issued 1,342,105 options to consultants in lieu of $51,000 in future services. The $51,000 in future services is recorded in prepaid expenses. Also, during the six months ended June 30, 2014, 714,285 options were issued in connection with a note purchase agreement, which is described in Note 7. All The options have an exercise price of $0.01, vest immediately and have a seven year term. No stock options were exercised during the six months ended June 30, 2014 or the year ended December 31, 2013.  Cash flows resulting from excess tax benefits are classified as part of cash flows from financing activities.  Excess tax benefits are realized tax benefits from tax deductions for exercised options in excess of the deferred tax asset attributable to the compensation cost for such options.

 

10.

Warrants

 

During the year ended December 31, 2013, the Company issued 359,100 warrants in conjunction with short-term notes described in Note 6 and 1,090,000 warrants to six existing shareholders and one note holder during the year ended December 31, 2013. In addition, we have 992,740 warrants outstanding that were issued in 2012 and prior years. No new warrants were issued during the six months ended June 30, 2014. No warrants were exercised during the six months ended June 30, 2014 or the year ended December 31, 2013. All of the warrants are currently exercisable and are accounted for as equity instruments. The following table summarizes the warrants outstanding at June 30, 2014: 

 

	Warrants Outstanding and Exercisable
					Number
					Outstanding at
	Exercise				June 30,
	Price				2014				Expiration
$	0.50				1,861,600				August 31, 2019
$	0.38				580,240				January 20, 2020
					2,441,840

 

 

DISCOUNT COUPONS CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2014

 

11.	Related-party transactions

 

During the six months ended June 30, 2014, the Company issued a $50,000 face value convertible note to its Chief Operating Officer. The note was converted into 500,000 shares of common stock during the period. Additionally, during the six months ended June 30, 2014, the Company issued a $2,000 face value convertible note to a relative of the President. The note was converted into 25,000 shares of common stock during the period. See Note 7.

 

12.	Restatement of Financial Statements

 

The Company has made adjustments to its financial statements for the six and three months ended June 30, 2013 due to adjustments arising from the re-audit of the Company’s financial statements from inception (August 16, 2010) through December 31, 2012. The re-audit of the Company’s financial statements from inception (August 16, 2010) through December 31, 2012 is detailed in the annual report on Form 10-K filed on August 8, 2014. The re-audit of the financial statements from inception (August 16, 2010) through December 31, 2012 resulted in adjustments made the financial statements for the six and three months ended June 30, 2013. The adjustments related to the valuation of common stock, stock-based compensation and warrants.

 

The comparative periods presented in the current quarterly report on Form 10-Q are the (i) the statement of operations for the six and three months ended June 30, 2013 and (iii) the statement of cash flows for the six months ended June 30, 2013. The affects of the restatement for these periods are summarized below. The following table presents the statement of operations as previously reported, restatement adjustments and the statement of operations as restated for the six months ended June 30, 2013:

 

		Previously Reported				Restatement Adjustments				Restated
Revenues:
Coupon revenue		$	23,189			$	-			$	23,189
Sales refunds			(20,000	)							(20,000	)
Gross profit			3,189				-				3,189
Operating expenses:
Professional fees (1)			780,932				14,250				795,182
Selling			232,826				-				232,826
General and administrative			336,161				-				336,161
Total expenses			1,349,919				14,250				1,364,169
Net operating (loss)			(1,346,730	)			(14,750	)			(1,360,980	)
Other income (expense):
Interest expense (2)			(55,445	)			(94,213	)			(149,658	)
Total other income (expense)			(55,445	)			(94,213	)			(149,658	)
Net (loss)		$	(1,402,175	)		$	(108,463	)		$	(1,510,638	)
Net loss per weighted share, basic and fully diluted		$	(0.13	)						$	(0.14	)
Weighted average number of common shares outstanding, basic and fully diluted			11,157,303								11,157,303

 

 

(1)	The restatement adjustment to professional fees relates to the issuance of warrants for services which was not previously valued, which amounted to $15,000. Additionally, $750 which was originally recorded as warrants issued for services in error was reclassified.
(2)	The restatement adjustment to interest expense relates to the amortization of debt discount arising from warrants issued in connection with a bridge loan financing and common stock issued in connection with a note purchase agreement. The warrants and common stock were revalued.

 

 

DISCOUNT COUPONS CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2014

 

12.	Restatement of Financial Statements (continued):

 

The following table presents the statement of operations as previously reported, restatement adjustments and the statement of operations as restated for the three months ended June 30, 2013:

 

		Previously Reported				Restatement Adjustments				Restated
Revenues:
Coupon revenue		$	9,992			$	-			$	9,992
Sales refunds			(20,000	)							(20,000	)
Gross profit			(10,008	)			-				(10,008	)
Operating expenses:
Professional fees (1)			740,760				(750	)			740,010
Selling			178,445				-				178,445
General and administrative			228,378				-				228,378
Total expenses			1,147,583				(750	)			1,146,833
Net operating (loss)			(1,157,591	)			750				(1,156,841	)
Other income (expense):
Interest expense (2)			(29,511	)			(62,396	)			(91,907	)
Total other income (expense)			(29,511	)			(62,396	)			(91,907	)
Net (loss)		$	(1,187,102	)		$	(61,646	)		$	(1,248,748	)
Net loss per weighted share, basic and fully diluted		$	(0.10	)						$	(0.11	)
Weighted average number of common  shares outstanding, basic and fully diluted			11,319,782								11,319,782

 

(1)	The restatement adjustment to professional fees relates to $750 which was originally recorded as warrants issued for services in error. It was reclassified
(2)	The restatement adjustment to interest expense relates to the amortization of debt discount arising from warrants issued in connection with a bridge loan financing and common stock issued in connection with a note purchase agreement. The warrants and common stock were revalued.

 

 

DISCOUNT COUPONS CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2014

12.	Restatement of Financial Statements (continued):

 

The following table presents the statement of cash flows as previously reported, restatement adjustments and the statement of cash flows as restated for the six months ended June 30, 2013: 

 

		Previously Reported				Restatement Adjustments				Restated
Cash flows from operating activities:
Net loss		$	(1,402,175	)		$	(108, 463	)		$	(1,510,638	)
Adjustment to reconcile net loss to net cash:
Depreciation and amortization			6,192				—				6,192
Stock based compensation			956,000				—				956,000
Stock, options and warrants issued for services (1)			1,750				14,250				16,000
Stock issued in lieu of refund			20,000				—				20,000
Interest expense (2)			25,374				94,213				119,587
Changes in operating assets and liabilities:
Deposits and prepaid expenses			(6,600	)			—				(6,600	)
Accounts payable and accrued expenses			139,297				—				139,297
Net cash used for operating activities			(260,162	)			—				(260,162	)
Cash flows from financing activities:
Proceeds from sale of common stock			1,000								1,000
Net proceeds from borrowings on notes payable			175,000				—				175,000
Net cash used for financing activities			176,000				—				176,000
Net increase (decrease) in cash			(84,162	)							(84,162	)
Cash, beginning of period			84,187				—				84,187
Cash, end of period		$	25			$	—			$	25

 

(1)	The restatement to stock, options and warrants issued for services relates to the issuance of warrants for services which was not previously valued. Additionally, $750 which was originally recorded as warrants issued for services in error was reclassified.
(2)	The restatement adjustment to interest expense relates to the amortization of debt discount arising from warrants issued in connection with a bridge loan financing and common stock issued in connection with a note purchase agreement. The warrants and common stock were revalued.

 

 

DISCOUNT COUPONS CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2014

 

13.	Subsequent events

 

Acquisition of Conejo Deals Inc.

 

On July 1, 2014, the Company entered into a Purchase Agreement to acquire the operational assets of Conejo Deals Inc., a daily deal site focusing on merchants and clients in the Los Angeles, California market. The Company is required to pay the following consideration to Conejo Deals Inc.; (a) $750,000, (b) $500,000 convertible note; (c) 100,000 common stock shares and (d) other common stock consideration based on certain gross billing levels. The closing date of the purchase agreement is expected to occur no later than October 20, 2014, if the Company has sufficient funds to close; however, there can be no assurance of this.

 

Acquisition of Half Price San Diego, Inc

 

On July 7, 2014, the Company entered into a Purchase Agreement to acquire the operational assets of Half Price San Diego, LLC, a daily deal site focusing on merchants and clients in the San Diego, California market. Upon closing, the Company is required to pay (a) $40,000 and (b)75,000 shares of common stock. The closing date of the purchase agreement is expected to occur no later than September 30, 2014, if the Company has sufficient funds to close; however, there can be no assurance of this. 

 

Shares issued subsequent to balance sheet date

 

Between July 1, 2014 and TBD, the Company issued an additional 3,581,428 shares. Of the 3,581,428 shares issued, (i) 366,000 shares were issued in connection with note purchase agreements (ii) 2,315,428 shares were issued for the conversion of notes payable, (ii) 300,000 shares were issued in connection with the exercise of stock options, and (iii) 600,000 shares were issued in exchange for services.

 

 

Item 1A. Risk Factors

 

A Smaller Reporting Company, as defined by Item 10 of Regulation S-K, is not required to provide the information required by this item; however, risk factors pertaining to our business may be reviewed in our Form S-1 Registration Statement filing available for review at www.sec.gov.

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

As used in this Form 10-Q, references to “we,” “our” or “us” refer to Discount Coupons Corporation unless the context otherwise indicates.

 

Forward-Looking Statements

 

The following discussion should be read in conjunction with our financial statements, which are included elsewhere in this Form 10-Q (the “Report”). This Report contains forward-looking statements that relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

 

This Form 10-Q for the six months ending June 30, 2014 should be reviewed in conjunction with our audited financial statements for our fiscal years ended December 31, 2013 and December 31, 2012 and Management’s Discussion and Analysis of Financial Condition and Results of Operations for those same fiscal periods, which are available for review in our Form 10-K filing at www.sec.gov.

 

Although these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Overview

 

We are a marketing firm that provides services to businesses on a cost per acquisition basis through the sale of discount vouchers to consumers.  Our business operates in a similar manner to businesses that define themselves as “daily deal’ websites.  Additionally, we have acquired and plan to enter into additional agreements with “daily deal” websites to assist them to improve their internet presence and websites in return for a portion of their revenues as described in the Description of the Business.

 

We were incorporated on August 16, 2010 in the State of Florida.  Our domain name, discountcoupons.com, was contributed to the company by founding shareholder, Charles Zitsman, in exchange for 1,589,290 shares of common stock and $12,500.  We immediately began to develop our business model, website, and internet mailing list to capitalize on the strength of our domain name.

 

Limited Operating History

 

We have a limited operating history.  Our operations have been focused on establishing our business model, designing and constructing a website, acquiring subscribers, obtaining merchant agreements, testing marketing, advertising and sales channels, and exploring merger and acquisition opportunities within our industry and other closely related industries.

 

Plan of Operations

 

Our primary focus is offering discount coupons to individuals via the internet.  We do this through e-mail and other mass marketing methods, directing consumers to our website, DiscountCoupons.com or other websites that we have under management.  We also provide our knowledge of internet-based business models to other companies on a consulting basis.

 

We have tested various marketing and advertising channels to determine their efficacy to both sell our vouchers and obtain new subscribers. We have primarily tested pay-per-click search engine marketing, organic search engine optimization, and social media. Through these tests we have learned which channels provide a return on investment (ROI) and which also provide a positive impact on sales and public knowledge.

 

Recently, our operations have included a focus on acquiring management agreements from complementary and similar businesses, whereby we are able to manage their businesses on a revenue share basis. These management agreements provide us with additional marketing reach to promote our offers and also benefit from the increased revenue that results from the management of these properties.

 

 

Results of Operations

Six Months Ended June 30, 2014 Compared with Six Months Ended June 30, 2013

 

Revenues

Revenues for the six months ended June 30, 2014 and 2013 were $95,696 and $3,189, respectively, representing a $92,507 increase in our revenues. The increase is primarily attributable to an increase in our service revenues resulting from our HC Consulting acquisition.

 

Cost of Sales

Cost of sales for the six months ended June 30, 2014 and 2013 were $200 and $0, respectively.  

 

Gross Profit

Gross profit for the six months ended June 30, 2014 and 2013 was $95,496 and $3,189, respectively, representing a $92,307 increase in our gross profit.  The increase is primarily attributable to an increase in our service revenues resulting from our HC Consulting acquisition.

 

Total Expenses

Total expenses for the six months ended June 30, 2014 and 2013 were $1,801,417 and $1,364,169, respectively, representing a $437,248 increase in total expenses. Our total expenses consist of professional fees, selling and general and administrative.  The increase in our total expenses is primarily attributable to stock issued for services in the amount of $1,663,081.

 

Net Operating Loss

Net operating loss for the six months ended June 30, 2014 and 2013 was $1,705,921 and $1,360,980, respectively, representing an $344,941 increase. The increase in net operating loss is primarily attributable to an increase in total expenses related to stock issued for services.

 

Other Income and Expenses

Interest expense for the six months ended June 30, 2014 and 2013 was $231,771 and $149,658, respectively, representing an $82,113 increase. The increase in interest expense is primarily attributable to the amortization of deferred finance fees and debt discount associated with the new issuances of debt. For the six months ended June 30, 2014, the Company recorded a loss on extinguishment of debt in the amount of $49,370. Additionally, for the six months ended June 30, 2014 the Company recorded a gain related to the forgiveness of interest in the amount of $6,517.

 

Net Loss

The net loss for the six months ended June 30, 2014 and 2013 was $1,980,545 and $1,510,638, respectively, representing a $469,907 increase. The increase in net loss is primarily attributable to an increase in total expenses related to stock issued for services.

 

Three Months Ended June 30, 2014 Compared with Three Months Ended June 30, 2013

 

Revenues

Revenues for the three months ended June 30, 2014 was $51,833 versus negative revenue of $10,008 for the three months ended June 30, 2014, representing a $61,841 increase in our revenues. The increase is primarily attributable to an increase in our service revenues resulting from our HC Consulting acquisition.

 

Cost of Sales

Cost of sales for the three months ended June 30, 2014 and 2013 were $100 and $0, respectively.  

 

Gross Profit

Gross profit for the three months ended June 30, 2014 was $51,733 versus negative gross profit of $10,008, respectively, representing a $61,741 increase in our gross profit. The increase in gross profit is primarily attributable to an increase in our service revenues resulting from our HC Consulting acquisition.

 

Total Expenses

Total expenses for the three months ended June 30, 2014 and 2013 were $727,511 and $1,146,833, respectively, representing an $419,322 decrease in total expenses. Our total expenses consist of professional fees, selling and general and administrative.  The decrease in our total expenses is primarily attributable to stock issued for services. During the three months ended June 30, 2013 the Company recorded $906,000 in expenses related to the issuance of shares for services versus $544,000 in expenses related to the issuance of shares for services for the three months ended June 30, 2014.

 

Net Operating Loss

Net operating loss for the three months ended June 30, 2014 and 2013 was $675,778 and $1,156,841, respectively, representing a $481,063 decrease. The decrease in our total expenses is primarily attributable to stock issued for services.

 

 

Other Income and Expenses

Interest expense for the three months ended June 30, 2014 and 2013 was $198,396 and $91,907, respectively, representing a $106,489 increase. The increase in interest expense is primarily attributable to the amortization of deferred finance fees and debt discount associated with the new issuances of debt. For the three months ended June 30, 2014, the Company recorded a loss on extinguishment of debt in the amount of $31,157. Additionally, for the three months ended June 30, 2014 the Company recorded a gain related to the forgiveness of interest in the amount of $813.

 

Net Loss

The net loss for the three months ended June 30, 2014 and 2013 was $904,518 and $1,248,748, respectively, representing an $344,230 increase. The increase in net loss is primarily attributable to an increase in total expenses related to stock issued for services.

 

Liquidity and Capital Resources

 

The term “liquidity” as used herein refers to the ability of an enterprise to generate adequate amounts of cash to meet the enterprise’s needs for cash. At the present time, our available cash is not sufficient to allow us to commence full execution of our business plan. We have minimal cash on hand and no ability to generate cash without the sale of equity or debt securities.

 

Our growth strategy for the next 12 months is primarily focused on seeking strategic acquisitions or joint ventures to acquire their respective operations and mailing lists in our attempt to increase our revenues and increase our subscribers. There can be no assurances that we will be successful in this strategy.  Our expansion program may require us to increase our payroll obligations, workers compensation premiums, and employer taxes if our revenues grow. Funds required to finance our expansion program are expected to come primarily from additional debt or equity financings during fiscal 2014; however, there are no assurances that we will be successful in obtaining any additional financing or that we will secure financing on terms that will be favorable to us.

 

During the six months ended June 30, 2014, we used $124,266 net cash in operations, received net cash of $2,754 from investing activities and had $175,000 in net cash provided from the sale of debt and equity securities to investors after principal repayments. During the six months ended June 30, 2013, we used $260,162 net cash in operations and had $176,000 in cash provided from the sale of debt and equity securities to investors. 

 

Going Concern

Our financial statements have been prepared on the basis that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  Since inception, the Company has primarily devoted its efforts to the development and implementation of its web-based business.  Operations have been funded through the private placement of equity securities and debt financing.  These successful funding efforts have allowed the Company to reach its current state of development despite incurring losses typical with an emerging technology company. At June 30, 2014, the Company had $58,660 in cash, and $674,995 in negative working capital.  Additionally, for the six months ended June 30, 2014 and 2013, the Company incurred net losses of $1,980,545 and $1,510,638, respectively.

 

Management anticipates incurring additional losses prior to reaching a positive operating cash flow and intends to finance its operations through additional notes payable and equity funding.  Significant additional funding is needed. The Company is in the process of raising capital but there are no assurances such funding will be available.

 

If adequate funding cannot be obtained, the Company may be unable to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Interest Rates

 

We are not being exposed to market risks relating to changes in interest rates because all outstanding debt bears interest at a fixed rate. We currently do not engage in any interest rate hedging activity and have no intention of doing so in the foreseeable future.

 

Foreign Exchange

 

The company has no exposure to foreign exchange fluctuations.

 

Inflation

 

Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net sales if the selling prices of our products do not increase with these increased costs.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this Report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer/Chief Financial Officer, of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the 1934 Act). Based on this evaluation, the Chief Executive Officer/Chief Financial Officer concluded that our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in reports that we file or submit under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

 

Changes in Internal Control Over Financial Reporting.

 

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 240.15d-15 that occurred during our last fiscal quarter that has materially affected, or is reasonable likely to materially affect, our internal control over financial reporting.

 

PART II- OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None

 

Item 2. Unregistered Sales of Equity Securities 

 

Referred to in Footnote 8 of the financial statements provided in Part I.

 

Item 3. Defaults upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures.

 

Inapplicable.

 

Item 5. Other Information.

 

None.

 

 

Item 6. Exhibits

 

Exhibit No.		Description
31.1		Rule 13a-14(a)/15d14(a) Certification of Pat Martin,  Chief Executive Officer (attached hereto)
31.2		Rule 13a-14(a)/15d14(a) Certification of Pat Martin, the Chief Financial Officer (attached hereto)
32.1		Section 1350 Certification of Pat Martin, Chief Executive Officer (attached hereto)
32.2		Section 1350 Certification Pat Martin, Chief Financial Officer (attached hereto)
101.INS		XBRL INSTANCE DOCUMENT
101.SCH		XBRL TAXONOMY EXTENSION SCHEMA
101.CAL		XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF		XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LAB		XBRL TAXONOMY EXTENSION LABEL LINKBASE
101.PRE		XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

_____________

 

   

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.

 

	Discount Coupons Corporation
Dated: September 18, 2014	By:	/s/ Pat Martin
	Name	Pat Martin
	Title:	Principal Executive Officer President/Chief Executive Officer/ Chief Financial Officer/Principal Accounting Officer/Chairman of the Board of Directors

 

 

-24-