We’ve published our 2018 year-end financial statements, our SEC mandated 1/K. In the traditional public company world, they would be called a 10/K. The important difference between the two is the depth that we’re required to go into in creating the statements, plus the level audit required. For a company the size of iConsumer, I don’t believe there’s a substantial qualitative difference.
A quick financial statement primer
There are four separate sets of numbers that make up the “financial statements“: The statements of operations (income statement / profit and loss statement); the balance sheet; statements of cash flows; and statements of changes in owners’ equity.
The balance sheet is a picture in time. As of December 31, 2018, what were the balances (how much cash did we have, how much money do we owe, etc.). The other statements cover a period (in this case all of last year. In other words, how did we get to where we are. For 2018, how much money did we make. How much money did we spend? What did we spend it on?
Waiting, waiting, waiting
Here’s the highlight: We managed a really hard year reasonably well. We spent almost all of the year waiting. Waiting for the SEC to qualify our new offering. Waiting for the SEC to qualify our rescission offer. Waiting for people to respond (or not) to the rescission offer. Waiting for Bitcoin to recover. Waiting for those things to resolve in order to raise sufficient cash to start growing again.
Four months spent waiting for the SEC qualification. Four more months waiting to see the effect of the rescission offer made necessary in part by the delay in the SEC qualification.
Some of our waiting gets blamed on being pioneers and the cascading effect of trying out new things in a highly regulated world. FINRA didn’t know how to handle our filings (we were a first), so we did what they wanted, which ended screwing things up over at the SEC and causing delay. We messed up handling the delay, which caused more delay at the SEC.
We chased Bitcoin, both as a reward mechanism and as a potential for funding. In retrospect, not a winning strategy. We’re not anti-Bitcoin, but layering the newness of Bitcoin on top of being the first company to try to make every customer a shareholder, and every shareholder a customer, wasn’t successful. And of course, having the words Bitcoin and blockchain in our SEC filings caused even more delay. We haven’t gotten rid of Bitcoin, but it isn’t playing any kind of a central role.
Reducing the cash burn rate
Our only real choice was to figure out how to burn (use) a lot less cash than the year before. We made the decision that if we didn’t have enough cash to fund new member acquisition, that if we couldn’t offer our stock as incentive for a third of the year, and since we had to wait with our breath held to see what the rescission offer would do to us, the least we could is run the business frugally, while still advancing.
We only have a few areas that we can cut back on, with marketing being the primary opportunity for cutting back. One of the challenges with that is growth is the lifeblood of a company like ours. But it was a sacrifice we needed to make. Could we make this an opportunity, and not just a sacrifice?
The Big Question
The big question we set out to answer was … “is a combination of stock and cash back more powerful than a higher percentage of cash back” (ala eBates and that gang)? We think the answer to that lies in our “cash gross profit”.
Previously, I’ve asked you to focus on our gross profit as the best indicator of our “goodness”. And more specifically, on the cash portion of the gross profit: what I’m calling our “cash gross profit” (which is NOT an official accounting term – look at me still pioneering!). For a startup, where cash is king, focusing on that metric eliminates the distortion caused by the awarding of stock. And “cash gross profit” was up 88% in 2018 over 2017. That’s the cash that pays the bills. $112,151 in 2018, versus $59,625 in 2017.
Another, more detailed way, of getting to that understanding is to look at the Statements of Cash Flows (page 21). But when possible, I think one number is easier to digest.
Related Party Transactions
The financial arrangement that made iConsumer possible was the fact that I own a company in a related business, called OSS. We leverage OSS’s resources, and in turn, iConsumer pays (when it has the cash) OSS a fee. That fee is based on revenues. Since iConsumer’s revenues were tiny this year, the amount of the fee dropped considerably, from $83,287 to $34,226.
Had iConsumer paid full price for the services that OSS provided, iConsumer would have lost a lot more money, and it would have had to figure out how to pay for those services. (It wouldn’t have been easy.)
OSS is effectively lending iConsumer that money. Which means that the amount owed to OSS went up, from $225,381 to $268,489. You can see that on the balance sheet.
The cost of being public
Our legal and accounting bills are really independent of our revenues. If we weren’t required to do a public-level reporting and regulatory compliance, they’d probably be a third of the $120,000 or so that we spent. I figure being public costs us $100,000 – 150,000 a year.
$100,000 a year is a bargain. It’s due in great part to our using Regulation A, plus the fact that our legal and accounting professionals are giving us preferred treatment.
No complaints, though. To aspire to 1,000,000 members who are shareholders requires us to be public. We’re not going to be the next eBates without lots and lots of members who love shopping and building a massive company.
Where’d the cash come from?
Analyzing the statement of cash flows, you’ll see we used $355,924 in cash in 2017, and $87,507 in 2018. That $87,507 came primarily from three places. OSS lent iConsumer $43,108 (that’s the related party transaction I detailed earlier). Other people lent iConsumer $10,396, and we sold about $50,000 in preferred stock.
What’s next on the regulatory front?
We have to re-qualify our offering by mid-June. If we don’t, we must stop offering our shares as an incentive (or trying to sell them for cash). We’re working on what’s known as a Post Qualification Amendment. Our intent is to file that immediately upon filing the 1/K. That gives the SEC as much time as we can to get their comments (if any), and for us to respond.