We’ve published our 2019 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 of audit required. For a company the size of iConsumer, I don’t believe there’s a substantial qualitative difference.
A new reality: the coronavirus pandemic
Normally, I’d spend a lot of time discussing last year and the numbers. But in March, the entire world began to change, and in April, we did our Pandemic Pivot. We’re focused on taking care of our owners in today’s topsy-turvy world so that when things return to the new normal, they’ll be in the best shape possible. That includes having a stake in the future. So what came before hopefully prepared us for what comes next, but it’s not going to provide amazing insights into 2020.
Click here for an update on our progress with the Pandemic Pivot (we’ve more than doubled important metrics).
We needed to raise more money to grow. We weren’t able to raise that money. We spent money trying. We learned that being a publicly-traded startup that had used equity crowdfunding and gave shoppers stock for shopping was too different for potential investors to get their arms around. So we made choices and changes throughout 2019 that maximized using the money we did have and the revenues we had already established.
The biggest change in 2019
On August 1, 2019 we retired cash back, transitioning to solely stock back. We believed that a singular marketing message would be a more efficient way to grow our business. While the pandemic has caused us to change to a “maximum cash back” strategy, when and if things return to normal, I expect that we’ll return to the singular message.
The other fundamental result of that change was that it increased the amount of cash we generated from each transaction. Our “cash gross profit”. More on that in a bit.
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, 2019, 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?
The important questions
How did we generate cash in 2019? How did we spend that cash? How did we finance the fact that we spent more cash than we took in?
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. For a startup where cash is king, focusing on that metric eliminates the distortion caused by the awarding of stock. For the year, cash generated was basically flat ($118,875 vs. $115,809 in 2018). But if you look at the second half of the year, our revenues were down about 9%, but the cash generated was up about 8% ($77,001 vs. $71,155 in 2018).
Another, more detailed way, of getting to that understanding is to look at the Statements of Cash Flows (page 18).
The “M, D & A” (Management’s discussion and analysis) starting on page 6 goes into detail. Focus on the explanation beginning on page 9 for how we spent your money. Note that we call out where some of that expenditure was in the form of our stock, which is definitely not cash.
We prefer to use stock to pay our bills. The biggest downside to that is that using stock dilutes the value of the stock you own. But it conserves cash. Read about dilution here (scroll down a bit to get the juicy bits).
Financing negative cash flow
Negative cash flow is a simple concept. There is more cash going out than coming in. We yearn for positive cash flow (more coming in than going out – our bank balance would be growing). The question we need to answer every day is “where are we going to get the cash to pay our bills”.
The Statement of Cash Flows (page 18) gives this detail.
There are typical ways to finance a growing business. We can try to sell stock for cash. We sold $32,474 of stock in 2019. We can try to borrow money. We borrowed $1,117 from other people and $70,045 from my other company – the related party transaction. The best way, and we’re not there yet, is to generate positive cash from operations.
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.
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.)
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 $100,000 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.
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 – a 1-A. Our intent is to file that within the next week. That gives the SEC as much time as we can to get their comments (if any), and for us to respond.