Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This report contains forward-looking statements. These statements relate to future events or our future financial performance. These statements often can be identified by the use of terms such as "may," "will," "expect," "believe," "anticipate," "estimate," "approximate" or "continue," or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management's best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
Description of Business
The Company
eMedia Group, Inc. (“EMEDIA” or the “Company”) was organized as a corporation in the State of Nevada on October 9, 2015, and on October 10, 2015, acquired all of the issued and outstanding shares of eTarg Media ApS, a Danish private limited liability company, which is in the business of selling its customers subscriptions for its software suite, AccuRanker (“AccuRanker”), which allows customers to track their search engine rankings. The Company issued a total of sixty million (60,000,000) shares of its common stock to the two (2) owners of eTarg Media ApS, in exchange for all of the shares of eTarg Media ApS. Both of the owners of eTarg Media ApS are the officers and directors of eMedia Group Inc.
Our AccuRanker service covers a spectrum of activities, including performing search engine optimization, managing paid listings at the search engines, submitting sites to directories, and developing online marketing strategies for businesses, organizations, and individuals.
AccuRanker's target market is search engine optimization and marketing professionals and companies with a specific budget for internet marketing. AccuRanker has customers throughout the world but currently markets its services only in Denmark and the United Kingdom.
In 2017, the Company expects to commence marketing its AccuRanker services in the United States.
Our customers include companies with an internal marketing department, as well as companies that are dedicated search engine optimization and / or marketing agencies. Eventually, we will develop tools within AccuRanker aimed at the end user, and, therefore, will not restrict the Company to professionals as clients.
We intend to make AccuRanker a viable and desirable service for search optimization and social analytics software, empowering marketers and site owners to increase visibility and market share on the world's leading search engines, social sites, and online video sites. This service is important to our customers by aiding them in maintaining their listing on the first page of search engines, tracking their search engine rankings, providing them with the ranks of their competition and informing them if they are moving up or down compared to their competitors. All of this information is made available to our clients by logging onto our online application.
Results of Operations
For the Three Months Ended September 30, 2016 and 2015:
Revenues
During the quarter ended September 30, 2016, we were able to expand sales of our Accuranker subscriptions, while also retaining key consulting clients. Our revenues grew to $314,894 during this period, compared to $90,006 from the same period from the prior year, an increase of approximately 250%. We expect to continue working towards growing sales (see discussion below in General and Administrative Expenses), especially of our Accuranker subscriptions and have invested significant resources.
Direct Costs
Our direct costs consist of our costs to maintain our ability to deliver Accuranker results to our subscription customers. These costs consist primarily of fixed hosting costs per customer and will vary with the addition of new customers. During the quarter ended September 30, 2016, our direct costs increased by $52,137 to $68,996, compared to direct costs of $16,859 during the same period from the prior year. In the future, as we grow, we may contract with suppliers on a more variable basis and expect these costs to grow as we acquire more customers in the future.
General and Administrative Expenses
Our G&A costs increased substantially during the quarter ended September 30, 2016 compared to the quarter ended first quarter of 2015. Our general and administrative expenses increased by $66,554 to $65,104 compared to only $(1,450) from the quarter ended September 30, 2015. The primary drivers of these increases were (1) increased professional fees and (2) we invested substantial funds in marketing our Accuranker subscription software. As we moved towards becoming a public company in late 2015, our costs to retain legal and accounting/auditor professionals increased substantially in the first quarter of 2016 over the first quarter of 2015 levels. We expect these costs to continue to increase in future periods as we continue to grow our business, we may engage in merger and acquisition activity and continue to be a public company. In addition to increased professional fees, we made the decision in 2015 to invest substantial amounts with firms that market Search Engine Optimization (“SEO”) platforms and have begun sponsoring SEO events in Europe. We believe that in order to grow our business going forward, we will need to continue to invest in marketing and advertising of our Accuranker platform. Because of this, we expect going forward to continue to invest heavily in marketing and advertising.
Salaries and Wages
Our salaries and wages for three months ended September 30, 2016 increased substantially over those for the three months ended September 30, 2015, to $78,002 from $(115), respectively. In the first quarter of 2016, we hired a director of Sales and in the second quarter hired a bookkeeper. In addition, during the third quarter of fiscal 2016 certain staff and management received pay increases which also substantially impacted our period over period costs. We expect going forward for our salary and wage costs to increase further as we expect to hire as needed as we grow our business
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For the Nine Months Ended September 30, 2016 and 2015:
Revenues
During the nine months ended September 30, 2016, we were able to expand sales of our Accuranker subscriptions, while also retaining key consulting clients. Our revenues grew to $525,841 during this period, compared to $190,147 from the same period from the prior year, an increase of more than176% period over period. We expect to continue working towards growing sales (see discussion below in General and Administrative Expenses), especially of our Accuranker subscriptions and have invested significant resources.
Direct Costs
Our direct costs consist of our costs to maintain our ability to deliver Accuranker results to our subscription customers. These costs consist primarily of fixed hosting costs per customer and will vary with the addition of new customers. During the nine months ended September 30, 2016, our direct costs increased by $63,693 to $84,797, compared to direct costs of $21,104 during the same period from the prior year. In the future, as we grow, we may contract with suppliers on a more variable basis and expect these costs to grow as we acquire more customers in the future.
General and Administrative Expenses
Our G&A costs increased substantially during the nine months ended September 30 2016 compared to the first nine months of 2015. Our expenses increased by $139,856 to $176,275 compared to only $36,419 from the first nine months of the prior year. The primary drivers of these increases were (1) increased professional fees and (2) we invested substantial funds in marketing our Accuranker subscription software. As we moved towards becoming a public company in late 2015, our costs to retain legal and accounting/auditor professionals increased substantially in the first quarter of 2016 over the first quarter of 2015 levels. We expect these costs to continue to increase in future periods as we continue to grow our business, we may engage in merger and acquisition activity and continue to be a public company. In addition to increased professional fees, we made the decision in 2015 to invest substantial amounts with firms that market Search Engine Optimization (“SEO”) platforms and have begun sponsoring SEO events in Europe. We believe that in order to grow our business going forward, we will need to continue to invest in marketing and advertising of our Accuranker platform. Because of this, we expect going forward to continue to invest heavily in marketing and advertising.
Salaries and Wages
Our salaries and wages for the nine months ended September 30, 2016 increased substantially over those for the nine months ended September 30, 2015, to $191,604 from $55,403, respectively. In the first quarter of 2016, we hired a director of Sales and in the second quarter hired a bookkeeper. In addition, during the third quarter of fiscal 2016 certain staff and management received pay increases which also substantially impacted our period over period costs. We expect going forward for our salary and wage costs to increase further as we expect to hire as needed as we grow our business.
Liquidity and Capital Resources
As of September 30, 2016, the Company had cash and cash equivalents of $289,400 and working capital of $110,306.
For the nine months ended September 30, 2016, we had net cash provided by operations of $173,958 primarily as a result of net income from operations of $72,517, an increase in accounts receivable of $3,416, an increase in prepaid expenses and deposits of $7,444, a decrease in deferred tax assets of $1,564, an increase of $62,628 in accounts payable and accrued liabilities, and an increase of $82,069 in unearned revenue.
Net cash provided by financing activities of $75,593 during the nine months ended September 30, 2016 was primarily due to advances from a shareholder of $52,930, shareholder loan repayments of $77,255, and proceeds of the sale of common shares, net of offering costs, of $99,918.
The Company received gross proceeds of $150,000 through its initial public offering (“IPO”) ($99,918 after offering costs) in exchange for the issuance of 20,000,000 shares of its common stock in the first quarter of 2016 which is further described in Note 5 of the accompanying condensed consolidated financial statements. Associated with the IPO, the Company paid expenses of $20,950 during 2015 and an additional $50,083 of expenses were paid for in the period ended September 30, 2016. The funds raised are being used for working capital purposes and to continue our sales efforts towards growing sales (see discussion above in General and Administrative Expenses), especially of our Accuranker subscriptions.
During the most recent quarter ended September 30, 2016 the Company undertook and completed a relocation of its corporate offices, including the completion of certain leasehold improvements and furniture acquisitions totaling $22,045. There were no similar expenditures during the prior comparative nine month period.
We believe that we have sufficient funds available to pay our monthly expenses for the next twelve (12) months; however, we cannot provide any assurance that we will not incur additional expenses that will require us to raise additional funds from equity or secure loans. If financing is not available on satisfactory terms, we may be unable to continue, develop or expand our operations. If we are unable to accomplish raising adequate funds then it would be likely that any investment made into the Company would be lost in its entirety.
Off-balance sheet arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission (‘SEC”).
Critical Accounting Policies
The preparation of our consolidated financial statements and notes thereto requires management to make estimates and assumptions that affect the amounts and disclosures reported within those financial statements. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, contingencies, litigation and income taxes. Management bases its estimates and judgments on historical experiences and on various other factors believed to be reasonable under the circumstances. Actual results under circumstances and conditions different than those assumed could result in differences from the estimated amounts in the financial statements. There have been no material changes to these policies during fiscal 2016.
