The following discussion should be read in conjunction with our financial statements and the notes thereto.
Management has continued its policy of reduction of expenses to insure the continued viability of the Company. Although future cash flow is always difficult to predict, by eliminating expenses and increasing our marketing, lead generation and production efforts, management continues to believe that net profits should improve due to the following factors:
(1)	Advertising programs on Monster.com and Craigslist.com and regular conference calls, which are designed to inform agents of (i) new direct mail areas of coverage, (ii) where the leads were coming in from, and (iii) the benefits of our membership packages;
The cost of sales was $649,161, or 43 % of revenues for the current fiscal year ended June 30, 2013.
We recognized cost of sales in the same manner in conjunction with revenue recognition, when the costs were incurred. Contract labor expenses were not directly related to the generation of sales; rather, these were involved in the selling, general and administrative expenses of the business.
Comparatively, net cash used in operating activities was $264,113 during the years ended June 30, 2012. Negative cash flow from operation during the year ended June 30, 2012 was due to the net loss of $624,724, plus the decrease in customer deposit by 27,497, offset by the increase in accounts payable and accrued payroll taxes in amount of $26,408 and $16,700, respectively, and the non-cash expenses of $345,000 resulting from the stock issuance of 2,300,000 shares as compensation.
Net cash provided by financing activities was $45,484 for the current fiscal year ended June 30, 2013 due to proceeds from related party loans. Comparatively, net cash provided by financing activities was $242,000 due to the proceeds of $250,000 from unsecured loan payable, offset by stock redemption in amount of $8,000 for the fiscal year ended June 30, 2012.
The approval from the Company’s insurance carriers, which occurs upon receipt of our commission check and the policy, is reviewed online, and related completion of services to the client is an event that triggers revenue recognition.
The customer deposit is strictly related to Executive Membership Package. After submitting a $500 deposit, an Executive Member can request that the Company directly mail letters to new home owners and/or senior citizens to generate new direct mail response leads. The Company refunds these deposits back to Executive Members when they no longer request that the Company directly mail letters to new home owners and/or senior citizens to generate new direct mail response leads. However, the Executive Members may also apply these deposits towards the leads sale or membership fees in the future. After the Executive Member cancels their direct mail service, they have the choice to use these deposits for additional leads, request that the deposits be applied towards membership, or ask for refunds. If deposits are used for additional leads, revenue is recognized when services are realized or realizable and earned. If deposits are used for membership fees, revenue is recognized over the length of membership period. For the current fiscal year ended June 30, 2013, the Company refunded $0 to Executive Members.
We expect that working capital requirements will continue to be funded through a combination of our existing funds and further issuances of securities. Our working capital requirements are expected to increase in line with the growth of our business. In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to: (i) mailing expenses; (ii) advertisement expenses; and (iii) marketing expenses. We intend to finance these expenses with further issuances of securities, and potentially debt issuances. Thereafter, we expect we will need to raise additional capital and generate revenues to meet long-term operating requirements. Additional issuances of equity or debt securities could potentially result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations. We will have to raise additional funds in the next twelve months in order to sustain and expand our operations. We currently do not have a specific plan of how we will obtain such funding; however, we anticipate that additional funding will be in the form of equity financing from the sale of our common stock.
We anticipate that our operational, and general and administrative expenses for the next 12 months will total approximately $1,500,000. We also do not expect any significant additions to the number of employees, unless financing is raised. The foregoing represents our best estimate of our cash needs based on current planning and business conditions. The exact allocation, purposes and timing of any monies raised in subsequent private financings may vary significantly depending upon the exact amount of funds raised and our progress with the execution of our business plan.
As of the date of this Quarterly Report, we do not have any 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 are material to investors.