wakeupnow-logoWhen we last visited WakeUpNow’s financials, it was revealed that the company had blown through almost $8 million dollars over two years.

Numbers wise WakeUpNow looked to be in dire straits and unless things picked up in 2014, the future wasn’t looking all that bright.

About a week ago WakeUpNow published a consolidated quarterly report for the first six months of 2014.

Looking at the raw numbers the company appears to be on the up and up, but is everything as it seems?

WakeUpNow’s consolidated quarterly report spans January 1st to June 30th. What stood out to me the most was the second quarter recorded net profit of $32,536.

Unfortunately the company lost $1.51 million in the first quarter, meaning that as of June 30th company-wide revenue stands at $1.47 million in losses.

Sounds pretty bad, but if you consider WakeUpNow lost $4.5 million… not so much. Infact, if anything, the trend would appear to be positive growth… but can it be sustained?

That’s the $1.47 million dollar question.

Before we look deeper into the future though, some more figures from the report.

In addition to the net revenue amount, I found it interesting that asset wise cash fell from $1.3 million (up $400,000 at the end of 2013) to $648,870. WakeUpNow’s total asset amount only dropped $267,773, with the loss in cash partially made up by increases in loans to subsidiaries ($141,389), inventory ($114,634), prepaids ($164,776) and fixed assets ($19,407).

I’m not really sure what prepaids are, but the other amounts indicate increases in product orders by the company and loans to itself (subsidiaries).

Accounts receivable dropped between the two quarters by $51,978, but without knowing who owes WakeUpNow money, I’m not really sure what that number means.

In any event the company’s total liabilities also dropped $355,911, indicating some progress on the $9 million dollar debt WakeUpNow has thus far racked up.

Getting back to the issue of whether or not the company can sustain positive cash flow going forward, my first inclination was to check WakeUpNow’s affiliate income disclosure.

Unfortunately that hasn’t been updated since 2013, so it was rather pointless to use in analysis of 2014 financials. The only other statistical information available to the general public was Alexa rankings.

For the first quarter of 2014 WakeUpNow saw revenues of $9.7 million (down from $12.1 million in 2013), and $16.4 million in the second (the highest yet).

Here’s the accompanying Alexa data:

alexa-traffic-q1-q2-2014-wakeupnow

Q1 saw a mild uptick but it wasn’t until just before April that traffic levels spiked. The spike clearly continued through towards the end of June before it began to drop off. Currently traffic to WakeUpNow is sitting at levels below that of Q1.

And that’s not good.

Alexa isn’t of course definitive, nor is interpretation of the data it presents but in the absence of hard retail figures provided by WakeUpNow, it’s the best we’ve got to go on.

So, explaining that Q2 traffic and revenue bump then. I seem to recall some hoopla about WakeUpNow “selling out” of their energy drink “Awaken” around that time. That explains the increase in inventory purchase as well as the revenue spike.

Trouble is the energy drink is a repeat consumable, meaning that retail sales of the product would logically result in repeat visitors to the site to purchase the drink. Ditto WakeUpNow subscription sales, which are also a monthly expense.

Instead with the Q3 dropoff, what we have looks rather like a spike in affiliate sign-ups, followed by your typical “I can’t recruit anyone” cancellations.

The majority of our business operates online resulting in substantially all of our products being purchased by credit card.

Despite our liberal refund policy for our products, many customers choose to charge-back their credit card purchases rather than request a refund.

Major credit cards, such as Visa, monitor the chargeback activity of all merchants accepting their cards on a monthly basis and alerts the respective processing or acquiring bank when any one of their merchants reaches excessive chargeback levels.

Typically, chargeback rates of 1% or greater are considered excessive.

Our chargeback rates have historically been under 1%. However, during spikes in customer service calls, in particular during the time that we suffered software issues, our chargeback rates have exceeded 1%.

In addition, we have been impacted by credit card fraud where fraudsters purchase hard goods with a stolen credit card number, we ship the purchased goods, and then suffer a charge-back from the purported card-holder.

The impact of chargebacks include our credit card processors increasing their rates to us on the basis of increased risk.

High chargebacks could result in loss of our accounts with our processors and/or acquiring banks.

Our inability to maintain relationships with credit card processors, acquiring banks and/or credit card issuers such as Visa would have a fatal impact on our business.

That the Awaken energy drink spiked WakeUpNow’s sales revenue in Q2 is a given, but who was doing the purchasing. And perhaps more importantly, why?

A look at the cost of sales from the consolidated report reveals that in Q1 2014 sales of $9.7 million resulted in sales and marketing expenses of $8.1 million (83.6%).

Selling expenses are the Company’s most significant expense and are classified as operating expenses.

Selling expenses include distributor commissions under the Company’s compensation plan.

Q2 saw $16.4 million in sales result in sales and marketing expenses of $11.6 million (70.5%).

Retail sales typically pay out a higher commission, so one would assume an influx of retail orders would cause the cost of sales to rise significantly. Instead, despite a 68.4% increase in sales revenue quarter on quarter, sales costs (commissions) dropped 13.1%.

The only explanation I can come with for that is that affiliates were purchasing way more Awaken energy drink far beyond the amount of product one would generally self-consume. Ditto affiliate memberships.

If a new WakeUpNow affiliate signs up, buys a subscription and some Awaken and then can’t make any retail sales (or build a downline), they quit. WakeUpNow still collects the sales revenue from their purchase but there’s no commissions to pay them, so the cost of sales drops.

Couple that with the decrease in Alexa traffic and a clearer picture of what might be going on over at WakeUpNow begins to form.

One additional red-herring I spotted in the consolidated report was the issuing of 250,000 shares  ‘as compensation to two consultants’ in March. Whether these shares resulted in any sales commissions being forfeited is unclear, but if they were top affiliates in the comp plan, that could have resulted in a significant sum being wiped from either Q1 or Q2’s cost of sales.

WakeUpNow don’t have the best track record for retail sales data clarification, so unless they change their minds and opt for some actual transparency, I’m not expecting any answers from corporate. Well, at least nothing actually relevant for a change.

And statements like this in the report don’t exactly inspire confidence:

Though the Company’s current financial condition may cast doubt on its ability to continue as a going concern, management believes that its plan of operation, if successfully implemented, will generate sufficient earnings to both restore a stable financial condition and provide adequate returns to its shareholders.

Management’s plan of operation is based on three primary objectives: (1) further development of its products with specific emphasis on its affiliate network, (2) continued domestic growth of its distributor base, and (3) expansion into international markets.

Management believes that its efforts to develop a robust product offering with a compelling value proposition will continue to attract distributors both in the United States and abroad

Where is the focus on retail sales?

All I see is “provide stuff for affiliates to buy to generate commissions, encourage existing affiliates to recruit new affiliates and start up new recruitment chains in other countries”. And that’s obviously not sustainable.

All said and done, if WakeUpNow are pulling a rabbit out of their hat and indeed have increased retail sales and correspondingly their net income, more power to them. WakeUpNow could be a successful MLM turnaround story for 2014 yet.

Presumably there won’t be a Q3 report and as such we won’t know more till an annual report for 2014 is published (sometime in early 2015).

In the meantime, over to you WakeUpNow reps: What are your retail sales figures and recruited downlines looking like?

 

Footnote: A copy of WakeUpNow’s consolidated 2014 Q1 and Q2 reports can be viewed over at the OTC Markets website.