UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

¨	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________

Commission file number: 000-51921

Proguard Acquisition Corp.

(Name of registrant as specified in its charter)

Florida		33-1093761
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3400 SW 26 Terrace, Suite A-8, Fort Lauderdale, FL		33312
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code

(866) 780-6789

not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No þ

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 4,283,103 shares of common stock are issued and outstanding as of November 14, 2013.

TABLE OF CONTENTS

		Page No.
PART I. - FINANCIAL INFORMATION

Item 1.	Financial Statements.	4
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	19
Item 3.	Quantative and Qualitative Disclosures About Market Risk.	22
Item 4.	Controls and Procedures.	22

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings.	22
Item 1A.	Risk Factors.	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	22
Item 3.	Defaults Upon Senior Securities.	22
Item 4.	Mine Safety Disclosures.	22
Item 5.	Other Information.	22
Item 6.	Exhibits.	23

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about our:

	●	our ability to report profitable operations in future periods,

	●	our ability to continue as a going concern,

	●	our ability to acquire additional companies and successfully integrate the acquired companies into our existing operational structure,

	●	our ability to effectively compete,

	●	our ability to raise additional capital,

	●	the lack of full time management and possible conflicts of interest with a related company, and

●

the lack of a liquid public market for our common stock.

You should read thoroughly this report and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements including those made in Part I. Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended December 31, 2013. Other sections of this report include additional factors which could adversely impact our business and financial performance. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

OTHER PERTINENT INFORMATION

Unless specifically set forth to the contrary, when used in this report the terms “we,” “our,” “us,” and similar terms refers to Proguard Acquisition Corp., a Florida corporation, and our wholly-owned subsidiary Random Source, Inc., a Florida corporation, or “Random Source”, and Random Source’s wholly owned subsidiaries Lamfis, Inc., a Florida corporation doing business as Hinson Office Supply, or “Hinson Office Supply” and Superwarehouse Business Products, Inc., a Florida corporation, or “Superwarehouse.” In addition, the “third quarter of 2013” refers to the three months ended September 30, 2013, the “third quarter of 2012” refers to the three months ended September 30, 2012, “2012” refers to the year ended December 31, 2012 and “2013” refers to the year ending December 31, 2013.

Unless specifically set forth to the contrary, the information which appears on our websites at www.randomsource.com, www.superwarehouse.com, www.superwarehousegov.com and www.hinsonofficesupply.com is not part of this report.

All share and per share information gives effect to the 1:30 reverse stock split of our common stock on March 12, 2013.

PART 1 – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

PROGUARD ACQUISITION CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2013			2012
	(Unaudited)
ASSETS

Current assets:
Cash	$	11,042		$	135,788
Accounts receivable - net		391,357			256,972
Inventory		24,403			9,654
Other receivables		10,347			22,200
Prepaid expenses and other current assets		37,274			37,608

Total current assets		474,423			462,222

Other assets:
Property and equipment, net		44,401			15,234
Website development cost		197,058			113,238
Intangible asset, net		283,509			531,325
Deposits		58,911			110,636
Total other assets		583,879			770,433

Total assets	$	1,058,302		$	1,232,655

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Accounts payable and accrued liabilities	$	507,981		$	429,075
Accounts payable - related party		563,321			321,347
Loan payable		45,867			206,029
Notes payable - short term portion		5,452			55,681
Note payable - related party		40,000			-
Deferred discount - short term portion		100,000			100,000
Customer deposits		4,182			10,960
Total current liabilities		1,266,803			1,123,092

LONG-TERM LIABILITIES:
Notes payable - long term		29,024			8,877
Deferred discount - long term		75,000			150,000
Total liabilities		1,370,827			1,281,969

Stockholders' deficit:
Preferred stock, $0.001 par value, 166,667 shares
authorized: no shares issued and outstanding		-			-
Common stock, $0.001 par value, 6,666,667 shares
authorized: 4,283,103 shares and 4,245,603 shares
issued and outstanding at September 30, 2013 and December 31, 2012, respectively		4,283			4,246
Additional paid-in capital		1,385,241			1,362,778
Accumulated deficit		(1,702,049	)		(1,416,338	)
Total stockholders' deficit		(312,525	)		(49,314	)


Total liabilities and stockholders' deficit	$	1,058,302		$	1,232,655

See accompanying notes to unaudited consolidated financial statements.

PROGUARD ACQUISITION CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	FOR THE THREE MONTHS			FOR THE THREE MONTHS			FOR THE NINE MONTHS			FOR THE NINE MONTHS
	ENDED			ENDED			ENDED			ENDED
	SEPTEMBER 30, 2013			SEPTEMBER 30, 2012			SEPTEMBER 30, 2013			SEPTEMBER 30, 2012
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Net sales	$	2,541,244		$	3,683,904		$	8,228,104		$	11,612,134

Cost of sales		2,178,161			3,287,868			7,122,031			10,297,523

Gross profit		363,083			396,036			1,106,073			1,314,611

Operating expenses:
Depreciation and amortization		85,470			86,277			255,994			259,279
Marketing, selling and advertising expenses		43,242			30,380			116,684			112,481
Compensation and related taxes		187,591			216,742			589,901			736,983
Professional and consulting fees		23,558			60,773			164,579			168,717
General and administrative		85,999			84,285			279,430			327,166
Total operating expenses		425,860			478,457			1,406,588			1,604,626

Loss from operations		(62,777	)		(82,421	)		(300,515	)		(290,015	)

Other income (expense)
Gain on sale of assets		2,250			699			2,250			699
Gain on settlement of debt		20,415			-			20,415			-
Interest expense		(3,595	)		(2,037	)		(7,861	)		(7,904	)
Total other expense		19,070			(1,338	)		14,804			(7,205	)

Loss before provision for income taxes		(43,707	)		(83,759	)		(285,711	)		(297,220	)

Provision for income taxes		-			-			-			-

Net loss	$	(43,707	)	$	(83,759	)	$	(285,711	)	$	(297,220	)

WEIGHTED AVERAGE COMMON SHARES
Basic and Diluted		4,300,823			4,266,100			4,298,350			4,169,532

NET LOSS PER COMMON SHARE:
OUTSTANDING - Basic and Diluted		(0.01	)		(0.02	)		(0.07	)		(0.07	)

See accompanying notes to unaudited consolidated financial statements.

PROGUARD ACQUISITION CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	FOR THE NINE MONTHS			FOR THE NINE MONTHS
	ENDED			ENDED
	SEPTEMBER 30, 2013			SEPTEMBER 30, 2012
	(Unaudited)			(Unaudited)

Cash flows from operating activities:
Net loss	$	(285,711	)	$	(297,220	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Common stock issued for services		33,750			-
Cancellation of common stock previously issued for services		(11,250	)		-
Depreciation and amortization		255,994			259,279
Gain on sale of assets		(2,250	)		(699	)
Gain on settlement of debt		(20,415	)		-

Changes in operating assets and liabilities
Accounts receivable		(134,385	)		(77,301	)
Inventory		(14,749	)		(1,265	)
Other receivables		11,853			(3,556	)
Prepaid expenses and other current assets		334			34,501
Deposits		51,725			(61,979	)
Accounts payable and accrued liabilities		78,906			(72,784	)
Accounts payable - related party		241,974			27,549
Deferred discount - short term		-			-
Customer deposits		(6,778	)		825
Deferred discount - long term		(75,000	)		(75,000	)
Net cash provided by (used in) operating activities		123,998			(267,650	)

Cash flows from investing activities:
Website development costs		(83,820	)		(72,210	)
Purchase of property and equipment		(2,000	)		-
Proceeds from sale of assets		2,250			1,850
Net cash used in investing activities		(83,570	)		(70,360	)

Cash flows from financing activities:
Payments on notes payable		(45,012	)		(95,761	)
Proceeds from related party advances, net of
repayments on related party advances		-			(153,814	)
Proceeds from note payable - related party		40,000			-
Proceeds from loan payable		1,149,322			681,160
Repayments on loan payable		(1,309,484	)		(486,987	)
Payment made in connection with stock repurchase agreement		-			(275,000	)
Payments to repurchase common stock		-			(20,000	)
Proceeds from sale of common stock, net of issuance costs		-			494,974
Net cash (used in) provided by financing activities		(165,174	)		144,572

Net decrease in cash		(124,746	)		(193,438	)

Cash at beginning of year		135,788			277,857

Cash at end of period	$	11,042		$	84,419

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	8,129		$	7,704
Income taxes	$	-		$	-

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Issuance of notes payable in connection with the stock repurchase agreement	$	-		$	54,000
Issuance of note payable in connection with the acquisition of property and equipment	$	35,345		$	-

See accompanying notes to unaudited consolidated financial statements.

PROGUARD ACQUISITION CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Proguard Acquisition Corp. (the “Company”) was incorporated under the laws of the State of Florida in June 2004. The Company provided professional protection to clients through installation and monitoring of fire, intrusion and environmental security systems.

On May 7, 2012, the Company closed the reverse merger and related transactions contemplated by the Agreement of Merger and Plan of Reorganization dated April 27, 2012 (the “Merger Agreement”) with Random Source Inc. (“Random Source”), a privately held company, and Proguard Acquisition Subsidiary Corp., the Company’s newly-formed, wholly-owned Florida subsidiary (the “Acquisition Sub”). Upon closing of the transactions contemplated under the Merger Agreement (the “Merger”), the Acquisition Sub merged with and into Random Source, and Random Source, as the surviving corporation, became a wholly-owned subsidiary of the Company. In the Merger, all of the issued and outstanding capital stock of Random Source was transferred to the Company in exchange for shares of common stock of the Company issued to shareholders of Random Source. Such Merger caused Random Source to become a wholly-owned subsidiary of the Company.

Prior to the Merger, Proguard Acquisition Corp. was a shell company with no business operations.

The Merger was accounted for as a reverse merger and recapitalization of Random Source since the shareholders of Random Source obtained voting control (approximately 97.2%) and management control of Proguard Acquisition Corp. Random Source was the acquirer for financial reporting purposes and the Company was the acquired company. The Company paid $275,000 and issued a promissory note of $54,000 that totaled to $329,000 in connection with the recapitalization of the Company (see Note 7). Consequently, the assets and liabilities and the operations reflected in the historical financial statements prior to the Merger were those of Random Source and was recorded at the historical cost basis of Random Source, and the consolidated financial statements after completion of the Merger included the assets and liabilities of the Company and Random Source, historical operations of Random Source and operations of Proguard Acquisition Corp. from the closing date of the Merger.

Random Source was incorporated under the laws of the State of Florida in September 2008. The Company operates and sells office supplies such as high-quality, brand-name office products primarily to medium and large-sized businesses through its retail websites. The Company carries a wide selection of merchandise, including general office supplies, business machines and computers, office furniture, and other business-related products. Random Source has two subsidiaries, Lamfis, Inc. d/b/a Hinson Office Supply (“Hinson Office Supply”) and Superwarehouse Business Products, Inc. (“Superwarehouse”).

On February 21, 2013, the shareholders holding a majority of the Company’s voting capital voted and authorized the Company to (i) effect a 1:30 reverse stock split of the Corporation's issued and outstanding common stock (the “Reverse Stock Split”), (ii) reduce the number of authorized shares of common stock from 200,000,000 shares to 6,666,667 shares, and (iii) reduce the number of authorized shares of preferred stock from 5,000,000 shares to 166,667 shares, both such reductions being the same ratio as the Reverse Stock Split. All share and per share values for all periods presented in the accompanying consolidated financial statements are retroactively restated for the effect of the Reverse Stock Split.

Going Concern

The consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has a stockholders’ deficit, working capital deficit, and accumulated deficit of approximately $313,000, $792,000, and $1.7 million, respectively, as of September 30, 2013, and has net loss of approximately $286,000, for the nine months ended September 30, 2013. The Company anticipates further losses in the development of its business raising substantial doubt about the Company’s ability to continue as a going concern.

PROGUARD ACQUISITION CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. The Company’s ability to raise additional capital through the future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations.

The ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

Basis of Presentation

The interim consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and the rules and regulations of the SEC for interim financial information. The consolidated financial statements of the Company include the Company and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation. All adjustments (consisting of normal recurring items) necessary to present fairly the Company's financial position as of September 30, 2013, and the results of operations and cash flows for the three and nine months ended September 30, 2013 have been included. The results of operations for the nine months ended September 30, 2013 are not necessarily indicative of the results to be expected for the full year. The accounting policies and procedures used in the preparation of these consolidated financial statements have been derived from the audited financial statements of the Company for the year ended December 31, 2012, which are contained in the Form 10-K filed on March 28, 2013 and such consolidated balance sheet as of December 31, 2012 was derived from those financial statements.

Use of Estimates and Assumptions

The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made by management include, but are not limited to, the allowance for bad debts, the useful life of property and equipment, useful life and valuation of website development costs and intangible assets and valuation of stock-based grants and valuation of deferred tax assets.

Fair Value of Financial Instruments and Fair Value Measurements

The Company adopted FASB ASC 820, “Fair Value Measurements and Disclosures”, for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing US GAAP that require the use of fair value measurements which establishes a framework for measuring fair value and expands disclosure about such fair value measurements.

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

	Level 1:	Observable inputs such as quoted market prices in active markets for identical assets or liabilities;
	Level 2:	Observable market-based inputs or unobservable inputs that are corroborated by market data; and
	Level 3:	Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

PROGUARD ACQUISITION CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The carrying amounts reported in the consolidated balance sheet for accounts receivable, other receivables, prepaid expenses, accounts payable, accrued liabilities, and customer deposits approximate their estimated fair market value based on the short-term maturity of these instruments.

In addition, FASB ASC 825-10-25 “Fair Value Option” was effective for January 1, 2008. ASC 825-10-25 expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when acquired to be cash equivalents. The Company places its cash with a high credit quality financial institution. The Company’s account at this institution is insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000. At September 30, 2013, the Company has not reached bank balances exceeding the FDIC insurance limit on interest bearing accounts. To reduce its risk associated with the failure of such financial institution, the Company evaluates at least annually the rating of the financial institution in which it holds deposits.

Segments

The Company’s activities are within the office products and office supplies retail industry, which is the single industry segment the Company operates. Each operating subsidiary represents an operating segment and these segments have been aggregated, as the operating units meet all of the aggregation criteria. The Company has aggregated its operating segments based on the aggregation criteria outlined in ASC 280-10, which states that two or more operating segments may be aggregated into a single operating segment if aggregation is consistent with the objective and basic principles of the Statement, if the segments have similar economic characteristics, similar product, similar production processes, similar customers and similar methods of distribution. Therefore, the Company has a single operating segment for financial reporting purposes.

Revenue Recognition

The Company follows the guidance of the FASB ASC 605-10-S99 “Revenue Recognition Overall – SEC Materials”. The Company records revenue when persuasive evidence of an arrangement exists, product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. Revenues consist primarily of product sales. Revenue for office supplies sales and business-related products and equipment sales is recognized upon delivery to the customer.

Cost of Sales

The primary components of cost of sales include the cost of the product (net of purchase discounts and rebates), distributor fees and shipping and handling costs.

Accounts Receivable

The Company has a policy of reserving for questionable accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the bad debt expense after all means of collection have been exhausted and the potential for recovery is considered remote. As of September 30, 2013 and December 31, 2012, our allowance for doubtful accounts totaled $4,300 and $4,300, respectively. The Company did not consider it necessary to record any bad debt expense during the nine months ended September 30, 2013 and 2012.

PROGUARD ACQUISITION CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Inventory

Inventory, which consists solely of finished goods related to the Company’s products are stated at the lower of cost or market utilizing the first-in, first-out method.

Concentrations of Credit Risk and Major Customers

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company places its cash with high credit quality financial institutions. Most of the Company’s sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to help further reduce credit risk.

As of September 30, 2013, 10 customers accounted for approximately 48% of total accounts receivable. As of December 31, 2012, 20 customers accounted for 49% of total accounts receivable. No single customer accounted for greater than 10% of sales of the Company for the nine months ended September 30, 2013 and 2012.

Prepaid expenses and other current assets

Prepaid expenses and other current assets of $37,274 and $37,608 at September 30, 2013 and December 31, 2012, respectively, consist primarily of costs paid for future services which will occur within a year. Prepaid expenses include prepayments in cash for web marketing services, computer support services, consulting and business advisory services, rent, and prepaid insurance which are being amortized over the terms of their respective agreements.

Deposits

Deposits at September 30, 2013 and December 31, 2012 were $58,911 and $110,636, respectively, which consist of security deposits paid to third parties for office lease and credit card merchant holdbacks.

Customer Deposit

Customer deposits at September 30, 2013 and December 31, 2012 were $4,182 and $10,960, respectively, which consist of prepayments from third party customers to the Company and customer refunds. The Company will recognize the prepayments as revenue upon delivery of the products, in compliance with its revenue recognition policy.

Marketing, selling and advertising costs

Marketing, selling and advertising costs are expensed as incurred. Such expenses for the nine months ended September 30, 2013 and 2012 totaled $116,684 and $112,481, respectively.

Income Taxes

The Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.

PROGUARD ACQUISITION CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The Company follows the provision of the ASC 740-10 related to Accounting for Uncertain Income Tax Position. When tax returns are filed, it is highly certain that some positions taken would be situated upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is most likely that not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.

The Company has adopted ASC 740-10-25 Definition of Settlement, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion and examination by a taxing authority without being legally extinguished. For tax position considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely that not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open.

Basic and Diluted Net Loss per Share

Net loss per common share is calculated in accordance with ASC Topic 260: Earnings Per Share. Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. The computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted average shares outstanding as they would be anti-dilutive. At September 30, 2013, the Company has 6,000 outstanding options and 507,326 outstanding warrants. At September 30, 2012, the Company has 6,000 outstanding options and 507,326 outstanding warrants.

Property and equipment

Property and equipment are carried at cost. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. Depreciation is calculated on a straight-line basis over the estimated useful life of the assets, generally two to seven years. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the remaining term of the lease.

Website Development Costs

The Company recognizes the costs associated with developing a website in accordance with ASC Topic 350–50 “Website Costs”. Internal and external costs incurred during the preliminary project stage are expensed as they are incurred. Internal and external costs incurred to develop internal–use computer software during the application development stage are capitalized. Training costs are not internal–use software development costs and, if incurred during this stage, are expensed as incurred. These capitalized costs will be amortized based on their estimated useful life over three years from the date of service. The Company expects to place the website into service in early December 2013. Payroll and other related costs directly related to the application development stage are capitalized. Ongoing updates to the website will be expensed as incurred. Website development costs as of September 30, 2013 and December 31, 2012 amounted to $197,058 and $113,238, respectively.

PROGUARD ACQUISITION CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Intangible Assets

The Company records the purchase of intangible assets acquired in a business combination or pushed-down pursuant to acquisition by its parent in accordance with ASC Topic 805 “Business Combinations”.

Impairment of Long-lived Assets

The Company accounts for the impairment or disposal of long-lived assets according to FASB ASC 360 “Property, Plant and Equipment”. ASC 360 clarifies the accounting for the impairment of long-lived assets and for long-lived assets to be disposed of, including the disposal of business segments and major lines of business. Long-lived assets are reviewed when facts and circumstances indicate that the carrying value of the asset may not be recoverable. When necessary, impaired assets are written down to estimated fair value based on the best information available. Estimated fair value is generally based on either appraised value or measured by discounting estimated future cash flows. Considerable management judgment is necessary to estimate discounted future cash flows. Accordingly, actual results could vary significantly from such estimates. The Company did not consider it necessary to record any impairment charges during the nine months ended September 30, 2013 and 2012.

In accordance with ASC 350- 30-65 “Goodwill and Other Intangible Assets”, the Company assesses the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment review include the following:

Significant underperformance relative to expected historical or projected future operating results;

Significant changes in the manner of use of the acquired assets or the strategy for the overall business; and

Significant negative industry or economic trends.

When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge.

The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows. The Company did not consider it necessary to record any impairment charge on its intangible assets during the nine months ended September 30, 2013 and 2012.

Employee Benefit Plan

The Company offers a SIMPLE IRA plan which was established in December 2009 for all eligible employees. Employees meeting certain eligibility requirements can participate in the plan. Under the plan, the Company matches employee contributions to the plan up to 1% of the employee’s salary. The Company made matching contributions of 1% totaling $763 and $952 during the nine months ended September 30, 2013 and 2012, respectively.

Stock Based Compensation

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the consolidated financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the non-employee’s service period. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting date.

PROGUARD ACQUISITION CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Related Parties

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions.

Recent Accounting Pronouncements

Accounting standards that have been issued or proposed by the FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

NOTE 2 – PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

	Estimated life	September 30, 2013			December 31, 2012

Transportation equipment	2 years		46,004			14,137
Furniture and fixtures	7 years		4,617			4,617
Leasehold improvement	3 years		18,266			18,266
Less: Accumulated depreciation			(24,486	)		(21,786	)
		$	44,401		$	15,234

For the nine months ended September 30, 2013 and 2012, depreciation expense amounted to $8,178 and $11,463, respectively. In August 2013, the Company sold transportation equipment with a net book value worth $0 to a third party for a sales price of $2,250 realizing a gain on sale of assets of $2,250.

The Company has entered into a financing arrangement in connection with the acquisition of transportation equipment in July 2013 (see Note 6).

NOTE 3 – INTANGIBLE ASSETS

Intangible assets were acquired from the acquisition by the Company’s wholly owned subsidiary, Random Source, and its subsidiaries of, Hinson Office Supply and Superwarehouse in March and October of 2011, respectively consisted of the following:

	September 30, 2013			December 31, 2012

Customer lists	$	991,265		$	991,265
Accumulated amortization		(707,756	)		(459,940	)
Intangible assets, net	$	283,509		$	531,325

Customer lists for Hinson Office Supply, are being amortized on a straight-line basis over the estimated useful life of three years. Customer lists for Superwarehouse are amortized over the estimated useful life of three years.

The Company assesses fair market value for any impairment to the carrying values. As of September 30, 2013 and 2012 management concluded that there was no impairment to the acquired assets.

PROGUARD ACQUISITION CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

NOTE 3 – INTANGIBLE ASSETS (continued)

The weighted average amortization period on total is approximately 2.50 years. Amortization expense for the nine months ended September 30, 2013 and 2012 was $247,816 and $247,816, respectively.

Future amortization of intangible assets, net is as follows:

2013		82,606
2014		200,903
Total	$	283,509

NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of the following:

	September 30, 2013		December 31, 2012

Accounts payable - trade		910,782		538,474
Credit card		9,885		9,377
Accrued expenses		18,261		43,180
Accrued payroll, vacation and payroll tax		117,257		122,590
Sales and business tax payable		15,117		36,801

Total	$	1,071,302	$	750,422

NOTE 5 – LOAN PAYABLE

In December 2011, the Company entered into a Business Loan and Security Agreement (the “Agreement”) with American Express Travel Related Services Company (“American Express”), Inc. and American Express agreed to lend the Company up to a total amount of $71,000 which will be used for business purposes only. The maturity date of such loan ends 365 days after the disbursement of the initial loan which occurred on January 3, 2012. The loan included a repayment or withholding rate of 30% from American Express related sales which shall be applied to the amount of the loan. The repayment or withholding rate allows American Express to withhold 30% of payments due to the Company from merchant services provided by American Express to the Company.

Additionally, a non-refundable fee equal to 6% of the original principal balance (the “loan fee”) of the loan and shall be payable upon the earliest of (a) the date upon which the loan is repaid in full (b) maturity date or (c) upon occurrence of event of default as defined in the Agreement. The lender has the right to accelerate the repayment of and declare immediately due and payable portion of the outstanding loan as defined in the Agreement. Upon the maturity date, the outstanding balance shall be immediately due and payable in full. Thereafter, until the outstanding balance is paid in full, the repayment rate shall be increased to 100%.

The lender also has the right to increase the repayment rate, temporarily or permanently, after the occurrence and during the continuance of an event of default. Pursuant to the Agreement, the Company has granted the lender collateral and security interest in all of the assets and rights of the Company as defined in the Agreement, except as otherwise indicated.

In July 2012, the Company entered into an amended Business Loan and Security Agreement whereby the initial loan amount had been increased to $175,000. The maturity date of such loan ends 365 days after the disbursement of this initial loan. The loan includes a repayment or withholding rate of 100% from American Express related sales which shall be applied to the amount of the loan. Additionally, a non-refundable fee equal to 0.45% of the loan amount was payable upon the earliest of (a) the business day immediately preceding the next disbursement date (b) the date upon which the loan is repaid in full (c) termination date or (d) upon occurrence of event of default as defined in the agreement. In December 2012, the maximum loan amount was increased to $225,000. All other terms and conditions of the original Agreement remain in full force and effect. As of September 30, 2013 and December 31, 2012, loan payable including related fees and interest under this agreement amounted to $45,867 and $206,029, respectively.

On July 10, 2013, the Company has renewed such Business Loan and Security Agreement for another year with an initial loan of $151,000 provided that the loan amount may not exceed $500,000. The Agreement requires the Company to pay a non-refundable fee of 0.50% and includes a repayment rate of 100% from American Express related sales which shall be applied to the amount of the loan. All other terms and conditions of the original Agreement remain in full force and effect.

PROGUARD ACQUISITION CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

NOTE 6 – NOTES PAYABLE

On March 9, 2011, the Company acquired 100% of the outstanding stock of Hinson Office Supply for $262,000. The stock purchase agreement calls for a $100,000 cash down payment with the balance of $162,000 payable in equal monthly installments of $4,640, fully amortized over thirty-six months with interest accruing at a rate of 2% per annum and matures on April 9, 2014. Promissory notes were issued to the former shareholders of Hinson Office Supply. The agreement called for the last installment payment to be waived should the Company make all payments in a timely fashion. In August 2013, the Company has fully settled the remaining balance of the entire notes payable amounting to $33,715 by executing various debt settlement agreements with certain note holders for a settlement consideration of $13,300. Consequently, the Company recognized a gain on settlement of debt of $20,415 as reflected in the accompanying consolidated statements of operations. As of September 30, 2013 and December 31, 2012, principal balance on these notes amounted to $0 and $64,558, respectively. As of September 30, 2013 and December 31, 2012, accrued interest on these notes amounted to $0.

In July 2013, the Company issued a note payable amounting to $35,345 in connection with the acquisition of a transportation vehicle (see Note 2). The note payable bears approximately 8% interest per annum and shall be payable in sixty-six equal monthly payments of $657 beginning in August 2013 through January 2019. As of September 30, 2013, the current and long term portion of this note amounted to $5,452 and $29,024, respectively.

Notes payable – short and long term portion consisted of the following:

	September 30, 2013		December 31, 2012

Total notes payable	$	34,476	$	64,558
Less: current portion		5,452		55,681
Long term portion	$	29,024	$	8,877

NOTE 7 – STOCKHOLDERS’ DEFICIT

On February 21, 2013, the shareholders holding a majority of the Company’s voting capital stock voted and authorized the Company to (i) effect a 1:30 reverse stock split of the Corporation's issued and outstanding common stock (the “Reverse Stock Split”), (ii) reduce the number of authorized shares of common stock from 200,000,000 shares to 6,666,667 shares, and (iii) reduce the number of authorized shares of preferred stock from 5,000,000 shares to 166,667 shares, both such reductions being the same ratio as the Reverse Stock Split. All share and per share values for all periods presented in the accompanying consolidated financial statements are retroactively restated for the effect of the Reverse Stock Split.

Preferred Stock

The Company is authorized to issue up to 166,667 shares of preferred stock, $.001 par value per share. Our board of directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of the shares of preferred stock in series, and by filing a certificate pursuant to the applicable law of the state of Florida, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. No shares of preferred stock have been issued or are outstanding as of September 30, 2013 and December 31, 2012.

Common Stock

The Company is authorized to issue up to 6,666,667 shares of common stock, $.001 par value per share. As of September 30, 2013 and December 31, 2012, the Company had 4,283,103 shares and 4,245,603 shares outstanding, respectively. Holders are entitled to one vote for each share of common stock (or its equivalent).

On February 25, 2013, the Company had entered into a 6 month consulting agreement in connection with investor relations services. In consideration for the consulting services, the Company was required to pay a monthly cash fee of $4,000 beginning March 1, 2013 through August 2013 and issue 75,000 shares of the Company’s common stock upon execution and valued these common shares at the fair market value based on quoted market price on the date of grant of approximately $0.45 per share or $33,750. In June 2013, the Company cancelled such consulting agreement. For the nine months ended September 30, 2013, the Company recognized stock based consulting expense of $33,750.

PROGUARD ACQUISITION CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

NOTE 7 – STOCKHOLDERS’ DEFICIT (continued)

After the cancellation of the consulting agreement discussed above, in August 2013, such consultant agreed to return to the Company 37,500 shares of common stock for cancellation. Consequently, the Company valued these cancelled common shares at the fair market value based on quoted market price on the date of cancellation of approximately $0.30 per share or $11,250. For the nine months ended September 30, 2013, the Company recorded the cancelled shares against additional paid in capital and a gain on settlement of $11,250.

Common Stock Options

Information related to options granted under the 2010 Equity Compensation Plan and activity for the nine months ended September 30, 2013 is as follows:

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)

Balance at December 31, 2012		6,000	$	3.00		2.42
Granted		-		-		-
Exercised		-		-		-
Forfeited		-		-		-
Cancelled		-		-		-
Balance outstanding at September 30, 2013		6,000	$	3.00		1.67

Options exercisable at end of period		6,000	$	-
Options expected to vest		-
Weighted average fair value of options granted during the period			$	-

Stock options outstanding as disclosed in the above table have no intrinsic value at the end of the period September 30, 2013.

Common Stock Warrants

A summary of the status of the Company's outstanding stock warrants as of September 30, 2013 and changes during the period then ended is as follows:

	Number of Warrants		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)

Balance at December 31, 2012		507,326	$	8.70		1.45
Granted		-		-		-
Cancelled		-		-		-
Forfeited		-		-		-
Exercised		-		-		-
Balance at September 30, 2013		507,326	$	8.70		0.70

Warrants exercisable at September 30, 2013		507,326	$	8.70		0.70

Weighted average fair value of options granted during the nine months ended September 30, 2013			$	-

PROGUARD ACQUISITION CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

NOTE 8 – RELATED PARTY TRANSACTIONS

From time to time the Company enters into transactions with Computer Nerds International, Inc. (“Computer Nerds”), a company owned by certain of the Company’s Officers, including:

●

The Company purchased inventories and products for sale from Computer Nerds totaling approximately $4,985,000 and $7,700,000 during the nine months ended September 30, 2013 and 2012, respectively. The Company’s sales to Computer Nerds totaling approximately $2,459 and $2,200 during the nine months ended September 30, 2013 and 2012, respectively. Accounts payable to Computer Nerds as of September 30, 2013 and December 31, 2012, was $563,417 and $321,347, respectively, and were reflected as accounts payable – related party in the accompanying consolidated balance sheets.

Additionally, on October 25, 2011, the Company, through its subsidiary, Superwarehouse, entered into a Distribution Agreement (the “Computer Nerds Agreement”) with Computer Nerds whereby the Company appoints Computer Nerds as its non-exclusive distributor of the Company’s products in order to market, promote, distribute, and sell the product to its customers, directly or indirectly and shall include all products, territories, geographies, customers and markets without restriction. The initial term of the Computer Nerds Agreement began on October 25, 2011 and shall end on December 31, 2012. The term shall automatically renew for a one year period on each subsequent anniversary date of the effective date. The Company may give written notice of its intent to terminate this agreement at anytime. Pursuant to the Computer Nerds Agreement, Computer Nerds agrees to charge the Company its cost plus 2% distributor fee.

On July 30, 2012, the Company, through its subsidiary, Superwarehouse, entered into an Amended Distribution Agreement (the “Amended Agreement”) with Computer Nerds whereby the Company extended the term up to September 30, 2013. The term automatically renewed on a month to month basis and may be terminated within 30 days. Pursuant to the Amended Agreement, effective August 1, 2012, the distributor fee will be lowered to 1.5% from 2%. All other terms and conditions of the original agreement remain in full force and effect. The Company paid approximately $76,000 and $142,000 of the distributor fee during the nine months ended September 30, 2013 and 2012 respectively.

In September 2013, the Company issued a secured note payable to one of the Company’s shareholders amounting to $40,000. The principal shall be payable in monthly installments of $13,333 starting October 2013 up to December 2013. The note agreement calls for an upfront interest fee of $1,800 which was paid in September 2013. This note is secured by a first priority security interest in the assets of the Company and Hinson Office Supply and second position interest in Superwarehouse. As of September 30, 2013 and December 31, 2012, principal balance and accrued interest on this note payable – related party amounted to $40,000 and $0, respectively.

NOTE 9 – COMMITMENTS AND CONTINGENCIES

Consulting Contracts

In July 2011, the Company entered into a 4 year Rebate Agreement (the “Rebate Agreement”) with a distributor. The Company received a one-time advance rebate allowance of $375,000 and marketing allowance of $25,000 whereby the Company will purchase at least 90% of the Company’s monthly purchase requirements of products for sale from such distributor. Pursuant to the Rebate Agreement, the Company is also eligible to receive volume cash discounts, volume flat rebates, marketing rebate and annual growth rebates as defined in the Rebate Agreement. The allowance is subject to a repayment claw back provision upon the occurrence of either (i) the acquisition of the Company by a third party including the sale of all or substantially all of the Company’s equity or assets, a merger, or transaction resulting in a change of control or (ii) the Company does not honor its purchase commitments for 2 or 3 consecutive months in a 12 month period. If a repayment claw back occurs, the Company shall pay back the unearned portion of any discounts, rebates and allowances paid by the distributor.

The Company recorded the advance rebate and marketing allowance as deferred discount as reflected in the accompanying consolidated balance sheets. The Company amortizes the advance rebate to cost of sales and amortizes the advance marketing allowance to expense over the term of the Rebate Agreement. Deferred discount- short term at September 30, 2013 and December 31, 2012 was $100,000 and will be amortized within a year. Deferred discount- long term at September 30, 2013 and December 31, 2012 was $75,000 and $150,000, respectively, and will be amortized over the remaining term of the agreement beyond one year period.

PROGUARD ACQUISITION CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

NOTE 9 – COMMITMENTS AND CONTINGENCIES (continued)

Operating Lease

A lease agreement was signed for office and warehousing space located in Broward County, Florida with an initial term commencing on June 1, 2011 and expiring on July 31, 2014. Such office space consists of approximately 6,962 square feet and serves as the corporate headquarters of the Company and its subsidiary, Hinson Office Supply. There are no minimum, contingent or sublease arrangements in the lease. Future minimum rental payments required under this operating lease are as follows:

●

Period ending December 31, 2013

13,469

●

Thereafter

31,311

Included in the lease is a $10,345 credit against rent due for work performed by the Company for leasehold improvements to office and warehousing space. This is not reflected in the numbers above.

In September 2012, the Company entered into a lease agreement for an office and warehousing space located in San Diego, California for a period of 12 months which will serve as the headquarters of the Company’s subsidiary, Superwarehouse. The initial term ended on September 30, 2013 and was subsequently extended to September 30, 2014. The monthly base rent shall be $1,138. Future minimum rental payments required under this operating lease are as follows:

●

Period ending December 31, 2013

3,414

●

Period ending December 31, 2014

10,242

Rent expense was $55,589 and $73,266 for the nine months ended September 30, 2013 and 2012, respectively.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion of our financial condition and results of operations for three and nine months ended September 30, 2013 and 2012 should be read in conjunction with the financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Cautionary Notice Regarding Forward-Looking Statements appearing earlier in this report together with Item 1A. Risk Factors, and the Business section in our Annual Report on Form 10-K for the year ended December 31, 2012. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

Overview

We are principally an on-line business to business (B2B) retailer of brand name office products. Our direct-to-customer business model is designed to offer our business, government and educational customers a broad selection of office supplies at lower prices and improved efficiencies when compared to their existing suppliers. Our salespeople focus on personalized service and our growth strategy includes leveraging upon our existing customer relationships in order to grow internally by cross marketing our existing products across our customer base.

Our acquisition strategy is also key to our growth. During 2011 we closed the acquisitions of Hinson Office Supply and the assets of SWH Enterprises, Inc. and Super Warehouse Gov, LLC, which are now part of Superwarehouse. As a result of these acquisitions, our offerings span several areas. Our original business, Random Source, targets small to medium-sized business in the 60-mile area surrounding our Fort Lauderdale, Florida offices. Hinson Office Supply concentrates on government and educational sales to customers in the same 60-mile area. Superwarehouse is an open-platform web-based businesses which primarily sells toner. These acquisitions, together with our organic growth, helped us to increase our net sales from $6.1 million for 2011 to $14.6 million for 2012.

Since the middle of 2012 we have been engaged in a complete redesign of the back-end accounting and customer databases of Hinson Office Supply and Superwarehouse to mirror Random Sources’ which we expect to complete both by the end of fourth quarter of 2013 based upon our current expectations. Once the system integration is complete, it will permit us to complete an integration of the three businesses into one seamless organization permitting us to reduce redundant administrative and advertising costs. Our new open platform website which we also expect to launch in the end of fourth quarter of 2013 will also enable us to expand Superwarehouse’s product offerings to a full line of general business products, including office supplies, furniture, janitorial and break room products long with the toner products.

Key challenges facing our company in 2013 are completing the system integration and raising sufficient capital to fund our company. While we initially expected that both the back-end accounting and customer databases and the new open platform website would be launched during 2012, these projects have been repeatedly delayed due to working capital shortages. The private offerings we undertook in 2012 did not raise the full amount of capital which was necessary to fund our growth from these acquisitions. The delays in this project have adversely impacted our abilities to more fully integrate these companies and take full advantage of the historic pre-acquisition revenues of Superwarehouse. Once the new platform is completed and launched, we expect that we will have an additional approximately 140,000 products for resale. In addition, subsequent to the launch of our new platform and with the goal of increasing our margins, we expect to add additional business services that will either have synergy to our current product mix and or add value to our brand by providing business services than traditional office products resellers do not currently offer. There are no assurances, however, that we will be successful in these efforts.

In January 2013 we engaged a firm to advise us on capital strategy and suggested fundraising structures. Based in part upon this firm’s recommendation, we undertook a reverse stock split of our common stock in March 2013. Our Board of Directors believed that low trading price of our common stock negatively impacted our credibility as a viable business enterprise and impaired the acceptability of our common stock to certain members of the investing public, including institutional investors, as well as potential acquisition candidates. While we undertook the split to increase the attractiveness of our company to potential investors, because the market price of our common stock is also based on a number of additional factors, including our operating results and prospects, among other factors, the reverse split did not have the desired effect.

In addition to completing the system integration during 2013, subject to the availability of additional capital, we also expect to seek to acquire additional complimentary companies in our space. We believe that there are several potential acquisition targets in our market which would be synergistic and broaden our overall competitiveness. However, as we do not have any agreements or understandings with any third parties regarding the terms and conditions of any future acquisitions. Our lack of sufficient working capital is adversely impacting our ability to implement this part of our growth strategy.

Results of operations

Our net sales decreased 31.0% in the third quarter of 2013 as compared to the third quarter of 2012, and 29.1% for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012. The decrease was due to the continuing impact of the April 2012 change by Google in certain of its key algorithms which has adversely impacted Superwarehouse’s search engine optimization ranking which in turn impacts revenues as Superwarehouse is a web-based business. We expect to achieve a better search engine optimization ranking following the launch of our new website in December 2013. Included in our net sales for the third quarter of 2013 and the nine months ended September 30, 2013 are revenues of approximately $276,000 and $775,000, respectively, attributable to Hinson Office Supply and revenues of $1.8 million and $6.0 million, respectively, attributable to Superwarehouse. Our revenues attributable to Hinson Office Supply were continuing to trend down from its historic revenues pre-acquisition primarily due to the change in the third quarter of 2012 of the way Broward County Schools, a major customer of Hinson Office Supply, handled its bid awards. The School Board of Broward County, FL had elected to “piggy back” a state contract for education purchasing using state funds only which resulted in a decrease of revenue to Hinson Office Supply from that customer. In October 2013, Random Source has received a recommendation to be awarded a three-year contract from the School Board of Broward County, to serve as a supplier of office and business products. This latest multi-year contract follows the three year contract with Jackson Health System, one of the largest hospitals in the United States, which began on August 1, 2013.

Our gross profit margin increased to 14.3% in the third quarter of 2013 from 10.8% in the third quarter of 2012 and gross profit margin increased to 13.4% for the nine months ended September 30, 2013 from 11.3% for the nine months ended September 30, 2012. The increase in gross profit margins is due to we have maintained our sales on our higher gross margin business which relates to Random Source while our sales decreased on our lower gross margin business for Hinson Office Supply and Superwarehouse.

Following the completion of the redesign of the backend accounting and customer databases which are necessary to enable us to adequately process order volume and the launch of our new website, we expect to begin actively marketing to Superwarehouse’s historic customer base, expand its product offerings and achieve a better search engine optimization ranking. We believe all of these steps will help us to return Superwarehouse’s revenues to those more closely the level of its historic revenues, however, there are no assurances our expectations are correct. Following the receipt of the multi –year contracts with School Board of Broward County and Jackson Health System, we do expect our revenues to increase and once we are able to expand Superwarehouse’s product offerings, we expect that our gross margins will also increase in future periods.

Our total operating expenses decreased 11% and 12% in the third quarter of 2013 and for the nine months ended September 30, 2013, respectively, from the comparable periods in 2012. Marketing, selling and advertising expenses, which includes search engine optimization charges and costs associated with our website, increased 4% for the nine months ended September 30, 2013 from the comparable period in 2012. As a percentage of net sales, marketing, selling and advertising expense were 1.7% and 1.4% in the third quarter of 2013 and for the nine months ended September 30, 2013, respectively, as compared to 0.8% and 1.0%, respectively, for both comparable periods in 2012. While we initially expected that marketing, selling and advertising expenses as a percentage of revenues in 2013 would remain relatively constant from 2012 levels, this metric was impacted in the 2013 periods as a result of the decline in our revenues.

Compensation expense decreased 13% and 20% for the third quarter of 2013 and for the nine months ended September 30, 2013, respectively, from the comparable periods in 2012. The decrease was primarily attributable to a decrease in employees of Superwarehouse and Hinson Office Supply. We expect that compensation expense will remain relatively constant for the balance of 2013.

Professional and consulting fees decreased 61% and 2% in the third quarter of 2013 and for the nine months ended September 30, 2013, respectively, from the comparable periods in 2012. The decrease is primarily attributable to a decrease in investor relations fees. We expect that professional and consulting fees in 2013 will remain constant.

General and administrative expense increased (decreased) 2% and (15%) in the third quarter of 2013 and for the nine months ended September 30, 2013, respectively, from the comparable periods in 2012. The decrease in general and administrative expenses was primarily attributable to cost cutting measures. We expect that our operating expenses will increase upon the launch of our website, although we are unable at this time to quantify the amount or timing of this expected increase.

Liquidity and capital resources

Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash. At September 30, 2013 we had a working capital deficit of $792,380 as compared to a working capital deficit of $660,870 at December 31, 2012, an increase of 19.9%. While our current assets increased 2.6% at September 30, 2013 from December 31, 2012, our current liabilities increased 12.8%. In addition, our cash declined by 92% at September 30, 2013 from December 31, 2012.

Accounts receivable, net, increased 52% at September 30, 2013 compared to December 31, 2012 which is primarily attributable to two large customer orders that have been placed at the end of third quarter of 2013 and were collected in October 2013. Additionally, the increase in accounts receivable reflects the receipt of the three-year contract with Jackson Health System. Inventory increased 153% at September 30, 2013 from December 31, 2012 which is primarily attributable to an increase in inventory supplies for our Jackson Health System contract.

Accounts payable and accrued liabilities increased 18% at September 30, 2013 compared to December 31, 2012 which is attributable to our working capital deficiency. Accounts payable – related party reflects amounts due Computer Nerds International, Inc. for products we purchase from this affiliate increased by 75% at September 30, 2013 from December 31, 2012 and reflects the increase in accounts receivable at the end of second quarter of 2013.

Loan payable at each of September 30, 2013 and December 31, 2012 reflects amounts due under a commercial loan agreement. We used these funds for general working capital. Notes payable – short term reflects the current portion of amounts we owe in connection with a purchase of a transportation vehicle. We also reflect a note payable – related party of $40,000 issued in September 2013.

We do not have any commitments for capital expenditures in 2013. Other than available access under a commercial bank lending arrangement and amounts due our related party for purchases from that company, we do not have any external sources of liquidity. As described earlier in this report, we need to raise working capital to fund the completion of our website and back-end systems redesign, as well as to satisfy our general working capital needs. We have been materially reliant on extended credit terms provided to us by a related party from whom we purchase products. We are actively seeking to raise between $250,000 and $500,000 of additional capital through the issuance of debt or equity securities, however, we do not have any firm commitments for these additional funds. Our continued inability to raise the necessary capital has adversely impacted our ability to complete these projects which we believe will permit us to increase our net revenues and expand our business. We are exploring all avenues available to us to raise this necessary capital, but there are no assurances we will be successful in our efforts.

Net cash provided by (used in) operating activities for the nine months ended September 30, 2013 was $123,998 as compared to ($267,650) for the comparable period in 2012. In both periods, cash was used to fund a decrease in our working capital, our net loss and add back of depreciation, amortization and stock based compensation expenses.

Net cash used in investing activities for the nine months ended September 30, 2013 $83,570 as compared to $70,360 for the comparable period in 2012. In both periods, cash primarily used in investing activities included website development costs.

Net cash (used in) provided by financing activities for the nine months ended September 30, 2013 ($165,174) as compared to $144,572 for the comparable period in 2012. In the 2013 we received proceeds from loan payable in connection with our business loan and proceeds from a note payable – related party, which was offset by repayments of the loan payable and payments on notes payable related to the Hinson Office Supply acquisition. In the 2012 period we raised cash from the sale of our common stock and the issuance of a note payable which was offset by payments of notes payable, including to related parties for working capital advances previously made to us, and the repurchase of stock in both the reverse merger which closed in May 2012 and from our prior investment banking firm.

Critical accounting policies

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to the allowance for doubtful accounts and the valuation of warrants. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 1 to our consolidated financial statements appearing elsewhere in this report.

Recent accounting pronouncements

The recent accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

Off balance sheet arrangements

As of the date of this 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. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable for a smaller reporting company.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures. We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on their evaluations as of the end of the period covered by this report, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 1A. RISK FACTORS.

Not applicable for a smaller reporting company.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable to our company’s operations.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

No.		Description

31.1		Rule 13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer *
31.2		Rule 13a-14(a)/ 15d-14(a) Certification of principal financial and accounting officer *
32.1		Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer*

101.INS		XBRL INSTANCE DOCUMENT **
101.SCH		XBRL TAXONOMY EXTENSION SCHEMA **
101.CAL		XBRL TAXONOMY EXTENSION CALCULATION LINKBASE **
101.DEF		XBRL TAXONOMY EXTENSION DEFINITION LINKBASE **
101.LAB		XBRL TAXONOMY EXTENSION LABEL LINKBASE **
101.PRE		XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE **

* filed herewith

* In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 in this Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed”.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PROGUARD ACQUISITION CORP.

Dated: November 8, 2013	By:	/s/ David Kriegstein
		David Kriegstein, Chief Executive Officer

	By:	/s/ Jason Merrick
		Jason Merrick, Chief Financial Officer

PROGUARD ACQUISITION CORP 10-Q