elements: new client relationships and organic growth from existing clients. We focus our sales
efforts on larger contracts with brand-name companies within two primary target markets, online
brands and retailers and technology manufacturers, which, by nature, require a longer duration to
close but also have the potential to be higher-quality and longer duration engagements.
Growth within our product revenue business is primarily driven by our ability to attract new
master distributor arrangements with IPS or other manufacturers and the sales and marketing efforts
of the manufacturers and third party sales partners.
Growth within our web-commerce product revenue model is primarily driven by eCOSTs ability to
increase sales by generating organic growth, new customers and expand its product line.
We continue to monitor and control our costs to focus on profitability. While we are
targeting our new service fee contracts to yield increased gross profit, we also expect to incur
incremental investments to implement new contracts, investments in infrastructure and sales and
marketing to support our targeted growth and increased public company professional fees.
Our expenses comprise primarily four categories: 1) cost of product revenue, 2) cost of
service fee revenue, 3) cost of pass-through revenue and 4) operating expenses.
Cost of product revenues consists of the purchase price of product sold and freight costs,
which are reduced by certain reimbursable expenses. These reimbursable expenses include
pass-through customer marketing programs, direct costs incurred in passing on any price decreases
offered by vendors to cover price protection and certain special bids, the cost of products
provided to replace defective product returned by customers and certain other expenses as defined
under the master distributor agreements. Vendor marketing programs, such as co-op advertising,
also reduce cost of product revenue.
Cost of service fee revenue consists primarily of compensation and related expenses for our
web-enabled customer contact center services, international fulfillment and distribution services
and professional consulting services, and other fixed and variable expenses directly related to
providing services under the terms of fee based contracts, including certain occupancy and
information technology costs and depreciation and amortization expenses.
Cost of pass-through revenue the related reimbursable costs for pass-through expenditures
are reflected as cost of pass-through revenue.
Operating expenses consist primarily of selling, general and administrative (SG&A)
expenses such as compensation and related expenses for sales and marketing staff, advertising,
online marketing and catalog production, distribution costs (excluding freight) applicable to the
Supplies Distributors and eCOST businesses, executive, management and administrative personnel and
other overhead costs, including certain occupancy and information technology costs and depreciation
and amortization expenses.
Monitoring and controlling our available cash balances continues to be a primary focus. Our
cash and liquidity positions are important components of our financing of both current operations
and our targeted growth.