Through July 31, 2002 the Company leased approximately 4,100 square feet of office space at 610 South Industrial Boulevard, Euless, Texas at an annual rental of approximately $51,144. The lease expired on July 31, 2002. On February 21, 2003 the Company leased approximately 200 square feet of serviced office space at 330 South Service Road, Suite 120, Melville, New York at an annual rental of $18,000. The lease is for a term of approximately 13 months, expiring March 31, 2004.
The following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto, included in Item 8 of this report, and is qualified in its entirety by reference thereto.
During the first half of fiscal 2001, management became concerned by the slow progress being made by its warrantysuperstore.com business. Accordingly, alternative strategies for the Company were evaluated by the Board of Directors, including the acquisition of new business operations. As a result, on January 7, 2002 the Company entered into the StrandTek Transaction as previously reported. Consummation of the StrandTek Transaction was conditioned upon certain closing conditions, including the Company obtaining financing via an equity private placement, which ultimately could not be met and as a result in June 2002, the Agreements were formally terminated by written agreement between the Company and StrandTek. Also in June 2002, management determined, in light of continuing operating losses, to discontinue its warranty and service contract business and to seek new business opportunities for the Company.
For the reasons cited above, net loss before preferred stock dividend decreased by 35.3% to $1,160,000 from the comparable loss of $1,792,000 for fiscal 2001.
General and administrative expenses totaled $1,643,000 during the year ended December 31, 2001 as compared to $2,510,000 for fiscal 2000, a decrease of $867,000 or 34.5%. The decrease is primarily due to a decrease in advertising costs ($1,027,000), offset by increases in professional fees ($166,000) and staff costs ($48,000). The reduction in advertising is due to the Company focusing on strategic partnerships and co-op advertising programs as compared to Internet banner advertising and media promotions. The increase in professional fees was due primarily to legal costs associated with the StrandTek Transaction and the additional staff cost was due to the hiring of a Marketing Manager in the second half of 2001.
As a result of the uncertainty over the future of the Company's extended warranty service contract business, the Company recorded an impairment charge of $305,333 in the fourth quarter of 2001. This charge represents the unamortized balance of capitalized software.
For the reasons cited above, loss before discontinued operations and preferred stock dividend decreased by 21.9% to $1,792,000 from the comparable loss of $2,296,000 for fiscal 2000.
To meet its cash requirement during the twelve months ended December 31, 2002 the Company relied on the sale of marketable securities ($1,503,000) and the net proceeds from shareholder advances ($106,000) and the sale of promissory notes ($117,500) to fund the Company's operating expenses. The Company's liquidity position was hurt by the StrandTek loans advanced in the first quarter of fiscal 2002 and StrandTek's failure to repay them on the due date.
The Company has no contracted capital expenditure commitments in place. As of December 31, 2002 the Company had cash balances totaling $19,000. The Company will rely on its cash reserves and short-term loans to meet its cash needs pending an equity private placement to fund its new business operations until they become cash generative. In February 2003, the Company sold to "accredited investors" a series of 30-day promissory notes in the aggregate principal sum of $50,000. The notes bear interest at 20% per annum payable at maturity. Additionally, on February 6, 2003 the Company entered into a deferment agreement with three major creditors pursuant to which liabilities of approximately $524,000 in aggregate, were deferred, subject to the success of the Company's debt and equity financing efforts, until January 15, 2005, against a pledge of the loans advanced to StrandTek in the first quarter of fiscal 2002 in the sum of $1,250,000 plus accrued interest. The Company also anticipates having available to it the net proceeds of repayment of the StrandTek loans and the costs of collection. However, while the Company was recently awarded partial summary judgment on its claims against StrandTek, there can be no assurance that the Company will be able to collect on any judgment obtained.
The Company does not believe that its operations have been materially influenced by inflation in the fiscal year ended December 31, 2002, a situation which is expected to continue for the foreseeable future.