During the summer of 2000 management completed a re-appraisal of the Company's marketing strategy and concluded that it was in the best interests of the Company to focus its marketing effort on strategic business alliances to maximize revenue generation and achieve "cash flow positive" operations as early as possible. As a result the Company's current plan of operation is to establish its presence in the automobile and consumer product service contract business by co-branding and private labeling with strategic partners. To achieve this, the Company's web site software required significant upgrading and development to create the functionality and scalability required to provide flexible software applications for co-branding and private labeling with strategic partners. This work was completed in January 2001. Management believes that approximately 90% of its extended warranty/service contract revenues will, in the future, be generated via strategic partnerships with the balance of 10% coming from direct sales to consumers.
The Company recognizes revenue from its warranty service contracts and reinsurance business over the life of contracts executed. Additionally, the Company amortizes the insurance premium expense and third party claims fees evenly over the life of these contracts.
Stamford commenced reinsuring contractual liability insurance policies from one United States carrier that is rated Excellent by A.M. Best in the quarter ended December 1999 generating approximately $1,066,000 in gross premiums in fiscal 2000 (1999: $300,000). $505,000 of such premiums were recognized as earned revenue in
fiscal 2000 (1999: $12,000). Policy acquisition costs were $133,000 in the year ended December 31, 2000 (1999: $38,000) of which $40,000 was expensed at December 31, 2000 (1999: $2,000). Losses charged to operations totaled $86,000 in fiscal 2000 (1999: $5,000).
Interest income totaled $169,000 in fiscal 2000 as compared to $8,000 in fiscal 1999 reflecting the investment of the net proceeds of the Company's equity private placement in late 1999 and early 2000. Interest expense decreased from $65,000 in the twelve months ended December 31, 1999 to $10,000 in fiscal 2000. Investment gains from marketable securities totaled $111,000 in the twelve months ended December 31, 2000 (1999: nil).
Interest income totaled $8,000 in fiscal 1999 as compared to $38,000 in the twelve months ended December 31, 1998. Interest expense increased from $1,000 in the twelve months ended December 31, 1998 to $65,000 in fiscal 1999. The reduction in interest income and increase in interest expense is the result of the cash, cash equivalents , and investments used to fund the Company's increased operating costs in 1999 and the incurrence of $98,000 in debt to fund property asset additions.
During the period March 1996 through March 1998, the Company's primary activity was to engage in three private securities offerings, and to settle and pay off certain of its then outstanding liabilities. The Company recorded operating losses in the year ended March 31, 1998 of $222,000 (1997 $252,000), before interest expense and preferred stock dividends. Such losses arose from general and administrative expenses, which principally comprised professional fees, travel expenses and general office costs.
The Company incurred a net loss of $2,075,376 in fiscal 2000. Such loss adjusted for non-cash items such as depreciation and amortization charges $155,641, deferred revenues (net of deferred acquisition costs) $431,000, gains on marketable securities ($110,831), preferred stock dividend accrual $48,211, loss reserves $112,318 and other non cash items totaling $30,877 coupled with the reduction of $411,825 in accrued expenses and a net increase in other assets of $156,076 resulted in funds used in operating activities totaling $1,975,961 for the year ended December 31, 2000, net of working capital movements.
The fiscal 2000 net cash used in investing activities comprised a reclassification of $817,265 of Stamford's cash and cash equivalents to restricted cash as required by industry regulations in light of the business recorded during the year ended December 31, 2000. Additionally, the Company invested $25,285 in property assets and realized $467,936 upon the sale of marketable securities.
The Company has no contracted capital expenditure commitments in place. However, the Company will need to invest approximately $200,000 during fiscal 2001 to maintain and promote its web site.