The Company's "Significant Accounting Policies" are described in Note 2 to the audited financial statements and notes thereto, included in Item 8 of this report. The Company recognizes revenue from its warranty service contracts ratably over the length of the contracts executed. Additionally, the Company purchased insurance to fully cover any losses under the service contracts from a domestic carrier. The insurance premium expense and other costs related to the sale are amortized ratably over the life of the contracts.
General and administrative expenses totaled $685,000 during the year ended December 31, 2003 as compared to $912,000 for fiscal 2002, a decrease of $227,000 or 24.9%. The decrease was primarily attributable to decreases in employee termination costs ($145,000), legal ($86,000), travel and entertainment
($65,000), directors fees ($25,000), rents ($33,000) and depreciation ($16,000) partially offset by increases in insurance ($66,000) and salaries as a result of the employment agreement by and between the Company and Mark Weinreb ($41,000). Costs generally were significantly lower as the Company wound down its operations and closed its office facilities in Texas in July 2002.
Interest income increased by $18,000 to $89,000 in fiscal 2003 as compared to fiscal 2002 due to the collection of the StrandTek note receivable and the additional funds received from the sale of Common Stock and notes. Interest expense increased in fiscal 2003 to $215,000 from $23,000 in fiscal 2002 due to the higher level of debt and certain debt being in default and therefore subject to a higher interest rate. In addition, the Company recorded interest expense in fiscal 2003 relating to the Series A preferred in the amount of approximately $24,000 due to a recent accounting pronouncement.
The Company generated recognized revenues from the sale of extended warranties and service contracts via the Internet of $81,000 in fiscal 2002. The revenues generated in the year were derived almost entirely from revenues deferred over the life of the contracts sold in prior years. Similarly, direct costs of $61,000 incurred in fiscal 2002, relate to costs previously deferred over the life of such contracts. Revenues in fiscal 2001 totaled $225,000 of which $107,000 were recognized as earned revenues, the balance deferred over the life of the contracts sold. Direct costs in fiscal 2001 totaled $71,000.
General and administrative expenses totaled $912,000 during the year ended December 31, 2002 as compared to $1,643,000 for fiscal 2001, a decrease of $731,000 or 44.5%. Costs generally were significantly lower as the Company wound down its operations and closed its office facilities in Texas in July 2002. As a result, selling, general and administrative expenses in fiscal 2002 are not comparable to fiscal 2001 when the Company incurred operating expenses such as advertising and significantly higher payroll costs. One time employee termination and general closure costs totaling approximately $150,000 were incurred in fiscal 2002 and an impairment charge of $55,000 was recorded in June 2002 to adjust property and equipment to its net realizable value.
Interest income decreased by $36,000 to $71,000 in fiscal 2002 as compared to fiscal 2001 because interest income from the StrandTek loans, accrued through July 31, 2002 was less than interest earned from investments in marketable securities in fiscal 2001. Interest expense increased from $6,000 in the year ended December 31, 2001 to $23,000 in fiscal 2002 primarily due to the short-term loans secured in September 2002 to fund the Company's operating expenses.
The following chart represents the net funds provided by or used in operating, financing and investment activities for each period as indicated: Twelve Months Ended -------------------
Cash provided by (used in) operating activities $ (1,021,913) $ 1,005,376
At December 31, 2003, the Company had a cash balance of $210,947, deficit working capital of $793,749 and a stockholders' deficit of $1,502,774. In addition, the Company sustained losses of $1,044,145, $1,159,838 and $2,033,030 for the three fiscal years ended December 31, 2003, 2002 and 2001, respectively. The Company's lack of liquidity combined with its history of losses raises substantial doubt as to the ability of the Company to continue as a going concern. On September 22, 2003 the Company commenced an equity private placement pursuant to Regulation D to raise up to $4,000,000 through the sale of up to 40,000,000 shares of its Common Stock in increments of $5,000 or 50,000 shares. Such shares will not be registered and will be subject to restrictions on resale. Only selected investors which qualify as "accredited investors" as defined in Rule 501(a) under the Securities Act of 1933, as amended, were eligible to purchase these shares. Through December 31, 2003, the Company sold 2,825,000 shares, resulting in proceeds to the Company of $214,781, net of offering costs of $67,719. The Company continues to offer these securities without the assistance of an investment banker and will collect the full proceeds from any sale. As of March 8, 2004, the Company has sold 400,000 shares of its Common Stock with proceeds to the Company of $40,000 from the amended private placement. There can be no assurance that the Company will be able to sell sufficient quantities of these securities and may have to rely on its ability to borrow money from new and/or existing investors. Management has sold promissory notes which bear interest at 20% per annum to fund the Company until such time as sufficient proceeds are received from the private placement of its Common Stock.
The following table reflects a summary of the Company's contractual cash obligations as of December 31, 2003:
The financial statements and supplementary financial information required to be filed under this Item are presented commencing on page of the Annual Report on Form 10-K, and are incorporated herein by reference.