During the first half of fiscal 2001 management became concerned by the slow progress being made by its warrantysuperstore.com business. As a result, alternative strategies for the Company were evaluated and on January 7, 2002 the Company entered into the StrandTek Transaction. After the consummation of the StrandTek Transaction, Strandtek will become a majority owned subsidiary of the Company and the former shareholders of Strandtek will control the Company. Strandtek is a high-tech manufacturer with proprietary technology producing melt-blown polypropylene for acoustical and thermal insulation applications. The transaction is expected to close during April 2002 and is contingent upon certain closing conditions, including, obtaining financing and a number of other financial, legal and business conditions. There can be no assurance given however that the financing can be satisfied on terms reasonably acceptable to the parties or that the other financial, legal and business conditions can be met or that a transaction can be consummated.
The Company recognizes revenue from its warranty service contracts business over the life of contracts executed and direct costs associated with the sale of such service contracts are also recognized pro rata over the life of the contracts.
Selling, 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 ads and media promotions. The increase in professional fees was due primarily to legal costs associated with the proposed StrandTek Transaction and the additional staff cost was due to the hiring of a Marketing Manager in the second half of 2001.
For the reasons cited above, loss before discontinued operations and preferred dividend for the fiscal year 2001 decreased by 21.9% to $1,792,000 from the comparable loss of $2,296,000 for fiscal 2000.
Selling, general and administrative expenses totaled $2,510,000 during the year ended December 31, 2000 as compared to $1,023,000 for the twelve months ended December 31, 1999, an increase of $1,487,000 or 145.4%. The increase is primarily due to increases in advertising costs ($881,000), staff costs and director fees ($191,000), professional fees ($89,000), and depreciation and amortization ($73,000). The increase in advertising expense is due to "Internet banner advertising" promotions. The increase in payroll costs is primarily due to the appointment of a Chief Executive Officer in February 1999 and the increase in professional fees resulted from the Company filing a registration statement on Form S-1 to raise additional financing.
of deferred acquisition costs) $38,342, preferred stock dividend accrual $47,684 and other non-cash items totaling $4,542 resulted in cash used in operating activities totaling $373,483 for the year ended December 31, 2001, net of working capital movements.
The Company significantly improved its operating cash flow in fiscal 2001 by reducing its advertising spending from approximately $1,134,000 in fiscal 2000 to $107,000 in fiscal 2001 and by focusing on strategic partnerships and co-op advertising programs to promote its products and services and customer awareness. The Company expended approximately $215,000 for the year ended December 31, 2001 to maintain and promote its web site. However, the Company has no contracted capital expenditure commitments in place.
Subsequent to December 31, 2001 the Company made advances to StrandTek totalling $1,250,000 in advance of completing the StrandTek Transaction. The advances bear interest at 7% per annum and $1,000,000 of the advances are guaranteed by certain principal stockholders of StrandTek. Additionally, on February 12, 2002 the Company commenced a private placement offering to sell, as amended a minimum of 28,875,000 shares and a maximum of 41,125,000 shares of its Common Stock. The shares of Common Stock are being offered to enable the Company to satisfy one of the conditions precedent to consummating the StrandTek Transaction described in "Item 1 Business - Recent Developments". The shares being offered in the private placement have not been registered under the Securities Act but investors are being granted demand registration rights.