Form 10KSB for WARNING MODEL MANAGEMENT INC
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13-Apr-2004
Annual Report
Item 6. Management's Discussion and Analysis and Plan of of Operations.
General Plan of Operation
Short-term Objectives:
º Continue to expand revenue through organic growth of existing business lines; º Source and develop new talent in both male and female models. º Seek additional financing so as to provide capital to rapidly growing components of the organization, such as the Talent Division.
Long-term Objectives:
º Continue business expansion through acquisition, merger or joint venture with modeling agencies located in other geographic areas to provide economy of scale, incremental revenue and a larger talent pool; º Acquire complementary product lines to provide a broader service offering for customers, expand modeling careers and revenue sources.
We have no expected or planned sale of significant property or equipment.
In our opinion sufficient working capital will be available from internal operations and from outside sources during the next twelve months thereby enabling us to meet our obligations and commitments as they become payable for the following reasons: 1) We have signed a letter of intent for a credit facility, and we will be doing a registration statement for the underlying shares shortly, 2) We are in process of negotiating with a financial institution a credit line, and 3) $2,900,000 of our debt is with management. Additionally, historically, our operations have provided sufficient funds to met our obligations and commitments as they became payable.
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Results of Operations
Year Ended December 31, 2003 versus Year Ended December 31, 2002
Revenue for the year ended December 31, 2003 was $1,746,075 as compared to $2,208,535 for the same period in 2002, or a decrease of $462,460. The decrease is the result of a fall off of business in general throughout the year. WNMI has seen a pickup in its business towards the end of the fourth quarter.
Gross profit for the year ended December 31, 2003 was $659,682 as compared to $ 920,221 for the same period in 2002, or a decrease of $260,539. This decrease is a direct result of the decrease in revenue. Our gross profit percentage has remained stable. Operating expenses for the period ending December 31, 2003 were $1,735,620 as compared to $1,365,297 for the same period in 2002, or an increase of $370,323. The increase in operating expenses were mainly attributable to: 1) an increase in salaries and wages of $72,861 due to an increase in head count from 11 to 13; 2) rent of $31,645 due to move to larger office space; 3) general and administrative of $ 368,406; which was mainly due to an increase in bad debts of $26,733, Consulting Fees of $221,628, accounting related expenses of $78,765 and other general and administrative expenses of $41,280, offset by decreases in 1) business development cost of $18,020; 5) non-recurring expenses of $ 86,375 attributable to the closing of the reverse merger with the remaining difference of $1,806 consisting of other miscellaneous items. Management engaged the services of consultants to assist us in developing strategies to increase revenues and other business related matters.
Interest expense was $562,655 for the year ended December 31, 2003 as compared to $122,426 for the same period in 2002, or an increase of $440,239. The increase in interest expense in 2003 was primarily an increase in the use of our secured line of credit and an increase in interest on convertible debt.
Other income of $39,233 increased $7,313 over the same period the prior , which was primarily due to miscellaneous items.
Our net (loss) for the current year ended December 31, 2003 was $1,601,006 as compared to a net loss of $535,937 for the year ended December 31, 2002, which is an increase of $1,065,069 or 198%. This increase in loss is mainly attributable to the increase in interest expense and the decrease in business experienced as a result of the Iraq war and the overall softness of the advertising marketplace during 2003. Net change in cash used in operating activities in 2003 versus 2002 was $566,904. This change in cash from operating activities was principally due to an increase in net loss of $1,065,069, plus a decrease in payable and accrued expenses of $549,806 and model fees payable of $254,155, offset by increases in 1) bad debt expense of $41,123, 2) bond and warrant discount amortization of $241,919, 3) stock based compensation of $307,500, 4) accounts receivable of $291,112, 5) advances to models of $307,366, 6) accrued interest on convertible debt and secured line of $100,426 plus miscellaneous items of $12,680.
Net cash provided by (used in) investing activities was $3,762 and $ 15,743 for the years ended December 31, 2003 and 2002, respectively, reflecting a change of $11,981. This change is due to a decrease in purchases of property and equipment.
Net cash provided by financing activities was $361,814 and $807,914 for the years ended December 31, 2003 and 2002, respectively, reflecting a decrease of $446,100. This decrease was principally due to a decrease in proceeds from convertible notes of $450,000, net decrease of borrowings from a secured line of credit of $357,999, a decrease in payment on notes payable of $118,000, offset by an increase in advances from shareholders of $56,788, an increase in proceeds of notes payable $427,000 plus miscellaneous items of $3,889.
Liquidity and Capital Resources
The Company's revenues in 2003 have not been sufficient to cover the cost of revenues and operating expenses. WNMI has relied on debt and equity financial to meet its cash needs. For future requirements we will continue to seek funding through debt issuances and equity financing.
Therefore over the next twelve months management is of the opinion that sufficient working capital will be available from operations and financing activities to meet the Company's liabilities and commitments as they become payable.
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Inflation
We believe our operations and financial condition have suffered no adverse material effect due to inflation. Subsequent event:
On February 4, 2004, Mr. Michael Rudolph resigned as Chief Executive Officer and as a member of the Board of Directors of WNMI.
Also on February 4, 2004, the Board of directors of Warning Model Management appointed Brian Bonar as a Director. Brian Bonar is currently serving as a director of Imaging Technologies Corporation ("IMTO") since August 1995 and became IMTO's Chairman of the Board in December 1999. From August 1992 through April 1994, Mr. Bonar served as the IMTO's Director of Technology Sales and from April 1994 through September 1994 as the IMTO's Vice President, Sales and Marketing. In September 1994, Mr. Bonar became the IMTO's Executive Vice President and, in July 1997, was appointed as the IMTO's President and Chief Operating Officer. In April 1998 Mr. Bonar assumed the post of CEO. From 1991 to 1992, Mr. Bonar was Vice President of Worldwide Sales and Marketing for Bezier Systems, Inc., a San Jose, California-based manufacturer and marketer of laser printers. From 1990 to 1991, he was Worldwide Sales Manager for Adaptec, Inc., a San Jose-based laser printer controller developer. From 1988 to 1990, Mr. Bonar was Vice President of Sales and Marketing for Rastek Corporation, a laser printer controller developed located in Huntsville, Alabama. From 1984 to 1988, Mr. Bonar was employed as Executive Director of Engineering at QMS, Inc., an Alabama-based developer and manufacturer of high-performance color and monochrome printing solutions. Prior to these positions, Mr. Bonar was employed by IBM, U.K. Ltd. for approximately 17 years.
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