MAJESTIC COMPANIES LTD (MJXC.OB)
Quarterly Report (SEC form 10QSB)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the Registrant's Consolidated Financial Statements and Notes thereto, included elsewhere within this Form 10-QSB.
DESCRIPTION OF REGISTRANT.
The Registrant is a holding company that operates a group of wholly-owned subsidiaries involved in the manufacture and distribution of re-locatable modular buildings, the acquisition and lease
of modular buildings and the development and marketing of a school bus safety restraint device known as the SAFE-T-BAR(TM). A complete description of the subsidiaries is included in the
Registrant's December 31, 2000 Annual Report on Form 10-KSB.
RESULTS OF OPERATIONS.
(a) SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(1) NET SALES. Net sales based on completed contracts for the six months ended June 30, 2001 were $255,817, an eighty-five percent decrease from the same period in 2000. The modular
division accounted for $212,799 of the total net sales for the first six months ended June 30, 2001. The large decline in reportable completed contract sales for modular is attributed to several
large contracts still in progress not yet completed Lease division sales for the first six months of 2001 equaled sales for the same period ending in 2000 at $20,075. The balance of $22,943 in
sales for the first six months ended June 30, 2001 is comprised of miscellaneous income at the corporate level.
(2) COST OF SALES. Cost of sales were consistent with year-to-date modular net sales at $167,213 for the six month period ending June 30, 2001 compared to cost of sales of $1,487,399 for
the same period in 2000. Cost of sales consisted of modular division operations with minimal costs contributed from the other divisions.
(3) RESEARCH AND DEVELOPMENT. Research and Development expenses for the six month period ending June 30, 2001 totaled $30,290, a sixty-two percent decrease from $80,919 in
the same period ending 2000. The decrease is indicative of reduced consulting fees related to ongoing development projects in the transportation division.
(4) SELLING AND MARKETING. Selling and marketing expenses increased eighty-one percent to $95,815 for the six month period ending June 30, 2001 as compared to $53,176 in the
same period 2000. These expenses were primarily made up of corporate and transportation marketing activities.
(5) GENERAL AND ADMINISTRATIVE. General and Administrative expenses decreased by forty-four percent from $2,253,566 for the six month period ending June 30, 2000 to $1,269,544
for the same period in 2001. The large expenses in 2000 resulted greatly from corporate consulting fees paid for in shares which are no longer incurred in the current period.
(6) OTHER EXPENSES. Other expenses for depreciation decreased twelve percent to $32,918 for the six month period ending June 30, 2001 from $37,521 for the same period ending 2000.
Interest expense increased two-fold from $45,018 for the six month period ending June 30, 2000 to $101,457 in the same period 2001. The increase is indicative of the Registrant's costs
associated with proceeds from debt financing in 2000 and 2001.
(b) THREE MONTHS ENDED JUNE 30, 2001 AND 2000.
NET SALES. Net sales based on completed contracts for the
three months ended June 30, 2001 were $142,177, a ninety-one percent
decrease from the same period in 2000. The large decline in reportable
completed contract sales is attributed to several large contracts still
in progress not yet completed. The modular division accounted for
$109,204 of period quarter sales. Lease sales totaled $10,038. This is
reflective of the lease division's slow down in active operations
throughout the past year. The balance of $22,935 sales resulted from
miscellaneous division operations.
COST OF SALES. Cost of sales, $101,610, were consistent with
modular division net sales for the three month period ending June 30,
2001 compared to cost of sales of $1,434,595 in the same period 2000.
Cost of sales for this period were primarily attributed to modular
division operations. Costs of sales for the lease and transportation
divisions were marginal for the reported period.
RESEARCH AND DEVELOPMENT. Research and development expenses
decreased to $16,999 for the quarter ended June 30, 2001 from $57,389
for the same period in 2000. The decrease is a result of reduced
consulting fees and costs associated with ongoing development projects
primarily in the transportation division.
SELLING AND MARKETING. Selling and marketing expenses
increased to $55,969 for the period ending June 30, 2001, from $51,245
for the same period ending in 2000. These expenses are comprised
primarily of corporate and transportation marketing activities.
GENERAL AND ADMINISTRATIVE. General and Administrative
expenses decreased from $1,120,632 for the period ending June 30, 2000
to $722,937, a reduction of $397,695 for the same period in 2001.
General and Administrative expenses were larger in 2000 due to
corporate consulting and legal fees paid for in shares. These expenses
were no longer incurred in the current period.
OTHER EXPENSES. Other expenses for depreciation decreased to
$15,852 for the three month period ending June 30, 2001, from $22,590
for the same period ending in 2000. Interest expenses increased from
$22,249 in 2000 to $54,134 for the same three period ending June 30,
2001. The increase in interest is a result of the Registrant's
acquisition of debt financing in the form of convertible debentures in
2000 and 2001.
LIQUIDITY AND CAPITAL RESOURCES.
As of June 30, 2001, the Registrant had a working capital deficit of $1,738,088 compared to a deficit of $1,449,523 at December 31, 2000, an increase in working capital deficit of $288,565. The
increase in working capital deficit was primarily due to the Registrant decrease in deposits and prepaid expenses, as well as, an increase in customer deposits of $498,602, as of June 30, 2001. As
a result of the Registrant's operating losses during the six months ended June 30, 2001, the Registrant generated a cash flow deficit of $726,447 from operating activities. During the six months
ended June 30, 2001 the Registrant repaid $116,914 of previously borrowed funds.
The Registrant met its cash requirements during the six months ended June 30, 2001 by drawing on a debenture line of credit. The $2,000,000 equity line of credit is backed by four-percent
convertible debentures. The funds were used for working capital purposes. The line of credit is structured whereby the Registrant can request advances from the investor in exchange for
four-percent convertible debentures that are convertible into the Registrant's common stock. The exchange rate for this conversion will be equal to eighty-percent of the average closing bid price
for any four of the five trading days immediately preceding the date of conversion.
While the Registrant has raised capital to meet its working capital and financing needs in the past, additional financing is required in order to meet the Registrant's current and projected cash flow
deficits from operations. As previously mentioned the Registrant has obtained financing in the form of equity in order to provide the necessary working capital. The Registrant currently has no
other commitments for financing. There are no assurances the Registrant will be successful in raising the funds required.
The Registrant has issued shares of its common stock from time to time in the past to satisfy certain obligations, and expects in the future to also acquire certain services, satisfy indebtedness
and/or make acquisitions utilizing authorized shares of the capital stock of the Registrant.
The independent auditors report on the Company's December 31, 2000 financial statements included in the Company's Annual Report on Form 10KSB states that the Company's recurring
losses and default under its debt obligations raise substantial doubts about the Company's ability to continue as a going concern.
FORWARD LOOKING STATEMENTS.
The foregoing Management's Discussion and Analysis contains "forward looking statements" within the meaning of Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the
Securities Act of 1934, as amended, including statements regarding, among other items, the Registrant's business strategies, continued growth in the Registrant's markets, projections, and
anticipated trends in the Registrant's business and the industry in which it operates. The words "believe," "expect," "anticipate," "intends," "forecast," "project," and similar expressions identify
forward-looking statements. These forward-looking statements are based largely on the Registrant's expectations and are subject to a number of risks and uncertainties, certain of which are
beyond the Registrant's control. Actual events may differ materially from those anticipated in the forward-looking statements. Important risks that may cause such a difference include: general
domestic and international economic business conditions, increased competition in the Registrant's markets and products. Other factors may include availability and terms of capital, and/or
increases in operating and supply costs. Market acceptance of existing and new products, rapid technological changes, availability of qualified personnel also could be factors. Changes in the
Registrant's business strategies and development plans, and changes in government regulation could adversely affect the Registrant. Although the Registrant believes that the assumptions
underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate. There can be no assurance that the forward-looking statements included
in this filing will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded
as a representation by the Registrant that its objectives and expectations will be achieved. The Registrant disclaims any intent or obligation to update "forward looking statements." |
