hey jim... an old friend below
May 15, 2002
CDKNET COM INC (CDKX.OB)
Quarterly Report (SEC form 10QSB)
Item 2. Management's Discussion and Analysis of Financial Condition - and Results of Operations -
RESULTS OF OPERATIONS
- The following contains forward-looking statements based on current expectations, estimates and projections about our industry, management's beliefs, and assumptions made by management. All statements, trends, analyses and other information contained in this report relative to trends in our financial condition and liquidity, as well as other statements, including, but not limited to, words such as "anticipate," "believe," "plan," "intend," "expect," "predict," and other similar expressions constitute those statements. These statements are not guarantees of future performance and are subject to risks and uncertainties that are difficult to predict. Accordingly, actual results may differ materially from those anticipated or expressed in the statements. Potential risks and uncertainties include, among others, those set forth below. Particular attention should be paid to the cautionary statements involving our limited operating history, the unpredictability of our future revenues, the unpredictable and evolving nature of our business model, the competitive multimedia compact discs and financial services industries and the risks associated with capacity constraints, systems development, management of growth and business expansion, as well as other risk factors.
Overview We are a holding company incorporated in the State of Delaware. We have two subsidiaries through which we conduct our business: (1) Diversified Capital Holdings, LLC (F/K/A Azure Capital Holdings, LLC), a Delaware limited liability company, and (2) CDKnet, LLC, a New York limited liability company.
Through CDKnet, LLC we developed a multimedia technology, called CDK(TM), which integrates audio, video and Internet connectivity on a standard compact disc. These custom compact discs play audio and display videos on a full-screen, using high-quality videos and digital technology. The custom compact discs also include software applications and targeted Web links.
The CDK(TM) product is targeted at the following industries: (1) entertainment (music, movies, and TV); (2) travel and tourism; (3) professional sports; (4) financial services; (5) education; (6) toys/games; (7) fashion; (8) food/cooking; (9) automotive; and (10) healthcare. CDKnet, LLC's primary disc production is through our technology and license agreement with Elbit, detailed below.
Through Diversified Capital Holdings, LLC, we are developing our management advisory consulting services business. Our target clients include both privately held and micro-capitalized publicly held development stage companies in need of focused, coherent management strategies. We are assembling a team of personnel which will facilitate our ability to provide our clients with cogent management consulting services and assist in the coordination of their day to day administration requirements. In addition to day to day management and administrative services, our range of consulting services will also include advice regarding the identification and evaluation of equity financing through the purchase or sale of equity, debt and or convertible securities.
In June 2001, we sold substantially all of the business and the assets of our subsidiary, ValueFlash to Elbit Limited for $3.5 million in cash plus the assumption of liabilities and forgiveness of indebtedness. In connection with the sale of ValueFlash, we entered into a Technology and License Agreement with Elbit whereby the parties agreed that for an initial 3-year period, we shall provide CDKs(TM) for Elbit in return for disc mastering fees and per disc production fees. We subsequently changed the name of ValueFlash to CDK Financial Corp.
We have a limited operating history. While historically we have generated revenues primarily from development and use fees for client specific compact discs and the sale of custom compact discs, in fiscal 2001, most of our resources were directed to developing and marketing the
VFlash(TM) product in accordance with our fiscal 2001 operating plan. In light of the sale of ValueFlash and our new business strategy, we anticipate that our financial services business will be a major factor in our future revenue and business growth. We expect our future growth to be generated from (1) revenues from our technology and license agreement with Elbit and (2) from our financial services line of business once it develops.
In fiscal 2001, significant expenditures were incurred for marketing and advertising the VFlash(TM) product and to build the infrastructure to support it. With the sale of ValueFlash, we expect our expenses and overhead to substantially reduced in fiscal 2002.
In the near term, we will continue to focus on generating revenue from the sale of client-specific CDKs and custom compact disc services as well as our devloping. Our current business development efforts include both full-time employees as well as outside consultants. Consultants are compensated on a performance basis.
We receive funds from product sales and services. To date, we have focused our funds on the development of CDK(TM) products (including CDK(TM)) 1.0, CDK(TM) 3.0, CDK(TM) 3.0, and Gameplayer 2.0 and the distribution of our managment consulting services.
Following the sale of ValueFlash, we were left with cash reserves of approximately $3.5 million in cash and escrow receivables, under $1.4 million in liabilities and a royalty producing licensing based from our CDK(TM) technology platforms.
In fiscal 2001, we successfully raised $1.4 million from private sales of our common stock. We have not explored financings since June 2001. However, if necessary, we will explore various financings including private placements and debt financings during fiscal 2002.
As of May 13, 2002, we had 36,196,267 shares of common stock issued and outstanding. Our stock is traded on the Over-the-Counter Bulletin Board under the symbol "CDKX."
Stock Dividends - We have not issued a common stock dividend to date.
We did issue a Series A Preferred Stock dividend on December 14, 2001.
Recent Developments - See notes 3 and 4 to the accompanying unaudited financial statements.
Stock Issuance See note 2 to the accompanying unaudited financial statements.
Agreements See notes 3 and 4 to the accomanying unaudited financial statements.
Results of Operations - Three months ended March 31, 2002 compared to three months ended March 31, 2001.
As a result of the sale of substantially all of the business and the assets of our Valueflash subsidiary in June 2001, we concentrated our resources on developing our financial services business.
During the three months ended March 31, 2002, we incurred a net loss of ($169,526) on revenues of $19,704 compared to a net loss of ($1,830,000) on revenues of $939,000 for the three months ended March 31, 2001. The decline in revenues is directly attributable to the sale of the assets of our Valueflash subsidiary in June 2001. The revenues generated for the three months ended March 31, 2002 were primarily from our CDK operations. We anticipate that additional revenues will be generated in subsequent periods as management develops the management consulting and financial services business.
The cost of revenues for the three months ended March 31, 2002 was $0 compared to $36,000 for the three months ended March 31, 2001. This decrease was directly attrituble to the sale of the assets of the Valueflash subsidiary in June 2001.
For the three months ended March 31, 2002, other operating expenses were $207,305 compared to $2,573,000 for the three months ended March 31, 2001. This decrease reflects the sale of the assets of our Valueflash subsidiary in June 2001 and the shift in our operations to the development of financial services.
Results of Operations - Nine months ended March 31, 2002 compared to nine months
ended March 31, 2001
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As a result of the sale of substantially all of the business and the assets of
our Valueflash subsidiary in June 2001, we concentrated our resources on
developing our financial services business. Accordingly, we did not have
revenues or costs of goods sold for the nine months ended March 31, 2002.
During the nine months ended March 31, 2002, we incurred a net loss of ($698,666) on revenues of $190,517 compared to a net loss of ($5,747,000) on revenues of 4,991,000 for the nine months ended March 31, 2001. The decline in revenues is directly attributable to sale of the assets of our Valueflash subsidiary in June 2001.The revenues generated for the nine months ended March 31, 2002 were primarily from our CDK operations. We anticipate that additional revenues will be generated in subsequent periods as management develops the management consulting and financial services business.
The cost of revenues for the nine months ended March 31, 2002 was $139,560 compared to $2,380,000 for the nine months ended March 31, 2001. This decrease was directly attributable to the sale of the assets of the Valueflash subsidiary in June 2001.
For the nine months ended March 31, 2002, other operating expenses were $786,143 compared to $8,039,000 for the nine months ended March 31, 2001. This decrease reflects the sale of the assets of our Valueflash subsidiary in June 2001 and the shift in the our operations to the development of management consulting and financial services. Included in operating expenses for the nine months ended March 31, 2002 is $126,000 of stock based compensation representing the amortization of amounts previousily deferred as well as costs incurred for $40,500 consulting contracts.
Liquidity and Capital Resources - As of March 31, 2002, we had $921,425 in cash and cash equivalents. Our principal commitments are $165,000 in subordinated convertible debentures and $114,911 in long-term debt and capitalized lease obligations and $612,576 in accounts payable and accrued expenses. We have no material commitments for capital expenditures, nor do we anticipate any. We anticipate that we will experience growth in operating, marketing and advertising expenses for the foreseeable future and that such expenses will be a material use of our cash resources. We anticipate that we will also use our cash resources to make private equity investments.
Net cash used in operating activities was ($227,021) for the nine months ended March 31, 2002 compared to net cash used in operating activities of ($2,795,000) for the nine months ended March 31, 2001. Cash used by operations resulted from net losses offset by non-cash depreciation and amortization and stock based compensation.
Net cash used in investing activities was ($1,119,165) for the nine months ended March 31, 2002 compared to ($747,000) for the nine months ended March 31, 2001. For the nine months ended March 31, 2002, our principal use of cash in investing activities was for private equity investments and notes receivable.
Net cash provided by financing activities was $10,611 for the nine months ended March 31, 2002 compared to cash provided of $2,749,000 for the nine months ended March 31, 2001. We used cash for the nine months ended March 31, 2002 to make payments on debt and lease obligations. For the nine months ended March 31, 2001, cash was provided primarily from the sale of stock.
We anticipate using cash in the future to (1) continue our current operations, (2) further develop our management consulting and financial services line of business, (3) develop our CDK(TM) and Gameplayer product lines, and (4) repay debt.
Factors Affecting Future Results We do not provide forward looking financial information. However, from time to time statements are made by employees that may contain forward looking information that involve risks and uncertainties. In particular, statements contained in this quarterly report that do not historically contain predictions are made under the Safe Harbor Corporate Private Sector Litigation Reform Act of 1995. Our actual result of operations and financial condition have varied and may in the future vary significantly from those stated in any predictions. Factors that may cause these differences include without limitation the risk, uncertainties and other information discussed within this registration statement, as well as the accuracy of its internal estimate of revenue and operating expense levels. We will face a number of risk factors which may create circumstances beyond the control of management and adversely impact the ability to achieve our business plan. |
