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Form 10KSB/A for MORGAN BEAUMONT INC
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7-Jun-2005
Annual Report
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
PLAN OF OPERATIONS
SUMMARY.
Information prior to August 24, 2004 (the date of the reverse acquisition) related to or predecessor entity, Pan American, has been omitted. From a legal perspective, Pan American is the surviving company and thus continues its public reporting obligations. However, from an accounting perspective, Morgan Beaumont is treated as though it acquired Pan American. Therefore, all financial information presented in this 10KSB includes Morgan Beaumont's standalone results from the period July 10, 2000 (date of incorporation) to September 30, 2004.
As part of the merger, Morgan Beaumont changed its year end from December 31 to September 30. As a result of this change information contained herein includes the year ended September 30, 2004 (nine months) and the year ended December 31, 2003.
RESULTS OF OPERATIONS. Planned principal operations of the Company commenced in 2000, however, to this date it has received limited revenues. In June 1975, the Financial Accounting Standards Board, in its Statement No. 7, set forth guidelines for identifying an enterprise in the development stage and the standards of financial accounting and reporting applicable to such an enterprise. In the opinion of management of the Company, the Company and its activities from its inception through September 30, 2004 fall within the referenced guidelines. Accordingly, the Company has reported its activities in accordance with the aforesaid Statement of Financial Accounting Standards No. 7.
LACK OF PROFITABILITY OF BUSINESS OPERATIONS SINCE 2001. The Company was initially focused exclusively on the sales of the Products. It became apparent there was a flaw in solely focusing on the sales of the products, so management made the decision to expand its focus to include the development of a process to allow the consumer to perform value loads in a retail environment. The time and expense of developing the process and associated technology kept the Company from achieving profitability.
Moreover, when the Company started some sales in 2001, those efforts were halted due to an issue involving MasterCard and the issuing bank programming deviancies that the bank had in supply paperwork to MasterCard on Morgan's programs; Morgan stopped shipping the Products and had been working with multiple banks processors to develop a program with the bank, MasterCard and Visa approval. The Company instituted a suit against that issuing bank as described in Item 3 of this report. During that time, the Company had also been developing processes and technology to allow cards to be loaded on the cards. Additionally, the Company's revenues were initially used to maintain operations. The Company needed to raise additional revenue to proceed with operations and launch the Company's programs, products and services.
However, this process is now well defined and the technology has been rolled out in a limited release and is now ready for all of our strategic partners to commence rolling out in a general availability mode. We anticipate profitability will occur when we have approximately no less 50,000 retail load locations operational and approximately 100,000 to 150,000 cards actively used by consumers and a sufficient number of POP in the geographic location which are higher in density in cardholders. Profitability is also dependent on the expansion of load stations and the expansion of the programs for the card products.
SALES AND REVENUES. Revenues for the nine months ended September 30, 2004, the year ended December 31, 2003 and the period July 10, 2000 (date of incorporation) to September 30, 2004 were $58,602, $355,872, and $590,219 respectively. Revenue was down in the nine months ended September 30, 2004 by eighty-three percent because MasterCard cancelled the Company's program through First National Bank of Central Texas as disclosed in Item 3 Litigation. The program was not replaced until July and therefore sales were not made nor were significant revenue earned from April 2004 to July of 2004. During the nine
months ended September 30, 2004 the Company had an average of approximately 5,800 Points of Presence ("POPS") excluding the approximate 15,000 Bank of America locations that can load some of the Company's products. These POPS were restricted to loading our cards and did not market the Company's cards. Cost of Sales for the nine months ended September 30, 2004, the year ended December 31, 2003 and the period July 10, 2000 (date of incorporation) to September 30, 2004 were $35,833, $186,245, and $316,162 respectively. The eighty-one percent decline in 2004 was the result of reduced revenue in the reporting period.
During fiscal year 2005 the Company intends to expand the number of access points; Morgan Beaumont has in place contracts that management believes have the potential to grow its access points to over 100,000 POPS. These POPS will now sell or load (or both) debit/ATM and stored value hologram cards to the public. The Company has four sources of sales and revenue: initiation fees, subscription fees, transaction fees and financial "float." It generates income from the sale of the Morgan Beaumont Money Card, the Morgan Beaumont Stored Value MasterCard, its monthly maintenance fees associated with keeping the card active and from transaction fees. Income is also generated at the SIRE Network when consumers load cash into their card account so the card can be used for day to day purchases. Additional revenue is generated at the IVR when consumers activate their card and "up sell" opportunities at the IVR level. Future potential products for consumers to purchase at this level include Discount Health Benefits, Discount Medical Benefits, Road Side Assistance and Vacation offers.
