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OPERATING EXPENSES

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thepennyking   Wednesday, 02/18/04 08:50:57 PM
Re: thepennyking post# 67
Post # of 88 
OPERATING EXPENSES


Operating expenses consist of research and development, sales and marketing, general and administrative, and depreciation and amortization expenses. The Company incurred operating expenses of $1.7 million for the three months ended December 31, 2003, a decrease of $700,000 from $2.4 million for the three months ended December 31, 2002. This is due to decreases in salaries and wages of $437,000, depreciation and amortization of $367,000, and bad debt expense of $353,000. These were offset by increases of $391,000 in product development costs and $138,000 in legal fees. The Company has reduced head count from 66 in December of 2002 to 43 at December 31, 2003. In addition, the Company has streamlined its operations by closing non-essential facilities and consolidating those functions in its Phoenix and Troy, New York locations and is now receiving the full benefit of those cost reduction programs.

The Company incurred operating expenses of $4.8 million and $7.4 million for the nine months ended December 31, 2003 and 2002 respectively, a decrease of $2.6 million. The decrease is primarily due to decreases in salaries and wages of $1.6 million and depreciation and amortization of $1.1 million.

Research and development expenses represent expenses incurred in connection with the development of custom content services, the development of new iLinc products and new product versions and consist primarily of salaries and benefits, communication equipment and supplies. Research and development expenses for the three months ended December 31, 2003 and December 31, 2002 were $741,000 and $786,000 respectively, a decrease of $45,000. The decrease is a result of the Company's closure of the Memphis and Los Angeles offices, outsourcing of custom content development and elimination of dental operations costs. These changes caused a decrease in salaries and wages of $399,000 and dental operations of $7,000. This was partially offset by an increase in product development costs of $358,000 due to increased costs of custom development and royalty expense.

The Company incurred research and development costs of $2.0 million and $2.6 million for the nine months ended December 31, 2003 and 2002 respectively, a decrease of $650,000. The decrease is primarily a result of a decrease in compensation expenses of $1.3 million and dental operations of $34,000. This was partially offset by an increase in product development costs of $699,000 due to increased costs of custom development and royalty expense.


Sales and marketing expenses consist primarily of sales and marketing salaries and benefits, travel, advertising, and other marketing literature. Sales and marketing expenses were $460,000 and $427,000 for the three months ended December 31, 2003 and December 31, 2002, respectively, an increase of $33,000. The increase is a result of an increase in advertising and printing of $29,000 and compensation expenses of $14,000. These increased expenses were partially offset by a decrease in travel expenses of $15,000.

The Company incurred $1.2 million and $1.3 million in sales and marketing expenses for the nine months ended December 31, 2003 and 2002 respectively, a decrease of $100,000. This decrease is primarily a result of decreases in general office expenses of $83,000 and travel expenses of $73,000. These decreases were partially offset with increases of $34,000 in compensation expense and $29,000 in advertising and printing expense.

General and administrative expenses consist of the corporate expenses of the Company. These corporate expenses include salaries and benefits of executive, finance and administrative personnel, rent, bad debt expense, professional services, travel, office costs and other general corporate expenses. During the three months ended December 31, 2003 and December 31, 2002, general and administrative expenses were $358,000 and $699,000, respectively, a decrease of $341,000. The change in general and administrative expenses was primarily due to decreases in bad debt expense of $353,000, investor relations and board fees of $43,000, occupancy of $25,000, compensation and related benefit expense of $22,000, telephone of $16,000, liability insurance of $7,000 and increases in legal fees of $137,000 and travel expenses of $12,000.

The Company incurred general and administrative expenses of $1.4 million and $2.2 million for the nine months ended December 31, 2003 and 2002 respectively, a decrease of $800,000. The change was primarily due to decreases in compensation expenses of $277,000, bad debt expense of $243,000, investor relations of $121,000, accounting fees of $52,000, telephone expenses of $38,000, general office expenses of $29,000 and occupancy of $9,000.

For the three months ended December 31, 2003 and December 31, 2002 depreciation and amortization expense was $97,000 and $464,000, respectively. For the nine months ended December 31, 2003 and December 31, 2002 depreciation and amortization expense was $300,000 and $1.4 million, respectively. Beginning in fiscal 2003 the Company ceased amortizing goodwill in accordance with SFAS No. 142. The decrease is also attributed to the termination of the service agreements that returned ownership of the dental practice equipment to the related dental practices.



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