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DM PRODUCTS, INC. - 10-Q/A - Management's Discussion and Analysis of Financial Condition and Results of Operations(Edgar Glimpses Via Acquire Media NewsEdge) Forward-Looking Statements Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words "believes," "project," "expects," "anticipates," "estimates," "intends," "strategy," "plan," "may," "will," "would," "will be," "will continue," "will likely result," and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC. Executive Overview We, through our wholly owned subsidiary, Direct Success, Inc., develop, finance, produce, market and distribute beauty, fashion, fitness and other products for sale through infomercial marketing and distribution channels. Profits are derived from inbound sales, outbound sales, upsells and retail distribution. Our primary objective is to penetrate this rapidly expanding industry by introducing consumer products to national and international markets through a series of infomercial campaigns. We intend to aggressively develop, finance, produce and market various new products for television infomercials. We intend to systematically expand our product list using a direct response model. Our operational strategy consists of employing one of three distinct business alternatives for each product/infomercial: · Complete Project Funding - The Company would obtain the exclusive licensing rights to products and pay a nominal royalty (2-5%) of gross sales to the product developer; · Joint Venture Projects - The Company would share costs of production, marketing and distribution and would share revenues with product developers; and · Straight Royalty Arrangements - The Company would partially finance the infomercials in exchange for a fixed royalty on gross sales. 4-------------------------------------------------------------------------------- Table of Contents Of course, the key to our ability to continually attract new products and new product developers will, in large part, determine our success. As part of our strategy, we intend to, and have developed, strategic alliances with strong companies that are established operators in the infomercial and advertising industry. These companies include TriStar Products, Inc. and Script-to-Screen. Our business is focused on improving shareholder returns with a particular emphasis on profitability and capital productivity. Economic and market conditions have been, and continue to be, disruptive and volatile. The availability and cost of credit and currency volatility have obviously contributed to diminished expectations for the economy. These conditions, along with reduced consumer confidence and increased unemployment, have contributed to reductions in consumer spending, particularly on discretionary products such as the ones offered by DM Products. Although we continually adjust our procurement, marketing and production schedules, together with an acute awareness of production costs, it is still uncertain as to when the economy will recover, and it is not clear that our current activities will sufficiently offset the impact of the poor economy on our net sales. Plan of Operation Since our acquisition of Direct Success, Inc. in July, 2005, we have focused primarily on the manufacturing, marketing, sale, and distribution of the Banjo Minnow Fishing Lure System ("Banjo Minnow"), via a direct marketing campaign, primarily promoted through the production and airing of a thirty minute infomercial. The exclusive rights to the Banjo Minnow were acquired through a Manufacturing, Marketing and Distribution Agreement entered into between Direct Success, LLC#3 and Banjo Buddies, Inc., dated October 10, 2003 (prior to the company's acquisition of Direct Success, Inc.). Direct Success, Inc., on or about August 16, 2003, entered into a joint venture with Buena Vista Infomercials, Inc. and formed Direct Success, LLC #3 (a Delaware Limited Liability Company) for the purpose of acquiring the exclusive manufacturing and distribution rights to the Banjo Minnow. Direct Success, LLC #3 is 75% owned by Direct Success, The remaining 25% is owned by Buena Vista Infomercials, Inc. On or about October 10, 2003, Direct Success, LLC #3 entered into an agreement with Banjo Buddies Inc. (the owner and inventor of the lure) in which Banjo granted to Direct Success, LLC #3 the exclusive rights to manufacture, use, distribute, sell, advertise, promote and otherwise exploit the Banjo Minnow. Direct Success, Inc. produced and financed the current infomercial featuring the Banjo Minnow and invested substantial capital in its promotion. On or about May 11, 2005, Direct Success, LLC #3 subcontracted the manufacturing and distribution rights to TriStar Products, Inc. Pursuant to this subcontract, Direct Success, LLC #3 receives a royalty, based on sales generated by TriStar. 5-------------------------------------------------------------------------------- Table of Contents Diversification We realize the need to expand on the products offered to consumers, thereby diversifying our commitments and attracting new customers. Our directors and officers are consistently approached with ideas for new products from various individuals and companies. It is expected that our officers and directors will continue to be "pitched" for new product ideas and that our referral sources will grow as we gain recognition in the infomercial industry. As opportunities arise, our officers and directors will present potential product ideas to our Board of Directors for its discussion and review. In deciding which products to pursue, our Board will consider, among other things, the product's viability, costs of development and marketing, acceptable sales price point per unit, as well as the product's overall likelihood of success. In some instances, our Board may retain outside consultants to evaluate such things as the product's likely market appeal or the product's optimal price point. Although we expect that our directors and officers will continue to be approached by inventors with viable products without any solicitation, the Board of Directors may decide to solicit product pitches or ideas in the future if the Board believes that such a strategy would be in the our best interest. If the Board approves a product for further development, we intend to retain outside parties to produce the infomercial, assist in the design, the overall marketing campaign and sales process, and source and manufacture the product for competitive rates. When determining what parties to retain for these services, our Board of Directors will consider several factors, including a proven track record, cost and the ability to meet our timetable. We do not intend to retain any one service provider exclusively, and instead, we intend to seek competitive bids from numerous potential providers for each infomercial campaign. Fragrance and Personal Care Division On July 23, 2010, we formed Aliano, Inc., a Nevada Corporation and a wholly owned subsidiary of DM Products, Inc. The company was formed for the specific purpose of formulating, producing and marketing a line of luxury perfumes and personal care related products. As of the date of this filing, we have not engaged in any operations with this new line of business. We have, however, engaged in organizational activities, including provisionally appointing Mr. Robert Aliano to hold the position of President for Aliano, Inc., Mr. Joseph Sutman to hold the position of Chief Executive Officer, and Mr. Frank Muskeni to hold the position of Chief Operations Officer. (Aliano, Inc. has been trade named "Aliano Westlake Village.") We expect these gentlemen to be responsible for all aspects of the company's operations, including fragrance creation, packaging/presentation, product promotion, and campaign management. Our pursuit of this line of business and the appointment of the foregoing persons to officer positions is, however, conditioned upon our ability to raise capital to fund this new line of business. 6-------------------------------------------------------------------------------- Table of Contents General Our results of operations may vary significantly from period-to-period. Our revenues will fluctuate due to the seasonality of our products, customer buying patterns, product innovations and competition, our ability to meet customer demand, media and advertising campaigns, and our ability to attract new customers and renew existing sales relationships. In addition, our revenues are highly susceptible to economic factors, including, among other things: the overall condition of the U.S. economy and economics of other countries where we market our products; and the availability of credit, both in the U.S. and abroad. Results of Operations for the three and six months ended June 30, 2011and 2010 Our revenue was $44,405 for the three months ended June 30, 2011, a decrease of $157,239 for the same period ended June 30, 2010. Our revenue was $52,458 for the six months ending June 30, 2011, a decrease of $154,681 for the same period ending June 30, 2010. For all periods mentioned above, our revenues were solely based on royalty payments, thus, our cost of goods sold during this period was zero. Pursuant to an arbitration settlement, the contractual term of our rights concerning the Banjo Minnow will continue through January 1, 2012, with an option to extend the contract for an additional six months. Revenues during the first quarter of our fiscal year are traditionally low due to the seasonality of the fishing industry. With the severe weather in the early to late spring that the country has experienced this year our second quarter was lower than usual. Since our sole source of revenue, at this time, is based on sales of the Banjo Minnow Fishing Lure, management is not surprised with the amount received. It has been the company's experience that revenues routinely increase during the second and third quarters of each fiscal year. We have incurred an operating loss in the amount of $16,825 and net loss in the amount of $27,237 for the three months ended June 30, 2011 as compared to an operating profit of $99,980 and net profit in the amount of $49,714 for the same period ended June 30, 2010. We have incurred an operating loss in the amount of $96,128 and a net loss in the amount of $108,247 for the six months ended June 30, 2011 as compared to an operating profit in the amount of $23,009 and net loss of $28,405 for the same period ended June 30, 2010. With reduced revenues for the second quarter the company reduced operating expenses for the six months ending June 30, 2011 by $35,544 to $148,586 as compared to the same period ending June 30, 2010 for $184,130. 7-------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources As of June 30, 2011, we had total assets in the amount of $47,360, consisting of $3,986 in cash, $35,593 in Tristar Receivables, $5,000 employee advance, $1,766 in Prepaid Expenses, and property and equipment of $1,015. Our current liabilities as of June 30, 2011 were $196,233. We had a working capital deficit of $149,888 as of June 30, 2011. Our current monthly fixed expenses ("Burn Rate") are approximately $30,000. Based on our history of revenues generated, we believe that we will have adequate funds for the duration of our distribution contract with Tristar, which will expire December 31, 2011, with an option to extend for six months. However, following the expiration of that agreement, and assuming the royalties received between the date of this filing and June 30, 2012 do not remain consistent with the royalties we have received to date, we will be faced with depletion of funds within a short period of time, should the company not have in place additional revenue streams or additional financing. We also expect to launch a new line of fragrance and personal care products, aside from our infomercial business, through our subsidiary, Aliano, Inc. The expected short term cost associated with developing this line of business is roughly $100,000. This money will be used to pay our management team, consultants, and to develop our product line and marketing channels. We will have to raise money to develop this line of business. As of June 30, 2011, our cash reserves were $3,986 and we do have a line of credit which enables us to access $45,000. If we need to and cannot raise additional capital, we would be forced to discontinue operations. Although we are anticipating the launch of our new line of personal care products under Aliano, Inc., we are still dependent upon infomercials royalties as our sole source of revenue. Our revenue was $52,458 for the six months ended June 30, 2011. While it is anticipated that the company will continue to receive sufficient revenues from the royalties it receives from the sale of the Banjo Minnow, there is no certainty of this and no guarantees we will be successful in the launching of a new infomercial campaign. It is further not likely that the company will receive revenue from the operation of Aliano, Inc. in the foreseeable future, even should the company be able to acquire the capital necessary to launch its desired line of personal care products. If customers are not continually receptive to our Banjo Minnow infomercial, and not receptive to new infomercial content or product offerings, our revenues may dramatically decline. If that were to occur, we would be forced to rely on additional capital to support our current operations. In light of the current economic environment, as discussed elsewhere in this filing, it will be extremely difficult to raise the capital we may require. If both these conditions occur, we would be forced to cease operations. Off Balance Sheet Arrangements As of June 30, 2011, there were no off balance sheet arrangements. 8-------------------------------------------------------------------------------- Table of Contents |