OVERVIEW

The following discussion should be read in conjunction with, and is qualified in its entirety by our unaudited consolidated financial statements as of and for the three months and six months ended June 30, 2001 and 2000.  The period from April 1, 2000 through June 30, 2000 is referred to herein as the “June 2000 quarter” while the period from April 1, 2001 through June 30, 2001 is referred to herein as the “June 2001 quarter”.  The period from January 1, 2000 through June 30, 2000 is referred to herein as the “June 2000 period” while the period from January 1, 2001 through June 30, 2001 is referred to herein as the “June 2001 period”.

RESULTS OF OPERATIONS - JUNE 2001 QUARTER COMPARED TO JUNE 2000 QUARTER

REVENUES

The Company’s revenues increased $40,417 from $420,131 in the June 2000 quarter to $460,548 in the June 2001 quarter.  The increase is due to attaining several new key customers and improved sales to existing customers.  In the June 2001 quarter, sales in the Retail and Corporation segment were $122,615 compared to $180,112 for the June 2000 quarter.  Sales in the Wholesale Distribution and Manufacturing segment for the June 2001 quarter were $337,933 compared to $240,019 for the June 2000 quarter.

EXPENSES

Costs of sales in the June 2001 quarter were $312,047, or 68% of sales compared to $282,808 or 67% of sales in the June 2000 quarter.  This increase was a result of a change in the mix of goods sold, a change in pricing strategy on certain goods in response to market demand, and increased sales commissions paid to a recently acquired new customer.

General and administrative expenses decreased $49,117 from $266,930 in the June 2000 quarter to $217,813 in the June 2001 quarter due to lower occupancy costs and reduced officer salary expense.  No contributed salary expense was recognized during the June 2001 quarter compared to $14,000 of such expense in the June 2000 quarter.

Marketing expenses decreased $20,918 from $40,922 in the June 2000 quarter to $20,004 in the June 2001 quarter as the Company changed its use of certain advertising, thereby lowering this expense.  Marketing expenses as a percentage of revenues decreased from 10% for the June 2000 quarter to 4% for the June 2001 quarter .

OTHER INCOME (EXPENSE)

Interest expense in the June 2001 quarter increased by $7,301 from the June 2000 quarter due to loans from shareholders carried by the Company that did not exist in the June 2000 quarter.  Loans from shareholders relate to stock issued in exchange for loans receivable in 1999.

LOANS FROM RELATED PARTIES

Notes payable to the Company’s Chairman of the Board and President in the aggregate principal amount of $651,826 are due in 2002.

NET LOSS

The Net Loss in the June 2001 quarter compared to the June 2000 quarter decreased by $95,761 from $223,511 to $127,750 as a result of operations as described above.

RESULTS OF OPERATIONS - JUNE 2001 PERIOD COMPARED TO JUNE 2000 PERIOD

REVENUES

The Company’s revenues increased $421,252 from $807,504 in the June 2000 period to $1,228,756 in the June 2001 period.  The increase is due to attaining several new key customers and improved sales to existing customers.  In the June 2001 period, sales in the Retail and Corporation segment were $294,419 compared to $310,153 for the June 2000 period.  Sales in the Wholesale Distribution and Manufacturing segment for the June 2001 period were $934,337 compared to $496,754 for the June 2000 period.

EXPENSES

Costs of sales in the June 2001 period were $784,756, or 64% of sales compared to $591,940 or 73% of sales in the June 2000 period.  The decrease in cost of sales as a percentage of sales was a result of a change in the mix of goods sold to higher margin goods offset by slightly higher sales commissions paid as a result of a new customer of the Company.

General and administrative expenses remained relatively stable from period to period.

Marketing expenses decreased by $4,495 in the June 2001 period from $61,259 in the June 2000 period to $56,764 in the June 2001 period as the Company changed its use of certain advertising, thereby lowering this expense.   Marketing expenses as a percentage of revenues decreased from 8% for the June 2000 quarter to 5% for the June 2001 quarter.

OTHER INCOME (EXPENSE)

Interest expense in the June 2001 period was $47,775 due to loans from shareholders carried by the Company that did not exist in the June 2000 period.  Loans to shareholders relates to stock issued in exchange for loans receivable in 1999.

LOANS FROM RELATED PARTIES

Notes payable to the Company’s Chairman of the Board and President in the aggregate principal amount of $651,826 are due 2002.

NET LOSS

The Net Loss in the June 2001 period compared to the June 2000 period decreased by $219,644 from $381,690 to $162,046 as a result of corporate operations.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2001, the Company had cash and cash equivalents of $41,359.  The Company had working capital of $252,632 and stockholders’ equity of $564,563.  Cash decreased by $106,061 during the June 2001 period as compared to December 31, 2000.  The decrease was primarily a result of payments made to reduce trade payables as well as increased payments of sales commissions for sales to a new customer.

Cash flow from operations is expected to be sufficient to pay operating costs of the Company during the remainder of fiscal 2001.  However, cash flow from operations will not be sufficient to permit the Company to grow its business at the rate otherwise possible.  The Company recently attempted to raise additional capital through a private placement to accelerate the growth of sales for certain of its product lines.  The capital was to be used to acquire more inventories for specific product lines.  However, the Company was unable to raise capital on terms that were favorable to the Company and does not expect to find such growth capital in current market conditions.  Without additional financing, the growth of the Company’s business will be constrained.  There can be no assurance that any additional financing, if needed to meet liquidity needs, will be available to the Company on favorable terms or at all.  There can be no assurance that the Company’s estimate of foreseeable liquidity needs is accurate or that no new business developments or other unforeseen events will not occur, any of which could result in the need to raise additional funds.  The Company expects that the adequacy of its operating cash flow will depend upon:

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

On June 29, 2001, the FASB unanimously approved the issuance of two statements, Statement 141, "Business Combinations", and Statement 142, "Goodwill and Other Intangible Assets", that amend APB Opinion No. 16, "Business Combinations," and supersede APB Opinion No.17, "Intangible Assets."  The two statements modify the method of accounting for business combinations entered into after June 30, 2001 and address the accounting for intangible assets.  Beginning January 1, 2002, the Company will no longer amortize its goodwill, but will, however, evaluate goodwill for impairment annually.  Management is currently reviewing the statements to determine their effect on the Company.

RECENTLY ADOPTED ACCOUNTING STANDARDS

The Financial Accounting Standards Board recently issued FAS No. 133, “Accounting for Derivatives” which was effective for the Company on January 1, 2001.  The Company adopted this pronouncement on January 1, 2001.  The adoption had no effect on the financial statements or results of operations.

FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act provides a “safe harbor” for certain forward-looking statements. Certain matters discussed in this filing could be characterized as forward-looking statements such as statements relating to plans for future expansion, as well as other capital spending, financing sources and effects of regulation and competition. Such forward-looking statements involve important risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements.

The Company invests its cash and cash equivalents in FDIC insured savings accounts, which, by their nature, are not subject to interest rate fluctuation.

As of June 30, 2001, the Company had $909,355 in borrowings. The borrowings are related to a bank line of credit, with a fixed interest rate, capitalized leases and loans from officers and directors, which, by their nature, are not subject to interest rate fluctuations.