UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
[X] | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. | ||
For the quarterly period endedDecember 31, 2002 | |||
[ ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. | ||
For the transition period from______ to______ | |||
Commission file number0-28184 | |||
BRANDMAKERS, INC. | |||
(Exact name of small business issuer as specified in its charter) | |||
Utah | 37-1099747 | ||
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | ||
140 Satellite Blvd. Ste. C, Suwanee, Georgia 30043 | |||
(Address of principal executive offices) | |||
(770) 338-1958 | |||
(Issuer's telephone number) | |||
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Not Applicable
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 128,567,147 shares common stock, $.001 par value, were outstanding as of February 1, 2003.
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BRANDMAKERS, INC.
FORM 10-QSB
For the Quarter Ended December 31, 2002
INDEX
Part I: | Financial Information | Page | |||
Item 1 - | |||||
Financial Statements | |||||
Condensed Consolidated Balance Sheets as of June 30, 2002 and December 31, 2002 | 3 | ||||
Condensed Consolidated Statement of Operations for the three and six months ended December 2001 and 2002 | 4 | ||||
Condensed Consolidated Statements of Cash Flows for the six months ended December 2001 and 2002 | 5 | ||||
Notes to Consolidated Financial Statements | 6 | ||||
Item 2 - | |||||
Management's Discussion and Analysis | 7-8 | ||||
Part II: | Other Information | ||||
Item 1 | Legal Proceedings | 9 | |||
Item 2 | Changes in Securities and Use of Proceeds | 9 | |||
Item 3 | Default Upon Senior Securities | 9 | |||
Item 4 | Submission of Matters to a Vote of Security Holders | 9 | |||
Item 5 | Other Information | 9 | |||
Item 6 | Exhibits and Reports on Form 8-K | 9 | |||
Signatures | 10 | ||||
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Brandmakers, Inc. | ||||
CONSOLIDATED BALANCE SHEETS | ||||
June 30, | December 31, | |||
ASSETS | 2002 | 2002, unaudited | ||
------------ | ------------ | |||
CURRENT ASSETS | ||||
Cash and cash equivalents | $6,224 | $5,792 | ||
Receivables | ||||
Trade | $24,493 | $26,385 | ||
Less allowance for doubtful accounts | -$20,000 | -$10,000 | ||
------------ | ------------ | |||
$4,493 | $16,385 | |||
Inventories | $20,041 | $57,572 | ||
------------ | ------------ | |||
Total current assets | $30,758 | $79,749 | ||
PROPERTY AND EQUIPMENT - net | $540,760 | $440,758 | ||
OTHER ASSETS | ||||
Certificates of deposit - pledged | $38,951 | $38,951 | ||
Deposits | $15,269 | $18,068 | ||
NTN Stock | $20,000 | $20,000 | ||
------------ | ------------ | |||
$74,220 | $77,019 | |||
$645,738 | $597,526 | |||
============ | ============ | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||
CURRENT LIABILITIES | ||||
Notes payable | $825,512 | $813,679 | ||
Accounts payable | $116,728 | $227,110 | ||
Deferred revenue | $296,162 | $211,682 | ||
Other current liabilities | $71,239 | $3,937 | ||
Current portion of long-term debt | $2,153 | $2,246 | ||
Current portion of capital leases | $112,289 | $84,345 | ||
------------ | ------------ | |||
Total current liabilities | $1,424,083 | $1,342,999 | ||
LONG-TERM DEBT | $11,758 | $10,611 | ||
CAPITAL LEASES, less current portion | ||||
STOCKHOLDERS' EQUITY | ||||
Common stock - authorized 200,000,000 | ||||
shares of $0.001 par value | $127,568 | $128,568 | ||
Additional paid-in capital | $2,995,672 | $2,997,672 | ||
Retained earnings (deficit) | -$3,913,343 | -$3,882,324 | ||
------------ | ------------ | |||
-$790,103 | -$756,084 | |||
------------ | ------------ | |||
$645,738 | $597,526 | |||
============ | ============ | |||
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Brandmakers, Inc | ||||||
CONSOLIDATED STATEMENT OF OPERATIONS | ||||||
6 Months Ended | 6 Months Ended | 3 Months Ended | 3 Months Ended | |||
December 31, 2001 | December 31, 2002 | December 31, 2001 | December 31, 2002 | |||
------------ | ------------ | ------------ | ------------ | |||
Revenues | $495,519 | $834,584 | $255,777 | $429,632 | ||
Cost of goods sold | $110,822 | $381,701 | $58,287 | $149,265 | ||
------------ | ------------ | ------------ | ------------ | |||
Gross Profit | $384,697 | $452,883 | $197,490 | $280,367 | ||
Operating Expenses | ||||||
Salaries and Wages | $164,699 | $156,613 | $79,168 | $121,850 | ||
Other operating expenses | $188,254 | $263,404 | $84,364 | $98,288 | ||
------------ | ------------ | ------------ | ------------ | |||
$352,953 | $420,017 | $163,532 | $220,138 | |||
Operating income | $31,744 | $32,866 | $33,958 | $60,229 | ||
Other Income (expense) | ||||||
Interest Expense | -$30,717 | -$1,848 | -$2,183 | -$647 | ||
------------ | ------------ | ------------ | ------------ | |||
-$30,717 | -$1,848 | -$2,183 | -$647 | |||
Income from continuing operations | $1,027 | $31,018 | $31,775 | $59,582 | ||
Discontinued operations | ||||||
Loss on discontinued operations of | ||||||
Zoom Communications | -$94,869 | $0 | -$26,055 | $0 | ||
------------ | ------------ | ------------ | ------------ | |||
Total discontinued operations | -$94,869 | $0 | -$26,055 | $0 | ||
N et income (loss) | -$93,842 | $31,018 | $5,720 | $59,582 | ||
============ | ============ | ============ | ============ | |||
Per share information | ||||||
Basic | ||||||
Income from continuing operations | $0.00 | $0.00 | $0.00 | $0.00 | ||
Loss from discontinued operations | ($0.00) | $0.00 | $0.00 | $0.00 | ||
------------ | ------------ | ------------ | ------------ | |||
$0.00 | $0.00 | $0.00 | $0.00 | |||
Diluted | ||||||
Income from continuing operations | $0.00 | $0.00 | $0.00 | $0.00 | ||
Loss from discontinued operations | ($0.00) | $0.00 | $0.00 | $0.00 | ||
------------ | ------------ | ------------ | ------------ | |||
$0.00 | $0.00 | $0.00 | $0.00 | |||
======== | ======== | ======== | ======== | |||
Average number of shares outstanding | ||||||
Basic | 121,140,504 | 127,900,180 | 121,140,504 | 127,900,180 | ||
======== | ======== | ======== | ======== | |||
Diluted | 122,671,794 | 127,900,180 | 122,671,794 | 127,900,180 | ||
======== | ======== | ======== | ======== | |||
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Brandmakers, Inc | ||||
CONSOLIDATED STATEMENT OF CASH FLOWS | ||||
Six months ended | ||||
December 31, | December 31, | |||
2001 | 2002 | |||
(unaudited) | (unaudited) | |||
------------ | ------------ | |||
Net Income (loss) | -$93,842 | $31,018 | ||
Adjustments to reconcile net income (loss) to net cash used in operating activities | ||||
Depreciation and amortization | $110,592 | $100,002 | ||
Stock issued for services | $3,000 | |||
(Increase) decrease in assets and | ||||
Increase (decrease) in liabilities | ||||
Accounts receivable | $43,032 | -$11,892 | ||
Inventories | $118,389 | -$37,531 | ||
Accounts Payable | -$19,308 | $110,383 | ||
Deferred Revenue | -$63,716 | -$84,480 | ||
Other current liabilities | $29,892 | -$67,302 | ||
--------------- | --------------- | |||
Net cash provided by operating activities | $125,039 | $43,198 | ||
Cash flows used in investing activities | ||||
Capital expenditures | -$42,485 | $0 | ||
(increase) decrease in deposits | -$8,283 | -$2,799 | ||
Other changes in long-term assets | -$1,283 | $0 | ||
--------------- | --------------- | |||
-$52,051 | -$2,799 | |||
Cash flows used in financing activities | ||||
Reductions in notes payable, long-term debt, and capital leases | -$57,498 | -$40,831 | ||
Reduction in line of credit | -$40,422 | $0 | ||
--------------- | --------------- | |||
-$97,920 | -$40,831 | |||
Net decrease in cash and cash equivalents | -$24,932 | -$432 | ||
Cash and cash equivalents at beginning of the period | $51,917 | $6,224 | ||
Cash and cash equivalents at end of the period | $26,985 | $5,792 | ||
Supplemental schedule of noncash investing and financing activities and certain cash flow information: | ||||
The Company's noncash investing and financing activities for the three month period ended December 31, 2002 are as follows: | ||||
There was no significant noncash investing and financing activities for the six months ended December 31, 2002. | ||||
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BRANDMAKERS, INC.
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
The summary of Brandmakers Inc.'s (the "Company") significant accounting policies are incorporated by reference to the Company's annual report on Form 10-KSB dated June 30, 2002.
The accompanying unaudited consolidated financial statements reflect all adjustments, which in the opinion of management are necessary for a fair presentation of results of operations, financial position, and cash flows. The results of the interim period are not necessarily indicative of the results for the full year.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered from significant losses and losses have continued during 2002 forcing a divesture of the ZOOM Communications division as reported previously. There are still financial difficulties with a negative working capital that must be overcome. Management's plan in regard to these matters is described in the management discussion and analysis. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
From time to time, the Company may have asserted or unasserted claims arising in the normal course of business. The Company does not expect losses, if any, arising from these asserted or unasserted claims to have a material effect on the financial statements.
During December 2000, the Company made a decision to discontinue the operations of its United Kingdom operations of K.W. Leisure. The operations of the segment have ceased which resulted in a judgment against Brandmakers, Inc.
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Item 2. Management's Discussion and Analysis
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB contains forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed forward-looking statements. Without limiting the foregoing, the words "believe," "anticipates," "plans," "expects," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the Company's actual results to differ materially from those indicated by such forward-looking statements. These factors include, without limitation, changes in the regulation of the wireless communication and internet industry at either the federal and state levels, competitive pressures in the wireless communication and internet industry and the Company's response thereto, the Company's ability to obtain and retain favorable arrangements with third-party payers, the Company's ability to obtain capital in favorable terms a nd conditions, and general conditions in this economy.
The following discussion of the Company's results of operations and financial conditions should be read in conjunction with the Company's condensed consolidated unaudited Financial Statements listed in Part I, Item I and the notes thereto appearing elsewhere in this Form 10-QSB.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED December 2002 and 2001.
For accounting purposes, we have reclassified the revenue, cost of goods sold and the majority of expenses from the income statements in the December 31, 2001 period from the ZOOM Communications division to discontinued operations.
After adjustments, revenue increased to $429,632 for the three months ending December 31, 2002 from $255,777 for the three months ending December 31, 2001. Cost of sales were $149,265 in the 2002 period resulting in a gross profit of $280,367 compared with cost of sales of $58,287 in the 2001 period resulting in a gross profit of $197,490. Salaries were $121,850 and operating expenses $98,288 in 2002 versus salaries of $79,168 and operating expenses of $84,364 in 2001. After expenses and interest the net income from continuing operations was $59,582 in the three months ending December 31, 2002 versus net income from continuing operations of $31,775 in the same period in 2001. After a loss from discontinued operations of $26,055 from the ZOOM Communications division, the total net income for the three-month period ended in 2001 was $5,720 compared with total net income in the 2002 period of $59,582. The primary reason for the increased profit in the 2002 period was due to improved reven ues as well as losses in the 2001 period for discontinued operations of ZOOM Communications.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE SIX MONTH PERIOD ENDED DECEMBER 2002 AND 2001.
Revenue increased from $495,519 for the six months ended December 31, 2001 to $834,584 for the six months ended December 31, 2002. Cost of goods sold amounted to $110,822 for the 2001 period versus $381,701 in 2002. Consequently, gross profits increased to $452,883 for the six month period ended 2002 compared to $384,697 in 2001. Expenses for the six month period ended 2002 were $420,017 resulting in a profit of $31,018 from continuing operations after interest expense of $1,848. Expenses for the six month period ended 2001 were $352,953 resulting in a profit from continuing operations of $1,027 after interest expense of $30,317. However, there was a net loss in 2001 of $93,842 after a loss on discontinued operations of ZOOM Communications of $94,869 compared with net income of $31,018 in 2002. Note that accrued salaries in the amount of $65,191 were written off in the three month period ended 9/30/02 as reported in the 10 QSB. The primary reason for a profit in the 2002 period was due to improved revenues as well as the accrued salaries that were written off versus a substantial loss in the 2001 period due to the discontinued operations of ZOOM Communications.
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LIQUIDITY AND CAPITAL RESOURCES
CASH USED IN OPERATING ACTIVITIES - the company's net cash flow from operating activities was $43,198 for the three month period ended December 31, 2002 compared to $125,039 for the 2001 period. Accounts receivable increased $11,892 in the 2002 period compared to a decrease of $43,032 in 2001. Inventories increased by $37,531 in the six month period ended December 31, 2002 versus a decrease of $118,389 in 2001. Accounts payable increased by $110,383 in the 2002 period versus a decrease of $19,308 in 2001. Other current liabilities decreased by $67,302 in 2002 compared to an increase of $29,902 in 2001. Deferred revenue recognized by WebBox sign ups decreased by $84,480 in the 2002 period versus a decrease of $63,716 in 2001. The net loss was $93,842 in 2001 and net income amounted to $31,018 in the six month period ended December 31, 2002.
CASH FLOWS FROM INVESTING ACTIVITIES - The company's net cash used in investing activities decreased by $2,799 in the six month period ended December 31, 2002 compared to a decrease of $52,051 for the same period in 2001.
CASH FLOW FROM FINANCING ACTIVITIES - The Company's net cash flow from financing activities was a decrease of $40,831 in the 2002 period versus a decrease of $97,920 in 2001.
RECENT DEVELOPMENTS
The Board of Directors previously announced that Timothy J. Minard accepted the challenge to join the company as Chief Executive Officer in October, 2002. Mr. Minard has a history of success in business and has received numerous achievement awards. Mr. Minard has been concentrating his and Brandmakers efforts around its core business, providing quality skill-based redemption machines, vending machines and other amusement games. In November, 2002, Mr. Minard brought in the assistance of Soo Kim as an independent contractor to analyze and lead sales and marketing efforts, especially in the Asian-American marketplace, which has been growing rapidly for gaming and vending machines. Mr. Kim has a background in selling redemption machines, vending machines, and amusement games. Mr. Kim's primary focus is on Brandmakers new redemption machine, Royal Magic. Mr. Kim has hired a marketing assistant to aid in the sales and marketing activities.
Gamosity, the games and vending division of Brandmakers, imports and manufactures skill machines for amusement and redemption purposes in addition to their line of vending machines. In July, the State of Georgia banned the use of all games of chance. This included video poker, 8 liners and blackjack machines. Consequently, it is estimated that in excess of 40,000 machines had to be picked up and taken out of locations. This created an opportunity for Brandmaker's skill machines such as Royal Magic. Royal Magic is an innovative redemption machine that utilizes mechanical reels, similar to the look and feel of slot machines, which allow players to use their skill to win and redeem prizes. It will not result in a winning combination unless assisted by the player's skill, which is critical to adhering to the laws of Georgia. Royal Magic is very appealing to players that have played "Las Vegas" style games, and, based on the ban of games of chance, we believe it will have strong ap peal amongst such players. In October, 2002, Brandmakers requested and received a positive legal opinion regarding Royal Magic. According to this opinion, Royal Magic adheres to the laws in Georgia regarding redemption machines. Based on this opinion and based on the lack of machines that adhere to the Georgia laws, in October, 2002, Mr. Minard commenced ordering the equipment necessary to manufacture and sell these machines, initially focusing on sales in Georgia. In November, 2002, Brandmakers began taking orders for Royal Magic, and, in January, 2003, Brandmakers began filling such orders. Sales during the quarter included two computer disk vending machines, fifty-four pull tab machines and forty-six Royal Magic machines. During the period, the division hired a full time technician as well as a part time person to assist with assembling machines. Currently, other unique redemption and vending machines are being considered by Brandmakers for development.
WebBox, the web-based email and virtual office division of Brandmakers, introduced and tested a new program to help limit the increasing problem with Spam and the programmers have been working on software to speed up the service. Additional business development opportunities are under consideration.
As reported previously, we restructured the debt with Multi-Page Communications from $518,400 to $100,000 in February, 2002 with $5,000 down and $95,000 amortized over five years at 9% interest with a balloon payment at the end of one year with a maximum grace period of thirty days. The full amount, less interim payments, remains on the balance sheet until the final payment is made. All payments are up to date at this time.
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Part 2: OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
We reported previously that a final judgment was granted to K.W. Machines Ltd. in the amount of $320,000 and is carried on our balance sheet for that amount.
Item 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
None
Item 3: DEFAULT UPON SENIOR SECURITIES
None
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5: OTHER INFORMATION
None
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
None
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BRANDMAKERS, INC. | (Registrant) By: /s/ Timothy J. Minard
By: /s/ Joy Williams |
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