UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
__________________________________________________________________
(Mark one)
[XX] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
________________________________________________________________________
Commission File Number: 0-6334
BRAINWORKS VENTURES, INC.
--------------------------------------------
(Exact name of Registrant as specified in its Charter)
NEVADA 87-0281240
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4243 Dunwoody Club Drive, Suite 200 Atlanta, Georgia 30305
----------------------------------------------------------
(Address of Principal Executive Offices)
Issuer's Telephone Number including Area Code: (678) 731-0007 X 206
AURIC METALS CORPORATION
-----------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. YES [XX] NO [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date: 950,953 shares as of February
12, 2001.
Transitional Small Business Disclosure Format (check one): YES [ ] NO [XX]
BRAINWORKS VENTURES, INC.
Form 10-QSB for the Quarter ended September 30, 1998
Table of Contents
Part I - Financial Information Page
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis or Plan of Operation 11
Part II - Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
EXPLANATORY NOTE
----------------
The financial data and other information contained in this report speak
as of the period covered by the report and do not adequately reflect the
current status of the Company. For current information regarding the Company,
please review the Company's current filings with the Securities and Exchange
Commission.
2
BRAINWORKS VENTURES, INC. AND SUBSIDIARY
(Formerly Auric Metals Corporation)
BALANCE SHEETS
September 30, 1998 and March 31, 1998
(Unaudited)
Sept. 30, March 31,
1998 1998
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 180,505 $ 264,819
------------- -------------
Total Current Assets 180,505 264,819
------------- -------------
INVESTMENTS:
Marketable equity securities (Notes 3) 146,448 99,500
Other investments (Note 3) 129,224 129,224
------------- -------------
275,672 228,724
------------- -------------
PROPERTY AND EQUIPMENT AT COST
Equipment 5,375 1,573
------------- -------------
5,375 1,573
Accumulated depreciation (1,911) (1,494)
------------- -------------
3,464 79
------------- -------------
$ 459,641 $ 493,622
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued liabilities $ - $ 1,028
------------- -------------
Total current liabilities - 1,028
------------- -------------
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value;
Authorized: 25,000,000 shares
Issued: 1,000,000 shares
(including treasury stock) 10,000 10,000
Additional paid-in capital 342,847 342,847
Unrealized loss on securities
available for sale (Note 3) (72,505) (56,751)
Accumulated earnings 190,324 206,473
Common stock in treasury at cost
18,511 shares September 30, 1998,
15,511 shares March 31, 1998 (11,025) (9,975)
------------- -------------
459,641 492,594
------------- -------------
$ 459,641 $ 493,622
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
3
BRAINWORKS VENTURES, INC. AND SUBSIDIARY
(Formerly Auric Metals Corporation)
UNAUDITED STATEMENTS OF CONSOLIDATED INCOME (LOSS)
For the Three Months Ended September 30, 1998 and 1997
For the Six Months Ended September 30, 2998 and 1997
Three Three Six Six
Months Months Months Months
1998 1997 1998 1997
------------ ------------ ------------ ------------
REVENUES:
Oil and gas sales $ - $ 407 $ 323 $ 407
Mineral royalty - - - -
Interest income 2,710 1,002 3,705 2,004
Dividends 10,000 - 20,000 -
------------ ------------ ------------ ------------
12,710 1,409 24,028 2,411
------------ ------------ ------------ ------------
EXPENSES:
Mineral exploration 284 - 284 -
Mineral claims leasing 3,567 6,639 6,467 6,639
Depreciation 210 79 420 157
Legal and accounting 3,984 3,847 5,484 5,347
Travel and lodging 7,638 8,029 7,638 8,029
Directors' fees 2,995 1,797 2,995 1,797
Office expense (Note 5) 7,000 2,000 9,000 2,000
General and administrative 5,910 4,173 7,889 5,315
------------ ------------ ------------ ------------
31,588 26,564 40,177 29,284
------------ ------------ ------------ ------------
OTHER INCOME
Gain on sale of securities - 214,869 - 214,869
------------ ------------ ------------ ------------
INCOME (LOSS) $ (18,878) $ 189,714 $ (16,149) $ 187,996
============ ============ ============ ============
NET INCOME (LOSS) PER
COMMON SHARE-basic $ ( .02) $ .19 $ (.02) $ .19
============ ============ ============ ============
Weighted average number of
shares outstanding
(excluding treasury stock) 981,309 983,489 982,030 983,820
============ ============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
4
BRAINWORKS VENTURES, INC. AND SUBSIDIARY
(Formerly Auric Metals Corporation)
UNAUDITED STATEMENTS OF CONSOLIDATED CASH FLOWS
Six Months Ended September 30, 1998 and 1997
Sept. 30, Sept. 30,
1998 1997
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (16,149) $ 187,996
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion, amortization
and valuation allowance 420 157
Gain on sale of investment securities - 214,869
Increase (decrease) in accrued liabilities (1,028) (649)
------------- -------------
Total adjustments (608) (215,361)
------------- -------------
Net cash provided (used) by operating activities (16,757) (27,365)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investment securities - 60,006
Purchase of securities and other investments (62,705) -
Purchase of office equipment 3,801 -
------------- -------------
Net cash (used) by investing activities (66,506) 60,006
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (1,050) -
------------- -------------
Net cash (used) by financing activities (1,050) -
------------- -------------
NET (DECREASE) IN CASH AND EQUIVALENTS (84,313) 32,641
Cash and equivalents, beginning of period 264,819 26,103
------------- -------------
Cash and equivalents, end of period $ 180,506 $ 58,744
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
5
BRAINWORKS VENTURES, INC. AND SUBSIDIARY
(Formerly Auric Metals Corporation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(1) Operations:
----------
Brainworks Ventures, Inc., formerly Auric Metals Corporation (the
"Company"), was incorporated in Utah in May of 1969 to engage in mineral
exploration. In 1985, the Company became a Nevada corporation by merging with
a wholly-owned Nevada corporation created solely for the purpose of changing
the Company's state of domicile. In subsequent years, the Company has also
engaged in oil and gas exploration, development and production activities.
The Company holds working interests in various patented and unpatented mining
claims in the Tintic Mining District of Utah. The Company leases mining claims
near Elko, Nevada from Hillcrest Mining Company of Denver and has subleased
the claims to United States Steel Corporation. The Company presently holds a
working interest in one oil and gas well near Oklahoma City, Oklahoma which
provides nominal revenue.
(2) Significant Accounting Policies:
-------------------------------
Cash Equivalents:
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months to be cash
equivalents.
Principles of consolidation:
- ---------------------------
The consolidated financial statements include the accounts of Auric Minerals
Corporation. Intercompany accounts and transactions have been eliminated in
consolidation.
Investment securities
- ---------------------
Management determines the appropriate classification of investment securities
at the time they are acquired and evaluates the appropriateness of such
classification at each balance sheet date. Available-for-sale securities
consist of marketable equity securities not classified as trading securities.
Available-for-sale securities are stated at fair value, and unrealized holding
gains and losses, net of the related deferred tax effect, are reported as a
separate component of stockholders; equity.
Investment in unconsolidated affiliates:
- ---------------------------------------
Investments in affiliated companies in which ownership is 20% or more are
carried at the Company's original cost plus equity in earnings since date of
acquisition.
Investments in less than 20% owned affiliates are carried at cost or estimated
net realizable amounts, whichever is lower.
Mining:
- ------
Exploration and development expenditures are generally charged to expenses as
incurred until a decision is made to develop a mineral reserve. Expenditures
to bring new properties into production and major expenditures of a
nonrecurring nature are deferred and amortized ratable over production
benefitted. Expenditures for continuing development required to maintain
production are charged to expenses as incurred.
6
BRAINWORKS VENTURES, INC. AND SUBSIDIARY
(Formerly Auric Metals Corporation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(2) Significant Accounting Policies continued:
-----------------------------------------
Depreciation:
- ------------
Equipment is recorded at cost and depreciated on a straight-line method over a
five year estimated useful life.
(3) Investments consist of the following at September 30,1998 and March 31,
1998:
Robbie claims investment
- ------------------------
The Company acquired a 25% interest in the "Robbie" gold prospect claims owned
by Hi-Tech Exploration at a cost of $3,567. The Company's President, Mr.
James F. Fouts is also an owner of a 25% interest in these claims.
LaFonda investment
- ------------------
The Company owned, as of December 31, 1998, 10,000 shares of the common
stock of Corporacion De La Fonda, Inc., or approximately 10% of that company's
outstanding shares. De La Fonda, Inc. is a New Mexico hotel operation. Prior
to 1984, the Company owned more than 20% of De La Fonda and accounted for its
investment by the equity method. Since 1983, the Company's investment has
been less than 20% and the cost method of accounting has been used. The
carrying value of the investment includes $102,648 of cumulative undistributed
earnings of La Fonda added to the investment under the equity method. Income
taxes have been recognized under the assumption that undistributed earnings
would eventually be distributed as dividends, thereby qualifying for
dividends-received deductions. If the undistributed earnings are eventually
received in taxable transactions other than as dividends, an unrecognized tax
of approximately $34,900 under current rates could result.
The Company's equity in the underlying net assets of La Fonda exceeds the
carrying value of the investment. Since the Company's President, Mr. James F.
Fouts, has positions, interests or shareholdings, in La Fonda, any transaction
between the Company and this entity cannot be deemed to be at arm's length.
Sept. 30, March 31
1998 1998
----------- -----------
Robbie claims investment $ 3,567 $ 3,567
LaFonda investment 125,657 125,657
----------- -----------
Other investments $ 129,224 $ 129,224
=========== ===========
Dynamic Oil Ltd.
- ----------------
Effective April 1, 1994, the Company adopted SFAS No. 115 on accounting for
certain investments in debt and equity securities. This new standard requires
that available-for-sale investments in securities that have readily
determinable fair values be measured at fair value in the balance sheet and
that unrealized holding gains and losses for these investments be reported in
a separate component of stockholders' equity until realized. At December 31,
1998 and March 31, 1998 marketable investments classified as available for
sale included the following:
7
BRAINWORKS VENTURES, INC. AND SUBSIDIARY
(Formerly Auric Metals Corporation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(3) Investments continued:
---------------------
Sept. 30, March 31,
1998 1998
-------------- --------------
Dynamic Oil Ltd. shares at cost $ 281,953 $ 156,251
Gross unrealized holding loss 72,505 56,751
-------------- --------------
Dynamic Oil Ltd. at fair value $ 146,448 $ 99,500
============== ==============
No sales of Dynamic Oil were made in 1998.
(4) Stock options:
-------------
Following is a summary of activity under all stock option plans for the
three-year period ended December 31, 1998:
Option Price
--------------------
Number of Per
Shares Share Total
--------------- -------- -----------
Balance at April 1, 1995 48,000 $ 0.60 $ 28,800
No Activity - -
--------------- -----------
Balance at March 31, 1996 48,000 28,800
Expired (48,000) (28,800)
--------------- -----------
Balance at March 31, 1997 - -
Granted 60,000 0.65 39,000
--------------- -----------
Balance at March 31, 1998 60,000 0.65 39,000
No activity - -
--------------- -----------
Balance at September 30, 1998 60,000 0.65 $ 39,000
=============== ===========
The Company has adopted FASB statement No. 123, "accounting for Stock-Based
Compensation" as of April 1, 1996. Statement 123 allows for the Company to
account for its stock option plans in accordance with APB Opinion NO. 25,
"Accounting for Stock Issued to Employees" using the intrinsic value method.
In September 1997 the Company granted options to officers and directors
permitting each to purchase 15,000 shares at $.65 per share. Options expire in
September 1999.Had compensation cost for the Company's stock-based
compensation plan (60,000 options granted to officers and directors in 1997)
been determined based on the fair value at the grant date consistent with the
method of FASB Statement 123, the Company's net income and earnings per share
would have been reduced to the proforma amounts indicated below:
8
BRAINWORKS VENTURES, INC. AND SUBSIDIARY
(Formerly Auric Metals Corporation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(4) Stock options continued:
-----------------------
1998
--------------
Net income As reported $ 212,892
Pro forma $ 182,786
Primary earnings per share As reported $ .22
Pro forma $ .19
Fully diluted earnings per Share As reported $ .21
Pro forma $ .18
The fair value of each option grant is estimated on the date using the
Black-Scholes option-pricing model, with the following weighted average
assumptions used for grants in fiscal year 1998: dividend yield of 0.0%,
expected average annual volatility of 102%, average annual risk-free interest
rate of 6.0%, and expected lives of three years.
(5) Related party transactions:
---------------------------
The amounts paid to officers and directors have not been, in any sense,
negotiated at arm's length. Payments of $9,000 were made during the six
months ended September 30, 1998 to The Fremont Corp., a corporation in which
the Company's president is principal shareholder. These payments are for
office use, bookkeeping and clerical services. Refer to Note (3) for
additional related party transactions related to the Robbie claims investment
and the LaFonda investment.
(6) Federal and state income tax:
----------------------------
Effective April 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes. The cumulative effect of the
change in accounting principle is immaterial. At March 31, 1998, the Company
had, for federal tax reporting purposes, an operating loss carryforward of
approximately $42,000. This carryforward begins to expire in 2010. No
benefit has been reported in the financial statements, however, because the
Company believes there is at least a 50% chance that the carryforward will
expire unused. Accordingly, the tax benefit of the loss carryforward has been
offset by a valuation allowance of the same amount.
(7) Commitments and contingencies:
-----------------------------
The Company is required to pay the Bureau of Land Management $100 annually on
29 leased mining claims for $2,900. Additionally the Company pays Hi-Tech
Exploration $3,567 annually for its 1/3 share of 107 leased BLM mining claims.
Rates are subject to change and failure to pay results in loss of mining
rights. The payments to BLM are in lieu of assessment work which was required
previously. The leases are cancelable annually upon notice to lessor.
9
BRAINWORKS VENTURES, INC. AND SUBSIDIARY
(Formerly Auric Metals Corporation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
(8) Fair values of financial instruments:
-------------------------------------
The amount reported in the financial statements for cash and cash equivalents,
marketable securities, and accrued liabilities approximates fair market value.
Fair market value of marketable securities was estimated using quoted market
prices. For the investment without quoted market prices, it was not possible
to estimate fair value without incurring significant costs. Additional
information is included in the footnote for the investment without fair value
disclosure.
September 30, 1998 March 31, 1998
----------------------- -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ----------- -----------
Assets:
- ------
Cash and cash equivalents $ 180,505 $ 180,505 $ 264,819 $ 264,819
Marketable securities 146,448 146,448 99,500 99,500
Other investments:
Investment for which it is not
practicable to determine fair
market value 125,657 - 125,657 -
Other investment 3,567 3,567 3,567 3,567
Liabilities:
- -----------
Accrued liabilities - - 1,028 1,028
The carrying amounts reported in the summary table, above, are shown in the
balance sheets using the same account titles and carrying amounts.
The fair value of a ten percent investment in common stock on an untraded
company (Corporacion De La Fonda, Inc.) is not disclosed, because it was not
practicable to estimate the fair value. The Company has received dividends
averaging $1.16 per share over the last five years.
10
Part I - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(1) Results of Operations
Brainworks Ventures, Inc., formerly Auric Metals Corporation (the
"Company"), is a Nevada Corporation, which was previously engaged until May,
2000, in the exploration, development and production of natural resource
properties primarily through participation with other parties in natural
resource joint ventures or other arrangements. Prior to May, 2000, the
Company held interests in certain natural resource properties and the
Company's wholly owned subsidiary, Auric Minerals Corporation (the
"Subsidiary"), held a minority interest in Corporacion de La Fonda ("La
Fonda") which owns and operates a hotel in Santa Fe, New Mexico. In May,
2000, the Company changed management, changed its business direction, and sold
certain assets, including an interest in La Fonda, and an interest in a
natural resource partnership. As a result of these transactions, the Company
no longer has any active natural resource properties.
As of September 30, 1998, the Company is not aware of any trends that
have or are reasonably likely to have a material impact on its liquidity, net
sales, revenues, or income from continuing operations. There have been no
events which have caused material changes from period to period in one or more
line items of the financial statements or any seasonal aspects that have had a
material effect on the financial condition or results of operation.
This report is being filed in an effort to bring the Company's quarterly
reports current for 1997 and 1998 and, therefore, the figures represented in
the accompanying financial statements do not necessarily reflect the Company's
financial condition at the present time. For the three months ended September
30, 1998 and 1997, the Company had revenues of $12,710 and $1,409,
respectively, expenses of $31,588 and $26,564, respectively, resulting in a
net loss of $18,878, and net income of $189,714, respectively. For the six
months ended September 30, 1998 and 1997, the Company had revenues of $24,028
and $2,411, respectively, expenses of $40,177 and 29,284, respectively,
resulting in a net loss of $16,149 and net income of $187,996, respectively.
(2) Liquidity and Capital Resources
The Company did not experience a material change in financial condition
during the quarter or the past fiscal year. At September 30, 1998, the
Company had total assets of $459,641, resulting from a gain on the sale of
securities, no current liabilities, and stockholders' equity of $459,641. As
of the year ended March 31, 1998, the Company had total assets of $493,622,
total current liabilities of $1,028 and stockholders' equity of $493,622.
Current assets as of September 30, 1998, consisted of cash and cash
equivalents in the amount of $180,505; marketable equity securities and other
investments in the amount of $275,672; and equipment in the amount of $5,375
less depreciation.
11
Part II - Other Information
Item 1 - Legal Proceedings
None.
Item 2 - Changes in Securities
None.
Item 3 - Defaults on Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
During the quarter ended September 30, 1998, the Company held no
regularly scheduled, called or special meetings of shareholders during the
reporting period, nor were any matters submitted to a vote of this Company's
security holders.
Item 5 - Other Information
During the calendar years 1997 and 1998, the Company filed annual reports
on Form 10-KSB, but failed to file quarterly reports on Form 10-QSB. This
report, along with other quarterly reports, are being filed in an effort to
bring the Company's quarterly reports current for 1997 and 1998. Therefore,
the figures represented in the accompanying financial statements do not
necessarily reflect the Company's financial condition at the present time.
In May, 2000, the Company changed management, changed its business
direction, and sold certain assets, including its subsidiary's interest in
Corporacion de La Fonda ("La Fonda"), to La Fonda, and an interest in a
natural resource partnership, to its former President. As a result of these
transactions, the Company no longer has any active natural resource
properties.
Item 6 - Exhibits and Reports on Form 8-K
None.
12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
BRAINWORKS VENTURES, INC.
Date: February 12, 2001 By: /s/ Marc J. Schwartz
-----------------------------
Marc J. Schwartz
Vice President and Chief Financial
Officer
13