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 ended March 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 0-28184
BRANDMAKERS, INC.
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(Exact name of small business issuer as specified in its charter)
Utah 37-1099747
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1325 Capital Circle, NW Lawrenceville, Georgia 30043
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(Address of principal executive offices)
(770) 338-1958
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(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: 123,135,787 shares common
stock, $.001 par value, were outstanding as of May 1, 2001.
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BRANDMAKERS, INC.
FORM 10-QSB
For the Quarter Ended March 31, 2001
INDEX
PAGE
PART I: FINANCIAL INFORMATION PAGE
Item 1 -
Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2000
and March 31, 2001 . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statement of Operations for
the three and nine Months ended March 2000 and 2001 . . 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended March 2000 and 2001 . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . 6
Item 2 -
Management's Discussion and Analysis . . . . . . . . . . . . . . 7 - 9
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
March 31,
June 30, 2000
2000 (unaudited)
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 82,587 $ 54,096
Accounts receivable, trade
(less allowance of $25,000) 828,607 367,013
Inventory 448,071 524,923
Other current assets 18,839 18,325
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Total current assets 1,378,104 964,357
PROPERTY AND EQUIPMENT - AT COST
Furniture, fixtures and equipment 1,258,822 1,272,187
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1,258,822 1,227,880
Less accumulated depreciation 164,521 330,155
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1,094,301 942,032
OTHER ASSETS
Pledged certificates of deposit 357,980 35,000
Deferred stock options 395,214 -
Goodwill 480,755 -
Deposits 55,243 64,534
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1,289,192 99,534
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$ 3,761,597 $ 2,005,923
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable $ 888,336 $ 1,051,522
Accounts payable 452,697 698,612
Accrued expenses 250,514 52,862
Current maturities of capital leases 291,531 190,550
Deferred Revenue - 205,406
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Total current liabilities 1,883,078 2,198,952
CAPITAL LEASES, less current maturities 422,362 45,217
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock- authorized 200,000,000 shares
of no par value; issued 121,140,504 shares at
June 30, 2000 and March 31, 2001 121,141 121,141
Additional paid-in capital 3,255,961 2,912,272
Retained earnings (deficit) (1,920,945) (3,271,659)
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1,456,157 (238,246)
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$ 3,761,597 $ 2,005,923
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Brandmakers, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended Three Months Ended
March 31, March 31,
2000 2001 2000 2001
(unaudited) (unaudited) (unaudited) (unaudited)
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Revenues $ 1,860,554 $ 3,029,167 $ 1,126,617 $ 942,057
Cost of goods sold 1,101,780 1,836,746 699,983 429,705
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Gross profit 758,774 1,192,421 426,634 512,352
Operating Expenses
Salaries and wages 751,722 826,479 432,273 294,414
Other operating expenses 600,477 906,609 387,561 308,036
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1,352,199 1,733,088 819,834 602,450
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Loss before taxes (593,425) (540,667) (393,200) (90,098)
Other income (expense)
Interest expense (13,300) (127,612) (8,288) (27,922)
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Loss from continuing operations (606,725) (668,279) (401,488) (118,020)
Discontinued operations:
Loss from operations of K.W. Leisure, Ltd. - (682,679) - -
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Net loss $ (606,725) $ (1,350,958) $ (401,488) $ (118,020)
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Per share information:
Basic
Loss from continuing operations $ (0.01) $ (0.01) $ (0.00) $ (0.00)
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Loss from discontinued operations $ (0.00) $ (0.01) $ (0.00) $ (0.00)
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$ (0.01) $ ($0.01) $ (0.00) $ 0.00
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Diluted
Loss from continuing operations $ (0.01) $ (0.01) $ (0.00) $ (0.00)
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Loss from discontinued operations $ (0.00) $ (0.01) $ (0.00) $ (0.00)
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$ (0.01) $ ($0.01) $ (0.00) $ 0.00
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Average number of shares outstanding:
Basic 110,965,504 121,140,504 104,767,171 121,140,504
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Diluted 111,793,185 122,044,080 104,767,171 122,044,080
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Brandmakers, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
March 31,
2000 2001
(unaudited) (unaudited)
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Net loss $ ( 606,725) $ (1,350,958)
Adjustments to reconcile net loss
to net cash used in operating activities
Depreciation and amortization 51,411 165,717
Stock option expense - 51,525
Write-off of K.W. Leisure Ltd. Goodwill - 486,729
(Increase) decrease in assets and
increase (decrease) in liabilities
Accounts receivable (333,852) 461,594
Inventories (375,583) (76,852)
Other current assets (188,692) 514
Accounts payable (21,292) 245,915
Accrued expenses (4,149) (197,652)
Stock issued for compensation 81,250 -
Income taxes payable (28,580) -
Deferred Revenue - 205,406
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Net cash used in operating activities (1,426,212) (8,062)
Cash flows used in investing activities
Capital expenditures (268,207) -
(Increase) decrease in Deposits (10,547) (5,252)
Other changes in long term assets - (11,165)
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(278,754) (16,417)
Cash flows provided by financing activities
Reductions in long-term debt and capital leases (2,740) (478,126)
Proceeds from sale of stock 2,333,977 -
Advances on notes payable - 151,134
Decrease in due to related parties (10,108) -
Decrease (increase) in pledged certificate
of deposit (357,980) 322,980
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1,963,149 (4,012)
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Net increase or decrease in cash and
cash equivalents 258,183 (28,491)
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Cash and cash equivalents at beginning
of the period 56,318 82,587
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Cash and cash equivalents at end
of the period $ 314,501 $ 54,096
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<FN>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES AND CERTAIN
CASH FLOW INFORMATION:
The Company's noncash investing and financing activities for the nine month
period ended March 31, 2001 are as follows:
There were no significant noncash investing and financing activities for
the nine month period ended March 31, 2001.
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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, 2000.
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 but an improvement in the current three-month period is
encouraging. 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 Company is seeking a
manufacturer that would continue to produce the pusher machines under a license
agreement. The operations of K.W. Leisure have been shown as discontinued
operations, including the write-off of the remaining goodwill related to this
segment in the approximate amount of $486, 000. The revenues of the segment
for the six-month period ended December 31, 2000 were approximately $40,000.
The operations of the segment have ceased since the time of the Company's
decision.
There are assets and liabilities of K.W. Leisure included in this report as
follows:
* Accounts Receivable $ 62,087
* Inventory $173,180
* Other Current Assets $ 18,325
* Property and Equipment $ 44,307
* Accounts Payable $239,361
* Accrued Expenses $ 27,546
The inclusion of these items distorts the analysis at this time and it is
probable that they will be adjusted to zero at the end of the fiscal year
ending June 30, 2001.
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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 and 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 MARCH, 2001
AND 2000
PLEASE NOTE: Income from WebBox signups fro the quarter ended March 31, 2001
amounted to a total of $286,220. However, these are annual fees that need to
be spread out over 12 months for accounting purposes. Consequently, we can add
only $51,366 to our sales for the period and allocate the balance to deferred
revenue under current liabilities to be added to sales on a monthly basis.
We are pleased with the cash flow for this three-month period.
Revenue decreased 16.4% from $1,126,617 to $942,057 for the three months ended
March 31, 2001 compared to March 31, 2000. While revenues decreased for the
period cost of sales was $429,705 versus $699,983 resulting in a gross profit
for March 31, 2001 of $512,352 compared to $426,634 for March 31, 2000.
Also, expenses for the three-month period were $602,450 in 2001 versus $819,834
in 2000. Consequently, after interest expense of $27,922, there was a loss of
$118,020 for the period ended March 31, 2001 versus a loss of $401,488 after
interest expense of $8,288 for the period ended March 31, 2000.
Revenue increased 62.8% from $1,860,554 to $3,029,167 for the nine months ended
March 31, 2001 compared to March 31, 2000. The cost of sales increased to
$1,836,746 resulting in a gross profit of $1,192,421 for the nine months ending
March 31, 2001 versus cost of sales of $1,101,780 and a gross profit of
$758,774 for the same period in 2000. After expenses, there was an operating
loss of $668,279 for the nine-month period ended March 31, 2001 and an
operating loss of $606,279 for the nine months ended March 31, 2000.
The total loss for the nine-month period ending March 31, 2001 was $1,350,958,
which included a loss of $682,679 from the discontinued operations of
K.W. Leisure, Ltd.
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LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities - The Company's net cash flow from operating
activities resulted in deficits of $8,062 for the nine-month period ended
March 31, 2001 and $1,426,212 for the same period in 2000. For the nine-month
period ended March 31, 2001 accounts receivable decreased by $461,594 and
accounts payable increased by $245,915. Accrued expenses decreased $197,652
for the nine-month period ended March 31, 2001. For the nine-month period
ended March 31, 2000, the large deficit was a result of a significant ramp up
of sales in ZOOM Communications for wide area pagers and the resulting increase
in accounts receivable, inventories and marketing expenses, as well as
equipment for the Internet Division and the acquisition of KW Machines, Ltd.
and Splash Media. For the nine-month period ended March 31, 2001, revenues
were up significantly along with cost of sales and expenses resulting in an
operating loss of $540,667. However, the improvement in the three months ended
March 31, 2001 was a result of a different mix of sales resulting in
significantly lower cost of goods sold. This was a result of sign-ups for
WebBox in the Internet Division with a low cost of sales, concentration by the
pager division on the more profitable items and better margins in Gamosity
sales. Significantly lower costs for salaries and other operating expenses
were the other major factors.
Cash flow from Investing Activities - The Company's net cash used in investing
activities was $16,417 for the nine months ended March 31, 2001 versus $278,754
for the same period in 2000.
Cash Flow from Financing activities - The company's net cash flow from
financing activities was a deficit of $4,012 for the nine-month period ended
March 31, 2001 and an increase of $1,963,149 for the same period in 2000.
Proceeds from the sales of stock were zero in the nine months ended
March 31, 2001 versus $2,333,977 for the same period in 2000. Certificates of
Deposits were pledged to secure equipment leases in the nine-month period ended
March 31, 2000. During the nine-month period ended March 31, 2001,
certificates in the amount of $322,980 were turned over to the lenders which
was the largest portion of reduction in long-term debt and capital leases of
$478,216.
RECENT DEVELOPMENTS
Implementation of the pay per use model by the Internet Division commenced on
January 15, 2001 for a fee of $6 annually. MailStart usage was limited to once
per week encouraging sign-ups on WebBox for unlimited usage.
For just 50 cents per month, WebBox offers 10 megabytes of storage, attachment
sending and receiving, up to five email accounts, address book, calendar,
bookmarks, publishing, search, toolbox, and more. As of May 4, 2001, over
60,000 users have signed up for the WebBox service. This is recurring income
on an annual basis and the decision to go to a pay-per use model has been quite
beneficial.
Games and Vending gradually increased sales of Cell Phone Vending Machines and
Computer Disk Dispensing Machines during the quarter. Sales of Internet Kiosks
also helped cash flow during the quarter.
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ZOOM Communications continued to shift focus from sales of wide area pagers to
the more profitable on-site pager business. The result was record sales of
on-site pagers during March. ZOOM has a booth at the National Restaurant
Association show in Chicago from May 19 to the 22nd and will introduce several
new products. ZOOM has entered into an agreement with Datamark Technologies,
Inc. to market their leading gift card program to restaurants. Marketing costs
will increase, but the profit margins will be high and the revenues will be
recurring annually.
PART 2: OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
The lawsuit with Jtech reported in the 10QSB filed for the period ended
12/31/00 is still pending.
The lawsuit with K.W. Machines, Ltd. reported in the 10QSB filed for the period
ended 12/31/00 is still pending. Brandmakers defense for this lawsuit is
misrepresentation by the seller of a substantial order book that did not
materialize as well as how quickly the pusher machines could be produced.
During the current three-month period, Kenan Global Enterprises, LLC, served
Brandmakers with a lawsuit for $70,000. Kenan purchased five Virtual Reality
Golf Machines in 1999 from Renaissance Group International and Brandmakers
delivered three out the five machines to Kenan. Brandmakers was never paid for
any of the machines by Renaissance and, as a consequence, did not deliver the
remaining two machines to Kenan. Since Kenan evidently paid Renaissance, the
lawsuit should be against Renaissance. However, Kenan could not collect from
Renaissance, so the lawsuit was filed against Brandmakers. Brandmakers will
meet with Kenan in a mediation process to see if this can be quickly resolved.
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.
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(Registrant)
May 9, 2001 By: /s/ Geoff Williams
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(Date) Geoff Williams,
Director & Chief Executive Officer