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 December 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.)
140 Satellite Blvd. Ste. C, Suwanee, GA 30024
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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 January 15, 2002.
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BRANDMAKERS, INC.
FORM 10-QSB
For the Quarter Ended December 31, 2001
INDEX
PAGE
PART I: FINANCIAL INFORMATION PAGE
Item 1 -
Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2001
and December 31, 2001 3
Condensed Consolidated Statement of Operations for the
six and three Months ended December 2000 and 2001 4
Condensed Consolidated Statements of Cash Flows for the
six months ended December 2000 and 2001 5
Notes to Consolidated Financial Statements 6
Item 2 -
Management's Discussion and Analysis 6-8
Part II: Other Information
Item 1 Legal Proceedings 8
Item 2 Changes in Securities and Use of Proceeds 8
Item 3 Default Upon Senior Securities 8
Item 4 Submission of Matters to a Vote of Security Holders 8
Item 5 Other Information 8
Item 6 Exhibits and Reports on Form 8-K 8
Signatures 9
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Brandmakers, Inc.
CONSOLIDATED BALANCE SHEETS
December 31,
June 30, 2001
2001 (unaudited)
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 51,917 $ 26,985
Receivables
Trade 302,910 259,878
Less allowance for doubtful accounts (25,000) (25,000)
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277,910 234,878
Inventories 206,402 88,013
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Total current assets 536,229 349,876
PROPERTY AND EQUIPMENT - net 845,293 777,187
OTHER ASSETS
Certificates of deposit - pledged 37,096 37,096
Deferred interest - 474
Prepaid insurance - 809
Deposits 45,606 53,889
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82,702 92,268
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1,464,224 1,219,331
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit $ 142,013 $ 101,591
Notes payable 843,400 838,400
Accounts payable 405,768 386,460
Deferred revenue 267,108 203,392
Other current liabilities 36,037 65,929
Current portion of capital leases 158,915 106,585
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Total current liabilities 1,853,241 1,702,357
CAPITAL LEASES, less current portion 31,026 30,859
LONG-TERM DEBT - -
STOCKHOLDERS' EQUITY
Common stock - authorized 200,000,000
shares of $.001 par value 123,141 123,141
Additional paid-in capital 2,979,672 2,979,672
Retained earnings (deficit) (3,522,856) (3,522,856)
Retained earnings - current year - (93,842)
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(420,043) (513,885)
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$ 1,464,224 $ 1,219,331
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Brandmakers, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended Three Months Ended
December 31, December 31,
2000 2001 2000 2001
(unaudited) (unaudited) (unaudited) (unaudited)
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Revenues $ 2,087,110 $ 1,621,277 $ 953,335 $ 796,294
Cost of Goods Sold 1,407,041 853,323 696,435 418,920
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Gross Profit 680,069 767,954 256,900 377,374
Operating Expenses
Salaries and wages 532,065 437,580 161,202 213,357
Rent 97,079 59,404 34,977 25,991
Advertising and promotion 16,292 18,533 1,421 4,805
Depreciation and amortization 110,478 110,592 55,239 55,296
Research and development 68,831 1,769 6,794 3,395
Other operating expenses 305,893 199,504 33,419 65,130
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1,130,638 827,382 293,052 367,974
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Operating Income (Loss) (450,569) (59,428) (36,152) 9,400
Other Income (expense)
Interest expense (99,690) (34,414) (35,994) (3,680)
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(99,690) (34,414) (35,994) (3,680)
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Profit (Loss) before taxes (550,259) (93,842) (72,146) 5,720
Income taxes - - - -
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Profit (loss) from continuing
operations (550,259) (93,842) (72,146) 5,720
Discontinued operations:
Profit or loss from operations of
K.W. Leisure, Ltd. Ltd. (682,679) - (563,360) -
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Net profit (loss) (1,232,938) (93,842) (635,506) 5,720
============ ============ ============ ============
Per share information
Basic
Profit (loss) from:
Continuing operations $ (0.00) $ (0.00) $ (0.00) $ 0.00
Discontinued operations (0.01) (0.00) (0.01) 0.00
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$ (0.01) $ (0.00) $ (0.01) $ 0.00
============ ============ ============ ============
Diluted
Profit (loss):
Continuing operations $ (0.00) $ (0.00) $ (0.00) $ 0.00
Discontinued operations (0.01) (0.00) (0.01) 0.00
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$ (0.01) $ (0.00) $ (0.01) $ 0.00
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Average number of shares outstanding:
Basic 121,140,504 121,140,504 121,140,504 121,140,504
============ ============ ============ ============
Diluted 122,044,080 122,671,794 122,044,080 122,671,794
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Brandmakers, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
December 31,
2000 2001
(unaudited) (unaudited)
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Net loss $ (1,232,938) $ (93,842)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization 130,009 110,592
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 479,609 43,032
Inventories (75,731) 118,389
Other current assets (17,449) -
Accounts payable 346,356 (19,308)
Accrued expenses (207,930) 29,892
Deferred Revenue - (63,716)
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Net cash provided by (used in) operating activities (39,821) 125,039
Cash flows used in investing activities
Capital expenditures - (42,485)
(Increase) decrease in deposits (1) (8,283)
Other changes in long term assets (14,877) (1,283)
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(14,878) (52,051)
Cash flows used in financing activities
Reductions in long term debt and
capital leases (145,551) (57,498)
Advances on notes payable 118,926 -
Reduction in line of credit - (40,422)
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(26,625) (97,820)
Net decrease in cash and cash equivalents (81,324) (24,932)
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Cash and cash equivalents at
beginning of the period 82,587 51,917
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Cash and cash equivalents at
end of the period 1,263 26,985
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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 six-month
period ended December 31, 2001 are as follows:
There were no significant noncash investing and financing activities for the
six-month period ended December 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, 2001.
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 a continued 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 operations of the
segment have ceased with a lawsuit still pending.
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.
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COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
DECEMBER 2001 AND 2000.
Revenue decreased 16.5% from $953,335 to $796,294 for the three months ended
December 31, 2001 compared to December 31, 2000. Cost of sales were reduced
significantly from $696,435 in 2000 to $418,920 in 2001 resulting in a gross
profit of $377,374 for the December 31, 2001 period versus $256,900 for the
December 31, 2000 period. Expenses for the three-month period were $367,974
in the 2001 period and after deducting interest expenses of $3,680, there was
a profit of $5,720. Please see Recent Development for additional income and
savings for the period. Expenses for the 2000 period were $293,052 and after
deducting $35,994 in interest, there was a loss of $72,146 with an overall loss
of $635,506 after the loss from discontinued operations of K.W. Leisure, Ltd.
Revenues for ZOOM Communications were much lower in the 2001 period due, in
part, to the phase out of wide area paging. Cost of goods sold were 53% of
sales in the three month period ended December 31, 2001 versus 73% in the 2000
period. Revenues were up significantly for the Internet Division with a very
low cost of sales in the 2001 period compared to the same period in 2000. The
improvement in the gross profit in 2001 versus 2000 is attributed to the lower
cost of goods sold due to the phaseout of wide area paging with very low profit
margins because of competition and WebBox subscriptions providing significant
income for the 2001 period. The WebBox subscription income commenced on
February 1, 2001 and results in a very low cost of goods sold.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE SIX MONTH PERIOD ENDED
DECEMBER 2001 AND 2000.
Revenue decreased 22.3% from $2,087,110 from the six months ended
December 31, 2000 to $1,621,277 for the six months ended December 31, 2001.
Cost of sales were reduced significantly from $1,407,041 in 2000 to $853,323
in 2001 resulting in a gross profit of $767,954 for the December, 2001 period
versus $680,069 for the December, 2000 period. Expenses for the six-month
period in 2001 were $827,382 resulting in a loss after interest expense of
$93,842. Expenses for the six-month period in 2000 were $1,130,638 and after
interest expense of $99,690, there was a loss of $550,259 with a total loss of
$1,232,938 after $682,679 from the loss of operations of K.W. Leisure. Revenues
for ZOOM Communications were much lower in the 2001 period due, in part, to the
phase out of wide area paging. Cost of goods sold were 53% of sales in the six
month period ended December 31, 2001 versus 67% in the 2000 period. Revenues
were up significantly for the Internet Division with a very low cost of sales
for the 2001 period compared to the same period in 2000. The improvement in
the gross profit in 2001 versus 2000 is attributed to the lower cost of goods
sold due to the phaseout of wide area paging with very low profit margins
because of competition and WebBox subscriptions providing significant
income for the 2001 period. The WebBox subscription income commenced on
February 1, 2001 and results in a very low cost of goods sold.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities - the company's net cash flow from operating
activities was $125,039 for the six month period ended December 31, 2001
compared to a deficit of $39,821 for the 2000 period. For the six months
ended December 31, 2001, accounts receivable decreased by $43,032, compared
to a decrease of $479,608 for the six months ended December 31, 2000.
Inventories decreased by $118,389 during the six-month period in 2001 compared
to an increase of $75,731 for the 2000 period. Other current assets were
zero for the six-month period ended 2001 versus an increase of $17,449 for the
six months ended 2000. Accounts payable decreased $19,308 for the six months
ended December 31, 2001 compared to an increase of $346,356 for the 2000
period. Accrued expenses increased $29,892 for the six-month period ended
December 31, 2001 versus an decrease of $207,930 for the like period in 2000.
Deferred revenue recognized from WebBox sign ups was $63,716 for the 2001
period and none for the 2000 period. The net loss decreased significantly from
$1,232,938 in the six-month period ended December 31, 2000 to $93,842 for the
six-month period ended December 31, 2001. The 2000 period operating loss was
$550,259 and the improvement in 2001 was due to a much lower cost of goods sold
as well as reduced expenses.
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Cash flow from Investing Activities - the company's net cash used in investing
activities was $52,051 in the six month period ended December 31, 2001 versus
$14,878 for the same period in 2000.
Cash flow from Financing Activities - the company's net cash flow from
financing activities was a deficit of $97,920 for the six month period ended
December 31, 2001 versus a deficit of $26,625 for the same period in 2000.
During the 2001 period, there was a reduction of $40,422 on the line of credit
with long-term debt and capital leases reduced by $57,498.
RECENT DEVELOPMENTS
The final three-month period for Brandmakers was difficult financially and
additional income or savings was derived as follows:
a) Our insurance company reimbursed Brandmakers $24,343 for expenditures
regarding the Jtech Lawsuit.
b) The officers and directors did not receive a paycheck on
November 15, 2001 with paychecks continuing to be reduced for all
personnel.
c) WebBox offered 10,000 subscribers to the service in 2001 to renew at
$8 instead of $10 for the year. Over 2000 took advantage of the
early renewal, generating in excess of $16,000 in December 2001.
ZOOM communications continues to phase out the competitive wide area paging
and concentrate on the more profitable on-site paging systems. Server paging,
guest paging, and manager paging products are all manufactured for ZOOM and
sold via direct sales as well as through an extensive network of dealers and
resellers. The Gift Card and Loyalty programs offer good potential as well.
The Gamosity division produces and manufactures vending machines and
computerized games. Cellular phone vending machines allows for dispensing of
prepaid cellular phones. Computer disk dispensing machines for floppy disks,
zip disks, super disks and compact discs continue to be sold in small
quantities for placement in colleges and universities.
The economic climate has been poor for many firms including Brandmakers and
sales have not kept pace with expectations.
Part 2: OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
The lawsuit with K. W. Machines, Ltd. was still pending on December 31, 2001.
However, the Judge in the State Court of Gwinnett County, Georgia ruled in
favor of K. W. Machines Limited and granted the Motion for Summary Judgment
on January 8, 2002. The judgment is for $320,000 and Brandmakers will attempt
to reach an agreement with K. W. Machines, Ltd. for a substantially reduced
amount on a payment plan.
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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)
February 12, 2002 By: /s/ Geoff Williams
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(Date) Geoff Williams,
Director & Chief Executive Officer