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, 2002
[ ] 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.
-----------------
(Exact name of small business issuer as specified in its charter)
Utah 37-1099747
---------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) 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: 123,135,787 shares common
stock, $.001 par value, were outstanding as of May 15, 2002.
===============================================================================
BRANDMAKERS, INC.
FORM 10-QSB
For the Quarter Ended March 31, 2002
INDEX
PAGE
PART I: FINANCIAL INFORMATION
Item 1 -
Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2001
and March 31, 2002 . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statement of Operations for
the nine and three months ended March 2001 and 2002. . . 4
Condensed Consolidated Statements of Cash Flows for
the nine and three months ended March 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
- 2 -
- -------------------------------------------------------------------------------
Brandmakers, Inc.
CONSOLIDATED BALANCE SHEETS
June 30, March 31,
2001 2002
----------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 51,917 $ 57,186
Receivables
Trade $ 302,910 $ 70,132
Less allowance for doubtful accounts $ (25,000) $ (25,000)
----------- -----------
$ 277,910 $ 45,132
Inventories $ 206,402 $ 31,669
----------- -----------
Total current assets $ 536,229 $ 133,987
PROPERTY AND EQUIPMENT - net $ 845,293 $ 586,003
OTHER ASSETS
Certificates of deposit - pledged $ 37,096 $ 37,096
Deposits $ 45,606 $ 47,282
NTN Stock $ - $ 20,000
----------- -----------
$ 82,702 $ 104,378
$ 1,464,224 $ 824,368
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit $ 142,013 $ -
Notes payable $ 843,400 $ 831,428
Accounts payable $ 405,768 $ 132,322
Deferred revenue $ 267,108 $ 297,059
Other current liabilities $ 36,037 $ 6,942
Accrued Salaries $ - $ 65,191
Current portion of capital leases $ 158,915 $ 59,787
----------- -----------
Total current liabilities $ 1,853,241 $ 1,392,729
CAPITAL LEASES, less current portion $ 31,026 $ 50,852
LONG-TERM DEBT
STOCKHOLDERS' EQUITY
Common stock - authorized 200,000,000
shares of $0.001 par value $ 123,141 $ 123,141
Additional paid-in capital $ 2,979,672 $ 2,979,672
Retained earnings (deficit) $(3,522,856) $(3,722,026)
----------- -----------
$ (420,043) $ (619,213)
----------- -----------
$ 1,464,224 $ 824,368
=========== ===========
- 3 -
- -------------------------------------------------------------------------------
Brandmakers, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended Three Months Ended
March 31, March 31,
2001 2002 2001 2002
------------ ------------ ------------ ------------
Revenues $ 492,649 $ 813,135 $ 162,106 $ 317,616
Cost of goods sold $ 157,706 $ 219,108 $ 40,389 $ 108,287
------------ ------------ ------------ ------------
Gross Profit $ 334,943 $ 594,027 $ 121,717 $ 209,329
Operating Expenses
Salaries and Wages $ 468,045 $ 265,540 $ 153,158 $ 83,653
Other operating expenses $ 616,140 $ 486,852 $ 203,293 $ 146,678
------------ ------------ ------------ ------------
$ 1,084,185 $ 752,392 $ 356,451 $ 230,331
Operating income (loss) $ (749,242) $ (158,365) $ (234,734) $ (21,002)
Other Income (expense)
Interest Expense $ (113,840) $ (38,194) $ (27,922) $ (3,781)
Loss on disposal of assets $ - $ (37,267) $ - $ (37,267)
------------ ------------ ------------ ------------
$ (113,840) $ (75,461) $ (27,922) $ (41,048)
Loss from continuing operations $ (863,082) $ (233,826) $ (262,656) $ (62,050)
Discontinued operations
Gain on sale of Zoom communications $ - $ 39,856 $ - $ 39,856
Gain (loss) on discontinued operations of
Zoom Communications $ 194,803 $ (5,200) $ 144,636 $ (83,134)
Gain (loss) on discontinued operations of
KW Leisure LTD $ (682,679) $ - $ - $ -
------------ ------------ ------------ ------------
Total discontinued operations $ (487,876) $ 34,656 $ 144,636 $ (43,278)
Net income (loss) $ (1,350,958) $ (199,170) $ (118,020) $ (105,328)
============ ============ ============ ============
Per share information
Basic
Loss from continuing operations $ (0.01) $ 0.00 $ 0.00 $ 0.00
Loss from discontinued operations $ (0.01) $ 0.00 $ 0.00 $ 0.00
------------ ------------ ------------ ------------
$ (0.01) $ 0.00 $ 0.00 $ 0.00
Diluted
Loss from continuing operations $ 0.01 $ 0.00 $ 0.00 $ 0.00
Loss from discontinued operations $ 0.01 $ 0.00 $ 0.00 $ 0.00
------------ ------------ ------------ ------------
$ 0.01 $ 0.00 $ 0.00 $ 0.00
============ ============ ============ ============
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
============ ============ ============ ============
- 4 -
- -------------------------------------------------------------------------------
Brandmakers, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
March 31,
2001 2002
(unaudited) (unaudited)
------------ ------------
Net loss $ (1,350,958) $ (199,170)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities
Depreciation and amortization $ 165,717 $ 165,216
Stock option expense $ 51,525 $ -
Write-off of K.W. Leisure Ltd, Goodwill $ 486,729 $ -
Loss on disposal of assets $ - $ 37,267
(Gain) on sale of Zoom communications $ - $ (39,856)
(Increase) decrease in assets and
Increase (decrease) in liabilities
Accounts receivable $ 461,594 $ 87,098
Inventories $ (76,852) $ 126,686
Other current assets $ 514 $ -
Accounts Payable $ 245,915 $ (39,162)
Accrued expenses $ (197,652) $ 36,096
Deferred Revenue $ 205,406 $ 29,951
------------ ------------
Net cash (used in) provided
by operating activities $ (8,062) $ 204,126
Cash flows used in investing activities
Capital expenditures $ - $ (41,411)
Proceeds from the disposal of equipment $ - $ 1,900
(Increase) decrease in Deposits $ (5,252) $ 1,676
Other changes in long term assets $ (11,165) $ -
------------ ------------
$ (16,417) $ (37,835)
Cash flows provided by financing activities
Reductions in long-term debt
and capital leases $ (478,126) $ (91,274)
Reduction in line of credit $ - $ (69,748)
Advances on notes payable $ 151,134 $ -
Decrease (Increase) in pledged
certificate of deposit $ 322,980 $ -
------------ ------------
$ (4,012) $ (161,022)
Net increase or decrease in cash and
cash equivalents $ (28,491) $ 5,269
Cash and cash equivalents at
beginning of the period $ 82,587 $ 51,917
Cash and cash equivalents at end of the period $ 54,096 $ 57,186
<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, 2002 are as follows:
The Company sold the various assets and liabilities of the Zoom Communication
division per the attached 8-K for 20,202 shares valued at $20,000 in restricted
stock of NTN Communications.
- 5 -
- -------------------------------------------------------------------------------
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 and losses have continued during 2002 forcing a
divesture of one division discussed under recent developments. 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.
In addition, as discussed under recent developments, the Company has sold its
Zoom Communication division which has resulted in gains and losses in
discontinued operations as presented.
- 6 -
- -------------------------------------------------------------------------------
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 2002
and 2001.
For accounting purposes, we have removed the revenue, cost of goods sold and
the majority of expenses from the income statements in both 2001 and 2002 from
the ZOOM Communications division to discontinued operations. See Recent
Developments.
After adjustments, revenue increased to $317,616 for the three months ending
March 31, 2002 from $162,106 for the three months ending March 31, 2001.
Cost of sales were $108,287 in the 2002 period resulting in a gross profit of
$209,329 compared with cost of sales of $40,389 in the 2001 period resulting
in a gross profit of $121,717. Salaries were $83,653 and operating expenses
$146,678 in 2002 versus salaries of $153,158 and operating expenses of $203,293
in 2001. After losses on disposal of assets and interest the loss from
continuing operations was $62,050 in the three months ending March 31, 2002
versus a loss from continuing operations of $262,656 in the same period in
2001. After a gain on discontinued operations of the Zoom Communication
division of $144,636 in the three months ended March 31, 2001 and a loss on
discontinued operations of $83,134 for the three months ended March 31, 2002,
the net loss for three months ended March 31, 2001 totaled $118,020 compared
to a net loss of $105,328 for the three months ended March 31, 2002.
WebBox renewal income commenced in February 2002, providing good cash flow
for the period although the income is spread out over twelve months.
See Recent Developments.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED
MARCH 2002 AND 2001.
For accounting purposes, we have removed the revenue, cost of goods sold and
the majority of expenses from the income statements in both 2001 and 2002 from
the ZOOM Communications division and KW Leisure, LTD to discontinued
operations. See Recent Developments.
After adjustments, revenue increased to $813,135 for the nine months ended
March 31, 2002 from $492,649 for the nine-month period ended March 31, 2001.
Cost of sales were $219,108 in the 2002 period resulting in a gross profit of
$594,027 compared with cost of sales of $157,706 in the 2001 period resulting
in a gross profit of $334,943. Salaries were $265,540 and operating expenses
$486,852 in the 2002 period versus salaries of $468,045 and operating expenses
of $616,160 in 2001. After a gain on discontinued operations of $194,803 for
the Zoom Communication division, and a loss on discontinued operations of
$682,679 for KW Leisure, LTD, the net loss totaled $1,350,958 for the nine
month period ended March 31, 2001. After a gain on sale of Zoom Communications
of $39,856 and a loss on discontinued operations of Zoom Communications of
$5,200, the net loss for the nine month period ended March 31, 2002 total
$199,170. WebBox renewal income commenced in February 2002, providing good
cash flow for the period although the income is spread out over twelve months.
- 7 -
- -------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Please note that adjustments were made to the balance sheet on March 31, 2002
due to the sale of ZOOM Communications, which have an effect upon our
comparisons.
CASH USED IN OPERATING ACTIVITIES - the company's net cash flow from operating
activities was $204,126 for the nine month period ended March 31, 2002 compared
to a deficit of $8,062 for the 2001 period. Accounts receivable decreased
$87,098 in the 2002 period compared to a decrease of $461,594 in 2001.
Inventories decreased by $126,686 in the nine-month period ended March 31, 2002
versus an increase of $76,852 in 2001. Other current assets did not change in
2002 as compared to a decrease of $514 in the 2001 period. Accounts payable
decreased by $39,162 in the 2002 period versus an increase of $245,915 in 2001.
Accrued expenses increased by $36,096 in 2002 compared to a decrease of
$197,652 in 2001. Deferred revenue recognized by WebBox sign ups increased by
$29,951 versus an increase of $205,406 in 2001. Note that the WebBox
subscription service commenced in February 2001 resulting in the initial large
increase and the increase in 2002 is a result of renewal income. The net loss
decreased significantly from $1,350,958 in 2001 to $199,170 in the nine-month
period ended March 31, 2002.
CASH FLOWS FROM INVESTING ACTIVITIES - The company's net cash used in investing
activities was $37,835 in the nine month period ended march 31, 200 compared to
a deficit of $16,417 for the same period in 2001.
CASH FLOW FROM FINANCING ACTIVITIES - The Company's net cash flow from
financing activities was a deficit of $161,022 in the 2002 period versus a
deficit of $4,012 in 2001.
RECENT DEVELOPMENTS
Brandmakers Inc. sold their ZOOM Communications division effective
April 5, 2002 under an Asset Purchase Agreement with NTN Communications, Inc.
The transaction was consummated and substantially complete as of March 31, 2002
and has been reflected in this 10QSB. Brandmakers Board of Directors
determined that they had to divest themselves of the division to survive
without the resources to absorb the losses or for expansion. A copy of the
Form 8-K filed with the Securities and Exchange Commission is attached as an
exhibit indicating the assets and liabilities that were transferred.
As indicated, Brandmakers also received $20,000 of restricted common shares
of NTN Communications, Inc.
For the three months ended March 31, 2002, ZOOM Communications in House paging
shows a loss of $36,910. However, the separate corporate overhead for the
period was a loss of $197,905, so with a significant share of this loss
allocated to ZOOM, the decision by the Board of Directors was not difficult.
Also, as reported in Form 8-K attached as an exhibit, Multi-Page Communications
was quite cooperative in restructuring the outstanding debt of $518,400 to
$100,000 with $5,000 down and $95,000 amortized over five years at 9% interest
with a balloon payment at the end of one year. If a payment is missed under
the new agreement, the full amount becomes due; therefore the entire
outstanding debt of $518,400 still remains recorded in notes payable.
As discussed under Legal Proceedings, there is a final judgment in favor of
K. W. Machines Limited in the amount of $320,000. Brandmakers is hopeful that
this debt can be restructured as well and avoid a reorganization proceeding.
WebBox commenced renewal income in February 2002, which has been quite
beneficial in terms of cash flow. We have an opt-in procedure for those whose
credit cards have expired and an opt-out procedure for all others when we
charge their credit cards. It is still too premature to quote a renewal
percentage. Approximately two thirds of our new WebBox subscriptions come from
MailStart, which is our free service that can be used only once per week.
- 8 -
- -------------------------------------------------------------------------------
Part 2: OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
We reported in our 10QSB for the three-month period ending on
December 31, 2001 that there was a summary judgment granted to
K.W. Machines, Ltd. for $320,000. This has subsequently been recorded
as a final judgment. This liability is recorded under notes payable on
the consolidated balance sheet.
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
Form 8-K attached as an exhibit with an effective date of 4/5/02 but
pertinent to this 10QSB Filing.
- 9 -
- -------------------------------------------------------------------------------
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)
MAY 15, 2002
By: /s/ Geoff Williams
--------------------------
(Geoff Williams, Director &
Chief Executive Officer)
By: /s/ Joy Williams
--------------------------
(Joy Williams, Secretary)
- 10 -
- -------------------------------------------------------------------------------