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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2000
[ ] TRANSITION REPORT UNDER TO 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 in its charter)
Utah 37-109974
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(State of Incorporation) (I.R.S. Employer
Identification No.)
1325C Capital Circle, Lawrenceville, GA 30043
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(Address of principal executive office) (Zip Code)
Issuer's telephone number: (770) 338-1958
Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class On Which Registered
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None None
Securities registered pursuant to Section 12(g) of the Exchange Act:
$0.001 par value Common Stock
-----------------------------
(Title of Class)
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 for 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 [X] No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year consisted of income
in the amount of approximately $3,395,000.
The aggregate market value of the voting Common Stock held by
non-affiliates of the issuer (treating all executive officers and directors of
the issuer, for this purpose, as if they may be affiliates of the issuer) was
approximately $ 22,164,442 as of August 31, 2000 (based on the average bid and
asked price of such Common Stock).
One hundred twenty three million, one hundred thirty five thousand seven
hundred eighty seven, (123,135,787) shares of the issuer's Common Stock were
outstanding as of August 31, 2000.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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BRANDMAKERS, INC.
For Fiscal Year Ended June 30, 2000
<TABLE>
TABLE OF CONTENTS
Form 10-KSB
PART I
<CAPTION>
Item Page
<S> <C>
1. Description of Business . . . . . . . . . . . . . . . . . . . . . . 3
2. Description of Property . . . . . . . . . . . . . . . . . . . . . . 7
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. Submission of Matters to a Vote of Security Holders . . . . . . . . 7
PART II
5. Market for Issuer's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . 7
6. Management's Discussion and Analysis or Plan of Operation . . . . . 8
7. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 12
8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . 33
PART III
9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act . . . . . . . . . 33
10. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 35
11. Security Ownership of Certain Beneficial Owners and Management . . 36
12. Certain Relationships and Related Transactions . . . . . . . . . . 37
13. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 37
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
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PART I
This Form 10-KSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially
from those set forth in the forward-looking statements. The forward looking
statements include statements that reflect management's intentions, plans,
beliefs, expectations or predictions of future operations, conditions, and
potential future capitalization of the Company. These forward-looking
statements are based on current expectations that involve numerous risks and
uncertainties. Assumptions relating to such current expectations involve
judgments with respect to, among other things, future economic, competitive and
market conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of
the Company. Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could be
inaccurate and therefore there can be no assurance that the forward-looking
statements included in this Form 10-KSB will prove to be accurate. In light of
the significant uncertainties inherent in the forward-looking statements
included herein, the inclusion of such information should not be regarded as a
representation of the Company or any other person that the objectives and plans
of the Company will be achieved.
Item 1. Description of Business
OVERVIEW
Mr. Geoff Williams founded Brandmakers, Inc. in 1992 with a focus on the
games and vending industry. Williams started his career in the electronic
gaming industry in the United Kingdom and has thirty years experience in this
growing industry. Well known in the gaming community, Williams has owned,
operated, expanded and sold numerous amusement enterprises. Prior to
establishing Brandmakers, Williams sold his games and coin-operated company,
G.W. Leisure, Ltd.
With a handful of loyal employees and its first extremely successful
product, Camera Vending Machines that dispensed Kodak products, Williams grew
the company to its market position today. Headquartered in Lawrenceville,
Georgia, Brandmakers is a diversified company engaged in communications,
Internet development, new media creation, and electronic game and vending
equipment.
Mason Oil Company, Inc., a fully reporting public company, acquired
Brandmakers on October 22, 1999, and subsequently changed its name to
Brandmakers, Inc. Prior to this reverse acquisition, Brandmakers had expanded
its umbrella to add complementary divisions spurring overall growth. With its
first acquisitions in 1998, of Hospitality Innovators, a communications
company; Washburn Studios, a digital design house; and MailStart, an internet
technology development firm, Brandmakers boldly expanded its presence in the
technology community. Additional expansion included leasing a new facility
with 4000 square feet of office space and 7,400 square feet of warehouse space
to house the Brandmakers' Divisions.
In February 2000, Brandmakers acquired the assets of Multi-Page
Communications, LLC, a wireless paging manufacturing company, and Splash Media,
a New Media firm which combined with Washburn Studios created a full digital
design and new media group - "Splash Studios". In March 2000, assets of K.W.
Machines, Ltd. in Ramsgate, England were purchased from James Godden.
KW Leisure, Ltd, formed as a wholly owned subsidiary of Brandmakers,
manufactures coin pusher entertainment equipment.
The following documents and filings have been incorporated by reference.
They are change of name of registrant, form 8K; Purchase of assets, form 8-K;
changes in registrant's auditors, form 8-K; Letters from the registrant's
auditors acknowledging change, form 8-K/A.
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RECENT DEVELOPMENTS
As of August, 2000, Brandmakers, Inc. announced that it's principal
shareholders had reached an agreement to sell controlling interest of the
company through a stock exchange with a World Sales & Merchandising Inc. for
shares in a private joint venture known as Bee-Trade.com, Inc. This
transaction is still under negotiation. The description of the transaction
represents the most reliable information available at the time of this filing.
The binding agreement, which remains subject to applicable regulatory approval
in both the U.S. and Canada, calls for WSMI to acquire 89 million, or
approximately 72 percent, of Brandmakers' 123.14 million total shares, in
exchange for 1.2 million common shares of Bee-Trade.com, Inc. Bee-Trade.com is
headquartered in Pennsylvania.
In the transaction, WSMI officials valued Brandmakers' overall worth at
$52.5 million, or approximately 42 cents per share. Approximately 34 million
shares of Brandmakers stock will remain publicly held by other stockholders
once the WSMI transaction is completed, which is scheduled to conclude by
September 30, 2000.
WSMI has also agreed to accept Brandmakers' promissory note for a
$1,000,000. Proceeds from this loan will be used to complete the
KW acquisition and as working capital. Brandmakers is currently in default for
the payment of the balance of the KW acquisition. Payment terms are being
re-negotiated. Management believes that this cash, coupled with revenue
projections, will be sufficient for near term financing needs.
Chuck Massey, the Company's Chief Financial Officer, resigned effective
October 13, 2000. Mr. Massey is leaving to pursue other interests.
COMPANY DIVISIONS
MailStart - Internet Applications
The Internet Development division of Brandmakers, takes great pride in
their universal web based solutions. MailStart (www.mailstart.com) is an email
access gateway, which allows consumers to access their POP3 email boxes via the
Web. MailStart currently handles over 680,000 email transactions daily
allowing the display of mailbox contents, reading, replying, forwarding and
deleting of email messages. It is a free service supported by advertising.
WebBox (www.webbox.com), an information consolidation management product, was
added to MailStart's services in October 1999. WebBox offers complete email
consolidation for five email accounts, online file storage, calendar and
schedule functions, contact management, and Web bookmark and page monitoring
features. MailStart also recently has partnered with On Command Corporation,
the leading provider of in-room interactive entertainment, Internet services,
business information and guest services for the lodging industry. MailStart
will be the e-mail access service provider to On Command's @Hotel product line.
Zoom Communications - Wireless Communications
The communications division of Brandmakers, Zoom focuses on both On-Site
and Wide Area paging. On-Site paging consists of any application where pagers
and a local transmitter are used to deliver information over a limited area.
Typical coverage is less than 1 mile. The core products for this part of the
company are "Coaster Call", a lighted coaster pager and the "Vibe" a vibration
only belt clip type pager. Coaster Call is used in busy restaurants to let
guests know when their table is ready. The Vibe on the other hand is more
flexible being used in Churches, Hospitals, Day Spas and Salons, Auto
Dealerships as well as restaurants. Zoom On-Site also sells limited numbers of
the "Intrigue" top view numeric pager for applications, which need more
information. The "Vibe Only" and "Intrigue" are products manufactured by Zoom
Communications, while Coaster Call is a product purchased by the company.
Wide Area paging comprises the other market of Zoom. The pager
manufacturing industry has gone through some significant changes in the last
few years. Strong competition, increased cell phone usage, and advancing
technology have brought retail prices significantly lower. During this time,
manufacturing costs have also been reduced dramatically, offsetting some of the
overall decline in profit margin. Although industry growth has slowed,
industry publications project growth in the paging industry of 6%-10% per year,
representing approximately 100 million new pagers sold in the United States.
With the departure from this market segment of companies like NEC, Panasonic,
and to some extent Motorola, there is more opportunity than ever to increase
market share. Zoom has positioned itself in the middle market by producing
high quality pagers equivalent to Motorola's products, yet more moderately
priced. Zoom sells the popular numeric pagers as well as new alpha messaging
models.
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Gamosity - Games & Vending
The Gamosity division produces and manufactures vending machines and
computerized games. Some of their products include:
Virtual Reality Golf is a computerized golf game with a 34" monitor housed
in custom-built cabinetry. The patented club, sensor pad, and roller ball are
on a separate console placed in front and to the side of the cabinet. Players
swing a club with an infrared beam over the sensor base, which activates the
ball on the screen whether driving, pitching or putting. The console roller
ball allows players to choose courses and options. The game allows the
player(s) to play a round of golf on one of fifteen world- renowned courses
with audio that provides commentary on player's swings. Direct Sales have been
primarily through Business Opportunity Markets. Other markets include golf
enthusiasts for home use, corporate recreation centers and vending
distributors. Brandmakers has Virtual Reality Golf hardware rights, and Links
software licensed through Access Software.
Telephone Prepaid Card Machines: Our two column phone card machines are
competitively priced for today's market. These machines offer consumers an
easy, inexpensive way to purchase phone cards at extremely reasonable rates.
Attractive metal housing units are freestanding and convenient to install,
working well in shopping malls as well as universities, and numerous retail
outlets. Card machines are also used in casinos to vend smart cards. These
cards hold a players credits and debits.
Skill Machines: Brandmakers designs and imports amusement with prize (AWP)
machines to its plant in Lawrenceville Georgia. Bill acceptors, printers, or
ticket dispensers are installed to comply with U.S. laws and standards. Final
testing of all machinery is done on site. Casinos, bars, sports facilities and
recreation centers are prime locations for these machines where local laws
permit.
Coin Pushers: Brandmakers' UK subsidiary, KW Leisure, Ltd. manufactures
coin pusher machines for the entertainment and gaming industry. Pushers are
sold to distributors in Europe, the United States, and Korea. KW is the third
largest supplier of coin pushers in the United Kingdom.
Postcard Machines: We are pleased to be the leading manufacturer of this
new vending product, which sells pre-stamped postcards. Postcards are vended
from an attractive metal machine that provides the consumer with a pre-stamped
postcard ready for mailing.
Computer Disk Dispenser: A professionally designed Computer Disk
dispensing machine, with educational facilities being the prime market. The
machine dispenses floppy disks, zip disks, super disks and compact discs for a
nominal fee. Each machine has an attractive exterior for advertising in
addition to a scrolling marquis, which gives the operator multiple revenue
opportunities.
Cellular Phone Vendor: This new product allows dispensing of prepaid
cellular phones. The machine can also be designed to dispense phone cards and
pagers as well.
Laser Q: A pool cue with a laser built into the tip. Laser Q is an
excellent training tool for the billiard player.
Splash Studios - New Media
Brandmakers' new media and digital design division, produces multimedia
projects from concept to completion. Award winning web sites, video
production, illustration and design provide clients with a broad range of
communication services. Merging creativity with technology has grown Splash
Studio's client list to include over 200 major companies in the U.S. Partial
client list includes United Parcel Service, Cartoon Network, Coca-Cola, Burger
King, Nabisco, Disney, Delta Airlines, McDonalds, Hard Rock Cafe, the Georgia
Bureau of Investigation, Globalseer, and Universal Studios.
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COMPETITION
All of the markets that Brandmakers services are highly competitive. Many
of these competitors possess greater financial, technical, and other resources
that the company. Wide area pagers are manufactured and distributed by
numerous companies. Furthermore, one-way paging is slowing being replaced by
two-way paging and cellular service. On-site paging is a growing market.
JTECH, Inc. and Long Range Systems both sell competitive on-site paging
products.
Mailstart and Webbox compete as internet application service providers.
Several other companies, including MicroSoft, have web sites that provide
similar capabilities.
Brandmakers' KW Leisure subsidiary is Great Britain's third largest
manufacturer of coin pushers. Competitors include Crompton's Leisure Machines
and Harry Levy Amusement Contractors, both located in England.
DEPENDENCE ON SUPPLIERS; MANUFACTURING RISKS
We rely primarily on outside suppliers and subcontractors for
substantially all of our parts, components, and manufacturing supplies. In the
paging division, certain materials are currently available only from one
supplier or a limited number of suppliers. We do maintain long-term supply
contracts with several of our key suppliers. The disruption or termination of
our supply or subcontractor arrangements could have a material adverse effect
on our results of operations. Our reliance on third parties involves
significant risks, including reduced control over delivery schedules and
quality assurance. In addition, vendor delays or quality problems could also
result in lengthy production delays.
RELIANCE ON KEY CUSTOMERS
All divisions rely on a diverse customer base. The loss of a single
customer would have minimal adverse effects on Brandmakers' revenues.
EMPLOYEES
Today Brandmakers has 35 employees and subcontractors in all divisions.
In July 2000 work staff was reduced in all divisions due to lack of
profitability. None of our employees is a member of a labor union or subject
to a collective bargaining agreement.
LACK OF DIVIDENDS
We have never paid any dividends on our common stock. We anticipate that,
for the foreseeable future, any earnings that may be generated from operations
will be used to support internal growth and that dividends will not be paid to
stockholders.
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Item 2. Description of Property
The company does not own any real property. For its principal offices,
Brandmakers leases 11,400 square feet of office and warehouse space at
1325 Capital Circle, Suites B and C, Lawrenceville, Georgia 30043. This is
currently a month-to-month lease. For the Mailstart division, the Company
leases offices located at 9261 Folsom Boulevard, Suite 400, Sacramento, CA
95826. This lease expires in December 2002. Brandmakers also leases office
space at 3440 Oakcliff Road, Suite 106, Atlanta, GA 30340. This lease expires
in April 2004. In our opinion, the various properties used in our operations
are generally in good condition and are adequate for the purposes for which we
utilize them.
Item 3. Legal Proceedings
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year covered by this report.
PART II
Item 5. Market for Issuer's Common Equity and Related Stockholder Matters
The Company's Common Stock is traded on the OTC bulletin board under the
symbol BMKS. The Company estimates that at August 31, 2000, there were
approximately 2,500 holders of record of the Company's Common Stock. The
Company has not declared or paid any cash dividends on its Common Stock during
the last two fiscal years, and does not anticipate the declaration or payment
of dividends in the foreseeable future. The Company is not subject to any
restrictions that limit its ability to pay dividends, other than the
unavailability of funds and a statutory restriction found in the Utah Revised
Business Corporation Act, which prohibits the payment of distributions to
shareholders if, after giving effect to such distribution:
(a) The Company would not be able to pay its debts as they become due
in the usual course of business;
or
(b) The Company's total assets would be less than the sum of its total
liabilities.
<TABLE>
The following table sets forth the range of high and low bid information,
as reported by the bulletin board services, for the Company's Common Stock for
each quarter of the last two fiscal years. Over-the-counter quotations reflect
inter-dealer prices without retail mark-up, markdown, or commission and may not
represent actual transactions.
<CAPTION>
Quarter Ended Common Stock
High Low
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<S> <C> <C>
June 30, 1998 $0.281 $0.063
September 30, 1998 $0.156 $0.078
December 31, 1998 $0.188 $0.125
March 31, 1999 $0.297 $0.156
June 30, 1999 $0.266 $0.188
September 30, 1999 $0.250 $0.125
December 31, 1999 $0.562 $0.156
March 31, 2000 $1.250 $0.156
June 30, 2000 $0.687 $0.150
</TABLE>
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Item 6. Management's Discussion and Analysis or Plan of Operation
FORWARD-LOOKING STATEMENTS
The following discussion should be read in conjunction with the financial
statements and notes thereto and other financial information appearing
elsewhere in this Annual Report on Form 10-KSB.
This report on Form 10-KSB 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.
Overview
Through the reverse acquisition in November 1999, the Company became a
public reporting company. The Company raised funds through private placements
of equity securities. These funds were used to invest in all of the Company's
divisions. Wide area paging assets were purchased and combined with the
successful on-site paging division, Hospitality Innovators. The new group was
renamed Zoom Communications. Division employment increased from four employees
to eleven employees. With additional funds, Zoom was able to increase
marketing and maintain inventory. With contacts made through the wide area
paging group, new products for both wide area paging and on-site paging have
been developed in short cycles. The division is just beginning to see the
increased sales from these new products.
The games and vending division, with four employees, grew to sixteen
employees with the acquisition of KW Machines assets in England. Older
amusement products were phased out. New products such as cell phone vendors
and redesigned internet kiosks have been developed with marketing efforts just
beginning for these new products. Existing skill game lines were complemented
with the addition of the KW coin pusher line. Marketing efforts are now
worldwide. Coin pushers have been sold in Europe and Asia.
The media division of Washburn Studios was combined with Splash Media to
form Splash Studios. Splash has designed logos, business forms, websites, and
trade show displays for its clients.
MailStart began the fiscal year with the www.mailstart.com POP3 email
gateway. In October 1999, www.webbox.com was created as a "virtual office"
product. Webbox allows the internet user to access email, contacts, schedules,
files, and web links from any internet connected workstation. In the eight
months following its release, Webbox has established a user base of over
270,000 users and currently has an approximate 20% user growth every month.
In March 2000, equipment to handle this growth was purchased and installed.
Revenues, which are based on advertising, are fluctuating, but have been low
for the year. Employees increased from two to six with the emphasis placed on
sales and marketing.
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Results of Operations
Year Ended June 30, 2000 Compared to Year Ended June 30, 1999
REVENUES. The Company had revenues of $3,394,626 for the year ended
June 30, 2000, as compared to $2,055,040 for the same period in 1999. This
represents an increase of over 65%. Primary reasons for this difference were
the expanded product lines and markets obtained through the company's
acquisitions. Fiscal year 1999 revenues were generated from sales of amusement
games, vending equipment, and on-site paging systems. With funds generated
through the equity private placements, the Company was able to increase
revenues through the wide area paging business, the KW Leisure coin pusher
European market, and new media division. On site paging systems revenue
increased with the addition of personnel and the ability to stock inventory.
Revenues for MailStart, the internet division remained small. Revenue from
domestic games and amusements declined as older games and vending machine
designs reached the end of their life cycle.
In summary, Zoom Communications accounted for 69.4% of total revenue.
Games and vending contributed 21.4% of total revenue. Splash studios accounted
for 4.4% of revenue while MailStart made up the final 4.8%.
COST OF SALES. The Company's cost of sales increased from $1,218,798 for
the year ended June 1999 to $2,159,640 for the same period in 2000. This is an
increase of 77%. In 1999, Gross margin was 40.7%. This margin declined to
36.4% in 2000. This shift was due to the addition of the wide area paging
group which has lower profit margins than the company's other divisions.
OPERATING EXPENSES. Operating expenses for the 12 months ended
June 30, 2000 were $2,577,740 as compared to $824,903 for the same period in
1999. Expenses increased due to acquisitions and expansions in all divisions.
OTHER INCOME AND EXPENSE. Interest expense increased due to capital
equipment purchases for MailStart. The company experienced a $494,302 loss on
impairment of goodwill from the acquisition of Multi-Page Communications
assets. Subsequent to the acquisition, it was determined that the inventories
did not have significant ongoing value. Many of the pagers and pager crystals
were for discontinued or obsolete product lines.
Liquidity and Capital Resources
CASH USED IN OPERATING ACTIVITIES - The Company's net cash flow from
operating activities resulted in deficits of $1,584,144 and $28,538 for the
years ended June 30, 2000 and 1999, respectively. This deficit was largely the
product of a ramp-up in sales and the resulting need to support this increasing
level of business with a higher investment in inventories, coupled with
increasing accounts receivable and additional marketing expenditures. The Games
and Vending division was responsible for most sales during the 1999 period but
a major change in direction for the division has resulted in low revenue on a
temporary basis as the company progresses through this transition period. The
primary product for the games division was a virtual golf game that generated
approximately $870,000 in revenue in 1999. This game has been discontinued
since another company purchased the golf software used and Brandmakers was
unable to renew licensing agreements. Sales from new lines of equipment are
anticipated to replace and exceed the lost revenue from the former games
product line.
The Company experienced a $1,342,754 loss from operations as compared to a
profit of $11,339 from the prior year. Increases in cash expenditures from the
prior year were for salaries, additional facilities, inventory for Zoom
Communications, a new information system, and marketing. Depreciation of new
capital equipment also increased. Accounts receivable increased over $600,000
from 1999 to 2000 as business grew. To supply paging customers, inventory
increased over $270,000 for the reporting period.
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CASH USED IN INVESTING ACTIVITIES - Consistent with management's plan to
invest in infrastructure, the Company's net cash used in investing activities
for the year ended June 30, 2000 was $900,388 as compared to net cash used in
investing activities for the year ended June 30, 1999 of $4,023. Cash was used
to purchase KW Machines assets, Multi-Page Communications assets, and to
acquire capital equipment for MailStart. A certificate of deposit was
established as collateral for the MailStart equipment lease as well.
CASH FLOW FROM FINANCING ACTIVITIES - The Company's net cash flow from
financing activities during the year ended June 30, 2000 increased by
$2,510,801 from an outflow of $9,280 during the year ended June 30, 1999, due
primarily to proceeds from investors while the Company was still private, and
subsequently from an increase in private placement proceeds received during the
year. During the year ended June 30, 2000, the Company, pursuant to a private
placement, netted $2,623,750 from the private placements. These funds were used
to purchase assets of KW Machines, equipment for the MailStart division, and
for general working capital purposes. In spite of the significant investment
in infrastructure that has already been made, the Company believes that
additional capital expenditures will be required to meet the objectives set
forth in the Company's business plan. An asset-based line of credit was
established with a lending institution during the year. The Company believes
the revenues that are projected from operations may not be sufficient to fund
ongoing operations and its business plan without additional debt or equity
financing. There is no assurance that anticipated profits, cash flows, and
financing will in fact be sufficient to fund operations and meet the needs of
the Company's business plan.
Overall cash balances increased by $26,269 from June 30, 1999 to
June 30, 2000. These balances do not include $357,980 in certificates of
deposits pledged to support the equipment leases.
Future Plan of Operation
The company has a letter of intent that would transfer majority ownership
to World Sales & Merchandising Inc. of Toronto, Canada. The transaction will
enable Brandmakers to expand the company's marketing capabilities through the
worldwide avenues of WSMI, taking Brandmakers' four divisions into new markets
and distribution prospects. At present, no management changes are scheduled at
Brandmakers. Two board members, Joy Williams and Robert Palmquist, resigned on
September 15, 2000. They were replaced by Richard Deleguardia and Brian Zufelt
of WSMI. WSMI officials have stated that the MailStart, Zoom Communications,
and Splash Studios divisions will complement the new parent company's current
and future business models through its Bee-Trade.com, E-enabler, and Gamblegate
platforms, as well as significantly enhance shareholder value and the company's
overall revenue projections. World Sales & Merchandising Inc., known as "The
Online Marketing Specialist," is a publicly traded company whose common shares
are quoted on the Canadian Dealing Network (CDN) under the stock symbol "WSMI."
At present, the company has more than 43 million common shares outstanding.
Affiliated closely with Cable Print Network Marketing (CPNM), WSMI
designs, produces and markets a wide range of products through both on-line and
off-line activities. The company is best known for its development of an
on-line Super E Chain Store, featuring thousands of products from collectibles
to vitamins at deep discount prices.
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<PAGE>
Through Bee-Trade.com, WSMI operates a network of on-line stores and
auction activities in On-line Boutique Style as well as through other
established on-line Auction sites. In its joint venture with Cable Print
Network Marketing, WSMI markets products in traditional off-line promotions
including infomercials, direct mail, radio, print and fax programs.
WSMI has agreed to advance Brandmakers one million dollars upon execution
of the stock purchase agreement with Brandmakers' principal shareholders.
Should the acquisition not be consummated or these funds are unavailable,
Brandmakers will have to reorganize and potentially divest itself of assets or
divisions.
Year 2000
During the year, the company installed a networked system supporting MAS
90 accounting software. The Company did not experience any significant
problems resulting from computer system and program failures or equipment
malfunctions, and suffered no disruption of business operations.
Item 7. Financial Statements
- 11 -
===============================================================================
<PAGE>
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
BRANDMAKERS, INC. AND SUBSIDIARY
June 30, 2000 and 1999
CONTENTS
_______________________________________________________________________________
INDEPENDENT AUDITORS' REPORT - YEAR ENDED JUNE 30, 2000 . . . . . . . . 2
INDEPENDENT AUDITORS' REPORT - YEAR ENDED JUNE 30, 1999 . . . . . . . . 3
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS . . . . . . . . . . . . . . . . . . . . 4
CONSOLIDATED STATEMENTS OF OPERATIONS . . . . . . . . . . . . . . . 6
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY . . . . 7
CONSOLIDATED STATEMENTS OF CASH FLOWS . . . . . . . . . . . . . . . 8- 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . 10-21
_______________________________________________________________________________
- 12 -
===============================================================================
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Brandmakers, Inc.
We have audited the accompanying consolidated balance sheets of Brandmakers,
Inc. and Subsidiary (the Company) as of June 30, 2000, and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flows for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Brandmakers, Inc.
and Subsidiary as of June 30, 2000 and the results of their operations and cash
flows for the years then ended, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements as of June 30, 2000 have
been prepared assuming that the Company will continue as a going concern. As
discussed in note I to the consolidated financial statements, the Company
suffered a significant loss for the year ended June 30, 2000 and has negative
working capital. Additionally, the Company has experienced continued losses
subsequent to June 30, 2000. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in note I. The consolidated balance sheet
at June 30, 2000 does not include any adjustments that might result from the
outcome of this uncertainty.
Atlanta, Georgia
August 29, 2000
(Except for notes C and I for which
the date is September 26, 2000)
F2
- 13 -
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<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Brandmakers, Inc.
We have audited the accompanying balance sheet of Brandmakers, Inc. (a Georgia
corporation) as of June 30, 1999, and the related statements of operations,
changes in stockholders' equity, retained earnings and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Brandmakers, Inc. as of
June 30, 1999, and the results of their operations and cash flows for the year
then ended in conformity with generally accepted accounting principles.
Santi & Associates, PC
Atlanta, Georgia
January 4, 2000
F3
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<PAGE>
<TABLE>
Brandmakers, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
June 30, 2000 and 1999
<CAPTION>
ASSETS
2000 1999
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 82,587 $ 56,318
Receivables
Trade 803,607 177,737
Other 50,000 1,268
---------- ----------
853,607 179,005
Less allowance for doubtful accounts 25,000 -
---------- ----------
828,607 179,005
Inventories 448,071 74,154
Other current assets 18,839 3,523
---------- ----------
Total current assets 1,378,104 313,000
PROPERTY AND EQUIPMENT - net 1,094,301 78,030
OTHER ASSETS
Certificates of deposit - pledged 357,980 -
Deferred stock options 395,214 -
Goodwill,
net of accumulated amortization of $7,725 480,755 -
Deposits 55,243 11,466
---------- ----------
1,289,192 11,466
---------- ----------
$3,761,597 $ 402,496
========== ==========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
F4
- 15 -
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<PAGE>
<TABLE>
Brandmakers, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
June 30, 2000 and 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 888,336 $ -
Accounts payable 452,697 171,869
Accrued liabilities 201,559 17,215
Income taxes payable - 26,843
Other current liabilities 48,955 66,508
Current maturities on long-term debt - 2,446
Current portion of capital leases 291,531 16,586
---------- ----------
Total current liabilities 1,883,078 301,467
LONG-TERM DEBT, less current maturities - 6,163
CAPITAL LEASES, less current portion 422,362 13,672
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock - authorized 200,000,000
shares of $.001 par value 121,141 100
Additional paid-in capital 3,255,961 -
Retained earnings (deficit) (1,920,945) 81,094
---------- ----------
1,456,157 81,194
---------- ----------
$3,761,597 $ 402,496
========== ==========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
F5
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<PAGE>
<TABLE>
Brandmakers, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30, 2000 and 1999
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Revenues $ 3,394,626 $ 2,055,040
Cost of sales 2,159,640 1,218,798
------------ ------------
Gross profit 1,234,986 836,242
Operating expenses
Salaries and wages 1,536,819 466,625
Rent 149,306 64,845
Advertising 151,741 17,788
Depreciation and amortization 123,871 32,663
Other operating expenses 616,003 242,982
------------ ------------
2,577,740 824,903
------------ ------------
Operating profit (loss) (1,342,754) 11,339
Other income (expense)
Interest expense (62,630) (5,818)
Interest income 2,038 1,566
Loss on impairment of goodwill (494,302) -
------------ ------------
(554,894) (4,252)
------------ ------------
NET EARNINGS (LOSS) $ (1,897,648) $ 7,087
============ ============
Per share information:
Basic $ (.17) $ .00
============ ============
Diluted $ (.17) $ .00
============ ============
Average number of shares outstanding:
Basic 108,773,837 104,490,504
============ ============
Diluted 109,337,461 104,490,504
============ ============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
F6
- 17 -
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<PAGE>
<TABLE>
Brandmakers, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended June 30, 2000 and 1999
<CAPTION>
Common Stock Additional Retained
------------------------- Paid-In Earnings
Shares Amount Capital (Deficit) Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1998 100 $ 100 $ - $ 74,007 $ 74,107
Net earnings for the year - - - 7,087 7,087
----------- ----------- ----------- ----------- -----------
Balance at June 30, 1999 100 100 - 81,094 81,194
Acquisition of assets of
Mason Oil Company, Inc. 104,490,404 104,391 - (104,391) -
Stock issued for cash 16,000,000 16,000 2,607,750 - 2,623,750
Stock issued for services 650,000 650 80,600 - 81,250
Stock options granted - - 567,611 - 567,611
Net loss for the year - - - (1,897,648) (1,897,648)
----------- ----------- ----------- ----------- -----------
Balance at June 30, 2000 121,140,504 $ 121,141 $ 3,255,961 $(1,920,945) $ 1,456,157
=========== =========== =========== =========== ===========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
F7
- 18 -
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<PAGE>
<TABLE>
Brandmakers, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 2000 and 1999
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Net earnings (loss) $ (1,897,648) $ 7,087
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities
Depreciation and amortization 123,871 32,663
Loss on impairment of goodwill 494,302 -
Stock option expense 172,397 -
Stock issued for services 81,250 -
(Increase) decrease in assets and
increase (decrease) in liabilities
Receivables (600,870) (157,494)
Other receivables (48,732) (1,268)
Inventories (270,397) (48,339)
Other current assets (15,316) 4,755
Deposits (43,777) -
Accounts payable 280,828 118,266
Accrued expenses 184,344 13,785
Income taxes payable (26,843) 2,007
Other current liabilities (17,553) -
------------ ------------
Total adjustments 313,504 (35,625)
------------ ------------
Net cash used in operating
activities (1,584,144) (28,538)
Cash flows from investing activities
Capital expenditures (171,985) (4,023)
Purchase of certificates of deposit (357,980) -
Purchase of K.W. Leisure Limited (320,000) -
Purchase of Multipage, Inc. (50,423) -
------------ ------------
Net cash used in investing
activities (900,388) (4,023)
------------ ------------
Cash flows from financing activities
Proceeds from issuance of common stock 2,623,750 -
Principal payments under capital
lease obligations (112,949) (7,250)
Principal payments on long-term debt - (2,030)
------------ ------------
Net cash provided by (used in)
financing activities 2,510,801 (9,280)
------------ ------------
Net increase (decrease) in cash and
cash equivalents 26,269 (41,841)
Cash and cash equivalents at beginning of year 56,318 98,159
------------ ------------
Cash and cash equivalents at end of year $ 82,587 $ 56,318
============ ============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
F8
- 19 -
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<PAGE>
Brandmakers, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended June 30, 2000 and 1999
<TABLE>
Supplemental schedule of non-cash investing and financing activities and
certain cash flow information:
The following table summarizes the non-cash investing and financing
activities for the year ended June 30, 2000. There were no significant non-cash
investing or financing activities for the year ended June 30, 1999.
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
ACQUISITIONS
Purchase of Multi-Page assets $ 550,000 -
============ ============
Purchase of K.W. Machines, Ltd. assets $ 640,000 -
Less cash paid at closing 320,000 -
------------ ------------
$ 320,000 -
============ ============
CAPITAL LEASES ENTERED INTO $ 801,727 -
============ ============
STOCK OPTIONS GRANTED $ 567,611 -
============ ============
STOCK ISSUED FOR SERVICES $ 81,250 -
============ ============
Supplemental cash flow information:
Interest paid $ 43,440 $ 4,094
Income taxes paid $ 1,968 $ -
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
F9
- 20 -
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<PAGE>
Brandmakers, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Brandmakers, Inc. (the Company) was incorporated in 1980 as a Utah based
corporation consisting of four technology-based divisions with a focus on games
and vending, Internet application development, wireless communications and New
Media. Gamosity, the games and vending division, focuses on computerized games
and vending machine manufacturing and distribution; MailStart engages in
Internet application development and offers free gateway e-mail service as well
as its WebBox application; Zoom Communications manufactures, services, and
distributes wireless on-site and wide-area paging systems; and Splash Studios,
produces New Media and Graphic Design projects. The Company grants normal trade
credit to its customers who are located principally in the United States and
Europe.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
A summary of the significant accounting policies of the Company applied in
the preparation of the accompanying consolidated financial statements follows.
1. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Brandmakers, Inc. and its wholly-owned subsidiary, K.W. Leisure Ltd. All
significant intercompany accounts have been eliminated.
2. BUSINESS COMBINATIONS
MASON OIL COMPANY, INC.
On October 22, 1999, Mason Oil Company, Inc. (Mason Oil) acquired
substantially all of the assets and operations of Brandmakers, Inc. by issuance
of 89,000,000 restricted shares of common stock to Brandmakers, Inc.
shareholders. Simultaneous with the transaction, the old board of directors of
Mason Oil approved the issuance of 4,600,000 shares of the common stock to two
officers pursuant to an Executive Stock Plan (the Plan). Mason Oil issued the
stock under the Plan in compensation for services rendered. To implement this
acquisition of assets, Mason Oil did a spin-off of all assets connected with
its prior business to certain of its former officers and shareholders. The
Company subsequently changed its name to Brandmakers, Inc.
For accounting purposes, the acquisition has been treated as a reverse
acquisition and as a recapitalization of Brandmakers, Inc. The historical
financial statements prior to October 22, 1999 are those of Brandmakers, Inc.
Pro forma information giving effect to the acquisition as if the acquisition
took place on July 1, 1999 has not been presented, as it would show the same
information as already presented due to the accounting treatment indicated.
F10
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<PAGE>
Brandmakers, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000 and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
2. BUSINESS COMBINATIONS - CONTINUED
ASSET ACQUISITIONS
During February 2000, the Company acquired certain assets of Multi-Page
Communications, LLC, in foreclosure, from certain individuals. The assets
included inventories and fixed assets. The assets were acquired for
approximately $600,000 to be paid in cash or Company stock (at the Company's
option), ten months from the date of acquisition. The purchase price has been
discounted to approximately $550,000 using an interest rate of 8%.
During March 2000, the Company acquired certain assets from K.W. Machines,
Ltd., a British concern, for approximately $640,000, with $320,000 being paid
at closing and the remaining $320,000 being due in September 2000. The assets
consisted of inventories and fixed assets.
These acquisitions have been treated as asset acquisitions with the
purchase price being allocated to the fair market values of the related assets,
with any excess allocated to goodwill as follows:
<TABLE>
Multi-Page Communications K.W. Machines, Ltd.
------------------------- -------------------
<S> <C> <C>
Inventories $ 160,000 $ 104,000
Fixed assets 106,000 48,000
Goodwill 284,000 488,000
--------- ---------
$ 550,000 $ 640,000
========= =========
</TABLE>
Subsequent to the acquisition of the Multi-Page Communications assets, it
was determined that the inventories did not have any significant ongoing value.
Due to continued losses by this division subsequent to the acquisition, the
Company determined that there had been an impairment loss related to this
acquisition. As a result, the Company recognized an impairment loss of
approximately $494,000, related primarily to the original inventory and
goodwill amounts during the year ended June 30, 2000.
3. REVENUE RECOGNITION
The Company recognizes revenue on products sold at the time of shipment.
Revenue for services provided are recognized when the actual services have been
performed.
4. FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's United Kingdom operations are
translated from Pounds Sterling into U.S. dollars at the rate of currency
exchange at the end of the period. Revenues and expenses are translated at
average monthly exchange rates prevailing during the year. Resulting
translation differences, if material, are recognized as a component of
shareholders' equity and comprehensive income. The resulting translation
differences for the year ended June 30, 2000 were not significant.
F11
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<PAGE>
Brandmakers, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000 and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
5. ACCOUNTS RECEIVABLE
The Company provides for doubtful accounts equal to the estimated
collection losses that will be incurred in the collection of all receivables.
The estimated losses are based upon historical collection experience coupled
with a review of the current status of all existing receivables.
6. INVENTORIES
<TABLE>
Inventories are stated at the lower of cost or market with cost being
determined by the first-in, first-out (FIFO) method. The components of
inventories at December 31, 2000 and 1999 are as follows:
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Raw materials $ 162,379 $ 35,565
Work in progress 50,863 -
Finished goods 234,829 38,589
---------- ----------
$ 448,071 $ 74,154
========== ==========
</TABLE>
7. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation and amortization
are provided in amounts sufficient to relate the cost of depreciable assets to
operations over their estimated useful lives by straight-line and accelerated
methods. The equipment under capital leases is being amortized over the term of
the leases.
<TABLE>
The components of property and equipment as of June 30, 2000 and 1999 are
as follows:
<CAPTION>
Estimated
Class of Asset Useful Life (years) 2000 1999
----------------------------- ------------------- ---------- ----------
<S> <C> <C> <C>
Equipment 3 - 7 $1,167,193 $ 122,939
Furniture and fixtures 7 55,729 8,171
Leasehold improvements 39 35,900 -
---------- ----------
1,258,822 131,110
Less accumulated depreciation
and amortization 164,521 53,080
---------- ----------
$1,094,301 $ 78,030
========== ==========
</TABLE>
F12
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<PAGE>
Brandmakers, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000 and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
8. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards Number 109 (SFAS 109), Accounting for Income
Taxes, which requires the liability method for computing deferred income taxes.
The Company files its corporate tax returns separately from its
wholly-owned U.K. subsidiary. The Company has a net operating loss for
financial reporting purposes of approximately $1,900,000 at June 30, 2000.
The net operating loss carryforward for income tax purposes is approximately
$1,110,000 at June 30, 2000. The net operating loss carryforward may be
utilized in offsetting taxable income generated and expires in 2020.
SFAS 109 requires recognition of deferred tax liabilities and assets for
the expected future consequences of events that have been included in the
financial statements or tax returns. The components of the net deferred tax
accounts as of June 30, 2000 are as follows. There were no significant deferred
tax balances at June 30, 1999.
<TABLE>
2000
----------
<S> <C>
Compensation - related accounts $ 104,000
Impairment loss 198,000
Other accruals and receivables 10,000
Net operating loss carryforward 444,000
----------
Deferred tax asset - net 756,000
Valuation allowance (756,000)
----------
$ 0
==========
</TABLE>
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards Number 107 (SFAS 107),
Disclosures About Fair Value of Financial Instruments, requires disclosure of
the fair value of certain items, including receivables, payables, and debt.
The Company believes that the amounts disclosed for such amounts within the
balance sheets do not differ significantly from fair value as defined in
SFAS 107.
F13
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<PAGE>
Brandmakers, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000 and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
10. CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, are principally accounts receivable.
Concentration of credit risk with respect to accounts receivable is limited
due to the number of customers comprising the Company's customer base and the
segments in which its customers operate. To reduce risk, the Company routinely
assesses the financial strength of its customers and, as a consequence,
believes that its trade accounts receivable credit risk exposure is limited.
11. IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets and certain identifiable intangibles
to be held and used for impairment whenever events or changes in circumstances
indicate that the carrying amount of any asset may not be recoverable. The
Company periodically reviews projected undiscounted cash flows of the
underlying long-lived asset to determine if the assets are impaired. If there
is an indication of impairment, the Company records a valuation allowance
against the applicable long-lived assets.
During the year ended June 30, 2000, the Company determined that
impairment loss had occurred related to its investment in certain Multi-Page
assets, as described in Note A-2, and a loss of approximately $494,000 was
recognized.
12. INTEREST
Interest costs are charged to operations as incurred.
13. ADVERTISING COSTS
Advertising costs are charged to operations as incurred.
14. EARNINGS PER SHARE
Basic earnings per share are computed based upon net earnings (loss) and
the weighted average number of shares outstanding. Diluted earnings (loss) per
share reflect the assumed issuance of common shares under the Company's stock
option plan. The computation of diluted earnings per share does not assume
exercise of securities that would have an antidilutive effect on earnings per
share.
15. OTHER COMPREHENSIVE INCOME
The Company has adopted SFAS No. 130, which establishes standards for
reporting and display of comprehensive income and its components. Other
comprehensive income was insignificant for the years ended June 30, 2000 and
1999.
F14
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<PAGE>
Brandmakers, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000 and 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
16. CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
17. RECLASSIFICATIONS
Certain reclassifications have been made to the financial statements for
the year ended June 30, 1999 to be consistent with the classifications used for
the year ended June 30, 2000.
NOTE B - CREDIT FACILITY
The Company has an accounts receivable agreement with a financial
institution whereby the financial institution will advance the Company up to
$1,000,000 on its qualified receivables. The credit facility bears interest at
the prime rate plus 1.5%. (The prime rate at June 30, 2000 was 9.5%.)
Additionally, the credit facility carries a service fee of 1.5% per month for
the first 30 days and an additional .5% for each 15 days thereafter. There is
a minimum monthly fee of $3,750 during the 12-month term of the agreement.
The agreement is secured by accounts receivable and the guarantee of certain
officers of the Company. There were no advances on the agreement at
June 30, 2000.
NOTE C - NOTES PAYABLE
<TABLE>
Notes payable consist of the following as of June 30, 2000:
<S> <C>
Note payable to certain individuals related to the purchase
of the Multi-Page assets. The Company has the option of
satisfying the $600,000 purchase price by issuing shares
on January 1, 2001 in an amount sufficient to cover the
purchase price or by paying cash in this amount. The
liability for this obligation has been discounted using an
8% interest rate. The Company has escrowed 2,000,000
shares of its common stock for this agreement. $600,000
Discount (45,416)
--------
554,584
Note payable to a British concern in conjunction with the
purchase of the K.W. Leisure, Ltd. assets. The Company is
obligated to pay the seller 200,000 Pounds Sterling on
September 1, 2000. The Company was in default on
payment of this note as of September 26, 2000. 320,000
Other notes 13,752
--------
$888,336
========
</TABLE>
F15
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<PAGE>
Brandmakers, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000 and 1999
NOTE D - COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases its operating facilities under noncancelable operating
lease agreements expiring at varying dates through March 2005. The Company also
leases a certain operating facility under a cancelable lease agreement. Total
rent pursuant to cancelable and noncancelable leases was approximately $149,000
and $65,000 for the years ended June 30, 2000 and 1999, respectively.
<TABLE>
The Company also leases certain equipment which has been capitalized in
accordance with Statement of Financial Accounting Standards Number 13 (SFAS 13)
at June 30, 2000 as follows:
<CAPTION>
2000
--------
<S> <C>
Equipment under capital leases $900,065
Less accumulated amortization 88,744
--------
$811,321
</TABLE>
<TABLE>
The following is a schedule of future minimum rental payments under the
noncancelable operating lease agreements and the future minimum lease payments
under the capital lease agreements together with the present value of the net
minimum lease payments as of June 30, 2000:
<CAPTION>
Year ending June 30, Capital Leases Operating Leases
---- -------- --------
<S> <C> <C>
2001 $374,194 $197,312
2002 320,653 197,028
2003 150,496 177,912
2004 - 137,461
2005 - 78,668
-------- --------
Total minimum payments $845,343 $788,381
========
Less amounts representing interest 131,450
Present value of minimum lease payments 713,893
Less current portion 291,531
--------
$422,362
========
</TABLE>
Certain of the capital leases have been personally guaranteed by certain
directors and officers and stockholders of the Company. Additionally, the
Company has secured certain capital leases with a certificate of deposit in
the approximate amount of $358,000.
F16
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<PAGE>
Brandmakers, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000 and 1999
NOTE D - COMMITMENTS AND CONTINGENCIES - CONTINUED
EMPLOYMENT AGREEMENTS
During the current year, the Company signed employment agreements with
certain of the Company's officers which expire at various dates through
February 2003. The agreements require payment of certain minimum compensation
levels to the officers upon termination. The future minimum compensation
payments under these agreements are as follows:
<TABLE>
<S> <C>
Year ending June 30,
----
2001 $ 481,750
2002 662,083
2003 249,167
----------
$1,393,000
==========
</TABLE>
OTHER
The Company from time to time has cash deposits which fluctuate in excess
of the insured limitation of the Federal Deposit Insurance Corporation. If the
financial institution was not to honor their contractual liability, the Company
could incur losses. Management is of the opinion that there is no risk due to
the financial strength of this institution.
From time to time, the Company may have asserted and unasserted claims
arising in the normal course of business. The Company does not expect losses,
if any, arising from these asserted and unasserted claims to have a material
effect on the financial statements.
NOTE E - EMPLOYEE BENEFIT PLAN
The Company has a 401(k) Profit-Sharing Plan (the Plan) covering
substantially all employees. The Plan is funded through discretionary employee
contributions and allows the Company to make additional contributions at the
discretion of the Board of Directors. There were no discretionary contributions
for the years ended June 30, 2000 and 1999. Annual contributions are limited to
the amount deductible under the applicable federal income tax provisions.
F17
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<PAGE>
Brandmakers, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000 and 1999
NOTE F - STOCK COMPENSATION PLANS
During the year ended June 30, 2000, the Company adopted a stock-based
compensation plan under which certain employees receive stock options. The
vesting periods range from immediate vesting to vesting over a 3 to 4-year
period. The Company has adopted the disclosure requirements of SFAS No. 123,
"Accounting for Stock-based Compensation," and as permitted under SFAS No. 25
and related interpretation in accounting for its plan. Compensation expense
recorded under APB No. 25 was approximately $172,000 for the year ended
June 30, 2000. If the Company had elected to adopt the optional recognition
provisions of SFAS No. 123 for its stock option plan, net loss and loss per
share would have been changed to the pro forma amounts indicated below for the
year ended June 30, 2000:
<TABLE>
<S> <C>
NET LOSS
As reported $(1,897,648)
Pro forma $(1,845,537)
LOSS PER SHARE - BASIC
As reported $ (.17)
Pro forma $ (.17)
LOSS PER SHARE - DILUTED
As reported $ (.17)
Pro forma $ (.17)
</TABLE>
The fair value of the stock options used to compute pro forma net loss and
loss per share disclosures is the estimated fair value at grant date using the
Black-Scholes option-pricing model with the following assumptions:
<TABLE>
Weighted Average Assumptions
----------------------------
<S> <C>
Dividend yield 0%
Expected volatility of Company stock 50%
Risk-free interest rate 6%
Expected holding period (in years) 3 years
</TABLE>
<TABLE>
Presented below is a summary of the status of the Company stock options
and related transactions for the year ended June 30, 2000.
<CAPTION>
Weighted
Average
Shares Exercise Price
---------- ------
<S> <C> <C>
Options outstanding at June 30, 1999 - $ -
Options granted 3,908,383 .11
Options exercised - -
---------- ------
Options outstanding at June 30, 2000 3,908,383 $ .11
========== ======
</TABLE>
F18
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<PAGE>
Brandmakers, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000 and 1999
NOTE F - STOCK COMPENSATION PLANS - CONTINUED
The weighted average fair value of the Company's stock options, calculated
using the Black-Scholes option-pricing model, granted during the year ended
June 30, 2000 was approximately $396,000.
<TABLE>
The following table summarized the status of stock options outstanding and
exercisable at June 30, 2000:
<CAPTION>
Stock Options Outstanding Stock Options Exercisable
------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Prices Shares Life (Years) Price Shares Price
--------------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
No
$.01 to $.017 2,900,050 Expiration $0.015 1,127,788 $0.013
No
$.25 to $.50 1,008,333 Expiration $0.374 91,666 $0.330
---------- ----------
3,908,383 1,219,454
========== ==========
</TABLE>
NOTE G - COMPANY STOCK
During the year ended June 30, 2000, the Company raised approximately
$2,515,000 through the sale of 16,000,000 shares of its common stock in private
offerings. In conjunction with these offerings the Company issued warrants for
6,000,000 shares of company stock at prices ranging from $.50 to $.75 per
share. The warrants are callable in three years at prices ranging from $1.00 to
$1.25.
The Company has also issued 50,000 warrants for its common stock to a
supplier at $.75, which expire in five years.
NOTE H - OPERATING SEGMENTS
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", beginning with the year ended
June 30, 2000. This standard requires disclosure of segment information
on the same basis used internally for evaluating segment performance and
for deciding how to allocate resources to segments.
The Company has four reportable operating segments: Games and vending
focuses on computerized games and vending machine manufacturing and
distribution. Internet application development engages in internet application
development and offers free gateway e-mail service as well as its WebBox
application. Wireless communications manufactures, services, and distributes
wireless on-site and wide-area paging systems. New Media is engaged in the
creation of graphic design projects.
F19
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<PAGE>
Brandmakers, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000 and 1999
NOTE H - OPERATING SEGMENTS - CONTINUED
The four reportable operating segments are strategic market units that
offer distinct products and services. These segments have been determined based
upon the customers and markets served by the Company. Each segment is managed
separately due to the different required technologies and marketing strategies.
Intersegment transactions that occur are based on current market prices and
intersegment profit, if any, has been eliminated in consolidation.
Performance measurement and resource allocation for the reportable
segments are based on various factors, including earnings (loss) before taxes.
The Company has allocated the cost of shared services based upon usage and
factors that are activity based in nature. The accounting policies for the
separate reportable segments are the same as those described for the Company.
<TABLE>
Reportable Segments
----------------------
Year ended June 30, 2000
<CAPTION
Games & Internet Wireless New Consolidated
Vending Application Communication Media Corporate Totals
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 725,385 $ 161,393 $ 2,344,181 $ 148,516 $ 15,151 $ 3,394,626
Depreciation
& amortization 10,985 82,570 9,748 902 19,666 123,871
Earnings (loss) before taxes (475,581) (381,115) (740,021) (300,931) - (1,897,648)
Assets 988,451 1,161,966 838,745 36,852 735,583 3,761,597
Capital expenditures
(including capital leases) 36,046 861,373 144,184 4,660 35,900 1,082,163
</TABLE>
<TABLE>
Geographic Information
----------------------
Year ended June 30, 2000
<CAPTION
Revenues Long-Lived Assets
---------- ----------
<S> <C> <C>
United States $3,005,701 $1,860,226
United Kingdom 388,925 523,267
---------- ----------
Total $3,394,626 $2,383,493
</TABLE>
Concentrations
----------------------
The Company does not have any individual customers which represent greater
than 10% of total sales. The Company does have a vendor that accounts for a
substantial portion of its product purchased for the wireless communication
segment. The Company believes that a loss of this source of materials could
have a material and adverse impact on operating results.
F20
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<PAGE>
Brandmakers, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000 and 1999
NOTE I - COMPANY OPERATIONS AND SUBSEQUENT EVENT
The Company experienced a net loss of approximately $1,898,000 for the
year ended June 30, 2000 and has working capital deficit of approximately
$505,000 at June 30, 2000. Additionally, the Company has experienced continued
losses subsequent to June 30, 2000. The consolidated balance sheet at
June 30, 2000 does not include any adjustments related to the recoverability
and classification of recorded assets, or the amount and classification of
liabilities that might be necessary in the event the Company cannot continue in
existence. The Company is in the process of seeking additional capital and/or
financing, while working to bring the Company's operations to a point of
profitability and positive cash flows through increased sales and management of
operating expenses.
On August 18, 2000 certain shareholders of the Company entered into an
agreement with World Sales & Merchandising, Inc. (WSMI) whereby WSMI would
acquire 89,000,000 shares of the capital stock of Brandmakers, Inc. in exchange
for 1,200,000 shares of common stock of Bee-Trade.com, Inc. held by WSMI valued
at $32 per share. The total value of the proposed transaction is approximately
$38,400,000.
Concurrent with the proposed transaction with WSMI, WSMI has agreed to
fund a bridge loan in the amount of $1,000,000, with the timing and terms of
funding yet to be determined. Brandmakers, Inc. will secure the bridge loan
with 6,250,000 common shares of the Company.
The Company believes that the proposed transaction, upon its consummation,
would provide the Company with the liquidity and business connections that it
will require as it works to bring the Company's operations to a point of
profitability and positive cash flows. The transactions are subject to normal
"due diligence" procedures by the parties.
F21
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<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
As reported in Form 8-K filed May 23, 2000, the Company changed certifying
accountants to Bearden & Smith, P.C., 1776 Old Spring Lane, Atlanta, GA 30338.
This change was desired to accommodate the geographical headquarter move from
Colorado to Georgia after the Mason Oil transaction. Brandmakers desired a
firm in the Atlanta area.
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The Company's directors and executive officers are as follows:
Geoff Williams, Age 55, Director and Chief Executive Officer
Mr. Williams has been Chief Executive Officer of Brandmakers since its
founding in 1992. Mr. Williams has been operating his own company since 1983,
when he started G.W. Leisure, Ltd. At the time of this last acquisition, Mr.
Williams was Chief Executive Officer of Greyhound UK. Mr. Williams next formed
Imperial Resources Inc. to allow his company to expand in the overseas marker.
In 1990, he developed "Clown A Round" and "Beat the Pro" leisure games for Star
Manufacturing, USA. Mr. Williams moved to Atlanta, Georgia from England in
September 1991, while still employed by Star Manufacturing as head of new
products. Mr. Williams has been a Fellow of the Import & Export Trade since
1987.
Joy Williams, Age 43, Director and Secretary
Ms. Williams has been with Brandmakers since its inception. She served as
accountant for seven years with Brandmakers. Prior to becoming associated with
Brandmakers, Ms. Williams was assistant to the Chief Financial Officer of a
theatrical agent for three years, a partner in charge of all bookkeeping and
payroll for an Italian Restaurant and a partner in several pubs in England with
duties that included staff management and administration. She is the spouse of
Geoff Williams. Ms. Williams resigned as a board member on September 15, 2000.
Robert Palmquist, Age 68, Director
Mr. Palmquist is a graduate of the University of Nebraska with a degree in
Business Administration and graduate work in economics and finance.
Mr. Palmquist has been with Brandmakers since 1995. Prior to his service with
Brandmakers, he served as Executive Director of a charitable organization,
president of Personal Investment Company (a real estate investment firm),
President of Professional Management Enterprises, and Vice President of the
national securities firm Hayden Stone, Inc. Mr. Palmquist resigned as a board
member on September 15, 2000.
- 33 -
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<PAGE>
Richard Deleguardia, Age 53, Director
Mr. Delguardia is President of WSMI. Mr. Deleguardia's experience
includes more than 25 years as a Senior Marketing Executive with national
advertising agencies and prominent client companies. His agency experience
includes managing and directing marketing activities for companies such as
McDonalds, Ford Motor Company, American Home Products, Financial Corporation of
America, Olin Chemical Corporation, Citibank, Pepsico, Ralston Purina and
General Motors. Mr. Deleguardia has also served as Vice President, Marketing at
Pepsico's food service division and as Executive Vice President, Sales &
Marketing at Spectacor, where his responsibilities included the Philadelphia
Flyers Hockey Club, the First Union Center and the Spectrum. Mr. Deleguardia
joined the Brandmakers' board of directors on September 15, 2000.
Brian Zufelt, Age 45, Director
Mr. Zufelt is Vice President, Business Development of WSMI. He brings
20 years experience in Personal Financial Planning and Life Agency Management
to the company. While most of his career has been with The Canada Life
Assurance Company, he spent several years as a broker working with all of the
major Canadian insurers, serving the financial needs of his clients. In order
to become an accredited Estate Planning advisor, Mr. Zufelt spent a number of
years building his client base and qualifying for several professional
designations. Following 10 years of building a professional practice, he moved
into Life Agency management. While maintaining his practice, he developed and
managed several sales units and an agency. Agency Management included
recruitment and training, day to day supervision of several staff and
professional development of a number of established advisors. Mr. Zufelt
joined the Brandmakers' board of directors on September 15, 2000.
Hank W. Cleare, Age 32, President and Chief Operating Officer
Since 1999, Mr. Cleare has served as President and Chief Operating Officer
of Brandmakers, Inc. From 1997 through 1999, Mr. Cleare served as Senior Vice
President of Professional Services for BISYS Group, Inc. BISYS supports more
than 9,500 financial institutions by integrating technology with growth-
enabling business solutions. From 1991 through 1997, he worked with the Federal
Reserve Bank in the Department of Supervision and Regulation as a Lead Examiner
of commercial banks, bank holding companies, trust departments and securities
firms. Mr. Cleare received a Bachelor of Science in Business Administration in
Finance with Honors from the University of Florida in 1990.
Chuck Massey, Age 44, Chief Financial Officer
Mr. Massey has served as CFO since March 2000. He is a CPA and holds a
Bachelor of Business Administration from North Georgia College and a masters
degree in Industrial Management from Georgia Tech. Mr. Massey has over twenty
years experience in accounting and information technology positions.
Immediately prior to his Brandmakers position, Mr. Massey was Corporate
Controller for Pacesetter Steel Service. From 1990 to 1998, he was employed in
various financial and accounting positions at Alcoa. Mr. Massey has resigned
effective October 13, 2000 to pursue other interests.
All directors serve until the next annual meeting of shareholders, and
until their successors are duly elected and qualified. None of the current
directors of the Company serves as a director of any other reporting company.
- 34 -
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<PAGE>
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file certain reports
regarding ownership of and transactions in the Company's equity securities with
the Securities and Exchange Commission. Such officers, directors and ten-
percent shareholders are also required by SEC rules to furnish the Company with
copies of all Section 16(a) forms that they file.
Based solely upon its review of copies of such forms or "no filings
required letters" received by it, the Company believes that during the fiscal
year ended June 30, 2000, all reports were filed on a timely basis.
Item 10. Executive Compensation
<TABLE>
Set forth below is a Summary Compensation Table, showing the various
elements of compensation earned during the last completed fiscal year and
during the previous two years for directors and the company president. No other
executive officer received compensation exceeding $100,000 during the fiscal
year ended June 30, 2000.
<CAPTION>
Other Restr- Securities All
Name and Annual icted Underlying Other
Principal Fiscal Compen- Stock Options/ LTIP Compens-
Position Year Salary Bonus sation Awards SARs Payouts ation
------------ ---- ------- ------ ------- --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CEO 2000 $92,765 - - - - - -
Geoff 1999 $65,700 - - - - - -
Williams 1998 $90,150 - - - - - -
Director 2000 $27,925 - - - - - -
Joy 1999 $25,650 - - - - - -
Williams 1998 $ 0 - - - - - -
Director 2000 $44,351 - - - - - -
Robert 1999 $ 0 - - - - - -
Palmquist 1998 $ 0 - - - - - -
President 2000 $65,528 2,200,050
Hank 1999 $ 0 - - - - - -
Cleare 1998 $ 0 - - - - - -
</TABLE>
- 35 -
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<PAGE>
The following table sets forth certain information concerning options
granted to the Named Executive Officers during the fiscal year ended
June 30, 2000.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
(1999 Fiscal Year Individual Grants)
<CAPTION>
Individual Grants
-----------------------
Number of Percentage of
Securities Total Options
Underlying Granted Exercise of
Options to Individuals Base Price Expiration
Name Granted in Fiscal Year per Share Date
-------------- ---------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
Hank W. Cleare 2,200,050 56.3% $0.017 none
</TABLE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The table below sets forth as of the Record Date (i) the name and address
of each person known by management to own beneficially more than five percent
(5%) of the Company's outstanding Common Stock, the number of shares
beneficially owned by each such shareholder and the percentage of outstanding
shares owned and (ii) the number and percentage of outstanding shares of Common
Stock beneficially owned by each of the Company's directors and each of the
five highest paid executive officers of the Company, individually (excluding
executive officers whose annual compensation is less than $100,000) and by all
directors and executive officers of the Company as a group. Unless otherwise
noted, the persons named below have sole voting and investment power with
respect to such shares.
<TABLE>
Percent
Number of Beneficially
Beneficial Owners Shares Owned
------------------------------------- ---------- ------------
<S> <C> <C>
Geoff Williams (Director and Officer) 25,410,454 20.6%
4931 Bill Cheek Road
Auburn, GA 30011
Joy Williams (Director) 25,410,454 20.6%
4931 Bill Cheek Road
Auburn, GA 30011
Robert Palmquist (Director) 20,780,317 16.9%
P.O. Box 278118
Sacramento, CA 95827
Hank W. Cleare (Officer) 880,014 0.1%
2389 Deer Ridge Drive
Stone Mountain, GA 30087
All Executive Officers and Directors 72,536,239 58.9%
as a group - Total
</TABLE>
- 36 -
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<PAGE>
Item 12. Certain Relationships and Related Transactions
To the knowledge of management, the Company was not involved in any
transaction and is not currently involved in any proposed transaction, in which
the Company or any of its subsidiaries was or is to be a party, in which any of
its directors, officers, nominees for election as directors, security holders
or immediate family member of any of the parties mentioned above, have a direct
or indirect material interest, other than transactions involving employment.
Section 16(a) Beneficial Ownership Reporting Compliance
Each of Hank Cleare and Chuck Massey were late in filing a Form 3 following
their promotion to executive officers of the Company.
Item 13. Exhibits and Reports on Form 8-K
- 37 -
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<PAGE>
SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
BRANDMAKERS, INC
/s/ Geoff Williams Chief Executive Officer October 9, 2000
------------------ and Director ---------------
Geoff Williams
In accordance with the Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant in the capacities
and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Geoff Williams Chief Executive Officer October 9, 2000
------------------ and Director ---------------
Geoff Williams
- 38 -
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<PAGE>
