UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): January 5, 2000
(October 22, 1999)
BRANDMAKERS, INC. (formerly Mason Oil Company, Inc.)
(Exact name of registrant as specified in its charter)
Utah 000-28184 37-0278175
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
1324 Capital Circle, NW, Unit C
Lawrenceville, Georgia 30043
(Address of principal executive offices)
(770) 338-1958
(Registrant's telephone number, including area code)
<PAGE>
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) The registrant is filing the required financial statements in connection
with its acquisition of Brandmakers, Inc. on October 22, 1999 on this
amendment to Form 8-K.
(b) The registrant is also filing the required pro forma information in
connection with the acquisition described in Item 7a above on this amendment
to Form 8-K.
<PAGE>
SIGNATURES
Pursuant to 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 hereunto duly authorized.
Date: January 5, 2000 By:/s/Geoff Williams
Geoff Williams
Chief Executive Officer
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF
OPERATIONS AND UNAUDITED PRO FORMA
COMBINED BALANCE SHEET
The following unaudited pro forma combined statement of operations for the year
ended June 30, 1999 and the unaudited pro forma combined balance sheet as of
June 30, 1999 give effect to the business combination of Mason Oil Company, Inc.
and Brandmakers, Inc. The transaction between Mason Oil Company, Inc. and
Brandmakers, Inc. has been accounted for as a combination of companies treated
as a reverse acquisition. The unaudited pro forma statement of operations has
been prepared as if the proposed transaction occurred on July 1, 1998. The
unaudited pro forma balance sheet has been prepared as if the proposed
transaction occurred June 30, 1999. These pro forma statements are not
necessarily indicative of the results of operations or the financial position as
they may be in the future or as they might have been had the transactions become
effective on the above mentioned dates.
The unaudited pro forma combined statement of operations for the year ended
June 30, 1999 includes the results of operations of Mason Oil Company, Inc. and
Brandmakers, Inc.
The unaudited pro forma combined statement of operations and the unaudited pro
forma combined balance sheet should be read in conjunction with the separate
historical financial statements and notes thereto of Mason Oil Company, Inc. and
Brandmakers, Inc.
<PAGE>
Notes to Unaudited Pro Forma Combined Financial Statements
The following notes and adjustments are related to the business combination
between Mason Oil Company, Inc. (Mason) and Brandmakers, Inc. (Brandmakers).
1) Records the issuance of 4,600,000 shares to former officers for prior
services rendered. The shares were valued at $.10 per share, determined by
the former management of Mason.
(2) Records the acquisition of Mason by Brandmakers treated as a reverse
acquisition for accounting purposes.
The following assets were acquired and liabilities assumed of Mason:
Cash $ 91,970
Note receivable 110,900
Property and equipment, net 555,941
Other assets 20,421
Accounts payable (64,136)
Notes payable - shareholders (258,824)
--------
Net assets acquired $456,272
========
The following recapitalization and net effect on equity occurred:
Net common stock received $ 88,900
Accumulated deficit eliminated 2,408,758
Reduction to additional paid-in capital (2,041,386)
----------
Net effect on equity $ 456,272
==========
(3) A pro-forma tax adjustment for the net loss generated by Mason has not
been provided for in the accompanying pro-forma statement of operations
and to the uncertainty of realization.
(4) The following additional shares were issued in connection with adjustments
(1) and (2) above:
Stock issued for services to prior officers 4,600,000
Shares issued in reverse acquisition 89,000,000
----------
93,600,000
==========
<PAGE>
Unaudited Pro Forma Combined Balance Sheet
As of June 30, 1999
<TABLE>
<CAPTION>
Pro Forma Adjustments
----------------------------
Mason Brandmakers Total Debit Credit Combined
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash ................................ $ 91,970 $ 56,318 $ 148,288 $ -- $ -- $ 148,288
Accounts receivable, net ............ -- 179,005 179,005 -- -- 179,005
Inventory ........................... -- 74,154 74,154 -- -- 74,154
Note receivable ..................... 110,900 -- 110,900 -- -- 110,900
Prepaid expenses and other .......... -- 3,523 3,523 -- -- 3,523
----------- ----------- ----------- ----------- ----------- -----------
Total current assets ............... 202,870 313,000 515,870 -- -- 515,870
----------- ----------- ----------- ----------- ----------- -----------
Property and equipment,
net ................................ 555,941 78,030 633,971 -- -- 633,971
Other assets ........................ 20,421 11,466 31,887 -- -- 31,887
----------- ----------- ----------- ----------- ----------- -----------
Total ............................... $ 779,232 $ 402,496 $ 1,181,728 $ -- $ -- $ 1,181,728
=========== =========== =========== =========== =========== ===========
Liabilities and Shareholders' Equity
Current portion of
long-term debt ..................... $ -- $ 19,032 $ 19,032 $ -- $ -- $ 19,032
Notes payable-
shareholders and
officers ........................... 258,824 10,108 268,932 -- -- 268,932
Stock subscription
payable ............................ -- 50,000 50,000 -- -- 50,000
Accounts payable .................... 64,136 171,869 236,005 -- -- 236,005
Accrued payroll and
expenses ........................... -- 17,215 17,215 -- -- 17,215
Income taxes payable ................ -- 26,843 26,843 -- -- 26,843
----------- ----------- ----------- ----------- ----------- -----------
Total current
liabilities ..................... 322,960 295,067 618,027 -- -- 618,027
----------- ----------- ----------- ----------- ----------- -----------
Long-term liabilities -
deferred compensation .............. 120,000 -- 120,000 120,000(1) -- --
Long-term debt ...................... -- 19,835 19,835 -- -- 19,835
----------- ----------- ----------- ----------- ----------- -----------
Deferred income taxes ............... -- 6,400 6,400 -- -- 6,400
----------- ----------- ----------- ----------- ----------- -----------
Shareholders' equity
Common stock, .001 par
value ............................. 10,890 100 10,900 -- (4,600)(1) 104,490
(88,900)(2)
Additional paid-in
capital ........................... 2,365,801 -- 2,365,801 2,041,386(2) (455,400)(1) 323,543
456,272(2)
Retained (deficit)
earnings .......................... (2,068,758) 81,094 (1,987,664) 340,000(1) (2,408,758(2) 81,094
Foreign currency
translation adjustment ............ 28,339 -- 28,339 -- -- 28,339
----------- ----------- ----------- ----------- ----------- -----------
Total shareholders'
equity .......................... 336,272 81,194 417,466 2,837,758 (2,957,758) 537,466
----------- ----------- ----------- ----------- ----------- -----------
Total ............................... $ 779,232 $ 402,496 $ 1,181,728 $ 2,957,758 $(2,957,758) $ 1,181,728
=========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
Unaudited Pro Forma Combined Statement of Income
For the Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
Pro Forma Adjustments
-------------------------
Mason Brandmakers Total Debit Credit Combined
----------- ----------- ----------- ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues ............. $ -- $ 2,055,040 $ 2,055,040 $ -- $ -- $ 2,055,040
Operating expenses
Cost of revenues ... -- 1,218,798 1,218,798 -- -- 1,218,798
Selling, general and
administration .... 565,915 824,903 1,390,818 340,000(1) -- 1,730,818
----------- ----------- ----------- ----------- ------ -----------
Total operating
expenses .......... 565,915 2,043,701 2,609,616 340,000 -- 2,949,616
----------- ----------- ----------- ----------- ------ -----------
Income (loss) from
operations .......... (565,915) 11,339 (554,576) 340,000 -- (894,576)
----------- ----------- ----------- ----------- ------ -----------
Other income ......... 23,358 1,566 24,924 -- -- 24,924
Interest expense ..... (27,463) (3,811) (31,274) -- -- (31,274)
----------- ----------- ----------- ----------- ------ -----------
Income (loss) before
taxes ............... (570,020) 9,094 (560,926) 340,000 -- (900,926)
Income tax expense
(benefit) ........... -- 2,007 2,007 -- -- 2,007
----------- ----------- ----------- ----------- ------ -----------
Net income (loss) .... $ (570,020) $ 7,087 $ (562,933) $ 340,000 $ -- $ (902,933)
=========== =========== =========== =========== ====== ===========
Basic earnings (loss)
per share $ (.05) $ (.01)
=========== ===========
Weighted average pro
forma shares
outstanding - basic 11,142,449 104,742,449
=========== ===========
Diluted earnings (loss)
per share $ (.05) $ (.01)
========== ===========
Weighted average pro
forma shares
outstanding - diluted 11,142,449 104,742,449
========== ===========
</TABLE>
<PAGE>
BRANDMAKERS, INC.
FINANCIAL STATEMENTS
Year Ended June 30, 1999
<PAGE>
CONTENTS
Page
INDEPENDENT AUDITORS' REPORT . . . . . . . . . . . . . . . . 1
FINANCIAL STATEMENTS
Balance Sheet . . . . . . . . . . . . . . . . . . . . . . 2
Statement of Income . . . . . . . . . . . . . . . . . . . 3
Statement of Retained Earnings . . . . . . . . . . . . . 4
Statement of Cash Flows . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . 6
<PAGE>
Independent Auditors' Report
Mr. Geoffrey Williams,
President
Brandmakers,
Inc.
Lawrenceville, Georgia
We have audited the accompanying balance sheet of Brandmakers, Inc.(a Georgia
corporation) as of June 30, 1999, and the related statements of income, 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 its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
Santi & Associates, PC
Duluth, Georgia
December 22, 1999
BRANDMAKERS, INC.
BALANCE SHEET
June 30, 1999
--------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash $ 56,318
equivalents
Accounts receivable, 177,737
trade
Account receivable, 1,268
other
Inventory 74,154
Prepaid expenses 3,523
----------
TOTAL CURRENT
ASSETS 313,000
----------
PROPERTY AND EQUIPMENT, at
cost
Furniture and 8,171
fixtures
Computers and office 65,857
equipment
Equipment 23,587
Trucks and 33,495
Automobiles
----------
131,110
Less accumulated depreciation -53,080
----------
78,030
----------
OTHER ASSETS
Deposits 11,466
----------
--------------------------------------------------------------------------
TOTAL ASSETS $ 402,496
--------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT
LIABILITIES
Current maturities of $ 2,446
long-term debt
Current portion of capital lease 16,586
obligations
Accounts payable 171,869
Officer loan payable 10,108
Other 50,000
payables
Accrued payroll and 17,215
payroll taxes
Accrued income taxes 26,843
----------
TOTAL CURRENT LIABILITIES 295,067
----------
LONG-TERM DEBT 6,163
----------
CAPITAL LEASE OBLIGATIONS 13,672
----------
DEFERRED INCOME TAXES 6,400
----------
STOCKHOLDER'S EQUITY
Common stock, no par value, 1,000
shares authorized, 100 issued
and oustanding 100
Retained earnings 81,094
----------
81,194
----------
--------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 402,496
--------------------------------------------------------------------------
The accompanying notes are an integral part of
these financial statements.
2
<PAGE>
BRANDMAKERS, INC.
STATEMENT OF INCOME
Year Ended June 30, 1999
--------------------------------------------------------------------------
REVENUES $ 2,055,040
COST OF REVENUES EARNED 1,218,798
-----------
GROSS PROFIT 836,242
-----------
OPERATING EXPENSES
Advertising and promotion 17,788
Automobile expenses 23,170
Bank charges 516
Depreciation 32,663
Dues and subscriptions 427
Insurance 21,575
Meals and entertainment 11,013
Miscellaneous 582
Office expenses 22,586
Officer payroll 92,300
On-line 708
Professional fees 70,206
Rent 64,845
Repairs and maintenance 11,257
Research and development 9,268
Salaries 331,405
Stock transfer fee 2,000
Supplies 15,269
Taxes - payroll 42,920
Taxes and licenses 1,508
Telephone 27,951
Travel 24,946
----------
TOTAL OPERATING EXPENSES 824,903
----------
OPERATING INCOME 11,339
OTHER INCOME (EXPENSE)
Interest income 1,566
Interest expense -3,811
----------
INCOME BEFORE TAXES 9,094
----------
PROVISION FOR INCOME TAXES
Current 2,007
----------
TOTAL INCOME TAX PROVISION 2,007
----------
NET INCOME $ 7,087
==========
The accompanying notes are an integral part of
these financial statements.
3
<PAGE>
BRANDMAKERS, INC.
STATEMENT OF RETAINED EARNINGS
Year Ended June 30, 1999
--------------------------------------------------------------------------
BALANCE AT BEGINNING OF $ 74,007
YEAR
Net 7,087
income
----------
BALANCE AT END OF YEAR $ 81,094
==========
The accompanying notes are an integral part of
these financial statements.
4
<PAGE>
BRANDMAKERS, INC.
STATEMENT OF CASH FLOWS
Year Ended June 30, 1999
--------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 7,087
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation 32,663
(Increase) Decrease in:
Accounts receivable, trade -157,494
Accounts receivable, other -1,268
Inventory -48,339
Prepaid expenses 8,816
Deposits -4,061
Increase (Decrease) in:
Accounts payable 68,266
Accrued payroll and payroll taxes 14,068
Other payables 50,000
Accrued interest -283
Accrued income taxes 2,007
----------
Net cash used by operations -28,538
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment -4,023
----------
Net cash used by investing activities -4,023
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt -2,030
Principal payments under capital lease obligations -9,750
Increase in officer loan payable 2,500
----------
Net cash used by financing activities -9,280
----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS -41,841
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 98,159
----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 56,318
==========
SUPPLEMENTAL DISCLOSURES
Interest paid $ 4,094
==========
Income taxes paid $ 0
==========
The accompanying notes are an integral part of
these financial statements.
5
<PAGE>
BRANDMAKERS, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
--------------------------------------------------------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Brandmakers, Inc. is
presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of management who is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
1. Principal Business Activity
Brandmakers, Inc. (the "Company") is a Georgia corporation which assembles coin
operated entertainment and product machines. Through its various divisions, the
Company also provides on premise communication systems, graphic art packaging
and point of purchase design, and universal web based Internet services.
2. Basis of Accounting
The Company prepares its financial statements and income tax returns on the
accrual method of accounting.
3. Cash Equivalents
For the purposes of reporting cash flow, cash and cash equivalents include money
market accounts and any highly liquid debt instruments purchased with a maturity
of three months or less.
4. Allowance for Bad
Debts The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is required.
5. Inventory
Inventory is stated at the lower of cost (first-in, first out) or market.
6. Property and Equipment
Property and equipment are stated at cost. Depreciation is computed for
financial reporting purposes principally using the 200% double-declining balance
method over the estimated useful lives of the assets.
7. Income Taxes
Income taxes are provided for the effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes.
Deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted income tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
8. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of certain assets and liabilities and disclosures.
Accordingly, the actual amounts could differ from those estimates. Any
adjustments applied to estimated amounts are recognized in the year in which
such adjustments are determined.
6
<PAGE>
BRANDMAKERS, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
--------------------------------------------------------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
9. Long-lived Assets
Long-lived assets to be held and used are reviewed for impairment whenever
events or changes in circumstances indicate that the related carrying amount may
not be recoverable. When required, impairment losses on assets to be held and
used are recognized based on the excess of the asset's carrying amount and fair
value of the asset and long-lived assets to be disposed of are reported at the
lower of carrying amount or fair value less cost to sell. For the year ended
June 30, 1999, no adjustments in the carrying amount of long-lived assets were
deemed necessary.
10. Advertising Costs
Advertising and promotion costs are expensed as incurred.
NOTE B - INVENTORY
Inventory at June 30, 1999 was as follows:
Vending machine cabinets and components $ 40,165
Finished goods 33,989
-----------
$ 74,154
===========
NOTE C - PROVISION FOR INCOME TAXES
Provision for income taxes consisted of the following:
Currently payable:
Federal $ 1,434
State 573
-----------
Total income tax provision $ 2,007
===========
NOTE D - CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and trade receivables. The Company
occasionally maintains deposits in financial institutions in excess of federally
insured limits. Statement of Financial Accounting Standards No. 105 identifies
these items as a concen- tration of credit risk requiring disclosure regardless
of degree of risk. The risk is managed by maintaining all deposits in high
quality financial institutions. $103,064 of the Company's trade receivables were
due from the Company's six largest customers. One customer accounted for
$803,186 of the Company's net revenues.
The Company is primarily affected by the general economic conditions of the
southeast United States and the entertainment and leisure industries.
7
<PAGE>
BRANDMAKERS, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
--------------------------------------------------------------------------
NOTE G - COMMITMENTS
1. Acquisition by Mason Oil Co., Inc.
On October 22, 1999, the assets of the Company were aquired by Mason Oil Co.,
Inc. This transaction was reported to the Securities and Exchange commission on
form 8K November 4, 1999. The Company's assets were acquired in consideration of
the issuance of 89,000,000 shares of Mason's common stock. After giving effect
to the transaction, the Company or its shareholders held an approximate 85%
equity interest in Mason.
2. Leasing Transactions
The Company leases office space under a noncancelable operating lease. Lease
expense for the Year ended June 30, 1999 was $64,845. Remaining future minimum
lease payments required under this lease are $30,000 for the twelve months
ending June 30, 2000 and $2,500 for the one month ending July 31, 2000, which is
when the lease expires.
NOTE H - CONTINGENCY
The Company has entered into an agreement with Miles Rubber & Supply Company,
Inc., a creditor of Smart Games Interactive, Inc. The Company has taken
possession of all known Smart Games Interactive, Inc. inventory. This inventory
is subject to a Uniform Commercial Code lien filed by Miles Rubber. Under the
agreement, the Company paid Miles Rubber $3,500 for the portion of the inventory
that is usable by the Company. The Company has rescinded the remainder of the
agreement. The balance of the inventory remains subject to the UCC lien and is
not recorded in these financial statements.
The Company has been informed that it is party to a lawsuit filed by John C.
Estill of San Diego, California, who purchased certain golf video games from
Renaissance Group, International, Ltd. The golf games were manufactured by the
Company and the Plaintiff claims that the Company made representations as to
the potential return of Mr. Estill's investment. The Complaint seeks damages
of $200,000. Management currently believes that the factual basis of the claim
is without merit and intends to vigorously defend the litigation and seek
removal of the case from the courts of California.
NOTE I - CASH FLOW DISCLOSURES
Noncash transactions for the year ended June 30, 1999 included the following;
1. Equipment purchased by issuance of long-term debt of $10,639.
2. Computers and office equipment obtained under capital lease of $40,008.
NOTE J - DUE TO RELATED PARTY
Officer loan payable as of June 30, 1999 consists of an unsecured, noninterest
bearing loan from Geoff Williams in the amount of $10,108.
9
<PAGE>
BRANDMAKERS, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
--------------------------------------------------------------------------
NOTE E - LONG-TERM DEBT
Long-term debt at June 30, 1999 is summarized as follows:
Retail installment contract payable $263 monthly,
including interest at 9.5%, due September 2002.
Secured by underlying equipment. $ 8,609
Less current -2,446
portion
-----------
$ 6,163
===========
Maturities of long-term debt for each of the next five years are as follows:
Twelve months ending June 30,
-----------------------------
2000 $ 2,446
2001 2,688
2002 2,955
2003 520
-----------
$ 8,609
===========
NOTE F - CAPITAL LEASES
During the year ended June 30, 1999, the Company acquired computer equipment
under capital leases. The leases expire within the next three years. The
capitalized lease obligations have been recorded as computers and office
equipment with a cost of $40,008. Amortization of the capitalized cost is
included in depreciation expense. The future mnimum lease payments at June 30,
1999 are as follows:
Twelve months ending June 30,
-----------------------------
2000 $ 20,846
2001 13,418
2002 1,509
-----------
35,773
Less amount representing -5,515
interest
-----------
Present value of net minimum $ 30,258
lease payments
===========
<PAGE>
BRANDMAKERS, INC.
FINANCIAL STATEMENTS
Year Ended June 30, 1998
<PAGE>
CONTENTS
Page
INDEPENDENT AUDITORS' REPORT . . . . . . . . . . . . . . . . . 1
FINANCIAL STATEMENTS
Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . 2
Statement of Income . . . . . . . . . . . . . . . . . . . . 3
Statement of Retained Earnings . . . . . . . . . . . . . . 4
Statement of Cash Flows . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . 6
<PAGE>
Independent Auditors' Report
Mr. Geoffrey Williams,
President
Brandmakers,
Inc.
Lawrenceville,
Georgia
We have audited the accompanying balance sheet of Brandmakers, Inc.(a Georgia
corporation) as of June 30, 1998, and the related statements of income, 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, 1998, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
Santi, Philmon & Company
Duluth, Georgia
June 10, 1999
1
<PAGE>
BRANDMAKERS, INC.
BALANCE SHEET
June 30, 1998
----------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 98,159
Accounts receivable, trade 20,243
Inventory 25,815
Prepaid expenses 12,339
----------
TOTAL CURRENT ASSETS 156,556
----------
PROPERTY AND EQUIPMENT
Furniture and fixtures 6,067
Computers and office equipment 23,930
Equipment 12,948
Trucks and autos 33,495
----------
76,440
Less accumulated depreciation (20,417)
----------
56,023
----------
OTHER ASSETS
Deposits 7,405
----------
----------------------------------------------------------------------------
TOTAL ASSETS $ 219,984
----------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 103,603
Officer loan payable 7,608
Accrued and withheld payroll taxes 3,147
Accrued interest 283
Accrued income taxes 24,836
----------
TOTAL CURRENT LIABILITIES 139,477
----------
DEFERRED INCOME TAXES 6,400
----------
STOCKHOLDER'S EQUITY
Common stock, no par value, 1,000
shares authorized, 100 issued and
outstanding 100
Retained earnings 74,007
----------
74,107
----------
----------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 219,984
----------------------------------------------------------------------------
The accompanying notes are an integral
part of these financial statements.
2
<PAGE>
BRANDMAKERS, INC.
STATEMENT OF INCOME
Year Ended June 30, 1998
----------------------------------------------------------------------------
REVENUES $ 1,747,717
COST OF REVENUES EARNED 1,270,568
----------
GROSS PROFIT 477,149
----------
OPERATING EXPENSES
Advertising and promotion 16,686
Auto expenses 7,980
Bank charges 246
Depreciation 11,158
Dues and subscriptions 453
Insurance 9,827
Meals and entertainment 8,435
Miscellaneous 358
Office expenses 12,509
On-line 413
Professional fees 19,835
Rent 23,831
Repairs and maintenance 4,424
Research and development 25,534
Salaries 139,454
Supplies 8,670
Taxes - payroll 8,669
Taxes and licenses 5,072
Telephone 12,467
Travel 22,350
----------
TOTAL OPERATING EXPENSES 338,371
----------
OPERATING INCOME 138,778
OTHER INCOME (EXPENSE)
Interest income 3,129
Interest expense (1,915)
----------
INCOME BEFORE TAXES 139,992
----------
PROVISION FOR INCOME TAXES
Current 24,836
Deferred 6,400
----------
TOTAL INCOME TAX PROVISION 31,236
----------
NET INCOME $ 108,756
==========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
BRANDMAKERS, INC.
STATEMENT OF RETAINED EARNINGS
Year Ended June 30, 1998
----------------------------------------------------------------------------
BALANCE AT BEGINNING OF YEAR $ (34,749)
Net income 108,756
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BALANCE AT END OF YEAR $ 74,007
==========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
BRANDMAKERS, INC.
STATEMENT OF CASH FLOWS
Year Ended June 30, 1998
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 108,756
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation 11,158
Deferred income tax expense (benefit) 6,400
(Increase) Decrease in:
Accounts receivable, trade 18,574
Inventory (1,363)
Prepaid expense (12,339)
Other current assets 348
Deposits (5,820)
Increase (Decrease) in:
Accounts payable 16,601
Accrued and withheld payroll taxes (1,057)
Accrued interest 283
Accrued income taxes 24,836
Other current liabilities (7,618)
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Net cash provided by operations 158,759
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (63,062)
Decrease in officer loan payable (18,609)
Decrease in related party payable (15,244)
----------
Net cash used by investing activities (96,915)
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NET INCREASE IN CASH 61,844
CASH BALANCE AT BEGINNING OF YEAR 36,315
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CASH BALANCE AT END OF YEAR $ 98,159
==========
SUPPLEMENTAL DISCLOSURES
Interest paid $ 1,632
==========
Income taxes paid $ 9,300
==========
The accompanying notes are an integral part of these financial statements..
5
<PAGE>
BRANDMAKERS, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
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NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of BRANDMAKERS, INC. is
presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of management who is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
1. Principal Business Activity and Reporting Period
Brandmakers, Inc. (the "Company") is a Georgia corporation which assembles coin
operated entertainment and product machines. Through its various divisions, the
Company also provides on premise communication systems, graphic art packaging
and point of purchase design, and universal web based Internet services.
2. Basis of Accounting
The Company prepares its financial statements and income tax returns on the
accrual method of accounting.
3. Cash
Cash includes checking and interest bearing money market savings accounts.
4. Allowance for Bad Debts
The Company considers accounts receivable to be fully collectible; accordingly,
no allowance for doubtful accounts is required.
5. Inventory
Inventory is stated at the lower of cost (first-in, first out) or market.
6. Property and Equipment
Property and equipment are stated at cost. Depreciation is computed for
financial reporting purposes principally using the 200% double-declining balance
method over the estimated useful lives of the assets, generally five years.
7. Income Taxes
Income taxes are provided for the effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes.
Deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted income tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
8. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of certain assets and liabilities and disclosures.
Accordingly, the actual amounts could differ from those estimates. Any
adjustments applied to estimated amounts are recognized in the year in which
such adjustments are determined.
6
<PAGE>
BRANDMAKERS, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
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NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
9. Long-lived Assets
Long-lived assets to be held and used are reviewed for impairment whenever
events or changes in circumstances indicate that the related carrying amount may
not be recoverable. When required, impairment losses on assets to be held and
used are recognized based on the excess of the asset's carrying amount and fair
value of the asset and long-lived assets to be disposed of are reported at the
lower of carrying amount or fair value less cost to sell. For the year ended
June 30, 1998, no adjustments in the carrying amount of long-lived assets were
deemed necessary.
10. Advertising Costs
Advertising and promotion costs are expensed as incurred.
NOTE B - INVENTORY
Inventory at June 30, 1998 was as follows:
Vending machine cabinets and components $ 25,815
===========
NOTE C - PROVISION FOR INCOME TAXES
Provision for income taxes consisted of the following:
Federal:
Current $ 19,348
Deferred 5,000
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24,348
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State:
Current 5,488
Deferred 1,400
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6,888
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Total income tax provision $ 31,236
==========
NOTE D - CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and trade receivables. The Company
occasionally maintains deposits in financial institutions in excess of federally
insured limits. Statement of Financial Accounting Standards No. 105 identifies
these items as a concen- tration of credit risk requiring disclosure regardless
of degree of risk. The risk is managed by maintaining all deposits in high
quality financial institutions. $15,600 of the Company's trade receivables were
due from the Company's largest customer. This customer accounted for $1,292,959
of the Company's net revenues.
The Company is primarily affected by the general economic conditions of the
southeast United States and the entertainment and leisure industries.
7
<PAGE>
BRANDMAKERS, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
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NOTE E - COMMITMENTS
1. Merger with Smart Games Interactive, Inc.
The Company has proposed a reverse merger with Smart Games Interactive, Inc., a
publicly traded company. The merger is subject to the rules and regulations of
the Securities and Exchange Commission and the approval of the creditors and
stockholders of Smart Games Interactive, Inc. This merger would increase the
Company's current liabilities by $155,000.
2. Leasing Transactions
The Company leases office space under a noncancelable operating lease. Lease
expense for the year ended June 30, 1998 was $19,430. Remaining future minimum
lease payments required under this lease are $20,229 for the year ended June 30,
1999, which is when the lease expires.
