UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2000 Commission File Number 0-28555
DEERBROOK PUBLISHING GROUP, INC.
NEVADA 86-0960464
------------------------------- ----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
12919 S.W. Freeway, Suite 170, Safford, Texas 77477
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(Address of Principal Executive Offices) (Zip Code)
281-494-4734
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or, for such 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 [ ]
As of March 31, 2000, there were 9,690,548 shares of common stock outstanding.
<PAGE>
DEERBROOK PUBLISHING GROUP AND SUBSIDIARIES
Index to Form 10-QSB
For the Quarter Ended March 31, 2000
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2000 (Unaudited) and September 30, 1999............... 3
Consolidated Statements of Operations (Unaudited)
for the Three and Six Months ended March 31, 2000 and 1999.... 4
Consolidated Statements of Cash Flows (Unaudited)
for the Three and Six Months ended March 31, 2000 and 1999.... 5
Notes to Financial Statements................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 7
PART II. OTHER INFORMATION............................................... 8
Signatures...................................................... 10
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
DEERBROOK PUBLISHING GROUP, INC. AND SUBSIDIARIES
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, SEPTEMBER 30,
2000 1999
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ..................................... $ 75,565 $ 36,066
Accounts receivable - trade, net .............................. -- 20,000
Prepaid expenses and other current assets ..................... 94,406 143,800
Inventory ..................................................... 149,239 160,239
----------- -----------
TOTAL CURRENT ASSETS ...................................... 319,210 360,105
Property and equipment, net ..................................... 107,721 118,918
Goodwill ........................................................ 136,176 458,318
Net assets of discontinued operations ........................... 44,880 58,267
----------- -----------
TOTAL ASSETS .................................................... $ 607,987 $ 995,608
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Notes payable to related parties .............................. $ 30,000 $ 30,000
Obligation under capital lease - current portion .............. 154,820 17,143
Accounts payable .............................................. 449,229 243,504
Accrued payroll ............................................... 279,126 149,899
Other liabilities ............................................. 110,850 53,465
----------- -----------
TOTAL CURRENT LIABILITIES ................................. 1,024,025 494,011
Obligation under capital lease - long-term portion .............. -- 95,507
----------- -----------
TOTAL LIABILITIES ............................................... 1,024,025 589,518
----------- -----------
COMMITMENTS: .................................................... -- --
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock; $.001 par value (25,000,000 shares authorized) -- --
Common stock; $.001 par value (10,000,000 shares authorized) .. 9,690 9,968
Additional paid in capital .................................... 2,978,137 2,028,935
Warrants ...................................................... 451,000 --
Accumulated deficit ........................................... (3,854,865) (1,632,813)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ............................ (416,038) 406,090
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...................... $ 607,987 $ 995,608
=========== ===========
</TABLE>
3
<PAGE>
DEERBROOK PUBLISHING GROUP, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31 MARCH 31,
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues ................................. $ -- $ 2,070 $ 1,123 $ 7,875
Cost of Revenues ......................... -- 370 4,899 3,544
----------- ----------- ----------- -----------
Gross Profit (Loss) ...................... -- 1,700 (3,776) 4,331
General and Administrative Expenses ...... (796,729) (7,208) (1,525,199) (14,455)
Acquisition Costs ........................ -- -- (318,100) --
Other Income ............................. -- -- -- --
Interest Expense ......................... -- -- -- --
----------- ----------- ----------- -----------
Loss from Continuing Operations before
Income Taxes ........................ (796,729) (5,508) (1,847,075) (10,124)
Income Taxes ............................. -- -- -- --
----------- ----------- ----------- -----------
Loss from Continuing Operations .......... (796,729) (5,508) (1,847,075) (10,124)
----------- ----------- ----------- -----------
Loss from Discontinued Operations ........ (3,515) -- (374,977) --
----------- ----------- ----------- -----------
Net Loss ................................. $ (800,244) $ (5,508) $(2,222,052) $ (10,124)
=========== =========== =========== ===========
Basic Loss Per Share:
Loss from Continuing Operations ..... $ (0.08) $ -- $ (0.20) $ --
Loss from Discontinued Operations.... -- -- (0.04) --
----------- ----------- ----------- -----------
Net Loss ................................. $ (0.08) $ -- $ (0.24) $ --
=========== =========== =========== ===========
Weighted Average Shares Outstanding ...... 9,476,304 4,761,800 9,070,875 4,098,400
=========== =========== =========== ===========
</TABLE>
4
<PAGE>
DEERBROOK PUBLISHING GROUP, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31 MARCH 31,
---------------------- ------------------------
2000 1999 2000 1999
--------- -------- ----------- --------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) ....................................... $(800,244) $ (5,508) $(2,222,052) $(10,124)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization ...................... 28,816 -- 56,594 --
Impairment of long-term asset ...................... -- -- 276,745 --
Common stock issued for acquisition costs and
services ......................................... 405,824 -- 848,924 --
Change in net assets of discontinued operations 8,868 -- 13,387 --
Changes in Assets and Liabilities:
Accounts receivable ................................ -- -- -- --
- trade .......................................... 150 -- 20,000 311
- related entity ................................. -- (6,500) -- --
Prepaid expenses and other current assets .......... (603) -- 49,394 --
Inventory .......................................... 11,603 (32,240) 11,000 (34,022)
Deferred offering costs ............................ 176,620 -- -- --
Accounts payable ................................... (23,177) -- 205,725 --
Accrued payroll .................................... 84,348 -- 129,227 --
Other liabilities .................................. 40,051 45,046 57,385 45,046
--------- -------- ----------- --------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES ..................................... (67,744) 798 (553,671) 1,211
--------- -------- ----------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt ................................. 42,170 -- 42,170 --
Proceeds from issuance of stock and warrants ....... 101,000 -- 551,000 --
--------- -------- ----------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES ..................................... 143,170 -- 593,170 --
--------- -------- ----------- --------
Net change in cash and cash equivalents ................... 75,426 798 39,499 1,211
Cash and cash equivalents at beginning of period .......... 139 413 36,066 --
--------- -------- ----------- --------
Cash and cash equivalents at end of period ................ $ 75,565 $ 1,211 $ 75,565 $ 1,211
========= ======== =========== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ...................................... $ -- $ -- $ -- $ --
========= ======== =========== ========
Taxes paid ......................................... $ -- $ -- $ -- $ --
========= ======== =========== ========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for acquisition costs and
services ......................................... $ 405,824 $ -- $ 848,924 $ --
========= ======== =========== ========
</TABLE>
5
<PAGE>
DEERBROOK PUBLISHING GROUP, INC. AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
The unaudited financial statements include only the accounts and transactions of
Deerbrook Publishing Group, Inc. (the "Company") and its wholly-owned
subsidiaries.
INTERIM FINANCIAL STATEMENTS:
The unaudited interim financial statements include all adjustments (consisting
of normal recurring accruals), which, in the opinion of management, are
necessary in order to make the financial statements not misleading. Operating
results for the three and six months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the entire year ending
September 30, 2000. These financial statements have been prepared in accordance
with the instructions to Form 10-QSB and do not contain certain information
required by generally accepted accounting principles. These statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's Form 10SB.
NOTE 2 - CAPITAL LEASE OBLIGATION:
During the six-month period ended March 31, 2000, the Company defaulted on a
capital lease obligation. Therefore, all lease payments have been reflected as
current as of March 31, 2000.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
SALES REVENUE
Sales for the three-month period ended March 31, 2000 (the "reporting quarter")
were $0, a decrease of $2,070 from the three month period ended March 31, 1999
(the "comparable quarter"). Sales for the six months ended March 31, 2000 (the
"reporting period") totaled $1,123, down $6,752 from the six month period ended
March 31, 1999 (the "comparable period"). These decreases were primarily due to
the closure of the Company's printing and publishing facilities and management's
focus on efforts to raise capital to finance the Internet operations.
OPERATING EXPENSES
The Company's general and administrative expenses increased from $7,208 in the
comparable quarter to $796,729 for the reporting quarter and from $14,455 in the
comparable period to $1,525,199 for the reporting period. The increases were due
primarily to website development and maintenance, salaries, and professional
fees.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company's cash and cash equivalents totaled $75,565.
In addition, the Company's net worth and working capital (deficit) totaled
$(416,038) and $(704,815), respectively.
We currently do not have meaningful cash resources or cash flows from operations
to support our business. The future success of our business currently depends
upon our ability to raise additional capital. We currently are seeking
additional sources of financing, which may include one or more private
placements of debt or equity securities. We can provide no assurance that any
additional financing will be available on terms that are acceptable to us, if at
all. Our inability to obtain such financing could result in our inability to
continue as a going concern. If such financing is not available in sufficient
amounts or on satisfactory terms, we also may be unable to expand our business
or to develop new customers at the rate desired, and the lack of capital could
have a material adverse effect on our business.
7
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
On January 3, 2000, we issued warrants to acquire 100,000 shares of common
stock to one person as compensation for services rendered to our company. The
warrants have an exercise price of $1.25 per share and expire on January 1,
2005. We issued these shares pursuant to the exemption provided by Section 4(2)
of the Securities Act as a transaction by an issuer not involving a public
offering. We determined that this offering fit within the exemption provided by
Section 4(2) based upon the fact that we issued the warrants to only one
individual with whom we had a prior relationship as a result of that person's
services to our company and we did not engage in any form of general
solicitation or general advertisement in connection with the issuance of these
warrants.
On January 4, 2000, we issued (a) 1,000,000 shares of common stock to Mark
L. Eaker pursuant to his employment agreement and (b) 266,000 shares of common
stock to Mr. Eaker in connection with a letter of intent to acquire Mr. Eaker's
business. We issued these shares pursuant to the exemption provided by Section
4(2) of the Securities Act as a transaction by an issuer not involving a public
offering. We determined that this offering fit within the exemption provided by
Section 4(2) based upon Mr. Eaker's relationship with our company as Chairman of
the Board, President, and Chief Executive Officer, and we placed restrictive
legends on the certificates representing the shares to ensure that the shares
would not be redistributed.
On January 4, 2000, we issued 250,000 shares of common stock to Joseph D.
Patterson for his services as a director of our company. We issued these shares
pursuant to the exemption provided by Section 4(2) of the Securities Act as a
transaction by an issuer not involving a public offering. We determined that
this offering fit within the exemption provided by Section 4(2) based upon Mr.
Patterson's relationship with our company as a director, and we placed
restrictive legends on the certificates representing the shares to ensure that
the shares would not be redistributed.
On January 4, 2000, we issued 291,324 shares of our common stock valued at
$1.00 per share, or an aggregate of $291,324, to Integrated Information Systems
in payment for services rendered in developing and hosting our Web site. We
issued these shares pursuant to the exemption provided by Section 4(2) of the
Securities Act as a transaction by an issuer not involving a public offering. We
determined that this offering fit within the exemption provided by Section 4(2)
based upon the fact that we issued the shares to only one entity, we have an
extensive business relationship with Integrated Information Systems as the
developer and host of our Web site, and we placed restrictive legends on the
certificates representing the shares to ensure that the shares would not be
redistributed.
On February 8, 2000, we issued 60,000 shares of common stock valued at
$0.25 per share, or an aggregate of $15,000, to one person as compensation for
legal services provided to our company. We issued these shares pursuant to the
exemption provided by Section 4(2) of the Securities Act as a transaction by an
issuer not involving a public offering. We determined that this offering fit
within the exemption provided by Section 4(2) based upon the fact that we issued
the shares to only one individual who had an extensive relationship with our
company as legal counsel since the time of inception, and we placed restrictive
legends on the certificates representing the shares to ensure that the shares
would not be redistributed.
On February 16, 2000, we issued options to acquire 200,000 shares of common
stock to one person for a total purchase price of $1,000. The options have an
exercise price of $.50 per share and expire on February 16, 2002. We issued
these options pursuant to the exemption provided by Section 4(2) of the
Securities Act as a transaction by an issuer not involving a public offering. We
determined that this offering fit within the exemption provided by Section 4(2)
based upon the fact that the offering was made to only one individual with whom
management of our company had a pre-existing relationship, and the offering was
made without any general solicitation or general advertisement.
8
<PAGE>
On March 3, 2000, we sold 200,000 shares of common stock to one accredited
investor for a total purchase price of $100,000, or $0.50 per share. We sold
these shares pursuant to the exemption provided by Section 4(2) of the
Securities Act as a transaction by an issuer not involving a public offering. We
concluded that this offering fit within the exemption provided by Section 4(2)
based upon the fact that the offering was made to only one individual who had
previously served as an officer of our company, the offering was made without
any general solicitation or general advertisement, and we placed restrictive
legends on the certificates representing the shares to ensure that the shares
would not be redistributed.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 27.1: Financial Data Schedule
(b) REPORTS ON FORM 8-K
Not applicable.
9
<PAGE>
SIGNATURE
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 thereunto authorized.
Date: July 31, 2000 DEERBROOK PUBLISHING GROUP, INC.
By: /s/ Mark L. Eaker
------------------------------------
Mark L. Eaker, President and Chief
Executive Officer
10
