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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12.
</TABLE>
Smart Games Interactive, Inc.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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<PAGE> 2
PROXY STATEMENT
INTRODUCTION
The last Annual Meeting was convened on August 21, 1996. In 1997 and
1998, no Annual Meetings were convened. Before discussing the present proxy, a
discussion of the pivotal events in the Company's history during 1997 and 1998
would appear to be in order.
Following stockholder approval at the Annual Meeting in 1996, the
Company was reincorporated as "Smart Games Interactive, Inc." in October, 1996
in Delaware. On February 14, 1997, the Company filed an SB-2 Registration with
the SEC. By this time, the stock was trading on the OTC Bulletin Board. Through
this Registration, the Company sought to register 18,165,198 shares at a
proposed maximum offering price of $0.20 per share. If successfully closed, this
Offering sought to raise $3,633,039.60. Unfortunately, this Offering could not
be sold and it was later withdrawn. The failure to raise this additional capital
had a material adverse impact upon the Company. In September of 1997, the
Company's operations ceased and the Company became dormant. From September of
1997 up to the present time, the Company has been out of business.
The Board was presented with three options. It could seek to have its
corporate entity dissolved, it could look for protection from the bankruptcy
court, or it could look for a healthy company that would be interested in going
public through an acquisition and then a Reverse Merger with Smart Games
Interactive, Inc. Clearly, from the standpoint of the Company's creditors and
its shareholders, the third option was the clear preference. The Company would
remain in business because its corporate charter would continue as the corporate
charter of the surviving corporation, due to the fact that Smart Games
Interactive, Inc. would acquire this healthy private business, and the assets of
the private business would transfer to the Company; but management of the
Company would shift as well and the management of this private healthy company
would assume control of Smart Games Interactive, Inc. and change its name.
While still in business, Brandmakers, Inc. purchased golf clubs and
sensor pads from Smart Games Interactive, Inc. The former C.E.O. of Smart Games
Interactive, Inc. contacted Brandmakers, Inc. and asked if Brandmakers, Inc.
would be interested in becoming a public company through an Acquisition and
Reverse Merger with Smart Games Interactive, Inc. A meeting was arranged in
April, 1998 and Brandmakers, Inc. elected to proceed. From April of 1998 to
February of 1999, Brandmakers contacted all of the Company's creditors. Most of
the Company's creditors signed a standard Release and accepted a Promissory Note
from Bandmakers for a percentage of their unpaid debt. The Company's largest
creditor, Miles Rubber, agreed to sell Brandmakers its Judgment over
substantially all of the Company's property, but required firm undertakings and
a Security Agreement in return. Brandmakers also paid for audits of the
Company's books. On February 2, 1999, the Board of the Company formally approved
of the merger and further recommended approval to the stockholders. Also at this
time, past due reports were prepared for filing with the Securities and Exchange
Commission in preparation for a proxy seeking shareholder approval of the
merger.
PROXY SOLICITATION
<PAGE> 3
This proxy statement is being mailed to all known Stockholders of Smart
Games Interactive, Inc. (f/k/a Sports Sciences, Inc.), hereafter ("Smart Games"
or the "Company") commencing on or about __________, 1999, in connection with
the solicitation by Brandmakers, Inc., ("Brandmakers") of proxies to be voted at
an Annual Meeting of Stockholders (the "Meeting") to be held in ___________,
_______ on ______, ______, 1999, and at any adjournment thereof from said
meeting. The Meeting has been called by Brandmakers pursuant to Section 312(h)
of the General Corporation Law of Delaware for the purpose of considering a plan
proposed by Brandmakers (the "Plan") whereby the Company will first acquire
Brandmakers, thereby effecting a business combination transaction with a
suitable privately-held company, then pursuant to a plan of reorganization and
merger, management of Brandmakers will assume control of the surviving company,
Smart Games Interactive, Inc.
Proxies will be voted in accordance with the directions specified
thereon and do not confer discretionary authority on any person. Any proxy on
which no direction is specified will be voted in favor of all proposals. A
Stockholder may revoke a proxy at any time prior to the start of the meeting by
(1) delivering to Brandmakers a written notice of revocation, of (2) delivering
to Brandmakers a signed proxy of a later date or by (3) appearing at the Meeting
and voting in person. Notices of revocation and replacement Proxies that are not
actually received by Brandmakers prior to the start of the meeting will be void
and of no force and effect.
As of December 31, 1997, there were 12,648,244 shares of Common Stock
issued and entitled to vote. Each share of Common Stock entitles the holder to
one vote on each matter presented for consideration by the Stockholders. Under
the Company's By-Laws, the presence, in person or by proxy, of shares entitled
to cast a combined total of 6,324,122 votes or 50% of the shares issued and
outstanding will constitute a quorum. According to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997, there are 230 stockholders
entitled to vote. With the exception of Brandmakers, Inc., no stockholder has
indicated a pre-approval of the proposals described in this Proxy Statement.
The required quorum for the transaction of business at the Meeting is a
majority of the shares of Common Stock issued and outstanding on the Record Date
(the "Quorum"). Shares that are voted "FOR", "AGAINST" or "ABSTAIN" in any
matter are treated as being present at the meeting for purposes of establishing
the Quorum, but only shares voted "FOR" or "AGAINST" are treated as shares
"represented and voting" at the Meeting (the "Votes Cast") with respect to a
particular matter. Accordingly, abstentions and broker non-votes will be counted
for purposes of determining the presence or absence of the Quorum for the
transaction of business, but will not be counted for purposes of determining the
number of Votes Cast with respect to a proposal.
PRIOR BLANK CHECK OFFERINGS
There have been no previous blank check offerings made by the Company.
Since becoming dormant, the Company has opened discussions with only
Brandmakers, Inc.
PREFATORY NOTE TO THE PLAN
In structuring a Plan for a suitable business combination transaction,
the following
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ingredients must be present. First, there must be an optimal capital structure.
Second, the Plan must provide for the payment of finders fees and other costs in
the event that a suitable business combination transaction is identified and a
combination transaction is negotiated. Third, the Plan must provide for
significant payments to Brandmakers and it should confer upon Brandmakers the
requisite authority to negotiate a suitable combination transaction.
BRANDMAKERS PLAN
Brandmakers has developed a plan (the "Plan") whereby the Company will be
restructured and its previously incurred indebtedness will either be settled or
assumed, for the purpose of effecting a business combination transaction with
Brandmakers, Inc. a privately-held company that has both business history and
operating assets. If this Plan is successfully implemented, you may be able to
salvage some of the value that your Smart Games shares once represented.
However, Brandmakers cannot go forward with the Plan without first obtaining
stockholder approval. Therefore, it is critically important that you read the
enclosed Proxy Statement and promptly mark your vote, sign and return your Proxy
Card.
PROPOSED PLAN
Although still in good standing with the State of Delaware, Smart Games has
no employees and no income from operations. Smart Games does have liabilities.
The Company has not engaged in any business activities since September, 1997.
Brandmakers believes that it may be possible to recover some value for the
Stockholders through the adoption and implementation of a Plan whereby the
Company will be restructured as a "clean public shell" for the purpose of
effecting a business combination transaction with Brandmakers, Inc.
Brandmakers proposes that the Company offer Brandmakers, Inc. the
opportunity to acquire a controlling ownership interest in Smart Games
Interactive at substantially less cost than would otherwise be required for
conducting an initial public offering. Brandmakers is not aware of any empirical
statistical data that would independently confirm or quantify Brandmaker's
beliefs concerning the perceived value of a merger or acquisition transaction
for the owners of a suitable privately-held company such as Brandmakers. The
owners of any existing business selected for a business combination with the
Company will incur significant costs and expenses, including the costs of
preparing this Proxy and the required business combination agreements and
related documents, the costs of preparing the Current Report on Form 8-K
describing the business combination transaction and the costs of preparing the
documentation associated with any future reporting under the Exchange Act and
registrations under the Securities Act.
If the Plan of Brandmakers is approved by the Stockholders, the Company's
debt will be completely restructured and assumed by Brandmakers and the Company
itself will be fully reactivated by merging all the existing operations of
Brandmakers into the Company. [See Brandmakers Existing Operations] This part of
the Plan is termed the Acquisition of Brandmaker.
Potential business opportunities may occur in many different industries and
at various stages of development, all of which will make the task of comparative
investigation and analysis of
<PAGE> 5
such business opportunities extremely difficult and complex. Brandmakers has
previously been successful in identifying suitable privately-held companies
without the benefits of a public vehicle, and anticipates that the Company will
be able to pursue both its existing business endeavors more effectively while
also permitting Brandmakers to become more effective in attracting and
consolidating future business ventures. The existing businesses of Brandmakers,
like Smart Games Interactive, is primarily grounded in businesses which rely
upon breaking computer technology in areas such as recreation and the Internet.
Because Brandmakers has acquired ten such businesses, unlike the prior
operations of the Company, Brandmakers' diversification permits the Company to
offset potential losses from one venture against gains from another. Moreover,
because Smart Games Interactive is saddled with substantial debt and lacks any
meaningful financial, managerial or other resources, without the assistance of a
firm such as Brandmakers, Brandmakers believes the Company will not be viewed as
a suitable business combination partner for either developing companies or
established business that are in need of substantial additional capital.
BRANDMAKERS EXISTING OPERATIONS
Brandmakers, Inc. operates its corporate headquarters at 1325 Suite C,
Capital Circle N.W., Lawrenceville, Georgia 30043. Its telephone number is (770)
338 1958 and its telecopier phone number is (770) 338 9331. Brandmakers' email
address is [email protected]. All of the assertions which follow regarding
the products and the divisions of Brandmakers are based upon the belief of
Brandmakers' management. Presently, the Company products consist of the
following.
MAILSTART - THE INTERNET DIVISION OF BRANDMAKERS
INTRODUCTION Mailstart was founded in 1997 and acquired by Brandmakers in
June of 1998. Mailstart is similar to Hotmail Corporation, the firm recently
acquired by Microsoft. Like Hotmail Corporation, Mailstart integrates the core
functionality of text-based email messages with the multimedia and global access
capabilities of the World Wide Web to enable a customer to gain access to the
Internet from any place in the world to all current email boxes from any
Internet enabled computer. Mailstart serves as a virtual gateway to your POP3
email accounts, providing the ability to remotely check, send, reply, forward or
delete any email message you may have waiting for you at your own local server.
Mailstart allows other sites to utilize and customize its POP3 email access
solution through two different programs known as Form Control and Template
Program. These programs are ideal for sites needing a low cost universal email
access solution for their users. Participation in the Form Control Program is
free and requires minimal effort by the participant.
Mailstart is introducing a new product called Mailstart Plus. Mailstart
Plus will offer additional features such as multiple email address support, zero
wait technology, folders, trashcan, message, status tracking, MIME Encoded
attachment handling, signature file, address book, multiple resolution support
and content sensitive help system.
Internet Browsers The usage of the Internet is growing rapidly and
public browsers will increase in popularity. There are 75 million E-mail
addresses and the numbers are increasing
<PAGE> 6
daily. Five prototypes for browsers are in the field. Brandmakers is deciding
upon the software to use on a permanent basis. Discussions are also being held
with an internet service provider.
COMPETITION The market for Internet products and services is highly
competitive and competition is expected to continue and increase significantly.
In addition, the Company expects the market for Web-based advertising to be
intensely competitive. There are no substantial barriers to entry in these
markets and the Company expects that competition will continue to intensify.
Although the Company currently believes that the diverse segments of the
Internet market will provide opportunities for more than one supplier of
products and services similar to the email products offered by Mailstart, it is
possible that a single supplier may dominate one or more market segments. The
Company hopes to achieve sufficient size and economies of scale so as to compete
with a dominating or predator-type adversary before this occurs.
The Company competes with other providers of online email services. Other
companies, most notably Hotmail, offer competitive products and services which
address email access to the Web from remote locations. The Company also faces
competition from providers of software and other Internet products and services
that incorporate search and retrieval features into their offerings. For
example, web browsers offered by Netscape and Microsoft, which are the most
widely used browsers, incorporate buttons in their browser and similar features
that direct search traffic to competing services, including those that may be
developed or licensed by such parties. Entities that sponsor or maintain
high-traffic Web sites or that provide an initial point of entry for Internet
users, such as the Regional Bell Operating Companies or Internet Service
Providers such as Microsoft and AOL, currently offer and could further develop,
acquire or license Internet search and navigation functions that will introduce
additional competition into this market. Microsoft intends to offer additional
Internet search engines and directory services that will be made available in
the near future. It is likely that such search and directory services will be
tightly integrated into the Microsoft operating system, called the Internet
Explorer. Microsoft may promote such services within the Microsoft network
through other end-users services such as Web-TV. Insofar as Microsoft's Internet
navigational offerings may be more conveniently accessed by users than those of
the Company, this may provide Microsoft with significant competitive advantages
that could have a material adverse effect upon the Company's prospects for
success. A large number of Web sites and online services (including, among
others, the Microsoft Network, AOL, and other Web navigation companies such as
Excite, Lycos and Infoseek), offer email services that are competitive with the
services offered by Mailstart. Many of these existing competitors, as well as a
number of potential new competitors, have significantly greater financial,
technical and marketing resources than the Company. In addition, providers of
Internet tools and services may be acquired by, receive investments from or
enter into other commercial relationships with larger, well-established and
well-financed companies, such as Microsoft or Netscape. Greater competition
resulting from such relationships could have a material adverse effect on the
Company's business, operating results and financial condition.
The Company expects to face competition in the various special interest,
demographic and geographic markets addressed by media properties that are under
development. This competition may include companies that are larger and better
capitalized than the Company and that have expertise and established brand
recognition in these markets. There can be no assurance that the Company's
competitors will not develop Internet email products and services that are
<PAGE> 7
superior to those of the Company or that achieve greater market acceptance than
the Company's offerings. Moreover, a number of the Company's current advertising
customers, licensees and partners have also established relationships with
certain of the Company's competitors, and future advertising customers,
licensees and partners may establish similar relationships.
The Company also competes with online services and other Web site
operators, as well as traditional offline media such as television, radio and
print for a share of advertiser's total advertising budgets. The Company
believes that the number of companies selling Web-based advertising and the
available inventory of advertising space have increased substantially during
recent periods. Accordingly, the Company may face increased pricing pressure for
the sale of advertisements. There can be no assurance that the Company will be
able to compete successfully against its current and future competitors or that
competition will not have a material adverse effect on the Company's business,
operating results and financial condition.
The Company believes that the principal competitive factors in its
markets are ease of use, comprehensiveness, independence, quality and
responsiveness to computer commands, and access to other end users. Competition
among current and future suppliers of Internet navigational and informational
services, high traffic Web sites and Independent Service Providers, as well as
competition for other media for advertising placements, could result in
significant price competition and reductions in advertising revenues. Moreover,
nearly all of the Company's current and potential competitors have significantly
greater financial, technical, marketing, distribution and other resources than
the Company. There can be no assurance that the Company will be able to compete
successfully against current and future sources of competition or that the
competitive pressures faced by the Company will not have a material adverse
effect on the Company's business, operating results and financial condition.
DEPENDENCE ON GROWTH OF INTERNET Mailstart's future success is
substantially dependent upon continued growth in the use of the Internet and the
Web. Rapid growth in the use of and in the Internet and the Web is a recent
phenomenon. The Internet may not prove to be a viable commercial marketplace for
a number of reasons, including lack of acceptable security technologies,
potentially inadequate development of the necessary infrastructure, such as a
reliable network backbone, or timely development and commercialization of
performance improvements, including high speed modems. To the extent that the
Internet continues to experience significant growth in the number of users and
level of use, there can be no assurance that the Internet infrastructure will
continue to be able to support the demands placed upon it by such potential
growth or that the performance or reliability of the Web will not be adversely
affected by this continued growth. The Internet could lose its viability due to
delays in the development or adoption of new standards and protocols required to
handle increased levels of Internet activity, or due to increased governmental
regulation. Changes in or insufficient availability of telecommunications
services to support the Internet also could result in slower response times and
adversely affect usage of the Web and the Company's online marketing program. If
use of the Internet does not continue to grow, or if the Internet infrastructure
does not effectively support growth that may occur, Mailstart's business,
operating results and financial condition would be materially and adversely
affected.
There is intense competition in the sale of advertising on the
Internet, including competition
<PAGE> 8
from other email services as well as other high-traffic sites, which has
resulted in a wide range of rates quoted by different vendors for a variety of
advertising services, which makes it difficult to project future levels of
Internet advertising revenues that will be realized generally by any specific
company. Competition among current and future suppliers of Internet navigational
services or Web sites and advertising placements could result in significant
price competition, reduced pricing for Internet advertising and reductions in
the Company's advertising revenues. There also can be no assurance that the
Company's advertising customers will accept the internal and third-party
measurements of impressions received by advertisements on the Company's web
site. There is also no assurance that the advertisements may not contain errors.
To remain competitive, the Company must continue to enhance and improve
responsiveness, functionality, features and content of its main product, which
is remote access for email. There can be no assurance that the Company will
successfully maintain competitive user response times or implement new features
and functions, such as greater levels of user personalization, localized content
filter and information delivery through "push" methods, which will involve the
development of increasingly complex technologies.
A key element of the Company's business strategy is the development and
introduction of new email products targeted for specific interest areas, user
groups with particular demographic characteristics and geographic areas. There
can be no assurance that the Company will be successful in developing,
introducing and marketing such products or media properties or that such
products and media properties will achieve market acceptance, enhance the
Company's brand name recognition or increase traffic. The Company depends
substantially on third party efforts in the development and operation of these
new media properties. The introduction of new media properties also may be
subject to delays that may negatively affect advertising revenues and the
Company's competitive position. Furthermore, enhancements of or improvements to
its email service may contain undetected errors that require significant design
modifications, resulting in a loss of customer confidence and user support and a
decrease in the value of the Company's brand name recognition. Any failure of
the Company to effectively develop and introduce these properties, or failure of
such properties to achieve market acceptance, could adversely affect the
Company's business, results of operations and financial condition. The market
for Internet products and services is characterized by rapid technological
developments, evolving industry standards and customer demands, and frequent new
product introductions and enhancements. These market characteristics are
exacerbated by the emerging nature of this market and the fact that many
companies are expected to introduce new Internet products and services in the
near future. Mailstart's future success will depend in significant part on its
ability to continually improve the performance, features and reliability of its
software and other properties in response to both evolving demands of the
marketplace and comptetitive product offerings, and there can be no assurance
that Mailstart will be successful in doing so.
GOVERNMENT REGULATION Mailstart is not currently subject to direct
regulation by any governmental agency in the United States, other than
regulations applicable to businesses generally, and there are currently few laws
or regulations directly applicable to access to or governing commerce upon the
Internet. Due to the increasing popularity and use of the Internet, it is
possible that a number of laws and regulations may be adopted with respect to
the Internet, covering issued such as user privacy, pricing and characteristics
and quality of products and
<PAGE> 9
services. For example, although the Communications Decency Act was held to be
unconstitutional, there can be no assurance that similar legislation will not be
enacted in the future and it is possible that such legislation could expose
Mailstart to substantial liability. Such legislation could also dampen the
growth in the use of the Web generally and decrease the acceptance of the Web as
a communications and commercial medium, and could, thereby, have a material
adverse effect on the Company's business, results of operations and financial
condition. Other nations, including Germany, have taken actions to restrict the
free flow of material deemed to be objectionable on the Web. In addition,
several telecommunications carriers are seeking to have telecommunications over
the Web regulated by the Federal Communications Commission [the "FCC"] in the
same manner as other telecommunications services. For example, America's
Carriers Telecommunications Association ("ACTA") has filed a petition with the
FCC for this purpose. In addition, because the growing popularity and use of the
Web has burdened the existing telecommunications infrastructure and many areas
with high Web use have begun to experience interruptions in phone service, local
telephone carriers, such as Pacific Bell, have petitioned the FCC to regulate
ISPs and OSPs in a manner similar to long distance telephone carriers and to
impose access fees on the ISPs and OSPs. If either of these petitions is
granted, or the relief sought therein is otherwise granted, the costs of
communicating on the Web could increase substantially, potentially slowing the
growth in use of the Web, which could in turn decrease the demand for the
Company's products and media properties. Moreover, the applicability to the
Internet of the existing laws governing issues such as property ownership,
copyright defamation, obscenity and personal privacy is uncertain, and the
Company may be subject to claims that its services violate such laws. Any such
new legislation or regulation or the application of existing laws and
regulations to the Internet could have a material adverse effect on the
Company's business, operating results and financial condition.
BRANDMAKERS GAMING DIVISION
Virtual Reality Golf Brandmakers produces a large, computerized golf
game with a 34 inch monitor screen and mat. The player uses a golf club and
thanks to images projected on the television's screen, hits a fictional ball and
plays a round of golf on any one of fifteen world renown golf courses diplayed
on the monitor with excellent graphics. The patented club with a wand activates
the ball on the screen when passing over the patented sensor pad. The software
is sufficiently sophisticated to ascertain the difference between driving,
pitching or putting. The golf game has been a major contributor to sales for
Brandmakers over the past two years. The potential market includes sales to
affluent individuals for home use, corporate recreation centers and vending
distributors.
Skill Machines Brandmakers has machines in inventory and will make a
decision on how and when to place these machines where they are legal. [See
Government Regulation] Licenses are required in Georgia and equipment may be
used for redemption only with a maximum of $5.00 per ticket.
Laser Cue Brandmakers is in the process of obtaining production quotes
for this cue that will be advertised and highlighted in a video as a training
cue. This project is several months behind schedule, after having rejected three
prototypes made by the "experts". Brandmakers
<PAGE> 10
finally decided on the material to be used for the shaft as well as the
appropriate construction to make the cue strong and professional in appearance.
A company in Taiwan is interested in producingthe cue and it now appears that
cues will not be available for sale until October, 1999.
Mario Nintendo Arcade Game This is a dual laser gun game, which will have
significant appeal to the young with movement of Mario, a Dragon, Dolphins and
other targets. This product is ideal for pizza places such as Chuck E Cheese,
for arcades and for Carnivals. It has worldwide appeal. The prototype requires
more capital so at this time, there is no date for production.
BRANDMAKERS VENDING DIVISION
Dual Vend Prepaid Phone Card Machines Brandmakers two column machines are
priced at the very low end of the market. Our dispensing mechanisms were
acquired inexpensively and allow us to maintain this pricing, although design
improvements in the cabinet and circuit board will lead to a small price
increase. We will advertise these machines in the last half of 1999.
Postcard Machines Brandmakers may be the only firm manufacturing postcard
vending machines. Postage is added so the cards are ready to mail, which is
quite a convenience. We anticipate that these machines will do reasonably well
in resort areas.
Computer Disk Dispenser Brandmakers currently has two machines at Colleges
dispensing computer disks and copycards (cards to insert in copying machines to
make copies). Brandmakers can also add a column to dispense prepaid phone cards
or dispense the phone cards instead of copy cards. Two other colleges have these
machines which dispense computer disks only from two columns. Research indicates
computer labs in colleges and universities will be our primary market and sales
commenced in April, 1999. Colleges advise us that no one makes a dispenser of
computer disks and that is the primary reason we are entering that market.
ADDITIONAL BRANDMAKER DIVISIONS
Hospitality Innovators This firm was founded in 1994 and acquired by
Brandmakers in May of 1998. This company distributes an On Premise Communication
system for various industries, but most notably for restaurants. The core
product of this firm is the Coaster Call, a Guest Paging System from Long Range
Systems. Such high profile restaurant chains as Applebee's, Ruby Tuesday,
Bennigan's, Long Horn Steakhouse and Outback have recently adopted the Coaster
Call as a system for organizing its patrons that are waiting for tables. When a
guest arrives at one of these restaurants, they are handed a coaster. They are
told that when this coaster lights up and vibrates, their table is ready and
they should return to the Hostess Stand. The guest may take this coaster and
wander through an adjoining mall or even leave the building, without fear of
losing their place in the queue for fear of not hearing their names when they
are called by the Hostess. The Coaster Call has become a popular mechanism for
relieving stress among waiting restaurant patrons. It has also eliminated the
crowding that occurs in a restaurants entry way. Finally, because the line is no
longer visually apparent to a person entering the restaurant, the prospect of
waiting for a table is more agreeable.
<PAGE> 11
Hospitality has been the number one sales organization for this system
since the product was introduced three years ago, selling over 90% of all
systems worldwide. Since its inception in 1988, the On Premise paging industry
has realized sales growth of over $50 million per year. In addition to its
"Coaster Call", Hospitality Innovators has other paging systems in use with
companies such as Motorola, Long Range Systems, SIGnologies and Visiplex.
Hospitality has sold systems to numerous churches, dental offices and doctors
offices.
Hospitality Innovators also has its headquarters in Lawrenceville, Georgia
and still prides itself on maintaining a "small company feel" which permits
contact with the owner on a daily basis. This philosophy has contributed to a
very loyal customer base. Substantial growth is projected to come from the
silent paging portion of this business this year, as well as from restaurants
over the past two years. As of the end of October, 1998 the company had over 300
current customers.
Washburn Illustration and Design For Brandmakers, the acquisition of this
firm is seminal to our strategic brand recognition philosophy. Although web
related, this division of brandmakers will also have carry over
responsibililties in the areas of point of purchase and packaging design. Long
standing clients of this firm include Coca Cola, McDonald's and Burger King.
GOVERNMENT REGULATION
Brandmakers is not planning to install any Skill machines. If and when
Brandmakers decides to go forward, a license will be required from the
appropriate county in Georgia.
With the exception of its Skill machines, the Company is not subject to any
specific local laws or regulations other than the laws which pertain generally
to all businesses. Similarly, the Company does not need any special permits or
licenses for selling any of its other products [excluding its Skill machines],
other than a normal vendor's license which would be required of all businesses.
Previously, we have discussed the regulation of business on the Internet as part
of our discussion of Mailstart. In summary, only the Skill machines will require
the approval of a governmental agency before they can be placed into commercial
operation.
ACQUISITION OPPORTUNITIES
Other then a possible negotiations with Splash Media, Brandmakers is not
actively pursuing acquisitions. No other discussions are underway at this time.
NO RELATED PARTIES
There are no related party transactions and there is no potential for any
related party transactions between the Company and Brandmakers. Although some
assistance was requested and obtained from the Company for negotiations with its
creditors, this task has been completed. No members of the Company's management
or Board are being enlisted by Brandmakers to serve as either a Board Member or
as a member of management once the merger is completed.
<PAGE> 12
This has been an arms length transaction and neither the Company or Brandmakers
has any knowledge of any dealings which have not been arms length transactions.
Because of this, no independent appraisal of the business is being sought or
deemed necessary.
Neither the Company or Brandmakers is aware of any arrangements, agreements
or understandings between any non-management shareholders and management under
which non-management shareholders may directly or indirectly participate in or
influence the management of the Company's affairs.
Neither the Company or Brandmakers is aware of any present potential that
the Company may acquire or merge with a business or company in which the
Company's promoters, management or affiliates or associates directly or
indirectly have an ownership interest. There is no existing corporate policy
regarding such transactions. If the need for such a policy arises, it will
stipulate that all potential pecuniary benefits to these persons must be
disclosed along with the identification of potential acquisition candidates, if
known.
EXEMPTION FROM RULE 419
As an existing Registrant under the Exchange Act, the Company's proposed
activities are not subject to SEC Rule 419 which was adopted to strengthen the
regulation of "blind pool" companies which Congress has found to have been
common vehicles for fraud and manipulation in the penny stock market. The
Company is not subject to Rule 419 because it is not offering stock to the
public in an offering registered under the Securities Act. Accordingly,
Stockholders are not entitled to the substantive protection provided by Rule
419.
INVESTMENT CO. ACT OF 1940
The investment Company Act of 1940 was enacted to give the Securities and
Exchange Commission the power to regulate companies primarily engaged in
investing, reinvesting and trading in securities. This law dictates stipulates
that the definition of an investment company incorporates within its scope an
issuer which is or holds itself out as being primarily engaged in the business
of investing, reinvesting or trading in securities; or proposes to engage in the
business of investing, reinvesting, owning, holding or trading in securities and
owns or proposes to acquire investment securities having a value of 40% of the
value of each issuer's total assets on an unconsolidated basis. Notwithstanding
the above description, any issuer primarily engaged, directly or through a
wholly owned subsidiary or subsidiaries, in a business or businesses other than
that of investing, reinvesting, owning, holding or trading in securities. It is
submitted that Brandmakers falls within this exception. Although conceivably
Brandmakers could own or control 40% or more of the securities of its
constituent businesses, none of these businesses are engaged in investing,
reinvesting, owning, holding or trading in securities. Furthermore, Brandmakers'
itself will be blocked from investing, reinvesting or trading in securities
because of its control position and the applicability of the affiliate rule.
Accordingly, as Brandmakers is presently configured, it would not become subject
to the Investment Company Act of 1940.
DISCLOSURES REQUIRED FOR PENNY STOCKS
<PAGE> 13
The Company's Common Stock will be governed by the Securities Enforcement
and Penny Stock Reform Act of 1990, as well as rules and regulations implement
by the Securities and Exchange Commission pursuant to this Act. This statute, as
supplemented by its implementing rules and regulations, imposes special burdens
upon broker-delears when they are selling Penny Stocks (defined as stocks that
cost $5.00 or less per share). For transactions covered by the Penny Stock rule,
the broker-dealer must make a special suitability determination for the
unaccredited purchaser and receive the purchaser's written agreement to the
transaction prior to the sale. These additional sales practice burdens and
requirements are not imposed upon broker-dealers when they sell such securities
to persons that are established customers and accredited investors (generally
institutions with assets in excess of $5,000,000 or individuals with a net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse). Consequently, the Penny Stock rule may affect the ability of
broker-dealers to sell the Company's securities and also may affect the ability
of persons now owning or subsequently acquiring the Company's securities to
resell such securities in any trading market that may develop. Although the
Company's long term goals are to have its securities included in the National
Association of Securities Dealers Automated Quotation System ('NASDAQ'), which
would exempt such securities from the above rule, there is no assurance that the
Company will meet the substantial NASDAQ financial requirements. There are no
plans, proposals, arrangements or understandings with any person with regard to
the development of a trading market in any of the Company's securities.
FEES TO BRANDMAKERS AND OTHERS
Expense Reimbursement. To date, no cash compensation has been paid or
accrued to Brandmakers or any of its officers, directors or consultants. Under
the Plan, Brandmakers and its officers, directors and consultants will be
entitled to reimbursement for the actual out-of-pocket expenses incurred in
connection with the preparation of the Company's quarterly and annual reports to
the Securities and Exchange Commission, the preparation and filing of the
Company's reports under the Exchange Act and the negotiation of a business
combination transaction, but they will not be entitled to any cash compensation
in connection with services rendered prior to the closing of a business
combination.
Stock Issuance. Subject to Stockholder approval, the Company intends file a
Form S-8 Registration Statement under the Securities Act to register 300,000
shares of Common Stock that will be issuable to persons designated by
Brandmakers as compensation for services rendered in connection with the
implementation of the Plan.
Debenture Certificates For the past ten months, Brandmakers has been
conducting due diligence on Smart Games Interactive and negotiating with the
Company's creditors. In addition, Brandmakers will have to advance funds to
attorneys, accountants and others for the preparation of reports required by the
SEC. Brandmakers has already presented a proposal to the Company's Board of
Directors and, subject to stockholder approval, this proposal has been favorably
received. In return for the expenses which Brandmakers will have to advance to
prepare for this business combination transaction and for the commitments which
it must make to settle outstanding obligations with the Company's creditors,
Brandmakers will be issued a Debenture Certificate (or Certificates). These
Debenture Certificates will be convertible into Common Stock
<PAGE> 14
of the Company at the prevailing price for the stock of Smart Games Interactive
when these financial disbursements commenced, which was equal to $0.04 (4 cents)
per share. At the option of Brandmakers, these Debentures may be converted into
Restricted Common Stock of the Company. Because of this convertibility feature,
the Company will file a Form D and engage Rule 506 at the time these Debentures
are issued.
RISK FACTORS
The Plan proposed by Brandmakers involves a high degree of risk.
Stockholders should carefully consider the following factors, among others,
before executing the form of Proxy enclosed herewith.
No Recent Operating History. Smart Games has liabilities. Smart Games does
not have any assets, management or ongoing operations and Smart Games has not
engaged in any business activities since September, 1997. Even if the
Brandmakers' Plan is approved by the Stockholders, Smart Games will be subject
to all of the risks inherent in the commencement of a new business enterprise
with new management. There can be no assurance that Smart Games will make the
transition smoothly with Brandmakers or that Brandmakers will be profitable.
Although Brandmakers and its officers, directors and consultants have had
experience with respect to business acquisitions, Smart Games has no recent
operating history to aid stockholders in making an informed judgment regarding
the merits of the Plan. As of the date of this Proxy Statement, and qualified by
the list of businesses above described, Smart Games has not entered into any
arrangement for, nor is it presently negotiating with respect to, an acquisition
of any operating business other than Brandmakers.
No Specific Acquisition Plans. The Brandmakers' Plan includes a proposal to
vest its officers, directors and consultants with the requisite authority to
seek out and secure opportunities with privately-held firms and to act upon such
opportunities with stockholder approval.
Intense Competition. The Company is and will continue to be an
insignificant participant in the business of seeking business opportunities. A
large number of established and well-financed entities, including venture
capital firms, have recently increased their merger and acquisition activities,
especially among companies active in high technology fields. Nearly all such
entities have significantly greater financial resources, technical expertise and
managerial capabilities than the Company and, consequently, the Company will be
at a competitive disadvantage in identifying suitable acquisition candidates and
concluding a business combination transaction.
Dependence on Part-Time Management. Smart Games has no employees as of the
date hereof. Accordingly, the Company's success will be largely dependent on the
decisions made by its Directors, all of whom are working only part-time.
Brandmakers and its officers, directors and consultants will not devote their
full time to the affairs of the Company unless and until this Plan is approved
by the Stockholders.
Control of Combination Procedure by Brandmakers. A combination of the
Company with another entity may be structured as a merger or consolidation or
involve the direct issuance of
<PAGE> 15
the Company's Common Stock in exchange for the other company's stock or assets.
The General Corporation Law of Delaware requires the affirmative vote of the
holders of at least a majority of the outstanding shares of a Delaware
corporation's capital stock to approve a merger or consolidation.
No Market Maker. The Company's securities may be quoted on NASD's
Electronic Bulletin Board which reports quotations by brokers or dealers making
a market in particular securities. The Company has no agreement with any broker
or dealer to act as a market maker for the Company's securities and there is no
assurance that Brandmakers and its advisors will be successful in obtaining a
market maker.
No Assurance of Public Market Prior to this Proxy Statement There has been
no public market for the Common Stock and there is no assurance that a public
market will ever develop. If a trading market does in fact develop for the
Common Stock, there is a possibility that it will not be sustained and
Stockholders may have difficulty in selling their Common Stock in the future at
any price.
Possible Issuance of Additional Shares If the Plan is approved by the
Stockholders, approximately 88% of the Company's authorized shares of Common
Stock will remain unissued. After completion of a business combination, the
Board of Directors of the combined companies will have the power to issue
additional shares of Common Stock with stockholder approval.
No Assurance of Dividends. The Company has not paid any dividends upon its
Common Stock, and by reason of its present financial status and its contemplated
financial requirements, does not contemplate paying any dividends in the
foreseeable future.
ELECTION OF DIRECTORS
Since the Company has not convened an annual meeting since August 21, 1996,
the present members of the Company's Board are serving terms which have expired.
It is necessary for the Company to appoint new directors. The nominees of
Brandmakers are set forth as the slate recommended by the Company. None of the
Company's present directors have indicated a desire to stand for an additional
term. Accordingly, the slate of directors proposed by Brandmakers are also the
only individuals that have indicated a desire to fill these positions. A brief
account of the business experience and education follows of these nominees
follows:
Geoff Williams, age 54, Chairman and C.E.O., founded Brandmakers in 1992.
Mr. Williams has been operating his own company since 1983, when he started G.
W. Leisure, Ltd. This company manufactured amusement machines and it was
eventually sold to Manchester Leisure Ltd., then in turn by Greyhound Electronic
Inc. At the time of this last acquisition, Mr. Williams was Chief Executive of
Greyhound UK. Mr. Williams next formed Imperial Resources Inc. to allow his
company to expand in the overseas market. In 1990, he developed "Clown A Round"
and "Beat the Pro" leisure games for Star Manufacturing, USA. Mr. Williams moved
to Atlanta from England in September of 1991 while still employed by Star
Manufacturing as head of its new products. He has been a Fellow of the Import &
Export Trade since 1987.
<PAGE> 16
Robert J. Palmquist, age 67, President, is a grauduate of the University of
Nebraska with a degree in Business Administration and graduate work in economics
and finance. For the past five years, he has been an executive with Brandmakers.
Before becoming associated with Brandmakers, Mr. Palmquist served as Vice
President for the national securities firm Hayden Stone, Inc. in the 1970's, as
president of Professional Management Enterprise, his own management consulting
firm in Burbank, California, and as president of Personal Investment Co., a real
estate brokerage firm. From 1986 to 1991, Mr. Palmquist served as Executive
Director of a charitable organization.
Joy Williams, age 41, Secretary, has been the administrator and accountant
for Brandmakers for the last five years. Prior to becoming associated with
Brandmakers, Ms. Williams was assistant to the chief financial officer of a
theatrical agent for 3 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.
Board and Committee Activity, Structure and Compensation. The Company does
not currently have any standing committees which are presently functioning.
However, it is expected that the Board will likely designate an Executive
Committee, a Compensation Committee and an Audit Committee if the Brandmakers
Plan is approved.
STOCKHOLDERS ENTITLED TO VOTE AND VOTE REQUIRED.
Directors will be elected by a plurality of the votes cast by the holders
of shares of Common Stock represented and voting at the Meeting, in person or by
proxy.
BRANDMAKERS ASKS ALL STOCKHOLDERS TO VOTE FOR THE ELECTION OF BRANDMAKERS'
CANDIDATES TO SERVE AS DIRECTORS UNTIL THE NEXT ANNUAL MEETING OF STOCKHOLDERS.
THE PROXY ENCLOSED HEREWITH WILL BE VOTED FOR EACH PROPOSAL UNLESS THE
STOCKHOLDER SPECIFICALLY VOTES AGAINST ONE OR MORE PROPOSALS OR EXPRESSLY
ABSTAINS FROM VOTING. SINCE BRANDMAKERS HAS PROPOSED THE PLAN AS AN INTEGRATED
WHOLE, BRANDMAKERS MAY ELECT TO ABANDON THE PLAN IN ITS ENTIRETY IF ALL ELEMENTS
OF THE PLAN ARE NOT APPROVED BY THE STOCKHOLDERS.
PROPOSED REVERSE SPLIT
At the date of this Proxy Statement, the Company has an aggregate of
12,648,244 shares of Common Stock issued and outstanding. Since (i) Brandmakers
believes that the optimal capital structure will vest it with control over of
95% of the Company's Common Stock upon the completion of the business
combination transaction contemplated between the Company and Brandmakers, Inc.,
and (ii) Brandmakers believes an ultimate capitalization in the 2,500,000 to
5,000,000 share range is appropriate for a small public Company and that a
capitalization of 5,000,000 to 10,000,000 shares is appropriate for a larger
Company, Brandmakers believes that it will be in the best interest of the
Company and its Stockholders to reduce the number of outstanding shares to
approximately 300,000 shares by means of a reverse split and then issue
5,400,000 restricted shares and 300,000 registered shares to Brandmakers, Inc.
as compensation
<PAGE> 17
for the acquisition of all of its operations. Brandmakers believes such action
will optimize the number of shares issued and outstanding after a business
combination transaction, result in a higher reported market price for the Common
Stock of the combined companies, and reduce the market volatility of the Common
Stock of the combined companies. These changes, in turn, are expected to enhance
the overall perception of the Common Stock among institutional investors and
larger brokerage firms. These goals, if achieved, are expected to enhance the
Company's ability to raise additional equity capital, and attract new market
makers and institutional stockholders.
Brandmakers believes that the proposed reverse split will be beneficial to
the Company by significantly reducing the number of issued and outstanding
shares of Common Stock, reducing the expected level of price volatility, and
otherwise stabilizing the anticipated market price of the Common Stock.
Brandmakers also believes the proposed reverse split would increase the
Company's posture and relative worth of its shares in the eyes of the investment
community, although there is a risk that the market may not adjust the price of
the Company's Common Stock by the ratio of a reverse split. Brandmakers is aware
of instances where only modest price appreciation per share has resulted from a
reverse stock split. Trading in the Common Stock thereafter will be at prices
determined by supply and demand and prevailing market conditions, which will not
necessarily result in the Common Stock of the Company maintaining a market price
in proportion to the reverse split effected.
The Common Stock is currently registered under Section 12(g) of the
Exchange Act, and as a result, the Company is subject to the periodic reporting
and other requirements of the Act. The proposed reverse split will not effect
the registration of the Common Stock under the Act, and the Company has no
present intention of terminating its registration under the Act in order to
become a "private" company.
Other than the decrease in the total shares to be outstanding, no
substantive changes are being made in the rights of Common Stock. Accordingly,
upon the Effective Date of a reverse split, each holder of record of new shares
would be entitled to one vote for each new share held at each Meeting of the
Stockholders in respect to any matter on which Stockholders have the right to
vote. Stockholders have no cumulative voting rights, nor will they have the
preemptive right to purchase any additional shares of Common Stock. Holders
would be entitled to receive, when and as declared by the Company's Board of
Directors, out of earnings and surplus legally available therefor, any dividends
payable either in cash, in property or in shares of the capital stock of the
Company.
No fractional new shares will be issued. Each holder of less than
forty-three shares will be issued one share in exchange for whatever number of
shares, be it one or any other number up to forty-three, that they previously
held. No stockholder will suffer the complete elimination of their stock due to
this reverse split. If a stockholder holds only one share, under the directive
noted herein, this shareholder will receive one share of stock in the surviving
company.
As soon as practical after the Effective Date of a reverse split, the
Company will mail letters of transmittal to each holder of record of a stock
certificate or certificates which represents issued shares of Common Stock
outstanding on the Effective Date. The letter of transmittal will
<PAGE> 18
contain instructions for the surrender of such certificate or certificates to
the Company's transfer agent in exchange for the certificates representing the
number of whole shares of new Common Stock into which the shares of Common Stock
have been converted as a result of a reverse split. No payment will be made or
new certificate issued to a stockholder until he has surrendered his outstanding
certificates together with the letter of transmittal to the Company's transfer
agent.
STOCKHOLDERS ENTITLED TO VOTE AND VOTE REQUIRED
The affirmative vote of the holders of a majority of all shares of Common
Stock represented and voting at the Meeting, in person or by proxy, will be
required to approve the proposed reverse split. Stockholders have no right under
Delaware law or the Certificate of Incorporation to dissent from a reverse
split.
BRANDMAKERS ASKS ALL STOCKHOLDERS TO APPROVE THE PROPOSED REVERSE SPLIT.
THE PROXY ENCLOSED HEREWITH WILL BE VOTED IN FAVOR OF THE PROPOSED REVERSE SPLIT
UNLESS THE STOCKHOLDER SPECIFICALLY VOTES AGAINST THE PROPOSAL OR EXPRESSLY
ABSTAINS FROM VOTING. SINCE BRANDMAKERS HAS PROPOSED THE PLAN AS AN INTEGRATED
WHOLE, BRANDMAKERS MAY ELECT TO ABANDON THE PLAN IN ITS ENTIRETY IF ALL ELEMENTS
OF THE PLAN ARE NOT APPROVED BY THE STOCKHOLDERS.
ISSUANCE OF COMPENSATION SHARES
As part of its Plan, Brandmakers proposes to issue a total of 300,000
shares of Common Stock ("Compensation Shares") to individuals designated by
Brandmakers as compensation for services rendered in connection with the
implementation of the Plan. The purpose of this proposed grant of Compensation
Shares is to increase the personal stake of the Grantees in the Company since
the Company's long-term business objectives will be dependent in large part upon
their efforts, expertise and abilities.
Subject to Stockholder approval, the Company intends file a Form S-8
Registration Statement to register the 300,000 Compensation Shares under the
Securities Act. Thereafter, the Compensation Shares will be issued from time to
time to individuals designated by Brandmakers who have materially participated
in the implementation of the Plan. Such shares will not, however, be issued to
finders or for services rendered in a capital raising transaction.
A Grantee will recognize income for federal tax purposes at the time the
Compensation Shares are issued. In general, the amount of ordinary income
recognized by a Grantee will equal the fair market value of the Compensation
Shares on the date of grant. Gain or loss (if any) from a disposition of
Compensation Shares after the Grantee recognizes ordinary income will generally
constitute short or long-term capital gain or loss. The Company will be entitled
to a tax deduction at the time the Grantee recognizes ordinary income on the
Compensation Shares.
STOCKHOLDERS ENTITLED TO VOTE AND VOTE REQUIRED
The affirmative vote of the holders of a majority of all shares of Common
Stock represented
<PAGE> 19
and voting at the Meeting, in person or by proxy, will be required to approve
the proposed issuance of 300,000 Compensation Shares to persons designated by
Brandmakers.
BRANDMAKERS ASKS ALL STOCKHOLDERS TO APPROVE THE PROPOSED ISSUANCE OF
300,000 COMPENSATION SHARES. THE PROXY ENCLOSED HEREWITH WILL BE VOTED IN FAVOR
OF THE PROPOSED ISSUANCE OF COMPENSATION SHARES UNLESS THE STOCKHOLDER
SPECIFICALLY VOTES AGAINST THE PROPOSAL OR EXPRESSLY ABSTAINS FROM VOTING. SINCE
BRANDMAKERS HAS PROPOSED THE PLAN AS AN INTEGRATED WHOLE, BRANDMAKERS MAY ELECT
TO ABANDON THE PLAN IN ITS ENTIRETY IF ALL ELEMENTS OF THE PLAN ARE NOT APPROVED
BY THE STOCKHOLDERS.
APPROVAL OF NAME CHANGE
AND BUSINESS COMBINATION FORMAT
In general, a business combination may be structured in the form of a
merger, consolidation, reorganization, joint venture, franchise, licensing
agreement or purchase of the stock or assets of an existing business. Certain
business combination transactions, such as a statutory merger, are complex to
negotiate and implement and require stockholder approval from both parties to
the merger. On the other hand, the simplest form of business combination is
commonly known as a reverse takeover. In a reverse takeover transaction, the
stockholders of the privately-held company exchange their private company shares
for newly issued stock of the public company. As a result of the transaction,
the privately-held company becomes a wholly-owned subsidiary of the Public
Company and due to the large number of public company shares that are
customarily issued to stockholders of the privately-held company, those
stockholders end up with a controlling interest in the public company and are
then free to appoint their own slate of officers and directors.
By using an existing public company, a privately-held concern that wants to
establish a public market for its stock can start with an existing stockholder
base. In addition, there are usually several brokers who will have an interest
in the newly reorganized company because they have stock on their books.
There are several potential problems that arise in connection with a
reverse takeover. First, there may be large blocks of stock in the hands of
individuals who are eager to sell at any price, thereby making it difficult to
support the market during the period immediately after the reorganization.
Second, in addition to inheriting the stockholders and brokers associated with
the public company, the stockholders of the private company will also inherit
the business history of the public company. Accordingly, a thorough due
diligence investigation of the public
<PAGE> 20
company and its principal stockholders is essential to ensure that there are no
unreported liabilities or other legal problems.
In general, reverse takeovers are viewed with some skepticism by both the
financial community and the regulatory authorities until the reorganized company
has been active for a sufficient period of time to demonstrate credible
operating performance. Until this performance is demonstrated, it can be
difficult to raise additional money for a company that went public through a
reverse takeover transaction. Therefore, the reverse takeover strategy is most
appropriate in cases where the purpose for establishing a public trading market
is not related to a perceived short-term need for additional capital. If a
privately-held company believes that substantial additional capital will be
required within the next 6 to 12 months, a reverse takeover transaction may not
be the best alternative.
In connection with a business combination transaction, it is almost certain
that management of the acquisition target will require the Company to change its
name to one selected by the Board of Directors or stockholders of the
acquisition target. Since it is also almost certain that the stockholders of the
acquisition target will possess sufficient voting power to cause the Company to
change its name after the acquisition, Brandmakers is seeking prior stockholder
authorization for a change in the Company's name that is (i) a negotiated
element of a business combination transaction of the type contemplated by the
Plan, and (ii) communicated to all Stockholders of the Company as soon as
possible following the consummation of the Plan.
STOCKHOLDERS ENTITLED TO VOTE AND VOTE REQUIRED
Authorization of Name Change. The affirmative vote of the holders of a
majority of all shares of Common Stock represented and voting at the Meeting, in
person or by proxy, will be required to authorize an amendment to the Company's
Certificate of Incorporation to effect a Change in the Company's name that is
(i) a negotiated element of a business combination transaction of the type
contemplated by the Plan, and (ii) communicated to all Stockholders of the
Company as soon as possible following the consummation of the Plan.
BRANDMAKERS ASKS ALL STOCKHOLDERS TO APPROVE EACH OF THE FOREGOING
PROPOSALS. THE PROXY ENCLOSED HEREWITH WILL BE VOTED FOR EACH PROPOSAL UNLESS
THE STOCKHOLDER SPECIFICALLY VOTES AGAINST ONE OR MORE PROPOSAL OR EXPRESSLY
ABSTAINS FROM VOTING. SINCE BRANDMAKERS HAS PROPOSED THE PLAN AS AN INTEGRATED
WHOLE, BRANDMAKERS MAY ELECT TO ABANDON THE PLAN IN ITS ENTIRETY IF ALL ELEMENTS
OF THE PLAN ARE NOT APPROVED BY THE STOCKHOLDERS.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the shareholdings of those persons who own
more than five percent of the Company's common stock as of the date of this
Report:
Name and Address Shares Beneficially
<PAGE> 21
Percent of Class
of Beneficial Owner Owned
Michael Taglich 1,050,966
Robert Taglich 1,050,966
The above information is taken from the last filed 10-KSB for December 31,
1997. Neither the Transfer Agent nor Brandmakers has information which would
indicate this information is still not the best available. Brandmakers believes
that all of these individuals has sole investment and voting power with regard
to the securities listed opposite his name.
ADDITIONAL INFORMATION
The Board, upon the recommendation and with the financial assistance of
Brandmakers, has engaged the public accounting firm of Harmon & Company, CPA,
Inc. of Columbus, Ohio to audit the Company's financial statements for the
period ending December 31, 1997 and December 31, 1998. A representative from the
firm of Harmon & Company, CPA, Inc. will attend the meeting and be available to
answer questions from stockholders.
Additional materials enclosed herewith include copies of the Company's
Annual Report on Form 10KSB for the year ended December 31, 1997 and December
31, 1998. The Form 10-KSB is incorporated herein by this reference and all
disclosures herein relating to the Company and its management, business and
financial condition are qualified in their entirety by reference to the Form
10-K.
This solicitation is being conducted by Brandmakers,Inc. on behalf of Smart
Games Interactive, Inc. There is no known opposition to the solicitation. In
addition to solicitations by mail, Directors, officers and regular employees of
Brandmakers may solicit proxies by telephone, telegram, fax or personal
solicitation. Brokers, nominees, fiduciaries and other custodians will be
instructed to forward soliciting material to the beneficial owners of shares
held of record by them, and such custodians will be reimbursed for their
expenses.
The persons designated as proxies to vote shares at the Meeting intend to
exercise their judgment in voting such shares on other matters that may properly
come before the Meeting. Brandmakers does not expect that any matters other than
those referred to in this proxy statement will be presented for action at the
Meeting.
<PAGE> 22
ANNUAL REPORT
The Annual Report on Form 10-KSB of the Company, including financial
statements and schedules, may be obtained by any person without charge on
written request to: Harmon & Company, CPA, Inc., at 6089 Frantz Road, Suite 103,
Dublin, Ohio 43017.
By Order of the Board of Directors
Nicholas J. Chuma
Secretary
<PAGE> 23
ADDITION
Pro forma Balance Sheet combining balance sheet of Brandmakers, Inc. dated
4.30.99 with balance sheet of Smart Games dated 3/31/99.
<PAGE> 24
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 45,014
Accounts receivable, trade 197,777
Accounts receivable, other 1,450
Inventory 74,141
Prepaid expenses 4,431
---------
TOTAL CURRENT ASETS 322,813
---------
PROPERTY AND EQUIPMENT, at cost
Smart Games Furniture & Fixtures (net) 7,903
Furniture and fixtures 8,171
Computers and office equipment 65,857
Equipment 23,587
Trucks & Autos 33,495
---------
139,013
Less accumulated depreciation (47,636)
---------
91,377
OTHER ASSETS
Deposits 11,466
TOTAL ASSETS $ 425,656
CURRENT LIABILITIES
Smart Games - Accrued Expenses 633
Smart Games - Accounts Payable 151,604
Current maturites of long-term debt 2,408
Current portion of capital lease obligations 14,810
Accounts payable 168,310
Officer loan payable 10,108
Accrued payroll 9,157
Tenants deposits 1,556
Accrued income taxes 41,836
---------
TOTAL CURRENT LIABILITIES 400,422
---------
LONG TERM DEBT 6,587
---------
CAPITAL LEASE OBLIGATIONS 17,930
---------
DEFERRED INCOME TAXES 9,400
---------
STOCK HOLDER'S EQUITY
Common stock, .0002 par value, 6,000,000 shares 1,200
After merger (9,883)
Retained earnings (8,683)
---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 425,656
- --------------------------------------------------------------------
</TABLE>
<PAGE> 25
BRANDMAKERS, INC
FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1998
[LOGO]
SANTE, PHILMON & COMPANY
----------------------------
CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 26
BRANDMAKERS, INC
FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1998
<PAGE> 27
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> 28
[LOGO]
SANTI, PHILMON & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
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.
Except as discussed in the following paragraph, 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 and significant estimates made by management, as well as evaluating
the overall financial presentation. We believe that our audit provides a
reasonable basis for our opinion.
We did not observe the physical inventory (stated at $24,452) taken as of June
30, 1997, since that date was prior to our initial engagement as auditors for
the Company, and the Company's records do not permit adequate retroactive tests
of inventory quantities.
In our opinion, except for the affects of such adjustments, if any, as might be
determined to be necessary in the statements of income, retained earnings, and
cash flows had we been able to observe the physical inventory taken June 30
1997, the financial statements referred to in the first paragraph 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.
/s/ Santi, Philmon & Company
Santi, Philmon & Company
Duluth, Georgia
June 10, 1999
1
<PAGE> 29
- --------------------------------------------------------------------------------
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
================================================================================
2
<PAGE> 30
BRANDMAKERS, INC.
STATEMENT OF INCOME
YEAR ENDED JUNE 30, 1998
================================================================================
<TABLE>
<S> <C>
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
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 31
BRANDMAKERS, INC.
STATEMENT OF RETAINED EARNINGS
YEAR ENDED JUNE 30, 1998
================================================================================
BALANCE AT BEGINNING OF YEAR $ (34,749)
Net income 108,756
---------
BALANCE AT END OF YEAR $ 74,007
=========
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 32
BRANDMAKERS, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 1998
================================================================================
<TABLE>
<S> <C>
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 expenses (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)
---------
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)
---------
NET INCREASE IN CASH 61,844
CASH BALANCE AT BEGINNING OF YEAR 36,315
---------
CASH BALANCE AT END OF YEAR $ 98,159
=========
SUPPLEMENTAL DISCLOSURES
Interest paid $ 1,632
=========
Income taxes paid $ 9,300
=========
</TABLE>
The accompanying notes are an integral part of these financial statements..
5
<PAGE> 33
BRANDMAKERS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
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> 34
BRANDMAKERS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
================================================================================
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.
<TABLE>
<CAPTION>
NOTE B - INVENTORY
<S> <C>
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
-------
24,348
-------
State:
Current 5,488
-------
Deferred 1,400
-------
6,888
-------
Total income tax provision $31,236
=======
</TABLE>
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 concentration 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> 35
BRANDMAKERS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
================================================================================
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.
8
<PAGE> 36
BRANDMAKERS, INC.
FINANCIAL STATEMENTS
TEN MONTHS ENDED APRIL 30, 1999
[LOGO]
SANTI, PHILMON & COMPANY
----------------------------
CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 37
BRANDMAKERS, INC.
FINANCIAL STATEMENTS
TEN MONTHS ENDED APRIL 30, 1999
<PAGE> 38
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> 39
[LOGO]
SANTI, PHILMON & COMPANY
----------------------------
CERTIFIED PUBLIC ACCOUNTANTS
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 April 30, 1999, and the related statements of income,
retained earnings and cash flows for the ten months 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 April
30, 1999, and the results of its operations and its cash flows for the ten
months then ended in conformity with generally accepted accounting principles.
/s/ Santi, Philmon & Company
Santi, Philmon & Company
Duluth, Georgia
June 10, 1999
1
<PAGE> 40
================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 2,408
Current portion of capital lease obligations 14,810
Accounts payable 168,310
Officer loan payable 10,108
Accrued payroll 9,157
Tenants deposits 1,556
Accrued income taxes 41,836
--------
TOTAL CURRENT LIABILITIES 248,185
--------
LONG-TERM DEBT 6,587
--------
CAPITAL LEASE OBLIGATIONS 17,930
--------
DEFERRED INCOME TAXES 9,400
--------
STOCKHOLDER'S EQUITY
Common stock, no par value, 1,000 shares
authorized, 100 issued and outstanding 100
Retained earnings 135,551
--------
135,651
--------
================================================================
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $417,753
================================================================
2
<PAGE> 41
BRANDMAKERS, INC.
STATEMENT OF INCOME
TEN MONTHS ENDED APRIL 30, 1999
================================================================================
REVENUES $ 1,709,151
COST OF REVENUES EARNED 966,003
-----------
GROSS PROFIT 743,148
-----------
OPERATING EXPENSES
Advertising and promotion 19,028
Auto expenses 17,329
Bank charges 389
Depreciation 27,219
Dues and subscriptions 427
Insurance 17,395
Meals and entertainment 7,527
Miscellaneous 146
Office expenses 18,698
On-line 515
Professional fees 44,754
Rent 65,610
Repairs and maintenance 10,256
Research and development 9,357
Salaries 347,658
Supplies 13,242
Taxes - payroll 31,294
Taxes and licenses 1,420
Telephone 24,010
Travel 18,478
-----------
TOTAL OPERATING EXPENSES 674,752
-----------
OPERATING INCOME 68,396
-----------
OTHER INCOME (EXPENSE)
Rental income 14,427
Interest income 1,469
Interest expense (2,678)
-----------
INCOME BEFORE TAXES 81,614
-----------
PROVISION FOR INCOME TAXES
Current 17,070
Deferred 3,000
-----------
TOTAL INCOME TAX PROVISION 20,070
-----------
NET INCOME $ 61,544
===========
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 42
BRANDMAKERS, INC.
STATEMENT OF RETAINED EARNINGS
TEN MONTHS ENDED APRIL 30, 1999
================================================================================
BALANCE AT BEGINNING OF YEAR $ 74,007
Net income 61,544
--------
BALANCE AT APRIL 30, 1999 $135,551
========
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 43
BRANDMAKERS, INC.
STATEMENT OF CASH FLOWS
TEN MONTHS ENDED APRIL 30, 1999
================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 61,544
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 27,219
Deferred income tax expense (benefit) 3,000
(Increase) Decrease in:
Accounts receivable, trade (177,534)
Accounts receivable, other (1,450)
Inventory (48,326)
Prepaid expenses 7,908
Deposits (4,061)
Increase (Decrease) in:
Accounts payable 64,707
Accrued and withheld income taxes (3,147)
Accrued payroll 9,157
Accrued interest (283)
Tenants deposits 1,556
Accrued income taxes 17,000
---------
Net cash used by operations (42,710)
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (4,023)
Increase in officer loan payable 2,500
---------
Net cash used by investing activities (1,523)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (1,645)
Reduction in capitalized leases (7,267)
---------
Net cash used by financing activities (8,912)
---------
NET INCREASE (DECREASE) IN CASH (53,145)
CASH BALANCE AT BEGINNING OF YEAR 98,159
---------
CASH BALANCE AT APRIL 30, 1999 $ 45,014
=========
SUPPLEMENTAL DISCLOSURES
Interest paid $ 2,961
=========
Income taxes paid $ 70
=========
The accompanying notes are an integral part of these financial statements..
5
<PAGE> 44
BRANDMAKERS, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999
================================================================================
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of BRANDMAKERS, INC. is
presented to assist in under- standing 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> 45
BRANDMAKERS, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 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 ten months ended April 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 April 30, 1999 was as follows:
Vending machine cabinets and components $40,152
Finished goods 33,989
-------
$74,141
=======
NOTE C - PROVISION FOR INCOME TAXES
Provision for income taxes consisted of the following:
Federal:
Current $12,070
Deferred 2,100
-------
14,170
-------
State:
Current 5,000
Deferred 900
-------
5,900
Total income tax provision $20,070
=======
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 concentration of credit risk requiring disclosure regardless of
degree of risk. The risk is managed by maintaining all deposits in high quality
financial institutions. $127,484 of the Company's trade receivables were due
from the Company's five largest customers. One customer accounted for $756,286
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> 46
7
BRANDMAKERS, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999
================================================================================
NOTE E - LONG-TERM DEBT
Long-term debt at April 30, 1999 is summarized as follows:
<TABLE>
<S> <C>
Retail installment contract payable $263 monthly, including
interest at 9.5%, due September 2002. Secured by
underlying equipment $ 8,995
Less current portion (2,408)
-------
$ 6,587
=======
Maturities of long-term debt for each of the next five years are as follows:
Twelve months ending April 30
-----------------------------
2000 $ 2,408
2001 2,646
2002 2,909
2003 1,032
-------
$ 8,995
=======
</TABLE>
NOTE F - CAPITAL LEASES
During the ten-months ended April 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 $40,007. The future minimum lease payments at April 30,
1999 are as follows:
Twelve months ending April 30,
- ------------------------------
<TABLE>
<S> <C>
2000 $ 20,846
2001 15,887
2002 2,515
--------
39,248
Less amount representing interest (6,508)
--------
Present value of net minimum lease payments $ 32,740
========
</TABLE>
8
<PAGE> 47
BRANDMAKERS, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1999
================================================================================
NOTE G - 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 ten months ended April 30, 1999 was $65,610.
Remaining future minimum lease payments required under this lease are
$38,122 for the twelve months ending April 30, 2000 and $7,500 for the
three months ending July 31, 2000, which is when the lease expires.
The Company subleases office space to unaffiliated lessees. Future minimum
rents receivable under this arrangement are $3,112 for the two months
ending June 30, 1999, 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 because of a delay in the merger. The balance of the inventory remains
subject to the UCC lien and is not recorded in these financial statements.
NOTE I - CASH FLOW DISCLOSURES
Noncash transactions for the ten months ended April 30, 1999
included the following;
1. Equipment purchased by issuance of long-term debt of $10,640.
2. Computers and office equipment obtained under capital lease of $40,007.
9
<PAGE> 48
PROXY - SMART GAMES INTERACTIVE
Annual Meeting of Shareholders - October 9, 1997
The undersigned hereby appoints Nicholas J. Chuma, and grants him with full
power to appoint his substitute, attorneys and proxies to represent the
shareholder and to vote and act with respect to all shares that the shareholder
would be entitled to vote on all matters which come before the annual meeting of
shareholders of Smart Games Interactive referred to above and at any adjournment
of that meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. IF THIS PROXY IS
PROPERLY EXECUTED, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS
SPECIFIED. IF NO SPECIFICATIONS ARE MADE, THE SHARES WILL BE VOTED FOR EACH OF
THE PROPOSALS ON THIS PROXY. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED
IN THE DISCRETION OF THE PROXY HOLDERS ON ANY OTHER MATTER, INCLUDING
SUBSTITUTION OF DIRECTOR NOMINEES, WHICH MAY COME BEFORE THE MEETING.
(Continued and to be signed on the reverse side.)
<PAGE> 49
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
FOR WITHHELD Nomination: Geoff Williams,
1. Election of [ ] [ ] Robert J. Palmquist, FOR AGAINST ABSTAIN
Directors Jay Williams 2. Proposed and Reverse [ ] [ ] [ ]
Split
FOR AGAINST ABSTAIN
3. Issuance of [ ] [ ] [ ]
Compensation Shares
FOR AGAINST ABSTAIN
4. Approval of Name [ ] [ ] [ ]
Change and Business
Combination Format
SIGNATURE(S) ____________________________________________ DATE ________ , 1999
NOTE: Please sign exactly as your name appears on this proxy. If signed for
estates, trust, or corporations, title or capacity should be stated.
If shares are held jointly, each holder should sign.
</TABLE>
