November 15, 2001
BRANDMAKERS INC (BMKS.OB)
Quarterly Report (SEC form 10QSB)
Item 2. Management's Discussion and Analysis
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB contains forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed forward-looking statements. Without limiting the foregoing, the words "believe," "anticipates," "plans," "expects," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the Company's actual results to differ materially from those indicated by such forward-looking statements. These factors include, without limitation, changes in the regulation of the wireless communication and internet industry at either the federal and state levels, competitive pressures in the wireless communication and internet industry and the Company's response thereto, the Company's ability to obtain and retain favorable arrangements with third-party payers, the Company's ability to obtain capital in favorable terms and conditions, and general conditions in this economy.
The following discussion of the Company's results of operations and financial conditions should be read in conjunction with the Company's condensed consolidated unaudited Financial Statements listed in Part I, Item I and the notes thereto appearing elsewhere in this Form 10-QSB.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
September 2001 and 2000.
Revenue decreased 27.2% from $1,133,775 to $824,983 for the three months ended September 30, 2001 compared to September 30, 2000. Cost of sales for the period were $434,403 versus $710,606 resulting in a gross profit of $390,580 for September 30, 2001 compared to $423,169 for September 30, 2000. Expenses for the three month period were $459,408 for 2001 versus $837,586 in 2000. Consequently, after interest expenses of $30,734, there was a loss of $99,562 for the period ended September 30, 2001 compared to a loss of $597,432 after interest expenses of $63,696 for the period ended September 30, 2000. The net loss for the period ended September 30, 2000 includes losses from discontinued operations of K.W. Leisure Ltd. of $119,319.
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LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities - The Company's net cash flow from operating activities resulted in deficits of $87,762 for the three-month period ended September 30, 2001 compared to a deficit of $131,865 for the same period in 2000. For the three-month period ended September 30, 2001 accounts receivable decreased by $18,721 and accounts payable increased by $69,948. Inventories decreased by $39,507 during the three-month period in 2001 as compared to an increase of $95,552 for the 2000 period. Accrued expenses increased by $8,253 during the three-month period ended September 30, 2001, while deferred revenue for WebBox sign ups decreased by $4,363 from $267,108 to $262,745. The deficit decreased significantly from $597,432 in the period ended September 30, 2000 to $99,562 in 2001 due to significantly lower operating expenses. The cost of goods sold was much lower as a percent of sales due, in part, to the low cost of WebBox sign ups during the current three month period.
Cash flow from Investing Activities- The Company's net cash used in investing activities was $20,233 for the three months ended September 30, 2001 versus $29,419 for the same period in 2000.
Cash Flow from Financing activities- The company's net cash flow from financing activities was a deficit of $86,891 for the three-month period ended September 30, 2001 versus an increase of $148,071 for the same period in 2000. During the 2001 three-month period, notes payable, long term debt and capital leases were reduced by $53,601 while net payments on the line of credit totaled $33,380.
RECENT DEVELOPMENTS
In a continuing effort to reduce expenses, Brandmakers employees' salaries were reduced by 20% while officers' salaries were reduced by 30% to 50%. Rental expenses were reduced by $2,000 per month during the quarter as well.
The Internet division continues the subscription program on WebBox while offering free email once per week on MailStart. WebBox subscriptions were increased on July 1, 2001 from $6 to
$10 annually. As of November 6, 2001 over 84,000 credit cards had been charged for this program. Recurring income will commence February 1, 2002 allowing for further upgrades and service features as well as additional promotional programs.
ZOOM Communications continues to phase out the competitive wide area paging and concentrate on the more profitable on-site paging systems. Server paging, guest paging, and manager paging products are all manufactured for ZOOM and sold via direct sales as well as through an extensive network of dealers and resellers. The Gift Card and Loyalty programs offer good potential as well.
The Gamosity division produces and manufactures vending machines and computerized games. Cellular phone vending machines allows for dispensing of prepaid cellular phones. Computer disk dispensing machines for floppy disks, zip disks, super disks and compact discs continue to be sold in small quantities for placement in colleges and universities.
The economic climate has been poor for many firms including Brandmakers and sales have not kept pace with expectations.
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