Bottom line is 20 people produce $4million in sales with reasonable gross profit, overhead is still too high so they are still showing a loss. They know it and are and are taking measures to correct it. Big $750,000 cash infusion in Feb 02 when the webBox $10 renewals take place.
Not pretty, but they know what they have to do to survive.
October 15, 2001
BRANDMAKERS INC (BMKS.OB)
Annual Report (SEC form 10KSB)
Item 6. Management's Discussion and Analysis or Plan of Operation
FORWARD-LOOKING STATEMENTS
The following discussion should be read in conjunction with the financial statements and notes thereto and other financial information appearing elsewhere in this Annual Report on Form 10-KSB.
This report on Form 10-KSB contains forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed forward-looking statements. Without limiting the foregoing, the words "believe," "anticipates," "plans," "expects," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the Company's actual results to differ materially from those indicated by such forward-looking statements. These factors include, without limitation, changes in the regulation of the wireless communication and internet industry at either the federal and state levels, competitive pressures in the wireless communication and internet industry and the Company's response thereto, the Company's ability to obtain and retain favorable arrangements with third-party payers, the Company's ability to obtain capital in favorable terms and conditions, and general conditions in this economy.
Overview
Through the reverse acquisition in November 1999, the Company became a public reporting company. The Company raised funds through private placements of equity securities. These funds were used to invest in all of the Company's divisions. Wide area paging assets were purchased and combined with the successful on-site paging division, Hospitality Innovators. The new group was renamed Zoom Communications. Division employment is now eleven employees. A decision was made during the year to phase out wide area paging and to concentrate on the more profitable onsite paging systems. Also, new products have been and are in process of being added as discussed previously.
The games and vending division currently has three employees. New products such as cell phone vendors are being marketed to replace the former top seller Virtual Reality Golf. Internet Kiosks and Computer Disk Dispensing machines hold some promise as well. Coin Pushers can be marketed when timely and specialty skill games may be marketed early in 2002.
MailStart is still a free service but may be accessed just once per week which encourages people to sign up for WebBox. WebBox is a premium service and we continue to add new features such as PDA Synchronization which is in process and upgrading the Administration Section will follow. Plans call for further upgrades which may lead to a two tiered pricing system. Currently, WebBox is a real bargain at only $10 per year for unlimited service.
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Results of Operations
Year Ended June 30, 2001 Compared to Year Ended June 30, 2000
REVENUES. The Company had revenues of $4,034,076 for the year ended June 30, 2001, as compared to $3,005,701 for the same period in 2000. This represents an increase of over 34.2%. Primary reasons for this difference were the expanded product lines within Zoom Communications and the implementation of a pay per use service for WebBox. Fiscal year 2000 revenues were generated from sales of on site and wide area paging, games, vending equipment and advertising. Funding for expansion into wide area paging, K. W. Leisure and losses were funded by private placements. Fiscal year 2001 revenues were generated by on site paging as wide area paging was gradually being phased out, vending equipment, advertising and the WebBox pay per use program.
In summary, Zoom Communications accounted for 80% of total revenue, Games and vending contributed 7% and the Internet Division 10% with minor amounts in Corporate and New Media. WebBox contributed an additional $267,000 toward cash flow which is being spread out over twelve months for accounting purposes.
COST OF SALES. The Company's cost of sales increased from $1,903,206 for the year ended June 2000 to $2,443,883 for the same period in 2001. This is an increase of 28%. In 2001, the gross profit margin was 39.7% versus 36.7% in 2000. The increase can be attributed to the gradual phaseout of wide area paging.
OPERATING EXPENSES. Operating expenses for the 12 months ended June 30, 2001 were $2,307,787 as compared to $2,455,095 for the same period in 2000.
The Company experienced a $717,594 loss from operations in 2001 versus a loss of $1,352,600 in 2000. Salaries and wages decreased to $1,131,252 in 2001 from $1,508,215 in 2000. With additional equipment, depreciation and amortization increased to $220,567 in 2001 from $113,109 in the prior year. Other operating expenses increased in 2001 to $749,638 from $522,690 in 2000.
OTHER INCOME AND EXPENSE. Interest expense increased due to capital equipment purchases for MailStart. The company experienced a $494,302 loss on impairment of goodwill from the acquisition of Multi-Page Communications assets in 2000. In 2001 there was a loss of $710,475 from the discontinued operations of K. W. Leisure, Ltd. These losses have been detrimental to the financial condition of Brandmakers and current liabilities of $843,400 under notes payable reflect the amounts still owed for the Multi-Page and K.W. Leisure transactions. In December 2000, all operations were ceased at K.W. Leisure and the remaining assets and liabilities were written off in the period ending June 30, 2001. The company has a serious liquidity problem which has partially been addressed by deferred salary deductions.
Liquidity and Capital Resources
CASH USED IN OPERATING ACTIVITIES - The Company's net cash flow from operating activities was $56,471 in 2001 and a deficit of $1,584,144 in 2000. The deficit in 2000 was primarily due to a ramp-up in sales and the resulting need to support this increasing level of business with a higher investment in inventories, coupled with increasing accounts receivable and additional marketing expenses. In 2001, receivables decreased by $438,610 and deferred revenue increased by $267,108 which was created by WebBox pay per use income being spread out over one year.
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CASH USED IN INVESTING ACTIVITIES - Cash used in investing activities declined to 18,887 for capital expenditures in 2001 and a certificate of deposit in the amount of $320,884 matured and was paid to a leasing company for MailStart equipment. Cash used in 2000 was for the purchases of K.W. Leisure, Multi Page, MailStart equipment and a certificate of deposit for a total of $900,388.
CASH FLOW FROM FINANCING ACTIVITIES - The Company's net cash flow from financing activities during the year ended June 30, 2001 was a negative $389,138 versus a positive cash flow of $2,510,801 in the 2000 fiscal year. The primary difference was the proceeds from private placements amounting to $2,623,750. In 2001 there were principal payments under capital lease obligations or $523,951. Net borrowings from a line of credit based upon accounts receivables was $142,013 in 2001. Currently, the company is experiencing financial difficulties that necessitate additional financing or vastly reduced expenditures keeping in mind that the recurring income from WebBox users will not commence until February 1, 2002. Brandmakers has been and is currently reducing expenses including officers and directors salaries as well as an across the board 20% salary decrease for employees. There is no assurance that anticipated cash flow, reduced expenses and financing will be sufficient to fund operations and meet the needs to implement the company's business plan. The cash balance on June 30, 2001 was $51,917 compared to $82,587 for the 2000 period.
In August, 2000 the company announced a letter of intent from World Sales and Merchandising Inc. of Toronto, Canada to purchase a majority ownership in Brandmakers, Inc. and to fund operations. As a result, Bob Palmquist and Joy Williams resigned from the Board of Directors to be replaced by two WSMI officers. However, under Utah law, where Brandmakers is incorporated, Board of Director members must be elected by a vote of all shareowners. Consequently, the Board of Directors has remained the same. Subsequently, it became quite apparent that the transfer of controlling interest would not take place but it was not formally called off until January 5, 2001 and on January 15, 2001 WebBox commenced a pay per use program with multiple features and no advertising. |
