UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark one)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT OF
1934 for the transition period from to
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Commission File Number: 0-06334
BRAINWORKS VENTURES, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 87-0281240
(State of Incorporation) (IRS Employer ID Number)
101 MARIETTA STREET, SUITE 3450, ATLANTA, GEORGIA 30303
(Address of principal executive offices)
(404) 524-1667
(Issuer's telephone number, Including area code)
(Former name, former address and former fiscal year, if changed since
last report)
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 2,459,934 shares as of
November 12, 2001.
Transitional Small Business Disclosure Format (check one): Yes [ ]
No [X]
BRAINWORKS VENTURES, INC.
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 2001
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS PAGE
Consolidated Balance Sheet
as of September 30, 2001................................................................3
Consolidated Statements of Operations
for the Three Months and Six Months Ended
September 30, 2001 and September 30, 2000...............................................4
Consolidated Statements of Cash Flows
for the Six Months Ended September 30, 2001
and September 30, 2000..................................................................5
Notes to Consolidated Financial Statements..............................................6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION........................7
PART II - OTHER INFORMATION
ITEM 4 SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................8
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K ................................................9
SIGNATURES .................................................................................9
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRAINWORKS VENTURES, INC
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2001
ASSETS
Current assets:
Cash $ 408,000
Due from officers/stockholders 14,000
Accounts receivable 132,000
Prepaid expenses and other current assets 11,000
-----------
Total current assets 565,000
Fixed assets, net of accumulated depreciation of $58,000 334,000
Investments in non-marketable equity securities, at cost 281,000
Intangible assets, net of accumulated amortization of $683,000 2,472,000
Other assets 3,000
-----------
$ 3,655,000
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 564,000
Due to officers/stockholders 5,000
-----------
Total current liabilities 569,000
-----------
Stockholders' equity
Common stock, $0.01 par value; authorized 25,000,000 shares;
issued and to be issued 2,458,000 shares 25,000
Additional paid-in capital 8,124,000
Deferred compensation (1,382,000)
Receivables for stock (60,000)
Accumulated deficit (3,621,000)
-----------
Total stockholders' equity 3,086,000
-----------
$ 3,655,000
===========
See accompanying notes to consolidated financial statements
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BRAINWORKS VENTURES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months Six months
ended September 30, ended September 30,
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenues $ 398,000 $ 529,000
Cost of Revenues 404,000 484,000
----------- -----------
Gross profit (loss) (6,000) 45,000
Selling, general and
administrative expenses 1,169,000 $ 304,000 2,024,000 $ 1,816,000
----------- ----------- ----------- -----------
Loss from operations (1,175,000) (304,000) (1,979,000) (1,816,000)
Realized gain (loss) on sale of
securities (19,000) 1,120,000
Interest and dividends 7,000 11,000 16,000 22,000
----------- ----------- ----------- -----------
Loss before income taxes provision (1,168,000) (312,000) (1,963,000) (674,000)
Income tax provision 0 0 0 330,000
----------- ----------- ----------- -----------
Net loss $(1,168,000) $ (312,000) $(1,963,000) $(1,004,000)
=========== =========== =========== ===========
Net loss per common share-
basic and diluted $ (0.48) $ (0.33) $ (0.83) $ (1.03)
=========== =========== =========== ===========
Weighted number of shares
outstanding, basic and
diluted 2,458,000 954,000 2,372,000 977,000
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements
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BRAINWORKS VENTURES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30,
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,963,000) $(1,004,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 609,000
Gain on sale of securities (1,120,000)
Stock issued for compensation 13,000 1,521,000
Income taxes payable 316,000
Deferred compensation amortization 787,000
Changes in operating assets and liabilities
Accounts receivable (10,000) 59,000
Prepaid expenses and other current assets 16,000
Accounts payable and accrued liabilities 166,000
Due to stockholders 30,000
-----------
Net cash used in operating activities (352,000) (228,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition expenses (78,000)
Proceeds from sale of investments 1,524,000
Purchase of investments (205,000)
----------- -----------
Net cash (used in) provided by investing activities (78,000) 1,319,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Collections of stock subscriptions receivable 2,000
Notes receivable from officers/ stockholders 225,000
Proceeds from the sale of treasury stock 8,000
----------- -----------
Net cash provided by financing activities 227,000 8,000
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NET INCREASE IN CASH AND CASH EQUIVALENTS (203,000) 1,099,000
Cash, beginning of period 611,000 248,000
----------- -----------
CASH, END OF PERIOD $ 408,000 $ 1,347,000
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Value of options issued $ 1,252,000 $ --
Value of stock issued for acquisition $ 554,000 $ --
Value of stock issued for fixed assets $ 32,000 $ --
See accompanying notes to consolidated financial statements
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BRAINWORKS VENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - THE COMPANY AND BASIS OF PRESENTATION
Brainworks Ventures, Inc., a Nevada corporation ("BWV"), together with its
wholly-owned subsidiaries, Brainworks Ventures Labs, Inc ("BVL") and Executive
Ventures Partners, Inc. ("EVP"), referred to herein collectively as the
"Company", develops, invests in and operates internet and other technology
companies located primarily in the southeastern United States.
On February 14, 2001, BWV completed the acquisition of BVL, which is a venture
development company that provides business consulting services to early stage
technology companies. On May 8, 2001 BWV acquired EVP, a consulting company that
specializes in the development and implementation of corporate venturing
programs. EVP's target clients are Fortune 2000 companies and government
research laboratories. EVP works with clients to identify undervalued assets
that can be commercialized and provides the resources and management talent to
build a business around those assets. EVP also works with businesses to
establish corporate venturing programs that manage corporate venture capital
funds designed to make strategic investments.
The accompanying unaudited, consolidated, financial statements include the
accounts of the Company and its wholly-owned subsidiaries EVP and BVL from their
respective dates of acquisition. All intercompany balances and transactions have
been eliminated. These unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America and in accordance with the instructions to Form 10-QSB for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, such statements include all
adjustments (consisting of normally recurring accruals) considered necessary for
fair presentation. Operating results for the six-month period ended September
30, 2001 are not necessarily indicative of the results that may be expected for
the year ended March 31, 2002. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's 2001 Annual Report on Form 10-KSB.
The Company has sustained a significant operating loss for the six-month period
ended September 30, 2001 and the Company's operations have generated negative
cash flow. These factors raise substantial doubt about the Company's ability to
continue as a going concern. The Company has implemented cost controls to reduce
operating expenses. Management's plans include raising additional capital and/or
debt financing or the sale of the Company. If the company raises additional
funds by issuing additional equity securities, then the percentage ownership of
the Company's current stockholders will be diluted. There is no assurance that
such capital and/or debt financing will be available on terms acceptable to the
Company. The consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
NET LOSS PER SHARE
Basic and diluted loss per share for the three-month and six-month periods ended
September 30, 2001 and September 30, 2000 is computed based on the weighted
average number of common shares outstanding. Common shares issuable on the
exercise of options are not included in the calculation of net loss per share
because their effect would be antidilutive.
NOTE B - ACQUISITION
On May 8, 2001, BWV acquired EVP. All of the outstanding common stock of EVP was
exchanged for 500,000 shares of BWV's common stock with a fair value of
$554,000. The stock issued in the acquisition includes a provision for
"piggy-back" registration rights. Certain shareholders of EVP were also
shareholders or directors of the Company prior to the acquisition and received
390,000 shares of the total shares exchanged. The transaction was accounted for
as a purchase pursuant to Accounting Principle Board No. 16, Accounting for
Business Combinations.
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The assets acquired, liabilities assumed and the cost of the acquisition were as
follows:
Assets acquired:
Current assets, principally accounts and unbilled receivables $122,000
Fixed assets 5,000
Intangible assets 497,000
--------
$624,000
========
Liabilities assumed:
Accounts payable and accrued liabilities $ 35,000
Due to stockholder 35,000
Common stock issued to EVP stockholders at fair value 554,000
--------
$624,000
========
In addition, the Company incurred acquisition costs of approximately $78,000 in
connection with the acquisition, which costs are being amortized over a 36-month
period.
The following unaudited pro forma condensed statements of operations assume the
Company's acquisition of EVP occurred on April 1, 2001. In the opinion of
management, all adjustments necessary to present fairly such unaudited pro forma
statements have been made.
Six months ended September 30,
2001 2000
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Revenue $ 487,000 $ 16,000,000
Net loss $(1,931,000) $ (658,000)
Net loss per share $ (0.79) $ (0.45)
NOTE C - RECLASSIFICATION
Certain items in the Company's Quarterly Report on Form 10-QSB for the period
ended September 30, 2000 have been reclassified to conform to current year
classifications. Such reclassifications had no effect on previously reported
income.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANAYLSIS OR PLAN OF OPERATION
Certain statements contained in this Quarterly Report on Form 10-QSB are
"forward-looking statements," within the meaning of the Private Securities
Litigation Reform Act of 1995, and are thus prospective in nature. Such
forward-looking statements reflect management's beliefs and assumptions and are
based on information currently available to management. The forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause actual results, performance or achievements of Brainworks Ventures,
Inc. to differ materially from those expressed or implied in such statements.
There can be no assurance that such factors or other factors will not affect the
accuracy of such forward-looking statements
RESULTS OF OPERATIONS
For the three months ended September 30, 2001 and 2000, the Company recorded
revenues of $398,000 and $0, respectively. The source of revenue is primarily
consulting services provided by BVL and EVP during the period ended September
30, 2001.
For the three months ended September 30, 2001 and 2000, the cost of revenue was
$404,000 and $0, respectively. The cost of revenue is primarily consulting and
payroll expenses.
For the three months ended September 30, 2001, the selling, general and
administrative expenses amounted to $1,169,000, an increase of $865,000 over the
corresponding period ended September 30, 2000. The increase was primarily due to
higher payroll expenses and operating costs incurred after the acquisitions of
BVL and EVP and a
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non-cash compensation charge of $415,000 related to amortization of stock
options granted to consultants and advisors.
For the six months ended September 30, 2001 and 2000, the Company recorded
revenues of $529,000 and $0, respectively. In addition, during the six months
ended September 30, 2000, the Company realized net gains of $1,120,000 primarily
on the disposal of its investments in Corporacion De La Fonda. The increase in
revenue is primarily due to consulting revenue earned by EVP.
For the six months ended September 30, 2001 and 2000, the cost of revenue was
$484,000 and $0, respectively. The cost of revenue is primarily consulting and
payroll expenses.
For the six months ended September 30, 2001, the selling, general and
administrative expenses was $2,024,000, an increase of $208,000 over the
corresponding period ended September 30, 2000. The increase is primarily due to
higher payroll and operating costs incurred after the acquisition of BVL and EVP
and a non-cash compensation charge of $787,000 related to the amortization of
stock options granted to consultants and advisors. Selling, general and
administrative expenses for the six months period ended September 30, 2000
included a non-cash compensation charge of $1,521,000 related to the stock
options granted for services.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2001, working capital was a $4,000 deficit compared to $653,000
at March 31, 2001. This decrease was principally due to cash used in operations
resulting from the current period loss.
For the six months ended September 30, 2001, net cash used in operating
activities was $352,000 and net cash used in investing activities was $78,000.
Net cash provided by financing activities was $227,000. For the six months ended
September 30, 2000, net cash used in operations was $228,000, net cash provided
by investing activities was $1,319,000 and net cash provided by financing
activities was $8,000.
Current assets as of September 30, 2001 was $565,000, a decrease of $391,000
from the March 31, 2001 and a decrease of $782,000 from September 30, 2000.
Total assets as of September 30, 2001 of $3,655,000 represents a decrease of
$309,000 in total assets from the March 31, 2001 and an increase in total assets
from September 30, 2000 of $2,103,000. This increase in total assets was
primarily due to the acquisition by the Company of BVL and EVP, which
acquisitions occurred on February 14, 2001 and May 8, 2001, respectively.
While management believes that these acquisitions should assist the Company in
pursuing its business direction, management's plans included seeking additional
capital or debt financing or the possible sale of the Company.
INFLATION
The Company does not currently view the effects of inflation as having a
material effect on the Company's business.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Stockholders of the Company was held on September 8,
2001 (the "Meeting") in Alpharetta, Georgia. There were 2,457,934 shares of the
Company's common stock issued and outstanding and entitled to vote at the
Meeting of which 1,650,271 shares were present at the Meeting in person or
represented by proxy. The table below sets forth the proposal that was voted on
at the Meeting and the voting results of such proposal.
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PROPOSAL: FOR WITHHELD ABSTAIN
--------- --- -------- -------
To elect the nominees listed below
to the Board of Directors:
John P. Cayce 1,648,921 1350 0
Donald Ratajczak 1,648,921 1350 0
Kirk K. Reiss 1,648,921 1350 0
Marc J. Schwartz 1,648,921 1350 0
Cole F. Walker 1,648,921 1350 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
During the quarter ended September 30, 2001, the Company filed one Current
Report on Form 8-K/A with the Securities and Exchange Commission (the "SEC") on
August 16, 2001, which report amended Item 7 of the Current Report on Form 8-K
filed with the SEC on May 23, 2001 (reporting under item 2 of such report the
Company's acquisition of EVP), to set forth the (i) audited financial statements
of EVP as of March 31, 2001, and for the period from May 1, 2000 (commencement
of operations) to March 31, 2001; and (ii) unaudited pro forma condensed
consolidated financial statements for the year ended March 31, 2000.
.
SIGNATURES
In accordance with Section 13 or 10(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BRAINWORKS VENTURES, INC.
By: /s/ Marc J. Schwartz
------------------------------
Marc J. Schwartz
Vice President/ Treasurer
Dated: November 16, 2001
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