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 JUNE 30, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF
1934 for the transition period from __________ to ___________
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)
---------------
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 2,280,936 shares as of
August 13, 2002.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
BRAINWORKS VENTURES, INC.
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 2002
PART I - FINANCIAL INFORMATION
PAGE
----
ITEM 1 FINANCIAL STATEMENTS
Consolidated Balance Sheet
as of June 30, 2002.............................................................................3
Consolidated Statements of Operations
for the Three Months Ended June 30, 2002
and June 30, 2001...............................................................................4
Consolidated Statements of Cash Flows
for the Three Months Ended June 30, 2002
and June 30, 2001...............................................................................5
Notes to Consolidated Financial Statements......................................................6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION..........................7
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K...................................................8
SIGNATURES ...................................................................................9
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRAINWORKS VENTURES, INC.
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2002
ASSETS
Current assets:
Cash $ 286,000
Other receivables 10,000
Prepaid expenses and other current assets 28,000
-----------
Total current assets 324,000
Fixed assets, net of accumulated depreciation of $56,000 116,000
Investments in non-marketable equity securities, at cost 43,000
Total assets $ 483,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 153,000
Total current liabilities 153,000
-----------
Stockholders' equity
Common stock, $0.01 par value; authorized 25,000,000 shares;
Issued and outstanding 2,280,936 shares 23,000
Additional paid-in capital 7,887,000
Deferred compensation (52,000)
Receivables for stock (10,000)
Accumulated deficit (7,518,000)
-----------
Total stockholders' equity 330,000
-----------
Total liabilities and stockholders' equity $ 483,000
===========
See accompanying notes to consolidated financial statements
BRAINWORKS VENTURES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
JUNE 30, 2002 AND JUNE 30, 2001
THREE MONTHS
ENDED JUNE 30,
---------------------------------
2002 2001
----------- -----------
Revenues $ 24,000 $ 131,000
Cost of Revenues
9,000 80,000
----------- -----------
Gross profit 15,000 51,000
Selling, general and
administrative expenses 522,000 $ 855,000
----------- -----------
Impairment of long lived
assets (377,000)
Loss from operations (884,000) (804,000)
----------- -----------
Interest and dividends 1,000 9,000
----------- -----------
Loss before income tax provision (883,000) (795,000)
----------- -----------
Income tax provision 0 0
----------- -----------
Net loss $ (883,000) $ (795,000)
=========== ===========
Net loss per common share-
basic and diluted $ (0.36) $ (0.35)
=========== ===========
Weighted number of shares
outstanding, basic and
diluted 2,465,000 2,249,000
=========== ===========
See accompanying notes to consolidated financial statements
BRAINWORKS VENTURES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
JUNE 30, 2002 AND JUNE 30, 2001
THREE MONTHS
ENDED JUNE 30,
-------------------------------
2002 2001
--------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(883,000) $ (795,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 56,000 295,000
Impairment Charges on Intangible Assets 377,000
Stock issued for compensation 13,000
Income taxes payable
Deferred compensation amortization 322,000 372,000
Changes in operating assets and liabilities
Accounts receivable 7,000 (51,000)
Prepaid expenses and other current assets 10,000 2,000
Other receivables 4,000
Accounts payable and accrued liabilities 4,000 53,000
--------- -----------
Net cash provided by (used in) operating activities (107,000) (107,000)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition costs (78,000)
Purchase of fixed assets
Proceeds from sale of investments
Purchase of investments
--------- -----------
Net cash (used in) provided by investing activities 0 (78,000)
--------- -----------
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
Net proceeds from issuance (return) of shares (3,000)
--------- -----------
Net cash provided by financing activities (3,000) 227,000
--------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (110,000) 42,000
Cash, beginning of period 397,000 611,000
--------- -----------
CASH, END OF PERIOD $ 287,000 $ 653,000
========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Value of options issued $ 0 $ 1,251,000
Value of stock issued for acquisition $ 0 $ 554,000
Value of stock issued for fixed assets $ 0 $ 32,500
Value of stock issued for compensation $ 0 $ 13,000
See accompanying notes to consolidated financial statements
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 acquired BVL, 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.
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 inter-company 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 three-month period
ended June 30, 2002 are not necessarily indicative of the results that may be
expected for the year ending March 31, 2003. For further information, refer to
the audited consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-KSB for the year ended March 31, 2002,
filed with the Securities and Exchange Commission on July 1, 2002.
The Company has sustained a significant operating loss for the
three-month period ended June 30, 2002, and operating losses are expected to
continue. Further, the Company's operations continue to generate negative cash
flow. These factors raise substantial doubt about the Company's ability to
continue as a going concern. The Company has implemented cost control measures
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 to the
Company when and to the extent required or that, if available, it will be
available on terms acceptable to the Company. The consolidated financial
statements included herein 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 period ended June
30, 2002 and June 30, 2001 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.
The following unaudited 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.
NOTE B - RECLASSIFICATION
Certain items in the Company's Quarterly Report on Form 10-QSB for the
period ended June 30, 2002, have been reclassified to conform to current year
classifications. Such reclassifications had no effect on previously reported
income.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 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 the Company 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 June 30, 2002 and 2001, the Company recorded
revenues of $24,000 and $131,000, respectively. The source of revenue is from
consulting services provided by BVL during the period ended June 30, 2002.
For the three months ended June 30, 2002 and 2001, the cost of revenue
was $9,000 and $80,000, respectively. The cost of revenue is primarily
consulting and payroll expenses.
For the three months ended June 30, 2002, selling, general and
administrative expenses were $522,000, a decrease of $333,000 over the
corresponding period ended June 30, 2001. The decrease was primarily due to
reduced payroll expenses and operating costs and a reduction of the non-cash
compensation charge of $50,000 related to amortization of stock options granted
to consultants and advisors.
Subsequent to June 30, 2002, the Company entered into an agreement to
amend BVL's lease agreement, pursuant to which BVL leases office space which is
utilized by the Company as its principal offices, so as to terminate such lease
agreement effective August 31, 2002 in exchange for a payment of $88,500.00. In
connection with the termination of this lease, the value of the Company's
leasehold improvements were written down to zero. Due to this change, a $157,000
impairment charge was made to the income statement.
For the three months ended June 30, 2002, the Company has determined
that the intangible asset value of BVL and EVP should be reduced to zero due to
the Company's uncertainty as to whether any future earnings from such assets
will be achieved. To facilitate this reduction, an impairment charge of $220,000
was made to the income statement.
For the three months ended June 30, 2002, deferred compensation and
payroll expense charges reflect the cancellation of certain non-qualified
options. Such cancellation resulted in a one-time non-cash charge of $227,000.
The Company continues to incur significant operating costs. These costs
primarily consist of payroll expenses, professional fees and consulting
expenses.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2002, working capital was $171,000 compared to $303,000 at
March 31, 2002. This decrease was principally due to cash used in operations
resulting from the current period loss.
For the three months ended June 30, 2002, net cash used in operating
activities was $107,000, net cash used in investing activities was zero and net
cash provided by financing activities was $3,000 due to the reduction of the
Company's outstanding shares of common stock by 280,250 shares.
Current assets as of June 30, 2002 were $324,000, a decrease of
$128,000 from March 31, 2002 and a decrease of $568,000 from June 30, 2001.
Total assets of $483,000 on June 30, 2002, represents a decrease of $573,000 in
total assets from March 31, 2002 and a decrease in total assets from June 30,
2001 of $3,784,000. This decrease in total assets was primarily due to the
Company's write offs of the intangible asset value of BVL and EVP and the value
of leasehold improvements and a reduction in cash and accounts receivable.
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
99.1 Certification of the Company's Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of the Company's Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
The Company did not file any Current Reports on Form 8-K during the
quarter ended June 30, 2002.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, as amended, 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
President and Treasurer
Dated: August 13, 2002
EXHIBIT INDEX
99.1 Certification of the Company's Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of the Company's Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.