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, 2002
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)
1200 ABERNATHY ROAD, SUITE 1800, ATLANTA, GEORGIA 30328
(Address of principal executive offices)
(678) 579-9616
(Issuer's telephone number, Including area code)
101 MARIETTA STREET, SUITE 3450, ATLANTA, GEORGIA 30303
(Former name, former address and former fiscal year, if changed since last
report)
-----------------------------------
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: 2,280,936 shares as of
November 6, 2002.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
BRAINWORKS VENTURES, INC.
INDEX TO FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 2002
PART I - FINANCIAL INFORMATION
PAGE
ITEM 1 FINANCIAL STATEMENTS
Consolidated Balance Sheet
as of September 30, 2002........................................................................4
Consolidated Statements of Operations
for the Three Months and Six Months Ended
September 30, 2002 and September 30, 2001.......................................................5
Consolidated Statements of Cash Flows
for the Six Months Ended September 30, 2002
and September 30, 2001..........................................................................6
Notes to Consolidated Financial Statements......................................................7
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION..........................8
ITEM 3 CONTROLS AND PROCEDURES............................................................9
ITEM
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K ..................................................10
SIGNATURES .....................................................................................11
CERTIFICATIONS ...................................................................................12,13
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRAINWORKS VENTURES, INC.
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2002
ASSETS
Current assets:
Cash $ 94,000
Prepaid expenses and other current assets 18,000
-----------
Total current assets 112,000
Fixed assets, net of accumulated depreciation of $2,000 6,000
Investments in non-marketable equity securities 43,000
-----------
Total Assets $ 161,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 2,000
-----------
Total current liabilities 2,000
Stockholders' equity:
Common stock, $0.01 par value; authorized 25,000,000 shares;
issued and 2,280,936 shares outstanding 23,000
Additional paid-in capital 7,887,000
Deferred compensation (20,000)
Receivables for stock (10,000)
Accumulated deficit (7,721,000)
-----------
Total stockholders' equity 159,000
-----------
Total Liabilities and Stockholders' Equity $ 161,000
===========
See accompanying notes to consolidated financial statements
4
BRAINWORKS VENTURES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months Six months
ended September 30, ended September 30,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues $ 16,000 $ 398,000 $ 40,000 $ 529,000
Cost of Revenues 6,000 404,000 15,000 484,000
------------ ------------ ------------ ------------
Gross profit (loss) 10,000 (6,000) 25,000 45,000
Selling, general and
administrative expenses 213,000 1,169,000 734,000 2,024,000
------------ ------------ ------------ ------------
Impairment of long lived assets (0) (0) (377,000) (0)
Loss from operations (203,000) (1,175,000) (1,086,000) (1,979,000)
Interest and dividends 0 7,000 1,000 16,000
------------ ------------ ------------ ------------
Loss before income tax provision (203,000) (1,168,000) (1,085,000) (1,963,000)
Income tax provision 0 0 0 0
------------ ------------ ------------ ------------
Net loss (203,000) (1,168,000) (1,085,000) (1,963,000)
============ ============ ============ ============
Net loss per common share-
basic and diluted $ (0.08) $ (0.48) $ (0.45) $ (0.83)
============ ============ ============ ============
Weighted number of shares
outstanding, basic and
diluted 2,458,000 2,428,000 2,428,000 2,372,000
============ ============ ============ ============
See accompanying notes to consolidated financial statements
5
BRAINWORKS VENTURES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30,
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,085,000) $ (1,963,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 32,000 609,000
Loss on Disposal of Fixed Assets 212,000
Stock issued for compensation 13,000
Impairment Losses on Intangible Assets 267,000
Deferred compensation amortization 356,000 787,000
Changes in operating assets and liabilities:
Accounts receivable 17,000 (10,000)
Prepaid expenses and other current assets 20,000 16,000
Accounts payable and accrued liabilities (166,000) 166,000
Due to stockholders 30,000
------------ ------------
Net cash provided by (used in) operating activities (347,000) (352,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 44,000 0
Acquisition expenses 0 (78,000)
------------ ------------
Net cash used in investing activities 44,000 (78,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Collections of stock subscriptions receivable 2,000
Notes receivable from officers/ stockholders 225,000
------------ ------------
Net cash used in financing activities 227,000
------------ ------------
NET DECREASE IN CASH (303,000) (203,000)
Cash, beginning of period 397,000 611,000
------------ ------------
CASH, END OF PERIOD $ 94,000 $ 408,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Value of options issued $ 0 $ 1,252,000
Value of stock issued for acquisition $ 0 $ 554,000
Value of stock issued for fixed assets $ 0 $ 32,000
See accompanying notes to consolidated financial statements
6
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.
The accompanying unaudited, consolidated, financial statements include the
accounts of BWV and its wholly-owned subsidiaries EVP and BVL. 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, 2002 are not necessarily
indicative of the results that may be expected for the year ended March 31,
2003. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-KSB for
the year ended March 31, 2002.
The Company has sustained a significant operating loss for the six-month period
ended September 30, 2002, 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, 2002 and September 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.
7
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 September 30, 2002 and 2001, the Company recorded
revenues of $16,000, and $398,000, respectively. The source of revenue is
primarily consulting services provided by BVL during the period ended September
30, 2002.
For the three months ended September 30, 2002 and 2001, the cost of revenue was
$6,000 and $404,000, respectively. The cost of revenue is primarily consulting
and payroll expenses.
For the three months ended September 30, 2002, the selling, general and
administrative expenses amounted to $213,000, a decrease of $956,000 over the
corresponding period ended September 30, 2001. The decrease was primarily due to
reduced payroll expenses and operating costs and a reduction in the non-cash
compensation charge related to amortization of stock options granted to
consultants and advisors.
For the six months ended September 30, 2002 and 2001, the Company recorded
revenues of $40,000 and $529,000, respectively. The decrease in revenue is
primarily due to no consulting revenue being earned by EVP for the period ended
September 30, 2002.
For the six months ended September 30, 2002 and 2001, the cost of revenue was
$15,000 and $484,000, respectively. The cost of revenue is primarily consulting
and payroll expenses.
For the six months ended September 30, 2002, the selling, general and
administrative expenses amounted to $734,000, a decrease of $1,290,000 over the
corresponding period ended September 30, 2001. The decrease is primarily due to
reduced payroll and operating costs and non-cash compensation charge of $356,000
related to the amortization of stock options granted to consultants and
advisors. Selling, general and administrative expenses for the six month-period
ended September 30, 2001 included non-cash compensation charge of $787,000
related to the expensing of stock options granted for services.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2002, working capital was $110,000 compared to $284,000 at
March 31, 2002. This decrease was principally due to cash used in operations
resulting from the current period loss.
For the six months ended September 30, 2002, net cash used in operating
activities was $347,000 and net cash provided by investing activities was
$44,000. For the six months ended September 30, 2001, net cash used in
operations was $352,000, net cash used in investing activities was $78,000 and
net cash provided by financing activities was $227,000.
Current assets as of September 30, 2002 was $112,000, a decrease of $340,000
from March 31, 2002 and a decrease of $453,000 from September 30, 2001. Total
assets as of September 30, 2002 of $161,000 represents a decrease of $895,000 in
total assets from March 31, 2002, and a decrease in total assets from September
30, 2001 of $3,494,000. This decrease in total assets was primarily due to
operating losses over the period and the devaluation of the intangible assets
associated with the acquisition of EVP and EBL.
The Company believes it as the capital to fund operations for at least the next
12 months while it continues to explore new opportunities that it believes can
add to shareholder value. The Company anticipates that the early stage venture
capital business shall continue to be extremely challenging. Discussions have
been held with third parties concerning a reorganization or sale of the Company,
but no definitive agreements have been reached in connection with such
discussions.
8
INFLATION
The Company does not currently view the effects of inflation as having a
material effect on the Company's business.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
The Company's Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of the Company's disclosure controls and procedures
(as such term is defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) as of a date within 90
days prior to the filing date of this quarterly report (the "Evaluation Date").
Based on such evaluation, such officers have concluded that, as of the
Evaluation Date, the Company's disclosure controls and procedures are effective
in alerting them on a timely basis to material information relating to the
Company (including its consolidated subsidiaries) required to be included in the
Company's periodic filings under the Exchange Act.
(b) Changes in Internal Controls.
Since the Evaluation Date, there have not been any significant changes
in the Company's internal controls or in other factors that could significantly
affect such controls.
9
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 September 30, 2002.
10
SIGNATURES
In accordance with the requirements 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
President/Treasurer
Dated: November 14, 2002
11
CERTIFICATIONS
I, Donald Ratajczak, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Brainworks Ventures,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Donald Ratajczak
-------------------------
Donald Ratajczak
Chairman of the Board and
Chief Executive Officer
12
I, Marc J. Schwartz, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Brainworks Ventures,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Marc J. Schwartz
-------------------------------------
Marc J. Schwartz
President and Chief Financial Officer
13
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.