JUNGLE STREET, INC
including the accounts of its wholly-owned subsidiary
Televar Northwest, Inc.
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _________________ to
__________________
Commission File Number 0-27390
JUNGLE STREET, INC.
(Exact name of small business issuer as specified in its charter)
Utah 87-0368236
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
215 Yakima St., Wenatchee, Washington 98801
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (509) 664-9004
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 for 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of February 14, 1996, 14,640,745
shares of the Company's Common Stock, par value $.001 per share, were
outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
JUNGLE STREET, INC
including the accounts of its wholly-owned subsidiary
Televar Northwest, Inc.
Form 10QSB
For the Quarterly Period Ended December, 31, 1996
TABLE OF CONTENTS
Page
Part I. FINANCIAL INFORMATION 3
Item 1. Financial Statements 3
Condensed Balance Sheet - December 31, 1996 3
Condensed Statement of Operations - Three Months and Six Months 4
Ended December 31, 1996 and 1995
Statements of Cash Flows - Three Months and Six Months 5
Ended December 31, 1996 and 1995
Statement of Stockholders' Deficit 6
Ended December 31, 1996
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
Part II. OTHER INFORMATION 12
Item 1. Legal Proceedings 12
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K. 14
Signatures 15
-2-
<PAGE>
JUNGLE STREET, INC
including the accounts of its wholly-owned subsidiary
Televar Northwest, Inc.
ITEM 1. FINANCIAL STATEMENTS
Condensed Balance Sheet
(Unaudited)
December 31, September 30,
1996 1996
------------ -------------
ASSETS
Cash and cash equivalents $ 51,943 $ 247,900
Accounts receivable, net 248,354 133,915
Inventory 9,198 33,399
Prepaid expenses 21,164 30,162
Deferred expenses 64,019 72,682
Note receivable 8,000 18,500
Note receivable, Officer Loan 10,000 0
----------- -----------
Current Portion of L.T. Notes Receivable 134,774 58,525
----------- -----------
Total Current Assets 547,452 595,083
----------- -----------
Net Property and equipment $ 923,970 $ 687,508
Other assets 341,522 298,350
----------- -----------
Total Assets $ 1,812,944 $ 1,580,940
=========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accounts Payable $ 1,153,178 $ 709,975
Accrued Liabilities 259,321 146,058
Unearned Fees 175,728 159,178
Short Term Notes 777,000 620,000
Current Portion of L.T. Debt 143,930 106,358
----------- -----------
Total Current Liabilities $ 2,509,157 $ 1,741,569
----------- -----------
Long Term Debt $ 316,269 $ 290,263
Other Liabilities 0 0
Stockholders' Equity (1,012,482) (450,892)
----------- -----------
Total Liabilities and Stockholders' Equity $ 1,812,944 $ 1,580,940
=========== ===========
See accompanying notes to financial statements.
-3-
<PAGE>
JUNGLE STREET, INC
including the accounts of its wholly-owned subsidiary
Televar Northwest, Inc.
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 625,153 $ 308,817 $ 1,340,839 $ 531,712
Cost of revenues 534,739 185,020 921,619 381,386
----------- ----------- ----------- -----------
Gross profit 90,414 123,797 419,220 150,326
Operating expenses:
Selling, general and 650,723 164,356 1,177,030 294,905
administrative
----------- ----------- ----------- -----------
Operating loss $ (560,311) $ (40,559) $ (757,810) $ (144,579)
Other Income (1,278) (6,774) (783) 12,888
Net loss $ (561,589) $ (47,333) $ (758,593) $ (131,691)
=========== =========== =========== ===========
Net loss per share $ (0.04) $ (0.09) $ (0.05) $ (0.26)
Weighted average number of
shares outstanding 14,640,745 500,300 14,640,745 500,300
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE>
JUNGLE STREET, INC
including the accounts of its wholly-owned subsidiary
Televar Northwest, Inc.
Statements of Cash Flows
For the Three Month Periods ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
------------- ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net income (loss) $ (561,589) $ (40,358) $ (758,593) $ (124,716)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 47,052 17,409 87,150 17,409
Amortization 4,275 4,275
(Increase) decrease in operating assets (72,577) (38,644) (188,845) (13,112)
Increase (decrease) in operating payables 573,017 156,141 774,906 191,078
----------- ----------- ----------- -----------
Net cash provided by (used for) operating activities (9,822) 94,548 (81,107) 70,659
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (283,514) (83,101) (485,435) (104,923)
Purchase of leasehold improvements 0 (358) 0
Payment of deposit on equipment (21,915) (1,000) (25,622) (1,000)
Advances made on short-term notes receivable (10,000) (10,000)
Payments received on short-term notes receivable 0 1,500 0
New long term loans receivable (103,000) (199,500)
Payments received on long-term notes receivable 11,719 12,680
----------- ----------- ----------- -----------
Net cash provided (used for) investing activities (406,710) (84,101) (706,735) (105,923)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments made on short-term notes 0 (5,000) (309,229) (5,000)
Borrowings on short-term notes 157,000 150,000 1,003,066 150,000
Payments on long-term debt & capital lease obligations (20,617) (6,392) (53,164) (11,325)
Borrowings on long-term debt & capital lease obligations 84,194 189,678 0
Issuance of common stock (61,233) 0 (7,964)
Net cash provided by financing activities 220,577 77,375 830,351 125,711
----------- ----------- ----------- -----------
NET CHANGE IN CASH (195,955) 87,822 42,509 90,447
CASH BALANCE - BEGINNING OF PERIOD 247,899 14,061 9,435 11,436
----------- ----------- ----------- -----------
CASH BALANCE - END OF PERIOD 51,944 101,883 51,944 101,883
=========== =========== =========== ===========
</TABLE>
-5-
<PAGE>
JUNGLE STREET, INC
including the accounts of its wholly-owned subsidiary
Televar Northwest, Inc.
Statement of Stockholders' Deficit
December 31, 1996
<TABLE>
<CAPTION>
Common Common Additional Stock Held in Accumulated Stockholders'
Shares Stock Paid-in Trust Deficit Deficit
Capital
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1996 1,697,420 $ 1,697 $ 376,057 $(70,000) $ (606,642) $ (298,888)
Issuance of shares in 11,818,325 11,818 (11,818) 0
conjunction with the
merger with Televar
Northwest, Inc. at the rate
of five shares of Jungle
Street, Inc. stock for one
share of Televar Northwest,
Inc. stock
Issued shares in exchange 1,125,000 1,125 (1,125) 0
for services
Issued shares for retirement 45,000 45 44,995 45,000
of debt
Net loss for the six month (758,593) (758,593)
period ended December 31,
1996
Balance, December 31, 14,640,745 $ 14,685 $ 408,069 $(70,000) $(1,365,235) $(1,012,481)
1996
</TABLE>
-6-
<PAGE>
JUNGLE STREET, INC
including the accounts of its wholly-owned subsidiary
Televar Northwest, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information in accordance with instructions to Form 10- QSB
and Item 310(b) of Regulation S-B. 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, all normal
adjustments, consisting of normal recurring accruals, considered necessary for a
fair presentation have been included. Although a Statement of Stockholders'
Equity is not required for interim reporting, it has been included herewith to
show the effect of the merger described in note 2.
The financial statements should be read in conjunction with the audited
financial statements and notes thereto for the years ended June 30 1996, and
1995, which have been provided in their entirety in the Company's Form 10-KSB.
The results of operations for the three-month and six-month periods ended
December 31, 1996 and 1995 are not necessarily indicative of the results to be
expected for the full year.
2. MERGER WITH TELEVAR NORTHWEST, INC.
On August 29, 1996 Jungle Street, Inc. merged with Televar Northwest, Inc.,
a Washington corporation. The merger was accomplished by a merger of a
wholly-owned subsidiary of Jungle Street with Televar Northwest, Inc. Because
Jungle Street's assets, liabilities and operations are nominal, these financial
statements include the activity of both Televar Northwest, Inc. and Jungle
Street, Inc., retroactively restated to the beginning of the period covered
herein. The Televar capital stock that was converted into Jungle Street common
stock in the merger was converted based on a five-for-one conversion ratio.
-7-
<PAGE>
JUNGLE STREET, INC
including the accounts of its wholly-owned subsidiary
Televar Northwest, Inc.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Preliminary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-QSB for the quarter and six-month periods
ended December 31, 1996, contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934. Such statements may include, but are not
limited to, projection of revenues, income, or loss, capital expenditures, plans
for product development and cooperative arrangements, future operations,
financing needs or plans of the Company as well as assumptions relating to the
foregoing. The words "believe," "expect," "anticipate," "estimate," "project,"
and similar expressions identify forward-looking statements, which speak only as
of the date the statement was made. Such statements are inherently subject to
risks and uncertainties as further described herein and in the "Considerations
Related to the Company's Business" section of the Company's Form 10-KSB for the
year ended June 30, 1996. The Company's actual results may differ materially
from the results projected in the forward-looking statements.
Overview
On August 30, 1996, Jungle Street effected a merger between a wholly-owned
subsidiary formed for the purpose of the merger and Televar Northwest, Inc.
("Televar"), a Washington corporation principally engaged in the business of
Internet access and long distance telecommunications services (the "Merger").
The shareholders of Televar received 11,593,325 shares of common stock of Jungle
Street in the Merger, resulting in the shareholders of Televar owning an
aggregate of 83% of the 13,968,625 shares of Jungle Street common stock
outstanding on the effective date of the Merger. As a result of the Merger,
Televar became a wholly-owned subsidiary of Jungle Street. The Televar capital
stock that was converted into Jungle Street common stock was converted based on
a five-for-one conversion ratio, which was determined pursuant to arms-length
negotiations between Jungle Street and the management of Televar. In connection
with the Merger, Jungle Street also issued an aggregate of 1,125,000 shares of
common stock (approximately 8% of the outstanding common stock on a post-merger
basis) to certain consultants as compensation for services rendered to Jungle
Street prior to the Merger.
Prior to the Merger, Jungle Street was inactive and had only nominal assets
and liabilities. The financial statements included in this report include the
activity of both Televar and Jungle Street retroactively restated to the
beginning of the periods covered by the financial statements.
-8-
<PAGE>
JUNGLE STREET, INC
including the accounts of its wholly-owned subsidiary
Televar Northwest, Inc.
Results of Operations
Quarterly periods ended December 31, 1996 and 1995:
Revenues. Revenues for the three months ended December 31, 1996, were
$625,153, a 12% increase over the revenues of $481,176 from the three month
period ended September 30, 1996. Approximately 87% of these revenues represented
Internet access and VAR fee revenues and approximately 13% represented long
distance services. Revenues for the three months ended December 31, 1996
represent a 102.4% increase or $316,336 over the three month ended period
December 31, 1995, revenues of $308,817. The growth in revenues was due
primarily to a significant increase in Internet access service and VAR fee
revenues due to the growth of the Company's Internet customer base. In November
1996, the agreement the Company had with Association Communications, Inc.
("ACI"), pursuant to which the Company was an exclusive distributor of ACI long
distance service in certain markets in eastern Washington state, was terminated
by ACI. The Company has not negotiated a replacement contract with another long
distance carrier and as a result is currently not offering long distance
services to its customers. Although the Company expects to reestablish a
relationship with a long distance carrier in the future, for the immediate
short-term, the Company does not expect any long distance service revenues,
particularly during the quarters ending March 31 and June 30, 1997.
Cost of Sales. Costs of sales for the three months ended December 31, 1996
were $534,739 compared with costs of sales for the three months ended December
31, 1995 of $185,020, an increase of $349,719 or 189%. Costs of sales consists
primarily of software license fees and network operating costs, including leased
line and local access charges. Costs of sales increased as a percentage of
revenues from 60% in 1995 to 86% in 1996 primarily due to incremental costs
associated with expanding internet service to new market regions and a shift
from long distance resale to internet access services.
Sales, General and Administrative Expenses. The Company's selling, general
and administrative expenses consist primarily of payroll and related expenses
for administrative, customer support and marketing personnel, compensation costs
for direct sales personnel, commissions and other costs related to the indirect
distribution and bad debt expense. SG&A costs were $650,723 for the three months
ended December 31, 1996 compared to $164,356 for the three months ended December
31, 1995, an increase of $486,367 or 295%. The increase in expenses during the
1996 period resulted primarily from increased personnel and increased sales and
marketing efforts of expanding internet access service to new geographical
markets. SG&A expenses for the three month period ended December 31, 1996 were
$650,723, a
-9-
<PAGE>
JUNGLE STREET, INC
including the accounts of its wholly-owned subsidiary
Televar Northwest, Inc.
23.6% increase over the SG&A expenses of $526,306 for the three month period
ended September 30, 1996. The increase was due to several additional factors,
including officer's salary increases, and increases in legal, accounting and
other professional fees due to the Company's decision to merge with Jungle
Street, Inc.
Other Income. Other income was $(1,278) for the three months ended December
31, 1996 and $(6,774) for the three months ended December 31, 1995. In the three
month period ended December 31, 1995, other income was comprised primarily of
income received as a result of a settlement of a dispute with one of the
Company's suppliers. The period-to-period decrease in other income was due to
the lump sum payment of the settlement in the 1995 period.
Six month periods ended December 31, 1996 and 1995:
Revenues. Revenues for the six-months ended December 31, 1996 were
$1,340,839, an increase of $809,127 or 152.2% compared to revenues of $531,712
for the same period in 1995. The growth in revenues was due primarily to a
significant increase in Internet access service and VAR fee revenues due to the
growth of the Company's Internet customer base. The Company does not expect any
long distance service revenues in the near-term.
Cost of sales. Cost of sales for the six months ended December 31, 1996
were $921,619, an increase of $540,233 of 141.6%, compared to costs of sales of
$381,386 for the same period in 1995. Cost of sales increased as a percentage of
revenues from 60% in 1995 to 86% in 1996 primarily due to incremental costs
associated with expanding internet service to new market regions and a shift
from long distance resale to internet access services.
Sales, general and administrative expenses. SG&A costs for the six months
ended December 31, 1996, were $1,177,030, an increase of $882,125 or 299.1%,
compared to SG&A costs of $294,905 for the same period in 1995. The increase in
expenses in 1996 can be attributed to the increase in personnel and increased
sales and marketing efforts of expanding internet access service to new
geographical markets.
Liquidity
At December 31, 1996, the Company's total current assets were $1,812,944
and its total current liabilities were $2,509,157 for a net working capital
deficit of $696,213.
-10-
<PAGE>
JUNGLE STREET, INC
including the accounts of its wholly-owned subsidiary
Televar Northwest, Inc.
The Company has been working to satisfy its cash requirements through a
combination of cash flow from operations and borrowings from banks and other
third parties. In September 1996, the Company entered into a loan agreement with
a lender for $500,000 in "bridge" financing. The loan bears interest at 18% per
annum and is secured by all assets, tangible and intangible, including trade
secrets, either now owned or hereafter acquired, of the Company. Personal
guaranties of the obligations of the Company under the bridge loan were provided
by the Company's former Chief Executive Officer and President. The Company is
obligated under the loan to make interest payments of $7,500 on each of November
1 and December 1, 1996 and January 1, 1997. The entire principal balance,
together with all outstanding accrued interest is due and payable on or before
the earlier of: 1) January 1, 1997 or 2) the closing of an offering of common
stock and/or warrants in an amount greater than $2,000,000. The Company extended
the due date to April 1, 1997, in accordance with the terms of the loan
agreements. Per the terms of this agreement, the Company will pay extension fees
of $5,000 on or before January 1, 1997, $7,500 on or before February 1, 1997,
and $10,000 on or before March 1, 1997, in addition to the interest due.
In November 1996, the Company entered into a letter agreement regarding
potential equity financing transactions with Seattle Online Inc., a Washington
corporation, and a subsidiary of American United Global, Inc., a Delaware
corporation. Pursuant to the terms of the agreement, the Company entered into
loan agreements with Seattle Online Acquisition Corporation, a Washington
corporation, and borrowed a total of $82,000. The loan bears interest at 12% per
annum and is due in full on April 10, 1997.
In December 1996, the Company entered into a loan agreement with members of
the board of directors pursuant to which the directors made a bridge loan of
$75,000 to the Company to meet the Company's immediate cash flow requirements.
The loan bears interest at 12% per annum and is due in full on April 10, 1997.
The Company currently is in default with respect to payments due to a third
party under a $20,000 promissory note that the Company issued in April 1996. All
principal and interest under the note was due in October 1996. The note is
convertible at the option of the holder into common stock of the Company at
$2.50 per share.
The Company currently is delinquent or in default with respect to payments
owed to trade creditors in the approximate aggregate amount of $ 354,233. The
Company currently does not have a line of credit in place with a commercial
lender.
-11-
<PAGE>
JUNGLE STREET, INC
including the accounts of its wholly-owned subsidiary
Televar Northwest, Inc.
The Company's cash from operations is not sufficient to fund budgeted
operations. The Company requires additional financing in order to fund its
operating plan and budget and is currently in discussions with several potential
equity financing sources. The Company also has implemented a restructuring plan
designed to reduce expenses and improve profitability of operations. As a part
of this plan, the Company reduced its total employees from 39 to 24 in December
1996. There is no assurance, however, that these measures will result in
profitable operations or that additional equity capital will be raised on terms
that are favorable to the Company. If the Company is unable to implement a
successful restructuring and raise additional capital, the Company may be unable
to continue operations.
-12-
<PAGE>
JUNGLE STREET, INC
including the accounts of its wholly-owned subsidiary
Televar Northwest, Inc.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 21, 1996, the Company was advised that a complaint was being
prepared in the Superior Court of the State of Washington, in and for the County
of Chelan, by Mr. E. Gus Noyd and Laura Jean Noyd, husband and wife, a previous
landlord, against the Company for a default judgment in the matter of vacating
Mr. Noyd's premises and defaulting on the then current lease agreement. The
Noyds had determined that the default amount totals $124,822.90. The Company has
reviewed the matter with its legal counsel and believes that the amount owed the
Noyds does not exceed $25,000, and is attempting to negotiate a resolution of
the disputes. In the event that a settlement is not reached, the Company intends
to vigorously defend the complaint. However, the Company is unable to predict
the outcome of this action.
On December 20, 1996, the Company was served with a complaint filed in the
District Court for the State of Washington in and for the County of Chelan by a
trade vendor whose complaint is for monies due in the total of $3,664.47. The
Company has reviewed the matter with legal counsel and is attempting to
negotiate a resolution of the dispute. However, if the Company were not to
prevail, a negative outcome with respect to the law suit would not have a
material adverse effect on the business of the Company.
-13-
<PAGE>
JUNGLE STREET, INC
including the accounts of its wholly-owned subsidiary
Televar Northwest, Inc.
ITEM 5. OTHER INFORMATION
-14-
<PAGE>
JUNGLE STREET, INC
including the accounts of its wholly-owned subsidiary
Televar Northwest, Inc.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
On December 20, 1996, the Company filed a Form 8-K reporting certain
changes in the membership of the Company's board of directors and certain key
mangement positions.
-15-
<PAGE>
JUNGLE STREET, INC
including the accounts of its wholly-owned subsidiary
Televar Northwest, Inc.
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.
JUNGLE STREET, INC.
GREGORY K. MARTIN
Date: February 14, 1997 -----------------------------------------
Gregory K. Martin, President
-16-
<PAGE>
JUNGLE STREET, INC
including the accounts of its wholly-owned subsidiary
Televar Northwest, Inc.
EXHIBIT INDEX
Exhibit Number Description Sequential Page
27 Financial Data Schedule 15
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
unaudited consolidated financial statements of Jungle Street, Inc., for the
quarter ended December 31, 1996, and is qualified in its entirety by reference
thereto.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 51,943
<SECURITIES> 0
<RECEIVABLES> 305,708
<ALLOWANCES> 57,354
<INVENTORY> 9,198
<CURRENT-ASSETS> 547,453
<PP&E> 1,083,812
<DEPRECIATION> 159,842
<TOTAL-ASSETS> 1,812,944
<CURRENT-LIABILITIES> 2,509,157
<BONDS> 290,263
0
0
<COMMON> 14,685
<OTHER-SE> (1,027,167)
<TOTAL-LIABILITY-AND-EQUITY> 1,812,944
<SALES> 0
<TOTAL-REVENUES> 625,153
<CGS> 0
<TOTAL-COSTS> 534,739
<OTHER-EXPENSES> 881,261
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,010
<INCOME-PRETAX> (561,589)
<INCOME-TAX> 0
<INCOME-CONTINUING> (561,589)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (561,589)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
