<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
APRIL 30, 1998
OR
( ) 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 333-4490
ALL AMERICAN FOOD GROUP, INC.
(Name of Small Business Issuer in Its Charter)
New Jersey 22-3259558
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
104 New Era Drive, South Plainfield, NJ 07080
(Address of Principal Executive Offices) (Zip Code)
(908) 757-3022
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 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. (X) Yes ( ) No
As of April 30, 1998 there were 2,390,806 shares of the Registrant's
Common Stock outstanding.
<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at April 30, 1998 and
Consolidated Balance Sheet at October 31, 1997 3
Consolidated Statement of Operations for the three and six
months ended April 30, 1998 and 1997 4
Consolidated Statement of Cash Flows for the six
months ended April 30, 1998 and 1997 5
Consolidated Statement of Stockholder's Equity for the six
months ended April 30, 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II - OTHER INFORMATION 15
SIGNATURES 16
<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(Unaudited)
April 30, October 31,
------------ -----------
1998 1997
------------ -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash $71,894 $326,603
Accounts receivable, net of allowances for possible
losses of $12,000 and $12,000 respectively 401,100 284,645
Notes receivable, current portion 49,290 20,441
Notes receivable - officer 127,000 127,000
Inventories 105,406 133,810
Prepaid expenses 854,289 918,775
---------- ----------
Total Current Assets 1,608,979 1,811,274
Property, Plant and Equipment, at cost less accumulated depreciation
and amortization of $417,362 and $377,765 respectively 2,584,132 2,025,387
Intangible Assets, net of accumulated amortization of $639,276 and
$583,096 respectively 904,708 1,261,146
Security Deposits 89,828 90,028
Notes receivable - long-term 56,696 55,099
---------- ----------
Total Assets $5,244,343 $5,242,934
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Notes payable $76,726 $80,693
Accounts payable and accrued expenses 2,058,676 1,568,659
Capitalized lease obligations - current maturities 48,422 62,710
Loans from stockholders - current maturities 5,850 4,757
Current maturities of long-term debt 174,042 58,378
Deferred franchising revenue, current portion 32,105 33,505
---------- ----------
Total Current Liabilities 2,395,821 1,808,702
Capitalized Lease Obligations 60,514 69,478
Loans from stockholders 5,454 1,398
Long-term debt 191,072 299,908
Convertible debentures 300,000 1,300,000
Deferred franchising revenue 0 26,290
---------- ----------
Total Liabilities 2,952,861 3,505,776
---------- ----------
Commitments and contingencies
Redeemable preferred stock, Series B, 60,000 shares issued and outstanding
Redemption value of $300,000 at April 30, 1998 280,630 268,033
---------- ----------
Stockholders' Equity (Deficit):
Non-redeemable convertible preferred stock, no par value, Series A,
190,000 shares authorized, 10,000 issued and outstanding, Series B,
180,000 shares authorized 60,000 shares issued and outstanding,
Series C, 1,600,000 shares authorized 832,934 issued and outstanding,
Series E, 275 authorized, 275 and 0 shares issued and outstanding,
respectively, Series F, 5,000 shares authorized 5,000 and 0 shares
issued and outstanding, respectively, Series G, 10,000 shares
authorized, 10,000 and 0 issued and outstanding, respectively 1,404,874 322,470
Common stock, no par value, 20,000,000 shares authorized,
2,390,806 and 599,940 shares issued and outstanding respectively 12,455,397 11,130,669
Accumulated deficit (11,849,419) (9,984,014)
---------- ----------
2,010,852 1,469,125
---------- ----------
Total Liabilities and Stockholders' Equity (Deficit) $5,244,343 $5,242,934
========== ==========
</TABLE>
The Accompanying Notes to Consolidated
Financial Statements are an integral part of these financial statements.
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<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Store sales $460,661 $381,789 $1,069,376 $720,179
Franchising revenue 33,539 70,581 74,447 399,401
Equipment and product sales 437,447 185,050 631,119 356,443
------------- ------------- ------------ ------------
931,647 637,420 1,774,942 1,476,023
------------- ------------- ------------ ------------
Operating expenses:
Cost of Sales - equipment and
product costs and store operations,
exclusive of depreciation and amortization 714,608 427,170 1,382,760 850,887
Cost of Sales - franchising activities,
exclusive of depreciation and amortization 0 0 436,490 190,473
Selling, general and administrative expenses 678,673 814,964 1,328,161 1,589,413
Loss on disposal of equipment (3,939) 0 245,120 0
Depreciation and amortization 56,139 79,922 162,575 148,941
Settlement Costs - Employment Contracts 0 0 0 47,010
------------- ------------- ------------ -------------
1,445,481 1,322,056 3,555,106 2,826,724
------------- ------------- ------------ -------------
Operating loss (513,834) (684,636) (1,780,164) (1,350,701)
Interest expense 19,865 7,911 85,241 18,252
------------- ------------- ------------ ------------
Net loss ($533,699) ($692,547) ($1,865,405) ($1,368,953)
============= ============= ============ =============
Adjusted net loss for net loss per common
share calculation:
Net loss ($533,699) ($692,547) ($1,865,405) ($1,368,953)
Increase in carrying amount of redeemable
preferred stock (6,448) (19,072) (12,596) (31,981)
------------- ------------- ------------ ------------
Net loss attributable to common stock ($540,147) ($711,619) ($1,878,001) ($1,400,934)
============= ============= ============ ============
Shares outstanding:
Weighted average number of common shares
outstanding 1,581,798 321,002 1,495,373 285,863
Adjusted shares outstanding 1,581,798 321,002 1,495,373 285,863
============= ============= ============ ============
Net loss per common share ($0.34) ($2.22) ($1.26) ($4.90)
============= ============= ============ ============
</TABLE>
The Accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
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<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
April 30,
----------------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss ($1,865,405) ($1,368,953)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation and amortization 162,575 148,941
Decrease (increase) in:
Accounts receivable (116,455) (166,133)
Inventories 28,404 (32,440)
Notes receivable (30,446) (97,000)
Prepaid expenses 64,486 153,829
Security deposits 200 (59,012)
Increase (decrease) in:
Accounts payable and accrued expenses 490,017 (375,164)
Deferred franchising revenue (27,690) (92,500)
----------------- -----------------
Total adjustments 571,091 (519,479)
----------------- -----------------
Net cash (used in) operating activities (1,294,314) (1,888,432)
----------------- -----------------
Cash Flows from Investing Activities:
Capital expenditures (598,342) (140,676)
Business acquired, net of cash received (453,943) (62,349)
----------------- -----------------
Net cash (used in) investing activities (1,052,285) (203,025)
----------------- -----------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock 1,324,728 3,235,337
Proceeds from issuance of preferred stock 1,082,404 0
Redemption of preferred stock (300,000) (338,513)
Payments of notes payable (3,967) (194,899)
Payments of capitalized lease obligations (23,252) (53,214)
Payments of loans from stockholders 5,149 (11,709)
Payments of current maturities of long-term debt 6,828 (9,299)
----------------- -----------------
Net cash provided by financing activities 2,091,890 2,627,703
----------------- -----------------
Net increase in cash (254,709) 536,246
Cash - beginning of period 326,603 84,302
----------------- -----------------
Cash - end of period $71,894 $620,548
================= =================
</TABLE>
The Accompanying Notes to Consolidated Financial
Statements are an integral part of these financial statements.
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<PAGE>
ALL AMERICAN FOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED APRIL 30, 1998
(Unuadited)
<TABLE>
<CAPTION>
Common Stock Preferred Stock
----------------------- ---------------------- Accumulated
Shares Amount Shares Amount Deficit Total
--------- ----------- --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1997: 599,940 $11,130,669 902,934 $322,470 ($9,984,014) $1,469,125
Common stock issuance for services 294,833 473,786 $473,786
Conversion of convertible debentures
to common stock 307,069 180,000 $180,000
Common stock issuance - acquisition
of business 29,594 295,942 295,942
Conversion of preferred stock to common
stock 996,870 300,000 (300) (300,000) 0
Preferred stock issuance 15,575 1,395,000 $1,395,000
Increase in carrying amount of redeemable
preferred stock -- (12,596) (12,596)
Exercise of warrants to purchase common
stock 162,500 75,000 $75,000
Net Loss (1,865,405) (1,865,405)
--------- ----------- --------- ---------- ------------ ------------
Balance at April 30, 1998 2,390,806 $12,455,397 918,209 $1,404,874 ($11,849,419) $2,010,852
========= =========== ========= ========== ============= ============
</TABLE>
The Accompanying Notes to Consolidated Financial
Statements are an integral part of these financial statements.
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<PAGE>
ALL AMERICAN FOOD GROUP, INC. & AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL
The Company was formed in September 1993 under the name Jutland
Food Group, Inc., for the purpose of establishing a chain of franchised bagel
stores. In October 1993, the Company acquired substantially all of the assets of
Howberg Bakery Equipment Co., Inc., Bagels of New Milford, Inc. and Goldberg's
Famous Bagels of Orangeburg, Inc. The assets acquired consisted of a bagel
equipment business and two retail bagel stores. On September 29, 1994, the
Company acquired all of the outstanding stock of four interrelated corporations
all conducting business under the tradename "Sammy's New York Bagels," The
acquisition consisted of three certified kosher retail bagel stores and a bagel
production facility, all operating under rabbinical supervision. Effective
October 31, 1995 the company changed its fiscal year to October 31st. The
Company changed its name to All American Food Group, Inc. on October 24, 1995.
Effective September 23, 1997 the Company acquired four operating stores, a bagel
production facility, and 2 franchised stores operating under the name"St. Pete
Bagel Company".
The Company is principally engaged in the development of a retail chain
of franchised bagel stores, including the operation of a certain number of
Company-owned stores for training, marketing and promotional activities, and the
distribution of bagel bakery equipment and related products to the franchise
system. The Company markets both single unit and market development franchise
agreements. The Company, in the normal course of business, also markets stores
it acquires to individuals who operate as franchisees. The Company franchises
its concepts under the names "Goldberg's New York Bagels" and "Sammy's New York
Bagels."
The Company has recently developed a line of gourmet soups, for sale
in its own and franchised bagels stores, as well as forming the basis of a
separate retail concept for expansion through licensing and franchising. Sold
under the name "SoupChef", the soup is manufactured for the Company under a
supplier contract, and will provide the Company with an additional revenue
source beginning in September of 1998.
(2) BASIS OF PRESENTATION
The consolidated financial statements have been prepared by All
American Food Group, Inc. (the "Company") and are unaudited. The financial
statements have been prepared in accordance with the instructions for Form
10-QSB and, therefore do not necessarily include all information and footnotes
required by generally accepted accounting principles. In the opinion of the
Company, all adjustments (all of which were of a normal recurring nature)
necessary to present fairly the Company's financial position, results of
operations and cash flows as of April 30, 1998 and for all periods presented
have been made. A description of the Company's accounting policies and other
financial information is included in its October 31, 1997 audited financial
statements filed on Form 10-KSB. The consolidated results of operations for the
quarter and six month periods ended April 30, 1998 are not necessarily
indicative of the results expected for the full year.
All historical share and per share data have been adjusted to reflect the
1:10 reverse split completed by the Company on 2/24/97.
- 7 -
<PAGE>
ALL AMERICAN FOOD GROUP, INC. & AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) NET LOSS PER COMMON SHARE
Net loss per common share was determined by dividing net loss, as
adjusted, by the weighted average number of common shares outstanding,. The net
loss for each period ended April 30, 1998 was adjusted by the increase in the
carrying amount of redeemable preferred stock.
(4) CAPITAL TRANSACTIONS
A. PREFERRED STOCK
On March 30, 1998 the Company sold 10,000 shares of its Series G
Preferred stock for total consideration of $100,000. The preferred stock is
convertible into common stock at a 25% discount to the market price, and the
Company is obligated to file a registration statement to register underlying
shares. As of the date of this report none of these shares have been converted
into common stock, and the registration statement has not been filed by
the Company.
On February 25, 1998 the Company issued 5,000 shares of its Series F
Preferred stock in an exchange for $500,000 its outstanding Convertible
Debentures, originally issued in September of 1998 for total consideration of
$500,000. Conversion terms of the Series F Preferred stock are the same as the
Debenture, and the Company is required to include the underlying shares in its
registration statement filing.
B. ISSUANCE OF COMMON STOCK
On February 24 and March 6, 1998 the Company issued a total of 147,403
common shares upon the conversion of its Series D Preferred Stock.
On March 18, 1998 the Company issued a total of 220,690 shares of its
common stock in partial conversion of its $1.3 million issue of Convertible
Debentures.
On March 6, the Company issued 100,000 shares of common stock upon the
exercise of warrants to purchase the stock at $.50, and 62,500 shares upon the
exercise of warrants to purchase the stock at $.35. These transactions produced
total consideration to the Company of $75,000.
On April 2, 1998 the Company issued 93,000 shares to various vendors
and employees of the Company as compensation for services rendered.
On April 27, 1998 the Company issued a total of 249,333 registered
shares and an additional 285,000 shares of Restricted stock, in connection
with the hiring of a public relations firm rendering services to the Company
under a consulting agreement relating to increasing the Company's visibility
in the financial community.
- 8 -
<PAGE>
(5) SUBSEQUENT EVENTS
A. On May 4, 1998 the holder of the Company's Series E Preferred Stock,
originally issued on January 11, 1998, converted the preferred shares into
809,286 shares of common stock, which stock is to be included in the Company's
registration statement.
B. Between May 11, 1998 and June 3, 1998 the Company sold a total f
$300,000 of its Convertible Debentures, of which $125,000 was immediately
converted into 197,638 shares of common stock.
C. On May 10, 1998, the Company entered into a letter of intent to
acquire a twenty five store retail chain located in Dallas, Texas, one of which
will be company owned. It is anticipated the total purchase price will
approximate $2,800,000 and will consist of cash consideration of approximately
$1,200,000, the assumption of approximately $200,000 of debt, and convertible
preferred stock having a market value of approximately $900,000.
- 9 -
<PAGE>
ALL AMERICAN FOOD GROUP, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS REPORT ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY, INCLUDING,
WITHOUT LIMITATION, RISKS ASSOCIATED WITH THE COMPANY'S ABILITY TO DEVELOP,
CONSTRUCT, ACQUIRE OR FRANCHISE ADDITIONAL STORES IN ACCORDANCE WITH THE
COMPANY'S BUSINESS PLAN, MANAGEMENT OF QUARTER TO QUARTER RESULTS, INCREASES IN
OPERATING COSTS AND SUCCESSFUL INTEGRATION OF POSSIBLE ACQUISITIONS. THESE RISKS
ARE SET FORTH IN THE "RISK FACTORS" SECTION OF THE PROSPECTUS PORTION OF THE
COMPANY'S FORM SB-2 REGISTRATION STATEMENT AND THE "RISK FACTORS" SECTION
CONTAINED HEREIN. UPDATED INFORMATION WILL BE PERIODICALLY PROVIDED BY THE
COMPANY AS REQUIRED BY THE SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE
ACT OF 1934. THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH THE COMPANY'S FINANCIAL STATEMENTS AND NOTES HERETO. THE DISCUSSION OF
RESULTS, CAUSES AND TRENDS SHOULD NOT BE CONSTRUED TO IMPLY ANY CONCLUSION THAT
SUCH RESULTS OR TRENDS WILL NECESSARILY CONTINUE IN THE FUTURE.
OVERVIEW
Results of Operations - Three Months Ended April 30, 1998 and 1997
Revenues for the three months ended April 30, 1998 (the "1998 Quarter")
were $931,647, an increase of $294,227, or 46%, from $637,420 for the three
months ended April 30, 1997 (the "1997 Quarter"). This increase is attributable
to an increase in store sales of 20% or $78,872 which reflects the inclusion of
results of the St. Petersburg acquisition, and equipment and commissary sales of
136% or $252,397 of which bagel production accounted for $279,000 which reflects
the increase in franchise stores in the Company. Revenue was offset by a
decrease in franchising revenue of 47% or $37,042. The Company believes the
decrease in initial non-recurring franchise fees is attributable in part to the
recent decline in the Company's stock price which has adversely affected its
ability to market franchises.
Future equipment and commissary sales will be dependent on the
Company's franchising activities, and such sales will therefore increase or
decrease in direct proportion to the Company's success in expanding its system
of franchised stores.
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<PAGE>
ALL AMERICAN FOOD GROUP, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(Continued)
Cost of sales increased by $287,438, or 67%, to $714,608 in the 1998
Quarter from $427,170 in the 1997 Quarter. Cost of sales as a percentage of
store and product sales increased to 80% in the 1998 Quarter from 76% in the
1997 Quarter, reflecting an increase in raw material cost in Company-owned
stores and in the Company's Lodi, New Jersey commissary and production facility.
To the extent that future increases in the Company's total revenues are
attributable to franchise fees, market development fees and franchise royalties,
costs of sales can be expected to decrease as a percentage of revenues.
Selling, general and administrative expenses decreased by $136,291, or
17%, to $678,673 in the 1998 Quarter from $814,964 in the 1997 Quarter. This
decrease in both absolute dollars and as a percentage of revenues is
attributable to the Company's cost cutting measures and increased efficiency.
Depreciation and amortization decreased by $23,783, or 30%, to $56,139
in the 1998 Quarter from $79,922 in the 1997 Quarter, primarily as a consequence
of the Company closing three stores and subsequent disposal of the equipment.
Interest expense increased by $11,954, or 151%, to $19,865 in the 1998
Quarter from $7,911 in the 1997 Quarter. Interest expense increased as a result
of the additional debt assumed in the acquisition of the assets of St. Pete's
Bagels.
The net loss decreased by $158,848, or 23%, to $533,699 in the 1998
Quarter from $692,547 in the 1997 Quarter as a result of the factors discussed
above.
Results of Operations - Six Months Ended April 30, 1998 and 1997
Revenues for the six months ended April 30, 1998 (the "1998 Interim
Period") were $1,774,942, an increase of $298,919, or 20%, from $1,476,023 for
the six months ended April 30, 1997 (the "1997 Interim Period "). This increase
is attributable to (i) an increase in store sales of $349,197, or 48%, to
$1,069,376 in the 1998 Interim Period from $720,179 in the 1997 Interim Period,
as a result of the St. Pete's acquisition, (ii) an increase in commissary and
product sales of $274,676, or 77% to $631,119 in the 1998 Interim Period from
$356,443 in the 1997 Interim Period, as a consequence of a greater number of
stores and a concomitant increase in the demand for product during the 1998
Interim Period, which were offset by (iii) a decrease in franchising activities
of $324,954, or 14%, to $74,447 in the 1998 Interim Period from $399,401 in the
1997 Interim Period.
Future equipment and commissary sales will be dependent on the
Company's franchising activities, and such sales will therefore increase or
decrease in direct proportion to the Company's success in expanding its system
of franchised stores.
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<PAGE>
ALL AMERICAN FOOD GROUP, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(Continued)
Cost of sales increased by $531,873, or 62%, to $1,382,760 in
the 1998 Interim Period from $850,887 in the 1997 Interim Period due to
the increase in sales. To the extent that future increases in the
Company's total revenues are attributable to franchise fees, market
development fees and franchise royalties, costs of sales can be expected
to decrease as a percentage of revenues.
Selling, general and administrative expenses decreased by
$261,252, or 16%, to $1,328,161 in the 1998 Interim Period from
$1,589,413 in the 1997 Interim Period. This decrease in both absolute
dollars and as a percentage of revenues is attributable to The Company's
cost -cutting measures.
Depreciation and amortization increased by $13,634, or 9%, to $162,575
in the 1998 Interim Period from $148,941 in the 1997 Interim Period.
Interest expense increased by $66,989, or 267%, to $85,241 in the 1998
Interim Period from $18,252 in the 1997 Interim Period. Interest expense
increased as a result of the debt assumed in the acquisition of the St. Pete's
Bagels.
The net loss increased by $496,452, or 36%, to $1,865,405 in the 1998
Interim Period from $1,368,953 in the 1997 Interim Period. The first quarter
loss accounts for 73% of the year to date loss indicating a positive trend to
reduce losses. To date, the Company has operated at a loss as a result of the
application of resources in excess of revenues to develop its operating
infrastructure, including the support structure necessary to fulfill its
obligations under its franchise agreements and the anticipation of additional
franchise sales. Consequently, total revenues are not yet sufficient to support
the Company's overhead. Management anticipates, that during the fiscal year
ending October 31, 1998, the Company's revenues will increase due to additional
franchise sales, increased royalty income from existing stores, increased
equipment sales to new franchisees, increased sales in existing Company-owned
stores and sales revenues from newly opened Company-owned stores. There can be
no assurance, however as to whether, and to what extent, the Company will
actually experience additional revenues from any of these sources. The Company's
ability to operate profitably in the future is substantially dependent upon its
ability to sell store and market development franchises and to open additional
franchise stores.
Liquidity and Capital Resources
Since the completion of its IPO in December of 1996, the Company has
operated at a loss, and has continued to raise additional outside capital to
fund its operations. Although the current rent is positive, and the company
believes it will begin to operate profitably by the fourth fiscal quarter ending
October 31, 1998, there can be no assurance that it will achieve that goal;
moreover, even if the cash flow trend continues in a positive direction, there
can be no assurance that the Company will be able to continue to raise the
necessary capital required to fund its current losses, even at the reduced rate.
The Company's revenues are not yet sufficient to support the Company's
operating expenses. Cash used by operating activities for the six months ended
April 30, 1998 was $1,294,314 compared to cash used by operating activities of
$1,888,432 during the six months ended April 30, 1997.
- 12 -
<PAGE>
ALL AMERICAN FOOD GROUP, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS-(Continued)
Additional funds will be required to support the Company's capital
requirements during the period it continues to operate at a loss. Management is
currently attempting to raise additional capital through financing or the sale
of its common or preferred stock. There can be no assurance that the Company
will be able to obtain financing or sell its common or preferred stock in
sufficient amounts to meet its working capital requirements. Failure to obtain
additional working capital in a timely manner or on acceptable terms is likely
to have a material adverse effect on the Company, its financial position and
prospects.
- 13 -
<PAGE>
OTHER INFORMATION
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS REPORT,
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FOLLOWING FACTORS IN EVALUATING THE
COMPANY AND ITS BUSINESS.
EXPANSION. As of April 30, 1997 there were 35 stores in operation,
consisting of 7 Company-owned and 28 franchised stores. By the end of 1998, the
Company contemplates having an additional 10 to 15 franchised stores in
operation, and 95 to 100 franchised stores in operation by the end of 1999.
There can be no assurance that the Company will be able to attract new
franchisees to open all of the planned new stores, or that, if opened, such
stores can operate profitably. The opening and success of the Company's owned
and operated and franchised stores will depend on various factors, not all of
which are in the control of the Company, including customer acceptance of the
Company's concept in new markets, the availability of suitable sites, the
negotiation of acceptable lease or purchase terms for new locations, permit and
regulatory compliance, the ability to meet construction schedules, the financial
and other capabilities of the Company and its franchisees, the ability of the
Company to successfully manage this anticipated expansion and to hire and train
personnel, and general economic and business conditions. Furthermore, because of
the Company's relatively small store base, an unsuccessful store could have a
more significant adverse effect on the Company's results of operations than
would be the case for a company with a larger store base.
The Company's expansion will also require the implementation and
integration of enhanced operational and financial systems and additional
management, operational and financial resources. Failure to implement and
integrate these systems and add these resources could have a material adverse
effect on the Company's results of operations and financial condition. There can
be no assurance that the Company will be able to manage its expanding operations
effectively or that it will be able to maintain or accelerate its growth or to
maintain its present level of revenues and net loss.
POSSIBLE ACQUISITIONS. The Company's growth strategy includes possible
acquisitions of bagel stores. In this regard the company is actively pursuing a
25 store retail bagel chain located in Dallas, Texas one of which will be
company owned for a total purchase price of approximately $2,800,000.
Furthermore, the Company's ability to make acquisitions may depend upon its
ability to obtain financing. There can be no assurance that the Company will be
able to obtain financing on acceptable terms.
- 14 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Item 27 -- Financial Data Schedule
(b) Reports on Form 8-K
None
- 15 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, this 13th day of June, 1997.
ALL AMERICAN FOOD GROUP, INC.
By: /s/ Andrew Thorburn
-----------------------------------
Chairman of the Board of Directors,
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert J. Bagnell
-----------------------------------
Principal Financial and Accounting
Officer
-16 -
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<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
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280,630
1,404,874
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