Form 10-QSB
[As last amended In Release No. 34-38350, July 18, 1997, effective
September 2, 1997, 62 F.R. 39755]
U.S. Securities and Exchange Commission
Washington, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________ to _________
0-23545
Commission File Number
Jreck Subs Group, Inc.
(Exact name of small business issuer as specified in its charter)
Colorado 84-1317674
(state or other jurisdiction of (IRS Employer Identification Number)
incorporation of organization)
2101 West State Road 434, Suite 100, Longwood, Florida, 32779
(Address of principal executive offices)
(407) 682-6363
(Issuer's telephone number)
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 post 90 days. Yes X 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 most recent practicable date: September 30,
1998-16,678,836 Shares
Transitional Small Business Disclosure Format: Yes___ No X
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<CAPTION>
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements.
Jreck Subs Group, Inc.
Consolidated Balance Sheet
September 30, 1998 and December 31, 1997
ASSETS
September 30, 1998 Dec. 31, 1997
------------------ -------------
Current Assets:
<S> <C> <C>
Cash & Cash Equivalents $ 253,185 $ 427,420
Accounts Receivable-Trade, net of allowance of $60,000 333,151 391,567
Current Portion of Notes Receivable 100,000 168,560
Prepaid Expenses 521,155 730,811
------------ -----------
Total Current Assets 1,207,491 1,718,358
Property & Equipment-Net 1,818,588 1,930,990
Other Assets:
Notes Receivable 601,152 173,704
Excess of Cost Over Fair Value of Assets Of Net Assets Acquired 14,565,655 11,521,526
Covenants Not To Compete & Other Intangible Assets 427,829 512,777
Deferred Low Costs 610,960 597,760
Other 34,097 34,097
------------ -----------
Total Other Assets 16,239,693 12,839,864
Total Assets $ 19,265,772 $16,489,212
============ ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long Term Debt $ 1,448,625 $ 2,163,554
Current Portion of Notes Payable to Related Parties 60,000 434,765
Accounts Payable-Trade 727,874 1,020,101
Accrued Expenses 517,566 1,196,130
------------ -----------
Liability to issue Common Stock 1,793,750 2,234,375
Total Current Liabilities 4,547,815 7,048,945
Long Term Debt-Related Parties 476,059 323,032
Other 2,353,373 1,619,115
Redeemable Common Stock 801,000 500,000
Stockholders' Equity:
Preferred Stock-2,620 Shares Outstanding 2,620,000 2,020,000
Common Stock Authorized-50 Million Shares
Issued-16,838 Million Shares 23,131,272 17,729,478
Less Stock Subscription Receivable (2,400,000) (2,400,000)
Accumulated Deficit (12,263,747) (10,351,358)
------------ -----------
Total Stockholders' Equity 11,067,525 6,996,120
Total Liabilities & Stockholders' Equity $19,265,772 $16,489,212
=========== ===========
</TABLE>
The interim financial statements include all adjustment which, in the opinion of
management, are necessary in order to make the financial statements not
misleading.
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<TABLE>
<CAPTION>
Jreck Subs Group, Inc.
Income Statement
Nine Months & Quarters Ended
September 30, 1996 and 1997
Nine Months Nine Months Quarter Quarter
Ended Ended Ended Ended
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
------------------ ------------------ ------------------ ------------------
Revenues:
<S> <C> <C> <C> <C>
Continuing Royalties $ 1,996,445 $ 358,199 $ 731,882 $ 137,413
Initial Franchise & Franchise Transfer Fees 127,000 0 57,601 0
Retail Store Sales-net 1,353,366 61,551 390,507 61,551
Bakery Operation Sales-net 736,171 174,703 211,059 174,703
Other 636,528 0 184,244 0
------------- ------------- ------------- -------------
Total Revenue 4,849,510 594,453 1,575,293 373,667
Costs Applicable to Sales & Revenue 703,024 96,373 231,703 96,373
Selling, General & Administrative Expenses 3,624,934 652,903 1,461,766 459,869
Business Development Costs 1,204,000 2,528,493 100,000 1,088,493
Interest 248,830 79,875 68,997 40,158
Depreciation & Amortization 703,493 72,945 312,702 43,324
------------- ------------- ------------- -------------
Total Expenses 6,764,281 3,430,589 2,175,168 1,728,217
Net Loss $ (1,914,771) $ (2,836,136) $ (599,875) $ (1,354,550)
============= ============= ============= =============
Weighted Average Common Shares Outstanding 16,378,836 10,524,992 16,678,836 11,848,834
============= ============= ============= =============
Loss per Share $ (0.117) $ (0.299) $ (0.036) $ (0.114)
============= ============= ============= =============
</TABLE>
The interim financial statements include all adjustments which, in the opinion
of management, are necessary in order to make the financial statements not
misleading.
<PAGE>
<TABLE>
<CAPTION>
Jreck Subs Group, Inc.
Statement of Cash Flows
Nine Months & Quarters Ended
September 30, 1998 and 1997
Nine Months Nine Months Quarter Quarter
Ended Ended Ended Ended
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
------------------ ------------------ ------------------ ------------------
Operating Activities:
<S> <C> <C> <C> <C>
Net Loss $ (1,914,771) $ (2,836,136) $ (599,875) $ (1,354,550)
Non-Cash Expenses Included in Net Income:
Depreciation & Amortization 703,493 72,945 312,702 43,324
Consulting Fees paid in Common Stock
and Options 197,317 2,294,127 0 935,200
Adjustments to Reconcile Net Loss to Cash
Provided (Consumed) by Operating Activities:
(Increase) in Accounts Receivable 58,416 0 (14,380) (1,009)
(Increase) in Prepaid Expenses 209,656 (942,997) 122,253 (942,997)
Increase in Accounts Payable & Accruals (760,506) 74,374 (129,189) (464,184)
------------- ------------- ------------- -------------
Cash Consumed by Operating Activities (1,506,395) (1,337,687) (306,489) (1,604,216)
Financing Activities:
Proceeds From the Issuance of
Preferred Stock (Common In '97) 2,067,490 715,000 0 495,000
Payments on Long Term Debt (740,350) 0 (100,000) 0
Proceeds of Long Term Debt 550,000 1,197,099 350,000 1,197,099
Dividends Paid (13,232) (44,571) 0 (18,171)
------------- ------------- ------------- -------------
Cash Generated by Financing Activities 1,863,908 1,867,528 250,000 1,673,928
Investing Activities:
Advances Made on Notes Receivable (402,636) 0 0 0
Payments Collected on Notes Receivable 43,747 0 11,188 150,311
Acquisition of Equipment (50,859) (18,673) 0 0
Cash Paid in Connection with Acquisitions (122,000) (331,964) (5,165) 0
------------- ------------- ------------- -------------
Cash Expended on Investing Activities (531,748) (350,657) 6,023 150,311
Net Increase (Decrease) in Cash (174,235) 179,184 (52,466) 20,023
Cash & Cash Equivalents-Beginnning 427,420 47,368 305,651 206,529
------------- ------------- ------------- -------------
Cash & Cash Equivalents-Ending $ 253,165 $ 226,552 $ 253,185 $ 226,562
============= ============= ============= =============
</TABLE>
The interim financial statements include all adjustments which, in the opinion
of management, are necessary in order to make the financial statements not
misleading.
<PAGE>
Jreck Subs Group, Inc.
Notes to Interim Financial Statements
Form 10-QSB
September 30, 1998
Note 1. The interim financial statements include all adjustments which, in the
opinion of management, are necessary in order to make the financial statements
not misleading, The accompanying unaudited financial statements have been
prepared in accordance with the instructions to form 10-QSB and do not include
all of the information and footnotes required by Generally Accepted Accounting
Principles for complete financial statements.
Note 2. On March 22, 1998 the Company acquired the assets of Li'l Dino
Corporation, a 43 unit sandwich shop franchisor located in North Carolina. The
purchase price of $2,400,000 was paid by assuming $400,000 in debt and issuing
735,294 of the Company's common shares. The shares issued were valued at $2.72
per share. The acquisition has been recorded as follows:
Total Consideration Paid $ 2,000,000
Fair value of assets acquired (15,000)
Liabilities assumed 400,000
-----------
Excess of cost over net assets acquired $ 2,385,000
===========
Note 3. In June, 1998 the shareholders of Preferred Series A and B converted
all $1,900,000 of their preferred stock into 1,010, 000 shares of the Company's
common stock.
<PAGE>
Item 2. Management's Discussion and Analysis.
Three months ended September 30, 1998 compared to three months ended September
30, 1997.
Results of Operations:
The Company had a net loss of $599,875 for the three months ended September 30,
1998 compared to a net loss of $1,334,550 for the same period in 1997. The
decrease in net loss is primarily the result significant business acquisitions
had in shifting the business structure, coupled with a decrease of $935,200 in
1998 in non-cash consulting and business development expenses that were
reflected in the 3rd quarter of 1997. The aggregate sales of $390,507 generated
by company owned restaurants acquired in 1997, offset by food costs and
operating costs of $188,685 and $232,824, respectively, resulted in
contributing $31,002 to the 1998 quarter loss. The bakery operations generated
revenues of $211,059 offset by product costs of $43,018 and operating expenses
of $121,562, thereby contributing $46,479 in income to offset the overall 1998
quarter loss compared to a bakery operating loss of $93,525 in the same period
of 1997. The 1998 quarter reflects the operations of the Company's Watertown
bakery, whereas 1997 bakery operations reflect the Tampa operation which had
been reorganized and discontinued by 3rd quarter '98. Other changes for the
quarter ended September 30, 1998 were an increase over 1997 of $269,378 in
amortization & depreciation expense and interest expense increasing from
$40,158 to $68,997, primarily the result of debt assumed and originating from
the Company's acquisitions. Business expansion expenses were $1,088,493 in 1997
compared to $100,000 in the same quarter of 1998.
The revenue of the Company increased $1,201,626 to $1,575,293 for the three
months ended September 30, 1998 from $373,667 for the same period in 1997. The
increase is primarily due to the impact of businesses acquired in the 3rd & 4th
quarters of 1997 and 1st qtr of 1998 generating $836,314 of additional
franchising revenue and the sales contributions of $390,507 and $211,059 in
1998 from the Company stores and bakery, respectively, compared to $61,551 and
$174,703 for each of the activities in 1997.
Costs and operating expenses applicable to sales and revenue increased
$1,137,227 to $1,693,469 for the three months ended September 30, 1998 from
$556,242 for the same period in 1997. This increase is also primarily due to
the effects of business acquisitions made in 1997 Including restaurant and
bakery food costs and operating expenses of $585,089 in 1998 compared to
$324,266 in 1997. Additional franchise servicing costs of $510,384 in 1998 were
the result of business acquisitions made in 3rd & 4th quarter 1997.
Liquidity and Capital Resources:
Working capital deficit at September 30, 1998 was $3,340,324 compared with a
deficit of $5,330,587 on December 31, 1997 a decrease of $1,990,263. The
decrease in deficit is primarily due to the Company's issuance of$ 2,500,000 in
Series D Preferred Stock in January of 1998. The proceed of this offering were
substantially used to pay down existing debt or to satisfy other obligations.
The Company's primary capital requirements are for repayments of current loans
payable, including those payable to related parties, of $1,508,625 and accounts
payable and accrued expenses of $1,245,430. The Company's capital requirements
are anticipated to be funded through current operations supplemented by
additional debt or equity financing, as expansion plans require. There is no
assurance that additional funding will be available, or if available, it can be
obtained on terms favorable to the company. Failure to obtain such funding
could adversely affect the Company's financial condition.
Nine months ended September 30, 1998 compared to nine months ended September
30, 1997.
Results of Operations:
The Company had a net loss of $1,914,771 for the nine months ended September
30, 1998 compared to a net loss of $2,836,136 for the same period in 1997. The
decrease in net loss is primarily the result significant business acquisitions
had in shifting the business structure, coupled with a decrease of $2,096,810
in 1998 in non-cash consulting and business development expenses that were
reflected in the first nine months of 1997. The aggregate sales of $1,353,366
generated by the company owned stores in 1998, offset by food costs and
operating costs of $568,474 and $891,612. respectively,
<PAGE>
resulted in contributing $106,721 to the 1998 nine month loss. The bakery
operations generated revenues of $736,171 offset by Product costs of $214,549
and operating expenses of $546,380 thereby contributing $24,759 toward the 1998
Aim moth loss. Other changes for the mine ended September 30, 1998 were an
increase over 1997 of $630,549 in amortization & depreciation expense, and
Interest expense Increasing from $79,875 to $248,330, primarily the result of
debt assumed and. originating from the Company's acquisitions. Business
expansion expenses were $2,528,493 in 1997 Compared to $1,204,000 in the same
period of 1998, The revenue of the Company increased $4,255,057 to $4,849,510
for the nine months ended September 30, 1998 from $594,453 for the saw period in
1997. The increase is primarily due to the impact of businesses acquired In the
3rd & 4th quarters of 1997 generating $2,400,774 of additional franchising
revenue and the sales contributions of $1,353,366 end $736,171 in 1998 from the
Company stores and bakery, respectively, compared to $61,551 and $174,703 for
each of the activities in 1997.
Costs And Operating expenses applicable to sales and revenue increased
$3,858,682 to $4,607,958 for the nine months ended September 30, 1998 from
$749,276 for the tame period in 1997. This increase is also primarily duo to the
effects of business acquisitions made in 1997 including restaurant and bakery
food costs and operating expenses of $2,221,017 in 1998 compared to $324,266 in
1997. Additional franchise servicing costs of $1,358,298 in the first nine
months of 1998 over the same period in 1997 were the result of business
acquisitions made in 3rd & 4th quarter 1997.
PART 11-OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
Incorporated by reference to Registration Statement 10-SB Part II, Item
4. S.E.C. file Number 0-23545
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.
None
SIGNATURES
In accordance with all the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Jreck Subs Group, Inc.
- -------------------------
(Registrant)
President & Duly
11/18/98 Christopher M. Swartz Authorized Officer /s/ Christopher M. Swartz
- -------- --------------------- ------------------ -------------------------
Date Print Name Title Signature
Chief Financial
Officer & Principal
11/18/98 Michael E. Cronin Accounting Officer /s/ Michael E. Cronin
- -------- --------------------- ------------------- -------------------------
Date Print Name Title Signature
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 253,185
<SECURITIES> 0
<RECEIVABLES> 333,151
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,207,491
<PP&E> 1,957,914
<DEPRECIATION> 239,322
<TOTAL-ASSETS> 19,265,722
<CURRENT-LIABILITIES> 4,547,815
<BONDS> 0
0
2,620,000
<COMMON> 23,131,272
<OTHER-SE> (2,400,000)
<TOTAL-LIABILITY-AND-EQUITY> 19,265,772
<SALES> 2,089,537
<TOTAL-REVENUES> 4,849,510
<CGS> 783,024
<TOTAL-COSTS> 783,024
<OTHER-EXPENSES> 5,732,427
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 248,830
<INCOME-PRETAX> (1,914,771)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,914,771)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,914,771)
<EPS-PRIMARY> (0.117)
<EPS-DILUTED> (0.117)
</TABLE>
