Form 10-QSB
[As last amended in Release No. 34-38850, 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 March 31, 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: May 31,
1998-15,675,271 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
March 31, 1998 and December 31, 1997
ASSETS
March 31, 1998 Dec. 31, 1997
------------------ -------------
Current Assets:
<S> <C> <C>
Cash & Cash Equivalents $ 439,554 $ 427,420
Accounts Receivable-Trade, net of allowance of $60,000 300,039 391,567
Current Portion of Notes Receivable 100,000 168,560
Prepaid Expenses 664,989 730,811
------------ -----------
Total Current Assets 1,504,582 1,718,358
Property & Equipment-Net 1,953,324 1,930,990
Other Assets:
Notes Receivable 549,555 173,704
Excess of Cost Over Fair Value of Assets Of Net Assets Acquired 14,266,312 11,521,526
Covenants Not To Compete & Other Intangible Assets 527,707 512,777
Deferred Low Costs 586,280 597,760
Other 29,401 34,097
------------ -----------
Total Other Assets 15,959,255 12,839,864
Total Assets $ 19,417,161 $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 157,381 434,765
Accounts Payable-Trade 955,194 1,020,101
Accrued Expenses 365,149 1,196,130
Liability to issue Common Stock 1,793,750 2,234,375
------------ -----------
Total Current Liabilities 4,720,099 7,048,945
Long Term Debt-Related Parties 179,016 323,032
Other 2,031,502 1,619,115
Redeemable Common Stock 500,000 500,000
Stockholders' Equity:
Preferred Stock-952,620 Shares Outstanding 4,520,000 2,020,000
Common Stock Authorized-50 Million Shares
Issued-15,627 Million Shares 21,076,175 17,729,478
Less Stock Subscription Receivable (2,400,000) (2,400,000)
Accumulated Deficit (11,209,631) (10,351,358)
------------ -----------
Total Stockholders' Equity 11,986,544 6,996,120
Total Liabilities & Stockholders' Equity $19,417,161 $16,489,212
=========== ===========
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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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Jreck Subs Group, Inc.
Income Statement
Quarters Ended
March 31, 1998 and 1997
Quarter Quarter
Ended Ended
March 31, 1998 March 31, 1997
------------------ ------------------
Revenues:
<S> <C> <C>
Continuing Royalties $ 547,141 $ 84,651
Initial Franchise & Franchise Transfer Fees 50,700 0
Retail Store Sales-net 531,597 0
Bakery Operation Sales-net 250,421 0
Other 175,441 0
------------- -------------
Total Revenue 1,555,300 84,651
Costs Applicable to Sales & Revenue 308,542 0
Selling, General & Administrative Expenses 1,830,602 924,795
Interest 66,317 18,936
Depreciation & Amortization 194,880 5,000
------------- -------------
Total Expenses 2,400,341 948,731
Net Loss $ (845,041) $ (864,080)
============= =============
Weighted Average Common Shares Outstanding 14,465,764 9,150,873
============= =============
Loss per Share $ (0.058) $ (0.094)
============= =============
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The interim financial statements include all adjustments 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.
Statement of Cash Flows
Quarters Ended
March 31, 1998 and 1997
Quarter Quarter
Ended Ended
March 31, 1998 March 31, 1997
------------------ ------------------
Operating Activities:
<S> <C> <C>
Net Loss $ (845,041) $ (864,080)
Non-Cash Expenses Included in Net Income:
Depreciation & Amortization 194,880 5,965
Amortization of Prepaid Interest 11,480 0
Consulting Fees paid in Common Stock
and Options 197,317 762,979
Adjustments to Reconcile Net Loss to Cash
Provided (Consumed) by Operating Activities:
(Increase) in Accounts Receivable 91,528 (947)
(Increase) in Prepaid Expenses 65,822 3,601
Increase in Accounts Payable & Accruals (895,188) (32,060)
------------- -------------
Cash Consumed by Operating Activities (1,179,202) (124,542)
Financing Activities:
Proceeds From the Issuance of
Preferred Stock (Common In '97) 2,067,490 220,000
Payments on Long Term Debt (597,196) (2,908)
Proceeds of Long Term Debt 200,000
Dividends Paid (13,232) (13,200)
------------- -------------
Cash Generated by Financing Activities 1,657,062 203,982
Investing Activities:
Advances Made on Notes Receivable (321,860) (82,344)
Payments Collected on Notes Receivable 15,669 0
Acquisition of Equipment (42,700)
Cash Paid in Connection with Acquisitions (116,835) (10,392)
------------- -------------
Cash Expended on Investing Activities (465,726) (92,736)
Net Increase (Decrease) in Cash 12,134) (13,296)
Cash & Cash Equivalents-Beginnning 427,420 47,638
------------- -------------
Cash & Cash Equivalents-Ending $ 439,554 $ 34,342
============= =============
</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
March 31, 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 $1,800,000 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 and reflect the company's policy of discounting by 30% in recognizing
the shares' limited marketability due to restrictions on trading and holding
periods in excess of one year. The acquisition has been recorded as follows:
Total Consideration Paid $ 1,400,000
Fair value of assets acquired (15,000)
Liabilities assumed 400,000
-----------
Excess of cost over net assets acquired $ 1,785,000
===========
Note 3. In January 1998, the Company completed an offering of Class D
Convertible Preferred Stock. The aggregate offering of 2,500 shares at
$1,000/share of $2,500,000 was used to pay down existing long term debt and to
fund current operations. $250,000 of the Company's debt converted to 250 shares
of preferred D as part of this offering.
Note 4. In February, 1998 the Company converted $277,404 of related party debt
to 112,783 shares of the Company's common stock.
<PAGE>
Item 2. Management's Discussion and Analysis.
Three months ended March 31, 1998 compared to three months ended March 31, 1997.
Results of Operations
The results of operations for the three months ended March 31, 1998
reflect less than one month of operations from Li'l Dino.
The Company had a net loss of $845,041 for the three months ended March
31, 1998, compared to a net loss of $864,080 for the same period in 1997. The
decrease in the net loss is primarily the result from increased franchising
revenues of approximately $513,000 and sales from the Company's corporately
owned restaurants and bakeries of approximately $782,000 offset by cost of sales
related to the Company's corporately owned restaurants and bakeries of
approximately $309,000 and increased operating costs of approximately $906,000
from the Company's acquisitions of businesses in 1997. Other changes for the
three months ended March 31, 1998 included consulting costs associated with
expansion where stock was issued for these services with a value of
approximately $427,000, amortization and depreciation expense associated with
the Company's acquisitions of businesses in 1997 of approximately $195,000 and
interest expense of approximately $66,000 associated with debt assumed with the
Company's acquisitions. Expansion expenses were approximately $763,000 for the
same period in 1997.
The revenue of the Company increased $1,470,548 to $1,555,300 for the
three months ended March 31, 1998 from $84,651 for the same period in 1997. The
increase is primarily due to the acquisitions of businesses made during 1997
which included increased franchising related revenues of approximately $513,000
and sales from the Company's corporate restaurants and bakeries of approximately
$782,000.
Cost and operating expenses applicable to revenue increased $1,214,349
to $2,139,144 for the three months ended March 31, 1998 from $924,795 for the
same period in 1997. This increase is primarily due to the acquisitions of
businesses made during 1997 including cost of sales from the Company's corporate
restaurants and bakeries of approximately $309,000, additional depreciation and
amortization expense of approximately $199,000 and additional operating costs
from the acquired businesses of approximately $906,000.
Liquidity and Capital Resources
Working capital at March 31, 1998 was a deficit of $3,215,517 compared
with a deficit of $5,330,587 at December 31, 1997, a decrease in deficit of
$2,115,070. The decrease in deficit is primarily attributable to the Company's
issuance of $2,500,000 in Series D Preferred Stock. The net proceeds from this
offering were substantially used to pay down existing debt or to satisfy other
obligations.
The Company's primarily capital requirements are for repayment of
current loans payable including those to related parties of $1,606,006 and
accounts payable of $955,194. The Company's capital requirements are anticipated
to be funded through current operations supplemented by additional debt and/or
equity financing as expansion plans require. There is no assurance that
additional funding will be available, or that, 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.
<PAGE>
PART II-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
11/24/98 Christopher M. Swartz Authorized Officer /s/ Christopher M. Swartz
- -------- --------------------- ------------------ -------------------------
Date Print Name Title Signature
Chief Financial
Officer & Principal
11/24/98 Michael E. Cronin Accounting Officer /s/ Michael E. Cronin
- -------- --------------------- ------------------- -------------------------
Date Print Name Title Signature
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 439,554
<SECURITIES> 0
<RECEIVABLES> 300,039
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,504,582
<PP&E> 1,953,324
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,417,161
<CURRENT-LIABILITIES> 4,720,090
<BONDS> 0
0
4,520,000
<COMMON> 21,076,175
<OTHER-SE> (2,400,000)
<TOTAL-LIABILITY-AND-EQUITY> 19,417,161
<SALES> 1,555,300
<TOTAL-REVENUES> 1,555,300
<CGS> 308,542
<TOTAL-COSTS> 2,025,482
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66,317
<INCOME-PRETAX> (845,041)
<INCOME-TAX> 0
<INCOME-CONTINUING> (845,041)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (845,041)
<EPS-PRIMARY> (0.058)
<EPS-DILUTED> (0.058)
</TABLE>