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 June 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from ____ to____
Commission File Number: 0-23545
Jreck Subs Group, Inc.
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Colorado 84-1317674
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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 past 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: June 30, 1998-16,637,271 Shares
Transitional Small Business Disclosure Format: Yes ( ) No ( X )
1
<PAGE>
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements.
Jreck Subs Group, Inc.
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997
ASSETS
June 30, 1998 Dec. 31, 1997
-------------- ---------------
Current Assets:
Cash & Cash Equivalents $ 305,651 $ 427,420
Accounts Receivable-Trade, net
of allowance of $ 60,000 318,771 391,567
Current Portion of Notes Receivable 100,000 168,560
Prepaid Expenses 643,408 730,811
---------- ---------
Total Current Assets 1,367,830 1,718,358
Property & Equipment-Net 1,860,323 1,930,990
Other Assets:
Notes Receivable 612,340 173,704
Excess of Cost Over Fair Value of
Assets Of Net Assets Acquired 14,117,320 11,521,526
Covenants Not To Compete & Other
Intangible Assets 502,317 512,777
Deferred Loan Costs 610,960 597,760
Other 5,000 34,097
---------- ----------
Total Other Assets 15,847,937 12,839,864
Total Assets $ 19,076,090 $ 16,489,212
========== ==========
2
<PAGE>
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 60,000 434,785
Accounts Payable-Trade 630,323 1,020,101
Accrued Expenses 704,591 1,196,130
Liability to Issue Common Stock 1,793,750 2,234,375
----------- ---------
Total Current Liabilities 4,637,289 7,048,945
Long Term Debt-Related Parties 476,059 323,032
Other 2,116,452 1,619,115
Redeemable Common Stock 500,000 500,000
Stockholders' Equity:
Preferred Stock-2,620 Shares
Outstanding 2,620,000 2,020,000
Common Stock Authorized-50
Million Shares
Issued-16.637 Million Shares 22,792,543 17,729,478
Less Stock Subscription Receivable (2,400,000) (2,400,000)
Accumulated Deficit (11,666,253) (10,351,358)
----------- -----------
Total Stockholders' Equity 11,346,290 6,998,120
Total Liabilities & Stockholders' Equity $ 19,076,090 $ 16,489,212
========== ==========
The interim financial statements include all adjustments which, in the opinion
of management, are necessary in order to make the financial statements not
misleading.
3
<PAGE>
Jreck Subs Group, Inc.
Income Statement
Six Months & Quarters Ended
June 30, 1998 and 1997
Six Months Six Months Quarter Quarter
Ended Ended Ended Ended
June 30,1998 June 30,1997 June 30,1998 June 30,1997
------------ ------------ ------------ ------------
Revenues:
Continuing Royalties $ 1,264,563 $ 196,985 $ 717,423 $ 112,334
Initial Franchise &
Franchise Transfer Fees 69,399 0 18,699 0
Retail Store Sales-net 962,859 0 431,261 0
Bakery Operations Sales-net 525,112 0 274,691 0
Other 452,284 23,801 289,796 23,801
---------- ---------- ---------- ---------
Total Revenue 3,274,217 220,786 1,731,870 136,135
Costs Applicable to Sales &
Revenue 551,321 0 242,773 0
Selling, General &
Administrative Expenses 2,363,168 212,655 1,320,155 50,860
Business Development Costs 1,104,000 1,440,000 329,364 677,000
Interest 179,833 39,717 83,516 20,781
Depreciation & Amortization 390,791 10,000 225,916 5,000
---------- ---------- ---------- ---------
Total Expenses 4,589,113 1,702,372 2,201,724 753,641
Net Loss $(1,314,896) $(1,481,586) $ (469,854) $ (617,506)
========== ========== ========== =========
Weighted Average Common
Shares Outstanding 15,218,903 9,500,745 15,963,766 9,520,745
========== ========== ========== =========
Loss per Share $ (0.086) $( 0.156) $ (0.029) $(0.065)
========== ========== ========== =========
The interim financial statements include all adjustments which, in the opinion
of management, are necessary in order to make the financial statements not
misleading.
4
<PAGE>
Jreck Subs Group, Inc.
Statement of Cash Flows
Six Months & Quarters Ended
June 30, 1998 and 1997
<TABLE>
<S> <C> <C> <C> <C>
Six Months Six Months Quarter Quarter
Ended June Ended June Ended June Ended June
30,1998 30,1997 30,1998 30,1997
---------- ---------- ---------- ----------
Operating Activities:
Net Loss $(1,314,896) $(1,481,586) $ (469,855) $(617,506)
Non-Cash Expenses Included
in Net Income:
Depreciation & Amortization 390,791 29,621 225,916 23,656
Consulting Fees paid in
Common Stock and Options 197,317 1,358,927 0 595,948
Adjustments to Reconcile Net
Loss to Cash
Provided (Consumed) by
Operating Activities:
(Increase) in Accounts Receivable 72,796 1,009 (18,732) 1,956
(Increase) in Prepaid Expenses 87,403 0 21,581 (3,601)
Increase in Accounts Payable
& Accruals (631,317) 558,558 222,386 590,618
---------- ---------- --------- --------
Cash Consumed by
Operating Activities (1,197,906) 466,529 (18,704) 591,071
Financing Activities:
Proceeds From the Issuance of
Preferred Stock (Common in '97) 2,067,490 220,000 0 0
Payments on Long Term Debt (640,350) 0 (43,154) 0
Proceeds of Long Term Debt 200,000 0 0
Dividends Paid (13,232) (26,400) (0) (13,200)
---------- ---------- ---------- --------
Cash Generated by
Financing Activities 1,613,908 193,600 (43,154) (13,200)
Investing Activities:
Advances Made on Notes Receivable (402,636) (85,252) (80,776) 0
Payments Collected on
Notes Receivable 32,559 0 16,890 0
Acquisition of Equipment (50,859) 0 (8,159) 0
Cash Paid in Connection
with Acquisitions (116,835 (415,716) 0 (405,684)
--------- --------- --------- --------
Cash Expended on Investing Activities (537,771) (500,968) (72,045) (405,684)
Net Increase (Decrease) in Cash (121,769) 159,161 (133,903) 172,187
Cash & Cash Equivalents-Beginning 427,420 47,368 439,554 34,342
--------- --------- --------- --------
Cash & Cash Equivalents-Ending $ 305,651 $206,529 $305,651 $206,529
========= ========= ========= ========
</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.
5
<PAGE>
Jreck Subs Group, Inc.
Notes to Interim Financial Statements
Form 10-QSB
June 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.
6
<PAGE>
Item 2. Management's Discussion and Analysis.
Three months ended June 30, 1998 compared to three months ended June 30, 1997.
Results of Operations:
The Company had a net loss of $ 469,854 for the three months ended June 30, 1998
compared to a net loss of $ 617,506 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 $ 596,248 in 1998 in
non-cash consulting and business development expenses that were reflected in the
2nd quarter of 1997. The aggregate sales of $ 431,261 generated by the 12 new
company owned stores in 1998, offset by food costs and operating costs of
$149,479 and $ 333,789, respectively, resulted in contributing $ 52,007 to the
1998 quarter loss. The bakery operations, also new in 1998, generated revenues
of $ 274,691 offset by product costs of $ 93,301 and operating expenses of
$ 194,251 thereby contributing $ 12,861 toward the 1998 quarter loss. Other
changes for the quarter ended June 30, 1998 were an increase over 1997 of
$ 220,916 in amortization & depreciation expense and interest expense increasing
from $ 20,781 to $ 83,516, primarily the result of debt assumed and originating
from the Company's acquisitions. Business expansion expenses were $677,000 in
1997 compared to $ 329,364 in the same quarter of 1998.
The revenue of the Company increased $ 1,595,735 to $ 1,731,870 for the three
months ended June 30, 1998 from $136,135 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 $ 803,591 of additional
franchising revenue and the sales contributions of $ 431,261 and $ 274,691 in
1998 from the Company stores and bakery, respectively, compared to $ 0 for each
of the activities in 1997.
Costs and operating expenses applicable to sales and revenue increased
$ 1,512,068 to $ 1,562,928 for the three months ended June 30, 1998 from
$ 50,860 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 $ 770,820 in 1998 compared to $ 0 in
1997. Additional franchise servicing costs of $ 419,896 in 1998 were the
result of business acquisitions made in 3rd & 4th quarter 1997.
Liquidity and Capital Resources:
Working capital at June 30, 1998 was a deficit of $ 3,269,459 compared with a
deficit of $ 5,330,587 on December 31, 1997 a decrease of $ 2,061,128. 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.
7
<PAGE>
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 $ 1,334,914. 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.
Six months ended June 30, 1998 compared to six months ended June 30, 1997.
Results of Operations:
The Company had a net loss of $ 1,314,896 for the six months ended June 30, 1998
compared to a net loss of $ 1,481,586 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 $ 931,927 in 1998 in
non-cash consulting and business development expenses that were reflected in the
first six months of 1997. The aggregate sales of $ 962,859 generated by the 12
new company owned stores in 1998, offset by food costs and operating costs of
$ 379,790 and $ 658,789, respectively, resulted in contributing $ 75,720 to the
1998 six month loss. The bakery operations, also new in 1998, generated revenues
of $525,112 offset by product costs of $ 171,531 and operating expenses of
$ 364,251 thereby contributing $ 10,670 toward the 1998 six month loss. Other
changes for the six ended June 30, 1998 were an increase over 1997 of $ 380,791
in amortization & depreciation expense, and interest expense increasing from
$ 39,717 to $ 179,833, primarily the result of debt assumed and originating from
the Company's acquisitions. Business expansion expenses were $1,440,000 in 1997
compared to $ 1,104,000 in the same period of 1998.
The revenue of the Company increased $ 3,053,431 to $ 3,274,217 for the six
months ended June 30, 1998 from $ 220,786 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 $ 1,454,468 of additional franchising revenue and the
sales contributions of $962,859 and $ 525,112 in 1998 from the Company stores
and bakery, respectively, compared to $ 0 for each of the activities in 1997.
Costs and operating expenses applicable to sales and revenue increased
$ 2,702,834 to $ 2,914,489 for the six months ended June 30, 1998 from $212,655
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 $ 1,534,361 in 1998 compared to $ 0 in 1997.
Additional franchise servicing costs of $ 635,258 in the first six months of
1998 over the same period in 1997 were the result of business acquisitions made
in 3rd & 4th quarter 1997.
8
<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
9
<PAGE>
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)
Date:
August 19, 1998 /s/ Christopher M. Swartz
------------------------------
President
(Duly Authorized Officer)
Date: /s/ Michael F. Cronin
August 19, 1998 ------------------------------
Chief Financial Officer &
Principal Accounting Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Jun-30-1998
<CASH> 305,651
<SECURITIES> 0
<RECEIVABLES> 318,771
<ALLOWANCES> (60,000)
<INVENTORY> 0
<CURRENT-ASSETS> 1,367,830
<PP&E> 1,860,323
<DEPRECIATION> 390,791
<TOTAL-ASSETS> 19,076,090
<CURRENT-LIABILITIES> 4,637,289
<BONDS> 3,092,511
0
2,620,000
<COMMON> 20,392,543
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 19,076,090
<SALES> 3,274,217
<TOTAL-REVENUES> 3,274,217
<CGS> 551,321
<TOTAL-COSTS> 3,857,959
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 179,833
<INCOME-PRETAX> (1,314,896)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,314,896)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,314,896)
<EPS-PRIMARY> (0.086)
<EPS-DILUTED> (0.086)
</TABLE>
