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, 1999
[ ] 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.
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(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: July 31, 1999 - 27,596,602
Shares
Transitional Small Business Disclosure Format: Yes ( ) No ( X )
1
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<TABLE>
<CAPTION>
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements.
Jreck Subs Group, Inc.
Consolidated Balance Sheets
June 30, 1999 (Unaudited) and December 31, 1998
ASSETS
June 30, 1999 Dec. 31, 1998
-------------- ---------------
Current Assets:
<S> <C> <C>
Cash & Cash Equivalents $ 264,744 $ 310,578
Accounts Receivable-Trade, net
of allowance of $157,000 356,370 398,755
Current Portion of Notes Receivable 398,778 398,778
Marketable Securities 125,911 0
Prepaid Expenses 607,381 650,215
---------- ---------
Total Current Assets 1,753,184 1,758,326
Property & Equipment-Net 791,508 820,722
Other Assets:
Notes Receivable 91,998 159,182
Excess of Cost Over Fair Value of
Net Assets Acquired 10,826,582 11,102,937
Covenants Not To Compete & Other
Intangible Assets 226,957 318,961
Deferred Loan Costs 392,768 433,155
Other 108,783 114,571
---------- ----------
Total Assets $ 14,191,780 $ 14,707,854
========== ==========
</TABLE>
2
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<TABLE>
<CAPTION>
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
<S> <C> <C>
Current Portion of Long Term Debt $ 2,500,000 $ 2,003,198
Accounts Payable-Trade 744,714 1,002,109
Accrued Expenses 645,658 708,759
Accrued Preferred Dividends 242,124 201,540
----------- ---------
Total Current Liabilities 4,132,496 3,915,606
Long Term Debt-Related Parties 363,339 363,339
Other 622,613 1,511,642
----------- ---------
Total Liabilities 5,118,448 5,790,587
Redeemable Common Stock 293,000 593,000
Redeemable Series "F" Preferred Stock,
no par Value, 250 Shares Authorized,
197.5 and no Shares Issued and Outstanding
at June 30, 1999 And December 31, 1998,
Respectively 3,226,288 0
Stockholders' Equity:
Preferred Stock:
Series "C" Convertible Preferred Stock, no par
Value, 120 Shares Authorized, Issued and
Outstanding 120,000 120,000
Series "D" Convertible Preferred Stock, no par
Value, 2,500 Shares Authorized, 25 and
2,350 Issued and Outstanding at June 30, 1999
and December 31, 1998, Respectively 41,675 3,918,271
Common Stock, no par value, 50,000,000 Shares
Authorized, 27,453,437 and 19,503,596 Shares
Issued and Outstanding, Respectively 28,373,724 26,225,338
Accumulated Deficit (18,793,855) (17,751,842)
Less Stock Subscription Receivable (4,187,500) (4,187,500)
----------- -----------
Total Stockholders' Equity 5,554,044 8,324,267
----------- -----------
Total Liabilities & Stockholders' Equity $14,191,780 $14,707,854
=========== ===========
</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.
3
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<TABLE>
<CAPTION>
Jreck Subs Group, Inc.
Consolidated Statement of Operations
Six Months & Quarters Ended
June 30, 1999 and 1998 (Unaudited)
Six Months Six Months Quarter Quarter
Ended Ended Ended Ended
June 30,1999 June 30,1998 June 30,1999 June 30,1998
------------ ------------ ------------ ------------
Revenues:
<S> <C> <C> <C> <C>
Continuing Royalties $ 1,321,432 $ 1,264,563 $ 688,924 $ 717,423
Initial Franchise and
Transfer Fees 63,709 69,399 46,250 18,699
Retail Store Sales-net 0 962,859 0 431,261
Bakery Operations Sales-net 357,614 525,112 197,535 274,691
Other 406,249 452,284 265,468 289,796
---------- ---------- ---------- ---------
Total Revenue 2,149,004 3,274,217 1,198,177 1,731,870
Cost of Retail Sales 348,287 551,321 185,878 242,773
General and Administrative 1,615,589 2,202,799 760,947 1,239,971
Conversion Penalty on Series
"D" Preferred Stock 0 718,272 0 0
Consulting and Investor
Relations 412,486 1,081,444 226,748 311,395
Interest 262,713 179,833 126,766 83,516
Depreciation & Amortization 426,471 508,154 213,236 270,737
---------- ---------- ---------- ---------
Total Expenses 3,065,546 5,241,823 1,513,575 2,148,392
---------- ---------- ---------- ---------
Operating Loss (916,542) (1,967,606) (315,398) (416,522)
Loss on Disposal of Property 39,606 60,350 0 60,350
---------- ---------- ---------- ---------
Net Loss (956,148) (2,027,956) (315,398) (476,872)
Preferred Stock Dividends 85,865 107,800 42,225 53,900
---------- ---------- ---------- ---------
Net Loss Applicable
To Common Stock $(1,042,013) $(2,135,756) $ (357,623) $ (530,772)
========== ========== ========== =========
Weighted Average Common
Shares Outstanding 21,529,815 15,218,903 23,535,636 15,963,766
========== ========== ========== ==========
Loss per Share $ (0.05) $( 0.14) $ (0.02) $(0.03)
========== ========== ========== =========
</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.
4
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<TABLE>
<CAPTION>
Jreck Subs Group, Inc.
Statement of Cash Flows
Six Months & Quarters Ended
June 30, 1999 and 1998 (Unaduited)
Six Months Six Months Quarter Quarter
Ended June Ended June Ended June Ended June
30,1999 30,1998 30,1999 30,1998
---------- ---------- ---------- ----------
Operating Activities:
<S> <C> <C> <C> <C>
Net Loss $ (956,148) $(2,027,956) $ (315,398) $(476,872)
Non-Cash Expenses Included
in Net Income:
Depreciation & Amortization 426,469 508,154 213,235 270,737
Amortization of Prepaid Interest 110,026 0 47,296 0
Amortization of Prepaid
Consulting Fees 352,486 0 216,748 0
Consulting Fees Paid in Common Stock
and Options 16,900 345,230 16,900 0
Conversion Penalty on Series "D"
Preferred Stock 0 718,272 0 0
Loss on Disposal of Equipment 39,606 60,350 0 60,350
Adjustments to Reconcile Net Loss to
Cash Provided (Consumed) by
Operating Activities:
(Increase) Decrease
in Accounts Receivable 42,385 72,796 21,240 (18,733)
(Increase) Decrease
in Prepaid Expenses (30,301) 166,934 6,296 3,612
Decrease in Marketable Securities 74,089 0 74,089 0
Increase (Decrease) in Accounts
Payable & Accruals (368,647) (791,686) (269,746) 142,202
---------- ---------- --------- --------
Cash Consumed by
Operating Activities (293,135) (947,906) 10,660 (18,704)
Financing Activities:
Proceeds from the Issuance of
Common Stock 150,000 0 150,000 0
Proceeds from the Issuance of
Preferred Stock 100,000 1,817,490 (100,000) 0
Payments on Long Term Debt (68,377) (640,350) (54,863) (43,154)
Proceeds of Long Term Debt 0 200,000 0 0
Dividends Paid 0 (13,232) 0 0
---------- ---------- ---------- --------
Cash Generated (Used) by
Financing Activities 181,623 1,363,908 (4,863) (43,154)
Investing Activities:
Advances Made on Notes Receivable 0 (402,636) 0 (80,776)
Payments Collected on
Notes Receivable 65,807 32,559 10,413 16,890
Acquisition of Equipment 0 (50,859) 0 (8,159)
Cash Paid/Liabilities Assumed in
Connection with Acquisitions 0 (116,835) 0 0
Other (129) 0 0 0
--------- --------- --------- --------
Cash Provided (Expended)
on Investing Activities 65,678 (537,771) 10,413 (72,045)
--------- --------- --------- --------
Net Increase (Decrease) in Cash (45,834) (121,769) 16,210 (133,903)
Cash & Cash Equivalents - Beginning 310,578 427,420 248,534 439,554
--------- --------- --------- --------
Cash & Cash Equivalents - Ending $ 264,744 $305,651 $264,744 $305,651
========= ========= ========= ========
</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, 1999
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 unaudited consolidated financial statements and notes are
presented as permitted by form 10-QSB. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. The
accompanying consolidated financial statements and notes should be read in
conjunction with the audited financial statements and notes of the Company for
the year ended December 31, 1998. The results of operations for the six-month
period ended June 30, 1999 are not necessarily indicative of those to be
expected for the entire year.
Note 2. Between January 1999 and June 1999, shareholders holding 450 shares of
the Company's Series "D" preferred stock with a value of $750,308 converted
their shares into 4,077,008 shares of the Company's common stock. These same
Series "D" preferred shareholders also received 376,328 shares of the Company's
common stock as payment for accrued dividends of $41,281. For the quarter ended
June 30, 1999, shareholders holding 130 shares of the Company's Series "D"
preferred stock with a value of $216,756 converted their shares into 1,545,107
shares of the Company's common stock. These same Series "D" preferred
shareholders also received 159,710 shares of the Company's common stock as
payment for accrued dividends of $13,432.
In June 1999, the Company converted 1,875 of the remaining 1,900 shares of
Series "D" preferred stock (with a value of $3,126,288) into 187.5 shares of the
Company's redeemable Series "F" preferred stock. Each share of the Company's
Series "F" preferred stock are entitled to annual dividends of $1,000 per share.
The holders of the Series "F" preferred stock may require the Company to
repurchase the Series "F" preferred stock at $12,500 per share anytime between
June 1, 2001 and August 1, 2001.
Note 3. In February 1999, the Company completed an offering of Series "E"
Convertible Preferred Stock. The aggregate offering of 20 shares at $10,000 per
share was $200,000. In June 1999, the Company repurchased 10 shares of "E"
preferred stock for $100,000. The remaining 10 shares were converted into the 10
shares of the Company's Redeemable Series "F" preferred stock.
Note 4. In June 1999, the Company issued 775,093 shares of its common stock
valued at $364,294 to the former owners of its wholly-owned subsidiary SBK
Franchise Systems, Inc. ("SBK") to eliminate the redemption feature on the
balance of the remaining 112,360 shares redeemable common stock with a carrying
value of $300,000 and a $300,000 principal reduction in a note due to the former
owners of SBK which decreased the principal balance from $500,000 to $200,000.
The Company also agreed to further assume $85,000 in liabilities from the former
owners of SBK. $149,294 of additional goodwill has been recorded as a result of
this transaction.
Note 5. In June 1999, the Company issued 192,308 shares of its common stock for
satisfaction of a note of $50,000.
Note 6. In May 1999, the Company sold 500,000 shares of its common stock for
$150,000.
Note 7. In June 1999, the Company issued 769,230 shares of its common stock
valued at $200,000 for an investment in marketable securities.
Note 8. Between April 1999 and June 1999, the Company issued 1,180,000 shares of
its common stock for consulting services to be rendered with a value of
$310,600.
6
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Item 2. Management's Discussion and Analysis.
Forward Looking Statements
The following discussion contains certain forward-looking statements subject to
the safe harbor created by the "Private Securities Litigation Reform Act of
1995". These statements use such words as "may," "will," "expect," "believe,"
"plan," "anticipate" and other similar terminology. These statements reflect
management's current expectations and involve a number of risks and
uncertainties. Actual results could differ materially due to changes in global
and local business and economic conditions; the potential effect on business
from year 2000 issues; legislation and government regulation; competition;
success of operating, initiatives including advertising and promotional efforts;
changes in food, labor and other operating costs; availability and cost of land
and construction; adoption of new or changes in accounting policies and
practices; changes in consumer preferences, spending patterns and demographic
trends and changes in the political or economic climate.
Overview
The Company derives its revenue from several sources: royalties, franchise fees
and other franchise related activities as well as a bakery acquired to supply
sandwich rolls to certain franchisees. All company owned restaurants were
disposed by the end of 1998 by selling or transferring them to new or existing
franchisees. The Company has approximately 270 franchised units at June 30,
1999.
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998.
Results of Operations:
The results of operations for the three months ended June 30, 1999 reflect
no retail sales as all company owned restaurants were disposed by the end of
1998.
The Company had a net loss of $315,398 for the three months ended June
30, 1999 compared to a net loss of $476,872 for the same period in 1998. The
decrease in net loss resulted primarily from the non-recurrence of a loss of
$60,350 in 1998 from the sale of one of the Company's corporate restaurants.
Although there were no sales from corporate restaurants in 1999, the decrease in
revenue was offset by a reduction in general and administrative expenses and
consulting and investor relation expenses. These items reflected in a loss per
share of $0.02 for the three months ended June 30, 1999 compared to a loss per
share of $0.03 for the same period in 1998.
Total revenues decreased $533,693 or 30.8% to $1,198,177 for the three
months ended June 30, 1999 compared to $1,731,870 for the same period in 1998.
$431,261 of this decrease is the result of the sale of all corporately owned
restaurants by the end of 1998. Revenues from bakery sales were $197,535 for the
three months ended June 30, 1999 compared to $274,691 for the same period in
1998, a decrease of $77,156. The decrease in 1999 sales is attributable to the
Company closing its Tampa bakery in 1998 which generated sales of $62,425 prior
to its closing. Royalties decreased $28,499 or 4.0% to $688,924 for the three
months ended June 30, 1999 compared to $717,423 for the same period in 1998.
Total expenses decreased $634,817 or 29.5% to $1,513,575 for the three
months ended June 30, 1999 compared to $2,148,392 for the same period in 1998.
The decrease is primarily due to reduced consulting and investor relation
expenses in 1999. Consulting and investor relation expenses decreased $84,647 or
27.2% to $226,748 for the three months ended June 30, 1999 compared to $311,395
for the same period in 1998. The 1998 amount included business expansion
expenses in connection with the Company's acquisition activities. General and
administrative expenses decreased $479,024 or 38.6% to $760,947 for the three
months ended June 30, 1999 compared to $1,239,971 for the same period in 1998
due to the Company streamlining its corporate operations. Interest expense
increased $43,250 or 51.8% to $126,766 for the three months ended June 30, 1999
compared to $83,516 for the same period in 1998 primarily due to $47,296 in
increased amortization of the Company's deferred loan costs.
7
<PAGE>
Liquidity and Capital Resources
Net cash provided by operating activities was $10,660 for the three
months ended June 30, 1999 compared to net cash used in operating activities of
$18,704 for the comparable period in 1998.
Net cash of $4,863 was used in financing activities for the three
months ended June 30, 1999 compared to net cash used of $43,154 for the
comparable period in 1998. The decrease in cash used in financing activities of
$38,291 for 1999 is a result of the sale of 500,000 shares of Company common
stock for $150,000 which was offset by $100,000 expended for the redemption of
10 shares of the Company's Series "E" preferred stock.
Net cash provided by investing activities was $10,413 for the three
months ended June 30, 1999 compared to net cash used in investing activities of
$72,045 for the comparable period in 1998. The net change of $82,458 for 1999
was a result of $80,776 advanced on notes receivable in 1998 which did not recur
in 1999.
Working capital deficit at June 30, 1999 was $2,379,312 compared to a
deficit of $2,750,647 at March 31, 1999, a decrease in deficit of $371,335. The
decrease in deficit is primarily attributable to the Company selling 500,000
shares of its common stock for $150,000 and the Company obtaining $200,000 in
marketable securities for the issuance of 769,230 shares of its common stock.
The Company believes that cash flow from operations and collections
from notes receivable will continue to fund its operations as well as generate a
portion of the capital necessary to meet the Company's obligations on its long
term debt. The Company intends to seek other sources of financing, restructure
and/or pay off some of its long term debt. 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.
Impact of Year 2000
The Company's business and relationships with it business partners and
customers depend significantly on a number of computer software programs,
internal operating systems and connections to other networks. The failure of any
of these programs, systems or networks to successfully address the Year 2000
rollover problem could have a material adverse effect on the Company's business,
financial condition or results of operations. Many installed computer software
and network processing systems currently accept only two digit entries in the
date code field and may need to be upgraded or replaced in order to accurately
record and process information and transactions on or after January 1, 2000.
The Company utilizes personal computers (PC's) at all its employee
workstations, some of which are connected to a network while others are
stand-alone units. These personal computers all utilize Microsoft Windows or
Microsoft Windows NT as their operating system. The Company believes that the
Windows version found on all its computers is Year 2000 compliant. Additionally,
the Company recently acquired and updated software to operate all its accounting
functions. The Company believes this new software, the system in which it runs
and its computer hardware to be Year 2000 compliant. Management anticipates that
all accounting functions will be performed using Year 2000 compliant software by
June of 1999. The costs of acquiring and implementing the software are expected
to be minimal. Management believes that any additional expenditures required to
implement this software will be funded from the cash flow generated by
operations.
8
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The Company primarily does business with its subfranchisors and its
franchisees who in turn deal with retail customers and food distribution
companies. The Company has considered the transactions it conducts with its
subfranchisors and its franchisees in its analysis of the Year 2000 issue, and
believes that it has completed substantially all modifications to the computer
systems used in these transactions to ensure the systems are Year 2000
compliant. The Company is not certain as whether the computer software and
business systems of its franchisees' suppliers are Year 2000 compliant. The
failure or delay of these distributors to successfully address the Year 2000
issue may result in delays in placing or receiving orders for goods and services
at the restaurant level. Such delays may result in lost revenues for the
franchisees and, in turn, lower continuing royalties to the Company. The Company
anticipates that such delays and lost revenues, if any, would be minimal.
An inventory and assessment of all non-information technology systems
(such as telephone systems, fax machines and copiers) has not been completed.
The Company does not believe that the failure of such systems will have a
significant impact on its ability to conduct business. If a year 2000 failure
should occur in any of these systems, management intends to resort to
traditional hand methods until such failure can be cured.
The Company intends to continue to monitor its Year 2000 compliance and
to correct any noncompliance as it is discovered. Management will fund such
efforts out of operating cash flow. The Company believes that the effects on any
noncompliance on its part, or by its customers and suppliers, will not have a
material adverse effect on the Company's business, financial condition, results
of operations or cash flows.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998.
Results of Operations:
The results of operations for the six months ended June 30, 1999 reflect no
retail sales as all company owned restaurants were disposed by the end of 1998.
The Company had a net loss of $956,148 for the six months ended June
30, 1999 compared to a net loss of $2,027,956 for the same period in 1998. The
decrease in the net loss is primarily from the result of a one time charge of
$718,272 incurred during the six months ended June 30, 1998 due to a penalty
feature imposed on the Company's Series "D" preferred stock issued January 5,
1998 and a decrease of $668,958 in consulting and investor relation expenses
incurred in connection with the Company's business expansion activities in 1998.
These items were reflected in a loss per share of $0.05 for the six months ended
June 30, 1999 compared to a loss per share of $0.14 for the same period in 1998.
Total revenues decreased $1,125,213 or 34.4% to $2,149,004 for the six
months ended June 30, 1999 compared to $3,274,217 for the same period in 1998.
$962,859 of the decrease is the result of the sale of all corporately owned
restaurants by the end of 1998. Revenues from bakery sales were $357,614 for the
six months ended June 30, 1999 compared to $525,112 for the same period in 1998,
a decrease of $167,498. The decrease in sales in 1999 is attributable to the
Company closing its Tampa bakery in 1998 which generated sales of $62,425 prior
to its closing. Royalties increased $56,869 or 4.5% to $1,321,432 for the six
months ended June 30, 1999 compared to $1,264,563 for the same period in 1998.
9
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Total expenses decreased $2,176,277 or 41.5% to $3,065,546 for the six
months ended June 30, 1999 compared to $5,241,823 for the same period in 1998.
The decrease is primarily due to a conversion penalty of $718,272 in 1998 on the
Company's Series "D" preferred stock and reduced consulting and investor
relation expenses in 1999. Consulting and investor relation expenses decreased
$668,958 or 61.9% to $412,486 for the six months ended June 30, 1999 compared to
$1,081,444 for the same period in 1998. The 1998 amount included business
expansion expenses in connection with the Company's acquisition activities and
capital raising costs on the Company's Series "D" preferred stock. General and
administrative expenses decreased $587,210 or 26.7% to $1,615,589 for the six
months ended June 30, 1999 compared to $2,202,799 for the same period in 1998.
The primary reason for the decrease is from the Company streamlining its
corporate operations. Interest expense increased $82,880 or 46.1% to $262,713
for the six months ended June 30, 1999 compared to $179,833 for the same period
in 1998 primarily due to $110,026 in increased amortization of the Company's
deferred loan costs.
Liquidity and Capital Resources
Net cash used in operating activities was $293,135 for the six months
ended June 30, 1999 compared to net cash used of $947,906 for the comparable
period in 1998. The decrease in cash used in operating activities is primarily
attributable to a reduction in accounts payable and accrued expenses of $368,647
for the six months ended June 30, 1999 compared to $791,686 for the same period
in 1998. The 1998 reduction was made possible from the issuance of the Company's
Series "D" preferred stock which proceeds were used in part to pay off accounts
payable and accrued expenses for costs incurred in connection with the Company's
acquisition and capital raising activities.
Net cash of $181,623 was generated by financing activities for the six
months ended June 30, 1999 compared to $1,363,908 for the comparable period in
1998. In 1999, $150,000 was raised through the issuance of 500,000 shares of the
Company's common stock. In 1998, the Company raised $1,817,490 through the
successful offering of the Company's Series "D" preferred stock.
Net cash of $65,678 was provided by investing activities for the six
months ended June 30, 1999 compared to net cash used in investing activities of
$537,771 for the comparable period in 1998. The 1998 amount included $116,835 of
cash paid in connection with acquisitions and an increase of $402,636 in notes
receivable from the sale of the Company's corporately owned restaurants.
Working capital deficit at June 30, 1999 was $2,379,312 compared with a
deficit of $2,157,280 at December 31, 1998, an increase in deficit of $222,032.
The increase in deficit is primarily attributable to an additional $497,000 of
the Company's long-term debt maturing within a year partially offset by $150,000
raised from the sale of common stock and $200,000 in marketable securities from
the sale of 769,230 shares of the Company's common stock.
The Company believes that cash flow from operations and collections
from notes receivable will continue to fund its operations as well as generate a
portion of the capital necessary to meet the Company's obligations on its long
term debt. The Company intends to seek other sources of financing, restructure
and/or pay off some of its long term debt. 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.
10
<PAGE>
PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
On August 2, 1999, shareholders of Li'l Dino Management Corporation
filed a complaint against the Company and some of its officers in Civil Action
Number 1:99-CV631 in the United States District Court for the Middle District of
North Carolina, Greensboro Division. The Company was served with this complaint
on August 5, 1999. This complaint alleges damages of $4.5 million for securities
fraud, misappropriation of corporate opportunities and negligent
misrepresentation, and seeks treble damages, interest and attorney's fees. The
allegations in the complaint relate to the Company's acquisition of
substantially all of the assets of Li'l Dino Management.
The Company believes that the claims made in the complaint are without
merit. The Company intends to defend itself vigorously in this matter.
Item 2. Changes in Securities and Use of Proceeds.
The following table sets forth information with respect to the sale or
issuance of unregistered securities by the Company between April 1, 1999 to June
30, 1999:
<TABLE>
<CAPTION>
Exempt From
1933 Act
Shares Type of Value of Registration In
Issued Security Consideration To Whom Issued Business Purpose Reliance of:
<S> <C> <C> <C> <C> <C>
1,545,107 Common 216,756 Preferred "D" Shareholders Conversion of 130 Shares of Preferred "D" Section 4(2)
159,710 Common 13,432 Preferred "D" Shareholders Dividends on Preferred "D" Section 4(2)
1,000,000 Common 250,000 Norstarr Advertising, Inc. Consulting Services Section 4(2)
500,000 Common 150,000 2 Individual Investors Cash Investment Section 4(2)
775,093 Common 364,294 Interfoods Settlement of Debt Section 4(2)
192,308 Common 50,000 Chesterfield/Gomez Settlement of Debt Section 4(2)
37,500 Common 0 Truax, Longley Exercise of Stock Options Section 4(2)
130,000 Common 48,100 Gulf Atlantic Publishing Consulting Services Section 4(2)
20,000 Common 4,400 Barry Seidman Interest Penalty Section 4(2)
769,230 Common 200,000 Skalko, Tichenor Investment in Marketable Securities Section 4(2)
50,000 Common 12,500 Blaine Quick Consulting Services Section 4(2)
187.5 Preferred "F" 3,126,288 Preferred "D" Shareholders Conversion of 1,875 Shares of Preferred "D" Section 4(2)
10.0 Preferred "F" 100,000 Preferred "E" Shareholders Conversion of 10 Shares of Preferred "E" Section 4(2)
</TABLE>
In May 1999, the Company granted 520,000 options to purchase the
Company's common stock to employees under the Company's 1998 Incentive Plan.
There are 1,500,000 options authorized under the Company's 1998 Incentive Plan.
The options were granted at an exercise price of $0.20 per share and expire in
February 2002. No options have been exercised under the Company's 1998 Incentive
Plan.
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
11
<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: September 17, 1999 /s/ Christopher M. Swartz
------------------------------
President
(Duly Authorized Officer)
Date: September 17, 1999 /s/ Michael F. Cronin
------------------------------
Chief Financial Officer &
Principal Accounting Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 264,744
<SECURITIES> 125,911
<RECEIVABLES> 356,370
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,753,184
<PP&E> 1,054,625
<DEPRECIATION> (263,117)
<TOTAL-ASSETS> 14,191,780
<CURRENT-LIABILITIES> 4,132,496
<BONDS> 0
3,226,288
161,675
<COMMON> 28,373,724
<OTHER-SE> (4,187,500)
<TOTAL-LIABILITY-AND-EQUITY> 14,919,780
<SALES> 2,149,004
<TOTAL-REVENUES> 2,149,004
<CGS> 348,287
<TOTAL-COSTS> 2,454,546
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 262,713
<INCOME-PRETAX> (956,148)
<INCOME-TAX> 0
<INCOME-CONTINUING> (956,148)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (956,148)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
