U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[As last amended in Release No. 34-38850, July 18, 1997,
effective September 2, 1997, 62 F.R. 39755]
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
[ ] 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: December 31, 1999 -
28,783,440 Shares
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
The interim financial statements include all adjustments which, in the opinion
of management, are necessary in order to make the financial statements not
misleading.
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
JRECK Subs Group, Inc. and Subsidiaries
Consolidated Balance Sheets
as of December 31, 1999 (Unaudited) and September 30, 1999
December 31, September 30,
1999 1999
- ---------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents, including restricted cash of $35,347
and $35,086, respectively $ 102,523 $ 121,292
Accounts receivable - trade, net of allowance for doubtful
accounts 341,815 365,618
Prepaid expenses 686,135 456,883
Current portion of notes receivable 80,000 80,000
- ---------------------------------------------------------------------------------------------------------------------
Total current assets 1,210,473 1,023,793
- ---------------------------------------------------------------------------------------------------------------------
Property and equipment, net 714,315 726,667
- ---------------------------------------------------------------------------------------------------------------------
Other assets:
Goodwill, net of accumulated amortization of $1,108,754 and
$984,817, respectively 8,863,138 8,987,076
Covenants not to compete, net of accumulated amortization of
$430,293 and $388,458, respectively 71,707 113,542
Deferred loan costs, net 360,038 376,403
Other 104,717 106,750
- ---------------------------------------------------------------------------------------------------------------------
Total assets $ 11,324,388 $ 11,334,231
=====================================================================================================================
</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. and Subsidiaries
Consolidated Balance Sheets
As of December 31, 1999 (Unaudited) and September 30, 1999, Continued
December 31, September 30,
1999 1999
- ---------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
<S> <C> <C>
Current portion of long-term debt $ 1,564,829 $ 1,606,041
Accounts payable 589,587 496,553
Accrued liabilities 757,498 552,881
Accrued preferred stock dividends 248,390 247,764
- ---------------------------------------------------------------------------------------------------------------------
Total current liabilities 3,160,304 2,903,239
Long-term debt, less current portion 763,505 763,505
Note payable to related party 245,939 245,939
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 4,169,748 3,912,683
- ---------------------------------------------------------------------------------------------------------------------
Redeemable common stock 293,000 293,000
- ---------------------------------------------------------------------------------------------------------------------
Redeemable Series F Preferred Stock, no par value, 250 shares
authorized, 197.5 shares issued and outstanding 2,468,750 2,468,750
- ------------------------------------------------------------------------ ---------------------- ---------------------
Stockholders' equity:
Series C Convertible Preferred Stock, no par value, 120 shares
authorized, issued and outstanding 120,000 120,000
Common stock, no par value, 50,000,000 shares authorized,
28,783,440 and 28,403,440 shares issued and outstanding, respectively 28,638,128 28,394,179
Accumulated deficit (20,177,738) (19,666,881)
Less: Stock subscriptions receivable (4,187,500) (4,187,500)
- ---------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 4,392,890 4,659,798
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 11,324,388 $ 11,334,231
=====================================================================================================================
</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. and Subsidiaries
Consolidated Statements of Operations
For the Three Months Ended December 31, 1999 and 1998 (Unaudited)
Three Months Three Months
Ended Ended
December 31, December 31,
1999 1998
- ---------------------------------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C>
Continuing royalty revenues $ 642,686 $ 649,488
Initial royalty revenues 45,000 33,666
Retail sales - company-owned stores - 110,878
Retail sales - bakery and other products 194,859 163,024
Other revenues 251,007 183,528
- ---------------------------------------------------------------------------------------------------------------------
1,133,552 1,140,584
Operating costs and expenses:
Franchise servicing costs 387,661 404,842
Cost of retail sales and operating costs - stores - 117,561
Cost of retail sales and operating costs - bakery 187,616 169,000
General and administrative 461,952 319,875
Consulting and investor relations 234,146 52,851
Bad debt expense - 125,417
Long-lived asset writedown - 1,902,290
Amortization and depreciation 182,414 294,239
- ---------------------------------------------------------------------------------------------------------------------
1,453,789 3,386,075
- ---------------------------------------------------------------------------------------------------------------------
Loss from operations (320,237) (2,245,491)
Other income (expense):
Interest, net (78,619) (186,754)
Loss on disposal of property, plant and equipment - (465,032)
Other, net (62,000) -
- ---------------------------------------------------------------------------------------------------------------------
Net loss (460,856) (2,897,277)
Preferred stock dividends (50,001) (52,900)
- ---------------------------------------------------------------------------------------------------------------------
Net loss applicable to common stock $ (510,857) $ (2,950,177)
====================================================================================================================-
Weighted average of common shares outstanding 28,704,962 17,681,179
====================================================================================================================-
Net loss per common share - basic and diluted $ (.02) $ (.17)
====================================================================================================================-
</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. and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended December 31, 1999 and 1998 (Unaudited)
Three Months Three Months
Ended Ended
December 31, December 31,
1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Operating activities:
<S> <C> <C>
Net loss $ (460,856) $ (2,897,277)
Adjustments to reconcile net loss to net cash provided by operating
Amortization and depreciation 182,414 294,239
Write down of long-lived assets - 1,902,290
Bad debts - 125,417
Loss on disposal of property, plant and equipment - 465,032
Stock and stock options issued for services 26,468 51,526
Prepaid interest and loan fees amortized to interest expense 16,365 18,876
Amortization of deferred loan costs 6,000 14,222
Prepaid consulting fees amortized to consulting and investor 178,404 121,839
Other - (112,076)
(Increase) decrease in:
Accounts receivable 23,803 (65,603)
Prepaid expenses 23,575 (117,595)
Increase (decrease) in:
Accounts payable 93,034 274,235
Accrued liabilities (9,133) 191,193
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 80,074 266,318
- ----------------------------------------------------------------------------------------------------------------------------
Investing activities:
Purchase of property and equipment (2,256) -
Proceeds from disposal of property, plant and equipment and sale of assets - 518,226
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (2,256) 518,226
- ----------------------------------------------------------------------------------------------------------------------------
Financing activities:
Payments on redeemable common stock - (243,750)
Payments on long-term debt (47,212) (474,100)
Payment of preferred stock dividends (49,375) (9,300)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash (used in) financing activities (96,587) (727,150)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (18,769) 57,394
Cash and cash equivalents, beginning of period 121,292 253,184
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 102,523 $ 310,578
============================================================================================================================
</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. and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Three Months Ended December 31, 1999 (Unaudited) and the Nine Months Ended September 30, 1999
Common Preferred Series C Preferred Series D
Shares Amount Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 19,503,596 $26,225,338 120 $120,000 2,350 $3,918,271
Converstion of debt to equity 692,308 159,400 - - - -
Stock issued for current and prepaid 1,291,667 340,000 - - - -
Exercise of options for common stock 37,500 - - - - -
Stock issued for marketable security 769,230 174,563 - - - -
Conversion of preferred Series D to common
stock 4,250,499 791,983 - - (475) (791,983)
Conversion of preferred Series D stock
dividend 397,966 44,399 - - - -
Acquisition and retirement of common stock (776,779) (1,111,031) - - - -
Other stock sales 500,000 150,000 - - - -
Stock issued for price adjustments 850,000 197,695 - - - -
Stock issued on acquisition restructuring 887,453 664,294 - - - -
Conversion of preferred Series D to Series F
redeemable preferred stock - 757,538 - - (1,875) (3,126,288)
Preferred dividends - - - - - -
Net loss - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1999 28,403,440 28,394,179 120 120,000 - -
Stock issued for current and prepaid services 380,000 71,250 - - - -
Options issued for current and prepaid services - 172,699 - - - -
Preferred dividends - - - - - -
Net loss - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 28,783,440 $28,638,128 120 $120,000 - $ -
===========================================================================================================================
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. and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Three Months Ended December 31, 1999 (Unaudited)
and the Nine Months Ended September 30, 1999 (Continued)
<CAPTION>
Accumulated Subscription Total
Deficit Notes Equity
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1998 $(17,751,842) $(4,187,500) $8,324,267
Converstion of debt to equity - - 159,400
Stock issued for current and prepaid - - 340,000
Exercise of options for common stock - - -
Stock issued for marketable security - - 174,563
Conversion of preferred Series D to common
stock - - -
Conversion of preferred Series D stock (44,399) - -
Acquisition and retirement of common stock - - (1,111,031)
Other stock sales - - 150,000
Stock issued for price adjustments - - 197,695
Stock issued on acquisition restructuring - - 664,294
Conversion of preferred Series D to Series F
redeemable preferred stock - - (2,368,750)
Preferred dividends (102,541) - (102,541)
Net loss (1,768,099) - (1,768,099)
- ------------------------------------------------------------------------------------
Balance, September 30, 1999 (19,666,881) (4,187,500) 4,659,798
Stock issued for current and prepaid
services - - 71,250
Options issued for current and prepaid
services - - 172,699
Preferred dividends (50,001) - (50,001)
Net loss (460,856) - (460,856)
- ------------------------------------------------------------------------------------
Balance, December 31, 1999 $(20,177,738) $(4,187,500) $4,392,890
====================================================================================
</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
December 31, 1999
Note 1. The unaudited financial statements and notes are presented as permitted
by Form 10-QSB. Accordingly, certain information and note disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted. The
accompanying financial statements and notes should be read in
conjunction with the audited financial statements and notes of the
Company for the fiscal year ended September 30, 1999. The results of
operations for the three months ended December 31, 1999 are not
necessarily indicative of those to be expected for the entire year.
<PAGE>
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 210 franchised units
at December 31, 1999.
Three Months Ended December 31, 1999 Compared to Three Months Ended December 31,
1998.
Results of Operations
The results of operations for the three months ended December 31, 1999
reflect no retail sales as all company owned restaurants were disposed by the
end of 1998.
The Company had a net loss of ($460,856) for the three months ended
December 31, 1999 compared to a net loss of ($2,897,277) for the same period in
1998. The decrease in the net loss is primarily from the result of a one time
charge of $1,902,290 incurred during the three months ended December 31, 1998
due to a goodwill adjustment from the write-down of long-lived assets and a loss
of $465,032 from the disposition of the Company's corporately owned restaurants.
These items were reflected in a loss per share of $0.02 for the three months
ended December 31, 1999 compared to a loss per share of $0.17 for the same
period in 1998.
Total revenues decreased $7,032 or 0.6% to $1,133,552 for the three
months ended December 31, 1999 compared to $1,140,584 for the same period in
1998. $110,878 of this decrease is the result of the sale of all corporately
owned restaurants by the end of 1998. Revenues from bakery sales were $194,859
for the three months ended December 31, 1999 compared to $163,024 for the same
period in 1998, an increase of $31,835. Royalties decreased $6,802 or 1.0% to
$642,686 for the three months ended December 31, 1999 compared to $649,488 for
the same period in 1998. The decrease is primarily from the sale of the
Company's Little King's and Georgio's submarine sandwich chains which were sold
prior to the end of the Company's fiscal year of September 30, 1999.
<PAGE>
Total expenses decreased $1,932,286 or 57.1% to $1,453,789 for the
three months ended December 31, 1999 compared to $3,386,075 for the same period
in 1998. The decrease is primarily due to the result of a one time charge of
$1,902,290 incurred during the three months ended December 31, 1998 due to a
goodwill adjustment from the write-down of long-lived assets. General and
administrative expenses increased $142,077 or 44.4% to $461,952 for the three
months ended December 31, 1999 compared to $319,875 for the same period in 1998
due to an increase in corporate staff and professional expenses from the Company
changing its fiscal year. Cost of retail sales for the Company's corporately
owned restaurants were $117,561 for the three months ended December 31, 1998
compared to $0 for the same period in 1999 as the Company disposed of all of its
corporately owned restaurants prior to the end of 1998.
Liquidity and Capital Resources
Net cash provided by operating activities was $80,074 for the three
months ended December 31, 1999 compared to net cash provided by operating
activities of $266,318 for the comparable period in 1998. The decrease in cash
provided by operating activities is primarily attributable to a net increase in
accounts receivable, prepaid expenses, accounts payable and accrued expenses of
$131,279 for the three months ended December 31, 1999 compared to $282,230 for
the same period in 1998.
Net cash used by investing activities was $2,256 for the three months
ended December 31, 1999 compared to net cash provided by investing activities of
$518,226 for the comparable period in 1998 as the Company sold all of its
corporately owned restaurants.
Net cash of $96,587 was used by financing activities for the three
months ended December 31, 1999 compared to net cash used of $727,150 for the
comparable period in 1998. The 1998 amount reflects the redemption of $243,750
in redeemable common stock and payments on long-term debt of $474,100.
Working capital deficit at December 31, 1999 was $1,949,831 compared
with a deficit of $1,879,446 at September 30, 1999, an increase in deficit of
$70,385.
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.
<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 October 1, 1999 to
December 31, 1999:
Exempt From
1933 Act
Shares Type of Value of Business Registration In
Issued Security Consideration To Whom Issued Purpose Reliance of:
- ------ -------- ------------- -------------- ------------- ------------
380,000 Common $71,250 Compass Point Consulting Section 4(2)
Group Services
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
<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)
President & Duly
02/12/00 Christopher M. Swartz Authorized Officer /s/ Christopher M. Swartz
- -------- --------------------- ------------------ -------------------------
Date Print Name Title Signature
Chief Financial
Officer & Principal
02/12/00 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> SEP-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 102,523
<SECURITIES> 0
<RECEIVABLES> 574,701
<ALLOWANCES> (152,886)
<INVENTORY> 0
<CURRENT-ASSETS> 1,210,473
<PP&E> 1,242,403
<DEPRECIATION> (528,088)
<TOTAL-ASSETS> 11,324,388
<CURRENT-LIABILITIES> 3,160,304
<BONDS> 1,009,444
0
2,468,750
<COMMON> 28,638,128
<OTHER-SE> (4,187,500)
<TOTAL-LIABILITY-AND-EQUITY> 11,324,388
<SALES> 194,859
<TOTAL-REVENUES> 1,133,552
<CGS> 187,616
<TOTAL-COSTS> 1,453,789
<OTHER-EXPENSES> 62,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,619
<INCOME-PRETAX> (460,856)
<INCOME-TAX> 0
<INCOME-CONTINUING> (320,237)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (460,856)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
