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As filed with the Securities and Exchange Commission on July 27, 1999
File No. 0-26075
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A
Amendment No. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
AMERICAN KIOSK CORPORATION
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(Name of Small Business Issuer in its charter)
Delaware 59-3452641
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4400 PGA Boulevard, Suite 500 Palm Beach Gardens, FL 33410
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 561/627-9002 (telecopier 561/627-0248)
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Securities to be registered under Section 12(b) of the Act: None
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Securities to be registered under Section 12(g) of
the Act: Common Stock, $.0001 par value
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AMERICAN KIOSK CORPORATION
FORM 10-SB
TABLE OF CONTENTS
PART I.........................................................................1
ITEM 1 - DESCRIPTION OF BUSINESS...............................................1
(a) Business Development .................................................1
(b) Business of the Issuer................................................1
(c) Reports to Shareholders...............................................8
ITEM 2 - ISSUER'S PLAN OF OPERATION............................................8
ITEM 3 - DESCRIPTION OF PROPERTY...............................................9
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........9
ITEM 5 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL.................11
ITEM 6 - EXECUTIVE COMPENSATION...............................................12
(a) Summary Compensation Table...........................................12
(b) Options/SAR Grants...................................................13
(c) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value.13
(d) Long-Term Incentive Plans............................................13
(e) Compensation of Directors............................................13
(f) Employment Contracts and Termination of Employment and
Change in Control Arrangements.......................................14
(g) Report on Repricing of Options/SARS..................................15
ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................16
ITEM 8 - DESCRIPTION OF SECURITIES............................................17
PART II.......................................................................21
ITEM 1 - MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.....................................................21
(a) Market Information...................................................21
(b) Holders..............................................................21
(c) Dividends............................................................21
ITEM 2 - LEGAL PROCEEDINGS....................................................21
ITEM 3 - CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS.........................21
ITEM 4 - RECENT SALES OF UNREGISTERED SECURITIES..............................22
ITEM 5 - INDEMNIFICATION OF DIRECTORS AND OFFICERS............................25
PART III......................................................................27
ITEM 1 - INDEX TO EXHIBITS....................................................27
FINANCIAL STATEMENTS.........................................................F-1
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PART I
ITEM 1 - DESCRIPTION OF BUSINESS
(a) Business Development:
The Company was incorporated in Delaware in May 1997 to develop and implement a
national brand franchise system of kiosk-style and stand alone, drive-thru
retail outlets to deliver popular food products to consumers. The Company
initially is focusing on brick oven pizza. The Company had revenues in 1998 from
sales of products through means of distribution other than kiosk style and
drive-thru outlets. The Company is no longer pursuing those lines of
distribution. The Company's first drive-thru retail outlet opened in March, 1999
in Orlando, Florida. This unit is owned and operated by the Company.
(b) Business of the Issuer:
(b)(1) Principal products and services and their markets:
The Company is engaged in sale of fast food pizza products, and franchises to
operate fast food pizza outlets from stand alone drive-thru retail units and
kiosk style units. The Company's outlets sell a proprietary "brick oven pizza."
Fast-Food Pizza Industry and the Company's Concept.
Fast-food pizza is one of the nation's largest food segments. Management
believes that brick oven pizzas represent one of the fastest growing segments in
the industry. The fast-food industry accounted for over $100 billion in gross
sales in 1996, with the fast-food pizza segment accounting for approximately 35%
of the total(1). The fast-food pizza segment has grown at an aggregate 12% rate
over the last 20 years. Over 92% of all Americans eat pizza and the annual
consumption of pizza by each individual American exceeds 50 slices per year.
Over 28% of all national chain and independent pizzeria pizza sales are
carry-out sales. Historically, lunchtime sales in national and independent
pizzerias represent only 25-30% of total store sales. This reflects the
consumer's inability to wait for a pizza requiring the traditional baking time
of 10-15 minutes during the lunch hour. In response to these market dynamics,
the Company is marketing franchises that will offer brick oven pizza that can be
baked in less that 3 minutes in 14' x 40' drive-thru and/or mobile units. The
units will be provided to franchisees as a turnkey operation complete with all
the necessary equipment for storage, baking, and sales. The drive-thru units
utilize minimum space and require minimal electrical construction, while
conforming to all applicable regulations. The design is easily adaptable to
kiosk locations other than drive-thru sites, including shopping malls and other
similar high-volume sites.
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(1) Industry data has been obtained from trade and government sources which the
Company believes reliable, but Management has not independently verified such
information.
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Franchise Program.
The Company began commercial offering of franchises in January 1998. The first
franchise was sold in March 1999 to two shareholders of the Company. On May 3,
1999, the Company acquired the kiosk unit operated by that franchisee and the
unit is now operated directly by the Company. The Company's franchises are
marketed, and the units will be operated, under the name "Pizza Place." The
Company has applied for federal trademark registration for the Pizza Place logo.
The Company's franchise package is based upon retail sales through drive-thru
units. This requires simple and compact equipment. It also calls for minimal
on-site storage and preparation space. The Company's drive-thru units are
capable of volume operations in minimal space. Each turnkey operation will be
housed in a 14' x 40' custom-design unit, featuring attractive styling and
functionality. The initial unit was designed specifically for drive-thru
operations. These drive-thru units will be custom manufactured by Company
approved contractors and will be delivered directly to the franchisee's site.
The basic design of the unit can be adapted to special site requirements. Kiosks
configured for shopping malls will be made available in addition to a variety of
specialized outlets for the leisure/special event industry (stadiums, arenas,
airports, universities, hotels, and other venues).
The Company's franchisees will be permitted to sell only proprietary food
products authorized by the Company. The primary product is brick oven pizza.
Individual and family sized pizzas in a wide variety of toppings will provide
the bulk of the sales. In addition, related high-quality food products such as
pizza pockets, breakfast entrees, beverages and snacks will be offered for sale.
The Company intends to develop corporate beverage contracts with major beverage
marketers. The Company has an arrangement with a local Pepsi-Cola bottler under
which the Pepsi Cola bottler has assisted the Company with advertising and
promotions, in return for the Company's promise to use Pepsi products in its
retail outlets. This arrangement is not yet contained in a written agreement.
Philip Arvidson, a director of the Company, is an affiliate of the Pepsi-Cola
bottler. The franchisees also will offer additional beverages such as juices,
teas, milk and coffee.
All products will come to the franchisee completely prepared and individually
packaged. This will enable the operator to produce finished products with
exceptional speed and consistency, virtually no waste, and little labor.
The Company will provide franchisees easy to follow operational procedures,
training both at the Company's headquarters and at individual sites, assistance
in site selection, setup assistance and startup training.
The facility costs of the Company's turnkey franchises are expected to be low,
relative to competing franchise opportunities. The turnkey cost for a typical
franchisee (including initial franchise fee) is approximately $90,000, including
site selection, consulting, complete finished drive-thru unit, equipment and
menu boards.
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Toppers Brick Oven Pizza.
All of the Company's units will use a patented brick pizza oven developed by
Topper's Brick Oven Pizza, Incorporated ("Toppers"). All pizza products sold by
the Company's units will be proprietary pizza products developed by Toppers.
Pursuant to its license agreement with Toppers (the "Toppers Contract"), the
Company has the exclusive right to market Toppers products through drive-thru
units and kiosk-style retail outlets in the United States, and to use all
trademarks associated with Toppers' equipment, food products and technologies in
the drive-thru/kiosk-style retail market segments in the United States. The
Toppers contract prohibits the Company from selling or promoting other pizza
ovens or fast food pizza products. Toppers' products include its patented pizza
brick oven and its fast-food pizza products.
The current term of the Toppers agreement is 25 years, ending in 2022. The
Agreement requires the Company to pay aggregate annual licensing fees of
$220,000 in 1999, $250,000 in 2000, $300,000 in 2001 through 2003 and $350,000
in 2004 and thereafter. Under the Toppers Contract, the Company will pay
Toppers' cost plus 8% for the food products and the lesser of Toppers' cost plus
8% or $650 for ovens.
Toppers' Brick Oven. Toppers' patented brick oven cooks a crispy,
fully-baked pizza in just 2 1/2 minutes. The patented brick oven is a refractory
brick oven which maintains an internal temperature of 550% Fahrenheit. The
Company believes that the quality of the pizza prepared in Toppers' brick oven
is comparable to full-size pizzeria, brick oven pizza, and exceeds that of the
products currently offered at many national pizza chains. Toppers' brick oven is
extremely compact, measuring only 23" x 9" x 17" and weighing less than 60
pounds. It uses a 110V outlet making it suitable for kiosk and drive-thru unit
operations. Several ovens can fit into one drive-thru unit providing increased
baking capacity during peak hours. The brick oven also is easy to use. The
operator simply opens the door, slides the pizza onto the refractory brick,
pushes the start button and waits 2 1/2 minutes until the timer sounds
indicating that the pizza is ready to serve. The brick oven is included in the
start-up cost of a franchise.
Fast-Food Pizza Products. Toppers supplies products specially made for use
with the Toppers brick oven. The primary product is a single-serve individual
pizza 7" in diameter and is available in several popular varieties. All pizzas
come individually wrapped and are fresh frozen. Frozen shelf life is 4 to 6
months. Pizzas are thawed the night before anticipated use and have a shelf life
of 3 to 4 days after thawing. No preparation of pizzas by on-site staff is
necessary.
Each pizza has a thick and crispy crust with a topping of fresh ingredients.
California tomatoes, choice meats, 100% genuine cheeses and other fresh
ingredients ensure premium quality. In 1997, the New York Restaurant and Food
Service Show awarded the Toppers brick oven first place in the best overall new
product category. Shortly thereafter, Toppers was selected as the official pizza
supplier to the 1997 Indianapolis 500 and the 1997 Brickyard 400.
Brick oven pizza varieties include: cheese, pepperoni, supreme and tex-mex. The
Company also intends to add several specialty pizzas and related food products
such as: 8" x 14" family size pizza, breakfast sausage pizza (egg, cheese and
sausage), breakfast bacon pizza (egg, cheese and bacon), dessert pizza (apples
and cherries), gourmet style pizza (various) and hand-eat foods (pockets,
breadsticks, stuffed focaccia, baked pretzels, etc.)
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(b)(2) Distribution Methods:
Marketing Goals.
The Company's goal is to obtain revenues primarily from franchises. The current
operating unit is owned by the Company and the Company may own and operate other
units itself if it has sufficient financing. In the case of Company owned units,
the Company's revenue will come from retail profits. The Company's goal is to
sell 800 new franchise units over the next three years of operations. The
Company does not expect that all units sold will immediately come on-line,
because a substantial number of franchise sales are expected to involve
multi-unit packages. For example, if a franchisee were to purchase a 5-unit
package, 3 units might be opened in the first year with additional units opened
in each of the next 2 years. The franchisee would pay for each of the
operational units as they are activated. The future units would require only a
non-refundable deposit to hold the rights to such units. The Company has sold
only one franchise unit to date, to a company controlled by shareholders of the
Company. In April, 1999, after that unit began operating, the Company assumed
the ownership and operation of the unit.
In December, 1998, the Company entered into an Area Representative Agreement
with DTS Marketing, Inc. of Atlanta, Georgia. Under the Area Representative
Agreement, DTS will have the exclusive right to sell franchises in Georgia,
North Carolina and South Carolina, and the right of first refusal to sell
franchises upon availability in Texas. The agreement is for a ten-year term, but
the Company has the ability to cancel the agreement if ten (10) units are not
completed within the territory in any year. Under this agreement, DTS is
required to purchase a completed franchise unit from the Company to operate and
use as a demonstration unit. DTS paid the Company a deposit of $39,950 upon
signing the agreement and is required to pay an additional $39,950 upon delivery
of the completed unit. The Company expects the completed unit to be delivered by
the end of July 1999.
In connection with signing this agreement, the Company granted DTS an option for
50,000 shares of common stock at $1.59 per share. The option vests as to 25,000
shares when DTS has paid the entire $79,900 for the demonstration unit and vests
as to an additional 25,000 shares when the Company has received deposits for at
least ten franchises in DTS area, The options expire December 31, 2002.
In November, 1998, the Company entered into an Area Representative Agreement
with Michael M. Morgan, Sr. and Arthur G. Scott, two individuals who are
shareholders of the Company. At the time, the Area Representative Agreement was
signed Mr. Morgan was a director of the Company and its Franchise Sales Manager
and Mr. Scott was the Director of Operations for the Company. Mr. Morgan and Mr.
Scott subsequently assigned the agreement to USA Foods, Inc., a corporation
controlled by them. Under the Agreement, USA Foods has the exclusive right to
sell franchises in the State of Florida (except for Dade, Broward and Palm Beach
counties), Alabama, Mississippi, Louisiana, Arkansas and Tennessee. The
agreement is for a ten-year term, but the Company has the ability to cancel the
agreement if a certain number of units are not sold in each year beginning with
1999. The number of units required to be sold in each year begins with fifteen
units in 1999. The number of units required to be sold increases each year until
2004, in which USA Foods is required to sell fifty (50) units. The number of
units required decreases in 2007 and 2008 to forty (40) units.
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The agreement required USA Foods to purchase two (2) franchises at a price of
$65,000 each. The Company delivered one (1) of these units in March, 1999. The
$65,000 purchase price represented the Company's cost for the unit. The Company
loaned Mr. Morgan and Mr. Scott the required funds. On May 3, 1999, the Company
reacquired the unit and cancelled the franchise as well as the obligation to
repay the amounts loaned by the Company for the purchase of the unit. The
Company also loaned Mr. Morgan and Mr. Scott $50,000 for operating capital,
which obligation is still outstanding. See "Certain Transactions". The Company
does not anticipate delivering a second franchise unit under the USA Foods Area
Representative Agreement, but USA Foods continues to seek independent franchises
in its area.
Under the Area Representative Agreements, Area Representatives are required to
assume certain of the Company's responsibility to franchisees in their area,
such as support and assistance for franchisees.
Sales of future franchises might come with territorial commitments by the
Company and the franchisee. Thus, the Company might agree not to sell new
franchise units in a given area based upon a multi-unit package purchase. The
deposit would cover the Company's opportunity cost for the area where the
Company's expansion has been restricted.
Projected Revenue Streams.
The Company anticipates revenues primarily from franchise fees for new units, a
5% royalty fee on gross sales by franchisees, and commissary profits on food
sales to franchisees. The Company's current initial turnkey franchise fee is
approximately $90,000. This fee includes a complete kiosk, equipment and
start-up supplies, and the Company retains approximately $18,000 after the cost
of these items and before any sales commissions payable for the sale of the
franchise.
For internal planning purposes, the Company has projected that each franchisee
will produce $300,000 in gross sales with a food cost of $125,000. Franchisees
will be required to purchase proprietary pizza and related food products from
the Company's approved distributors in addition to other materials containing
Toppers' and the Company's trademarks, such as pizza boxes, napkins, cups, etc.
The value of all proprietary food and related products purchased by franchisees
from the Company or its assigned distributors can be treated as essentially
commissionable sales to the Company with commissions of approximately 10% of
gross purchases. However, there can be no assurance that the franchisees will
meet the foregoing projections or that the Company will be able to obtain that
percentage of profits, and the Company's profits on franchisees therefore cannot
be accurately predicted.
While the Company's franchise program begins operating, the Company expects that
income from franchise fees will represent the greatest portion of operating
revenues. Over time, royalty and commissary profits are expected to overtake
franchise fees as the principal revenue producer.
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Distribution.
The Company has a distribution arrangement with Cheney Brothers, Inc., a leading
regional distributor of food products. Under this arrangement, Cheney will act
as the Company's primary, but not exclusive, distributor of food service
products.
Marketing Strategy.
The Company principally intends to use trade show participation, trade
advertising, direct marketing and media advertising to produce franchise sales.
The Company intends to employ its own personnel as well as Franchise Area
Representatives for franchise marketing. Company employed sales representatives
and Franchise Area Representatives will be responsible for qualifying interested
parties in a process that will include researching an applicant's individual
and/or business capabilities, financial history, employment history and
references.
(b)(3) New Products or Services:
The Company has not announced any new products or services.
(b)(4) Competition:
The market for fast-food franchises and the market for the products sold by the
franchises, is intensely competitive. Many fast food restaurants with which the
Company will be in direct competition have universal name recognition and
significantly greater financial and marketing resources than the Company, e.g.,
Domino's Pizza, Pizza Hut, McDonald's, Burger King, Wendy's, Little Ceasar's,
Taco Bell, etc. These companies compete both for retail sales and for
franchisees.
While the Company believes that the low start-up costs and low labor and space
requirements of its franchisees and the high quality of its products provide a
competitive advantage to the Company, there can be no assurance that the Company
will be able to compete successfully against current or future competitors or
that competitive pressures faced by the Company will not materially affect its
business, operating results and financial condition.
(b)(5) Sources of Supply:
All of the pizza ovens and pizza products sold by the Company or supplied to its
franchisees are obtained, and are required to be obtained, from Toppers or
Toppers authorized manufacturers and distributors. Beverages may be obtained
from several sources although the Company currently has an arrangement with a
Florida-based Pepsi-Cola bottler which provides for all soft drinks to be
delivered to operating units within the bottler's geographic area. Ancillary
products such as boxes, napkins, etc. are obtained from Cheney Brothers and
other independent distributors.
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(b)(6) Major Customers:
Currently, the Company has only one operating unit which is Company-owned. In
addition, under the Company's agreement with DTS, its Area Representative for
Georgia, North Carolina and South Carolina, DTS is purchasing one unit.
Therefore, the Company has no major customers at this time. It is anticipated
that the Company may grant large area franchises to franchisees who would become
significant customers of the Company.
(b)(7) Patents, Trademarks, Licenses, etc.
The Company has applied for federal trademark registration of the "Pizza Place"
logo. It also has the exclusive right to use Toppers' trademarks (including
"Toppers Brick Oven Pizza,(TM)" "Toppers Express" and "Toppers Kitchen") in
connection with unit operations in the United States. The Company is also the
exclusive licensee of the Toppers' patented brick ovens for use in drive-thru
units and kiosks.
(b)(8) and (9) Governmental Approvals and Regulations:
The Company and its franchisees are required to comply with federal, state and
local government regulations applicable to consumer food service businesses
generally, as well as zoning and construction regulations relating to the
construction of the drive-thru units and kiosks.
The Company's franchising operations are subject to regulation by the Federal
Trade Commission in compliance with the FTC's rule entitled "Disclosure
Requirements and Prohibitions Concerning Franchising and Business Opportunity
Ventures." The FTC rules require, among other things, that the Company prepare
and update periodically the comprehensive disclosure document known as the
Uniform Franchise Offering Circular, for delivery to prospective franchisees. In
addition, some states require a franchisor to register its franchise with the
state before it may offer the franchise. The Company is currently registered to
sell its franchises in 35 states.
In addition, the Company is also subject to a number of state laws that regulate
substantive aspects of a franchise or franchisee relationship. These laws
generally govern the termination and/or non-renewal of the franchise agreement,
and by and large require the franchisor to have good cause, reasonable cause or
just cause in order to terminate the franchise agreement or not renew the
franchise agreement, regardless of the terms of the agreement. In addition, some
of these laws may provide a franchisee longer periods to cure a default than are
provided for in the Company's franchise agreement.
Violation by the Company of franchising laws and/or state laws and regulations
regulating substantive aspects of doing business in a particular state could
require the Company to offer rescission to franchisees, and subject the Company
to monetary damages and penalties. However, the Company believes that the state
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laws and regulations concerning termination and non-renewal of franchises will
not have a material impact on the Company's operations.
(b)(10) Research and Development:
The Company has spent approximately $113,000 in research and development since
its inception, primarily in developing the drive-thru and kiosk concept and
designing and building prototypes of free standing, pre-manufactured units to be
used for retail sales by the Company and franchisees.
(b)(11) Environmental Compliance:
The Company does not anticipate any significant costs to comply with
environmental laws and requirements.
(b)(12) Employees: As of April 1, 1999, the Company had 14 employees of which 9
are full-time employees. Of these 6 employees are employed in the corporate
offices, and 8 are employed in the Company's operating unit.
(c) Reports to Shareholders:
At the time of filing of this Registration Statement, the Company is not subject
to the informational and reporting requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Following the effective date of this
Registration Statement, the Company will be subject to Exchange Act reporting
requirements and, in accordance therewith, will file reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information filed with
the Commission by the Company may be inspected and copied at the public
reference facilities maintained by the Commission at its principal offices at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Such reports,
proxy statements and other information may also be obtained from the web site
that the Commission maintains at http://www.sec.gov. Copies of these materials
can also be obtained at prescribed rates from the Public Reference Section of
the Commission at its principal offices in Washington, D.C., as set forth above.
ITEM 2 - ISSUER'S PLAN OF OPERATION
The Company did not have revenues from operations in 1997. A majority of its
revenues from operations in 1998 were derived from a means of distribution other
than kiosk and drive-thru units, which the Company has subsequently
discontinued. The Company did receive one $25,000 deposit from a Texas
franchisee in 1998. The franchisee subsequently defaulted on the agreement and
the Company retained the deposit. The retained deposit is categorized as a
franchise fee on the Company's Statement of Operations for 1998. Therefore, the
Company was still in the development stage at the end of 1998. Management
believes that the Company's cash on hand at April 1, 1999 is sufficient to
sustain continued development of the Company's business through January, 2000.
To satisfy its cash requirements for the 6 months following February 1, 2000,
the Company will have to raise additional financing unless the Company is able
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to obtain sufficient cash from operations. The Company does not anticipate
generating sufficient cash from operations to fund its ongoing business before
April 1, 2000. There is no assurance that the Company will be able to obtain the
additional financing it requires. .
The Company's primary activities and cash requirements for the next twelve
months will be in marketing franchises. The Company believes it will spend
approximately $100,000 in sales and marketing expenses in the twelve months
ending April 1, 2000. The Company's other principal cash requirements will
include:
Fees Due Under Toppers Contract approximately $320,000
General and Administrative Expenses approximately $400,000
Purchase of Equipment and Property approximately $100,000
The Company does not anticipate any significant research and development
expenditures during the next twelve months. The number of employees will only be
increased as justified by an increase in the Company's operations.
ITEM 3 - DESCRIPTION OF PROPERTY
The Company's executive and administrative offices occupy approximately 2,547
square feet of office space at 4400 PGA Boulevard, Palm Beach Gardens, Florida.
The Company leases this space from an unaffiliated party at an annual cost of
approximately $55,000 plus common area maintenance charges under a lease which
expires on November 30, 2002.
The Company rents 1,280 sq. feet of warehouse space in West Palm Beach under a
three year lease terminating October 31, 2001 at a base rent of $6,684 per
annum.
In March 1999, the Company entered into a lease for the land on which it has
built its first free-standing drive through unit. The lease requires minimum
monthly payments of $2,083 plus common area maintenance. The lease expires on
January 31, 2004.
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information as of April 1, 1999, with respect to
the beneficial ownership of the Company's securities by officers and directors,
individually and as a group. To the Company's knowledge on April 1, 1999, there
were no holders of more than 5% of the Company's Common Stock other than Mr.
Michael and Mr. Hightower. Unless otherwise indicated, all shares are
beneficially owned and sole investment and voting power is held by the
beneficial owners indicated. On April 1, 1999, there were 4,202,300 shares of
Common Stock outstanding, and no shares of any other class of capital stock were
outstanding.
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Percentage of
Number of Shares of Outstanding
Common Stock Common Stock
Names and Addresses Beneficially Beneficially
of Beneficial Owner Owned(1) Owned
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Richard J. Michael(2)(3) 1,200,000 27.26%
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James Hightower 1,000,000 23.80%
602 N.W. Avens Street
Port S. Lucie, FL 34983
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Larry E. Graybill(2)(4) 157,750 3.64%
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Randall S. Appel(5) 84,300 1.98%
445 Broad Hollow Road
Suite 425
Melville, NY 11747
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Ronald L. McDonald(6) 150,000 3.49%
4302 Middle Lake
Tampa, FL 33624
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Philip L. Arvidson(7) 68,000 1.60%
4 Tarrington Cr.
Palm Beach Gardens, FL 33418
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All Officers and Directors as a 1,660,050 35.12%
Group (5 persons)
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(1) As used herein, the term beneficial ownership with respect to a security is
defined by Rule 13d-3 under the Securities Exchange Act of 1934 as
consisting of sole or shared voting power (including the power to vote or
direct the vote) and/or sole or shared investment power (including the power
to dispose or direct the disposition of) with respect to the security
through any contract, arrangement, understanding, relationship or otherwise,
including a right to acquire such power(s) during the next 60 days. Unless
otherwise noted, beneficial ownership consists of sole ownership, voting and
investment rights.
(2) The address of these stockholders is 4400 PGA Boulevard, Suite 500, Palm
Beach Gardens, FL 33410.
(3) Includes options to purchase 150,000 shares at $1.10 and 50,000 shares at
$1.17.
(4) Includes options to purchase 75,000 shares of common stock at $1.00 per
share and 50,000 shares at $1.06 per share.
(5) Includes 34,300 shares of common stock and an option to purchase 50,000
shares of common stock at $1.06 per share, all held by Marand Holding, LLC,
a company wholly-owned by Mr. Appel.
(6) Includes 50,000 shares of common stock issued pursuant to Mr. McDonald's
employment with the Company and a 3-year option to purchase 100,000 shares
of common stock at $1.50 per share.
(7) Includes an option to purchase 50,000 shares of common stock at $1.06 per
share.
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ITEM 5 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
The Company's executive officers and directors are as follows:
Name Age Position
--- --------
Richard J. Michael 62 President, Chief Executive Officer
and Director
Larry E. Graybill 56 Vice President, CFO, Treasurer, Secretary
and Director
Randall S. Appel 53 Director
Philip L. Arvidson 61 Director
Ronald L. McDonald 52 Vice President of Business and
Product Development and Director
The principal occupation, title and business experience of the Company's
executive officers and directors during the last five years including the names
and locations of employers is indicated below:
Richard J. Michael, President and a Director of the Company, has served as
President of the Company since its formation. From December 1995 to May 1997, he
was Director of Distributor Operations for Toppers Brick Oven Pizza, Inc. in
Willow Grove, Pennsylvania. From May 1994 to May 1995, Mr. Michael was an
Account Representative for Corporate Relations Group, a registered securities
broker-dealer, in Orlando, Florida. From January 1992 to April 1994, Mr. Michael
was Director of Marketing for Adelaide Holdings, Inc. of Miami, Florida, a
manufacturer and distributor of food vending products.
Larry E. Graybill has served as Vice President and Chief Financial Officer,
Treasurer and Secretary of the Company since June 1998 and a director of the
Company since November 1998. From July 1990 until June 1998, Mr. Graybill served
as Chief Financial Officer of Austin's International, Inc., a public company
engaged in the restaurant business whose operating subsidiary filed for
bankruptcy protection under Chapter 11 in July 1997. Mr. Graybill received his
diploma from The Southwestern Graduate School of Banking at Southern Methodist
University in 1974.
11
<PAGE>
Randall S. Appel has served as a director of the Company since November 1998.
Mr. Appel has over 14 years of financial planning and broker-dealer experience.
Since March 1987, Mr. Appel has been the President of Appel Financial Planning,
Ltd., an investment services firm. Since August 1994, he has also been the sole
officer, director, shareholder, and compliance officer of Strategic Assets Inc.,
a NASD registered broker-dealer which has served as the placement agent in the
Company's offering of Convertible Notes. From July 1990 to May 1995, Mr. Appel
was a principal and registered representative of Ameriprop, Inc., a NASD
registered broker-dealer firm.
Philip L. Arvidson was appointed to the Board of Directors or December 30, 1998.
Mr. Arvidson has served in various positions with the Pepsi-Cola Bottling
Company since January 1981 including serving as its President since 1995 until
his retirement in June 1998. Mr. Arvidson will continue to serve as President
Emeritus to gain and promote Pepsi business. Prior to joining Pepsi-Cola Mr.
Arvidson was with the General Cinema Corporation.
Ronald L. McDonald has been Vice President of Business and Product Development
of the Company since October, 1998. He was appointed to the Board of Directors
on December 30, 1998. Mr. McDonald has owned and operated a number of restaurant
operations and chains over the past 30 years and since January, 1984 has been
serving as a consultant to the food industry. He is the author of a number of
food industry materials, including The Complete Hamburger, the Ronald McDonald
McBarbecue Book and Ronald McDonald's Franchise Buyer and Supply Guide. Since
1987 he has also been a real estate broker, mortgage broker and a certified
general contractor through wholly-owned companies.
There can be no assurance that these persons will remain affiliated with the
Company indefinitely or for any time, or that the scope of their involvement
will not change.
Directors are elected for a period of one year and thereafter serve until the
next annual meeting at which their successors are duly elected by the
stockholders. Officers and other employees serve at the will of the Board of
Directors.
ITEM 6 - EXECUTIVE COMPENSATION
(a) Summary Compensation Table:
The following table sets forth information concerning compensation for services
rendered in all capacities awarded to, earned by or paid to Richard J. Michael,
the Company's President and Chief Executive Officer, in the years ended December
31, 1997 and 1998. No executive officer of the Company received compensation of
$100,000 or more in 1997 or 1998.
12
<PAGE>
- --------------------------------------------------------------------------------
Summary Compensation Table
- --------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
- --------------------------------------------------------------------------------
Awards Payouts
- --------------------------------------------------------------------------------
All
Other Restricted Securities Other
Name and Annual Stock Underlying LTIP Compen-
Principal Salary Bonus Compensation Award(s) Options/ Payouts sation
Position Year ($) ($) ($) ($) SARS(#) ($) ($)
- --------------------------------------------------------------------------------
Richard J. 1997 41,667 10,000
Michael
President
and CEO
- --------------------------------------------------------------------------------
1998 60,000 10,000 150,000
- --------------------------------------------------------------------------------
The $10,000 "Other Annual Compensation" represents the approximate amount of
lease payments paid by the Company for a vehicle provided to Mr. Michael.
(b) Options/SAR Grants:
- --------------------------------------------------------------------------------
Option/SAR Grants in Last Fiscal Year
- --------------------------------------------------------------------------------
Percent of
Number of Total
Securities Options/SARs
Underlying Granted to Exercise of
Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date
- --------------------------------------------------------------------------------
Richard J.
Michael, 150,000 26.55% $1.10 September 15, 2001
President & CEO
- --------------------------------------------------------------------------------
(c) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value:
No options were exercised in 1998. The Company has never issued an SAR.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Aggregated Option/SAR Exercises in 1998 Last Fiscal Year and
Option/SAR Values at 12/31/98
- ------------------------------------------------------------------------------------------
Shares
Acquired Number of Securities Underlying Value of Unexercised
on Value Unexercised Options/SARs at In-The-Money Options/SARs
Exercise Realized Fiscal Year-End (#)(1) at December 31, 1998 ($)
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Richard 0 0 150,000 0 13,125 0
J. Michael
- ------------------------------------------------------------------------------------------
</TABLE>
(d) Long-Term Incentive Plans: None.
(e) Compensation of Directors:
During the fiscal years ended December 31, 1997 and 1998, no director of the
Company received any compensation for any services provided in such capacity.
Directors of the Company are reimbursed for expenses incurred by them in
connection with their activities on behalf of the Company.
13
<PAGE>
(f) Employment Contracts and Termination of Employment, and Change in
Control Arrangements:
On October 1, 1998, the Company entered into an employment agreement with
Richard Michael, to be effective as of July 1, 1998 and expiring on June 30,
1999. Under such agreement, Richard Michael serves as President and Chief
Executive Officer of the Company and provides the Company with all of his
business and professional services. Under the agreement, the Company pays Mr.
Michael a base salary of $120,000 per annum. Mr. Michael is eligible to receive
an incentive bonus based upon the profitability of the Company, as determined by
the Board of Directors. Mr. Michael was also granted options for 150,000 shares
of the Company's common stock under his employment agreement. See "Supplementary
Information on Stock Options" below.
On October 1, 1998, the Company entered into an employment agreement with Larry
E. Graybill, to be effective as of June 21, 1998 and expiring on June 30, 1999.
Under such agreement, Mr. Graybill serves as Vice President and Chief Financial
Officer of the Company and will provide the Company with all of his business and
professional services. Under the agreement, the Company pays Mr. Graybill a base
salary of $75,000 per annum. Mr. Graybill is eligible to receive an incentive
bonus based upon the profitability of the Company, as determined by the Board of
Directors. Mr. Graybill was also granted options for 75,000 shares under his
employment agreement. See "Supplementary Information on Stock Options" below.
Mr. Graybill received 32,750 shares of the Company's Common Stock in lieu of
cash compensation for his services from June 21, 1998 through September 21,
1998.
On October 1, 1998, the Company entered into an agreement with Ronald McDonald.
This agreement expires September 30, 1999. Under this agreement, Mr. McDonald
serves as the Company's Vice President of Business and Product Development. Mr.
McDonald receives a base monthly fee of $4,000. In addition, Mr. McDonald
received 50,000 shares of the Company restricted common stock as of October 1,
1998, pursuant to the Employment Agreement. Mr. McDonald also received options
to purchase 100,000 shares of the Company's common stock at $1.50 per share. See
"Supplementary Information on Stock Options" below.
The Company entered into an Employment Agreement with Herbert Michael, the
brother of Richard Michael, on October 1, 1998. The term of the agreement
expires on September 30, 1999. Under the agreement, Mr. Michael is paid a base
salary of $27,500 per year and received a one-time grant of 10,000 shares of the
Company's restricted common stock as of October 1, 1998. Mr. Michael also
received options to purchase 10,000 shares at $1.00 per share in connection with
the Employment Agreement.
All of the above-referenced Employment Agreements provide that the employee will
receive a cash payment equal to the aggregate amount of compensation remaining
to be paid under the agreement if the Company terminates the contract in a way
that constitutes a breach of the agreement or if the employee terminates the
agreement because his duties or responsibilities have been materially reduced.
14
<PAGE>
With respect to Richard Michael and Mr. Graybill, the agreements provide that
their duties and responsibilities will not be deemed to be materially reduced by
virtue of the fact that the Company is sold or combines with another entity
provided that the individual continues to report directly to the Board of
Directors of the surviving entity. Therefore, a change in control of the Company
through a merger could result in Mr. Graybill or Richard Michael receiving
accelerated payments under their Employment Agreements if the new Board of
Directors does not maintain their current reporting status. In addition, each of
these Employment Agreements provides that if any of the cash payments paid upon
breach by the Company, or termination due to reduction in duties or
responsibilities is deemed an "Excess Parachute Payment" under the Internal
Revenue Code, the employee will be entitled to certain additional payments.
Each of these Employment Agreements provides that upon the employee's death or
disability, the employee or his estate will be entitled to receive a cash
payment equal to his base salary for the remaining term of the agreement and all
incentive bonuses which have been granted before his death or disability.
Each Employment Agreement contains an agreement of the employee not to directly
start up or own any entity engaged in a business substantially similar to that
of the Company or in direct competition with the Company for two years after
termination of his employment with the Company. The Employment Agreements,
however, do not prevent the employees from becoming employed by another company
already in business.
Under the option for 75,000 shares outstanding to Mr. Graybill, one-half the
shares vest on September 15, 1999. However, the option becomes immediately
exercisable in full upon any merger or consolidation of the Company, the
acquisition of a majority of the Company's outstanding common stock by a
shareholder or group who did not previously own twenty (20%) percent or more of
the common stock, or the transfer of all or substantially all of the assets of
the Company.
(g) Report on Repricing of Options/SARS: Not Applicable.
(h) Supplementary Information on Stock Options.
The Company issued the following stock options to management and key personnel.
Such issuances were not subject to any written plan.
On September 15, 1998, Mr. Richard Michael, was issued a 3-year option to
purchase 150,000 shares of common stock at $1.10 per share. On February 24,
1999, Mr. Michael was issued a 3-year option to purchase 50,000 shares at $1.17
per share. All of these options have vested.
15
<PAGE>
Mr. Graybill was issued a 3-year option to purchase 75,000 shares of common
stock at $1.00 per share on September 15, 1998. Options to purchase 37,500
shares have vested with the remaining shares vesting on September 15, 1999. Mr.
Graybill was issued a 3-year option to purchase 50,000 shares at $1.06 per share
on February 24, 1999. These options are vested.
During 1998, Arthur Scott and Michael Morgan were each issued a 3-year option to
purchase 100,000 shares of common stock at $1.00 per share. Each option vests as
to the first 50,000 shares when one drive-thru unit has been sold by USA Foods,
Inc., an Area Representative of the Company owned by Mr. Morgan and Mr. Scott.
The options vest as to the remaining shares when five drive-thru units have been
sold by USA Foods. At the time of issuance of these options, Mr. Scott was the
Company's Director of Operations and Mr. Morgan was a Director of the Company
and its Franchise Sales Manager. Mr. Scott and Mr. Morgan are no longer employed
with the Company. As of the date hereof, no drive-thru units have been sold.
Mr. McDonald was issued a 3-year option to purchase 100,000 shares of common
stock at $1.50 per share, all of which options are fully vested.
On September 15, 1998, the Company issued to Herbert Michael a 3-year option to
purchase 10,000 shares of Common Stock at $1.00 per share. This option is fully
vested. Herbert Michael is an employee of the Company and the brother of Richard
Michael.
On February 24, 1999, the Company issued each of Mr. Arvidson and Mr. Appel a
3-year option to purchase 50,000 shares at $1.06 per share. These options
are fully vested.
ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has licensed the right to use and market a proprietary brick oven
pizza from Toppers Brick Oven Pizza, Inc. See Item 1. Victor G. Boddy, a
principal shareholder of Toppers, is also a shareholder of the company. Mr.
Boddy acquired 175,000 shares of the Company's Common Stock in October, 1997,
for $.05 per share.
The Company believes that the terms of the transaction with Toppers were as
favorable to the Company as would have been obtained by the Company through
arms-length negotiation with non-affiliated entities.
In March, 1999, the Company sold a franchise to USA Foods, Inc., a corporation
owned by Michael Morgan and Arthur Scott. At the time of the sale, Michael
Morgan was the Company's Franchise Sales Manager and a Director of the Company.
Also, at that time, Mr. Scott was the Company's Director of Operations. USA
Foods began operating the unit in March, 1999. In November, 1998 USA Foods
entered into an Area Representative Agreement with the Company giving USA Foods
exclusive rights to sell franchises in Alabama, Mississippi, Louisiana,
Arkansas, Tennessee, and portions of Florida. The terms of the Area
Representative Agreement required USA Foods to pay $65,000 for the initial
franchise unit. The Company loaned USA Foods the $65,000. On May 3, 1999, the
Company acquired the unit from USA Foods for $18,677 in cash and the assumption
of approximately $14,000 of liabilities. In addition, the Company forgave all
other amounts owed by USA Foods for the purchase price of the initial unit, and
cancelled the franchise for that unit. Under the Area Representative Agreement,
USA Foods was to have purchased a second franchise unit. The Company and USA
Foods do not intend to consummate this purchase. The Company has not cancelled
the Area Representative Agreement, however, and USA Foods continues to market
franchises to prospective franchisees in their geographic area.
16
<PAGE>
In addition to the loan of funds for the acquisition of the unit, the Company
loaned Mr. Morgan and Mr. Scott an aggregate of $50,000 for start up operating
costs. The obligation to repay this loan is evidenced by Secured Promissory
Notes dated January 21, 1999 and March 24, 1999, each in the principal sum of
$25,000. The Notes bear interest at eight percent (8%) per annum, with the
principal and accrued but unpaid interest due and payable on July 21, 2000.
Following the sale of three of the Company's franchises by USA Foods, Inc., Mr.
Scott and Mr. Morgan are required to make prepayments on the Notes in the amount
of twenty percent (20%) of all commissions earned by USA Foods, Inc. The Company
may withhold such prepayment amounts from the commissions payable to USA Foods,
Inc. Mr. Scott and Mr. Morgan have no obligation to make a prepayment on the
Promissory Note dated March 24, 1999 until they have paid in full the amount due
under the Promissory Note dated January 21, 1999. Pursuant to a Stock Pledge
Agreement, Mr. Scott and Mr. Morgan pledged 100,000 shares of the Company's
common stock as security for payment of the Notes.
The Company has an arrangement with a Florida based Pepsi Cola bottler under
which the Pepsi Cola bottler will provide advertising and promotional assistance
in return for the Company's agreement to use Pepsi Cola products in its
operating units. This agreement has not been reduced to writing. Philip
Arvidson, an officer and shareholder of the Pepsi Cola bottler is a director of
the Company. To date, the Company has received advertising and promotional
support from this organization, but, as the Company has no operating units in
that organization's geographic area, the Company and the Company's franchisees
have not provided any revenue to the Pepsi Cola bottler.
ITEM 8 - DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 50,000,000 shares of Common
Stock, $.0001 par value per share, of which 4,202,300 shares are outstanding as
of April 1, 1999, and 10,000,000 shares of Preferred Stock as to which the Board
has the power to designate the rights, terms, preferences, etc. As of April 1,
1999 the Board had not designated or issued any Preferred Stock.
Common Stock
The Company is authorized to issue 50,000,000 shares of Common Stock. As of
April 1, 1999, 4,202,300 shares were issued and outstanding. Holders of Common
Stock are entitled to one vote for each share of Common Stock owned of record on
all matters to be voted on by stockholders, including the election of directors.
The holders of Common Stock are entitled to receive such dividends, if any, as
may be declared from time to time by the Board of Directors, in its discretion,
from funds legally available therefor.
The Common Stock has no preemptive or other subscription rights, and there are
no conversion rights or redemption provisions. All outstanding shares of Common
Stock are validly issued, fully paid, and nonassessable.
17
<PAGE>
Undesignated Preferred Stock
The Company's Board of Directors presently has the authority by resolution to
issue up to 10,000,000 shares of preferred stock in one or more series and fix
the number of shares constituting any such series, the voting powers,
designations, preferences and relative, participating, optional or other special
rights and qualifications, limitations, or restrictions thereof, including the
dividend rights, dividend rate, terms of redemption (including sinking fund
provisions), redemption price or prices, conversion rights and liquidation
preferences of the shares constituting any series, without any further vote or
action by the stockholders. For example, the Board of Directors is authorized to
issue a series of preferred stock that would have the right to vote, separately
or with any other series of preferred stock, on any proposed amendment to the
Company's Certificate of Incorporation or any other proposed corporate action,
including business combinations and other transactions.
Outstanding Options
On April 1, 1999, the Company had outstanding options exercisable for 1,045,000
shares of the Company's common stock, at exercise prices per share ranging from
$1.00 to $4.00. For information regarding options as of December 31, 1998, see
Note 12 to the Company's financial statements appearing in this Registration
Statement. In addition to the options described above in Item 6(h), the Company
has issued the following options:
Convertible Notes
In September and November, 1998, the Company issued twelve units of 12%
Convertible Notes and shares of Common Stock. Each unit contained a $25,000 face
value Convertible Note and 1,500 shares of common stock, for an aggregate
$300,000 in Convertible Notes and 18,000 shares. These convertible notes are
collateralized by the equipment and accounts receivable of the Company, and bear
interest at 12% per annum. Each Convertible Note may be converted at any time
into shares of the Company's common stock at a per share conversion price equal
to 115% of the closing bid price of the Company's common stock on the date of
conversion. These Convertible Notes mature in September and November, 1999. The
shares of common stock issued in the units and which may be issued upon
conversion of the Convertible Notes have "piggy back" registration rights with
respect to any public offering of the Company's common stock.
11% Secured Notes
On November 17, 1998, the Company began offering its 11% Secured Notes in units
of $50,000 face amount of Promissory Notes and 2,000 shares of common stock.
These Notes are secured by all of the assets of the Company. The shares issued
in the units have piggy-back registration rights. As of May 3, 1999, the Company
had issued units containing a face amount of $1,429,500 of these notes and
59,700 shares of common stock.
18
<PAGE>
Transfer Agent
The Company's transfer agent is Stock Trans, Inc., 7 East Lancaster Avenue,
Ardmore, PA 19003 (telephone 610/649-7300; telecopier 610/649-7302).
Anti-Takeover Provisions
Although the Board of Directors is not presently aware of any takeover attempts,
the Certificate of Incorporation and Bylaws of the Company and the Delaware
General Corporation law contain certain provisions which may be deemed to be
"anti-takeover" in nature in that such provisions may deter, discourage or make
more difficult the assumption of control of the Company by another corporation
or person through a tender offer, merger, proxy contest or similar transaction
or series of transactions.
Section 203 of the Delaware General Corporation Law: Following this offering,
the Company will be subject to Section 203 of the Delaware General Corporation
Law ("DGCL") which, in general, prohibits a publicly held Delaware corporation
from engaging in various "business combination" transactions with any
"interested stockholder" for a period of three years after the date for the
transaction in which the person became an "interested stockholder", unless (i)
the transaction is approved by the Board of Directors of the corporation prior
to the date the interested stockholder obtained such status, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting sock of the corporation outstanding at the time the
transaction commenced, excluding for the purposes of determining the number of
shares outstanding, those shares owned , by (a) persons who are directors and
also officers and (b) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, or (iii) on or subsequent
to such date, the business combination is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 22-2/3 of the outstanding voting
stock which is not owned by the interested stockholder. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to a stockholder. An "interested stockholder' is a person who, together
with affiliates and associates, owns (or, within three years, did own) 15% or
more of the corporation's voting stock. The statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control attempts with
respect to the Company and, accordingly, may discourage attempts to acquire the
Company.
Authorized but Unissued Shares: The authorized capital stock of the Company
includes 50,000,000 shares of Common Stock and 10,000,000 shares of Preferred
Stock. These shares of capital stock were authorized for the purpose of
providing the Board of Directors of the Company with as much flexibility as
possible to issue additional shares for proper corporate purposes, including
equity financing, acquisitions, stock dividends, stock splits, employee stock
option plans, and other similar purposes which could include public offerings or
private placements. Shares of Preferred Stock could be issued quickly with terms
calculated to delay or prevent a change in control of the Company without any
further action by the stockholders.
19
<PAGE>
No Cumulative Voting: Neither the Company's Certificate of Incorporation nor its
Bylaws contain provisions for cumulative voting. Cumulative voting entitles each
stockholder to as many votes as equal the number of shares owned by him
multiplied by the number of directors to be elected. With cumulative voting, a
stockholder may cast all these votes for one candidate or distribute them among
any two or more candidates. Thus, cumulative voting for the election of
directors allows a stockholder or group of stockholders who hold less than 50%
of the outstanding shares voting to elect one or more members of a board of
directors. Without cumulative voting for the election of directors, the vote of
holders of a plurality of the shares voting is required to elect any member of a
board of directors and would be sufficient to elect all the members of the board
being elected.
20
<PAGE>
PART II
ITEM 1 - MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
(a) Market Information
The Company's Common Stock is traded over-the-counter on the electronic bulletin
board operated by the National Association of Securities Dealers under the
symbol "AKIS". The following table sets forth the high and low bid prices quoted
for the Company's Common Stock since July, 1998, when trading commenced:
1998 High Low
---- ---- ---
Third Quarter (beginning 7/31/98 $2.0625 $.875
Fourth Quarter $2.125 $.875
1999
----
First Quarter $1.625 $.875
The above quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
(b) Holders
As of April 1, 1998, there were approximately 150 record holders of the
Company's Common Stock and, based upon information supplied by brokerage firms,
banks and other holders of record, the number of beneficial owners of Common
Stock exceeded 300 holders.
(c) Dividends
The Company has never declared or paid any cash dividends on its Common Stock.
The Company currently anticipates that all future earnings will be retained by
the Company to support its growth strategy. Accordingly, the Company does not
anticipate paying cash dividends on the Common Stock in the foreseeable future.
ITEM 2 - LEGAL PROCEEDINGS
There are no material legal proceedings pending or, to its knowledge,
threatened against the Company
ITEM 3 - CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not Applicable
21
<PAGE>
ITEM 4 - RECENT SALES OF UNREGISTERED SECURITIES
The Company has issued the following securities in transactions not registered
under the Securities Act of 1933:
(a) Upon its organization, the Company issued 4,100,000 share of Common
Stock to its founders, for nominal consideration, as follows:
- ---------------------------------------------------------------------
Name No. Shares Price
- ---------------------------------------------------------------------
Richard Michael 2,000,000 $200
- ---------------------------------------------------------------------
James Hightower 2,000,000 $200
- ---------------------------------------------------------------------
Elisia Filancia 100,000 $10
- ---------------------------------------------------------------------
Mr. Michael and Mr. Hightower subsequently each contributed 1,000,000 shares
back to the Company for no consideration. These shares were issued in reliance
upon Section 4(2) of the Securities Act of 1933. These shares are restricted
securities as that term is defined in Rule 144 promulgated under the Securities
Act of 1933. The Company relied upon Section 4(2) as the individuals receiving
the shares were involved in the organization of the Company and acquired the
shares with investment intent, and no public solicitation was employed.
(b) In October 1997 the Company sold 800,000 shares of Common Stock to a
total of six investors at a price of $.05 per share, as follows:
---------------------------------------
Name No. Shares
---------------------------------------
Len Aronoff 150,000
---------------------------------------
Marcia Martin 150,000
---------------------------------------
Richard Cona 50,000
---------------------------------------
Victor Boddy 175,000
---------------------------------------
Gail DeBernardo 175,000
---------------------------------------
Elisa Filancia 100,000
---------------------------------------
These shares were issued in reliance upon Rule 504, Regulation D. Under Rule 504
in effect on the date of these issuances, these shares are not restricted
securities, as that term is defined in Rule 144. The Company did not impose any
restrictions upon the resale of those shares by any stockholder who was not an
affiliate of the Company.
(c) Between October 1997, and December, 1998, the Company issued a total of
983,250 shares of Common Stock pursuant to Rule 504. 743,650 shares were sold to
76 cash purchasers, at $1.00 per share, raising a total of $743,650 in cash.
239,600 shares were issued to an aggregate of eleven individuals and one
corporation for services. The Company valued the shares issued for services at
$.50 per share. These shares were issued in reliance upon Rule 504, Regulation
D. The following persons/entitles received shares for services:
22
<PAGE>
---------------------------------------
Name No. Shares
---------------------------------------
Alan R. Knopf 10,800
---------------------------------------
Richard T. Salter 10,800
---------------------------------------
Mark S. Fisch 33,000
---------------------------------------
Michael M. Morgan, Sr. 15,000
---------------------------------------
Arthur G. Scott 15,000
---------------------------------------
Larry E. Graybill 10,000
---------------------------------------
Steven Molinari 42,000
---------------------------------------
Rachelle Glass 500
---------------------------------------
Garth Zaffino 2,500
---------------------------------------
GFC Communications 50,000
Corp.
---------------------------------------
Ronald L. McDonald 50,000
---------------------------------------
The Company relied on Rule 504 as, at the time of each sale or issuance, the
Company had not issued shares with an aggregate offering price of more than
$1,000,000 in the preceding twelve (12) months. Pursuant to Rule 504 as in
effect at the time of the issuance of the securities, these shares were not
restricted securities, as that term is defined in Rule 144. The Company did not
impose any restrictions upon the resale of those securities by any stock holder
who is not an affiliate of the Company.
(d) In September through December of 1998, the Company issued units of
Convertible Notes and shares of common stock, aggregating a face amount of
$300,000 of notes and 18,000 shares of common stock for the aggregate purchase
price of $300,000. The notes are convertible into shares of the Company's common
stock at a conversion price equal to 115% of the closing bid price of the
Company's common stock on the date of conversion. Strategic Assets Inc. acted as
Placement Agent for the Company in these transactions. The following
persons/entities were purchasers of these units.
-----------------------------------------------------------
Name Note Amount No. Shares
-----------------------------------------------------------
Frederick J. Brizek $25,000 1,500
Testamentary Trust
-----------------------------------------------------------
David P. and Mary E. $25,000 1,500
Maier
-----------------------------------------------------------
Robert J. Blackwell $25,000 1,500
-----------------------------------------------------------
Arthur Gottesman, DDS, $25,000 1,500
PC Money Purchase
Target Benefit Plan
-----------------------------------------------------------
Paul Eisen $25,000 1,500
-----------------------------------------------------------
Susan Weiner $25,000 1,500
-----------------------------------------------------------
Community National $25,000 1,500
Bank Cust. FBO Sandra
M. Misjak, IRA #866032
-----------------------------------------------------------
Kenneth Weiss $25,000 1,500
-----------------------------------------------------------
Independent Trust Corp. $25,000 1,500
Cust FBO David Scharf
PSP #1205682
-----------------------------------------------------------
Thomas E. Shown $25,000 1,500
-----------------------------------------------------------
Daniel L. Kramer $25,000 1,500
-----------------------------------------------------------
Independent Trust Corp. $25,000 1,500
TTEE FBO Alexander C.
Politis Tr #1405370
-----------------------------------------------------------
23
<PAGE>
The Notes and the shares were issued on the reliance on the exemption
provided by Rule 506 of Regulation D. The Company relied on 506 as the investors
were all "accredited investors" as defined in Regulation D, no public
solicitation was employed, the purchasers bought the securities with investment
intent and the shares are restricted securities as that term is defined in Rule
144. For these reasons, the shares to be issued upon conversion of the Notes
will also be issued pursuant to Rule 506.
(e) From November 1998 through May 3, 1999, the Company issued units of
Secured Notes and shares of common stock aggregating the face value of
$1,492,500 of Notes and 59,700 shares of common stock, for the aggregate
purchase price of $1,492,500 to 52 "accredited" investors. Strategic Assets Inc.
acted as Placement Agent for the Company.
The Company issued these Notes and shares in reliance upon the
exemption provided by Rule 506 of Regulation D. The Company relied on Rule 506
as the investors were all "accredited investors" as defined in Regulation D, no
public solicitation was employed, the purchasers bought the securities with
investment intent and the securities were restricted securities as that term is
defined in Rule 144.
(f) During the year ended December 31, 1998, the Company issued options
exercisable for 845,000 shares of its common stock. These options were issued
without cash consideration. Of these, options for 565,000 shares were issued to
key management personnel, options for 230,000 shares were issued to consultants,
and options for 50,000 shares were issued to franchisees. In February, 1999, the
Company issued options for 200,000 shares to four of its directors. Options for
150,00 of these shares are exercisable at $1.06 per share, and the remainder are
exercisable at $1.17 per share.
The issuance of these options to management personnel and directors was made in
reliance upon the exemptions provided by Rule 701 under the Securities Act of
1933 and Section 4(2) of the Securities Act of 1933. The issuance of the options
to consultants was exempt from registration pursuant to Rule 701 under the
Securities Act of 1933 and the issuance to franchisees was exempt pursuant to
Section 4(2) of the Securities Act of 1933.
(g) On July 7, 1998, the Company issued 50,000 shares of Common Stock to
GFC Communications Corp., a consultant which at that time provided shareholder
and financial communications services to the Company. These shares were issued
as partial consideration for GFC's services under a written agreement with the
Company. These shares were issued in reliance upon the exemption provided by
24
<PAGE>
Rule 506 of Regulation D. The Company relied on Rule 506 as no public
solicitation was employed, GFC acquired the shares with investment intent and
GFC was provided with the material information require by Rule 506. These shares
are in addition to other shares issued to GFC under Rule 504, included paragraph
(c), above. Those shares were also issued pursuant to the contract between GFC
and the Company.
(h) Between June 21, 1998 and September 1, 1998, the Company issued 157,750
shares of its restricted Common Stock to five employees without cash
consideration in connection with their employment. These employees were Mr.
Graybill, Mr. Herbert Michael, Mr. Scott, Mr. Morgan, and John Mautner. These
shares were issued in reliance upon Rule 701 under the Securities Act and
Section 4(2) of the Securities Act.
ITEM 5 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation contains a provision permitted by the
DGCL which eliminates the personal liability of the Company's directors for
monetary damages for breach of their fiduciary duty of care which arises under
state law. Although this does not change the directors' duty of care, it limits
legal remedies which are available for breach of that duty to equitable
remedies, such as an injunction or rescission. The provision of the Company's
Certificate of Incorporation has no effect on directors' liability for: (1)
breach of the directors' duty of loyalty; (2) acts or omissions not in good
faith or involving intentional misconduct or known violations of law; and (3)
approval of any transactions from which the directors derive an improper
personal benefit.
The DGCL empowers the Company to indemnify officers, directors, employees and
others from liability in certain circumstances such as where the person
successfully defended himself on the merits or acted in good faith in a manner
reasonably believed to be in the best interests of the corporation. The
Company's Bylaws require indemnification, to the fullest extent permitted by the
DGCL, of any person who is or was involved in any manner in any investigation,
claim or other proceeding by reason of the fact that such person is or was a
director or officer of the Company, or of another corporation serving at the
request of the Company, against all expenses and liability actually and
reasonably incurred by such person in connection with the investigation, claim
or other proceeding.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers, and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
25
<PAGE>
PART F/S
--------
The financial statements required by Part F/S follow the Signature page
of this Registration Statement. The Table of Contents for the financial
statements is on page F-1.
26
<PAGE>
PART III
ITEM 1 - INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
3(i) Certificate of Incorporation, as Amended
3(ii) Bylaws
4(i) Form of 12% Senior Secured Notes
4(ii) Form of 11% Secured Promissory Notes
10.1 License Agreement dated 8/11/97 with Toppers Brick Oven
Pizza Inc.
10.2 Amendment to License Agreement with Toppers Brick Oven
Pizza dated 4/15/99
10.3 Form of Franchise Agreement
10.4 Employment Agreement between the Company and Richard Michael
10.5 Employment Agreement between the Company and Larry Graybill
10.6 Employment Agreement between the Company and Ronald L.
McDonald
10.7 Area Representative Agreement with USA Foods, Inc.
10.8 Promissory Notes and Stock Pledge Agreement relating to
$50,000 loans from the Company to Michael Morgan and Arthur
Scott.
27 Financial Data Schedule
SIGNATURES
In accordance with Section 12(g) of the Securities Exchange Act of 1934,
the registrant caused this amendment to registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, this 26th day of
July, 1999.
AMERICAN KIOSK CORPORATION
By: /s/ Richard J. Michael
-----------------------------
Richard J. Michael, President
By: /s/ Larry E. Graybill
-----------------------------
Larry E. Graybill
Vice President, Chief
Financial Officer
and Principal Accounting
Officer
27
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
TABLE OF CONTENTS
December 31, 1998
INDEPENDENT AUDITOR'S REPORT F-2
FINANCIAL STATEMENTS at December 31, 1998, for the Fiscal Year Ending
December 31, 1998 and for the period from April 26, 1997 (Inception) to
December 31, 1997 and 1998:
Balance Sheet F-3
Statements of Operations F-4
Statements of Change in Stockholders' Deficit F-5
Statements of Cash Flows F-6 - F-7
Notes to Financial Statements F-8 - F-18
FINANCIAL STATEMENTS at March 31, 1999 and for the three months ended March 31,
1999 and 1998 and the period from April 26, 1997 (Inception) to March 31, 1999:
Condensed Balance Sheet F-19
Condensed Statements of Operations F-20
Condensed Statements of Changes in Shareholders Equity F-21
Condensed Statements of Cash Flow F-22
Notes to Interim Financial Statements F-23
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
American Kiosk Corporation
Palm Beach Gardens, Florida
We have audited the accompanying balance sheet of American Kiosk Corporation (A
Development Stage Company), as of December 31, 1998 and the related statements
of operations, changes in stockholders' deficit and cash flows for the year
ended December 31, 1998 and the periods from April 26, 1997 (inception) to
December 31, 1997 and 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Kiosk Corporation, as
of December 31, 1998 and the results of its operations and its cash flows for
the year ended December 31, 1998 and the period April 26, 1997 (inception) to
December 31, 1997 and 1998, in conformity with generally accepted accounting
principles.
GOLDSTEIN LEWIN & CO.
Boca Raton, Florida
February 18, 1999, except for Note 17,
and the last paragraph of Note 15,
as to which the date is April 15, 1999
F-2
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
BALANCE SHEET
December 31, 1998
ASSETS
CURRENT ASSETS
Cash $ 335,136
Restricted Cash 15,000
Accounts Receivable, Net 7,674
Other Receivables 3,149
Inventory 80,925
Deposits on Inventory 27,441
Deferred Loan Costs, Net 37,431
-----------
Total Current Assets 506,756
-----------
PROPERTY AND EQUIPMENT, Net 38,559
-----------
OTHER ASSETS
Toppers License Agreement, Net 96,000
Franchise Development Costs 19,846
Deferred Loan Costs 37,250
Other Deposits 28,799
-----------
181,895
-----------
$ 727,210
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Convertible Notes Payable, Net of Discount $ 293,125
Accounts Payable and Accrued Expenses 119,293
Deferred Franchise Fee Revenue 39,950
-----------
Total Current Liabilities 452,368
-----------
NOTES PAYABLE, Net of Discount 365,050
-----------
COMMITMENTS
STOCKHOLDERS' DEFICIT
Preferred Stock, Par Value $.0001 Per Share;
Authorized 10,000,000 Shares; Issued 0 Shares
Common Stock, Par Value $.0001 Per Share;
Authorized 50,000,000 Shares; Issued 4,149,900 Shares 415
Additional Paid-in Capital 1,108,484
Unearned Compensation (48,600)
Deficit Accumulated During the Development Stage (1,150,507)
-----------
(90,208)
-----------
$ 727,210
===========
The Accompanying Notes are an
Integral Part of These Financial Statements
F-3
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From April 26, 1997
Year Ending (Inception) to December 31,
December 31, ---------------------------
1998 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE
Franchise Fees $ 25,000 $ $ 25,000
Merchandise Sales 40,491 40,491
----------- ----------- -----------
Total Revenue 65,491 65,491
COST OF GOODS SOLD 22,659 22,659
----------- ----------- -----------
Gross Profit 42,832 42,832
----------- ----------- -----------
EXPENSES
Selling Expenses 114,477 114,477
General and
Administrative Expenses 956,089 102,639 1,058,728
----------- ----------- -----------
1,070,566 102,639 1,173,205
----------- ----------- -----------
(Loss) from
Operations (1,027,734) (102,639) (1,130,373)
----------- ----------- -----------
OTHER EXPENSES
Interest Expense (10,625) (10,625)
Depreciation (5,509) (5,509)
Amortization of
Toppers License Agreement (4,000) (4,000)
----------- ----------- -----------
Total Other Expenses (20,134) (20,134)
Net (Loss) $(1,047,868) $ (102,639) $(1,150,507)
=========== =========== ===========
Basic and Diluted Net (Loss)
Per Share $ (.29) $ (.04) $ (.34)
=========== =========== ===========
Weighted Average
Shares Outstanding 3,633,949 2,901,696 3,336,283
=========== =========== ===========
</TABLE>
The Accompanying Notes are an
Integral Part of These Financial Statements
F-4
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
----------------------- Paid-In Unearned Development
Share Amount Capital Compensation Stage
--------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Initial Capitalization on
April 26, 1997 2,800,000 $ 280 $ 40,120 $ $
Issuance for:
Cash, Net of Offering Costs
of $12,044 in December 1997 212,000 21 199,935
Compensation to Employees 41,667
Franchise Development Costs 100,000 10 4,990
Net (Loss) (102,639)
--------- ---------- ---------- ---------- -----------
Balance, December 31, 1997 3,112,000 311 286,712 (102,639)
Issuance for:
Cash, Net of Offering Costs
of $2,499 from February to
September 1998 531,650 53 529,098
Compensation to Employees 217,750 22 108,853 (25,000)
Services 255,600 26 127,774
Issuance in conjunction with:
Convertible Notes Payable 18,000 2 8,998
Notes Payable 14,900 1 7,449
Valuation of Stock Options
Issued for Services 39,600 (23,600)
Net (Loss) (1,047,868)
--------- ---------- ---------- ---------- -----------
Balance, December 31, 1998 4,149,900 $ 415 $1,108,484 $ (48,600) $(1,150,507)
========== ========== ========== ========== ===========
</TABLE>
The Accompanying Notes are an
Integral Part of These Financial Statements
F-5
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From April 26, 1997
Year Ending (Inception) to December 31,
December 31, ---------------------------
1998 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net (Loss) $(1,047,868) $ (102,639) $(1,150,507)
Adjustments to Reconcile Net (Loss)
to Net Cash Used in Operating
Activities:
Depreciation 5,509 5,509
Amortization 15,694 15,694
Issuance of Shares for Compensation,
Services and Franchise
Development Costs 198,675 41,667 240,342
Valuation of Stock Options
for Services 16,000 16,000
Reduction of Officer Loan Receivable 40,000 40,000
Change in Assets and Liabilities
(Increase) in:
Restricted Cash (15,000) (15,000)
Accounts Receivable (7,674) (7,674)
Other Receivables (2,049) (2,049)
Inventory (80,925) (80,925)
Deposits on Inventory (27,441) (27,441)
Increase in:
Accounts Payable and
Accrued Expenses 102,934 16,359 119,293
Deferred Franchise Fee Revenue 39,950 39,950
----------- ----------- -----------
Net Cash Used in
Operating Activities (762,195) (44,613) (806,808)
----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Increase in Franchise
Development Costs (14,856) (14,856)
Increase in Toppers Agreement (75,000) (25,000) (100,000)
Increase in Deferred Loan Costs (71,250) (71,250)
Decrease in Deposit on Prototype Kiosk 27,472 (27,472)
Increase in Deposits - Other (803) (27,996) (28,799)
Increase in Officer Loan Receivable (15,600) (25,500) (41,100)
Acquisition of Property and Equipment (38,351) (5,717) (44,068)
Net Cash Used in Investing
Activities (173,532) (126,541) (300,073)
----------- ----------- -----------
</TABLE>
The Accompanying Notes are an
Integral Part of These Financial Statements
F-6
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period From April 26, 1997
Year Ending (Inception) to December 31,
December 31, ---------------------------
1998 1997 1998
---------- ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from the Issuance of
Common Stock $ 545,601 $ 240,366 $ 785,967
Proceeds from the Issuance of
Notes Payable 656,050 656,050
---------- ---------- ----------
Net Cash Provided by
Financing Activities 1,201,651 240,366 1,442,017
---------- ---------- ----------
Increase in Cash 265,924 69,212 335,136
Cash:
Beginning 69,212
---------- ---------- ----------
Ending $ 335,136 $ 69,212 $ 335,136
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Payments for Interest $ 8,500 $ 8,500
========== ========== ==========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of Common Shares for:
Compensation, Services and
Franchise Developmen Costs $ 38,000 $ 4,990 $ 42,990
========== ========== ==========
Toppers License Agreement $ 75,000
==========
Valuation of Stock Options
Issued for Services $ 39,600 $ 39,600
========== ==========
</TABLE>
The Accompanying Notes are an
Integral Part of These Financial Statements
F-7
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
- ------------
American Kiosk Corp. (The "Company") was incorporated in Delaware on May 2,
1997. The Company was established to engage in the development and
implementation of a national brand franchise system of kiosk and kiosk-style
retail outlets to deliver popular food products to consumers. Currently, the
Company is focusing on brick oven pizzas. As of December 31, 1998, the
Company was in the development stage, planned operations have not commenced
and its activities were limited to developing the franchise system and kiosk
units and market testing.
The Company's current cash and available credit is not sufficient to support its
proposed activities for the next year. Accordingly, management will need to seek
equity financing or other financing. These financial statements have been
prepared on the basis that adequate financing will be obtained (Note 15).
Reclassification of Prior Period
- --------------------------------
Certain amounts in the prior period's financial statements have been
reclassified to conform to the current year presentation.
Net (Loss) Per Share
- --------------------
Basic net (loss) per share is computed by dividing net (loss) by the weighted
average number of shares outstanding. Fully diluted earning per share for all
periods presented are the same as basic earnings per share because in a period
of net loss all exercisable or convertible securities are anti-dilutive (Notes 9
and 12).
Stock Based Compensation
- ------------------------
As permitted under Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock Based Compensation, the Company has elected not to adopt
the fair value based method of accounting for its stock based compensation plan
but to account for such compensation using the intrinsic value method under the
provisions of Accounting Principles Board (APB) Opinion No. 25 (Note 12).
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
F-8
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Franchise Development Costs
- ---------------------------
The Company follows the policy of capitalizing certain costs related to the
development of its franchise program. These costs are to be amortized on a
straight-line basis over three years beginning with the opening of the first
franchised Kiosk or Kiosk-style restaurant.
Toppers License Agreement
- -------------------------
The cost of the license agreement is being amortized over the 25 year term of
the agreement.
Deferred Loan Costs
- -------------------
Costs directly attributable to the obtaining of loans are deferred, and are
amortized on a straight-line basis over the term of the associated loans.
Revenue Recognition
- -------------------
Revenue from sales of individual and area franchises is recognized when
substantially all significant initial services to be provided to the franchisee
have been performed.
Revenue related to the sale of equipment other than that provided with a
franchise, food products and supplies, is recognized when the items are shipped.
Inventory
- ---------
Inventory is stated at the lower of cost (first-in, first-out method) or market.
Property and Equipment
- ----------------------
Property and equipment is recorded at cost and is being depreciated over the
estimated useful lives of the related assets using the straight-line method.
Fair Value of Financial Instruments
- -----------------------------------
The Company has a number of financial instruments, none of which are held for
trading purposes. The Company estimates that the fair value of all financial
instruments at December 31, 1998, does not differ materially from the aggregate
carrying values of its financial instruments recorded in the accompanying
balance sheet.
F-9
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies.
Considerable judgment is necessarily required in interpreting market data to
develop the estimates of fair value, and, accordingly, the estimates are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange.
New Accounting Standards
- ------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. The new statement
requires all derivatives to be recorded on the balance sheet at fair value and
establishes new accounting rules for hedging instruments. The statement is
effective for years beginning after June 15, 1999. The Company is assessing the
impact this statement will have on the financial statements.
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. SOP 98-1 provides guidance on
accounting for the various types of costs incurred for computer software
developed or obtained for internal use. Also, in June 1998, the AICPA issued SOP
98-5, Reporting on the Costs of Start-Up Activities. SOP 98-5 requires costs of
start-up activities and organizational costs, as defined, to be expensed as
incurred. The Company will adopt these SOP's on January 1, 1999, and they will
not materially impact the Company's financial statements.
NOTE 2: CONCENTRATION OF CREDIT RISK
The Company at times has cash in banks in excess of FDIC insurance limits and
places its temporary cash investments with high credit quality financial
institutions. The Company performs ongoing credit evaluations of its customers'
financial condition and does not require collateral from them. Reserves for
credit losses are maintained at levels considered adequate by management.
NOTE 3: TRANSACTIONS WITH RELATED PARTIES
Officer's net advances at December 31, 1998 amounted to $1,100. These advances
are unsecured and provide no set repayment terms and are included in other
receivables.
F-10
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4: RESTRICTED CASH
Restricted cash consists of a certificate of deposit pledged as collateral for
the Company's credit card limit.
NOTE 5: ACCOUNTS RECEIVABLE
Accounts receivable is presented net of an allowance for doubtful accounts of
$2,995. Bad debt expense aggregated $2,995, $0 and $2,995 for the year ended
December 31, 1998 and the periods from April 26, 1997 to December 31, 1997 and
1998, respectively.
NOTE 6: INVENTORY
Inventory consists of the following:
Food $ 1,515
Supplies 951
Equipment and Displays 48,459
Kiosks 30,000
-------
$80,925
=======
NOTE 7: DEFERRED LOAN COSTS
Deferred costs attributable to obtaining loans aggregated $84,250, $0, and
$84,250 for the year ended December 31, 1998, and the periods from April 26,
1997 to December 31, 1997 and 1998, respectively. The costs are being amortized
over periods of twelve or thirty months. Amortization aggregated $9,569, $0, and
$9,569 for the year ended December 31, 1998, and the periods from April 26, 1997
to December 31, 1997 and 1998, respectively.
NOTE 8: PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1998:
Lives
(Years)
-------
Furniture and Equipment $29,568 5
Mobil Unit 14,500 5
-------
44,068
Less: Accumulated Depreciation (5,509)
-------
$38,559
=======
F-11
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9: NOTES PAYABLE
12% Convertible Secured Notes
- -----------------------------
The Company, in September and November 1998, issued twelve units ("Bridge Loan
Units") consisting of convertible secured notes (`Bridge Loan Notes")
aggregating $300,000 and common stock aggregating 18,000 shares. Each Bridge
Loan Unit consists of a $25,000 promissory note and 1,500 shares of common
stock. The Bridge Loan Notes are collateralized by the equipment and accounts
receivable of the Company, and bear interest at 12%. Each Bridge loan may be
converted at any time into shares of the Company's common stock at a per share
conversion price equal to 115% of the closing bid price of the Company's common
stock on the date of the conversion. The Bridge Loan Notes mature one year from
the date of issuance. The shares of common stock have "piggyback" registration
rights with any public offering of the Company's common stock, otherwise the
shares are restricted as to sale for a period of two years. The Bridge Loan
Notes have been recorded at a discount of $9,000, reflecting a per share value
of $0.50, discounted for restrictions. The discount increases the effective
interest rate to 15%. At December 31, 1998, no Bridge Loan Notes had been
converted into common stock.
11% Secured Notes
- -----------------
The Company began offering November 17, 1998, in a private placement, units
("Placement Units") consisting of secured notes ("Placement Notes") and common
stock. The minimum offering is ten units, aggregating $500,000 in Placement
Notes and 20,000 shares of common stock, and the maximum offering is forty units
aggregating $2,000,000 in Placement Notes and 80,000 shares of common stock.
Each Placement Unit consists of a $50,000 promissory note and 2,000 shares of
common stock. Fractional units may be offered. The offering terminates upon the
earlier of the placement of all units or April 30, 1999. The Placement Notes are
secured by all of the assets of the Company, and bear interest at 11% per annum.
The Placement Notes mature thirty months from the date of issuance. The shares
of common stock have "piggyback" registration rights with any public offering of
the Company's common stock, otherwise the shares are restricted as to sale for a
period of two years. These Bridge Loan Notes have been recorded at a discount of
$7,450, reflecting a per share value of $0.50, discounted for restrictions. The
discount increases the effective interest rate to 11.8%. The Placement Units
have been offered on an "all or nothing" basis. The Company is required to place
at least the minimum offering on or before April 30, 1999, or return all amounts
subscribed. At December 31, 1998, the Company has placed 7.45 units consisting
of an aggregate $372,500 of Placement Notes and 14,900 shares of common stock.
In January 1999, the Company exceeded the minimum offering and cleared escrow
(Note 15).
F-12
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10: COMMITMENTS
Operating Leases
- ----------------
The Company has entered into leases for office space and warehouse facilities.
The lease for office space provides for a monthly base rent of $4,563 plus the
Company's proportionate share of certain common expenses. The lease requires
annual increases in the base rent of $106 per month, and expires on November 30,
2002. The lease for warehouse facilities provides for a monthly base rent of
$557 plus assessments for common area maintenance. The base rent is subject to
annual increases of the greater of the annual increase in the Consumer Price
Index or 5%. The warehouse facilities lease expires on October 31, 2001, and may
be extended for an additional three year term.
Minimum future obligations over the primary terms of the Company's long-term
leases at December 31, 1998 are as follows:
Year Ended December 31, Amount
----------------------- ------
1999 $ 61,497
2000 63,106
2001 63,445
2002 58,581
--------
$246,629
========
In addition, the Company periodically leases temporary housing and other
facilities on a short-term basis.
Rent expense aggregated $70,017, $10,153 and $80,170 for the year ended December
31, 1998 and the periods from April 26, 1997 to December 31, 1997 and 1998,
respectively.
Agreement with Toppers
- ----------------------
Toppers Brick Oven Pizza, Inc. ("Toppers") has given the Company exclusive
rights to market Toppers products to a network of corporate owned and franchised
kiosks and/or kiosk-style retail outlets in the United States. Under the terms
of the agreement, Toppers will be the Company's sole supplier of pizza, ovens
and related products. The agreement expires in 2022, unless terminated prior to
expiration. As part of the agreement, the Company has targeted annual sales
quantities and kiosk outlet requirements, which if not met could result in the
termination of the agreement. The Company paid Toppers an aggregate $100,000 for
the agreement.
F-13
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10: COMMITMENTS (CONTINUED)
In addition, the Company was required to pay Toppers $200,000 on May 1, 1998, as
prepayment on future purchases. The Company did not achieve the targeted annual
sales quantities or Kiosk Outlet requirements, nor did the Company make the
required payment. The Company and Toppers are in negotiations to amend this
agreement (Note 17).
Manufacturing Agreements
- ------------------------
The Company has entered into agreements with certain companies for the
construction and manufacture of kiosks, carts and other merchandising materials
at fixed prices. Under the terms of the agreements, the Company is required to
make deposits when placing purchase orders. At December 31, 1998, deposits on
kiosks, carts and other merchandise aggregated $27,441.
Employment Agreements
- ---------------------
The Company has entered into employment agreements with four key management
personnel. The agreements provide for base minimum annual salaries ranging from
$27,500 to $120,000 each. The agreements have terms of one year, and are
renewable at will. The contracts provide for annual cash bonuses and other
fringe benefits. The contracts also include severance agreements and noncompete
convenants. As compensation for services rendered prior to the execution of the
employment agreements, the contracts provide for the management personnel to
receive an aggregate 92,750 shares of the Company's common stock. Simultaneously
with the execution of the employment agreements, the management personnel
entered into option agreements with the Company (Note 12).
NOTE 11: CAPITAL STOCK
Preferred Stock
- ---------------
The Company has 10,000,000 shares of preferred stock (par value $.0001)
authorized. The Board has authority to issue the shares in one or more series
and to fix the designation preferences, powers and other rights as it deems
appropriate. No shares of preferred stock have been issued.
Common Stock
- ------------
The Company has 50,000,000 shares of common stock (par value $.0001) authorized.
Common stock has one vote per share for the election of directors and all other
matters submitted to a vote
F-14
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 11: CAPITAL STOCK (CONTINUED)
of stockholders. Shares of common stock do not have cumulative voting,
preemptive redemption or conversion rights. During the year ended December 31,
1998 and the period from April 26, 1997 through December 31, 1998, the Company
directly issued 531,650 and 3,643,650 shares for cash of $531,650 and $784,060,
respectively.
During the year ended December 31, 1998, the Company issued 32,900 shares to the
subscribers of certain secured notes (Note 9). The Company valued the shares at
$.50 per share in accordance with the terms of the subscription agreements. The
Company recorded the $16,450 aggregate valuation as an original issue discount
and accounted for the excess of the valuation over the par value of the shares
as additional paid-in capital. Additionally, the Company issued to the placement
agent 26,000 shares valued at $.50 per share as partial compensation for
facilitating a placement.
Since the Company's inception in April, 1997, common stock has been issued at
$.0001 to $.05 per share through October 31, 1997, and $1.00 per share
subsequently. In October, 1997, 100,000 shares were issued at $.0001 per share
for services rendered. The Company recognized the difference, $4,990, between
the market value at the time of issuance ($.05) and the actual stock price paid
($.0001) as franchise development costs.
During the year ended December 31, 1998, the Company issued 447,350 shares as
compensation for services rendered by various employees, consultants and
professionals. The Company in recording the compensation valued the shares at
$.50 per share, reflecting a discount of $.50 per share for restrictions on the
sale and transfer of the shares. The excess of the valuation over the par value
has been recorded as an increase in additional paid in capital.
Other services provided to the Company affecting stockholders' equity during the
period April 26, 1997 through December 1, 1998, include the following:
attorneys' fees in the amount of $14,543 directly related to the offering of
common stock are accounted for as a reduction of the proceeds from the sale (a
reduction of additional paid-in capital) and compensation expense recognized for
services provided by an officer of the Company and foregone, in the amount of
$41,667 and accounted for as an increase in additional paid in capital.
The Company, at December 31, 1998, has reserved 845,000 shares of common stock
for issuance relating to unexpired options.
NOTE 12: STOCK OPTIONS
During the year ended December 31, 1998, the Company entered into option
agreements with key management personnel, consultants and franchisees. The
options granted aggregate 845,000 shares of common stock. The options on 365,000
shares vest and are exercisable at various dates
F-15
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12: STOCK OPTIONS (CONTINUED)
from September 1, 1998 to November 9, 2000. Options on 200,000 shares vest on
the later of various dates from January 1, 1999 to March 20, 1999, or the
achievement of certain sales goals. The options are exercisable from three to
four years from the date of grant, and are contingent upon each individual's
continuing association with the Company at the date of exercise.
Options on 180,000 shares, granted to a consulting company, vest on various
dates from February 24, 1999 to November 24, 1999 as services are rendered.
Options may be exercised at various prices ranging from $1.00 to $4.00
per share.
Options on 50,000 shares were granted to a marketing and communications company.
The options are exercisable at $1.50 per share, are fully vested and expire May
31, 2000.
Options on 50,000 shares were granted to an area representative as part of their
agreement. The options are exercisable at $1.59 per share. The options expire on
December 31, 2002. The options vest as follows:
1. 25,000 shares upon payment of $79,900 ($39,950 paid at
December 31, 1999).
2. 25,000 shares when the Company has received from the area
representative deposits for ten franchises.
No options have been exercised.
The Company applied APB 25 and related interpretations in accounting for the
options issued to employees. Accordingly, no compensation cost has been
recognized in the results of operations. Had the Company recorded a charge for
the fair value of options granted consistent with SFAS No. 123, the net loss for
the year ended December 31, 1998 and the period from April 26, 1997 to December
31, 1998, would have been increased by approximately $128,000. The impact of
this charge on the basic net loss per weighted common share would have been $.04
for the year ended December 31, 1998 and the period from April 26, 1997 to
December 31, 1998.
The fair value of each option grant is estimated on the date of the grant using
the Black - Scholes option pricing model, with the following weighted average
assumptions:
Risk-Free Interest Rate 5.7%
Expected Option Lives 1 to 4 Years
Expected Volatility 29%
Expected Dividend Yields 0%
F-16
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12: STOCK OPTIONS (CONTINUED)
The following summarizes information about stock options outstanding at December
31, 1998:
Options Outstanding
-------------------------------
Number Weighted Average
Exercise Price Outstanding Remaining Life Options Exercisable
- -------------- ----------- -------------- -------------------
$1.00 285,000 2.7 47,500
1.10 150,000 2.7 150,000
1.25 60,000 .9
1.50 150,000 2.3 150,000
1.59 50,000 4.0
2.00 70,000 2.2 10,000
3.00 40,000 .9
4.00 40,000 .9
------- ---- -------
845,000 2.4 357,500
======= ==== =======
The weighted average exercise prices of outstanding and exercisable options are
$1.48 and $1.28, respectively.
NOTE 13: RESEARCH AND DEVELOPMENT COSTS
Research and development costs related to both future and present projects are
charged to operations as incurred. The Company recognized $113,135, $0 and
$113,135 of research and development costs for the year ended December 31, 1998,
and the periods from April 26, 1997 to December 31, 1997 and 1998, respectively.
NOTE 14: INCOME TAXES
The deficit accumulated during the development stage (inception through December
31, 1998) of approximately $1,151,000 will be capitalized for income tax
purposes as accumulated start-up costs, and is to be amortized over a sixty
month period beginning upon commencement of operations. The Company has recorded
a valuation allowance of approximately $386,000 with respect to any future tax
benefits arising from the amortization of the development costs due to the
uncertainty of their ultimate realization. The net increase in the valuation
allowance was $360,000 for 1998.
F-17
<PAGE>
AMERICAN KIOSK CORPORATION
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 15: GOING CONCERN
As shown in the accompanying financial statements, the Company incurred a net
loss of $1,150,507 during the period from April 26, 1997 (inception) to December
31, 1998, and as of that date, the Company's total liabilities exceeded its
total assets by $90,208. Those factors create an uncertainty about the Company's
ability to continue as a going concern. Management of the Company is developing
a plan to obtain financing through issuance of debt and additional stock. The
ability of the Company to continue as a going concern is dependent on their
ability to continue to obtain financing. The financial statements do not include
any adjustments that might be necessary if the Company is unable to continue as
a going concern.
Subsequent to December 31, 1998, the Company placed an additional 18.1 Placement
Units (Note 9), comprised of $905,000 of Placement Notes and 36,200 shares of
common stock. The subsequent placement resulted in a total of 25.55 Placement
Units sold since inception to April 5, 1999, aggregating $1,277,500 of Placement
Notes and 51,100 shares of common stock.
NOTE 16: SUBSEQUENT EVENT
Operating Lease
- ---------------
In January 1999, the Company entered into a non-cancelable lease for land on
which to place a free standing drive-thru unit. The lease requires minimum
monthly payments of $2,083 plus common area maintenance. The lease expires on
January 31, 2004 and allows for an additional five-year term. Minimum future
obligations over the primary terms of the lease are as follows:
Year Ended December 31, Amount
----------------------- ---------
1999 $ 24,375
2000 25,000
2001 25,000
2002 25,000
2003 25,000
Thereafter 2,083
--------
$126,458
========
NOTE 17: TOPPERS AGREEMENT
On April 15, 1999, the Company revised and amended its agreement with Toppers
(Note 10). In the revised agreement, Toppers waived the quota and pre-purchase
requirements under the original agreement. The Company and Toppers, under the
revised agreement, agreed to licensing fees of $220,000 in 1999; $250,000 in
2000; $300,000 in each year 2001-2003; and $350,000 in 2004 and each year
thereafter for the remaining term of the agreement.
F-18
<PAGE>
AMERICAN KIOSK CORPORATION
Condensed Balance Sheet as of
March 31, 1999
(Unaudited)
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
CASH AND EQUIVALENTS $ 431,667
ACCOUNTS RECEIVABLE $ 17,839
INVENTORIES $ 57,863
DEPOSITS & OTHER CURRENT ASSETS $ 156,005
DEFERRED LOAN COSTS $ 37,431
-----------
TOTAL CURRENT ASSETS $ 700,805
PROPERTY & EQUIPMENT $ 133,161
LOANS TO AREA REPS $ 151,606
OTHER ASSETS $ 169,783
-----------
TOTAL ASSETS $ 1,155,355
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE & ACCRUALS $ 84,678
CONVERTIBLE NOTES PAYABLE $ 293,125
DEFERRED FRANCHISE REVENUE $ 39,950
-----------
TOTAL CURRENT LIABILITIES $ 417,753
NOTES PAYABLE - 30 MONTH $ 1,190,450
-----------
TOTAL LIABILITIES $ 1,608,203
SHAREHOLDERS' EQUITY:
COMMON STOCK, $.0001 PAR $ 418
ADDITIONAL PAID-IN-CAPITAL $ 1,124,989
UNEARNED COMPENSATION $ (48,600)
ACCUMULATED DEFICIT $(1,529,655)
-----------
TOTAL SHAREHOLDERS' EQUITY $ (452,848)
TOTAL LIABILITIES AND EQUITY $ 1,155,355
===========
F-19
<PAGE>
AMERICAN KIOSK CORPORATION
Condensed Statement of Changes in Shareholder's Equity
for the 3 months ended March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
COMMON ADDITIONAL
STOCK PAID-IN ACCUMULATED UNEARNED SHRHLDR'S
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION EQUITY
--------- ------ ---------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1998 4,149,900 $415 $1,108,484 $(1,150,507) $(48,600) $ (90,208)
STOCK ISSUED ALONG WITH SECURED NOTES 33,016 $ 3 $16,505 $ 16,508
NET LOSS $ (379,148) $(379,148)
--------- ---- ---------- ----------- -------- ---------
BALANCE MARCH 31, 1999 4,182,916 $418 $1,124,989 $(1,529,655) $(48,600) $(452,848)
========= ==== ========== =========== ======== =========
</TABLE>
F-20
<PAGE>
AMERICAN KIOSK CORPORATION
Condensed Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
PERIOD
FROM 4/26/97
3 MO ENDED 3 MO ENDED (INCEPTION)
3/31/99 3/31/98 TO 3/31/99
---------- ---------- ------------
<S> <C> <C> <C>
TOTAL REVENUES $ 9,799 $ 0 $ 75,290
COSTS AND EXPENSES: $ (13,020) $ 0 $ (35,679)
SELLING, GENERAL & ADMIN EXPENSES $ (357,125) $ (80,465) $(1,530,330)
---------- --------- -----------
LOSS FROM OPERATIONS $ (360,346) $ (80,465) $(1,490,719)
OTHER EXPENSES $ (18,801) $ 0 $ (38,935)
NET (LOSS) $ (379,147) $ (80,465) $(1,529,654)
========== ========= ===========
BASIC AND DILUTED NET (LOSS) PER SHARE $ (0.091) $ (0.026) $ (0.444)
========== ========= ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 4,167,663 3,143,105 3,442,257
========== ========= ===========
</TABLE>
F-21
<PAGE>
AMERICAN KIOSK CORPORATION
Condensed Statement of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
PERIOD
FROM 4/26/97
3 MO ENDED 3 MO ENDED (INCEPTION)
3/31/99 3/31/98 TO 3/31/99
---------- ---------- ------------
<S> <C> <C> <C>
CASH USED IN OPERATING ACTIVITIES $(665,775) $(119,875) $(1,457,583)
CASH FLOWS FROM INVESTING ACTIVITIES:
Exenditures for property and equipment $ (94,602) $ (7,416) $ (138,670)
Other $ 0 $ (3,515) $ (256,005)
--------- --------- -----------
Net cash used by investing activities $ (94,602) $ (10,931) $ (394,675)
--------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable $ 825,400 $ 1,481,450
Proceeds from issuance of stock $ 16,508 $ 62,299 $ 802,475
--------- --------- -----------
Net cash profided by financing activities $ 841,908 $ 62,299 $ 2,283,925
--------- --------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 81,531 $ (68,507) $ 431,667
CASH AND CASH EQUIV, BEGINNING OF PERIOD $ 350,136 $ 69,212
--------- --------- -----------
CASH AND CASH EQUIV, AT END OF PERIOD $ 431,667 $ 705 $ 431,667
========= ========= ===========
</TABLE>
F-22
<PAGE>
AMERICAN KIOSK CORPORATION
Notes to Financial Statements
(Unaudited)
Note 1 - Financial Statements
In the opinion of the Company's management, the accompanying unaudited condensed
financial statements contain all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the financial position of the
Company as of March 31, 1999 and the results of operations and the cash flows
for the 3 months ended March 31, 1999 and 1998 and for the period from April 26,
1997 (inception) to March 31, 1999.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These statements should be read in conjunction
with the audited financial statements for the fiscal year ended December 31,
1998, and notes thereto contained in the Company's Form 10-SB filed with the
Securities and Exchange Commission on May 14, 1999. The results of operations
for the three months ended March 31, 1999 are not necessarily indicative of
operating results to be expected for the full fiscal year.
Note 2 - Inventories
Inventories at March 31, 1999 consist of:
Food and supplies $ 8,183
Equipment and displays 49,680
-------
$57,863
=======
Note 3 - Notes Payable and Stock Issuance
During the three months ended March 31, 1999, the Company issued 33,016 shares
of Common Stock (valued at $.50 per share) related to the funding of additional
Private Placement Units of 11% Secured Notes aggregating $825,400.
F-23
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 431,667
<SECURITIES> 0
<RECEIVABLES> 20,834
<ALLOWANCES> 2,995
<INVENTORY> 57,863
<CURRENT-ASSETS> 700,805
<PP&E> 146,665
<DEPRECIATION> 13,504
<TOTAL-ASSETS> 1,155,355
<CURRENT-LIABILITIES> 417,753
<BONDS> 1,190,450
0
0
<COMMON> 418
<OTHER-SE> (453,266)
<TOTAL-LIABILITY-AND-EQUITY> 1,155,355
<SALES> 9,799
<TOTAL-REVENUES> 9,799
<CGS> (13,020)
<TOTAL-COSTS> (13,020)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,995
<INTEREST-EXPENSE> 16,965
<INCOME-PRETAX> (379,147)
<INCOME-TAX> 0
<INCOME-CONTINUING> (379,147)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (379,147)
<EPS-BASIC> (0.091)
<EPS-DILUTED> (0.091)
</TABLE>
