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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number - 000-27015
CHICKEN KITCHEN CORPORATION
---------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-3283225
------------------------------- ------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
770 Ponce de Leon Blvd
Coral Gables, Florida 33134
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(Address of principal executive offices, including zip code)
(305) 774-9700
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Number of shares of common stock, $.01 par value per share, outstanding as of
June 30, 2000: 12,756,904
<PAGE>
Chicken Kitchen Corp.
Index
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheet at June 30, 2000 and March 31, 1999 3
Condensed Statements of Operations for the three months
and nine months ended June 30, 2000 and 1998 4
Condensed Statement of Cash Flows for the nine months ended
June 30, 2000 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 10
Item 2. Changes in Securities. 13
Item 3. Defaults upon senior Securities. 13
Item 4. Submission of Matters to a Vote of security Holders 13
Item 5. Other Information 13
Item 6. Exhibits 14
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<PAGE>
CHICKEN KITCHEN CORPORATION
CONDENSED FINANCIAL STATEMENTS AS OF
June 30, 2000
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<PAGE>
CHICKEN KITCHEN CORPORATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 215,299 $ 137,296
Prepaid advertising 100,000 100,000
Other current assets 114,482 100,655
----------- -----------
Total Current Assets 429,781 337,951
----------- -----------
PROPERTY AND EQUIPMENT, net 610,615 643,070
INTANGIBLE ASSETS, net 1,099,848 1,146,302
OTHER ASSETS 52,478 53,726
NOTE RECEIVABLE FROM AND ADVANCES TO PRINCIPAL STOCKHOLDER 297,921 213,490
----------- -----------
Total Assets $ 2,490,643 $ 2,394,539
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable and accrued interest $ 125,903 $ 121,403
Current portion of settlement fee due to preferred stockholders 300,000 300,000
Current portion of equipment notes 12,684 30,690
Accounts payable 553,414 485,500
Accrued expenses 398,942 399,513
Deferred franchise fees 260,000 120,000
Reserve for impairment loss 100,000 100,000
----------- -----------
Total Current Liabilities 1,750,943 1,557,106
----------- -----------
LONG TERM OBLIGATIONS:
Long term portion of settlement fee due to preferred stockholders 150,000 150,000
Long term portion of equipment notes -- 11,136
----------- -----------
150,000 161,136
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Series A, convertible preferred stock, $0.0005 par value; 1,000,000
shares authorized; 3,880 and 3,880 shares issued and outstanding,
respectively 2 2
Common stock Class A, $0.0005 par value; 50,000,000 shares authorized;
11,917,954 and 11,907,954 issued; and 11,817,954 and 11,807,954
outstanding, respectively 5,909 5,904
Common stock Class B, $0.0005 par value; 15,000,000 shares authorized;
1,018,950 and 1,018,950 issued and outstanding 509 509
Additional paid-in capital 5,488,553 5,448,553
Accumulated deficit (4,868,968) (4,778,671)
----------- -----------
Total Stockholders' Equity 589,700 676,297
----------- -----------
Total Liabilities and Stockholders' Equity $ 2,490,643 $ 2,394,539
=========== ===========
</TABLE>
The accompanying notes to condensed financial statements are an integral
part of these statements.
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<PAGE>
CHICKEN KITCHEN CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30, June 30,
2000 1999
------------ ------------
<S> <C> <C>
REVENUES:
Food and beverage sales $ 1,831,177 $ 1,987,749
Commissary sales to franchisees 157,815 --
Franchise revenues 45,113 --
------------ ------------
Total revenues 2,034,105 1,987,749
OPERATING EXPENSES:
Cost of sales 837,114 870,239
Labor and employee benefits 545,512 608,201
Direct operating expenses 305,025 279,045
Consulting fees 22,890 16,861
Administrative and general 324,961 287,453
Depreciation and amortization 85,254 100,897
------------ ------------
Total operating expenses 2,120,756 2,162,696
------------ ------------
Loss from operations (86,651) (174,947)
OTHER INCOME (EXPENSE):
Net realized and unrealized gains on sales of marketable securities -- 7,075
Other, net (3,646) (5,404)
------------ ------------
Total other (expense) income, net (3,646) 1,671
------------ ------------
Loss before income taxes (90,297) (173,276)
INCOME TAXES -- --
------------ ------------
Net loss (90,297) (173,276)
PRO RATA PORTION OF PREFERRED DIVIDENDS (Note 5) -- (77,600)
------------ ------------
Net loss applicable to common stockholders $ (90,297) $ (250,876)
============ ============
Weighted Average Common Shares Outstanding 12,830,237 12,781,904
============ ============
Net Loss Per Common Share (Note 3) $ (0.01) $ (0.02)
============ ============
</TABLE>
The accompanying notes to condensed financial statements are an integral
part of these statements.
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<PAGE>
CHICKEN KITCHEN CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30, June 30,
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (90,297) $(173,276)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 85,254 100,897
Realization of deferred franchise fees (25,000) --
Issuance of stock in connection with employment agreement 3,700 --
Net realized and unrealized gains on sales of marketable
securities -- (7,075)
Changes in operating assets and liabilities:
Sale of marketable securities, net -- 152,281
Other current assets (13,827) 18,749
Advances to principal stockholder (84,431) (56,827)
Other assets 1,248 (16,451)
Accounts payable and accrued expenses 67,343 291,257
Increase in note payable due to interest 4,500 4,500
Deferred franchise fee 165,000 --
--------- ---------
Net cash provided by operating activities 113,490 314,055
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (6,345) (24,009)
--------- ---------
Net cash provided by (used in) investing activities (6,345) (24,009)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (payment) of equipment notes (29,142) 4,501
Sale (purchase) of treasury stock -- 9,594
--------- ---------
Net cash provided by (used in) financing activities (29,142) 14,095
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 78,003 304,141
--------- ---------
CASH AND CASH EQUIVALENTS, beginning of year 137,296 183,430
--------- ---------
CASH AND CASH EQUIVALENTS, end of year $ 215,299 $ 487,571
========= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest expense $ 1,591 $ 3,159
========= =========
Cash paid for income taxes $ -- $ --
========= =========
</TABLE>
The accompanying notes to condensed financial statements are an integral
part of these statements.
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<PAGE>
CHICKEN KITCHEN CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
The Company is engaged in the business of operating "Chicken Kitchen"
restaurants and selling franchises. The restaurants feature a menu focused
on marinated grilled chicken and capitalizes on the current consumer
preference for healthier, lower-fat foods. During the year ended March 31,
1999, the Company began the selling of franchise locations. The franchise
agreement grants the franchisee a non-exclusive license to open and operate
a "Chicken Kitchen" restaurant for a 20-year period, with one additional
20-year option. The Company collects an initial franchise fee of $30,000,
royalty fees and a percentage of revenues for advertising. At June 30, 2000
and March 31, 2000, the Company had 6 Company owned restaurants located in
South Florida. One franchise restaurant was opened during the three months
ended June 30, 2000, and there were 3 franchise restaurants open in South
Florida at June 30, 2000.
2. BASIS OF PRESENTATION
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
the Company have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions for Form 10-QSB and Item 310(b) of Regulation S-B. These
financial statements do not include all information and notes required by
generally accepted accounting principles for complete financial statements,
and should be read in conjunction with the audited financial statements and
notes thereto included in the Company's annual report on Form 10-SB for the
year ended March 31, 2000. The March 31, 2000 fiscal year end condensed
balance sheet data was derived from audited financial statements but does
not include all disclosures required by generally accepted accounting
principles. The financial information furnished reflects all adjustments,
consisting only of normal recurring accruals which are, in the opinion of
management, necessary for a fair presentation of the financial position,
results of operations and cash flows for the periods presented. The results
of operations are not necessarily indicative of results of operations,
which may be achieved in the future.
3. LOSS PER SHARE
Basic loss per common share is computed by dividing net loss attributable
to common stockholders (net loss plus the pro rata portion of preferred
dividends) by the weighted average number of shares of common stock
outstanding during the year. Diluted loss per share, which assumes that the
convertible preferred stock is converted into Class A voting common stock
and the stock options to purchase shares of Class A voting common stock are
exercised, is not presented because the effect would be anti-dilutive for
both 2000 and 1999. The weighted average shares outstanding used in the
computation of net loss attributable to common shares are as follows:
Weighted Average Shares Outstanding
-----------------------------------
(UNAUDITED)
For the Three Months Ended
June 30,
2000 1999
---------- ----------
Class A common stock 11,811,287 11,762,954
Class B common stock 1,018,950 1,018,950
---------- ----------
12,830,237 12,781,904
========== ==========
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<PAGE>
4. STOCKHOLDERS' EQUITY
During the three months ended June 30, 2000, 10,000 shares of Class A
common stock were issued in connection with an employment agreement.
5. PREFERRED STOCKHOLDER SETTLEMENT
In July 2000, the Company entered a settlement agreement for alleged
breaches of a subscription agreement to convert preferred shares into
restricted common stock, brought by preferred stockholders. The settlement
requires the Company to convert the preferred stock into 16,000,000 shares
of restricted Class A common stock, and further requires the Company to pay
the preferred stockholders $350,000 at the closing of formal documentation,
and, issue a promissory note for, at the election of the preferred
stockholders, either an additional $100,000 six months after the closing,
or $150,000 one year after the closing. The promissory note will be secured
by 500,000 shares of the Company's Class A common stock owned by the
Company's president. The preferred stockholders will also enter into a
voting agreement binding themselves to vote their exchanged shares pursuant
to the recommendation of the Company's board of directors. No dividends
will be due or paid on the converted preferred stock.
6. COMMITMENTS AND CONTINGENCIES
(A) Closing of Restaurant Location
In May 2000, the Company closed one of its restaurant locations and
recognized an impairment loss of $403,080, which the Company recognized at
March 31, 2000, relating to the write-off of $379,543 of intangible assets
and $23,537 of equipment. The Company vacated the leased premises, and the
landlord is seeking damages for the remaining lease payments (approximately
$428,000) under the lease term. The Company has brought a counter-claim
against the landlord for breach of the lease agreement. While the parties
have begun to discuss settlement possibilities, legal counsel has indicated
that they are unable to determine whether and to what extent the Company
might suffer an adverse judgement. The Company has provided $100,000 for
possible future lease and/or settlement payments.
(B) Litigation
Leased Premises Litigation
The Company is currently a defendant in a lawsuit, filed by the lessor of a
restaurant site, for eviction, based on alleged non-monetary breaches of
the provisions of the written lease agreement. The Company is vigorously
defending the lawsuit. The action remains pending, and while the Company is
confident in its position, an eviction from the premises would have a
materially adverse effect on the operating cash flow of the Company. As the
case has not yet been set for trial, legal counsel has advised the Company
that it is not possible to determine whether, and to what extent if any,
the Company might suffer adverse judgements. The parties have recently
begun to discuss a possible settlement of the action.
Guarantee Litigation
A non-interest bearing note payable (with an imputed principal balance and
accrued interest of $125,903 and $121,403 at June 30, 2000 and March 31,
2000) made in connection with the acquisition of restaurant assets and a
location is collateralized by 100,000 issued shares of the Company's
restricted Class A common stock held in escrow. The note was due in
February 1999 and has not yet been repaid by the Company. The Company
believes it has the right, under the governing
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<PAGE>
documents, to satisfy the note with the escrowed stock. The holder of the
note declined to accept the stock as payment and has brought a lawsuit for
eviction, based on a cross-default provision in the promissory note and
lease. This lawsuit has been set for trial, and the parties are engaging in
settlement discussions. If a settlement cannot be reached, and the case
proceeds, legal counsel had advised the Company that it is not possible to
determine whether, and to what extent if any, the Company might suffer
adverse judgement. The Company is vigorously defending the action.
Other Litigation
The Company is also currently a defendant in a lawsuit filed during October
1999 by a former supplier of its chicken products for non-payment. As the
lawsuit is in the discovery stage, legal counsel has advised the Company
that it is not possible to determine whether, and to what extent if any,
the Company might suffer adverse judgements. The Company is vigorously
defending the action and has asserted counter claims.
7. RELATED PARTIES
In June 2000, the Company entered into an employment agreement with the
Principal Stockholder. The agreement calls for a base salary of $300,000
per year and the right to open up to ten franchise locations which will be
exempt from the payment of the franchise fees and royalties (an "Exempt
Franchise"). The Principal Stockholder will receive a $1,000,000 settlement
payment if the Company terminates the agreement without cause or if the
Principal Stockholder terminates the agreement with cause. The employment
agreement also specifies that for each franchise agreement entered and
opened by the Company, including the franchises opened during fiscal 2000,
the Principal Stockholder will be granted the option to purchase 100,000
shares of Class A common stock, or the right to open an additional Exempt
Franchise. However, the issuance of the options or additional franchises
will only be made upon the occurrence of certain situations, as defined,
such as voluntary or involuntary termination of the Principal Stockholder,
change in control of the Board of Directors, leveraged buy-out, merger, or
court order.
During the three months ended June 20, 3000, the Company made advances to
the Principal Stockholder in the amount of $84,431.
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<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO
THREE MONTHS ENDED JUNE 30, 1999
This Form 10-Q contains various "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements represent the Company's expectations or belief concerning future
events, including the following: any statements regarding future sales or
expenses, any statements regarding the continuation of historical trends, and
any statements regarding the sufficiency of the Company's working capital and
cash generated from operating and financing activities for the Company's future
liquidity and capital resources needs. Without limiting the foregoing, the words
"believes," "anticipates," "plans," "expects," and similar expressions are
intended to identify forward-looking statements.
The Company cautions that those statements are further qualified by
important economic and competitive factors that could cause actual results to
differ materially from those in the forward-looking statements, including,
without limitation, risks of the restaurant industry, including a highly
competitive industry and the impact of changes in consumer tastes, local,
regional and national economic conditions, demographic trends, traffic patterns,
employee availability and cost increases.
In addition, the opening and success of new restaurants will depend on
various factors, including the availability of suitable sites for new
restaurants, the negotiation of acceptable lease or purchase terms for new
locations, permitting and regulatory compliance, the ability of the Company to
manage the anticipated expansion and hire and train personnel, the financial
viability of the Company's franchisees, particularly multi-unit operators, and
general economic and business conditions. Accordingly, such forward-looking
statements do not purport to be predictions of future events or circumstances
and may not be realized.
Restaurant sales for the three months ended June 30, 2000 decreased to
$1,831,177 from $1,987,749 in the comparable period for an decrease of 7.9%.
This was due to same store sales increases less the loss sales from the closure
of the Bayside location. Commissary sales of chicken to the franchisee totaled
$157,815. There were no Commissary sales to Franchisee in the comparable period
in 1999. Revenues totaled $1,988,992 for the period, an increase of $1,243.
Cost of sales increased as a percentage of sales to 41.15% compared to
39.81% in the comparable quarter of the prior year. This increase was due to
higher chicken costs.
Labor and employee benefits which consists of wages, payroll taxes and
other benefits and insurance costs for restaurant's salaried and hourly
employees increased 10.31% as a percentage of sales to 26.8% in the 2000 quarter
compared to the prior year's quarter. This increase was due to higher per hour
wage rates.
Direct operating expenses consist of all restaurant-operating costs
other than cost of sales and payroll expenses and include occupancy costs,
utilities and other direct costs. These
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<PAGE>
expenses decreased by 46.42% to 7.35% of sales from 13.2%. This reflects
decreased rental costs due to the closure of the Bayside location.
Consulting fees increased $6,029 to $22,890.
Administrative and general expenses for the 2000-quarter increased by
$37,508 or by 13.05% when compared to the comparable 1999 quarter. The increase
is primarily attributable to increases legal expenditures finalizing open law
suites, and in the hiring of human resources that will support our franchising
growth. Contributing to the increase were increased audit and accountancy fees.
In addition, higher advertising and promotional expenses were incurred to
promote the Chicken Kitchen brand.
Depreciation and amortization decreased to $85,254 from $100,897.
The Company realized a loss of $86,651 during the 2000 quarter compared
to a loss of $174,947 during the comparable quarter. This reduction is the
result of operational efficiencies achieved through the implementation of a
series of operational controls.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company had cash on hand of $215,299, and
other current assets of $214,482, for total current assets of $429,781. Total
current liabilities are $976,860, and are comprised of $421,581 in accounts
payable, $438,376 in accrued expenses, and $116,903 in a Note Payable. We had no
long-term debt. As of June 30, 2000, we had working capital (deficit) of
($750,373).
The current payables as of June 30, 2000 include a $116,903 Note
Payable that the Company expects to satisfy by the issuance of the Company's
Common Stock. The holder of the Note is contesting the payment terms of this
Note. Accordingly, the final payment terms are not yet determinable causing the
current payable classification.
The working capital deficit is primarily the result of result of continuing
losses.
LOSSES INCURRED IN OPERATIONS / MODIFIED ACCOUNTANTS' REPORT
With the exception of the current quarter, we have incurred losses from our
operations since inception and we had a working capital deficit of $750,373 at
June 30, 2000. Our independent accountants have modified their report to our
year-end, March 31, 1999, financial statements to reflect doubt as to our
ability to continue as a going concern.
We currently operate six restaurants and are engaged in franchising
operations. Management believes that cash on hand and cash generated from
operations together with Franchise Fees and Royalty payments will be sufficient
to fund operations. However, no assurance can be given that additional funds
will not be required prior to the expiration of such period or that any funds
which may be required will be available, if at all, on acceptable terms. If
additional funds are required, the inability of the Company to raise such funds
will have an adverse effect upon its operations. To the extent that additional
funds are obtained by the sale of equity securities, the stockholders may
sustain significant dilution. If adequate capital is not available, the Company
will have to reduce or eliminate its planned expansion activities, which could
otherwise ultimately provide significant revenue to the Company.
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<PAGE>
We have no arrangements or understandings with respect to additional
financings, and any expansion of the Company's restaurants could require that
the Company's raise additional funds. In addition, expansion of the Company's
restaurant and franchising expectations may require additional capital. There
can be no assurance that the Company will be able to continue to expand or to
obtain sufficient capital in the future, nor the terms on which capital may be
obtained. The Company has no lines of credit available to it at this time.
PART II
ITEM 1. Legal Proceedings
On February 23, 1998, Mr. Daniel Hitchcock, landlord for the restaurant
located in South Miami, Florida, at 7315 S.W. 57th Avenue, filed a lawsuit Case
No.: 98-24433 CA 41, pending in the Circuit Court of the Eleventh Judicial
Circuit in and for Miami-Dade County, Florida, seeking eviction of the Company
for alleged non-monetary breaches of the provisions of the written lease
agreement, including a limitation on seating to 17 persons and a requirement of
no outdoor seating. The Company is vigorously defending the lawsuit, based on
the prior and subsequent oral agreement of the parties that the Company could
have as many seats within the premises as the law would otherwise allow. The
action remains pending, and while the Company is confident in its position, an
eviction from these premises would have a very adverse effect on the operating
cash flow of the Company, and the outcome at trial cannot be predicted. The case
has not yet been set for trial, and the Company has recently asserted claims
against the persons who designed the restaurant at issue, seeking recovery
against them for any damages the Company may suffer in this case.
The Company is defending a lawsuit styled Agricola Coco Bohn, S.A., et
al, v. Chicken Kitchen Corporation, etc., et al.: Case number 99-4608 CA 0
pending in the Circuit Court of the Eleventh Judicial Circuit in and for
Miami-Dade County, Florida. The background of this lawsuit surrounds the
entitlement of the holders of the Series A Preferred Stock to convert their
preferred stock for restricted class A common stock in accordance with the terms
of the Subscription Agreement through which the Series A Preferred Stock was
issued. The Company is vigorously defending the lawsuit, alleging as its primary
defense that the holders of the Series A Preferred Stock illegally and
improperly manipulated the market for the Company's common stock, and thus,
would have no right to convert their Series A Preferred Stock to common. The
Company has agreed in principal to settle this litigation with all of the Series
A Preferred Stockholders (the "Shareholders"). The proposed settlement would
require the Company to: (i) convert the Shareholders' preferred stock into
16,000,000 shares of the Company's restricted Series A common stock,
cumulatively (the "Exchanged Shares"); (ii) deliver $300,000.00 to the
Shareholders, and permit the Shareholders to retain an additional $50,000 being
held in escrow by counsel for the Shareholders; and (iii) one year after the
closing of formal documentation consistent with the parties agreement in
principal, the Company will pay $150,000 in the aggregate to a representative of
the Shareholders, the payment of which shall be evidenced by a promissory note
(the "Note") and secured by 500,000 of the Company's President's personal Series
A common stock in the Company. The agreement also would require the Shareholders
to enter into a voting agreement on behalf of themselves and their affiliates,
officers, directors, employees, and immediate family members, the terms of which
shall provide that the Shareholders will vote in accordance with the
recommendations of the Board of Directors of Chicken Kitchen on all matters
except where such matter would directly alter the terms of the
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<PAGE>
Note, the agreement in principal, or any of the closing documents. Upon the
closing of formal documentation consistent with the parties agreement in
principal all parties would dismiss all claims against all other parties to the
litigation with prejudice and exchange releases. The other non-monetary
conditions of the agreement in principal are included on the attached term sheet
describing the proposed settlement.
The Company has settled a lawsuit styled Cafe 1429, Inc. and SLML, Inc.
v. Chicken Kitchen Corporation, Case No.: 99-4709 CA 05, pending in the Circuit
Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida.
The claim against the Company stemmed from the purchase of the assets of a
restaurant on Miami Beach, Florida, and a related promissory note, lease, and
security agreement, all of which contain cross-default clauses. The
plaintiffs/sellers took back from the Company a $100,000 promissory note for
$100,000 of the purchase price of the assets. The Company issued and delivered
to an escrow agent 100,000 shares of its restricted Class A common stock as
security for the $100,000 note. The Company defended the action upon the belief
that the governing documents gave it the right to satisfy the $100,000
obligation with additional stock of the Company. The settlement requires the
Company to issue additional Series A Common Stock, in conversion of the $100,000
note, in an amount sufficient to sell to realize $95,000.00, exclusive of costs,
before May 20, 2001. The Company will also pay $3,000.00 per month to be applied
toward the $95,000.00 settlement number. In the event that as of May 20, 2001,
the net proceeds from the sale of stock referenced in this paragraph, together
with the sum of the monthly $3,000.00 payments, is less than $95,000.00, the
Company will have to satisfy the deficiency on or before May 20, 2001. If the
payment of such a deficiency is not timely made, the plaintiffs would receive an
immediate judgment against the Company for the amount of the deficiency. The
settlement agreement also provides for the entry of an immediate judgment
against the Company in the event that any of the $3,000.00 monthly payments
referenced herein is not made. The Company and the plaintiffs exchanged releases
and dismissed their respective claims with prejudice.
The Company is a defendant in an action filed on or about October 14,
1999 by a former supplier of its chicken products for nonpayment. The case is
styled International Prosperity, Inc. v. Chicken Kitchen Corporation; Case No.:
99-23992-CA 01, and is pending in the Circuit Court for the Eleventh Judicial
Circuit in and for Miami-Dade County, Florida. The Corporation is vigorously
defending the lawsuit and has asserted counterclaims for fraud and for breach of
contract on the grounds that the plaintiff-supplier allegedly had been
overcharging the Company and delivering product of a lesser quality than was
ordered. The case is not yet at issue and not yet set for trial. As a result, it
is too early to determine whether, and to what extent, the Company might suffer
an adverse or favorable judgment.
The Company is a defendant in two federal court actions: Alexis v.
Chicken Kitchen Corporation, Case number 00-3066 CIV GRAHAM TURNOFF, and
Jean-Jacques v. Chicken Kitchen Corporation, Case Number 00-3308 CIV HUCK BROWN,
pending in the United States District Court for Miami, Florida. These lawsuits
were brought by two former employees seeking damages for alleged violations of
federal and state anti-discrimination laws. The Company believes the claims have
no merit and is vigorously defending them. The cases are newly filed, no
discovery has been taken, and they are not yet set for trial. It is impossible
to determine at this early stage in the proceedings whether, and what extent,
the Company might suffer an adverse or favorable judgment.
The Company is a defendant in a lawsuit filed on May 9, 2000 styled Bayside
Center LP v. Chicken Kitchen Corporation, Case No.: 00-11733 CA 30 in Miami-Dade
County, Florida, by a
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former landlord for enforcement of a landlord's lien and distress for rent. The
case is not yet at issue and not yet set for trial. As a result, it is too early
to determine whether, and to what extent, the Company might suffer an adverse or
favorable judgment, although the parties are in the midst of discussing
settlement options.
ITEM 2. Changes in Securities.
NONE
ITEM 3. Defaults Upon Senior Securities.
NONE
ITEM 4. Submission of Matters to a Vote of Security Holders.
NONE
ITEM 5. Other Information
NONE
ITEM 6. Exhibits.
Exhibit 27 attached herewith.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Company has
caused the undersigned, duly authorized, to sign this report on behalf of the
Company.
CHICKEN KITCHEN CORPORATION
By: /s/ Christian de Berdouare
----------------------------
Christian de Berdouare, President
and Chief Executive Officer
Date: November 15, 2000
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13
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT DESCRIPTION
----------- -------------------
27 Financial Data Schedule
