UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------------
FORM 10-Q
----------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
-------------
Commission file number 333-57931
TUMBLEWEED, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 61-1327945
(State or other jurisdiction of (I.R.S.
Employer Identification No.)
incorporation or organization)
1900Mellwood Avenue, Louisville, Kentucky 40206 (Address of
principal executive offices)
(502) 893-0323
(Registrants 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
The number of shares of common stock, par value of $.01 per share, outstanding
on November 1, 1999 was 5,881,543.
Exhibit Index: Pages 21 - 22
<PAGE>
TUMBLEWEED, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
a) Statements of Operations for the nine months and three months
ended September 30, 1999 and 1998 3
b) Balance Sheets as of September 30, 1999 and December 31, 199 4
c) Statements of Cash Flows for the nine months ended September 30,
1999 and 1998 6
d) Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 20
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21
Signature 23
<PAGE>
<TABLE>
<CAPTION>
Tumbleweed, Inc.
Statement of Income
(Unaudited)
Nine Months Ended Three Months Ended
September 30 September 30
1999 1998 1999 1998
------------------------ ------------------------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales $36,719,970 $29,064,352 $12,792,753 $10,516,721
Commissary sales 875,842 752,644 313,194 249,303
Franchise fees and royalties 800,430 566,871 267,768 182,257
Other revenues 358,558 406,850 152,161 157,223
------------------------ ------------------------
Total Revenues 38,754,800 30,790,717 13,525,876 11,105,504
Operating expenses:
Restaurant cost of sales 10,658,321 8,470,147 3,694,473 3,084,617
Commissary cost of sales 789,530 648,631 274,647 218,511
Operating expenses 18,409,630 14,963,287 6,454,667 5,362,538
Selling, general and
administrative expenses 3,761,375 2,994,809 1,269,845 1,000,936
Preopening expenses 318,320 537,319 63,287 230,411
Depreciation and amortization 1,321,989 1,024,658 459,254 369,294
------------------------ ------------------------
Total operating expenses 35,259,165 28,638,851 12,216,173 10,266,307
------------------------ ------------------------
Income from operations 3,495,635 2,151,866 1,309,703 839,197
Other income (expense):
Interest income 35,949 45,827 12,352 14,799
Interest expense (851,972) (651,203) (305,851) (240,946)
------------------------ ------------------------
Total other expense (816,023) (605,376) (293,499) (226,147)
------------------------ ------------------------
Income before income taxes and
cumulative effect of a
change in accounting principle 2,679,612 1,546,490 1,016,204 613,050
Provision for income taxes:
Current (937,864) - (355,671) -
Deferred (639,623) - - -
------------------------ ------------------------
Total provision for income
taxes (1,577,487) - (355,671) -
------------------------ ------------------------
Income before cumulative effect
of a change in accounting
principle 1,102,125 1,546,490 660,533 613,050
Cumulative effect of a change in
accounting principle, net
of tax (341,035) - - -
------------------------ ------------------------
Net income $ 761,090 $ 1,546,490 $ 660,533 $ 613,050
======================== ========================
Pro forma income data:
Income before income taxes and
cumulative effect of a change
in accounting principle $ 2,679,612 $ 1,546,490 $ 1,016,204 $ 613,050
Pro forma income taxes (937,864) (541,272) (355,671) (214,568)
------------------------ ------------------------
Pro forma income before
cumulative effect of a change
in accounting principle 1,741,748 1,005,218 660,533 398,482
Cumulative effect of a change
in accounting principle,
net of tax (341,035) - - -
------------------------ ------------------------
Pro forma net income $ 1,400,713 $ 1,005,218 $ 660,533 $ 398,482
======================== ========================
Pro forma basic and diluted
earning per share:
Pro forma income before
cumulative effect of a change
in accounting principle $ 0.30 $ 0.20 $ 0.11 $ 0.08
Cumulative effect of a change in
accounting principle,
net of tax (0.06) - - -
------------------------ ------------------------
Pro forma net income $ 0.24 $ 0.20 $ 0.11 $ 0.08
======================== ========================
Weighted average number of
outstanding shares (pro
forma shares in 1998) 5,881,543 5,105,000 5,881,543 5,105,000
======================== ========================
See accompanying notes.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Tumbleweed, Inc.
Balance Sheets
Pro forma
September 30 December 31 December 31
1999 1998 1998
------------------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 364,405 $ 1,898,973 $ 1,898,973
Accounts receivable 487,555 433,872 433,872
Inventories 1,438,442 1,333,591 1,333,591
Prepaid expenses 358,804 330,439 330,439
Deferred preopening expenses - 524,669 524,669
------------------------- ------------
Total current assets 2,649,206 4,521,544 4,521,544
Property and equipment, net 29,739,123 24,920,797 24,920,797
Goodwill, net of accumulated amortization
of $523,560 in 1999 and $440,242 in 1998 2,765,183 2,833,704 2,833,704
Other assets 428,937 1,404,861 1,404,861
------------------------- ------------
Total assets $ 35,582,449 $ 33,680,906 $ 33,680,906
========================= ============
See accompanying notes.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Pro forma
September 30 December 31 December 31
1999 1998 1998
------------------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Liabilities, Redeemable Members' Equity,
Members' Equity, Retained Earnings
(Deficit) and Stockholders' Equity
Current Liabilities:
Short-term borrowings $ - $ 6,990,348 $ 6,990,348
Accounts payable 1,323,799 1,781,418 1,781,418
Accrued liabilities 1,849,047 1,873,651 1,873,651
Deferred income taxes 398,974 - 467,420
Current maturities on long-tern
debt and capital leases 968,245 895,310 895,310
------------------------- ------------
Total current liabilities 4,540,065 11,540,727 12,008,147
Long-term liabilities:
Long-term debt, less current maturities 10,481,031 9,180,358 9,180,358
Capital lease obligations, less current
maturities 2,926,471 3,287,296 3,287,296
Deferred income taxes 316,008 - 172,203
Other liabilities 205,090 94,838 94,838
------------------------- ------------
Total long-term liabilities 13,928,600 12,562,492 12,734,695
------------------------- ------------
Total liabilities 18,468,665 24,103,219 24,742,842
Redeemable members' equity - 18,924,688 -
Members' equity - 354,459 -
Retained earnings (deficit) - (9,701,460) -
Stockholders' equity:
Preferred stock, $.01 par value,
1,000,000 shares authorized; no shares
issued and outstanding - - -
Common stock, $.01 par value, 16,500,000
shares authorized; 5,881,543 shares
issued and outstanding in 1999
(5,105,000 shares on a pro forma basis
in 1998) 58,815 - 51,050
Paid-in capital 16,293,879 - 8,887,014
Retained earnings 761,090 - -
------------------------- ------------
Total stockholders' equity 17,113,784 - 8,938,064
------------------------- ------------
Total liabilities and stockholders'
equity $ 35,582,449 $ 33,680,906 $ 33,680,906
========================= ============
See accompanying notes.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Tumbleweed, Inc.
Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30
1999 1998
---------------------------
<S> <C> <C>
Operating activities:
Net income $ 761,090 $ 1,546,490
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,213,159 910,447
Amortization 108,829 114,211
Preopening amortization - 537,319
Deferred income taxes 714,982 -
Loss on disposition of property and equipment 23,004 9,981
Changes in operating assets and liabilities:
Accounts receivable (53,683) 37,907
Inventories (104,851) (299,556)
Deferred preopening expenses 524,669 (948,815)
Prepaid expenses (47,080) (44,992)
Other assets (45,670) (100,976)
Accounts payable 44,563 18,253
Accrues liabilities (24,604) 459,189
Other liabilities 110,252 (20,497)
---------------------------
Net cash provided by operating activities 3,224,660 2,218,961
Investing activities:
Purchases of property and equipment (6,054,489) (5,619,749)
---------------------------
Net cash used in investing activities (6,054,489) (5,619,749)
Financing activities:
Distribution of members' equity - (651,445)
Proceeds from common stock offering 7,765,397 -
Proceeds from issuance of long-term debt 6,493,435 5,380,463
Payments on long-term debt and capital
lease obligations (12,471,000) (2,020,001)
Payment of public offering costs (492,571) (281,761)
---------------------------
Net cash provided by financing activities 1,295,261 2,427,256
---------------------------
Net decrease in cash and cash equivalents (1,534,568) (973,532)
Cash and cash equivalents at beginning of period 1,898,973 1,228,867
---------------------------
Cash and cash equivalents at end of period $ 364,405 $ 255,335
===========================
Supplemental cash flow information:
Cash paid for interest, net of amount capitalized $ 853,523 $ 651,203
===========================
Noncash investing and financing activities:
Equipment acquired by capital lease obligations $ - $ 735,208
===========================
See accompanying notes.
</TABLE>
6
<PAGE>
TUMBLEWEED, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 1999
1. BASIS OF PRESENTATION
Merger of Tumbleweed, LLC and Tumbleweed, Inc.
Tumbleweed, Inc. (the Company) was legally formed in December 1997 and
capitalized on June 23, 1998 with the issuance of 13 shares of Company common
stock at $10 per share. Effective January 1, 1999, and as a result of the sale
of 776,543 shares of common stock in an initial public offering (IPO),
Tumbleweed, LLC (Tumbleweed) was merged into the Company. The interests of
Tumbleweed members at the time of the merger were converted into a total of
5,105,000 shares of Company common stock.
The Company's assets of $1 at December 31, 1998 consisted solely of cash
received in connection with the capitalization of the Company. As of December
31, 1998, the Company had not conducted any operations and all activities
through December 31, 1998 related to the IPO and the merger with Tumbleweed.
During 1998, the Company opened a bank account for the cash received in
connection with the capitalization totaling $130 and, as a result of maintaining
the cash account, the Company incurred expenses totaling $129 during 1998. All
expenditures related to the IPO were funded and recorded by Tumbleweed.
Accordingly, the Company's balance sheet as of December 31, 1998 and the
statements of operations and cash flows for the period from inception through
December 31, 1998 would not provide meaningful information and, accordingly,
have been omitted. Also, the accompanying statements of operations for the three
months and nine months ended September 30, 1998, statement of cash flows for the
nine months ended September 30, 1998 and balance sheet and pro forma balance
sheet as of December 31, 1998 are those of Tumbleweed and are included for
comparative purposes since it was the predecessor company.
As of September 30, 1999, the Company owns and operates 28 restaurants in
Kentucky, Indiana and Ohio and franchises an additional 16 restaurants in
Indiana, Illinois, Kentucky, Tennessee and Wisconsin. The Company also licenses
five restaurants in Germany, Saudi Arabia and Jordan. Subsequent to September
30, 1999, one franchised restaurant located in Nashville, Tennessee ceased
operations.
Interim Financial Reporting
The accompanying financial statements have been prepared by the Company without
audit, with the exception of the December 31, 1998 balance sheet which was
derived from the audited financial statements included in the Company's Form
10-K. The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting and in accordance with Rule 10-01 of Regulation S-X. These financial
statements, note disclosures and other information should be read in conjunction
with the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1998.
In the opinion of management, the unaudited interim financial statements
contained in this report reflect all adjustments, consisting of only normal
recurring accruals, which are necessary for a fair presentation. The results of
operations for the nine months ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1999.
Pro forma Financial Information
Pursuant to the rules and regulations of the Securities and Exchange Commission,
the accompanying pro forma balance sheet for Tumbleweed as of December 31, 1998
reflects the change in capitalization attributable to the conversion of
Tumbleweed's members' interests into 5,105,000 shares of Tumbleweed, Inc. common
stock as if the IPO had closed on December 31, 1998 (excluding the effects of
the offering proceeds). The pro forma balance sheet also reflects the deferred
tax effects of Tumbleweed changing from a limited liability company (which is
taxed as a partnership) to a regular corporate taxable status. Such deferred tax
effects are included in income on January 1, 1999, the date the change in tax
status occurred.
7
<PAGE>
1. BASIS OF PRESENTATION (continued)
Additionally, pro forma net income in the accompanying pro forma income data for
the nine months ended September 30, 1999 and the three months and nine months
ended September 30, 1998 reflects a pro forma adjustment to income before income
taxes and cumulative effect of a change in accounting principle for federal and
state income taxes at an estimated effective rate of 35% as if the Company had
been a regular corporate taxpayer throughout the periods presented. Pro forma
basic and diluted earnings per share is computed based upon the weighted average
number of shares of common stock outstanding for 1999. For 1998, the weighted
average number of shares outstanding assumes the conversion of Tumbleweed's
members' interests into common stock as of the beginning of the period.
2. CHANGE IN ACCOUNTING PRINCIPLE
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-5, "Reporting the Costs of Start-Up Activities."
The SOP was effective beginning January 1, 1999 and requires that start-up costs
capitalized prior to January 1, 1999 be written-off and any future start-up
costs be expensed as incurred. Prior to 1999, the Company capitalized its
preopening costs incurred in connection with opening new restaurant locations.
The unamortized balance of the Company's deferred preopening costs ($524,669 as
of December 31, 1998) was written-off (net of income taxes of $183,634) as a
cumulative effect of an accounting change on January 1, 1999.
3. ACCRUED LIABILITIES
Accrued liabilities consist of:
September 30 December 31
1999 1998
-----------------------------
Accrued payroll and related taxes $ 815,712 $ 792,809
Accrued insurance and fees 325,662 284,270
Accrued taxes, other than income and payroll 520,447 393,593
Gift certificate liability 91,143 275,743
Other 96,083 127,236
-----------------------------
$ 1,849,047 $ 1,873,651
=============================
4. LONG-TERM DEBT
Long-term debt consists of:
September 30 December 31
1999 1998
-----------------------------
Secured $6,500,000 mortgage revolving line of
credit note, bearing interest at prime rate
plus .25% (8.5% at September 30, 1999), due
December 31, 2002 $ 4,227,148 $ 4,302,148
Secured mortgage note payable, bearing interest
at commercial paper rate plus 2.65% (7.97% at
September 30, 1999), due February 17, 2006 2,739,666 -
Secured mortgage note payable, bearing interest
at prime rate plus 1% (9.25% at September 30,
1999), payable in monthly installments through
October 1, 2017 1,066,521 1,084,274
(Continued next page)
8
<PAGE>
4. LONG-TERM DEBT (continued)
September 30 December 31
1999 1998
-----------------------------
Secured mortgage note payable, bearing interest
at 8.5%, payable in monthly installments through
February 15, 2008 $ 966,265 $ 991,396
Secured mortgage note payable, bearing interest
at prime rate (8.25% at September 30, 1999),
payable in monthly installments through March
1, 2006 661,506 -
Secured mortgage note payable, bearing interest
at prime rate plus 1.25% (9.5% at September 30,
1999), payable in monthly installments through
November 27, 2016 643,750 671,875
Secured mortgage note payable, bearing interest at
Commercial paper rate plus 3% - 1,111,928
Secured mortgage note payable, bearing interest
at commercial rate plus 3.1% - 695,230
Other installment notes payable 676,198 750,595
-----------------------------
10,981,054 9,607,446
Less current maturities 500,023 427,088
-----------------------------
Long-term debt $ 10,481,031 $ 9,180,358
=============================
Property and equipment with a net book value of approximately $21,000,000 at
September 30, 1999 collateralize the Company's long-term debt.
5. RELATED PARTY TRANSACTIONS
On April 1, 1999, the Company purchased the land and building, including
improvements, of the Springdale, Ohio restaurant from Keller, LLC (a limited
liability company in which a director of the Company owns a substantial
interest), the lessor of the property, for $1,625,000. The purchase was made for
an amount substantially equal to the costs originally expended by Keller, LLC in
the purchase of the land and construction of the improvements, which
approximated the fair market value as determined by an independent appraisal. At
the time of purchase, the Company entered into a modification agreement with a
local bank to increase a line of credit and to place a mortgage on the land and
building to secure the increased line of credit. At the time of the purchase,
the Company's capital lease obligation to Keller, LLC was terminated.
On July 1, 1999, the Company purchased the land and building, including
improvements, of the Bowling Green, Kentucky restaurant from Douglass Ventures
(a Kentucky general partnership and stockholder of the Company in which a
director of the Company is a general partner) and an unrelated third party, the
co-lessors of the property, for $884,640. The purchase was calculated in
accordance with the lease agreement which approximated the fair market value as
determined by an independent appraisal. At the time of the purchase, the
Company's lease obligation was terminated. The purchase price was funded by cash
reserves and funds drawn on the Company's $6,500,000 line of credit.
9
<PAGE>
6. COMMITMENTS
At September 30, 1999, the Company had commitments of approximately $530,000 for
the completion of the construction of two restaurants, of which one was open at
September 30, 1999. The commitments will be funded by cash reserves or proceeds
from the $6,500,000 mortgage revolving line of credit.
7. SEGMENT INFORMATION
The Company has three reportable segments: restaurants, commissary and
corporate. The restaurant segment consists of the operations of all
company-owned restaurants and derives its revenues from the sale of food
products to the general public. The commissary segment derives its revenues from
the sale of food products to corporate-owned and franchised restaurants. The
corporate segment derives revenues from sale of franchise rights, franchise
royalties and related services used in restaurant operations, and contains the
selling, general and administrative activities of the Company.
Generally, the Company evaluates performance and allocates resources based on
net income. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies in the Company's
Annual Report on Form 10-K.
Segment information for the nine months ended September 30 is as follows:
1999:
Restaurant Commissary Corporate Totals
--------------------------------------------------
Revenues from external
customers $36,719,970 $ 875,842 $1,158,988 $38,754,800
Intersegment revenues - 2,043,630 - 2,043,630
General and
administrative expenses - - 2,780,399 2,780,399
Advertising expenses - - 980,976 980,976
Depreciation and
amortization 1,059,729 89,064 173,196 1,321,989
Net interest expense - 128,875 687,148 816,023
Income (loss) before income
taxes and cumulative effect
of a change in accounting
principle 5,873,097 69,769 (3,263,254) 2,679,612
1998:
Restaurant Commissary Corporate Totals
--------------------------------------------------
Revenues from external
customers $29,064,352 $ 752,644 $ 973,721 $30,790,717
Intersegment revenues - 1,756,167 - 1,756,167
General and
administrative expenses - - 2,301,161 2,301,161
Advertising expenses - - 693,648 693,648
Depreciation and
amortization 780,594 86,347 157,717 1,024,658
Net interest expense - 121,275 484,101 605,376
Income (loss) before income
taxes and cumulative effect
of a change in accounting
principle 4,352,157 139,087 (2,944,754) 1,546,490
10
<PAGE>
7. SEGMENT INFORMATION (continued)
Segment information for the three months ended September 30 is as follows:
1999:
Restaurant Commissary Corporate Totals
--------------------------------------------------
Revenues from external
customers $12,792,753 $ 313,194 $ 419,929 $13,525,876
Intersegment revenues - 730,787 - 730,787
General and
administrative expenses - - 899,253 899,253
Advertising expenses - - 370,592 370,592
Depreciation and
amortization 371,036 29,688 58,530 459,254
Net interest expense - 44,025 249,474 293,499
Income (loss) before income
taxes and cumulative effect
of a change in accounting
principle 1,925,026 54,776 (963,598) 1,016,204
1998:
Restaurant Commissary Corporate Totals
--------------------------------------------------
Revenues from external
customers $10,516,721 $ 249,303 $ 339,480 $11,105,504
Intersegment revenues - 581,707 - 581,707
General and
administrative expenses - - 738,274 738,274
Advertising expenses - - 262,662 262,662
Depreciation and
amortization 284,991 29,535 54,768 369,294
Net interest expense - 40,425 185,722 226,147
Income (loss) before income
taxes and cumulative effect
of a change in accounting
principle 1,615,610 32,680 (1,035,240) 613,050
8. INCOME TAXES
Concurrent with the merger of the Company as described in Note 1, Tumbleweed
converted from a limited liability company into a C corporation and is now
subject to federal and state income taxes. As of the date of the merger, the
Company recorded a net deferred tax liability and corresponding income tax
expense for cumulative temporary differences between the tax basis and the
reported amounts of the Company's assets and liabilities. At the date of the
merger, the net differences equaled approximately $1,780,000 resulting in a net
deferred tax liability and corresponding income tax expense of $639,623 which is
included in the deferred income tax provision in the accompanying statement of
operations for the nine months ended September 30, 1999.
Income taxes on the Company's income for the three months and nine months ended
September 30, 1999 have been provided for at an estimated effective tax rate of
35%.
11
<PAGE>
8. INCOME TAXES (continued)
Significant components of the Company's deferred tax assets and liabilities as
of September 30, 1999 are as follows:
Deferred tax assets:
Book over tax amortization $ 60,571
Other 109,599
-----------
Total deferred tax assets 170,170
Deferred tax liabilities:
Deferred expenses (316,585)
Tax over book depreciation (395,814)
Other (172,753)
-----------
Total deferred tax liabilities (885,152)
-----------
Net deferred tax liability $ (714,982)
===========
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
We make various forward-looking statements about our business in the following
discussion. When making these forward-looking statements, we use words such as
expects, believes, estimates, anticipates, plans and similar expressions to
identify them. We also identify important cautionary factors that could cause
our actual results to differ materially from those projected in the
forward-looking statements we make. Factors that realistically could cause
results to differ materially from those projected in the forward-looking
statements include the availability and cost of financing and other events that
affect our restaurant expansion program, changes in food and other costs,
changes in national, regional or local economic conditions, changes in consumer
tastes, competitive factors such as changes in the number and location of
competing restaurants, the availability of experienced management and hourly
employees, and other factors set forth below.
Of the 49 Tumbleweed restaurants as of September 30, 1999, we owned and operated
28 restaurants in Kentucky, Indiana and Ohio, franchised 16 restaurants in
Indiana, Illinois, Kentucky, Tennessee and Wisconsin, and licensed five
restaurants in Germany, Jordan and Saudi Arabia. Subsequent to September 30,
1999, one franchised restaurant located in Nashville, Tennessee ceased
operations.
Effective January 1, 1999, Tumbleweed, LLC (Tumbleweed) converted to a C
corporation from a limited liability company by merging with the Company. As a
limited liability company, Tumbleweed had been treated as a partnership for
income tax purposes and, accordingly, had not been subject to federal or state
income taxes. The discussion of financial condition and results of operations
included in the paragraphs that follow reflect a pro forma adjustment for
federal and state income taxes that would have been recorded during the periods
if Tumbleweed had been subject to corporate income taxes throughout the periods
presented.
The following section should be read in conjunction with our financial
statements and the related notes included elsewhere in this filing.
RESULTS OF OPERATIONS
The table, on the next page, sets forth the percentage relationship to total
revenues of certain income statement data, except where noted, for the periods
indicated.
13
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Three Months
September 30 Ended September 30
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales 94.7 % 94.4 % 94.6 % 94.7 %
Commissary sales 2.3 2.4 2.3 2.2
Franchise fees and royalties 2.1 1.8 2.0 1.6
Other revenues 0.9 1.4 1.1 1.5
------- ------- ------- -------
Total revenues 100.0 100.0 100.0 100.0
Operating expenses:
Restaurant cost of sales(1) 29.0 29.1 28.9 29.3
Commissary cost of sales(2) 90.1 86.2 87.7 87.6
Operating expenses(1) 50.1 51.5 50.5 51.0
Selling, general and
administrative expenses 9.7 9.7 9.4 9.0
Preopening expenses 0.8 1.7 0.5 2.1
Depreciation and amortization 3.4 3.3 3.4 3.3
------- ------- ------- -------
Total operating expenses 91.0 93.0 90.3 92.4
------- ------- ------- -------
Income from operations 9.0 7.0 9.7 7.6
Interest expense, net (2.1) (2.0) (2.2) (2.0)
------- ------- ------- -------
Income before income taxes and
cumulative effect of a change in
accounting principle 6.9 5.0 7.5 5.6
Provision for income taxes:
Current (2.4) - (2.6) -
Deferred (1.6) - - -
------- ------- ------- -------
Total provision for income taxes (4.0) - (2.6) -
------- ------- ------- -------
Income before cumulative effect
of a change in accounting
principle 2.9 5.0 4.9 5.6
Cumulative effect of a change in
accounting principle, net of
tax (0.9) - - -
------- ------- ------- -------
Net income 2.0 % 5.0 % 4.9 % 5.6 %
======= ======= ======= =======
Pro forma income data:
Income before income taxes and
cumulative effect of a change in
accounting principle 6.9 5.0 7.5 5.6
Pro forma income taxes (2.4) (1.7) (2.6) (1.9)
------- ------- ------- -------
Pro forma income before cumulative
effect of a change in accounting
principle 4.5 3.3 4.9 3.7
Cumulative effect of a change in
accounting principle, net of
tax (0.9) - - -
------- ------- ------- -------
Pro forma net income 3.6 % 3.3 % 4.9 % 3.7 %
======= ======= ======= =======
(1) As percentage of restaurant sales.
(2) As percentage of commissary sales.
</TABLE>
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Total revenues increased by $7,964,083 or 25.9% for the nine months ended
September 30, 1999 compared to the same period in 1998 primarily as a result of
the following:
Restaurant sales increased by $7,655,618 or 26.3% for the nine months ended
September 30, 1999 compared to
14
<PAGE>
the same period in 1998. The increase is due primarily to the addition of four
Company-owned restaurants since September 30, 1998 and an increase in same
store sales of 2.9% for the nine month period.
Commissary sales to franchised restaurants increased by $123,198 or 16.4% for
the nine months ended September 30, 1999 compared to the same period in 1998.
The increase is due primarily to the addition of five franchised or licensed
restaurants since September 30, 1998.
Franchise fees and royalties increased by $233,559 or 41.2% for the nine
months ended September 30, 1999 compared to same period in 1998. The increase
was due primarily to a $105,000 increase in franchise fees received upon the
opening of five new franchised restaurants during the nine months ended
September 30, 1999 compared to two during the same period in 1998.
Additionally, royalty income increased approximately $152,000 during the nine
months ended September 30, 1999 compared to the same period in 1998 as a
result of an increase in franchised restaurants. The increase in franchise
fees and royalties for the nine month period is partially offset by an
approximately $23,000 decrease in international territory fees.
Other revenues decreased by $48,292 or 11.9% for the nine months ended
September 30, 1999 compared to the same period in 1998 primarily due to the
fact that 1998 includes approximately $140,000 received from the Ohio Bureau
of Workers' Compensation which represents a return of invested premiums by the
State of Ohio. There was no similar income during the nine months ended
September 30, 1999. The decrease in other revenues is partially offset by an
increase in volume related purchasing rebates of approximately $110,000.
Restaurant cost of sales increased by $2,188,174 or 25.8% for the nine months
ended September 30, 1999 compared to the same period in 1998. The increase was
principally due to the opening of four additional Company-owned restaurants
since September 30, 1998. Restaurant cost of sales decreased as a percentage of
sales by 0.1% to 29.0% for the nine months ended September 30, 1999 compared to
29.1% during the same period in 1998.
Commissary cost of sales increased $140,899 or 21.7% for the nine months ended
September 30, 1999 compared to the same period in 1998. The increase in
commissary cost of sales is due primarily to increased overhead costs in the
nine months ended September 30, 1999 compared to the same period in 1998. As a
percentage to sales, commissary cost of sales increased 3.9%.
Restaurant operating expenses increased by $3,446,343 or 23.0% for the nine
months ended September 30, 1999 compared to the same period in 1998. The
increase reflects the addition of four Company-owned restaurants since September
30, 1998. Operating expenses decreased as a percentage of restaurant sales to
50.1% for the nine months ended September 30, 1999 from 51.5% for the same
period in 1998 primarily due to a 0.6% decrease in labor costs and a 0.5%
decrease in restaurant level promotional costs.
Selling, general and administrative expenses increased by $766,566 or 25.6% for
the nine months ended September 30, 1999 compared to the same period in 1998.
The increase was due in part to the addition of management and staff personnel
during 1998 and the nine months ended September 30, 1999 to support the growing
restaurant base and additional advertising costs. Because of the Company's
restaurant growth plans, management expects selling, general and administrative
expenses to continue to increase during the remainder of 1999 in absolute
dollars. As a percentage to total revenues, selling, general and administrative
expenses were 9.7% of revenues for the nine months ended September 30, 1999 and
1998.
Preopening expenses were $318,320 for the nine months ended September 30, 1999
versus preopening amortization of $537,319 for the nine months ended September
30, 1998. See Note 2 of the financial statements regarding the adoption of
Statement of Position (SOP) 98-5, "Reporting the Costs of Start-Up Activities."
As a result of the adoption of SOP 98-5 on January 1, 1999, the Company recorded
a charge to income, net of tax, of $341,035 representing the write-off of
deferred preopening costs as of December 31, 1998. The charge is reported net of
taxes as a cumulative effect of a change in accounting principle.
Depreciation and amortization expense increased $297,331 or 29.0% for the nine
months ended September 30, 1999 compared to the same period in 1998 due
primarily to the addition of four Company-owned restaurants since September 30,
1998.
15
<PAGE>
Net interest expense increased $210,647 or 34.8% for the nine months ended
September 30, 1999 compared to the same period in 1998. The increase resulted
from increased borrowing to fund the growth in Company-owned restaurants.
The combined estimated effective federal and state income tax rate was 35% for
the nine months ended September 30, 1999. The pro forma adjustments provide for
income taxes as though the Company had been subject to corporate income taxes
throughout the periods presented. Additionally, as a result of a change in tax
status from a limited liability corporation to a C corporation effective January
1, 1999, the Company recorded a net deferred income tax liability and income tax
expense of $639,623 in 1999.
The Company's pro forma income before cumulative effect of a change in
accounting principle increased $736,530 or 73.3% for the nine months ended
September 30, 1999 compared to the same period in 1998. Pro forma income per
share before cumulative effect of a change in accounting principle increased to
$0.30 during the nine months ended September 30, 1999 compared to $0.20 for the
same period in 1998.
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Total revenues increased by $2,420,372 or 21.8% for the three months ended
September 30, 1999 compared to the same period in 1998 primarily as a result of
the following:
Restaurant sales increased by $2,276,032 or 21.6% for the three months ended
September 30, 1999 compared to the same period in 1998. The increase is due
primarily to the addition of four Company-owned restaurants since September
30, 1998 and an increase in same store sales of 1.3% for the three month
period.
Commissary sales to franchised restaurants increased by $63,891 or 25.6% for
the three months ended September 30, 1999 compared to the same period in 1998.
The increase is due primarily to the addition of five franchised or licensed
restaurants since September 30, 1998.
Franchise fees and royalties increased by $85,511 or 46.9% for the three
months ended September 30, 1999 compared to same period in 1998. The increase
was due to a $35,000 increase in franchise fees received upon the opening of
one new franchised restaurant during the three months ended September 30, 1999
compared to none during the same period in 1998. Additionally, royalty income
increased approximately $68,000 during the three months ended September 30,
1999 compared to the same period in 1998 as a result of an increase in
franchised restaurants. The increase in franchise fees and royalties for the
three month period is partially offset by an approximately $18,000 decrease in
international territory fees.
Other revenues decreased by $5,062 or 3.2% for the three months ended
September 30, 1999 compared to the same period in 1998 primarily due to the
fact that the three months ended September 30, 1998 includes an approximately
$58,200 gain from the sale of the Company's investment in TW-Tennessee and
includes approximately $13,000 from the health insurance loss participation
program. There was no similar income during the three months ended September
30, 1999. The decrease in other revenues is partially offset by an increase in
volume related purchasing rebates of approximately $73,000.
Restaurant cost of sales increased by $609,856 or 19.8% for the three months
ended September 30, 1999 compared to the same period in 1998. The increase was
principally due to the opening of four additional Company-owned restaurants
since September 30, 1998. Restaurant cost of sales decreased as a percentage of
sales by 0.4% to 28.9% for the three months ended September 30, 1999 compared to
29.3% during the same period in 1998 due primarily to lower product costs
resulting from purchasing efficiencies.
Commissary cost of sales increased $56,136 or 25.7% for the three months ended
September 30, 1999 compared to the same period in 1998. The increase in
commissary cost of sales is due primarily to increased overhead costs in the
three months ended September 30, 1999 compared to the same period in 1998. As a
percentage to sales, commissary cost of sales increased 0.1%.
16
<PAGE>
Restaurant operating expenses increased by $1,092,129 or 20.4% for the three
months ended September 30, 1999 compared to the same period in 1998. The
increase reflects the addition of four Company-owned restaurants since September
30, 1998. Operating expenses decreased as a percentage of restaurant sales to
50.5% for the three months ended September 30, 1999 from 51.0% for the same
period in 1998 primarily due to a 0.4% decrease in hourly labor costs.
Selling, general and administrative expenses increased by $268,909 or 26.9% for
the three months ended September 30, 1999 compared to the same period in 1998.
The increase was due in part to the addition of management and staff personnel
during 1998 and the nine months of 1999 to support the growing restaurant base
and additional advertising costs. Because of the Company's restaurant growth
plans, management expects selling, general and administrative expenses to
continue to increase during the remainder of 1999 in absolute dollars. As a
percentage to total revenues, selling, general and administrative expenses were
9.4% and 9.0% of revenues for the three months ended September 30, 1999 and
1998, respectively.
Preopening expenses were $63,287 for the three months ended September 30, 1999
versus preopening amortization of $230,411 for the three months ended September
30, 1998. See the discussion above regarding the adoption of Statement of
Position 98-5.
Depreciation and amortization expense increased $89,960 or 24.4% for the three
months ended September 30, 1999 compared to the same period in 1998 due
primarily to the addition of four Company-owned restaurants since September 30,
1998.
Net interest expense increased $67,352 or 29.8% for the three months ended
September 30, 1999 compared to the same period in 1998. The increase resulted
from increased borrowing to fund the growth in Company-owned restaurants.
The combined estimated effective federal and state income tax rate was 35% for
the three months ended September 30, 1999. The pro forma adjustments provide for
income taxes as though the Company had been subject to corporate income taxes
throughout the periods presented.
The Company's pro forma income before cumulative effect of a change in
accounting principle increased $262,051 or 65.8% for the three months ended
September 30, 1999 compared to the same period in 1998. Pro forma income per
share before cumulative effect of a change in accounting principle increased to
$0.11 during the three months ended September 30, 1999 compared to $0.08 for the
same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Our ability to expand the number of our restaurants will depend on a number of
factors, including the selection and availability of quality restaurant sites,
the negotiation of acceptable lease or purchase terms, the securing of required
governmental permits and approvals, the adequate supervision of construction,
the hiring, training and retaining of skilled management and other personnel,
the availability of adequate financing and other factors, many of which are
beyond our control. The hiring and retention of management and other personnel
may be difficult given the low unemployment rates in the areas in which we
intend to operate. There can be no assurance that we will be successful in
opening the number of restaurants anticipated in a timely manner. Furthermore,
there can be no assurance that our new restaurants will generate sales revenue
or profit margins consistent with those of our existing restaurants, or that
these new restaurants will be operated profitably.
Our principal capital needs arise from the development of new restaurants, and
to a lesser extent, maintenance and improvement of existing facilities. The
principal sources of capital to fund these expenditures were internally
generated cash flow, bank borrowings and lease financing. The table on the
following page provides certain information regarding our sources and uses of
capital for the periods presented.
17
<PAGE>
Nine Months Ended
September 30
1999 1998
---- ----
Net cash provided by operations $ 3,224,660 $ 2,218,961
Purchases of property and equipment 6,054,489 5,619,749
Proceeds from common stock offering 7,765,397 -
Net distributions of members' equity - (651,445)
Net borrowings (payments) on long-term
debt and capital lease obligations (5,977,565) 3,360,462
Since the acquisition of the Tumbleweed business, our single largest use of
funds has been for capital expenditures consisting of land, building and
equipment associated with our restaurant expansion program. The substantial
growth of the Company over the period has not required significant additional
working capital. Sales are predominantly for cash and the business does not
require the maintenance of significant receivables or inventories. In addition,
it is common within the restaurant industry to receive trade credit on the
purchase of food, beverage and supplies, thereby reducing the need for
incremental working capital to support sales increases.
We both own and lease our restaurant facilities. Management determines whether
to acquire or lease a restaurant facility based on its evaluation of the
financing alternatives available for a particular site.
We plan to open one additional Company-owned Tumbleweed restaurant during 1999,
depending on the availability of quality sites, the hiring and training of
sufficiently skilled management and other personnel, and other factors. As of
September 30, 1999, we had one restaurant under construction which currently is
planned to open December 1999.
We have used and will continue to utilize mortgage, sale/leaseback and landlord
financing, as well as equipment leasing and financing, for a portion of the
development costs of restaurants opened during 1999. The remaining costs have
been and will be funded by available cash reserves, cash provided from
operations and borrowing capacity. Management believes such sources will be
sufficient to fund our expansion plans through 1999. Should our actual results
of operations fall short of, or our rate of expansion significantly exceed our
plans, or should our costs or capital expenditures exceed expectations, we may
need to seek additional financing in the future. In negotiating such financing,
there can be no assurance that we will be able to raise additional capital on
terms satisfactory to us.
In order to provide any additional funds necessary to pursue the Company's
growth strategy, we may incur, from time to time, additional short and long-term
bank indebtedness and may issue, in public or private transactions, our equity
and debt securities, the availability and terms of which will depend upon market
and other conditions. There is no assurance that such additional financing will
be available on terms acceptable to us.
We have a $6,500,000 mortgage revolving line of credit note with National City
Bank (the "Credit Facility"). At September 30, 1999, we had outstanding
borrowings under the Credit Facility of $4,227,148. The note bears
18
<PAGE>
interest at the Prime Rate plus .25% (8.5% at September 30, 1999) and is due
December 31, 2002. The Credit Facility imposes restrictions on us with respect
to the maintenance of certain financial ratios, the incurrence of indebtedness,
the sale of assets, mergers, capital expenditures and the payment of dividends.
CHANGE IN ACCOUNTING PRINCIPLE
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-5, "Reporting the Costs of Start-Up Activities."
The SOP was effective beginning January 1, 1999 and requires that start-up costs
capitalized prior to January 1, 1999 be written-off and any future start-up
costs be expensed as incurred. Prior to 1999, we capitalized our preopening
costs incurred in connection with opening new restaurant locations. The
unamortized balance of the Company's deferred preopening costs ($524,669 as of
December 31, 1998) were written-off (net of income taxes of $183,634) as a
cumulative effect of an accounting change on January 1, 1999.
IMPACT OF YEAR 2000
We have scheduled the replacement of certain of our older computer systems with
hardware and software that has been certified to be Year 2000 compliant. We have
also completed an assessment of our other computer systems and will modify or
replace portions of our software so that our computer systems will function
properly with respect to dates in or after the Year 2000. The total Year 2000
project cost is estimated at approximately $406,000, which includes $370,000 for
the purchase of new hardware and software that will be capitalized and $36,000
that will be expensed as incurred. As of September 30, 1999, we had incurred
approximately $280,000 relating to the Year 2000 Project.
The project is estimated to be completed during the fourth quarter of 1999,
which is prior to any anticipated impact on our operating systems. We believe
that as a result of the installation of new hardware, the modifications to
existing software and conversions to new software, the Year 2000 issue will not
pose significant operational problems for our computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
inability of our computer systems to function accurately could have a material
impact on the operations of the Company.
We have queried our significant vendors with respect to Year 2000 issues. Based
on the responses received from vendors, we are not aware of any vendors with a
Year 2000 issue that would materially impact results of operations, liquidity,
or capital resources.
We are in the process of developing a contingency plan in the event that we do
not complete all phases of our Year 2000 program.
The costs of the project and the date on which we believe we will complete the
Year 2000 modifications are based on management's best estimates, which were
based on numerous assumptions of future events, including the continued
availability of certain resources and other factors. However, there is no
guarantee that these estimates will be achieved and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to locate and correct all
relevant computer codes, and similar uncertainties.
IMPACT OF INFLATION
The impact of inflation on the cost of food, labor, equipment, land and
construction costs could harm our operations. We pay a majority of our employees
hourly rates related to federal and state minimum wage laws. As a result of
increased competition and the low unemployment rates in the markets in which our
restaurants are located, we have continued to increase wages and benefits in
order to attract and retain management personnel and hourly workers. In
addition, most of our leases require us to pay taxes, insurance, maintenance,
repairs and utility costs, and these costs are subject to inflationary
pressures. Most of the leases provide for increases in rent based on increases
in the consumer price index when the leases are renewed. We may attempt to
offset the effect of inflation through periodic menu price increases, economies
of scale in purchasing and cost controls and efficiencies at existing
restaurants.
19
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not enter into derivative transactions or speculate on the future
direction of interest rates. We are exposed to interest rate changes primarily
as a result of our variable rate debt instruments. As of September 30, 1999,
approximately $9,800,000 of our debt bore interest at variable rates. We believe
that the effect, if any, of reasonably possible near-term changes in interest
rates on our financial position, results of operations or cash flows would not
be significant.
20
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
*2.1 Agreement and Plan of Merger, dated as of September 23, 1998,
between Tumbleweed, LLC and Registrant
*3.1 Certificate of Incorporation of Registrant
*3.2 Bylaws of Registrant
*10.1 Revolving Credit Loan Agreement, dated January 24, 1995, between
Bank One, Kentucky, N.A. (f/k/a Liberty National Bank & Trust
Company of Kentucky) and Registrant
*10.2 Revolving Line of Credit Note, dated August 8, 1996, between
Tumbleweed, LLC and National City Bank of Kentucky and related Loan
Agreement
*10.3 Master International License Agreement, dated August 29, 1997,
between Tumbleweed International LLC and Tumbleweed, LLC
*10.4 Employment Agreement between John A. Butorac, Jr. and Tumbleweed,
Inc.
*10.5 Employment Agreement between James M. Mulrooney and Tumbleweed, Inc.
*10.6 Lease Agreement, dated August 28, 1997 between West Broad
Development, LLC and Tumbleweed, LLC
*10.7 Lease Agreement between Keller LLC and Tumbleweed LLC
*10.8 Agreement and Assignment, dated April 20, 1995, between Keller
LLC and Tumbleweed, LLC
*10.9 Lease Agreement, dated April 1, 1995, between Douglas Ventures,
Abfam, Inc. and Blue Door Bowling Green Joint Venture
*10.10 Sublease Agreement, dated September 30, 1995, among Douglas
Ventures, Abfam, Inc., Blue Door Bowling Green Joint Venture and
Tumbleweed, LLC
*10.11 Sublease Agreement, dated February 5, 1997, between TW Dixie Bash,
LLC and Tumbleweed, LLC (for Bardstown Road restaurant)
*10.12 Sublease Agreement, dated February 5, 1997, between TW Dixie Bash,
LLC and Tumbleweed, LLC (for Valley Station restaurant)
*10.13 Asset Purchase Agreement, dated October 1, 1996, between Tex
Mex To You, LLC and Tumbleweed, LLC
*10.14 Commitment Letter, dated September 12, 1997, between CNL Fund
Advisors, Inc. and TW Tennessee, LLC
*10.15 Tumbleweed, Inc. 1998 Stock Option and Incentive Compensation
Plan
21
<PAGE>
*10.16 Form of Standard Franchise Agreement for Tumbleweed, LLC
*10.17 Articles of Incorporation of Tumbleweed Marketing Fund, Inc
*10.18 By laws of Tumbleweed Marketing Funds, Inc.
*10.19 Bonus Compensation Plan for Senior Executives
**10.20 Revolving Line of Credit Note, dated April 21, 1999, between
Tumbleweed, Inc. and National City Bank of Kentucky and related
Loan Agreement
27.1 Financial Data Schedule
*99.1 Registration Rights Agreement between Tumbleweed, Inc. and
Tumbleweed, LLC
* Incorporated by reference to exhibits of the same number filed with
the Commission on September 29, 1998 in Form S-1 Registration
No. 333-57931
** Incorporated by reference to exhibits of the same number filed with
the Commission on May 12, 1999 in Form 10-Q File No. 333-57931.
(b) Reports on Form 8-K
None.
Items 1, 2, 3, 4 and 5 are not applicable and have been omitted.
22
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned there unto duly authorized.
Dated: November 11, 1999 Tumbleweed, Inc.
By:/s/ James M. Mulrooney
-------------------------
James M. Mulrooney
Executive Vice President
Chief Financial Officer
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE UNAUDITED FINANCIAL STATEMENTS OF TUMBLEWEED, INC. FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER>1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 346,405
<SECURITIES> 0
<RECEIVABLES> 487,555
<ALLOWANCES> 0
<INVENTORY> 1,438,442
<CURRENT-ASSETS> 2,649,206
<PP&E> 29,739,123
<DEPRECIATION> 4,252,936
<TOTAL-ASSETS> 35,582,449
<CURRENT-LIABILITIES> 4,540,065
<BONDS> 10,481,031
0
0
<COMMON> 58,815
<OTHER-SE> 17,054,969
<TOTAL-LIABILITY-AND-EQUITY> 35,582,449
<SALES> 36,719,970
<TOTAL-REVENUES> 38,754,800
<CGS> 10,658,321
<TOTAL-COSTS> 24,600,844
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 816,023
<INCOME-PRETAX> 2,679,612
<INCOME-TAX> 1,577,487
<INCOME-CONTINUING> 1,102,125
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (341,035)
<NET-INCOME> 761,090
<EPS-BASIC> 0.13
<EPS-DILUTED> 0.13
</TABLE>
