<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended 1998 or
[_] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
SOUTH BEACH CONCEPTS, INC.
(Exact Name of Registrant as specified in its charter)
Florida 65-0853636
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5969 Cattleridge Blvd.
Suite 201,
Sarasota, Florida 34232``
(Address of principal executive offices)
(Registrant's telephone number, including area code)
(941) 377-7225
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, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO___________
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Documents Incorporated by Reference
The following documents are incorporated by reference in this Form 10-K
Report: Form 8K dated June 15, 1999 and Form 8K dated July 30, 1999.
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Table of Contents
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Item No. Caption
Page No.
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1. BUSINESS 2
2. PROPERTIES 6
3. LEGAL PROCEEDINGS 10
4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT 10
5. OTHER EVENTS 10
6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE OFFICERS 10
7. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
8. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 10
9. MARKET RISK 11
10. SELECTED FINANCIAL DATA 12
11. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION & RESULTS OF OPERATION 13
12. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING & FINANCIAL DISCLOSURE 12
13. CHANGE IN FISCAL YEAR 12
14. OFFICERS AND DIRECTORS BENEFICIAL OWNERSHIP 12
15. 1998 GAAP RULE CHANGE REGARDING START-UP ACTIVITY 16
16. EXHIBITS, FINANCIAL STATEMENTS & REPORTS 16
</TABLE>
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ITEM 1. BUSINESS
GENERAL:
South Beach Concepts, Inc. was incorporated under the laws of the State of
Florida in July of 1998. In August 1998, the Company acquired South Beach Cafe,
Inc., Pizza World International, Inc. and Cafe Society Coffee Company being the
United States subsidiaries of South Beach Concepts, Plc, from that company in
exchange for 10,000,000 shares of common stock. On June 15, 1999, Baja Food
Concepts was acquired as a wholly owned subsidiary through a stock-for-stock
exchange and such information is incorporated by reference to Form 8-K dated
June 15, 1999.
The primary business objective of the Company is to develop, operate and
franchise take-out, eat-in and delivery restaurants for its three theme
restaurant chains, as well as roast and distribute coffee, tea and other
ancillary products through its coffee company. Through its subsidiaries, South
Beach Concepts uses specific and consistent themes, logos, and menus (i.e.
"chains") and roasts, produces and markets coffee beans and teas. South Beach
Concepts, Inc. has four wholly owned subsidiaries: (1) South Beach Cafe, Inc.,
which operates as casual sit-down, eat-in cafes;(2) Pizza World International,
Inc., owns and operates, under the name "Pizza World Gourmet Pizza" and "Pizza
World" restaurants (collectively referred to as "Pizza World"), which provides
specialty gourmet pizza; (3) Baja Food Concepts, Inc., which operates a themed
fast food restaurant, "Cisco & Pancho" specializing in gourmet burritos, tacos
and empanadas served with homemade salsa; and (4) Cafe Society Coffee Company
which roasts, packages and distributes high-end specialty coffees and teas.
There are currently franchise operations open and operating in Florida,
Illinois, Missouri and Texas. The Company owned restaurants are located in
Florida. These restaurants are operated by operating subsidiaries of the
Company.
PRODUCTS:
South Beach Cafe is a casual sit-down, eat-in cafe serving premium coffee
and espresso drinks, fresh fruit smoothies and vegetable drinks, bagels, cream
cheese spreads, croissants, gourmet sandwiches, frozen yogurt, soups salads,
fresh pastries and other baked goods.
Pizza World offers gourmet and traditional pizzas for carryout, delivery
and, in certain stores, sit-down capacity. The specialty gourmet pizza menu
ranges from the "Bacon Cheeseburger American" with a mustard glaze to the
"Grecian Gourmet" combining feta cheese, black olives, spinach, green peppers
and tomatoes on a bed of mozzarella with red sauce. The pizzas are made from
freshly baked dough with homemade pizza sauce and a choice of over thirty
toppings. The menu also features calzones, fresh oven baked sub sandwiches,
salads and garlic or cheese breads.
Baja Food Concepts, Inc. ("Cisco & Pancho") specializes in burritos, tacos
and empanadas served with homemade salsa.
Cafe Society Coffee Company offers a full line of specialty coffees
including varietals, blends, flavored, organic and naturally flavored coffees as
well as teas, gourmet syrups, and hot chocolates.
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FRANCHISE PROGRAM:
South Beach Cafe and Pizza World International through their respective
wholly owned subsidiaries, offer both area development and single store
franchising. A development agreement grants a franchisee the right to establish
multiple outlets within a specified geographic area at specific locations
designated in separate franchise agreements pursuant to a development schedule.
A franchise agreement governing the construction and operation of the first
store is executed concurrently with the development agreement. All store
locations must be approved. Single store franchise agreements are granted to
individuals or entities with demonstrated financial ability for the
establishment and operation of a single store at a specified location. Currently
there are 13 franchised stores open and operating. The Company has entered into
agreements that provide for the opening of 25 additional franchised stores.
FRANCHISE TERM, FEE AND ROYALTY:
The initial term of a franchise agreement is ten years and is renewable for
one additional ten-year term. Franchisees pay a nonrefundable development fee
computed by multiplying the number of stores to be opened pursuant to the
development agreement by $5,000. As each franchise agreement for each individual
store to be opened is executed, $5,000 is credited toward the initial franchise
fee of $18,500 for that individual store. Franchisees pay a royalty fee of 4% of
net sales of the store, which under certain circumstances, may be increased to
5%.
DESIGNATED SUPPLIERS:
In order to maintain the uniformity of all concepts and to insure food
quality and consistency, franchisees must operate their stores in accordance
with South Beach Concepts' proprietary business techniques, systems, policies
and procedures. Franchisees are required to follow standards and specifications
established by South Beach Concepts with respect to food products, ingredients,
packaging, advertising, supplies, equipment, computer hardware and software,
fixtures, furnishings and other items used in the operation of the store. To
enable the franchisees to obtain superior equipment, supplies, food and beverage
products that are not otherwise available to individual franchisees and to
benefit from reduced prices and more efficient and timely deliveries based on
the leverage gained from increased buying power, South Beach Concepts reserves
the right to designate approved suppliers for specific items required in the
operation of a store. Cafe Society Coffee Co., a subsidiary of South Beach
Concepts is a designated supplier of coffee and related products.
SUPPORT AND TRAINING:
When a franchisee develops a store, the appropriate South Beach Concepts
subsidiary must first approve the site, construction and equipment
specifications, design and decor specifications and hardware specifications. The
principal operator and/or store managers receive comprehensive classroom and
hands on training at South Beach Concepts' training facility and at a company
owned store. South Beach Concepts assists the franchisee with the grand opening
of the store and provides ongoing marketing support. Upon opening, South Beach
Concepts provides in-store assistance and continuing systems support and
training.
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CURRENT OPERATIONS COMPANY STORES:
South Beach Concepts Inc., through its subsidiary, operates three companies
owned South Beach Cafes in Sarasota, Florida, which opened in May, 1997,
February, 1999 and March, 1999. Two of these stores are dual-branded concept
stores and one is a triple-branded store. In addition the company owns and
operates three Pizza World restaurants. Two of these stores are part of dual-
branded concept stores and the third is a part of the triple-branded concept
store described above. South Beach Concepts' wholly-owned subsidiary, Baja Food
Concepts, Inc., operating under the name Cisco & Pancho, has opened one company
store, which is part of the triple-concept unit located in Sarasota, Florida
described above.
The Cafe Society Coffee Company is a Dallas, Texas, wholly-owned subsidiary of
South Beach Concepts, Inc., which roasts and packages high-end specialty
coffees, which are sold and distributed under its own label and private labels.
The Cafe Society Coffee Company offers a full line of specialty coffees
including varietals, blends, flavored, organic and naturally flavored coffees as
well as specialty teas, gourmet syrups and hot chocolates. All Cafe Society
Coffee Company coffees are produced in its own roasting facility. Green coffee
beans are purchased from select brokers and roasting, packaging and shipping is
completed in-house. The roasting equipment consists of a 60-kilo Sasa Samiac
roaster and a 12-kilo Sasa Samiac roaster utilizing an air roast method with a
current capacity of approximately 1.2 million pounds per year. Coffee is
packaged for commercial and consumer use.
TRADEMARKS:
Through its listed subsidiaries, South Beach Concepts owns all the right,
title and interest in and to the following marks, which are the primary
trademarks, service marks, names, logos and symbols used by it to identify the
business and are registered with the United States Patent and Trademark Office
on the principal register:
South Beach Cafe, Inc.: Registration #2,024,465, 12/17/96,
mark: South Beach Cafe and design
Serial #75/359,009, 9/18/96,
mark: design
Pizza World Gourmet Pizza:
Registration #2,018,274, 11/7/95,
mark: Pizza World Gourmet Pizza &
design
Registration #2,066,993, 6/3/97,
mark: Amore Roma
Registration #2,066,994, 6/3/97,
mark: Ciao Bella
Registration #2,066,997, 6/3/97,
mark: Americana
Registration #2,069,389, 6/10/97,
mark: Aloha Makana
Registration #2,069,390, 6/10/97,
mark: Taste of Chicago
Registration #2,069,399, 6/10/97,
mark: Le Gardeaux
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Cafe Society Coffee Company:
Registration #1,902,906, 7/4/95,
mark: Cafe Society
Registration #1,903,188, 7/4/95,
mark: Cafe Society
Registration #1,964,097, 3/26/96,
mark: Cafe Society (design)
Registration #1,989,726, 7/30/96,
mark: Cafe Society Coffee Company
& design
Baja Food Concepts, Inc.:
Registration #75478558, 5/4/98,
mark: Cisco & Pancho
DUAL/TRIPLE BRAND STORES:
South Beach Concepts believes that by situating two or more of its theme
restaurants under one roof it will attract more customers and will reduce costs.
The dual and triple brand restaurants provide for combining the operating
systems of the restaurants and reduces duplication of certain operations.
Because the prime rush hours of each theme restaurant are not the same, the
multi-branding concept allows for better utilization of the leased premises with
less down time, increases the productivity of the staff which can be crossed
trained to reduce the number of employees needed in each restaurant, and allows
for sharing of equipment thereby reducing the total equipment package cost. In
addition, customers are more likely to visit one site offering more than one
food option type.
TRAINING FACILITY:
A training facility for all the restaurant concepts is located next to
South Beach Concepts' corporate offices in Sarasota, Florida. The facility is
used to provide comprehensive training for operators and franchisees. Classes
focusing on policy and operational procedures are conducted by South Beach
Concepts staff. Classroom instruction and written materials instruct the
Franchisee in local store marketing, computer operations, delivery, food
preparation, daily management, staff hiring and training, inventory management
and business management.
ITEM 2. PROPERTIES
The company maintains the following leases:
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Lessee Location Duration Remaining Payments
- ------ -------- -------- ------------------
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South Beach Cafe, Inc 405 Little Lake Dr Dec 1996 - Nov 1997 $ 0.00
South Beach Cafe, Inc Cattleridge Business Park Oct 1997 - Sept 2012 1,956,443
South Beach Cafe, Inc 5969 Cattleridge Blvd, Suite 201 Aug 1998 - July 2003 232,216
South Beach Cafe-FL Village Plaza Jan 1999 - Dec 2008 464,947
South Beach Cafe-FL Main Street Plaza May 1997 - April 2002 175,230
South Beach Cafe-FL Valley Ranch Oct 1999 - Sept 2001 84,000
-----------
Total: $ 2,912,836
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Future minimum lease payments are summarized as follows:
December 31, 1999
-----------------
1999 362,719
2000 356,440
2001 276,266
2002 228,392
2003 and thereafter 1,698,019
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TOTAL $2,912,836
==========
Rent expense was $358,482 and $258,737 under these operating leases for the
years ended December 31, 1999 and 1998, respectively. Rent expense includes
additional charges for common area maintenance.
These leases contain clauses relating to renewal options, although each does not
contain such option, those that do vary from three to fifteen years
additionally.
MANAGEMENT:
Name Age Title
---- --- -----
Thomas N. Burnham 52 Director & CEO
Pamela H. Burnham 52 Director & Vice President
Keith C. Pratt 56 Director
Michael R. Hicks 40 Director
Michael Hiller 37 Director
Debra A. Even 35 Vice President
Rebecca A. Crawford 39 Secretary
THOMAS N. BURNHAM is the Chief Executive Officer, Director and Shareholder
of South Beach Concepts, Inc. and an officer of its subsidiaries since their
inception. From April, 1996 until April, 1999, Mr. Burnham was Chairman and
Chief Executive Officer of South Beach Cafe, Plc (London, England) and from
November, 1996 to December, 1998, he was a director of South Beach Cafe-London,
Ltd. Mr. Burnham also serves a Director, President or Managing Member and has
voting control of the following entities: Burnham International Group, Inc.,
Sarasota Investment Group, Inc., Dallas Investment Group, Inc., International
Restaurant Concepts, Inc., London Ventures, L.C., Mosby Investments, Inc., Texas
International Group, Inc., The Northgate Group, L.L.C., 100 Degrees East, Inc.,
Thomas N. Burnham Associates, Inc., and International Franchise Group, Inc.
<PAGE>
From October, 1993 to August, 1994, Mr. Burnham was president and director
of Clucker's International Franchise Corporation, Miami, Florida; from October,
1990 to May, 1993, Mr. Burnham was president and director of Ho-Lee-Chow, Inc.,
Ann Arbor, Michigan. Mr. Burnham served in the following capacities for Domino's
Pizza International, Inc.: Executive Vice President, December, 1989 to May,
1990; Vice President, Administration and Development, May, 1989 to May, 1990;
Director, June, 1986 to May, 1990; and General Counsel from September, 1986 to
May, 1990. From September, 1984 to September, 1986, Mr. Burnham served as
outside General Counsel for Domino's Pizza International, Inc. Mr. Burnham has
been the principal of the law firm of Thomas N. Burnham International Law
Offices from January 1990 to the present. Mr. Burnham received his Bachelor of
Business Administration degree in 1969, a Masters in Business Administration in
1970 and a Juris Doctor in 1973 all from the University of Michigan, Ann Arbor,
Michigan. Mr.Burnham currently serves as Program Director of Franchising and
Entrepreneurship at the University of Dallas and is the founder and Director of
the Institute of International Enterpreneurship.
PAMELA H. BURNHAM has served as Vice President, Treasurer and a Director of
South Beach Concepts, Inc. since its inception in July, 1998 and serves as an
officer of several of its subsidiaries. From April, 1996 to April, 1999, Ms.
Burnham served as a director of South Beach Cafe, Plc (London, England). She
also served as a director for South Beach Cafe-London., Ltd. from November, 1996
to December, 1998. Ms. Burnham also serves a Director and Vice President of the
following entities: Burnham International Group, Inc., Sarasota Investment
Group, Inc., Dallas Investment Group, Inc., International Restaurant Concepts,
Inc., Mosby Investments, Inc., Texas International Group, Inc., 100 Degrees
East, Inc., Thomas N. Burnham Associates, Inc., and International Franchise
Group, Inc.
From October, 1993 to August, 1994, Ms. Burnham was a Franchise Sales
Consultant for Clucker's International Franchise Corporation, Miami, Florida.
From February, 1991 through May, 1993, she was Vice President of Ho-Lee-Chow,
Inc., Ann Arbor, Michigan. Ms. Burnham was President of International Pizza
Ventures, Inc. Toronto, Canada from October, 1989 through February, 1991. She
served as Director of Real Estate for Domino's Pizza International, Inc. from
August, 1989 to May, 1990. Ms. Burnham attended Chowan College in North Carolina
from 1965 to 1967 and University of California at Los Angeles in 1979.
KEITH C. PRATT serves as a Director of South Beach Concepts. Mr. Pratt was
one of the founders of South Beach Cafe, Inc. and has served as a consultant to
it in the areas of restaurant and office site selection, lease negotiation,
store design, software and implementation since its inception. From 1976 to
present, Mr. Pratt has been a commercial real estate broker with Gary Lillie &
Associates, Inc. located in Ann Arbor, Michigan. Mr. Pratt also serves as the
president of Cafe Development Group, founded in 1996 a consulting firm that
assists in restaurant site selection, design, equipping and staffing. Mr. Pratt
received his Bachelor of Science in Engineering from the University of Michigan
in 1969.
MICHAEL R. HICKS, serves as a Director of South Beach Concepts. Dr. Hicks
is President of Pinnacle Anesthesia Consultants, PA, a two hundred-member single
specialty medical practice in Dallas, Texas and is also a practicing
anesthesiologist. In addition, Dr. Hicks is a principal and officer of Hicks-
Rosengarden Investments, a publisher of regional specialty publications
including Avidgolfer. He is currently a member of the Board of Directors of the
Texas Society of Anesthesiologists. Prior to the formation of Pinnacle
Anesthesia Consultants, PA, Dr. Hicks served as President of DFW Anesthesia
<PAGE>
Associates, PA from 1995 until 1996 and as Managing Partner of Anesthesia
Consultants of Irving prior to 1995.
Dr. Hicks received a BA in Chemistry and an MD degree from West Virginia
University in 1981 and 1985 respectively. He completed a residency in
anesthesiology in 1989 at the University of Texas Southwestern Medical School
where he also served as Chief Resident. Dr. Hicks is currently completing an MBA
at the University of Dallas.
MICHAEL HILLER, serves as a Director of South Beach Concepts, Inc.
Dr. Hiller is a practicing anesthesiologist with Pinnacle Anesthesia
Consultants, PA, and a two hundred-member single specialty medical practice in
Dallas, Texas. In addition Dr. Hiller is also a director of Hicks-Rosendgarden
Investments, Inc., a privately held specialty publisher in Irving, Texas and is
co-owner of Avidgolfer Magazine. Prior to the formation of Pinnacle Anesthesia
Consultants, PA, and Dr. Hiller was a founding member and director of DFW
Anesthesia Associates, PA in Irving, Texas and prior to that he was a partner
and founder of Anesthesia Consultants of Irving. He serves as a delegate to
several local, state and national medical associations. Dr. Hiller received his
BA in Biology and MD degree from the University of Texas.
REBECCA A. CRAWFORD has served as Secretary of South Beach Concepts, Inc.,
since its inception in July 1998. From 1996 to the present Ms. Crawford has
served as Director of Franchise Administration. Prior to joining South Beach
Ms. Crawford was franchise development and training consultant to Y&S, Inc., a
fast food lavaash wrap sandwich & yogurt concept in Ann Arbor, Michigan. In
addition she was employed by Conlin, McKenney and Philbrick, P.C., Ann Arbor,
Michigan as legal secretary. From 1991 to 1993 she was employed as Director of
Franchise and Legal Administration by Ho-Lee-Chow, Inc. Prior to joining Ho-Le-
Chow Ms. Crawford was employed by Domino's Pizza International, Inc. in various
positions in the operations, training, administration and legal departments.
During her tenure within the franchise industry, Ms. Crawford's responsibilities
included franchise development, legal, administration, contract compliance,
federal and state franchise registration and franchise relations.
DEBRA A. EVEN has served as Vice President of South Beach Concepts, Inc.
since September of 1999. She received her bachelor's degree from the University
of Michigan, Ann Arbor, in Organizational Management and currently leads the E-
Commerce and Public Administration areas for South Beach Concepts and its
subsidiaries. Prior to this Ms. Even worked in the automotive industry as
Program Manager, Quality Coordinator and EDI Supervisor.
She has preformed as liaison for Ford Motor Company on large financial
accounts and was directly responsible for developing systematic planning and
implementation for new projects. She has a strong background in MIS systems.
Prior to this she her experience includes positions with Domino's Pizza area
developer in the Toronto metropolitan area.
RELATED TRANSACTIONS:
Thomas N. Burnham, Chief Executive Officer and Director of South Beach
Concepts, Inc., is the principal of the law firm of Thomas N. Burnham
International Law Offices and performs legal services for South Beach Concepts,
Inc. and its subsidiaries.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is engaged in ordinary and routine litigation incidental to its
business, but management does not believe that any amounts it may be required to
pay by reason thereof will have a material effect on the Company's financial
position or results of operations.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 5. OTHER EVENTS
Not applicable.
ITEM 6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
Not applicable.
ITEM 7. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 8. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
NO CURRENT TRADING MARKET FOR THE COMPANY'S SECURITIES. There is currently
no established public trading market for the securities of the Company. No
assurance can be given that an active trading market in the Company's securities
will develop or, if developed, that it will be sustained.
PENNY STOCK REGULATION. Upon commencement of trading in the Company's
stock, if such occurs (of which there can be no assurance) the Company's common
stock may be deemed a penny stock. Penny stocks generally are equity securities
with a price of less than $5.00 per share other than securities registered on
certain national securities exchanges or quoted on the Nasdaq Stock Market,
provided that current price and volume information with respect to transactions
in such securities is provided by the exchange or system. The Company's
securities may be subject to "penny stock rules" that impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally those with
assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000
together with their spouse). For transactions covered by these rules, the
broker-dealer must make a special suitability determination for the purchase of
such securities and have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any transaction involving
a penny stock, unless exempt, the "penny stock rules" require the delivery,
prior to the transaction, of a disclosure schedule prescribed by the Commission
relating to the penny stock market. The broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered representative
and current quotations for the securities. Finally, monthly statements must be
sent disclosing recent price information on the limited market in penny stocks.
Consequently, the "penny stock rules" may restrict the ability of broker-dealers
to sell the Company's securities. The foregoing required penny stock
restrictions will not apply to the Company's securities if such securities
maintain a market price of $5.00 or greater. There can be no assurance that the
price of the Company's securities will reach or maintain such a level.
<PAGE>
ITEM 9. MARKET RISK
OPERATING LOSS. Revenues from operations to date have not been sufficient
to cover the costs of such operations and the Company has borrowed funds to
maintain its operations. The Company's ability to develop operations is
dependent upon its ability to sell its franchise stores and to operate its
company store at a profit. If the Company is unable to sell sufficient franchise
stores or to operate its company store at a sufficiently profitable level, the
Company will need to raise additional capital through the placement of its
securities or from other debt or equity financing. If the Company is not able to
raise such financing or to obtain alternative sources of funding, management
will be required to curtail operations. There is no assurance that the Company
will be able to continue to operate.
LIMITED OPERATING HISTORY. The Company has a limited history of operations
and to date has not been profitable. The Company's operations are subject to
all the risks inherent in the establishment of a relatively new business
enterprise. There can be no assurance that future operations will be
profitable. The Company's operations are in part dependent on the establishment
of, and profitability of new restaurants. Revenues and profits of the Company,
if any, will depend upon various factors, including market acceptance of the
Company's concepts, attractiveness and quality of the menu, restaurant service,
location of the restaurants and general economic conditions. The growth of the
Company will depend on a number of factors, including the availability of
suitable locations, the negotiation of favorable lease or site acquisition
terms, the identification, training and retention of skilled management
personnel and franchisees, the availability of adequate capital, general
economic and business conditions, and others, some of which are beyond the
control of the Company. There is no assurance that the Company will achieve its
expansion goals. The failure to achieve such goals would have an adverse impact
on the Company.
DEPENDENCE ON FRANCHISEES. The Company anticipates that it will realize a
portion of its revenues from franchise fees, including the initial franchise
fees and continuing royalty payments. If franchisees encounter business or
operational difficulties, revenues from royalties and supplies sales would be
adversely affected. Such difficulties would also negatively impact the
Company's ability to sell new franchises. Consequently, the Company's financial
prospects are significantly related to the success of its franchised stores,
over which it has limited direct operational control. There can be no assurance
that the Company will be able to successfully attract new franchisees or that
franchisees, if any, will be able to successfully operate stores.
FRANCHISE COMPETITION. The competition to sell franchises is very intense
and the Company will have to compete against many well established, better-known
and better financed companies selling franchises. Potential franchisees will
compare the costs and benefits offered by the Company's franchise program
against those offered by other franchise companies which may have been in
business longer and shown consistent positive economic returns. The market for
selling the franchises is limited and the Company may suffer adverse
consequences from its possible inability to attract new franchisees.
FRANCHISE REGULATIONS. The Company will be subject to federal regulation
and certain state laws, which govern the offer and sale of franchises. Many
state franchise laws impose substantive requirements on franchise agreements,
including limitations on non-competition provisions and termination or non-
renewal of a franchise. Some states require that certain franchise offering
materials be registered before franchises can be offered or sold in that state.
The failure to obtain or retain food
<PAGE>
licenses or approvals to sell franchises could adversely affect the Company's
and its franchisees', if any, results of operations. The future enactment,
adoption or amendment of laws or regulations, such as establishing basic
franchisee rights, increasing the minimum wage or other costs associated with
employees, could adversely affect the Company's results of operations. Federal
and state franchise laws provide franchisees, either singly or as a group, the
right to bring an action against the franchisor in regard to actions arising
from the franchise agreement, the franchise operations and other matters.
EFFECTIVENESS OF FRANCHISE ADVERTISING. The success of the Company will be
substantially dependent on the effectiveness of the advertising programs and the
overall success of franchises. The Company anticipates it will advertise in
franchise and business opportunity publications and exhibits at franchise fairs
worldwide. However, future success in attracting franchisees will be dependent
not only on the Company's promotional program but also on the success of its
franchisees' existing restaurants that cannot be guaranteed.
COMPETITION. The competition in the fast food and pizza industry is
intense. There are numerous well-established competitors, including national,
regional and local chains, possessing substantially greater financial,
marketing, personnel and other resources than the Company. The competition
includes such well-known chains as McDonald's, Burger King, Wendy's, Domino's
Pizza, Pizza Hut, Blimpies, and numerous others. The Company will also face
competition in its dual-concept stores from such large well-known dual-concept
stores as Kentucky Fried Chicken and Taco Bell.
ISSUANCE OF FUTURE SHARES MAY DILUTE INVESTORS SHAREVALUE. The Certificate
of Incorporation of South Beach Concepts, Inc. authorizes the issuance of a
maximum of 0,000,000 shares of common stock and 10,000,000 shares of referred
stock. The future issuance of all or part of the remaining authorized common
stock may result in substantial dilution in the percentage of the Company's
common stock held by he Company's then existing shareholders. Moreover, any
common stock issued in the future may be valued on an arbitrary basis by the
Company. The issuance of the Company's shares for future services or
acquisitions or other corporate actions may have the effect of diluting the
value of the shares held by investors, and might have an adverse effect on any
trading market, should a trading market develop for the Company's common stock.
POTENTIAL ADVERSE EFFECTS OF AUTHORIZATION OF PREFERRED STOCK. The Company
may, without further action or vote by shareholders of the Company, designate
and issue shares of preferred stock. The terms of any series of preferred
stock, which may include priority claims to assets and dividends and special
voting rights, could adversely affect the rights of holders of the common stock
and thereby reduce the value of the common stock. The designation and issuance
of preferred stock favorable to current management or shareholders could make
the possible takeover of the Company or the removal of management of the Company
more difficult and discourage hostile bids for control of the Company which bids
might have provided shareholders with premiums for their shares.
ITEM 10. SELECTED FINANCIAL DATA
The "Reports of Independent Accountants", "Consolidated Balance Sheets",
"Consolidated Statements of Operations", "Consolidated Statements of Cash
Flows", "Consolidated Statements of Changes in Shareholders' Equity", are
specifically incorporated herein by reference.
<PAGE>
Financial Statement Schedules - None applicable because the required
information has been incorporated in the Consolidated Financial Statements of
South Beach Concepts, Inc. and its subsidiaries incorporated by reference
herein.
Net Earnings Per Common Share:
Net Loss Per Share was ($0.09) and ($0.05) for years ended December 31,
1999 and December 31, 1998 respectively.
ITEM 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
COMPANY STATUS:
The company continues as a development stage company and hence requires
continuing its capital raising activities to support its income in order to meet
cash flow obligations.
PRIVATE OFFERING MEMORANDUM:
Pursuant to Rule 506, on July 30, 1999 the Company presented an Offering
Memorandum with no requirements for a minimum number of units with a maximum of
3,300,000 units or $4,950,000 (Maximum Offering). This offering memorandum
originally was due to expire on October 30, 1999 but pursuant to the provisions
contained therein, and in particular those set forth on page forty three (43)
thereof, the Offering has been extended to March 31, 2000. By December 31, 1999
the company had raised $756,115.00 and had issued 504,007 shares of its common
stock in connection therewith.
ACQUISITION OF REAL ESTATE:
During the year the company acquired for stock the premises located at:
3157 Commodore Plaza, Coconut Grove, Florida 33133, for a total basis of
$1,450,000.00
Fiscal Year ended December 31, 1999 Compared to the Fiscal Year Ended
December 31, 1998:
Revenues for the fiscal year ended December 31, 1999 decreased $100,192 or
9.3% when compared to the fiscal year ended December 31, 1998. During the fiscal
year ended December 31, 1999, the company generated $848,537 (66.9%) from
general operating sales, $411,000 (32.4%) from its franchise fees, and $9,210
(0.7%) from its franchise royalties. During the fiscal year ended December 31,
1998, the company generated $1,075,509 (78.6%) from general operating sales,
$196,400 (14.4%) from its franchise fees, and $97,029 (7.0%) from its franchise
royalties.
Revenues from general operating sales and franchise royalties decreased
$226,972 (21.1%) and $87,819 (90.5%), respectively, whereas franchise fees
increased $214,600 (109.3%). The changes in revenues are the results of normal
operations with the reduction of operating sales the result primarily of the
sale of the two corporate outlets in St. Louis in the latter part of 1998 to
franchisees. Reduction in royalties from the prior year was a result of the
company's decision to waive royalties in 1999 to assists franchisees in their
growth and
<PAGE>
profitability. The company does not intend to continue its voluntary wavier.
Cost of sales decreased whereas operating expenses increased for the year
ended December 31, 1999 when compared to the fiscal year ended December 31, 1998
by $227,650 (29.8%) and $349,332 (28.0%), respectively. The decrease in the
cost of sales is directly attributable to a decrease in revenues. Operating
expenses, however, increased as a result of expenditures towards operating
leases and related utility and payroll costs. Additionally, new regulations
require that previously incurred costs that had been capitalized be written off
during the current year. These one-time additional write-offs total
approximately $530,000 and will not recur in the future. As a percentage of
sales, cost of sales decreased from 55.8% in fiscal 1998 to 42.3% in fiscal
1999, whereas operating expenses increased from 91.0% in fiscal 1998 to 125.7%
in fiscal 1999. These percentage changes are attributable to the Company
showing higher revenues for the year ended December 31, 1998 as compared to the
year ended December 31, 1999 from continuing operations as well as an increase
in operating expenses.
As a result of the foregoing, the Company realized a net loss of $1,289,145
for the fiscal year ended December 31, 1999 compared to a net loss of $608,490
for the fiscal year ended December 31, 1998. The increase in net loss was
largely comprised of increases in depreciation and amortization ($212,284)
resulting from equipment acquisitions, and the referenced write-off of $533,157
of organizational costs booked in prior years. These two non-cash expenses total
$745,441 and constituted 53.7% of the net loss.
The increase in assets is the principle result of the acquisition of
equipment and real estate.
Increase in paid in capital is the result of completion of the Company's
Rule 504 Offering and the commencement of the Company's Rule 506 Offering.
In the first quarter ending March 31, 2000 the company has earned $320,000
in franchise revenue, constituting 75% of the franchise revenue of 1999.
LIQUIDITY AND CAPITAL RESOURCES:
As of December 31, 1999, the Company's current assets exceeded its current
liabilities by $53,417. As a component of current assets, cash accounts for
$79,426 or 15.5%.
In its short history, the Company financed its operations through operating
revenues and capital contributions from its former parent located in the United
Kingdom during 1998. In the near future, the Company expects its operating
revenues to increase allowing liquidity to increase. Until this time, the
Company continues to raise operating capital through a public offering within
the United States that would cover operating expenses until operating revenues
increase.
At December 31, 1999, the Company continues to expand and material
commitments for capital expenditures will increase as funds allow. These
capital expenditures will be in the form of additional franchises; corporate
owned as well as franchisees.
Based on the Company's business plan and historical trends in this field,
management believes operations will continue to grow, thus allowing the Company
to become profitable in a couple of years.
<PAGE>
ITEM 12. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 13. CHANGE IN FISCAL YEAR
Not applicable.
ITEM 14. OFFICERS AND DIRECTORS BENEFICIAL OWNERSHIP
STOCKHOLDERS EQUITY:
The following table contains information regarding the
shareholdings of South Beach Concepts, Inc., current officers and
directors:
Amount of
Common Percent of
Stock Outstanding
Beneficially Common Stock
Owned or Beneficially Owned
Controlled or Controlled
Name ---------- -------------
- ----
Thomas N. Burnham
Director, CEO
5125 Willow Leaf Drive
Sarasota, Florida 34232 8,020,005 45.00%
Keith C. Pratt, Director 121,150 .67%
Michael R. Hicks, Director 65,000 .36%
Michael Hiller, Director 541,000 3.03%
Rebecca A. Crawford, Secretary 34,781 .19%
Eric P. Wortham 811,562 4.55%
Debra A. Even, Vice President 0 0%
All officers and Directors of
South Beach Concepts, Inc. and
subsidiaries 9,593,498 53.83%
<PAGE>
1. Based upon 17,821,285 outstanding shares of common stock.
2. The 8,020,005 shares owned by Thomas N. Burnham includes 3,481,562 shares
of common stock owned directly, 2,629,333 by virtue of joint ownership with
Pamela H. Burnham in Mosby Investments, Inc., and may be deemed to be the
beneficial owner by having voting control of 1,909,110 shares including
860,000 shares owned by Texas International Group, Inc., 245,787 shares
owned by Dallas Investment Group, Inc., 698,415 shares owned by Sarasota
Investment Group, 14,988 shares owned by SBC World Ventures and 14,219
shares owned by The Northgate Group, LLC. He also owns warrants
representing 4,788,743 additional shares if fully exercised and has
beneficial ownership by having voting control of 10,000 warrants owned by
Sarasota Investment Group, Inc.
3. Keith Pratt owns 121,150 shares of common stock directly.
4. Michael R. Hicks owns 65,000 shares of common stock directly. He also owns
warrants representing if fully exercised 1,162,500 additional shares.
5. Michael Hiller owns 541,000 shares of common stock directly. He also owns
warrants representing if fully exercised 74,000 additional shares.
6. Rebecca A. Crawford owns 34,781 shares of common stock directly. She also
owns warrants representing if fully exercised 150,000 additional shares.
7. Eric P. Wortham owns 811,562 shares of common stock directly.
8. Debra A. Even owns warrants representing if fully exercised 50,000 shares.
ITEM 15. 1998 GAAP RULE CHANGE REGARDING START-UP ACTIVITY
During August 1998, the American Institute of Certified Public Accountants
(AICPA) issued statement of position (SOP) no. 98-5 reporting on the costs of
start-up activities". This statement requires all costs related to a companies'
start-up activities be expensed during the period incurred rather than
capitalized and amortized over a period of time.
This pronouncement became effective for fiscal years beginning after
December 15, 1998. As a result of this change the company has written off
$533,157.00 of prior organizational costs during the year ended December 31,
1999.
ITEM 16. EXHIBITS, FINANCIAL STATEMENT REPORTS ON FORM 10-K
1.1 Report Form 8-K was filed with the Securities and Exchange Commission on
June 15, 1999 ( File No. 0-24839)July 30, 1999, (File No. 0-024839). The
purpose of the filing was to duly report, Item 1, CHANGES IN CONTROL OF
REGISTRANT; Agreement and Plan of Merger and amendment thereto between
Westford Acquisition Corporation and South Beach Concepts, Inc. and Item 2,
ACQUISITION OR DESPOSITION OF ASSETS.
<PAGE>
1.2 Report Form 8-K was filed with the Securities and Exchange Commission on
July 30, 1999, (File No. 0-024839). The purpose of the filing was to duly
report, Item 1, CHANGES IN CONTROL OF REGISTRANT; Agreement and Plan of
Merger and amendment thereto between Westford Acquisition Corporation and
South Beach Concepts, Inc. and Item 2, ACQUISITION OR DESPOSITION OF
ASSETS.
1.3 Index to Financial Statements Page
Reports of Independent Accountants 1
Consolidated Balance Sheets - December 31, 1999 2
Consolidated Statement of Operations - Fiscal Year Ended
December 31, 1999 4
Consolidated Statement of Changes in Stockholder's Equity -
Fiscal Year Ended December 31, 1999 5
Consolidated Statement of Cash Flows - Fiscal Year Ended
December 31, 1999 6
Consolidated Notes to Financial Statements 7
SIGNATURES
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 hereunto duly authorized.
SOUTH BEACH CONCEPTS, INC.
By /s/ Thomas Burnham
Chief Executive Officer
Director
Date: March 28, 2000
<PAGE>
EXHIBIT 1.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act
July 30, 1999
Date of Report
(Date of Earliest Event Reported)
SOUTH BEACH CONCEPTS, INC.
(Exact Name of Registrant as Specified in its Charter)
5969 Cattleridge Road, Suite 201
Sarasota, Florida 34232
(Address of principal executive offices)
941/377-7225
Registrant's telephone number
WESTFORD ACQUISITION CORPORATION
1504 R Street, N.W.
Washington, D.C. 20009
Former name and former address
Florida 0-24839
(State or other (Commission
jurisdiction of File Number)
incorporation
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
(a) Pursuant to an Agreement and Plan of Merger (the "Merger Agreement")
dated as of April 15, 1999 between Westford Acquisition Corporation, a Delaware
corporation, and South Beach Concepts, Inc., a Florida corporation, all the
outstanding shares of common stock of Westford Acquisition Corporation were
exchanged for shares of common stock of South Beach Concepts, Inc. ("South Beach
Concepts" or the "Company") in a transaction in which South Beach Concepts was
the surviving company.
The Merger Agreement was adopted by the unanimous consent of the Board of
Directors of Westford and approved by the unanimous consent of the shareholders
of Westford on April 15, 1999. The Merger Agreement was adopted by the unanimous
consent of the Board of Directors of South Beach and by the consent of the
shareholders of South Beach on April 15, 1999. The Merger Agreement was effected
on July 30, 1999.
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Prior to the merger, Westford had 4,650,000 shares of common stock
outstanding which shares were exchanged on a one-for-one basis for shares of
common stock of South Beach. Prior to the effectiveness of the merger, South
Beach had an aggregate of 10,953,650 shares outstanding held by more than 300
shareholders. Upon effectiveness of the merger South Beach issued 4,650,000
shares of its common stock to the holders of the outstanding common stock of
Westford resulting in an aggregate of 15,603,650 shares of common stock
outstanding. Upon effectiveness of the merger, pursuant to Rule 12g-3(a) of the
General Rules and Regulations of the Securities and Exchange Commission, South
Beach became the successor issuer to Westford Acquisition Corporation with its
common stock deemed registered under Section 12g of the Securities Exchange Act
of 1934.
The officers of South Beach Concepts, Inc. are the same as the former
officers of Westford Acquisition Corporation. See "Management" below. Three of
the four directors of South Beach Concepts, Inc. are the same as the three
directors of Westford. South Beach Concepts has adopted the by-laws of Westford
Acquisition Corporation.
A copy of the Merger Agreement and amendment thereto is filed as an exhibit
to this Form 8-K and is incorporated in its entirety herein. The foregoing
description is modified by such reference.
(b) The following table contains information regarding the shareholdings
of South Beach Concepts' current directors and executive officers and those
persons or entities who beneficially own more than 5% of its common stock
(giving effect to the exercise of the warrants held by each such person or
entity):
Amount of Common Percent of
Stock Beneficially Common Stock
Name Owned (1) Beneficially
Owned(2)
Thomas N. Burnham (3) 7,930,085 67.65%
Director, President
5125 Willow Leaf Drive
Sarasota, Florida 34232
Pamela H. Burnham (4) 0 0%
Director, Vice President,
Treasurer
5125 Willow Leaf Drive
Sarasota, Florida 34232
Keith Pratt, Director (5) 102,650 *
4075 Joanne Court
Ann Arbor, Michigan 48103
Michael R. Hicks 15,000 *
217 Balboa Street
Irving, Texas 75062
All directors and 8,047,735 68.13%
executive officers as
40
<PAGE>
a group (4 persons)
South Beach Concepts Plc (6) 4,730,000 29.8%
29 Albermarle Street
London, England W1X 3FA
Texas International
Group, Inc. (7) 860,000 18.3%
5969 Cattleridge Boulevard
Suite 201
Sarasota, Florida 34232
Mosby Investments, Inc.(8) 2,629,333 29.8%
5969 Cattleridge Boulevard
Suite 201
Sarasota, Florida 34232
Eric Wortham 811,562 5.1%
306 Lockmoor
Collinsville, Illinois 62234
* Less than 1% percent
1. Based upon 15,885,290 outstanding shares of common stock (subsequent to the
effectiveness of the merger South Beach has issued 281,640 shares of its
common stock).
2. Assumes exercise of warrants, options or other rights to purchase
securities held by the named shareholder exercisable within six months of
the date hereof.
3. The 7,930,085 shares includes 3,481,562 shares of common stock which Thomas
N. Burnham directly and 4,448,523 of which he may be deemed to be the
beneficial owner or having voting control including 2,629,333 shares owned
by Mosby Investments, Inc., 860,000 shares owned by Texas International
Group, Inc., 245,787 shares owned by Dallas Investment Group, Inc., 698,415
shares owned by Sarasota Investment Group and 14,988 shares owned by SBC
World Ventures.
The percentage of stock beneficially owned assumes exercise of warrants to
purchase 8,710,000 shares of common stock of which 8,500,000 have an
exercise price of $.0001 for an exercise period of twelve months of which
Thomas N. Burnham owns 3,000,000 directly and may be deemed to be the
beneficial owner of the 3,000,000 owned by Mosby Investments, Inc. and the
2,500,000 owned by Texas International Group, Inc., over which he has
voting control and 210,000 warrants exercisable at exercise price of $1.25
until December 31, 1999 increasing to $2.00 until June 30, 2001 per share
exercisable for an exercise period of twelve months from the date of grant
thereof.
4. Pamela Burnham is the spouse of Thomas Burnham.
5. Includes 5,000 shares of common stock owned directly and 97,650 shares
owned by SBC Pratt Group of which Keith Pratt may be deemed to be the
beneficial shareholder.
6. South Beach Concepts Plc is a public company in the United Kingdom whose
shares are traded on the Alternative Investment Market of the London Stock
Exchange.
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<PAGE>
7. The percentage of stock beneficially owned includes the 860,000 shares of
common stock and warrants to purchase 2,500,000 shares of common stock over
which Thomas N. Burnham has voting control and may be deemed to be the
beneficial owner.
8. The percentage of stock beneficially owned includes 2,629,333 shares of
common stock and warrants to purchase 3,000,000 shares of common stock of
which Thomas N. Burnham may be deemed to be the beneficial owner.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) The consideration exchanged pursuant to the Exchange Agreement was
negotiated between Westford Acquisition and South Beach Concepts. On June 15,
1999, Westford Acquisition Corporation acquired Baja Food Concepts as a wholly
owned subsidiary through a stock-for-stock exchange. A Form 8-K was filed on
June 18, 1999 reporting that acquisition. The officers and directors of Baja
Food Concepts are also the primary officers and directors of South Beach
Concepts and the majority shareholder of Baja Food Concepts, Thomas Burnham, is
a principal shareholder of South Beach Concepts.
In evaluating South Beach Concepts as a candidate for the proposed merger,
Westford used criteria such as the value of the assets of South Beach, its
business operations, its business name and reputation, its compatibility with
the business and assets of Westford's operating subsidiary, Baja Food, and the
business potential of South Beach Concepts. The Registrant determined that the
consideration for the merger was reasonable.
(b) South Beach Concepts intends to continue development of fast food
themed restaurant business and to further franchise operations of its fast food
restaurant concept, incorporating the themed restaurant of Baja Food, Cisco &
Pancho.
BUSINESS
Through its wholly-owned subsidiary, Baja Food Concepts, Inc., the Company
operates a themed fast food restaurant, "Cisco & Pancho", located in Sarasota,
Florida. Cisco & Pancho specializes in gourmet burritos, tacos and empanadas
served with homemade salsa. The store colors and design have Mexican accents and
blend with both the South Beach and Pizza World designs making it compatible for
dual and triple concept properties. During peak hours, a Cisco & Pancho
restaurant requires approximately three to five employees. The Cisco & Pancho
restaurant opened in February, 1999, and has not yet had significant operations.
Management anticipates that it will open additional Cisco & Pancho restaurants
and intends to begin franchise development of Cisco & Pancho restaurants in
1999. Baja Food Concepts has commenced preparation of documentation required to
franchise the Cisco & Pancho system and anticipates that franchise development
will begin in 1999.
South Beach Concepts, Inc. was incorporated under the laws of the State of
Florida in July 1998. In August 1998, the Company acquired South Beach Cafe,
Inc. and Pizza World International, Inc., the United States subsidiaries of
South Beach Concepts, Plc, from that company in exchange for 10,000,000 of its
shares of common stock.
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<PAGE>
Through its subsidiaries, South Beach Concepts develops, operates and
franchises take-out and eat-in restaurants with specific and consistent themes,
logos, and menus (i.e. "chains") and roasts, produces and markets coffee beans
and teas. It has two theme restaurant chains, Pizza World Gourmet Pizza and
South Beach Cafe. These restaurants are operated by operating subsidiaries of
the Company's subsidiaries or by third party franchisees.
SOUTH BEACH CAFE
South Beach Cafe, Inc., a wholly owned subsidiary of South Beach Concepts,
Inc., owns and operates three restaurants under the trademark, "South Beach
Cafe" in Sarasota, Florida. Two of the stores are operated under one roof with a
company owned Pizza World (a "Dual Branded Store") and the third operates under
one roof with Pizza World and Cisco & Pancho (a "Triple Branded Store"). Through
its subsidiary, South Beach Cafe franchises South Beach Cafe restaurants.
Concept and Menu
South Beach Cafes operate as casual sit-down, eat-in cafes serving premium
coffee and espresso drinks, fresh fruit smoothies and vegetable drinks, bagels,
cream cheese spreads, croissants, gourmet sandwiches, frozen yogurt, soups,
salads, fresh pastries and other baked goods. South Beach Cafes utilize an art
deco design and colors reminiscent of the art deco architecture of South Beach,
Miami, Florida. Some of the cafes also offer Internet access capability. The
ease of preparation of the offered foods results in a small number of required
employees, approximately 3 to 5 in peak times, and a lower per store overhead.
Franchise Program
South Beach Cafe, through its wholly owned subsidiaries, owns offers both
area development and single store franchising. A development agreement grants a
franchisee the right to establish multiple South Beach Cafes within a specified
geographic area at specific locations designated in separate franchise
agreements pursuant to a development schedule. A franchise agreement governing
the construction and operation of the first store is executed concurrently with
the development agreement. All store locations must be approved. Single store
franchise agreements are granted to individuals or entities with demonstrated
financial ability for the establishment and operation of a single store at a
specified location.
Currently there are no franchised stores open and operating. However, the
Company has entered into agreements that provide for the opening of 11
franchised stores. There is no assurance that these stores will open or if
opened that they will be successful.
Franchise Term, Fee and Royalty
The initial term of a franchise agreement is ten years and is renewable for one
additional ten-year term. Franchisees pay a nonrefundable development fee
computed by multiplying the number of
43
<PAGE>
stores to be opened pursuant to the development agreement by $5,000. As each
franchise agreement for each individual store to be opened is executed, $5,000
is credited toward the initial franchise fee of $18,500 for that individual
store. Franchisees pay a royalty fee of 4% of net sales of the store, which
under certain circumstances, may be increased to 5%.
Designated Suppliers
In order to maintain the uniformity of all South Beach Cafes and to insure food
quality and consistency, franchisees must operate their stores in accordance
with South Beach Concepts' proprietary business techniques, systems, policies
and procedures. Franchisees are required to follow standards and specifications
established by South Beach Concepts with respect to food products, ingredients,
packaging, advertising, supplies, equipment, computer hardware and software,
fixtures, furnishings and other items used in the operation of the store. To
enable the franchisees to obtain superior equipment, supplies, food and beverage
products that are not otherwise available to individual franchisees and to
benefit from reduced prices and more efficient and timely deliveries based on
the leverage gained from increased buying power, South Beach Concepts reserves
the right to designate approved suppliers for specific items required in the
operation of a store. Cafe Society Coffee Co., a subsidiary of South Beach
Concepts is a designated supplier of coffee and related products.
Support and Training
When a franchisee develops a store, South Beach Concepts must first
approve the site, the plan, the construction and equipment
specifications, design specifications and decor and hardware
specifications. The principal operator and/or store managers
receive comprehensive classroom and hands on training at South Beach
Concepts' training facility and at a company owned store. South
Beach Concepts assists the franchisee with the grand opening of the
store and provides ongoing marketing support. Upon opening, South
Beach Concepts provides in-store assistance and continuing systems
support and training.
PIZZA WORLD GOURMET PIZZA
Pizza World International, Inc., a wholly owned subsidiary of South
Beach Concepts, Inc., owns and operates, under the trademark "Pizza
World Gourmet Pizza" and "Pizza World" restaurants (collectively
referred to as "Pizza World") three Pizza World stores in Sarasota,
Florida. Two of the stores are located in Dual Branded Stores with
South Beach Cafe and the third operates in a Triple Branded Store
with South Beach Cafe and Cisco & Pancho. Through its subsidiary
franchises Pizza World stores.
Concept and Menu
Pizza World offers gourmet and traditional pizzas for carry-out, delivery
and, in certain stores, seat-down capacity. The speciality gourmet pizza menu
ranges from the "Bacon Cheeseburger American" with a mustard glaze to the
"Grecian Gourmet" combining
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<PAGE>
feta cheese, black olives, spinach, green peppers and tomatoes on a bed of
mozzarella with red sauce. The pizzas are made from freshly baked dough with
homemade pizza sauce and a choice of over thirty toppings. The menu also
features calzones, fresh oven baked sub sandwiches, salads and garlic or cheese
breads. The restaurants have a red and green color scheme and logo. During peak
hours, a Pizza World restaurant requires approximately 6 to 8 employees.
Franchise Program
Pizza World International offers both area development and single store
franchising. A development agreement grants a franchisee the right to establish
multiple Pizza World stores within a specified geographic area at specific
locations designated in separate franchise agreements pursuant to a development
schedule. A franchise agreement governing the construction and operation of the
first store is executed concurrently with the development agreement. All store
locations must be approved by South Beach Concepts or its subsidiary. Single
store franchise agreements are granted to individuals or entities with
demonstrated financial ability for the establishment and operation of a single
store at a specified location.
Currently there are 13 franchised stores open and operating in Florida,
Illinois and Missouri. There are also development agreements and franchise
agreements that provide for the opening of 17 additional franchised stores.
There is no assurance that stores will open or if opened that they will be
successful.
Franchise Term, Fee and Royalty
The initial term of a franchise agreement is ten years and is renewable for
one additional ten-year term. Franchisees pay a nonrefundable development fee
computed by multiplying the number of stores to be opened pursuant to the
development agreement by $5,000. As each franchise agreement for each individual
store to be opened is executed, $5,000 is credited toward the initial franchise
fee of $18,500 for that individual store. Franchisees pay PWIFC a royalty fee of
4% of net sales of the store, which under certain circumstances, may be
increased to 5%.
Designated Suppliers
In order to maintain the uniformity of all Pizza World stores and to insure
food quality and consistency, franchisees must operate their stores in
accordance with South Beach Concept's or subsidiary's proprietary business
techniques, systems, policies and procedures. Franchisees are required to follow
standards and specifications established by South Beach Concepts with respect to
food products, ingredients, packaging, advertising, supplies, equipment,
computer hardware and software, fixtures, furnishings and other items used in
the operation of the store. To enable the franchisees to obtain superior
equipment, supplies, food and beverage products that are not otherwise available
to individual franchisees and to benefit from reduced prices and more efficient
and timely deliveries based on the leverage gained from increased buying power,
South Beach Concepts reserves the right to designate approved suppliers for
specific items required in the operation of a
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store.
Company Support and Training
When a franchisee develops a store, South Beach Concepts or subsidiary must
first approve the site, the plan, the construction and equipment specifications,
design specifications and decor and hardware specifications. The principal
operator and/or store managers receive comprehensive classroom and hands on
training at South Beach Concept's training facility and at a company owned
store. South Beach Concepts or its subsidiary assists the franchisee with the
grand opening of the store and provides ongoing marketing support. Upon opening,
South Beach Concepts provides in-store assistance and continuing systems support
and training.
CURRENT OPERATIONS COMPANY STORES
South Beach Cafe. The initial two company South Beach Cafes were opened in
Lansing, Michigan, in February, 1995 and June, 1996. One of these cafes was
closed in 1998 when the mall in which it was located was closed for renovation.
Management intends to reopen such store in a larger 4,200 square foot facility
in the new mall as a "triple-concept" unit combining under one roof and one
management system a South Beach Cafe, Pizza World and Cisco & Pancho restaurant
sharing the same services and staff. With the development of its larger "triple-
concept" store, management determined to close the other Lansing, Michigan South
Beach Cafe.
South Beach Cafe, Inc., through its subsidiary, opened three company South
Beach Cafes in the Sarasota, Florida, area, in May, 1997, February, 1999 and
March, 1999. Two of these stores are dual-branded concept stores (the stores
opened in May, 1997 and March, 1999) offering both the South Beach Cafe and a
Pizza World Gourmet Pizza store sharing services and staff and providing more
extensive variety to customers. The third cafe (opened in February, 1999) was
opened as a triple-branded concept store housing the South Beach Cafe, Pizza
World and a Cisco & Pancho facility. Through its subsidiary, South Beach Cafe
Inc. has three Pizza World restaurants in Sarasota, Florida. Two of these stores
are part of dual-concept units and the third is a part of the triple-concept
unit described above. South Beach Concepts' wholly-owned subsidiary, Baja Food
Concepts, Inc., operating under the name Cisco & Pancho, has opened one company
store which is part of the triple-concept unit located in Sarasota, Florida
described above.
Cafe Society Coffee Company. The Cafe Society Coffee Company is a Dallas, Texas,
wholly-owned subsidiary of the South Beach Concepts which roasts and packages
high-end specialty coffees which are sold and distributed under its own label
and private labels. The Cafe Society Coffee Company offers a full line of
specialty coffees including varietals, blends, flavored, organic and naturally
flavored coffees as well as specialty teas, gourmet syrups and hot chocolates.
All Cafe Society Coffee Company coffees are produced in its own roasting
facility. Green coffee beans are purchased from select brokers and roasting,
packaging and shipping is completed in-house. The roasting equipment consists of
a 60 kilo Sasa Samiac roaster and a 12 kilo Sasa Samiac roaster utilizing an air
roast
46
<PAGE>
method with a current capacity of approximately 1.2 million pounds per year.
Coffee is packaged for commercial and consumer use.
Trademarks
Through its listed subsidiary, South Beach Concepts owns all the right, title
and interest in and to the following marks, which are the primary trademarks,
service marks, names, logos and symbols used by it to identify the business and
are registered with the United States Patent and Trademark Office on the
principal register:
South Beach Cafe, Inc.: Registration #2,024,465, 12/17/96,
mark: South Beach Cafe and design
Serial #75/359,009, 9/18/96, mark: design
Pizza World Gourmet Pizza:
Registration #2,018,274, 11/7/95, mark:
Pizza World Gourmet Pizza and design
Registration #2,066,993, 6/3/97, mark: Amore Roma
Registration #2,066,994, 6/3/97, mark: Ciao Bella
Registration #2,066,997, 6/3/97, mark: Americana
Registration #2,069,389, 6/10/97, mark: Aloha Makana
Registration #2,069,390, 6/10/97, mark: Taste of
Chicago
Registration #2,069,399, 6/10/97, mark: Le Gardeaux
Cafe Society Coffee Company:
Registration #1,902,906, 7/4/95, mark: Cafe Society
Registration #1,903,188, 7/4/95, mark: Cafe Society
Registration #1,964,097, 3/26/96, mark:
Cafe Society (design)
Registration #1,989,726, 7/30/96, mark:
Cafe Society Coffee Company (design)
Baja Food Concepts, Inc. has filed an application to register the trademark
Cisco & Pancho.
DUAL/TRIPLE BRAND STORES
South Beach Concepts believes that situating two or more of its theme
Restaurants under one roof will attract more customers and will reduce costs.
South Beach Concepts operates one "Dual-Branded" restaurant (two different
theme restaurants under one roof) consisting of South Beach Cafe and Pizza
World and one "Triple-Branded" Restaurant (three different theme restaurants
under one roof) consisting of South Beach Cafe, Pizza World, and Cisco &
Pancho. The dual and triple brand restaurants provides for combining the
operating systems of the restaurants and reduces duplication of certain
operations.
<PAGE>
Because the prime rush hours of each theme restaurant are not the same, the
multi-branding concept allows for better utilization of the leased premises with
less down time, increases the productivity of the staff which can be crossed
train to reduce the number of employees needed in each restaurant, and allows
for sharing equipment thereby reducing the total equipment package cost. In
addition, customers are more likely to visit one site offering more than one
food option type.
TRAINING FACILITY
A training facility for all the restaurant concepts is located next to
South Beach Concept's first triple concept store in Sarasota, Florida. The
facility is used to orient and provide comprehensive training for operators and
franchisees in a classroom setting. Classes focusing on policy and operational
procedures are conducted by South Beach Concepts staff. Classroom instruction
and written materials instruct the Franchisee in local store marketing, computer
operations, delivery, food preparation, daily management, staff hiring and
training, inventory management and business management. The proximity to the
triple concept company store will allow trainees not only the opportunity to
observe an operating store "in action", but to get "hands-on" training in that
store.
PROPERTY
South Beach Concepts, Inc. maintains its administrative offices at
5969 Cattleridge Boulevard, Suite 201, Sarasota, Florida 34232 under a monthly
lease of approximately $4,880 per month for approximately 4,000 square feet.
MANAGEMENT
Name Age Title
Thomas N. Burnham 52 President, Director
Pamela H. Burnham 52 Vice President, Director
Keith Pratt 56 Director
Michael R, Hicks 40 Director
THOMAS N. BURNHAM is the President, director and shareholder of South
Beach Concepts, Inc. and an officer of its subsidiaries, including Baja Food
Concepts, Inc. and South Beach Cafe, Inc. From April, 1996 until April, 1999,
Mr. Burnham was Chairman and Chief Executive Officer of South Beach Cafe, Plc
(London, England) and from November, 1996 to December, 1998, he was a director
of South Beach Cafe-London, Ltd. Mr. Burnham also serves a director, president
and has voting control of the following entities: Burnham International Group,
Inc., Sarasota Investment Group, Inc., Dallas Investment Group, Inc.,
International Restaurant Concepts, Inc., London Ventures, LC, Mosby Investments,
Inc., Texas International Group, Inc., The Northgate Group, L.C., 100 Degrees
East, Inc., Thomas N. Burnham
<PAGE>
Associates, Inc., and International Franchise Group, Inc.
From October, 1993 to August, 1994, Mr. Burnham was president and director
of Clucker's International Franchise Corporation, Miami, Florida; from October,
1990 to May, 1993, Mr. Burnham was president and director of Ho-Lee-Chow, Inc.,
Ann Arbor, Michigan. Mr. Burnham served in the following capacities for Domino's
Pizza International, Inc.: Executive Vice President, December, 1989 to May,
1990; Vice President, Administration and Development, May, 1989 to May, 1990;
Director, June, 1986 to May, 1990; and General Counsel from September, 1986 to
May, 1990. From September, 1984 to September, 1986, Mr. Burnham served as
outside General Counsel for Domino's Pizza International, Inc. Mr. Burnham has
been the principal of the law firm of Thomas N. Burnham International Law
Offices from January 1990 to the present. Mr. Burnham received his Bachelor of
Business Administration degree in 1969, a Masters in Business Administration in
1970 and a Juris Doctor in 1973 from the University of Michigan, Ann Arbor,
Michigan. Mr. Burnham currently serves as Program Director of Franchising and
Entrepreneurism at the University of Dallas and is the founder and director of
the Institute of International Enterpreneurship.
PAMELA H. BURNHAM has served as Vice President, Treasurer and a director of
South Beach Concepts, Inc. since its inception in July, 1998 and serves as an
officer of several of its subsidiaries. From April, 1996 to April, 1999, Ms.
Burnham served as a director of South Beach Cafe, Plc (London, England). She
also served as a director for South Beach Cafe-London., Ltd. from November, 1996
to December, 1998. Ms. Burnham also serves a director and vice president of the
following entities: Burnham International Group, Inc., Sarasota Investment
Group, Inc., Dallas Investment Group, Inc., International Restaurant Concepts,
Inc., Mosby Investments, Inc., Texas International Group, Inc., 100 Degrees
East, Inc., Thomas N. Burnham Associates, Inc., and International Franchise
Group, Inc.
From October, 1993 to August, 1994, Ms. Burnham was a Franchise Sales
Consultant for Clucker's International Franchise Corporation, Miami, Florida.
From February, 1991 through May, 1993, she was Vice President of Ho-Lee-Chow,
Inc., Ann Arbor, Michigan. Ms. Burnham was President of International Pizza
Ventures, Inc. Toronto, Canada from October, 1989 through February, 1991. She
served as Director of Real Estate for Domino's Pizza International, Inc. from
August, 1989 to May, 1990. Ms. Burnham attended Crowan College in North Carolina
from 1965 to 1967 and University of California at Los Angeles in 1979.
KEITH PRATT serves as a director of South Beach Concepts. Mr. Pratt was one
of the founders of South Beach Cafe, Inc. and has served as a consultant to it
in the areas of restaurant and office site selection, lease negotiation, store
design, software and implementation since its inception. From 1976 to present,
Mr. Pratt has been a commercial real estate broker with Gary Lillie &
Associates, Inc. located in Ann Arbor, Michigan. Mr. Pratt also serves as the
president of Cafe Development Group,
<PAGE>
founded in 1996 a consulting firm that assists in restaurant site selection,
design, equipping and staffing. Mr. Pratt received his Bachelor of Science in
Engineering from the University of Michigan in 1969.
Michael R. Hicks, M.D., serves as a director of South Beach Concepts. Dr.
Hicks is President of Pinnacle Anesthesia Consultants, PA, a two hundred-member
single specialty medical practice in Dallas, Texas and is also a practicing
anesthesiologist. In addition, Dr. Hicks is a principal and officer of Hicks-
Rosengarden Investments, a publisher of regional specialty publications
including Avidgolfer. He is currently a member of the Board of Directors of the
Texas Society of Anesthesiologists. Prior to the formation of Pinnacle
Anesthesia Consultants, PA, Dr. Hicks served as President of DFW Anesthesia
Associates, PA from 1995 until 1996 and as Managing Partner of Anesthesia
Consultants of Irving prior to 1995.
Dr. Hicks received a BA in Chemistry and an MD degree from West Virginia
University in 1981 and 1985 respectively. He completed a residency in
anesthesiology in 1989 at the University of Texas Southwestern Medical School
where he also served as Chief Resident. Dr. Hicks is currently completing an MBA
at the University of Dallas.
RELATED TRANSACTIONS
Thomas N. Burnham, President and director of South Beach Concepts is the
principal of the law firm of Thomas N. Burnham International Law Offices and
performs legal services for South Beach Concepts, Inc. and its subsidiaries.
RISK FACTORS
OPERATING LOSS. Revenues from operations to date have not been sufficient
to cover the costs of such operations and the Company has borrowed funds to
maintain its operations. The Company's ability to develop operations is
dependent upon its ability to sell its franchise stores and to operate its
company store at a profit. If the Company is unable to sell sufficient franchise
stores or to operate its company store at a sufficiently profitable level, the
Company will need to raise additional capital through the placement of its
securities or from other debt or equity financing. If the Company is not able to
raise such financing or to obtain alternative sources of funding, management
will be required to curtail operations. There is no assurance that the Company
will be able to continue to operate.
LIMITED OPERATING HISTORY. The Company has a limited history of operations
and to date has not been profitable. The Company's operations are subject to all
the risks inherent in the establishment of a relatively new business enterprise.
There can be no assurance that future operations will be profitable. The
Company's operations are in part dependent on the establishment of, and
profitability of new restaurants.
<PAGE>
Revenues and profits of the Company, if any, will depend upon various factors,
including market acceptance of the Company's concepts, attractiveness and
quality of the menu, restaurant service, location of the restaurants and general
economic conditions. The growth of the Company will depend on a number of
factors, including the availability of suitable locations, the negotiation of
favorable lease or site acquisition terms, the identification, training and
retention of skilled management personnel and franchisees, the availability of
adequate capital, general economic and business conditions, and others, some of
which are beyond the control of the Company. There is no assurance that the
Company will achieve its expansion goals. The failure to achieve such goals
would have an adverse impact on the Company.
DEPENDENCE ON FRANCHISEES. The Company anticipates that it will realize a
portion of its revenues from franchise fees, including the initial franchise
fees and continuing royalty payments. If franchisees encounter business or
operational difficulties, revenues from royalties and supplies sales would be
adversely affected. Such difficulties would also negatively impact the Company's
ability to sell new franchises. Consequently, the Company's financial prospects
are significantly related to the success of its franchised stores, over which it
has limited direct operational control. There can be no assurance that the
Company will be able to successfully attract new franchisees or that
franchisees, if any, will be able to successfully operate stores.
FRANCHISE COMPETITION. The competition to sell franchises is very intense
and the Company will have to compete against many well-established, better-known
and better financed companies selling franchises. Potential franchisees will
compare the costs and benefits offered by the Company's franchise program
against those offered by other franchise companies which may have been in
business longer and shown consistent positive economic returns. The market for
selling the franchises is limited and the Company may suffer adverse
consequences from its possible inability to attract new franchisees.
FRANCHISE REGULATIONS. The Company will be subject to federal regulation
and certain state laws which govern the offer and sale of franchises. Many state
franchise laws impose substantive requirements on franchise agreements,
including limitations on non-competition provisions and termination or non-
renewal of a franchise. Some states require that certain franchise offering
materials be registered before franchises can be offered or sold in that state.
The failure to obtain or retain food licenses or approvals to sell franchises
could adversely affect the Company's and its franchisees', if any, results of
operations. The future enactment, adoption or amendment of laws or regulations,
such as establishing basic franchisee rights, increasing the minimum wage or
other costs associated with employees, could adversely affect the Company's
results of operations. Federal and state franchise laws provide franchisees,
either singly or as a group, the right to bring an
<PAGE>
action against the franchisor in regard to actions arising from the franchise
agreement, the franchise operations and other matters.
EFFECTIVENESS OF FRANCHISE ADVERTISING. The success of the Company will be
substantially dependent on the effectiveness of the advertising programs and the
overall success of franchises. The Company anticipates it will advertise in
franchise and business opportunity publications and exhibits at franchise fairs
worldwide. However, future success in attracting franchisees will be dependent
not only on the Company's promotional program but also on the success of its
franchisees' existing restaurants that cannot be guaranteed.
COMPETITION. The competition in the fast food and pizza industry is
intense. There are numerous well-established competitors, including national,
regional and local chains, possessing substantially greater financial,
marketing, personnel and other resources than the Company. The competition
includes such well-known chains as McDonald's, Burger King, Wendy's, Domino's
Pizza, Pizza Hut, Blimpies, and numerous others. The Company will also face
competition in its dual-concept stores from such large well-known dual-concept
stores as Kentucky Fried Chicken and Taco Bell.
ISSUANCE OF FUTURE SHARES MAY DILUTE INVESTORS SHARE VALUE. The Certificate
of Incorporation of South Beach Concepts, Inc. authorizes the issuance of a
maximum of 50,000,000 shares of common stock and 10,000,000 shares of preferred
stock. The future issuance of all or part of the remaining authorized common
stock may result in substantial dilution in the percentage of the Company's
common stock held by the Company's then existing shareholders. Moreover, any
common stock issued in the future may be valued on an arbitrary basis by the
Company. The issuance of the Company's shares for future services or
acquisitions or other corporate actions may have the effect of diluting the
value of the shares held by investors, and might have an adverse effect on any
trading market, should a trading market develop for the Company's common stock.
POTENTIAL ADVERSE EFFECTS OF AUTHORIZATION OF PREFERRED STOCK. The Company
may, without further action or vote by shareholders of the Company, designate
and issue shares of preferred stock. The terms of any series of preferred stock,
which may include priority claims to assets and dividends and special voting
rights, could adversely affect the rights of holders of the common stock and
thereby reduce the value of the common stock. The designation and issuance of
preferred stock favorable to current management or shareholders could make the
possible takeover of the Company or the removal of management of the Company
more difficult and discourage hostile bids for control of the Company which bids
might have provided shareholders with premiums for their shares.
NO CURRENT TRADING MARKET FOR THE COMPANY'S SECURITIES. There is currently
no established public trading market for the securities of the Company. No
assurance can be given that an
<PAGE>
active trading market in the Company's securities will develop or, if developed,
that it will be sustained.
PENNY STOCK REGULATION. Upon commencement of trading in the Company's
stock, if such occurs (of which there can be no assurance) the Company's common
stock may be deemed a penny stock. Penny stocks generally are equity securities
with a price of less than $5.00 per share other than securities registered on
certain national securities exchanges or quoted on the Nasdaq Stock Market,
provided that current price and volume information with respect to transactions
in such securities is provided by the exchange or system. The Company's
securities may be subject to "penny stock rules" that impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally those with
assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000
together with their spouse). For transactions covered by these rules, the
broker-dealer must make a special suitability determination for the purchase of
such securities and have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any transaction involving a
penny stock, unless exempt, the "penny stock rules" require the delivery, prior
to the transaction, of a disclosure schedule prescribed by the Commission
relating to the penny stock market. The broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered representative
and current quotations for the securities. Finally, monthly statements must be
sent disclosing recent price information on the limited market in penny stocks.
Consequently, the "penny stock rules" may restrict the ability of broker-dealers
to sell the Company's securities. The foregoing required penny stock
restrictions will not apply to the Company's securities if such securities
maintain a market price of $5.00 or greater. There can be no assurance that the
price of the Company's securities will reach or maintain such a level.
COMPUTER SYSTEMS REDESIGNED FOR YEAR 2000. Many existing computer programs
use only two digits to identify a year in such program's date field. These
programs were designed and developed without consideration of the impact of the
change in the century for which four digits will be required to accurately
report the date. If not corrected, many computer applications could fail or
create erroneous results by or following the year 2000 (the "Year 2000
problem"). Many of the computer programs containing such date language problems
have been corrected by the companies or governments operating such programs. The
Company's operations are dependent upon the timely delivery of supplies which
deliveries may be delayed or canceled because of such Year 2000 problem computer
failures. The Company does not know what steps, if any, have been taken by any
of its suppliers. The Company's operations will be severally curtailed if one or
more of its suppliers were to suffer Year 2000 problems. Furthermore, it is
impossible to predict if the basic utilities serving the company and franchise
stores will continue uninterrupted. A prolonged disruption in
<PAGE>
the service of any utility will prohibit the stores from operating.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not applicable.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 5. OTHER EVENTS
Not applicable.
ITEM 6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
Not applicable.
ITEM 7. FINANCIAL STATEMENTS
No financial statements are filed herewith. The Registrant shall file
financial statements by amendment hereto not later than 60 days after the date
that this initial report on Form 8-K must be filed.
ITEM 8. CHANGE IN FISCAL YEAR
Not applicable.
EXHIBITS
1.1 Agreement and Plan of Merger and amendment thereto between Westford
Acquisition Corporation and South Beach Concepts, Inc.
SIGNATURES
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 hereunto duly authorized.
SOUTH BEACH CONCEPTS, INC.
By /s/ Thomas Burnham
Chief Executive Officer
Director
Date: August 12, 1999
<PAGE>
SOUTH BEACH CONCEPTS INC /FL/
Filing Type: 8-K
Description: Current Report
Filing Date: Jun 18, 1999
Period End: Jun 15, 1999
Primary Exchange: N/A
Ticker: N/A
<PAGE>
Table of Contents
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To jump to a section, double-click on the section name.
<TABLE>
<S> <C>
8-K
ITEM 3............................................................................................ 8
ITEM 4............................................................................................ 9
ITEM 5............................................................................................ 9
ITEM 6............................................................................................ 9
ITEM 7............................................................................................ 9
ITEM 8............................................................................................ 9
ITEM 9............................................................................................ 9
Table 1........................................................................................... 10
EX-1
EX-1.............................................................................................. 14
</TABLE>
<PAGE>
8-K
1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act
June 15, 1999
Date of Report
(Date of Earliest Event Reported)
WESTFORD ACQUISITION CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 0-24839 52-2102435
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
5969 Cattleridge Road, Suite 201
Sarasota, Florida 34232
(Address of principal executive offices)
941/377-7225
Registrant's telephone number
1504 R Street, N.W.
Washington, D.C. 20009
Former address
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
(a) Pursuant to an Agreement and Plan of Reorganization (the "Exchange
Agreement") dated April 14, 1999 between Baja Food Concepts, Inc., a Florida
corporation ("Baja Food"), its shareholders, and Westford Acquisition
Corporation, a Delaware corporation (hereinafter referred to either as the
"Registrant" or the "Company"), all the outstanding shares of common stock of
Baja Food were exchanged for shares of common stock of the Registrant (the
"Exchange").
The Exchange Agreement was adopted by the unanimous consent of the Board of
Directors of the Registrant and approved by the unanimous consent of the
shareholders of the Registrant on April 14, 1999. The Exchange Agreement was
adopted by the unanimous consent of the Board of Directors of Baja Food and by
the written unanimous consent of the shareholders of Baja Food on April 14,
1999.
Prior to the Exchange, the Registrant had 5,000,000 shares of common stock
outstanding. Pursuant to the Exchange Agreement, the Registrant redeemed and
retired 4,650,000 shares of its outstanding common stock and issued 4,300,000
shares of its common stock to the holders of the outstanding common stock of
Baja Food, consisting of 12,200,000 shares, on a pro rata basis, for an
aggregate of 4,650,000 shares of common stock outstanding after effect of the
Exchange.
Page 1
<PAGE>
As a result of the Exchange, the former shareholders of Baja Food hold
92.5% of the outstanding shares of the common stock of the Registrant (without
giving effect to exercise of any warrants held by them). The sole source of
consideration used by the shareholders of Baja Food to acquire their respective
interest in the Registrant was the exchange of their shares held in Baja Food.
On the effective date of the Exchange, the officer and director of Westford
Acquisition Corporation resigned and new officers of the Registrant were
appointed. See "Management" below.
A copy of the Exchange Agreement is filed as an exhibit to this Form 8-K
and is incorporated in its entirety herein. The foregoing description is
modified by such reference.
(b) The following table contains information regarding the shareholdings
of the Registrant's current directors and executive officers and those persons
or entities who beneficially own more than 5% of the Registrant's common stock
(giving effect to the exercise of the warrants held by each such person or
entity):
Amount of Common Percent of
Stock Beneficially Common Stock
Name Owned (1) Beneficially
Owned(2)
Thomas N. Burnham (3) 12,800,000 97.3%
Director, President
5125 Willow Leaf Drive
Sarasota, Florida 34232
Pamela H. Burnham (4) 0 0%
Director, Vice President, Treasurer
5125 Willow Leaf Drive
Sarasota, Florida 34232
Keith Pratt, Director (5) 0 0%
4075 Joanne Court
Ann Arbor, Michigan 48103
All directors and 12,800,000 97.3%
executive officers as
a group (5 persons)
Texas International Group,
Inc. (6) 3,360,000 46.9%
5969 Cattleridge Boulevard
Suite 201
Sarasota, Florida 34232
Mosby Investments, Inc.(7) 4,720,000 62.1%
5969 Cattleridge Boulevard
Suite 201
Sarasota, Florida 34232
(1) Based upon 4,650,000 outstanding shares of common stock and assumes
exercise of warrants held by named shareholder.
(2) Assumes exercise of warrants, options or other rights to purchase
securities held by the named shareholder exercisable within six
months of the date hereof.
(3) Includes 4,300,000 shares of common stock of which Thomas H. Burnham
owns 1,720,000 shares directly and may be deemed to be the
beneficial owner of the 1,720,000 shares owned by Mosby Investments,
Inc. and the 860,000 shares owned by Texas International Group, Inc.
over which he has voting control. Also includes warrants to
Page 2
<PAGE>
purchase 8,500,000 shares of common stock at an exercise price of
$.0001 per share exercisable for a exercise period of twelve months
from the date of grant thereof of which Thomas H. Burnham owns
3,000,000 directly and may be deemed to the beneficial owner of the
3,000,000 owned by Mosby Investments, Inc. and the 2,500,000 owned by
Texas International Group, Inc. over which he has voting control.
(4) Pamela Burnham is the spouse of Thomas Burnham.
(5) South Beach Concepts, Plc is a public company in the United Kingdom
whose shares are traded on the Alternative Investment Market of the
London Stock Exchange. Until April, 1999, Thomas Burnham was Chairman
of the Board, managing director and a shareholder of South Beach
Concepts, Plc.
(6) Includes 860,000 shares of common stock and warrants to purchase
2,500,000 shares of common stock over which Thomas H. Burnham has
voting control and may be deemed to be the beneficial owner.
(7) Includes 1,720,000 shares of common stock and warrants to purchase
3,000,000 shares of common stock of which Thomas H. Burnham may be
deemed to be the beneficial owner.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) The consideration exchanged pursuant to the Exchange Agreement was
negotiated between the Registrant and Baja Food. Prior to the Exchange, no
relationship existed between any officer or director of the Registrant or any
officer, director or shareholder of Baja Food.
In evaluating Baja Food as a candidate for the proposed Exchange, the
Registrant used criteria such as value of the assets of the Registrant and value
of the assets of Baja Food, the business operations and the business potential
of Baja Food, and the benefit to the Registrant of such Exchange. The Registrant
determined that the consideration for the Exchange was reasonable.
(b) The Registrant intends to develop the fast food themed restaurant
business and to begin franchise operations of its fast food restaurant concept.
BUSINESS
Westford Acquisition Corporation was formed to provide a method for a
foreign or domestic private company to become a reporting company whose
securities would be qualified for trading in the United States secondary market.
Westford Acquisition Corporation has no operations, revenues or liabilities.
Baja Food Concepts, Inc. is an existing company with one operating themed
fast food restaurant, "Cisco & Pancho", located in Sarasota, Florida. Cisco &
Pancho specializes in gourmet burritos, tacos and empanadas served with homemade
salsa. The store colors and design have Mexican accents. During peak hours, a
Cisco & Pancho restaurant requires approximately three to five employees. The
Cisco & Pancho restaurant opened in February, 1999, and has not yet had
significant operations.
Management anticipates that it will open additional Cisco & Pancho
restaurants and will begin franchise development of Cisco & Pancho restaurants
in 1999.
Management of Baja Food are also officers, directors and shareholders of
South Beach Concepts, Inc., a theme-based fast food restaurant and franchise
company. Westford Acquisition has entered into a letter of intent with South
Beach Concepts, Inc. to merge
Page 3
<PAGE>
Westford Acquisition into South Beach Concepts. There is no assurance that such
merger will occur.
South Beach Concepts. Through its subsidiaries, South Beach Concepts
develops, operates, and franchises take-out and eat-in restaurants with specific
and consistent themes, logos, and menus (i.e. "chains") and roasts, produces and
markets coffee beans and teas. It has two theme restaurant chains, Pizza World
Gourmet Pizza and South Beach Cafe.
South Beach Cafe. South Beach Cafe is a casual sit-down, eat-in cafe
serving premium coffee and espresso drinks, fresh fruit smoothies and vegetable
drinks, bagels, cream cheese spreads, croissants, gourmet sandwiches, frozen
yogurt, soups, salads, fresh pastries and other baked goods. Through its
subsidiary, South Beach Concepts has three South Beach Cafe company stores and
has entered into non-binding agreements for 11 South Beach Cafe franchises.
Pizza World Gourmet Pizza. Pizza World offers traditional and gourmet
pizzas for carry-out, delivery and, in certain stores, sit-down capacity. The
specialty gourmet pizza menu ranges from the "Bacon Cheeseburger American" with
a mustard glaze to the "Grecian Gourmet" combining feta cheese, black olives,
spinach, green peppers and tomatoes on a bed of mozzarella with red sauce.
Through its subsidiaries, South Beach Concepts directly owns and operates three
Pizza World Gourmet Pizza stores and has 14 operating franchised Pizza World
Gourmet Pizza stores.
Cafe Society Coffee Company. The Cafe Society Coffee Company is a
wholly-owned subsidiary of South Beach Concepts which roasts and packages
high-end specialty coffees which are sold and distributed under its own label
and private labels. The Cafe Society Coffee Company offers a full line of
specialty coffees including varietals, blends, flavored, organic and naturally
flavored coffees as well as specialty teas, gourmet syrups and hot chocolates.
Westford will file a Form 8-K if the transaction with South
Beach Concepts, Inc. is effected.
PROPERTY
Baja Food Concepts maintains its administrative offices at 5969
Cattleridge Boulevard, Suite 201, Sarasota, Florida 34232 under a monthly lease
of approximately $4,880 per month for approximately 4,000 square feet.
MANAGEMENT
Name Age Title
Thomas N. Burnham 52 President, Director
Pamela H. Burnham 52 Vice President, Director
Keith Pratt 56 Director
THOMAS N. BURNHAM is the President, sole director and controlling
shareholder of Baja Food Concepts and, effective with the Exchange, is a
director and President of the Registrant. Mr. Burnham has served as the
President and Director of South Beach Concepts, Inc. since its inception in July
1998, and serves as an officer and director of its subsidiaries. From April,
1996 until April, 1999, Mr. Burnham was Chairman and Chief Executive Officer of
South Beach Cafe, Plc (London, England) and from November, 1996 to December,
1998, he was a director of South Beach Cafe-London, Ltd. Mr. Burnham also serves
a director, president and has voting control
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of the following entities: Burnham International Group, Inc., Sarasota
Investment Group, Inc., Dallas Investment Group, Inc., International Restaurant
Concepts, Inc., London Ventures, LC, Mosby Investments, Inc., Texas
International Group, Inc., The Northgate Group, L.C., 100 Degrees East, Inc.,
Thomas N. Burnham Associates, Inc., and International Franchise Group, Inc.
From October, 1993 to August, 1994, Mr. Burnham was president and director
of Clucker's International Franchise Corporation, Miami, Florida; from October,
1990 to May, 1993, Mr. Burnham was president and director of Ho-Lee-Chow, Inc.,
Ann Arbor, Michigan. Mr. Burnham served in the following capacities for Domino's
Pizza International, Inc.: Executive Vice President, December, 1989 to May,
1990; Vice President, Administration and Development, May, 1989 to May, 1990;
Director, June, 1986 to May, 1990; and General Counsel from September, 1986 to
May, 1990. From September, 1984 to September, 1986, Mr. Burnham served as
outside General Counsel for Domino's Pizza International, Inc. Mr. Burnham has
been the principal of the law firm of Thomas N. Burnham International Law
Offices from January 1990 to the present. Mr. Burnham received his Bachelor of
Business Administration degree in 1969, a Masters in Business Administration in
1970 and a Juris Doctor in 1973 from the University of Michigan, Ann Arbor,
Michigan. Mr. Burnham currently serves as Program Director of Franchising and
Entrepreneurism at the University of Dallas and is the founder and director of
the Institute of International Enterpreneurship.
PAMELA H. BURNHAM has served as Vice President, Secretary and Treasurer of
Baja Foods and, effective with the Exchange, is a director of the Registrant.
Ms. Burnham has served as Vice President and Treasurer and a director of South
Beach Concepts, Inc. since its inception in July, 1998 and serves as an officer
of several of its subsidiaries. From April, 1996 to April, 1999, Ms. Burnham
served as a director of South Beach Cafe, Plc (London, England). She also served
as a director for South Beach Cafe-London., Ltd. from November, 1996 to
December, 1998. Ms. Burnham also serves a director and vice president of the
following entities: Burnham International Group, Inc., Sarasota Investment
Group, Inc., Dallas Investment Group, Inc., International Restaurant Concepts,
Inc., Mosby Investments, Inc., Texas International Group, Inc., 100 Degrees
East, Inc., Thomas N. Burnham Associates, Inc., and International Franchise
Group, Inc.
From October, 1993 to August, 1994, Ms. Burnham was a Franchise Sales
Consultant for Clucker's International Franchise Corporation, Miami, Florida.
From February, 1991 through May, 1993, she was Vice President of Ho-Lee-Chow,
Inc., Ann Arbor, Michigan. Ms. Burnham was President of International Pizza
Ventures, Inc. Toronto, Canada from October, 1989 through February, 1991. She
served as Director of Real Estate for Domino's Pizza International, Inc. from
August, 1989 to May, 1990. Ms. Burnham attended Crowan College in North Carolina
from 1965 to 1967 and University of California at Los Angeles in 1979.
KEITH PRATT, effective with the Exchange, serves as a director of the
Registrant. Mr. Pratt was one of the founders of South Beach Cafe, Inc. and has
served as a consultant to it in the areas of restaurant and office site
selection, lease negotiation, store design, software and implementation since
its inception. From 1976 to present, Mr. Pratt has been a commercial real estate
broker with Gary Lillie & Associates, Inc. located in Ann Arbor, Michigan. Mr.
Pratt also serves as the president of Cafe Development Group, founded in 1996 a
consulting firm that assists in restaurant site selection, design, equipping and
staffing. Mr. Pratt received his Bachelor of Science in Engineering from the
University of Michigan in 1969.
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RELATED TRANSACTIONS
Thomas N. Burnham, President of the Company, is the principal of the law
firm of Thomas N. Burnham International Law Offices and performs legal services
for Baja Food.
RISK FACTORS
Westford Acquisition Corporation has no operations and Baja Food Concepts
has limited operations and history. Effective with the Exchange, Baja Food
Concepts has become a wholly-owned subsidiary of Westford Acquisition. Westford
Acquisition Corporation and Baja Food Concepts are referred to collectively as
the "Company".
OPERATING LOSS. Revenues from operations to date have not been sufficient
to cover the costs of such operations and Baja Food borrowed funds to maintain
its operations. The Company's ability to develop operations is dependent upon
its ability to sell its franchise stores and to operate its company store at a
profit. If the Company is unable to sell sufficient franchise stores or to
operate its company store at a sufficiently profitable level, the Company will
need to raise additional capital through the placement of its securities or from
other debt or equity financing. If the Company is not able to raise such
financing or to obtain alternative sources of funding, management will be
required to curtail operations and there is no assurance that the Company will
be able to continue to operate.
LIMITED OPERATING HISTORY. The Company has insignificant operating
histories and to date has not been profitable. The Company's operations are
subject to all the risks inherent in the establishment of a relatively new
business enterprise, including the lack of significant operating history. There
can be no assurance that future operations will be profitable. The Company's
operations are in part dependent on the establishment of, and profitability of
new restaurants, which are subject to all of the risks inherent in a new
business venture with limited operating history. Revenues and profits of the
Company, if any, will depend upon various factors, including market acceptance
of the Company's concepts, attractiveness and quality of the menu, restaurant
service, location of the restaurants and general economic conditions. The growth
of the Company will depend on a number of factors, including the availability of
suitable locations, the negotiation of favorable lease or site acquisition
terms, the identification, training and retention of skilled management
personnel and franchisees, the availability of adequate capital, general
economic and business conditions, and others, some of which are beyond the
control of the Company. There is no assurance that the Company will achieve its
expansion goals and the failure to achieve such goals would have an adverse
impact on the Company.
DEPENDENCE ON FRANCHISEES. The Company anticipates that it will
realize a portion of its revenues from franchise fees, including the initial
franchise fees and continuing royalty payments. If franchisees encounter
business or operational difficulties, revenues from royalties and supplies sales
would be adversely affected. Such difficulties would also negatively impact the
Company's ability to sell new franchises. Consequently, the Company's financial
prospects are significantly related to the success of its franchised stores,
over which it has limited direct operational control. There can be no assurance
that the Company will be able to successfully attract new franchisees or that
franchisees, if any, will be able to successfully operate stores.
FRANCHISE COMPETITION. The competition to sell franchises is very
intense and the Company will have to compete against many
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well-established, better-known and better financed companies selling franchises.
Potential franchisees will compare the costs and benefits offered by the
Company's franchise program against those offered by other franchise companies
which may have been in business longer and shown consistent positive economic
returns. The market for selling the franchises is limited and the Company may
suffer adverse consequences from its possible inability to attract new
franchisees.
FRANCHISE REGULATIONS. The Company will be subject to federal regulation
and certain state laws which govern the offer and sale of franchises. Many state
franchise laws impose substantive requirements on franchise agreements,
including limitations on non-competition provisions and termination or non-
renewal of a franchise. Some states require that certain franchise offering
materials be registered before franchises can be offered or sold in that state.
The failure to obtain or retain food licenses or approvals to sell franchises
could adversely affect the Company's and its franchisees', if any, results of
operations. The future enactment, adoption or amendment of laws or regulations,
such as establishing basic franchisee rights, increasing the minimum wage or
other costs associated with employees, could adversely affect the Companys
results of operations. Federal and state franchise laws provide franchisees,
either singly or as a group, the right to bring an action against the franchisor
in regard to actions arising from the franchise agreement, the franchise
operations and other matters.
EFFECTIVENESS OF FRANCHISE ADVERTISING. The success of the Company will be
substantially dependent on the effectiveness of the advertising programs and the
overall success of franchises. The Company anticipates it will advertise in
franchise and business opportunity publications and exhibits at franchise fairs
worldwide. However, future success in attracting franchisees will be dependent
not only on the Company's promotional program but also on the success of its
franchisees' existing restaurants that cannot be guaranteed.
COMPETITION. The competition in the fast food and pizza industry is
intense. There are numerous well-established competitors, including national,
regional and local chains, possessing substantially greater financial,
marketing, personnel and other resources than the Company. The competition
includes such well-known chains as McDonald's, Burger King, Wendy's, Domino's
Pizza, Pizza Hut, Blimpies, and numerous others. The Company will also face
competition in its dual-concept stores from such large well-known dual-concept
stores as Kentucky Fried Chicken and Taco Bell.
ISSUANCE OF FUTURE SHARES MAY DILUTE INVESTORS SHARE VALUE. The Certificate
of Incorporation of the Company authorizes the issuance of a maximum of
100,000,000 shares of common stock and 20,000,000 shares of preferred stock. The
future issuance of all or part of the remaining authorized common stock may
result in substantial dilution in the percentage of the Company's common stock
held by the Company's then existing shareholders. Moreover, any common stock
issued in the future may be valued on an arbitrary basis by the Company. The
issuance of the Company's shares for future services or acquisitions or other
corporate actions may have the effect of diluting the value of the shares held
by investors, and might have an adverse effect on any trading market, should a
trading market develop for the Company's common stock.
POTENTIAL ADVERSE EFFECTS OF AUTHORIZATION OF PREFERRED STOCK. The Company
may, without further action or vote by shareholders of the Company, designate
and issue shares of preferred stock. The terms of any series of preferred stock,
which may include priority claims to assets and dividends and special voting
rights, could
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adversely affect the rights of holders of the common stock and thereby reduce
the value of the common stock. The designation and issuance of preferred stock
favorable to current management or shareholders could make the possible takeover
of the Company or the removal of management of the Company more difficult and
discourage hostile bids for control of the Company which bids might have
provided shareholders with premiums for their shares.
NO CURRENT TRADING MARKET FOR THE COMPANY'S SECURITIES. There is currently
no established public trading market for the securities of the Company. No
assurance can be given that an active trading market in the Company's securities
will develop or, if developed, that it will be sustained.
PENNY STOCK REGULATION. Upon commencement of trading in the Company's
stock, if such occurs (of which there can be no assurance) the Company's common
stock may be deemed a penny stock. Penny stocks generally are equity securities
with a price of less than $5.00 per share other than securities registered on
certain national securities exchanges or quoted on the Nasdaq Stock Market,
provided that current price and volume information with respect to transactions
in such securities is provided by the exchange or system. The Company's
securities may be subject to "penny stock rules" that impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally those with
assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000
together with their spouse). For transactions covered by these rules, the
broker-dealer must make a special suitability determination for the purchase of
such securities and have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any transaction involving a
penny stock, unless exempt, the "penny stock rules" require the delivery, prior
to the transaction, of a disclosure schedule prescribed by the Commission
relating to the penny stock market. The broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered representative
and current quotations for the securities. Finally, monthly statements must be
sent disclosing recent price information on the limited market in penny stocks.
Consequently, the "penny stock rules" may restrict the ability of broker-dealers
to sell the Company's securities. The foregoing required penny stock
restrictions will not apply to the Company's securities if such securities
maintain a market price of $5.00 or greater. There can be no assurance that the
price of the Company's securities will reach or maintain such a level.
COMPUTER SYSTEMS REDESIGNED FOR YEAR 2000. Many existing computer programs
use only two digits to identify a year in such program's date field. These
programs were designed and developed without consideration of the impact of the
change in the century for which four digits will be required to accurately
report the date. If not corrected, many computer applications could fail or
create erroneous results by or following the year 2000 (the "Year 2000
problem"). Many of the computer programs containing such date language problems
have been corrected by the companies or governments operating such programs. The
Company's operations are dependent upon the timely delivery of supplies which
deliveries may be delayed or canceled because of such Year 2000 problem computer
failures. The Company does not know what steps, if any, have been taken by any
of its suppliers. The Company's operations will be severally curtailed if one or
more of its suppliers were to suffer Year 2000 problems. Furthermore, it is
impossible to predict if the basic utilities serving the company and franchise
stores will continue uninterrupted. A prolonged disruption in the service of any
utility will prohibit the stores from operating.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
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Not applicable
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
As a result of the Exchange, the accountant to the Registrant was replaced
with the accountant for Baja Food Concepts. The financial statements for the
Registrant since inception and prior to the change in such accountants have not
contained any adverse opinion or disclaimer or were modified as to any
uncertainty, audit scope or accounting principles and there were not any
disagreements or "reportable events" with such former accountant.
ITEM 5. OTHER EVENTS
Not applicable.
ITEM 6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
Pursuant to the Exchange Agreement, the sole director and officer of the
Registrant resigned and the officers and directors of Baja Food Concepts were
designated to serve for the Registrant until the next annual meeting of
stockholders and until their respective successors are elected and qualified or
until their prior resignation or termination.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements for the fiscal year ended December
31, 1998, for Baja Food Concepts, Inc. prepared by the independent public
accounting firm of McManus & Co., P.C. are filed herewith.
ITEM 8. CHANGE IN FISCAL YEAR
Not applicable.
ITEM 9. SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S
Not applicable.
INDEPENDENT ACCOUNTANT'S REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF BAJA FOOD CONCEPTS, INC.:
We have audited the accompanying balance sheet of Baja Food Concepts, Inc. as of
December 31, 1998 and the related statements of operations, stockholders'
equity, and cash flows for the period March 4, 1998 (Date of Inception) to
December 31, 1998. These financial statements are the responsibility of Baja
Food Concepts, Inc.'s management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit 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 audit provides a
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reasonable basis for our opinion.
In our opinion, based on our audit, the financial statements referred to above
present fairly, in all material respects, the financial position of Baja Food
Concepts, Inc. as of December 31, 1998 and the results of their operations,
stockholders' equity, and their cash flows for the period March 4, 1998 (Date of
Inception) to December 31, 1998 are in conformity with generally accepted
accounting principles.
MCMANUS & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
MORRIS PLAINS, NEW JERSEY
April 26, 1999
BAJA FOOD CONCEPTS, INC. BALANCE SHEET
DECEMBER 31, 1998
ASSETS
Current Assets:
Cash $ 681
Total Current Assets 681
Total Assets $ 681
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes Payable (Note 2) $ 15,100
Total Liabilities 15,100
Stockholders' Equity:
Common Stock - $.001 stated value
Authorized 20,000,000 shares
Issued and Outstanding 260,000 shares 260
Paid In Capital 12,740
Retained Earnings (27,419)
Total Stockholders' Equity (14,419)
Total Liabilities and
Stockholders' Equity $ 681
BAJA FOOD CONCEPTS, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD MARCH 4, 1998 (Date of Inception)
TO DECEMBER 31, 1998
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Revenues: $ --
Expenses:
Consulting Fees 6,614
Start-up Costs 19,200
Office Expense 119
Professional Fees 1,486
------
Total Expenses $ 27,419
Net Loss $(27,419)
--------
Net Earnings/(Loss) Per Share:
Net Earnings/(Loss) Per Share:
Primary (Note 1) $ (0.158)
Diluted (Note 1) (0.158)
Weighted Average Number of
Common Shares Outstanding 173,333
See accompanying accountant's report and notes to the financial statements.
BAJA FOOD CONCEPTS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD MARCH 4, 1998 (Date of Inception) TO DECEMBER 31, 1998
Total
March 4, 1998 Additional Stock-
(date of Inception) Common Paid In Retained holders'
to December 31, 1998 Stock Capital Earnings Equity
January 1, 1998 $ --- $ --- $ --- $ ---
Capital Investment 260 12,740 --- 13,000
Net Loss 1998 --- --- (27,419) (17,419)
----- ------ -------- -------
Total Stockholders'
Equity As Of
December 31, 1998 $ 260 $12,740 $(27,419) $(14,419)
BAJA FOOD CONCEPTS, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD MARCH 4, 1998 (Date of Inception)
TO DECEMBER 31, 1998
Cash Flow from Operating Activities:
Net Income / (Loss) $ (27,419)
Adjustments To Reconcile Net Income to
Net Cash Provided / (Used) in
Operating Activities: --
---------
Net Cash Provided / (Used) by Operating
Activities: (27,419)
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Cash Flow from Financing Activities:
Issuance of Common Stock - net 13,000
Increase in Notes Payable 15,100
-----------
Net Cash Provided/ (Used) by
Financing Activities 28,100
Net Increase/ (Decrease) in Cash 681
Cash at the Beginning of the Period ---
-----------
Cash at the End of the Period $ 681
BAJA FOOD CONCEPTS, INC.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
NOTE 1 - BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES:
Baja Food Concepts, Inc. (the Company) was incorporated as a Florida
corporation on March 4, 1998. The Company developed a restaurant concept
that features Baja style burritos, tacos, and empanadas all served with
freshly made gourmet salsas.
There is currently one operating store located in Sarasota, Florida. The
Company intends to operate, franchise, and service restaurants with
consistent themes, logos and signs, menus, and food quality.
A) Income Taxes
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes", which requires a
change from the deferral method to the assets and liability method of
accounting for income taxes. Timing differences do not currently exist
between book income and income for tax purposes.
B) Net Earnings Per Common Share
Net earnings per common share shown as both primary and fully diluted.
Primary earnings per common share are computed by dividing net earnings
less any preferred stock dividends (if applicable) by the weighted average
number of shares of common stock outstanding. Fully diluted earnings per
common share are computed by dividing net income less any preferred stock
dividends (if applicable) by the weighted average number of shares of
common stock outstanding plus any dilutive common stock equivalents.
C) Organization Costs
The Company adopted the provisions of the AICPA's Statement of Position
(SOP) No. 98-5 "Reporting on the Costs of Start-Up Activities", which
requires that all costs related to a companies start-up activities should
now be expensed during the period incurred rather than capitalized and
amortized over a period of time. As a result, all start-up costs have been
expensed in the current period.
D) Use of Estimates
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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
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE 2 - RELATED PARTY TRANSACTIONS:
During 1998, T. Burnham, president, advanced the Company $15,100. This
advance is considered payable upon demand.
NOTE 3 - INCOME TAXES:
As discussed in Note 1, the Company adopted the provisions of Statement of
Financial Standards (SFAS) No. 109 "Accounting for Income Taxes".
Implementation of SFAS 109 did not have a material cumulative effect on
prior periods, nor did it result in a change in the current year's
provision.
A) The effective tax rate for the Company is reconcilable to statutory tax
rates as follows:
December 31, 1998
%
----------------
U.S. Federal Statutory Tax Rate 15
Valuation allowance for deferred tax assets
allocated to income tax expense. 15
Effective Tax Rate - 0 -
NOTE 4 - SUBSEQUENT EVENTS:
Subsequent to December 31, 1998, the Company has entered into a
reorganization agreement with Westford Acquisition Corporation.
EXHIBITS
1.1 Agreement and Plan of Reorganization among Westford Acquisition
Corporation, Baja Food Concepts, Inc. and the shareholders of Baja Food
Concepts, Inc. dated April 14, 1999.
16.1 Accountant's Letter
SIGNATURES
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 hereunto duly authorized.
BAJA FOOD CONCEPTS, INC.
By /s/ Thomas N. Burnham
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Chief Executive Officer and Director
Date: June 17, 1999
EX-1
2
AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") among WESTFORD
ACQUISITION CORPORATION, a Delaware corporation ("Westford"), BAJA FOOD
CONCEPTS, INC., a Florida corporation ("Baja") and the persons listed in Exhibit
A hereof (collectively the "Shareholders"), being the owners of record of all of
the issued and outstanding stock of Baja.
Whereas, Westford wishes to acquire and the Shareholders wish to transfer
all of the issued and outstanding securities of Baja in a transaction intended
to qualify as a reorganization within the meaning of Section368(a)(1)(B) of the
Internal Revenue Code of 1986, as amended;
Now, therefore, Westford, Baja, and the Shareholders adopt this plan of
reorganization and agree as follows:
1. EXCHANGE OF STOCK
1.1 Number of Shares. The Shareholders agree to transfer to Westford at
the Closing (defined below) the number of shares of common stock of Baja, no par
value per share, shown opposite their names in Exhibit A, in exchange for an
aggregate of 4,300,000 shares of voting common stock of Westford, $.0001 par
value per share.
1.2 Exchange of Certificates. Each holder of an outstanding certificate
or certificates theretofore representing shares of Baja common stock shall
surrender such certificate(s) for cancellation to Westford, and shall receive in
exchange a certificate or certificates representing the number of full shares of
Westford common stock into which the shares of Baja common stock represented by
the certificate or certificates so surrendered shall have been converted. The
transfer of Baja shares by the Shareholders shall be effected by the delivery to
Westford at the Closing of certificates representing the transferred shares
endorsed in blank or accompanied by stock powers executed in blank.
1.3 Fractional Shares. Fractional shares of Westford common stock shall not
be issued, but in lieu thereof Westford shall round up fractional shares to the
next highest whole number.
1.4 Change of Name. Immediately following the Closing, Westford shall
change its name to South Beach Concepts, Inc. or such other name as may be
available by filing with the Secretary of State of the State of Delaware a
certificate of amendment to its Certificate of Incorporation.
1.5 Further Assurances. At the Closing and from time to time thereafter,
the Shareholders shall execute such additional instruments and take such other
action as Westford may request in order more effectively to sell, transfer, and
assign the transferred stock to Westford and to confirm Westford's title
thereto.
2. EXCHANGE OF OTHER SECURITIES
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2.1 Securities Exchanged. All outstanding warrants, options, stock rights
and all other securities of Baja owned by the Shareholders shall be exchanged
and adjusted, subject to the terms contained in such warrants, options, stock
rights or other securities, for similar securities of Westford.
2.2 Ratio of Exchange. The securities of Baja owned by the Shareholders,
and the relative securities of Westford for which they will be exchanged, are
set out opposite their names in Exhibit A.
2.3 Shares Outstanding. Immediately following the Closing, there will be
issued and outstanding in Westford, 350,000 common shares issued to TPG Capital
Corporation or an affiliate and 4,300,000 common shares issued to the
shareholders of Baja.
3. CLOSING. The Closing contemplated herein shall be held on April 15,
1999, at the principal offices of Westford, at 1504 R Street, NW, Washington,
D.C. 20009, unless another place or time is agreed upon in writing by the
parties without requiring the meeting of the parties hereof. All proceedings to
be taken and all documents to be executed at the Closing shall be deemed to have
been taken, delivered and executed simultaneously, and no proceeding shall be
deemed taken nor documents deemed executed or delivered until all have been
taken, delivered and executed. The date of Closing may be accelerated or
extended by agreement of the parties.
Any copy, facsimile telecommunication or other reliable reproduction of
the writing or transmission required by this Agreement or any signature required
thereon may be used in lieu of an original writing or transmission or signature
for any and all purposes for which the original could be used, provided that
such copy, facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission or original
signature.
4. UNEXCHANGED CERTIFICATES. Until surrendered, each outstanding
certificate that prior to the Closing represented Baja common stock shall be
deemed for all purposes, other than the payment of dividends or other
distributions, to evidence ownership of the number of shares of Westford common
stock into which it was converted. No dividend or other distribution shall be
paid to the holders of certificates of Baja common stock until presented for
exchange at which time any outstanding dividends or other distributions shall be
paid.
5. REPRESENTATIONS AND WARRANTIES OF BAJA
Baja represents and warrants as follows:
5.1 Corporate Status. Baja is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Florida and is
licensed or qualified as a foreign corporation in all states in which the nature
of its business or the character or ownership of its properties makes such
licensing or qualification necessary.
5.2 Capitalization. The authorized capital stock of Baja consists of
20,000,000 shares of common stock, no par value per share, of which 12,200,000
shares are issued and outstanding, all fully paid and nonassessable. There are
no shares of preferred stock issued or authorized.
5.3 Subsidiaries. Baja has no subsidiaries.
5.4 Financial Statements. The audited financial statements of Baja of
December 31, 1998, or such other period as
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acceptable to Westford ("Baja's Financial Statements") furnished to Westford are
correct and fairly present the financial condition of Baja as of the dates and
for the periods involved, and such statements were prepared in accordance with
generally accepted accounting principles consistently applied.
5.5 Undisclosed Liabilities. Baja had no liabilities of any nature except
to the extent reflected or reserved against in Baja's Financial Statements,
whether accrued, absolute, contingent, or otherwise, including, without
limitation, tax liabilities and interest due or to become due, and Baja's
accounts receivable, if any, are collectible in accordance with the terms of
such accounts, except to the extent of the reserve therefor in Baja's Financial
Statements.
5.6 Absence of Material Changes. Between the date of Baja's Financial
Statements and the date of this Agreement, there have not been, except as set
forth in a list certified by the president of Baja and delivered to Westford,
(1) any changes in Baja's financial condition, assets, liabilities, or business
which, in the aggregate, have been materially adverse; (2) any damage,
destruction, or loss of or to Baja's property, whether or not covered by
insurance; (3) any declaration or payment of any dividend or other distribution
in respect of Baja's capital stock, or any direct or indirect redemption,
purchase, or other Westford of any such stock; or (4) any increase paid or
agreed to in the compensation, retirement benefits, or other commitments to
employees.
5.7 Litigation. There is no litigation or proceeding pending, or to
Baja's knowledge threatened, against or relating to Baja, its properties or
business, except as set forth in a list certified by the president of Baja and
delivered to Westford.
5.8 Contracts. Baja is not a party to any material contract other than
those listed as attachment hereto.
5.9 No Violation. Execution of this Agreement and performance by Baja
hereunder has been duly authorized by all requisite corporate action on the part
of Baja, and this Agreement constitutes a valid and binding obligation of Baja,
performance hereunder will not violate any provision of any charter, bylaw,
indenture, mortgage, lease, or agreement, or any order, judgment, decree, law,
or regulation to which any property of Baja is subject or by which Baja is
bound.
5.10 Taxes. Baja has filed in correct form all federal, state, and other
tax returns of every nature required to be filed by it and has paid all taxes as
shown on such returns and all assessments, fees and charges received by it to
the extent that such taxes, assessments, fees and charges have become due. Baja
has also paid all taxes which do not require the filing of returns and which are
required to be paid by it. To the extent that tax liabilities have accrued, but
have not become payable, they have been adequately reflected as liabilities on
the books of Baja and are reflected in the financial statements furnished
hereto.
5.11 Title to Property. Baja has good and marketable title to all
properties and assets, real and personal, reflected in Baja's Financial
Statements, except as since sold or otherwise disposed of in the ordinary course
of business, and Baja's properties and assets are subject to no mortgage,
pledge, lien, or encumbrance, except for liens shown therein, with respect to
which no default exists.
5.12 Corporate Authority. Baja has full corporate power and authority to
enter into this Agreement and to carry out its
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<PAGE>
obligations hereunder, and will deliver at the Closing a certified copy of
resolutions of its board of directors authorizing execution of this Agreement by
its officers and performance thereunder.
5.13 Access to Records. From the date of this Agreement to the Closing,
Baja will (1) give to Westford and its representatives full access during normal
business hours to all of its offices, books, records, contracts, and other
corporate documents and properties so that Westford may inspect and audit them
and (2) furnish such information concerning Baja's properties and affairs as
Westford may reasonably request.
5.14 Confidentiality. Until the Closing (and permanently if there is no
Closing), Baja and the Shareholders will keep confidential any information which
they obtain from Westford concerning its properties, assets, and business. If
the transactions contemplated by this Agreement are not consummated, Baja and
the Shareholders will return to Westford all written matter with respect to
Westford obtained by them in connection with the negotiation or consummation of
this Agreement.
6. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
The Shareholders, individually and separately, represent and warrant as
follows:
6.1 Title to Shares. The Shareholders, and each of them, are the owners,
free and clear of any liens and encumbrances, of the number of Baja shares which
are listed in the attached schedule and which they have contracted to exchange.
6.2 Litigation. There is no litigation or proceeding pending, or to each
Shareholder's knowledge threatened, against or relating shares of Baja held by
the Shareholders.
7. REPRESENTATIONS AND WARRANTIES OF WESTFORD
The Westford represents and warrants as follows:
7.1 Corporate Status. Westford is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware and is
licensed or qualified as a foreign corporation in all states in which the nature
of its business or the character or ownership of its properties makes such
licensing or qualification necessary.
7.2 Capitalization. The authorized capital stock of Westford consists of
100,000,000 shares of common stock, $0001 par value per share, of which
5,000,000 shares are issued and outstanding, all fully paid and nonassessable
and no shares of non-designated preferred stock. There are no shares of
preferred stock issued or authorized. Prior to the Closing, Westford will redeem
4,640,000 shares of its outstanding common stock from its current shareholders.
7.3 Subsidiaries. Westford has no subsidiaries.
7.4 Public Company. Westford filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, a registration
statement on August 27, 1998 registering its common stock .
7.5 Public Filings. Westford has timely filed all reports required to be
filed by it under Section 13 of the Securities Exchange Act of 1934.
7.6 Financial Statements. The audited financial
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<PAGE>
statements of Westford of December 31, 1998 or such other period as acceptable
Baja ("Westford's Financial Statements") furnished to Baja are correct and
fairly present the financial condition of Westford as of the dates and for the
periods involved, and such statements were prepared in accordance with generally
accepted accounting principles consistently applied.
7.7 Undisclosed Liabilities. Westford had no liabilities of any nature
except to the extent reflected or reserved against in Westford's Financial
Statements, whether accrued, absolute, contingent, or otherwise, including,
without limitation, tax liabilities and interest due or to become due, and
Westford's accounts receivable, if any, are collectible in accordance with the
terms of such accounts, except to the extent of the reserve therefor in
Westford's Financial Statements.
7.8 Absence of Material Changes. Between the of Westford's Financial
Statements and the date of this Agreement, there have not been, except as set
forth in a list certified by the president of Westford and delivered to Baja,
(1) any changes in Westford's financial condition, assets, liabilities, or
business which, in the aggregate, have been materially adverse; (2) any damage,
destruction, or loss of or to Westford's property, whether or not covered by
insurance; (3) any declaration or payment of any dividend or other distribution
in respect of Westford's capital stock, or any direct or indirect redemption,
purchase, or other Westford of any such stock; or (4) any increase paid or
agreed to in the compensation, retirement benefits, or other commitments to
employees.
7.9 Litigation. There is no litigation or proceeding pending, or to the
Company's knowledge threatened, against or relating to Westford, its properties
or business, except as set forth in a list certified by the president of
Westford and delivered to Baja.
7.10 Contracts. Westford is not a party to any material contract other
than those listed as an attachment hereto.
7.11 No Violation. Execution of this Agreement and performance by
Westford hereunder has been duly authorized by all requisite corporate action on
the part of Westford, and this Agreement constitutes a valid and binding
obligation of Westford, performance hereunder will not violate any provision of
any charter, bylaw, indenture, mortgage, lease, or agreement, or any order,
judgment, decree, law, or regulation to which any property of Westford is
Subject or by which Westford is bound.
7.12 Taxes. Westford has filed in correct form all federal, state, and
other tax returns of every nature required to be filed by it and has paid all
taxes as shown on such returns and all assessments, fees and charges received by
it to the extent that such taxes, assessments, fees and charges have become due.
Westford has also paid all taxes which do not require the filing of returns and
which are required to be paid by it. To the extent that tax liabilities have
accrued, but have not become payable, they have been adequately reflected as
liabilities on the books of Westford and are reflected in the financial
statements furnished hereto.
7.13 Title to Property. Westford has good and marketable title to all
properties and assets, real and personal, reflected in Westford's Financial
Statements, except as since sold or otherwise disposed of in the ordinary course
of business, and Westford's properties and assets are Subject to no mortgage,
pledge, lien, or encumbrance, except for liens shown therein, with respect to
which no default exists.
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<PAGE>
7.14 Corporate Authority. Westford has full corporate power and authority
to enter into this Agreement and to carry out its obligations hereunder, and
will deliver at the Closing a certified copy of resolutions of its board of
directors authorizing execution of this Agreement by its officers and
performance thereunder.
7.15 Confidentiality. Until the Closing (and permanently if there is no
Closing), Westford and its representatives will keep confidential any
information which they obtain from Baja concerning its properties, assets, and
business. If the transactions contemplated by this Agreement are not
consummated, Westford will return to Baja all written matter with respect to
Baja obtained by it in connection with the negotiation or consummation of this
Agreement.
7.16 Investment Intent. Westford is acquiring the Baja shares to be
transferred to it under this Agreement for investment and not with a view to the
sale or distribution thereof, and Westford has no commitment or present
intention to liquidate Baja or to sell or otherwise dispose of its stock.
8. CONDUCT PENDING THE CLOSING
Westford, Baja and the Shareholders covenant that between the date of
this Agreement and the Closing as to each of them:
8.1 No change will be made in the charter documents, by-laws, or other
corporate documents of Westford or Baja.
8.2 This Agreement will be submitted for shareholder approval with a
favorable recommendation by the Board of Directors of each of Baja and Westford
and the Board of Directors of each will use its best efforts to obtain the
requisite shareholder approval.
8.3 Baja and Westford will use their best efforts to maintain and
preserve its business organization, employee relationships, and goodwill intact,
and will not enter into any material commitment except in the ordinary course of
business.
8.4 None of the Shareholders will sell, transfer, assign, hypothecate,
lien, or otherwise dispose or encumber the Baja shares of common stock owned by
them.
9. CONDITIONS PRECEDENT TO OBLIGATION OF BAJA AND THE
SHAREHOLDERS
Baja's and the Shareholder's obligation to consummate this exchange shall
be subject to fulfillment on or before the Closing of each of the following
conditions, unless waived in writing by Baja or the Shareholders as appropriate:
9.1 Westford's Representations and Warranties. The representations and
warranties of Westford set forth herein shall be true and correct at the Closing
as though made at and as of that date, except as affected by transactions
contemplated hereby.
9.2 Westford's Covenants. Westford shall have performed all covenants
required by this Agreement to be performed by it on or before the Closing.
9.3 Board of Director Approval. This Agreement shall have been approved
by the Board of Directors of Westford.
9.4 Supporting Documents of Westford. Westford shall have delivered to
Baja and the Shareholders supporting documents in form and substance reasonably
satisfactory to Baja and the
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<PAGE>
Shareholders, to the effect that:
(a) Westford is a corporation duly organized, validly existing,
and in good standing;
(b) Westford's authorized capital stock is as set forth herein;
(c) Certified copies of the resolutions of the board of directors
of Westford authorizing the execution of this Agreement and the
consummation hereof;
(d) Secretary's certificate of incumbency of the officers and
directors of Westford;
(e) Westford's Financial Statement and unaudited financial
statement from January 1, 1998 to close of most recent fiscal
quarter; and
(f) Any document as may be specified herein or required to
satisfy the conditions, representations and warranties enumerated
elsewhere herein.
10. CONDITIONS PRECEDENT TO OBLIGATION OF WESTFORD
Westford's obligation to consummate this merger shall be subject to
fulfillment on or before the Closing of each of the following conditions, unless
waived in writing by Westford:
10.1 Baja's and the Shareholder's Representations and Warranties. The
representations and warranties of Baja and the Shareholders set forth herein
shall be true and correct at the Closing as though made at and as of that date,
except as affected by transactions contemplated hereby.
10.2 Baja's and the Shareholders' Covenants. Baja and the Shareholders
shall have performed all covenants required by this Agreement to be performed by
them on or before the Closing.
10.3 Board of Director Approval. This Agreement shall have been
approved by the Board of Directors of Baja.
10.4 Shareholder Execution. This Agreement shall have been executed by
the required number of shareholders of Baja.
10.5 Supporting Documents of Baja. Baja shall have delivered to
Westford supporting documents in form and substance reasonably satisfactory to
Westford to the effect that:
(a) Baja is a corporation duly organized, validly
existing, and in good standing;
(b) Baja's capital stock is as set forth herein;
(c) Certified copies of the resolutions of the board
of directors of Baja authorizing the execution of
this Agreement and the consummation hereof;
(d) Secretary's certificate of incumbency of the
officers and directors of Baja;
(e) Baja's Financial Statements and unaudited financial
statements for the period from the date of the audited financial
statements to the close of the most recent fiscal quarter; and
(f) Any document as may be specified herein or
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<PAGE>
required to satisfy the conditions, representations and
warranties enumerated elsewhere herein.
11. INDEMNIFICATION
11.1 Indemnification of Westford. Baja and the Shareholders severally
(and not jointly) agree to indemnify Westford against any loss, damage, or
expense (including reasonable attorney fees) suffered by Westford from (1) any
breach by Baja or the Shareholders of this Agreement or (2) any inaccuracy in or
breach of any of the representations, warranties, or covenants by Baja or the
Shareholders herein; provided, however, that (a) Westford shall be entitled to
assert rights of indemnification hereunder only if and to the extent that it
suffers losses, damages, and expenses (including reasonable attorney fees)
exceeding $50,000 in the aggregate and (b) Westford shall give notice of any
claims hereunder within twenty-four months beginning on the date of the Closing.
No loss, damage, or expense shall be deemed to have been sustained by Westford
to the extent of insurance proceeds paid to, or tax benefits realizable by,
Westford as a result of the event giving rise to such right to indemnification.
11.2 Proportionate Liability. The liability of each Shareholder under
this section shall be in the proportion that the total number of Westford shares
to be received by him bears to the total number of Westford shares to be
received by all the Shareholders and shall in no event exceed 25 percent of the
value of the Westford shares received by such Shareholder. With respect to
Shareholders that are estates, trusts, or custodianships, the executor, trustee,
or custodian is a party to this Agreement only in its fiduciary capacity and
liability hereunder shall be limited to the fiduciary assets and shall not
extend to the assets of the executor, trustee, or custodian.
11.3 Indemnification of Baja and the Shareholders. Westford agrees to
indemnify Baja and the Shareholders against any loss, damage, or expense
(including reasonable attorney fees) suffered by Baja or by any of the
Shareholders from (1) any breach by Westford of this Agreement or (2) any
inaccuracy in or breach of any of Westford's representations, warranties, or
covenants herein.
11.4 Defense of Claims. Upon obtaining knowledge thereof, the
indemnified party shall promptly notify the indemnifying party of any claim
which has given or could give rise to a right of indemnification under this
Agreement. If the right of indemnification relates to a claim asserted by a
third party against the indemnified party, the indemnifying party shall have the
right to employ counsel acceptable to the indemnified party to cooperate in the
defense of any such claim. As long as the indemnifying party is defending any
such claim in good faith, the indemnified party will not settle such claim. If
the indemnifying party does not elect to defend any such claim, the indemnified
party shall have no obligation to do so.
12. TERMINATION. This Agreement may be terminated (1) by mutual
consent in writing; (2) by either Baja, the Shareholders or Westford if there
has been a material misrepresentation or material breach of any warranty or
covenant by any other party; or (3) by either Baja, the Shareholders or Westford
if the Closing shall not have taken place, unless adjourned to a later date by
mutual consent in writing.
13. SHAREHOLDERS' REPRESENTATIVE. The Shareholders hereby irrevocably
designate and appoint Thomas N. Burnham as their agent and attorney in fact
("Shareholders' Representative") with full power and authority until the Closing
to execute, deliver, and receive on their behalf all notices, requests, and
other
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<PAGE>
communications hereunder; to fix and alter on their behalf the date, time, and
place of the Closing; to waive, amend, or modify any provisions of this
Agreement, and to take such other action on their behalf in connection with this
Agreement, the Closing, and the transactions contemplated hereby as such agent
or agents deem appropriate; provided, however, that no such waiver, amendment,
or modification may be made if it would decrease the number of shares to be
issued to the Shareholders hereunder or increase the extent of their obligation
to indemnify Westford hereunder.
14. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Baja, the Shareholders and
Westford set out herein shall survive the Closing.
15. ARBITRATION.
SCOPE. The parties hereby agree that any and all claims (except only for
requests for injunctive or other equitable relief) whether existing now, in the
past or in the future as to which the parties or any affiliates may be adverse
parties, and whether arising out of this agreement or from any other cause, will
be resolved by arbitration before the American Arbitration Association.
SITUS. The situs of arbitration shall be chosen by the party against whom
arbitration is sought, provided only that arbitration shall be held at a place
in the reasonable vicinity of such party's place of business or primary
residence and shall be within the United States. The situs of counterclaims will
be the same as the situs of the original arbitration. Any disputes concerning
situs will be decided by the American Arbitration Association.
APPLICABLE LAW. The law applicable to the arbitration and this agreement
shall be that of the State of Delaware, determined without regard to its
provisions which would otherwise apply to a question of conflict of laws. Any
dispute as to the applicable law shall be decided by the arbitrator.
DISCLOSURE AND DISCOVERY. The arbitrator may, in its discretion, allow
the parties to make reasonable disclosure and discovery in regard to any matters
which are the Subject of the arbitration and to compel compliance with such
disclosure and discovery order. The arbitrator may order the parties to comply
with all or any of the disclosure and discovery provisions of the Federal Rules
of Civil Procedure, as they then exist, as may be modified by the arbitrator
consistent with the desire to simplify the conduct and minimize the expense of
the arbitration.
FINALITY AND FEES. Any award or decision by the American Arbitration
Association shall be final, binding and non-appealable except as to errors of
law. Each party to the arbitration shall pay its own costs and counsel fees.
MEASURE OF DAMAGES. In any adverse action, the parties shall restrict
themselves to claims for compensatory damages and no claims shall be made by any
party or affiliate for lost profits, punitive or multiple damages.
COVENANT NOT TO SUE. The parties covenant that under no conditions will
any party or any affiliate file any action against the other (except only
requests for injunctive or other equitable relief) in any forum other than
before the American Arbitration Association, and the parties agree that any such
action, if filed, shall be dismissed upon application and shall be referred for
arbitration hereunder with costs and attorney's fees to the prevailing party.
INTENTION. It is the intention of the parties and their
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<PAGE>
affiliates that all disputes of any nature between them, whenever arising, from
whatever cause, based on whatever law, rule or regulation, whether statutory or
common law, and however characterized, be decided by arbitration as provided
herein and that no party or affiliate be required to litigate in any other forum
any disputes or other matters except for requests for injunctive or equitable
relief. This agreement shall be interpreted in conformance with this stated
intent of the parties and their affiliates.
16. GENERAL PROVISIONS
16.1 Further Assurances. From time to time, each party will execute
such additional instruments and take such actions as may be reasonably required
to carry out the intent and purposes of this Agreement.
16.2 Waiver. Any failure on the part of either party hereto to comply
with any of its obligations, agreements, or conditions hereunder may be waived
in writing by the party to whom such compliance is owed.
16.3 Brokers. Each party agrees to indemnify and hold harmless the
other party against any fee, loss, or expense arising out of claims by brokers
or finders employed or alleged to have been employed by the indemnifying party.
16.4 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been given if delivered in person or sent
by prepaid first-class certified mail, return receipt requested, or recognized
commercial courier service, as follows:
If to Westford, to:
Westford Acquisition Corporation
1504 R Street, N.W.
Washington, DC 20009
If to Baja, to
Baja Food Concepts, Inc.
5969 Cattleridge Boulevard
Sarasota, Florida 34232
If to the shareholders in care of the Shareholder
Representative, at
Thomas N. Burnham
5969 Cattleridge Boulevard
Suite 201
Sarasota, Florida 34232
16.5 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware.
16.6 Assignment. This Agreement shall inure to the benefit of, and be
binding upon, the parties hereto and their successors and assigns; provided,
however, that any assignment by either party of its rights under this Agreement
without the written consent of the other party shall be void.
16.7 Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. Signatures sent by
facsimile transmission
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<PAGE>
shall be deemed to be evidence of the original execution thereof.
16.8 Effective Date. This effective date of this
Agreement shall be April 14, 1999.
WESTFORD ACQUISITION CORPORATION
By /s/ James M. Cassidy
BAJA FOOD CONCEPTS, INC.
By Thomas N. Burnham
BAJA FOOD CONCEPTS, INC.
SHAREHOLDERS:
/s/ Thomas N. Burnham
/s/ Texas International Group, Inc.
/s/ Mosby Investments, Inc.
EX-2
3
June 15, 1999
Securities and Exchange Commission
450 Fifth Street, NW
Washington DC 20549
Re: Westford Acquisition Corporation
File Ref. No. 0-24839
We were previously the principal accountant for Westford Acquisition Corporation
and, under the date of June 12, 1998, we reported on the consolidated financial
statements of Westford Acquisition Corporation as of June 10, 1998. On June 15,
1999, our appointment as principal accountant was terminated. We have read
Westford Acquisition Corporation's statements included under Item 4 of its Form
8-K dated June 15, 1999, and we agree with such statements.
Very truly yours,
WEINBERG & COMPANY, PA
Certified Public Accountants
Page 24
<PAGE>
EXHIBIT 1.3
[LETTERHEAD OF McMANUS & CO., P.C.]
Independent Accountant's Report
-------------------------------
To the Board of Directors and Stockholders
of South Beach Concepts, Inc.:
We have audited the accompanying consolidated balance sheets of South Beach
Concepts, Inc. as of December 31, 1999 and 1998 and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
then ended. 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
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 audit provides 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 South Beach Concepts, Inc. at
December 31, 1999 and 1998 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ McManus & Co., P.C.
McManus & Co., P.C.
Morris Plains, New Jersey
March 24, 2000
<PAGE>
South Beach Concepts, Inc. & Subsidiaries
Consolidated Balance Sheets
December 31,
ASSETS
1999 1998
----------------------------
Current Assets:
Cash $ 79,426 $ 9,088
Accounts Receivable (Note 2) 29,280 46,357
Inventory (Note 1) 47,090 20,358
Due From Affiliates (Note 3) 343,860 112,123
Other Assets 400 --
Royalties Receivable 14,027 25,718
------------ ------------
Total Current Assets 514,083 213,644
Property, Plant, and Equipment - net of
accumulated depreciation (Notes 1 & 5) 2,476,626 1,085,444
Investments and Other Assets:
Deferred Public Offering Costs (Note 12) 266,734 34,500
Deferred Tax Asset (Note 14) 186,529 149,015
Deposits 15,695 15,615
Intangible Assets (Note 1) 91,979 744,160
Accumulated Amortization (Note 1) (10,884) (188,769)
Prepaid Expenses 197,020 200,685
------------ ------------
Total Investments & Other Assets 747,073 955,206
------------ ------------
Total Assets $ 3,737,782 $ 2,254,294
============ ============
See accompanying notes to the consolidated financial statements.
2
<PAGE>
South Beach Concepts, Inc. & Subsidiaries
Consolidated Balance Sheets
December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1999 1998
----------------------------
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 56,944 $ 239,534
Accrued Expenses 322,832 26,155
Notes Payable (Note 6) 32,182 141,431
Advance From Shareholders (Note 10) 30,317 16,100
Payroll Taxes Payable 18,391 --
------------ ------------
Total Current Liabilities 460,666 423,220
Long - Term Liabilities:
Notes Payable (Note 6) 525,748 --
Deferred Taxes (Note 14) -- 61,330
------------ ------------
Total Long - Term Liabilities 525,748 61,330
Commitments and Contingent Liabilities (Note 11)
Stockholders' Equity:
Common Stock (stated par value $.01)
Authorized 50,000,000 shares
Issued and Outstanding 17,821,285 and 10,383,450
shares at December 31, 1999 and 1998, respectively. 178,213 103,835
Preferred Stock (stated par value $.01)
Authorized 15,000,000 shares
No shares were issued or outstanding at
December 31, 1999 and 1998. -- --
Paid In Capital 6,299,284 4,102,893
Retained Earnings (3,726,129) (2,436,984)
------------ ------------
Total Stockholders' Equity 2,751,368 1,769,744
------------ ------------
Total Liabilities and Stockholders' Equity $ 3,737,782 $ 2,254,294
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
South Beach Concepts, Inc. & Subsidiaries
Consolidated Statements of Operations
December 31,
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Sales $ 848,537 $ 1,075,509 $ 871,230
Franchise Fees 411,000 196,400 142,500
Royalties 9,210 97,029 41,418
------------- ------------- -------------
Total Revenues 1,268,747 1,368,938 1,055,148
Cost Of Sales:
Food 166,932 325,452 199,070
Paper 18,259 31,567 22,553
Coffee Beans 45,320 -- --
Salaries and Wages 280,991 402,757 251,174
Other 24,908 4,284 --
------------- ------------- -------------
Total Cost of Sales 536,410 764,060 472,797
------------- ------------- -------------
Gross Profit 732,337 604,878 582,351
------------- ------------- -------------
Operating Expenses: 1,595,161 1,245,829 1,725,752
------------- ------------- -------------
Loss Before Other Income, Loss From
Minority Ownership, Write-Off of
Organization Costs, and Income Taxes (862,824) (640,951) (1,143,401)
Other Income:
Interest Income - Other 7,992 44,911 3,798
Loss on Disposition of Asset -- (100,135) --
------------- ------------- -------------
Total Other Income 7,992 (55,224) 3,798
------------- ------------- -------------
Loss From Minority Ownership -- -- (73,500)
Loss Before Write-Off of Organization
Costs and Income Taxes (854,832) (696,175) (1,213,103)
------------- ------------- -------------
Write-Off of Organization Costs 533,157 -- --
------------- ------------- -------------
Loss Before Income Taxes (1,387,989) (696,175) (1,213,103)
Provision For Income Taxes (98,844) (87,685) --
------------- ------------- -------------
Net Loss $ (1,289,145) $ (608,490) $ (1,213,103)
============= ============= =============
Net Loss Per Share:
Basic (Notes 1 & 15) $ (0.09) $ (0.05) $ (0.08)
Diluted (Notes 1 & 15) $ (0.06) $ (0.05) $ (0.08)
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
South Beach Concepts, Inc. & Subsidiaries
Consolidated Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock
January 1, 1997 ---------------------------- Preferred Additional Retained Stockholders'
To December 31, 1999 Shares Value Stock Paid in Capital Deficit Equity
- -------------------------- ------------- ------------- -------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
January 1, 1997 5,526,300 $ 55,263 $ 0 $ 1,339,925 $ (615,391) $ 779,797
Contributed Capital -- -- -- 1,741,816 -- 1,741,816
Issuance of Common Stock 10,140,300 101,403 -- 140,501 -- 241,904
Net Loss - 1997 (1,213,103) (1,213,103)
------------- ------------- -------------- --------------- ------------ ------------
Total Stockholders' Equity
As of December 31, 1997 15,666,600 156,666 -- 3,222,242 (1,828,494) 1,550,414
Contributed Capital -- -- -- 501,036 -- 501,036
Redistribution of Common Stock
Through Re-Organization (15,666,600) (156,666) -- -- -- (156,666)
Issuance of Common Stock 10,000,000 100,000 -- -- -- 100,000
Issuance of Common Stock 383,450 3,835 -- 379,615 -- 383,450
Net Loss - 1998 (608,490) (608,490)
------------- ------------- -------------- --------------- ------------ ------------
Total Stockholders' Equity
As of December 31, 1998 10,383,450 103,835 -- 4,102,893 (2,436,984) 1,769,744
Stock Issued for Services Rendered 200,000 2,000 -- 198,000 -- 200,000
Conversion of Notes Payable 37,000 370 -- 36,630 -- 37,000
Issuance of Common Stock - 504 303,200 3,032 -- 300,168 -- 303,200
Syndication Costs -- -- -- (34,500) -- (34,500)
Stock Issued for Acquisition of
Westford Acquisition Corporation 4,650,000 46,500 -- -- -- 46,500
Common Stock Issued for Cash 2,247,635 22,476 -- 1,696,093 -- 1,718,569
Net Loss - 1999 (1,289,145) (1,289,145)
------------- ------------- -------------- --------------- ------------ ------------
Total Stockholders' Equity
As of December 31, 1999 17,821,285 $ 178,213 $ -- $ 6,299,284 $ (3,726,129) $ 2,751,368
============= ============= ============== =============== ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
South Beach Concepts, Inc. & Subsidiaries
Consolidated Statements of Cash Flows
December 31,
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Cash Flow from Operating Activities:
Net Income/(Loss) $ (1,289,145) $ (608,490)
Adjustments To Reconcile Net Income/(Loss) To Net
Cash Provided/(Used) In Operating Activities:
Depreciation/Amortization 212,284 263,892
Stock Issued for Services Rendered 200,000 --
Write-off of Intangible Assets-Net 469,192 --
Conversion of Notes Payable 37,000 --
(Increase)/Decrease in Prepaid Expenses 3,665 (193,068)
(Increase)/Decrease in Intangible Assets -- (466,444)
(Increase)/Decrease in Deposits (80) 37,436
(Increase)/Decrease in Inventory (26,732) 63
(Increase)/Decrease in Accounts Receivable 17,077 (42,357)
(Increase)/Decrease in Other Assets (400) --
(Increase)/Decrease in Royalties Receivable (Current) 11,691 (11,677)
(Increase)/Decrease in Deferred Tax Asset (37,514) (149,015)
Increase/(Decrease) in Accounts Payable (182,590) 83,243
Increase/(Decrease) in Accrued Expenses 296,677 17,975
Increase/(Decrease in Payroll Taxes Payable 18,391 --
Increase/(Decrease) in Deferred Tax Liability (61,330) 61,330
---------------- ----------------
Total Adjustments 957,331 (398,622)
---------------- ----------------
Net Cash Provided/(Used) by Operating Activities (331,814) (1,007,112)
Cash Flow from Investing Activities:
Investment in Subsidiary -- 76,500
(Purchase)/Disposal of Property, Plant & Equipment (1,598,362) (389,205)
(Increase)/Decrease in Notes Receivable -- --
---------------- ----------------
Net Cash Provided / (Used) by Investing Activities (1,598,362) (312,705)
Cash Flow from Financing Activities:
Due To/(From) Affiliate (231,737) (54,314)
Increase/(Decrease) in Advance from Shareholders 14,217 --
(Increase)/Decrease in Public Offering Costs (232,234) (34,500)
Proceeds From Additional Paid in Capital 2,033,769 827,820
Increase/(Decrease) in Notes Payable 416,499 157,531
---------------- ----------------
Net Cash Provided/(Used) by Financing Activities 2,000,514 896,537
---------------- ----------------
Net Increase/(Decrease) in Cash 70,338 (423,280)
Cash at the Beginning of the Year 9,088 432,368
---------------- ----------------
Cash at the End of the Year $ 79,426 $ 9,088
================ ================
Additional Disclosure of Operating Cash Flow:
During 1999, the Company issued 200,000 shares of stock, .01 stated value, as compensation ($200,000).
During 1999, the Company converted $37,000 debt to 37,000 shares of stock, $.01 stated value.
Cash paid during the years ended December 31, 1999 and 1998 for:
Interest Paid..................................................... $ 21,446 $ 8,528
Income Tax Expense................................................ $ -- $ --
</TABLE>
See accompanying notes to the consolidated financial statements.
6
<PAGE>
SOUTH BEACH CONCEPTS, INC. & SUBSIDIARIES
Consolidated Notes to the Financial Statements
December 31, 1999
Note 1 - Basis of Presentation and Significant Accounting Policies:
----------------------------------------------------------
South Beach Concepts, Inc. (the Company) incorporated as a Florida
corporation and commenced business on July 28, 1998. The Company, through
its subsidiaries, develops, operates, franchises, and services restaurants
with consistent themes, logos and signs, menus, and food quality. These
operations currently exist in select areas of Florida, Illinois, Michigan,
Missouri, and Texas.
Cafe Society Coffee Company, a wholly owned subsidiary, manufactures and
sells high-end specialty coffees that are sold and distributed under its
own label as well as private labels. These operations currently exist in
Texas and Florida.
A) Business Combination
--------------------
The Company owns all of the common stock of South Beach Cafe, Inc.; South
Beach Cafe MSU, Inc.; South Beach Cafe Florida, Inc.; South Beach Cafe
International Franchise, Corp.; Pizza World International, Inc.; Pizza
World International St. Louis, Inc.; Pizza World International Franchise,
Corp.; Cafe Society Coffee Company; and Baja Food Concepts, Inc..
The outlets associated with Pizza World International St. Louis, Inc. were
sold in 1998 whereas the outlets associated with South Beach Cafe MSU, Inc.
were closed in 1998 with the demolition of the mall in which their site
existed. As a result of the aforementioned, these corporate subsidiaries
have been dissolved.
B) Consolidation
-------------
Through complete consolidation, all inter-company transactions and balances
have been eliminated.
C) Inventory
---------
Inventories are stated at the lower of cost or market. Cost is determined
by using the first-in, first-out method. Inventories consist primarily of
food supplies and paper products.
D) Research and Development Costs
------------------------------
Research and development costs are charged to operations when incurred and
are included in operating expenses. The amounts charged in 1999 and 1998
were $40,475 and $3,988, respectively.
7
<PAGE>
SOUTH BEACH CONCEPTS, INC. & SUBSIDIARIES
Consolidated Notes to the Financial Statements
December 31, 1999
Note 1 - Basis of Presentation and Significant Accounting Policies: (continued)
-----------------------------------------------------------
E) Property, Plant, and Equipment
------------------------------
Property, plant, and equipment are carried at cost less accumulated
depreciation and amortization. Depreciation is calculated by using the
straight-line method for financial reporting and accelerated methods for
income tax purposes. The recovery classifications for these assets are
listed as follows:
Computers & Software 5 years
Signs 10 years
Machinery & Equipment 7 years
Furniture and Fixtures 7 years
Transportation Equipment 7 years
Building 39 years
Leasehold Improvements life of lease
All repair and maintenance costs are charged against income in the period
incurred. Any repairs that increase the life of the asset are capitalized
and depreciated over the adjusted life of the asset.
F) Intangible Assets
-----------------
Organization costs (see note 1P) have been incurred during the
establishment and restructuring phase of the Company's retail facilities.
During this phase, these costs are capitalized and amortized using the
straight-line method over a period of five (5) years. At December 31, 1999
and 1998, accumulated amortization on organization costs totaled $ -0- and
$183,371, respectively.
As the Company continues to grow, it establishes various trademarks to
ensure its proprietary rights. These trademarks are amortized using the
straight-line method over a period of forty (40) years. At December 31,
1999 and 1998, accumulated amortization related to trademarks was $ 684 and
$ 295, respectively.
Goodwill represents the excess of the cost of companies acquired over the
fair value of their net assets at the date of acquisition. During 1997,
the Company acquired a forty-nine percent (49%) minority interest in a
subsidiary for $76,500. The Company then acquired the remaining fifty-one
percent (51%) in 1998 for $125,000. The resulting purchase price was in
excess of the fair market value and thus created goodwill in the amount of
$76,500. This goodwill is being amortized using the straight-line method
over a period of fifteen (15) years. Accumulated amortization was $10,200,
and $5,100 for the years ended December 31, 1999 and 1998, respectively.
8
<PAGE>
SOUTH BEACH CONCEPTS, INC. & SUBSIDIARIES
Consolidated Notes to the Financial Statements
December 31, 1999
Note 1 - Basis of Presentation and Significant Accounting Policies: (continued)
-----------------------------------------------------------
G) Income Taxes
------------
The Company adopted the provisions of Statement of Financial Accounting
Standards (FASB) No. 109, "Accounting for Income Taxes", which requires a
change from the deferral method to assets and liability method of
accounting for income taxes. Timing differences exist between book income
and tax income that primarily relates to depreciation.
H) Net Earnings Per Common Share
-----------------------------
Net earnings per common share are shown as both basic and diluted. Basic
earnings per common share are computed by dividing net income less any
preferred stock dividends (if applicable) by the weighted average number of
shares of common stock outstanding. Diluted earnings per common share are
computed by dividing net income less any preferred stock dividends (if
applicable) by the weighted average number of shares of common stock
outstanding plus any dilutive common stock equivalents. The components
used for the computations are shown as follows:
December 31, 1999 December 31, 1998
----------------- -----------------
Weighted Average Number of Common
Shares Outstanding Including:
Basic Common Shares 13,592,477 12,922,683
Dilutive Common Shares 20,996,477 12,922,683
I) Impairment of Long - Lived and Identifiable Intangible Assets
-------------------------------------------------------------
The Company evaluates the carrying value of long-lived assets and
identifiable intangible assets for potential impairment on an ongoing
basis. An impairment loss would be deemed necessary when the estimated
non-discounted future cash flows are less than the carrying net amount of
the asset. If an asset were deemed to be impaired, the asset's recorded
value would be reduced to fair market value. In determining the amount of
the charge to be recorded, the following methods would be utilized to
determine fair market value:
1) Quoted market prices in active markets.
2) Estimate based upon prices of similar assets
3) Estimate based upon valuation techniques
As of August 31, 1999 and 1998, no impairment existed.
9
<PAGE>
SOUTH BEACH CONCEPTS, INC. & SUBSIDIARIES
Consolidated Notes to the Financial Statements
December 31, 1999
Note 1 - Basis of Presentation and Significant Accounting Policies: (continued)
-----------------------------------------------------------
J) Franchise Revenues
------------------
Revenues from sales of individual franchises is recognized, net of an
allowance for uncollectable amounts, when substantially all significant
services to be provided by the Company have been performed.
K) Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumption that affect the reported amounts of assets and liabilities and
disclosure of contingent asset and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
L) Risk Concentration
------------------
The Company's operating cash is held in financial institutions, which are
insured by the Federal Deposit Insurance Corporation up to, but not
exceeding, $100,000. At December 31, 1999 and 1998, uninsured cash
balances total approximately $ - 0 - and $ - 0 -, respectively.
M) Advertising
-----------
Advertising costs are expensed as incurred. Advertising expenses was
$9,277 and $13,776 during the years ended December 31, 1999 and 1998,
respectively.
N) Comprehensive Income
--------------------
There were no items of other comprehensive income in 1999 and 1998, and,
thus, net income is equal to comprehensive income for each of those years.
O) Reclassification
----------------
The Company has reclassified certain balance sheet components for the year
ended December 31, 1998 to facilitate comparison to the year ended December
31, 1999.
10
<PAGE>
SOUTH BEACH CONCEPTS, INC. & SUBSIDIARIES
Consolidated Notes to the Financial Statements
December 31, 1999
Note 1 - Basis of Presentation and Significant Accounting Policies: (continued)
-----------------------------------------------------------
P) Accounting Pronouncements
-------------------------
During August of 1998, the American Institute of Certified Public
Accountants (AICPA) issued Statement of Position (SOP) No. 98-5 "Reporting
on the Costs of Start-Up Activities". This statement requires all costs
related to a company's start-up activities be expensed during the period
incurred rather than capitalized and amortized over a period of time.
This pronouncement became effective for fiscal years beginning after
December 15, 1998. As a result of this change, the Company has written off
$533,157 of prior organization costs during the year ended December 31,
1999.
Note 2 - Accounts Receivable:
-------------------
Accounts receivable consist of the following:
December 31,
1999 1998
------- -------
Accounts Receivable $29,280 $46,357
Allowance for Doubtful Accounts 2,887 - 0 -
------- -------
Net Accounts Receivable $26,393 $46,357
======= =======
Note 3 - Due From Affiliate:
-------------------
At December 31, 1999 and 1998, a receivable of approximately $343,860 and
$112,123, respectively, existed from an affiliate company.
Note 4 - Note Receivable:
----------------
During 1998, the Company sold one of its franchise stores in consideration
for a note receivable in the amount of $61,500. The payer subsequently
defaulted payment on this note and management has thus determined this note
to be uncollectable. The ending result is a $61,500 charge to loss on
disposition. No loss has resulted in 1999.
11
<PAGE>
SOUTH BEACH CONCEPTS, INC. & SUBSIDIARIES
Consolidated Notes to the Financial Statements
December 31, 1999
Note 5 - Property, Plant, and Equipment:
------------------------------
Components of property, plant, and equipment, at December 31, 1999 and 1998
are as follows:
1999 1998
---- ----
Furniture and Fixtures $ 343,043 $ 379,631
Signs 106,425 85,718
Computer Equipment and Software 261,898 230,218
Machinery and Equipment 268,114 138,974
Leasehold Improvements 525,463 525,463
Transportation Equipment 4,400 4,400
Building 1,000,000 - 0 -
Land 453,423 - 0 -
---------- ----------
Total Property, Plant, and Equipment $2,962,766 $1,364,404
Less: Accumulation Depreciation (486,140) (278,960)
---------- ----------
Net Property, Plant, and Equipment $2,476,626 $1,085,444
========== ==========
Note 6 - Notes Payable:
-------------
December 31,
1999 1998
-----------------
Mortgage payable to Solovision, Inc. bearing
interest of 8.5%, payable in 39 monthly
installments of $7,500 and a balloon payment
due January 2003. $533,347 $ - 0 -
Note payable to SBC World Ventures, Inc.
bearing no interest and payable upon demand. - 0 - 58,170
Note payable to HDSI Consulting bearing
interest of 12%, payable in monthly installments
of $352; due November 2110. - 0 - 7,887
Note payable to A. Ciaccio bearing interest of 16%,
payable in monthly installments of $5,327; due
September 1999. - 0 - 75,374
Note payable to A. Ciaccio bearing interest of 12%,
payable in monthly installments of $1,890; due
February 2001. $ 24,583 $ - 0 -
-------- --------
Total Debt Payable 557,930 141,431
Less Current Portion of
Long - Term Debt Payable 32,182 141,431
-------- --------
Total Long - Term Debt $525,748 $ - 0 -
======== ========
12
<PAGE>
SOUTH BEACH CONCEPTS, INC. & SUBSIDIARIES
Consolidated Notes to the Financial Statements
December 31, 1999
Note 6 - Notes Payable: (continued)
-------------
Future principal repayment of the notes payable is as follows:
2000 $ 32,182
2001 16,173
2002 13,683
2003 $495,892
Note 7 - Lease Obligations:
-----------------
During 1998, the Company leased certain computer equipment. Under this
thirty-six month operating lease, the monthly payment is $299.
Future minimum lease payments are summarized as follows:
December 31, Amount
------------ ------
2000 $3,588
2001 1,495
------
Total $5,083
======
Note 8 - Franchising:
------------
When an individual franchise is sold, the Company agrees to provide certain
services to the franchisee. Generally, these services include training
personnel, implementation of an accounting system, and assistance with
operations relative to the particular food concept franchise acquired.
Deferred franchise-fee revenues represent the portion of total revenue from
initial franchise sales attributable to services required to be provided by
the Company that have not yet been performed. For the years ended December
31, 1999 and 1998, no deferred revenues existed.
The Company has experienced growth during the past year. The number of
franchises sold has increased each year since 1998 reflecting a strong
demand for the Company's product and the benefits obtained by franchise
owners. The Company expects this favorable situation to continue; however,
franchise sales will reach a saturation point, and accordingly, revenue
from franchise sales may decline in the future. Because the Company is in
its early years, this saturation is not expected to occur for many years to
come.
13
<PAGE>
SOUTH BEACH CONCEPTS, INC. & SUBSIDIARIES
Consolidated Notes to the Financial Statements
December 31, 1999
Note 8 - Franchising: (continued)
-----------
For the years ended December 31, 1999 and 1998, the Company had seven and
two, respectively, company owned concepts operating in co-branded outlets.
Additionally, there were thirteen franchisee owned outlets in both 1999 and
1998.
During 1999 and 1998, revenue from franchise sales, net of related costs,
represented approximately 30% and 32% of net income, respectively.
Note 9 - Business Combinations:
---------------------
As stated in note 1, the Company owns all of the outstanding common stock
of South Beach Cafe, Inc. and Pizza World International, Inc. as well as
their respective subsidiaries. These shares were all acquired during 1998
after the creation of the Company.
Upon formation of the Company in July 1998, the Company issued 10,000,000
shares of its common stock to South Beach Concepts, PLC (SBCPLC), its
previous parent corporation prior to spinning-off, in consideration for
transfer, to the Company by SBCPLC, of all the issued and outstanding
capital stock in SBCPLC's wholly owned corporate subsidiaries known as
South Beach Cafe, Inc. and Pizza World International, Inc. As a result,
the Company holds all 5,139,775 of the outstanding Class A voting common
stock of SBC and all 10,526,800 of the outstanding shares of common stock
of PWI. As a result of the spin-off and the aforementioned, the Company,
in July 1998, controlled two wholly owned subsidiaries. Subsequent to this
transaction, the Company has issued additional shares of its common stock
to other parties through an exempt public offering.
Prior to 1998, the Company had held a minority interest in Cafe Society
Coffee Company and as stated in Note 1 has acquired the remaining fifty-one
percent (51%) interest resulting in Cafe Society Coffee Company being a
wholly owned subsidiary.
In July 1999, the Company engaged in a re-organization with Westford
Acquisition Corporation whereby the Company was the survivor. As a result
of this re-organization, the Company acquired another wholly owned
subsidiary, Baja Food Concepts, Inc.
Note 10 - Related Party Transactions:
--------------------------
During 1998, the Company borrowed $8,600 from Burnham International Group,
Inc. (BIG). The controlling shareholder of BIG, T. Burnham, is an officer
of the Company. The amount of $8,600 due to BIG was repaid during 1999.
14
<PAGE>
SOUTH BEACH CONCEPTS, INC. & SUBSIDIARIES
Consolidated Notes to the Financial Statements
December 31, 1999
Note 10 - Related Party Transactions: (continued)
--------------------------
During 1999 and 1998, the Company borrowed $7,500 and $53,617,
respectively, from Texas International Group, Inc. (TIG). The controlling
shareholder of TIG, T. Burnham, is an officer of the Company. After
$32,810 was repaid during 1999, the balance due TIG is $28,307.
During 1999, Thomas Burnham, an officer of the Company, advanced the
Company $2,010 which is payable upon demand.
Additionally, T. Burnham, an officer of the Company performs legal services
for the Company. Amounts expensed for professional services, staff
salaries, and reimbursed expenses was approximately $43,500 and $49,000 for
the years ended December 31, 1999 and 1998, respectively.
Note 11 - Commitments and Contingent Liabilities:
--------------------------------------
The Company maintains the following leases:
<TABLE>
<CAPTION>
Remaining
Lessee Location Duration Payment
------ -------- -------- -------
<S> <C> <C> <C>
South Beach Cafe, Inc. 405 Little Lake Drive Month to Month $ - 0 -
South Beach Cafe, Inc. Cattle Ridge Business Park Oct. 1997 - Sept. 2012 1,956,443
South Beach Cafe, Inc. Cattle Ridge - Suite 201 Aug 1998 - July 2003 232,216
South Beach Cafe - FL, Inc. 1991 Main Street May 1997 - Apr. 2002 175,230
South Beach Cafe - FL, Inc. Village Plaza Jan. 1999 - Dec. 2008 464,947
South Beach Cafe - FL, Inc. Valley Ranch and MacArthur Oct. 1999 - Sept. 2001 84,000
-----------
Total $2,912,836
===========
</TABLE>
Future minimum lease payments are summarized as follows:
December 31, Amount
------------ ------
2000 $ 362,719
2001 356,440
2002 276,266
2003 228,392
2004 and Thereafter 1,689,019
----------
Total $2,912,836
==========
Rent expense was $358,842 and $258,737 under these operating leases for the
years ended December 31, 1999 and 1998, respectively. Rent expense
includes additional charges for common area maintenance.
These leases contain clauses relating to renewal options. Although each
does not contain such option, those that do vary from three years to
fifteen years additionally.
15
<PAGE>
SOUTH BEACH CONCEPTS, INC. & SUBSIDIARIES
Consolidated Notes to the Financial Statements
December 31, 1999
Note 11 - Commitments and Contingent Liabilities: (continued)
--------------------------------------
As a result of the store purchase in Clearwater, Florida (see Note 17), the
Company paid $15,000 in cash, $75,000 in common stock, and issued a note
payable in the amount of $60,000.
Note 12 - Deferred Public Offering Costs:
------------------------------
Deferred public offering costs consist of those expenditures incurred
during an attempt to raise capital by selling the Company's common stock.
Upon successful completion of this offering, all expenses incurred will be
reclassified to additional paid in capital and treated as syndication
costs.
The Company successfully raised $1,000,000 in accordance with the
Securities and Exchange Commission rule 504 of Regulation D. The Company
incurred $34,500 of costs associated with this offering and as such charged
these costs directly to additional paid in capital.
The Company is currently involved in raising funds in accordance with the
Securities and Exchange Commission Rule 506 of Regulation D. All costs
associated with this offering are being carried as deferred public offering
costs. Upon successful completion of this offering, all expenses incurred
will be reclassified to additional paid in capital and treated as
syndication costs.
Note 13 - Preferred Stock, Stock Options, and Warrants:
--------------------------------------------
During 1998, the Board of Directors and majority shareholders authorized
15,000,000 shares of preferred stock with a stated value of $.01. As of
December 31, 1998, no preferred stock has been issued.
The Company has issued the following warrants as of December 31, 1999:
383,500 stock purchase warrants expiring September 30, 2000. These
warrants are to purchase fully paid and non-assessable shares of the
Company's common stock, stated value $.01 per share at a purchase
price of $1.25 per share prior to April 1, 1999. At April 1, 1999,
the warrant purchase price increases to, and remains until date of
expiration, $2.00 per share. These warrants are subject to the
ability of the Company to become a public company and the future
marketability of the common stock. As of December 31, 1998, the
underlying shares of common stock have not yet been registered for
resale under the Securities Act of 1933. During 1999, these warrants
were cancelled and re-issued as part of another offering with extended
terms.
16
<PAGE>
SOUTH BEACH CONCEPTS, INC. & SUBSIDIARIES
Consolidated Notes to the Financial Statements
December 31, 1999
Note 13 - Preferred Stock, Stock Options, and Warrants: (continued)
--------------------------------------------
The Company has issued the following warrants as of December 31, 1999:
(continued)
923,650 stock purchase warrants expiring June 30, 2001. These
warrants are to purchase fully paid and non-assessable shares of the
Company's common stock, stated value $.01 per share at a purchase
price of $1.25 per share prior to December 31, 1999. On January 1,
2000, the warrants' purchase price increases to, and remains until
date of expiration, $2.00 per share of common stock. Although as of
December 31, 1999, the underlying shares of common stock have not yet
been registered for resale under the Securities Act of 1933, 480
warrants have been exercised.
8,500,000 stock purchase warrants expiring April 15, 2000. These
warrants are to purchase fully paid and non-assessable shares of the
Company's common stock, stated value $.01 per share at a purchase
price of $.0001 per share. Although as of December 31, 1999, the
underlying shares of common stock have not yet been registered for
resale under the Securities Act of 1933, 1,096,000 warrants have been
exercised.
504,077 stock purchase warrants expiring June 30, 2001. These
warrants are to purchase fully paid and non-assessable shares of the
Company's common stock, stated value $.01 per share at a purchase
price of $2.50 per share. As of December 31, 1999, the underlying
shares of common stock have not yet been registered for resale under
the Securities Act of 1933 and no warrants have been exercised.
At December 31, 1999 1,427,247 warrants would have an anti-dilutive effect.
Note 14 - Income Taxes:
------------
As discussed in note 1, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes". Implementation of SFAS 109 did not have a material cumulative
effect on prior periods nor did it result in a change to the current year's
provision.
A) The effective tax rate for the Company is reconcilable to statutory tax
rates as follows:
December 31,
1999 1998
------- -------
% %
U.S. Federal Statutory Tax Rate 34 34
U.S. Valuation Difference (07) (21)
------ ------
Effective U.S. Tax Rate - 27 - - 13 -
====== ======
17
<PAGE>
SOUTH BEACH CONCEPTS, INC. & SUBSIDIARIES
Consolidated Notes to the Financial Statements
December 31, 1999
Note 14 - Income Taxes: (continued)
-------------
B) Items giving rise to deferred tax assets / liabilities are as follows:
December 31,
1999 1998
---- ----
Deferred Tax Assets:
Tax Loss Carry-forward $630,832 $298,029
Depreciation 115,280 - 0 -
-------- --------
Deferred Tax Liability:
Depreciation - 0 - 61,330
-------- --------
Valuation Allowance 559,583 149,014
-------- --------
Net Deferred Tax Assets / Liability $186,529 $ 87,685
======== ========
C) The Company experienced tax losses of approximately $978,832 and $876,557
for the years ended December 31, 1999 and 1998, respectively. Due to no
prior income, the Company continues to carry net operating losses of
approximately $978,832, $876,557, $366,185, and $1,360,000 through the
years 2014, 2013, 2012, and 2011, or until they are completely used;
whichever occurs first.
Note 15 - Earnings Per Share:
-------------------
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-------------- ------------- ----------
<S> <C> <C> <C>
Net Loss $(1,289,145)
Basic EPS:
Loss available to common stockholders - 0 - 13,592,477 $(0.09)
=========
Effect of Dilutive Securities:
Warrants - 0 - 7,404,000
----------- ------------
Diluted EPS:
Loss available to common stockholders
and assumed conversions. $(1,289,145) 20,996,477 $(0.06)
=========== ============ =========
</TABLE>
18
<PAGE>
SOUTH BEACH CONCEPTS, INC. & SUBSIDIARIES
Consolidated Notes to the Financial Statements
December 31, 1999
Note 15 - Earnings Per Share: (continued)
------------------
<TABLE>
<CAPTION>
For the Year Ended December 31, 1998
------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Net Loss $ (608,490)
Basic EPS:
Loss available to common stockholders (608,490) 12,922,683 $(0.05)
=========
Effect of Dilutive Securities: - 0 - - 0 -
--------- ------------
Diluted EPS:
Loss available to common stockholders
and assumed conversions. $ (608,490) 12,922,683 $(0.05)
========= ============ =========
</TABLE>
For the years ended December 31, 1999 and 1998, 1,427,247 and 383,500,
respectively, anti-dilutive securities existed.
For the period January 1, 2000 to March 23, 2000, there were no
transactions that would have materially changed the number of common shares
or potential common shares outstanding.
Note 16 - Accumulated Deficits:
--------------------
Although the Company has suffered substantial losses from operations since
inception, these losses have been covered through capital contributions and
fall well within management's expectations. While no significant revenues
have been generated to date, the Company has commenced its planned
principal activities.
Note 17 - Subsequent Events:
------------------
The Company is in the process of registering its common stock in certain
states. This registration is being conducted in accordance with the
Securities and Exchange Commission rule 506 of Regulation D. This
registration allows the Company to privately sell its securities to the
public. The Company has raised approximately $830,000 under this offering;
$75,000 being subsequent to December 31, 1999.
Subsequent to December 31, 1999, the Company has entered "Area
Representative Agreements" with two groups so that they may pursue
potential franchisee candidates in the states of Colorado and Virginia.
Revenues from these agreements total approximately $320,000 and represent
75% of all franchise revenues in 1999.
19
<PAGE>
SOUTH BEACH CONCEPTS, INC. & SUBSIDIARIES
Consolidated Notes to the Financial Statements
December 31, 1999
Note 17 - Subsequent Events: (continued)
-----------------
On February 29, 2000, the Company purchased an existing Pizza World outlet
from an existing franchisee in Clearwater, Florida. This outlet will be
converted to a co-branded corporate outlet. The cost of this purchase is
$150,000 for which payment consists of a $15,000 cash down, a $60,000 note
payable, and $75,000 in common stock.
20
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 79,426
<SECURITIES> 0
<RECEIVABLES> 43,307
<ALLOWANCES> 2,887
<INVENTORY> 47,090
<CURRENT-ASSETS> 514,083
<PP&E> 2,962,756
<DEPRECIATION> (486,140)
<TOTAL-ASSETS> 3,737,782
<CURRENT-LIABILITIES> 460,666
<BONDS> 0
0
0
<COMMON> 178,213
<OTHER-SE> 2,573,155
<TOTAL-LIABILITY-AND-EQUITY> 3,737,782
<SALES> 848,537
<TOTAL-REVENUES> 1,276,738
<CGS> 536,410
<TOTAL-COSTS> 2,664,728
<OTHER-EXPENSES> 1,595,161
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,446
<INCOME-PRETAX> (1,387,989)
<INCOME-TAX> (98,844)
<INCOME-CONTINUING> (1,289,145)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,289,145)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.06)
</TABLE>
