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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2000
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 294339
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Twistee Treat Corporation
(Name of registrant in its charter)
Delaware 43-1796135
(State of incorporation) (I. R. S. Employer Identification No.)
301 Clark Street
Warrensburg, Missouri 64093
(Address and telephone number of principal executive offices
and principal place of business)
________________
Securities registered pursuant to Section 12(b) of the Act:
None
________________
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001
Indicate by check mark whether the registrant (1) has filed all report
s reuired to be filed by Section 13 or 15(d) of the Securities Exchan
ge Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) and has
been subject to such filing requirements for the past 90 days.
Yes X No
As of August 31, 2000, there were 18,569,950 shares of the issuer's
Common Stock issued and outstanding.
PART I - FINANCIAL INFORMATION
Item I. Financial Statements
The registrant represents that the Consolidated Financial Statements
furnished herein have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with prior years,
and that such Consolidated Financial Statements reflect, in the opinion
of the management of the Company, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the consolidated
financial position of Twistee Treat Corporation (the "Company"), as of
August 31, 2000, and the results of its operations and its cash flows
for the three months then ended.
TWISTEE TREAT CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
AS OF AUGUST 31, 2000
TWISTEE TREAT CORPORATION
CONTENTS
PAGE 1 CONSOLIDATED BALANCE SHEETS AS OF AUGUST 31, 2000
(UNAUDITED) AND NOVEMBER 30, 1999
PAGE 2 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
MONTHS AND NINE MONTHS ENDED AUGUST 31, 2000 AND 1999
(UNAUDITED)
PAGE 3 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE
MONTHS ENDED AUGUST 31, 2000 AND 1999 (UNAUDITED)
PAGE 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWISTEE TREAT CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
August 31, November 30,
2000 1999
(Unaudited)
--------- ---------
CURRENT ASSETS
Cash - 84,921
Advances 10,000 10,000
Notes receivable - trade 96,000 90,000
Notes receivable other - current 80,670 80,670
Inventory 288,817 116,650
Total Current Assets 475,487 382,241
--------- ---------
PROPERTY AND EQUIPMENT, NET 342,585 328,431
--------- ---------
OTHER ASSETS
Notes receivable - trade 20,000 20,000
Notes receivable other 74,000 74,000
Other receivable 50,000 50,000
Deposits 1,150 1,150
Intangible assets 89,900 89,900
--------- ---------
Total Other Assets 235,050 235,050
--------- ---------
TOTAL ASSETS 1,053,122 945,722
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Cash overdraft 19,107 -
Accounts payable and accrued expenses 93,797 147,797
Notes and loans payable - current 160,415 306,102
Capital lease - current 507 507
Deferred revenue 180,233 180,233
--------- ---------
Total Current Liabilities 454,059 634,639
NOTES PAYABLE 29,292 34,792
--------- ---------
TOTAL LIABILITIES 483,351 669,431
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, $.0001 par value, 10,000,000 shares authorized,
none issued and outstanding - -
Common stock, $.0001 par value, 50,000,000 shares authorized,
18,569,950 and 6,769,950 shares issued and outstanding, respectively 1,857 676
Common stock to be issued, $.0001 par value, 50,000 shares and
212,500, respectively 5 21
Additional paid in capital 3,102,834 1,929,249
Accumulated deficit (2,172,425) (1,653,655)
Less subscriptions receivable (362,500) -
--------- ---------
Total Stockholders' Equity 569,771 276,291
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 1,053,122 945,722
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
TWISTEE TREAT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the Three For the Three For the Nine For the Nine
Months Ended Months Ended Months Ended Months Ended
August 31, 2000 August 31, 1999 August 31, 2000 August 31, 1999
---------- --------- ---------- ---------
NET SALES $ 3,651 $ 44,020 $ 104,945 $ 132,061
COST OF SALES 10,738 29,314 42,901 87,941
---------- --------- ---------- ---------
GROSS PROFIT (LOSS) (7,087) 14,706 62,044 44,120
---------- --------- ---------- ---------
OPERATING EXPENSES
Payroll and contractual compensation 40,170 50,042 112,835 150,126
Depreciation and amortization expense 20,852 12,202 59,773 36,606
Consulting expense 6,000 - 22,200 -
Legal and professional fees 42,202 36,248 197,296 108,744
Other general administrative expenses 61,694 58,239 168,240 174,718
---------- --------- ---------- ---------
Total Operating Expenses 170,918 156,731 560,344 470,194
---------- --------- ---------- ---------
LOSS FROM OPERATIONS (178,005) (142,025) (498,300) (426,074)
---------- --------- ---------- ---------
OTHER INCOME (EXPENSE)
Miscellaneous income - 104 794 313
Interest income 836 771 2,086 2,312
Interest expense (4,000) (7,688) (23,350) (23,063)
---------- --------- ---------- ---------
Total Other (Expense) (3,164) (6,813) (20,470) (20,438)
---------- --------- ---------- ---------
NET LOSS $ (181,169) $ (148,838) $ (518,770) $ (446,513)
========== ========= ========== =========
Net loss per common share and equivalents
- basic and diluted $ (0.01) $ (0.02) $ (0.05) $ (0.07)
========== ========= ========== =========
Weighted average number of shares
outstanding during period
- basic and diluted 17,531,061 6,350,810 11,418,847 6,394,839
========== ========= ========== =========
</TABLE>
See accompanying notes to consolidated financial statements
TWISTEE TREAT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
For the Nine For the Nine
Months Ended Months Ended
August 31, 2000 August 31, 1999
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (518,770) (446,513)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 59,773 36,606
Stock issued to consultants 12,250 -
Changes in assets and liabilities
(Increase) decrease in:
Accounts receivable (6,000) -
Notes receivable - trade - (135,233)
Inventory (118,167) (59,189)
Increase (decrease) in:
Cash overdraft 19,107 -
Accounts payable and accrued expenses (54,000) 133,761
Deferred Revenue - 148,233
-------- ---------
Net Cash Used In Operating Activities (605,807) (322,335)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (73,927) (73,750)
-------- ---------
Net Cash Used In Investing Activities (73,927) (73,750)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable (205,187) 103,201
Proceeds from stock sale 800,000 513,022
-------- ---------
Net Cash Provided By Financing Activities 594,813 616,223
-------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (84,921) 220,138
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 84,921 49,647
-------- ---------
CASH AND CASH EQUIVALENTS - END OF YEAR - 269,785
======== =========
Cash paid during the year for:
Interest 11,350 -
======== =========
Income taxes - -
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
TWISTEE TREAT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
and the rules and regulations of the Securities and Exchange Commission
for interim financial information. Accordingly, they do not include
all the information necessary for a comprehensive presentation of
financial position and results of operations.
It is management's opinion, however that all material adjustments
(consisting of normal recurring adjustments) have been made which are
necessary for a fair financial statements presentation. The results
for the interim period are not necessarily indicative of the results
to be expected for the year.
For further information, refer to the financial statements and footnotes
for the year ended November 30, 1999 included in the Company's Form 8-K/A
filed April 6, 2000.
NOTE 2 - INVENTORIES
Inventories consist of ice cream machines and cone-shaped buildings.
Inventories are stated at the lower of cost or market value, as
determined using the first in, first out method.
NOTE 3 - STOCK ISSUANCES
In June 2000, the Company issued 2,500,000 shares of common stock for
cash proceeds of $50,000 to an Officer and Director of the Company.
In June 2000, the Company issued 300,000 common shares to a consultant
for services. The shares were valued at $6,000, the quoted trading
price on the agreement date.
NOTE 4 - SUBSEQUENT EVENTS
(A) Pending Acquisition
The Company has entered into a letter of intent to acquire certain
assets and a building from an unrelated company. As of the date of
this filing, the acquisition agreements have not been finalized.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK
This quarterly report may contain forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements are based largely on the Company's expecta-
tions and are subject to a number of risks and uncertainties, certain
of which are beyond the Company's control. Actual results could differ
materially from these forward-looking statements as a result of such
risks and uncertainties, including, among others, general economic
conditions, governmental regulation and competitive factors, and, more
specifically, interest rate levels availability of finaning, consumer
confidence and preferences, the effectiveness of the Company's competi-
tors, and costs of materials and labor. In light of these risks and
uncertainties, there can be no assurance that the forward-looking
information contained in this quarterly report will in fact occur.
Forward-looking statements may be identified by use of forward-lookng
terminology such as "believe,' "intends," "may," "will," "expects,"
"estimate," "anticipate," "continue," or similar terms, variations of
those terms or the negative of those terms.
Thirteen Weeks Ended August 31, 2000 and August 31, 1999.
Overview.
The Company operates and franchises soft-serve ice cream desserts and
an assortment of other foods and beverages in its proprietary cone-
shaped buildings and kiosks. Incorporated under the laws of Missouri
in 1997, the Company redomiciled by merger into a Delaware corporation
in June of 1999 with the name Twistee Treat Corporation. On April 6,
2000, the Company purchased a publicly-reporting corporation, Perfection
Plus, Inc., a Nevada corporation, as described more fully in its Form
8-K filed with the Securities and Exchange Commission on April 8, 2000,
as subsequently amended. In 1998, Stephen Wells, formerly the President
of the Company's largest franchisee (Twistee Treat of the Southeast,
Inc.), became the President and Chief Executive Officer of the Company.
Mr. Wells continued the testing program, begun in 1999, of the Company's
"Express Grill" unit, a full-service restaurant loosely based on the
design of the Brazier units operating by "Dairy Queen." Management
believes that the "Express Grill" unit will help the Company expand its
business into cooler climates, offering a broader menu and inside seating
capability.
Net Sales.
The net sales made by the Company are derived from two separate sources,
namely the sale of ice cream products at retail and to franchisees of the
Company, as well as from the sale of licensing, regional development and
franchise rights to third parties desiring to own and operate individual
Company franchises or the ability to develop regional franchise areas.
For the three months ended August 31, 2000, the Company's Net Sales were
$3,651, compared to $44,020 for the same period ended August 31, 1999.
Similarly, for the nine months ended August 31, 2000, net sales equaled
$104,945, compared to the nine-month period ended August 31, 1999, in
which net sales equaled $132,061. The decrease in net sales for the most
recent three-month and nine-month periods is attributable to becoming a
reporting company and not focusing on sales. Out of the $104,945 in total
net sales recorded for the period ended August 31, 2000, 100% was earned
from the sale of ice cream products and other products to retail customers
and franchisees for sale at franchised locations.
Cost of Sales.
The Company experienced a slight decrease in the cost of sales for the
thre months ended August 31, 2000, which was $10,738 as compared to the
cost of sales for the same period ended August 31, 1999, which equaled
$29,314. For the nine-month period ended August 31, 2000, the cost of
sales equaled $42,901, and for the same period ended August 31, 1999, the
cost of sales equaled $87,941. Management attributes the relatively small
decrease in cost of sales for the three months ended August 31, 2000, and
the nine months ended August 31, 2000, as a percentage of cost of sales
for the same periods ended Agust 31, 1999, (63% and 51%, respectively),
to a decrease in sales, especially with respect to the cost of food and
ice cream sold by the Company, and to the decrease in sale items to fran-
chisees and regional developers. The cost of sales experienced by the
Company from its operations is primarily for product sales of which 100%
was for the nine mnths ended August 31, 2000, and 100% was for the three
months ended August 31, 2000. Management's goal is to keep the cost of
sales below 32%.
Gross Profit.
The Company generated a loss of ($7,087) for the three months ended
August 31, 2000, down from $14,706 (or 148%) from the same period ended
August 31, 1999. The gross profit generated for the nine-month period
ended August 31, 2000 was $62,044, up from $44,120 (or 41%) for the same
period ended August 31, 1999. As a percentage of net sales, the gross
profit for the three-month period ended August 31, 2000, and the nine-
month period ended August 31, 2000, was approximately 194% and 59%,
respectively. The increase in the gross profit generated by the Company
during such periods as a percentage of the total of net sales of the
Company is attributed to management making a concerted effort to keep the
cost of goods sold within acceptable percentages.
Operating Expenses.
Operating expenses for the three-month period ended August 31, 2000
equaled $170,918, an increase of approximately 9% compared to the same
period ended August 31, 1999, and for the nine-month period ended August
31, 2000, equaled $560,344, an increase of approximately 19% compared
to the nine months ended August 31, 1999. The increase in operating
expenses is primarily due to professional fees incurred in becoming a
reporting company. The total of the professional fees with such matters
resulted in increases of 16% and 81% respectively over the three- and
nine-month periods ended August 31, 1999. In addition to the increased
professional fees, the Company has experienced other costs associated
with becoming a reporting entity. Payroll and other compensation equaled
$40,170 for the three months ended August 31, 2000, and $112,835 for the
nine-month period ended August 31, 2000, compared to $50,042 and $150,126,
respectively for the same peiods ended August 31, 1999. Depreciation and
amortization expenses which equaled $20,852 for the three months ended
August 31, 2000 increased approximately 71% over the same period ended
August 31, 1999, and for the nine-month period ended August 31, 2000
depreciation and amortization expense equaled $59,773, representing an
increase of approximately 63% over the same period ended August 31, 1999.
Management attributes the substantial increase in depreciation and amor-
tization expenses to the purchase of additional assets. Other general
and administrative expenses incurred by the Company for the three-month
period ended August 31, 2000 equaled $61,694, and included payments for
interest, waes, rent and other normal expenses for the day to day opera-
tions of the business. For the nine-month period ended August 31, 2000,
such amount equaled $168,240. These amounts represented increases of
approximately 6% and a decrease of approximately 4%, respectively, over
the prior periods. As a result of its operating expenses, the Company
experieced a total loss from operations of ($178,005) and ($498,300) for
the three- and nine-month periods ended August 31, 2000, compared to
($142,025) and ($426,074), (or 25% and 17%, respectively). The largest
single factor attributable to the increase in loss from operations is
the increase in professional fees described above. The Company generated
836 in interest income, reducing the Company's loss from operations to a
net loss of ($181,169) for the three months ended August 31, 2000. The
Company earned $875 in interest or other miscellaneous income for the
same period ended August 31, 1999. For the nine-month period ended August
31, 2000, the Company generated miscellaneous income of $794 and interest
income of $2,086, which was offset by interest expense of ($23,350)
during that same period, resulting in a total net loss for the nine
months ended August 31, 2000 of ($518,770). The Company experienced
miscellaneous income of $313, interest income of $2,312, and interest
expense of $23,063 during the nine-month period ended August 31, 1999.
Net Loss Per Share.
The Company's net loss per common share and equivalence--basic and diluted
for the three-month period ended August 31, 2000 was ($.01), and for the
nine-month period ended August 31, 2000, the net loss per common share
and equivalence--basic and diluted, equaled ($.05). This represented an
increase of $.02 and $.01, respectively, over the comparable net loss per
common share and equivalence--basic and diluted, for the same periods
ended August 31, 1999.
Liquidity and Capital Resources.
As of August 31, 2000, the Company had a cash overdraft of ($19,107) in
cash, a decrease of $104,028 from November 30, 1999. The decrease in cash
is attributable to a focus on becoming a reporting company instead of the
sale of product and franchises. Net cash used for operations in the third
quarter of 2000 was approximately $605,807, an increase of 88% over the
amount of net cash used for operations during the same period in 1999.
Uses of the Company's cash during the third quarter of 2000 was predomi-
nantly for a reduction of accounts payable and inventory purchases.
Inventories increased from $116,650 at November 30, 1999 to $288,817 at
August 31, 2000 (an increase of approximately 148%). This increase re-
flects the purchase of additional Twistee Treat buildings and miscella-
neous equipment in preparation for an aggressive franchise campaign.
The Company anticipates that its capital expenditures for the remainder
of fiscal year 2000 will be approximately $120,000, most of which is
expected to be used for a reduction of accounts payable.
The Company's debt structure includes total current liabilities of $454,059
at August 31, 2000, a decrease from $180,580 at November 30, 1999. Long-
term debt at August 31, 2000 equaled $29,292, compared to $34,792 at
November 30, 1999. Total liabilities at August 31, 2000 were $483,351,
a decrease from $669,431 for the period ended November 30, 1999. This
decrease of approximately 28% in total liabilities was attributable
primarily to debt reduction.
Cash flows from financing activities by the Company totaled $594,813 at
August 31, 2000, primarily consisting of proceeds from the sale of stock.
The Company has no credit line or other bank debt, and has generated its
cash for operations from internally-generated revenues and the sale of
its common stock, $.0001 par value. At August 31, 2000 the Company had
total stockholders' equity of $569,771, an increase of approximately
106% from the $276,291 of stockholders' equity existing at November 30,
1999. The stockholders' equity was primarily raised from the sale of
capital stock during the first six months of fiscal year 2000. During
the three months ended August 31, 2000, the Company issued 2,800,000
shares of common stock for proceeds of $56,000. In addition, on June 13,
2000, Stephen Wells, the Company's Presdent and CEO, purchased 2,500,000
shares of common stock from the Company for proceeds of $50,000. The
Company believes that its liquid resources and internally-generated cash
are sufficient to meet its short-term and long-term operating requirements
at present levels of operation. However, to expand the Company's business
and to take advantage of certain expansion capabilities which the Company
believes exist in its market today, the Company will require additional
outside equity and/or debt financing. To the extent that the Company
cannot obtain such financing on terms that it would consider favorable or
at all, it could have a materially adverse impact on the Company's ability
to grow its usiness and take advantage of the opportunities in which it
desires to engage during the remainder of fiscal year 2000 and beyond.
There can be no assurance that the Company will be able successfully to
raise the cash it requires to implement its business plan as currently
anticipated.
Risk Factors.
Dependence on Independent Franchisees and Licensors. The Company receives
a significant amount of its total revenues from the sale of franchise,
license and regional development rights to independent persons who desire
to operate Twistee Treat franchises in the United States and in Canada.
The ability of the Company to continue to generate revenue from these
activities, and to grow its franchising and licensing business in the
future, is dependent upon the willingness of independent persons to become
franchisees and licensees of the Company. The decision whether or not to
become a franchisee or license of the Company can be effected by a number
of variables, many of which are outside of the Company's control. Some of
these variables include general market conditions, regulatory burdens, the
cost of raw supplies and materials, and the receptiveness of the general
public to the Company's particular products and proprietary buildings and
retail unit. If the Company were unable successfully to market and sell
its franchise and license rights to persons who would independently own an
d operate Twistee Treat franchises, the ability of the Company to continue
would be severely impacted. While the Company does own and operate certain
retail sales outlets of its own, the majority of its business is accounted
for through the sale of franchise, regional development and license rights
to independent third parties.
Competition. The frozen desert market is highly competitive, and distinc-
tions between categories of frozen deserts (particularly with respect to
the premium or quality nature of various frozen desert products) are
becoming much less marked than in the past. The success of the Company
depends upon its ability to continue to create and market innovative
products, flavors, distribution channels and retail units through which
it can sell its product directly or through the independent franchisees
and licensees who operate Twistee Treat locations. If the Company is
unable to compete effectively against other ice cream and frozen desert
manufacturers, as well as other food specialty shops which compete for
space at malls and other venues, it will be unable to continue marketing
its franchises and license rights, or to maintain its own corporate
locations, for the sale of Twistee Treat products. The inability to sell
its products effectively would have a materially adverse effect upon the
business and operations of the Company.
Volatility in the Cost of Raw Materials. The Company has experienced
the eneral trend of volatility in dairy ingredient commodity costs, and
believes that such volatility may continue in the near to medium term.
While dairy commodity costs for the first quarter of fiscal 2000 were
lower than in fiscal 1999, it is possible that at some future date both
gross margins and earnings may not be adequately protected by pricing
adjustments, cost control programs and productivity gains. To the extent
that the Company is unable to effectively predict, and take actions to
protect against, significant increases inthe raw materials it uses to
produce its frozen desert products, it could have a materially adverse
impact on its ability to sell such products to its franchisees and
licensees, or to recognize sufficient margins from sales to make the
business economically viable.
Dependence Upon External Financing. The Company has been building its
business through revenues generated from operations, supplemented by the
sale of its capital common stock. The ability of the Company to continue
to grow and expand its business is highly dependent upon the ability of
the Company to continue to raise external financing, from the sale of
equity and/or the incurrence of debt. If the Company were unable to
obtain debt and/or equity financing upon terms that were sufficiently
favorable to the Company, or at all, it would have a materially adverse
impact upon the ability of the Company to continue to expand its business
and operations, or to implement its business plan as now contemplated by
the Company.
Reliance on Key Management. The success of the Company is highly
dependent upon the continued services of Steven Wells, its President and
CEO, who has been the primary person responsible for building the Company's
renewed franchise, regional development and licensing business. If Mr.
Wells were to leave the Company, it could have a materially adverse effect
upon the business and operations of the Company.
SIGNATURE
TWISTEE TREAT CORPORATION
Date: October 15, 2000
/s/ Stephen Wells
-------------
Stephen Wells
President
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed herewith:
FINANCIAL DATA SCHEDULE-Exhibit 27
