SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Event Requiring Report: April 6, 2000
TWISTEE TREAT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 294339 43-1796135
(State of Incorporation) (Commission (IRS Employer
File Number) Identification #)
301 Clark Street, Warrensburg, Missouri 64093
----------------------------------------
(Address of Principal Executive Offices)
(660)747-4272
----------------------------------------
(Registrant's telephone number, including area code)
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
(a) Pursuant to a Stock Purchase Agreement (the "PPI Agreement") effective
April 6, 2000, Twistee Treat Corporation, a Delaware corporation (the "Company",
or "TWTE") acquired 1,150,000 outstanding shares of Perfection Plus, Inc., a
Nevada corporation ("PPI"), for One Hundred Twenty Thousand ($120,000)
Dollars and two hundred fifty thousand (250,000) shares of common stock of the
Company. As a result, PPI became a wholly-owned subsidiary of the Company.
The PPI Agreement was approved by the unanimous consent of the
Board of Directors of the Company on April 6, 2000.
Prior to the PPI Agreement, the Company had 9,569,950 shares of common stock
issued and outstanding. Following the PPI Agreement, TWTE had 9,819,950 shares
of common stock outstanding. The Company was incorporated in the State of
Missouri in 1995 and re-incorporated in Delaware on June 25, 1997.
1
<PAGE>
Upon effectiveness of the Stock Purchase Agreement, pursuant to Rule
12g-3(a) of the General Rules and Regulations of the Securities and Exchange
Commission, the Company became the successor issuer to PPI for reporting
purposes under the Securities Exchange Act of 1934 and elects to report under
the Act effective
April 6, 2000.
A copy of the PPI 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.
The following table contains information regarding the shareholdings of the
Company's current directors and executive officers and those persons or entities
who beneficially own more than 5% of the Company's common stock:
NAME AMOUNT OF COMMON STOCK PERCENT OF COMMON STOCK
BENEFICIALLY OWNED(1) BENEFICIALLY OWNED
Stephen Wells, 250,000 .025
President & Director
Terry D. Rapp 1,835,800 .187
Vice-President,
Secretary &
Director
Howard Hochrad 100,000 .010
Vice-President,
Treasurer
All directors and 2,185,800 .222
executive officers
as a group
George Levin 1,827,300 .186
(1) Based upon 9,819,950 outstanding shares of common stock.
(2) The Company had entered into an Agreement and First Amendment to the
Agreement (collectively, the "GC Agreement") with Gourmet's Choice Coffee
Company, Inc. ("Gourmet"), both dated March 28, 2000, whereby Gourmet was
to receive 20,000,000 shares of the Company's common stock and the Company
was to receive 20,000,000 shares of Gourmet's common stock. The execution
of the GC Agreement was contingent upon certain conditions that were not
met. Therefore, the Board of Directors of the Company declined to approve
the GC Agreement and sent a letter to Gourmet to that effect on June 9,
2000.
2
<PAGE>
COMPANY'S BUSINESS AND SUBSIDIARIES The Company was incorporated in
Missouri on April 27, 1995 and redomiciled in Delaware in June 1997. The
original Twistee Treat Corporation was formed in the early 1980's as a Colorado
corporation doing business primarily in Florida. By the mid 1980's it had opened
approximately 35 company stores, but no franchise units. The original Twistee
Treat Corporation utilized proprietary cone- shaped buildings to sell its
products and obtained certain federal and state patents, trademarks and
service marks in connection with its business. In 1989, the company's original
founder retired and the company filed for bankruptcy protection (U.S.
Bankruptcy Court, Middle District of Florida, Ft. Myers Division, Case No.
89-4700-9P1). On August 6, 1990, Andrew Brennan, a founder and former principal
stockholder of the company, purchased the assets of the original Twistee Treat
Corporation from the Bankruptcy Court, including its patent, trademark and
service mark rights. Subsequently, Mr. Brennan sold 50% of his interests in
such assets to Don Matthews, owner of Soft Serve System, Inc., a Missouri
corporation. In 1996, Messrs. Matthews and Wells formed the Company, with Mr.
Matthews contributing his 50% of the assets obtained from the original Twistee
Treat Corporation. On May 6, 1997, Mr. Brennan sold to the Company his 50%
interest in the assets obtained from the original Twistee Treat
Corporation. Of the approximately 35 original stores, all or nearly all are
still open as independent stores. These stores continue to use the cone-shaped
building and the name Twistee Treat but do not use any of the Company's products
and they are not affiliated with the Company. The Company is in active
negotiations to purchase a number of these stores and to bring them under the
franchise umbrella.
On May 22, 1998, the Company entered into a Purchase Agreement (the "SE Purchase
Agreement") attached as an Exhibit to this Report, with related parties who were
the owners of Twistee Treat Southeast, Inc. ("TTS"), to acquire all of the
rights, title and interest to the intangible assets of TTS, and regional
developer rights and/or franchise agreements within the territory being
purchased. Prior to the SE Purchase Agreement, TTS was a former franchisee of
the Company. The cost of this purchase was amortized and then allocated to
offset deferred revenues and realized revenues based upon corresponding realized
and unrealized revenue percentages (See Note 5 to the Audited Financial
Statements).
The Company has limited operations and limited revenue and has been
developing its business plan, franchise program, preparing its franchise
circular and operating manual, operating three pilot stores, and opened and
tested two kiosk pilot units. The Company closed its three test pilot stores and
closed the two kiosk units for several months in order to evaluate the
information obtained during such test periods and to make adjustments to menus,
equipment and operating procedures. The Company then refurbished the three pilot
stores, changed the menus, ordered additional equipment and has reopened two;
one in Eustis, Florida and one in Branson West, Missouri. The Company has
recently sold the Branson West store as a franchise store to Danny Hammond LLP.
Mr. Hammond has also become a Regional Developer for Branson and Springfield,
Missouri. The Company's Eustis, Florida store recently became a franchise store.
The Company has recently licensed the rights in Canada to a group who
collectively have 37 years experience in the ice cream franchise business with
Good Humor and Breyers Ice Cream. One of the principals owned 5 franchises
and became regional franchise manager and another was national operations
manager responsible for product distribution and sales in support of 300
distribution units across Canada. The group opened its first Twistee Treat
store in July and the Company has just shipped the group a cone-shaped building
for its second store. The group expects to open 50 stores over the next 48
months. Two franchises were completed in the Spring of 2000, and a third
franchise is expected to be completed in the third quarter of 2000.
3
<PAGE>
The Company has also recently received an offer for the southeast region
of Florida from a prospective regional developer who anticipates opening 50
stores within the next five years. In addition, the Company has signed a
preliminary co-branding agreement with the Jrecks Sub-Sandwich Company
("Jrecks"), a chain which has over 300 franchise stores. The Company is still
negotiating with Jrecks over certain specific terms of the agreement and expects
to have a final agreement by the end of June 2000. The Company has reached
agreements to purchase nine of the original Twistee Treat cone buildings. The
Company opened its first pilot "express grill" in Knob Noster, Missouri in
August 1999 as a test facility only. The test facility closed in February 2000.
The Company is currently franchising its express grills along with its patented
cone shaped building. The Company has four franchisees: one in Clermont,
Florida, a second in Branson West, Missouri, a third franchisee is currently
seeking a location for a cone shaped building in Orlando, Florida and a fourth
franchisee is located in Eustis, Florida.
The Company has also signed a co-branding agreement with Gourmet's Choice Coffee
Company, Inc. and opened the first store in Warrensburg, Missouri on February
21, 2000.
The Business: The Company offers its specialty ice cream and food products
through Company-owned stores, franchised stores, In-Line stores, Kiosk units,
mobile concession trailers and "Express Grills". The Company is designed to be a
high profile, soft-serve ice cream retail merchant. The Company believes that
there is a strong market for soft-serve ice cream, especially roadside or
curbside. A principal marketing tool of the Company is its ice cream cone shaped
building design. The 22 foot tall cone creates a strong visual image. The
building is large enough to carry a good variety of the Company's products,
yet small enough to fit in smaller areas.
The Company believes that its products, and its process for dispensing
products, are unique. The product consists of the Company's special
firm-serve mix, formulated to be rich and creamy but with relatively low fat
content. The dispensing process produces a rich texture that is more like
custard than ice cream. Each Twistee Treat store offers six flavors,
consisting of the three basic flavors - vanilla, chocolate and strawberry - as
well as three additional flavors rotated every other week from a Company
inventory of 91 flavors. The stores also sell a variety of other food and
beverage products such as donuts, hot dogs, sodas and other "snack" type
items. The kiosk units offer two to four flavors of ice cream depending on the
size of the kiosk.
In addition to the free-standing cone-shaped building, the Company offers
In-Line stores, for regional malls and strip centers, a "kiosk" program
designed to be located in convenience stores, stores, malls, food courts,
business facilities, and colleges, "Express Grills", which are larger, more
traditional fast-food restaurants, and mobile concession trailers which are
designed primarily for outdoor venues such as fairs. The Company intends to
introduce a table-top dispenser unit designed for restaurants, convenience
stores and fast- food locations. There are no assurances that the Company will
be able to successfully develop or market those products.
4
<PAGE>
The Company's free-standing cone-shaped buildings are designed to attract
drive-through and walk-up customers only, as they have no indoor seating,
and primarily serve only ice cream products and soft drinks. The Company's
"In-Line" stores are designed for inclusion in existing strip malls and
consisting generally of 1600 square feet of space. They include inside
seating and have a broader menu than the Company's cone-shaped buildings,
including ice cream cakes. The Company's "Express Grills" are designed to be
more traditional, full-service fast food restaurants with very broad menus,
including steak burgers, hot dogs, etc, with the ability to accommodate
approximately 40 people in indoor seating. These are free-standing buildings,
encompassing 3000 to 3500 square feet, which look like a traditional fast food
restaurant, rather than the Company's unique looking cone-shaped stores. The
Company's kiosk units are small and designed to be set up in airports, food
courts and malls and offer primarily ice cream products. Its mobile concession
trailers are shaped like an ice cream cone and give the Company a good marketing
vehicle.
The Company believes that the location, layout and cone-shaped design of its
stores contribute to the success of its operations. The Company's stores are
typically located near strip shopping centers, malls, amusement centers or
other areas of population density that provide visibility, curb appeal and
accessibility. A variety of factors are considered in selecting sites for the
Company's stores, including population density, traffic patterns, area
demographics and competition. The Company's stores are configured to facilitate
a smooth flow of carry-out curbside traffic and "drive-thru" traffic.
One of the Company's primary goals is to maintain strict quality controls
over its products and stores. The Company requires that all franchised and
Company-owned stores be built in conformance with the Company's guidelines.
The buildings and kiosks are assembled and packaged at Glasstech, Inc.'s plant
for shipment to the store site. The Company is currently pursuing other
fiberglass manufacturers who are able of producing quality parts in larger
quantities.
However, TWTE presently operates at a loss and has not received revenues
from operations sufficient to maintain its operations. TWTE has raised funds
for operations through the sale of its securities and will continue to do so.
Of course, there can be no assurance that the Company will be successful in
raising any funds for its operations.
PROPERTY
TWTE maintains its administrative offices at 301 Clark Street,
Warrensburg, Missouri 64093. The Company leases its own space and pays rent.
DESCRIPTION OF SECURITIES
The Company has an authorized capitalization of 50,000,000 shares of common
stock, $0.0001 par value per share and 10,000,000 authorized preferred stock,
par value $0.0001. Upon execution of the PPI Agreement, the Company had
issued and outstanding, 9,819,950 shares of common stock.
5
<PAGE>
MARKET FOR TWTE's SECURITIES
Certain of TWTE's securities are exempt from registration under the
Securities Act of 1933, as amended, pursuant to Rule 504 of Regulation D
of the General Rules and Regulations of the Securities and Exchange
Commission. TWTE's common stock is traded on the NASD OTC Bulletin Board under
the symbol "TWTE." The NASDAQ Stock Market has implemented a change in its
rules requiring all companies trading securities on the NASD OTC Bulletin
Board to become reporting companies under the Securities Exchange Act of
1934.
MANAGEMENT
Name Age Position
-------------------------------- --- ----------------------------
Stephen B. Wells 43 President, Chief Executive
Officer and Director
Terry D. Rapp 54 Executive Vice President,
Secretary and Director
Howard Hochrad 45 Vice President and Treasurer
Each of the foregoing persons may be considered to be promoters of the Company
since they were the founders of the Company and have participated from
inception in the Company's business plans and affairs.
Biographies
The principal occupation of the directors and principal officers of the Company
for at least the past five years are as follows:
STEPHEN B. WELLS has been directly involved with the Company for the last
three years, first as a Regional Developer with the Company for the
Southeast Region, and more recently in his capacity as President, Chief
Executive Officer and a director of the Company. Mr. Wells was a 50% owner of
TTS and one of the three principals involved in the revival of the Twistee
Treat concept. Mr. Wells has spent the past three years refinancing and
restructuring the Company in an effort to position it for future,
unimpeded growth. He has been actively involved with the management of the
three pilot stores that the Company has opened in Florida. Mr. Wells brings
with him a strong background and experience is sales and marketing from his
role in the development of the licensing and merchandising division of First
National Film Corporation. In his capacity as Vice President of Licensing
and Merchandising from 1988 to 1992, Mr. Wells negotiated the marketing and
licensing rights for animated film characters to domestic and foreign
production and manufacturing companies. From 1992 to 1996 Mr. Wells started
and developed Key Management Services, Inc., a full service vending
distribution business. In addition to his marketing background, Mr. Wells
has also been heavily involved in the commercial and retail real estate
development business. His hands-on experience and contacts in this industry will
greatly assist the Company in developing stores across the United States. Mr.
Wells received his Bachelors degree in Political Science from the Central
Missouri State in 1980.
6
<PAGE>
TERRY D. RAPP has served as Executive Vice President, Secretary and a Director
of the Company since 1996. From 1994 to 1995 Mr. Rapp operated TNT
Promotions and CT Marketing, a marketing and promotions company, marketing
Snapple products and various other vending machine products. From 1990 to 1993,
Mr. Rapp was the owner and operator of JWI Supply, Inc. and Home Hardware, a
wholesale door and hardware supply company which he sold to his partner. Mr.
Rapp received his Bachelors degree in Education from the University of Kansas in
1967.
HOWARD HOCHRAD has served as Vice President and Treasurer of the Company
since 1997. Mr. Hochrad is also President and owner of Shinmaster Products, a
chemical distributor. From 1996 to 1998, Mr. Hochrad was Executive Vice
President and a 50% owner of Twistee Treat Southeast, Inc., which was the
Company's Regional Developer for the southeastern United States until its
purchase by the Company. For 19 years prior to joining the Company, Mr. Hochrad
worked for B.F. Goodrich Aerospace, a Fortune 125 Company, in a variety of
financial, planning, marketing and management positions. Mr. Hochrad received
his B.S. degree in Psychology from Potsdam College in 1967.
EXECUTIVE COMPENSATION
The following sets forth the aggregate cash compensation and non-cash
compensation which is to be paid by the Company during the ensuing 12 months to
each of the highest paid executive officers whose aggregate remuneration is
contemplated to exceed $100,000 and for all officers as a group:
Name of Individual or Identity of Group
Stephen Wells Chief Executive Officer $90,000(1)
All officers as a group
(4 persons) $90,000
(1) Mr. Wells' compensation is established under an employment agreement
entered into between him and the Company. None of the other officers of the
Company currently are paid any salary or other compensation. However, these
other officers will commence receiving salaries when Company revenues increase
to a sufficient level. On December 29, 1998, the Company entered into a
five (5) year employment agreement with Stephen Wells pursuant to which Mr.
Wells will serve as the Company's Chief Executive Officer and provide the
Company with his business and professional services. Mr. Wells is paid a
annual salary of $90,000 during the first year, $150,000 during the second
year and $175,000 during the remainder of the term of the agreement. In
addition, Mr. Wells is entitled to fringe benefits customary for a chief
executive officer including health and life insurance, participation in any
profit-sharing, pension or other retirement plans of the Company and a company
car. The agreement contains a two-year non-competition clause.
7
<PAGE>
There are no agreements, plans or other arrangements between the Company
or its subsidiaries and any of its officers which would provide payment in the
event of resignation, retirement or termination of employment arising from
a change-in- control of such entity or a change in an officer's
responsibilities following any such change in control.
COMPETITION FROM LARGER AND MORE ESTABLISHED COMPANIES MAY HAMPER
MARKETABILITY.
The ice cream market is highly competitive and the Company faces
substantial competition in connection with the marketing and sales of its
products. Among its competitors are national companies that offer franchise ice
cream-related products such as Dairy Queen Brazier, Baskin Robbins, Breslers,
Carvel, TCBY, and Freshens as well as other numerous regional and local ice
cream companies and stores. Many of these competitors are well established and
have substantially greater financial and other resources than the Company. In
addition to the foregoing competitors which generally provide customers
free-standing ice cream stores, the Company may also be considered to be in
competition with all ice cream and other frozen desserts for discretionary food
dollars. The ability of the Company to increase its market share will be
dependent upon several factors, among which are the quality and price of its
products, advertising and the availability of sufficient capital for product
expansion. The quick-service restaurant industry also competes for certain of
the Company's potential customers. Twistee Treat stores may have to compete
against many well established, quick service restaurants, local food
establishments, supermarkets and convenience stores, many of which have greater
product and name recognition and larger financial and other resources than the
Company. The Company believes that Twistee Treat stores compete favorably in
terms of taste, food quality, portions, service, convenience and value, which
the Company believes are important factors to its targeted customers.
The Company competes for qualified franchisees with a wide variety of
investment opportunities both in the fast food ice cream business and in other
industries. The Company's continues success is dependent to a substantial extent
on its reputation for providing high quality and value with respect to its
service, products and franchises, and this reputation may be affected not only
by the performance of Company-owned stores, but also by the performance of its
franchised stores over which the Company has limited operational control.
ISSUANCE OF FUTURE SHARES MAY DILUTE INVESTORS' SHARE VALUE.
The Company's Articles of Incorporation authorize the issuance of 50,000,000
shares of common 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 its then existing shareholders.
Moreover, any common stock issued in the future may be valued on an arbitrary
basis by TWTE. 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.
8
<PAGE>
PENNY STOCK REGULATION. 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.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Not Applicable.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not applicable.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 5. OTHER EVENTS
On March 10, 2000, the Company effectuated a Regulation D, Rule 504 offering
with the intention to raise $1,000,000.
Successor Issuer Election.
Pursuant to Rule 12g-3(a) of the General Rules and Regulations of the
Securities and Exchange Commission, upon effectiveness of the Agreement, the
Company became the successor issuer to PPI for reporting purposes under the
Securities Exchange Act of 1934 and elects to report under the Act effective
April 6, 2000.
9
<PAGE>
ITEM 6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
Pursuant to the terms of the aforementioned Agreement, the Registrant has
accepted the resignation of Alan Schram, the Registrant's sole Director and
Officer as of April 6, 2000, and appointed Stephen B. Wells as President and
Director of the Registrant.
ITEM 7. FINANCIAL STATEMENTS
MANAGEMENT DISCUSSION AND ANALYSIS
Twistee Treat Corporation (the "Company") was originally incorporated under the
laws of Missouri in 1995. The Company merged with Twistee Treat Corporation, a
Delaware Corporation in June 1997 with the same name in a tax-free transaction
(See Note 8 to November 30, 1999 Audit). On April 6, 2000, the Company
purchased a reporting shell company "Perfection Plus," a Nevada corporation and
filed its 8-K on April 7th.
The Company operates and franchises soft-serve ice cream desserts and an
assortment of other foods and beverages in its cone-shaped buildings and kiosks.
Twistee Treat Corporation spent 1999 testing its newly designed "Express Grill"
unit, a full service restaurant designed after Dairy Queens Brazier unit. The
Company hopes the "Express Grill" unit will help expand its business in 2000 to
cooler climates, offering a broader menu and inside seating.
The Company's consolidated net loss for 1999 was approximately $604,000
including the cost of developing its pilot store and other non-recurring
expenses. This loss was higher than its loss of approximately $631,000 in 1998.
Several factors for concurrent losses are associated with the development of
policies and procedures of franchise and corporate owned stores. After testing
its Company owned store and its first franchise store, Twistee Treat is now
ready to begin its franchise campaign in the second quarter of 2000. The
Company has recently signed another franchise agreement intending to open three
stores over the next twelve months in the greater Orlando, Florida area.
Annual Financials
The Company experienced several material changes from the twelve months ended
November 30, 1998 compared to the twelve months ended November 30, 1999.
Current assets, cash increased from $49,647 to $84,921. This was the result of
an increase in sales and additional stock sales. Trade and other notes
receivables for the same period increased from $0 to $264,670 primarily
resulting from the sale of additional franchise agreements. Intangible assets
decreased from $110,000 to $89,900 due to amortization. The Company's deferred
revenue increased from $32,000 to $180,233. This was due to the increase in
sales volume. Accounts payable and accrued expenses increased from $61,144 to
$147,797. This increase was due to additional legal and accounting fees
incurred. Notes payable increased from $253,903 to $340,894 as the result of
additional funds being borrowed from various institutions and individuals.
Additional paid in capital increased from $1,363,815 to $1,929,249, which also
was the result of the additional sale of common stock. Sales for the same
period increased from $123,202 to $176,081. This was the result of additional
stores being opened and operated. Consequently, cash payroll and contractual
compensation increased from $156,026 to $200,168 because of this increase in
activity. Actual payroll and contractual compensation in 1998 was $323,837 due
to non-cash compensation of $167,811. Legal and professional fees increased
from $106,707 to $144,992. This was the result of additional services required
for developmental activities and filings. Other general administrative expenses
increased from $140,472 to $232,957, which was also due to research and
development of testing concepts and the increase in sales activities. Interest
expense increased from $8,290 to $30,751 for this period because of the increase
in notes payable. Gain on early extinguishment of debt in 1998 for $31,983 was
the result of settling an asset repurchase agreement for an amount less than the
agreement. The loss in 1999 for $10,000 was the result of cancellation of a
share repurchase agreement.
10
<PAGE>
First Quarter Financials
The Company experienced several material changes from the three months ended
February 28, 1999 compared to the three months ended February 29, 2000. Current
assets, notes receivables increased from $0 at February 28, 1999 to $80,670 at
February 29, 2000. This increase was due to the sales of franchise facilities,
which come due in fiscal year 2000. Advances paid by the Company increased for
the same period to $10,000 due to a deposit on a cone-shaped building placed
with the production facility. The building is to be placed in inventory for
expected franchise sales in 2000. The Company's Notes Receivables also
increased from $0 at February 28, 1999 to $20,000 at February 29, 2000 from
additional sales. Other current notes receivable also increased during this
same period to $74,000 from the additional sales. The Company's accounts
payable and accrued expenses increased by $71,345 due to legal and accounting
fees relating to franchising issues and the Company's annual audit. Notes
payable increased to $340,894. This increase was a result mostly of payables to
shareholders. The funds were used for various things. (Refer to Footnote 6 on
the November 30, 1999 Audit.) The Company's deferred revenue increased to
$180,233 at February 29, 2000 from $0 at February 28, 1999. This increase was a
result of the auditors accounting of sales and deferred payment schedules.
Consequently current revenue actually decreased for the period by $23,902.
During this same period consulting fees increased by $3,600 as the Company began
researching geographical areas for expansion and focusing its attention on
policies and procedures relating to development of new concepts. And finally,
interest expense also increased by $7,350 for the three months ending February
29, 2000 due to the additional notes payable as referenced above.
Audited financial statements for the year ended November 30, 1999 and interim
statements for the quarter ended February 29, 2000, are attached hereto.
ITEM 8. CHANGE IN FISCAL YEAR
Not applicable.
11
<PAGE>
EXHIBITS. 10.1: PPI Agreement
10.2: SE Purchase Agreement
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Current Report on Form 8-K/A to be signed on its
behalf by the undersigned hereunto duly authorized.
By: Stephen B. Wells
/s/
------------------
Stephen B. Wells
President
Date: June 14, 2000
13
<PAGE>
TWISTEE TREAT CORPORATION
FINANCIAL STATEMENTS
AS OF NOVEMBER 30, 1999
<PAGE>
TWISTEE TREAT CORPORATION
CONTENTS
--------
PAGE 1 INDEPENDENT AUDITORS' REPORT
PAGE 2 BALANCE SHEET AS OF NOVEMBER 30, 1999
PAGE 3 STATEMENTS OF OPERATIONS FOR THE YEARS
ENDED NOVEMBER 30, 1999 AND 1998
PAGE 4 STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY FOR THE YEARS ENDED NOVEMBER 30,
1999 AND 1998
PAGE 5 STATEMENTS OF CASH FLOWS FOR THE YEARS
ENDED NOVEMBER 30, 1999 AND 1998
PAGES 6 - 18 NOTES TO FINANCIAL STATEMENTS
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
Twistee Treat Corporation
We have audited the accompanying balance sheet of Twistee Treat Corporation as
of November 30, 1999 and the related statements of operations, changes in
stockholders' equity and cash flows for the years ended November 30, 1999 and
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Twistee Treat Corporation as of
November 30, 1999 and the results of its operations and its cash flows for the
years ended November 30, 1999 and 1998 in conformity with generally accepted
accounting principles.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
April 13, 2000 (except for Note 10(D) as to which
the date is June 9, 2000)
<PAGE>
<TABLE>
<CAPTION>
TWISTEE TREAT CORPORATION
BALANCE SHEET
NOVEMBER 30, 1999
-----------------
ASSETS
------
<S> <C>
CURRENT ASSETS $ 84,921
Cash 10,000
Advances 90,000
Notes receivable - trade 80,670
Notes receivable other - current 116,650
------------
Inventory 382,241
------------
Total Current Assets
328,431
------------
PROPERTY AND EQUIPMENT, NET
OTHER ASSETS 20,000
Notes receivable - trade 74,000
Notes receivable other 50,000
Other receivable 1,150
Deposits 89,900
------------
Intangible assets 235,050
------------
Total Other Assets
$ 945,722
============
TOTAL ASSETS
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES $ 147,797
Accounts payable and accrued expenses 306,102
Notes and loans payable - current 507
Capital lease - current 180,233
------------
Deferred revenue 634,639
Total Current Liabilities
34,792
------------
NOTES PAYABLE
669,431
------------
TOTAL LIABILITIES
STOCKHOLDERS' EQUITY -
Preferred stock, $.0001 par value, 10,000,000 shares
authorized, none issued and outstanding 676
Common stock, $.0001 par value, 50,000,000 shares
authorized, 6,769,950 shares issued and outstanding 21
Common stock to be issued, $.0001 par value, 212,500 shares 1,929,249
Additional paid in capital (1,653,655)
------------
Accumulated deficit
276,291
------------
Total Stockholders' Equity
$ 945,722
============
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
TWISTEE TREAT CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED NOVEMBER 30, 1999 AND 1998
----------------------------------------------
1999 1998
----------- -----------
<S> <C> <C>
NET SALES $ 176,081 $ 123,202
COST OF SALES 117,255 150,668
----------- -----------
GROSS PROFIT (LOSS) 58,826 (27,466)
----------- -----------
OPERATING EXPENSES
Payroll and contractual compensation 200,168 323,837
Depreciation and amortization expense 48,808 48,669
Consulting expense - 3,163
Legal and professional fees 144,992 106,707
Other general administrative expenses 232,957 140,472
----------- -----------
Total Operating Expenses 626,925 622,848
----------- -----------
LOSS FROM OPERATIONS (568,099) (650,314)
----------- -----------
OTHER INCOME (EXPENSE)
Gain on sale of franchise facility 970 -
Miscellaneous income 417 -
Interest income 3,083 -
Interest expense (30,751) (8,290)
Loss on disposal of fixed assets - (4,286)
----------- -----------
Total Other (Expense) (26,281) (12,576)
----------- -----------
Loss Before Extraordinary Item (594,380) (662,890)
EXTRAORDINARY ITEM
Gain (loss) on early extinguishment of debt, net (10,000) 31,983
----------- -----------
NET LOSS $ (604,380) $ (630,907)
------------------------------------------------------ =========== ===========
Net loss per common share and equivalents - basic and
diluted $ (0.09) $ (0.12)
=========== ===========
Weighted average number of shares outstanding during
period - basic and diluted 6,811,154 5,309,861
=========== ===========
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
<TABLE>
<CAPTION>
TWISTEE TREAT CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 1999 AND 1998
----------------------------------------------
COMMON STOCK TO
COMMON STOCK BE ISSUED ADDITIONAL PAID-IN ACCUMULATED TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STOCK TOTAL
--------- ------- ------- ------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 1,
1997 5,143,900 $ 514 - $ - $ 685,333 $ (418,368) $(600,000) $(332,521)
Issuance of common stock
in 504 offering 1,125,050 112 - - 596,987 - - 597,099
Treasury stock returned - - - - - - 600,000 600,000
Issuance of common stock
for legal services 50,000 5 - - 81,495 - - 81,500
Net loss for the year ended
November 30, 1998 - - - - - (630,907) - (630,907)
--------- ------- ------- ------- ---------- ------------ ---------- ----------
Balance, November 30,
1998 6,318,950 631 - - 1,363,815 (1,049,275) - 315,171
Issuance of common stock
for cash 451,000 45 212,500 21 565,434 - - 565,500
Net loss for the year ended
November 30, 1999 - - - - - (604,380) - (604,380)
--------- ------- ------- ------- ---------- ------------ ---------- ----------
BALANCE, NOVEMBER
---------------------------
30, 1999 6,769,950 $ 676 212,500 $ 21 $1,929,249 $(1,653,655) $ - $ 276,291
--------------------------- ========= ======= ======= ======= ========== ============ ========== ==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
TWISTEE TREAT CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 1999 AND 1998
----------------------------------------------
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(604,380) $(630,907)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Organization cost written off 9,000 -
Depreciation and amortization 48,808 48,669
Amortization of intangible assets 3,349 -
Issuance of common stock for services - 81,500
Non-cash compensation - 167,811
Extraordinary gain on early extinguishment of debt - (31,983)
Gain on sale of franchise facility (970) -
Changes in assets and liabilities
(Increase) decrease in:
Accounts receivable - 21,352
Notes receivable - trade (110,000) -
Advances (10,000) -
Deposits (100) 24,450
Inventory (11,400) 2,886
Increase (decrease) in:
Accounts payable and accrued expenses 86,653 (15,053)
Deferred revenue 105,500 (44,250)
---------- ----------
Net Cash Used In Operating Activities (483,540) (375,525)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (98,334) (12,223)
Increase in notes receivable other (3,170) -
Cash received on notes receivable other 2,500 -
Other receivable - (50,000)
---------- ----------
Net Cash Used In Investing Activities (99,004) (62,223)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable 54,481 (134,908)
Proceeds from stock sale 565,500 597,099
Payment of capital lease obligations (2,163) (1,399)
---------- ----------
Net Cash Provided By Financing Activities 617,818 460,792
---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 35,274 23,044
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 49,647 26,603
---------- ----------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 84,921 $ 49,647
------------------------------------------------------------------- ========== ==========
Cash paid during the year for:
Interest $ - $ 4,493
========== ==========
Income taxes $ - $ -
========== ==========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
TWISTEE TREAT CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 1999 AND 1998
----------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
------------------------------------------------------------------------------
During 1999, the Company purchased a vehicle financed by a loan of an amount of
$32,091.
During 1999, the Company sold two franchise facilities for notes receivable of a
total of $151,500 recording the major part of the gain as deferred revenue.
During 1999, the Company recorded $40,000 of deferred franchise revenue in
exchange for two trade notes receivable.
During 1999, the Company recorded deferred revenue and a trade note receivable
in the amount of $62,500 arising from the sale of a regional development area to
an individual. In connection with this transaction, the Company amortized
$42,333 of the total cost to acquire the regional development area which was
offset against the deferred revenue.
During 1998, the Company acquired property and equipment for a note payable of
$39,500.
During 1998, the Company returned treasury stock of $600,000 for cancellation of
two notes payable previously issued to acquire the stock.
During 1998, the Company acquired franchise regional developer rights and
franchise agreements in exchange for two notes payable of $150,000 and $127,811.
See accompanying notes to financial statements.
6
<PAGE>
TWISTEE TREAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
--------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
-----------------------------------------------------------------------------
(A) DESCRIPTION OF BUSINESS
------------------------------
Twistee Treat Corporation ("the Company") was originally incorporated under the
laws of Missouri in 1995. The Company merged with Twistee Treat Corporation, a
Delaware Corporation in June 1997 with the same name in a tax-free transaction
(see Note 8 (A)).
The Company operates and franchises soft-serve ice cream, non-fat soft-serve
yogurt, non-dairy soft-serve desserts and an assortment of other foods and
beverages in distinctive freestanding Twistee Treat cone-shaped buildings
designed for "drive-thru" and walk-up service. In addition to the free standing
building, the Company offers specialty kiosk units designed to be located in
stores, malls, food courts, business facilities, and colleges and mobile trailer
units (concession units) designed for short-term events such as fairs, carnivals
and sporting events. As of November 30, 1999 the Company has four franchises
and one company owned store.
(B) USE OF ESTIMATES
-----------------------
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reported period. Actual results could differ
from those estimates.
(C) CASH AND CASH EQUIVALENTS
---------------------------------
For purpose of the cash flow statements, the Company considers all highly liquid
investments with original maturities of three months or less at time of purchase
to be cash equivalents.
(D) INVENTORIES
----------------
Inventories primarily consist of ice cream machines and restaurant supplies.
Inventories are stated at the lower of cost or market value, as determined using
the first in, first out method.
(E) PROPERTY AND EQUIPMENT
-----------------------------
Property and equipment are stated at cost, less accumulated depreciation.
Expenditures for maintenance and repairs are charged to expense as incurred.
Depreciation is provided using the straight-line method over the estimated
useful life of the assets from 5 to 10 years.
7
<PAGE>
TWISTEE TREAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
--------------------------
(F) REVENUE RECOGNITION AND DEFERRED REVENUE
-------------------------------------------------
In connection with its franchising operations, the Company sells franchise
facilities on a turnkey basis, receiving income from initial franchise fees,
development fees, royalties and product sales. Revenue from the sale of
franchise equipment and leasehold improvements is recognized when delivery takes
place and adequate consideration is received. In 1999, two franchise equipment
and leasehold improvement installations were sold. The major portion of the
gain of approximately $59,000 was deferred in 1999 because of the lack of
adequate consideration being received and is included in deferred revenue.
Initial franchise fees are recognized as income when substantially all services
and conditions relating to the sale of the franchise have been performed and
adequate consideration has been received. Development fees are non-refundable
and recognized when received. The Company Agreements call for additional
franchise fees as franchises are sold in the development regions. These fees
are recognized as income on the same basis as franchise fees. As of November
30, 1999, the Company had deferred revenues originating from franchise and
development fees of approximately $120,500. Royalties, which are based upon a
percentage of the franchise's gross sales, are recognized as income when the
fees are earned and become receivable and collectable. As of November 30, 1999,
the company had not collected any royalty fees due under the franchise
agreements. Revenue from the sales of product to the franchisees is recognized
when the merchandise is shipped.
The Company also earned revenue from the sale of merchandise through one and
three stores that it owned and operated during the years ended November 30, 1999
and 1998, respectively.
(G) ADVERTISING COSTS
-----------------------
In accordance with the American Institute of Certified Public Accountants'
Statement of Position No. 93-7, the Company expenses advertising costs as
incurred. During 1999 and 1998, the Company expensed $5,482 and $2,017,
respectively.
(H) INCOME TAXES
------------------
The Company accounts for income taxes under the Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 109. "Accounting for
Income Taxes" ("Statement No.109"). Under Statement No. 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those assets or liabilities are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
8
<PAGE>
TWISTEE TREAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
--------------------------
(I) EARNINGS PER SHARE DATA
-------------------------------
Basic and diluted net loss per common share for the years ended November 30,
1999 and 1998 is computed based on the weighted average common shares and
dilutive common stock equivalents outstanding during the year as defined by
statement of Financial Accounting Standards No. 128 "Earnings Per Share". The
assumed exercise of common stock equivalents was not utilized since the effect
was antidilutive.
(J) FAIR VALUE OF FINANCIAL INSTRUMENTS
--------------------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", requires disclosures of information about the
fair value of certain financial instruments for which it is practicable to
estimate that value. For purposes of this disclosure, the fair value of a
financial instrument is the amount at which the instrument could be exchanged in
a current transaction between willing parties, other than in a forced sale or
liquidation.
The carrying amount of the Company's financial instruments, including accounts
receivable, accounts payable, accrued liabilities, capital lease obligations and
notes payable, approximates fair value due to the relatively short period to
maturity for these instruments.
(K) RECENT ACCOUNT PRONOUNCEMENTS
------------------------------------
The Financial Accounting Standards Board has recently issued several new
accounting pronouncements. Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" as amended by Statement No. 137, establishes
accounting and reporting standards for derivative instruments and related
contracts and hedging activities. This statement, as amended, is affective for
all fiscal quarters and fiscal years beginning after June 15, 2000. The Company
believes that future adoption of this pronouncement will not have a material
effect on the Company's financial position or results of operations.
(L) SEGMENT INFORMATION
-------------------------
The Company follows statement of Financial Accounting Standards No. 131,
"Disclosure About Segments of an Enterprise and Related Information". In 1999
and 1998 the Company operated in one segment. Therefore, segment disclosure has
not been presented.
9
<PAGE>
TWISTEE TREAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
--------------------------
NOTE 2 - NOTES RECEIVABLE
(A) NOTES RECEIVABLE - TRADE
--------------------------------
The following schedule reflects the notes receivable - trade as of November 30,
1999:
Note receivable from an individual arising from the sale of a
regional development area, non-interest bearing, due on
November 30, 2000 $ 62,500
Note receivable from an individual, for initial franchise fee,
originally due upon execution of franchise agreement, extended
to June 24, 2000, non-interest bearing (see note 2(B)(a) for
purchase of franchise store) 20,000
Note receivable, non-interest bearing, balance due upon delivery of
a cone building purchased by a regional developer 7,500
Note receivable from an individual for payment of initial franchise
fee (together with purchase of franchise store - see Note 2
(B)(b)), payment of $2,500 originally due on November 6, 1999,
extended to June 1, 2000, monthly payments of $705 at 9%
interest originally due from September 1999 through February
2000, extended to June 2000 through November 2000, monthly
payments of $1,180 at 8% interest originally due from March
through November 2000, extended to December 2000 through
August 2001, renegotiation of finance terms thereafter, but not
exceeding 12% interest and 8 years remaining term 20,000
--------
110,000
Less current portion 90,000
--------
Notes receivable - trade, net of current portion $ 20,000
========
(B) NOTES RECEIVABLE - OTHER
--------------------------------
The following schedule reflects the notes receivable as of November 30, 1999:
(a) Note receivable from an individual, 8% interest, $1,500
originally due on July 24, 1999, extended to July 24, 2000,
$20,000 originally due on September 24, 1999, extended to
September 1, 2000, remaining principal and interest due on
June 24, 2000. $ 78,170
10
<PAGE>
TWISTEE TREAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
--------------------------
(b) Note receivable from an individual for purchase of franchise
store (together with initial franchise fee - see Note 2 (A)),
payment of $2,500 originally due on November 6, 1999,
extended to June 1, 2000, monthly payments of $705 at 9%
interest originally due from September 1999 through February
2000, extended to June 2000 through November 2000,
monthly payments of $1,180 at 8% interest originally due
from March through November 2000, extended to December
2000 through August 2001, renegotiation of finance terms
thereafter, but not exceeding 12% interest and 8 years
remaining term 76,500
--------
154,670
Less current portion 80,670
--------
Notes receivable other, net of current portion $ 74,000
========
NOTE 3 - ADVANCES
The advance of $10,000 represents an advance made to a vendor for the production
of a cone building.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at November 30, 1999 consisted of the following:
Furniture and fixtures $ 12,644
Equipment 111,681
Molds 215,000
Vehicles 38,430
Leasehold improvements 2,904
C-I-P stores 83,983
Less accumulated depreciation (136,211)
----------
$ 328,431
==========
Depreciation expense for the years ended November 30, 1999 and 1998 was $48,808
and $45,669 respectively.
NOTE 5 - INTANGIBLE ASSET
On May 22, 1998, the Company entered into a purchase agreement with a principal
stockholder/president of the Company and another officer of the Company who were
the owners of Twistee Treat Southeast, Inc. ("TTSE") to acquire all the rights,
title and interest to ("TTSE") franchise regional developer rights and franchise
agreements (the "intangible") within the territory being purchased. The
intangible was originally acquired by TTSE for $110,000 on May 22, 1996. The
intangible asset was recorded at its original cost basis to TTSE of $110,000 and
the $167,811 difference between the purchase price of $277,811 and original cost
basis recognized as compensation expense to the officer during 1998. The
intangible will be amortized using a formula which allocates the total cost to
acquire the entire regional development area of $110,000 based on the estimated
revenue from the sale of portions of the regional development area to the total
estimated revenue from the sale of the entire development area. The Company
paid the $277,811 in notes issued by the Company, of which $144,514 was paid as
of November 30, 1999. During the year ended November 30, 1999 the South Florida
development area was sold for $75,000. Therefore, the intangible asset was
amortized for an amount of $20,100. This amount was allocated to offset
deferred revenues ($16,751) and realized revenues ($3,349) based upon the
realized and unrealized revenue percentages. The following table comprises the
value of the franchise regional developer rights remaining at November 30, 1999:
11
<PAGE>
TWISTEE TREAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
--------------------------
Regional Development Area Allocated value
---------------------------- ----------------
Central Florida $ 26,800
North Florida - Jacksonville 9,490
North Florida - Panhandle 6,710
Georgia 26,800
Alabama 20,100
----------------
$ 89,900
================
Management believes the amounts are reasonable based on the sale of the South
Florida region and the sale of two franchises within that region.
NOTE 6 - NOTES AND LOANS PAYABLE
The following schedule reflects the notes and loans payable at November 30,
1999:
Note payable to individual, secured by building, in default as of
November 20, 1999, paid in full in March 2000 (See Note 10(B)) $ 7,500
Note payable to stockholder, 9% interest, principal and interest
originally due in full December 22, 1999, extended to June 1,
2000, secured by Southeast Regional Development Rights 93,750
Note payable to stockholder, 9% interest, principal and interest
originally due according to payment schedule with last payment
due on March 1, 1999, extended to September 1, 2000, secured by
Southeast Regional Development Rights 39,547
12
<PAGE>
TWISTEE TREAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
--------------------------
Note payable, 8% interest, principal and interest due according to
payment schedule with last payment due on January 15, 2001,
unsecured 22,254
Note payable to related party, non-interest bearing, due on June 1,
2000, secured by building 4,362
Note payable to individual, non-interest bearing, due on May 7,
2000 6,250
Note payable to individual, 12% interest, due at the earlier of
March 2, 2000 or upon lender obtaining financing sufficient to
repay the note payable (See Note 10(B)) 100,000
Note payable to financing institution, 8.95% interest, due in
monthly payments of $688 through September 2004, secured by
vehicle 31,231
Loan from stockholder, 9% interest, due on demand, unsecured 36,000
--------
340,894
Less current portion 306,102
--------
Notes and loans payable, net of current portion $ 34,792
========
Future maturities of the notes and loans payable in each of the next five years
are as follows:
Year ending
November 30
2000 $306,102
2001 14,946
2002 6,500
2003 7,107
2000 6,239
--------
$340,894
========
Accrued interest of $26,653 on the notes and loans payable has been included in
accrued expenses at November 30, 1999.
NOTE 7 - RELATED PARTIES
Certain notes payable are owed to officers of the Company (See Notes 5 and 6).
13
<PAGE>
TWISTEE TREAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
--------------------------
NOTE 8 - COMMITMENTS AND CONTINGENCIES
(A) YEAR 2000 ISSUES
-----------------------
The Company is aware of the issues associated with the programming code in
existing computer systems caused by the arrival of the millenium (Year 2000).
The "Year 2000" problem is pervasive and complex as virtually every computer
operation will be affected in some way by the rollover of the two-digit year to
00. The issue is whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail.
The Company uses a standard off the shelf accounting software package for all of
its accounting requirements. Management has contacted the software vendor and
confirmed that the accounting software is Year 2000 compliant. Management has
contacted its critical vendors and suppliers, to determine their own Year 2000
efforts and has not identified any Year 2000 compliance issues with those
parties. Costs of investigating Year 2000 compliance issues have not been
material to date. As a result, management believes that the effect of
investigating and resolving Year 2000 compliance issues will not have a material
effect on the Company's future financial position or results of operations. As
of the date of this report, the Company has not been significantly affected by
Year 2000 issues.
(B) CAPITAL LEASE
-------------------
As of November 30, 1999, the Company leases restaurant equipment under a
non-cancelable capital lease agreement dated May 29, 1997.
Future minimum lease payments under the capital lease are as follows at November
30, 1999:
Total future minimum lease payments $553
Less: interest 46
----
Present value of future minimum lease
payments 507
Less: current portion 507
----
Long-term obligation under capital lease $ -
====
(C) OPERATING LEASE AGREEMENT
--------------------------------
The Company leases corporate office space and two franchise sites under long
term operating leases. The leases have remaining terms varying from the year
2001 through 2008.
14
<PAGE>
TWISTEE TREAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
--------------------------
Future minimum lease payments for the operating leases are as follows at
November 30, 1999:
2000 $34,845
2001 11,015
2002 8,787
2003 8,963
2004 9,142
Thereafter 35,139
Rent expense for the years ended November 30, 1999 and 1998 amounted to $66,500
and $31,329, respectively.
(D) EMPLOYMENT AGREEMENTS
---------------------------
Effective January 1, 1999, the Company entered into an employment agreement with
a principal shareholder and former franchise developer. The agreement calls for
the shareholder to become Chief Executive Officer of Twistee Treat Corporation
for five years at an annual salary of $90,000, $150,000, $150,000, $175,000 and
$175,000 respectively. The agreement contains a severance clause for early
termination of $250,000 and a death benefit of $25,000.
(E) LITIGATION, CLAIMS, ASSESSMENTS
--------------------------------------
(i) Litigation, Claims Assessments
-------------------------------------
The Company has filed a lawsuit contesting an alleged management contract
between the Company and a consultant. Upon the happening of several conditions
precedent, the corporations were to exchange stock and other obligations. The
Company's contention is that the contract was never valid, because several
conditions precedent never occurred. The Company has also asserted a replevin
action for the shares of its common stock that were transferred to the
consultant. Although there is not a fixed amount in the litigation at this
time, the Company is alleged to owe approximately $100,000. The Company
continues to vigorously contest the case and pursue its remedies.
In relation to the aforementioned management contract, two lawsuits were filed
against the Company claiming damages of approximately $25,000 and $40,000.
These actions are based on an alleged validity of the management contract
described above and the related assumption of the consultant's debt by the
Company. The Company contends that the agreement is an invalid and
unenforceable instrument due to a failed condition precedent. One of the cases
has been dismissed for failure to prosecute. The plaintiff, however, has filed a
motion to set aside the dismissal. In the other case, formal discovery has not
begun as of the date of this report. The Company, however, is confident, that
in both cases it is not liable for any of the damages claimed.
15
<PAGE>
TWISTEE TREAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
--------------------------
(ii) General Release and Settlement Agreement
--------------------------------------------------
Under a General Release and Settlement Agreement ("Agreement") entered into in
November 1999, by and between the Company and one of its franchisees, both
parties have agreed to compromise, settle, release and resolve all claims
between and amongst themselves with regard to the claim of the franchisee for
fraud and breach of contract. In accordance with the terms of the Agreement,
the Company repurchased the ice cream machines it sold to the franchisee, paid
the franchisee a total of $42,500, and the franchisee removed the Company's
registered trade name and trademark from its facility. In addition, the
franchisee must refrain from further using such trade name or making the
Company's ice cream product in their machines. Both parties also agreed that
the franchisee owns the building and all other equipment that it had purchased
from the Company, except for the aforementioned machines repurchased.
NOTE 8 - STOCKHOLDER'S EQUITY
---------------------------------
(A) COMMON AND PREFERRED STOCK
----------------------------------
The Company has authorized 10,000,000 shares of preferred stock, $.0001 par
value and 50,000,000 shares of common stock, $.0001 par value. The preferred
stock will have such right and preferences as determined by the Board of
Directors.
During June 1997, the Company merged with Twistee Treat Corporation, a Delaware
Corporation with the same name, in a tax-free transaction. The founding
stockholders received 2.96 shares for each share of the old company they owned.
The remaining shareholders exchanged their shares at a ratio of 1:1. The effect
of the stock exchange has been presented retroactively in the accompanying
statement of stockholders' equity.
(B) WARRANTS
-------------
At November 30, 1999, the Company had outstanding warrants to purchase 446,500
shares of the Company's common stock at an exercise price of $2.00 per share.
These warrants were issued during the year ended November 30, 1999 together with
common stock issuances. No value has been allocated to the warrants because
they were not trading at the time of issuance. The warrants became exercisable
at the grant date in June 1999 and expire in June 2001.
NOTE 9 - INCOME TAXES EXPENSE
----------------------------------
The Company has the following current and deferred income tax expense at
November 30, 1999 and November 30, 1998:
1999 1998
----- -----
Current:
Federal: $ - $ -
State - -
Deferred: - -
Federal and State - -
Income tax expense (benefit) $ - $ -
===== =====
16
<PAGE>
TWISTEE TREAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
--------------------------
The actual tax expense differs from the "expected" tax expense for the years
ended November 30, 1999 and 1998 (computed by applying the U.S. Federal
Corporate tax rate of 34 percent to income (loss) before taxes), as follows:
1999 1998
---------- ----------
Computed "expected " tax expense (benefit) $(205,489) $(214,508)
Non - deductible stock based compensation - 27,710
Effect of net operating loss carryforward 205,489 186,798
----------
$ - $ -
========== ==========
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities at November 30, 1999 and 1998 are as
follows:
1999 1998
--------- ---------
Deferred tax assets:
Net operating loss carryforward 534,532 329,043
Stock based compensation 27,710 27,710
--------- ---------
Total gross deferred tax assets 562,242 356,753
Less valuation allowance (562,242) (356,753)
--------- ---------
Net deferred tax assets - -
========= =========
The Company has net operating loss carry-forwards of approximately $1,572,000
for income tax purposes available to offset future taxable income, expiring on
various dates beginning in 2016 and 2017.
The net change in the valuation allowance during the year ended November 30,
1999 was an increase of $205,489.
17
<PAGE>
TWISTEE TREAT CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1999 AND 1998
--------------------------
NOTE 10 - SUBSEQUENT EVENTS
-------------------------------
(A) PRIVATE PLACEMENT
-----------------------
During March 2000, the Company offered subscriptions pursuant to Rule 504
of Regulation D of the Securities Act of 1933, as amended, of 8,000,000
shares of common stock to accredited investors. The purchase price is
$0.125 per share. As of the date of this report, subscriptions for
$1,000,000 or 8,000,000 shares have been received at which time the offer
has been closed. As of the same date, the Company has received cash
consideration of a total of $625,000 for the common stock subscribed.
(B) REPAYMENT OF LOANS PAYABLE
----------------------------------
In March 2000, the Company repaid a loan payable of $100,000 which was
outstanding as of November 30, 1999 (see Note 6).
In March 2000, the Company repaid a loan payable balance of $7,500 which
was outstanding as of November 30, 1999 (See Note 6).
(C) ACQUISITION
----------------
Effective April 6, 2000, the Company acquired 100% of an inactive shell
company reporting to the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended. The Company paid $120,000 and
issued 250,000 shares of its common stock. The transaction was treated as a
recapitalization for financial accounting purposes and the common stock
issuance was recorded at par value with a charge to additional paid-in
capital.
(D) STOCK EXCHANGE AGREEMENT
-------------------------------
In March 2000, the Company entered into an Agreement of Purchase and Sale
of Stock (the "Agreement") as amended, to acquire 20,000,000 common shares
of a publicly held reporting company (the "party") in exchange for
20,000,000 shares of the Company's common stock. Closing of the Agreement
is to take place on the later of (i) July 5, 2000 or (ii) the date the
Company receives funds from a source arranged by the party. If financing
does no occur by August 5, 2000, then the Company may terminate the
Agreement or seek other financing. The shares of both parties were issued
into escrow.
The Agreement was subject to the Board of Directors approval and on June 9,
2000, the Board of Directors passed a resolution not approving the
Agreement and notified the party that it was terminating the Agreement.
18
<PAGE>
TWISTEE TREAT CORPORATION
INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED FEBRUARY 29, 2000
TABLE OF CONTENTS
-----------------
Page
-------
FINANCIAL STATEMENTS:
Balance Sheet 2 - 3
Statement of Operations 4
Statement of Cash Flows 5 - 6
NOTES TO THE FINANCIAL STATEMENTS 7 - 8
<PAGE>
<TABLE>
<CAPTION>
TWISTEE TREAT CORPORATION
BALANCE SHEET
FEBRUARY 29, 2000
ASSETS
<S> <C>
CURRENT ASSETS
Cash. . . . . . . . . . . . . . $ 14,288
Note Receivable other - current 80,670.00
Note Receivable other - trade . 90,000.00
Inventory . . . . . . . . . . . 116,650.00
Advances. . . . . . . . . . . . 10,000.00
-----------
TOTAL CURRENT ASSETS. . . . . 311,608.00
FIXED ASSETS
Property & Equipment, net . . . 322,114.00
Leasehold Improvements. . . . . 23,953.00
-----------
NET FIXED ASSETS. . . . . . . 346,067.00
OTHER ASSETS
Notes receivable - trade. . . . 20,000.00
Notes receivable other. . . . . 74,000.00
Other receivable. . . . . . . . 50,000.00
Deposits. . . . . . . . . . . . 1,150.00
Intangible assets . . . . . . . 89,900.00
-----------
TOTAL OTHER ASSETS. . . . . . 235,050.00
TOTAL ASSETS. . . . . . . . . $ 892,725
===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C>
CURRENT LIABILITIES
Accts payable and accrued exp. . . $ 127,886
Notes & loans payable - current. . 306,102
Capital lease - current. . . . . . 507
Deferred revenue . . . . . . . . . 180,233
------------
TOTAL CURRENT LIABILITIES. . . . 614,728
LONG-TERM LIABILITIES
Note payable . . . . . . . . . . . 29,292
------------
TOTAL LONG-TERM LIABILITIES. . . 29,292
STOCKHOLDER'S EQUITY
Common stock, .0001 par value
Authorized 50,000,000 shares
Issued and Outstanding 7,309,950
shares . . . . . . . . . . . . . 730
Common stock to be issued. . . . . 21
Additional paid in capital . . . . 1,996,695
Retained earnings. . . . . . . . . (1,748,741)
------------
TOTAL STOCKHOLDER'S EQUITY . . . 248,705
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY . . . . . . $ 892,725
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TWISTEE TREAT CORPORATION
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 29, 2000
AND FEBRUARY 28, 1999
Feb. 29, 2000 Feb. 28, 1999
--------------- ---------------
<S> <C> <C>
REVENUE
Product. . . . . . . . . . . $ 25,341 $ 49,243
--------------- ---------------
TOTAL REVENUE. . . . . . . 25,341 49,243
COST OF SALES
Purchases. . . . . . . . . . 9,177 19,960
--------------- ---------------
TOTAL COST OF SALES. . . . 9,177 19,960
GROSS MARGIN . . . . . . . 16,164 29,283
EXPENSES
Payroll & contractual. . . . 41,516 42,735
Consulting fees. . . . . . . 3,600 0
Depreciation . . . . . . . . 18,069 11,000
Professional fees. . . . . . 0 18,274
Other general admin. exp.. . 41,985 31,514
--------------- ---------------
TOTAL EXPENSES . . . . . . 105,170 103,523
--------------- ---------------
NET OPERATING INCOME . . . (89,006) (74,240)
OTHER REVENUE
Miscellaneous income . . . . 794 0
Interest income. . . . . . . 476 0
--------------- ---------------
TOTAL OTHER REVENUE. . . . 1,270 0
OTHER EXPENSES
Interest expense . . . . . . 7,350 0
--------------- ---------------
TOTAL OTHER EXPENSES . . . 7,350 0
NET LOSS . . . . . . . . . ($95,086) ($74,240)
=============== ===============
NET LOSS PER COMMON SHARE
AND EQUIVALENTS-BASIC
AND DILUTED. . . . . . . . ($0.01) ($0.01)
=============== ===============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING DURING
PERIOD-BASIC AND DILUTED . 6,883,137 6,337,750
=============== ===============
</TABLE>
<PAGE>
TWISTEE TREAT CORPORATION
STATEMENT OF CASH FLOWS (INDIRECT METHOD)
FOR THE THREE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
2/29/00 2/28/99
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Excess of revenues over (under) expenses $(95,086) $ (74,240)
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Decrease in Accounts Payable $(19,911) $ (4,603)
Decrease in Deferred Revenue
-0- (32,000)
Increase in Inventory
-0- (8,000)
Increase in Intangible Assets
-0- 50,800
----------- -----------
Total Adjustments (19,911) 6,197
----------- -----------
Net Cash Provided (Used) By Operating Activities (114,997) (68,043)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Increase in Equipment (17,636) (41,484)
----------- -----------
Net Cash Provided (Used) by Investing Activities ( 17,636) (41,484)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Common Stock 54 3
Increase in Additional paid in capital 67,446 23,998
Increase (Decrease) in Notes Payable (5,500) 42,553
----------- -----------
Cash Provided (Used) by Financing Activities 62,000 66,554
----------- -----------
Net Increase (decrease) in Cash (70,633) (42,973)
Cash and Cash Equivalents at Beginning of Year 84,921 49,647
----------- -----------
Cash and Cash Equivalents at End of Year $ 14,288 $ 6,674
=========== ===========
See accompanying notes to the financial statements.
<PAGE>
<TABLE>
<CAPTION>
2/29/00 2/28/99
------- -------
Beginning of End of Increase or Beginning of End of Increase or
Cash and Cash Equivalents Period Period __ (Decrease) Period Period __ (Decrease)
------------------------- ------------- ---------- ------------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cash in Bank $ 84,921 $ 14,288 $ (70,633) $ 84,921 $ 14,288 $ (70,633)
============= ========== ============= ============= ========== =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Supplemental Disclosures of Cash Flow Information:
--------------------------------------------------
Cash paid during the year for: 2/29/00 2/28/99
------- -------
<S> <C> <C>
Income taxes -0- -0-
Interest 6,600 -0-
</TABLE>
Disclosures of Accounting Policy:
-----------------------------------
For purposes of this statement, all highly liquid debt instruments with a
maturity of three months or less are considered cash equivalents.
See accompanying notes to the financial statements.
6
<PAGE>
TWISTEE TREAT CROPORATION
OSAGE BEACH, MISSOURI
NOTES TO THE FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED FEBRUARY 29, 2000
--------------------------------------------
NOTE 1 - BASIS OF PRESENTATION:
The accompanying unaudited 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 and
footnotes 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 statement 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
included in the Company's Form 8-K/A filed on April 17, 2000 for the years
ended November 30, 1999 and 1998.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INVENTORIES
-----------
Inventories primarily consist of ice cream machines and restaurant
supplies. Inventories are stated at the lower of cost or market value, as
determined using the first in, firs out method.
NOTE 3 - SUBSEQUENT EVENTS:
(A) PRIVATE PLACEMENT
--- ------------------
During March 2000, the Company offered subscriptions pursuant to Rule 504
of Regulation D of the Securities Act of 1933, as amended, of 8,000,000
shares of common stock to accredited investors. The purchase price is
$0.125 per share. As of the date of this report, subscriptions for
$1,000,000 or 8,000,000 or shares have been received at which time the
offer has been closed. As of the same date, the Company has received cash
consideration of a total of $625,000 for the common stock subscribed.
<PAGE>
TWISTEE TREAT CROPORATION
OSAGE BEACH, MISSOURI
NOTES TO THE FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED FEBRUARY 29, 2000
--------------------------------------------
NOTE 3 - SUBSEQUENT EVENTS: (CONTINUED)
(B) REPAYMENT OF LOANS PAYABLE
--- -----------------------------
In March 2000, the Company repaid a loan payable of $100,000 which was
outstanding as of November 30, 1999.
In March 2000, the Company repaid a loan payable of $7,500 which was
outstanding as of November 30, 1999.
(C) ACQUISITION
--- -----------
Effective April 6, 2000, the Company acquired 100% of an inactive shell
company reporting to the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended. The Company paid $120,000 and
issued 250,000 shares of its common stock. The transaction was treated as a
recapitalization for financial accounting purposes and the common stock
issuance was recorded at par value with a charge to additional paid-in
capital
(D) STOCK EXCHANGE AGREEMENT
--- --------------------------
In March 2000, the Company entered into an Agreement of Purchase and Sale
of Stock (the "Agreement") as amended, to acquire 20,000,000 common shares
of a publicly held reporting company (the "Party") in exchange for
20,000,000 shares of the Company's common stock. Closing of the Agreement
is to take place on the later of (I) July 5, 2000 or (ii) the date the
Company receives funds from a source arranged by the Party. If financing
does not occur by August 5, 2000, then the Company may terminate the
Agreement or seek other financing. The shares of both parties were issued
in escrow. The Agreement was subject to the approval of the Board of
Directors of the Company and on June 9, 2000, the Board of Directors passed
a resolution not approving the Agreement and notified the Party that it was
terminating the Agreement.
<PAGE>
