[DESCRIPTION] SB-2 Registration Statement, Third Amendment
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
3RD AMENDMENT
File No. 333-32260
UPTOWN RESTAURANT GROUP, INC.
(Name of small business issuer in its charter)
COLORADO 65-0835444
(State or jurisdiction (Primary Standard (I.R.S. Employer
incorporation or Industrial Identification No.)
Organization) Classification Code
Number)
955 E. Javelina Ave., Ste. 114, Mesa, AZ 85204; (480) 503-3363
(Address and telephone number of principal executive offices)
955 E. Javelina Ave., Ste. 114, Mesa, AZ 85204
(Address of principal place of business or intended principal place of business)
R. Michael Jackson, 165 S. Union Blvd., # 705, Lakewood, CO 80228; (303)969-0808
(Name, Address and Telephone Number of Agent for Service of Process)
Approximate date of proposed sale to the public:
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _________________________________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
Title of each Aggregate Proposed Proposed
class of amount of maximum maximum
securities shares to be offering aggregate Amount of
to be registered price per offering registration
registered Unit price fee
No Par Value up to $0.75 $8,657,912 $2,285.69
Common Stock 11,543,883 (estimate)
<PAGE>
PART I - INFORMATION REQUIRED IN PROSPECTUS
Uptown Restaurant Group, Inc.
A Colorado corporation
Up to 11,543,883 Shares of Common Stock
No Par Value
This is an offering of shares of common stock of Uptown Restaurant Group,
Inc., from time to time by selling shareholders. Uptown will not receive any of
the proceeds from the sale of the shares by the selling shareholders. Uptown's
common stock is currently traded on the "pink sheets" under the symbol "UTRG."
The selling shareholders may use this prospectus to offer and sell their
shares at the prices quoted for the common stock in the over-the-counter market.
The selling shareholders may also attempt to sell their shares in isolated
transactions, at negotiated prices, with institutional or other investors.
To the extent required, Uptown will disclose in a prospectus supplement the
names of any agent or broker-dealer, applicable commissions or discounts, and
any other required information about any particular offer. The selling
shareholders will pay commission expenses and brokerage fees, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Investing in the common stock involves risk. Your should purchase shares
only if you can afford a complete loss.
See "Risk Factors" beginning on page __.
Dated: __________, 2000
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY.....................................................
Risk Factors................................................
Use of Proceeds.............................................
Selling Security Holders....................................
Plan of Distribution........................................
Legal Proceedings...........................................
Directors and Executive Officers,
Promoters and Control Persons..........................
Security Ownership of Certain
Beneficial Owners and Management.......................
Description of Securities...................................
Commission Position on Indemification
for Securities Act Liabilities.........................
Description of Business.....................................
Management's Discussion and Analysis
or Plan of Operation...................................
Certain Relationships and Related
Transactions...........................................
Market for Common Equity and Related
Stockholder Matters....................................
Executive Compensation......................................
Legal Matters...............................................
Experts.....................................................
Where You Can Find More Information.........................
Financial Statements........................................
You should rely on the information contained in this prospectus. Uptown has
not authorized anyone to provide you with information different from that
contained in this prospectus. The selling shareholders are offering to sell, and
seeking offers to buy, shares of common stock only in jurisdictions where offers
and sales are permitted. The information in this prospectus may be accurate only
as of the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
Summary
Shares Offered Under this Prospectus.
This prospectus covers the resale of shares by the selling shareholders.
The selling shareholders have obtained or will obtain the shares of common stock
offered for resale under this prospectus:
* by exercising warrants we issued,
* by exchanging shares of common stock of NYB Foods, Inc., for our common
stock shares in a merger with one of our subsidiaries,
* by exchanging a promissory note or other indebtedness owed by us for
shares of our common stock, or
* by exchanging assets previously owned by 1 Potato 2, Inc., a Minnesota
corporation, for shares of our common stock in an asset purchase transaction
with one of our subsidiaries.
Use of Proceeds.
Uptown will not receive any cash proceeds from the resale of common shares
by the selling shareholders. Some of the selling shareholders, however, may
exercise warrants in order to acquire the common shares to be sold under this
prospectus for a maximum exercise price of $0.35 per share. If received, we will
use the net proceeds of a maximum of $1,219,750 primarily for working capital,
the payment of indebtedness, and general corporate purposes, including the
opening of new franchised restaurants, and the evaluation of opportunities to
acquire new restaurant concepts.
The Offering.
Estimated common stock offered by selling shareholders
upon exercise of up to 6,970,000 shares of common stock
upon exercise of common stock purchase warrants.................. 6,970,000
Common stock offered by previous owners of NYB Foods stock....... 3,500,000
Common stock offered by 1 Potato 2, Inc.
and Robert Blessing.............................................. 400,000
Common stock offered by selling shareholders upon
conversion of indebtedness for common shares..................... 673,883
Estimated common stock outstanding after the Offering............ 26,836,313
_________________
Uptown issued 3,485,000 common stock purchase warrants to investors and
other persons who arranged the transaction and agreed that the number of shares
of common stock underlying the warrants which the warrantholders can acquire may
be increased under certain circumstances. Because of the potential increase in
the number of share that may be issued, we agreed to include twice the number of
shares underlying the warrants, or a total of 6,970,000 shares, in this
prospectus in case the number they are able to acquire increases. Even though up
to an additional 6,970,000 shares of common stock underlying the warrants are
being registered, we may never issue them and, even if issued, the holders may
never sell them under this prospectus.
Plan of Distribution.
Uptown is registering the shares on behalf of the selling shareholders,
each of whom may offer his or her shares of common stock for sale under this
prospectus at the prices then prevailing on the "pink sheets" or otherwise
in the over-the-counter market. Each selling shareholder may sell the shares of
common stock in isolated transactions, at negotiated prices, with institutional
or other investors. We will bear the costs, expenses and fees of the
registration of the shares offered by this prospectus. The selling shareholders
will bear the brokerage commissions and similar selling expenses, if any,
attributable to the sale of shares.
Risk Factors
An investment in Uptown's common stock involves a high degree of risk,
including those risks discussed below. You should carefully consider these risk
factors along with all the other information contained in this prospectus before
you decide to purchase shares of our common stock. If any of these risks
actually occur, our business, financial condition and operating results could be
adversely affected. If that happens, the trading price of our common stock could
decline, and you could lose part or all of your investment.
Uptown has Experienced Losses in Two of the Last Three Years and Our Future
Profitability Depends on Management's Ability to Generate Sufficient Revenues to
Offset Our Costs.
For the fiscal year ended December 31, 1998, we had a net loss of
$1,282,682, a net loss of $340,364 for fiscal year 1997, and we recorded a gain
of $87,715 in fiscal year 1999. In the 1998 financial statements, our
accountants stated that, since Uptown had experienced significant net losses
since its inception, had been unable to generate positive cumulative cash flows
from operations, and had a significant working capital deficiency, they had
substantial doubt about our ability to continue as a going concern. In addition,
in 1999 we closed all our Wrapsters restaurants. Our future financial results
will depend on, among other things, our ability to generate a level of revenues
sufficient to offset our cost structure and our ability to reduce our operating
costs. We cannot assure you that we will significantly increase our revenues or
become profitable.
Failure to Raise $350,000 Additional Capital for the Payment of Short-Term
Debt and Other Capital Needs May Result in Costly Litigation and/or Loss of
Assets.
In addition to our other outstanding obligations, we owe a total of
$130,000 to four shareholders, and are liable on real estate and equipment
leases for an additonal $220,000. The shareholder loans mature in 2001 and
require interest-only payments semi-annually at the rate of 10%. The leases are
currently in default since our previous management closed all the Wrapsters
restaurants that had been operated in those locations, and the equipment leases
have not been paid since December of 1999. We currently do not generate
sufficient proceeds to repay these loans or to settle the lease liabilities, but
we are working to resolve these conditions. If we cannot reach a satisfactory
settlement of any of these loans or leases, we may be forced to sell some or all
of our assets, to relinquish control of Uptown, or to renegotiate terms of our
outstanding obligations on terms less favorable to us. Any event of that nature
is likely to have material adverse effects. In addition, we may continue to have
substantial capital needs that cannot be funded completely from operations. As a
result, we may be required to raise additional capital through equity or debt
financing. Those sources of financing, if available, may include bank financing,
third party equity investors, capital leases, private limited partnerships,
joint venture financing and sale leaseback arrangements. None of our lenders is
under any obligation to make additional advances to us, nor are they under any
obligation to approve any financing arrangement that we may negotiate. Further,
we have no source of additional financing other than the maximum $1,219,750 we
may receive upon the exercise of the common stock purchase warrants on the date
of this prospectus. Consequently, we cannot assure you that any additional
financing will be available to us when needed, on commercially reasonable terms,
or at all. If we cannot obtain additional financing, our business operations and
financial results will suffer.
Diversion of Management's Time and Attention from Business Operations to
the Acquisition of Complementary Businesses May Detrimentally Affect Our
Profitability.
Evaluating the feasibility of acquiring complementary businesses involves a
considerable amount of time and attention. Uptown does not have employees who
can dedicate their full time to this endeavor, and therefore its directors, and
especially its President, Robert Palmer, must perform this function. Diverting
the time and attention of management away from the day-to-day operations of
Uptown and its subsidiaries for purposes of identifying and evaluating
prospective acquisition candidates could have a detrimental effect on the
profitability of our businesses.
Acquiring New Businesses May Increase Our Overhead and Disrupt Our
Operations in Assimilating New Operations, Technologies, Products and Personnel.
Should Uptown acquire a complementary business through merger or
acquisition, we will face many difficulties in assimilating the operations of
the new company into our own. We may be required to move the corporate offices
of the acquired company into our own, making more office space, clerical
personnel and phone lines necessary, and increasing our overhead. On the other
hand, if consolidating operations is not feasible, managing operations from
another location could be difficult and expensive. Also, internal accounting and
operational procedures may differ from our own and may require changing, taking
time and possibly causing disruption in the business.
Acquiring Businesses in New Markets in Which We Have No or Limited
Experience May Make Strategic Decision-Making Difficult, or Require the
Expenditure of Extra FUnds fopr Expert Advice, and Therefore May Disrupt
Operations and Divert Cash Flow.
Our Management's experience is relatively broad, but not all-encompassing.
Should Uptown acquire or merge with a business, the market for which is not
familiar to our key personnel, we may be faced with strategic business decisions
dealing with market factors with which we are not familiar. In the alternative,
in order to be fully informed, we may be required to retain the acquired
company's key personnel or outside experts, at a cost to Uptown. Any such
actions could disrupt Uptown's on-going operations and divert cash flow.
The Resignation, Retirement or Death of Any of Our Current Management Would
Disrupt Operations and Negatively Affect Our Profitability.
Robert D. Palmer, Jr., is our chief executive officer and the remaining
directors are all important to our operations. We are heavily dependent upon the
expertise and experience of these officers and directors. If any of them were to
resign, we cannot assure you that we would be able to replace them, and our
inability to do so could materially adversely affect our business.
Default Under Real Estate and Equipment Leases May Result in Costly
Litigation and Loss of Significant Assets.
Uptown is in default under the terms of two real estate leases, and four
equipment leases which were entered into while we were operating Wrapsters
restaurants. Should we be unable to negotiate acceptable settlements, Uptown
could be sued for the amounts due, in the approximate amount of $220,000. We no
longer operate restaurants in the real estate which the leases cover, so we not
face eviction, and the cash registers covered by the equipment leases are not
currently being used, so we can return the property without it affecting our
business. However, if these lease creditors pursue collection to judgment,
Uptown will be faced with paying these substantial amounts or losing assets to
garnishment or post-judgment execution sale.
This prospectus contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements are identified by words like
"expects," "intends," "believes," "anticipates," "estimates," "may," "could,"
"should," "would," "will," "plans," "hopes" and similar expressions. Our actual
results could differ materially from those anticipated in these forward-looking
statements due to certain factors, including those described in "Risk Factors"
and in other places in this prospectus.
Use of Proceeds
We will not receive any proceeds from the sales by the selling shareholders
of the shares of common stock sold pursuant to this prospectus. However, if the
holders of the common stock purchase warrants exercise all of their outstanding
warrants, we may receive up to a maximum of $1,219,750 upon their exercise at
the maximum exercise price of $0.35 per share, and we will issue up to 6,970,000
shares to these shareholders. Since the warrantholders have an option to
exercise their warrants in a cashless transaction, we cannot assure you that we
will receive any of these funds.
We intend to use the net proceeds from the exercise of the warrants, if
any, to develop new franchisees, to evaluate opportunities to acquire new
restaurant concepts, to pay certain indebtedness, and for working capital.
Selling Security Holders
All 11,543,883 shares of Uptown's no par value common stock being offered
by this prospectus are being offered by the following individuals, who are
security holders of Uptown:
________________________________________________________________________________
Position, Office Amount of
Held or Relationship Securities Amount to Amount
Name with Uptown Owned Before be Offered After
Offering Offering
________________________________________________________________________________
Robert D. Palmer, Jr. President, CEO 5,188,776 2,414,989 2,773,787
Chairman of Board Common Common 10.34%
L. Bennett Berg, Director; Area 1,224,490 579,217 645,273
Trustee FBO Development Agent Common Common 2.4%
Berg Family Trust for Tucson, AZ
Gary F. Palmer Employee & brother 765,306 356,193 409,113
of President Common Common 1.52%
Mary Jo DiVito None 306,122 142,477 163,645
Common Common
Hank Rabin Area Development 15,306 7,124 8,182
Agent, Reno, NV Common Common
Clyde E. Culp, III Director 1,328,883 428,883 900,000
Common Common 3.35%
David Metz None 125,000 125,000 0
Common Common
Brand Resources, Inc. None 75,000 75,000 0
Common Common
design kontractors, inc. None 45,000 45,000 0
Common Common
1 Potato 2, Inc. None 540,000 360,000 180,000
Common Common
Robert Blessing None 60,000 40,000 20,000
Common Common
Mohamed Ghaus None 3,144,000 up to 0
Khalisa warrants 6,288,000
Common on
exercise of
warrants
DSF Capital, Inc. None 161,000 up to 0
warrants 322,000
Common on
exercise of
warrants
Bicoastal Assocs. None 100,000 up to 0
Corp. warrants 200,000
Common on
exercise of
warrants
Man Chu Chow None 30,000 up to 0
warrants 60,000
Common on
exercise of
warrants
Pacific Basin LLC None 50,000 up to 0
warrants 100,000
Common on
exercise of
warrants
________________________________________________________________________________
Plan of Distribution
Uptown is registering the shares on behalf of the selling shareholders,
including donees and pledgees selling shares received from a named selling
shareholder after the date of this prospectus. When a donee or pledgee is
selling shares of our common stock, we will file a supplement to this prospectus
disclosing the names of such selling donees and pledgees. The holders of common
stock purchase warrants, when and if they exercise their warrants, may, from
time to time, offer the underlying shares of common stock for sale under this
prospectus at the prices then prevailing on the "pink sheets", or otherwise
in the over-the-counter market. Each selling shareholder also may sell his or
her shares of common stock in isolated transactions, at negotiated prices, with
institutional or other investors. The selling shareholders have not informed us
that they have entered into any agreements, understandings or arrangements with
any underwriters regarding the sale of their securities, nor is there an
underwriter acting in connection with the proposed sale of shares by the selling
shareholders. However, each selling shareholder has indicated that sales may be
effected for each selling shareholder through his personal broker. If all common
stock purchase warrants are exercised, up to 6,970,000 shares of common stock
underlying the warrants will be offered by this prospectus in addition to the
other common shares being offered by other selling shareholders.
We will bear the costs, expense and fees of the registration of the shares
offered by this prospectus. The selling shareholders will bear brokerage
commissions and similar selling expenses, if any, attributable to the sale of
shares.
The shares of the common stock offered by the selling shareholders may be
sold under this prospectus by one or more of the following methods, without
limitation:
* a block trade on which the broker-dealer so engaged will attempt to sell
the shares of the common stock as agent, but may position and resell a portion
of the block as principal to facilitate the transaction,
* purchases by the broker-dealer as principal and resale by that broker-
dealer for its account under this prospectus,
* ordinary brokerage transactions and transactions in which the broker
solicits purchases, or
* face-to-face transactions between the selling shareholder and purchasers
without a broker-dealer.
These transactions may be effected at market prices prevailing at the time
of sale or at negotiated prices. In effecting sales, a broker-dealer engaged by
the selling shareholder may arrange for other brokers or dealers to participate.
These brokers or dealers may receive commissions or discounts from the selling
shareholders in amounts to be negotiated immediately before sale. Brokers or
dealers and any participating brokers or dealers acting as described in this
paragraph may be deemed to be "underwriters" within the meaning of Section 2(11)
of the Securities Act in connection with such sales.
Upon our being notified by a selling shareholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares of
the common stock through a block trade, special offering, exchange distribution
or secondary distribution, or a purchase by a broker or dealer, we will file a
supplement to the prospectus, if required, under Rule 424(c) under the
Securities Act, disclosing:
* the name of each broker-dealer,
* the number of shares involved,
* the price at which such shares were sold,
* the commissions paid or discounts or concessions allowed to such broker-
dealer(s), where applicable,
* that such broker-dealer(s) did not conduct any investigation to verify
the information set out in this prospectus, as supplemented, and
* other facts material to the transaction.
Some of the shares of common stock being offered by this prospectus may be
sold under Rule 144 under the Securities Act. Each of the selling shareholders
has advised us that, as his shares become eligible for sale under Rule 144, he
may, as an alternative to use of this prospectus, sell his shares under Rule
144.
Because the selling shareholders may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, we will advise them of the
requirement under the Securities Act that each of them, or any broker-dealer
acting for him, must deliver a copy of this prospectus for any sale by the
selling shareholder of shares of the common stock covered by this prospectus. We
will also undertake, if, in our future opinion, this prospectus no longer
complies with Section 10(a)(3) of the Securities Act, to advise the selling
shareholders of this opinion, to request that the selling shareholders stop
using this prospectus, and to confirm our then intention to amend the
registration statement containing this prospectus to effect that compliance. We
will also advise each of the selling shareholders that, if it is determined that
he is an "underwriter," the selling shareholder may be found liable for monetary
damages to purchasers under Section 11, 12(2) and 15 of the Securities Act if
there are any defects in the registration statement, such as material
misstatements or omissions, and also may be found liable under Section 10(b) of
the Exchange Act and Rule 10b-5 for such material misstatements or omissions, if
any.
We and our officers and directors, and the selling shareholders, are
obligated to take all steps as may be necessary to ensure that the offer and
sale by the selling shareholder of the common stock offered by this prospectus
shall comply with the requirements of the federal securities laws, including
Regulation M. In general, Regulation M prohibits any selling shareholder or a
broker-dealer acting for such selling shareholder from, directly or indirectly,
bidding for or purchasing any shares of the common stock or attempting to induce
any person to bid for or to purchase shares of the common stock during a
restricted period, as defined in Rule 100, which ends when he has completed his
participation in the offering made under this prospectus. Rule 102 provides
certain exceptions for the selling shareholder, including exercising a common
stock purchase warrant.
Legal Proceedings
Other than what is listed below, there are currently no pending legal
proceedings, either material or ordinary, routine litigation incidental to the
business, to which Uptown or any of our subsidiaries is a party. Uptown is not a
party to any proceedings instituted by a governmental authority, and none are
known to be contemplated by government authorities.
Real Estate Leases.
We previously owned "Wrapsters" restaurants which were located in the
Abernathy Square shopping center in Atlanta, Georgia, and the Greenbrier
shopping center in Virginia. Prior management closed the restaurants, and the
landlords are requesting payment under the leases. Although legal proceedings
have been commenced, and we believe reasonable and favorable settlements can be
reached, we nevertheless face the potential of having judgments entered against
us in excess of $175,000.00, representing the rent payments due under the
remainder of the leases.
Equipment Leases.
Prior management signed five year leases for computerized cash register
equipment for four Wrapsters restaurants. Since those restaurants were closed,
the equipment is not currently being used, and no payments have been made on the
leases since December, 1999. The lessor has declared a default under the leases
and demanded payment in full of the remaining lease payments, in an amount in
excess of $30,000.00. Although legal proceedings have been commenced, and we
believe a reasonable and favorable settlement can be reached, we nevertheless
face the potential of having a judgment entered against us in excess of
$30,000.00, representing the payments due under the remainder of the leases.
Claim Against Ex-President.
Uptown's Board of Directors has authorized pursuing a claim through
appropriate legal channels against our ex-president, Thomas E. Metzger. We will
request an accounting or, in the alternative, damages from Mr. Metzger for
transactions which occurred during his tenure in office, as follows: Mar.
Metzger made cash withdrawals for which he has not produced exepnse reports, and
tenant improvements and restaurant equipment were disposed of in connection with
the closing of Wrapsters restaurants, but have not been documented. The claims
are currently being reviewed by litigation counsel for filing in court.
Directors and Executive Officers,
Promoters and Control Persons
Uptown's directors hold office until the next annual meeting of
shareholders or until their successors have been elected and shall have been
qualified. Uptown's officers are elected by the Board of Directors at its annual
meeting after each annual meeting of shareholders and hold office until their
next successors are elected and qualified or until their death, resignation or
removal from office. There are no arrangements or understandings between any of
Uptown's directors or executive officers and any other person pursuant to which
such person is to be elected or selected as a director or officer other than the
following: Robert D. Palmer, Jr., Clyde Culp, III and William Gallagher have
entered into an agreement to vote their the shares of Uptown's common stock they
own for the election of a Board of Directors consisting of Mr. Palmer, Mr. Culp,
two candidates nominated by Mr. Palmer, and one candidate nominated by Mr. Culp
for a period of three years.
Uptown's officers and directors are set forth below. Officers serve at the
pleasure of the Board of Directors. Directors serve until the next annual
meeting of shareholders, expected to be held in December of 2000.
________________________________________________________________________________
Officer or
Name and Address Age Office Director Since
________________________________________________________________________________
Robert D. Palmer, Jr. 60 President October, 1999
955 E. Javelina Ave., #114 CEO
Mesa, AZ 85204 Chairman
Clyde E. Culp, III 56 Director February, 1998
1907 Hidden Point Road
Annapolis, MD 21401
L. Bennett Berg 67 Director December, 1999
4625 E. Broadway, # 117
Tucson, AZ 85711
Harold Kestenbaum 50 Director December, 1999
585 Stewart Avenue Secretary
Garden City, NY 11530
William G. Norton 59 Director December, 1999
7000 Bass Lake Road, #200
Minneapolis, MN 55428
________________________________________________________________________________
Robert D. Palmer, Jr., age 60, has been President and Chairman of the Board
of Directors of NYB Foods, Inc., since the merger between NYB Acquisitions
Corp., one of our wholly-owned subsidiaries, and NYB Foods, Inc. Mr. Palmer's
term is until the next annual meeting of shareholders, to be held in December of
2000. Mr. Palmer served as President, Treasurer and Director of the previous NYB
Foods, Inc., since its inception in 1996. In the past, Mr. Palmer has been an
active advisor and consultant to franchisors. His experience is as follows: ATL
International, Inc., an automotive franchisor, January through September, 1995;
Re-Bath Franchising Corp., engaged in plastics manufacturing, Director of
Franchising, April of 1991 through June of 1992; Mr. Palmer was President,
Founder and Director of Franchising for USA Fast Lube Systems, Inc., from 1983
through October of 1988; and from 1978 until January of 1984, he was Founder,
President and Director of Franchising for Grease Monkey International, Inc., and
Grease Monkey Holding Corporation. Between 1984 and 1996, Mr. Palmer also served
as independent consultant to the following franchising clients: Spinato's Pizza
International, Inc., a pizza restaurant franchisor; Surface Renew-All, Inc.,
Chicago, IL, which franchised specialty coatings; The Packaging Store, Inc.,
which is a division of Quik Ship, Inc.; Taco Rancho, U.S.A., a franchisor of
Mexican fast food; Packaging Plus Services, Inc., a franchisor of packaging
stores; Auto Spa Corporation, an automotive franchisor; Shipping Connection,
Inc., a franchisor of packaging stores; Homewatch International, Inc., a
franchisor of home care services. Mr. Palmer attended the University of
Colorado.
L. Bennett Berg, age 67, is a Director. Mr. Berg's term is until the next
annual meeting of shareholders, to be held in December of 2000. Mr. Berg has
been the owner and operator of Western Lease Analysis, LLC, an Arizona limited
liability company, since 1994, which is in the business of consulting with
tenants concerning commercial leases. Since 1988, Mr. Berg has been the owner
and operator of Berg Financial, LLC, an Arizona limited liability company, which
provides consultation services to bankruptcy trustees and advises clients on
loan "workout" arrangements. Mr. Berg is the New York Burrito Area Development
Agent for Tucson, Arizona.
William G. Norton, age 59, is one of our Directors. Mr. Norton's term is
until the next annual meeting of shareholders, to be held in December of 2000.
Mr. Norton earned a B.S. degree in Business and English from Northern Michigan
University, and an M.B.A. degree from the Wharton Graduate School of Business,
University of Pennsylvania. Mr. Norton is currently the president of "Foodmark,"
a national company specializing in providing strategic planning, marketing,
communications and new product development consulting for the retail food and
restaurant and food service industries. Foodmark's clients include ConAgra,
General Mills, Nestle, Coca Cola, Land-O-Lakes, Malt-O-Meal, and Multifoods.
Until we recently purchased substantially all its assets, Mr. Norton served as
President, CEO, and a Director of 1 Potato 2, Inc., a national franchise chain
which specialized in potato-based foods located primarily in foods courts in
upscale shopping malls. Mr. Norton has also served on the Board of Directors for
Source Food Technology, Inc., as Director of New Products for the Betty Crocker
Division of General Mills, Inc., as Senior Vice President and Director of the
Telesis Group New Product Workshop for Bozell & Jacobs, and as the President and
CEO of Mrs. Clark's Foods, Inc., where he spearheaded the growth of the
company's diversified private label food manufacturing. Mr. Norton received the
American Marketing Association's "Edison Gold Award" for the best new product of
1998, and is listed in "Who's Who in American Business."
Clyde E. Culp, III, age 56, has served on our Board of Directors since
February of 1998. Mr. Culp's term is until the next annual meeting of
shareholders, to be held in December of 2000. Mr. Culp was Chairman of
Wrapsters, L.C., a Florida limited liability company, from its inception until
February 28, 1998. From 1995 to 1996, Mr. Culp acted as an investor, developer,
and consultant, and served on several boards of directors within the restaurant
industry. From 1993 through 1995, Mr. Culp served as President of the "Long John
Silver's" restaurant chain, Lexington, Kentucky. From 1990 through 1993, he
served as President of "Embassy Suites Hotel" chain, Dallas, Texas. In addition
to serving as one of our Directors, Mr. Culp also is the Chairman and Managing
Member of Bakery Resources Group, LLC, a bakery in Baltimore, Maryland, Chairman
of the Board of Directors of Tanners Group, Inc., Alpharetta, Georgia, and a
Director of El Chico/Spaghetti Warehouse, Inc., Dallas, Texas. Mr. Culp earned a
B.A. degree in Business from William & Mary College, and an M.B.A. degree in
marketing and finance from New York University.
Harold L. Kestenbaum, age 50, is our Secretary and one of our Directors.
Mr. Kestenbaum's term is until the next annual meeting of shareholders, to be
held in December of 2000. Mr. Kestenbaum is an attorney admitted to practice law
in the State of New York and is our franchise attorney. He received a Bachelor
of Arts degree in Sociology from Queens College, New York, and earned his Juris
Doctorate degree from the University of Richmond School of Law, Richmond,
Virginia. Mr. Kestenbaum was admitted to the New Jersey State Bar Association in
1975, and the New York Bar State Association in 1976. Since 1977, Mr. Kestenbaum
has concentrated his law practice in the field of franchise law and, since 1990,
has owned and operated his own law firm in Garden City, New York. From May,
1982, until September, 1986, Mr. Kestenbaum served as franchise and general
counsel to Sbarro, Inc., a national franchisor of over 900 family-style Italian
Restaurants and, since March of 1985, has been a director of Sbarro, whose
securities were listed on the New York Stock Exchange. In addition, Mr.
Kestenbaum currently sits on the board of directors of Global Travel Network.
From September, 1983, to October, 1989, Mr. Kestenbaum served as President and
Chairman of the Board of Directors of FranchiseIt Corporation, the first
publicly-traded company specializing in providing franchise marketing and
consulting services and equity financing to emerging franchise companies, which
he co-founded. In addition to the above, Mr. Kestenbaum has been franchise
counsel to over sixty regional, national or international franchise companies.
Mr. Kestenbaum is a member of the American Bar Association's Corporation Banking
and Business Law Section, a founding member of the New York State Bar
Association's Franchise Law Section, serving the latter as Chairman for its
Education and Seminar Subcommittee, as well as serving as a mediator for the
Franchise Arbitration and Mediation Company.
Security Ownership of Certain Beneficial Owners
And Management
The following table sets forth information concerning Uptown's securities
owned of record and beneficially as of the date of this Offering Circular by
each person known to Uptown to own of record or beneficially 5% or more of any
class of our voting securities, by each of Uptown's Officers and Directors, and
all officers and directors as a group. All shareholders listed below have sole
voting and investment power with respect to their shares.
________________________________________________________________________________
Title of Name and Address of Amount and Nature of Percent of Selling
Class Beneficial Owner Beneficial Ownership Class Shareholder
________________________________________________________________________________
Common Robert & Karene Palmer 5,188,776 26.12% Yes
955 E. Javelina Ave., #114
Mesa, AZ 85204
Common Berg Family Trust 1,224,490 6.16% Yes
L. Bennett Berg, Trustee
4625 E. Broadway, # 117
Tucson, AZ 85711
Common Dr. C.R. Joshi 1,700,000 8.56% No
1350 Los Angeles Avenue
Simi Valley, CA 93065
Common Kazi Family Partnership 1,700,000 8.56% No
13724 Sherman Way
Van Nuys, CA 91405
Common Clyde E. Culp, III 1,328,883 6.69% Yes
1907 Hidden Point Road
Annapolis, MD 21401
Common Harold L. Kestenbaum 200,000 1.01% No
585 Stewart Avenue
Garden City, NY 11530
Common All Officers and 7,942,149 39.98%
Directors
as a Group of 5
________________________________________________________________________________
Mr. Zubaire Kazi is the Trustee of the Kazi Family Partnership, and
therefore is in control of, and makes the decisions concerning the assets held
by the Trust, including the shares of common stock of Uptown Restaurant Group,
Inc., owned by the Trust.
L. Bennett Berg is one of Uptown's Directors and the Trustee of the Berg
Family Trust, the owner of the shares. Mr. Berg is also one of the beneficiaries
of the trust.
Description of Securities
Uptown's authorized capital stock consists of 50,000,000 shares of no par
value common stock. All shares have equal voting rights and are non-assessable.
Voting rights are not cumulative and, therefore, the holders of more than 50% of
our common stock could, if they chose to do so, elect all the directors.
Assuming sale of all the shares of common stock by the selling shareholders
offered by this prospectus, the present shareholders will own, if the maximum
11,543,883 shares offered by this prospectus are sold, 31.01% of our outstanding
Common Stock.
Upon liquidation, dissolution or winding up of Uptown, our assets, after
satisfaction of all liabilities, will be distributed pro rata to the holders of
the Common Stock. The holders of the Common Stock do not have preemptive rights
to subscribe for any of our securities and have no right to require Uptown to
redeem or purchase their shares. The Shares of Common Stock presently
outstanding are, and the Shares of Common Stock to be sold pursuant to this
Offering will be, fully paid and non-assessable.
Holders of Common Stock are entitled to dividends when, and if, declared by
Uptown's Board of Directors out of funds legally available for that purpose.
Uptown has not paid any cash dividends on its Common Stock to date. No assurance
can be given that funds will be available to us in the future out of which
dividends can be paid, or that Uptown will declare such dividends.
Uptown has authorized 10,000,000 shares of no par value Preferred Stock.
Currently, 1,000 shares of Series B Preferred Stock are issued and outstanding.
We may issue Preferred Stock in one or more series at the discretion of the
Board of Directors. In establishing a series, the Board of Directors is to give
it a distinctive designation so as to distinguish it from the shares of all
other series and classes, fix the number of shares in the series, and fix its
preferences, rights and restrictions. All shares of any one series shall be
alike in every particular unless otherwise provided in the articles of
incorporation or Colorado statutes.
Series B Preferred Stock.
Uptown issued 113,500 shares of non-voting Series B Redeemable Convertible
Preferred Stock, all but 1,000 of which shares have been converted into three
shares of our common stock for each share of Series B Preferred. 112,500
previously-issued Series B Preferred shares have been exchanged for 337,500
shares of currently-outstanding common stock. Each of the 1,000 outstanding
shares of Series B Preferred stock has a face value of ten dollars, with
cumulative dividends payable at the rate of ten percent annually, payable semi-
annually in cash or additional Series B shares, at our option. No dividends are
payable on any other securities which are junior to the Series B shares,
including our common stock, unless all accrued dividends have been paid to the
holders of Series B shares. As of December 31, 1999, accrued but unpaid
dividends on these preferred shares equaled $103,677. Uptown may, at any time,
redeem the Series B shares for their face value of ten dollars per share, plus
any accrued but unpaid dividends. In the event of the liquidation, dissolution
or winding up of Uptown, Series B shareholders are entitled to be paid $10.00
per share, plus any accrued but unpaid dividends, out of our assets before any
payment may be made to holders of our common stock, or any other securities
junior to Series B Preferred shares. Series B Preferred shareholders may convert
their Series B shares to shares of Uptown's preferred stock which are or become
publicly traded shares. Currently, we have no preferred shares that are publicly
traded.
Warrants.
On September 22, 1999, we issued 3,485,000 common stock purchase warrants
to investors and others for $200,000.00. Each warrant entitles its holder to
purchase one share of our common stock at the exercise price of $.35 for a
period of five years, commencing September 22, 1999 and ending September 21,
2004. The warrantholders may exercise some or all their warrants and receive
shares of our common stock without paying the exercise price under certain
circumstances. Also, we may be required to issue more than one share of common
stock per warrant if the effectiveness of our registration statement is
suspended after a warrantholder exercises warrants, but before the shares are
issued, and the price of our stock falls.
We may force the exercise of the warrants if the closing bid for our common
stock is $4.00 or greater for sixty consecutive trading days, or if we close on
a secondary securities offering at a per-share offering price greater than
$4.00. In either case, we must give written notice to the warrantholders and
they will have 90 days to exercise their warrants. Any warrants which have not
been exercised will be cancelled on the 91st day after the notice. We have
undertaken to keep our registration statement current during the term of the
warrants plus an additional 6 months after their term expires. Prior to
exercise, the warrants do not entitle their holders to any voting rights, or any
other rights as a shareholder of Uptown.
The warrants contain anti-dilution provisions so as to avoid dilution of
the equity interest represented by the underlying common stock upon the
occurrence of certain events, such as share dividends or splits, mergers, or
sale of assets. In the event of liquidation, dissolution or winding up of
Uptown, holders of the warrants will not be entitled to participate in the
distribution of assets. Holders of our warrants have no voting, preemptive,
liquidiation or other rights of a shareholder, and no dividends will be declared
on the warrants.
Shares Eligible for Future Sale.
15,633,313 of our 19,866,313 currently-outstanding Shares of Common Stock
are "restricted securities" and, under certain circumstances, may in the future
be sold in compliance with Rule 144, adopted under the Securities Act of 1933,
as amended. Future sales of our Common Stock could depress the market price for
such Common Stock.
Stock Purchase Agreement.
Two investors, the Kazi Family Partnership, L.P., and Dr. C.R. Joshi,
each purchased 1,700,000 shares of common stock in September, 1999, and, as part
of the purchase agreement, we consented to a "Reset" provision. According to
this Reset agreement, we would have been obligated to issue more shares to these
two investors if the average bid price for our common stock fell below one-half
the bid price on the day the shares were purchased. The closing price of our
common stock on September 22, 1999, the closing date for this transaction, was
$.812 per share. If the average bid price had been equal to or greater than one-
half the bid price on the purchase date, no new shares would have been issued.
If the average bid price fell below $0.409, which is one-half the bid price on
the purchase date, the following formula would determine the number of new
shares to be issued:
* The difference between $0.409 and the average bid price during either the
first sixty trading days after the purchase, or during the sixty-first through
the one-hundredth trading days,
* multiplied by 1,700,000,
* with the resulting product being divided by the average bid price during
the applicable period.
Individuals who previously owned the shares of common stock of NYB Foods,
Inc., were granted the same reset rights for the 7,500,000 shares of our common
stock they were issued in the merger between NYB Foods, Inc., and NYB
Acquisitions Corp.
The first reset period terminated December 17, 1999, and the second reset
period terminated February 17, 2000. The bid price for our common stock did not
fall below $0.409 during either of those periods. Therefore, Uptown was not
obligated to issue shares under the terms of the rest agreements.
Warrant Purchase Agreement.
Investors acquired warrants to purchase 3,485,000 shares of our common
stock in September, 1999. In the Warrant Purchase Agreement, we agreed to issue
additional shares of common stock under certain circumstances. If the investors
exercise all or part of their warrants but, before the shares are issued, the
effectiveness of our registration statement is suspended for a reason other than
that we possess material non-public information, and the bid price immediately
before the suspension is greater than the bid price on the day after the
suspension is lifted, we will be obligated to issue more shares, according to
the following formula:
* The number of shares the investor was entitled to receive pursuant to his
warrant exercise which were not otherwise freely-tradable,
* multiplied by the product of:
- the number of shares he was entitled to under the warrant exercise,
- multiplied by the product of the bid price immediately before the
exercise, divided by the bid price immediately after the suspension was lifted.
The holders of these common stock purchase warrants also may exercise their
warrants and receive underlying common stock shares for no cash payment. This
"cashless" exercise option provides that the holders of the warrants may
exercise their warrants and receive underlying shares of common stock for no
cash price according to the following formula:
The number of shares issued to the warrantholder equals the average closing
bid price for five trading days immediately preceding the exercise minus the
exercise price of $.35, divided by the five-day average closing bid price; all
multiplied by the number of shares with respect to which the warrants are being
exercised.
As an example, if the average closing bid price for our common stock for a
five-trading-day period is $.50, and all 3,485,000 warrants are exercised
pursuant to the "cashless" exercise option, we would be obligated to issue
1,045,500 shares of common stock to the warrantholders for no cash price.
We may also elect to pay dividends in shares of common stock, and the board
of directors may decide to issue additional shares. Consequently, substantial
dilution of the voting power of the current shareholders is likely over time if
warrants are exercised, if the average bid price for our common stock falls
below $0.409 per share for an extended period of time, or if dividends are paid
in common shares. Such conditions are also likely to depress the market price of
the common stock.
Additional Sales of Shares of Common Stock are Likely to Cause the Market
Price of Our Common Stock to Decline.
Currently, 19,866,313 shares of our common stock are outstanding. The
number of shares of common stock potentially issuable under our warrants is
3,485,000, or more if a provision of the Warrant Purchase Agreement is
activated. The sale, or availability for sale, of substantial amounts of shares
of common stock could materially adversely affect the market price of the common
stock and could impair our ability to raise additional capital by selling equity
securities. This number will increase if the trading price of the common stock
declines further.
The Market Price of Our Common Stock is Extremely Volatile.
Trading volume and prices for the common stock have fluctuated widely since
it first became publicly-traded. During the month of December, 1999, for
example, the closing sales price of the common stock ranged from $.625 to $.937
per share. In addition, since our common stock began trading in January of 1999,
the bid price for our common stock has reached a high of $2.625 per share in
January of 1999, and a low of $0.4375 per share in April of 1999. These severe
fluctuations may continue in response to quarterly variations in operating
results, announced earnings, and other factors. We cannot always predict or
foresee those events. The market price of the common stock could also be
influenced by developments or matters not related to us, including the sale or
attempted sale of a large amount of the common stock on the open market by a
shareholder. Because of this volatility, your investment in us may result in a
complete loss.
Because Our Common Stock is Listed on the "Pink Sheets", its Liquidity
may be Impaired.
Trading in our common stock is conducted in the over-the-counter market and
reported on the "Pink Sheets". Consequently, selling our shares may
be more difficult because smaller quantities of shares may be bought and sold,
transactions may be delayed, and the news media's coverage of us may be reduced.
These factors could result in lower prices and larger spreads in the bid and
asked prices for our shares. Further, securities analysts are unlikely to cover
our stock, and institutional investors are unlikely to purchase our stock.
Although we intend to apply to be listed on the NASD's OTC Bulletin Board as
soon as practicable after the effective date of this Registration Statement and
Prospectus, selling our shares will continue to be difficult and lower prices
may result. We cannot assure you that we will ever be able to list our stock on
the NASD's OTC Bulletin Board, Nasdaq Small Cap Market, or any other market.
"Penny Stock" Regulations may Impair the Liquidity of Our Common Stock.
Because the bid price of our common stock is below $5.00 per share, shares
of common stock may be subject to the SEC's Rule 15g-9 and other penny stock
regulations under the Securities Exchange Act of 1934. Rule 15g-9 imposes sales
practice requirements on broker-dealers that sell low-priced securities to
persons other than established customers and institutional accredited investors.
For transactions covered by this rule, a broker-dealer must make a special
suitability determination for the prospective purchaser and have received the
purchaser's written consent to the transaction before the sale. Consequently,
this rule and other "penny stock" regulations may adversely affect the ability
of broker-dealers to sell our shares and may adversely affect the ability of
holders to sell their shares of common stock in the secondary market.
Uptown may Issue Additional Shares of Common Stock and Preferred Stock
Without Shareholder Approval.
Our board of directors may authorize us to issue one or more series of
preferred stock or additional shares of common stock without shareholder
approval, and the existence or terms of these securities may adversely affect
the rights of holders of the common stock. In addition, the issuance of any
additional shares of preferred or common stock may be used as an "anti-takeover"
device without shareholder approval. Issuance of additional preferred stock or
common stock, which may be accomplished through a public offering or a private
placement to parties favorable to current management, may dilute the voting
power of holders of common stock and may make it harder to remove current
management, even if removal might be in the shareholders' best interests.
Uptown Does not Intend to Pay Dividends on the Common Stock.
We do not currently pay any dividends on the common stock and do not intend
to pay dividends on the common stock in the foreseeable future. If we were to
declare dividends on our common shares, we would be required to first pay
accumulated but unpaid dividends of $103,677 to the holders of Series B
Preferred shares.
Commission Position on Indemnification
For Securities Act Liabilities
Our Articles of Incorporation indemnify, to the maximum extent permitted by
law, any person who is or was a director, officer, agent, fiduciary or employee
against any claim, liability or expense arising against or incurred by such
person made party to a proceeding because he is or was a director, officer,
agent, fiduciary or employee for us, or because he is or was serving another
entity or employee benefit plan as a director, officer, partner, trustee,
employee, fiduciary or agent at our request.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to Uptown's directors, officers and
controlling persons pursuant to the foregoing provision, or otherwise, Uptown
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
Description of Business
We were incorporated in the State of Colorado on February 23, 1996 as HAI
Enterprises, Inc., and 976,200 shares of our no par value common stock were
issued to founders and initial investors.
On February 19, 1998, HAI Enterprises entered into a Plan of Merger with
Wrapsters, L.C., a Florida limited liability company. In connection with the
merger, the initial shareholders' shares were reverse-split 2-for-5, resulting
in 390,480 then-outstanding common shares, and an additional 3,800,000 shares
were issued to the owners of Wrapsters as follows: 1,900,00 shares to Clyde E.
Culp, III, and 1,900,000 shares to Thomas E. Metzger. At the same time,
3,800,000 shares of common stock and 113,500 shares of Series B Preferred stock
were issued to Santa Cruz Squeeze, Inc., a Texas corporation, in exchange for an
investment of $1,000,000.00. The surviving corporation of the merger was HAI
Enterprises, Inc., which changed its name to Wrapsters, Inc. Thus, at the
completion of this merger, we had 7,990,480 shares of common stock, and 113,500
shares of Series B Preferred stock outstanding.
Wrapsters, Inc., was in the business of developing, operating and selling
franchises for fast food restaurants offering a variety of tortilla-wrapped
sandwiches and meals. We operated as Wrapsters, Inc., for approximately eighteen
months, meeting with limited success with our restaurants. In addition to
selling and operating franchise restaurants, Wrapsters sought to acquire or
merge with other franchise companies.
In August of 1999, Wrapsters negotiated to acquire NYB Foods, Inc., a
Colorado corporation, by means of a merger between one of Wrapsters' wholly-
owned subsidiaries and NYB Foods, Inc. Wrapsters formed NYB Acquisitions Corp.,
a Colorado corporation, for the purpose of merging with NYB Foods, Inc., and
became the surviving corporation. In connection with the merger, the
shareholders of NYB Foods, Inc., exchanged all their shares for 7,500,000 shares
of Wrapsters' common stock and $500,000.00. NYB Foods was merged into NYB
Acquisitions Corp.
After the merger was approved, we used another wholly-owned Colorado
corporation, Wrapsters Acquisitions Corp., to acquire the existing franchisees,
trademarks, and other assets, including two previously company-owned
restaurants, from 1 Potato 2, Inc., a Minnesota corporation. The consideration
given for these assets consisted of a promissory note from the subsidiary in the
amount of $400,000.00, payable semi-annually over a five year term bearing
interest at 7.5% per annum, and 600,000 share of our common stock.
On December 15, 1999, our shareholders gave approval to change our name to
Uptown Restaurant Group, Inc., and to increase the number of shares of common
stock we are authorized to issue from 25,000,000 to 50,000,000. Also, we changed
the name of NYB Acquisitions Corp. to NYB Foods, Inc., and we changed the name
of Wrapsters Acquisitions Corp. to 1 Potato 2 Franchising Corporation.
New York Burrito.
NYB Foods, Inc., which is the surviving corporation of the merger into our
wholly-owned subsidiary, offers to individuals, pursuant to a franchise
agreement, the right to establish and operate, from a single location, a
limited-cooking New York Burrito Gourmet Wraps specialty restaurant. Each wrap,
or burrito, is made to order in full view for each customer. Operation of the
restaurant requires limited on-location cooking, as the bulk of the foods
utilized are centrally prepared and delivered to the restaurants through normal
commercial food distribution companies. Most major ingredients necessary for the
preparation of the food items are pre-cooked and quick-frozen, utilizing quick-
chill cooking and packaging techniques by various manufacturers. Other items,
including cheeses, greens and other condiments, are also pre-prepared and
packaged for use in the New York Burrito locations. Its menu consists mainly of
flavored tortillas filled with vegetarian-style pinto or black beans and rice,
along with spiced meats, such as steak, chicken, barbeque, deli, cajun or
teriyaki. An optional breakfast menu may also be served, which features
breakfast burritos, other breakfast items, juice and coffee.
NYB markets its franchises by means of advertising, trade shows and Area
Development Agents. A Development Agent contract grants a Territory to an
individual, giving him the exclusive right to sell New York Burrito franchises.
The Development Agent agreement provides compensation, consisting of a portion
of the initial franchise fees and a percentage of the on-going royalties, but
requires certain levels of success, namely the selling and opening of an agreed-
upon number of franchises within set time limits. The initial franchise fee for
a New York Burrito restaurant is $15,000.00, and a reduced rate of $10,000.00 is
offered to certain existing franchisees for additional franchises. A franchisee
pays 7% of gross sales to NYB as a royalty, and 4% of gross sales for
cooperative advertising.
Franchisees are required to operate their restaurants in accordance with
standards and procedures established by NYB, including those contained in the
New York Burrito Operations Manual, prepared and distributed to franchisees. In
addition, franchisees are granted the right to operate their businesses under
the New York Burrito name with a "cactus skyline" trademark.
NYB maintains a full-time training center at its corporate headquarters in
Mesa, Arizona, and provides in-store training activities at its company-owned
operating New York Burrito restaurant in Chandler, Arizona, which is contiguous
to NYB's headquarters. NYB's primary business is the sale of franchises, rather
than the operation of company-owned restaurants.
New York Burrito restaurants generally operate from a retail location, such
as a strip-type shopping center, shopping mall food court, or a free-standing
location. Typical restaurant size varies from 750 to 2,000 square feet. A
franchisee's initial investment to "build out" a store location and open for
business, is estimated to range from $58,700.00 to $101,950.00, which amounts
include the initial franchise fee.
New York Burrito franchises must compete with other full-service and carry-
out restaurants and other outlets specializing in burritos (wraps) or Mexican
food, some of which are national or regional chains, or which may be more
established. New York Burrito franchises will, to some extent, also have to
compete with restaurants and food outlets offering other types of food products.
Established in 1995, NYB currently owns one restaurant in Chandler,
Arizona, and has fifty four New York Burrito franchise restaurants open in
twenty three states and Puerto Rico. In addition, fifteen franchise restaurants
are currently in development. In an unrelated transaction, on March 17, 1999,
NYB sold the California franchise rights and entered into a License Agreement
for the State of California with NYB West, Inc., a California company, which was
the former Sub-Franchisor for California. NYB West, Inc., is now the franchisor
of the ten New York Burrito franchise restaurants in California.
NYB leases corporate offices at 955 East Javelina Avenue, Suite 114, Mesa,
Arizona 85204, consisting of 8,223 square feet of office space, and general
office furniture, supplies and equipment. The lease runs for five years,
commencing February 1, 2000, and the base rent is $5,427 monthly, plus taxes and
common area maintenance charges. Our company-owned New York Burrito restaurant,
in Chandler, Arizona, is located at 1100 North Alma School Road, #5, Chandler,
Arizona 85224, in leased space of 1,300 square feet, for $1,950 per month. The
restaurant furniture and kitchen equipment, fixtures and leasehold improvements
are currently valued at $8,892. The restaurant produces revenues for NYB, is
used as a sales tool for prospective franchisees to visit, and for training of
new franchisees.
In addition to its company-owned restaurant and franchised restaurants, NYB
owns its trademark, consisting of the New York Burrito name with a cactus
skyline, which is registered with the United States Commissioner of Patents and
Trademarks on the Principal Register, Reg. No. 1,993,286, August 13, 1996, with
first use November 1, 1991, its UFOC, Franchise Agreements, and Area Development
Agent agreements.
NYB can be contacted at (480)503-3363 or (800)711-4036}, and its website
can be found at www.newyorkburrito.com.
1 Potato 2.
On November 11, 1999, one of our wholly-owned subsidiaries, Wrapsters
Acquisitions Corp., acquired substantially all the assets from 1 Potato 2, Inc.,
a Minnesota corporation, explained above.
Our subsidiary, 1 Potato 2 Franchising Corporation, operates and sells
franchises for the operation of 1 Potato 2 fast food restaurants specializing in
baked potatoes and other types of potato dishes. 1 Potato 2 restaurants are
typically located in shopping mall food courts. 1 Potato 2 opened its first
restaurant in 1978 and expanded the number of its company-owned restaurants
until it began offering franchises in 1984. In 1986, concurrent with its
acquisition by Bankers Restaurants, Inc., 1 Potato 2 began development of a more
contemporary potato menu, including a number of proprietary items such as "lite"
potato offerings, potato skins, potato soup, gourmet wraps and smoothies.
Through 1991, 1 Potato 2 continued to open company-owned stores at the same time
it sold franchises, when it was decided that, due to the relatively small size
of a 1 Potato 2 unit, franchisee-operated stores were preferable. Thereafter,
until 1995, 1 Potato 2 continued to sell its company-owned stores to
franchisees. In March of 1995, 1 Potato 2 filed a Chapter 11 reorganization case
in Bankruptcy Court in order to cancel unfavorable store leases and concentrate
on selling franchises. The Plan of Reorganization was confirmed within 115 days.
1 Potato 2 restaurants have typically been located in food courts in
regional shopping malls and downtown centers. Food courts are located in the
center or courtyard of shopping malls or city center shopping areas and feature
large capacity common seating surrounded by quick-service, convenience
restaurants. In the future, the Company expects new franchised restaurants will
be a combination of food courts and non-traditional locations, including high-
traffic strip centers, airports and downtown locations.
Marketing efforts have been minimal in the recent past, but we intend to
market 1 Potato 2 franchises in much the same manner as New York Burrito
franchises, by means of advertising, trade shows and Area Development Agents.
The initial franchise fee for a 1 Potato 2 restaurant is $15,000.00 for the
first location, and $10,000.00 for each additional location purchased by an
existing franchisee. A franchisee will pay 6% of gross sales to the franchisor
as a royalty, and 2% of gross sales for co-cooperative advertising.
The two company-owned 1 Potato 2 restaurants are located in the
Minneapolis/St. Paul area, at the Mall of America food court, and Ridgedale,
Minnesota. The Mall of America store is 614 square feet for a base rent of
$75,000 per year, and the Ridgedale Mall store is 737 square feet for a base
rent of $25,757 per year. The restaurant furniture and kitchen equipment,
fixtures and leasehold improvements for the two restaurants are currently valued
at $63,800. The restaurants produces revenues for 1 Potato 2 Franchising, are
used as sales tools for prospective franchisees to visit, and for training of
new franchisees. In addition to its two company-owned and twenty-seven
franchised restaurants, 1 Potato 2 Franchising owns its "1 Potato 2" trademark,
its UFOC, and Franchise Agreements.
1 Potato 2 Franchising's corporate headquarters are now located in the same
office with NYB, at 955 East Javelina Avenue, Suite 114, Mesa, Arizona 85204,
telephone number (480)503-3363 or (800)711-4036, and its website can be found at
www.1potato2.com.
Future Additional Brands.
In addition to expanding the number of franchise operations of New York
Burrito and 1 Potato 2, Uptown will be seeking mergers with or acquisitions of
other franchise operations. While Uptown and its officers and directors are
seeking desirable merger or acquisition candidates, none have yet been
identified and no negotiations are currently being pursued.
Acquisitions Could Involve Dilution of Shareholders' Ownership and
Potential Loss of Key Personnel.
Acquisitions could involve the potentially dilutive issuance of equity
securities and/or the incurrence of debt, contingent liabilities, and/or
amortization expenses related to goodwill and other intangible assets, any of
which could materially adversely affect our operating results and/or market
price of the common stock. Shareholders generally do not have rights to approve
any acquisitions we make. Any acquisition we make may have a material adverse
effect on our business, financial condition, and results of operations.
Whenever new ownership or management takes over a company, some personnel
may want to move on to new opportunities. Should Uptown merge with or acquire a
complementary business, it can be anticipated that certain key personnel from
the acquired company will be needed to stay of for a period of time as a
liaison, and to teach Uptown's management the details of operating the business.
Should any of the key personnel from the acquired business choose to leave our
employment prematurely, our ability to learn the operations of the newly-
acquired business will be hampered.
Competition.
Competition in the restaurant and fast food franchising industry is
intense. New York Burrito and 1 Potato 2 restaurants compete with low-priced,
casual dining and take-out restaurants primarily on the basis of quality,
atmosphere, location and value. New York Burrito's and 1 Potato 2's takeout/
takehome business competes not only with full service restaurants, but also with
take-out food service companies, fast-food restaurants, delicatessens,
cafeteria-style buffets, prepared food stores, supermarkets and convenience
stores. New York Burrito and 1 Potato 2 also compete with other restaurants and
retail establishments for quality sites and franchisees.
Many of our competitors are well established and have substantially greater
financial, marketing and other resources than we do. Regional and national
restaurant companies such as Taco Bell, Chipotle, Z-Teca and Taco John's have
expanded their operations in our current and anticipated market areas. This
competition could adversely affect our operating results.
Competition in the food service business is often affected by:
* changes in consumer tastes, preferences, and eating habits
* national, regional, and local economic and real estate conditions,
* demographic trends and traffic patterns,
* increases in food and labor costs and availability,
* the type, number and location of competing restaurants,
* availability of product and local competitive factors, locale, and
* the ability of our franchisees to operate a profitable business.
Inflation, food costs, and other similar factors may also affect the
restaurant industry. Some or all of these factors could adversely affect us and
our future franchisees.
Government Regulation.
A variety of federal, state and local laws apply to us and our restaurant
franchising businesses. Each of our restaurants, and those of our franchisees,
is subject to permitting, licensing, and regulation by a number of governmental
authorities, including zoning, health, safety, sanitation, building, and fire
agencies in the state or municipality in which the restaurant is located. These
restaurants must comply with federal, state and local government regulations
applicable to the consumer food service business, including those relating to
the preparation and sale of food, minimum wage requirements, overtime,
unemployment and sales taxes, working and safety conditions, mandated health
insurance coverage and citizenship requirements. Significant numbers of the
service, food preparation and other personnel employed in our, and our
franchisees', restaurants are compensated at rates related to the federal
minimum wage, and increases in the minimum wage could increase our, and our
franchisees', labor costs. Difficulties in obtaining or failure to obtain
required licenses or approvals could delay or prevent the development of new
restaurants and franchisees in a particular area.
Americans with Disabilities Act.
The federal Americans with Disabilities Act requires that places of public
accommodation meet certain requirements related to access and use by persons
with disabilities. We design our restaurants, and those of our franchisees, to
be accessible to persons with disabilities and believe that we are in
substantial compliance with all current applicable regulations relating to
restaurant accommodation for persons with disabilities.
Federal and State Franchise Law Compliance.
Before a franchise can be sold, we must, through our subsidiaries, prepare
a Uniform Franchise Offering Circular in accordance with regulations promulgated
by the Federal Trade Commission of the U.S. Government, describing material
aspects of the franchise offered, estimated costs of opening and operating the
business, a description of the type of business offered, disclosure of
information regarding the officers and key employees of the franchisor, and
generally making full and fair disclosure of all material aspects of the
franchise being offered and the company offering it. This UFOC must be updated
continually as any aspect of the business changes, and requires time and effort
of management, as well as attorney's fees.
In addition, many of the states in which Uptown now has franchise
operations, and in which we intend to offer franchises in the future, require
that a franchisor submit itself and its franchise offering to a registration
process prior to offering its franchises for sale in the state. Failure to
comply with these requirements can result in a franchisor being permanently
prohibited from offering franchises in that state, and could have similar
repercussions in other states. Uptown is current and has maintained all its
disclosures and UFOC's in all jurisdictions in which it does business, and has
complied with all registration requirements that are applicable to its franchise
operations.
Management's Discussion and Analysis or
Plan of Operation
You should read the following discussion along with the consolidated
financial statements and related notes to them included elsewhere in this
prospectus.
Effective August of 1999, we acquired all the outstanding common stock of
NYB Foods, Inc., a Colorado corporation, through a merger with one of our
wholly-owned subsidiary corporations. The acquisition will be handled as a
reverse acquisition for accounting purposes, with NYB being the accounting
acquiror of Wrapsters. For the years ended March 31, 1999 and 1998, NYB Foods,
Inc., showed results of operations of $68,412 and ($20,342) respectively. NYB
Foods, Inc., generates its operating revenue from the sale of its franchise
agreements, fees from such franchises and from its company-owned restaurant.
On November 11, 1999, we acquired substantially all the assets of 1 Potato
2, Inc., a Minnesota corporation, through another of our wholly-owned subsidiary
corporations, Wrapsters Acquisitions Corp., in exchange for a promissory note in
the principal amount of $400,000, payable in ten semi-annual installments at an
interest rate of 7.5%, and 600,000 shares of our common stock. 1 Potato 2
generates its operating revenue from the sale of its franchise agreements, fees
from such franchises, and from the two company-owned restaurants.
Overview.
Our growth strategy is to sell more of our two subsidiaries' restaurant
franchises, New York Burrito and 1 Potato 2, to develop and expand their
franchising programs, and to evaluate additional possible acquisitions. In
addition to expanding our base of franchised restaurants in the territories in
which we current are active, we may seek to acquire other restaurant fanchise
concepts that would complement our existing businesses, allowing growth and
improving profitability. We do not intend to open any company-owned restaurants,
other than the one New York Burrito and two 1 Potato 2 locations we presently
operate.
A significant factor in the completion of the merger of NYB Foods into one
of our subsidiaries was a commitment by outside investors in invest $1,050,000
in the new combined company. This financing was used primarily for the
acquisition of NYB Foods and the payment of accumulated debt.
Results of Operations for the Year Ended December 31, 1999 Compared to the
Year Ended December 31, 1998.
Revenues. Total revenues increased from $342,498 in the year ended
December 31, 1998, to $1,140,025 in the year ended December 31, 1999, a total
increase of $797,527. This increase in sales is attributable to our two
operating subsidiary franchise companies, NYB Foods, Inc., and 1 Potato 2
Franchising Corporation. We closed the last of our Wrapsters restaurants during
the year, but acquired, through our subsidiaries, eighty-one franchise
restaurants and three company-owned restaurants. Royalty and franchise fees
earned during the years were $1,109,141, versus $315,026 in the prior year. This
increase in royalty and franchise fees was partially offset by a loss from
discontinued operations of $11,002. For the six months ended June 30, 2000, our
revenues were $979,837, with operating expenses of $971,653, resulting in net
income from operations for the period of $8,183.
Net Loss. From inception until 1999, we have not been successful in
generating revenues sufficient to meet our operating needs. For the years ended
December 31, 1998 and 1997, we had net losses of $1,282,682 and $340,364
respectively. For the year ended December 31, 1999, we had net income of
$87,715.
Our cash and cash equivalents. For the year ended December 31, 1998,
Uptown's liquidity was poor. All of our company-owned and franchised Wrapsters
restaurants were closed in 1999, we had significant negative working capital,
and had no means to pay off debt of $480,000.00 and lease obligations of
$220,000.00. Improvement of our working capital will depend on the ability of
our two subsidiaries to produce significant future revenues.
We have incurred operating losses since inception and as of December 31,
1999 had an accumulated deficit of $2,204,366 and a working capital deficit of
$98,135.
We currently owe an aggregate of $130,000 principal in promissory notes to
four shareholders. These promissory notes mature in 2001 and bear interest at
the rate of 10% per annum. These shareholder notes are considered as short-term
demand notes. We also are indebted to Copelco Capital under four equipment
leases. We have received notices that the leases are in default, that the owner
of the equipment has a right to repossess the equipment, and that an aggregate
of $38,341 is due.
In addition, we are liable on two real estate leases, one in Abernathy
Square, Atlanta, Georgia, and one at Briarwood, Virginia. Although these leases
represent potential liability in excess of $175,000, we have received no
communications from the owners of the real estate demanding payment in
approximately five months.
We are in default under the equipment and real estate leases and, if we are
sued for payment, we may be forced to sell some or all our assets, to relinquish
control of one or both of our subsidiaries, or to negotiate terms of our
outstanding obligations on terms less favorable to us. Any event of that nature
is likely to have a material adverse effect on us.
We have not paid dividends on the Class B Preferred shares since inception.
Since all but 1,000 of the Class B shares have been converted to common stock,
we have a limited obligation of $1,000 per year to pay dividends in the future.
On the other hand, unpaid dividends from the past equals $103,677. We may
continue to allow dividends to accrue, or we may issue Class B Preferred shares
in payment of those dividends.
Our Future Revenues are Dependent upon the Profitable Operations of
Our Two Subsidiaries.
In 1999, all our company-owned Wrapsters restaurants were closed. Now, our
only business consists of two subsidiaries, NYB Foods, Inc., and 1 Potato 2
Franchising Corporation, and therefore we are largely dependent for
our future revenues on our ability to operate our subsidiaries profitably. As we
are presently organized, the only revenues we will receive in the future is the
amount, if any, of dividends either of our two subsidiaries declares and pays to
us. We cannot assure you that we will be able to operate these subsidiaries in a
profitable manner so that they will be able to declare and pay dividends to us.
Capital Resources.
As of December 31, 1999, Uptown had $303,190 cash and $327,786 in notes
receiveable. These capital resources decreased to $193,979 cash and $318,701
notes receivable by June 30, 2000.
Changes in and Disagreements with Accountants
Uptown previously employed the firm of Porter Keadle Moore, LLP, of
Atlanta, Georgia, as our independent certified public accountants and auditors.
They audited our books and prepared our financial statements for the year ended
January 3, 1999. In the January 3, 1999 financial statements, our accountants
stated that, since Wrapsters, Inc., had experienced significant net losses since
its inception, had been unable to generate positive cumulative cash flows from
operations, and had a significant working capital deficiency, they had
substantial doubt about our ability to continue as a going concern.
In 1999, we acquired NYB Foods, Inc., through a merger with one of our
subsidiaries, and, in connection with that merger, moved our corporate offices
from Atlanta, Georgia, to Mesa, Arizona, and replaced our previous management
team with the NYB Foods, Inc., management team. Due to the management change and
the geographical move, we found it more convenient to employ NYB Foods, Inc.'s,
auditor, James E. Raftery, CPA, PC, as our independent certified public
accountants and auditors, and therefore dismissed Porter Keadle Moore, LLP,
November 5, 1999.
We have no disagreements with Porter Keadle Moore, LLP, nor with any other
accountants.
Certain Relationships and Related Transactions
The following-described transactions involve Uptown and any of its
officers, directors, nominees for such positions, beneficial owners of 5% or
more of Uptown's outstanding common stock, or any of their family members:
Acquisition of NYB Foods, Inc.
In the merger between our subsidiary, NYB Acquisitions Corp., and NYB
Foods, Inc., the NYB Foods shareholders received, in exchange for 100% of the
outstanding shares of common stock of NYB Foods, 7,500,000 shares of our common
stock and $500,000.00 in cash, as follows:
Robert D. Palmer, Jr. 5,188,776 shares and $345,900.00
& Karene Palmer
Berg Family Trust 1,224,490 shares and $81,600.00
In addition to the above shares and cash, these shareholders received
registration rights for a portion of their shares, as reflected in this
registration statement.
Exchange of Shares of Common Stock for Promissory Notes.
Prior to the acquisition of NYB Foods, Inc., one of our directors, Clyde E.
Culp, III, agreed to exchange a promissory note in the principal amount of
$428,883.00, which was owed to him by Uptown, for 428,883 shares of our common
stock. Uptown agreed that it would include Mr. Culp's newly-issued shares of
common stock in this registration statement.
In addition, prior to the acquisition of NYB Foods, Inc., another of our
shareholders, Santa Cruz Holdings, Inc., agreed to exchange a promissory note in
the principal amount of $109,000.00, which was owed to it by Uptown, for 109,000
shares of our common stock.
Issuance of Note and Common Stock for 1 Potato 2 Assets.
William G. Norton, one of our current directors, is also a director and
shareholder of 1 Potato 2, Inc. As such, he will benefit indirectly from the
transaction in which our subsidiary acquired assets from 1 Potato 2, Inc., in
exchange for 600,000 shares of our common stock and a promissory note in the
principal amount of $400,000.00.
Note Owed by Shareholder.
One of our shareholders, our President and Chairman of the Board of
Directors, Robert D. Palmer, Jr., has received advances on a loan from NYB
Foods, Inc., which currently total $256,900. This note accrues interest at the
rate of 8% per annum, is unsecured, and no repayment terms have been set.
Issuance of Shares to Director.
We issued 200,000 shares of our common stock to one of our directors,
Harold L. Kestenbaum, on July 14, 2000, for services he has rendered in
connection with serving as Secretary of our subsidiary corporations, NYB Foods,
Inc., and 1 Potato 2 Franchising Corp.
Market for Common Equity and
Related Stockholder Matters
Our no par value common stock is traded on the "Pink Sheets", under the
symbol "UTRG." On December 23, 1999, the high and low bids for the common stock
were $.937 and $.687 respectively. The range of high and low sales prices for
the common stock as quoted on the OTC Bulletin Board are listed below for the
periods indicated. The quotes reflect inter-dealer prices, without retail mark-
up, mark-down or commissions and may not represent actual transactions.
________________________________________________________________________________
Calendar Quarter High Bid Low Bid
________________________________________________________________________________
1st Quarter, 1999 $2.625 $0.875
2nd Quarter, 1999 $2.00 $0.4375
3rd Quarter, 1999 $1.50 $0.6875
4th Quarter, 1999 $1.031 $0.562
1st Quarter, 2000 $1.00 $0.375
2nd Quarter, 2000 $0.56 $0.05
________________________________________________________________________________
Because the bid price of the common stock has been below $5.00 per share,
the SEC's Rule 15g-9 may apply to the common stock. This rule imposes additional
sales practice requirements on a broker-dealer that sells Rule 15g-9 securities
to persons other than the broker-dealer's established customers and
institutional accredited investors. For transactions covered under Rule 15g-9,
the broker-dealer must make a suitability determination of the purchaser and
receive the purchaser's written agreement to the transaction before the sale. In
addition, broker-dealers, particularly if they are market makers in the common
stock, have to comply with the disclosure requirements of Rules 15g-2, 15g-3,
15g-4, 15g-5, and 15g-6 under the Exchange Act unless the transaction is exempt
under Rule 15g-1. Consequently, Rule 15g-9 and these other rules may adversely
affect the ability of broker-dealers to sell or to make markets in the common
stock and also may adversely affect the ability of purchasers of the shares
offered by this prospectus to resell their shares.
Holders of Record.
We had approximately 299 holders of record of our common stock as of the
shareholder meeting on December 15, 1999.
Dividends.
We have never paid cash dividends on our common stock and intend to retain
earnings, if any, to use in operating and expanding our business. Our board of
directors will determine the amount of future dividends, if any, based upon our
earnings, financial condition, capital requirements and other conditions.
Restriction on Ability to Pay Dividends.
We currently have 1,000 shares of Series B Preferred stock outstanding.
Each share of Series B Preferred stock has a face value of ten dollars, with
cumulative dividends at the rate of ten percent, payable in cash or additional
Series B shares, at our option, semi-annually. No dividends are payable on any
other securities which are junior to the Series B shares, including on our
common shares, unless all accrued dividends have been paid to the holders of
Series B shares. Uptown may, at any time, redeem the Series B shares for their
face value of $10.00 per share, plus any accrued but unpaid dividends. In the
event of Uptown's liquidation, dissolution or winding up, Series B shareholders
are entitled to be paid $10.00 per share, plus any accrued but unpaid dividends,
out of Uptown's assets before any payment may be made to holders of our\} common
stock, or any other securities junior to Series B Preferred shares.
Executive Compensation
The following is a summary table containing compensation awarded to, earned
by, or paid to our chief executive officer, our mostly highly paid executive
officers, and any other highly-paid officers, during the past three fiscal
years:
Summary Compensation Table
________________________________________________________________________________
Long Term Compensation
__________________________________________________
Annual Compensation Awards Payouts
________________________________________________________________________________
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities All
Name Annual Restricted Under- Other
and Compen- Stock lying LTIP Compen-
Principal sation Award(s) Options/ Pay- sation
Position Year Salary($) Bonus($)($) ($) SARs(#)($) outs($) ($)
________________________________________________________________________________
Thomas E. Metzger 1998 $175,000 $0 $0 $0 500,000 shares $0 $0
1999 $175,000 $0 $0 $0 0 $0 $0
Wiliam Gallagher 1999 $0 $0 $20,000 $0 0 $0 $0
________________________________________________________________________________
Current Management Compensation.
Uptown Restaurant Group, Inc., has agreed to pay an annual salary of
$125,000.00 to its President, Robert D. Palmer, Jr. This salary commenced for
the calendar year 2000. Presently, no other form of compensation has been
authorized for Mr. Palmer, or for any of our other officers.
The following is a summary table containing information pertaining to the
granting of stock options and/or stock appreciation rights ("SARs") made during
the past fiscal year to each of Uptown's executive officers:
________________________________________________________________________________
Option/SAR Grants in Last Fiscal Year
Individual Grants
______________________________________________________________________________
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration
Name Granted(#) Fiscal Year Price ($/Sh) Date
________________________________________________________________________________
Thomas E. Metzger 500,000 62.5% $1.00 per share 1/12/2004
Steven J. Devine 85,000 10.6% $1.00 per share 9/3/2003
142,500 17.8% $1.00 per share 1/12/2004
Charles D. Barnett 25,000 3.1% $1.00 per share 9/3/2003
________________________________________________________________________________
Our Board of Directors adopted a Stock Appreciation Plan on September 3,
1998, but no SAR's were issued to any executive officer or employee. Our present
board of directors repealed the SAR plan on December 15, 1999.
Our Board of Directors also issued options to purchase 500,000 shares of
our common stock at an exercise price of $1.00 per share to our past president,
Thomas E. Metzger, on January 13, 1999. In connection with the merger of NYB
Foods into our subsidiary, Mr. Metzger released and waived his rights to any
such common stock purchase options, and the Stock Option Plan was repealed by
our current board of directors on December 15, 1999.
Compensation of Directors.
Currently, we do not compensate our directors for their service on the
Board of Directors, other than to reimburse them for their costs of travel and
lodging to attend meetings, and payment of $1,000 annually to each director for
attendance at and participation in each such meeting.
During our last fiscal year, our directors were not compensated.
Legal Matters
R. Michael Jackson, Attorney at Law, Lakewood, Colorado, will pass on the
validity of the common stock offered by this prospectus for us.
Experts
Our audited financial statements as of January 3, 1999 and for the year
ended January 3, 1999, have been included in reliance of the report of Porter
Keadle Moore, LLP. The audited financial statements of Uptown Restaurant Group,
Inc., as of December 31, 1999, and for NYB Foods, Inc. as of March 31, 1999 and
for the year ended March 31, 1998, have been included in reliance on the report
of James Raftery & Associates, P.C., independent public accounts, given on the
authority of that firm as experts in accounting and auditing.
Where You Can Find More Information
We must comply with the information requirements of the Exchange Act, and
we file reports, proxy and information statements and other information with the
SEC. Those reports, proxy and information statements, and other information may
be inspected and copied at the public reference facilities maintained by the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549 on payment of the prescribed
fees. In addition, the SEC maintains a website (http:\\www.sec.gov) that
contains reports, proxy and information statements, and other information
regarding registrants that file electronically with the SEC through the
Electronic Data Gathering, Analysis and Retrieval system, or EDGAR.
This prospectus is part of a registration statement on Form SB-2 that we
have filed with the SEC under the Securities Act. This prospectus does not
contain all the information contained in the registration statement, certain
parts of which we have omitted in accordance with SEC rules. For further
information about us and the shares covered by this prospectus, we refer you to
the registration statement. Statements contained in this prospectus concerning
the provisions of any document are not necessarily complete, and each of those
statements is qualified by reference to the copy of that document filed with the
SEC.
<PAGE
Uptown Restaurant Group, Inc.
Unaudited Financial Statements
Six Months Ended June 30, 2000
<PAGE>
Uptown Restaurant Group, Inc.
Consolidated Balance Sheet
June 30, 2000
Assets
Current Assets
Cash $193,979
Accounts Receivable
net of allowance of $20,000 93,376
Inventory 17,209
Prepaid Expenses 136,500
Notes Receivable 318,701
Total Current Assets 759,764
Property and Equipment, net 214,770
Other Assets
Refundable deposits 4,066
Intangible Assets, net 649,688
Total Other Assets 653,754
Total Assets $1,628,288
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts Payable $ 187,258
Notes Payable, current maturities 236,655
Deferred Tax Payable 3,673
Deferred Revenue 431,250
Total Current Liabilities 858,836
Long Term Liabilities
Notes Payable, net of current maturities 297,392
Total Liabilities 1,156,229
Equity
Preferred Stock, no par value, 10,000,000
shares authorized
1,000 shares issued and outstanding 10,000
Common Stock, no par value, 50,000,000
shares authorized
19,566,313 shares issued and outstanding 2,675,162
Retained Earnings (accumulated deficit) (2,213,102)
Total Equity 472,059
$1,628,288
<PAGE>
Uptown Restaurant Group, Inc.
Consolidated Statement of Income
Six Months Ended June 30, 2000
Revenue $979,837
Operating Expenses 971,653
Net Income from Operations $ 8,183
Other Income and (Expenses)
Miscellaneous Income 3,122
Interest Income 5,939
Interest Expense (25,971)
(16,910)
Net Loss (8,726)
Provision for Taxes
Income tax (expense) 0
Net Income (Loss) 8,634
<PAGE>
Uptown Restaurant Group, Inc.
Consolidated Statement of Shareholders Equity
Six Months Ended June 30, 2000
Retained
Earnings
Preferred Stock Common Stock (Accumulated)
No Par Value No Par Value (Deficit)
Shares Amount Shares Amount
Uptown Restaurant
Group, Inc.
Beginning Balance
December 31, 1999 1,000 $10,000 15,201,116 $2,593,531 ($2,204,376)
Net Loss - - - - (8,726)
___________________________________________________
Ending Balance
June 39, 2000 1,000 $10,000 15,201,116 $2,593,531 ($2,213,102)
<PAGE>
Uptown Restaurant Group, Inc.
Consolidated Statement of Cash Flows
Six Months Ended June 30, 2000
Cash Flow from Operating Activities
Cash received from customers $917,177
Cash paid to employees and suppliers (998,048)
Miscellaneous income 3,122
Interest income 5,939
Interest expense (25,971)
Net Cash Provided (Used)
by Operating Activities (97,781)
Cash Flow from Investing Activities
Proceeds from notes receivable 9,076
Acquisition of equipment 3,446
Net Cash Provided (Used)
by Investing Activities 12,522
Cash Flow from Financing Activities
Payments on notes payable (23,952)
Net Cash Provided (Used)
by Financing Activities (23,952)
Net Increase (Decrease) in Cash (109,211)
Beginning Cash Balance 303,190
Ending Cash Balance $193,979
<PAGE>
Reconciliation of Net Income (loss) to Cash
Provided (used) by Operating Activities
Net Loss $ (8,726)
Adjustments to reconcile net income to cash
provided (used) by operating activities
Depreciation 27,803
(Increase) Decrease in operating assets
Accounts receivable (62,660)
Deposits 502
Prepaid Expenses (11,875)
Increase (decrease) in operating liabilities
Accounts payable (20,075)
Deferred revenue (22,750)
Advance -
Net Cash Provided (Used) by Operating Activities ($97,781)
<PAGE>
Uptown Restaurant Group, Inc.
Consolidated Financial Statements
December 31, 1999
<PAGE>
Table of Contents
Page No.
I. Independent Auditor's Report 1
II. Consolidated Financial Statements
Consolidated Balance Sheet 2
Consolidated Statement of Income 3
Consolidated Statement of Shareholder's Equity 4
Consolidated Statement of Cash Flows 5-6
III. Notes to the Consolidated Financial Statement 7-11
<PAGE>
James E. Raftery, CPA, PC
946 S. Stapley Drive, Suite 103 (480)835-1040
Mesa, Arizona 85204 FAX (480)835-8832
INDEPENDENT AUDITOR'S REPORT
To the Shareholders
Uptown Restaurant Group, Inc.
I have audited the accompanying consolidated balance sheet of Uptown Restaurant
Group, Inc. as of December 31, 1999 and the related statements of income and
shareholder's equity and cash flows for the nine months then ended. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted the audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and of the 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. I believe that my audit provides a reasonable basis for my
opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Uptown Restaurant Group, Inc. as of
December 31, 1999 and the statements of income and shareholder's equity and cash
flows for the nine months then ended in conformity with generally accepted
accounting principles.
James E. Raftery, CPA
Mesa, Arizona
May 5, 2000
Member, American Institute of Certified Public Accountants and Arizona Society
of Certified Public Accountants
<PAGE>
Uptown Restaurant Group, Inc.
Consolidated Balance Sheet
December 31, 1999
Assets
Current Assets
Cash $303,190
Accounts Receivable, net of allowance of
$20,000 30,716
Inventory 17,209
Prepaid Expenses 124,625
Notes Receivable 327,786
Total Current Assets 803,526
Property and Equipment, net 246,019
Other Assets
Refundable deposits 2,066
Intangible Assets, net 652,190
654,256
$1,703,801
Liabilities and Stockholder's Equity
Current Liabilities
Accounts Payable and accrued expenses $ 207,333
Notes Payable, current maturities 236,655
Deferred Tax Payable 3,673
Deferred Revenue 454,000
Total Current Liabilities 901,661
Long Term Liabilities
Notes Payable, net of current maturities 321,344
Total Liabilities 1,223,005
Equity
Preferred Stock, no par value, 10,000,000
Shares authorized, 1,000 shares issued
And outstanding 10,000
Common Stock, no par value, 50,000,000
Shares authorized, 19,566,313 shares
Issued and outstanding 2,675,162
Retained Earnings (accumulated deficit) (2,204,366)
Total Equity 480,796
$1,703,801
The accompanying notes are an integral part of this financial statement
<PAGE>
Uptown Restaurant Group, Inc.
Consolidated Statement of Income
Nine Months Ending December 31, 1999
Revenue $1,075,803
Operating Expenses 1,000,811
Net Income from Operations $ 74,992
Other Income and (Expenses)
Miscellaneous Income 9,568
Interest Income 21,316
Interest Expense (6,302)
24,582
Net Income Before Taxes and
Discontinued Operations 99,574
(Loss) from Discontinued Operations (11,002)
Net Income Before Taxes 88,572
Provision for Taxes
Income tax (expense) (857)
Net Income 87,715
Primary Earnings Per Share $0.006
Diluted Earnings Per Share $0.005
Weighted Average Number of
Common Shares Outstanding
Primary 14,379,612
Diluted 17,521,825
The accompanying notes are an integral part of this financial statement
<PAGE>
Uptown Restaurant Group, Inc.
Consolidated Statement of Cash Flows
Nine Months Ended December 31, 1999
Cash Flow from Operating Activities
Cash received from customers $1,109,141
Cash paid to employees and suppliers (960,225)
Miscellaneous income 9,568
Income taxes (857)
Interest income 21,316
Interest expense (6,302)
Net cash provided (used) by operating activities 172,641
Cash Flow from Investing Activities
Proceeds from notes receivable 41,714
Payments for notes receivable (250,050)
Acquisition of equipment (1,868)
Net cash provided (used) by investing activities (210,204)
Cash Flow from Financing Activities
Payments on notes payable (232,629)
Proceeds from sale of stock 1,004,574
Dividends (500,000)
Net cash provided (used) by financing activities 271,945
Net increase (decrease) in cash 234,382
Beginning cash balance 68,808
Ending cash balance 303,190
Non-cash investing and financing activities:
Debt converted to equity $575,068
Reverse acquisition merger, note
Payable for acquisition 400,000
The accompanying notes are an integral part of this financial statement
<PAGE>
Reconciliation of Net Income (Loss) to Cash
Provided (used) by Operating Activities
Net Income $ 87,715
Adjustments to reconcile net income
To cash provided (used) by operating
Activities
Depreciation 9,355
Amortization 5,194
(Increase) decrease in operating assets
Accounts receivable 33,338
Inventory (15,352)
Prepaid Expenses 77,251
Increase (decrease) in operating liabilities
Accounts payable 166,264
Accrued expenses (8,862)
Deferred revenue (179,500)
Advance (2,762)
Net cash provided (used) by operating activities 172,641
The accompanying notes are an integral part of this financial statement
<PAGE>
Uptown Restaurant Group, Inc.
Consolidated Statement of Shareholders Equity
Nine Months Ending December 31, 1999
Retained
Earnings
Preferred Stock Common Stock (Accumulated)
No Par Value No Par Value (Deficit)
Shares Amount Shares Amount
NYB Foods, Inc.
Beginning Balance
April 1, 1999 - $- 4,900,000 $81,631 $ 13,554
Uptown Restaurant
Group, Inc. (f/k/a
Wrapsters, Inc.)
Balance immediately 113,500 990,594 7,990,480 $19,741 (2,292,081)
before merger with - - 2,620,000 $13,554 (513,554)
NYB Foods, Inc.
Dividend relating - - - - 500,000
to reverse acquisition
merger
Issuance of common - - 3,669,500 $1,000,000 -
stock
Conversion of (112,500) (980,594) 337,500 980,594 -
Preferred stock
Conversion of debt - - 537,886 575,068 -
Exercise of stock - - 45,750 4,574 -
options
Net Income - - - - 87,715
Ending Balance
December 31, 1999 1,000 $10,000 20,101,116 $2,675,162 ($2,204,366)
The accompanying notes are an integral part of this financial statement
<PAGE>
Uptown Restaurant Group, Inc.
Notes to the Consolidated Financial Statements
December 31, 1999
Note A - Summary of Significant Accounting Policies
This summary of significant accounting policies of Uptown Restaurant Group, Inc.
is presented to assist in understanding the Corporation's financial statements.
The financial statements and notes are the representation of the Corporation's
management, who are responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
1. Company Background and Nature of Business
Uptown Restaurant Group, Inc. (The Company)(f/k/a Wrapsters, Inc.) Was formed on
February 19, 1998. The Company owns two wholly owned subsidiaries, NYB Foods,
Inc. (NYB) and 1 Potato 2, Inc. Since inception the Company operated quick
service restaurants in the Southeastern United States, specializing in freshly
prepared tortilla wraps, fruit smoothies and other related menu items. As of
August, 1999 the Company no longer owned or operated any stores. The Corporation
did recognize additional expenses after August 1999 for discontinued operations,
in the amount of $11,002.
NYB was incorporated in the state of Colorado on April 21, 1995 and maintains
its corporate offices in Mesa, Arizona. The Corporation's principal business
activity is that of a franchiser granting qualified persons franchises for the
operation of quick serve restaurants that specialize in "wrap" foods and operate
under the name New York Burrito Gourmet Wraps. NYB was purchased in a reverse
merger with the Company on August 31, 1999. The Company formed a wholly owned
subsidiary corporation by the name of NYB Acquisitions Corp. (NYBA) in the state
of Colorado on November 8, 1999. NYBA then exchanged 7,500,000 shares of the
Company and $500,000 for all the outstanding stock of NYB. NYB was immediately
dissolved and NYBA changed its name to NYB Foods, Inc. For accounting purposes
NYB is considered the accounting acquirer since that entity clearly was
responsible for over 90% of the revenue from operations for the period
presented, its shareholders comprised approximately 40% of the outstanding
shares, and the board members were in the majority after the merger. No goodwill
or other intangible assets resulted from this merger.
The Company formed a second wholly owned subsidiary by the name of Wrapsters
Acquisition Corp. (Wrapsters). On November 11, 1999 Wrapsters exchanged 600,000
shares of the Company and signed a promissory note for $400,000 in an asset
exchange with a fast food restaurant franchising company. The assets acquired
included two company stores and the royalty rights to 26 other stores. Wrapsters
subsequently changed its name to 1 Potato 2 Franchising Corp. (1P2).
2. Deferred Revenue
Income from initial franchise fees is deferred and recognized when the
franchisee commences operations. At December 31, 1999 forty-three stores were
either sold or transferred but not opened, however seven have begun operations
in the subsequent fiscal year at which time the initial franchise fee will be
recognized as revenue.
<PAGE>
Uptown Restaurant Group, Inc.
Notes to the Consolidated Financial Statements
December 31, 1999
Note A - Summary of Significant Accounting Policies
3. Property and Equipment
Property and equipment are carried at cost. Depreciation of property and
equipment is provided using the straight-line method for financial reporting
purposes over the estimated useful life of five, seven and thirty nine years.
Depreciation expense for the year ended December 31, 1999 was $9,355.
4. Income Taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between basis of equipment for financial and
income tax reporting. The deferred tax assets and liabilities represent the
future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
Deferred taxes also are recognized for capital losses that are not available to
offset future income taxes.
5. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Corporation considers all short
term debt securities purchased with a maturity of three months or less to be
cash equivalents.
6. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reporting amounts and disclosures. Accordingly, actual results
could differ from those estimates.
7. Inventories
Inventory consists of spices, sauces, and packaging supplies, valued at lower of
cost or market, on a first in, first out basis.
8. Prepaid Expenses
Income from initial franchise fees is deferred and recognized when the franchise
commences operations. Development agent commissions are paid when franchise fees
are received and for matching purposes are recognized when the franchise
commences operations.
9. Intangible Assets
The Company recognized goodwill of $617,334 in the purchase of 1 Potato 2
Franchising Corporation. Amortization of goodwill is provided using the
straight-line method for financial reporting purposes over an estimated useful
life of fifteen years. Amortization expense for the year ended December 31, 1999
was $5,194.
<PAGE>
Uptown Restaurant Group, Inc.
Notes to the Consolidated Financial Statements
December 31, 1999
Note B - Notes Receivable
Note receivable secured by all contract rights,
accounts receivable, and title and interest
in and to all New York Burrito franchise
operations within the State of California.
The note receivable bears interest at 8%
per annum and is payable in six equal
installments of $5,678 $ 33,286
An unsecured note receivable bearing interest at
8% per annum from a majority shareholder 256,900
Accrued interest 37,600
$327,786
Note C - Property and Equipment
Property and equipment are summarized by major classifications as follows:
Equipment $195,319
Training Facility 68,268
Leasehold Improvements 1,156
$264,743
Less Accumulated Depreciation ( 18,724)
$246,019
Note D - Lease Obligations
The Corporation conducts its operations from facilities in Arizona under an
operating lease. The Corporation also has two month to month leases at other
facilities. Future minimum rental payments required for the operating leases are
as follows:
Year Ended December 31,
2000 $ 54,272
2001 65,126
2002 65,126
2003 65,126
2004 65,126
2005 10,854
$325,630
Rental expense for the year ended December 31, 1999 was $78,442.
<PAGE>
Uptown Restaurant Group, Inc.
Notes to the Consolidated Financial Statements
December 31, 1999
Note E - Notes Payable
Notes payable consisted of the following at December 31, 1999
Unsecured notes payable in semi-annual interest only
installments of $6,500 interest is computed at a rate of
10.00% per annum. Principal balances due February
2001. $130,000
Note payable in monthly installments of $650, bearing
interest at 10.351%, personally secured by shareholder 19,664
Unsecured, non-interest-bearing demand note. 8,993
Unsecured note payable in semi-annual installments
averaging $46,000, bearing interest at 7.5% per annum. 390,302
Note payable in monthly installments of $470, bearing
interest at 18.5% per annum, secured by vehicle. 9,040
557,999
Less current maturities (236,655)
$321,344
The scheduled maturities of long-term debt are as follows:
2000 $236,655
2001 92,960
2002 87,854
2003 81,487
2004 59,043
$557,999
Note F - Income Taxes
There has been a 100% valuation allowance for the net operating loss carry
forward for the Company. It is not currently possible to determine the
expiration dates of the individual net operating loss years. The current year
income will be fully offset by prior years net operating losses.
Note G - Stockholder's Equity
On August 31, 1999 a wholly owned subsidiary of the company purchase NYB in a
reverse acquisition merger. For accounting purposes NYB is the accounting
acquirer and the company is the target. The stockholder's equity of NYB has been
restated to give effect to the legal structure of the company.
<PAGE>
Uptown Restaurant Group, Inc.
Notes to the Consolidated Financial Statements
December 31, 1999
Note G - Stockholders Equity cont.
Two investors purchased 1,700,000 shares of common stock each in September 22,
1999 for a total of $850,000. One other investor purchased warrants to purchase
3,000,000 shares of common stock for $200,000. In connection with these
transactions, 269,500 shares of common stock and warrants to purchase 485,000
shares of common stock were issued as compensation for arranging the
transaction.
The company has Series B Preferred Stock, which pays cumulative dividends at a
10% annual rate based on the stock's face value of $10 per share. The Series B
Preferred has a liquidation preference of $10 per share plus unpaid cumulative
dividends and is nonvoting, except in limited situations. At the Company's
option, the Series B Preferred can be redeemed in whole or in part at any time
at $10 per share plus cumulative unpaid dividends. At the holder's option, the
Series B Preferred can be converted at any time into publicly traded preferred
stock issued by the Company at a conversion rate of one share of Series B
Preferred for each share of publicly traded preferred stock. The Company
previously issued 113,500 shares of non-voting Series B Redeemable, Convertible,
Preferred Stock. Of those shares, 112,500 have been converted into three shares
of the company's common stock for each share of the Series B Preferred Stock. At
December 31, 1999, dividends in arrears on this preferred stock totaled
$103,677.
Subsequent to the reverse acquisition merger, the company issued 537,883 shares
of common stock in lieu of payment of outstanding debt of $575,068 to a
shareholder and director of the company.
Common stock was issued to five individuals upon the exercise of common stock
purchase warrants. There were 45,750 shares issued in exchange for $4,574.
Note H - Pro Forma Financial Statements
Early in 1999 the board members and shareholders of the Company decided to shut
down the four remaining stores of Wrapsters. Thus, substantially all the
operations for the period on January 4, 1999 through acquisition date of August
31, 1999 would be considered costs from discontinuing operations. Pro forma
financial statements should only include income from ongoing operations. To
provide information for revenue and expense for the short time the Company had
stores not designated for closure would not be useful. Therefore, those pro
forma financial statements are not present.
Note I - Contingencies
Uptown Restaurant Group is in default under two real estate leases and four
equipment leases, which were executed while operating under Wrapsters, Inc. and
were personally, guarahteed by former officers of Wrapsters, Inc. The total
amount of the contingent liability is approximately $220,000. Management
believes the likelihood of collection action or litigation toward Uptown
Restaurant Group is considered remote.
<PAGE>
NYB Foods, Inc.
Financial Statements
March 31, 1999
<PAGE>
Table of Contents
Page No.
I. Independent Auditor's Report 1
II. Financial Statements
Balance Sheet 2
Statement of Income and Retained Earnings 3
Statement of Cash Flows 4-5
III. Notes to the Financial Statements 6-9
<PAGE>
James E. Raftery, CPA, PC
946 S. Stapley Drive, Suite 103 (480)835-1040
Mesa, Arizona 85204 FAX (480)835-8832
INDEPENDENT AUDITOR'S REPORT
To the Shareholders
NYB Foods, Inc.
I have audited the accompanying balance sheet of NYB Foods, Inc. as of March
31, 1999 and 1998, and the related statements of income and retained earnings
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted the audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and of the 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. I believe that my audit provides a reasonable basis for my
opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of NYB Foods, Inc. as of March 31,
1999 and 1998, and the results of its operations for the years then ended in
conformity with generally accepted accounting principles.
James E. Raftery, CPA
Mesa, Arizona
July 10, 1999 except for
Notes A-9 and G, which
Is May 5, 2000
Member, American Institute of Certified Public Accountants and Arizona Society
of Certified Public Accountants
<PAGE>
NYB FOODS, INC.
BALANCE SHEET
March 31,
1999 1998
ASSETS
Current Assets
Cash $68,808 $24,191
Accounts receivable, net of allowance
of $20,000 for 1999 64,054 35,630
Inventory (Note A) 1,857 -
Prepaid expenses 201,875 137,250
Advances to related parties (Note B) 229,459 122,963
Note receivable (Note C and K) 58,191 -
Deferred tax benefit (Note A and G) - 13,826
Total Current Assets 624,244 333,860
Property and Equipment (Note A and D) 105,986 8,549
Other Assets
Franchise documentation 40,000 40,000
Note receivable (Note C) 16,809 -
Refundable deposits 2,066 2,094
Organizational costs, net of amortization 50 100
58,925 42,194
$789,155 $384,603
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 28,762 $ 1,214
Commissions payable 15,580 21,365
Loan (Note B) 2,762 10,751
Note payable (Note F) 5,501 -
Deferred tax liability (Note A and G) 3,673 -
Deferred revenue (Note A) 633,500 324,500
Total Current Liabilities 689,778 357,830
Long Term Liabilities
Note Payable (Note F) 4,192 -
Total Liabilities 693,970 357,830
Equity
Common stock, 20,000,000 shares of no par value
authorized; 4,900,000 shares issued and
outstanding (Note H) 81,631 81,631
Retained earnings 13,554 (54,858)
95,185 26,773
$789,155 $384,603
The accompanying notes are an integral part of this financial statement.
<PAGE>
NYB FOODS, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
Years Ended March 31,
1999 1998
Revenue $769,936 $420,571
Operating Expenses 760,621 458,417
Net Income from Operations 9,315 (37,846)
Other Income and (Expense)
Miscellaneous Income (Note K) 100,599 11,219
Miscellaneous Expense (Note K) (35,031) -
Interest Income 12,606 7,475
Interest Expense (1,577) -
76,597 18,694
Net Income Before Taxes and Discontinued Operations 85,912 (19,152)
Loss From Discontinued Operations (Note J) - (7,645)
Net Income (Loss) Before Taxes 85,912 (26,797)
Provision for Taxes
Deferred tax benefit (expense) (Note A and G) (17,500) 6,455
Net Income (Loss) 68,412 (20,342)
Accumulated Deficit, beginning of year (54,858) (34,516)
Retained Earnings, end of year $ 13,554 $(54,858)
The accompanying notes are an integral part of this financial statement
<PAGE>
NYB FOODS, INC.
STATEMENT OF CASH FLOWS
Years Ended March 31,
1999 1998
Cash Flow From Operating Activities
Cash received from customers $741,508 $413,846
Cash paid to employees and suppliers (496,404) (341,106)
Miscellaneous income 25,599 11,219
Miscellaneous expense (35,031) -
Interest expense (1,577) -
Net Cash Provided (Used) By Operating Activities 234,095 83,959
Cash Flow From Investing Activities
Investments (93,887) (34,367)
Acquisition of equipment (105,284) (7,762)
Net Cash Provided (Used) By Investing Activities (199,171) (42,129)
Cash Flow From Financing Activities
Proceeds from notes payable 9,693 (19,000)
Net Increase (Decrease) in Cash 44,617 22,830
Beginning cash balance 24,191 1,361
Ending cash balance $ 68,808 $ 24,191
The accompanying notes are an integral part of this financial statement
<PAGE>
1999 1998
Reconciliation Of Net Income (loss) To Cash
Provided (used) by Operating Activities
Net (Loss) $ 68,412 $(20,342)
Adjustments to reconcile net income to cash provided
(used) by operating activities
Depreciation 7,845 1,252
Amortization 50 50
Loss from discontinued operations - 7,645
(Increase) decrease in operating assets
Accounts receivable (28,424) (14,200)
Interest receivable (12,607) (7,475)
Inventory (1,857) -
Prepaid expenses (64,625) (60,750)
Note receivable (75,000) -
Deferred tax benefit - (6,455)
Refundable deposits 28 (478)
Increase (decrease) in operating liabilities
Accounts payable 12,901 20,375
Deferred tax liability 17,499 -
Accrued expenses 8,862 -
Income tax payable - -
Deferred revenue 309,000 164,500
Advance (7,989) (163)
Net Cash Provided (Used) by Operating Activities $234,095 $ 83,959
The accompanying notes are an integral part of this financial statement
<PAGE>
NYB FOODS, INC.
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1999
NOTE A - SAY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of NYB Foods, Inc. (NYB) is
presented to assist in understanding the Corporation's financial statements. The
financial statements and notes are the representation of the Corporation's
management, who are responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
1. Nature of Business
NYB was incorporated in the state of Colorado on April 21, 1995 and
maintains its principal place of business in Mesa, Arizona. The Corporation's
principal business activity is that of a franchiser granting qualified persons
franchises for the operation of quick serve restaurants that operate under the
name New York Burrito Gourmet Wraps.
2. Deferred Revenue
Income from initial franchise fees is deferred and recognized when the
franchisee commences operations. At March 31, 1999, thirty-six stores were sold
but not opened, however six have begun operations in the subsequent fiscal year
at which time the initial franchise fee will be recognized as revenue.
3. Property and Equipment
Property and equipment are carried at cost. Depreciation of property and
equipment is provided using the straight-line method for financial reporting
purposes over a estimated useful life of five, seven and thirty nine years.
Depreciation expense for the years ended March 31, 1999 and 1998 was $7,845 and
$1,252, respectively.
4. Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between basis of equipment for financial and
income tax reporting. The deferred tax assets and liabilities represent the
future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
Deferred taxes also are recognized for capital losses that are not available to
offset future income taxes.
5. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Corporation considers all
short term debt securities purchased with a maturity of three months or less to
be cash equivalents.
6. Reclassifications
Certain accounts in the prior-year financial statements have been
reclassified for comparative purposes to conform with the presentation in the
current-year financial statements.
<PAGE>
NYB FOODS, INC.
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1999
NOTE A - SAY OF SIGNIFICANT ACCOUNTING POLICIES CONT:
7. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reporting amounts and disclosures. Accordingly,
actual results could differ from those estimates.
8. Inventories
Inventory consists of spices, sauces, and packaging supplies, valued at
lower of cost or market, on a first in, first out basis.
9. Prepaid Expenses
Income from initial franchise fees is deferred and recognized when the
franchisee commences operations. (Note A-2) Development agent commissions are
paid when franchise fees are received and for matching purposes are recognized
when the franchisee commences operations.
NOTE B - ADVANCES TO RELATED PARTIES
An unsecured note receivable, bearing interest at 8% per annum from a
majority shareholder:
1999 1998
Loan $206,854 $112,963
Accrued interest 22,605 10,000
$229,459 $122,963
Interest income related to this note for the years ended March 31, 1999 and
1998 was $12,606 and $7,475, respectively.
The Corporation uses a credit card that is issued to a shareholder. As of
March 31, 1999 and 1998, the balance owing was $2,762 and $10,751, respectively.
NOTE C- NOTES RECEIVABLE
Note receivable (Note K), secured by all contract
rights, accounts receivable, and title and interest
in and to all New York Burrito franchise restraurants
within the state of California. The note receivable
bears interest at 8% per annum and is payable in
fifteen equal installments of $5,678 $ 75,000
Less current portion 58,191
16,809
<PAGE>
NYB FOODS, INC
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1999
NOTE D - PROPERTY AND EQUOPMENT
Property and equipment are summarized by major classification as follows:
1999 1998
Equipment $ 45,930 $ 9,273
Training Facility 68,268 -
Leasehold Improvement 1,157 800
115,355 10,073
Less: Accumulated Depreciation (9,369) (1,524)
$105,986 $ 8,549
NOTE E - LEASE OBLIGATIONS
The Corporation conducts its operations from facilities in both Colorado and
Arizona under operating leases. Future minimum rental payments required for the
operating leases are as follows:
1999 1998
Year Ended March 31,
1999 $ - $14,026
2000 $63,204 $14,480
2001 $63,204 $ 2,426
2002 $33,612 $ -
2003 $27,694 $ -
2004 $20,771 $ -
Rental expense for the years ended March 31, 1999 and 1998 was $15,600 and
$16,099, respectively.
NOTE F- NOTE PAYABLE
Notes payable consisted of the following at March 31,:
1999 1998
Note payable in monthly installments of $9,693 $ -
$470.08, including interest at a rate of
18.50% per annum, secured by vehicle
Less current maturities 5,501 -
$4,192 $ -
<PAGE>
NYB FOODS, INC.
NOTES TO THE FINANCIAL STATEMENTS
March 31, 1999
NOTE G - INCOME TAXES
The Corporation has loss carryforwards totaling $68,482 which will be fully
absorbed in the current year. An elective tax rate of 20% was used in the
calculation of the deferred tax benefit in 1998. A valuation allowance was not
considered due to the improved performance & anticipated net income for
subsequent years.
The provisions for income taxes consist of the following components:
1999 1998
Federal income tax expense $22,630 $ -
State income tax expense 6,227 -
Deferred tax (benefit) expense 16,645 $(6,455)
$45,502 $(6,455)
The deferred tax liability is associated with the use of accelerated
depreciation methods for income tax purposes.
NOTE H- STOCKHOLDER'S EQUITY
On April 16, 1997, the number of authorized shares of common stock was
increased from 5,000,000 to 20,000,000.
On May 17, 1997, 2,500,000 shares of outstanding common stock split at a
rate of 1.356. In addition, 1,510,000 shares of common stock were issued.
NOTE I - CONTINGENCIES
Subsequent to March 31, 1998, the Corporation filed an arbitration action
of $50,000 against Gourmet Wrapps, LLC and Glen Grishkowsky for breach of a
Development Agreement and damages resulting therefrom. The arbitrator found in
favor of NYB Foods, Inc., and awarded the Corporation $19,500.
NOTE J- DISCONTINUED OPERATIONS
In May 1997, the Corporation sold its investment in the franchise store
located in Mesa, Arizona. The franchise was sold for $25,000. The Corporation
recognized a loss of $7,645 and $65,225 at March 31, 1998.
NOTE K- MISCELLANEOUS ITEMS
Miscellaneous expense includes a settlement in October 1998 with a landlord
in the amount of $30,000 for unsettled rent payments.
Miscellaneous income includes the sale of California royalty rights to a
corporation for $100,000; $25,000 cash and a note for $75,000 (Note C).
<PAGE>
WRAPSTERS, INC.
Financial Statements
January 3, 1999
(with Independent Accountants' Report thereon)
<PAGE>
Porter Keadle Moore, LLP
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Wrapsters, Inc.
We have audited the accompanying balance sheet of Wrapsters, Inc. as of January
3, 1999 and the related statements of operations, stockholders' equity (deficit)
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wrapsters, Inc. as of January
3, 1999, and the results of its operations and its cash flows for the year then
ended.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 8, the Company
has experienced significant net losses since inception, has been unable to
generate positive cumulative cash flows from operations, and, at January 3,
1999, has a significant working capital deficiency. These facts raise
substantial doubt about the Company's ability to continue as a going concern.
Note 8 also describes management's plans to alleviate these financial concerns.
The financial statements do not include any adjustments that might result from
this uncertainty.
Porter Keadle Moore, LLP
Atlanta, Georgia
August 31, 1999
Certified Public Accountants
Suite 1800 235 Peachtree Street NE Atlanta, Georgia 30303 Phone 404-588-4200
Fax 404-588-4222
<PAGE>
WRAPSTERS, INC.
Balance Sheet
January 3,1999
Assets
Current assets:
Cash $ 26,046
Inventory 9,919
Due from stockholder 1,154
Total current assets 37,119
Property and equipment, net 271,920
Other assets 33,390
$ 342,429
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable and accrued expenses $ 286,475
Deferred franchise fees 50,000
Note payable 20,000
Notes payable to affiliates 521,876
Total current liabilities 878,351
Commitments and contingencies (see note 7)
Stockholders' equity (deficit):
Series B redeemable convertible preferred
stock; no par value, 113,500 shares
authorized, issued and outstanding
(liquidation preference of $1,232,952) 990,594
Common stock; no par value, 25,000,000
shares authorized, 7,990,480 shares
issued and outstanding 19,741
Accumulated deficit (1,546,257)
Total stockholders' equity (deficit) (535,922)
$ 342,429
See accompanying notes to financial statements.
<PAGE>
WRAPSTERS, INC.
Statement of Operations
For the Year Ended January 3,1999
Revenue:
Restaurant sales revenue $ 315,026
Other income 27,472
Total revenue 342,498
Operating expenses:
Food, beverages and paper 124,944
Payroll and benefits 521,595
Occupancy 161,979
Other operating 571,406
Total operating expenses 1,379,924
Other expenses:
Interest expense 37,783
Loss on store closings 207,473
Total other expenses 245,256
Net loss $(1,282,682)
Basic and diluted loss per common share $ (0.17)
See accompanying notes to financial statements.
<PAGE>
WRAPSTERS, INC.
Statement of Changes in Stockholders' Equity (Deficit)
For the Year Ended January 3, 1999
Members' Preferred Stock Common Stock Accumulated
Equity Shares Amount Shares Amount Deficit Total
Wrapsters, LC
(see Note 1):
Balance,
December 31,
1997 $418,624 - - - - (263,575) 155,049
Capital
contributions 30,000 - - - - - 30,000
Net loss - - - - - (80,528) (80,528)
Balance
immediately
before merger 448,624 - - - - (344,103) 104,521
Wrapsters, Inc.
(see Note 1):
Conversion of
members' equity
to note
payable (428,883) - - - - - (428,883)
Issuance of
common stock (19,741) - - 7,600,000 19,741 - -
Existing HAI
stockholders - - - 390,480 - - -
Issue Series
B preferred
stock - 113,500 990,594 - - - 990,594
Net loss
post merger - - - - - (1,202,154) (1,202,154)
Balance,
January 3,
1999 $ - 113,500 990,594 7,990,480 19,741 (1,546,257) (535,922)
See accompanying notes to financial statements.
<PAGE>
WRAPSTERS, INC.
Statement of Cash Flows
For the Year Ended January 3, 1999
Cash flows from operating activities:
Net loss $ (1,282,682)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 40,459
Loss on store closings 207,472
Change in operating assets and liabilities:
Accounts receivable (1,154)
Other assets (20,300)
Inventory (4,961)
Accounts payable and accrued expenses 206,894
Deferred franchise fees 50,000
Net cash used by operating activities (804,272)
Cash flows from investing activities:
Proceeds from disposal of property and equipment 16,500
Purchases of property and equipment (353,386)
Net cash used by investing activities (336,886)
Cash flows from financing activities:
Proceeds from notes payable to affiliate 92,993
Proceeds from note payable 10,000
Capital contribution 30,000
Issuance of Series B preferred stock 990,594
Net cash provided by financing activities 1,123,587
Net change in cash (17,571)
Cash, beginning of year 43,617
Cash, end of year $ 26,046
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 588
Noncash investing and financing activities:
Equity converted to debt $ 428,883
Conversion of limited liability corporation
interest into common stock $ 19,741
See accompanying notes to financial statement.
<PAGE>
WRAPSTERS, INC.
Notes to Financial Statements
(1) Summary of Significant Accounting Policies
Company Background and Nature of Operations
On February 19, 1998, Wrapsters, Inc. (the "Company") was formed by the
merger of Wrapsters, L.C., a Florida limited liability company, with HAI
Enterprises, Inc. ("HAI"), a Colorado corporation. Wrapsters, L.C. was formed on
June 6, 1997 and operated two quick services restaurants in Boca Raton, Florida
specializing in freshly prepared, healthy flour tortilla wraps, fruit smoothies
and other related menu items. HAI was formed February 23, 1996 and had no
significant assets, liabilities or operations at the time of the merger. HAI was
the surviving entity from the merger and immediately changed its name to
Wrapsters, Inc.
The merger was effected by exchanging total members' equity in Wrapsters,
L.C. for 3,800,000 shares of HAI no par or stated value common stock and issuing
a note payable to one of the members in the amount of $428,883 (see Note 4).
For accounting purposes, this merger was accounted for as a purchase
transaction, and since the previous HAI stockholders only controlled 4.9% of the
Company's common stock following the merger while the previous members of
Wrapsters, L.C. owned 50% of the Company following the merger, this transaction
is considered a reverse merger and Wrapsters, L.C. is considered to be the
surviving entity. No goodwill or other intangible assets resulted from this
merger.
Following the merger, the Company opened five more stores during 1998 and
closed three stores during the year. At January 3, 1999, the Company was
operating four stores, three located in Atlanta, Georgia and one located in
Arlington, Virginia.
Basis of Presentation and Fiscal Year
The Company operates on a 52/53-week fiscal year ending on the Sunday
closest to December, 31 of each year. Accordingly, the financial statements
presented ended on January 3, 1999. All general references to years relate to
fiscal years unless otherwise noted.
The financial statements are prepared in accordance with generally accepted
accounting principles ("GAAP"). In preparing financial statements in accordance
with GAAP, management is required to make certain estimates. Actual results
could vary from those estimates.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of food, beverages, paper products and supplies.
Property and Equipment
Property and equipment is recorded at cost, less accumulated depreciation.
Major additions and improvements are charged to the property accounts while
replacements, maintenance and repairs which do not improve or extend the life of
respective assets are expensed currently. When property is retired or otherwise
disposed, the cost and related accumulated depreciation are removed from the
accounts and the resulting gain or loss, if any, is recognized.
Depreciation is computed using the straight-line method. The following
represents the useful lives over which the assets are depreciated:
Leasehold improvements Life of lease
Furniture, fixtures and equipment 7 years
Signage 7 years
Computer equipment 3 years
Revenue Recognition
Revenue is recognized in the period for which related food and beverage
products are sold. Initial fees from the awarding of individual franchises are
deferred and recorded as revenue when the franchised restaurant is opened
<PAGE>
WRAPSTERS, INC.
Notes to Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Pre-Opening Costs
Pre-opening costs are incurred before a restaurant is opened and consist
primarily of wages and salaries, hourly employee recruiting, license fees,
meals, lodging and travel plus the cost of hiring and training the management
teams. Pre-opening costs are expensed as incurred.
Advertising Costs
The Company expenses all advertising costs as incurred.
Loss on Store Closings
When the Company closes a store, management determines whether the
estimated net realizable value of property and equipment held at the store that
will not be transferred to another location but which will be sold or otherwise
disposed exceeds the assets' carrying value. To the extent that the estimated
net realizable value is less than the carrying value, the related loss is
immediately accrued. Likewise, management estimates the total net future lease
payments, including estimated lease settlement payments, that will be paid
before the Company can negotiate a release from the lease and accrues a loss for
this amount.
Income Taxes
Deferred tax assets and liabilities are recorded for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which the assets and
liabilities are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income tax
expense in the period that includes the enactment date.
In the event the future tax consequences of differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities results in deferred tax assets, an evaluation of the probability of
being able to realize the future benefits indicated by such asset is required.
A valuation allowance is provided for the portion of the deferred tax asset
when it is more likely than not that some portion or all of the deferred tax
asset will not be realized. In assessing the realizability of the deferred tax
assets, management considers the scheduled reversals of deferred tax
liabilities, projected future taxable income and tax planning strategies. At
January 3, 1999, the Company's only significant deferred tax attribute was its
net operating loss since inception, and this deferred tax asset has been fully
reserved.
Earnings (Loss) Per Common Share
The Company is required to report on the face of the statement of
operations the income (loss) per common share with and without the dilutive
effects of potential common stock issuances from instruments such as options,
convertible securities and warrants. Basic earnings per common share is based on
the weighted average number of common shares outstanding during the period while
the effects of potential common shares outstanding during the period are
included in diluted earnings per common share. The Company excludes the
potentially dilutive securities from the calculation of loss per share because
their inclusion is anti-dilutive since the Company is operating at a loss. Due
to the merger, the Company believes the most meaningful presentation is to treat
all common shares outstanding immediately following the merger as outstanding
for the entire year.
The following table summarizes the calculation of basic and dilutive loss
per share:
Net loss $ (1,282,682)
Less dividends on Series B preferred stock (97,952)
Net loss attributable to common stockholders $ (1,380,634)
Weighted average common shares outstanding 7,990,480
Basic and dilutive loss per common share $ (0.17)
<PAGE>
WRAPSTERS, INC.
Notes to Financial Statements, continued
(2) Property and Equipment
Property and equipment at January 3, 1999 is summarized as follows:
Leasehold improvements $ 114,560
Furniture, fixtures and equipment 139,004
Signage 31,372
Computer equipment 5,727
290,663
Less accumulated depreciation 18,743
Net property and equipment $ 271,920
Depreciation expense amounted to $40,459 fiscal 1998.
(3) Note Payable
Notes payable consists of a $20,000 revolving line of credit with a bank.
The line of credit bears interest at 2% above the lender's index rate, as
defined, is guaranteed by the two of the Company's stockholders and is
collateralized by substantially all assets of the Company. The line of credit is
due on demand.
(4) Notes Payable to Affiliates
In connection with the merger discussed in Note 1, $428,883 of members'
equity belonging to one of the two members of Wrapsters, L.C. was converted into
an unsecured promissory note in that amount. The note bears interests at 10% per
year. Provisions in the promissory note state that the principal balance and all
accrued interest must be repaid upon the earlier to occur of either August 20,
1999 or the receipt by the Company of any financing subsequent to the merger and
the related stock sale described in Note 5 in the amount of at least $1,000,000.
The principal balance is to be repaid at the option of the holder in either cash
or the Company's registered common stock valued at the lesser of $1.00 per share
or 80% of the market price of the Company's common stock at the time of
conversion. If the Company does not repay this note by the maturity date, the
interest rate converts to the maximum amount allowed by law in the state of
Florida.
The Company has issued a convertible secured note to one of its
stockholders. This note allows the Company to borrow up to $150,000, bears
interest at 7% per year and is collateralized by all assets of the Company not
already encumbered by the note payable discussed in Note 3. The note plus all
accrued interest are due May 31, 1999 and are payable at the holder's option in
either cash or the Company's common stock valued at the lesser of $1.00 per
share or 80% of the market price of the Company's common stock at the time of
conversion. If the Company does not repay this note by the maturity date, the
interest rate converts to 18% per year. At January 3, 1999, $84,000 was
outstanding on this note. This note was not repaid at maturity (see note 9).
As a condition of the convertible secured note, the President of the
Company agreed to reduce the cash portion of his salary by one-half with the
other half being taken in the form of an unsecured promissory note with the same
terms and conditions as the convertible secured note, except for the lack of any
security interest. At January 3, 1999, $8,993 was outstanding on this salary
deferral note.
(5) Capital Structure and Transactions
As described in Note 1, Wrapsters, L.C. operated as a limited liability
company prior to the merger with HAI. As such, Wrapsters, L.C. had no
outstanding equity securities. Its equity was embodied in the members' equity
account. Upon the merger, the members' equity interests were exchanged for
3,800,000 shares of the Company's common stock and for an unsecured promissory
note.
Simultaneous with the merger, the Company sold 3,800,000 shares of its
common stock and 113,500 shares of Series B preferred stock ("Series B
Preferred") to an affiliate for $1,000,000 less offering costs of $9,406. For
accounting purposes, management has attributed all the proceeds to the Series B
Preferred based upon the cumulative dividend rights, redemption and conversion
features and the liquidation preference in the Series B Preferred and
management's belief that the common stock essentially had no significant value
at that time.
<PAGE>
WRAPSTERS, INC.
Notes to Financial Statements, continued
(5) Capital Structure and Transactions, continued
The Series B Preferred pays cumulative dividends at a 10% annual rate based
on the stock's face value of $10 per share. The Series B Preferred has a
liquidation preference of $10 per share plus unpaid cumulative dividends and is
nonvoting, except in limited situations. At the Company's option, the Series B
Preferred can be redeemed in whole or in part at any time at $10 per share plus
cumulative unpaid dividends. At the holder's option, the Series B Preferred can
be converted at any time into publicly traded preferred stock issued by the
Company at a conversion rate of one share of Series B Preferred for each share
of publicly traded preferred stock. At January 3, 1999, dividends in arrears on
this preferred stock totalled $97,952.
(6) Stock Options and Warrants
On September 3, 1998, the Company adopted the 1998 Stock Compensation Plan,
which reserves an aggregate of 800,000 shares of the Company's common stock for
issuance to certain officers, directors, employees and advisors in the form of
either incentive stock options or non-qualified stock options, within certain
limitations specified in the plan document. Options granted under this plan must
be granted at a minimum of the fair market value at the date of grant and the
Company can, in its discretion issue simultaneously alternative stock
appreciation rights. In that case, the optionee can choose whether to exercise
the option or the stock appreciation right. Options must be exercised within a
period of no more than ten years from the plan's inception. During fiscal 1998,
all options granted pursuant to this plan vested in no more than three years and
are exercisable for a period of five years.
The following summarizes stock option activity related to this plan through
January 3, 1999:
Exercise
Shares Price
Options granted 157,500 $ 1.00
Options canceled 7,500 1.00
Options outstanding at January 3, 1999 150,000 $ 1.00
At January 3, 1999, options on 136,668 shares were exercisable and all
options had weighted average remaining contractual life of approximately four
and two-thirds years.
The Company accounts for stock options pursuant to Accounting Principals
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. Accordingly, no compensation cost has been recognized in
connection with these options. Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," ("SFAS No. 123") encourages, but
does not require, entities to compute the fair value of options at the date of
grant and to recognize such costs as compensation expense immediately if there
is no vesting period or ratably over the vesting period of the options. The
Company has chosen not to adopt the cost recognition principles of SFAS No. 123.
Had compensation cost been determined based upon the fair value of the options
at the grant dates consistent with the method of SFAS No. 123, the Company's net
loss and loss per share would not have been effected to any measurable degree
based on management's use of the minimum value method with the following
weighted average grant date assumptions used for grants in 1998: fair value of
the underlying stock of $0.01, dividend yield of 0%, risk free interest rate
of 5.5% and an expected life of five years.
All of these options will be terminated in connection with the NYB Foods,
Inc. transaction discussed in note 9.
<PAGE>
WRAPSTERS, INC.
Notes to Financial Statements, continued
(7) Commitments and Contingencies
Leases
The Company leases certain store locations and equipment pursuant to
operating leases with initial terms ranging from three to five years, with
renewal options of up to five years. Future minimum lease payments (which do not
include amounts payable by the Company for maintenance costs, real estate taxes
and insurance, or contingent rentals payable on a percentage of sales in excess
of stipulated amounts for the store locations) under noncancelable operating
leases, including leases on the three stores that were closed during 1998, at
January 3, 1999 are as follows:
Fiscal Year Ended
1999 $ 149,000
2000 151,000
2001 113,000
2002 73,000
2003 47,000
Total minimum lease payments $ 533,000
The Company incurred rent expense during fiscal 1998 of approximately
$119,000.
Employment Agreements
Effective February 20, 1998, the Company entered into employment agreements
with its president, its Board chairman, and its Board vice chairman. The
employment agreements specified certain salaries and other benefits that would
be paid in exchange for their services to the Company. The agreements were for
one year terms and two of them expired in February 1999 and were not renewed;
however, the Company is continuing to honor these agreements as though they had
been renewed. The agreement with the vice chairman of the Board was modified on
July 8, 1998 to become effective on the date that individual was able to bring
to the Company financing of at least $750,000 and would then run for a term of
three years from that date. The financing has not yet been received, so the term
has not yet begun.
These employment agreements will be terminated in connection with the NYB
Foods, Inc. transaction discussed in Note 9.
Litigation
During 1998, the Company sold one franchise to an individual for a
franchise fee of $50,000. A dispute subsequently arose and the individual filed
suit against the Company in connection with that franchise. The Company is
negotiating a settlement with that individual and believes it is probable that a
settlement will be reached that will not involve any significant costs to the
Company. The franchise fee has been deferred pending resolution of this matter.
Litigation against the Company has commenced seeking eviction and possible
monetary damages against the Company in connection with leases on two closed
stores. Additionally, future similar litigation is possible in connection with
leases on other closed stores. At this time, management cannot reasonably
estimate any possible losses resulting from these matters.
The 1998 financial statements do not include any loss provision in
connection with the above matters.
(8) Going Concern Considerations
At January 3, 1999, the Company had an accumulated deficit of $1,546,257,
incurred a net loss during 1998 of $1,282,682, had negative cash flows from
operations of $804,272 and had negative working capital of $841,232. Since that
date, the Company has continued to loss money and has closed all but two of its
stores (see Note 9). Management is negotiating with certain parties to merge the
Company in an effort to strengthen its financial position and operations, and
they believe the financing available to them from affiliates as well as
negotiations with certain suppliers will enable the Company to continue
operations until a transaction is consummated that will strengthen its financial
position (see Note 9). The financial statements do not reflect any adjustments
that may be necessary in the event the Company does not successfully consummate
such a merger transaction.
<PAGE>
WRAPSTERS, INC.
Notes to Financial Statements, continued
(9) Subsequent Events
During 1999, the Company closed its two Florida stores leaving only the two
stores in Atlanta, Georgia in operation. The Company is also contemplating
closing the two remaining stores.
On August 31, 1999, the Company executed an Agreement and Plan of
Reorganization with NYB Foods, Inc. ("NYB") and NYB Acquisitions Corp.
("Acquisitions") a newly formed, wholly owned subsidiary of the Company, whereby
all 4,900,000 previously outstanding shares of NYB will be exchanged for
$500,000 and 7,500,000 newly issued shares of the Company's common stock, and
NYB will be merged with and into Acquisitions with Acquisitions being the
surviving entity. In connection with this agreement, two of the Company's
existing shareholders will surrender 1,250,000 shares of Company common stock
they own to the Company. Additionally, all notes payable to affiliates will be
converted to common stock of the Company at a rate of one share of common stock
for each dollar of indebtedness or will be repaid in full, and all Series B
preferred stock will be converted to the Company's common stock at a rate of
three shares of common stock for each share of preferred stock. As a part of the
merger, the Company will contribute $200,000 to Acquisitions for its working
capital from a private placement to be closed simultaneously with the merger,
and the Company will commit to raise an additional $1,000,000 of capital for
working capital purposes within six months of the closing of this merger. This
merger is expected to close during the fourth quarter of 1999.
<PAGE>
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Colorado statutes and the Articles of Incorporation of the Issuer provide
for indemnification of officers and directors and for limitation on their
liability, as follows:
Colorado Revised Statutes Section 7-108-401: General standards of conduct
for directors and officers. (1) Each director shall discharge his or her duties
as a director, including his or her duties as a member of a committee, and each
officer with discretionary authority shall discharge his or her duties under
that authority:
(a) In good faith;
(b) With the care an ordinarily prudent person in a like position
would exercise under similar circumstances; and
(c) In a manner he or she reasonably believes to be in the best
interests of the corporation.
(2) In discharging his or her duties, a director or officer is entitled to
rely on information, opinions, reports, or statements, including financial
statements and other financial data, if prepared or presented by:
(a) One or more officers or employees of the corporation whom the
director or officer reasonably believes to be reliable and competent in the
matters presented;
(b) Legal counsel, a public accountant, or another person as to
matters the director or officer reasonably believes are within such person's
professional or expert competence; or
(c) In the case of a director, a committee of the board or directors
of which the director is not a member if the director reasonably believes the
committee merits confidence.
(3) A director or officer is not acting in good faith if he or she has
knowledge concerning the matter in question that makes reliance otherwise
permitted by subsection (2) of this section unwarranted.
(4) A director or officer is not liable as such to the corporation or its
shareholders for any action he or she takes or omits to take as a director or
officer, as the case may be, if, in connection with such action or omission, he
or she performed the duties of the position in compliance with this section.
Colorado Revised Statutes Section 7-108-402: Limitation of certain
liabilities of directors and officers. (1) If so provided in the articles of
incorporation, the corporation shall eliminate or limit the personal liability
of a director to the corporation or to its shareholders for monetary damages for
breach of fiduciary duty as a director; except that any such provision shall not
eliminate or limit the liability of a director to the corporation or to its
shareholders for monetary damages for any breach of the director's duty of
loyalty to the corporation or to its shareholders, acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
acts specified in section 7-108-403, or any transaction from which the director
directly or indirectly derived an improper personal benefit. No such provision
shall eliminate or limit the liability of a director to the corporation or to
its shareholders for monetary damages for any act or omission occurring before
the date when such provision becomes effective.
(2) No director or officer shall be personally liable for any injury to
person or property arising out of a tort committed by an employee unless such
director or officer was personally involved in the situation giving rise to the
litigation or unless such director or officer committed a criminal offense in
connection with such situation. The protection afforded in this subsection (2)
shall not restrict other common-law protections and rights that a director or
officer may have. This subsection (2) shall not restrict the corporation's right
to eliminate or limit the personal liability of a director to the corporation or
to its shareholders for monetary damages for breach of fiduciary duty as a
director as provided in subsection (1) of this section.
Colorado Revised Statutes Section 7-108-403: Liability of directors for
unlawful distributions. (1) A director who votes for or assents to a
distribution made in violation of section 7-106-401 or the articles of
incorporation is personally liable to the corporation for the amount of the
distribution that exceeds what could have been distributed without violating
said section or the articles of incorporation if it is established that the
director did not perform the director's duties in compliance with section
7-108-401. In any proceeding commenced under this section, a director shall have
all of the defenses ordinarily available to a director.
(2) A director held liable under subsection (1) of this section for an
unlawful distribution is entitled to contribution:
(a) From every other director who could be held liable under
subsection (1) of this section for the unlawful distribution; and
(b) From each shareholder who accepted the distribution knowing the
distribution was made in violation of section 7-106-401 or the articles of
incorporation, the amount of the contribution from such shareholder being the
amount of the distribution to that shareholder that exceeds what could have
been distributed to that shareholder without violating said section or the
articles of incorporation.
Colorado Revised Statutes Section 7-108-501: Conflicting interest
transaction. (1)(a) As used in this section, "conflicting interest transaction"
means any of the following:
(i) A loan or other assistance by the corporation to a director
of the corporation or to an entity in which a director of the corporation is a
director or officer or has a financial interest;
(ii) A guaranty by a corporation of an obligation of a director
of the corporation or of an obligation of an entity in which a director of the
corporation is a director or officer or has a financial interest; or
(iii) A contract or transaction between a corporation and a
director of the corporation or between the corporation and an entity in which a
director of the corporation is a director or officer or has a financial
interest.
(b) "Conflicting interest transaction" shall not include any
transaction between a corporation and another entity that owns, directly or
indirectly, all of the outstanding shares of the corporation or all of the
outstanding shares or other equity interests of which are owned, directly or
indirectly, by the corporation.
(2) No conflicting interest transaction shall be void or voidable or be
enjoined, set aside, or give rise to an award of damages or other sanctions in
a proceeding by a shareholder or by or in the right of the corporation, solely
because the conflicting interest transaction involves a director of the
corporation or an entity in which a director of the corporation is a director or
officer or has a financial interest or solely because the director is present at
or participates in the meeting of the corporation's board of directors or of the
committee of the board of directors which authorizes, approves, or ratifies
the conflicting interest transaction or solely because the director's vote is
counted for such purpose if:
(a) The material facts as to the director's relationship or interest
and as to the conflicting interest transaction are disclosed or are known to the
board of directors or the committee, and the board of directors or committee in
good faith authorizes, approves, or ratifies the conflicting interest
transaction by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors are less than a quorum; or
(b) The material facts as to the director's relationship or interest and as to
the conflicting interest transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the conflicting interest transaction
is specifically authorized, approved, or ratified in good faith by a vote of the
shareholders; or
(c) The conflicting interest transaction is fair to the corporation.
(3) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors or of a committee
which authorizes, approves, or ratifies the conflicting interest transaction.
(4) A board of directors or a committee thereof shall not authorize a
loan, by the corporation to a director of the corporation or to an entity in
which a director of the corporation is a director or officer or has a financial
interest, or a guaranty, by the corporation of an obligation of an obligation of
a director of the corporation or of an obligation of an entity in which a
director of the corporation is a director or officer or has a financial
interest, pursuant to paragraph (a) of subsection (2) of this section until at
least ten days after written notice of the proposed authorization of the loan or
guaranty has been given to the shareholders who would be entitled to vote
therein if the issue of the loan or guaranty were submitted to a vote of the
shareholders.
Colorado Revised Statutes Section 7-109-102: Authority to indemnify
directors. (1) Except as provided in subsection (4) of this section, a
corporation may indemnify a person made a party to a proceeding because the
person is or was a director against liability incurred in the proceeding if:
(a) The person conducted himself or herself in good faith; and
(b) The person reasonably believed:
(i) In the case of conduct in an official capacity with the
corporation, that his or her conduct was in the corporation's best interests;
and
(ii) In all other cases, that his or her conduct was at least not
opposed to the corporation's best interests; and
(c) In the case of any criminal proceeding, the person had no
reasonable cause to believe his or her conduct was unlawful.
(2) A director's conduct with respect to an employee benefit plan for a
purpose the director reasonably believed to be in the interests of the
participants in or beneficiaries of the plan is conduct that satisfies the
requirement of subparagraph (II) of paragraph (b) of subsection (1) of this
section. A director's conduct with respect to an employee benefit plan for a
purpose that the director did not reasonably believe to be in the interests of
the participants in or beneficiaries of the plan shall be deemed not to
satisfy the requirements of paragraph (a) of subsection (1) of this section.
(3) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director did not meet the standard of conduct
described in this section.
(4) A corporation may not indemnify a director under this section:
(a) In connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the corporation; or
(b) In connection with any other proceeding charging that the
director derived an improper personal benefit, whether or not involving action
in an official capacity, in which proceeding the director was adjudged liable on
the basis that he or she derived an improper personal benefit.
(5) Indemnification permitted under this section in connection with a
proceeding by or in the right of the corporation is limited to reasonable
expenses incurred in connection with the proceeding.
Colorado Revised Statutes Section 7-109-103: Mandatory indemnification of
directors. Unless limited by its articles of incorporation, a corporation shall
indemnify a person who was wholly successful, on the merits or otherwise, in the
defense of any proceeding to which the person was a party because the person
is or was a director, against reasonable expenses incurred by him or her in
connection with the proceeding.
Colorado Revised Statutes Section 7-109-104: Advance of expenses to
directors. (1) A corporation may pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of the final
disposition of the proceeding if:
(a) The director furnishes to the corporation a written affirmation
of the director's good faith belief that he or she has met the standard of
conduct described in section 7-109-102;
(b) The director furnishes to the corporation a written undertaking,
executed personally or on the director's behalf, to repay the advance if it is
ultimately determined that he or she did not meet the standard of conduct; and
(c) A determination is made that the facts then known to those making
the determination would not preclude indemnification under this article.
(2) The undertaking required by paragraph (b) of subsection (1) of this
section shall be an unlimited general obligation of the director but need not
be secured and may be accepted without reference to financial ability to make
repayment.
(3) Determinations and authorizations of payments under this section shall
be made in the manner specified in section 7-109-106.
Colorado Revised Statutes Section 7-109-105: Court-ordered indemnification
of directors. (1) Unless otherwise provided in the articles of incorporation, a
director who is or was a party to a proceeding may apply for indemnification to
the court conducting the proceeding or to another court of competent
jurisdiction. On receipt of an application, the court, after giving any notice
the court considers necessary, may order indemnification in the following
manner:
(a) If it determines that the director is entitled to mandatory i
ndemnification under section 7-109-103, the court shall order indemnification,
in which case the court shall also order the corporation to pay the director's
reasonable expenses incurred to obtain court-ordered indemnification.
(b) If it determines that the director is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances, whether
or not the director met the standard of conduct set forth in section
7-109-102(1) or was adjudged liable in the circumstances described in section
7-109-102(4), the court may order such indemnification as the court deems
proper; except that the indemnification with respect to any proceeding in which
liability shall have been adjudged in the circumstances described in section
7-109-102(4) is limited to reasonable expenses incurred in connection with the
proceeding and reasonable expenses incurred to obtain court-ordered
indemnification.
Colorado Revised Statutes Section 7-109-106: Determination and
authorization of indemnification of directors. (1) A corporation may not
indemnify a director under section 7-109-102 unless authorized in the specific
case after a determination has been made that indemnification of the director is
permissible in the circumstances because the director has met the standard of
conduct set forth in section 7-109-102. A corporation shall not advance expenses
to a director under section 7-109-104 unless authorized in the specific case
after the written affirmation and undertaking required by section
7-109-104(1)(a) and (1)(b) are received and the determination required by
section 7-109-104(1)(c) has been made.
(2) The determinations required by subsection (1) of this section shall be
made:
(a) By the board of directors by a majority vote of those present at
a meeting at which a quorum is present, and only those directors not parties to
the proceeding shall be counted in satisfying the quorum; or
(b) If a quorum cannot be obtained, by a majority vote of a committee
of the board of directors designated by the board of directors, which committee
shall consist of two or more directors not parties to the proceeding; except
that directors who are parties to the proceeding may participate in the
designation of directors for the committee.
(3) If a quorum cannot be obtained as contemplated in paragraph (a) of
subsection (2) of this section, and a committee cannot be established under
paragraph (b) of subsection (2) of this section, or, even if a quorum is
obtained or a committee is designated, if a majority of the directors
constituting such quorum or such committee so directs, the determination
required to be made by subsection (1) of this section shall be made:
(a) By independent legal counsel selected by a vote of the board of
directors or the committee in the manner specified in paragraph (a) or (b) of
subsection (2) of this section or, if a quorum of the full board cannot be
obtained and a committee cannot be established, by independent legal counsel
selected by a majority vote of the full board of directors; or
(b) By the shareholders.
(4) Authorization of indemnification and advance of expenses shall be made
in the same manner as the determination that indemnification or advance of
expenses is permissible; except that, if the determination that indemnification
or advance of expenses is permissible is made by independent legal counsel,
authorization of indemnification and advance of expenses shall be made by the
body that selected such counsel.
Colorado Revised Statutes Section 7-109-107: Indemnification of officers,
employees, fiduciaries, and agents. (1) Unless otherwise provided in the
articles of incorporation:
(a) An officer is entitled to mandatory indemnification under section
7-109-103, and is entitled to apply for court-ordered indemnification under
section 7-109-105, in each case to the same extent as a director;
(b) A corporation may indemnify and advance expenses to an officer,
employee, fiduciary, or agent of the corporation to the same extent as to a
director; and
(c) A corporation may also indemnify and advance expenses to an
officer, employee, fiduciary, or agent who is not a director to a greater
extent, if not inconsistent with public policy, and if provided for by its
bylaws, general or specific action of its board of directors or shareholders, or
contract.
Colorado Revised Statutes Section 7-109-108: Insurance. A corporation may
purchase and maintain insurance on behalf of a person who is or was a director,
officer, employee, fiduciary, or agent of the corporation, or who, while a
director, officer, employee, fiduciary, or agent of the corporation, is or was
serving at the request of the corporation as a director, officer, partner,
trustee, employee, fiduciary, or agent of another domestic or foreign
corporation or other person or of an employee benefit plan, against liability
asserted against or incurred by the person in that capacity or arising from
his or her status as a director, officer, employee, fiduciary, or agent,
whether or not the corporation would have power to indemnify the person
against the same liability under section 7-109-102, 7-109-103, or 7-109-107. Any
such insurance may be procured from any insurance company designated by the
board of directors, whether such insurance company is formed under the laws of
this state or any other jurisdiction of the United States or elsewhere,
including any insurance company in which the corporation has an equity or
any other interest through stock ownership or otherwise.
Colorado Revised Statutes Section 7-109-109: Limitation on indemnification
of directors. (1) A provision treating a corporation's indemnification of, or
advance of expenses to, directors that is contained in its articles of
incorporation or bylaws, in a resolution of its shareholders or board of
directors, or in a contract, except an insurance policy, or otherwise, is valid
only to the extent the provision is not inconsistent with sections 7-109-101
to 7-109-108. If the articles of incorporation limit indemnification or advance
of expenses, indemnification and advance of expenses are valid only to the
extent not inconsistent with the articles of incorporation.
(2) Sections 7-109-1-1 to 7-109-108 do not limit a corporation's power to
pay or reimburse expenses incurred by a director in connection with an
appearance as a witness in a proceeding at a time when he or she has not been
made a named defendant or respondent in the proceeding.
Colorado Revised Statutes Section 7-109-110: Notice to shareholders of
indemnification of director. If a corporation indemnifies or advances expenses
to a director under this article in connection with a proceeding by or in the
right of the corporation, the corporation shall give written notice of the
indemnification or advance to the shareholders with or before the notice of the
next shareholders' meeting. If the next shareholder action is taken without a
meeting at the instigation of the board of directors, such notice shall be given
to the shareholders at or before the time the first shareholder signs a writing
consenting to such action.
Article Seventh, Subsection (a), Articles of Incorporation: Conflicting
Interest Transactions. As used in this paragraph, "conflicting interest
transaction" means any of the following: (i) a loan or other assistance by the
corporation to a director of the corporation or to an entity in which a director
of the corporation is a director or officer or has a financial interest; (ii) a
guaranty by the corporation of an obligation of a director of the corporation or
of an obligation of an entity in which a director of the corporation is a
director or officer or has a financial interest; or (iii) a contract or
transaction between a corporation and a director of the corporation or between
the corporation and an entity in which a director of the corporation is a
director or officer or has a financial interest. No conflicting interest
transaction shall be void or voidable, be enjoined, be set aside, or give rise
to an award of damages or other sanctions in a proceeding by a shareholder or
by or in the right of the corporation, solely because the conflicting interest
transaction involves a director of the corporation or an entity in which a
director of the corporation is a director or officer or has a financial
interest, or solely because the director is present at or participates in the
meeting of the corporation's board of directors or of the committee of the
board of directors which authorizes, approves or ratifies the conflicting
interest transaction or solely because the director's vote is counted for
such purpose if: (A) the material facts as to the director's relationship or
interest and as to the conflicting interest transaction are disclosed or are
known to the board of directors or the committee, and the board of directors or
committee in good faith authorizes, approves, or ratifies the conflicting
interest transaction by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors are less than a quorum; or
(B) the material facts as to the director's relationship or interest and as to
the conflicting interest transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the conflicting interest transaction
is specifically authorized, approved or ratified in good faith by a vote of the
shareholders; or (c) a conflicting interest transaction is fair to the
corporation as of the time it is authorized, approved or ratified by the board
of directors, a committee thereof, or the shareholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the board of directors or of a committee which authorizes, approves or ratifies
the conflicting interest transaction.
Article Seventh, Subsection (b), Articles of Incorporation: Loans and
Guaranties for the Benefit of Directors. Neither the board of directors nor any
committee thereof shall authorize a loan by the corporation to a director of the
corporation or to an entity in which a director of the corporation is a director
or officer or has a financial interest, or a guaranty by the corporation of an
obligation of an obligation of a director of the corporation or of an obligation
of an entity in which a director of the corporation is a director or officer or
has a financial interest, until at least ten days after written notice of the
proposed authorization of the loan or guaranty has been given to the
shareholders who would be entitled to vote thereon if the issue of the loan or
guaranty were submitted to a vote of the shareholders. The requirements of this
paragraph (b) are in addition to, and not in substitution for, the provisions of
paragraph (a) of Article SEVENTH.
Article Seventh, Subsection (c), Articles of Incorporation: The corporation
shall indemnify, to the maximum extent permitted by law, any person who is or
was a director, officer, agent, fiduciary or employee of the corporation against
any claim, liability or expense arising against or incurred by such person
made party to a proceeding because he is or was a director, officer, agent,
fiduciary or employee of the corporation or because he is or was serving another
entity or employee benefit plan as a director, officer, partner, trustee,
employee, fiduciary or agent at the corporation's request. The corporation shall
further have the authority to the maximum extent permitted by law to purchase
and maintain insurance providing such indemnification.
Article Seventh, Subsection (d), Articles of Incorporation: Limitation on
Director's Liability. No director of this corporation shall have any personal
liability for monetary damages to the corporation or its shareholders for breach
of his fiduciary duty as a director, except that this provision shall not
eliminate or limit the personal liability of a director to the corporation or
its shareholders for monetary damages for: (i) any breach of the director's
duty of loyalty to the corporation or its shareholders; (ii) acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law; (iii) voting for or assenting to a distribution in violation of Colorado
Revised Statutes Section 7-106-401 or the articles of incorporation if it is
established that the director did not perform his duties in compliance with
Colorado Revised Statutes Section 7-108-401, provided that the personal
liability of a director in this circumstance shall be limited to the amount of
the distribution which exceeds what could have been distributed without
violation of Colorado Revised Statutes Section 7-106-401 or the articles of
incorporation; or (iv) any transaction from which the director directly or
indirectly derives an improper personal benefit. Nothing contained herein will
be construed to deprive any director of his right to all defenses ordinarily
available to a director nor will anything herein be construed to deprive any
director of any right he may have for contribution from any other director or
other person.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Registration Statement Filing Fees $ 2,285.69
State Registration Fees $ 2,000.00
Printing Costs $ 2,500.00
Legal Fees $ 15,000.00
Accounting Fees $ 7,500.00
Listing Fees $ 1,500.00
RECENT SALES OF UNREGISTERED SECURITIES
1. Prior to the acquisition of NYB Foods, Inc., in the merger with a
wholly-owned subsidiary, Uptown issued 368,200 shares of common stock to five of
its shareholders in connection with, and as consideration for, the shareholders
making loans to Uptown. The following shares were issued on the dates indicated
below:
25,000 shares issued to Robert Rynarzewski on June 3, 1999;
15,000 shares issued to Joseph Kostoff on June 3, 1999;
25,000 shares issued to Stanley Morton on June 3, 1999;
50,000 shares issued to Richard Wagner on June 3, 1999;
190,000 shares issued to Santa Cruz Holdings, Inc., on June 23, 1999;
60,000 shares issued to Richard Wagner on September 14, 1999; and
3,200 shares issued to Robert Rynarzewski on September 14, 1999.
All the parties who received shares in the above transactions were shareholders
of Uptown before the issuance of shares, and are all accredited investors.
Therefore, the issuance of unregistered shares of common stock was exempt under
Section 4(6) of the Securities Act of 1933.
2. In September of 1999, we sold 3,400,000 shares of our common stock for
$850,000 to two shareholders, the Kazi Family Partnership, LP, and Dr. C.R.
Joshi (each investor purchased 1,700,000 shares). Since the total offering price
was less than $1,000,000, both offerees resided in California, and we had not
raised capital in the past year under this exemption, the offering was exempt
from registration under Regulation D, Rule 504, promulgated under Section 3(b)
of the Securities Act of 1933.
3. At approximately the same time as the above sales of common shares, we
issued 3,000,000 warrants to purchase common stock to Mohamad Khalifa, a
resident of the United Emirates Republic, for $200,000.00. Since the purchaser
was a resident of a foreign country, the sale was exempt from registration
pursuant to Regulation S.
4. In early October, 1999, within two weeks of the above transactions,
Uptown issued 7,500,000 unregistered shares of common stock and paid $500,000
for the acquisition of all the outstanding shares of NYB Foods, Inc., by one of
its subsidiaries. At that time, Uptown had virtually no business, having
previously closed all its Wrapsters restaurants, and the only assets it had
consisted of the approximately $1,000,000 in cash received from the sale of
common stock and warrants referred to above. Therefore, the "business" of Uptown
would be the owning and operating of the NYB Foods subsidiary it was acquiring
through merger. The five former NYB Foods shareholders were all sophisticated
investors, had full access to all information they might request, acquired what
amounted to controlling interest in Uptown, the offering was made only to the
five NYB shareholders, and all share certificates issued bore restrictive
legends. The individuals who received Uptown stock are:
A. Robert D. Palmer, Jr., the founder and President of NYB Foods, and
the new president and chairman of the board of directors of Uptown. Mr. Palmer
has significant experience in financial and investment matters, having been the
president of two publicly-traded companies, Grease Monkey and USA Fast Lube. In
that connection, Mr. Palmer coordinated the legal disclosure and accounting
process of registering shares of common stock, worked with the brokerage
community in underwriting the offering, supervised the Securities Exchange Act
of 1934 reporting, and negotiated the sale of controlling interest in each
company.
B. L. Bennett Berg was an original shareholder of NYB Foods, has been
an owner of several businesses, and has consulted with numerous business owners
concerning the structure, operations, financing and sale of their businesses.
Mr. Berg has 25 years investing experience in both publicly-traded and closely-
held business concerns.
C. Gary Palmer has been an independent business man for 30 years,
owning his own distributorship and manufacturer's representative firm. He is the
brother of Robert Palmer, and has been privy to corporate operations and
planning from inception. Mr. Palmer has 15 years experience in publicly-traded
and closely-held business investing.
D. Mary Jo Sheldon-DiVito is and accountant and attorney. Ms. Sheldon-
DiVito was given access to any and all information concerning Uptown, and is a
sophisticated investor since she is familiar with investments of the nature
involved in this transaction and has substantial investment and business
experience.
E. Hank Rabin was given access to any and all information concerning
Uptown, and is a sophisticated investor since he is familiar with investments of
the nature involved in this transaction and has substantial investment and
business experience.
Based on the limited nature of the offering, being offered to five individuals,
all of who were shareholders of the company acquired in the merger, the
availability to them of information concerning Uptown, restrictive legends being
affixed to the share certificates, the experience of the investors with this
particular company and investments of this nature, and the general
sophistication of the former NYB Foods shareholders, this offering was exempt
from registration under Section 4(2) of the Securities Act of 1933.
5. There were certain other transactions that took place at the same time
as the above-described merger and financings. These other transactions were
contemplated as part of the over-all business combination and financing plan.
A. Clyde E. Culp, III, a shareholder and former and present director
of Uptown, was owed $428,883 under a promissory note. Mr. Culp exchanged that
note for 428,883 shares of our common stock. Mr. Culp is an accredited investor,
and therefore the offer and issuance of the shares to him was exempt from
registration under Section 4(6) of the Securities Act of 1933.
B. Santa Cruz Squeeze Holdings, Inc., a shareholder of Uptown, and the
president of which is William Gallagher, a former director of Uptown and an
individual who makes his living in the securities and investment industry,
exhanged a promissory note in the principal amount of $109,000 for 109,000
shares of common stock. Santa Cruz is an accredited an accredited investor, and
therefore the offer and issuance of the shares to it was exempt from
registration under Section 4(6) of the Securities Act of 1933.
C. Thirty individuals who owned shares of Series B Preferred stock in
Uptown exchange their shares for common stock at the rate of three shares of
common for each share of Series B Preferred. Since this transaction involved the
exchange of one security for another from the same company, and no compensation
was paid to anyone for soliciting the exchange, the transaction was exempt under
Section 3(a)(10) of the Securities Act of 1933. The individuals who exchanged
shares of their Series B Preferred Stock for common stock are as follows:
Name Series B Shares Common Stock Shares
Diane/William Bennett 2,500 7,500
Roger/Darcy Brooks 1,500 4,500
Donald Clark 1,500 4,500
John Cristakes 2,500 7,500
Don Drews 4,000 12,000
Frederick Garner 3,500 10,500
Norman/Barbara Glutzer 2,500 7,500
Jeffrey/Yolande Gottlieb 2,500 7,500
Dr. Michael Grear 2,500 7,500
Alan Haehle 1,000 3,000
Michael Henry 500 1,500
Robert Henry 500 1,500
Charles Kuhter 1,000 3,000
Dr. Ronald Lang 10,500 31,500
Stanley Morton 2,500 7,500
Thomas Murphy 1,000 3,000
Lewis/Mimi Myers 1,500 4,500
Margaret Sanderson 1,000 3,000
Dieter Schulz 500 1,500
Santa Cruz Squeeze, Inc. 2,500 7,500
Dr. Robert Stoltz 1,500 4,500
William Throolin/
Sharon Peterson 500 1,500
Thomas/Sandra Straetker 1,000 3,000
Michael Tucker 2,500 7,500
Bhagvan Vaghani 5,000 15,000
Dru/Dana Vowell 1,000 3,000
Kevin Vrba 500 1,500
Dr. Richard Wagner 53,500 160,500
Scott Weber 500 1,500
Alan Wilson 1,000 3,000
D. Five individuals and entities received shares of common stock and
warrants as compensation for negotiating and coordinating the financing
discussed above (the sale of the 3,400,000 shares of common stock for $850,000,
and the sale of 3,000,000 common stock purchase warrants for $200,000). The
recipients are as follows:
(i) Mohamed Ghaus Khalifa received 201,250 shares of common
stock and 144,000 common stock purchase warrants. Mr. Khalifa is a resident of
the United Emirates Republic, and the issuance of shares and warrants to him are
exempt under Regulation S. In addition, Mr. Khalifa has a net worth in excess of
$1,000,000 and is therefore an accredited investor, exempting the issuance of
201,250 shares of common stock and 144,000 common stock purchase warrants under
Section 4(6) of the Securities Act of 1933.
(ii) DSF Capital, Inc., is a corporation owned by David Fromer,
an individual with ten years experience in the securities and investment
industry, and whose net worth is in excess of $1,000,000. The issuance of 24,750
shares of common stock and 161,000 common stock purchase warrants to DSF
Capital, Inc., is exempt from registration under Section 4(6), as the
corporation's sole owner is an accredited investor.
(iii) Bicoastal Associates, Inc., is a coporation whose three
owners are all securities attorneys. Two of the three owners are accredited
investors, having annual incomes in excess of $200,000. The third owner, while
not accredited, is a sophisticated investor, as are the other two owners, having
several years' experience in the practice of securities law. In addition, the
contracts for the purchase of common stock and warrants by the Kazi Family
Partnership, L.P., Dr. C.R. Joshi, and Mohamed Ghaus Khalifa were drafted by the
owners. Therefore, issuance of 37,250 shares of common stock and 100,000 common
stock purchase warrants to Bicoastal Associates, Inc., were exempt from
registration under Section 4(2) of the Securities Act of 1933.
(iv) Man Chu Chow was issued 6,250 shares of common stock and
30,000 common stock purchase warrants. Mr. Chow was given access to any and all
information concerning Uptown, and is a sophisticated investor since he is
familiar with investments of the nature involved in this transaction and has
substantial investment and business experience. Therefore, the issuance of
shares to him was exempt under Section 4(2) of the Securities Act of 1933.
(v) Pacific Basin, LLC, was issued 50,000 common stock purchase
warrants. Pacific Basin is a limited liability company owned y two individuals,
both of whom are accredited investors. Therefore, the issuance of warrants to
Pacific Basin, LLC, was exempt from registration under Section 4(6) of the
Securities Act of 1933.
6. Five individuals who had previously been issued common stock purchase
warrants exercised them. Since these individuals were all security-holders of
Uptown who exchanged their securities for another class of securities, and no
compensation was paid to anyone for soliciting such exchange, the transactions
were exempt from registration under Section 3(a)(10) of the Securities Act of
1933. The individuals who exercised their warrants at $.10 per share are as
follows:
Richard J. Babjak 3,813 shares of common stock
Sean T, O'Keefe 21,000 shares of common stock
Robert D. Yarosz 3,813 shares of common stock
Anastasios Baharopoulos 3,000 shares of common stock
John H. Mathues 14,124 shares of common stock
7. In November of 1999, Uptown issued 600,000 shares of its common stock to
1 Potato 2, Inc., in exchange for the transfer of substantially all of 1 Potato
2's assets to one of Uptown's subsidiaries. 1 Potato 2, Inc., requested that 10%
of those shares, or 60,000, be issued to Robert Blessing, an individual who
acted as a finder, for services rendered. This transaction is exempt under
Section 4(2) of the Securities Act of 1933 due to the limited nature of the
offering and the sophistication of the investors.
1 Potato 2, Inc., is a Minnesota corporation. It acquired 600,000 shares of
our common stock in exchange for substantially all its assets, and then
instructed that 60,000 of those shares be issued to Robert Blessing, a business
broker who assisted in arranging for the asset purchase transaction. 1 Potato 2
gave up substantially all its assets in exchange for a pormissory note and
shares in Uptown, the company that subsequently owned, through a wholly-owned
subsidiary, the 1 Potato 2 assets. 1 Potato 2 was given access to any and all
information concerning Uptown, and is a sophisticated investor in the sense that
its shareholders have owed and operated the same assets for several years prior
to the asset purchase, and are familiar with investments of the nature involved
in this transaction and have substantial investment and business experience.
Robert Blessing was also given access to any and all information concerning
Uptown that he requested, and is a sophisticated investor since he is familiar
with investments of the nature involved in this transaction, having analyzed and
brokered businesses for several years, and has substantial investment and
business experience.
8. On July 14, 2000, the Board of Directors issued 200,000 shares of
common stock to Harold L. Kestenbaum, one of its directors, and 100,000 shares
of common stock to R. Michael Jackson, its legal counsel. The shares were issued
for services rendered by each, Mr. Kestenbaum for his service as Secretary of
wholly-owned subsidiaries NYB Foods, Inc., and 1 Potato 2 Franchising Corp., and
Mr. Jackson service as general, ltitgation and securities counsel. Both
shareholders have extensive backgrounds in franchise food operations,
investment in securities, both restricted and free-trading, of small-to-medium-
sized companies, the share certificates bear a legend restricting transfer, and
both have full knowledge of all aspects of Uptown. Therefore, the issuance was
exempt from registration under Section 4(2) of the Securities Act of 1933.
EXHIBITS
1. Plan of Merger
2. Statement of Merger
3. Agreement and Plan of Reorganization
4. Asset Purchase Agreement
5. Articles of Incorporation
6. Articles of Amendment to Articles of Incorporation
7. Articles of Amendment to Articles of Incorporation
8. Bylaws
9. Minutes of Board of Directors, January 28, 1998
10. Promissory Notes held by Shareholders
11. Opinion re: legality
12. Voting Agreement
13. Subsidiaries of the registrant
14. Consent of experts and counsel
15. Financial data schedule
UNDERTAKINGS
I. Amendment of Registration Statement. Uptown Restaurant Group, Inc., is
registering securities under Rule 415 of the Securities Act of 1933 (Section
230.415 of Regulation S-B), and therefore, the Company hereby undertakes the
following:
(1) The Company will file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and notwithstanding the foregoing, and increase or
decrease in volume of securities offered (if the total dollar value of the
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) (Section 230.424(b) of Regulation S-B) if, in the aggregate, the changes
in the volume and price represent no more than 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) To disclose the names any selling donees and pledgees.
(2) The Company, for determining liability under the Securities Act, will
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering; and
(3) The Company will file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
II. Indemnification. Uptown Restaurant Group, Inc., may request acceleration
of the effective date of the registration statement under Rule 461 under the
Securities Act, and therefore, the Issuer represents that, insofar as
indemnification for liabilities arising under the Securities Act of 1933 (the
"Act") may be permitted to directors, officers and controlling persons of the
Issuer pursuant to the foregoing provisions, or otherwise, the Issuer has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Issuer of expenses incurred or paid by a
director, officer or controlling person of the Issuer in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Mesa,
State of Arizona on September 1, 2000.
UPTOWN RESTAURANT GROUP, INC.
ROBERT D. PALMER, JR.
By: Robert D. Palmer, Jr.
Title: President and
Chairman of the Board
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
(Signature)
L. BENNETT BERG
(Title) Director
(Date) 9/1/2000
(Signature)
WILLIAM G. NORTON
(Title) Director
(Date) 9/1/2000
(Signature)
ROBERT D. PALMER, JR.
(Title) Director
(Date) 9/1/2000
(Signature)
HAROLD L. KESTENBAUM
(Title) Director
(Date) 9/1/2000
(Signature)
CLYDE E. CULP, III
(Title) Director
(Date) 9/1/2000
