<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the fiscal year ended December 31, 1998.
Commission file number 01-15109
CREATIVE RESTAURANT CONCEPTS, INC.
(Exact name of registrant as specified in its amended charter)
Oklahoma 73-1251800
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 N. Broadway, Suite 1890, Oklahoma City, OK 73102
(Address of principal executive offices)
(405) 235-4960
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.005 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Disclosure of delinquent filers in response to Item 405 of Regulation S-B is
not contained in this form, and no disclosure will be contained, to the best
of the Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-KSB or any amendment to
this form 10-KSB (X)
Issuer's revenues for the year ended December 31, 1998 were $1,226,852
The aggregate market value of voting common stock held by non-affiliates was
$125,000 on December 31, 1998 based on the average bid and asked price of
such stock as reported on the "pink sheets" of the National Daily Quotation
Service.
As of December 31, 1998, 9,556,560 (Post Reverse Split) shares of Issue's
common stock, par value $.005, were issued and 9,556,560 were outstanding.
Documents incorporated by reference - None
Transitional Small Business Disclosure Format Yes No X
--- ---
<PAGE>
PART I
ITEM 1. BUSINESS:
Creative Restaurant Concepts, Inc. (hereinafter referred to as CRC or
the Company) has engaged in the joint venture development, operation
and ownership of various restaurant concepts since its inception in
June, 1985 as Magnolia Foods, Inc.
On January 1, 1998, the Company acquired the Wichita Kansas
francished City Bites Sandwich Shop from City Bites of Wichita, Inc.
In conjunction with that acquisition, the Company entered into a
joint-ventures development agreement with City Bites, Inc. to build
additional stores in Wichita, Kansas. The venture was owned 80% by
CRC and 20% by City Bites, Inc.
On February 28, 1998, the shareholders approved a 1 for 20 reverse
stock split. The authorized common stock remained at 50,000,000
shares and par value remained at $0.005 per share.
In November 1997, the Company entered into a management agreement to
oversee the operation of three Oklahoma City Ground Floor Cafes in
exchange for a six month right to acquire the restaurants. On May 15,
1998, the Company acquired 100% of the outstanding stock of the
Ground Floor Cafe Corporation, an Oklahoma corporation. The Company
exchanged 750,000 shares of CRC stock for 100% of the Ground Floor
Cafe Corporation stock making the Ground Floor Cafe Corporation a
wholly owned subsidiary of CRC.
In October, 1998 the Company entered into negotiations to acquire the
outstanding shares of stock of Crockett's Smokehouse of Choctaw,
Inc., Crockett's Smokehouse of South May, Inc., Pizza Planet of Reno
and Meridian, Inc. and the assets of McAllister and Reed, Inc. from
Paul McNutt.
On December 31, 1998, the Company sold its interest in the City Bites
Sandwich Shop in Wichita, Kansas to its restaurant general manager.
OPERATIONS: Creative Restaurant Concepts, Inc. provides its
restaurants with standard operating specifications for the
preparation and service of food and beverages plus specifications for
the maintenance of the premises and proper employee conduct.
CRC is not dependent on particular suppliers for its food, beverages
or other products and believes there are numerous suppliers from
which it can obtain similar products at comparable costs. CRC expects
to be able to offset cost increases in its ingredients by increasing
the retail prices of its products. Food, beverage and paper goods
inventory in CRC's restaurants usually will not exceed the value of
one week's sales.
MARKETING: Marketing for CRC's restaurants is handled on a local
basis. CRC does not
<PAGE>
now, nor does it plan to manage or conduct a nationwide marketing or
advertising program.
EMPLOYEES: As of December 31, 1998, CRC had 27 full time employees
and 22 part time employees.
COMPLETION: CRC has competed with numerous companies engaged in the
business of operating casual dining, family style restaurants. Many
restaurants compete for customers which existing and previous CRC
restaurants were designed to attract. Additionally, any CRC
restaurant will be subject to change in eating performances of the
public as well as local and national economic conditions that
influence consumer spending habits.
Many of CRC's competitors are better known, better capitalized and
have greater financial resources, more experienced organizations with
a greater number of employees than CRC. CRC believes, however, that
the quality of its food in its previous restaurants, the physical
attractiveness of its facilities, modest prices and the extensive
prior restaurant experience of its senior manager, will enable CRC to
continue to compete further in market by market restaurant
operations.
REGULATION: CRC's restaurants are subject to licensing and regulation
by the departments of alcohol licensing, health, sanitation, fire,
building, planning, traffic and revenue of the state and municipality
in which these restaurants operate. Delays in obtaining, or denials
of, necessary licenses or approvals of future restaurants, could have
a material adverse impact on CRC's growth rate and to the Fair Labor
Standards Act, which governs such matters as working conditions and
minimum wages. Furthermore, expansion through the sale of licenses or
franchises is subject to federal, state and local franchise
disclosure laws.
ITEM 2. PROPERTIES:
CRC's corporate office is located in Bank One Tower, Oklahoma City,
Oklahoma at the following address where it has a three year lease on
1,100 sq. ft. of commercial space.
100 N. Broadway, Suite 1890
Oklahoma City, Oklahoma 73102
RESTAURANT LOCATIONS: City Bites Sandwich Shop occupies 3,750 sq. ft.
of commercial space on a five year lease at the following location.
City Bites Sandwich Shop
2120 N. Woodlawn
Wichita, Kansas 67208
The three Ground Floor Cafes in Oklahoma City are located as shown
below:
<PAGE>
- 3,650 sq. ft.
6430 Avondale Dr.
Oklahoma City, OK 73116
(Nichols Hills Plaza - 3 year lease)
- 990 sq. ft.
Leadership Square
Downtown, Oklahoma City
(3 year lease)
- 1,400 sq. ft.
Mathis Brothers Furniture Store
Reno and Meridian, Oklahoma City
(1 year lease)
ITEM 3. LEGAL PROCEEDINGS:
- Country Club Associates, an Oklahoma General Partnership vs.
Magnolia Foods, Inc. - Lawsuit on amount due under a lease
guaranty for Gators Restaurant closed in 1995. The amount
contested is approximately $13,000.
- Bowne and Co., Dallas, Texas vs. Magnolia Foods, Inc.
- Lawsuit on amount of printing costs for work performed in
1997. The amount contested is $6,500.
- Oklahoma Tax Commission vs. Gators/Magnolia Foods Inc. -
Lawsuit on amount of sales taxes for Gators Restaurant for
1995. An agreement was reached and a payment plan was
executed. As of this date payments are current and the tax
amount due is less than $10,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
The shareholders of CRC voted to approve a 1 for 20 reverse split
effective February 28, 1998.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS:
<TABLE>
<CAPTION>
Common Stock
Bid
---------------------------------------------
High Low
------------------- --------------------
1997
----
<S> <C> <C>
First Quarter .03125 .0100
Second Quarter .03125 .0325
Third Quarter .1250 .0325
Fourth Quarter .0200 .0100
1998
----
First Quarter .1250 .0325
Second Quarter .2500 .1250
Third Quarter .0375 .1250
Fourth Quarter .2500 .1250
</TABLE>
As of December 31, 1998, the Company's issued and outstanding common
stock was held by 413 holders of record.
CRC has never declared a cash dividend on its common stock. It is
the present policy of CRC not to pay cash dividends on CRC common stock. Any
payment of cash dividends in the future will be dependent upon the prior
payment of regional dividends on outstanding CRC preferred Stock, the amount
of funds legally available thereof, CRC's earnings, financial condition,
capital requirements and other factors which the CRC Board of Directors deem
relevant.
ITEM 6. MANAGEMENT'S DECISION AND ANALYSIS OR PLAN OF OPERATION:
RESULTS OF OPERATIONS: During 1998, the Company owned the following
restaurants at the times indicated.
<PAGE>
- City Bites Sandwich Shop, Wichita, Kansas
(1/1/98 - 12/31/98)
- Ground Floor Cafe - Leadership Square,
Nichols Hills and Mathis Brothers Locations
(5/15/98 - 12/31/98)
Sales during 1998 were $1,226,852 versus $0 in 1997. The Company did
not operate any restaurants during 1997. Cost of Goods Sold for 1998 was
$480,026 or 39.1% versus none in 1997. General and Administrative expenses
for the 12 months ending 12/31/98 were $1,341,543 versus $153,165 for the
same period last year. These costs increased due to the Company operating
four restaurants in 1998 versus none in 1997. A significant component of the
General and Administrative expenses is the cost of shares of common stock
issued to note holders as an incentive for them to renew their debt
instruments while the Company searched for a viable business to operate.
The Company continues to pursue viable restaurant businesses for
acquisition into CRC and also continues to reduce its liabilities by
converting debt into its common stock.
LIQUIDITY AND FINANCIAL RESOURCES:
Working capital at 12/31/98 was ($1,546,245) versus ($861,900) for
the previous year ended 12/31/97. The increases in deficit was due to the
loss sustained in 1998. However, a significant part of the loss and increased
deficit results from the company issuing stock as incentive shares for
continued renewal of Notes Payable as they came due.
The Company intends to entertain proposals to acquire existing
operating businesses and seek interested merger candidates.
ITEM 7. FINANCIAL STATEMENTS:
The financial statements and schedules are included herewith.
ITEM 8. CHANGES IN, DISAGREEMENTS WITH ACCOUNTANTS OR ACCOUNTING AND
FINANCIAL DISCLOSURE.:
None.
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
The directors and officers of CRC as of 12/31/98 are identified
below. No family relationships exist between or among director or officers of
CRC.
<TABLE>
<CAPTION>
Director
Position Continuously
Name Age with the Company Since
---- --- ---------------- ------------
<S> <C> <C> <C>
Joseph J. Johnston 55 Chairman of the June, 1985
Board
President and Director
David Loveland 51 Secretary, Director June, 1992
Bill Weaver 63 Director June, 1992
</TABLE>
Joseph J. Johnston, Jr., age 55, has served as President of the
Company and also has served as Chairman of the Board and a director of
Creative Restaurant Concepts, Inc. since 1985. In 1986, Mr. Johnston was
instrumental in formulating and developing the Mamasita's Mexican Restaurant,
which specializes in gourmet Mexican Food. Prior to joining CRC, Mr. Johnston
served as President and a director of Kelly-Johnston Enterprises, Inc. Mr.
Johnston joined the predecessor companies of Kelly-Johnston Enterprises, Inc.
in 1977 and served in these capacities from the formation of Kelly-Johnston
Enterprise, Inc., in 1981 until July, 1985. Kelly-Johnston Enterprises, Inc.
conducted business as a franchisee of Chi-Chi's Mexican Restaurants and a
Franchiser of Duff's Famous Smorgasbord Restaurants, Joe Kelly's Restaurants
and Joe Kelly's Oyster Docks.
From January, 1973, through May, 1977, Mr. Johnston served in
various capacities with Kentucky Fried Chicken Corporation. Starting as a
Regional manager of Real Estate, Mr. Johnston subsequently served as Area and
District Manager of Operations and Director of Operations and Marketing
Midwest Region, supervising 400 Kentucky Fried Chicken Restaurants. Mr.
Johnston also served as Director of Franchising for New Concepts. Mr.
Johnston's final position with the Kentucky Fried Chicken Corporation was its
Vice President of operations, Midwest Region responsible for $82,000,000 in
revenues at the age of 34.
Mr. Johnston graduated from Western Illinois State University in
1966 with a Bachelors in Business Administration and joined Shell Oil Company
as a dealer salesman in the Chicago, Illinois. After four years of military
service, Mr. Johnston was employed by the commercial development department
of American Investment Company Realty Services, Inc. of Chicago Illinois.
<PAGE>
David Loveland, age 51, was elected as a Director of the Company and
was appointed as corporate secretary in June, 1992. For more than the past
six years, Mr. Loveland has been self-employed as a consultant in television
program production, program creation and the marketing of television series.
Prior to that time Mr. Loveland worked as general sales manager of Oklahoma
City based Channel 5 (KOCO) TV in Oklahoma City for 10 years. Mr. Loveland
graduated from Central State University with a Bachelor of Arts Degree in
Marketing.
Bill Weaver was elected as a director in June, 1992. Mr. Weaver has
worked in the insurance industry and is a principal in the Oklahoma Intermede
Group. Mr. Weaver graduated from Oklahoma City University with a Bachelor of
Arts Degree in Business.
ITEM 10. EXECUTIVE COMPENSATION:
Joseph J. Johnston, CRC President, was paid $67,519 of which $39,115
direct CRC operating expenses were paid.
COMPENSATION PURSUANT TO PLANS
Under CRC's Stock Option Plan ("Plan"), 2,000,000 shares of CRC
Common are reserved for issuance upon the exercise of options. The plan is
designed to serve as an incentive for attracting and retaining qualified and
competent key employees, consultants, officers and directors. While some
options granted under the Plan are intended to qualify as "incentive stock
options" under Section 422A of the Internal Revenue Code, other options may
be granted that do not qualify.
The plan is administered by the CRC Board of Directors. The Board of
Directors is authorized to grant options to such key employees, consultants,
officers and directors as it may determine.
Options may be granted on such terms and at such prices as
determined by the Board of Directors; provided, however, that the exercise
price may not be less than the fair market value of CRC Common on the date of
grant. Each option will be exercisable after the period of periods specified
in the individual option agreements, but no incentive stock option shall be
exercisable for more than ten years from the date of grant.
The following shares of CRC Common Stock were issued for salaries in
lieu of cash compensation during 1998 for work performed in 1998 Linda A.
Matlock, 150,000 common shares, Frank Ward, 125000 shares, and Sed Kennedy
62,5000 common shares.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
A. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Beneficial Ownership of over 5% of Common Stock.
<PAGE>
<TABLE>
<CAPTION>
Shares Percentage
------ ----------
<S> <C> <C>
Dulaney's, Inc.
P.O. Box 54714 2,341,357 24.2%
Oklahoma City, OK 73154
Randall Colton
1736 Kingsbury
Oklahoma City, OK 73116
</TABLE>
B. SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
Number of Shares
Name of Beneficially Owned Percent
Title of Class Beneficial Owner as of 12/31/98 (1) Class (2)
-------------- ---------------- ------------------ ---------
<S> <C> <C> <C>
CRC, Inc. Common Stock Joseph J. 401,500 (3) .000%
Par Value $0.05 Johnston
</TABLE>
(1) Except as otherwise described herein, each beneficial owner has
sole voting and investment power with respect to the shares
listed.
(2) Percent of class is based upon shares of CRC Common outstanding
after the 1 for 20 reverse split 2/28/98 and is calculated
without regard to the shares of CRC Common issuable upon
exercise of outstanding warrants or stock options or upon
conversation of convertible securities, except that any shares a
person is deemed to own by having the right to acquire by
exercise of a warrant or option or the conversion of a security
are considered to be outstanding solely for purposes of
calculating such person's percentage ownership.
(3) Mr. Johnston beneficially owns 401,500 shares of CRC Common. Such
Such amount exclude (I) 5,000 shares held by Linda Johnston in
her own name; (ii) 75,000 shares held by the Linda B. Johnston
Trust for the benefit of Linda Johnston, for which she also
serves as the controlling Co-Trustee; (iii) 25,000 shares held
by Michael T. Johnston Trust for the benefit of Michael T.
Johnston, son of Mr. and Mrs. Johnston, for which Mrs. Johnston
serves as Trustee; and (iv) 25,000 shares held by the Jennifer
A. Johnston Trust for the benefit of Jennifer A. Swales,
daughter of Mr. and Mrs. Johnston, for which Mrs. Johnston
serves as Trustee.
(4) Excludes 401,500 shares of CRC Common beneficially owned by
Joseph J. Johnston.
<PAGE>
The following table sets forth the CRC Common ownership of
directors and all directors and officers as a group, as of
March 30, 1995:
<TABLE>
<CAPTION>
Number of shares
Name Beneficially Owned (1) Percent of class
---- ---------------------- ----------------
<S> <C> <C>
Joseph J. Johnston 401,500 .0008
</TABLE>
(1) - (3) For footnotes 1, 2 and 3 see footnotes 1, 2 and 3 of the immediate
preceding table.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
During the fiscal year ended December 31, 1997, there existed no
relationships and there were no transactions reportable under this item.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K:
The following documents are filed as part of this report:
Exhibit
-------
11 Statement re: Computation of Earnings Per Share.
27 Financial Data Schedule.
(b) The Company did not file a Form 8-K during the period.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Cala Corporation
(Formerly Creative Restaurant Concepts, Inc.)
/s/JOSEPH J. JOHNSTON
By: Joseph J. Johnston, Vice President and
Chief Financial Officer
Dated: February 02, 2000
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on the 26th day of January, 2000.
/s/JOSEPH J. JOHNSTON
Joseph J. Johnston, Director
/s/JOSEPH CALA
Joseph Cala, Director
/s/STEPHEN KO
Stephen Ko, Director
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Independent Auditor's Report......................................................1
Balance Sheets....................................................................2
Statement of Income...............................................................3
Statement of Cash Flow............................................................4
Statement of Stockholders Equity..................................................5
Notes to Financial Statements..................................................6-12
</TABLE>
<PAGE>
HUNTER, ATKINS & RUSSELL, PLC
CERTIFIED PUBLIC ACCOUNTANTS
A.T. (AL) HUNTER 5805 NORTH GRAND SUITE D
DENNIS ATKINS OKLAHOMA CITY, OK 73118
CASEY RUSSELL MAIL: P.O. BOX 12056
OKLAHOMA CITY, OK 73157
MEMBER SEC TELEPHONE (405) 843-3964
PRACTICE SECTION FAX (405) 843-9975
INTERNET
[email protected]
Board of Directors
Creative Restaurant Concepts, Inc.
Oklahoma City, Oklahoma
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheets of Creative Restaurant
Concepts, Inc. as of December 31, 1998 and the related statements of
income, cash flows and stockholder's equity for the year then ended. These
financial statements are the responsibility of the Company's management.
Our responsibility is the 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 Creative Restaurant
Concepts, Inc. as of December 31, 1998 and the results of its operation
and it cash flows for the year then ended in conformity with generally
accepted accounting principles.
Hunter, Atkins & Russell, PLC
January 12, 2000
<PAGE>
Creative Restaurant Concepts, Inc.
Balance Sheet
December 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents ($3,625)
Inventory
Total current assets 13,566
--------
9,941
PROPERTY AND EQUIPMENT, net 239,824
OTHER ASSETS
Organizational costs, net 10,028
Deposits
Total other assets 6,620
--------
16,648
Total Assets
$266,413
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $181,335
Accrued expenses 140,589
Notes payable and current portion of long-term debt 934,792
-----------
1,256,716
LONG-TERM DEBT, less current portion of $44,320 125,573
STOCKHOLDERS' EQUITY
Series B 10% cumulative preferred stock,
par value $.10, 25,000 shares authorized, 2,500
issued and outstanding
Series AA 6% cumulative convertible 148,500
preferred stock par value $0.10, 10,000
shares authorized, 1,485 shares issued
and outstanding
Common stock - par value $.005,
50,000,000 shares authorized, 45,970
9,694,056 shares issued and
outstanding
Additional paid in capitol 5,881,256
Retained earnings (deficit) (7,192,000)
Less: Treasury stock - 4,530 shares at cost (1,202)
------------
Total Stockholders' Equity (1,115,876)
Total Liabilities and
Stockholders' Equity $266,413
============
</TABLE>
<PAGE>
Creative Restaurant Concepts, Inc.
Statement of Operations
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
<S> <C>
REVENUES $1,226,852
COST OF SALES 480,026
----------
GROSS PROFIT 746,826
OPERATING COSTS AND EXPENSES
General, selling, and administrative 1,341,523
-----------
Operating loss (594,697)
OTHER EXPENSE
Interest 89,646
-----------
Loss before income taxes (684,343)
Provision for income taxes --
NET LOSS ($684,343)
===========
</TABLE>
See accountants' report and notes to financial statements.
<PAGE>
Creative Restaurant Concepts, Inc.
Statement of Cash Flows
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
Cash flows from operating activities
Net loss ($684,343)
Adjustments to reconcile net income to net cash
provided by operating activities;
Depreciation and amortization 63,331
Changes in assets and liabilities
(Increase) decrease in:
Decrease in other current assets 52,500
Increase in inventory (13,566)
Increase in accounts payable and accrued expenses 133,655
Total adjustments ----------
$235,920
----------
Net cash used by operating activities ($448,423)
Cash flows from investing activities
Purchases of property and equipment ($300,111)
Organization costs (10,028)
Other deposits (6,622)
Net cash used by investing activities ----------
(316,761)
Cash flows from financing activities
Proceeds from borrowings $323,910
Issuance of stock 430,369
Net cash provided by financing activities ----------
754,279
----------
Net increase in cash and cash equivalents ($10,905)
Cash and cash equivalents at beginning of period 7,280
----------
Cash and cash equivalents at end of period. ($3,625)
==========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest $0
----------
Cash paid during the year for income taxes $0
==========
</TABLE>
See accountants' report and notes to financial statements
<PAGE>
Creative Restaurant Concepts, Inc.
Statement of Shareholders Equity
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Series B Common Stock Retained
Preferred Preferred ------------ Paid in Financing Treasury
Stock Stock Shares Amount Capital (Deficit) Stock
----------- ----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning Balance,
January 1, 1998 $ 2,500 $0 49,976,000 249,730 5,395,628 (6,508,557) (1,202)
Reflect 1 for 20 (47,448,700) (237,243) 237,243
reverse stock split
Common stock issued for 7,196,756 33,483 248,385
payment of debt and
financing
Preferred stock issued
in exchange for debt 148,500
Net Loss (684,343)
----------- ----------- ------------ ------------ ------------ ------------ ------------
Ending Balance, $ 2,500 $148,500 9,694,056 $45,970 $5,881,256 $7,192,000 ($1,202)
December 31, 1998
=========== =========== ============ ============ ============ ============ ============
</TABLE>
See accountants' report and notes to financial statements
<PAGE>
CREATIVE RESTAURANT CONCEPTS, INC.
OKLAHOMA CITY, OKLAHOMA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
ORGANIZATION
Magnolia Foods, Inc. (the Company) was incorporated on June 13, 1985 under
the laws of the State of Oklahoma. The Company's sole industry segment has
been the business of owning, operating, licensing and joint venturing
restaurants.
On August 21, 1997 the Company changed its name to Creative Restaurant
Concepts, Inc.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all partnership and corporate subsidiaries in which the Company holds a
majority voting and controlling interest. Investments in affiliates for which
the Company does not exercise significant influence over operating and
financial policies are accounted for on the equity method. Significant
intercompany accounts and transactions are eliminated in consolidation.
INVENTORIES
Inventories of food and beverages are stated at the lower of cost (determined
by the first-in, first-out method) or market.
when a restaurant is opened, the initial purchase of china, glass, and
silverware (small wares) is recorded as inventory as is not amortized. All
replacements are expensed.
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures which increase
values, change capacities, or extend useful lives are capitalized. Routine
maintenance, repairs and renewals are charged to operations.
Leasehold improvements are amortized by the straight-line method over the
lesser of the life of the lease including renewal options or the estimated
useful lives of the assets.
Furniture and equipment are depreciated by the straight-line method over the
estimated useful lives of the assets, generally seven years.
EARNINGS (LOSS) PER SHARE
Net income (loss) per share is based upon the weighted average number of
shares outstanding during the period. Fully diluted earnings per share is not
disclosed because it is anti-dilutive.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with a maturity of three months or less to be
cash equivalents.
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 reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
NOTE 2 - GOING CONCERN CONSIDERATIONS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. However, the Company has sustained
substantial operating losses in recent years. In addition, the Company has
used substantial operating losses in recent years. In addition, the Company
has used substantial amounts of working capital in its operations. Further,
at December 31, 1998 current liabilities exceed current assets by $1,246,775.
<PAGE>
In view of these matters, payment of existing liabilities in the accompanying
balance sheet is dependent upon the success of the Company's future
operations and its ability to raise capital. The Company's management
believes that all obligations can and will be paid with future operations.
Management further believes that the Company is a going concern due to the
current operations that are not reflected as of the date of these financial
statements.
NOTE 3 - BUSINESS COMBINATION
During the year ending December 31, 1998 the Company acquired 100% of the
outstanding stock of Ground Floor Cafe an Oklahoma restaurant company. The
Company gave 750,000 shares of Creative Restaurant common stock for 100% of
the stock for Ground Floor Cafe, making Ground Floor Cafe a wholly owned
subsidiary of Creative Restaurant Concepts. Ground Floor Cafe is consolidated
with Creative Restaurant Concepts with Creative Restaurant Concepts is the
surviving entity.
NOTE 4 - PROPERTY AND EQUIPMENT
As of December 31, 1998 property and equipment consisted of office furniture
and restaurant equipment. Depreciation is calculated using the straight-line
method over the estimated useful life of the asset.
NOTE 5 - OTHER INVESTMENTS
On August 20, 1997 the Company entered into a joint venture agreement with
City Bites, Inc. to own and operate City Bites restaurants in the State of
Kansas. Such joint venture is owned 80% by the Company and 20% by City Bites,
Inc. During the year ending December 31, 1998 the Company sold its interest
in City Bites, Inc.
In October, 1998, the Company entered into negotiations which led to the
January 1, 1999 acquisition of 66 2/3 of the outstanding shares of Crockett's
Smokehouse of Choctaw, Inc. 80% of the outstanding shares of Crockett's
Smokehouse of South May, Inc., 90% of the outstanding shares of Pizza Planet
of Reno and Meridian, Inc. and the assets of McAllister and Reed Inc. from
Paul McNutt. At the same time 33 1/3 of the outstanding shares of Crockett's
Smokehouse of Choctaw, Inc. were acquired form Ali Khalili, 20% of the
outstanding shares of Crockett's Smokehouse of South May, Inc. were acquired
from Mark McAllister and 10% of Pizza Planet of Reno and Meridian, Inc. was
acquired from Steve Haben.
<PAGE>
In January 1999, the assets of Crockett's Smokehouse of Choctaw, Inc. were
sold to Ali Khalili. In August, 1999, the assets of Crockett's Smokehouse of
South May, Inc. were sold to CWT, Inc. In September, 1999, the assets of
Pizza Planet of Reno and Meridian Inc. were sold to Restaurant Acquisition
Corporation.
NOTE 6 - NOTES PAYABLE AND LONG-TERM DEBT
<TABLE>
<CAPTION>
<S> <C>
Notes payable consist of the following:
Payable to various individuals, 10-18% interest,
Unsecured, due various maturity dates $ 890,472
---------
Long-term debt consists of the following:
Installment loan with local commercial bank,
9.5% interest rate, maturing October 2002,
collateralized by equipment and fixtures 9,916
Installment loan with local commercial bank,
9.5% interest rate, maturing October 2002,
collateralized by equipment and fixtures 159,977
---------
169,983
Less: current portion 44,320
---------
$ 125,573
=========
</TABLE>
The following is a summary of maturities of principal under long-term debt for
the years ending December 31:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 44,320
2000 44,320
2001 44,320
2002 36,933
----------
$ 169,893
==========
</TABLE>
NOTE 7 - CAPITAL STOCK TRANSACTIONS
The Company issued 5,748,399 common shares in 1997 and 7,196,756 common shares
in 1998.
<PAGE>
During 1997, 405,000 shares were issued under common stock options granted in
1994 at an exercise price of $.18 per share. A total of 2,000,000 options
with an expiration date of December 31, 2000 were issued during 1997. At
December 31, 1998 a total of 2,00,000 options remained unexercised as follows:
<TABLE>
<CAPTION>
NUMBER OF OPERATIONS EXERCISE PRICE EXPIRATION DATE
-------------------- -------------- ---------------
<S> <C> <C>
2,000,000 $.03 December 31, 2000
</TABLE>
At December 31, 1998, dividends in arrears on the 10% cumulative preferred
stock were $8,250.
NOTE 8 - CAPITAL STOCK TRANSACTIONS
Income taxes are provided for the tax effect of transactions reported in the
financial statements in a period different from which they are reported for
income tax purposes. The items creating such a timing difference are the
accelerated depreciation of property and equipment for tax purposes as
compared to the straight-line method for financial reporting purposes, and
the amortization of leasehold improvements over a prescribed thirty-nine year
period for tax purposes as compared to the lease terms for financial
reporting purposes.
The Company has a consolidated net operating loss carrryforward of
approximately $5,000,000, which will expire between the years 2001 and 2006.
Because of the uncertainty of the Company's future operations, and because
possible restrictions on the application of the net operating losses against
future profits are being researched due to ownership changes reflected in
various stock issuance, no tax benefits are recorded in these financial
statements.
NOTE 9 - LEASE COMMITMENTS
The Company leases office space on a month to month basis.
NOTE 10 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
As supplemental information to the statement of cash flows, cash paid for
interest during the year was none. No income taxes were due during the
reporting years. Nor was any interest paid in cash for the year ending
December 31, 1998.
NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held for
trading purposes. The Company estimates that the fair value of all financial
instruments at December 31, 1998, does not differ materially from the
aggregate carrying values of its financial instruments recorded in the
accompanying Balance Sheet. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies.
<PAGE>
NOTE 12 - REVERSE STOCK SPLIT
On February 28, 1998 the shareholders approved a 1 for 20 reverse stock
split. Authorized common shares remained at 50,000,000 and par value remained
at $0.005.
NOTE 13 - CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED
STOCK SERIES AA
The company has issued 138,5000 shares of 6% cumulative convertible
redeemable preferred stock. The stock is not voting and dividends accumulate
till paid. This stock was issued for $138,500 in debt.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
DEC 31, 1998 DEC 31, 1997
---------------------- -----------------------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE
Net Income (Loss) $ (684,343) $ (409,200)
Weighted average share outstanding 7,214,807 46,746,085
Primary income (Loss) per share $ (0.09) $ (0.01)
FULLY DILUTED EARNINGS PER SHARE
Net Income (Loss) $ (684,343) $ (409,200)
Weighted average shares outstanding 7,214,807 46,746,085
Addition from assumes exercise of
Common Stock purchase warrants and 253,750 450,000
options
Addition from assumed conversion of 225,000 0
Preferred Stock
Weighted average number of Common Shares 7,693,557 47,196,085
outstanding on a fully diluted basis
FULLY DILUTED (LOSS) PER SHARE $ (0.08) $ (0.01)
====================================
</TABLE>
a) This calculation is submitted in accordance with regulation S-K Item 601
(b) (11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an anti-dilutive results.
<PAGE>
CREATIVE RESTAURANT CONCEPTS, INC.
FINANCIAL STATEMENTS AND
AUDITOR'S REPORT THEREON
As of and for the years
Ending December 31, 1998 and 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> (3,625)
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 13,566
<CURRENT-ASSETS> 9,941
<PP&E> 260,669
<DEPRECIATION> (20,085)
<TOTAL-ASSETS> 266,413
<CURRENT-LIABILITIES> 1,256,715
<BONDS> 0
0
151,139
<COMMON> 45,970
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 266,413
<SALES> 1,226,852
<TOTAL-REVENUES> 1,226,852
<CGS> 480,026
<TOTAL-COSTS> 1,821,549
<OTHER-EXPENSES> 1,341,523
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89,646
<INCOME-PRETAX> (684,343)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (684,343)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.08)
</TABLE>
