U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Fiscal Year Ended: December 31, 1998
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from To
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Commission file number 33-20111
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Eat at Joe's Ltd.
(Name of small business issuer in its charter)
Delaware 75-2636283
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
670 White Plains Road, Suite 120, Scarsdale, New York 10583
(Address of principal executive offices) (Zip code)
Issuer's telephone number (914) 725-2700
Securities registered under Section 12(b) of the Act: NONE
Securities registered under Section 12(g) of the Act:
Common Stock Par Value $0.0001
(Title of class)
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
Total pages: 20
Exhibit Index Page: 18
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $2,519,255
As of March 1, 1999, there were 16,776,769 shares of the Registrant's
common stock, par value $0.0001, issued and outstanding and 1,186,400 warrants
and 61,350 options to purchase common stock at $0.50 to $1.79 per share. The
aggregate market value of the Registrant's voting stock held by non-affiliates
of the Registrant was approximately $10,103,747 computed at the average bid and
asked price as of March 1, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"): NONE
Transitional Small Business Disclosure Format (check one): Yes ; NO X
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TABLE OF CONTENTS
Item Number and Caption Page
PART I
Item 1. Description of Business...............................................4
Item 2. Description of Property...............................................7
Item 3. Legal Proceedings.....................................................8
Item 4. Submission of Matters to a Vote of Security Holders...................9
PART II
Item 5. Market for Common Equity and Related Stockholder Matters..............9
Item 6. Management's Discussion and Analysis or Plan of Operations...........11
Item 7. Financial Statements.................................................13
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure........................................14
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act...........14
Item 10. Executive Compensation...............................................16
Item 11. Security Ownership of Certain Beneficial Owners and Management.......17
Item 12. Certain Relationships and Related Transactions.......................17
Item 13. Exhibits and Reports on Form 8-K.....................................18
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PART I
ITEM 1 DESCRIPTION OF BUSINESS
General
The business of Eat at Joe's, Ltd. ( the "Company") is to develop, own and
operate theme restaurants called "Eat at Joe's (R)." The theme for the
restaurants is an "American Diner" atmosphere where families can eat wholesome,
home-cooked food in a safe friendly atmosphere. Eat at Joe's, the classic
American grill, is a restaurant concept that takes you back to eating in the era
when favorite old rockers were playing on chrome-spangled jukeboxes and neon
signs reflected on shiny tabletops of the 1950's.
The Company presently owns and operates eight theme restaurants: four
restaurants located in Philadelphia, Pennsylvania; one each in Cherry Hill,
Moorestown and Vorhees, New Jersey and one in Baltimore, Maryland. The Company
is planning to open at least three additional restaurants during 1999. All
restaurants will be located in high traffic locations. The restaurants will be
modest priced restaurants catering to the local working and residential
population rather than as a tourist destination.
The Company's common stock is traded on the National Association of
Security Dealers, Inc. (the "NASD's") OTC Bulletin Board Under the symbol
"JOES."
History
The company was incorporated as Conceptualistics, Inc. on January 6, 1988
in Delaware as a wholly owned subsidiary of Halter Venture Corporation ("HVC"),
a publicly-owned corporation (now known as Debbie Reynolds Hotel and Casino,
Inc.) In 1988, HVC divested itself of approximately 14% of its holdings in the
Company by distributing 1,777,000 shares of the issued and outstanding stock of
the Company to its shareholders. The then majority shareholder of HVC became the
majority shareholder of the Company. Its authorized capital stock is 50,000,000
shares of common stock, par value $0.0001 per share and 10,000,000 shares of
preferred stock, par value $0.0001 per share.
During the period from September 30, 1988 to March 1, 1990, the company
remained in the development stage while attempting to enter the mining industry.
The Company acquired certain unpatented mining claims and related equipment
necessary to mine, extract, process and otherwise explore for kaolin clay,
silica, feldspar, precious metals, antimony and other commercial minerals from
its majority stockholder and unrelated third parties. The Company was
unsuccessful in these start up efforts and all activity ceased during 1992 as a
result of foreclosure on various loans in default and/or abandonment of all
assets.
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From March 1, 1990 to January 1 , 1997, the Company did not engaged in any
business activities.
On January 1 , 1997, the Shareholders adopted a plan or reorganization and
merger between the Company and E. A. J. Holding Corp. Inc. ("Hold") to be
effective on or before January 31, 1997. Under the plan, the Company acquired
all the issued and outstanding shares of "Hold", a Delaware corporation making
"Hold" a wholly owned subsidiary of the Company for 5,505,000 common shares of
the Company.
The Company through its wholly owned subsidiary, Hold, has ten wholly owned
subsidiaries:
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- E.A.J. PHL Airport, Inc. a Pennsylvania corporation,
- Eat At Joe's U. of P., Inc. a Pennsylvania corporation,
- E.A.J. Cherry Hill, Inc., a New Jersey corporation,
- Eat At Joe's Harborplace, Inc., a Maryland corporation,
- Eat At Joe's Neshaminy, Inc. a Pennsylvania corporation,
- Eat At Joe's Plymouth, Inc., a Pennsylvania corporation,
- E.A.J. Echelon Mall, Inc., a New Jersey corporation,
- E.A.J. Gallery, Inc., a Pennsylvania corporation,
- E.A.J. Moorestown, Inc., a New Jersey corporation,
- E.A.J. Shoppingtown, Inc., a New York corporation,
- Eat at Joe's U of P 40th Street, Inc., a Pennsylvania corporation,
- Eat at Joe's Owings Mills, Inc., a Maryland corporation..
Each of the subsidiaries will operate a single restaurant. Two restaurants,
E.A.J. Cherry Hill and Eat At Joe's U. of P. were opened November and December
1997, two additional restaurants, E.A.J. Echelon Mall and E.A.J. PHL Airport
were opened May 1998, Eat at Joe's U of P 40th Street opened July 1998, E.A.J.
Gallery opened August 1998, Eat At Joe's Harborplace opened September 1998, and
E.A.J. Moorestown opened October 1998.
The principal executive offices of the Company are located at 670 White
Plains Road, Suite 118, Scarsdale, NY 10583. The Company also has an office in
Cherry Hill, New Jersey, where the restaurant operations are managed.
OPERATING LOSSES
The Company has incurred net losses of approximately $1,081,000 and
$299,000 for the fiscal years ended December 31, 1998 and December 31, 1997,
respectively. Such operating losses reflect developmental and other start-up
activities. The Company expects to incur losses in the near future until
profitability is achieved. The Company's operations are subject to numerous
risks associated with establishing any new business, including unforeseen
expenses, delays and complications. There can be no assurance that the Company
will achieve or sustain profitable operations or that it will be able to remain
in business.
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FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FUNDING
The Company was not in full operations during 1998 and thus, the revenues
generated are not representative of those that will be generated once all units
are operating. Revenues are not yet sufficient to support the Company's
operating expenses and are not expected to reach such levels until the first or
second quarter of 1999. Since the Company's formation, it has funded its
operations and capital expenditures primarily through private placements of debt
and equity securities. See "Recent Sales of Unregistered Securities." The
Company expects that it will be required to seek additional financing in the
future. There can be no assurance that such financing will be available at all
or available on terms acceptable to the Company.
GOVERNMENT REGULATION
The Company is subject to all pertinent Federal, State, and Local laws
governing its business. Each Eat at Joe's is subject to licensing and regulation
by a number of authorities in its State or municipality. These may include
health, safety, and fire regulations. The Company's operations are also subject
to Federal and State minimum wage laws governing such matters as working
conditions, overtime and tip credits.
RISK OF LOW-PRICED STOCKS
Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of
1934 (the "Exchange Act") impose sales practice and disclosure requirements on
certain brokers and dealers who engage in certain transactions involving "a
penny stock."
Currently, the Company's Common Stock is considered a penny stock for
purposes of the Exchange Act. The additional sales practice and disclosure
requirements imposed on certain brokers and dealers could impede the sale of the
Company's Common Stock in the secondary market. In addition, the market
liquidity for the Company's securities may be severely adversely affected, with
concomitant adverse effects on the price of the Company's securities.
Under the penny stock regulations, a broker or dealer selling penny stock
to anyone other than an established customer or "accredited investor"
(generally, an individual with net worth in excess of $1,000,000 or annual
incomes exceeding $200,000, or $300,000 together with his or her spouse) must
make a special suitability determination for the purchaser and must receive the
purchaser's written consent to the transaction prior to sale, unless the broker
or dealer or the transaction is otherwise exempt. In addition, the penny stock
regulations require the broker or dealer to deliver, prior to any transaction
involving a penny stock, a disclosure schedule prepared by the Securities and
Exchange Commission (the "SEC") relating to the penny stock market, unless the
broker or dealer or the transaction is otherwise exempt. A broker or dealer is
also required to disclose commissions payable to the broker or dealer and the
registered representative and current quotations for the Securities. In
addition, a broker or dealer is required to send monthly statements disclosing
recent price information with respect to the penny stock held in a customer's
account and information with respect to the limited market in penny stocks.
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LACK OF TRADEMARK AND PATENT PROTECTION
The Company relies on a combination of trade secret, copyright and
trademark law, nondisclosure agreements and technical security measures to
protect its products. Notwithstanding these safeguards, it is possible for
competitors of the company to obtain its trade secrets and to imitate its
products. Furthermore, others may independently develop products similar or
superior to those developed or planned by the Company.
COMPETITION
The Company faces competition from a wide variety of food distributors,
many of which have substantially greater financial, marketing and technological
resources than the Company.
EMPLOYEES
As of March 25, 1999, the Company had approximately 160 employees, none of
whom is represented by a labor union.
ITEM 2 DESCRIPTION OF PROPERTY
Since 1992 all administrative activities of the Company have been conducted
by corporate officers from either their home or business offices. Currently,
there are no outstanding debts owed by the Company for the use of these
facilities and there are no commitments for future use of the facilities.
The company's wholly-owned subsidiary, E.A.J. Shoppingtown, Inc. leases
approximately 2,453 square feet in the Shoppington Mall, DeWitt, New York
pursuant to a shopping center lease dated January 1, 1998. E.A.J. Shoppingtown
pays $4,167 per month rent under the lease which expires December 21, 2012.
The Company's wholly-owned subsidiary, Eat At Joe's Cherry Hill, Inc.
leases approximately 660 square feet in the Cherry Hill Mall, Cherry Hill, New
Jersey pursuant to a shopping center lease dated October 1, 1997. Eat At Joe's
Cherry Hill pays $4,400 per month rent under the lease which expires September
30, 2007.
The Company's wholly-owned subsidiary, Eat At Joe's Gallery, Inc. leases
approximately 2,000 square feet in the Gallery at Market East, Philadelphia,
Pennsylvania pursuant to a shopping center lease dated August 1, 1997. Eat At
Joe's Gallery pays $4,167 per month rent under the lease which expires December
31, 2007.
The Company's wholly-owned subsidiary, E.A.J. Moorestown, Inc. leases
approximately 3,683 square feet in the Moorestown Mall, Moorestown, New Jersey
pursuant to a shopping center lease dated July 1, 1997. The Company pays $6,250
per month rent under the lease which expires June 30, 2012.
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The Company's wholly-owned subsidiary Eat At Joe's U. of P., Inc. leases
approximately 456 square feet in the Shoppes at Penn, Philadelphia, Pennsylvania
pursuant to a prime lease dated October 30, 1997. Eat at Joe's U. of P. pays
$1,710 per month rent under the lease which expires December 31, 2008.
The Company's wholly-owned subsidiary E.A.J. Echelon Mall, Inc. leases
approximately 470 square feet in the Echelon Mall, Vorhees, New Jersey pursuant
to a shopping center lease dated February 3, 1998. E.A.J. Echelon Mall pays
$1,950 per month rent under the lease which expires January 2006.
The Company's wholly-owned subsidiary E.A.J. PHL Airport, Inc. leases
approximately 845 square feet in the Philadelphia Airport, Philadelphia,
Pennsylvania pursuant to a lease dated April 30, 1997. E.A.J. PHL Airport pays
$7,100 per month rent under the lease which expires April 2007.
The Company's wholly-owned subsidiary Eat at Joe's U of P 40th Street, Inc.
leases approximately 4,000 square feet in the Eat at Joe's University City
Diner, Philadelphia, Pennsylvania pursuant to a lease dated April 21, 1998. Eat
at Joe's U of P 40th Street pays $6,667 per month rent under the lease which
expires December 2008.
The Company's wholly-owned subsidiary Eat at Joe's Harborplace, Inc. leases
approximately 2,530 square feet in the Gallery at Harbor Place, Baltimore,
Maryland pursuant to a lease dated November 6, 1997. Eat at Joe's Harborplace
pays $8,333 per month rent under the lease which expires March 2008.
The Company's wholly-owned subsidiary Eat at Joe's Neshaminy, Inc. leases
approximately 4,500 square feet in the Neshaminy Mall, Bensalom, Pennsylvania
pursuant to a lease dated December 23, 1997. Eat at Joe's Neshaminy pays $7,500
per month rent under the lease which expires July 2013.
The Company's wholly-owned subsidiary Eat at Joe's Plymouth, Inc. leases
approximately 4,540 square feet in the Plymouth Meeting Mall, Plymouth Meeting,
Pennsylvania pursuant to a lease dated October 29, 1997. Eat at Joe's Plymouth
pays $12,500 per month rent under the lease which expires March 2008.
The Company's wholly-owned subsidiary E.A.J. Holding Corp, Inc. leases
approximately 3,020 square feet in the Danbury Fair Mall, Danbury, Conneticut
pursuant to a lease dated May 5, 1997. Eat at Joe's Owings Mills pays $11,080
per month rent under the lease which expires December 2013.
ITEM 3 LEGAL PROCEEDINGS
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The Company is not engaged in any legal proceedings other than the ordinary
routine litigation incidental to its business operations, which the Company does
not believe, in the aggregate, will have a material adverse effect on the
Company, or its operations.
ITEM 4 SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
No matters were subject to a vote of security holders during the year 1998.
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock is traded on the NASD's OTC Bulletin Board under
the symbol "JOES." The following table presents the high and low bid quotations
for the Common Stock as reported by the NASD for each quarter during the last
two years. Such prices reflect inter-dealer quotations without adjustments for
retail markup, markdown or commission, and do not necessarily represent actual
transactions.
1997: High Low
First Quarter $ 5.63 $ 4.00
Second Quarter $ 4.50 $ 2.00
Third Quarter $ 3.50 $ 1.50
Fourth Quarter $ 2.75 $ 0.82
1998:
First Quarter $ 2.04 $ 1.06
Second Quarter $ 3.38 $ 1.40
Third Quarter $ 1.78 $ 0.72
Fourth Quarter $ 1.21 $ 0.41
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DIVIDENDS
The Company has never declared or paid any cash dividends. It is the
present policy of the Company to retain earnings to finance the growth and
development of the business and, therefore, the Company does not anticipate
paying dividends on its Common Stock in the foreseeable future.
The number of shareholders of record of the Company's Common Stock as of
March 1, 1999 was approximately 432.
RECENT SALES OF UNREGISTERED SECURITIES
In November 1996, the Company raised $60,000 through the issuance 600,000
shares of its Common Stock and warrants to acquire 2,000,000 shares at an excise
price of $1.00 per share. The offering was exempt from registration pursuant to
Regulation D Section 504. In 1997, 900,000 warrants were exercised against
payment of $900,000. During 1998, 40,000 warrants were exercised against a
payment of $40,000.
In January, 1997 the shareholders of the Company adopted an agreement
whereby 5,505,000 shares of the Company's Common Stock was exchanged for a 100%
interest in E.A.J. Holding Corporation, Inc. Messrs. Joseph Fiore and Andrew
Cosenza, Jr., the Company's Chairman and President, were the owners of all the
outstanding shares of E.A.J. Holding Corporation, Inc. The Company issued its
shares upon an exemption from registration under Section 4(2) of the Securities
Act.
In March, 1998, the Company sold 51 shares of its Series A Convertible
Preferred Stock to a total of 8 accredited investors pursuant to an exemption
from registration under the Section 4(2) and/or Regulation D or as an
alternative, Regulation S of the Act. The Company received proceeds of
approximately $797,000 from the sale of the securities. As of the date of this
prospectus the shares are convertible and warrants (issued in connection with
the offering) exercisable into 1,700,725 shares of Common Stock of the Company.
On May 5 1998, the Company sold 30 shares of its Series B Convertible
Preferred Stock to a total of 3 accredited investors pursuant to an exemption
from registration under the Section 4(2) and/or Regulation D. The Company
received proceeds of approximately $484,,000 from the sale of the securities. As
of the date of this prospectus the shares are convertible and warrants (issued
in connection with the offering) exercisable into 990,064 shares of Common Stock
of the Company.
On May 21, 1998, the Company sold 34 shares of its Series B Convertible
Preferred Stock to a total of 2 accredited investors pursuant to an exemption
from registration under the Section 4(2) and/or Regulation D. The Company
received proceeds of approximately $549,000 from the sale of the securities. As
of the date of this prospectus the shares are convertible and warrants (issued
in connection with the offering) exercisable into 433,916 shares of Common Stock
of the Company. During September 1998 the company repurchased 19 shares for
$450,000.
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In September, 1998, the Company sold 14 shares of its Series C Convertible
Preferred Stock to 2 accredited investors pursuant to an exemption from
registration under the Section 4(2) and/or Regulation D. The Company received
proceeds of approximately $239,000 from the sale of the securities. As of the
date of this prospectus the shares are convertible and warrants (issued in
connection with the offering) into 395,733 shares of Common Stock of the
Company.
On July 31, and September 2, 1998, the Company sold its 8% convertible
debenture in the aggregate principal amount of $1,500,000 to an accredited
investor pursuant to an exemption from registration under Section 4(2) and/or
Regulation D. The Company retained proceeds of approximately $933,000 from the
sale of the securities and $450,000 was applied to the repurchase of 19 shares
of Series B Convertible Preferred Stock sold to an investor on May 21, 1998. As
of the date of this prospectus, the debentures are convertible and warrants
(issued in connection with the offering) exercisable into 2,064,000 shares of
Common Stock of the Company.
In September, 1998, the Company sold 20 shares of its Series D Convertible
Preferred Stock to an accredited investors pursuant to an exemption from
registration under the Section 4(2) and/or Regulation D. The Company received
proceeds of approximately $350,000 from the sale of the securities. As of the
date of this prospectus the shares are convertible and warrants (issued in
connection with the issuance of the shares) into 539,000 shares of Common Stock
of the Company.
ITEM 6 MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATIONS
Plan of Operations - Eat at Joe's Ltd. Intends to open and operate theme
restaurants styled in an "American Diner" atmosphere where families can eat
wholesome, home cooked food in a safe friendly atmosphere. Eat at Joe's, the
classic American grill, is a restaurant concept that takes you back to eating in
the era when favorite old rockers were playing on chrome-spangled jukeboxes and
neon signs reflected on shiny tabletops of the 1950's. Eat at Joe's fulfills the
diner dream with homey ambiance that's affordable while providing food whose
quality and variety is such you can eat there over and over, meal after meal. To
build on the diner experience, a retail section in each Eat at Joe's would allow
customers to take the good feelings home with them, in the form of 50's
memorabilia.
The Company's expansion strategy is to open restaurants either through
Joint Venture agreements or Company owned units. Units may consist of a
combination of full service restaurants or food court locations. Restaurant
construction will take from 90-150 days to complete on a leased site.
In considering site locations, the Company concentrates on trade
demographics, such as traffic volume, accessibility and visibility. High
Visibility Malls and Strip Malls in densely populated suburbs are the preferred
locations. The Company also scrutinizes the potential competition and the
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profitability of national restaurant chains in the target market area. As part
of the expansion program, the Company will inspect and approve each site before
approval of any joint venture or partnership.
A typical food court unit is approximately 500 square feet, whereas for a
full service operation it is approximately 3,500 square feet. Food court
operation consists of a limited menu. A full service restaurant consists of
30-35 tables seating about 140- 150 people. The bar area will hold 6-8 tables
and seats 30-35 people.
The restaurant industry is an intensely competitive one, where price,
service, location, and food quality are critical factors. The Company has many
established competitors, ranging from similar casual-style chains to local
single unit operations. Some of these competitors have substantially greater
financial resources and may be established or indeed become established in areas
where the Eat at Joe's Company operates. The restaurant industry may be affected
by changes in customer tastes, economic, demographic trends, and traffic
patterns. Factors such as inflation, increased supplies costs and the
availability of suitable employees may adversely affect the restaurant industry
in general and the Eat at Joe's Company Restaurant in particular. Significant
numbers of the Eat at Joe's personnel are paid at rates related to the federal
minimum wage and accordingly, any changes in this would affect the Company's
labor costs.
Results of Operations - From March 1, 1990 to December 12, 1995 the Company was
an inactive corporation. From December 12, 1995 to November 1997 the Company was
a development stage company and had not begun principal operations. During
November and December, 1997 two restaurants were opened and began operations.
Accordingly, comparisons with prior periods are not meaningful.
Total Revenues - For the years ended December 31, 1998 and 1997, the Company had
total sales of approximately $2,519,000 and $85,000 respectively.
Costs and Expenses - For the years ended December 31, 1998 and 1997, the Company
had a net loss of approximately $1,081,000 and $299,000 respectively. The net
loss for 1998 and 1997 is largely attributable to additional expenses incurred
as the Company increases its Corporate overhead structure for the development of
additional locations supported by revenues from operating units two of which
were open for business during November and December 1997, two of which were
opened during May 1998, three were opened during the third quarter 1998 (1 per
month), and one was opened during October 1998. Given the limited operations
which took place in 1997, any discussion of operating expenses as a percentage
of sales would not be meaningful and might be misleading.
LIQUIDITY AND CAPITAL RESOURCES
The Company has met its capital requirements through the sale of its Common
Stock and borrowings. In 1997, $900,000 was raised through the exercise of
900,000 warrants. The warrants are exercisable at $1 per share and expired in
November 1998. Also, the Company has borrowed $995,000 including $690,000 from
Messrs. Fiore and Cosenza. The net proceeds to the Company were used for
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additional unit development and working capital.
For the year 1997 the Company provided $138,000 in cash flow for operating
activities and during the year 1998, the Company used $599,000 in cash flow for
operating activities.
Since the Company's re-activation in January, 1997, the Company's principal
capital requirements have been the funding of (i) the development of the Company
and its 1950's diner style concept, (ii) the construction of its existing units
and the acquisition of the furniture, fixtures and equipment therein and (iii)
towards the development of additional units. During 1998 and 1997 the company
paid approximately $4,628,000 and $1,795,000, respectively for property and
equipment..
During 1998, the Company has raised approximately $3,539,000 (net of
issuance costs) through the sale of preferred stock and debentures, both of
which are convertible into Common Stock of the Company. Also, the Company has
borrowed $2,509,000 including $114,000 from Mr. Fiore. As of December 31, 1998,
$452,000 remained due to Mr. Fiore. The net proceeds to the Company were used
for additional unit development and working capital.
After the completion of these expansion plans, the Company expects future
development and expansion will be financed through cash flow from operations and
other forms of financing such as the sale of additional equity and debt
securities, capital leases and other credit facilities. There are no assurances
that such financing will be available on terms acceptable or favorable to the
Company.
Government Regulations - The Company is subject to all pertinent
Federal, State, and Local laws governing its business. Each Eat at Joe's is
subject to licensing and regulation by a number of authorities in its State or
municipality. These may include health, safety, and fire regulations. The
Company's operations are also subject to Federal and State minimum wage laws
governing such matters as working conditions, overtime and tip credits.
Year 2000 Compliance - The Company utilizes software and related technologies
which have been programmed to recognize and properly process data fields
containing a two digit year and commonly referred to as the Year 2000 Compliance
issue. Management has concluded that a material effect on the Company's
financial condition is not reasonably likely to occur as a result of Year 2000
issues. While the Company has little communication with the systems of its
vendors and suppliers, it cannot measure the impact that the Year 2000 issue
will have on such parties with which it conducts business.
ITEM 7 FINANCIAL STATEMENTS
The financial statements of the Company and supplementary data are included
beginning immediately following the signature page to this report. See Item 13
for a list of the financial statements and financial statement schedules
included.
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ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There are not and have not been any disagreements between the Company and
its accountants on any matter of accounting principles, practices or financial
statements disclosure.
PART III
ITEM 9 DIRECTORS EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF
THE EXCHANGE ACT
Executive Officers and Directors
The following table sets forth the name, age, and position of each
executive officer and director of the Company:
Director's Name Age Office Term Expires
Joseph Fiore 38 Chief Executive officer, Next
Chairman of the Board of Annual
Directors/Secretary Meeting
James Mylock, Jr. 32 Director Next
Annual
Meeting
Andrew Cosenza, Jr. 30 Director, Vice Chairman Next
Annual
Meeting
Tim Matula 38 Director Next
Annual
Meeting
Gino Naldini 47 President and Chief Operating Next
Officer Annual
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Meeting
Gary Usling 39 Chief Financial Officer Next
Annual
Meeting
Joseph Fiore has been Chairman and Chief Executive Officer since October,
1996. In 1982, Mr. Fiore formed East Coast Equipment and Supply Co., Inc., a
restaurant supply company that he still owns. Between 1982 and 1993, Mr. Fiore
established 9 restaurants (2 owned and 7 franchised) which featured a 1959's
theme restaurant concept offering a traditional American menu.
James Mylock, Jr. has worked with Joseph Fiore in marketing and business
development since graduating from the State University of New York at Buffalo in
1990.
Andrew Cosenza, Jr. was formerly the President and Chief Operating Officer
since October, 1996. Since 1990 he has been the owner of Cozco Management Corp.,
an operator of 35 mall food court restaurants in the Philadelphia area.
Tim Matula joined Shearson Lehman Brothers as a financial consultant in
1992. In 1994 he joined Prudential Securities and when he left Prudential in
1997, he was Associate Vice President, Investments, Quantum Portfolio Manager.
Gino Naldini became President and Chief Operating Officer of the Company in
December, 1998. From 1967 through 1998, Mr. Naldini held various senior
executive positions with Toronto-based CARA Operations, operator or more than
400 restaurants. The restaurants operated by CARA include Swiss Chalet, operator
of chicken rotisserie restaurants and Harvey's, Canada's second largest
hamburger chain. Mr. Naldini's last held position with CARA was that of Senior
Director of Operations.
Mr. Usling has been Chief Financial Officer since January, 1999.From 1993
to 1998, he was employed with Penreal Capital Management, Inc. and his last held
position as a Vice President. Peneral is a pension/real estate fund management
company. From 1989 to 1993 he was Vice President of Acquisitions and Development
for Co-operators Development Corporation, a real estate and insurance firm. From
1984 to 1989 was employed by The Canada Life Assurance Company as an accountant.
The Company's Certificate of Incorporation provides that the board of
directors shall consist of from one to nine members as elected by the
shareholders. Each director shall hold office until the next annual meeting of
stockholders and until his successor shall have been elected and qualified.
Board Meetings and Committees
The Directors and Officers will not receive remuneration from the Company
until a subsequent offering has been successfully completed, or cash flow from
15
<PAGE>
operating permits, all in the discretion of the Board of Directors. Directors
may be paid their expenses, if any, of attendance at such meeting of the Board
of Directors, and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary as Director. No such payment shall
preclude any Director from serving the Corporation in any other capacity and
receiving compensation therefor. No compensation has been paid to the Directors.
The Board of Directors may designate from among its members an executive
committee and one or more other committees. No such committees have been
appointed.
Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of forms 3, 4, and 5 and amendments thereto,
furnished to the Company during or respecting its last fiscal year, no director,
officer, beneficial owner of more than 10% of any class of equity securities of
the Company or any other person known to be subject to Section 16 of the
Exchange Act of 1934, as amended, failed to file on a timely basis reports
required by Section 16(a) of the Exchange Act for the last fiscal year.
ITEM 10 EXECUTIVE COMPENSATION
None of the executive officer's salary and bonus exceeded $100,000 during
any of the Company's last two fiscal years.
Employment Agreements
Effective January 1, 1997, the Company entered into an employment Agreement
with Joseph Fiore (the "Fiore Employment Agreement") under which Joseph Fiore
serves as chairman of the board and chief executive officer of the Company.
Pursuant to the Fiore Employment Agreement, Mr. Fiore was to be paid $50,000 in
1997. He deferred $50,000 of his salary for the year 1997. Mr. Fiore will be
paid a salary of $75,000 in 1998. In addition, Mr. Fiore will receive family
health insurance coverage until age 70 and life insurance coverage until age 70
with a death benefit of $1,000,000 and the use of an automobile, with all
expenses associated with the maintenance and operation of the automobile paid by
the Corporation. Mr. Fiore deferred these benefits until after 1997.
Effective January 1, 1997, the Company entered into an employment agreement
with Andrew A. Cosenza, Jr. (The"Cosenza Employment Agreement") under which
Andrew A. Cosenza, Jr. serves as president and chief operating office of the
Company as well as serve as a member of the Corporation's board of directors.
Pursuant to the Cosenza Employment Agreement, Mr. Cosenza was paid $12,500. He
deferred $37,500 of his salary for the year 1997. Mr. Cosenza will be paid a
salary of $75,000 in 1998. In addition, Mr. Cosenza will receive the use of an
automobile, with all expenses associated with the maintenance and operation of
the automobile paid by the Corporation, family health insurance coverage to age
70 and life insurance coverage until age 70 with a death benefit of $1,000,000.
16
<PAGE>
Mr. Cosenza deferred some of these benefits until after 1997 but did receive the
use of the automobile for part of the year at a cost to the Company of
approximately $16,000 .
ITEM 11 SECURITY OWNERSHIP OF BENEFICIAL OWNERS
AND MANAGEMENT
Principal Shareholders
The table below sets forth information as to each person owning of record
or who was known by the Company to own beneficially more than 5% of the
16,776,769 shares of issued and outstanding Common Stock of the Company as of
March 1, 1999 and information as to the ownership of the Company's Stock by each
of its directors and executive officers and by the directors and executive
officers as a group. Except as otherwise indicated, all shares are owned
directly, and the persons named in the table have sole voting and investment
power with respect to shares shown as beneficially owned by them.
# of
Name and Address Nature of Shares
of Beneficial Owners Ownership Owned Percent
Directors
Joseph Fiore Common Stock 2,879,384 17%
Andrew Cosenza, Jr. Common Stock 2,591,000 15%
All Executive Officers Common Stock 5,550,384 33%
and Directors as a Group
(3 persons)
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company utilized office space that is shared with companies controlled
by two officers of the Company. During 1998 and 1997 Cozco Management received
$36,387 and $546,574 respectively, as reimbursement for rent, telephone,
equipment, travel, automotive salaries and other shared expenses. During 1998
and 1997 the two officers and/or companies controlled by the two officers paid
expenses and made advances to the Company totaling $113,825 and $690,422
17
<PAGE>
respectively. During 1998 the Company repaid advances of $364,292. As of
December 31, 1998, $452,455 in advances was due to Mr. Fiore.
ITEM 13. EXHIBITS, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements Page
Report of Robison, Hill & Co., Independent Certified Public Accountants......F-1
Consolidated Balance Sheets as of December 31, 1998, and 1997................F-2
Consolidated Statements of Operations for the years ended
December 31, 1998, and 1997.............................................F-4
Consolidated Statement of Stockholders' Equity for the years ended
December 31, 1998, and 1997.............................................F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, and 1997.............................................F-8
Notes to consolidated Financial Statements..................................F-10
2. Financial Statement Schedules
The following financial statement schedules required by Regulation S-X are
included herein.
All schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
3. Exhibits
The following exhibits are included as part of this report:
Exhibit
Number Title of Document
3.1 Articles of Incorporation(1)
3.2 By-laws(1)
18
<PAGE>
4.1 Certificate of Designations-Series A Convertible Preferred Stock(1)
4.2 Certificate of Designations-Series B Convertible Preferred Stock(1)
4.3 Form of Warrant Agreement(1)
4.4 Certificate of Designations-Series C Convertible Preferred Stock(1)
4.5 Certificate of Designations-Series D Convertible Preferred Stock(1)
10.1 Consulting Agreement-Wall Street Group, Ltd.(1)
10.2 Indenture of Lease between University of Pennsylvania and Eat at Joe's
U. of P., Inc.(1)
10.3 Lease Abstract between Cherry Hill Center, Inc.and Eat at Joe's Cherry
Hill, Inc.(1)
10.4 Lease Abstract between Echelon Mall, Inc. and E.A.J. Eachelon Mall,
Inc.(1)
10.5 Lease Information Form between E.A.J. PHL, Airport, Inc. and
Marketplace Redwood Limited Partnership(1)
10.6 Lease Abstract between Eat at Joe's U. of P., Inc. and UCA Realty Group,
Inc.(1)
10.7 Lease Abstract between Rouse Philadelphia, Inc. and Eat at Joe's
Gallery, Inc.(1)
10.8 Lease Information Form between E.A.J. Enterprises, Inc. and First
Fidelity Bank, N.A(1)
10.9 Lease Abstract between Eat at Joe's Harbor Place, Inc. and Baltimore
Center, Inc.(1)
10.10 Lease Abstract between E.A.J. Shoppington, Inc. and Wilmorite, Inc.(1)
10.11 Lease Abstract between Eat at Joe's Neshaminy, Inc. and General Growth
Properties, Inc.(1)
10.12 Lease Abstract between Eat at Joe's Plymouth Incorporate and Plymouth
Meeting, Inc.(1)
10.13 Lease Abstract between E.A.J. Danbury, Inc. and Wilmorite, Inc.(1)
10.14 Registration of trade name for Eat at Joe's(1)
10.15 Registration Rights Agreement(1)
21 Subsidiaries of the Company(1)
23.1 Consent of Robison, Hill & Co.
27.1 Financial Data Schedule
(1) Incorporated by reference.
(b) No reports on Form 8-K were filed.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on it behalf by the undersigned, thereunto duly authorized.
EAT AT JOE'S LTD.
Dated: March 31, 1999 By /S/ Joseph Fiore
-----------------------------------
Joseph Fiore,
C.E.O., Chairman, Secretary, Director
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on this 31st day of March 1999.
Signatures Title
/S/ Joseph Fiore
- ---------------------------------
Joseph Fiore C.E.O., Chairman, Secretary, Director
(Principal Executive, Financial
and Accounting Officer)
/S/ James Mylock, Jr.
- ---------------------------------
James Mylock, Jr. Director
/S/ Andrew Cosenza, Jr.
- ---------------------------------
Andew Cosenza, Jr. Director, Vice Chairman
/S/ Tim Matula
- ---------------------------------
Tim Matula Director
/S/ Gino Naldini
- ---------------------------------
Gino Naldini President, Chief Operating Officer and
Director
/S/ Gary Usling
- ---------------------------------
Gary Usling Chief Financial Officer and Director
20
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Eat At Joe's Ltd.
We have audited the accompanying consolidated balance sheets of Eat At Joe's
Ltd., and subsidiaries (a Delaware corporation) as of December 31, 1998, and
1997 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Eat At Joe's Ltd.,
and subsidiaries as of December 31, 1998, and 1997, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Respectfully submitted,
/s/ Robison, Hill & Co.
-----------------------------
Certified Public Accountants
Salt Lake City, Utah
March 25, 1999
F - 1
<PAGE>
EAT AT JOE'S LTD., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
1998 1997
----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents .................... $ 133,957 $ 232,601
Receivables .................................. 25,861 --
Inventory .................................... 184,115 7,488
Other ........................................ 21,310 400
Prepaid expense .............................. 8,333 30,993
Deposits ..................................... 41,046 12,701
----------- -----------
Total Current Assets .................... 414,622 284,183
----------- -----------
Property and equipment:
Equipment .................................... 1,632,055 279,667
Office furniture ............................. 76,255 1,000
Leasehold improvements ....................... 4,767,308 1,527,099
----------- -----------
6,475,618 1,807,766
Less accumulated depreciation ................ (303,316) (11,546)
----------- -----------
6,172,302 1,796,220
----------- -----------
Other Assets:
Intangible and other assets net of
amortization of $13,400 and $2,150 for
1998 and 1997, respectively .................. 141,437 234,569
----------- -----------
Total Assets ............................ $ 6,728,361 $ 2,314,972
=========== ===========
F - 2
<PAGE>
EAT AT JOE'S LTD., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(Continued)
1998 1997
----------- -----------
LIABILITIES
Current Liabilities:
Accounts payable and accrued liabilities ....... $ 488,632 $ 474,795
Short-term notes payable ....................... 635,000 264,940
Shareholders loans ............................. 452,455 702,922
----------- -----------
Total Current Liabilities ................. 1,576,087 1,442,657
----------- -----------
Convertible Debentures, Net of Issue Costs ..... 1,343,449 --
----------- -----------
Total Liabilities ......................... 2,919,536 1,442,657
----------- -----------
STOCKHOLDERS EQUITY
Preferred stock - $0.0001 par value ............
10,000,000 shares authorized; 113
shares issued and outstanding ................ -- --
Common Stock - $0.0001 par value ...............
50,000,000 shares Authorized ................
16,440,755 and 12,733,805 issued
and Outstanding, respectively ............... 1,644 1,273
Common Stock To Be Issued ...................... 131 --
Additional paid-in capital ..................... 7,213,400 2,244,299
Retained deficit ............................... (3,406,350) (1,373,257)
----------- -----------
Total Stockholders' Equity ................ 3,808,825 872,315
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..... $ 6,728,361 $ 2,314,972
=========== ===========
The accompanying notes are an integral part of these financial statements.
F - 3
<PAGE>
<TABLE>
<CAPTION>
EAT AT JOE'S LTD., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, AND 1997
1998 1997
------------ ------------
<S> <C> <C>
Revenues ............................................... $ 2,519,255 $ 84,781
Cost of Revenues ....................................... 702,481 38,009
------------ ------------
Gross Margin ........................................... 1,816,774 46,772
Expenses
Labor and Related Expenses .......................... 1,168,225 106,346
Rent ................................................ 288,639 15,860
Other General and Administrative .................... 890,131 205,588
------------ ------------
Income (Loss) Before Depreciation and Amortization ..... (530,221) (281,022)
Depreciation and Amortization ....................... 305,170 13,696
------------ ------------
Net Loss from Continuing Operations .................... (835,391) (294,718)
------------ ------------
Other Income (Expense)
Interest income ..................................... 576 3,759
Interest expense .................................... (158,525) (7,311)
Loss on sale of assets .............................. -- (752)
------------ ------------
Net Other Income (Expense) ............................. (157,949) (4,304)
------------ ------------
Net Loss Before Income Taxes ........................... (993,340) (299,022)
Income Tax Expense (Benefit) ........................... 2,725 --
------------ ------------
Net Loss Before Cumulative Effects of Accounting Change (996,065) (299,022)
Cumulative Effect of Accounting Change on Years Prior to
1998, Net of Taxes
(84,732) --
Net Loss ............................................... (1,080,797) (299,022)
------------ ------------
Less: Preferred Dividends .............................. 952,296 --
------------ ------------
Net Loss To Common Stockholders ........................ $ (2,033,093) $ (299,022)
============ ============
Basic Loss Per Common Share: ........................... $ (0.16) $ (0.02)
============ ============
Weighted Average Number of Common Shares ............... 13,062,921 11,729,107
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 4
<PAGE>
<TABLE>
<CAPTION>
EAT AT JOE'S LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, AND 1997
Common Stock Additional
Preferred Stock To Be Issued Common Stock Paid-in Retained
----------------- ------------------------ -------------------------- ----------- ------------
Shares Amount Shares Amount Shares Amount Capital Deficit
-------- ------ ----------- ---------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1996 -- $ -- -- $ -- 11,833,805 $ 1,183 $ 1,344,389 $(1,074,235)
March 1997, shares
issued on exercise
of warrants -- -- -- -- 400,000 40 399,960 --
April 1997, shares
issued on exercise
of warrants -- -- -- -- 300,000 30 299,970 --
November 1997 shares
issued on exercise
of warrants -- -- -- -- 200,000 20 199,980 --
Net loss for the year -- -- -- -- -- -- -- (299,022)
-------- ------ ----------- ----------- ----------- ----------- ----------- ------------
Balance at
December 31, 1997 -- -- -- -- 12,733,805 1,273 2,244,299 (1,373,257)
March 1998, Series A
Convertible Preferred
shares 51 -- -- -- -- -- 725,803 --
May 1998, Series B
Convertible Preferred
shares 64 -- -- -- -- -- 967,903 --
May 1998, Series B
Convertible Preferred
shares canceled (19) -- -- -- -- -- (450,000) --
</TABLE>
F - 5
<PAGE>
<TABLE>
<CAPTION>
Common Stock Additional
Preferred Stock To Be Issued Common Stock Paid-in Retained
----------------- ------------------------ -------------------------- ----------- ------------
Shares Amount Shares Amount Shares Amount Capital Deficit
-------- ------ ----------- ---------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
September 1998, Series C
Convertible Preferred
shares 14 -- -- -- -- -- 183,165 --
September 1998, Series B
Preferred shares
converted (7) -- -- -- 211,737 22 (22) --
September 1998, Series D
Convertible Preferred
shares 20 -- -- -- -- -- 293,625 --
December 1998, Series B
Preferred shares
converted (5) -- -- -- 330,782 33 (33) --
December 1998, Series A
Preferred shares
converted (5) -- -- -- 284,230 28 (28) --
December 1998, shares
issued in cancellation
of short-term debt and
associated interest -- -- -- -- 500,000 50 269,629 --
December 1998, shares
issued in cancellation
of short-term debt and
associated interest -- -- 1,312,500 131 2,187,500 219 1,822,568 --
</TABLE>
F - 6
<PAGE>
<TABLE>
<CAPTION>
Common Stock Additional
Preferred Stock To Be Issued Common Stock Paid-in Retained
----------------- ------------------------ -------------------------- ----------- ------------
Shares Amount Shares Amount Shares Amount Capital Deficit
-------- ------ ----------- ---------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January through
December 1998, shares
issued in exchange
for Leasehold --
Improvements -- -- -- -- 38,200 4 40,184
January through
December 1998, shares
issued in exchange
for Services --
-- -- -- -- 154,501 15 164,011
Preferred dividend
due to discounted
conversion rates -- -- -- -- -- -- 952,296 (952,296)
Net loss for the year -- -- -- -- -- -- -- (1,080,797)
-------- ------ ----------- ----------- ----------- ----------- ----------- ------------
Balance at
December 31, 1998 113 -- 1,312,500 $ 131 16,440,755 $ 1,644 $ 7,213,400 $(3,406,350)
======== ====== =========== =========== =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 7
<PAGE>
<TABLE>
<CAPTION>
EAT AT JOE'S LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, AND 1997
1998 1997
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities
Net loss for the period .............................. $(1,080,797) $ (299,022)
Adjustments to reconcile net loss to net cash
Provided by operating activities
Loss from sale of marketable securities ............ -- 752
Depreciation and Amortization ...................... 305,170 13,696
Cumulative Effect of Accounting Change ............. 84,732 --
Stock issued for services and expenses ............. 246,623 --
Payment of organization costs ...................... -- (78,124)
Decrease (Increase) in Receivables ................. (25,861) 70,000
Increase in inventory .............................. (176,627) (7,488)
Increase in other assets ........................... (20,910) (400)
Increase in prepaid expense ........................ 22,660 (27,018)
Decrease (increase) in deposits .................... (28,345) (1,710)
Increase in accounts payable and accrued liabilities (1,103) 467,560
----------- -----------
Net Cash Provided by (Used in) Operating Activities ..... (674,458) 138,246
----------- -----------
Cash Flows From Investing Activities
Purchase of property and equipment ................... (4,627,664) (1,795,271)
Purchase of intangible assets ........................ (5,000) --
Proceeds from sale of marketable securities .......... -- 143,248
Purchase of marketable securities .................... -- (144,000)
----------- -----------
Net Cash Provided by Investing Activities ............... (4,632,664) (1,796,023)
----------- -----------
Cash Flows From Financing Activities
Issuance of common stock ............................. -- 900,000
Issuance of convertible preferred stock .............. 2,170,496 --
Purchase of convertible preferred stock .............. (450,000) --
Proceeds from convertible debenture .................. 1,343,449 --
Advances from majority stockholders .................. 113,825 690,422
Repayments of majority stockholders advances ......... (364,292) --
Proceeds from short-term notes payable ............... 2,395,000 264,940
----------- -----------
Net Cash Provided by Financing Activities ............... 5,208,478 1,855,362
----------- -----------
Increase (Decrease) in Cash ............................. (98,644) 197,585
Cash at beginning of period ............................. 232,601 35,016
----------- -----------
Cash at End of Period ................................... $ 133,957 $ 232,601
=========== ===========
</TABLE>
F - 8
<PAGE>
EAT AT JOE'S LTD. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, AND 1997
(Continued)
1998 1997
---------- --------
Supplemental Disclosure of Interest and
Income Taxes Paid
Interest paid during the period ................... $ 295 $ --
========== ========
Income taxes paid during the period ............... $ 4,225 $ --
========== ========
Supplemental Disclosure of Non-cash Investing
and Financing Activities
Leasehold Improvements Acquired with Issuance
of Common Stock ................................. $ 40,188 $ --
========== ========
Short-term Notes Settled with Issuance of
Common Stock ................................... $2,010,000 $ --
========== ========
Intangible Assets Acquired with Issuance of
Common Stock ................................... $ -- $149,832
========== ========
Organization Costs Acquired with Issuance
Common Stock ................................... $ -- $ 200
========== ========
The accompanying notes are an integral part of these financial statements.
F - 9
<PAGE>
EAT AT JOE'S LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, AND 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of accounting policies for Eat At Joe's, Ltd. And subsidiaries
is presented to assist in understanding the Company's financial statements. The
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
Organization and Basis of Presentation
Eat At Joe's Ltd. (Company) was incorporated on January 6, 1988, under the
laws of the State of Delaware, as a wholly-owned subsidiary of Debbie Reynolds
Hotel and Casino, Inc. (DRHC) (formerly Halter Venture Corporation or Halter
Racing Stables, Inc.) a publicly-owned corporation. DRHC caused the Company to
register 1,777,000 shares of its initial 12,450,000 issued and outstanding
shares of common stock with the Securities and Exchange Commission on Form S-18.
DRHC then distributed the registered shares to DRHC stockholders.
During the period September 30, 1988 to December 31, 1992, the Company
remained in the development stage while attempting to enter the mining industry.
The Company acquired certain unpatented mining claims and related equipment
necessary to mine, extract, process and otherwise explore for kaolin clay,
silica, feldspar, precious metals, antimony and other commercial minerals from
its majority stockholder and other unrelated third-parties. The Company was
unsuccessful in these start-up efforts and all activity was ceased during 1992
as a result of foreclosure on various loans in default and/or the abandonment of
all assets.
From 1992 until 1996 the Company has had no operations, assets or
liabilities.
Principles of Consolidation
The consolidated financial statements include the accounts of Eat At Joe's,
LTD. And its wholly-owned subsidiary, E.A.J. Holding Corporation, a Delaware
corporation ("Holding"). Holding includes the accounts of its wholly-owned
subsidiaries, E.A.J. PHL Airport, Inc. a Pennsylvania corporation, Eat At Joe's
U. of P., Inc. a Pennsylvania corporation, E.A.J. Cherry Hill, Inc., a New
Jersey corporation, Eat At Joe's Harborplace, Inc., a Maryland corporation, Eat
At Joe's Neshaminy, Inc. a Pennsylvania corporation, Eat At Joe's Plymouth,
Inc., a Pennsylvania corporation, E.A.J. Echelon Mall, Inc., a New Jersey
corporation, E.A.J. Gallery, Inc., a Pennsylvania corporation, E.A.J.
Moorestown, Inc., a New Jersey corporation, E.A.J. Shoppingtown,Inc., a New York
corporation, Eat at Joe's U of P 40th Street, Inc., a Pennsylvania corporation,
and Eat at Joe's Owings Mills, Inc., a Maryland corporation. All significant
intercompany accounts and transactions have been eliminated.
F - 10
<PAGE>
EAT AT JOE'S LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, AND 1997
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Nature of Business
The Company is developing, owns and operates theme restaurants styled in an
"American Diner" atmosphere.
Inventories
Inventories consist of food, paper items and related materials and are
stated at the lower of cost (first-in, first-out method) or market.
Income Taxes
The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." SFAS No.109 requires recognition of deferred
income tax assets and liabilities for the expected future income tax
consequences, based on enacted tax laws, of temporary differences between the
financial reporting and tax bases of assets and liabilities.
Depreciation
Office furniture, equipment and leasehold improvements, are stated at cost.
Depreciation and amortization are computed using the straight-line method over
the estimated economic useful lives of the related assets as follows:
Office furniture 5-10 years
Equipment 5- 7 years
Leasehold improvements 8-15 years
Maintenance and repairs are charged to operations; betterments are
capitalized. The cost of property sold or otherwise disposed of and the
accumulated depreciation thereon are eliminated from the property and related
accumulated depreciation accounts, and any resulting gain or loss is credited or
charged to income.
Amortization
Intangible assets are amortized over useful life of 7 - 13 years.
F - 11
<PAGE>
EAT AT JOE'S LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, AND 1997
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
The Company has adopted the Financial Accounting Standards Board SFAS No.,
121, "Accounting for the Impairment of Long-lived Assets." SFAS No. 121
addresses the accounting for (i) impairment of long-lived assets, certain
identified intangibles and goodwill related to assets to be held and used, and
(ii) long-live lived assets and certain identifiable intangibles to be disposed
of. SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. If the sum of the expected future cash flows from the
used of the asset and its eventual disposition (undiscounted and without
interest charges) is less than the carrying amount of the asset, an impairment
loss is recognized.
Recent Accounting Pronouncements
During 1998, the Company changed its method of accounting for costs of
start up activities to conform with new requirements of Statement of Position
98-5 "Reporting on the Costs of Start-Up Activities" (SOP 98-5). The effect of
this change was to increase net loss for the year ended December 31, 1998 by
$84,732. Financial Statements for 1997 have not been restated in accordance with
the provisions of SOP 98-5.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company has no significant off-balance-sheet concentrations of credit
risk such as foreign exchange contracts, options contracts or other foreign
hedging arrangements. The Company maintains the majority of its cash balances
with one financial institution, in the form of demand deposits.
F - 12
<PAGE>
EAT AT JOE'S LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, AND 1997
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Reverse Stock Split
Effective May 3, 1997 the Stockholders approved a 50 to 1 reverse split of
the common stock and effective October 7, 1997 the Stockholders approved a 4 to
1 reverse split. The financial statements have been retroactively restated to
reflect the reverse stock split as if it had been effective prior to the
earliest date presented.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.
Earnings (Loss) Per Share
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share" (EPS). SFAS No. 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Diluted net income per common share was calculated based on an increased
number of shares that would be outstanding assuming that the warrants are
converted to common shares. The effect of outstanding common stock equivalents
are anti-dilutive for 1998 and 1997 and are thus not considered.
The reconciliations of the numerators and denominators of the basic
earnings per share computations are as follows:
For the Year Ended 1998
----------------------------------------
Per Share
Income Shares Amount
----------- ----------- ------------
Basic EPS
Net Loss to common shareholders $(2,033,093) 13,062,921 $ (0.16)
=========== =========== ============
F - 13
<PAGE>
EAT AT JOE'S LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, AND 1997
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Earnings (Loss) Per Share (continued)
For the Year Ended 1997
----------------------------------------
Per Share
Income Shares Amount
----------- ----------- ------------
Basic EPS
Net Loss to common shareholders $ (299,022) 11,729,107 $ (0.02)
=========== =========== ============
Reclassifications
Certain reclassifications have been made in the 1997 financial statements
to conform with the 1998 presentation.
NOTE 2 - SHORT-TERM NOTES PAYABLE
Short-Term Notes Payable consist of loans from unrelated entities as of
December 31, 1998 and 1997. The notes are payable one year from the date of
issuance together with interest at 6.50% A.P.R.
NOTE 3 - INCOME TAXES
Deferred taxes result from temporary differences in the recognition of
income and expenses for income tax reporting and financial statement reporting
purposes. Deferred benefits of $349,000 and $71,000 for the years ended December
31, 1998 and 1997 respectively, are the result of net operating losses.
The Company has recorded net deferred income taxes in the accompany
consolidated balance sheets as follows:
F - 14
<PAGE>
EAT AT JOE'S LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, AND 1997
(Continued)
NOTE 3 - INCOME TAXES (Continued)
As at December 31,
--------- ---------
1998 1997
--------- ---------
Future deductible temporary differences related to
Reserves, accruals, and net operating losses $ 736,000 $ 387,000
Valuation allowance (736,000) (387,000)
--------- ---------
Net Deferred Income Tax $ -- $ --
========= =========
As of December 31, 1998, the Company had a net operating loss ("NOL") carry
forward for income tax reporting purposes of approximately $2,165,000 available
to offset future taxable income. This net operating loss carry forward expires
at various dates between December 31, 2003 and 2013. A loss generated in a
particular year will expire for federal tax purposes if not utilized within 15
years. Additionally, the Internal Revenue Code contains provisions which could
reduce or limit the availability and utilization of these NOLs if certain
ownership changes have taken place or will take place. In accordance with SFAS
No. 109, a valuation allowance is provided when it is more likely than not that
all or some portion of the deferred tax asset will not be realized. Due to the
uncertainty with respect to the ultimate realization of the NOLs, the Company
established a valuation allowance for the entire net deferred income tax asset
of $736,000 as of December 31, 1998. Also consistent with SFAS No. 109, an
allocation of the income (provision) benefit has been made to the loss from
continuing operations.
The difference between the effective income tax rate and the federal
statutory income tax rate on the loss from continuing operations are presented
below:
As at December 31,
--------- ---------
1998 1997
--------- ---------
Benefit at the federal statutory rate of 34% $ 349,000 $ 71,000
Nondeductible expenses -- (1,000)
--------- ---------
Utilization of net operating loss carryforward $(349,000) $ (70,000)
--------- ---------
$ -- $ --
========= =========
F - 15
<PAGE>
EAT AT JOE'S LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, AND 1997
(Continued)
NOTE 4 - PURCHASE OF SUBSIDIARIES
On January 1, 1997 the shareholders of the Company approved an agreement
whereby 5,505,000 shares of the Company's common stock was exchanged for a 100%
interest in E.A.J. Holding Corporation, Inc. ("Holding"), a Delaware
corporation. Holding, which was organized on February 14, 1997, had total assets
with a historical cost value of $150,037, consisting of the Eat at Joe's trade
mark, business plan, graphics, illustrations/renderings, corporate brochure and
website with a historical value of $149,837, organization costs of $200 and no
liabilities on the date of the exchange.
During March, 1997 Holding acquired 100% of the issued and outstanding
stock of E.A.J.: PHL, Airport Inc. ("PHL Airport"), a Pennsylvania corporation
organized August 19, 1996 for $25,000. At the time of the acquisition PHL
Airport had assets with a historical cost value of $37,500, consisting of
developmental costs and organizational costs and liabilities of $12,500.
These transactions have been accounted for as a reorganization of ownership
interests between related parties as if it were a "Pooling of Interest."
Accordingly, assets and liabilities are reflected at their historical values.
The accompanying financial statements for 1997 are based on the assumption that
the companies were combined for the full year.
NOTE 5 - RENT AND LEASE EXPENSE
The Company occupies various retail restaurant space under operating leases
beginning October 1997 and expiring at various dates through 2012.
The minimum future lease payments under these leases for the next five
years are:
Year Ended December 31, Real Property Equipment
---------------------------------- ------------- --------
1999 $ 486,912 $ --
2000 486,912 --
2001 486,912 --
2002 486,912 --
2003 486,912 --
Thereafter 2,338,721 --
---------- --------
Total minimum future lease payments $4,773,281 $ --
========== ========
The leases generally provides that insurance, maintenance and tax expenses
are obligations of the Company. It is expected that in the normal course of
business, leases that expire will be renewed or replaced by leases on other
properties.
F - 16
<PAGE>
EAT AT JOE'S LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, AND 1997
(Continued)
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company utilized office space that is shared with companies controlled
by two officers of the Company. During 1998 and 1997 Cozco Management received
$36,387 and $546,574 as reimbursement for rent, telephone, equipment, travel,
automotive salaries and other shared expenses. During 1998 and 1997 the two
officers and/or companies controlled by the two officers paid expenses and made
advances to the Company totaling $113,825 and $690,422 respectively. During 1998
the Company repaid advances of $364,292. As of December 31, 1998, $452,455 in
advances was due to Mr. Fiore.
NOTE 7 - CONVERTIBLE PREFERRED STOCK, DEBENTURES, WARRANTS & OPTIONS
In January, 1997 the shareholders of the Company adopted an agreement
whereby 5,505,000 shares of the Company's Common Stock was exchanged for a 100%
interest in E.A.J. Holding Corporation, Inc. Messrs. Joseph Fiore and Andrew
Cosenza, Jr., the Company's Chairman and President, were the owners of all the
outstanding shares of E.A.J. Holding Corporation, Inc. The Company issued its
shares upon an exemption from registration under Section 4(2) of the Securities
Act.
In March, 1998, the Company sold 51 shares of its Series A Convertible
Preferred Stock to a total of 8 accredited investors pursuant to an exemption
from registration under the Section 4(2) and/or Regulation D or as an
alternative, Regulation S of the Act. The Company received proceeds of
approximately $797,000 from the sale of the securities. As of the date of this
prospectus the shares are convertible and warrants (issued in connection with
the offering) exercisable into 1,700,725 shares of Common Stock of the Company.
On April 1, 1998, pursuant to a consulting agreement, the Company granted
options to purchase 61,350 shares of Common Stock of the Company at an exercise
price of $1.63. The options expire on March 31, 2003.
On May 5 1998, the Company sold 30 shares of its Series B Convertible
Preferred Stock to a total of 3 accredited investors pursuant to an exemption
from registration under the Section 4(2) and/or Regulation D. The Company
received proceeds of approximately $484,,000 from the sale of the securities. As
of the date of this prospectus the shares are convertible and warrants (issued
in connection with the offering) exercisable into 990,064 shares of Common Stock
of the Company.
On May 21, 1998, the Company sold 34 shares of its Series B Convertible
Preferred Stock to a total of 2 accredited investors pursuant to an exemption
from registration under the Section 4(2) and/or Regulation D. The Company
received proceeds of approximately $549,000 from the
F - 17
<PAGE>
EAT AT JOE'S LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, AND 1997
(Continued)
NOTE 7 - CONVERTIBLE PREFERRED STOCK, DEBENTURES , WARRANTS, & OPTIONS
Continued)
sale of the securities. As of the date of this prospectus the shares are
convertible and warrants (issued in connection with the offering) exercisable
into 433,916 shares of Common Stock of the Company. During September 1998 the
company repurchased 19 shares for $450,000.
In September, 1998, the Company sold 14 shares of its Series C Convertible
Preferred Stock to 2 accredited investors pursuant to an exemption from
registration under the Section 4(2) and/or Regulation D. The Company received
proceeds of approximately $239,000 from the sale of the securities. As of the
date of this prospectus the shares are convertible and warrants (issued in
connection with the offering) into 395,733 shares of Common Stock of the
Company.
On July 31, and September 2, 1998, the Company sold its 8% convertible
debenture in the aggregate principal amount of $1,500,000 to an accredited
investor pursuant to an exemption from registration under Section 4(2) and/or
Regulation D. The Company retained proceeds of approximately $933,000 from the
sale of the securities and $450,000 was applied to the repurchase of 19 shares
of Series B Convertible Preferred Stock sold to an investor on May 21, 1998. As
of the date of this prospectus, the debentures are convertible and warrants
(issued in connection with the offering) exercisable into 2,064,000 shares of
Common Stock of the Company.
In September, 1998, the Company sold 20 shares of its Series D Convertible
Preferred Stock to an accredited investors pursuant to an exemption from
registration under the Section 4(2) and/or Regulation D. The Company received
proceeds of approximately $350,000 from the sale of the securities. As of the
date of this prospectus the shares are convertible and warrants (issued in
connection with the issuance of the shares) into 539,000 shares of Common Stock
of the Company.
The following table sets forth the options and warrants outstanding as of
December 31, 1998 and 1997.
1998 1997
---------- ----------
Options & warrants outstanding, beginning of year 1,100,000 2,000,000
Granted 1,247,750 --
Expired (1,060,000) --
Exercised (40,000) (900,000)
---------- ----------
Options & warrants outstanding, end of year 1,247,750 1,100,000
========== ==========
Exercise price for options & warrants outstanding,
end of year $0.50 to $1.79 $ 1.00
============== ==========
F - 18
<PAGE>
EAT AT JOE'S LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, AND 1997
(Continued)
NOTE 8 - SELECTED FINANCIAL DATA (Unaudited)
The following table set forth certain unaudited quarterly financial
information:
<TABLE>
<CAPTION>
1998 Quarters Ended
------------------------------------------------------------------------------
Mar 31 Jun 30 Sep 30 Dec 31
------------------ ------------------ ------------------- -------------------
<S> <C> <C> <C> <C>
Income statement data:
Net sales $147,347 $316,397 $817,129 $1,238,382
Gross profit 85,312 157,461 613,654 960,347
Income (loss) from
operations before
depreciation & amortization (372,638) (289,480) 31,447 100,450
Loss from operations (394,589) (329,038) (47,858) (63,906)
Other income (8,931) (4,941) (78,235) (65,842)
Loss before taxes (403,520) (333,979) (126,093) (129,748)
Income tax (provision) benefit (682) (681) (681) (681)
Net Income (Loss) $(488,934) $(334,660) $(126,774) $(130,429)
================== ================== =================== ===================
1997 Quarters Ended
------------------------------------------------------------------------------
Mar 31 Jun 30 Sep 30 Dec 31
------------------ ------------------ ------------------- -------------------
Income statement data:
Net sales $ - $ - $ - $84,781
Gross profit - - - 46,772
Income (loss) from
operations before
depreciation & amortization (60,733) (152,046) (68,971) 728
Loss from operations (60,733) (152,046) (68,971) (12,968)
Other income 6 1,926 1,075 (7,311)
------------------ ------------------ ------------------- -------------------
Loss before taxes (60,727) (150,120) (67,896) (20,279)
Income tax (provision) benefit - - - -
------------------ ------------------ ------------------- -------------------
Net Income (Loss) $(60,727) $(150,120) $(67,896) $(20,279)
================== ================== =================== ===================
</TABLE>
F - 19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET OF EAT AT JOE'S LTD. AS OF DECEMBER 31, 1998 AND THE RELATED
STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE YEAR THEN ENDED AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 134
<SECURITIES> 0
<RECEIVABLES> 26
<ALLOWANCES> 0
<INVENTORY> 184
<CURRENT-ASSETS> 415
<PP&E> 6476
<DEPRECIATION> 303
<TOTAL-ASSETS> 6728
<CURRENT-LIABILITIES> 1576
<BONDS> 1343
0
0
<COMMON> 2
<OTHER-SE> 3807
<TOTAL-LIABILITY-AND-EQUITY> 6728
<SALES> 2519
<TOTAL-REVENUES> 2519
<CGS> 702
<TOTAL-COSTS> 702
<OTHER-EXPENSES> 2652
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 159
<INCOME-PRETAX> (993)
<INCOME-TAX> 3
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (85)
<NET-INCOME> (1081)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
