U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-19620
REDDI BRAKE SUPPLY CORPORATION
(Exact name of small business issuer as specified in its charter)
Nevada 84-1152135
(State or other jurisdiction (IRS Employer Identification No.)
incorporation or organization)
5882 South 900 East, Suite 202, Salt Lake City, Utah 84121
(Address of principal executive offices)
(801) 269-9500
(Issuer's telephone number)
Not Applicable
(Former name, address and fiscal year, if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the issuer was required to file
such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [ X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes
of common equity, as of November 8, 2000: 74,999,972 shares of common
stock.
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Check whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13, or 15(d) of the Exchange Act
subsequent to the distribution of securities under a plan confirmed by a
court. Yes [ ] No [ ]
Transitional Small Business Format: Yes [ ] No [ X ]
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FORM 10-QSB
REDDI BRAKE SUPPLY CORPORATION
INDEX
Page
PART I. Financial Information 3
Unaudited Balance Sheets - September 30, 4
2000 and June 30, 2000
Unaudited Statement of Operations for the 5
Three Months Ended September 30, 2000 and
1999 and the period July 1, 1997 (date of
inception of development stage) to
September 30, 2000 6
Unaudited Statement of Cash Flows for the
Three Months Ended September 30, 2000 and
1999 and the period July 1, 1997 (date of 7
inception of development stage) to
September 30, 2000
11
Notes to Financial Statements
Management's Discussion and Analysis of
Financial Condition or Plan of Operation
PART II. Other Information 12
Signatures 13
2
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PART I.
Financial Information
In the opinion of management, the accompanying unaudited financial
statements included in this Form 10-QSB reflect all adjustments
(consisting only of normal recurring accruals) necessary for a fair
presentation of the results of operations for the periods presented. The
results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year.
3
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REDDI BRAKE SUPPLY CORPORATION
(Development Stage Company)
BALANCE SHEETS
September 30, 2000 and June 30, 2000
Sept 30, 2000 Jun 30, 2000
ASSETS
CURRENT ASSETS
Cash $ 1,806 $ 4,226
Total Current Assets 1,806 4,226
OTHER ASSETS
Securities - available for sale - Note 3 2,034 2,034
Convertible debt offering costs -
net of amortization - Note 4 212,261 222,261
214,295 224,295
$ 216,101 $ 228,521
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 49,884 $ 50,835
Subordinated convertible debt - Note 4 6,900,000 6,900,000
Accrued interest payable convertible debt - Note 4 4,650,895 4,401,727
Total Current Liabilities 11,600,779 11,352,562
STOCKHOLDERS' EQUITY
Preferred stock
2,500,000 shares authorized at $0.0001 par value;
2,000,000 shares issued and outstanding - Note 5 200 206
Common stock
75,000,000 shares authorized at $0.0001 par value;
74,999,972 shares issued and outstanding 7,500 5,922
Capital in excess of par value 37,215,786 37,217,358
Accumulated deficit - Note 1 (48,608,164) (48,347,527)
Total Stockholders' Deficiency (11,384,678) (11,124,041)
The accompanying notes are an integral part of these financial
statements.
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REDDI BRAKE SUPPLY CORPORATION
(Development Stage Company)
STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 2000 and 1999 and the period
July 1, 1997 (date of inception of development stage) to September 30,
2000
Three Months Ended July 1, 1997
Sept 30, Sept 30, to
2000 1999 Sept 30, 2000
REVENUES $ - $ - $ -
EXPENSES
Administrative 1,469 1,074 105,689
Interest 259,168 248,681 2,916,202
NET LOSS - before other losses (260,637) (249,755) (3,021,891)
LOSS OF LIQUIDATION OF ASSETS
AND LIABILITIES - - (25,223,711)
NET LOSS $ (260,637) $ (249,755) $ (28,245,602)
LOSS PER COMMON
SHARE
Basic $ - $ -
AVERAGE OUTSTANDING
SHARES
Basic 59,224,952 52,186,949
The accompanying notes are an integral part of these financial
statements.
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REDDI BRAKE SUPPLY CORPORATION
(Development Stage Company)
STATEMENT OF CASH FLOWS
For the Three Months Ended September 30, 2000 and 1999 and the Period
July 1, 1997 (date of inception of development stage) to September 30, 2000
<TABLE>
<CAPTION>
Three Months Ended July 1, 1997
Sept 30, Sept 30, to
2000 1999 Sept 30, 2000
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss $ (260,637) $ (249,755) $ (28,245,602)
Adjustments to reconcile net loss to
net cash provided by operating
activities
Changes in accounts receivables - - 12,756
Changes in accounts payable (951) - 49,884
Loss of assets - - 25,223,711
Accrued interest - convertible debt 259,168 248,681 2,916,202
Issuance of common stock for settlement of legal action - - 4,200
Issuance of preferred stock for expenses - - 10,000
Net Cash Used in Operations (2,420) (1,074) (28,849)
CASH FLOWS FROM INVESTING
ACTIVITIES
- - -
CASH FLOWS FROM FINANCING
ACTIVITIES
- -
Net Increase (Decrease) in Cash (2,420) (1,074) (28,849)
Cash at Beginning of Period 4,226 9,183 30,655
Cash at End of Period $ 1,806 $ 8,109 $ 1,806
</TABLE>
The accompanying notes are an integral part of these financial
statements.
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REDDI BRAKE SUPPLY CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Company was incorporated under the laws of the State of
Nevada on July 12, 1990 with name "Franklin Capital, Inc" with
authorized common stock of 35,000,000 shares with a par value of
$0.0001 and preferred stock of 2,500,000 shares with a par value
of $0.0001. On October 24, 1996 the authorized common stock was
increased to 75,000,000 shares with the same par value. The
Company had several name changes and on April 21, 1994 changed
its name to "Reddi Brake Supply Corporation".
The principal business activity of the corporation through its
subsidiary, Reddi Brake Supply Company, Inc., has been the sale
of auto parts, mainly to professional installers, through several
warehouses located throughout the United States.
On March 17, 1997 an involuntary petition in bankruptcy was filed
against the subsidiary, which resulted in the loss of the
business and the warehouses and as a result of the bankruptcy the
Company sustained substantial losses. After 1997 the Company had
no operations and is considered to be a development stage company
since that date.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Methods
The Company recognizes income and expenses based on the accrual
method of accounting.
Dividend Policy
The Company has not adopted a policy regarding payment of
dividends.
Income Taxes
On September 30, 2000 the Company had a net operating loss carry
forward of $48,615,061. The tax benefit from the loss carry
forward has been fully offset by a valuation reserve because the
use of the future tax benefit is doubtful since the Company has
no operations and there has been a substantial change in its
stockholders. The net operating loss will expire starting in
1998 through 2021.
Basic and Diluted Net Income (Loss) Per Share
Basic net income (loss) per share amounts are computed based on
the weighted average number of shares actually outstanding.
Diluted net income (loss) per share amounts are computed using
the weighted average number of common shares and common
equivalent shares outstanding as if shares had been issued on the
exercise of the preferred share rights unless the exercise
becomes antidilutive and then only the basic per share amounts
are shown in the report.
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REDDI BRAKE SUPPLY CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial Instruments
The carrying amounts of financial instruments, including cash,
securities, and accounts payable, are considered by management to
be their estimated fair values.
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards
No. 130. The adoption of this standard had no impact on the total
stockholder's equity.
Accounting for Stock-Based Compensation
The Company has adopted Statement of Financial Accounting
Standards No. 123 but has elected to continue to measure
compensation cost under APB 25. The adoption of FASB No. 123 has
no impact
on the Company's financial statements.
Recent Accounting Pronouncements
The Company does not expect that the adoption of other recent
accounting pronouncements will
have a material impact on its financial statements.
Estimates and Assumptions
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported
amounts of the assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were
assumed in preparing these financial statements.
3. SECURITIES - AVAILABLE FOR SALE
Securities consist of 2,034 shares of Micro Transmission Systems.
The fair market value is considered to be $2,034.
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REDDI BRAKE SUPPLY CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
4. SUBORDINATED CONVERTIBLE DEBT
On February 9, 1995, the Company completed a private placement
of 9% adjustable convertible subordinated debentures due 2005 in
the amount of $6.9 million. Interest on the unpaid principal is
payable quarterly on April 30, July 31, October 31 and January
31 of each year. The Company may call the Debentures after
January 17, 1998. The debentures are subordinated to all of the
obligations due to the Company's bank and suppliers and are
convertible into shares of the Company's common stock at a
conversion price of $3.50 per share. The conversion price is
also subject to the antidilution adjustments.
The accrued interest payable is in default and therefore the
debt and the accrued interest is shown under current
liabilities.
Any holders of shares issuable upon conversion have demand and
piggyback rights to have the shares registered, at the Company's
expense, under the Securities Act of 1993.
The Company received approximately $6.5 million in net proceeds
from the Placement. The offering and sale of the securities in
the placement were not registered under the Act, in reliance
upon the exemption from registration provided by Regulation D.
The issuance costs of $400,000 are being amortized over ten
years.
5. PREFERRED STOCK
On March 25, 1996 and April 23, 1996, the Company authorized the
issuance of 400,000 shares of Class A preferred stock at $10
issue price and 550,000 shares of Class B preferred stock at $10
issue price. Subsequent to the authorization of the preferred
stock, the Company completed private placements of the 950,000
shares of preferred stock.
The Company received approximately $8.3 million in net proceeds
from the placements of the preferred shares. The offerings and
sale of the securities in the placement were not registered
under the Securities Act of 1933, in reliance upon the exemption
from registration provided by Regulation S.
During 1996, 1997 and 2000 all of the preferred A and B shares
were converted into the Company's common stock.
On June 14, 2000 the Company issued 2,000,000 class C preferred
shares, to a related party, as reimbursement for expenses paid.
The terms of the class C preferred shares carry voting rights of
50 votes for each share and after 90 days from the issuance,
conversion rights of one share of preferred C for one share of
common, at the option of the stockholder.
6. STOCK WARRANTS
On June 30, 2000, the Company had 20,000 warrants outstanding
issued to Software License - IDCS, Inc., which entitles the
holder to purchase one share of Common stock for each warrant at
an exercise price of $5.00 per share. The date of grant for the
warrants was October 19, 1991 and the expiration date is October
18, 2001. No value was assigned to the warrants.
9
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REDDI BRAKE SUPPLY CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
7. RELATED PARTY TRANSACTIONS
Related parties own 2,000,000 shares of the Company's outstanding
class C preferred stock.
8. GOING CONCERN
The Company intends to acquire interests in various business
opportunities which, in the opinion of management, will provide a
profit to the Company, however there is insufficient working
capital for any future planned activity.
Continuation of the Company as a going concern is dependent upon
obtaining additional working capital and the management of the
Company has developed a strategy, which it believes will
accomplish this objective through settlement of its debt and
additional equity funding and long term debt which will enable
the Company to conduct operations for the coming year.
9. LEGAL ACTIONS
McCormick, et al., v. Reddi Brake Supply Corporation., et al.
On November 6, 1997, a class action lawsuit was filed in the Los
Angeles County Superior Court on behalf of all persons or
entities who bought common stock of the defendant prior to March
23, 1996, and/or who bought or sold any shares thereafter until
August 13, 1996, excluding defendants, their families, employees,
agents or assigns. The complaint asserts causes of action for
breach of fiduciary duty by officers and director and conspiracy
to manipulate the price of the common stock of the defendant.
The Reddi Brake Defendants have denied the claims. The parties
to the litigation have entered into a Stipulation of Settlement
dated May 21, 1999, dismissing the litigation with prejudice.
The Stipulation of Settlement provides that the Plaintiffs will
release the Company from a $20 million judgement if the Company
and individual defendants assign any and all rights for insurance
coverage to the Plaintiffs. As of the date of this report, the
settlement offer remains pending.
Sheerin, et al. v Reddi Brake Supply Corporation, Birin and
McGorrian et al.
On March 3, 1998, Allen J. Sheerin filed a lawsuit in the Los
Angeles County Superior Court against the Company and
specifically against two former officers and directors of the
Company. Mr. Sheerin alleges that these officers and directors
misrepresented the financial status of the Company during the
time that he was negotiating to buy shares in the Company which
resulted in a loss to him of $2,100,000.
The parties have been negotiating a settlement agreement which
remains unresolved at the report date.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended September 30, 2000 and 1999
The Company had no revenue from continuing operations for the
three-month periods that ended September 30, 2000 and 1999.
General and administrative expenses for the three month-periods
that ended September 30, 2000 and 1999 were $1,469 and $1,074,
respectively. These expenses consisted of general corporate
administration, legal and professional expenses, plus accounting
and auditing costs.
Interest expense for the three-months ended September 30, 2000
and 1999, was $259,168 and $248,681, respectively.
As a result of the foregoing factors, the Company realized a net
loss of $260,637 for the three months ended September 30, 2000,
as compared to a net loss of $249,755 for the same period in
1999.
Liquidity and Capital Resources
At September 30, 2000, the Company had a working capital deficit
of approximately $11,598,973, as compared to a working capital
deficit of $11,348,336 at June 30, 2000. This decrease in the
working capital is attributable to the first quarter's unpaid
interest expense of $249,168 that accrued on $6.9 million in
subordinate convertible debentures, as well as general and
administrative expenses incurred during the quarter, without any
increase in cash. The Company is currently in negotiations with
the debenture holders to settle the debt.
The Company does not have sufficient cash to meet its operational
needs for the next twelve months. Management, like in the past,
will attempt to raise capital for its current operational needs
through debt financing, equity financing or a combination of
financing options. However, there are no existing
understandings, commitments or agreements for such an infusion;
nor can there be assurances to that effect. Moreover, the
Company's need for capital may change dramatically if and during
that period, it acquires an interest in a business opportunity.
Unless the Company can obtain additional financing, its ability
to continue as a going concern is doubtful.
The Company's current operating plan is to (i) handle the
administrative and reporting requirements of a public company,
and (ii) search for potential businesses, products, technologies
and companies for acquisition. At present, the Company has no
understandings, commitments or agreements with respect to the
acquisition of any business venture, and there can be no
assurance that the Company will identify a business venture
suitable for acquisition in the future. Further, there can be no
assurance that the Company would be successful in consummating
any acquisition on favorable terms or that it will be able to
profitably manage any business venture it acquires.
Forward-Looking Statement Notice
When used in this report, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend," and
similar expressions are intended to identify forward-looking
statements within the meaning of Section 27a of the Securities
Act of 1933 and Section 21e of the Securities Exchange Act of
1934 regarding events, conditions, and financial trends that may
affect the Company's future plans of
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operations, business strategy, operating results, and financial
position. Persons reviewing this report are cautioned that any
forward-looking statements are not guarantees of future
performance and are subject to risks and uncertainties and that
actual results may differ materially from those included within
the forward-looking statements as a result of various factors.
Such factors are discussed under the headings "Item 1.
Description of Business," and "Item 6. Management's Discussion
and Analysis of Financial Condition and Results of Operations,"
and also include general economic factors and conditions that may
directly or indirectly impact the Company's financial condition
or results of operations.
PART II. OTHER INFORMATION
Legal Proceedings
McCormick, et al., v. Reddi Brake Supply Corp., et al, L.A.S.C.
Case No. BC 180840. On November 6, 1997, the above action was
filed in the Los Angeles County Superior Court as a class action
on behalf of all persons or entities who bought common stock of
Reddi Brake Supply Corporation prior to March 23, 1996 and/or who
bought or sold such stock thereafter until August 13, 1996. The
complaint asserts causes of action for breach of fiduciary duty
by officers and directors and conspiracy to manipulate the price
of the common stock of the Company and concealment thereof.
Reddi Brake has denied and continues to deny all of the claims
and contentions alleged in the complaint. The parties to the
litigation have entered into a Stipulation of Settlement dated
May 21, 1999, dismissing the litigation with prejudice. The
Stipulation of Settlement provides that the Plaintiffs will
release the Company from a $20 million judgement if the Company
and individual defendants assign any and all rights for insurance
coverage to the Plaintiffs. As of the date of this report, the
settlement offer remains pending.
Sheerin v. McCorrian, Birin and Reddi Brake Supply Corporation,
L.A.S.C. Case No. BC 186930. On March 3, 1998, the above action
was filed in the Los Angeles County Superior Court alleging
breach of contract, breach of fiduciary duty, fraud, negligent
misrepresentation, violation of federal securities laws and
violation of California securities laws. The Company has denied
and continues to deny all of the claims and contentions alleged
in the complaint. The parties have been negotiating a settlement
agreement which remains unresolved as of the date of this report.
Changes in Securities and Use of Proceeds
On October 6, 2000, by resolution of the Board of Directors and
unanimous consent of the Preferred B Stockholders, the Company
converted 60,000 shares of Preferred B Stock into 15,775,020
shares of Common Stock at a conversion rate of 1:262.917. The
securities were exchanged in a private transaction with an
accredited investor, without registration, in reliance on the
exemption provided by Section 4(2) of the Securities Act. No
broker was involved and no commissions were paid in the
transaction
Defaults upon Senior Securities
The Company is currently in material default on the payment of
interest for $6.9 million in 9% adjustable convertible
subordinated debentures due 2005. The interest on the unpaid
principal is payable quarterly on April 30, July 31, October 31
and January 31 of each year. The Company is currently in
negotiations with the debenture holders to settle the debt.
Submission of Matters to a Vote of Securities Holders
On October 6, 2000, by resolution of the Board of Directors and
unanimous consent of the Preferred B Stockholders, the Company
converted 60,000 shares of Preferred B Stock into 15,775,020
shares of Common Stock at a conversion rate of 1:262.917. The
securities were exchanged in a private transaction with an
accredited investor, without registration, in reliance on the
exemption provided by Section 4(2) of the Securities Act. No
broker was involved and no commissions were paid in the
transaction
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Exhibits and Reports on Form 8-K
Reports on Form 8-K: None
Copies of the following documents are included as exhibits to
this report pursuant to Item 601 of Regulation S-B.
Exhibit SEC Ref. Title of Document Location
No. No.
9 (4) Certificate of Amendment to Preferred Class B
Stock See Note (1)
12 (27) Financial Data Schedule Attached
Note (1) - Included as an Exhibit to Form 10-KSB for the fiscal
year ended June 30, 2000 and filed October 13, 2000, is
incorporated herein by reference.
SIGNATURES
In accordance with the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned
thereunto duly authorized.
REDDI BRAKE SUPPLY CORPORATION
Date: November 14th, 2000 By:/s/ John Chymboryk, President
Date: November 14th, 2000 By:/s/ Kip Eardley, Chief Financial Officer
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