SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended March 31, 1998
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[ ] 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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Commision file number 001-13559
Fresh'n Lite, Inc.
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(Name of small business issuer in its charter)
Texas 75-2337102
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(State of other jurisdiction (I.R.S. Employer
of incorporation or organization Identification No.)
1705 E. Whaley Longview, Texas 75605
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (903) 758-2811
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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[ ]
Number of shares outstanding of each of the issuer's classes of common stock, as
of May 18, 1997: 6,356,852 shares of common stock, par value $.01.
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Item 1: FINANCIAL STATEMENTS
Fresh'n Lite, Inc.
Balance Sheet
For the Three Month Period Ending
March 31, 1998
March 31, 1998
ASSETS (Unaudited)
CURRENT ASSETS
Cash $ 201,163
Inventory 26,468
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Total Current Assets 227,631
PROPERTY AND EQUIPMENT (Pledged)
Buildings 4,545,522
Land 135,000
Capitalized Land Leases 2,175,000
Leasehold Improvements 30,113
Vehicles and Equipment 1,398,060
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Total Property and Equipment 8,283,695
Accumulated Depreciation (466,475)
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Property and Equipment - Net of Depreciation 7,817,220
OTHER ASSETS
Assets held for Sale, Net of Accumulated Depreciation 441,373
Franchise System 51,333
Restaurant Preopening/Remodel Costs and Other Assets,
Net of Accumulated Amortization 30,683
Notes Receivable - Related Parties 146,005
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TOTAL OTHER ASSETS 669,394
TOTAL ASSETS 8,714,245
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Fresh'n Lite, Inc.
Balance Sheet for the Three Month Period Ending
March 31, 1998
March 31, 1998
LIABILITIES AND SHAREHOLDERS EQUITY (Unaudited)
CURRENT LIABILITIES
Accrued Expenses $ 320,854
Accounts Payable 62,357
Current Portion of Capital Lease Obligations 32,139
Current Portion of Notes Payable - Long Term 215,020
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TOTAL CURRENT LIABILITIES 630,370
OTHER LIABILITIES
Capital Lease Obligations, Net of Current Portion 2,313,173
Notes Payable - Long Term, Net of Current Portion 1,484,590
Deferred Income Tax Liability 141,200
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TOTAL LIABILITIES 3,938,963
SHAREHOLDERS EQUITY
Common Stock, $.01 Par Value; 50,000,000 Shares Authorized;
6,356,852 Shares Issued and Outstanding 63,568
Additional Paid In Capital 3,574,071
Retained Earnings - Prior 293,087
Retained Earnings - Current 215,436
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Less Treasury Stock, at Cost (1,250)
TOTAL SHAREHOLDERS EQUITY 4,144,912
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TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 8,714,245
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Fresh'n Lite, Inc.
Income Statement
For the Three Month Periods Ending
March 31, 1997 and March 31, 1998
March 31, March 31,
1997 1998
(Unaudited)
SALES $ 712,352 $ 798,219
COST OF SALES (204,967) (205,156)
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GROSS PROFIT 507,385 593,063
EXPENSES
Salaries and Contract Labor 208,836 228,022
Payroll and other Taxes 32,024 39,882
Professional Fees 53,892 8,428
Advertising and Promotional 18,568 15,285
Rent 35,644 50,579
Insurance 13,804 17,121
Telephone 7,858 5,309
Travel 3,750 3,231
Utilities 25,045 23,592
Depreciation 38,464 36,150
Amortization 192,294 14,850
Interest 19,744 33,846
Linen and Laundry 5,284 11,575
Repairs and Maintanence 17,718 20,129
Supplies 6,518 9,307
Miscellaneous 2,500 0
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TOTAL EXPENSES 681,943 517,306
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OPERATING INCOME (LOSS) (174,558) 75,757
OTHER INCOME/(EXPENSE)
Profit/(Loss) on sale of Assets -- 111,593
Rental Income -- 28,086
Income Tax (Expense) Benefit:
Current -- --
Deferred -- --
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NET INCOME (174,558) 215,436
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<TABLE>
<CAPTION>
Fresh'n Lite, Inc.
Statement of Cash Flow
For the Three Month Periods Ending
March 31, 1997 and March 31, 1998
March 31, March 31,
1997 1998
(Unaudited)
<S> <C>
Cash Flows from Operating Activities
Net Income (Loss) $(174,558) $ 215,436
Adjustments to Reconcile Net Income
To Net Cash Provided by Operating Activities:
Depreciation 38,464 36,150
Amortization 192,294 14,850
Net Change in Assets and Liabilities
Decrease/(Increase) in Inventory (27,768) 103
(Decrease)/Increase in Accounts Payable (18,070) (57,660)
(Decrease)/Increase in Accrued Expenses (40,018) (19,781)
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Total Adjustments 144,902 (26,338)
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Net Cash Provided by Operating Activities (29,656) 189,098
Cash Flows from Investing Activities:
Capital Expenditures (239,804) (919,139)
Expenditures for Preopening/Remodel Costs
And other Assets (24,020) 0
(Increase)/Decrease in Notes Receivable (19,221) 18,538
Increase in Deferred Franchise System Costs (39,969) 0
Net Proceeds from Sale of Assets 0 461,580
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Net Cash Used in Investing Activities (323,014) (439,021)
Cash Flows from Financing Activities:
Sale of Common Stock 698,000 297,555
Borrowing on Notes Payable 385,000 633,158
Principal Payments on Notes Payable (556,727) (500,000)
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Net Cash Provided by Financing Activities 526,273 430,713
NET INCREASE/(DECREASE) IN CASH 173,603 180,790
CASH AT BEGINNING OF YEAR 19,640 20,373
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CASH AT END OF PERIOD 193,243 201,163
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Fresh'n Lite, Inc.
Notes To Interim Financial Statements
For the Three Month Period Ending
March 31, 1998
Note 1. Basis of Presentation
The condensed consolidated financial statements of Fresh'n Lite, Inc as
of March 31, 1997 and March 31, 1998 have been prepared by the Company,
pursuant to the rules and regulations of the Securities Exchange
Commission. The Compmany owns and operates 4 restaurants under the
names of "Fresh'n Lite Cafe & Grill" and "Street Talk Cafe".
The information furnished herein reflects all adjustments (consisting
of normal recurring accruals and adjustments) which are, in the opinion
of management, necessary to fairly state the operating results for the
respective periods. However, these operating results are not
necessarily indicative of the results expected for the full fiscal
year. Certain information and footnote disclosures normally included in
annual financial statements perpared in accordance with generally
accepted accounting principals have been omitted pursuant to such rules
and regulations. The notes to the condensed consolidated financial
statements should be read in conjunction with the notes to the
consolidated financial statements contained in the May 1, 1997 Form
10-KSB. Company management believes that the disclosures are sufficient
for interim financial reporting purposes.
Note 2. Sale of restaurant facility
On March 17th, 1998 the company sold its facility in Nacogdoches,
Texas. The Company realized a gain of $111,593 on the sale of this
facility which was previously classified as "assetts held for sale".
Note 3. Subsequent Event
On April 3rd, 1998 the Board of Directors approved a plan to repurchase
up to 100,000 shares of the Company's common stock. Repurchases will be
made from time to time in open market transactions. All repurchases
will be made in accordance with applicable securities regulations, and
the timing of the repurchases will be dependent upon market conditions,
share price, and other factors. The repurchased common stock may be
used by the Company to meet the needs of its various stock option
plans, or for other corporate purposes.
On April 8th, 1997 the Board of Directors approved an increase in the
previously approved stock repurchase plan from 100,000 to 150,000
shares.
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Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
The Company was organized in June of 1990 as Bosko's, Inc. under the
laws of the State of Delaware, in November of 1992 the Company changed it's name
to Fresh'n Lite, Inc. and in November of 1995 merged into a Texas corporation
also bearing the name Fresh'n Lite, Inc.. The Company currently owns and
operates 3 Fresh'n Lite Cafe & Grill restaurants, in Dallas, Irving (Valley
Ranch), and The Colony, Texas. The Company's prototype Street Talk Cafe
restaurant opened May 7, 1998 in Richardson, Texas. The Company plans to expand
by opening additional Street Talk Cafe restaurants on a Company owned basis in
the Dallas/Ft Worth demographic market area.
Fiscal Years 1995 - 1997 Review
Operating revenues for 1995 were $1,840,756, with a gross profit of
$1,318,576 (72%) and operating income of $89,113 before adding royalty revenues
of $5,211 and a franchise fee of $50,000, which increased overall operating
income to $144,324.
Operating revenues for 1996 were $2,602,533, with a gross profit of
$1,862,111 (71.5%), and operating income of $282,327, before adding royalty
revenues of $34,744, which increased operating income to $317,101.
Operating revenues for 1997 were $3,106,144, with a gross profit of
$2,215,200 (71.4 %), and operating income of $166,862 which included a one time
charge of $169,075 for the accelerated amortization of start up costs associated
with the sale of the Nacogdoches and Texarkana facilities. Prior to this charge
operating income was $335,937. The company discontinued its franchise operation
in early 1996 therefore no royalty revenues or franchise fees are reflected in
the 1997 numbers.
Quarter Ending March 31, 1998 Summary of Financial Statement
For the thirteen weeks ending March 31, 1998 the Company has generated
revenues of $798,219 compared to revenues in the same period 1997 of $710,556, a
12.3% gain, a gross profit of $160,602 compared to gross profit in the same
period of 1997 of $73,987, a 217% gain, and positive net income of $103,842
compared to a net operating loss of $176,515.
Liquidity and Capital Resources
Historically the Company has required capital to fund the operations
and capital expenditure requirements of its Company-owned restaurants.
From January 4, 1995 through December 12, 1997 the Company received
proceeds from its intra-state offering of $2,219,500.00. Approximately
$287,600.00 of the proceeds were used to cover offering related costs, including
underwriting discounts and commissions. The remaining proceeds were used for the
development of additional restaurants, the acquisition of the Company's
corporate offices, and general corporate purposes.
The Company met fiscal 1997 capital requirements with cash generated by
operations, the proceeds from the intra-state offering, and borrowing on notes
payable. In fiscal 1997 the Company's operations generated approximately
$644,352 in cash, as compared to $551,804 in fiscal 1996 and $461,811 in fiscal
1995. The Company's restaurant operations are labor intensive and do not have
significant receivables or inventory. The Company receives trade credit based
upon negotiated terms in purchasing food and supplies and ordinarily operates
with a relatively small level of working capital.
The Company's principal capital requirements are the funding of new
restaurant development or acquisitions and remodeling of existing units. During
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fiscal 1997, the Company constructed and opened one unit in The Colony, Texas
and began construction of a second unit in Richardson, Texas, and purchased its
corporate offices facility. The total capital outlay for the year was
$2,288,392. Opening additional Company-owned restaurants is a key component of
its expansion strategy.
The Company is currently operating out of cash flow from operations.
Its ability to expand depends on the ability of management to secure additional
sources of funding. The current plans include the procurement of additional debt
through traditional lending institutions. The company is currently exploring the
placement of private debt which may include convertible instruments.
Plan of Operations
The Company has planned the following operations for the 1998 calendar
year, including;
(i) Convert the Fresh'n Lite Cafe & Grill located at 6150 Frankford
Rd. Dallas, Texas to a Street Talk Cafe.
(ii) Open two additional Street Talk Cafe restaurants at locations
still to be negotiated.
Risk Factors
The Company cautions readers that its business is subject to a number
of risks, any of which could cause the actual results of the Company to differ
materially from those indicated by forward-looking statements made from time to
time in releases, including this Form 10-QSB, and oral statements. Such risks
were presented in the Company's intra-state offering registrations which was
filed with the Texas Board of Securities which was declared effected January 4,
1995, and related propectus, some of which are being presented again in this
Form 10-QSB. Certain risk factors have been presented throughout this document,
including, among others, expansion strategy; managers and other employees;
availability of food products; competition and government regulation. Certain
other risks to which the Company is subject include:
Seasonality of Business. Based on the Company's limited experience,
Management believes that restaurant sales should be greater during the summer
months. However, because the Company's experience is limited in the Dallas area,
there can be no assurance that such will be the case in the future.
Impact of Inflation. The Company does not believe that inflation has
materially impacted net income during the past three years. Substantial
increases in costs and expenses, particularly food, supplies, labor and
operating expenses, could have a significant impact on the Company's operating
results to the extent such increases cannot be passed along to customers. If
operating expenses increase, management intends to attempt to recover increased
costs by increasing prices to the extent deemed advisable considering
competitive conditions.
Accelerating Growth Strategy. The Company's ability to expand by adding
Company-owned restaurants will depend on a number of factors, including the
availability of suitable locations, the ability to hire, train and retain an
adequate number of experienced management and hourly employees, the availability
of acceptable lease terms and adequate financing, timely construction of
restaurants, the ability to obtain various government permits and licenses and
other factors, come of which are beyond the control of the Company. There can be
no assurance that the Company will be able to open the number of restaurants it
currently plans to open or that new restaurants can be operated profitably. In
addition, the Company intends to expand using the "Street Talk Cafe" name which
is yet unproven. There can be no assurance as to the success of the Company's
efforts to expand using the new name.
Control of the Company by Management. Approximately 31% of the Common
Stock and rights to acquire Common Stock of the Company are beneficially owned
or held by Curtis A. Swanson, Stanly L. Swanson, Ed Dmytryk, and Bob Lilly.
Shares Eligible for Future Sale and Stock Price. Sales of substantial
amounts of shares in the public market could adversely affect the market price
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of the Common Stock. The Company currently has 6,356,852 shares of Common Stock
outstanding. Of these shares 1,701,000 are "restricted securties", as defined by
Rule 144 adobted under the Securities Act of 1933, as amended. An additional
893,800 of these shares are restricted pursuant to the "intra-state" offering
exemption under the Securities Act of 1933, as amended. Pursuant to this rule
the "intra-state" offering shares will become free trading on September 12,
1998.
Competition. The restaurant industry is intensely competitive. The
Company competes against other family dining concepts, as well as quick service
and casual dining concepts, for customers and employees. See "Item 1. Business -
Competition."
Employees
The Company expects to hire three full time management personnel and
thirty part time hourly personnel with the opening of each new restaurant
operation. The cost of these personnel should be 25% of the annual operating
revenue to be generated by each operation, the initial cost of hiring and
training of all personnel is covered in the store start up costs.
PART II
Item 1. LEGAL PROCEEDINGS
The company is not currently a party to any litigation.
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual Meeting of Shareholders was held on May1st, 1998.
(b) Each of the management's nominees, as described below, was elected
a director to hold office until the next annual meeting of
shareholders or until his or her successor is elected and
qualified.
Stanley L. Swanson, Curtis A. Swanson, Henry Leonard, Ed Dmytryk,
and Bob Lilly.
Number of Affirmative Votes Cast Number of Withhold Authority Votes Cast
4,567,896 0
(C) The following matter was also voted upon at the meeting and
approved by the following shareholders:
(i) approval of the Company's 1998 incentive stock option
plan authorizing the issuance of up to 300,000
options to purchase the company's common stock at a
price equal to the bid price of the common stock as
quoted by the NASDAQ OTC-BB or other applicable
market on the day of issuance. Said options being
excersisable for a period of 5 years from the date of
issuance.
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Number of Affirmative Votes Cast Number of Negative Votes Cast
4,567,896 0
Number of Abstain Votes Cast
0
Item 6. Exhibits
Hereafter set forth as an Exhibit to the Form 10-QSB of Fresh'n Lite, Inc. (or
incorporated by reference) are the following exhibits:
No. as per Item 601 of Regulation S-B Description
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3.1* Articles of Incorporation
3.2* By-Laws
4.1** Warrant Agreement
11.1* Statement re: computation of per
share earnings
*Filed as an exhibit to the Company's Form 10-SB filed October 23rd, 1997, and
incorporated herein by reference.
**Filed as an exhibit to the Company's Form 10-KSB filed May 1, 1998, and
incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Fresh'n Lite, Inc.
Date: May 20, 1998 By: /s/ Stanley L. Swanson
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Stanley L. Swanson, Chief Executive Officer
(Duly Authorized Signatory)
Date: May 20, 1998 By: /s/ Curtis A. Swanson
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Curtis A. Swanson, Chief Financial Officer
And Executive Vice President
(Duly Authorized Signatory)
