UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB/A
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to _________
Commission file number 001-13559
---------
Restaurant Teams International, Inc.
(Name of small business issuer in its charter)
Texas 75-2337102
(State of other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
911 N.W. Loop 281, Suite 111, Longview, Texas 75604
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (903) 295-6800
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01
(Title of class)
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[ ]
Indicate by check mark if 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. [X]
The Issuer's revenues for the most recent fiscal year: $2,438,338.14.
Part III, Items 9 through 12, of Form 10KSB will be incorporated by reference to
the Issuer's definitive proxy statement for its annual meeting of shareholders
to be held in May 1999.
The aggregate market value of common stock held by non-affiliates of the
registrant based on the sale trade price of the common stock as reported on the
OTC-BB on April 3, 2000 was $6,179,933.25. For purposes of this computation, all
officers, directors, and 10% beneficial owners of registrant are deemed to be
affiliates. Such determination should not be deemed an admission that such
officers, directors or 10% beneficial owners are, in fact, affiliates of the
registrant. Number of shares outstanding of each of the Issuer's classes of
common stock, as of April 3, 2000: 10,441,168 shares of common stock, par value
$.01.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS
History
Restaurant Teams International, Inc. (the "Company") is a Texas
corporation. The Company originally was incorporated as a Delaware corporation
on May 9, 1990, under the name "Bosko's, Inc. On November 9, 1992, the Bosko's,
Inc. name was changed to Fresh'n Lite, Inc. and on September 15, 1998 the
Company changed its name to Restaurant Teams International, Inc. in order to
more properly reflect management's desire to position the Company as a
multi-concept holding company.
In October 1995, the Delaware corporation merged into its wholly-owned
subsidiary, FNL, Inc., a Texas corporation. FNL, Inc. was the surviving
corporation in the merger. FNL, Inc. then changed its name to Fresh'n Lite, Inc.
The purpose of the merger was to convert the Delaware corporation into a Texas
corporation.
On February 9, 2000 the Company acquired substantially all of the
assets of Hartan, Inc. and it's subsidiaries out of chapter 11 bankruptcy for
$300,000 in cash and a $125,000 indemnity agreement. The assets consisted of 8
Tanner's restaurants in the Atlanta, GA market. The company subsequently sold
one of the units to the chains founder, Rick Tanner, under a licensing
agreement. The remaining seven stores are operated as company stores.
On March 16, 2000 the Company acquired Regulatory Solutions, Inc. (RSI)
in an equity transaction for $100,000 in cash and stock valued at $3,000,000.
RSI is a workplace safety and governmental regulation compliance specialty firm
with expertise in the restaurant, manufacturing, oil & gas, and construction
industries.
Company Business - Restaurant Segment
The Company currently operates seven full service restaurants and 3
licensed restaurants in the Atlanta, GA market under the name Tanner's Original
Rotisserie Grill dba Tanner's Corner Grill and one full-service restaurant
located in the Texas city of The Colony under the name Street Talk Cafe
The Company's restaurants offer a variety of food items, including a
wide selection of sandwiches, salads, pizzas, steaks, seafood, and other food
items and desserts.
The majority of the Company's food items are prepared to order using
fresh meats, cheeses, and vegetables. While the restaurants offer full-service
casual dining, the menus are designed to permit quick food preparation. The
restaurants offer take-out service.
The key strategic elements of the both the Tanner's and Street Talk
Cafe concepts are:
o Providing guests a broad menu with 50% of the "tie breakers" of each
segment in good tasting versions to enhance frequency;
o Pricing menu offerings at levels comparable to other casual dining
restaurants while providing more wholesome and consistent selections;
o Selecting, training and motivating cast members to enhance customer dining
experiences by delivering a level of service that is a product unto itself;
o Reinforcing perceived value through unique concept elements to provide
guests with a superior "total dining" experience in a fun and entertaining
atmosphere.
Menu
The menu features a wide variety of entrees including rotisserie
chicken, ribs, sandwiches, salads, pizzas, steaks, seafood, and special dinner
items and desserts. Alcoholic beverages are served as a complement to meals and
average approximately 4% of restaurant revenues.
2
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The Company targets urban white-collar markets and focuses on
increasing customer value by providing more wholesome and consistent offerings
than other casual dining restaurants at comparable prices in a relaxed and
entertaining atmosphere.
The Company's strategy is to continually deliver broad menu appeal by
offering patrons selections from all dining segments in good tasting versions.
In addition, the Company's efforts to assure the broad appeal of its menu,
combined with its emphasis on affordability and food quality, promotes frequent
return visits by restaurant guests.
To accomplish these objectives, the Company identifies the "tie"
breaking and "forerunner" products in each restaurant segment. Management feels
these "best sellers" are the single most important reason guests select a casual
dining restaurant.
Dinner entrees presently range in price from $6.95 to $10.95. An
assortment of sandwiches, baked potatoes, salads, burgers, soups and pizza round
out the menu. Both concepts use the same menu for lunch and supper.
Competition
The Company's restaurants operate in the casual dining segment of the
foodservice industry. This segment is estimated to be $36 billion per year with
another $10 billion estimated in the Bar and Grill segment. Brinker
International operates more brands in the casual dining segment than any other
company with a total of seven different concepts.
Casual operators agree that continued expansion of core concepts and a
more aggressive pursuit of acquisitions are the two prevailing trends that will
characterize the casual-theme segment in the near term.
Despite the category's maturation, wide spread labor shortages and
competitive saturation in dozens of suburban markets, leading casual-theme
operators are confident there is plenty of room for domestic expansion.
Operators are looking to the fact that Baby Boomers are growing older and
wealthier as their Echo Boom offspring grow "hipper".
Fragmentation is happening in the casual segment. Casual Diners have
historically tried to be all things to all people by carrying Tex-Mex, steaks,
ribs, and a bar. Today, if people want steak, they will go to operators in the
steak house niche like Outback or Lone Star. If they want Mexican, they will go
to El Chico or Rio Bravo.
Suppliers
The Company's primary supplier of goods is Alliant Food Service.
("Alliant"). The Company is current in its account with Alliant. The Company
also has accounts with other suppliers to ensure product availability in the
event that Alliant is unable to meet the Company's needs in the future.
Company Business - Regulatory Safety Segment
RSI is a business to business, (B2B), Professional Services Company. The
company's founder, Mr. Johann Wasserman, has remained in his current position as
President & CEO of RSI. Mr. Wasserman, who has been in the regulatory business
for over 15 years, brings the contacts and networking of over 1000 clients in 47
states such as Sodexho Marriott (NYSE:SDH), Delta Daily Foods, and Pavestone
Corp. to the acquisition.
RSI specializes in State and Federal laws that govern both the employer and
employee in the work place. The company provides proprietary "Worksafe" training
and certification programs utilized as a major outsource for regional and
national businesses alike.
3
<PAGE>
The "Worksafe" programs, which are marketed on both a corporate and franchise
level, provide cutting edge safety and training designed to address the specific
needs of management as it relates to ongoing safety and health issues associated
with their industry. RSI is expanding through marketing a well-designed
franchise program. RSI franchisees will develop regional territories and provide
customer service for the ongoing needs of the franchise client acting as a
direct liaison between the franchisor and the end user. The Worksafe programs
address vital compliance issues with specific industry related agencies such as
DOH, DOT, OSHA, and EPA. The Worksafe products are designed to reduce potential
liabilities and assist their clients in obtaining the lowest possible premium
associated with Workers Compensation Insurance.
PENDING ACQUISITION
On March 13, 2000 the Company entered into revised definitive agreement
to acquire the Fatburger hamburger chain ("Fatburger"). The Company is to close
the acquisition by April 28, 2000. Fatburger, founded in 1952, currently
operates 13 company owned Fatburger restaurants in the Los Angeles, California
market and franchisees 21 restaurants in Southern California and Las Vegas,
Nevada under the Fatburger brand. The purchase price of the acquisition is
$8,100,000 plus $125,000 in sellers expenses or which $1,750,000 has been paid
as of March 13, 2000.
In April 2000, the Company entered into a joint venture agreement
with JD Enterprises, L.L.C. ("JDE") to fund the remaining purchase price and pay
certain costs incurred by Fatburger's owner. Terms of the agreement call for (a)
the Company to secure $3,000,000 in Senior Debt financing for NEWCO, and (b) JDE
to pay $2,000,000 and secure Subordinate loan financing of $2,000,000. Proceeds
of this funding in excess of that required to close the Fatburger transaction
totaling $525,000 will be retained for working capital purposes. Upon closing
the Fatburger transaction, all of the acquired assets of Fatburger will be
assigned to a newly-incorporated holding company ("NEWCO") of which the Company
will own thirty-three percent and JDE sixty-seven percent of the issued and
outstanding common stock. The Company will then enter into a Development
Agreement with NEWCO granting the Company exclusive rights to franchise
Fatburger restaurants in Texas and Georgia and the first right of refusal on
South Carolina.
Terminated Acquisition
In October 1998 the Registrant signed an asset Purchase Agreement to
acquire all of the properties and assets comprising the Old San Francisco
Restaurant chain ("OSF"). The OSF acquisition was for all cash at closing, and
Registrant was unable to obtain financing for the purchase price on terms
acceptable to it. Registrant therefore declined to pursue its agreement to
purchase OSF, and the agreement was terminated without penalty on February 1,
1999. Registrant instead concentrated its efforts on pursuit of the Fatburger
transaction.
Employees
Registrant employed 458 persons as of April 1, 2000, including 20
executive and office personnel and 438 restaurant operational managers and
staff.
4
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<TABLE>
<CAPTION>
Item 2: DESCRIPTION OF PROPERTY
Restaurant Locations
The following table provides information with respect to each of the
Company's properties. The Texarkana, Dallas, Irving, The Colony, and Richardson
buildings are owned, with a lease on the land. The Longview facility is owned
and all seven Georgia facilities are leased.
Location Square Feet Lease Expiration Date
<S> <C> <C> <C>
Dallas, Texas........................................ 4,500 sq. ft. January 21, 2015
Richardson, Texas ................................... 4,700 sq. ft. August 15, 2017
Texarkana, Texas..................................... 3,600 sq. ft. April 30, 2014
Vinings, Georgia..................................... 3,266 sq. ft. June 30, 2003
Fayetteville, Georgia............................ 5,000 sq. ft. July 31, 2000
Tucker, Georgia.................................. 3,600 sq. ft. May 31, 2002
Lawrenceville, Georgia........................... 3,500 sq. ft. January 31, 2002
Emory, Georgia................................... 4,000 sq. ft. September 30, 2000
Fountain Oaks, Georgia........................... 3,335 sq. ft. January 31, 2010
Towne Lake, Georgia.............................. 5,500 sq. ft. April 30, 2009
Longview, Texas.................................. 33,000 sq.ft. Owned
</TABLE>
The Company no longer operates restaurants in the Dallas, Richardson,
and Irving locations, which are leased to other operators nor in the Texarkana
location which is classified as assets held for sale..
Item 3. LEGAL PROCEEDINGS
Oxford Commercial Funding, L.L.C. vs Restaurant Teams International,
Inc. Civil Action No. 99 C 8200 consolidated No. 00 C 1048 in the U.S. District
Court, Northern District of Illinois, Eastern Division. This is a suit on a
promissory note under which Oxford claims the sum of $444,102.05 in principal
and accrued interest is due and owing. RTIN filed its answer to the complaint on
April 4, 2000. No discovery has been conducted to date. The Company's management
is in intensive negotiations for settlement of the lawsuit. If the parties are
unable to reach an agreement, management intends to assert counterclaims against
the Plaintiff. At this stage of the litigation, there is no way to provide an
evaluation of the likelihood of an unfavorable outcome or an estimate of the
amount or range of potential loss.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
5
<PAGE>
PART II
Item 5: MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock began trading on the OTC Bulletin Board
under the symbol FLTT on May 9, 1997. Such symbol was changed to RTIN in
September 1998. The following table sets forth for the quarters indicated the
high and low bid prices of the Company's Common Stock as reported by the
National Quotation Bureau, Inc. The prices reflect inter-dealer prices, without
retail mark-up, mark-down or commissions and may not represent actual
transactions.
1999 High Low
First Quarter..................................... $ 3.19 $ 1.50
Second Quarter ................................... 4.46 1.65
Third Quarter..................................... 4.00 1.87
Fourth Quarter.................................... 5.00 1.37
1998 High Low
First Quarter..................................... $ 3.00 $ 1.64
Second Quarter ................................... 4.46 1.65
Third Quarter..................................... 4.00 1.87
Fourth Quarter.................................... 5.00 1.37
As of December 31, 1999, the Company estimates that there were
approximately 1000 beneficial owners of the Company's Common Stock, and
approximately 250 holders of record. The Company declared a dividend on its
Common Stock on March 22, 2000. The dividend consisted of 1 share of Ness Energy
International, Inc. ("NESS") to be distributed to for every 20 shares of RTIN
held as of the record date, which was March 31, 2000.
Item 6: MANAGEMENT'S DISCUSSION AND ANALYSIS ON PLAN OF OPERATION
Forward-Looking Statements
This Annual Report on Form 10-KSB includes forward-looking statements
within the meaning of Section 27A of The Securities Act of 1933, as amended (the
Securities Act), and Section 21E of the Securities Exchange Act of 1934, as
amended (the Exchange Act), which can be identified by the use of
forward-looking terminology such as may, believe, expect, intend, anticipate,
estimate or continue or the negative thereof or other variations thereon or
comparable terminology. All statements other than statements of historical fact
included in this Form 10-KSB, are forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such statements,
including certain risks and uncertainties that could cause actual results to
differ materially from the Company's expectations (Cautionary Statements) are
disclosed in this Form 10-KSB. Important factors that could cause actual results
to differ materially from those in the forward-looking statements herein
include, but are not limited to, the newness of the Company, the need for
additional capital and additional financing, the Company's limited restaurant
base, lack of geographic diversification, the risks associated with expansion, a
lack of marketing experience and activities, risks of franchising,
seasonability, the choice of site locations, development and construction
delays, need for additional personnel, increases in operating and food costs and
availability of supplies, significant industry competition, government
regulation, insurance claims and the ability of the Company to meet its stated
business goals. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Statements.
The following discussion of the results of operations and financial
condition should be read together with the Financial Statements and related
Notes thereto included herein.
6
<PAGE>
Overview
The Company was organized in May 1990 as Bosko's, Inc. under the laws of the
State of Delaware. In November 1992 the Company changed its name to Fresh'n
Lite, Inc., and in November 1995 the Company merged into a Texas corporation
also bearing the name Fresh'n Lite, Inc. On September 15, 1998 the Company
changed its name to Restaurant Teams International, Inc. to more accurately
reflect the direction management is taking with respect to positioning the
Company as a multi-concept holding company. The Company currently owns and
operates seven Tanner's Corner Grills in Atlanta, GA, one Street Talk Cafe
restaurant in The Colony, Texas, and Regulatory Solutions, Inc. of Richardson,
Texas. Additionally, the Company owns three other restaurant facilities in the
Texas cities of Dallas, Irving, and Richardson, which is leases to other
operators and one restaurant facility in Texarkana, Texas which is currently for
sale.
Results of Operations
Comparison of Year Ended December 31, 1998 and December 31, 1999.
Revenues. Operating revenues for fiscal year ended December 31, 1998
were $3,747,013, with an operating loss of $89,126.
Operating revenues for fiscal year ended December 31, 1999 were
$2,438,537, a 34.2% decrease from 1998, with an operating loss of $694,792. The
34.2% decrease in revenues over 1999 is attributed to the closing of the
Company's restaurant facilities with the exception of The Colony, Texas
facility.
Costs and Expenses. Costs and expenses for the fiscal year ended
December 31, 1999 decreased by $702,810 or 18.3% to $3,133,329 as compared to
$3,836,139 for the corresponding period ended December 31, 1998. This was
primarily due to reduction in debenture related expenses and the resolution of
the litigation. General and Administrative Costs in 1999 increased by 7.0% to
$1,019,247 as compared to $947,551 in 1998. This increase was primarily due to
the development of infrastructure in anticipation of the future growth and
acquisitions. Additionally the Company realized increased professional fees
associated with the proposed acquisition of the Fatburger and Tanner's chains
and Regulatory Solutions, Inc. (also see "PENDING ACQUISITIONS) and acquisition
costs which were expensed in 1999. Interest expense in 1999 decreased by
$753,987 to $806,712 from $1,560,699 in 1998. This was primarily a result of an
$895,000 reduction in amortization of discount and issuance costs on debentures
and beneficial conversion features on common stock.
Net Loss. The Company had a net loss for the fiscal year ended December
31, 1999 of $2,245,204 compared to net loss of $1,320,303 for fiscal year ended
December 31, 1998, representing <$.30> and <$.21> per share, respectively. The
net loss in 1998 was primarily due to the costs associated with the issuance of
the debentures in May and June of 1998. The net loss in 1999 was primarily due
to the closing of the Company's Street Talk Cafe operations and the loss on sale
of assets associated with the sale of the Company's Addison restaurant.
Comparison of Year Ended December 31, 1997 and December 31, 1998.
Revenues. Operating revenues for fiscal year ended December 31, 1997
were $3,106,144, with an operating income of $179,020.
Operating revenues for fiscal year ended December 31, 1998 were
$3,705,013, a 19.3% increase from 1997, with an operating loss of $89,126. The
19.3% increase in revenues over 1997 is attributed to the opening of the
Richardson Texas facility and the remodel of The Colony, Texas facility.
Costs and Expenses. Costs and expenses for the fiscal year ended
December 31, 1998 increased by $867,015 or 22.9% to $3,794,139 as compared to
$2,927,124 for the corresponding period ended December 31, 1997. This was
primarily due to opening of higher volume restaurants in the Dallas market area.
General and Administrative Costs in 1998 increased by 318% to $905,079 as
compared to $284,304 in 1997. This increase was primarily due to the development
of infrastructure in anticipation of the future growth and acquisitions.
Additionally the Company realized increased professional fees associated with
the proposed acquisition of the OSF chain, (see "PENDING ACQUISITIONS) and
acquisition costs which were expensed in 1998. Interest expense in 1998
increased by $1,561,238 to $1,560,699 over a gain of $539 in 1997, which was
attributed to the reclassification of capitalized leases into operating leases.
The increase in interest expense is almost exclusively attributed to the
issuance by the company of the A & B convertible debentures dated May 29, 1998
and June 30, 1998 respectively.
7
<PAGE>
Net Income. The Company had a net loss for the fiscal year ended
December 31, 1998 of $1,320,303 compared to net income of $119,386 for fiscal
year ended December 31, 1997, representing <$.21> and $.02 per share,
respectively. The net loss in 1998 was primarily due to the costs associated
with the issuance of the debentures in May and June of 1998.
Liquidity and Capital Resources
Historically, the Company has required capital to fund the operations
and capital expenditure requirements of its Company-owned restaurants.
The Company is currently operating out of cash flow from operations
following its acquisition of Tanner's and RSI in early 2000. The Company
completed two private placements of A Debentures and B Debentures on May 29,
1998 and June 29, 1998, respectively, providing net proceeds to the Company of
$2,670,000. The proceeds were used to fund the Company's expansion strategy of
opening additional Street Talk Cafe restaurants in the Dallas market area.
The Company met fiscal 1999 capital requirements with cash generated by
operations, the proceeds from the debenture offering and borrowing on notes
payable. In fiscal 1999 the Company's operations used approximately $(542,229)
in cash, as compared to $21,766 generated in 1998. 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
acquisitions. During fiscal 1999, the Company began the acquisition of Fatburger
corporation. The total capital outlay for the year was $1,731,907 for the
Fatburger acquisition.
8
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Item 7. FINANCIAL STATEMENTS
RESTAURANT TEAMS INTERNATIONAL
FINANCIAL STATEMENTS AND
INDEPENDENT AUDITOR'S REPORT
DECEMBER 31, 1999 AND 1998
9
<PAGE>
RESTAURANT TEAMS INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS
Independent Auditor's Report - 1999.........................................F-1
Independent Auditor's Report - 1998.........................................F-2
Financial Statements
Balance Sheet.........................................................F-3
Statements of Operations..............................................F-4
Statements of Stockholders' Equity....................................F-5
Statements of Cash Flows..............................................F-6
Notes to Financial Statements...............................................F-8
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Restaurant Teams International, Inc.
Longview, Texas
We have audited the accompanying balance sheet of Restaurant Teams
International, Inc. as of December 31, 1999, and the related statements of
operations, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Restaurant Teams International,
Inc. as of December 31, 1999, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
HEIN + ASSOCIATES LLP
Dallas, Texas
April 7, 2000
F-1
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholders
Restaurant Teams International, Inc.
We have audited the accompanying statement of operations, stockholders' equity,
and cash flows of Restaurant Teams International, Inc. (formerly Fresh `n Lite,
Inc) for the year ended December 31, 1998. 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 auditing standards generally accepted
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Restaurant
Teams International, Inc. for the year ended December 31, 1998, in conformity
with accounting principles generally accepted in the United States.
Ernst & Young LLP
April 9, 1999
San Antonio, Texas
F-2
<PAGE>
<TABLE>
<CAPTION>
RESTAURANT TEAMS INTERNATIONAL, INC.
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash $ 2,521
Inventories 13,690
Prepaid expenses 18,657
Federal income tax receivable 38,030
-----------
Total current assets 72,898
PROPERTY AND EQUIPMENT, at cost:
Buildings 3,129,304
Furniture, fixtures and restaurant equipment 943,959
Vehicles 29,950
-----------
4,103,213
Accumulated depreciation (495,099)
-----------
Net property and equipment 3,608,114
OTHER ASSETS:
Assets held for sale, net of $105,700 reserve for impairment 1,844,586
Acquisition costs of Fatburger (pending) 3,861,632
Debenture issuance costs, net 62,150
-----------
Total assets $ 9,449,380
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 76,324
Accrued expenses and other liabilities 430,997
Income taxes payable 10,000
Current installments of long-term debt 719,380
-----------
Total current liabilities 1,236,701
LONG-TERM DEBT, net of current installments 1,328,276
DEFERRED LIABILITIES 24,819
CONVERTIBLE DEBENTURES, less unamortized discount of $97,154 2,227,846
COMMITMENTS AND CONTINGENCIES (Notes 8 and 10)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000 shares authorized;
no shares issued --
Series A - Preferred stock, $.10 par value, 25,000 shares authorized;
no shares issued --
Common stock, $.01 par value, 50,000,000 shares authorized;
14,941,506 shares issued (including 5,000,000 held in escrow)
and 14,661,066 shares outstanding 149,416
Additional paid-in capital 8,921,335
Accumulated deficit (3,311,120)
Treasury stock, 280,440 shares at cost (761,150)
Notes receivable from related parties (366,743)
-----------
Total stockholders' equity 4,631,738
-----------
Total liabilities and stockholders' equity $ 9,449,380
===========
</TABLE>
See accompanying notes to these financial statements.
F-3
<PAGE>
RESTAURANT TEAMS INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
1999 1998
----------- -----------
REVENUES:
Restaurant sales $ 2,323,537 $ 3,705,013
Rental income 115,000 42,000
----------- -----------
Total revenues 2,438,537 3,747,013
OPERATING COSTS AND EXPENSES:
Cost of sales 674,209 968,382
Restaurant labor and benefits 612,605 971,727
Other restaurant operating expenses 388,191 690,527
General and administrative expenses 1,019,247 947,079
Depreciation and amortization 298,139 258,424
Write-down and impairment of assets 140,938 --
----------- -----------
Total operating costs and expenses 3,133,329 3,836,139
----------- -----------
Loss from operations (694,792) (89,126)
NON-OPERATING INCOME (EXPENSE):
Interest expense (806,712) (1,560,699)
(Loss) gain on sales of assets (502,202) 208,282
Acquisition costs (288,288) --
----------- -----------
Total non-operating income (expense) (1,597,202) (1,352,417)
----------- -----------
Loss before income taxes (2,291,994) (1,441,543)
INCOME TAX BENEFIT 46,790 121,240
----------- -----------
NET LOSS (2,245,204) $(1,320,303)
=========== ===========
NET LOSS PER COMMON SHARE, basic and diluted $ (.30) $ (.21)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING,
basic and diluted 7,470,418 6,218,749
=========== ===========
See accompanying notes to these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
RESTAURANT TEAMS INTERNATIONAL, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Common Stock Additional Retained
------------------------- Paid-In Earnings Treasury
Shares Amount Capital (Deficit) Stock
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1998 6,158,482 $ 61,585 $ 3,278,499 $ 254,387 $ (1,250)
Sale of common stock 221,458 2,215 260,347 -- --
Issuance of common stock for compensation 45,000 450 95,175 -- --
Value assigned to beneficial conversion rights
and warrants -- -- 1,400,000 -- --
Stock issued upon conversions of debentures 408,388 4,084 684,231 -- --
Treasury stock purchased -- -- -- -- (809,900)
Issuance of treasury stock for property and
equipment -- -- -- -- 50,000
Net loss -- -- -- (1,320,303) --
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1998 6,833,328 68,334 5,718,252 (1,065,916) (761,150)
Sales of common stock, including $80,000
for services 435,678 4,357 256,078 -- --
Issuances of common stock to consultants 933,000 9,330 2,120,395 -- --
Common stock placed into escrow for
possible future conversion by debenture
holders 5,000,000 50,000 (50,000) -- --
Value assigned agreement to issue stock for
settlement of debenture litigation -- -- 116,250 -- --
Common stock issued to officers in connection
with extinguishment of convertible debt 1,739,500 17,395 760,360 -- --
Notes receivable from related parties -- -- -- -- --
Net loss -- -- -- (2,245,204) --
----------- ----------- ----------- ----------- -----------
BALANCE at December 31, 1999 14,941,506 $ 149,416 $ 8,921,335 $(3,311,120) $ (761,150)
=========== =========== =========== =========== ===========
Notes
Receivable Total
from Stockholders'
Related Parties Equity
----------- -----------
BALANCE, January 1, 1998 $ -- $ 3,593,221
Sale of common stock -- 262,562
Issuance of common stock for compensation -- 95,625
Value assigned to beneficial conversion rights
and warrants -- 1,400,000
Stock issued upon conversions of debentures -- 688,315
Treasury stock purchased -- (809,900)
Issuance of treasury stock for property and
equipment -- 50,000
Net loss -- (1,320,303)
----------- -----------
BALANCE, December 31, 1998 -- 3,959,520
Sales of common stock, including $80,000
for services -- 260,435
Issuances of common stock to consultants -- 2,129,725
Common stock placed into escrow for
possible future conversion by debenture
holders -- --
Value assigned agreement to issue stock for
settlement of debenture litigation -- 116,250
Common stock issued to officers in connection
with extinguishment of convertible debt -- 777,755
Notes receivable from related parties (366,743) (366,743)
Net loss -- (2,245,204)
----------- -----------
BALANCE at December 31, 1999 $ (366,743) $ 4,631,738
=========== ===========
</TABLE>
See accompanying notes to these financial statements.
F-5
<PAGE>
<TABLE>
RESTAURANT TEAMS INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,245,204) $(1,320,303)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 298,139 258,424
Amortization of discount and issuance costs on convertible debentures 257,796 1,312,900
Loss (gain) on sales of assets 502,202 (208,282)
Benefit for deferred income taxes (46,790) (74,410)
Stock for services 80,000 --
Write-down and impairment of assets 140,938 --
Beneficial conversion feature in issuance of common stock 255,906 95,625
Value assigned to settlement of debenture litigation 116,250 --
Changes in operating assets and liabilities:
Decrease (increase) in inventories 29,345 (16,464)
(Increase) in prepaid expenses (11,242) (7,415)
Decrease (increase) in other assets 18,288 (23,188)
(Increase) in federal income tax receivable -- (38,030)
(Decrease) in accounts payable (13,511) (11,133)
Increase (decrease) in accrued expenses and other liabilities 113,976 (10,299)
(Decrease) increase in deferred liabilities (38,322) 63,141
Increase in income taxes payable -- 1,200
----------- -----------
Net cash (used in) provided by operating activities (542,229) 21,766
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (268,934) (1,503,299)
Proceeds from sales of property and equipment 156,229 1,450,000
Decrease (increase) in notes receivable from related parties, net 220,500 (922,700)
Payments in connection with acquisition of Fatburger (pending) (1,731,907) --
----------- -----------
Net cash used in investing activities (1,624,112) (975,999)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 508,784 1,946,050
Principal payments on long-term debt (648,451) (1,356,928)
Proceeds from issuance of notes due related parties 521,850 --
Proceeds from issuance of convertible debentures -- 1,600,000
Issuance costs of convertible debentures -- (330,000)
Proceeds from sales of common stock 180,434 262,562
Payments to purchase treasury stock -- (809,900)
Proceeds from issuance of warrants and beneficial conversion -- 1,400,000
Principal payments on capital leases -- (171,679)
----------- -----------
Net cash provided by financing activities 562,617 2,540,105
----------- -----------
NET (DECREASE) INCREASE IN CASH (1,603,724) 1,585,872
CASH, beginning of year 1,606,245 20,373
----------- -----------
CASH, end of year $ 2,521 $ 1,606,245
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 194,140 $ 112,573
=========== ===========
Income taxes paid -- --
=========== ===========
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Property and equipment acquired in connection with default of related party
note receivable $ 306,498 $ --
Debentures plus accrued interest converted to common stock -- 688,315
Common stock issued to consultants in connection with Fatburger
acquisition (pending) 2,129,725 --
Long-term debt issued for property and equipment 21,500 --
Treasury stock issued for property and equipment -- 50,000
</TABLE>
See accompanying notes to these financial statements.
F-6
<PAGE>
RESTAURANT TEAMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Restaurant Teams International, Inc. ("the Company"), has owned and
operated full-service restaurants principally located in the Dallas, Texas
metropolitan area. Currently, the Company owns one restaurant, which it
operates under the name "Street Talk Cafe", and owns three restaurant
facilities which it leases to other operators. The Company desires to
become a multi-concept restaurant holding company. In February 2000, the
Company acquired restaurant operations in Georgia, and is currently in the
process of acquiring additional restaurant operations in California (see
Note 12).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial Instruments
The Company's financial instruments at December 31, 1999, other than cash
and accounts payable, include notes receivable, long-term debt and
convertible debentures. Management believes the fair values of the notes
receivable and long-term debt approximate their carrying values based on
the present value of expected future cash flows discounted at interest
rates commensurate to rates currently offered in connection with
instruments of similar terms and maturities. Due to the terms of the
convertible debentures discussed in Note 5, the fair value of the
convertible debentures has not been determined.
Inventories
Inventories consist of food and beverage items and paper supplies.
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Property and Equipment
Property and equipment are depreciated using accelerated or straight-line
methods. Buildings are depreciated over 20 years, the estimated useful
lives of the assets. Furniture and equipment are depreciated over the
estimated useful lives of the assets, which range from five to ten years.
Leasehold improvements are amortized over the lesser of the lease term or
estimated useful life of the improvements, which range from ten to fifteen
years.
Certain construction overhead costs are capitalized and included in
buildings. Major improvements, which significantly extend the useful lives,
are capitalized and depreciated over the remaining useful life of the
underlying asset. Maintenance and repair costs are expensed as incurred.
The cost of properties sold, or otherwise disposed of, and the related
accumulated depreciation or amortization are removed from the accounts, and
any gains or losses are reflected in current operations.
F-7
<PAGE>
RESTAURANT TEAMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
Accounting for Long-Lived Assets
The Company evaluates long-lived assets and certain identifiable
intangibles to be held and used in the business for impairment whenever
events and changes in circumstances indicate that the carrying amount of an
asset may be impaired. In these circumstances, the estimated future
undiscounted cash flows associated with the asset are compared with the
asset's carrying value to determine if a write-down to market value or
discounted cash flow is required.
Assets Held for Sale
The Company has classified certain assets as "Assets Held for Sale", which
are recorded at the lower of cost or estimated market value. Buildings and
restaurant equipment totaling $1,844,586, net of an impairment allowance of
$105,700, are being held for sale as of December 31, 1999. Management is
not presently able to determine an expected disposal date, but is actively
pursuing sale of the assets. Depreciation on the reclassified assets was
ceased at the point that management committed to a plan to dispose of the
assets.
Debenture Issuance Costs
Debenture issuance costs, which are being amortized using a method that
approximates the effective interest method over the life of the Convertible
Debentures, adjusted for conversions, are included in the balance sheet.
The Company incurred approximately $330,000 in debenture issuance costs
related to the Convertible Debentures in 1998 (see Note 5). Accumulated
amortization of debenture issuance costs was approximately $268,000 at
December 31, 1999.
Revenue Recognition
Sales and related costs are recognized by the Company upon the sale of
products at restaurant locations.
Advertising Costs
All advertising and promotional costs are expensed when incurred. The
Company incurred approximately $11,000 and $97,000 in marketing and
advertising expenses in 1999 and 1998, respectively.
Income Taxes
The Company accounts for income taxes using the liability method. Under
this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting basis and tax basis of assets
and liabilities, and are measured using the enacted tax rates and laws
which will be in effect when the differences are expected to reverse.
Per Share Data
Basic earnings (loss) per share (EPS) is computed by dividing income or
loss available to common stockholders by the weighted average number of
common shares outstanding. Diluted EPS includes potentially dilutive common
shares outstanding during the period. Potentially dilutive common shares in
connection with stock options, warrants and shares issuable upon conversion
of the Convertible Debentures totaling approximately 8,056,000 and
2,274,000 shares for 1999 and 1998, respectively, were not included as they
are anti-dilutive.
F-8
<PAGE>
RESTAURANT TEAMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
Stock-Based Compensation
The Company measures stock-based employee compensation costs using the
intrinsic value method prescribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock-Based Compensation", and related
interpretations. Accordingly, compensation cost for stock options, and
other stock-based employee awards, is measured as the excess, if any, of
the quoted market price of the Company's common stock at the date of grant
over the amount the employee must pay to acquire the stock. Required pro
forma disclosures of compensation expense determined under the fair value
method of Statement of Financial Accounting Standards No. 123 ("SFAS No.
123"), "Accounting for Stock-Based Compensation" are presented in Note 9.
Liquidity
The Company has experienced recurring losses from operations in 1999 and
1998 and has a working capital deficit of $1,163,803 at December 31, 1999.
Of this amount, $371,000 may be repaid in Company stock or has been
deferred and $400,000 is in dispute. During 1999, management implemented
cost-saving measures which resulted in the closure and subsequent leasing
of certain Company restaurants to other operators. Management has also
implemented an aggressive acquisition and expansion program involving
strategic purchases of existing restaurant operations and other businesses.
The Company acquired a restaurant chain and another business in the first
quarter of 2000, which management believes will provide combined monthly
cash flow during 2000 of approximately $230,000. Management believes it
will close the acquisition of another restaurant chain in the second
quarter of fiscal 2000. (See Note 12.) Based on these considerations,
management believes the Company will be able to meet its obligations
through fiscal 2000 and continue as a going concern.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the amounts reported in these financial statements
and accompanying notes. Certain significant estimates related to the
estimated values of assets held for sale are included in the financial
statements. Actual results could differ from these estimates and such
differences could be material.
Reclassifications
Certain reclassifications have been made to conform the 1998 financial
statements to the presentation in 1999. The reclassifications had no effect
on net loss.
F-9
<PAGE>
3. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities at December 31, 1999 consist of
the following:
Accrued interest payable (a) $ 220,781
Unpaid professional fees (b) 150,000
Property taxes payable 38,962
Accrued payroll and related taxes 12,800
Sales taxes payable 8,454
----------
$ 430,997
==========
(a) Approximately $215,000 of the accrued interest may be paid in
common stock at the Company's option.
(b) In the first quarter of 2000, the accrued professional fees were
converted to 100,000 shares of Company common stock; a $75,000 note
payable, due in ten monthly installments at 8% following closing of the
Fatburger acquisition (Note 12); and warrants to purchase 50,000 shares
of the Company's common stock at $1.00 per share.
4. LONG-TERM DEBT
Long-term debt at December 31, 1999 consists of the following:
<PAGE>
<TABLE>
<CAPTION>
RESTAURANT TEAMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
Note payable to financial institution, interest at 21%, remaining unpaid
principal and accrued interest past due as of August 26, 1999 (see Note
10), collateralized by certain shares of Company common stock.
<S> <C>
$ 400,000
Two notes payable to bank, interest at 9.5%, monthly principal and
interest payments totaling $14,620, remaining unpaid principal and
interest due April 9, 2001, collateralized by certain real property. 1,366,421
Note payable to bank, interest at 9.0%, monthly principal and interest
payments of $2,935, remaining unpaid principal and interest due August
13, 2000, collateralized by certain real property. 251,770
Note payable to insurance company, interest at 10.43%, monthly payments
of $1,605, due April 28, 2000, unsecured. 8,745
Note payable, interest at 11.65%, monthly principal and interest
payments of $425, remaining unpaid principal and accrued interest due
April 9, 2001, collateralized by an automobile. 20,680
----------------
Total long-term debt 2,047,616
F-10
<PAGE>
RESTAURANT TEAMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
Less current installments (719,380)
-----------
Long-term debt, excluding current installments $ 1,328,236
===========
</TABLE>
Aggregate maturities of long-term debt obligations at December 31, 1999
are as follows:
Year ending December 31:
2000 $ 719,380
2001 1,328,236
----------
$2,047,616
==========
5. CONVERTIBLE DEBENTURES
On May 29, 1998, the Company entered into an agreement to issue two
tranches of convertible debentures ("the Convertible Debentures") to
accredited investors with a total face amount of $3,000,000. The Company
received net proceeds of $2,670,000 after paying certain costs of the
purchasers. The Convertible Debentures bear interest at 6%, and are
convertible into shares of common stock of the Company. The first tranche
($825,000 at December 31, 1999) matures on May 29, 2001 and the second
tranche ($1,500,000 at December 31, 1999) matures on June 30, 2001.
Conversion is at the option of the investors, and the number of shares of
common stock to be received upon conversion is based upon the lesser of (a)
the closing bid price on the day immediately preceding the agreement ($4.00
per share), or (b) the average closing bid price for the Company's stock
for the five-trading-day period immediately preceding the date of
conversion, multiplied by a discount ranging from 17.5% to 25%, which is
considered a Beneficial Conversion Feature (BCF). In accordance with
generally accepted accounting principles, the Company valued the BCF by
multiplying the difference between the fair value of the Company's stock as
of the transaction date and the conversion price most beneficial to the
investors, by the number of shares to be received upon conversion by the
investors under the most beneficial terms. This resulted in a decrease in
the carrying value of the Convertible Debentures and a corresponding
increase in stockholder's equity of $1,000,000. The related discount
recorded upon the issuance of the Convertible Debentures was accreted into
interest expense over a sixty-one-day period, beginning on the issuance
date and ending on the first date at which the most beneficial conversion
to the investors could be realized. This resulted in additional interest
expense of $1,000,000 and a corresponding increase in the carrying value of
the Convertible Debentures of $1,000,000 in 1998. The Company has the
option of paying accrued interest upon conversion and at maturity in cash
or through the issuance of an equal dollar value of additional shares. If
the entire principal amount has not been converted by the maturity date,
the Company will automatically convert the remaining principal using the
same conversion formula described above. The Company has the right to
redeem the Convertible Debentures for the cash value of the shares that
would be received upon conversion as of the redemption date, multiplied by
the closing bid price on the last trading day immediately preceding the
redemption date.
F-11
<PAGE>
RESTAURANT TEAMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
In the event of default, as defined by the agreement, the investors may
consider the Convertible Debentures to be immediately due and payable in
cash, at an amount equal to the number of shares issuable upon conversion,
including related discounts as described above, multiplied by the closing
bid price on the day immediately preceding the notice of default. An event
of default could result in the Company paying amounts to the investors in
excess of the amounts recorded on the balance sheet.
In connection with the issuance of the Convertible Debentures, the Company
issued to the investor and the placement agent warrants to purchase up to
an aggregate of 150,000 and 50,000 shares, respectively, of the Company's
stock with an exercise price equal to 110% of the average closing bid price
for the five trading days immediately preceding the agreement date of $4.40
per share. These warrants are exercisable at any time through May 2003. The
warrants were valued on the date of issuance at $2.00 per warrant which
resulted in a decrease in the carrying value of the Convertible Debentures
and a corresponding increase in stockholder's equity of $400,000. This
discount is being accreted into interest expense over the life of the
debentures, as adjusted for conversions to common stock.
During 1998, the investors made two conversions of principal totaling
$657,000, plus accrued interest. The Company issued 408,388 shares of
common stock in connection with the conversions. As of December 31, 1999
the Company has issued 5,000,000 shares of common stock into escrow to be
applied toward future conversions. No additional conversions have been made
through December 31, 1999.
6. RELATED PARTY TRANSACTIONS
As of December 31, 1999, the Company has notes receivable due from related
parties as follows:
A $327,743 note from an entity owned by two stockholders. The note is
due December 31, 2000, and bears interest at 6%.
A $39,000 note from a stockholder. The note is due December 31, 2000,
bears interest at 6% and is uncollateralized.
Both of the notes are recorded in stockholders' equity at December 31,
1999.
In 1999, the Company borrowed $521,850 and issued convertible promissory
notes to two officers. The notes allowed conversion into the Company's
common stock at a 33% discount to the market rate. The value of this
beneficial conversion feature at the time of issuance was approximately
$256,000, which has been recorded as interest expense. The notes were
converted into 1,739,500 shares of common stock in December 1999.
F-12
<PAGE>
RESTAURANT TEAMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
In 1998, the Company sold two pieces of property to a sister corporation
for a combined gain of approximately $386,000, of which approximately
$194,000 was deferred at December 31, 1998. The deferred portion of the
gain related to a piece of property that was sold for a $500,000 note. In
1999, the sister corporation defaulted on the note. The Company took back
the property and has included it with assets held for sale at December 31,
1999.
The Company had leased office and retail space in one of its facilities to
an affiliate corporation under a long-term operating lease for
approximately $8,000 per month. The Company waived all rental fees due
under this agreement in 1998. The Company terminated the agreement and the
affiliate corporation vacated the premises in March 1999.
7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The
significant components of the Company's deferred tax assets areset forth
below. The Company had no material deferred tax liabilities at December 31,
1999. The Company's valuation allowance increased by $1,197,000 from
December 31, 1998 to December 31, 1999.
DECEMBER 31,
1999
Deferred tax assets:
Cash to accrual adjustment $ 68,000
Debenture beneficial conversion feature 85,000
Reserve for litigation settlement 40,000
Deffered rent 8,000
Property and equipment depreciation 15,000
Allowance on assets held for sale 36,000
Net operating loss 1,000,000
----------
Total deferred tax assets 1,252,000
Valuation allowance for deferred tax assets (1,252,000)
Net deferred tax assets ----------
$ --
==========
The Company has a net operating loss of approximately $3,000,000 at
December 31, 1999, which may be applied to reduce future taxable income
through the year 2019.
The income taxes benefit consists of the following:
YEAR ENDED DECEMBER 31,
1999 1998
Federal income tax:
Current benefit $ -- 46,830
Deferred benefit 46,790 74,410
-------- --------
$ 46,790 $121,240
======== ========
F-13
<PAGE>
<TABLE>
<CAPTION>
RESTAURANT TEAMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
The reconciliation between the expected tax at the federal U.S. corporate
tax rate and the Company's consolidated actual tax is as follows:
YEAR ENDED DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Loss before income taxes $(2,291,994) (1,441,543)
U.S. corporate tax rate 34% 34%
----------- -----------
Expected (benefit) (779,278) (490,125)
Effect of valuation allowance on deferred tax assets 732,488 --
Effects of permanent differences on the current
and deferred provisions -- 358,868
Other -- (44,567)
----------- -----------
Actual (benefit) expense $ (46,790) $ (175,824)
=========== ===========
</TABLE>
8. LEASES
The Company leases the land where its restaurant buildings are located and
corporate office space under non-cancellable lease agreements having terms
that expire at various dates through fiscal 2017. The Company has options
to renew the leases upon expiration for periods ranging from five to ten
years. Total rental expense for operating leases amounted to approximately
$224,000 and $234,000 in 1999 and 1998, respectively. The Company also pays
real estate taxes, insurance, and maintenance expenses related to these
leases.
The Company currently leases three restaurant facilities to other operators
under non-cancellable lease agreements, having terms that expire at various
dates through 2015. Assets subject to these leases totaling approximately
$2,816,000 and related accumulated depreciation of $139,000 are included in
F-14
<PAGE>
property and equipment at December 31, 1999. Total rental income was
approximately $115,000 and $42,000 in 1999 and 1998, respectively.
Future minimum lease commitments and rentals at December 31, 1999 under
operating leases having an initial or remaining noncancellable term of one
year or more are:
LEASE
LEASE RENTAL
COMMITMENTS INCOME
----------- --------
Year ended December 31:
2000 $ 249,000 $ 281,000
2001 234,000 192,000
2002 244,000 196,000
2003 246,000 196,000
2004 248,000 114,000
Thereafter 3,201,000 558,000
---------- ---------
Total minimum rentals $4,422,000 $1,537,000
============ ==========
9. STOCKHOLDERS' EQUITY
Preferred Stock
The Company has 10,000,000 shares of preferred stock authorized. The
preferred stock may be issued with rights or preferences as determined by
the board of directors. There was no preferred stock outstanding as of
December 31, 1999.
Treasury Stock
During 1998, the Company repurchased 300,023 shares of its common stock for
$809,900. Also in 1998, the Company issued 20,833 shares of its common
stock as payment for restaurant equipment valued at $50,000.
Stock Options
The Company has authorized the granting of options covering a total of
1,200,000 shares of the Company's common stock to key employees, officers,
directors and certain consultants of the Company. All options granted have
five-year terms and become fully exercisable when granted.
F-15
<PAGE>
<TABLE>
<CAPTION>
RESTAURANT TEAMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
A summary of the Company's outstanding stock option transactions is as
follows:
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C> <C> <C> <C>
1999 1998
----- ----
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
Outstanding at beginning of year 897,072 $ 2.57 647,072 $ 2.47
Granted - - 250,000 2.83
Exercised - - - -
Forfeited - -
------ -------
Outstanding at end of year 897,072 $ 2.57 897,072 $ 2.57
Options exercisable at end of year 897,072 $ 2.57 897,072 $ 2.57
======= ====== ======= ======
Weighted average fair value of options
granted during the year N/A $ 2.04
======= =======
</TABLE>
The weighted average remaining contractual life of those options is 2.03
and 3.03 years in 1999 and 1998, respectively. The exercise prices of
outstanding options range from $.10 to $3.00 as of December 31, 1999 and
1998. In connection with the Company's stock option plan, 1,200,000 shares
of common stock have been reserved for future issuance.
The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost has been recognized for the Company stock
option plan. Had compensation cost been determined based on the fair value
at the date of grant for awards issued in 1998, pursuant to the employee
compensation provisions of SFAS No. 123, the Company's net loss and loss
per share would have been adjusted to the pro forma amounts indicated:
F-16
<PAGE>
<TABLE>
<CAPTION>
RESTAURANT TEAMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998
<S> <C> <C>
Net loss - as reported $(2,245,204) $ (1,320,303)
Net loss - pro forma (2,245,204) (1,635,283)
Loss per common share - as reported (.30) (.21)
Loss per common share - pro forma (.30) (.26)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants: dividend yield of 0%; expected volatility of
113.9% in 1998; risk-free interest rates of 4.57% and 5.65% in 1998.; and
expected lives of 3.25 years.
Warrants
As discussed in Note 5, the Company has issued warrants to purchase up to
200,000 shares of the Company's common stock in connection with the
issuance of convertible debentures in 1998.
Effective January 1, 1999 the Company issued to existing stockholders
warrants to purchase up to approximately 669,000 shares of the Company's
common stock with an exercise price of $5.00 per share. These warrants are
exercisable at any time through December 2003.
10. COMMITMENTS AND CONTINGENCIES
Settlement with Debenture Holders
In 1998, the Company filed a lawsuit against three investment funds and
their principals ("the Debenture Holders"), alleging fraud and violations
of federal and state securities laws in connection with their $3 million
investment in the Company's convertible debentures. (See Note 5.) Certain
defendants to the Company's lawsuit had counterclaimed seeking damages in
excess of $3 million.
On December 28, 1999, the Company and Debenture Holders reached an
agreement to settle their litigation. As part of the settlement, the
Company agreed to issue the Debenture Holders an additional 5% of the
outstanding principal value of the debentures, payable in Company common
stock (approximately 258,000 shares at December 31, 1999). The approximate
value of the shares was recorded as an expense of $116,250 in 1999.
Loan Default Litigation
As of December 31, 1999, the Company was in default of a promissory note
agreement that matured August 26, 1999. In February 2000, the holder of the
promissory note filed a lawsuit seeking damages of unpaid principal and
accrued interest totaling approximately $444,000, plus attorneys' fees. The
Company intends to fully defend its position. Management believes the
Company incurred damages as a result of the lender's failure to provide
agreed upon funding in connection with the Fatburger acquisition (see Note
12) and intends to file a counter claim against the original issuer of the
promissory note. Management believes the effect of this action will not
have a material adverse effect on the Company's financial position or
results of operations.
F-17
<PAGE>
RESTAURANT TEAMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
11. CONCENTRATION OF CREDIT RISK
Notes receivable from related parties (Note 6) primarily result from sales
of assets and cash advances to entities under common control or owned by
stockholders of the Company. This concentration of related party debtors
may impact the Company's overall credit risk either positively or
negatively, in that these entities may be similarly affected by changes in
economic or other conditions.
12. Acquisitions and Subsequent Events
Acquisition Terminated in 1999
During 1998, the Company entered into an Asset Purchase Agreement to
acquire the properties and assets comprising the Old San Francisco Steak
House ("OSF") restaurant chain. In February 1999, the OSF acquisition
attempt was abandoned and associated acquisition costs totaling
approximately $188,000 have been charged to operations.
Pending Acquisition
In 1999, as amended in March 2000, the Company entered into a definitive
agreement to acquire all the outstanding common stock of the Fatburger
Corporation ("Fatburger"), a restaurant chain currently operating thirteen
company-owned restaurants in the Los Angeles, California market with
twenty-two franchised restaurants in Southern California and Las Vegas,
Nevada which operate under the Fatburger brand name, for $8,100,000 in
cash, of which $1,500,000 has been paid as of December 31, 1999. As of
December 31, 1999, the Company has capitalized an additional $2,362,000
relating to consulting, legal and other direct costs incurred in connection
with this acquisition.
In April 2000, the Company entered into a joint venture agreement with JD
Enterprises, L.L.C. ("JDE") to fund the remaining purchase price and pay
certain costs incurred by Fatburger's owner. Terms of the agreement call
for (a) the Company to secure $3,000,000 in Senior Debt financing for
Newco, and (b) JDE to pay $2,000,000 and secure Subordinate loan financing
of $2,000,000. Proceeds of this funding in excess of that required to close
the Fatburger transaction totaling $525,000 will be retained for working
capital purposes. Upon closing the Fatburger transaction, all of the
acquired assets of Fatburger will be assigned to a newly-incorporated
holding company ("NEWCO") of which the Company will own thirty-three
percent and JDE sixty-seven percent of the issued and outstanding common
stock. The Company intends to enter into a Development Agreement with NEWCO
granting the Company exclusive rights to franchise Fatburger restaurants in
Texas and Georgia and the first right of refusal for South Carolina.
The Company anticipates completing its acquisition of Fatburger during the
second quarter of 2000, but can not be assured when, if ever, the
acquisition will be completed.
F-18
<PAGE>
Acquisitions Completed After Year-End 1999
In February 2000 and March, the Company made the following acquisitions:
The Company acquired the assets of Tanner's Original Rotisserie Grill
("Tanner's"), an eight-unit restaurant operation located in Atlanta,
Georgia for $250,000 in cash and the forgiveness of $50,000 debt owed by
Tanner's to the Company in connection with Debtor in Possession financing
previously paid by the Company.
The Company acquired all the outstanding common stock of Regulatory
Solutions, Inc. ("RSI"), a professional services company specializing in
"Worksafe" training and certification programs relating to local and
federal law governing both employer and employee workplace
responsibilities, for $100,000 in cash and 1,000,000 shares of Company
common stock; plus $2,000,000 equivalent of Company common stock
($1,000,000 each to be issued at the end of years one and two following the
acquisition) based on the average closing price of the Company's stock for
the thirty-day period preceding issuance.
**********
F-19
<PAGE>
Part III. EXHIBITS
Items 9 through 12. To be set forth in Registrant's definitive proxy statement
for its annual meeting to be held in May 2000.
Item 13. Exhibits and Reports on Form 8-K.Part III. EXHIBITS Part III. EXHIBITS
(a) Hereafter set forth as exhibits to the Form 10-KSB of Restaurant
Teams International, Inc and incorporated by reference are the following
exhibits:
No. as per
Part III of
Form 1A Description of Exhibit
- ----------- ----------------------
2.1* Articles of Incorporation
2.21+ Amendment to Articles of Incorporation
2.22+ Articles of Amendment
2.3* By-Laws
3.1 Warrant Agreement filed as an exhibit to the Company's Form
10-KSB dated February 28, 1997
6.1** Primary Distribution Agreement dated as of February 17, 1995, by
and between Consolidated Companies, Inc. on the one hand and
Fresh'n Lite Inc. on the other
6.3CE** Restaurant Lease dated as of September 15, 1997 by and between
USRP (Midon), LLC on the one hand and Fresh'n Lite, Inc. on the
other
6.4CE** Ground Lease dated as of February 21, 1995 by and between Peter
D. Fonberg Investments on the one hand and Fresh'n Lite, Inc. on
the other
6.5CE** Ground Lease dated as of July 15, 1996 by and between MacArthur
Partners, Ltd. on the one hand and Fresh'n Lite, Inc. on the
other
6.6CE** Ground Lease Agreement dated as of April 11, 1997 by and between
Robert M. Farrell Development, Ltd. on the one hand and Fresh'n
Lite, Inc. on the other
6.8CE** 1997 Incentive Stock Option Plan
6.9** Franchise Agreement dated as of October 1, 1995 by and between
Fresh'n Lite, Inc. on the one hand and F'NL Investments, LLC on
the other
6.10CE** Lease with Option to Purchase dated as of October 15, 1993 by and
between Connor Patman and Steve and Ann M. Raffaelli on the one
hand and Fresh'n Lite, Inc. on the other
6.11CE+ Sub-Lease dated as of November 2, 1998 by and between Restaurant
Teams International, Inc. and the one hand and Zeke's Grill, Inc.
on the other
27.1 + Financial Data Schedule filed as an exhibit to the Form 10-KSB
filed April 15, 1999
* Previously filed as an exhibit to the Company's Registration Statement on
Form 10-SB (File No. 001-13559) filed with the Securities and Exchange
Commission on November 10, 1997.
** Filed as a paper exhibit to the Company's Form 10-SB filed October 23, 1997
and filed in electronic format as exhibits to Amendment No. 1 to Form 10-SB
filed June 25, 1998 and incorporated herein by reference.
+ Filed herewith
(b) Reports on Form 8-K
20
<PAGE>
SIGNATURES
The undersigned registrant hereby amends and restates its Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1999.
In accordance with Section 13 or 15(d) of the Securities Exchange Act,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, this 14th day of April, 2000.
Registrant
By: /s/ Stanley L. Swanson
--------------------------------------
Stanley L. Swanson
Chairman of the Board of Directors
and Chief Executive Officer
In accordance with the Exchange Act, this amendment has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
April 14, 2000
By: /s/ Curtis A. Swanson
------------------------------------
Curtis A. Swanson, Director
Vice President and Chief
Financial Officer
April 14, 2000
By: /s/ Edward Dmytryk
------------------------------------
Edward Dmytryk,
Director
April 14, 2000
By: /s/ Robert Lilly
------------------------------------
Robert Lilly ,
Director
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