UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2004
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act
For the transition period from _____________ to _______________
Commission File Number 000-26887
BGR CORPORATION
(Exact name of small business issuer as specified in its charter)
Nevada 98-0353403
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5080 N. 40th Street, Suite 103
Phoenix, AZ 85018
(Address of principal executive offices)
(480) 596-4014
(Issuer's telephone number)
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of the issuer's common equity outstanding as of May
19, 2004 was 31,838,351 shares of common stock, par value $.0001.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
INDEX TO FORM 10-QSB FILING
FOR THE QUARTER ENDED MARCH 31, 2004
TABLE OF CONTENTS
PART I.
FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
Consolidated Balance Sheet as of March 31, 2004 ...................... 3
Consolidated Statements of Operations for the Three and
Nine Month Periods Ended March 31, 2004 and March 31, 2003 .......... 4
Consolidated Statements of Cash Flows for the Nine month periods
ended March 31, 2004 and March 31, 2003 ............................. 5
Notes to the Consolidated Financial Statements ....................... 6
Item 2. Management's Discussion and Analysis .............................. 10
Item 3. Controls and Procedures ........................................... 15
PART II
OTHER INFORMATION
Item 2. Changes in Securities ............................................. 16
Item 6. Exhibits and Reports on Form 8-K .................................. 17
SIGNATURES ................................................................ 18
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BGR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2004
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 1,730
Accounts receivable 9,553
Prepaid expenses 24,963
Advance to officer 8,655
Advance to affiliate 1,315
-----------
Total current assets 46,216
FIXED ASSETS
Computer Equipment, (net accumulated
depreciation of $3,336) 13,002
INTANGIBLE ASSETS (from business acquisitions) 270,545
ORGANIZATION COSTS, NET OF AMORITIZATION 11,870
-----------
TOTAL ASSETS $ 341,633
===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES
Accounts payable $ 114,532
Sales tax payable 22,870
Advances from shareholders 4,350
Advances from affiliate 20,059
-----------
Total current liabilities 161,811
NOTES PAYABLE - long term portion 1,130,000
-----------
TOTAL LIABILITIES 1,291,811
-----------
STOCKHOLDERS' DEFICIT:
Common stock, $0.0001 par value, 100,000,000 shares
authorized, 24,203,800 shares issued and outstanding 2,420
Additional paid-in capital 1,339,172
Treasury stock (1,130,000)
Deficit accumulated during the development stage (1,161,770)
-----------
Total stockholders' deficit (950,178)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 341,633
===========
See accompanying notes to the financial statements.
3
BGR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE FOR THE FOR THE FOR THE
THREE THREE NINE NINE JULY 6, 2001
MONTHS MONTHS MONTHS MONTHS (DATE OF
ENDED ENDED ENDED ENDED INCEPTION) TO
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2004 2003 2004 2003 2004
---------- ---------- ----------- ---------- -----------
INCOME $ 31,238 $ -- $ 39,645 $ 295 $ 42,338
COST OF GOODS SOLD 18,416 -- 23,391 -- 23,391
---------- ---------- ----------- ---------- -----------
Gross profit 12,822 -- 16,254 295 18,947
COSTS AND EXPENSES:
Personnel costs -- -- 9,765 -- 9,765
General and administrative expense 700,140 5,450 1,091,384 41,083 1,170,952
---------- ---------- ----------- ---------- -----------
Total 700,140 5,450 1,101,149 41,083 1,180,717
---------- ---------- ----------- ---------- -----------
INCOME (LOSS) FROM OPERATIONS (687,318) (5,450) (1,084,895) (40,788) (1,161,770)
INCOME TAXES -- -- --
---------- ---------- ----------- ---------- -----------
NET INCOME (LOSS) $ (687,318) $ (5,450) $(1,084,895) $ (40,788) $(1,161,770)
========== ========== =========== ========== ===========
NET INCOME (LOSS) PER COMMON SHARE
Basic $ (0.03) $ * $ (0.04) $ * $ (0.04)
========== ========== =========== ========== ===========
Diluted $ (0.03) $ * $ (0.04) $ * $ (0.04)
========== ========== =========== ========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (BASIC AND DILUTED) 22,382,633 34,573,800 26,115,570 34,573,800 29,974,761
========== ========== =========== ========== ===========
* - less than $0.01 per share
See accompanying notes to the financial statements.
4
BGR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
PERIOD FROM
FOR THE FOR THE JULY 6, 2001
NINE MONTHS NINE MONTHS (DATE OF INCEPTION)
ENDED ENDED TO
MARCH 31, MARCH 31, MARCH 31,
2004 2003 2004
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(1,084,895) $ (40,788) $(1,161,770)
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amoritization 3,336 3,336
Common stock issued as consideration for services 949,742 -- 949,832
Write-off of Loan from Shareholder -- -- (2,330)
Changes in assets and liabilities (net of business acquisition):
Accounts receivable 679 -- 679
Inventories 13,567 -- 13,567
Prepaid expenses (24,963) -- (24,963)
Start up costs, net amoritization (11,870) (11,870)
Accounts payable and accrued liabilities 64,414 (32,474) 64,439
----------- ----------- -----------
Net cash used in operating activities (89,990) (73,262) (169,080)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in business combination 3,619 -- 3,619
Purchase of computer equipment (16,338) (16,338)
Advances to affiliate/officers (9,970) -- (9,970)
----------- ----------- -----------
(22,689) -- (22,689)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances/Repayment from shareholder 4,350 -- (7,820)
Proceeds from advances from shareholder 20,059 -- 34,559
Common stock issued for cash 90,000 -- 166,760
----------- ----------- -----------
114,409 -- 193,499
----------- ----------- -----------
INCREASE IN CASH AND EQUIVALENTS 1,730 (73,262) 1,730
CASH AND EQUIVALENTS, BEGINNING OF PERIOD -- 73,772 --
----------- ----------- -----------
CASH AND EQUIVALENTS, END OF PERIOD $ 1,730 $ 510 $ 1,730
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ -- $ -- $ --
=========== =========== ===========
Income taxes paid $ -- $ -- $ --
=========== =========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued to acquire businesses $ 225,000 $ -- $ 225,000
=========== =========== ===========
Common stock issued to acquire treasury stock $ 1,130,000 $ -- $ 1,130,000
=========== =========== ===========
See accompanying notes to the financial statements.
5
BGR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 2004
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and the instructions for Form 10-QSB and
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements. All adjustments that, in the
opinion of management are necessary for a fair presentation of the results of
operations for the interim periods have been made and are of a recurring
nature unless otherwise disclosed herein. The results of operations for the
three and nine months ended March 31, 2004 are not necessarily indicative of
the results that will be realized for the entire fiscal year. These financial
statements should be read in conjunction with the Company's Annual Report on
Form 10-KSB for the year ended June 30, 2003.
BGR Corporation (the "Company") a Nevada corporation, was incorporated on
July 6, 2001. The Company is a development stage enterprise with a fiscal
year ending June 30. The Company was formerly named Cortex Systems, Inc. The
Company intends to develop and franchise casual dining restaurants. The
Company is seeking to acquire assets within this industry and has acquired
the rights to at least one concept. To date, the Company has had no revenues
associated with these activities.
The Company faces many operating and industry challenges. There is no
meaningful operating history to evaluate the Company's prospects for
successful operations. Future losses for the Company are anticipated. The
proposed plan of operations would include seeking an operating entity with
which to merge. Even if successful, a merger may not result in cash flow
sufficient to finance the continued expansion of a business.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As mentioned above, the Company
intends to seek a merger candidate but has not yet identified possible
candidates nor has the Company obtained capital needed to achieve
management's plans and support its operations and there is no assurance that
the Company will be able to raise such financing. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result
from this uncertainty.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include all short-term
liquid investments that are readily convertible to known amounts of cash and
have original maturities of three months or less.
INCOME TAXES - The Company provides for income taxes based on the provisions
of Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME
TAXES, which among other things, requires that recognition of deferred income
taxes be measured by the provisions of enacted tax laws in effect at the date
of financial statements.
6
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
INCOME (LOSS) PER COMMON SHARE - Basic income per share is computed using the
weighted average number of shares of common stock outstanding for the period.
The Company has a simple capital structure and therefore there is no
presentation for diluted loss per share.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS -
In October 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which requires companies to record the fair value of
a liability for asset retirement obligations in the period in which they are
incurred. The statement applies to a company's legal obligations associated
with the retirement of a tangible long-lived asset that results from the
acquisition, construction, and development or through the normal operation of
a long-lived asset. When a liability is initially recorded, the company would
capitalize the cost, thereby increasing the carrying amount of the related
asset. The capitalized asset retirement cost is depreciated over the life of
the respective asset while the liability is accreted to its present value.
Upon settlement of the liability, the obligation is settled at its recorded
amount or the company incurs a gain or loss. The statement is effective for
fiscal years beginning after June 30, 2002. The Company does not expect the
adoption to have a material impact to the Company's financial position or
results of operations.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". Statement 144 addresses the accounting and
reporting for the impairment or disposal of long-lived assets. The statement
provides a single accounting model for long-lived assets to be disposed of.
New criteria must be met to classify the asset as an asset held-for-sale.
This statement also focuses on reporting the effects of a disposal of a
segment of a business. This statement is effective for fiscal years beginning
after December 15, 2001. The Company does not expect the adoption to have a
material impact to the Company's financial position or results of operations.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
With Exit or Disposal Activities". This Standard requires costs associated
with exit or disposal activities to be recognized when they are incurred. The
requirements of SFAS No. 146 apply prospectively after December 31, 2002, and
as such, the Company cannot reasonably estimate the impact of adopting these
new rules.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transaction and Disclosure, which provides alternative methods
of transition for a voluntary change to fair value based method of accounting
for stock-based employee compensation as prescribed in SFAS 123, Accounting
for Stock-Based Compensation. Additionally, SFAS No. 148 requires more
prominent and more frequent disclosures in financial statements about the
effects of stock-based compensation. The provisions of this statement are
effective for fiscal years ending after December 15, 2002, with early
application permitted in certain circumstances.
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
Guarantor's Accounting and Disclosure Requirements for Guarantees, including
Indirect Guarantees of Indebtedness of Others. FIN 45 requires a company, at
the time it issues a guarantee, to recognize an initial liability for the
fair value of obligations assumed under the guarantees and elaborates on
7
existing disclosure requirements related to guarantees and warranties. The
initial recognition requirements are effective for the Company during the
third quarter ending March 31, 2003. The adoption of FIN 45 did not have an
impact on the Company's financial position or results of operations.
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do
not have the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. FIN 46
is effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after June 15, 2003. The adoption of FIN
46 did not have an impact on the Company's financial position or results of
operations.
3. CAPITAL STOCK
The Company declared a 6 for 1 stock split during the year ended June 30,
2003. The number of shares presented in these financial statements has been
retroactively restated for all periods to reflect this stock split.
During the three months ended September 30, 2003, the Company sold 125,000
shares of its common stock for $55,000. In connection with this sale of
common stock, the Company also granted 137,500 warrants to acquire the
Company's common stock at $0.50 per share.
Also during the three months ended September 30, 2003, the Company granted
275,000 shares of its common stock to consultants as consideration for
services rendered. The shares were valued at the trading price of the common
shares aggregating to $99,966.
Additionally, during the three months ended December 31, 2003, the Company
granted 675,000 shares of its common stock to consultants as consideration
for services rendered. The shares were valued at the trading price of the
common shares aggregating to $247,500.
During the three months ended March 31, 2004, the Company sold 140,000 shares
of its common stock for $35,000.
Also during the three months ended March 31, 2004, the Company granted
3,050,000 shares of its common stock to consultants as consideration for
services rendered. The shares were valued at the trading price of the common
shares aggregating to $602,275.
The Company reacquired 15,535,000 shares of its common stock in the three
month period ended December 31, 2003. The Company entered into an agreement
to acquire all of the outstanding shares of "ICEBERG FOOD SYSTEMS,CORP."
("IFSC"). IFSC was owned by a former officer and director of the Company. The
only holdings of IFSC were 30,000,000 shares of the Company's common stock.
As part of the agreement, IFSC distributed 14,465,000 shares of the Company's
common stock to its shareholder. IFSC then became a wholly owned subsidiary
of the Company with its only holdings being the remaining 15,535,000 shares
of the Company's common stock. Effectively, the transaction was an
acquisition of treasury stock by the Company. In exchange, the Company would
assume a commitment to raise capital and develop the Iceberg Drive-In
concept. The rights to develop that concept were previously held by IFSC. The
Company is to assist IFSC in providing up to $1,130,000. The Company has
accounted for this transaction as an acquisition of treasury stock through
the issuance of a note payable of $1,130,000.
8
In conjunction with the transactions discussed in Note 4, the Company issued
an aggregate of 5,015,000 shares of its common stock.
4. BUSINESS ACQUISITIONS
In the three month period ended December 31, 2003, the Company entered into
an agreement to acquire all of the outstanding voting shares of Fathom
Business Systems, Inc. ("FBS"). FBS specializes in the sale, installation and
service of restaurant `Point-of-Sale' equipment. FBS was a single employee
business. The Company issued 750,000 shares of its common stock to acquire
all of the outstanding shares of FBS. On the basis of the trading price of
the Company's common stock at the time of the acquisition, the purchase price
was $225,000. The purchase price was allocated as follows:
Cash $ 3,619
Accounts receivable 10,232
Inventory 13,567
Accounts payable (72,963)
Intangible assets 270,545
---------
$ 225,000
=========
All revenue recognized in the three months ended March 31, 2003 relate to
services provided by the Fathom subsidiary.
In connection with this acquisition, the Company is in the process of
allocating the purchase price in excess of the tangible assets and
liabilities acquired. It is probable that the amounts allocated to intangible
assets will be reallocated among depreciated and non-depreciated assets.
In the three month period ended December 31, 2003, the Company entered into
an agreement to acquire all of the outstanding voting shares of Deville,
Inc., a developer of "LUCKY LOU'S" restaurants. The terms of the purchase
agreement, required the issuance of 1,000,000 of the Company's common shares
and a note payable with a face amount of $400,000. The note was discounted at
8% on the basis of its repayment terms resulting in a principal amount of
$349,805. The terms also called for an ongoing payment to the seller based on
royalty revenues generated from "LUCKY LOU'S" restaurants. The total purchase
price of Deville was $649,805. There were no tangible assets or liabilities
acquired in the purchase. In the three month period ended March 31, 2004, the
Company and Deville, Inc., agreed to rescind the transaction. Accordingly,
the shares were returned to the Company, the note payable and the net assets
of Deville were reverse and removed from the balance sheet at March 31, 2004.
5. NOTES PAYABLE
The Company issued a note payable in the amount of $1,130,000 in connection
with the purchase of IFSC as described in Note 3. There are no repayment
terms nor is there a stated interest rate.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
For a description of our significant accounting policies and an
understanding of the significant factors that influenced our performance during
the three and nine months ended March 31, 2004, this "Management's Discussion
and Analysis" should be read in conjunction with the Consolidated Financial
Statements, including the related notes, appearing in Item 1 of this Quarterly
Report.
Forward Looking Statements
This portion of this Quarterly Report on Form 10-QSB, includes statements
that constitute "forward-looking statements." These forward-looking statements
are often characterized by the terms "may," "believes," "projects," "expects,"
or "anticipates," and do not reflect historical facts.
Forward-looking statements involve risks, uncertainties and other factors,
which may cause our actual results, performance or achievements to be materially
different from those expressed or implied by such forward-looking statements.
Factors and risks that could affect our results and achievements and cause them
to materially differ from those contained in the forward-looking statements
include, without limitation, (i) the effectiveness of operating initiatives and
advertising and promotional efforts; (ii) the ongoing financial viability of our
franchisees and licensees; (iii) adoption of new or changes in accounting
policies and practices including pronouncements promulgated by standard setting
bodies; (iv) changes in legislation and governmental regulation; (v) new product
and concept development by us and/or our food industry competitors; (vi) changes
in commodity, labor, and other operating costs; (vii) changes in competition in
the food industry; (viii) publicity which may impact our business and/or
industry; (ix) volatility of commodity costs; (x) increases in minimum wage and
other operating costs; (xi) availability and cost of land and construction;
(xii) consumer preferences, spending patterns and demographic trends; (xiii)
political or economic instability in local markets and changes in currency
exchange and interest rates; (xiv) the impact that any widespread illness or
general health concern may have on our business and/or the economy of the
locations in which we operate; and (xv) the other risks and uncertainties set
forth below under "Certain Risk Factors Affecting Our Business," as well as
other factors that we are currently unable to identify or quantify, but may
exist in the future.
In addition, the foregoing factors may affect generally our business,
results of operations and financial position. Forward-looking statements speak
only as of the date the statement was made. We do not undertake and specifically
decline any obligation to update any forward-looking statements.
Executive Overview
The Company was formed as a Nevada corporation on July 6, 2001 under the
name Cortex Systems, Inc. We were originally a development stage company that
intended to establish memory clinics in several different locations in North
America. We were unable to successfully execute this business plan. As a result,
in July of 2003, we changed the Company's name to BGR Corporation, replaced or
reconstituted the management and board of directors and changed our business
10
focus. The Company's focus is now on acquiring new innovative fast-casual
restaurant concepts, develop them into a profitable working design, and
franchise them across the United States. On January 20, 2003, we entered into an
agreement with American Restaurant Development Corporation, or ARDC, to grow
restaurant concepts into a fully viable franchise system and to expand each
restaurant concepts nationwide. The controlling shareholder of ARDC is our
largest shareholder. To date, we have formed four joint ventures with different
restaurant concepts under this model.
On November 4, 2003, we acquired Fathom Business Systems, or Fathom. Fathom
is a company specializing in restaurant point of sales equipment. Fathom
generates additional revenue by providing its customers with the supplies and
service needed for the equipment.
On February 2, 2004, we executed an agreement with AZTECA Wrap Foods, LLC,
or AZTECA. AZTECA is the owner and operator of KoKopelli's Mexican Grill.
KoKopelli's is a fast casual Mexican restaurant specializing in made-to-order
Mexican-style food. Per the agreement, we own 50% of the joint venture entity,
while the other 50% is owned by AZTECA. Additionally, we are required to provide
the funding to initiate the franchising of KoKopelli's through ARDC. AZTECA will
provide exclusive rights to the "KoKopelli" name, trade marks, trade dress,
operating system and recipes.
In April 2004, we entered into a shareholders agreement with Alexis Group,
LLC, or ALEXIS. ALEXIS is the owner and operator of Pauli's Home of the
SteakBurger. Per the agreement, we own 50% of the joint venture entity, while
the other 50% is owned by ALEXIS. Additionally, we are required to provide the
funding to initiate the franchising of Pauli's through ARDC. ALEXIS will provide
exclusive rights to the "Pauli's" name, trade marks, trade dress, operating
system and recipes.
In April 2004, we executed a shareholders agreement with Brian Ruggiero,
the owner and operator of Cousin Vinnie's Italian Diner. The Cousin Vinnie's
concept was brought to BGR Corporation by American Restaurant Development
Corporation ("ARDC"). Per the agreement, we own 50% of the joint venture entity,
while the other 50% is owned by Ruggiero. Additionally, we are required to
provide the funding to initiate the franchising of Cousin Vinnie's through ARDC.
Ruggiero will provide exclusive rights to the "Cousin Vinnie's" name, trade
marks, trade dress, operating system and recipes.
In April 2004, the purchase agreement for us to acquire Deville, Inc. was
mutually cancelled. The agreement called for us to pay $700,000 in stock and
cash for the exclusive rights to the Lucky Lou's fast casual restaurant concept.
Stock that had been issued per the agreement has been returned to the Company's
treasury.
On April 15, 2004, our Board of Directors approved a stock dividend for all
shareholders of record as of May 15, 2004. Under he terms of the dividend
distribution, for every three shares held by a shareholder they will receive one
additional share. No fractional shares are to be issued.
11
Results of Operations
The Company had revenue of $31,238 for the three months ending March 31,
2004. This revenue relates to services provided by the new Fathom business unit.
Total general and administrative operating expenses for the three months
ending March 31, 2004 were $700,140. This increase from the prior quarter was
due to a significant increase in consulting fees, which were primarily paid
through the issuance of the Company's common stock.
The Company recorded a net loss for the three months ending March 31, 2004
of $687,318. This loss was primarily due to the expense related to the issuance
of stock to various consultants. The consultants provide such services and
advice to the Company in business development, business strategy and corporate
image.
The Company has allocated the excess of the purchase price of Fathom over
the amounts allocated to tangible assets acquired and liabilities assumed as
intangible assets. The Company is in the process of analyzing that amount to
determine what amounts are to be allocated to intangible assets that can be
identified and recognized as assets apart from goodwill. Consequently, there
will likely be a reallocation of the amount reported as intangible assets on the
accompanying balance sheet as of March 31, 2004.
Liquidity and Capital Resources
The Company experienced a cash outflow of $89,990 from continuing
operations during the nine months ending March 31, 2004, as compared to a net of
$73,262 during the nine months ending March 31, 2003. The Company will need to
provide Fathom with approximately $60,000 in the next quarter. These funds will
be used to settle its current liabilities and for Fathom to accelerate its ramp
up.
The Company did not purchase assets with cash during the three months
ending March 31, 2004. Although, the Company has assumed a note in the amount of
$400,000 due to One Husker One Cane from Deville, Inc., a wholly owned
subsidiary of BGR Corporation. It is the Company's intention to settle this note
before the end of this year. In addition the Company has agreed to provide
Iceberg Food Systems Corporation with $1,130,000 as per the agreement between
the Company and Iceberg Food Systems Corporation. Due to changes in Iceberg Food
Systems need for the $1,130,000, BGR Corporation and Iceberg Food Systems are
currently discussing other alternatives in settling this commitment. The Company
will continue to attempt to raise additional equity capital to fund the
operations of the businesses it has recently acquired.
Going Concern
For the next three months, the Company expects to incur greater overhead
that may be attributable to hiring additional employees, as necessary, and
higher related office expenses. The Company also expects to increase
investments, which may strain its cash position. The Company does not have
sufficient financial resources to support an increased level of operations for
12
the next three months if it does not generate sufficient revenues and/or if it
fails to raise equity capital as appropriate. Based on current information on
hand and the Company's latest expectation of its operations for the next three
months, there is a potential going concern issue.
The Company cannot give assurance that it can generate the cash it needs
for the next three months. There may be a shortfall in cash if the Company fails
to do so. The Company may need to obtain additional financing in the event that
it is unable to realize sufficient revenue. Furthermore, the Company's ability
to satisfy the redemption of future debt obligations that it may enter into will
be primarily dependent upon the future financial and operating performance of
the Company. Such performance is dependent upon financial, business and other
general economic factors, many of which are beyond the Company's control. If the
Company is unable to generate sufficient cash flow to meet its future debt
service obligations or provide adequate long-term liquidity, the Company will
have to pursue one or more alternatives, such as reducing or delaying capital
expenditures, refinancing debt, selling assets or operations or raising equity
capital. There can be no assurance that such alternatives can be accomplished on
satisfactory terms, if at all, or in a timely manner. If the Company does not
have sufficient cash resources when needed, the Company will not be able to
continue operations as a going concern.
Certain Risk Factors Affecting Our Business
Our business involves a high degree of risk. Potential investors should
carefully consider the risks and uncertainties described below and the other
information in this report before deciding whether to invest in shares of our
common stock. If any of the following risks actually occur, our business,
financial condition, and results of operations could be materially and adversely
affected. This could cause the trading price of our common stock to decline,
with the loss of part or all of an investment in the common stock.
WE HAVE A LIMITED OPERATING HISTORY AND THERE IS NO ASSURANCE THAT OUR COMPANY
WILL ACHIEVE PROFITABILITY. Until recently, we have had no significant
operations with which to generate profits or greater liquidity. Although we have
recently established joint ventures with various fast-casual dining restaurants
in keeping with our proposed business model, we have not generated a meaningful
amount of operating revenue and we have a very limited current operating history
on which investors can evaluate our potential for future success. Our ability to
generate revenue is uncertain and we may never achieve profitability. Potential
investors should evaluate our company in light of the expenses, delays,
uncertainties, and complications typically encountered by early-stage
businesses, many of which will be beyond our control. These risks include the
following:
* lack of sufficient capital,
* unanticipated problems, delays, and expenses relating to acquisitions
of other businesses, concepts, or product development and
implementation,
* licensing and marketing difficulties,
* competition, and
* uncertain market acceptance of our products and services.
As a result of our limited operating history, our plan for growth, and the
competitive nature of the markets in which we may compete, our company's
historical financial data are of limited value in anticipating future revenue,
capital requirements, and operating expenses. Our planned capital requirements
and expense levels will be based in part on our expectations concerning
13
potential acquisitions, capital investments, and future revenue, which are
difficult to forecast accurately due to our company's current stage of
development. We may be unable to adjust spending in a timely manner to
compensate for any unexpected shortfall in revenue. Once we acquire new
restaurant concepts, product development and marketing expenses may increase
significantly as we expand operations. To the extent that these expenses precede
or are not rapidly followed by a corresponding increase in revenue or additional
sources of financing, our business, operating results, and financial condition
may be materially and adversely affected.
WE MAY NEED SIGNIFICANT INFUSIONS OF ADDITIONAL CAPITAL. Based upon our current
cash reserves and forecasted operations, we believe that we will need to obtain
outside funding. We may require significant additional financing in the future
in order to further satisfy our cash requirements. Our need for additional
capital to finance our business strategy, operations, and growth will be greater
should, among other things, revenue or expense estimates prove to be incorrect.
If we fail to arrange for sufficient capital in the future, we may be required
to reduce the scope of our business activities until we can obtain adequate
financing. We cannot predict the timing or amount of our capital requirements at
this time. We may not be able to obtain additional financing in sufficient
amounts or on acceptable terms when needed, which could adversely affect our
operating results and prospects. Debt financing must be repaid regardless of
whether or not we generate profits or cash flows from our business activities.
Equity financing may result in dilution to existing shareholders and may involve
securities that have rights, preferences, or privileges that are senior to our
common stock.
WE WILL FACE A VARIETY OF RISKS ASSOCIATED WITH ESTABLISHING AND INTEGRATING NEW
JOINT VENTURES. The growth and success of our company's business will depend to
a great extent on our ability to find and attract appropriate restaurant
concepts with which to form joint ventures in the future. We cannot provide
assurance that we will be able to
* identity suitable restaurant concepts,
* form joint ventures on commercially acceptable terms,
* effectively integrate the operations of any joint ventures with our
existing operations,
* manage effectively the combined operations of the businesses,
* achieve our operating and growth strategies with respect to the new
joint ventures, or
* reduce our overall selling, general, and administrative expenses
associated with the new joint ventures.
The integration of the management, personnel, operations, products, services,
technologies, and facilities of any businesses that we associate ourselves with
in the future could involve unforeseen difficulties. These difficulties could
disrupt our ongoing businesses, distract our management and employees, and
increase our expenses, which could have a material adverse affect on our
company's business, financial condition, and operating results.
WE DEPEND ON OUR CURRENT MANAGEMENT TEAM. Our company's success will depend to a
large degree upon the skills of our current management team and advisors and
upon our ability to identify, hire, and retain additional senior management,
sales, marketing, technical, and financial personnel. We may not be able to
retain our existing key personnel or to attract and retain additional key
personnel. The loss of any of our current executives, employees, or advisors or
the failure to attract, integrate, motivate, and retain additional key employees
could have a material adverse effect on our company's business. We do not have
"key person" insurance on the lives of any of our management team.
OUR COMPANY MAY NOT BE ABLE TO MANAGE ITS GROWTH. We anticipate a period of
significant growth. This growth could cause significant strain on our company's
managerial, operational, financial, and other resources. Success in managing
this expansion and growth will depend, in part, upon the ability of our senior
14
management to manage effectively the growth of our company. Any failure to
manage the proposed growth and expansion of our company could have a material
adverse effect on our company's business.
THERE IS NO ASSURANCE THAT OUR FUTURE PRODUCTS AND SERVICES WILL BE ACCEPTED IN
THE MARKETPLACE. Our products and services may not experience broad market
acceptance. Any market acceptance for our company's products and services may
not develop in a timely manner or may not be sustainable. New or increased
competition may result in market saturation, more competitive pricing, or lower
margins. Further, overall performance and user satisfaction may be affected by a
variety of factors, many of which will be beyond our company's control. Our
company's business, operating results, and financial condition would be
materially and adversely affected if the market for our products and services
fails to develop or grow, develops or grows more slowly than anticipated, or
becomes more competitive or if our products and services are not accepted by
targeted customers even if a substantial market develops.
WE MAY FACE STIFF COMPETITION. There are existing companies that offer or have
the ability to develop products and services that will compete with those that
our company may offer in the future. These include large, well-recognized
companies with substantial resources and established relationships in their
respective industries. Their greater financial, technical, marketing, and sales
resources may permit them to react more quickly to emerging technologies and
changes in customer requirements or to devote greater resources to the
development, promotion, and sale of competing products and services. Emerging
companies also may develop and offer products and services that compete with
those offered by our company.
OUR COMMON STOCK MAY BE SUBJECT TO THE "PENNY STOCK" RULES AS PROMULGATED UNDER
THE EXCHANGE ACT. In the event that no exclusion from the definition of "penny
stock" under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") is available, then any broker engaging in a transaction in our company's
common stock will be required to provide its customers with a risk disclosure
document, disclosure of market quotations, if any, disclosure of the
compensation of the broker-dealer and its sales person in the transaction, and
monthly account statements showing the market values of our company's securities
held in the customer's accounts. The bid and offer quotation and compensation
information must be provided prior to effecting the transaction and must be
contained on the customer's confirmation of sale. Certain brokers are less
willing to engage in transactions involving "penny stocks" as a result of the
additional disclosure requirements described above, which may make it more
difficult for holders of our company's common stock to dispose of their shares.
ITEM 3. CONTROLS AND PROCEDURES
Disclosure controls and procedures are designed with an objective of
ensuring that information required to be disclosed in our periodic reports filed
with the Securities and Exchange Commission, such as this Quarterly Report on
Form 10-QSB, is recorded, processed, summarized and reported within the time
periods specified by the Securities and Exchange Commission. Disclosure controls
are also designed with an objective of ensuring that such information is
accumulated and communicated to our management, including our chief executive
officer and chief financial officer, in order to allow timely consideration
regarding required disclosures.
The evaluation of our disclosure controls by our principal executive
officer and principal financial officer included a review of the controls'
objectives and design, the operation of the controls, and the effect of the
controls on the information presented in this Quarterly Report. Our management,
including our chief executive officer and chief financial officer, does not
15
expect that disclosure controls can or will prevent or detect all errors and all
fraud, if any. A control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Also, projections of any evaluation of the disclosure
controls and procedures to future periods are subject to the risk that the
disclosure controls and procedures may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Based on their review and evaluation as of the end of the period covered by
this Form 10-QSB, and subject to the inherent limitations all as described
above, our principal executive officer and principal financial officer have
concluded that our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective
as of the end of the period covered by this report. They are not aware of any
significant changes in our disclosure controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses. During the period covered by this Form 10-QSB, there have
not been any changes in our internal control over financial reporting that have
materially affected, or that are reasonably likely to materially affect, our
internal control over financial reporting.
PART II -- OTHER INFORMATION
Items 1 and 3-5 are not applicable and have been omitted.
ITEM 2. CHANGES IN SECURITIES
In February 2004, the Company sold 20,000 shares of its common stock, plus
warrants to purchase 20,000 shares of its common stock at an exercise price of
$0.50 per share for a total purchase price of $5,000 to each of Tom Beck, an
individual and the Robert E. & Rosalie T. Dettle Living Trust DTD 2/29/80.
In February 2004, the Company sold 100,000 shares of its common stock, plus
warrants to purchase 100,000 shares of its common stock at an exercise price of
$0.50 per share for a total purchase price of $25,000 to Venkata Kollipora.
In March 2004, the Company issued 1,000,000 shares of its common stock to
its President and Chief Executive Officer, Bradford Miller, as compensation for
services. These shares were valued at $0.163 cents per share.
The foregoing-described issuances of securities were exempt from
registration under the Securities Act of 1933, as amended, pursuant to Section
4(2) of that act as a transaction not involving a public offering. This
exemption was available in connection with the issuances because (i) the shares
were issued only to persons or parties who the Company believed were "accredited
investors" within the meaning of Regulation D under that act; (ii) no form of
general solicitation or general advertising was used in connection with the
transactions; and (iii) the persons or parties receiving the securities had
16
access to complete information concerning our company, acquired the securities
for investment and not with a view to the distribution thereof, and otherwise
were not underwriters within the meaning of Section 2(11) of the Securities Act.
There were no underwriters involved in these transactions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are either attached hereto or incorporated
herein by reference as indicated:
Exhibit
Number Description
------ -----------
10 Operating Agreement with AZTECA Wrap Foods, LLC
31 Certification pursuant to SEC Release No. 33-8238, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
(b) The Registrant filed the following Current Reports on Form 8-K during
the three-month period covered by this Quarterly Report:
- On January 6, 2004, the Company filed a Current Report on Form 8-K
announcing the appointment of Louis Lukens as Corporate Secretary.
- On February 5, 2004, the Company filed a Current Report on Form 8-K
attaching an Operating Agreement with AZTECA Wrap Foods, LLC, or
AZTECA.
17
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: May 21, 2004 /s/ Bradford Miller
--------------------------------------------
Bradford Miller, President and Chief Executive
Officer (Principal
Executive Officer)
Dated: May 21, 2004 /s/ Jerry Brown
--------------------------------------------
Jerry Brown, Chief Financial Officer
(Principal Accounting Officer)
18
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
10 Operating Agreement with AZTECA Wrap Foods, LLC
31 Certification pursuant to SEC Release No. 33-8238, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002