U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[As last amended in Release No. 34-38850, July 18, 1997,
effective September 2, 1997, 62 F.R. 39755]
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
0-23545
-------
Commission File Number
Ultimate Franchise Systems, Inc.
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 84-1317674
------------------------------- ------------------------------------
(state or other jurisdiction of (IRS Employer Identification Number)
incorporation of organization)
300 International Parkway, Suite 100, Heathrow, Florida, 32746
-------------------------------------------------------------
(Address of principal executive offices)
(407) 333-8998
--------------
(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 post 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the most recent practicable date: February 21, 2005 -
15,256,194 Shares
Transitional Small Business Disclosure Format: Yes [ ] No [X]
The interim financial statements include all adjustments which, in the opinion
of management, are necessary in order to make the financial statements not
misleading.
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements.
Ultimate Franchise Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
as of December 31, 2004 (Unaudited) and September 30, 2004
December 31, September 30,
2004 2004
- ---------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash $ 69,021 $ 104,656
Accounts receivable 46,719 38,746
Prepaid expenses 28,816 4,547
Current portion of notes receivable 247,367 192,213
Inventory 58,544 -
- ---------------------------------------------------------------------------------------------------------------------
Total current assets 450,467 340,162
- ---------------------------------------------------------------------------------------------------------------------
Property and equipment, net 843,494 94,780
- ---------------------------------------------------------------------------------------------------------------------
Other assets:
Goodwill 2,625,773 2,625,773
Deferred loan costs, net 32,738 49,103
Notes receivable, net of current portion 1,023,330 1,161,596
Investment securities 206,974 293,947
Other investments 1,372,212 1,368,989
Trademarks 83,141 -
- ---------------------------------------------------------------------------------------------------------------------
Total other assets 5,344,168 5,499,408
- ---------------------------------------------------------------------------------------------------------------------
Total assets $ 6,638,129 $ 5,934,350
=====================================================================================================================
The interim financial statements include all adjustments which,
in the opinion of management, are necessary in order to make
the financial statements not misleading. 2
Ultimate Franchise Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
As of December 31, 2004 (Unaudited) and September 30, 2004, Continued
December 31, September 30,
2004 2004
- ---------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 1,755,357 $ 1,595,960
Accounts payable 683,290 451,657
Deferred revenue 130,000 41,673
Accrued expenses 745,402 667,965
Accrued preferred stock dividends 17,225 13,325
- ---------------------------------------------------------------------------------------------------------------------
Total current liabilities 3,331,274 2,770,580
Long-term liabilities:
Long-term debt, less current portion 3,200,677 2,229,511
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 6,531,951 5,000,091
- ---------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Series C convertible preferred stock, no par value, 120 shares
authorized, issued and outstanding 120,000 120,000
Common stock, $.001 par value, 100,000,000 shares authorized,
15,256,194, and 15,023,194 shares issued and outstanding,
respectively 31,238,909 31,131,059
Additional paid in capital 143,000 -
Accumulated deficit (31,395,731) (30,088,841)
Accumulated other comprehensive loss - (227,959)
- ---------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 106,178 934,259
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 6,638,129 $ 5,934,350
=====================================================================================================================
The interim financial statements include all adjustments which,
in the opinion of management, are necessary in order to make
the financial statements not misleading. 3
Ultimate Franchise Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three Months Ended December 31, 2004 and 2003 (Unaudited)
Three Months Ended Three Months Ended
December 31, 2004 December 31, 2003
- -------------------------------------------------------------------------------------------------------
Revenues:
Franchise operations $ 201,927 $ 565,719
Retail sales - company-owned stores 766,043 141,339
Management Services 104,405 203,446
- -------------------------------------------------------------------------------------------------------
1,072,375 910,524
Operating costs and expenses:
Franchise servicing costs 425,369 258,567
Cost of retail sales and operating costs - stores 498,409 121,102
General and administrative 366,814 299,449
Consulting and investor relations 145,279 80,000
Amortization and depreciation 11,104 2,138
- -------------------------------------------------------------------------------------------------------
1,446,975 761,256
- -------------------------------------------------------------------------------------------------------
Income (loss) from operations (374,600) 149,268
Other income (expense):
Interest, net (207,497) (82,107)
Loss on spin off of subsidiary (385,000) -
Impairment on investment (314,932) -
Gain on disposal of consolidated subsidiary - 243,340
Other, net (20,961) (12,000)
- -------------------------------------------------------------------------------------------------------
(928,390) 149,233
- -------------------------------------------------------------------------------------------------------
Net income (loss) (1,302,990) 298,501
- -------------------------------------------------------------------------------------------------------
Preferred stock dividends (3,900) (3,900)
- -------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common stock $ (1,306,890) $ 294,601
=======================================================================================================
Weighted average number of common shares outstanding 15,194,618 13,749,428
Earnings (loss) per basic and diluted common share:
Net income (loss) per common share - basic $ (.09) $ .02
Net income (loss) per common share - diluted (.09) .02
=======================================================================================================
The interim financial statements include all adjustments which,
in the opinion of management, are necessary in order to make
the financial statements not misleading. 4
Ultimate Franchise Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended December 31, 2004 and 2003 (Unaudited)
Three Months Ended Three Months Ended
December 31, 2004 December 31, 2003
- ------------------------------------------------------------------------------------------------------
Operating activities:
Net income (loss) $ (1,302,990) $ 298,501
Adjustments to reconcile net loss to net cash used by
operating activities:
Amortization and depreciation 11,104 2,138
Gain on sale of majority owned subsidiary - (243,340)
Permanent impairment of investment securities 314,932 -
Loss from spin off of subsidiary 385,000
Capitalized interest on notes receivable (15,750) (34,500)
Common stock issued for services 48,000 20
Common stock issued as interest on LT debt 59,850 -
Stock and stock warrants of majority owned subsidiary 143,000 -
Amortized discounts on financial instruments 2,949 2,949
Amortization of deferred loan costs to interest expense 16,365 16,365
(Increase) decrease in:
Accounts receivable (7,973) (111,137)
Prepaid expenses (24,269) -
Increase (decrease) in:
Accounts payable 231,633 (44,369)
Deferred revenue 88,327 20,854
Accrued liabilities 77,437 (165,629)
- ------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 27,615 (258,148)
- ------------------------------------------------------------------------------------------------------
Investing activities:
Purchase of property and equipment - (3,707)
Proceeds from collection of dividends - 9,270
Cash received from sale of majority owned subsidiary - 96,260
Investment in restaurant concept (904,726) -
Cash issued for note receivable (31,838) -
Issuance of notes receivable - (7,000)
Proceeds from collection of notes receivable and
accounts receivable other 133,750 -
- ------------------------------------------------------------------------------------------------------
Net cash (used) provided by investing activities (802,814) 94,823
- ------------------------------------------------------------------------------------------------------
Financing activities:
Payments of preferred stock dividends - (15,600)
Borrowings of long-term debt 995,254 800,000
Payments on long-term debt (255,690) (483,052)
- ------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 739,564 301,348
- ------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (35,635) 138,023
Cash beginning of period 104,656 21,083
- ------------------------------------------------------------------------------------------------------
Cash end of period $ 69,021 $ 159,106
======================================================================================================
The interim financial statements include all adjustments which,
in the opinion of management, are necessary in order to make
the financial statements not misleading. 5
Ultimate Franchise Systems, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Three Months Ended December 31, 2004 (Unaudited)
and the Year Ended September 30, 2004
Accumulated
Other
Common Preferred Additional Compre-
----------------------- ------------------- Accumulated Paid in hensive Total
Shares Amount Shares Amount Deficit Capital Income/(loss) Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2003 13,749,350 $30,611,215 120 $120,000 $ (27,305,844) $ - $ 214,427 $ 3,639,758
Excess of par value of
subsidiary common stock - (285,002) - - - - - (285,002)
Sold for cash and notes
receivable
Stock issued as interest on
long-term debt 173,844 125,096 - - - - - 125,096
Stock issued for settlement of
redeemable common stock 200,000 120,000 - - - - - 120,000
Stock issued for acquisition
of subsidiary 800,000 512,000 - - - - - 512,000
Common stock issued for services 100,000 47,750 - - - - 47,750
Preferred dividends - - - - (15,600) - - (15,600)
Unrealized loss on investment
securities - - - - - - (442,386) (442,386)
Net loss - - - - (2,767,357) - - (2,767,357)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2004 15,023,194 $31,131,059 120 $120,000 $ (30,088,841) $ - $ (227,959) $ 934,259
Stock issued as interest on
long-term debt 133,000 59,850 - - - - - 59,850
Stock issued for investor
relations 100,000 48,000 - - - - - 48,000
Unrealized loss on investment
securities - - - - - - (86,973) (86,973)
Preferred dividends - - - - (3,900) - - (3,900)
Permanent impairment on
investment securities - - - - - - 314,932 314,932
Stock and stock warrants of
majority owned subsidiary
issued for services - - - - - 143,000 - 143,000
Net loss - - - - (1,302,990) - - (1,302,990)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2004 15,256,194 $31,238,909 120 $120,000 $ (31,395,731) $ 143,000 $ - $ 106,178
====================================================================================================================================
The interim financial statements include all adjustments which,
in the opinion of management, are necessary in order to make
the financial statements not misleading. 6
Ultimate Franchise Systems, Inc.
Notes to Interim Financial Statements
Form 10-QSB
December 31, 2004
Note 1. Basis of Presentation
The unaudited financial statements and notes are presented as permitted
by Form 10-QSB. Accordingly, certain information and note disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted. The
accompanying financial statements and notes should be read in
conjunction with the audited financial statements and notes of the
Company for the year ended September 30, 2004. The results of
operations for the three months ended December 31, 2004 are not
necessarily indicative of those to be expected for the entire year.
Note 2. Reclassifications
Certain reclassifications have been made to 2004 financial statement
amounts to conform to the 2005 presentation.
Note 3. Earnings Per Share
Basic earnings per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in
the earnings of the Company.
Note 4. Sale of Central Park Company Owned Restaurant
In November 2004, we re-franchised our one company owned Central Park
restaurant located in Selma, Alabama. The new owner is a current
franchisee with four restaurant locations in Tennessee. The sale will
allow us to earn ongoing royalties from this location while eliminating
losses we experienced while operating this location. The transaction
resulted in one-time charges of $149,797 from the write down of assets
in the fourth quarter of 2004.
Note 5. Reorganization of Obee's Franchise Systems, Inc.
In October 2004, the Company completed a reverse merger whereby 100% of
the outstanding common stock of its wholly-owned subsidiary, Obee's
Franchise Systems, Inc., the franchisor of the Obee's Soup & Sub chain,
was acquired by Bib.net Corporation. ("BNC"), a Georgia corporation, in
exchange for 40 million shares of BNC common stock, which constituted
approximately 80% of the issued and outstanding common stock of BNC at
the date of closing. Upon closing, the board of directors of the
Company assumed control of BNC and changed the company's name to Obee's
Franchise Systems, Inc. ("Obee's")Also in October 2004, Obee's entered
into a consulting agreement with Public Corporate Consultants, Inc.
("PCC") for investor relation services. The consideration for this
agreement consisted of 5.4 million shares of Obee's common stock (of
which 1.5 million shares will be issued in April 2005 and July 2005,
respectively and 2.4 million shares are to be issued in October 2005
pursuant to an extension of the consulting agreement). In addition,
warrants to purchase 12 million shares each of Obee's common stock with
exercise prices ranging from $.02 to $.06 were issued to various
parties in October 2004. These warrants vest over various periods
through 2008, and all warrants expire in 2009. Existing long-term debt
of the former BNC totaling $385,000 was also assumed as part of the
transaction. We expect this debt to be converted into common stock
during the second quarter.
7
Note 6. Acquisition of Juicy Lucy Acquisitions, LLC.
On November 5, 2004, we purchased the Juicy Lucy restaurant concept.
Juicy Lucy is a double drive thru hamburger restaurant concept with
eight corporately owned locations throughout Central and Southwest
Florida.
The purchase price of Juicy Lucy consisted of:
Total Equipment $ 178,000
South Ft. Meyers Real Estate 244,500
Haines City Real Estate 260,890
Preferred Lease 122,500
Trademarks 84,110
Legal and administrative costs 14,726
----------
Total purchase price $ 904,726
==========
8
Item 2. Management's Discussion and Analysis.
Forward Looking Statements
The following discussion contains certain forward-looking statements
subject to the safe harbor created by the "Private Securities Litigation Reform
Act of 1995". These statements use such words as "may," "will," "expect,"
"believe," "plan," "anticipate" and other similar terminology. These statements
reflect management's current expectations and involve a number of risks and
uncertainties. Actual results could differ materially due to changes in global
and local business and economic conditions; legislation and government
regulation; competition; success of operating, initiatives including advertising
and promotional efforts; changes in food, labor and other operating costs;
availability and cost of land and construction; adoption of new or changes in
accounting policies and practices; changes in consumer preferences, spending
patterns and demographic trends and changes in the political or economic
climate.
Overview
We are a franchise management and venture company with minority
interests in numerous restaurant concepts located throughout the United States.
Our headquarters are located in Heathrow, Florida. Currently, we have equity
interest in companies controlling approximately 585 franchised restaurant
locations and 40 weight loss clinics throughout the United States. Our strategy
continues to be one of growth through the acquisition of minority positions in
other restaurant franchise companies. This allows us to provide franchise
management services to other companies without any increase to operating
expenses and provides us with a more diversified portfolio of restaurant brands.
In addition, we offer guidance and assistance to the franchisees in areas such
as product preparation, equipment purchasing, marketing, administrative support
and employee training.
In total, we have financial investments in 585 restaurants and 40
weight loss clinics. Our equity interests include the following:
State of Ownership Predominant Restaurant
Corporation Name Incorporation Percentage Concept
- ---------------- ------------------ ---------- ----------------------
Central Park of America, Inc. Delaware 100% "Central Park"
Juicy Lucy Acquisitions, LLC Florida 100% "Juicy Lucy"
Obee's Franchise Systems, Inc Florida 80% "Obee's Soup & Subs"
Franchise Management Company Florida 33.3% N/A
Fransaction Florida 59% "New York Buritto"
Concept Acquisitions II, Inc. Florida 25% "Flamers"
Jreck Subs, Inc. New York 20% "Jreck Subs"
Li'l Dino Corporation North Carolina 20% "Li'l Dino"
Quality Restaurant Ventures, Inc Florida 19% "Sobik's Subs"
Concept Acquisitions, Inc. Florida 18% "Mountain Mike's"
Beverly Hills Weight Loss and Wellness, Inc Colorado 18% "Weight Loss Forever"
Famous Food Group, Inc. Delaware 13% "Uncle Al's Famous Hot Dogs"
Sea West Subs, Inc. Washington 10% "SeaWest"
Piccadilly Restaurant Investment Group, LLC Nevada 1% "Piccadilly's"
9
Three Months Ended December 31, 2004 Compared to Three Months Ended December 31,
2003.
Results of Operations
The following table sets forth for the periods presented the percentage
relationship to franchise operation revenue of certain items included in the
consolidated statements of operations for the periods presented:
We had net loss of $1,302,990 for the three months ended December 31,
2004 compared to net income of $298,601 for the same period in 2003 a change of
$1,601,591 or 536.4%.
Total revenues increased $161,851 or 17.8% to $1,072,375 for the three
months ended December 31, 2004 compared to $910,524 for the same period in 2003.
This increase was primarily the result of three factors. First, retail sales
from corporately owned restaurant locations increased $624,704 or 441.9% for the
three months ended December 31, 2004. This increase is attributable to our
purchase of the Juicy Lucy restaurant concept in November 2004 (See note 2). As
a result, of this acquisition, we operated nine corporately owned restaurant
locations during the three months ended December 31, 2004 compared to just one
during the same period in 2003. Second, franchise operations revenue decreased
$363,792 or 64.3% to $201,927 for the three months ended December 31, 2004
compared to $$565,719 for the same period in 2003. This decrease resulted
primarily from a one time usage incentive of approximately $250,000 from a
proprietary vendor in 2003. Additionally, during the three months ended December
31, 2003 we operated the Sobik's Subs franchise concept which generated $82,326
in franchise operations revenue. This concept was sold as of December 31, 2003
and as a result, no franchise operations revenue was generated in 2004. Finally,
management services revenue decreased $99,041 or 48.7% to $104,405 for the three
months ended December 31, 2004 compared to $203,446 for the same period in 2003.
The decrease relates to the amortization of deferred stock compensation
agreements which were fully amortized in October 2004.
Total operating expenses increased $685,719 or 90.1% to $1,446,975 for
the three months ended December 31, 2004 compared to $761,256 for the same
period in 2003. First, franchise servicing costs increase $166,802 or 64.5% to
$425,369 for the three months ended December 31, 2004 compared to $258,567 for
the same period in 2003. This increase relates to the operation of our
consolidating subsidiary Obee's Franchise Systems, Inc. We acquired this
franchise concept in June 2004, and had operating expenses of $425,022 during
the three months ended December 31, 2004 compared to zero expenses for the same
period in 2003. Additionally, during the three months ended December 31, 2003 we
incurred franchise servicing costs of $65,119 attributable to the Sobik's Subs
restaurant concept. This concept was sold as of December 31, 2003 and as a
result, no franchise servicing costs were incurred in 2004. Finally, during the
three months ended December 31, 2003 our Central Park Franchise concept incurred
$193,447 in franchise serving cost. During the same period in 2004 Central Park
was able to eliminate all franchise serving cost due to the relationship with
Franchise Management Company, LLC., which began in March of 2004. Cost of retail
sales increased $377,307 or 311.6% to $498,409 for the three months ended
December 31, 2004 compared to $121,102 for the same period in 2003. This
increase is attributable to our purchase of the Juicy Lucy restaurant concept in
November 2004 (See note 2). As a result, of this acquisition, we operated nine
corporately owned restaurant locations during the three months ended December
31, 2004 compared to just one during the same period in 2003. General and
administrative costs increased $67,365 or 22.5% to $366,814 during the three
months ended December 31, 2004 compared to $299,449 for the same period in 2003.
The increase relates to additional accounting and administrative support needed
as a result of the acquisition of the Juicy Lucy restaurant concept. Consulting
and investor relations costs increased $65,279 or 81.6% to $145,279 during the
three months ended December 31, 2004 compared to $80,000 for the same period in
2003. This increase relates to common stock and stock warrants issued with
respect to the spin off of Obee's Franchise Systems Inc.
Other expenses were $928,390 during the three months ended December 31,
2004. These costs are all relate to non cash transactions as follows: As
indicated in Note 3. we concluded a reverse merger between our consolidating
subsidiary Obee's Franchise Systems and a publicly traded shell corporation
named Bid.net, Inc. as a result of this transaction we recorded $385,000 in
expenses associated with the acquired debt of Bid.net, Inc. Additionally, during
the three months ended December 31, 2004 we conducted an analysis of our
marketable securities. This analysis indicated a permanent impairment of certain
available for sale investment securities totaling $314,932. Finally, during the
three months ended December 31, 2004 we incurred $207,497 in interest expense
associated with out long-term debt.
10
Liquidity and Capital Resources
Net cash provided by operating activities was $27,615 for the three
months ended December 31, 2004 compared to net cash used by operating activities
of $258,148 for the comparable period in 2003, an increase in cash provided of
$285,763. This increase was primarily the result of increase cash generated
through sales at corporately owned restaurant locations.
Net cash used by investing activities was $802,814 for the three months
ended December 31, 2004 compared to net cash provided by investing activities of
$94,823 for the same period in 2003. During 2004 we used $904,726 to acquire the
Juicy Lucy restaurant concept. No capital was used for acquisitions during the
same period in 2003. Proceeds from the collection of notes receivable was
$133,750 during 2004 compared to zero for the comparable period in 2003.
Additionally, during 2003 we received $96,260 from the sale of our Sobik's Subs
franchise concept.
Net cash of $739,564 was provided by financing activities for the three
months ended December 31, 2004 compared to net cash provided of $301,348 for the
comparable period in 2003. We received $995,254 from new borrowings of long-term
debt during the three months ended December 31, 2004 compared to $800,000 during
the same period in 2003. In addition, we paid $225,690 on long-term debt during
the three months ended December 31, 2004 compared to $483,052 for the same
period in 2003. Preferred stock dividends of $15,600 were paid during the three
months ended December 31, 2003. No dividends were paid during the same period in
2004.
Working capital at December 30, 2004 was a deficit of $2,880,807
compared with a deficit of $2,430,418 at September 30, 2004. Two significant
items contributed to the increase in our working capital deficit. The first was
the increase in our current portion of long-term debt which increased $159,397
from $1,595,960 in September 2004 to $1,755,357 in December 2004. This increase
resulted from our acquisition of Juicy Lucy Acquisitions. The second reason for
the increase in our working capital deficit relates to an increase in accounts
payable and accrued expenses which increased $231,633 and $77,437, respectively.
These increases relates primarily to the acquisition of Obee's Franchise
Systems, Inc. in June 2004 and Juicy Lucy in November 2004.
To address this deficiency we have identified two critical
opportunities that could enable us to continue as a going concern. They are:
As mentioned in the 10-K we are continuing negotiations to have
investors contribute $2.5 million dollars. This should materialize early in the
second quarter. This investment would be in exchange for approximately thirty
percent (30%) of the company. This investment would also call for the creation
of a new Board of Director's seat as well as a stock option program. The stock
option program is being negotiated at the present time. We expected this equity
contribution to materialize during the second quarter, but believe that the
investment will be complete by the end of March 2005. We contemplate the use of
proceeds to be the following:
1. Five Hundred Thousand Dollars ($500,000) in working capital;
2. Two Million Dollars ($2,000,000) for acquisitions of new franchise
systems. We believe the acquisitions of the new revenue streams will
allow us to reach levels of operational profitability that coupled with
infusion of working capital, will allow us to grow exponentially in the
coming year.
If this 2.5 million ($2,500,000) Dollar equity investment does not occur, then
we have two other sources to obtain one million dollars ($1,000,000) in equity
infusion respectively. In each case, these investments would be in exchange for
approximately ten percent (10%) of the company. We would contemplate only
accepting one of these equity investments.
11
Item 3 - Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Within the 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with participation of our management,
including the Chief Executive Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Exchange Act
Rule 13a-14. Based upon that evaluation, the Chief Executive Officer concluded
that the Company's disclosure controls and procedures are effective in timely
alerting members of the management to material information relating to the
Company required to be included in our periodic SEC filings.
(b) Changes in internal controls.
No significant changes were made in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.
(c) Limitations on the effectiveness of controls.
Our management, including our CEO, does not expect that our Disclosure
Controls and internal controls will prevent all error and all fraud. A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Due to the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the company have been detected. These
inherent limitations include the realities that judgments in decision making can
be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control.
The design of any system of controls is also based in part upon certain
assumptions about the likelihood of future events occurring. There can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions; over time, a control may become inadequate because
of changes in conditions, or the degree of compliance with the policies or
procedures may deteriorate. Due to the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and not be
detected.
12
PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
We may be involved in various other lawsuits and litigation, from time
to time, as a result of its day to day operations. Management does not
believe that any of these other threatened or pending lawsuits or
litigation will have an adverse effect on our financial position or
results of operations.
Item 2. Changes in Securities and Use of Proceeds.
The following table sets forth information with respect to the sale or
issuance of unregistered securities by the Company between October 1,
2004 to December 31, 2004:
Exempt From
1933 Act
Shares Type of Value of Registration In
Issued Security Consideration Date Issued To Whom Issued Business Purpose Reliance of:
-------- -------- ------------- ------------ ------------------ -------------------- ------------
133,000 Common $ 59,850 Oct 05, 2004 James Skalko Interest on Long-Term Debt Section 4(2)
100,000 Common $ 48,000 Nov 19, 2004 CLD Corporate Services Section 4(2)
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits. The following exhibits are included as part of this report
at the location indicated:
SEC
Exhibit Reference
Number Number Title of Document Location
- ---------- --------- ---------------------------------------- ----------------
Item 31 Certifications
- ---------- --------- ---------------------------------------- ----------------
31.1 31 Certification pursuant to Section 302 This filing
of the Sarbanes-Oxley Act of 2002
(Chief Executive and Financial Officer)
Item 32 Certifications
- ---------- --------- ---------------------------------------- ----------------
32.1 32 Certification Pursuant to 18 U.S.C. This filing
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act
of 2002 (Chief Executive and Financial
Officer)
(b) Reports on Form 8-K. During the quarter ended December 31, 2004,
Ultimate Franchise Systems, Inc. did not file any reports on Form 8-K.
13
SIGNATURES
In accordance with all the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Ultimate Franchise Systems, Inc.
--------------------------------
(Registrant)
President, CFO & Duly
02/22/05 Christopher M. Swartz Authorized Officer /s/ Christopher M. Swartz
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Date Print Name Title Signature
14