======================================================================= U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1998 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from _____ to _____ Commission File No 0-25097 SWIFTY CARWASH AND QUIK-LUBE, INC. (Exact Name of Small Business Issuer in Its Charter) Florida 65-078-3722 (State or other jurisdiction of (I.R.S. Employer Identi- incorporation or organization) fication No.) 17521 Crawley Road, Odessa, Florida 33556 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (813) 926-1603 Securities registered under Section 12(b) of the Exchange Act: Securities registered under Section 12(g) of the Exchange Act: Common stock, $.0001 par value Class A Common Stock Warrants, $.01 par value 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 ___ Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B 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 revenue for the most recent fiscal year, ending December 31, 1998, was $70,686. The aggregate market value of the voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of March 29, 1999, was approximately $1,109,280 based on the most recent sales of newly-issued common equity. The Company's Form 10-SB was effective on January 25, 1999 and reached the no comment stage on February 18, 1999. As of March 11, 1999, the Company was approved for trading on the OTC Bulletin Board. The number of shares of the Company's common stock, par value $.0001 per share, outstanding as of March 29, 1999, was 8,404,120. The number of the Company's Class A Warrants, for the purchase of one share of common stock as of March 29, 1999, was 318,240. Part I Item 1. Description of Business The Company was formed to develop, own and operate a chain of full-service car washes and express oil change centers (the "Centers"). The Company's founders plan to capitalize on various trends that they believe will create a demand for the auto-related products and services to be provided by the Centers. One such trend is the steady reduction in the number of gas stations providing routine automobile maintenance such as oil changes. Thousands of the traditional, full-service stations have closed and many others have been converted to self-service stations offering no maintenance services. A second trend is the increased demand for convenience created by Americans' busier lifestyles. A majority of U.S. households now have two working spouses or a single working adult. Work and family responsibilities have both reduced spare time and increased the dependence on automobile transportation. As a result, fewer and fewer Americans are taking the time to change their own oil and/or wash their cars at home. Several companies have attempted to exploit these trends by opening stand-alone car washes or quick-lube centers. The Company believes that a market niche exists for the combination of these two services at one establishment. Accordingly, the Company anticipates that its full service Centers will be designed to fill this niche by offering a car wash, oil change and fluid check within a 15 to 20 minute period, all without an appointment. The Company spent approximately $200 on demographic surveys of the area surrounding the first Center in Palm Harbor, Florida which were compiled by Urban Decisions Marketing, Inc. In addition to the trends discussed above, the Company is targeting high growth, high traffic areas for its Centers. With the assistance of data from Urban Decision Marketing, Inc. the Company found the area off of U.S. Highway 19 in Palm Harbour, Florida to be an area of high urban growth consistent with its target market for its first Center location. Additional locations will be targeted in similar areas to capture what the Company believes is its market niche. The Company constructed its prototype Center in Palm Harbor Florida on real property owned by the Company (hereinafter the "Prototype Center"). The approximately one (1) acre site was purchased from Champion Hills by the Company's predecessor for $312,500. The land was assigned to the Company along with Steele Holdings' other assets in the reorganization. The Company entered into a contract in the amount of $15,500 with Oliveri Architects for the design of the Prototype Center. Equipment for the Prototype Center in the amount of $250,000 was purchased from O'Hanrahan Consultant's, Inc. Its contract provided for assistance with construction of the carwash and installation and operation of the equipment. The first Center was opened on January 18, 1999. It is too early to anticipate the profitability of operations at the first Center. Letters of intent have been issued regarding acquisition of other Center sites but none have been agreed upon as of January 26, 1999. At its Prototype Center, the Company currently has four employees. The Company anticipates that each Center will have approximately 15-20 full and part-time employees, consisting of one manager, two assistant mangers, five to seven clerical and sales personnel and seven to ten employees in the Center's carwash and oil change operations. In addition, it has agreements for services with Donald Hughes, Raymond Lipsch and Stanley Rabushka all of whom are officers and/or founding shareholders in the Company. One of the major areas of regulation facing the Company is waste disposal. The Company anticipates that it will participate in a product indemnification program with Pennzoil Products Company ("Pennzoil") for the disposal of product waste. Under the program, a Pennzoil approved waste-oil hauler removes the oil and lubricant waste from pre-approved containers on-site. Pennzoil will agree to indemnify the Company against any waste oil spills or improper disposal of the waste oil materials. In addition, the Centers are built without any drainage in the oil change pits to prevent accidental spills. 70% of the detergent and wax products used in the carwash are recycled within a built-in reclaim system at the Center. No permit was required to dispose of the additional waste products in the public sewage system. The Company is in the development stage of conducting its business. Its operations are subject to various risks inherent in any start-up enterprise with no operating history. New ventures, such as the Company, frequently encounter unforeseen problems which often require more time and capital than budgeted, and are subject to all of the risks inherent in the organization of a new business venture. As a result of its developmental nature and its limited history, the Company may be expected, at least initially, to continue to sustain operating losses. The officers and directors of the Company have no experience operating a business of this type. The Company is working with consultants who have experience in the industry: John Oster, and Edward O'Hanrahan. John Oster will be given 10,000 shares of the Company's restricted common stock in exchange for consulting regarding carwash start-up and operation for a period of one year. There are other carwash companies and car lube companies with more operating experience and financial resources than the Company. Currently, only minimal revenue has been received by the Company from operations. There can be no assurance that the Centers will be profitable. Business The Company anticipates that each Center will contain a full service carwash, car detailing station, oil change and lube bays and a retail area. The Centers will be designed so that cars can drive through the oil and lube bays and then drive through the carwash. The oil change and lube areas will be located in two or three bays designed and equipped to provide oil and filter changes, lubrication and replacement of most engine fluids. The service bays will each feature a basement in order to eliminate the need for hydraulic lifts and allow more than one technician to work on the car simultaneously. To increase efficiency, one technician will work from the basement and another technician will work at ground level. In addition to changing the oil, the technicians will also lubricate the chassis, check and fill the transmission, brakes, differential, power steering, window washer and battery fluids, check the air filter and inflate the tires to the proper pressure. The Company plans to have each Center use top-quality replacement motor oils, lubricants and filters as part of its standard oil change. The Centers will be designed and stocked to service almost every kind of vehicle, including foreign and older vehicles. Certain parts and supplies offered by the Company will be sold on a consignment basis, thereby reducing the amount of capital required for inventory. The Company anticipates that each Center will be equipped with a 100-foot fully automatic conveyer featuring touch free equipment. The equipment will be fully computerized and will feature the latest technology in automated carwash equipment. Each car will be vacuumed prior to entering the wash and window interiors will be manually cleaned after the car exits the wash. Customers will also be given the opportunity to choose from a variety of optional services such as tire and interior treatment. The Company anticipates that each Center will also feature a separate station providing complete auto detailing on an expedited basis. The Company plans for each Center to feature a customer lounge as well as a snack bar with coffee, espresso and related items. The lounge will include a retail area which will display a complete line of novelty and unique accessories. From windows located along one wall of the retail area, customers will be able to watch their cars as they are being washed. The Company plans to use a computerized point of sale computer system in each Center, enabling the Company's management to identify strengths and weaknesses in each Center's operation. The computer system will also track customer data, sales and employee information. Each Center's computer system will eventually be linked to the Company's home office so that results can be analyzed by the Company's management on a daily basis. In addition to the Company's full-service Centers, the Company may in the future develop one or more self-service Centers. The self-service Centers would be placed in locations that are not large enough to otherwise be usable for a full-service Center. Self-service Centers would probably consist of a series of four to five bays in which customers can wash their own cars using a devise that emits soap, pressurized water and wax. In addition, one bay may be dedicated to a touchless carwashing machine. The Company has not determined when it may develop self-service Centers, if ever, and accordingly, has not provided for the development of self-service Centers in its business plans described herein. Unless expressly stated otherwise, the use of the term "Center" throughout this Annual Report means a full-service Center, not a self-service Center. The Company Swifty Carwash is a Florida Corporation formed on September 23, 1997(the "Company"). The Company is a successor to Steele Holdings, Inc., a Florida Corporation formed on August 13, 1997. Rachel Steele was the sole shareholder of and President of Steele Holdings. On January 20, 1998, the Company and Steele Holdings, Inc., were reorganized with all the assets of Steele Holdings being transferred into the Company. All 6,000 authorized shares of common stock were exchanged on a one to one thousand basis for shares in the Company. The real estate owned by Steele Holdings, which was used to build the first Carwash Center in Pinellas County, and Steele Holdings' contract with Oliveri Architects for the design of the first carwash, were assigned to the Company for no consideration. After the reorganization, all stock in the Company was owned by the Company's president, Rachel Steele. Steele Holdings has conducted no other business, held no other assets and was dissolved on October 16, 1998. Industry Description and Outlook The quick oil change industry is highly competitive, with many local, national and regional chains. In addition, most automobile service centers also provide oil change services, though not on an expedited basis. The carwash industry is not as competitive, consisting mostly of local or regional establishments and only a few national chains. There are relatively few carwash centers that also provide oil changes on an expedited basis. The Company believes that by providing both of these services at its full service Centers, the Company will have a competitive advantage over establishments providing only one of these services. Business Strategy The Company's business plan for the twelve months consists of completing the development of its first two to three Centers and the standard operating policies and procedures that will be applicable to all Centers. The Company has been able to complete the first Center without the funds from its private offering which was completed in October 1998. The second Center will require approximately all of the funds from the Company's private offering. The Company anticipates that over the next three years, as the fifth and sixth Centers are being developed, the Company will also open a centralized administrative office. Government Regulation The Company is subject to various local, state and federal laws regulating the discharge of pollutants into the environment. The Company believes that its operations are in compliance in all material respects with applicable environmental laws and regulations. Compliance with these laws and regulations is not expected to materially affect the Company's competitive position. Even if the Company is able to enter into the Pennzoil indemnification program, there can be no assurance that the Company will not incur material environmental liability in connection with any of its properties. Marketing The Company plans to utilize a strong advertising program to attract customers. Using direct mail, radio, and newspaper ads, the Company plans to feature continual specials and promotions such as ladies days and senior days. Item 2. Description of Property The Prototype Center began operations on January 18, 1999. It is located in Palm Harbor, Florida, on U.S. Highway 19. The Prototype Center cost $1.2 million dollars and the remaining Centers should cost between $800,000 and $900,000 to construct. The subject property containing the Prototype Center consists of approximately one (1) acre and previously received approval from Pinellas County for site construction. A construction contract was entered into between the Company and Brandon Construction Company for the Prototype Center construction with the amount of $525,486 being paid to Brandon. The Company and Rachel Steele, President of the Company, personally, entered into a promissory note with People's Bank in the amount of $525,000 to cover the construction of the carwash. The note has a maturity date of May 1, 2014 at a rate of one (1%) percent in excess of the Prime Rate. Said note is secured by a mortgage on the land owned in Pinellas County for the construction of the Prototype Center. Sites for the other Centers have not been finalized. Item 3. Legal Proceedings The Company is not a party to any pending legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of the Company's security holders during the fourth quarter of the Company's fiscal year. Part II Item 5. Market for Common Equity and Related Stockholder Matters The Company has authorized 50,000,000 shares of common stock. The Company's stock began trading on the Over the Counter Market on March 11, 1999. There have been limited transactions to date. On March 15, 1999, the average high and low price of the Company's shares was $6.00. On March 23, 1999, the average high and low price for the Company's warrants was $1.25. These prices were obtained from www.investools.com reports. The approximate number of holders of record of each class of common equity securities is 28. No dividends have been declared to date. The future dividend policy will depend upon the Company's earnings, capital requirements, financial condition and other factors considered relevant by the Company's Board of Directors. None of the outstanding warrants have been exercised. Prior to its private offering, the Company sold shares to its officers and directors as set forth herein. Additional sales to qualifying purchasers have been made by the officers of the Company pursuant to Regulation D, Rule 504. The Company did not pay any sales commissions or discounts to any person for the cash sales for any shares and no public solicitation was used. No underwriter has participated in the sales made to date. The total offering price was one million dollars. Each Unit sold contained 800 shares of common stock and 1,600 Common Stock Purchase Warrants. The price for each Unit was $5,000. 198.9 Units were sold for a total consideration of $994,500 was raised under the exempt offering. Special Note Regarding Forward Looking Statements This annual report on Form 10-KSB of Swifty Carwash and Quik-Lube, Inc. for the year ended December 31, 1998 contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. To the extent that such statements are not recitations of historical fact, such statements constitute forward-looking statements which, by definition, involve risks and uncertainties. In particular, statements under the Sections; Description of Business, Business Strategy and Management's Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements. Where, in any forward-looking statement, Swifty Carwash expresses an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result or be achieved or accomplished. The following are factors that could cause actual results or events to differ materially from those anticipated, and include but are not limited to: general economic, financial and business conditions; labor difficulties; commodity prices for natural gas and crude oil; the effect of weather on crude oil and natural gas demand and consumption; competition for customer in the carwash and oil change industries; the costs of exploration and development of petroleum reserves; exploration risks; political risks impacting exploration and development; unanticipated environmental liabilities; changes in and compliance with governmental regulations; changes in tax laws; and the costs and effects of legal proceedings. Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the Financial Statements and the related Notes thereto included elsewhere in this report. This report contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in "Special Note Regarding Forward-Looking Statements." Overview The Company is a development stage, carwash and oil change company. The Company is considered to be in the development stage because it is devoting substantially all of its efforts to establishing its business and because its planned operations have just commenced in January 1999. There can be no assurance that the Company will ever achieve profitable operations. The Company has only a limited operating history upon which an evaluation of the Company and its prospects can be based. In order to be successful the Company must, among other things, successfully develop and commercialize its product candidates, secure all necessary proprietary rights, respond to competitive developments, and continue to attract, retain and motivate qualified persons. There can be no assurance that the Company will be successful in addressing these factors. The Company's performance in the coming year will be determined by the operations of the Prototype Center, whether the Company successfully acquires additional Center sites. The operating expenses of the Company will depend on several factors, including the price of petroleum and oil products, and environmental regulations, specifically waste disposal regulations. Each of these factors will be discussed below. Liquidity As of December 31, 1998, the Company incurred $758,456 in long-term debt. The majority of this is a bank note for the purchase of equipment for the Prototype Center. The Company anticipates that it will have to continue to expend resources for the purchase of land and equipment for additional Centers. Its business plan calls for the development of approximately two sites in the coming year. The cost of the land will depend upon its location. Equipment and construction costs are anticipated to be $800 ,000 to $900,000. From its inception through December 31, 1998, the Company sold 1,409,222 of Units comprised of common stock and warrants, including, $994,500 which was raised by the Company's private offering pursuant to Regulation D. The Company registered its common shares under the Securities and Exchange Act and became effective on January 27, 1999. Subsequently, on March 11, 1999, the Company was approved for trading on the OTC Bulletin Board. Over the long-term the Company will depend on revenue from operations. Profit from operations is anticipated to be sufficient to pay the costs of operating the Prototype Center but is not anticipated to be sufficient to fund the purchase and construction of other Centers in the coming year. If necessary the Company will attempt to obtain additional funding from commercial lenders to finance new Centers. Capital Resources The Company plans to increase its size and incur expenditures in the coming year and include new Centers. As of December 31, substantially all of the Company's assets are leveraged against loans to the Company for the construction of its Prototype Center. The payment on the note will increase in 1999 to $79,500. To date no new Center sites have been agreed upon. Upon agreeing on a particular site, the Company will incur land, new building and equipment purchase expenses. In anticipation of this expense, the Company has deposited $210,00 for use by Don Hughes General Contractor, Inc. in the construction of the next Center. Additional resources of the Company have been allocated to a six (6) year license agreement with the Tampa Bay Buccaneers for a Luxury Suite. The agreement required a deposit of $30,000 and then $30,000 per year with half due on September 1, and half due on December 1 of each year. The term of the license agreement began in 1998. Results of Operations Administrative and start-up expenses increased from $3,105 in 1997 to $363,290 in 1998. This was due substantially to the Company's retaining consultants and the costs of the design and start up of the Prototype Center. The Company expects its general and administrative expenses to increase in 1999 due to hiring additional personnel (15-20 per Center) and incurring normal operational expenses for its Centers. It is anticipated that should the Company obtain an additional Center site, it plans on incurring similar building and equipment costs. The operating costs for the Centers will consist primarily of product inventory and wages. Year 2000 The Company substantially relies on the PDQ Open Line Tunnel with Modifications in it carwash system. Defective date programming in information technology, and computer hardware and software might cause problems in the year 2000. Date errors may impact computer applications and also production resources, and the procedures of outside suppliers and independent contractors. Importantly, it is not always known where such date information is used. The Company has received written assurances that its software is year 2000 compliant. Not only will the Company continue to request written guarantees of year 2000 compliance with all software, hardware and information technology systems it purchases, but also, the Company plans to conduct regular back-ups of any accounting or inventory data throughout the year and immediately prior to the year change to preserve all information contained on its computer systems. Additionally, the carwash system used by the Company may be manually overridden so that it can be operated by hand in the event that its hardware or software is effected by the year 2000. Item 7. Financial Statements Financial Statements Swifty Carwash & Quik-Lube, Inc. (A Development Stage Enterprise) Year Ended December 31, 1998 and Periods August 13, 1997 (Date of Inception) through December 31, 1997 and 1998 Independent Auditors' Report Swifty Carwash & Quik-Lube, Inc. Financial Statements Year Ended December 31, 1998 and Periods August 13, 1997 (Date of Inception) through December 31, 1997 and 1998 Contents Independent Auditors' Report on Financial Statements...........................1 Financial Statements: Balance Sheet..............................................................2 Statements of Operations...................................................3 Statements of Changes in Stockholders' Equity..............................4 Statements of Cash Flows.................................................5-6 Notes to Financial Statements...........................................7-12 Independent Auditors' Report Board of Directors Swifty Carwash & Quik-Lube, Inc. (A Development Stage Enterprise) Odessa, Florida We have audited the accompanying balance sheet of Swifty Carwash & Quik-Lube, Inc. (a development stage enterprise) as of December 31, 1998 and the related statements of operations, changes in stockholders' equity, and cash flows for the year ended December 31, 1998 and the periods August 13, 1997 (date of inception) through December 31, 1997 and 1998. These financial statements are the responsibility of the management of Swifty Carwash & Quik-Lube, Inc. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. These standards require that we plan and perform the audits 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 financial position of Swifty Carwash & Quik-Lube, Inc. as of December 31, 1998 and the results of its operations and its cash flows for the year then ended and for the periods August 13, 1997 (date of inception) through December 31, 1997 and 1998 in conformity with generally accepted accounting principles. Pender, Newkirk & Company Certified Public Accountants Tampa, Florida March 7, 1999 Swifty Carwash & Quik-Lube, Inc. (A Development Stage Enterprise) Balance Sheet December 31, 1998 Assets Current assets: Cash $ 70,686 Loans to stockholder 38,354 Prepaid assets 144,821 -------------- Total current assets 253,861 Property and equipment not yet placed in service 1,306,212 -------------- Other assets: Deposit held by stockholder 210,000 Deposits 32,400 Prepaid expenses, long-term portion 157,735 Other assets 15,616 -------------- Total other assets 415,751 -------------- $ 1,975,824 ============== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 73,162 Payable to a stockholder 5,700 Current maturities of notes payable and long-term debt 79,500 -------------- Total current liabilities 158,362 -------------- Long-term liabilities: Notes payable and long-term debt, less current maturities $ 695,956 Consulting contract payable in common stock 62,500 Total long-term liabilities -------------- $ 758,456 -------------- Stockholders' equity: Common stock; $.0001 par value; 50,000,000 shares authorized; 8,394,120 shares issued and outstanding $ 839 Paid in capital 1,409,222 Deficit accumulated during development stage (351,055) -------------- Total stockholders' equity $ 1,059,006 -------------- -------------- $ 1,975,824 ============== Read independent auditors' report. The accompanying notes are an integral part of the financial statements. 2 Swifty Carwash & Quik-Lube, Inc. (A Development Stage Enterprise) Statements of Operations Period August 13, Year Ended 1997 through December 31, December 31, 1998 1997 1998 ---------------------------------------- Administrative and start-up expenses $ 363,290 $ 3,105 $ 366,395 Interest income 10,892 4,448 15,340 ---------------------------------------- Net (loss) income $ (352,398) $ 1,343 $ (351,055) ======================================== Net loss per share $ (.04) $ 0 $ (.05) ======================================== Weighted average common shares outstanding 8,209,478 6,000,000 7,596,950 ======================================== Read independent auditors' report. The accompanying notes are an integral part of the financial statements. 3 Swifty Carwash & Quik-Lube, Inc. (A Development Stage Enterprise) Statements of Changes in Stockholders' Equity Year Ended December 31, 1998 and Periods August 13, 1997 (Date of Inception) through December 31, 1997 and 1998