SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO.1
T0
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the Fiscal Year Ended September 30, 1997
Commission File Number 000-21093
INTERFOODS OF AMERICA, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 59-3356-011
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
9400 South Dadeland Boulevard, Suite 720, Miami, Florida 33156
(Address and Zip Code of Principal Executive Offices)
Issuer's Telephone Number: (305) 670-0746
Securities Registered Under Section 12(b) of the Exchange Act: None
Securities Registered Under Section 12(g) of the Exchange Act:
COMMON STOCK, $.001 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 [ ] No
[X]
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|
State issuer's revenues for its most recent fiscal year: $14,092,182
The aggregate market value of the registrant's common stock held by
non-affiliates of the registrant as of December 2, 1997 was approximately
$2,600,000. Solely for purposes of the foregoing calculation, all of the
registrant's directors and officers are deemed to be affiliates.
There were 5,526,646 shares of the registrant's common stock outstanding as
of December 1, 1997.
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ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Interfoods of America, Inc., a Nevada corporation (the "Company"), is
a growth oriented company which is presently engaged in the business of (i)
establishing, developing, operating, franchising, servicing, and owning
restaurants nationally under the name SOBIK'S(R) SUBS and (ii) operating 17
Popeyes(R) chicken franchises in South Florida and Alabama as a franchisee. The
Company at September 30, 1997 had three wholly-owned subsidiaries: (1) SBK
Franchise Systems, Inc., which, through an exclusive master license with Sobik's
Sandwich Shops, Inc., the franchiser of Sobik's Subs restaurants, develops,
franchises and services the Sobik's franchises; (2) Sobik's Restaurant Corp.,
which establishes, owns, and operates Sobik's Subs Shops; and (3) Sailormen,
Inc., which currently is the franchisee for the 17 Popeyes restaurants, 13 of
which are in South Florida and 4 of which are in Alabama. The four Alabama
franchises were purchased in October 1996. In addition, the Company is currently
exploring avenues to expand its business to include other compatible food
products and compatible food franchises. As of December 4, 1997, the Company
sold its primary assets of the Sobiks Restaurant Corp. and sold its wholly owned
subsidiary SBK Franchise Systems, Inc.
On January 22, 1996, the Company, Sailormen, Inc. ("Sailormen"), a
Florida corporation, and the shareholders of Sailormen, Inc. entered an
Agreement and Plan of Reorganization (the "Sailormen Agreement"). Pursuant to
the terms of the Sailormen Agreement, effective May 14, 1996, the Company issued
2,500,000 shares of its common stock to the shareholders of Sailormen in
exchange for all of the issued and outstanding shares of capital stock of
Sailormen. Sailormen was organized in 1984 under the laws of the state of
Florida.Upon consummation of the transaction, Sailormen became the Company's
third wholly owned subsidiary.
The Company's headquarters is located at 9400 South Dadeland Boulevard, Suite
720, Miami, Florida 33156 and its telephone number is (305) 670-0746.
POPEYES CHICKEN FRANCHISE BUSINESS SEGMENT
HISTORY
The Company currently operates 17 Popeyes Chicken and Biscuits
("Popeyes") franchises through its wholly owned subsidiary, Sailormen,
Inc.("Sailormen"). Sailormen was incorporated in Florida, in 1984, to own and
operate eight (8) Popeyes franchises spun-off from another corporation that
owned the franchises starting in 1978. Sailormen was acquired by the Company in
May 1996. Thirteen of the Popeyes restaurants are located in South Florida and
in October 1996, the Company acquired four Popeyes franchises in the State of
Alabama.
OPERATIONS
The Popeyes menu features a unique spicy fried chicken, which each
restaurant prepares daily on premises and serves with a biscuit. In addition to
its spicy fried chicken, the Popeyes menu contains up to 20-25 other items,
including seasonal entrees, such as seafood dishes, and side items, such as red
beans and rice, french fries, mashed potatoes with gravy, cole slaw, and Cajun
rice. Almost all of these items are prepared fresh daily on the premises of each
restaurant. The Popeyes menu is designed to appeal to a large cross-section of
the population, concentrating on the 18-49 age group. Most of Sailormen's
Popeyes restaurants are open seven days a week, from 10:00 am to midnight, and
serve lunch and dinner. In 1995, there were 932 Popeyes units in operation in
the U.S. and Popeyes ranks third behind KFC and Church's Chicken. Management
estimates that about 100 of these Popeyes are in Florida. The information
presented herein was obtained from the NATION'S RESTAURANT NEWS, ("NRN") August
7, 1995 (NRN Top 100 Market Share). The Company believes that this information
is the most current information of its kind available. According to NRN,
national average sales per unit for Popeyes was $772,000 annually. 20% of
Sailormen's restaurants had revenues in excess of $1.0 million.
BUSINESS STRATEGY
The Company's business strategy is to expand carefully, either through
the acquisition of existing Popeyes units that can benefit from management's
expertise in improving operations or through conversion of selected sites
formerly occupied by other fast food units. Management believes the Company has
a competitive advantage over other operators
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because of management's successful track record in site selection to cater to
demographics and demand, and high retention rates for the managers of its units
(15-20% turnover as opposed to 150% for the industry). The Company's marketing
philosophy emphasizes local direct mail advertising (negligible electronic
media) to turn small marketing areas into loyal marketing bases by providing
value purchasing.
FRANCHISE AGREEMENT
Sailormen franchises its Popeyes restaurants from America's Favorite
Chicken Company (the "Franchisor"), a Minnesota corporation which was organized
on July 27, 1992, to succeed to the interest of Al Copeland Enterprises, Inc.
("Enterprises"), a Texas corporation, pursuant to a Plan of Reorganization
confirmed on October 22, 1992, by the United States Bankruptcy Court for the
Western District of Texas, Austin Division, which became effective on November
5, 1992. The Franchisor maintains its principal place of business at Two
Concourse Parkway, Suite 600, Atlanta, Georgia 30328. Franchisor does business
under its corporate name and under the trade names and service marks "Popeyes"
and "Popeyes Chicken and Biscuits".
Each of the Company's Popeyes restaurants are operated under a
separate franchise agreement from the Franchisor. The franchise agreements are
for an initial term of 20 years and for additional ten-year terms upon the
payment of one-half of the then-applicable franchise fee (currently at $25,000)
and the execution of a renewal franchise agreement (provided a written notice of
election is submitted not less than twelve months or more than eighteen months
prior to the end of the primary term), which may provide for increased royalties
and advertising contributions, and pursuant to which the Company may be required
to remodel or re-equip its restaurants to meet the then-current standards of the
Franchisor. The Company is required to pay the Franchisor a royalty fee equal to
5% of the gross sales of each franchise restaurant for its first five years of
operation, and 5.5% of gross sales thereafter. The royalty fee is payable
weekly. The franchise agreements require the Company to construct and operate
its Popeyes restaurants in accordance with the detailed requirements of the
Popeyes System. All franchisees and the managers of their restaurants are
required to attend, at the franchisee's expense, training courses conducted by
the Franchisor.
A purchasing cooperative, "POPCA" makes centralized purchasing
arrangements for basic menu items (such as chicken, beverages, french fries,
corn, rice, and jalapeno peppers), supplies, and equipment. The Company is free
to negotiate and buy from any approved vendor. The Franchisor has approximately
100 approved non-chicken vendors and approximately 20 approved chicken vendors.
The flours, batters, seasonings, mixes, sauces, dressings, and meats, used to
prepare Popeyes spicy chicken and other Popeyes menu items, constitute the
proprietary products (the "Proprietary Products"). The Proprietary Products are
produced by an affiliate of the Franchisor. Sailormen and Pollo Grande have a
Distribution Agreement with a distribution company approved by the Franchisor
for the supply of food products, dry goods and related supplies, except for
fresh poultry, carbonated beverages and various other goods, on an exclusive
basis. The Distribution Agreement commenced on March 8, 1996 and will last for
10 years and renew annually thereafter unless terminated with 60 days notice by
either party.
MARKETING AND ADVERTISING
All Popeyes company and franchise restaurants are required to
contribute 3% of their weekly gross sales to the Popeyes Chicken & Biscuit
Advertising Fund (the "Popeyes Advertising Fund") for regional and local
advertising conducted by the Franchisor. The terms of the Popeyes Advertising
Fund require that all contributions and earnings be used by the Franchisor
exclusively to meet the costs of the advertising and promotional activities for
Popeyes restaurants. If the Company and other franchisees become members of any
non-profit advertising cooperatives that are organized by franchisees in certain
major television markets in which they may be located, the advertising
contribution is reduced up to 1%.
GOVERNMENT REGULATIONS
The Company is subject to Federal Trade Commission ("FTC") regulation
and several state laws which regulate the offer and sale of franchises. The
Company is also subject to a number of state laws which regulate substantive
aspects of the franchisor-franchisee relationship. The FTC's Trade Regulation
Rule on Franchising (the "FTC Rule") requires the Company to furnish to
prospective franchisees, a franchise offering circular containing information
prescribed by the FTC Rule. State laws that regulate the offer and sale of
franchises and the franchisor-franchisee relationship presently exist in a
substantial number of states. State laws that regulate the offer and sale of
franchises require registration of the franchise
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offering with state authorities. Those that regulate the franchise relationship
generally require the franchisor to deal with its franchisees in good faith,
prohibit interference with the right of free association among franchisees,
limit the imposition of standards of performance on a franchisee and regulate
discrimination against franchisees in charges, royalties, or fees. Although such
laws may restrict a franchisor in the termination of a franchise agreement by,
for example, requiring "good cause" to exist as a basis for the termination,
advance notice to the franchisee of the termination, an opportunity to cure a
default, and a repurchase of inventory or other compensation, these provisions
have not had a significant effect on the Company's franchise operations. The
Company is not aware of any pending franchise legislation which in its view is
likely to affect significantly the operations of the Company. The Company
believes that its operations comply in all material respects with the FTC Rule
and the applicable state franchise laws.
Each Restaurant is subject to licensing and regulation by a number of
governmental authorities, which may include health, sanitation, safety, fire,
building and other agencies in the state or municipality in which the Restaurant
is located. Difficulties in obtaining or failure to obtain the required licenses
or approvals could delay or prevent the development of a new Restaurant in a
particular area. The Company is subject to federal and state environmental
regulations, but these have not had a material effect on the Company's
operations. More stringent and varied requirements of local governmental bodies
with respect to zoning, land use, and environmental factors could delay or
prevent the development of a new Restaurant in a particular area.
The Company is also subject to state and federal labor laws that govern its
relationship with its employees, such as minimum wage requirements, overtime,
working conditions, and citizenship requirements. Current Congressional
proposals relating to mandated employee health care programs may also impact the
Company, if they become law. Significant numbers of food service and preparation
personnel are paid at rates governed by the federal minimum wage. Accordingly,
increases in the benefits under any of these laws would increase labor costs to
the Company and its franchisees.
SUB SANDWICH BUSINESS SEGMENT
HISTORY
In 1965, the Sobik family opened its first sandwich shop in Orlando,
Florida, under the name "The Q.P. Sandwich Shop". In 1969, the Sobik family
opened the first Sobik's Subs Shop in Altamonte Springs, Florida. During the
following years, several other Sobik's Sub Shops were opened throughout Central
Florida. In 1972, Sobik's Sandwich Shops, Inc., which is owned by the Sobik
family, sold its first franchise in Apopka, Florida. In 1993, through an
exclusive license agreement, Sobik's Sandwich Shops, Inc. granted SBK, a wholly
owned subsidiary of the Company engaged in developing, franchising and servicing
Sobik's Sub Shops, the exclusive right to develop, sell and service Sobik's Sub
Shop franchises throughout the world. On December 4, 1997, the Company sold its
Sobiks subsidiary, "SBK Franchise Systems,Inc.," see management discussion and
analysis for details.
COMPANY-OWNED RESTAURANTS
On October 1, 1997 the Company sold its two remaining company owned
and operated Sobiks stores.
COMPETITION
GENERALLY
The restaurant industry is highly competitive with respect to price,
service, food quality, and location, and there are numerous well-established
competitors possessing substantially greater financial, marketing, personnel,
and other resources than the Company. There is also active competition for
restaurant managers and hourly restaurant employees, as well as intense
competition for commercial real estate suitable as sites for quick-service
restaurants.
The Company is required to respond to various factors affecting the
restaurant industry, including changes in consumer preferences, tastes, and
eating habits, demographic trends and traffic patterns, increases in food and
labor costs, and national, regional and local economic conditions. A number of
fast food restaurant companies have recently been experiencing flattening growth
rates and declines in average sales per restaurant, in response to which certain
of such
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companies have adopted "value pricing" strategies. Such strategies could have
the effect of drawing customers away from companies which do not engage in
discount pricing and could also negatively impact the operating margins of
competitors, including the Company, which do attempt to match competitors' price
reductions.
POPEYES RESTAURANTS
The fast-food restaurant business is highly competitive and is often
affected by changes in taste and eating habits of the public, and local and
national economic conditions affecting spending habits, population, and traffic
patterns. The principal bases of competition in the industry are food quality,
speed of service, and price; but advertising, location, and attractiveness of
facilities are also important. Popeyes competes with other national fried
chicken chains such as KFC and Church's, and with all other quick-service
restaurants, including national and regional restaurant chains, and with
convenience stores, delicatessens, cafeterias, and grocery stores which sell
convenience and microwave food, some of which have greater financial resources,
larger advertising budgets, and more national recognition than those of Popeyes.
As a result of a national trend in eating habits toward greater
chicken consumption, many quick-service restaurant chains that are not
identified with chicken have added a variety of chicken items to their menus.
While the Company believes that its spicy fried chicken is distinguished from
the chicken offered by its competitors by unique seasonings and tastes, product
quality, and freshness, there can be no assurances that the consumer will enjoy
its distinctive recipe or that competitors will not offer substantially similar
recipes.
INTELLECTUAL PROPERTY PROTECTION
EMPLOYEES
The Company employs a total of 275 persons, on a full-time and
part-time basis. Of these employees, 265 are employed in Popeyes stores, 50 as
field management personnel and the balance on a part-time basis, of which 10 are
in corporate management and administration. None of the employees belong to a
union and the Company has not experienced any work stoppages. The Company
believes that its labor relations are satisfactory.
The Company's headquarters is located at 9400 South Dadeland
Boulevard, Suite 720, Miami, Florida 33156 and its telephone number is (305)
670-0746.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases 2600 square feet of office space at 9400 South
Dadeland Boulevard, Miami, Florida 33156. The monthly lease expense for the
Miami offices is $3,250.00. The lease expires on December 31, 1999. These
offices are used to administer all Company operations.
The Company does not currently make any investments in real estate or
interests in real estate, including real estate mortgages or securities issued
by person primarily engaged in real estate activities, and the Company does not
now intend to make such investments in the future. The Company anticipates that
Company-owned Restaurants will be established primarily in leased premises, but
the Company may elect to purchase a Restaurant site in certain locations. In
that regard, the Company may need to periodically purchase land and buildings
for new locations. However, these locations will eventually be sold in
sale-leaseback type transactions to free up the Company's capital.
As of September 30, 1997 all of the 17 Popeyes restaurants operated
by the Company were leased. The Company usually tailors the lease term according
to the term of the franchise agreement. The monthly lease expense on leased
properties range between $1,800 to $7,045. The lower base rent leases may also
contain additional payments to the lessor as percentage of sales.
The following are the locations of the Popeyes restaurants operated by
the Company as of September 30, 1997: (1) 5534 NW 7th Ave., Miami, FL; (2) 11205
SW 152nd St., Miami, FL; (3) 650 NE 79th St., Miami, FL; (4) 1355 W. Sunrise
Blvd., Ft. Lauderdale, FL; (5) 12100 NW 7th Ave. Miami, FL; 20690 NW 2nd Ave.,
Miami, FL; (6) 233 Hillsboro Blvd., Deerfield Beach, FL; (7) ;1501 NW 20th St.,
Miami, FL; (8) 3291 W. Broward Blvd., Ft. Lauderdale, FL ; (9) 2490 NW 79th St,
Miami, FL; (10) 3285 NW 183rd St., Miami, FL; (11) 1695 NW 103rd St., Miami, FL;
(12) 2239 Bessemer Road,
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Bessemer, AL 35228; (13) 4020 Airport Road, Birmingham, AL 35205; (14) 725 11th
Court West, Birmingham, AL 35204; and (15) 932 9th Avenue North, Birmingham, AL
35205 (16)130 NE 8th street, Homestead, Florida 33030 (17)1601 South Dixie Hwy,
Fort Pierce, Florida.
ITEM 3. LEGAL PROCEEDINGS
On November 20, 1997, James Byrd the former Chairman and Director of
the Company filed suit against the Company and Mr Berg for an injunction and
damages resulting from an alleged breach of contract by the Company. The
allegations made by Mr. Byrd are that the Company breached an agreement to
repurchase 150,000 shares of common stock at a price of approximately $130,000.
The Company believes that the suit is without merit and the Company will
vigorously defend this action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
In the fourth quarter, no matter was submitted to a vote of securities
holders of the Company.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades in the over-the-counter market under
symbol IFDA on the OTC electronic bulletin board. There was no trading in the
Company's Common Stock prior to October, 1995. The following table shows the
quarterly high and low bid prices for calender years 1995, 1996 and 1997 as
reported by the National Quotations Bureau Incorporated. These prices reflect
inter-dealer quotations without adjustments for retail markup, markdown or
commission, and do not necessarily represent actual transactions.
YEAR PERIOD HIGH LOW
1995 First Quarter N/A N/A
Second Quarter N/A N/A
Third Quarter N/A N/A
Fourth 0uarter $6.75 $6.00
1996 First Quarter $7.00 $4.75
Second Quarter $1.88 $6.00
Third Quarter $3.25 $1.38
Fourth Quarter $1.25 $0.88
1997 First Quarter $1.38 $0.56
Second Quarter $1.44 $0.69
Third Quarter $1.75 $0.81
At December 1, 1997 there were approximately 1200 Holders of record of
the Company's Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS.
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto appearing elsewhere in this
report.
PLAN OF OPERATIONS
The Company plans to focus on expanding its Popeyes operations over the
next twelve months through acquisitions and new store development in the
southeastern market, Caribbean, South America and Mexico. The Company plans on
acquiring the territory rights to develop these international markets from the
America's Favorite Chicken Enterprises, the Franchisor, which would require the
company to pay a fee for these rights. The Company is strategically located to
manage and train personnel cost effectively being based out of Miami. The
Company has sold its Sobik's franchise business to
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streamline its business and dedicate all management efforts and energy on the
Popeyes expansion.
The Company plans on continuing its policy to acquire existing Popeyes
franchises. The Company has done this successfully with two former Popeyes
franchisees during this fiscal year 1997, adding five additional stores to its
store base and is currently working on several other franchisees in the
southeastern market. The Company anticipates approximately eight to twelve more
stores to be acquired during fiscal 1998. The Company has entered into an
agreement to acquire eight existing Popeye's Chicken and Biscuit stores in Baton
Rouge, LA from an existing franchisee. Additionally, the Company plans on adding
approximately nine stores through new store development through fiscal 1998, six
stores domestically and three stores internationally.
The Company intends to enter into international markets as
opportunities that meet the Company's goals are present in those markets.
The Company has been able during fiscal 1997 to obtain the necessary
capital requirements through its operations and financial institutional
relationships. Currently, the Company has a $3,250,000 new store development
commitment from one of these institutions. The Company was able to acquire a
loan for $1,320,000 in July 1997 for working capital and use the proceeds to
build new stores, remodel certain other stores as well as repay certain debt.
The Company expects to be able to acquire the necessary capital to continue its
expansion over the next twelve months and fiscal year 1998. Although there can
be no assurances that the Company will be able to obtain the capital under
acceptable terms to the Company to continue its expansion program.
During the first quarter fiscal 1998, the Company sold SBK Franchise
Systems, franchise business for $1.1 million. This will enable the Company to
focus on its Popeyes franchise store operation business and development.
RESULTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997, COMPARED TO YEAR ENDED SEPTEMBER 30,
1996
For the year ended September 30, 1997, ("fiscal 1997"), the Company had
total revenues of $14,092,182 compared to total revenues of $6,298,074 for the
year ended September 30, 1996. This increase in revenues was attributable to the
Company's acquisition of Sailormen in May 1996, the acquisition of the four
Popeyes restaurants in Birmingham, Alabama and the acquisition of one store in
Fort Pierce, FL and the opening of one store in Homestead, FL, during this year.
The company had an operating profit of $145,448 for the year ended
September 30, 1997 compared to an operating loss of ($351,791) for the year
ended September 30, 1996. Additionally, the Company had net income of $318,878
compared to a net loss of ($409,353) which is equal to a 178% increase over
fiscal year 1996. The profitable turn around during this year is attributable to
the increase in revenues and cost savings from the consolidation of the
corporate offices to one location in Miami, Florida and the realization of
deferred tax assets of $164,900 from prior years net operating losses. The
Company's profit for the year ended September 30, 1997 was equivalent to an
earnings per share of $0.05 as compared to a loss per share of ($0.09) for the
year ended September 30, 1996.
The Company's cost of sales for the year ended September 30, 1997 were
$12,184,518 compared to $4,210,732 for the year ended September 30, 1996. The
increase is attributable to the acquisition of Sailormen in May 1996, the four
Popeye's Chicken stores acquisition in Alabama and the increases in minimum wage
to $5.15/hour. Also, the four store acquisition had some one-time repairs and
maintenance costs resulting in higher cost of sales for the period ended
September 30, 1997.
The Company's general and administrative costs were $1,574,526 compared
to $2,230,751 during the year ended September 30, 1997 and 1996, respectively.
As a percentage of revenues the general and administrative costs were 11%
compared to 35% for the year ended September 30, 1997 and 1996, respectively.
The significant percentage decrease is due to the higher revenue and the
consolidation of the corporate offices to one location in Miami, Florida.
YEAR ENDED SEPTEMBER 30, 1996, COMPARED TO YEAR ENDED SEPTEMBER 30,
1995
For the year ended September 30, 1996, ("fiscal 1996"), the Company had
total revenues of approximately
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$6,298,074 as compared to total revenues of approximately $280,000 for fiscal
1995. This increase in revenues was in part attributable to the Company's
acquisition of Sailormen, Inc. The financial statements reflect six months of
Sailormen's annual revenues. The annualized Sailormen revenues are approximately
$12,600,000.
Losses from operations during fiscal 1996 were $(351,791) as opposed to
a gain of $14,449 for the prior year. The Company had a net loss for fiscal 1996
in the amount of $(409,353) as opposed to a gain in fiscal 1995 of $10,457. The
Company's loss for fiscal 1996 was equivalent to a loss per share of $(.09) as
compared to a gain per share of $0 in fiscal 1996. The losses in the current
year are primarily due to restructuring and one time merger expenses of the
newly consolidated business and only six months of sales from the Sailormen
operation.
In fiscal 1996, the Company's general and administrative costs
increased to approximately $2,230,751 from approximately $265,000 from fiscal
1995. The increase is due to the Sailormen acquisition and the incremental costs
associated with having multiple corporate offices that are being consolidated
into one corporate office located in Miami, Florida.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations for the year ended September 30, 1997
was $135,566 compared to net cash used by operations of ($740,044) for the year
ended September 30, 1996. The improvement in operating cash flow for the year
ended September 30, 1997 was primarily attributable to net income of $318,878
and the increase in accounts payable of $170,774 from year end September 30,
1996.
At September 30, 1997, the Company had total current assets of $458,904
and total assets of $7,138,673 as compared to total current assets of
approximately $162,763 and total assets of approximately $5,277,993 at September
30, 1996. The increase relates to the four Popeye's store acquisition in
Birmingham, Alabama for $400,000 in preferred Class A stock and $50,000 in cash
offset by the selling of one store in a sale lease-back transaction, the
acquisition of one store in Fort Pierce, FL for $400,000 and other capital
additions for new store development. During the year ended September 30, 1997,
85,740 shares of mandatorily redeemable restricted preferred class "A" stock
were redeemed for $150,000.
Net cash provided by financing activities was $483,886 for the year
ended September 30, 1997 compared to net cash used by financing activity for the
year ended September 30, 1996 of ($655,607). The increase relates to proceeds
from new debt of $1,343,594 offset by payments of existing debt of $433,300,
redemption of preferred stock of $175,000, repurchase of treasury stock of
$233,000 and dividend on mandatorily redeemable restricted preferred class A
stock of $17,750.
The Company intends to obtain the necessary capital to continue its
future expansion plans as each acquisition presents itself and the terms and
conditions of the capital meet the Company's requirements..
SALE LEASE-BACK.
On September 30, 1996, the Company closed on a $2.23 million
Sale-Leaseback with Franchise Finance Corporation of America. Pursuant to the
Agreement, the Company sold five of its locations to a subsidiary of Franchise
Finance Corporation of America and simultaneously agreed to lease back these
locations.
ITEM 7. FINANCIAL STATEMENTS
See the Financial Statements of the Company which are attached hereto.
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Effective August 27, 1997, the Registrant's Board of Directors
dismissed its former certifying accountants and recommended and approved a
change in the Company's certifying accountants to Arthur Andersen LLP. The
former principal account's statements of the past two years did not contain an
adverse opinion or disclaimer of opinion, nor was it modified as to uncertainty,
audit scope, or accounting principles. There were no disagreements with the
former accountant on any matters of accounting principles or practices,
financial statement disclosure or auditing scope or procedures.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The current executive officers, directors and significant employees of
the Company are as follows:
NAME AGE POSITION
Robert S.Berg 39 Chairman, and Chief
Executive Officer
Steven M. Wemple 46 Director, President, Chief Operating Officer,
Secretary and Treasurer
As of September 30, 1997 the Board of Directors for SBK Franchise
Systems, Inc. are Robert S. Berg and Steven M. Wemple. The current Board of
Directors for Sobik's Restaurant Corp. are Robert S. Berg and Steven M. Wemple.
The current Board of Directors for Sailormen, Inc. are Robert S. Berg, and
Steven M. Wemple.
Each director is elected to hold office until the next annual
meeting of stockholders and until his successor is elected and qualified. The
officers of the Company serve at the pleasure of the Company's board of
directors. The following sets forth certain biographical information with
respect to the directors, executive officers and significant employees of the
Company.
Robert S. Berg is a Director, and Chief Executive Officer of the
Company and has held those offices since May 1, 1996. Since 1987, Mr. Berg has
served as President of Sailormen, Inc., a wholly owned subsidiary of the
Company. Mr. Berg, now serves as Chairman of the Board of the Company.
Steven M. Wemple is Director and President of the Company and has been
its Chief Operating Officer and Treasurer of the Company since June, 1996. Mr.
Wemple is in charge of all operational and financial matters relating to the
Company's business. Additionally, since June, 1996, he has served as President
of Sobik's Restaurant Corp., a wholly owned subsidiary of the Company engaged in
owning and operating Sobik's restaurants. Since 1985, Mr. Wemple has served as
Vice President of Sailormen, Inc. prior to the acquisition of Sailormen by the
Company. Mr. Wemple was with Church's Fried Chicken prior to joining Sailormen
in 1985.
There are no family relationships among any of the executive officers
or directors of the Company, none of the board of directors or executive are
directors of any other public entities, and none of the executive officers or
directors of the Company are the subject to any legal proceedings.
ITEM 10. EXECUTIVE COMPENSATION
Below is the aggregate annual remuneration of each of the highest paid
persons who are officers or directors of the Company during the Company's fiscal
year.
8
<PAGE>
CASH COMPENSATION
The following table shows, for the two year period ended September
30, 1997, the cash and other compensation paid by the Company to its President
and Chief Executive Officer and to each of the executive officers of the Company
who had annual compensation in excess of $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
OPTION GRANTS IN LAST FISCAL YEAR
OTHER ANNUAL RESTRICTED OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION PERIOD SALARY BONUS COMPENSATION STOCK AWARDS SAR'S(#) LTIP COMPENSATION
- --------------------------- ------ ------ ----- ------------ ------------ -------- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert S. Berg 1997 $226,018 $0 $4,896(1) $0 $0 $0 $0
Chairman of the Board 1996 $226,018 $2,000 $4,896(1) $0 $0 $0 $0
Chief Executive Officer
Acting Chief Financial Officer
Steve M. Wemple 1997 $196,326 $0 $6,528(2) $0 $0 $0 $0
Director 1996 $196,326 $2,000 $6,528(2) $0 $0 $0 $0
President, Chief Operating
Officer, Secretary and Treasurer
</TABLE>
- -------------------------------------------------------------------------------
(1) Includes $4,896 family health insurance
(2) Includes $6,528 family health insurance
The Company currently does not have employment agreements with Robert
S. Berg, Chairman, President and Chief Executive Officer of the Company and
Steven M. Wemple, Director, Vice President, Chief Operating Officer, Secretary
and Treasurer of the Company. The Company intends to enter into written
employment contracts with Robert S. Berg and Steven M. Wemple in the foreseeable
future.
STOCK OPTION PLAN
The Company has reserved 333,333 shares of its Common Stock for
issuance upon the exercise of options intended to be granted or available for
grant under an Employees Stock Option Plan ("ESOP"). Options granted under the
ESOP will include incentive stock options ("ISOs") within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
non-qualified stock options ("NQOs"). Under the terms of the ESOP, all officers
and employees of the Company will be eligible for ISOs. The Compensation
Committee of the Board of Directors will determine in its discretion, based upon
pre-established performance criteria, which persons will receive ISOs, the
applicable vesting provisions, and the exercise term thereof. The terms and
conditions of each option grant may differ and will be set forth in the
optionee's individual stock option agreement. The Company currently has not
prepared the ESOP. In order to qualify for certain preferential treatment under
the Code, ISOs must satisfy the statutory requirements thereof. Options that
fail to satisfy those requirements will be deemed NQOs and will be subject to
other rules under the Code.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of September 30, 1997 (a) by each
person known to the Company to own beneficially or more than 10% of any class of
the Company's securities, including those shares subject to outstanding options
and (b) by each of the Company's Officers and Directors and (c) by all officers
and directors of the Company as a group. As of December 1, 1997, there were
8,079,979 and 5,526,646 shares of Common Stock of the Company issued and
outstanding, respectively. Except as otherwise set forth, the address of each of
the individuals described below is 9400 S. Dadeland Boulevard, Suite 720, Miami,
Florida 33156.
9
<PAGE>
NAME AND ADDRESS SHARES BENEFICIALLY PERCENT
OF OWNER OWNED OF CLASS
- -------------------------------------------------------------------------------
Robert S. Berg(1)
Chairman, President
Chief Executive Officer 1,671,250 26.4%
Steven M. Wemple(1)
Director, Vice President, Chief
Operating Officer, Secretary,
Treasurer 916,251 14.50%
All Officers and Directors
as a Group(2 persons) 2,587,501 40.90%
========= =====
- -------------------
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Messrs. Berg and Wemple jointly own all of Elk River Aviation Inc., a
charter aircraft company. Sailormen, Inc. has used and plans to continue using,
the services of Elk River on a demand basis. Although, in the past, Sailormen
paid one-half of the rate charged to other customers by Elk River, subsequent to
the acquisition of Sailormen by the Company, Elk River charged regular rates to
the Company. In fiscal year 1996 and 1997, Sailormen paid $43,000 and $63,000 to
Elk River. In September 1997 the Company signed a twelve month lease agreement
to exclusively use the plane for a monthly rent of approximately $33,000 plus
operating costs including insurance, repairs and maintenance and pilot costs.
Upon signing the lease the Company gave ElK River Aviation a refundable deposit
of approximately $160,000.
In addition, Sailormen has been providing free book keeping services
for an apartment building owned by Messrs. Berg and Wemple. The balance due the
Company is approximately $24,000 and as of September 1997, the apartments were
sold and the balance will be collected during fiscal 1998.
10
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
The following list describes the exhibits filed as part of this Form
10-KSB:
ITEM 1. INDEX TO EXHIBITS
EXHIBIT NUMBER
3.1 Articles of Incorporation of Sobik's Subs, Inc. dated May 13, 1994 (1)
3.2 By-Laws of Sobik's Subs, Inc. dated May 13, 1994 (1)
4.1 Specimen of Common Stock Certificate(2)
9.1 Shareholders Voting Agreement dated April 17, 1996(1)
10.1 Form of Company Franchise Agreement, including the Addendum to Franchise
Agreement.(1)
10.2 Trademark Licensing Agreement dated March 1, 1993.(1)
10.3 Franchise Agreement between SBK Franchise Systems, Inc. and Sailormen,
Inc. dated March 2, 1995.(1)
10.4 Exclusive Trademark Licensing Agreement Sobik's Sandwich Shops, Inc. and
SBK Franchise Systems, Inc. dated March 1, 1993.(1)
10.5 Agreement and Plan of Reorganization between Sobik's Subs, Inc. and
Sailormen, Inc. dated January 22, 1996.(1)
10.6 List of Sobik's Subs franchisees.(1)
10.7 Exchange Agreement between FD Chemicals, Inc. and SBK Franchise Systems,
Inc. dated June 19, 1995.(1)
10.8 Agreement between Robert S. Berg, Steven M. Wemple, James S, Byrd, Norman
Kaufman and Sobik's Subs, Inc. dated June 25, 1996.(1)
21.1 Subsidiaries of Sobik's Subs, Inc.(1)
- -------------------
(1) Incorporated herein by reference to Form 10-KSB under the Securities
Exchange Act of 1934 filed with the Commission in July 1996, file number
000-21093
11
<PAGE>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
(TOGETHER WITH REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS)
F-1
<PAGE>
INTERFOODS OF AMERICA, INC.
Table of Contents
Reports of Independent Certified Public Accountants................F-3 - F-4
Consolidated Financial Statements:
Consolidated Balance Sheets...............................F-5
Consolidated Statements of Operations.....................F-6
Consolidated Statements of Stockholders' Equity...........F-7
Consolidated Statements of Cash Flows.....................F-8 - F-9
Notes to the Consolidated Financial Statements.....................F-10 - F-17
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Interfoods of America, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of Interfoods of
America, Inc. (a Nevada corporation) and subsidiaries as of September 30, 1997,
and the related consolidated statements of operations, stockholders' equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The consolidated
financial statements of Interfoods of America, Inc. as of September 30, 1996,
were audited by other auditors whose report, dated December 11, 1996, expressed
and unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan an preform the audit to obtain reasonable
assurance about examining, on a test basis, evidence supporting the amounts and
disclosures in the financial estimates made by management, as well as evaluation
the overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Interfoods of
America, Inc. as of September 30, 1997, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
December 5, 1997.
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Interfoods of America, Inc.
We have audited the accompanying consolidated balance sheets of Interfoods of
America, Inc. as of September 30, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years then
ended. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Interfoods of
America, Inc., as of September 30, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
James, Parks, Tschopp & Whitcomb, PA
December 11, 1996
Maitland, Florida
F-4
<PAGE>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable $115,742 $93,110
Inventories 66,271 38,946
Prepaid expenses 111,991 30,707
Deferred tax asset 164,900 0
--------- ---------
Total current assets 458,904 162,763
--------- ---------
Furniture, equipment and construction
in progress, net 3,698,995 2,573,737
--------- ---------
Other assets:
Deposits 331,122 85,487
Goodwill, less accumulated amortization
of $88,809 and $28,769 2,475,701 2,301,582
Other intangible assets, less accumulated
amortization of $181,200 and 169,929 147,677 99,646
Due from affiliates 26,274 54,778
--------- ---------
Total other assets 2,980,774 2,541,493
--------- ---------
Total assets $7,138,673 $5,277,993
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses $1,182,117 $1,011,343
Current portion of long-term debt 204,122 376,270
Current portion of deferred income
on sale and leaseback transactions 19,844 0
Notes payable to stockholders 0 13,150
--------- ---------
Total current liabilities 1,406,083 1,400,763
Deferred income on sale and leaseback
transactions, net 377,039 309,741
Long-term debt, excluding current portion 1,299,109 204,175
--------- ---------
Total liabilities 3,082,231 1,914,679
--------- ---------
Mandatorily redeemable preferred stock:
Restricted Class A stock, nonvoting,
228,640 shares authorized, 142,900
shares issued and outstanding, 6%
annual dividend 253,750 0
--------- ---------
Restricted Class B stock, nonvoting,
430,000 shares authorized, 405,000
shares issued and outstanding 405,000 0
--------- ---------
Commitments and contingencies (Note 7)
Stockholders' equity:
Common stock, 25,000,000 shares authorized
at $.001 par value; 8,079,979 and 7,740,996
shares issued and 5,526,646 and 7,392,663
shares outstanding 8,080 7,741
Additional paid-in capital 4,197,189 3,797,528
Accumulated deficit (79,309) (376,687)
Treasury stock, at cost, 2,553,333 and
348,333 shares (728,268) (65,268)
--------- ---------
Total stockholders' equity 3,397,692 3,363,314
--------- ---------
Total liabilities and
stockholders' equity $7,138,673 $5,277,993
========= =========
</TABLE>
The accompanying notes to the consolidated financial statements are an
integral part of these balance sheets.
F-5
<PAGE>
<TABLE>
<CAPTION>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended September 30, 1997 and 1996
1997 1996
---- ----
<S> <C> <C>
Revenues:
Restaurant sales $13,830,499 $5,974,242
Royalties and fees 261,683 323,832
---------- ----------
Total revenues 14,092,182 6,298,074
---------- ----------
Cost and expenses:
Cost of sales 12,184,518 4,210,732
General and administrative expenses 1,574,526 2,230,751
Depreciation and amortization 187,690 208,382
---------- ----------
Total cost and expenses 13,946,734 6,649,865
---------- ----------
Operating profit (loss) 145,448 (351,791)
---------- ----------
Other income (expense):
Other income 62,821 52,262
Interest expense (54,291) (109,824)
---------- ----------
Total other income (expense) 8,530 (57,562)
---------- ----------
Net income (loss) attributable
to common stockholders 153,978 (409,353)
Deferred tax benefit 164,900 0
---------- ----------
Net income (loss) $318,878 $(409,353)
========== ==========
Net income (loss) per share, less
preferred stock dividends $0.05 $(0.09)
========== ==========
Weighted average shares outstanding 6,585,953 4,696,361
========== ==========
</TABLE>
The accompanying notes to the consolidated
financial statements are an integral part of these statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the years ended September 30, 1997 and 1996.
ADDITIONAL
COMMON COMMON PAID-IN ACCUMULATED TREASURY
STOCK SHARES AMOUNT CAPITAL DEFICIT STOCK TOTAL
------------ ------ ---------- ----------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1995 2,333,403 $2,333 $64,827 $32,666 $(50,268) $49,558
Net loss 0 0 0 (409,353) 0 (409,353)
Purchase of treasury stock 15,000 15 (15) 0 (15,000) (15,000)
Common stock issued 5,392,593 5,393 3,732,716 0 0 3,738,109
--------- ------ --------- ------- -------- ---------
BALANCE, SEPTEMBER 30, 1996 7,740,996 7,741 3,797,528 (376,687) (65,268) 3,363,314
Net income 0 0 0 318,878 0 318,878
Preferred stock- class A dividend 0 0 0 (21,500) 0 (21,500)
Purchase of treasury stock 0 0 0 0 (663,000) (663,000)
Common stock issued 338,983 339 399,661 0 0 400,000
--------- ------ --------- ------- -------- ---------
BALANCE, SEPTEMBER 30, 1997 8,079,979 $8,080 $4,197,189 $(79,309) $(728,268) $3,397,692
========= ====== ========= ======= ======== =========
</TABLE>
The accompanying notes to the consolidated financial statements are
an integral part of these statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended September 30, 1997 and 1996
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $318,878 $(409,353)
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization 187,690 208,382
Deferred income tax benefit (164,900) 0
Changes in assets and liabilities:
Accounts receivable (22,632) (57,488)
Deposits (245,635) (6,275)
Inventories (27,325) 637
Accounts payable and accrued expenses 170,774 (485,310)
Prepaid expenses (81,284) 9,363
--------- ---------
Net cash provided by (used in) operating activities 135,566 (740,044)
--------- ---------
Cash flows from investing activities:
Capital expenditures (963,654) (1,098,202)
Acquisition of restaurants (50,000) 0
Proceeds from sale of land and building 425,000 2,230,000
Collection of note receivable 0 200,000
Acquisition of intangible assets (59,302) 0
Due from affiliates 28,504 58,280
--------- ---------
Net cash provided by (used in) investing activities (619,452) 1,390,078
--------- ---------
Cash flows from financing activities:
Proceeds from long term debt 1,343,594 0
Repayment of long-term debt (420,808) (1,244,277)
Repayment of notes payable to stockholders (13,150) (42,350)
Purchase of treasury stock (233,000) (15,000)
Redemption of Restricted Class A Preferred stock (150,000) 0
Redemption of Restricted Class B Preferred stock (25,000) 0
Preferred stock- class A dividend (17,750) 0
Proceeds from common stock issued 0 646,020
--------- ---------
Net cash provided by (used in) financing activities 483,886 (655,607)
--------- ---------
Net decrease in cash and cash equivalents 0 (5,573)
--------- ---------
Cash and cash equivalents:
Beginning of period 0 5,573
--------- ---------
End of period $ 0 $ 0
========= =========
</TABLE>
Continued
F-8
<PAGE>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended September 30, 1997 and 1996
(Continued)
Supplemental disclosure of noncash financing and investing activities:
During the year ended September 30, 1996, the Company exchanged 2,500,000 shares
of common stock for 100% of the outstanding common stock of an entity known as
Sailormen, Inc. which was valued at $3,000,000.
In October 1996, the company purchased four Popeyes restaurants for $450,000 of
which $50,000 was paid in cash and 228,640 shares of mandatorily redeemable
Restricted Class A preferred stock were issued, valued at $400,000.
In April 1997, 1,030,000 common shares were purchased and exchanged for 430,000
shares of mandatorily redeemable Restricted Class B preferred stock valued at
$430,000.
On September 22, 1997, the Company purchased a Popeyes restaurant in Fort
Pierce, Florida for 338,983 shares of common stock, valued at $400,000.
Supplemental disclosures of cash flow information: 1997 1996
---- ----
Cash paid during the year:
Income taxes $ 0 $ 0
======== =======
Interest $122,572 $41,543
======== =======
The accompanying notes to the consolidated financial statements
are an integral part of these financial statements.
F-9
<PAGE>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The accompanying consolidated financial statements include the accounts of
Interfoods of America, Inc. ("Interfoods" or the "Company" formerly known as
Sobik's Subs, Inc.) and its wholly owned subsidiaries, SBK Franchise Systems,
Inc. ("SBK"), Sobik's Restaurant Corp. ("Restaurant") and Sailormen, Inc.
("Sailormen"). In September 1996, the Company changed its name from Sobik's
Subs, Inc. to Interfoods of America, Inc.
SBK was incorporated under the laws of the State of Florida on March 8, 1993.
SBK is engaged in franchise sales of a system of business of producing and
merchandising distinctive specialty sandwiches, related food items and other
products, under the name "Sobik's Subs."
Restaurant was incorporated in 1995 for the purpose of operating Sobik's Subs
Inc. stores in Central Florida. The first company-owned store was opened on
September 20, 1995.
At September 30, 1997, there were 52 existing franchises and company-owned
Sobik's Subs stores. The stores are located primarily in the Central Florida
Area.
In May 1996, the Company purchased all of the outstanding stock of Sailormen, an
operator of eleven "Popeye's Chicken and Biscuits" restaurants in South Florida.
The purchase price consisted of 2,500,000 shares of the Company's common stock
valued at $1.20.
The acquisition of Sailormen was accounted for by the purchase method of
accounting, and the net assets acquired are included in the Company's
consolidated balance sheets based on their estimated fair values. In July 1996,
a Form 10SB was filed with the Securities and Exchange Commission, which
reflected the acquisition of Sailormen on a pro forma basis. Subsequent to this
date, the Company reevaluated the fair market value ascribed to the business
acquired, and decreased the amount recorded as goodwill to $2,330,351. The
excess of the purchase price over the estimated fair value of the net assets
acquired ("goodwill") is being amortized on a straight-line basis over 40 years.
In October 1996, Interfoods acquired the assets of a company which operated four
"Popeye's Chicken and Biscuits" restaurants in Birmingham, Alabama. The purchase
price consisted of $50,000 cash and 228,640 shares of the Company's mandatorily
redeemable Restricted Class A preferred stock. The preferred shares are
convertible into common shares, at the shareholder's election, in equal amounts
over a period of eight quarters beginning three months from date of acquisition;
or are required to be redeemed at a rate of $50,000 per quarter. The preferred
shares have no voting rights until converted to common stock, and are entitled
to an annual dividend of 6%. As of September 30, 1997, 85,740 shares of
mandatorily redeemable Restricted Class A preferred stock has been redeemed for
$150,000.
F-10
<PAGE>
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments with an original
maturity of three months or less. There were no cash and cash equivalents at
September 30, 1997 and 1996.
REVENUE RECOGNITION
In connection with its franchising operations, the Company receives initial
franchise fees, transfer fees and royalties. Initial franchise fees and transfer
fees are recognized as income when substantially all services and conditions
relating to the sale of the franchise have been performed or satisfied, which
occurs when the franchised restaurant commences operations. Royalties, which are
based upon a percentage of the franchise's gross sales, are recognized as income
when the fees are earned and become receivable and collectible.
FURNITURE AND EQUIPMENT
Property and equipment acquired in exchange for restricted common stock is
recorded at the fair market value of the assets acquired.
All other property and equipment is recorded at cost. Depreciation is provided
using the straight-line method over the following estimated useful lives:
Leasehold improvements Lesser of 20 years or life of lease
Furniture and equipment 5-20 years
The Company capitalizes costs relating to new restaurant start-up costs
activities, such costs include training and labor costs prior to opening the new
restaurant. On April 22, 1997, the Accounting Standards Executive Committee
issued Exposure Draft Proposed Statement of Position, "Reporting on Costs of
Start-up Activities." This Exposure Draft when issued would require the write
off of start-up costs capitalized by the Company. The write off will be reported
as a cummulative change in accounting principle. The proposed effective date for
the exposure draft would be for fiscal years beginning after December 15, 1997.
As of September 30, 1997 the Company has capitalized start-up costs of
approximately $120,000.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
INTANGIBLE ASSETS
Intangible assets are recorded at cost and consist of organizational costs,
trade marks and franchise rights which are being amortized using the
straight-line method over 5 years, 10 years and 20 years, respectively. The
franchise agreements are for an initial term of 20 years and extended for
additional ten-year terms upon the payment of one-half of the then-applicable
franchise fee (currently $25,000) and the execution of a renewal franchise
agreement. The franchise terms require the Company to pay royalties of 5% and
advertising of 3% of gross sales on a weekly basis. Goodwill is amortized on a
straight-line basis over 40 years.
F-11
<PAGE>
Statement of Financial Accounting Standard No. 121, "Accounting for Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"),
is effective for fiscal years beginning after December 15, 1995. SFAS 121
requires that long-lived assets and certain identifiable intangibles to be held
and used or disposed of by an entity be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Under such circumstances, SFAS 121 requires that long-lived
assets and certain identifiable intangibles to be held and used or disposed of
be reported at the lower of their carrying amount or fair value less cost to
sell. Accordingly, when events or circumstances indicate that long-lived assets
may be impaired, the Company estimates the asset's future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
expected future undiscounted cash flows is less than the carrying amount of the
asset, an impairment loss is recognized based on the excess of the carrying
amount over the fair value of the asset. The Company determined that no
impairment loss need be recognized for applicable assets at September 30, 1997.
USE OF ESTIMATES
Management of the Company has made certain estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent assets
and liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined based on
available information and appropriate valuation methodologies. The carrying
amounts of accounts receivable and accounts payable approximate fair value due
to the short-term nature of the accounts. The fair value of due from affiliates,
notes payable to stockholders, long-term notes payable and mandatorily
redeemable restricted preferred stock approximate the carrying value of such
assets and liabilities as of September 30, 1997 and 1996.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is based on the number of weighted average shares
outstanding. For the purpose of computing primary earnings per share, preferred
stock dividends paid or accrued of $21,500 during the year has been excluded
from net income to determine earnings available for common shareholders.
Fully diluted earnings per share for the year ended September 30, 1997
contemplates the conversion of preferred stock to 142,900 shares of common
stock. Primary and fully diluted earnings per share are the same.
If the Company were required to calculate earnings per share under Statement of
Financial Accounting Standards No. 128, which is effective for periods after
December 15, 1997, basic and diluted earnings per share for the years ended
September 30, 1997 and 1996 would not have been materially different than the
earnings per share reported in the accompanying consolidated statements of
income.
RECLASSIFICATION
Certain 1996 accounts have been reclassified to be current year presentation.
F-12
<PAGE>
2. FURNITURE, EQUIPMENT AND CONSTRUCTION IN PROGRESS
Furniture and equipment consist of the following at September 30:
1997 1996
---- ----
Leasehold improvements $ 959,022 $ 942,537
Furniture and equipment 2,534,273 1,776,697
Construction in progress 494,787 0
----------- -----------
3,988,082 2,719,234
Less-accumulated
depreciation and
amortization (289,087) (145,497)
----------- -----------
$ 3,698,995 $ 2,573,737
=========== ===========
3. PREPAID EXPENSES
Prepaid expenses consisted of the following at September 30:
1997 1996
---- ----
Insurance $ 18,086 $ 4,465
Marketing 35,841 0
Other 58,064 26,242
------------ -------------
Total prepaid expenses $ 111,991 $ 30,707
============ =============
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following at September
30:
1997 1996
---- ----
Accounts payable $ 754,020 $ 474,988
Bank overdraft 179,985 129,323
Payroll 117,531 71,698
Interest 0 68,281
Other 130,581 267,053
----------- -------------
Total accounts payable and
accrued expenses $ 1,182,117 $ 1,011,343
=========== =============
F-13
<PAGE>
5. LONG-TERM DEBT
Long-term debt consists of the following at September 30:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Note payable to a financial institution, payable in monthly installments of
$17,996 including fixed interest at 10.75%. The note matures in July 2007. $1,308,047 $0
Annual line of credit with financial Institution. Interest is payable monthly at
6.9% with principal balance due on December 31, 1997, subject to
annual renewal approval by the financial institution. Secured by
certificate of deposit held by an affiliate of the Company. The principal
balance was paid in full during August 1997. 0 235,268
Note payable to a financial institution, due in monthly installments of
$6,295, including interest at 7.5% through July 1998. Unsecured. 53,455 128,989
Note payable to a company, due in monthly installments of $4,000,
including imputed interest at 8% through October 1998. Unsecured. 47,000 90,000
Note payable to a financial institution, due on demand, including interest
at 10%. Unsecured. 0 17,959
Note payable to a financial institution, due in monthly installments of
$2,000, including interest at 12% through March 2001. Unsecured. 94,729 108,229
----------- ---------
1,503,231 580,445
Less - Current portion (204,122) (376,270)
----------- ---------
Long-term debt $ 1,299,109 $ 204,175
=========== =========
</TABLE>
Annual maturities of long-term debt as of September 30, 1997 are as follows:
1998 $ 204,122
1999 112,169
2000 122,128
2001 131,941
2002 121,550
Thereafter 811,321
----------
$1,503,231
==========
6. COMMON AND PREFERRED STOCK
On June 2, 1994, the Company purchased 333,333 shares of its common stock from a
stockholder at a total cost of $50,268. As of September 30, 1997 and1996, the
shares are being held as treasury stock.
During June, August and September of 1996, a total of 15,000 shares of the
Company's common stock were redeemed for $15,000 and are being held as treasury
stock.
On April 22, 1997, the Company purchased 1,030,000 shares of its common stock
from a former director in exchange for 430,000 shares of mandatorily redeemable
Restricted Class B preferred stock, which are redeemable monthly at a rate of
5000 shares for $5,000 per month for 86 months. During the year ended September
30, 1997,
F-14
<PAGE>
the Company redeemed 25,000 of these preferred shares for $25,000.
During the year ended September 30, 1997, the Company repurchased an additional
25,000 shares of its common stock from the same former director for $25,000. As
of September 30, 1997, those shares are being held as treasury stock.
During the year ended September 30, 1997, the Company purchased 1,150,000 shares
of its common stock from a former director for $208,000 which are being held as
treasury stock. See Note 1 for the terms and conditions of the Company's
mandatorily redeemable restricted preferred stock- class A.
7. COMMITMENTS AND CONTINGENCIES
a. Acquisition of Trademark
In March 1993, the Company entered into an agreement for the acquisition and use
of franchise and trademarks of Sobik's Subs rights from an unaffiliated party
for $15,000 plus 25% and 24% of gross receipts in 1997 and 1996, respectively,
from franchisees for the following five years, payable monthly. During the years
ended September 30, 1997 and 1996, the Company incurred $61,272 and $40,000 in
royalty expense, respectively, which is included in general and administrative
expenses in the accompanying consolidated statement of operations.
b. Office and Store Leases
During September 1996, under a sale and leaseback agreement, the Company sold
five owned stores (land and buildings) for $2,230,000 and leased them back under
twenty-year operating lease agreements. The transactions resulted in a total
gain of $309,741 which has been deferred and is being amortized over the
twenty-year lease terms. Proceeds from the sale were used to pay off existing
notes payable and other current liabilities. During December 1996, the Company
sold an owned store for $425,000 and leased the store back under a twenty-year
operating lease. The transaction has resulted in a gain of $100,000, which has
been deferred and is being amortized over the twenty-year lease term.
Future minimal rental commitments for operating leases over the next five years
with noncancellable terms in excess of one year as of September 30, 1997, are as
follows:
1998 $ 843,513
1999 774,785
2000 682,453
2001 648,771
2002 648,771
Thereafter 5,593,324
----------
$9,191,617
==========
Rent expense for the years ended September 30, 1997 and 1996 was $878,662 and
$220,158, respectively.
8. RELATED PARTY TRANSACTIONS
Amounts due from affiliates represent non-interest bearing advances made
primarily to certain entities controlled by the principal stockholders of the
Company. The amounts relate to bookeeping services provided for the apartment
building owned by the CEO and President.
On September 8, 1997, the Company entered into an aircraft lease agreement with
Elk River Aviation, Inc., an affiliate controlled by the Company's CEO and
President. The lease term is for a 12 month period beginning
F-15
<PAGE>
October 1, 1997. Monthly rental is $33,066, plus 6.5% tax. Under the terms of
the lease, the Company is required to pay all operating costs and maintain
certain minimum insurance coverages on the aircraft. The lease required a
deposit of $160,438 which is included in deposits in the accompanying
consolidated balance sheet as of September 30, 1997.
9. INCOME TAXES
The tax effects of temporary differences that give rise to deferred tax assets
and deferred tax liabilities at September 30, 1997 and 1996 are presented below:
1997 1996
---- ----
Deferred tax assets:
Net operating loss carryforward $ 164,900 $ 210,000
Less - Valuation allowance 0 (210,000)
--------- ----------
Net deferred tax assets $ 164,900 $ 0
========= ==========
At September 30, 1997 and 1996, the Company had net operating loss carryforwards
available to offset taxable income and tax liabilities of approximately $485,000
and $620,000, respectively. The losses expire between the years 2002 and 2007.
As of September 30, 1996, such operating loss carryforwards were fully reserved
as their realization was not more likely then not. As a result of the sale of
SBK on December 4, 1997 (See Note 10), the realizability of such carryforwards
is assured and accordingly, the valuation allowance was reversed.
The effective income tax provision (benefit) on pre-tax income (loss) differed
from the provision (benefit) computed at the U.S. Federal statutory rate for the
following reasons:
1997 1996
---- ----
Provision (benefit) computed at
Federal statutory rate of 34% $ 52,370 $ (139,180)
Other (7,270) 0
Change in valuation allowance (210,000) 139,180
---------- ----------
Deferred income tax benefit $(164,900) $ 0
========== ==========
10. SUBSEQUENT EVENTS
On October 1, 1997, Restaurant sold substantially all of its assets for a
$100,000 promissory note.
On November 3, 1997, the Company entered into an agreement to acquire eight
Popeyes Chicken and Biscuits locations in Baton Rouge, Louisiana for
approximately $4.1 million. The transaction will be accounted for as a purchase.
On November 14, 1997, the Company entered into a $300,000 sale-leaseback
transaction on equipment and leasehold improvements of one of the Popeyes store
locations.
On November 20, 1997, James Byrd, the former Chairman and Director of the
Company filed suit against the Company and Mr. Berg for an injunction and
damages resulting from an alleged breach of contract by the Company. The
allegation made by Mr. Byrd are that the Company breached an agreement to
repurchase 150,000 shares of common stock at a price of approximately $130,000.
The Company believes that the suit is without merit and the Company will
vigorously defend this action.
On December 4, 1997, the Company sold SBK, for $1.1 million. The purchase price
consisted of 500,000 shares
F-16
<PAGE>
of the acquirer's common stock, a $500,000 promissory note and $100,000 in cash.
The sale resulted in a pretax gain of approximately $1.0 million.
F-17
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on this 19th day of December 1997 on its behalf
by the undersigned, thereunto duly authorized.
INTERFOODS OF AMERICA, INC.
(Registrant)
STEVEN WEMPLE
---------------------------
By: /S/STEVEN WEMPLE
Steven Wemple, President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and the capacities on the dates
indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/S/ROBERT S. BERG Director, Chairman of the Board December 19, 1997
- ----------------- Chief Executive Officer
Robert S. Berg
/S/STEVEN M. WEMPLE Director, President, Chief Operating December 19, 1997
- ------------------- Officer, Secretary and Treasurer
Steven M. Wemple
</TABLE>
12
<PAGE>
EXHIBIT INDEX
EXHBIT DESCRIPTION
- ------ -----------
27.0 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 115,742
<ALLOWANCES> 0
<INVENTORY> 66,271
<CURRENT-ASSETS> 458,904
<PP&E> 3,698,995
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,138,673
<CURRENT-LIABILITIES> 1,406,083
<BONDS> 0
658,750
0
<COMMON> 4,205,269
<OTHER-SE> (807,577)
<TOTAL-LIABILITY-AND-EQUITY> 7,138,678
<SALES> 14,092,182
<TOTAL-REVENUES> 14,092,182
<CGS> 12,184,518
<TOTAL-COSTS> 13,946,734
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,291
<INCOME-PRETAX> 153,978
<INCOME-TAX> (164,900)
<INCOME-CONTINUING> 318,878
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 318,878
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
