SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE OF 1934
For the quarterly period ended March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-21093
INTERFOODS OF AMERICA, INC.
(Exact name of registrant as specified in this charter)
NEVADA 59-3356011
(State of other jurisdiction (IRS Employer
of incorporation) Identification No.)
9400 SOUTH DADELAND BOULEVARD, SUITE 720, MIAMI, FL 33156
Address of principal executive offices
Registrant's telephone number, including area code (305) 670-0746
Check whether the issuer (1) has filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
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
As of May 1, 1998 there were 5,565,548 shares of the Issuer's Common
Stock outstanding.
<PAGE>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page(s)
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets at March 31, 1998 1-2
and September 30, 1997
CondensedConsolidated Statements of Operations for the three and 3
six months ended March 31, 1998 and 1997
Condensed Consolidated Statements of Cash Flows for the six months 4-5
ended March 31, 1998 and 1997
Notes to the Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis 9-10
Part II. Other Information
Item 1. Legal Proceedings 11
Signatures 11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, 1998 and September 30, 1997
ASSETS
MARCH 31, SEPTEMBER 30,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $105,392 $0
Accounts receivables 0 115,742
Inventories 88,030 66,271
Prepaid expenses 36,186 111,991
Note Receivable 500,000 0
Deferred tax asset 0 164,900
--------- ---------
Total current assets 729,608 458,904
Furniture, equipment and construction in progress, net 4,254,663 3,698,995
Other assets:
Deposits 248,963 331,122
Investment in unaffiliated company 500,000 0
Goodwill, net 2,460,681 2,475,701
Other intangible assets, net 252,457 147,677
Due from affiliates 2,500 26,274
--------- ---------
Total assets $8,448,872 $7,138,673
========= =========
</TABLE>
Continued
1
<PAGE>
<TABLE>
<CAPTION>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, 1998 and September 30, 1997
Continued
LIABILITIES AND STOCKHOLDERS' EQUITY:
MARCH 31, SEPTEMBER 30,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $1,889,229 $1,182,117
Current portion of long term debt 162,940 204,122
Current portion of deferred income on sale-leaseback
transactions 48,349 19,844
------------ ----------
Total current liabilities 2,100,518 1,406,083
Deferred income on sale and leaseback transactions, net 860,375 377,039
Long-term debt, excluding current portion 1,220,417 1,299,109
------------ ----------
Total liabilities 4,181,310 3,082,231
------------ ----------
Mandatorily redeemable preferred stock class A and B 475,000 658,750
------------ ----------
Stockholders' equity
Common stock, 25,000,000 shares authorized at $.001 par 8,120 8,080
value; 8,119,548 and 8,079,979 shares issued and
5,565,548 and 5,526,646 shares outstanding
Additional paid-in capital 4,224,961 4,197,189
Retained earnings and\accumulated deficit 287,749 (79,309)
Treasury stock at cost, 2,553,333 and 2,553,333 shares (728,268) (728,268)
------------ ----------
Total stockholder's equity 3,792,562 3,397,692
------------ ----------
Total liabilities and stockholders' equity $8,448,872 $7,138,673
============ ==========
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
<CAPTION>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of
Operations For the three and six months ended
March 31, 1998 and 1997
(Unaudited)
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED 3/31/98 ENDED 3/31/97 ENDED 3/31/98 ENDED 3/31/97
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales $5,654,035 $3,557,585 $10,033,963 $6,982,380
Royalties and fees 0 66,378 42,214 135,533
---------- ---------- ----------- ----------
Total revenues 5,654,035 3,623,963 10,076,177 7,117,913
Cost and expenses:
Cost of sales-restaurants 4,886,569 3,213,061 8,667,783 6,329,427
Depreciation and amortization-
restaurants 48,612 25,833 122,462 51,667
General and administration 618,828 346,398 1,236,407 680,440
Depreciation and amortization 6,343 15,000 17,607 30,000
---------- ---------- ----------- ----------
Operating profit 93,683 23,671 31,938 26,379
Other income (expense):
Gain on sale of subsidiary 0 0 1,036,237 0
Other income(expenses), net 37,769 0 (386,096) 0
Interest, net (28,489) 8,047 (102,342) 15,152
---------- ---------- ----------- ----------
Income before income tax provision 102,963 31,718 579,757 41,531
---------- ---------- ----------- ----------
Income tax provision 36,754 0 202,679 0
---------- ---------- ----------- ----------
Net income $ 66,389 $ 31,718 $ 377,058 $ 41,531
========== ========== =========== ==========
Net earnings per share, basic and
diluted $ 0.01 $ 0.00 $ 0.06 $ 0.01
========== ========== =========== ==========
Weighted average shares
outstanding 5,876,272 7,392,663 5,876,272 7,392,663
========== ========== =========== ==========
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
<CAPTION>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the six months ended March 31, 1998 and 1997
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 377,058 $ 41,531
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 140,051 81,667
Gain on sale of subsidiary-SBK Franchise Systems, Inc. (1,036,237) 0
Non-recurring charges 411,584 0
Stock based compensation 27,812 0
Gain on sale of property and equipment 0 (100,000)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 52,220 (28,920)
Decrease in deposits 40,409 28,962
Increase in inventories (21,759) (5,301)
Increase in accounts payable and accrued expenses 749,781 96,852
Decrease (increase) in prepaid expenses 14,493 (14,748)
Increase in deferred income 0 100,000
---------- ----------
Net cash provided by (used in) operating activities 755,412 (200,043)
---------- ----------
Cash flows from investing activities:
Capital expenditures (427,880) (161,452)
Proceeds from sales of subsidiary-SBK 90,000 0
Proceeds from sales of real estate 3,830,517 48,353
Acquisitions of restaurants (3,704,057) 0
Acquisitions of intangibles (152,500) (19,563)
Due from affiliates 23,774 1,556
Purchase of treasury stock 0 (25,000)
---------- ----------
Net cash used in investing activities (340,146) (156,106)
---------- ----------
Cash flows from financing activities:
Repayment of long-term debt (119,874) (30,787)
Redemption of Class A Preferred Stock (150,000) 0
Redemption of Class B Preferred Stock (30,000) 0
Class A Preferred Stock dividend (10,000) 0
Repayment of Notes Payable, Stockholders 0 (13,150)
---------- ----------
Net cash used in financing activities (309,874) (43,937)
---------- ----------
Net increase in cash and cash equivalents 105,392 0
Cash and cash equivalents:
Beginning of period $ O $ 0
========== ==========
End of period $ 105,392 $ 0
========== ==========
</TABLE>
Continued
4
<PAGE>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the six months ended March 31, 1998 and 1997
Continued
Supplemental disclosure of noncash financing and investing activities:
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 by the parties 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.
On December 4, 1997, the Company sold its subsidiary SBK Franchise Systems, Inc
for $1.1 million for consideration of a $500,000 promissory note, $500,000 worth
of the acquirer's common stock and $100,000 cash.
On December 11, 1997, the Company entered into a sale-leaseback transaction for
approximately $3.7 million, that resulted in a deferred gain of approximately
$530,000.
'<TABLE>
<CAPTION>
Supplemental disclosures of cash flow information: 1998 1997
---- ----
<S> <C> <C>
Cash paid for taxes during the period $ 0 $ 0
======= =======
Interest paid during the period $75,731 $20,967
======= =======
</TABLE>
See accompanying notes.
5
<PAGE>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted in this Form
10-QSB in compliance with the Rules and Regulations of the Securities
and Exchange Commission. However, in the opinion of Interfoods of
America, Inc. ("the Company"), the disclosures contained in this Form
10-QSB are adequate to make the information fairly presented. See
Report 10-KSB/2A for the year ended September 30, 1997 for additional
information relevant to significant accounting policies followed by the
Company.
BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited consolidated
financial statements reflect all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial position
as of March 31, 1998 and the results of operations for the three and
six month periods ended March 31, 1998 and 1997 and cash flows for each
of the three and six month periods ended March 31, 1998 and 1997. The
results of operations for the three and six month periods ended March
31, 1998 are not necessarily indicative of the results which may be
expected for the entire year; furthermore, the Company had a
significant gain form the sale of one of its subsidiaries during the
six months ended March 31, 1998, as well as certain accruals and
writeoffs for specific balance sheet account items. Certain 1997
amounts have been reclassified to conform to the 1998 presentation.
2. PURCHASE OF RESTAURANTS
On December 11, 1997 the Company acquired eight Popeyes locations in
Baton Rouge, LA for approximately $3.7 million. The transaction was
accounted for as a purchase.
3. SALE OF SUBSIDIARY
On December 4, 1997, the Company sold its SBK Franchise Systems, Inc.
subsidiary to JRECK Subs Inc. for $1.1 million. The purchase price
consisted of $500,000 worth of JRECK's common stock, a $500,000
promissory note which bears interest at 7% and is due December 1998,
and $100,000 in cash. The sale resulted in a pretax gain of
approximately $1.0 million.
6
<PAGE>
4. MANDATORILY REDEEMABLE CLASS A AND B PREFERRED STOCK
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1998 1997
---- ----
<S> <C> <C>
Restricted Class A preferred stock, nonvoting, 228,640 shares
authorized, 57,160 and 142,900 shares issued and outstanding, 6% annual
dividend $100,000 $253,750
Restricted Class B preferred stock, nonvoting, 430,000 shares
authorized, 375,000 and 405,000 shares issued and outstanding $375,000 $405,000
-------- --------
Total mandatorily redeemable
Class A and B preferred stock $475,000 $658,750
======== ========
</TABLE>
5. NEW LEASES AND SALE-LEASEBACK TRANSACTIONS
Beginning October 1, 1997, the Company entered into operating leases for
equipment from First Southern Financial Corp., a Florida corporation
controlled by the CEO and President. Under the terms of these leases, the
Company is to pay First Southern Financial Corp. approximately $2,700 per
month for the equipment. The Company at its option may purchase the equipment
at cost with no penalty at any time during the leases which expire in 2002.
On November 14, 1997, the Company entered into a $300,000 sale and leaseback
transaction at net book value for equipment and leasehold improvements of one
of the Popeyes store locations. The rent is approximately $5,200 per month for
a term of seven years.
On December 11, 1997, the Company entered into sale-leaseback transactions for
the land and buildings of six Popeyes locations purchased in Baton Rouge, LA
for approximately $3.7 million. The sale resulted in a net deferred gain of
approximately $530,000, which is being amortized over the 20 year life of the
leases.
On December 11, 1997, the Company entered into a lease agreement with J.
Russell Jones, a director of the Company, for one Popeyes restaurant located
in Baton Rouge, Louisiana. The lease is a long term operating lease with a
purchase option. The rent is $5,000 per month. The Company intends to purchase
the real estate upon which the restaurant is located and is currently
finalizing the terms for that purchase. In the event the Company purchases
such real estate, the Company intends to subsequently enter into a sale and
leaseback transaction with respect to such property.
6. OTHER NON-RECURRING, NON-OPERATING EXPENSES
During the six months ended March 31, 1998, the Company recorded a charge of
$411,584 for certain non-recurring and non-operating items. The Company has
made certain estimates and judgements as to the impairment of certain assets
and the probable exposure to certain liabilities. The detail of this charge is
as follows:
Accrual for certain liabilities $245,000
Writeoff of receivables-non-operating 63,522
Writeoff of deposits-non-operating 41,750
Other, net 61,312
--------
Total other expenses, net $411,584
7
<PAGE>
7. TERRITORY RIGHTS
In February 1998, the Company entered into an exclusive territory and
development agreement with A.F.C. Enterprises, Inc., the franchisor, for
developing Popeyes restaurants in Antigua, Trinidad/Tobago, St. Lucia and
Guyana. Under this agreement the Company is to develop eleven stores in these
countries. The Company paid $107,500 for these rights which is included in the
the "other intangibles" caption on the balance sheet at March 31, 1998. These
rights are being amortized over 20 years.
8
<PAGE>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SEE ATTACHED FINANCIAL STATEMENTS OF THE ISSUER
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this report and
together with the Company's Form 10-KSB/2A for the year ended September 30,
1997.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED MARCH 31, 1998 COMPARED TO MARCH 31, 1997
The table below represents selected financial data from the results of
operations for the three and six months ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED 3/31/98 ENDED 3/31/97 ENDED 3/31/98 ENDED 3/31/97
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
TOTAL REVENUES $5,654,035 $3,623,963 $10,076,177 $7,117,913
STORE LEVEL PROFIT $718,854 $385,069 $1,285,952 $736,819
NET INCOME $66,389 $31,718 $377,058 $41,531
EPS $0.01 $0.00 $0.06 $0.01
# OF STORES 25 15 25 15
</TABLE>
For the three and six months ended March 31, 1998, the Company had total
revenues of $5,654,035 and $10,076,177 compared to total revenues of
$3,623,963 and $7,117,913 for the three and six months ended March 31, 1997.
The increase in revenues was attributable to the Company's acquisition of one
store in Fort Pierce, FL in September 1997, eight stores in Baton Rouge, LA on
December 11th, 1997 and the addition of one new store opening in Homestead, FL
in September 1997.
The Company had an operating profit of $93,683 and $31,938 for the three and
six months ended March 31, 1998 compared to operating profit of $23,671 and
$26,379 for the three and six months ended March 31, 1997. The increase in
operating profit is attributable to the increase in the year to date store
level profit to $1,285,952 for the six months ended March 31, 1998, compared
to $736,819 for the six months ended March 31, 1997. The increase was the
result of increases in the number of stores (ten), television advertising and
customer counts. However; this increase was offset by an increase in minimum
wage rate, as well as an increase in general and administrative expenses
related to the indirect costs of the recent acquisitions which were not
capitalized. Additional personnel costs were incurred for the supervisors to
train and assimilate the Company's procedures and system into the acquired
stores, which contributed to the higher general and administrative costs. The
Company's pretax net income for the three and six months ended March 31, 1998
was $102,963 and $577,498 compared to $31,718 and $41,531 for the three and
six months ended March 31, 1997. The increase during this quarter was
attributable to higher store level profit obtained from the acquired stores
and improved operational efficiencies. The increase year to date was primarily
attributable to the sale of one of the Company's subsidiaries, SBK Franchise
Systems, Inc. for $1.1 million resulting in a pretax gain of $1,036,237. This
gain was offset by non-recurring charges of $411,584. The net income after tax
was equivalent to an earnings per share of $0.01 and $0.06 for the three and
six months ended March 31, 1998 compared to a break-even per share and $0.01
for the three and six months ended March 31, 1997.
The Company's general and administrative costs increased to $1,236,407 for the
six months ended March 31, 1998 compared to $680,440 during the six months
ended March 31, 1997. The increase was due to an increase in personnel costs
for supervisors to train and assimilate the Company's procedures and system
into the acquired stores, professional fees, business travel costs associated
with potential acquisitions and indirect costs on recent acquisitions.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations for the six months ended March 31, 1998 was
$755,412 compared to net cash used in operations of ($200,043) for the six
months ended March 31, 1997.
The increase in net cash provided by operating activities this period was
primarily attributable to an add back of one-time non cash charges of $411,584
and by an increase in the accounts payable and accrued expenses of $752,012.
This was offset by the gain on the sale of the Company's subsidiary, SBK
Franchise, Systems, Inc. ("SBK"), for the non cash items received as
consideration for this sale.
At March 31, 1998, the Company had total current assets of $729,608 and total
assets of $8,448,872 as compared to total current assets of approximately
$458,904 and total assets of approximately $7,138,673 at September 30, 1997.
The increase was primarily due to the sale of the Company's subsidiary, SBK,
for which the Company received $100,000 in cash, a promissory note in the
amount of $500,000 and common stock of the acquirer, valued at $500,000. In
addition, the Company added approximately $700,000 in equipment from the
purchase of the eight stores in Baton Roughs, LA.
Net cash used in financing activities was ($309,874) for the six months ended
March 31, 1998 as compared to net cash used by financing activity for the six
months ended March 31, 1997 of ($43,937). The increase in cash used in
financing activity was primarily the results of the Company's redemption of
mandatorily redeemable class A and B preferred stock of $180,000 and the
paying down of the Company's debt of $119,874.
The Company intends to obtain the necessary capital to continue its future
expansion plans as each acquisition presents itself. However, there can be no
assurance that the Company will be able to obtain capital under terms
acceptable to the Company.
FUTURE GROWTH AND EXPANSION
The Company intends to continue with its plan to acquire and build additional
Popeyes Chicken and Biscuits restaurants as opportunities present themselves;
however there can be no assurance the Company will acquire or build any new
stores under terms acceptable to the Company. See the September 30, 1997
annual 10-KSB/2A for further discussion on the Company's future growth and
plans of expansion.
10
<PAGE>
INTERFOODS OF AMERICA, INC.AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM I. LEGAL PROCEEDINGS
As previously reported, James Byrd filed suit against the Company on November
20, 1997 and that suit was dismissed on April 9, 1998 for failure to serve the
Company with process. On April 10, 1998, Mr. Byrd re-filed the suit against
the Company and Mr. Berg (Orange County Circuit Court Case No 98-3082) and
this time obtained service on the Company and Mr. Berg, with the exception
that Mr. Byrd is no longer seeking injunctive relief, the suit is almost
identical to the original suit that was dismissed. The Company has responded
to the suit by filing a Motion to Dismiss the suit. The Company believes that
the suit is without merit and intends to vigorously defend this action. In
addition, the Company intends to file a counterclaim against Mr. Byrd.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERFOODS OF AMERICA, INC.
Date: May 11, 1998 By: /S/ ROBERT S. BERG
-----------------------------------
Robert S. Berg, Chief Executive Officer
By: /S/ STEVE M. WEMPLE
----------------------------------
Steve M. Wemple, President
11
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 105,392
<SECURITIES> 0
<RECEIVABLES> 500,000
<ALLOWANCES> 0
<INVENTORY> 88,030
<CURRENT-ASSETS> 729,608
<PP&E> 4,254,663
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,448,872
<CURRENT-LIABILITIES> 2,100,518
<BONDS> 0
475,000
0
<COMMON> 3,504,813
<OTHER-SE> 287,749
<TOTAL-LIABILITY-AND-EQUITY> 8,448,872
<SALES> 10,076,177
<TOTAL-REVENUES> 10,076,177
<CGS> 8,667,783
<TOTAL-COSTS> 10,044,259
<OTHER-EXPENSES> (650,141)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 102,342
<INCOME-PRETAX> 579,757
<INCOME-TAX> 202,679
<INCOME-CONTINUING> 377,058
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 377,058
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
