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 June 30, 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 A
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 July 17, 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
Part I. Financial Information Page(s)
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
at June 30, 1998 and September 30, 1997 1-2
Condensed Consolidated Statements of Operations
for the three and nine months ended
June 30, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows
for the nine months ended June 30, 1998 and 1997 4-5
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
<PAGE>
<TABLE>
<CAPTION>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, 1998 and September 30, 1997
ASSETS
June 30, September 30,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $40,951 $0
Accounts receivable 0 115,742
Inventories 80,788 66,271
Prepaid expenses 48,374 111,991
Note Receivable 500,000 0
Deferred tax assets 0 164,900
----------- -------------
Total current assets 670,113 458,904
Furniture, equipment and construction in progress, net 4,457,445 3,698,995
Other assets:
Deposits 367,919 331,122
Investment in unaffiliated company 500,000 0
Goodwill, net 2,445,671 2,475,701
Other intangible assets, net 255,715 147,677
Due from affiliates 0 26,274
----------- -------------
Total assets $8,696,863 $7,138,673
=========== =============
</TABLE>
Continued
1
<PAGE>
<TABLE>
<CAPTION>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, 1998 and September 30, 1997
Continued
LIABILITIES AND STOCKHOLDERS' EQUITY:
June 30, September 30,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $2,009,603 $1,182,117
Current portion of long term debt 281,248 204,122
Current portion of deferred income on
sale-leaseback transactions 48,349 19,844
----------- -------------
Total current liabilities 2,339,200 1,406,083
Deferred income on sale and leaseback transactions, net 846,002 377,039
Long-term debt, net of current portion 1,178,804 1,299,109
----------- -------------
Total liabilities 4,364,006 3,082,231
----------- -------------
Mandatorily redeemable preferred stock class A and B 460,000 658,750
----------- -------------
Stockholders' equity
Common stock, 25,000,000 shares authorized at
$.001 par value; 8,118,881 and 8,079,979
shares issued and 5,565,548 and 5,526,646
shares outstanding 8,119 8,080
Additional paid-in capital 4,224,962 4,197,189
Retained earnings (deficit) 368,044 (79,309)
Treasury stock at cost, 2,553,333 (728,268) (728,268)
----------- -------------
Total stockholder's equity 3,872,857 3,397,692
----------- -------------
Total liabilities and stockholders' equity $8,696,863 $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 nine months ended June 30, 1998 and 1997
(Unaudited)
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED 6/30/98 ENDED 6/30/97 ENDED 6/30/98 ENDED 6/30/97
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales $6,167,438 $3,431,552 $16,201,401 $10,413,932
Royalties and fees 0 66,940 42,214 202,473
------------- ------------- ------------- -------------
Total revenues 6,167,438 3,498,492 16,243,615 10,616,405
------------- ------------- ------------- -------------
Cost and expenses:
Cost of sales-restaurant 5,338,468 2,947,438 14,019,981 9,276,866
Depreciation and amortization-
restaurants 55,310 25,343 177,752 77,009
General and administration 627,859 450,369 1,851,160 1,130,809
Depreciation and amortization 1,872 15,000 19,479 45,000
------------- ------------- ------------- -------------
Operating profit 143,929 60,342 175,243 86,721
Other income (expense):
Gain on sale of subsidiary 0 0 1,036,237 0
Other income(expenses), net 2,641 0 (385,714) 0
Interest, net (23,941) 33,186 (126,263) 48,337
------------- ------------- ------------- -------------
Income before income tax provision 122,629 93,528 699,503 135,058
Income tax provision 42,334 0 242,150 0
------------- ------------- ------------- -------------
Net income $80,295 $93,528 $457,353 $135,058
============= ============= ============= =============
Net earnings per share, basic and
diluted $0.01 $0.01 $0.08 $0.02
============= ============= ============= =============
Weighted average shares
outstanding 5,681,554 6,602,195 5,681,554 7,129,174
============= ============= ============= =============
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
<CAPTION>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the nine months ended June 30, 1998 and 1997
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $457,353 $135,058
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 197,231 122,009
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 (8,861)
Decrease (increase) in deposits (78,547) 20,645
Increase in inventories (14,517) (11,933)
Increase in accounts payable and
accrued expenses 872,386 168,906
Decrease (increase) in prepaid expenses 2,305 (4,408)
Increase in deferred income 0 100,000
---------- --------
Net cash provided by
operating activities 891,590 421,416
---------- --------
Cash flows from investing activities:
Capital expenditures (685,234) (313,532)
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 (160,000) 17,535
Due from affiliates 26,274 (53,792)
Purchase of treasury stock 0 (35,000)
---------- --------
Net cash used in investing activities (602,460) (336,436)
---------- --------
Cash flows from financing activities:
Repayment of long-term debt (200,587) (46,080)
Redemption of Class A Preferred Stock (150,000) 0
Redemption of Class B Preferred Stock (45,000) (10,000)
Class A Preferred Stock dividend (10,000) (15,750)
Repayment of Notes Payable, Stockholders 0 (13,150)
Proceeds from line of credit 157,408 0
---------- --------
Net cash used in financing activities (248,179) (84,980)
---------- --------
Net increase in cash and
cash equivalents 40,951 0
Cash and cash equivalents:
Beginning of period $0 $0
========== ========
End of period $40,951 $0
========== ========
</TABLE>
Continued
4
<PAGE>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the nine months ended June 30, 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.
On May 15, 1998, the Company entered into a sale leaseback transaction for
approximately $457,000 for a store in Baton Rouge,LA. There was no gain on the
sale.
Supplemental disclosures of cash flow information: 1998 1997
---- ----
Cash paid for taxes during the period $ 0 $ 0
======== =======
Interest paid during the period $146,584 $23,374
======== =======
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 June 30, 1998 and the results of operations for the three and
nine month periods ended June 30, 1998 and 1997 and cash flows for each
of the three and nine month periods ended June 30, 1998 and 1997. The
results of operations for the three and nine month periods ended June
30, 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
nine months ended June 30, 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, which represents
less than 20% ownership of a public company, 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
JUNE 30, SEPTEMBER 30,
1998 1997
---- ----
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, 360,000
and 405,000 shares issued
and outstanding $360,000 $405,000
-------- --------
Total mandatorily redeemable
Class A and B preferred stock $460,000 $658,750
======== ========
5. NEW LEASES AND SALE -LEASEBACK TRANSACTIONS
On October 1, 1997, the Company entered into an operating lease for
equipment from First Southern Financial Corp., a Florida corporation
controlled by the CEO and President. Under the terms of the lease the
Company is to pay First Southern Financial Corp. approximately $900 per
month for the equipment. The Company at its option may purchase the
equipment at cost with no penalty at any time during the lease which
expires September 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 May 15, 1998, the Company entered into a sale-leaseback transaction
for approximately $457,000 for one store in Baton Rouge, LA. There was
no gain or loss on the sale.
6. OTHER NON-RECURRING, NON-OPERATING EXPENSES
During the nine months ended June 30, 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 June 30, 1998. These rights are being amortized over 20 years.
8. NEW STORE DEVELOPMENT
During the third quarter of 1998, the Company purchased two land
parcels for $167,408 located in Fort Pierce, Florida and Birmingham,
Alabama to begin construction of two new Popeyes stores.
9. LINES OF CREDIT
The Company obtain a line of credit for $300,000 during the quarter and
currently has an outstanding balance of $157,408. This line of credit
bears an interest rate of 8.5% and matures 12/20/98. These proceeds
were used to purchase the two previously mentioned parcels of land. The
Company also obtained a commitment on a construction line of credit for
$2.2 million. Once the line is completed the Company intends to
replenish the $300,000 line of credit for the land purchases.
10. SUBSEQUENT EVENTS
On July 6, 1998, the Company acquired five Popeye's Chicken and Biscuit
restaurants in Pensacola, Florida for approximately $1.75 million cash
and newly authorized restricted common stock.
On July 6, 1998, the Company entered in a sale lease back for $1.75
million for two of those Popeyes stores located in Pensacola, Florida.
The term of the leases is 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 NINE MONTHS ENDED JUNE 30, 1998 COMPARED TO JUNE 30, 1997
The table below represents selected financial data from the results of
operations for the three and nine months ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED 6/30/98 ENDED 6/30/97 ENDED 6/30/98 ENDED 6/30/97
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
TOTAL REVENUES $6,167,438 $3,498,492 $16,243,615 $10,616,405
STORE LEVEL PROFIT $773,660 $525,710 $2,006,924 $1,262,530
NET INCOME $80,295 $93,528 $457,353 $135,058
EPS $0.01 $0.01 $0.08 $0.02
# OF STORES 25 15 25 15
</TABLE>
For the three and nine months ended June 30, 1998, the Company had
total revenues of $6,167,438 and $16,243,615 compared to total revenues
of $3,498,492 and $10,616,405 for the three and nine months ended June
30, 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 11, 1997 and the addition of one
new store opening in Homestead, FL in September 1997.
The Company had an operating profit of $143,929 and $175,243 for the
three and nine months ended June 30, 1998 compared to operating profit
of $60,342 and $86,721 for the three and nine months ended June 30,
1997. The increase in operating profit is attributable to the increase
in the year to date store level profit to $2,006,924 for the nine
months ended June 30, 1998, compared to $1,262,530 for the nine months
ended June 30, 1997. The increase was the result of increases in the
number of stores, tv advertising and customer counts. However; this
increase was offset by an increase in minimum wage, as well as an
increase in general and administrative expenses related to the indirect
costs of the recent acquisitions which were not capitalizable.
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 nine months
ended June 30, 1998 was $122,629 and $699,503 compared to $93,528 and
$135,058 for the three and nine months ended June 30, 1997. The
increase 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 $0.08 for the three and nine months
ended June 30, 1998 compared to $0.01 and $0.02 earnings per share for
the three and nine months ended June 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations for the nine months ended June 30, 1998
was $891,590 compared to $421,416 for the nine months ended June 30,
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 $872,386. This was offset by the gain on the sale of the
9
<PAGE>
Company's subsidiary, SBK Franchise, Systems, Inc. ("SBK"), for the non
cash items received as consideration for this sale.
At June 30, 1998, the Company had total current assets of $670,113 and
total assets of $8,696,863 as compared to total current assets of
$458,904 and total assets of $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 acquired, valued at
$500,000. In addition, the Company added approximately $700,000 in
equipment from the purchase of the eight stores in Baton Rouge, LA. as
well as the purchase of two land parcels for $157,408.
Net cash used in financing activities was ($248,179) for the nine
months ended June 30, 1998 as compared to net cash used by financing
activity for the nine months ended June 30, 1997 of ($84,980). The
increase in cash used in financing activity was primarily the result of
the Company's redemption of mandatorily redeemable class A and B
preferred stock of $195,000 and the paying down of the Company's debt
of $200,587. Which was offset by the proceeds from the line of credit
for $157,408.
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
Previously, James Byrd, the former president 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. That suit was dismissed. Thereafter, Mr. Byrd filed a separate
action for damages wherein he alleges that the Company breached an
agreement to repurchase 150,000 shares of common stock at a price of
approximately of $130,000. This second suit was dismissed but Mr. Byrd
filed an amended complaint to which there is a pending Motion to
Dismiss. The Company believes that the suit is without merit and the
Company will vigorously defend this action.
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: July 17, 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> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> SEP-30-1997
<PERIOD-END> JUN-30-1998
<CASH> 40,951
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 80,788
<CURRENT-ASSETS> 670,113
<PP&E> 4,457,445
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,696,863
<CURRENT-LIABILITIES> 2,339,200
<BONDS> 0
460,000
0
<COMMON> 8,120
<OTHER-SE> 3,872,857
<TOTAL-LIABILITY-AND-EQUITY> 8,696,863
<SALES> 16,201,401
<TOTAL-REVENUES> 16,243,615
<CGS> 14,019,981
<TOTAL-COSTS> 16,068,372
<OTHER-EXPENSES> (524,260)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 699,503
<INCOME-TAX> 242,150
<INCOME-CONTINUING> 457,353
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 457,353
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
