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 December 31, 1997
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. AND SUBSIDIARIES
-------------------------------------------------------
(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 February 2, 1998 there were 5,560,482 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
Consolidated Balance Sheets at December 31, 1997 1
(unaudited) and September 30, 1997
Consolidated Statements of Operations for the three 2
months ended December 31, 1997 and 1996 (unaudited)
Consolidated Statements of Stockholders' Equity for 3
the three months ended December 31, 1997 (unaudited)
and for the year ended September 30, 1997
Consolidated Statements of Cash Flows for the three 4-5
months ended December 31, 1997 and 1996 (unaudited)
Notes to the Consolidated Financial Statements (unaudited) 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
Consolidated Balance Sheets
December 31, and September 30, 1997
ASSETS:
DECEMBER 31, SEPTEMBER 30,
1997 1997
(UNAUDITED) (AUDITED)
------------ ------------
<S> <C> <C>
Current assets:
Accounts receivable $ 421 $ 115,742
Inventory 94,203 66,271
Prepaid expenses 34,487 111,991
Note Receivable 500,000 0
Deferred tax asset 164,900 164,900
----------- -----------
Total current assets 794,011 458,904
Furniture, equipment and construction in progress, net 4,034,651 3,698,995
Other assets:
Deposits 271,047 331,122
Investment in unaffiliated company 500,000 0
Goodwill, less accum. amort. of $103,819 and $88,809 2,475,691 2,475,701
Other intangible assets, less accum. amort. of $184,429 and $181,200 149,031 147,677
Due from affiliates 2,500 26,274
----------- -----------
Total assets $ 8,226,931 $ 7,138,673
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable and accrued expenses $ 1,557,076 $ 1,182,117
Current portion of long term debt 188,838 204,122
Current portion of deferred income on sale and leaseback transactions 48,349 19,844
----------- -----------
Total current liabilities 1,794,263 1,406,083
Deferred income on sale and leaseback transactions, net 869,913 377,039
Long-term debt, excluding current portion 1,247,950 1,299,109
----------- -----------
Total liabilities 3,912,126 3,082,231
----------- -----------
Mandatorily redeemable preferred stock class A and B 590,000 658,750
----------- -----------
Stockholders' equity:
Common stock, 25,000,000 shares authorized at $.001 par value;
8,113,815 and 8,079,979 shares issued and 5,560,482 and 5,526,646
shares outstanding 8,114 8,080
Additional paid-in capital 4,220,537 4,197,189
Retained earnings and accumulated deficit 224,422 (79,309)
Treasury stock at cost, 2,553,333 and 2,553,333 shares (728,268) (728,268)
----------- -----------
Total stockholder's equity 3,724,805 3,397,692
----------- -----------
Total liabilities and stockholders' equity $ 8,226,931 $ 7,138,673
=========== ===========
</TABLE>
See accompanying notes.
1
<PAGE>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the three months ended December 31, 1997 and 1996
(Unaudited)
1997 1996
---------- ----------
Revenues:
Restaurant sales $4,379,928 $3,424,795
Royalties and fees 42,213 69,155
---------- ----------
Total revenues 4,422,141 3,493,950
---------- ----------
Cost and expenses:
Cost of sales-restaurant 3,784,074 3,116,367
General and administrative expenses 638,365 334,041
Depreciation and amortization 85,099 38,485
---------- ----------
Operating profit (loss) (85,397) 5,057
Other income (expense):
Gain on sale of subsidiary 1,036,237 0
Other expenses, net (411,584) 0
Interest, net (64,670) 4,756
---------- ----------
Income before income tax provision 474,586 9,813
Income tax provision (166,105) 0
---------- ----------
Net income $ 308,481 $ 9,813
========== ==========
Net earnings per share, basic and diluted $ 0.05 $ 0.00
========== ==========
Weighted average shares outstanding 6,333,896 6,741,978
========== ==========
See accompanying notes.
2
<PAGE>
<TABLE>
<CAPTION>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the three months ended December 31, 1997 (unaudited) and for the year ended September 30, 1997
ADDITIONAL ACCUMULATED
COMMON COMMON PAID-IN DEFICIT AND TREASURY
STOCK SHARES AMOUNT CAPITAL RETAINED EARNINGS STOCK TOTAL
------------ ---------- ---------- ----------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1996 7,740,996 $7,741 $3,797,528 $(376,687) $ (65,628) $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
Net income 0 0 0 308,481 0 308,481
Preferred stock-class A dividend 0 0 0 (4,750) 0 (4,750)
Common stock issued 33,838 34 23,348 0 0 23,382
--------- ------ ---------- --------- --------- ----------
BALANCE, DECEMBER 31, 1997 8,113,817 $8,114 $4,220,537 $ 224,422 $(728,268) $3,724,805
========= ====== ========== ========= ========= ==========
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
<CAPTION>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three months ended December 31, 1997 and 1996
(unaudited)
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 308,481 $ 9,813
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 85,099 38,485
Gain on sale of subsidiary-SBK Franchise Systems, Inc. (1,036,237) 0
Non-recurring charges 411,584 0
Gain on sale of property and equipment 0 (100,000)
Cash provided by (used for) changes in assets and liabilities:
Accounts receivable 51,799 4,407
Deposits 18,325 43,095
Inventories (27,932) (2,518)
Accounts payable and accrued expenses 254,870 (31,170)
Prepaid expenses 16,192 (27,302)
Deferred income 0 100,000
Stock based compensation 23,382 0
----------- -----------
Net cash provided by operating activities 105,563 34,810
----------- -----------
Cash flows from investing activities:
Capital expenditures (165,604) (50,000)
Proceeds from sale of subsidiary- SBK 90,000 0
Proceeds from sale of real estate 3,830,517 67,863
Acquisition of restaurants (3,704,057) 0
Acquisition of intangibles (45,000) (22,282)
Due from affiliates 23,774 788
Purchase of treasury stock 0 (15,000)
----------- -----------
Net cash provided by (used in) investing activities 29,630 (18,631)
----------- -----------
Cash flows from financing activities:
Repayment of long-term debt (66,443) (16,179)
Redemption of Class A Preferred Stock (50,000) 0
Redemption of Class B Preferred Stock (15,000) 0
Preferred Stock Class A dividend (3,750) 0
----------- -----------
Net cash used in financing activities (135,193) (16,179)
----------- -----------
Net increase (decrease) in cash and cash equivalents 0 0
----------- -----------
Cash and cash equivalents:
Beginning of period 0 0
----------- -----------
End of period $ 0 $ 0
=========== ===========
</TABLE>
(continued)
4
<PAGE>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three months ended December 31, 1997 and 1996
(unaudited)
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 by
the parties 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 by the parties 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, by the parties
$500,000 worth of the acquirer's common stock and $100,000 cash.
On December 11, 1997, the Company entered into a sale and leaseback transaction
for approximately $3.7 million, that resulted in a deferred gain of
approximately $530,000.
Supplemental disclosures of cash flow information: 1997 1996
------- ------
Cash paid during the year:
Income taxes $ 0 $ 0
======= ======
Interest $26,670 $6,813
======= ======
See accompanying notes.
(continued)
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. and Subsidiaries ("the Company"), the disclosures contained in this
Form 10-QSB are adequate to make the information fairly presented. See
Form 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 December 31, 1997 and the results of operations for the three month
periods ended December 31, 1997 and 1996 and cash flows for each of the
three month periods ended December 31, 1997 and 1996. The results of
operations for the three month periods ended December 31, 1997 are not
necessarily indicative of the results which may be expected for the entire
year; furthermore, the Company had a significant gain from the sale of one
of its subsidiaries during the quarter, as well as certain accruals and
writeoffs for specific balance sheet account items (see Note 3 and 6).
Certain 1996 amounts have been reclassified to conform to the 1997
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 the
6
<PAGE>
acquirer'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.
4. MANDATORILY REDEEMABLE CLASS A AND B PREFERRED STOCK
DECEMBER 31, SEPTEMBER 30,
1997 1997
------------ -------------
Restricted Class A preferred
stock, nonvoting, 228,640
shares authorized, 114,900 and
142,900 shares issued and
outstanding, 6% annual dividend $200,000 $253,750
Restricted Class B preferred
stock, nonvoting, 430,000
shares authorized, 390,000 and
405,000 shares issued and
outstanding $390,000 $405,000
-------- --------
Total mandatorily redeemable
Class A & B preferred stock $590,000 $658,750
======== ========
5. NEW LEASES AND SALE AND 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 in 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 a sale and leaseback
transactions for the land and buildings of six Popeyes locations purchased
in Baton Rouge, LA for approximately $3.7 million. This 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.
7
<PAGE>
6. OTHER NON-RECURRING, NON-OPERATING EXPENSES
During the three months ended December 31, 1997, the Company recorded a
charge of $411,584 for certain non-recurring and non operating items. The
Company has made certain estimates and judgments as to the impairment of
certain assets and the probable exposure to certain liabilities. The
detail of this charge is as follows:
Estimates for remodeling costs $125,000
Accrual for certain liabilities $120,000
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. SUBSEQUENT EVENTS
In February 1998, the Company entered into an exclusive territory and
development agreement with AFC Enterprises, Inc , the franchisor, for
developing Popeyes restaurants in Antigua, Trinidad/Tabago, 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 of which
$50,000 was accounted for in the "Deposits" caption on the balance sheet
at December 31, 1997.
8
<PAGE>
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 MONTHS ENDED DECEMBER 31, 1997 COMPARED TO DECEMBER 31, 1996
For the three months ended December 31, 1997, the Company had total revenues of
$4,422,141 compared to total revenues of $3,493,950 for the three months ended
December 31, 1996. 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 loss of ($85,397) for the three months ended
December 31, 1997 compared to operating income of $5,057 for the three months
ended December 31, 1996. The operating loss was attributable to an increase in
wage expense, 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 supervisors to run the
acquired stores and an increase in advertising contributed to the higher general
and administrative costs. The Company's pretax net income for the three months
ended December 31, 1997 was $474,586 compared to $9,813 for the three months
ended December 31, 1996. 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 gain of $1,036,237. This gain was offset by non recurring
chargeoffs and accruals of $411,584. The net income after tax was equivalent to
an earnings per share of $0.05 for the three months ended December 31, 1997
compared to a break-even per share for the three months ended December 31, 1996.
The Company's general and administrative costs increased to $638,365 for the
three months ended December 31, 1997 compared to $334,041 during the three
months ended December 31, 1996. The increase was due to an increase in personnel
to supervise the acquired stores, professional fees, business travel costs
associated with potential acquistions and indirect costs on recent acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations for the three months ended December 31,
1997 was $105,563 compared to net cash provided by operations of $34,810 for the
three months ended December 31, 1996.
9
<PAGE>
The increase in net cash provided by operating activities this period was
primarily attributable to an addback of one-time non cash charges of $411,584
and by an increase in the accounts payable and accrued expenses of $254,870.
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 December 31, 1997, the Company had total current assets of $794,011 and total
assets of $8,226,931 as compared to total current assets of approximately
$188,176 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 Rouge, LA.
Net cash used in financing activities was ($135,193) for the three months ended
December 31, 1997 as compared to net cash used by financing activity for the
three months ended December 31, 1996 of ($16,179). 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 $65,000 and the paying
down of the Company's debt of $66,443 which was offset by the issuance of common
stock to employees valued at $23,382.
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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 20, 1997, James Byrd, the former Chairman of the Board 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. Mr.
Byrd alleges that the Company breached an agreement to repurchase 150,000 shares
of common stock at a price of approximately $130,000. On November 26, 1997, Mr.
Byrd's Emergency Motion for Temporary Injunction in that action was denied. 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: February 20, 1997 By: /s/ ROBERT S. BERG
------------------
Robert S. Berg, Chief Executive Officer
By: /s/ STEVEN M. WEMPLE
--------------------
Steven M. Wemple, President
11
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27.0 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 500,421
<ALLOWANCES> 0
<INVENTORY> 94,203
<CURRENT-ASSETS> 794,011
<PP&E> 4,034,652
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,226,931
<CURRENT-LIABILITIES> 1,794,263
<BONDS> 0
590,000
0
<COMMON> 4,228,651
<OTHER-SE> (503,846)
<TOTAL-LIABILITY-AND-EQUITY> 3,724,805
<SALES> 4,422,141
<TOTAL-REVENUES> 4,422,141
<CGS> 4,507,538
<TOTAL-COSTS> 4,507,538
<OTHER-EXPENSES> 624,653
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (64,670)
<INCOME-PRETAX> 474,586
<INCOME-TAX> (166,105)
<INCOME-CONTINUING> 308,481
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 308,481
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
