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, 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. 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 JANUARY 29, 1999 there were 5,709,072 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, 1998 1
(unaudited) and September 30, 1998
Consolidated Statements of Operations for the three 2
months ended December 31, 1998 and 1997 (unaudited)
Consolidated Statements of Stockholders' Equity for 3
the three months ended December 31, 1998 (unaudited)
and for the year ended September 30, 1998
Consolidated Statements of Cash Flows for the three 4-5
months ended December 31, 1998 and 1997 (unaudited)
Notes to the Consolidated Financial Statements (unaudited) 6-7
Item 2. Management's Discussion and Analysis 8-9
Part II. Other Information
Item 1. Legal Proceedings 10
Signatures 10
<PAGE>
<TABLE>
<CAPTION>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, and September 30, 1998
ASSETS:
DECEMBER 31,
1998 SEPTEMBER 30,
(UNAUDITED) 1998
------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 753,966 $ 1,523,915
Accounts receivable 79,620 42,118
Inventory 126,122 120,396
Prepaid expenses 84,345 48,544
Deferred tax asset 133,425 50,805
----------- -----------
Total current assets 1,177,478 1,785,778
----------- -----------
Furniture, equipment and construction in progress, net 7,464,155 6,077,343
----------- -----------
Other assets:
Deposits 360,874 272,012
Goodwill, less accumulated amortization of $167,834 and $152,824 2,427,517 2,442,527
Other intangible assets, less accumulated amortization
of $203,261 and $196,610 181,314 171,266
Investment in JRECK 336,078 400,000
Debt issuance costs 75,836 101,117
Other assets 107,500 107,500
----------- -----------
Total other assets 3,489,119 3,494,422
----------- -----------
Total assets $12,130,752 $11,357,543
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable and accrued expenses $ 3,086,212 $ 2,665,805
Current portion of long term debt 540,337 390,399
Current portion of deferred income on sale and leaseback transactions 45,248 41,894
----------- -----------
Total current liabilities 3,671,797 3,098,098
Long-term debt, excluding current portion 4,153,405 3,712,697
Deferred income on sale and leaseback transactions, net 780,926 795,993
----------- -----------
Total liabilities 8,606,128 7,606,788
----------- -----------
Mandatorily redeemable preferred stock class A and B 330,000 395,000
----------- -----------
Stockholders' equity:
Common stock, 25,000,000 shares authorized at $.001 par value;
8,262,405 shares issued and 5,709,072
shares outstanding 8,262 8,262
Additional paid-in capital 4,321,727 4,321,727
Retained earnings and accumulated deficit (407,097) (245,966)
Treasury stock at cost, 2,553,333 (728,268) (728,268)
----------- -----------
Total stockholders' equity 3,194,624 3,355,755
----------- -----------
Total liabilities and stockholders' equity $12,130,752 $11,357,543
=========== ===========
</TABLE>
The accompanying notes are an intergral part of these consolidated statements.
<PAGE>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the three months ended December 31, 1998 and 1997
(Unaudited)
1998 1997
--------------------------
Revenues:
Restaurant sales $6,042,873 $3,409,612
Royalties and fee 0 42,213
---------- ----------
Total revenues 6,042,873 3,451,825
---------- ----------
Cost and expenses:
Cost of restaurant operations 5,242,588 2,813,758
General and administrative expenses 807,288 638,365
Depreciation and amortization 63,474 85,099
---------- ----------
Operating loss (70,477) (85,397)
Other income (expense):
Gain (loss)on sale of subsidiary (63,922) 1,036,237
Other expenses, net (30,316) (411,584)
Interest, net (78,286) (64,670)
---------- ----------
Income (loss) before income tax (243,001) 474,586
Income tax (provision) benefit 82,620 (166,105)
---------- ----------
Net income (loss) $ (160,381) $ 308,481
---------- ----------
Net earnings (loss) per share, basic and diluted $(0.03) $0.05
---------- ----------
Weighted average shares outstanding 5,709,072 6,333,896
========= =========
The accompanying notes are an intergral part of these consolidated statements.
2
<PAGE>
<TABLE>
<CAPTION>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the three months ended December 31, 1998 (unaudited) and for the
year ended September 30, 1998
COMMON STOCK ADDITIONAL
--------------------- PAID-IN ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL DEFICIT SHARES TOTAL
--------- ------ ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1997 8,079,979 $8,080 $4,197,189 $ (79,309) $(728,268) $3,397,692
Net loss 0 0 0 (156,657) 0 (156,657)
Preferred stock-class A dividend 0 0 0 (10,000) 0 (10,000)
Common stock issued in
Acquisition 142,857 143 99,857 0 0 100,000
Common stock issued to employees
and board of directors 39,569 39 24,681 0 0 24,720
--------- ------ ---------- ---------- --------- ----------
BALANCE, SEPTEMBER 30, 1998 8,262,405 8,262 4,321,727 (245,966) (728,268) 3,355,755
Net loss 0 0 0 (160,381) 0 (160,381)
Preferred stock-class A dividend 0 0 0 (750) 0 (750)
Common stock issued 0 0 0 0 0 0
--------- ------ ---------- ---------- --------- ----------
BALANCE, DECEMBER 31, 1998 8,262,405 $8,262 $4,321,727 $ (407,097) $(728,268) $3,194,624
========= ====== ========== ========== ========= ==========
</TABLE>
The accompanying notes are an intergral part of these consolidated statements.
3
<PAGE>
<TABLE>
<CAPTION>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three months ended December 31, 1998 and 1997
(unaudited)
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (160,381) $ 308,481
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 75,187 85,099
(Gain) loss on sale of subsidiary 63,922 (1,036,237)
Non-recurring charges -- 411,584
Common stock issued to employees 0 23,382
Debt issue cost write down 25,281 --
Amortization of deferred income (11,713) --
Deferred income tax expense (benefit) (82,620) --
Cash provided by (used for) changes in assets and liabilities:
Accounts receivable (37,502) 51,799
Deposits (88,862) 18,325
Inventories (5,726) (27,932)
Accounts payable and accrued expenses 420,407 254,870
Prepaid expenses (35,801) 16,192
----------- -----------
Net cash provided by operating activities 162,192 105,563
----------- -----------
Cash flows from investing activities:
Capital expenditures (844,343) (165,604)
Proceeds from sale of subsidiary-SBK -- 90,000
Proceeds from sale of real estate -- 3,830,517
Acquisition of restaurants (597,694) (3,704,057)
Acquisition of intangibles (15,000) (45,000)
Due from affiliates -- 23,774
----------- -----------
Net cash provided by (used in) investing activities (1,457,037) 29,630
----------- -----------
Cash flows from financing activities:
Proceeds from long term debt 600,000 --
Repayment of long-term debt (9,354) (66,443)
Redemption of Class A Preferred Stock (50,000) (50,000)
Redemption of Class B Preferred Stock (15,000) (15,000)
Preferred Stock Class A dividend (750) (3,750)
----------- -----------
Net cash provided by (used in) financing activities 524,896 (135,193)
----------- -----------
Net increase (decrease) in cash and cash equivalents (769,949) 0
----------- -----------
Cash and cash equivalents:
Beginning of period 1,523,915 0
----------- -----------
End of period $ 753,966 $ 0
=========== ===========
</TABLE>
(continued)
4
<PAGE>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three months ended December 31, 1998 and 1997
(unaudited)
Supplemental disclosure of noncash financing and investing activities:
On December 4, 1997, the Company sold to Jreck 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
which resulted in a gain of $1,036,237. Subsequently in the fourth quarter, the
Company reserved the $500,000 note.
On December 4, 1998 an extension was negotiated with Jreck (Purchaser
of the SBK Franchise Systems) on the promissory note which extended the maturity
date until July 1, 1999. The Company received an additional 106,857 shares of
Jreck stock as an extension and late fee. The Company recorded a $26,714 gain on
this transaction. As of December 31, 1998 the Company decided to write down the
option amount of $100,000, that was due December 4, 1998 to market value and
recorded a loss of $90,636.
On December 11, 1997, the Company entered into a sale and leaseback
transaction for approximately $3.7 million of land, buildings, and equipment
leased back under twenty year operating lease agreements that resulted in a
deferred gain of approximately $530,000.
Supplemental disclosures of cash flow information: 1998 1997
---- ----
Cash paid during the year:
Income taxes $10,000 $0
======= =======
Interest $78,286 $64,670
======= =======
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 the management 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 for the year ended
September 30, 1998 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, 1998 and the results of operations for the three
month periods ended December 31, 1998 and 1997 and cash flows for
the three month periods ended December 31, 1998 and 1997. The
results of operations for the three month period ended December 31,
1998 are not necessarily indicative of the results which may be
expected for the entire year. Certain 1997 Sales and Cost of restaurant
operation amounts have been reclassified to conform to the 1998
presentation.
The Company sold its subsidiaries, SBK Franchise Systems, Inc. and
Sobik's Restaurant Corporation in December 1997 for consideration of
$1.1 million, comprised of a $500,000 promissory note due December 4,
1998, $500,000 worth of acquirer's common stock and $100,000 cash. The
$500,000 promissory note was not repaid. An extension was negotiated
with Jreck which extends the maturity date until July 1, 1999. The
Company received an additional 106,857 shares of Jreck stock as an
extension fee. Although management believes the note will be collected,
the maker of the note is dependent upon an equity offering or positive
results from the SKB assets sold to repay the note. Accordingly, in the
fourth quarter of 1998, the promissory note was fully reserved with a
corresponding reduction of the gain on sale. Every six months, the
Company redeems one-fifth of the $500,000 worth of the acquirer's
common stock. As of December 31, 1998, $100,000 has been received by
the Company, and another $100,000 worth of common stock due December 4,
1998 has been written down to market value.
2. MANDATORILY REDEEMABLE CLASS A AND B PREFERRED STOCK
DECEMBER 31, SEPTEMBER 30,
1998 1998
------------ -------------
Restricted Class A preferred stock,
nonvoting, 228,640 shares authorized,
0 and 28,580 shares issued and
outstanding, 6% annual dividend 0 $50,000
Restricted Class B preferred
stock, nonvoting, 430,000
shares authorized, 330,000 and
345,000 shares issued and
outstanding $330,000 $345,000
-------- --------
Total mandatorily redeemable
Class A & B preferred stock $330,000 $395,000
======== ========
3. NEW PURCHASE AND MORTGAGE TRANSACTION
On November 17,1998, the Company entered into a purchase transaction
for the land and building of one Popeyes location in Ft. Pierce Florida
for $597,694. A mortgage of $600,000 was provided by FFCA Acquisition
Corporation for the term of twenty years using an adjustable interest
rate. The current rate on the mortgage is 9.55 %.
6
<PAGE>
4. SUBSEQUENT EVENTS
On October 19, 1998, the Company entered into a stock purchase
agreement to acquire nine Popeye's locations in Missouri for
approximately $10.5 million.
On November 20, 1998 the Company entered into an asset purchase
agreement to acquire ten Popeye's locations in Louisiana for
approximately $9.2 million.
The closing of these acquisitions is scheduled for the end of the
second quarter but is subject to a number of factors including the
completion of due diligence.
On December 16, 1998 the Company and Tubby's Inc., a Sterling Heights,
Michigan based public company announced a proposed merger. The Terms of
the merger are consistent with and conditioned upon valuations prepared
by an independent appraiser. The companies will hold a joint meeting of
their respective shareholders to vote on the merger at a date and time
to be announced in the near future.
The Company currently has five stores in various stages of development
within the markets it currently operates.
7
<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,
1998.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997
For the three months ended December 31, 1998, the Company had total revenues of
$6,042,873 compared to total revenues of $3,451,825 for the three months ended
December 31, 1997. The increase in revenues was primarily attributable to the
sales generated by the Company's acquisitions of eight stores in Baton Rouge, LA
on December 11th, 1997, five stores in Pensacola, Florida on July 6, 1998 and
two additional new store openings in North Miami Beach and Lauderdale Lakes, FL
in November and December 1998. The remaining sales increase was due to an
increase in comparable sales of 13.2% for the quarter. The 1997 promotional
sales have been adjusted to conform to the 1998 presentation.
Cost of restaurant operations for the three months ended December 31, 1998 were
$5,242,588 compared to $2,813,758 for the three months ended December 31,1997.
The increase is attributable to the number of stores and the additional expenses
which were incurred to assimilate the Company's procedures and systems into the
acquired stores. The 1997 promotional expenses were adjusted to conform to the
1998 presentation.
General and administrative cost for the three months ended December 31,1998 were
$807,288 compared to $638,365 for the three months ended December 31, 1997. The
increase is primarily attributable to expenses related to the indirect costs of
recent acquisitions which were not capitalized, and additional personnel needed
to handle the current growth.
Operating loss of the Company was $70,477 for the three months ended December
31, 1998 compared to an operating loss of $85,397 for the three months ended
December 31, 1997. Even though the addition of the new stores has not yet
affected operating profit, management believes that futures quarters will show
the positive results as expected.
The Company's pretax net loss for the three months ended December 31, 1998 was
$243,001 compared to a profit of $474,586 for the three months ended December
31, 1997. The decrease was primarily attributable to the 1997 sale of one of the
Company's subsidiaries, SBK Franchise Systems, Inc for $1.1 million resulting in
a gain of $1,036,237, which was subsequently reserved by $500,000 in the fourth
quarter. In the current quarter the Company recorded a gain of $26,714 for
additional shares received in order to extend certain payments of the 1997
transaction but management decided to write down the $100,000 option in
Jreck stock to market and recorded a loss of $90,636. The 1997 gain was offset
by non recurring chargeoffs and accruals of $411,584.
The net loss after tax was equivalent to an earnings per share of ($0.03) for
the three months ended December 31, 1998 compared to a $ 0.05 per share for the
three months ended December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations for the three months ended December 31, 1998 was
$162,192 compared to net cash provided by operations of $105,563 for the three
months ended December 31, 1997.
8
<PAGE>
The increase in net cash provided by operating activities for this period was
primarily attributable to an increase in accounts payable and accrued expenses
of $420,407 but this was offset by higher cash usage for deposits, accounts
receivable, inventories and prepaid expenses.
At December 31, 1998, the Company had total current assets of $1,177,478 and
total assets of $12,130,752 as compared to total current assets of approximately
$1,785,778 and total assets of approximately $11,357,543 at September 30, 1998.
The decrease was primarily due to the acquisition of an existing restaurant and
the Company's new remodeling program which has added approximately $600,000 in
Capital expenditures to the restaurants.
Net cash used in investing activities was $1,457,037 for the three months ended
December 31, 1998 as compared to net cash provided by investing activity for the
three months ended December 31, 1997 of $29,630. The cash was used primarily for
the Company's new program of capital improvements in the amount of $844,343 and
purchase of an existing restaurant for $597,694.
Net cash provided by financing activities was $524,896 for the three months
ended December 31,1998 as compared to cash used by financing activities of
$135,193 in the three months ended December 31,1997. The increase resulted
primarily from the proceeds of a new debt of $600,000, which was offset by the
reduction of existing debt of $74,354.
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, 1998 annual
10-KSB for further discussion on the Company's future growth and plans of
expansion.
YEAR 2000
The Company has assessed its computerized systems to determine their ability to
correctly identify the Year 2000 and is devoting the necessary resources to
replace, upgrade or modify all significant systems which do not correctly
identify the Year 2000. The Company expects to complete all the modifications
and testing by the end of third quarter 1999. Management does not expect that
the implementation of the changes to have a material adverse impact on the
Company's financial position, results of operations or cash flow. The Company
has implemented an ongoing program to review the status of its key suppliers.
Management does not expect the Year 2000 issue to pose significant operational
or financial problems for the Company.
9
<PAGE>
INTERFOODS OF AMERICA, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In November 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 12, 1999 BY: /s/ ROBERT S. BERG
----------------------
Robert S. Berg, Chairmen of the Board
Chief Executive Officer
BY: /s/ STEVEN M. WEMPLE
------------------------
Steven M. Wemple, President
Chief Operating Officer,
Secretary and Treasurer
10
<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-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 753,966
<SECURITIES> 0
<RECEIVABLES> 79,620
<ALLOWANCES> 0
<INVENTORY> 126,122
<CURRENT-ASSETS> 1,177,478
<PP&E> 7,464,155
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,130,752
<CURRENT-LIABILITIES> 3,671,797
<BONDS> 0
330,000
0
<COMMON> 4,329,989
<OTHER-SE> (1,135,365)
<TOTAL-LIABILITY-AND-EQUITY> 12,130,752
<SALES> 6,042,873
<TOTAL-REVENUES> 6,042,873
<CGS> 5,242,588
<TOTAL-COSTS> 6,113,350
<OTHER-EXPENSES> (94,238)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (78,286)
<INCOME-PRETAX> (243,001)
<INCOME-TAX> 82,620
<INCOME-CONTINUING> (160,381)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (160,381)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
