SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 1998
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 [X] No [ ]
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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. [ ]
State issuer's revenues for its most recent fiscal year: $23,725,586
The aggregate market value of the registrant's common stock held by
non-affiliates of the registrant as of September 30, 1998 was approximately
$1,601,000. Solely for purposes of the foregoing calculation, all of the
registrant's directors and officers are deemed to be affiliates.
There were 5,709,072 shares of the registrant's common stock
outstanding as of September 30, 1998.
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ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Interfoods of America, Inc., a Nevada corporation (the "Company"), is,
through its wholly-owned subsidiary, Sailormen, Inc., a Florida corporation
("Sailormen"), a franchisee and operator of Popeye's/registered
trademark/Chicken and Biscuits ("Popeye's") restaurants. The Company currently
operates, pursuant to franchise agreements with AFC Enterprises, Inc. (the
"Franchisor"), 30 Popeye's restaurants located in Florida, Alabama and
Louisiana.
The Company's headquarters is located at 9400 South Dadeland Boulevard,
Suite 720, Miami, Florida 33156. Its telephone number is (305) 670-0746.
HISTORY
Until September 1996, the Company was known as Sobik's Subs, Inc. In
May 1996, the Company acquired Sailormen from the Company's current Chief
Executive Officer, Robert S. Berg, and President, Steven M. Wemple, for a total
of 2,500,000 shares of the Company's common stock. At the time of the
acquisition, Sailormen operated 11 Popeye's restaurants.
Until December 1997, the Company operated two wholly-owned
subsidiaries, in addition to Sailormen: (1) SBK Franchise Systems, Inc., which,
through an exclusive master license with Sobik's Sandwich Shops, Inc., the
Franchisor of Sobik's Subs restaurants, developed, franchised and serviced
Sobik's Subs franchises; and (2) Sobik's Restaurant Corp., which established,
owned and operated Sobik's Subs Shops. Sobik's Sub Shops offers a menu of
submarine (sub) style sandwiches (also referred to as hoagies or heroes).
In December, 1997, the Company sold Sobik's Restaurant Corp and SBK
Franchise Systems, Inc. for total consideration valued at $1,100,000. Such
consideration consisted of cash, a note and stock of the purchaser, JRECK Subs
Group, Inc. These divestitures were made by the Management of the Company to
streamline the Company's business operations and to focus its efforts on the
expansion and development of its Popeye's franchises.
Consistent with its decision to concentrate on the ownership and
operation of its Popeye's restaurants, the Company consummated several
acquisitions during fiscal 1997. In October 1996, the Company acquired four
existing Popeye's restaurants in the Birmingham, Alabama market for
consideration valued at $450,000, of which $50,000 was paid in cash and 228,640
shares of the Company's mandatory redeemable restricted Class A Preferred Stock,
valued at $400,000. In September 1997, the Company acquired an existing Popeye's
restaurant in Ft. Pierce, Florida for 338,983 shares of the Company's common
stock valued at $400,000 and opened a new Popeye's Restaurant in Homestead,
Florida.
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In December 1997 (Fiscal 1998), the Company acquired eight Popeye's
restaurants in the Baton Rouge, Louisiana market, for approximately $3.7
million. Additionally, in February 1998, the Company entered into an exclusive
territory and development agreement with A.F.C. Enterprises, Inc., the
franchisor for developing Popeye's restaurants in Antigua, Trinidad/Tobago, St.
Lucia and Guyana. Under this agreement the Company is to develop eleven stores
in these countries. On July 6, 1998, the Company acquired five Popeye's Chicken
and Biscuit restaurants in Pensacola, Florida for consideration valued at $1.8
million. Such consideration consisted of cash, newly issued restricted common
stock and debt.
OPERATIONS
The Popeye's menu features unique spicy fried chicken, which each
restaurant prepares daily on premises along with biscuits, which are served with
the chicken entrees. In addition to its spicy fried chicken, the Popeye's 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. Similar to the chicken entrees,
virtually all of these items are prepared fresh daily on the premises of each
restaurant. The Popeye's menu is designed to appeal to a large cross-section of
the population with particular concentration on the 18-49 age group. The
Company's restaurants are generally open seven days a week, from 10:00 am to
midnight, and serve lunch and dinner.
A typical Popeye's restaurant operated by the Company employs a full
time manager and at least one additional supervisory employee. Typically, all
restaurant managers (and other representatives of the Company) are required to
attend, at the Company's expense, training courses conducted by the Franchisor.
This training program involves on-the-job training and an instructional class.
Other restaurant employees are trained by the restaurant manager in accordance
with the Company's and the Franchiser's guidelines.
In 1998, there were 1,298 Popeye's units in operation worldwide, of
which 1,072 were located in the United States. Popeye's ranks third world wide
in the number of fast food fried chicken restaurants behind only KFC/registered
trademark/and Church's. Average sales per unit for Popeye's/registered
trademark/ located in the United States are estimated to be $763,000 annually.
BUSINESS STRATEGY
The Company's business strategy is (1) to increase the level of sales
at its currently owned Popeye's restaurants; and (2) expand by (a) locating and
acquiring, at advantageous prices, existing Popeye's restaurants which
management believes are underperforming and (b) developing new Popeye's
restaurants in the Southeastern United States, and further exploring the
possibility of expansion to the Caribbean Basin. There can be no assurance that
the Company will be able to achieve all or any part of its business strategy
(see "Risk Factors").
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FRANCHISE AGREEMENT
The Company franchises its Popeye's restaurants from the Franchisor.
The Franchisor maintains its principal place of business at Six Concourse
Parkway, Atlanta, Georgia 30328 and does business under its corporate name and
under the trade names and service marks "Popeye's" and "Popeye's Chicken and
Biscuits".
Each of the Company's Popeye's restaurants is operated under a separate
franchise agreement from the Franchisor. Retention of these franchise agreements
is important to the success of the Company. The Company believes that its
relationship with the Franchisor is satisfactory. The franchise agreements are
for an initial term of 20 years and are renewable for additional ten-year terms
upon the payment of one-half of the then-applicable franchise fee, which is
currently $25,000, and the execution of a renewal franchise agreement. The
renewal franchise agreement may provide for increased royalties and advertising
contributions, and may require the Company 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. The franchise agreements require the Company to
construct and operate its Popeye's restaurants in accordance with the detailed
requirements of the Popeye's system.
The flours, batters, seasonings, mixes, sauces, dressings, and meats,
used to prepare Popeye's spicy chicken and other Popeye's menu items (the
"Proprietary Products") are acquired from vendors approved by the Franchisor.
The Company has an agreement with a distribution company approved by the
Franchisor for the supply of food products, dry goods and related supplies. The
Distribution Agreement commenced on March 8, 1996 and has a term of 10 years. It
is renewable annually thereafter unless terminated with 60 days notice by either
party.
The Company's ability to maintain consistent quality depends in part
upon its ability to acquire food products from reliable sources in accordance
with the Franchiser's specifications. While the Company has not experienced any
problems to date in acquiring such food products, there can be no assurance that
such food products will be available in the future on terms acceptable to the
Company.
MARKETING AND ADVERTISING
All Popeye's restaurants are required to contribute 3% of their weekly
gross sales to the Popeye's Chicken & Biscuit Advertising Fund (the "Popeye's
Advertising Fund") for regional and local advertising conducted by the
Franchisor. The terms of the Popeye's Advertising Fund require that all
contributions to the fund and earnings of the fund are utilized by the
Franchisor exclusively for advertising and promotional activities for Popeye's
restaurants. In most of its markets, the company voluntarily contributes in
excess of 3%.
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GOVERNMENT REGULATION
Each of the Company's restaurants 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 and/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 also is subject to federal and state environmental
regulations. 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, including with respect to minimum wage
requirements, overtime, working conditions and citizenship requirements.
COMPETITION
The restaurant industry is highly competitive with respect to price,
service, food quality and location. 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, such as those operated by the Company.
The Company is required to respond to various factors affecting the
restaurant industry, including changes in consumer preferences, tastes, 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 companies have adopted discount pricing strategies such as "value meals"
and other marketing strategies. Such strategies could have an adverse effect
upon the Company and could also negatively impact the Company's operating
margins, should the Company elect to match competitors' price reductions. 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. Popeye's competes with other national fried chicken chains
such as KFC and Church's, as well as with all other national and regional
quick-service restaurant chains. Some of these competitors have greater
financial resources, larger advertising budgets and more national recognition
than those of Popeye's.
As a result of a national trend in increased 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 consumers will not choose its competitors' chicken products over
those sold in the Company's restaurants.
EMPLOYEES
As of September 30, 1998, the Company employed approximately 592
persons, on a full-time and part-time basis. Of these employees, 115 are
employed as field management personnel and 11 are in corporate management and
administration. None of the Company's employees belong to a union and the
Company has not experienced any work stoppages. The Company believes that its
labor relations are satisfactory.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company leases 3,788 square feet of office space at 9400 South
Dadeland Boulevard, Miami, Florida 33156. The monthly lease expense for the
offices is $4,893.00. The lease expires on October 31, 2003. These offices are
used to administer all Company operations.
The Company currently does not make any investments in real estate or
interests in real estate, including real estate mortgages or securities issued
by person's primarily engaged in real estate activities, and the Company does
not 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 as an alternate to leasing, to periodically purchase land
and buildings for new locations. To the extent that the purchase of a restaurant
property or real estate is a requirement in connection with the acquisition of a
particular franchise, the Company intends whenever possible, to subsequently
enter into a sale and leaseback type transaction with respect to such restaurant
properties or real estate. To date, all real estate sale-leaseback transactions
have occurred with unaffiliated third party landlords.
As of September 30, 1998, all of the 30 Popeye's 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 ranges between $1,800 and $7,045. A total of two of the lower base
rent leases may also contain additional payments to the lessor based upon a
percentage of sales. As of September 30, 1998 the Company leased 18 restaurants
in Florida, 4 in Alabama and 8 in Louisiana.
ITEM 3. 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.
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.
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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. The following table shows the
quarterly high and low bid prices for calendar years 1996, 1997 and 1998 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
---- ------ ---- ---
1996 First Quarter $7.00 $4.75
Second Quarter $6.00 $1.88
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
Fourth Quarter $0.87 $0.56
1998 First Quarter $1.00 $0.55
Second Quarter $1.00 $0.62
Third Quarter $0.95 $0.64
Fourth Quarter $0.70 $0.50
At September 30, 1998 there were approximately 1200 holders of record
of the Company's Common Stock.
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ITEM 6. 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.
RESULTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO YEAR ENDED SEPTEMBER 30, 1997
For the year ended September 30,1998 ("Fiscal 1998 "), The Company had
total revenues of $23,725,586 compared to total revenue of $14,092,182 for the
year ended September 30,1997 ("Fiscal 1997"). The increase in revenue was
attributable to the Company' s acquisition of one store in Fort Pierce, Florida,
in September 1997, eight stores in Baton Rogue, La. on December 11, 1997 and
five stores in Pensacola, Florida on July 6, 1998 which was partially offset by
a decrease in revenues associated with the sale of SBK Franchise Systems Inc.
and Sobik's Restaurant Corp in the first quarter of Fiscal 1998.
Cost of restaurant operations for Fiscal 1998 were $ 20,823,242,
compared to $12,184,518 for Fiscal 1997. The increase was attributable to the
number of stores, as well as the full year effect of the minimum wage increase
during Fiscal 1997.
General and administrative costs for Fiscal 1998 were $2,646,692,
compared to $1,574,526 for Fiscal 1997. The increase is primarily attributable
to expenses related to the indirect costs of the recent acquisitions which were
not capitalized, additional expenses which were incurred for supervisors to
train and assimilate the Company's procedures and systems into the acquired
stores and additional office personal needed to handle the current growth and
near term future growth.
Operating loss of the Company was $22,070 for Fiscal 1998, compared to
an operating profit of $145,448 for Fiscal 1997. Net loss for Fiscal 1998 was
$156,657 compared to net income of $318,878 for Fiscal 1997. The decrease in
operating profits and net income resulted from the increase in general and
administrative expenses associated with the acquisition and opening of stores.
Other income (expense) was primarily attributable to the sale of the
Company's subsidiaries, SBK Franchise Systems Inc and Sobik's Restaurant
Corporation for $1.1 million resulting in a pretax gain of $536,237, which
comprised of a $500,000 promissory note due December 4, 1998, $500,000 worth of
acquirers 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 June 30, 1999. The Company received an additional 100,000 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 SBK 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. The resulting pretax gain of
$536,237 is included in other income. This gain was offset by non-recurring
charges of $357,281 and interest expense of $199,448.
During Fiscal 1998, the Company recorded an income tax provision of
$114,095, which was primarily attributable to the utilization of net operating
losses.
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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 ("Fiscal 1996"). The increase in revenues was
attributable to the inclusion of the revenues of Sailormen for a full fiscal
year, combined with the revenues attributable to the five additional Popeye's
restaurants, which were acquired, and the opening of a new Popeye's restaurant,
during Fiscal 1997.
Operating profit of the Company was $145,448 for Fiscal 1997, compared
to an operating loss of ($351,791) for Fiscal 1996. Net income for Fiscal 1997
was $318,878, compared to a net loss of ($409,353) for Fiscal 1996. This
increase in operating and net income resulted from increases in revenues,
combined with a reduction in general and administrative expenses related to the
consolidation of the Company's corporate offices to one location. Also
contributing to the increase in net income was the realization of a deferred tax
asset in the amount of $164,900 related to prior year net operating losses.
Cost of restaurant operations for Fiscal 1997 were $12,184,518,
compared to $4,210,732 for Fiscal 1996. The increase was attributable to the
inclusion of costs for Sailormen for a full fiscal year, combined with the
inclusion of costs relating to the Popeye's restaurants acquired during Fiscal
1997, as well as the costs associated with the new restaurant opened during the
fiscal year. Also contributing to the increase in costs of sales was an increase
in the minimum wage to $5.15 per hour during Fiscal 1997.
General and administrative costs for Fiscal 1997 were $1,574,526,
compared to $2,230,751 for Fiscal 1996. The decrease in general and
administrative expenses was primarily attributable to the cost savings resulting
from the consolidation of the Company's corporate offices.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations for Fiscal 1998 was $1,152,891 compared
to $135,566 for Fiscal 1997. The increase in operating cash flow was primarily
attributable to the increase in the level of accounts payable of $1,433,688
compared to Fiscal 1997.
At September 30, 1998, the Company had current assets of $1,785,778 and
total assets of $11,357,543 compared to current assets of approximately $458,904
and total assets of approximately $7,138,673 at September 30, 1997. The increase
in total assets resulted from the Company's acquisition of eight Popeye's
restaurants in Baton Rogue, Louisiana and five Popeye's restaurant in Pensacola,
Florida.
Net cash provided by financing activities was $2,224,998 for Fiscal
1998 compared to net cash provided by financing activities for Fiscal 1997 of
$483,866. The increase resulted primarilly from the proceeds from new debt of
$3,147,262, which was offset by the reduction of existing debt of $547,397.
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The Company believes that cash generated from operations and
availability on its existing lines of credit will be sufficient to fund its
current operations for at least the next 12 months. The Company believes it will
be able to obtain, through equity or debt financing, the necessary capital to
fund its expansion during Fiscal 1998. However, there can be no assurance that
the Company will be able to obtain such capital on terms acceptable to the
Company.
Net cash used in investing activities was $1,853,974 for Fiscal 1998
compared to $619,452 for Fiscal 1997. The increase is primarily attributable to
increased capital expenditures during Fiscal 1998.
During Fiscal 1998, the company completed sale-leaseback transactions
with Franchise Finance Corporation of America ("FFCA"). In December 1998, the
Company entered into a $3.7 million sale-leaseback with FFCA as it related to
the acquisition of eight stores in Baton Rouge, La. In July 1998 the Company
entered into a $1.65 million sale-leaseback with FFCA as it related to its
acquisition of five stores in Pensacola, Florida.
The Company will also own land on a short-term basis for the
construction of new stores. After the store opens, the Company will sell the
real estate under a formal sale-leaseback commitment. As of September 30, 1998
the Company had four stores in various stages of development under this type of
arrangement. These futures stores are located in South Florida ( 3 ), and
Birmingham, Alabama ( 1 ).
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued SFAS No. 129, "Disclosures of
Information about Capital Structure" which is effective for fiscal years ending
after December 15, 1997. SFAS No. 129 requires disclosing information about an
entity's capital structure. The impact of adopting SFAS No. 129 in Fiscal 1998
was immaterial.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," effective for fiscal years beginning after December 31, 1997.
Comprehensive income is defined as the change in equity during the financial
reporting period of a business enterprise resulting from non-owner sources. This
statement establishes standards to report and display comprehensive income
and its components in a full set of general-purpose financial statements. The
Company is not required to adopt SFAS No. 130 until Fiscal 1999 and
anticipates that the impact of adopting SFAS No. 130 in Fiscal 1999 will not be
material.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," effective for fiscal years beginning
after December 15, 1997. This statement requires that a public business
enterprise report financial and descriptive information about its reportable
operating segments including, among other things, a measure of segment profit or
loss, certain specific revenue and expense items, and segment assets. The
Company is not required to adopt SFAS No. 131 until Fiscal 1999 and
anticipates that the impact of adopting SFAS No. 130 in Fiscal 1999 will not be
material.
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YEAR 2000 COMPUTER AND SOFTWARE ISSUES
The Company has developed a Year 2000 compliance plan and completed a
preliminary assessment of the Year 2000 issues, risks and exposures. An outside
consultant has been contracted to review our current software and notification
has been given to our outside software vendors of any problems. At present, new
released software has been ordered which fixes all known Year 2000 problems. The
cost of implementing this change is estimated to have an immaterial affect on
our operations.
Based on its preliminary assessment of the Year 2000 issues and
considering its primary plan, management does not expect Year 2000 issues to
have a material impact upon its business operations, or its financial condition
or results of operations.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
From time to time, including herein, the Company may publish
"forward-looking" statements within the meaning of Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934,
as amended. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates," or variations of such words and similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward-looking
statements. The Company undertakes no obligation to update publicly any forward-
looking statements, whether as a result of new information, future events or
otherwise.
In addition to factors discussed in this Form 10-K, among the other
factors that could cause the Company's results to differ materially are: general
economic and business conditions; the impact of competitive products and
pricing; success of operating initiatives; development and operating costs;
advertising and promotional efforts; adverse publicity; acceptance of new
product offerings; consumer trial and frequency; changes in business strategy or
development plans; quality of management; availability, terms, and deployment of
capital; the results of financing efforts; business abilities and judgment of
personnel; availability of qualified personnel; food, labor, and employee
benefit costs; changes in, or the failure to comply with, government
regulations; weather conditions and construction schedules and risks that sales
growth resulting from the Company's current and future remodeling can be
sustained at the current levels experienced.
For a further description of some of these factors that could cause
actual results to differ materially from such forward-looking statements, see
"Risk Factors" below.
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RISK FACTORS
DEPENDENCE ON EXECUTIVE OFFICERS. The Company is dependent upon the
efforts and abilities of Robert Berg, its Chief Executive Officer, Chief
Financial Officer and Chairman of the Board, and Steven Wemple, its President
and Chief Operating Officer. The loss of the services of either Messrs. Berg or
Wemple would have a material adverse effect upon the Company's business and
future prospects. In addition, in order to successfully implement its proposed
expansion and manage anticipated growth, the Company will be dependent upon its
ability to retain existing and hire additional qualified management and other
personnel, including certain executive officers. The competition for qualified
management and other personnel in the restaurant industry is intense and,
accordingly, there can be no assurance that the Company will be able to retain
or hire the necessary personnel. The Company will also be dependent on its
ability to hire and train hourly employees. In recent years, the restaurant
industry has experienced a shortage in the availability of qualified restaurant
personnel, which could have an adverse effect on the Company.
COMPETITION IN THE RESTAURANT INDUSTRY. The Company's restaurants face
intense competition from quick- and full-service restaurants and, in particular,
from chains with operating concepts similar to those of the Company. Management
believes that its primary competitors are other national fried chicken chains,
including KFC/registered trademark/, Church's Fried Chicken/registered
trademark/ and others, as well as non-fried chicken chains, including Kenny
Rogers Roasters/registered trademark/, Boston Market/registered trademark/ and
Pollo Tropical/registered trademark/. In general, the restaurant industry is
highly competitive and can be significantly affected by many factors, including
changes in local, regional or national economic conditions, changes in consumer
tastes, consumer concerns about the nutritional quality of food and increases in
the number of, and particular locations of, competing restaurants. Factors such
as inflation, increases in food, labor and energy costs and the availability of
an adequate number of hourly-paid employees also affect the restaurant industry.
Major chains, which have substantial financial resources and longer operating
histories, dominate the restaurant industry. There can be no assurance that
consumers will regard the Company's menu items as significantly distinguishable
from competitive products, that substantially equivalent products will not be
introduced by the Company's competitors or that the Company will be able to
compete successfully in any given market.
INCREASES IN OPERATING AND FOOD COSTS; AVAILABILITY OF SUPPLIES. An
increase in operating costs could adversely affect the profitability of the
Company. Factors such as inflation, increased utility, labor and employee
benefit costs are beyond the Company's control and may adversely affect the
restaurant industry in general and the Company's restaurants in particular. In
connection with any further expansion of the Company, of which there can be no
assurance, the Company's general and administrative costs likely would increase
as a percentage of revenues as the Company adds administrative staff, systems,
and other infrastructure to support these costs. A majority of the Company's
revenues and food costs are derived from the sale and purchase of chicken. The
cost of fresh chicken fluctuates from time to time depending on a variety of
factors beyond the control of the Company, such as weather conditions and
seasonal demand. There can be no assurance that fluctuations in the cost of
chicken or the price of other supplies will not adversely affect the Company's
results of operations. In addition, the Company is dependent on daily deliveries
of food supplies, such as chicken, produce, baked goods and other products and
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any delays or stoppages in such deliveries, as a result of, among other things,
labor unrest or adverse weather conditions, could subject the Company's
restaurants to shortages or interruptions which could materially adversely
affect the Company.
LIMITED MENU; UNCERTAINTY OF MARKET ACCEPTANCE. The Company's Popeye's
restaurants menu is comprised primarily of fried chicken and accompanying side
dishes. Achieving consumer awareness and market acceptance of the Company's
concepts, particularly as the Company seeks to open and expand into new markets,
will require substantial effort and expenditures by the Company. A general
decline in the sale of chicken products due to industry trends, change in
consumer preferences, increased prices or other reasons would adversely impact
the Company.
The Company's future expansion plans are based upon Management's belief
that the Popeye's concept will have significant market appeal in the markets in
which the Company expects to enter. In the event the anticipated consumer
acceptance of the Popeye's concept in these markets is not realized, the Company
would be subject to a material adverse effect.
CERTAIN FACTORS AFFECTING THE QUICK-SERVICE RESTAURANT INDUSTRY.
The Company is required to respond to various consumer preferences,
tastes and eating habits; demographic trends and traffic patterns; increases in
food and labor costs; and national, regional and local economic conditions. In
the past, several quick-service restaurant companies have experienced flat
growth rates and declines in average sales per restaurant, in response to which
certain of such companies have adopted "discount-pricing" strategies. Such
strategies could have the effect of drawing customers away from companies that
do not engage in discount pricing and could also negatively impact the operating
margins of competitors that do attempt to match competitors' price reductions.
Continuing or sustained price discounting in the fast food industry could have
an adverse effect on the Company.
The Company's profits are dependent on discretionary spending by
consumers, particularly by consumers living in the communities in which the
Company's restaurants are located. Currently, the Company has locations in
Florida, Alabama and Louisiana. A significant weakening in any of the local
economies in which the Company operates may cause the residents of such
communities to curtail discretionary spending which, in turn, could materially
affect the profitability of the entire Company.
IMPORTANCE OF TRADEMARKS. The Company believes that its use of various
trademarks and service marks obtained pursuant to its franchisee agreements with
the Franchisor are valuable to the marketing of its restaurants. There can be no
assurance that the Company's use of such marks do not or will not violate the
proprietary rights of others, that the Company's rights to utilize such marks
will be upheld if challenged, or that the Company will not be prevented from
using the marks, any of which could have a materially adverse effect on the
Company.
GOVERNMENT REGULATION. The restaurant business is subject to extensive
federal, state and local regulation relating to the development and operation of
restaurants, including regulations relating to building and zoning requirements,
franchising, preparation
14
<PAGE>
and sale of food, and laws governing the Company's
relationship with its employees, including minimum wage requirements,
unemployment taxes and sales taxes, overtime and working conditions and
citizenship requirements. The failure to obtain or retain required licenses, or
a substantial increase in the minimum wage rate, (which increases have been
proposed and are currently pending) could adversely affect the quick service
operations of the Company. The Company intends to explore the development of the
Popeye's fast-food concept in certain international markets. The restaurant
business in these markets is subject to extensive regulation relating to the
development and operation of restaurants, including regulations relating to
building requirements, preparation and sale of quick service, and laws governing
the Company's relationship with its employees. Compliance with such regulations
may result in the Company incurring significant expenses. Failure to obtain
required licenses or to comply with applicable laws and regulations in such
jurisdictions could adversely affect the operations of the Company's franchised
restaurants in such jurisdictions.
EXPANSION PLANS; CAPITAL RESOURCE REQUIREMENTS. There can be no
assurance that the Company will achieve its growth objectives or that new
restaurants will be profitable. The success of the Company's planned expansion
will be dependent upon numerous factors, many of which are beyond the Company's
control, including the identification of suitable markets, the availability and
leasing or purchase of suitable sites on acceptable terms, the hiring, training
and retention of qualified management and other restaurant personnel, the
ability to obtain necessary governmental permits and approvals, the availability
of appropriate financing and general economic conditions.
DEPENDENCE ON CONCEPTS. Because the Company develops Popeye's
restaurants, a failure of the Popeye's concept to compete successfully in the
quick service restaurant industry in the areas in which the Company operates
Popeye's restaurants or in which the Company intends to develop new restaurants
or acquire existing restaurants would have a material adverse effect on the
Company.
ITEM 7. FINANCIAL STATEMENTS
See the Financial Statements of the Company, which are attached hereto.
15
<PAGE>
PART III
ITEM 8. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
The current executive officers and directors of the Company are, as
follows:
NAME AGE POSITION
---- --- --------
Robert S. Berg 40 Chairman of the Board,
Chief Executive Officer
and Chief Financial Officer
Steven M. Wemple 47 President and Chief
Operating Officer, Director
Andrew J. Nichols 68 Director
J.Russell Jones 60 Director
Each director is elected to hold office until the next annual meeting
of stockholders and until his successor is elected and qualified. The following
sets forth-certain biographical information with respect to the directors and
executive officers of the Company:
Robert S. Berg has served as Chairman of the Board and Chief Executive
Officer of the Company since April 1996. Since 1987, Mr. Berg has served as
President of Sailormen.
Steven M. Wemple has served as the President and Chief Operating
Officer of the Company and as a director since April 1996. Mr. Wemple is in
charge of all operational matters relating to the Company's business. Since
1985, Mr. Wemple has served as Vice-President of Sailormen.
Andrew J. Nichols has been a director of the Company since December
1997. Mr. Nichols was a Market Director for Waste Management, Inc. for in excess
of five years until his retirement in 1988.
J. Russell Jones has been a director of the Company since December
1997, at which time he sold eight Popeye's restaurants to the Company. Prior to
becoming a director, Mr. Jones operated a total of nine Popeye's franchises in
the greater Baton Rouge, Louisiana region for in excess of ten years.
16
<PAGE>
There are no family relationships among any of the executive officers
or directors of the Company. With the exception of Mr. Berg, none of the
executive officers or directors of the Company is subject to any legal
proceedings.
ITEM 9. EXECUTIVE COMPENSATION
Below is the aggregate annual remuneration of each of the executive
officers of the Company. The Company's outside directors Messrs. Nichols and
Jones are compensated for their services and receive shares of the Company's
common stock valued at $1,000 per meeting.
CASH COMPENSATION
The following table shows, for the two-year period ended September 30,
1997, the cash and other compensation paid to each of the executive officers of
the Company.
SUMMARY COMPENSATION TABLE
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NAME AND OTHER ANNUAL OPTIONS/ COMPEN-
PRINCIPAL POSITION PERIOD SALARY BONUS COMPENSATION AWARDS SAR'S(#) LTIP SATION
- ------------------ ------ ------ ------ ------------ ------------ --------- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert S. Berg 1998 $233,451 $ 0 $4,187 (1) $0 $0 $0 $0
Chairman of the Board 1997 $226,018 $ 0 $4,896 (1) $0 $0 $0 $0
Chief Executive Officer
Chief Financial Officer
Steve M. Wemple 1998 $203,265 $ 0 $4,337 (2) $0 $0 $0 $0
President and Chief
Operating Officer, 1997 $196,326 $ 0 $6,528 (2) $0 $0 $0 $0
Director
- ------------------------------------------------------
</TABLE>
(1) Represents premiums for health insurance.
(2) Represents premiums for health insurance.
17
<PAGE>
ITEM 10. 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, 1998 (a) by each
person known to the Company to own beneficially more than 5% of any class of the
Company's securities and (b) by each of the Company's officers and directors and
by all officers and directors of the Company as a group. As of September
30,1998, there were 5,709,072 shares of Common Stock of the Company issued and
outstanding. The address of each of the individuals described below is 9400 S.
Dadeland Boulevard, Suite 720, Miami, Florida 33156.
NAME AND ADDRESS SHARES OF RECORD AND PERCENT
OF OWNER BENEFICIALLY OWNED OF CLASS
- ---------------- -------------------- --------
Robert S. Berg 1,674,583 29.4%
Chairman of the Board,
Chief Executive Officer,
Chief Financial Officer
Steven M. Wemple 919,584 16.1%
President and Chief Operating
Officer, Director
Andrew J. Nichols 542,500 9.5%
Director
Kenneth Cramer 388,000 6.8%
All Officers and Directors
as a Group (3 persons) 3,136,667 55.0%
========= =====
ITEM 11. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Messrs. Berg and Wemple jointly own all of Elk River Aviation Inc.
("Elk River"), a charter aircraft company whose sole business is the leasing of
the airplane described in this section. In Fiscal Years 1998 and 1997, the
Company paid $0 and $63,000 respectively, to Elk River for its services. In
September 1997, the Company signed a twelve-month lease agreement providing for
the Company's exclusive use of Elk River's sole aircraft at a monthly rental of
approximately $33,000 plus operating costs including insurance, repairs,
maintenance and pilot costs. Upon signing the lease the Company gave Elk River a
refundable security deposit of approximately $160,000. The Company believes that
the lease of the aircraft is important to the Company in order to permit
management to effectively supervise the operations of its restaurants which are
located in several states, as well as in connection with the efforts of the
Company to analyze potential future restaurant locations. As of October 1,1998
the company has a new agreement with Elk River. The company is charged the
market rate of a flat $1,100 per hour of usage, on an as needed basis. The
company is not responsible for any other operating expenses of the plane.
18
<PAGE>
During April 1997, in connection with Messrs. Byrd and Kaufman retiring
from the Board of Directors the Company purchased the majority of their common
shares held. Mr. Byrd sold to the Company 1,030,000 shares of the Company's
common stock for 430,000 shares of the company's mandatory redeemable preferred
Class B stock, redeemable monthly for $5,000 per month. The Company has the
right of first refusal to purchase the 200,000 common shares that Mr. Byrd
retained. Mr. Kaufman sold all the Company's common shares he held, 1,150,000,
to the company for $208,000 cash.
The Company leases equipment from First Southern Financial Corp., a
Florida corporation controlled by Messrs. Berg and Wemple. Currently, the
Company is paying First Southern financial Corp. the sum of approximately $900
per month for the equipment. In association with the refinancing of its debt,
the Company purchased all leased equipment from First Southern Financial
Corporation and terminated all its leases.
On December 11, 1997, the Company entered into a lease agreement
controlled by J. Russell Jones, a Director of the Company, for a Popeye's
restaurant located in Baton Rouge, Louisiana. The lease is a long-term lease
with a purchase option. The Company purchased and sold, in a sale-leaseback
transaction, the restaurant's property and thereby terminated such lease.
19
<PAGE>
ITEM 12. EXHIBITS AND REPORTS ON FORM 8-K
The following list describes the exhibits filed as part of this Form
10-KSB
EXHIBIT NUMBER
3.1 Articles of Incorporation of Sobik's Subs, Inc. dated May 13,
1994 (1)
3.2 By-Laws of Sobiik'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 Agreements between Sobik's,
Sandwich Shops, Inc, and SBK Franchise Systems, Inc. dated March
1, 1993
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-KBS under the
Securities Exchange Act of 1934 filed with the Commission in July 1996,
file number 000-21093
20
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, on this 15 day
of January, 1999, thereunto duly authorized.
INTERFOODS OF AMERICA, INC.
(Registrant)
STEVEN WEMPLE
By: STEVEN WEMPLE
Steven Wemple, President
In accordance with the Exchange Act, this report has been signed below
by thefollowing persons on behalf of the Registrant and the capacities on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
ROBERT S. BERG Director, Chairman of the Board 1/15/99
Chief Executive Officer
STEVEN M. WEMPLE Director, President, Chief Operating 1/15/99
Officer, Secretary and Treasurer
</TABLE>
21
<PAGE>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGES
-----
Report of Independent Certified Public Accountants F-2
Consolidated Financial Statements:
Consolidated Balance Sheets F-3-4
Consolidated Statements of Income F-5
Consolidated Statements of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7-8
Notes to Consolidated Financial Statements F-9-19
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Interfoods of America, Inc.:
We have audited the accompanying consolidated balance sheets of Interfoods of
America, Inc. (a Nevada corporation) and subsidiaries as of September 30, 1998
and 1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years 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 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 audits provide 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. and subsidiaries, as of September 30, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
December 4, 1998.
F-2
<PAGE>
<TABLE>
<CAPTION>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
ASSETS 1998 1997
------ -------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,523,915 $ -
Accounts receivable 42,118 115,742
Inventories 120,396 66,271
Prepaid expenses 48,544 111,991
Deferred tax asset 50,805 164,900
-------------- --------------
Total current assets 1,785,778 458,904
-------------- --------------
Furniture, equipment and construction
in progress, net 6,077,343 3,698,995
-------------- --------------
Other assets:
Deposits 272,012 331,122
Goodwill, less accumulated amortization of
$152,824 and $88,809 in 1998 and 1997 2,442,527 2,475,701
Other intangible assets, less accumulated
amortization of $196,610 and $181,200 in
1998 and 1997 171,266 147,677
Investment in JRECK 400,000 -
Debt issuance costs 101,117 -
Other assets 107,500 -
Due from affiliates - 26,274
-------------- --------------
Total other assets 3,494,422 2,980,774
-------------- --------------
Total assets $ 11,357,543 $ 7,138,673
============== ==============
</TABLE>
(Continued)
F-3
<PAGE>
<TABLE>
<CAPTION>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
(Continued)
1998 1997
------------- ---------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,665,805 $ 1,182,117
Current portion of long-term debt 390,399 204,122
Current portion of deferred income on
sale - leaseback transactions 41,894 19,844
-------------- --------------
Total current liabilities 3,098,098 1,406,083
Long-term debt, net of current portion 3,712,697 1,299,109
Deferred income on sale - leaseback transactions,
net of current portion 795,993 377,039
-------------- --------------
Total liabilities 7,606,788 3,082,231
-------------- --------------
Mandatorily redeemable preferred stock:
Restricted Class A stock, nonvoting, 228,640
shares authorized, 28,580 and 142,900 shares
issued and outstanding in 1998 and 1997,
6% annual dividend 50,000 253,750
-------------- --------------
Restricted Class B stock, nonvoting, 430,000 shares
authorized, 345,000 and 405,000 shares issued and
outstanding in 1998 and 1997 345,000 405,000
-------------- --------------
Commitments and contingencies (Note 10)
Stockholders' equity:
Common stock, 25,000,000 shares authorized
at $.001 par value; 8,262,405 and 8,079,979
shares issued in 1998 and 1997 and
5,709,072 and 5,526,646 shares outstanding
in 1998 and 1997 8,262 8,080
Additional paid-in capital 4,321,727 4,197,189
Accumulated deficit (245,966) (79,309)
Treasury stock, at cost, 2,553,333 shares (728,268) (728,268)
-------------- --------------
Total stockholders' equity 3,355,755 3,397,692
-------------- --------------
Total liabilities and stockholders' equity $ 11,357,543 $ 7,138,673
============== ==============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
F-4
<PAGE>
<TABLE>
<CAPTION>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997
-------------- --------------
<S> <C> <C>
Revenues:
Restaurant sales $ 23,683,372 $ 13,830,499
Royalties and fees 42,214 261,683
--------------- --------------
Total revenues 23,725,586 14,092,182
--------------- --------------
Costs and operating expenses:
Cost of restaurant operations 20,823,242 12,184,518
General and administrative expenses 2,646,692 1,574,526
Depreciation and amortization 277,722 187,690
--------------- --------------
Total cost and expenses 23,747,656 13,946,734
--------------- --------------
Operating profit (loss) (22,070) 145,448
--------------- --------------
Other income (expense):
Other income 536,237 62,821
Interest expense (199,448) (54,291)
Other expense (357,281) -
--------------- --------------
Total other income (expense) (20,492) 8,530
--------------- --------------
Income (loss) before income tax (provision) benefit (42,562) 153,978
Income tax (provision) benefit (114,095) 164,900
--------------- --------------
Net income (loss) $ (156,657) $ 318,878
=============== ==============
Net income per share - basic and diluted, less
preferred stock dividends of $10,000 and
$21,500, in 1998 and 1997 $ (0.03) $ 0.05
============== ==============
Weighted average shares outstanding:
Basic and diluted 5,597,366 6,585,953
=============== ==============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
Common Stock Additional
----------------------------- Paid-in Accumulated
Shares Amount Capital Deficit
-------------- --------- ------------- ------------
<S> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1996 7,740,996 $ 7,741 $ 3,797,528 $ (376,687)
Net income - - - 318,878
Preferred stock - class A dividend - - - (21,500)
Purchase of treasury stock - - - -
Common stock issued 338,983 339 399,661 -
------------- --------- ------------- -----------
BALANCE, SEPTEMBER 30, 1997 8,079,979 8,080 4,197,189 (79,309)
Net loss - - - (156,657)
Preferred stock - Class A dividend - - - (10,000)
Common stock issued in acquisition 142,857 143 99,857 -
Common stock issued to employees
and board of directors 39,569 39 24,681 -
------------- --------- ------------- -----------
BALANCE, SEPTEMBER 30, 1998 8,262,405 $ 8,262 $ 4,321,727 $ (245,966)
============= ========= ============= ===========
</TABLE>
<TABLE>
<CAPTION>
Treasury
Stock Total
----------- ----------------
<S> <C> <C>
BALANCE, SEPTEMBER 30, 1996 $ (65,268) $ 3,363,314
Net income - 318,878
Preferred stock - class A dividend - (21,500)
Purchase of treasury stock (663,000) (663,000)
Common stock issued - 400,000
----------- --------------
BALANCE, SEPTEMBER 30, 1997 (728,268) 3,397,692
Net loss - (156,657)
Preferred stock - Class A dividend - (10,000)
Common stock issued in acquisition - 100,000
Common stock issued to employees
and board of directors - 24,720
----------- --------------
BALANCE, SEPTEMBER 30, 1998 $ (728,268) $ 3,355,755
=========== ==============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
1998 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (156,657) $ 318,878
Adjustments to reconcile net income (loss) to net
cash provided by operating activities-
Depreciation and amortization 277,722 187,690
Common stock issued to employees and board of directors 24,720 -
Deferred income tax expense (benefit) 114,095 (164,900)
Amortization of deferred income (88,996) -
Gain on sale of subsidiary (536,237) -
Changes in assets and liabilities:
Accounts receivable 73,624 (22,632)
Inventories (4,125) (27,325)
Prepaid expenses 63,447 (81,284)
Deposits 59,110 (245,635)
Other assets (107,500) -
Accounts payable and accrued expenses 1,433,688 170,774
-------------- --------------
Net cash provided by operating activities 1,152,891 135,566
-------------- --------------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (5,350,000) (50,000)
Proceeds from sale/leaseback 5,130,000 425,000
Capital expenditures (1,881,485) (963,654)
Proceeds from sale of SBK 136,237 -
Proceeds from sale of equipment 85,000 -
Acquisition of other intangible assets - (59,302)
Due from affiliates 26,274 28,504
-------------- --------------
Net cash used in investing activities (1,853,974) (619,452)
-------------- --------------
Cash flows from financing activities:
Proceeds from long-term debt 3,147,262 1,343,594
Repayment of long-term debt (547,397) (420,808)
Repayment of notes payable to stockholders - (13,150)
Purchase of treasury stock - (233,000)
Redemption of Restricted Class A Preferred stock (203,750) (150,000)
Redemption of Restricted Class B Preferred stock (60,000) (25,000)
Preferred stock - Class A dividend (10,000) (17,750)
Debt issuance costs (101,117) -
-------------- --------------
Net cash provided by financing activities 2,224,998 483,886
-------------- --------------
Net increase in cash and cash equivalents 1,523,915 -
Cash and cash equivalents:
Beginning of period - -
-------------- --------------
End of period $ 1,523,915 $ -
============== ==============
</TABLE>
(Continued)
F-7
<PAGE>
<TABLE>
<CAPTION>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
(Continued)
1998 1997
-------------- --------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 188,445 $ 122,572
============== ==============
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Net assets and assumed certain liabilities of
acquired businesses-
Total assets $ 5,500,000 $ 400,000
Total liabilities assumed (50,000) -
Amount paid through issuance of equity (100,000) (350,000)
-------------- --------------
Net cash paid $ 5,350,000 $ 50,000
============== ==============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-8
<PAGE>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 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 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." The Company sold SBK and Restaurant 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 June 30, 1999. The
Company received an additional 100,000 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 SBK
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-fith of the $500,000 worth of
the acquirer's common stock. As of September 30, 1998, $100,000 has been
received by the Company. The resulting net gain of $536,237 is included in other
income in the accompanying 1998 statement of operations.
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 equivalents at September
30, 1998 and 1997.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist primarily of restaurant food items.
REVENUE RECOGNITION
Restaurant sales are recognized at time of sale and delivery product to the
customer. Prior to the Company's sale of SBK and Restaurant in December, SBK and
Restaurant received initial franchise fees, transfer fees and royalties. Initial
franchise fees and transfer fees were recognized as income when substantially
all services and conditions relating to the sale of the franchise had been
performed or satisfied,
F-9
<PAGE>
which occurs when the franchised restaurant commences operations. Royalties were
based upon a percentage of the franchise's gross sales and were recognized as
income when the fees were earned and became receivable and collectible.
FURNITURE AND EQUIPMENT
Furniture 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
START-UP COSTS
The Company capitalizes costs relating to new restaurant start-up activities.
Such costs include training and labor costs prior to opening a new restaurant.
On April 3, 1998, the Accounting Standards Executive Committee issued Statement
of Position ("SOP") 98-5, "Reporting on Costs of Start-up Activities", which
requires the write-off of all previously capitalized start-up costs. The
effective date of SOP 98-5 is for fiscal years beginning after December 15,
1998. The Company is not required to adopt SOP 98-5 until Fiscal 1999. Upon
adoption in Fiscal 1999, the Company expects the write-off to be approximately
$100,000, which reported as a cumulative change in accounting principle in the
Company's Fiscal 1999 financial statements. As of September 30, 1998, the
Company has capitalized start-up costs of approximately $100,000.
INTANGIBLE ASSETS
Goodwill is recorded at cost and amortized on a straight-line basis over 40
years. Other intangible assets are recorded at cost and consist of franchise
rights which are being amortized using the straight-line method over 20 years.
The franchise agreements are for an initial term of 20 years and may be extended
for additional ten-year terms upon the payment of one-half of the
then-applicable franchise fee 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.
Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
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.
F-10
<PAGE>
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 was present at September 30, 1998.
DEBT ISSUANCE COSTS
The costs of obtaining financing are included in the accompanying balance sheets
as deferred financing costs and are being amortized over the initial term of the
loan to which such costs relate.
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
bases. 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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
DISCLOSURES ABOUT FAIR VALUES
OF FINANCIAL STATEMENTS
The carrying amounts of cash, accounts receivable, note receivable and accounts
payable approximate fair value due to the short-term nature of these accounts.
The fair value of debt and mandatorily redeemable restricted preferred stock
approximates the carrying value of such accounts.
NET INCOME PER SHARE
Basic net income per common share is computed by dividing net income by the
weighted average number of common shares outstanding. Diluted net income per
common share assumes the maximum dilutive effect from stock options and warrants
and other potential dilutive securities. For all periods presented, basic and
diluted net income per share are the same. The Company currently does not have
any stock options or warrants outstanding.
F-11
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued SFAS No. 129, "Disclosures of Information
about Capital Structure" which is effective for fiscal years ending after
December 15, 1997. SFAS No. 129 requires disclosing of information about an
entity's capital structure. The impact of adopting SFAS No. 129 in Fiscal 1998
was immaterial.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
effective for fiscal years beginning after December 31, 1997. Comprehensive
income is defined as the change in equity during the financial reporting period
of a business enterprise resulting from nonowner sources. This statement
establishes standards for the reporting and display of comprehensive income and
its components in a full set of general-purpose financial statements. The
Company is not required to adopt SFAS No. 130 until Fiscal 1999 and
anticipates that the impact of adopting SFAS No. 130 in Fiscal 1999 will not be
material.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," effective for fiscal years beginning after
December 15, 1997. This statement requires that a public business enterprise
report financial and descriptive information about its reportable operating
segments including, among other things, a measure of segment profit or loss,
certain specific revenue and expense items, and segment assets. The Company is
not required to adopt SFAS No. 131 until Fiscal 1999 and anticipates that
the impact of adopting SFAS No. 131 in Fiscal 1999 will not be material.
2. ACQUISITIONS
In October 1996, Interfoods acquired the assets of a company which operated four
"Popeye's/registered trademark/'s Chicken and Biscuits" restaurants in
Birmingham, Alabama. The pre-acquisition results of operations and financial
position of the acquired assets was not material. 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, 1998, 200,060 shares of mandatorily
redeemable Restricted Class A preferred stock have been redeemed for $350,000.
All redeemable Restricted Class A preferred stock was redeemed by December 1998.
The Company made two acquisitions during Fiscal 1998. Consideration for
these acquisitions has consisted of cash and Company common stock. The
acquisitions have been accounted for using the purchase method and, accordingly,
the acquired assets and assumed liabilities, including goodwill, have been
recorded at their estimated fair values as of the date of acquisition. Purchase
accounting values for all acquisitions have been assigned on a preliminary
basis, and are subject to adjustment when final information as to the fair
values of the net assets acquired is available. The operations of the acquired
businesses have been included in the Company's consolidated statement of
operations since the date of each respective acquisition.
F-12
<PAGE>
The following table sets forth businesses acquired during 1998 and the
consideration paid:
Date of Total
Name of Business Acquisition Consideration
--------------------------- ------------------- -----------------
(In Thousands)
R. Jones Enterprise, Inc. December 11, 1997 $ 3,700
TSW Foods, Inc. July 6, 1998 1,800
----------
$ 5,500
==========
The following table sets forth the estimated fair value of the assets acquired
for the above acquisitions (in thousands):
Assets, including cash $ 5,470
Other intangibles 30
Liabilities assumed 50
The following table sets forth the unaudited pro forma consolidated results of
operations for the year ended September 30, 1998 giving effect to the above
acquisitions as if such acquisitions had occurred on October 1, 1997 (in
thousands, except per share data):
Revenue $ 32,766
Net income (148)
Basic and diluted earnings per share $ (.03)
The above unaudited pro forma consolidated results are based upon certain
assumptions and estimates which the Company believes are reasonable. The
unaudited pro forma consolidated results of operations may not be indicative of
the operating results that actually would have been reported had the Company
been in existence and had the acquisitions been consummated on October 1, 1997,
nor are they necessarily indicative of results which will be reported in the
future.
F-13
<PAGE>
3. FURNITURE, EQUIPMENT AND CONSTRUCTION IN PROGRESS
Furniture, equipment and construction in progress consist of the following at
September 30:
1998 1997
-------------- --------------
Leasehold improvements $ 1,852,282 $ 959,022
Furniture and equipment 4,060,483 2,534,273
Construction in progress 710,629 494,787
-------------- --------------
6,623,394 3,988,082
Less - accumulated depreciation
and amortization (546,051) (289,087)
-------------- --------------
$ 6,077,343 $ 3,698,995
============== ==============
4. PREPAID EXPENSES
Prepaid expenses consist of the following at September 30:
1998 1997
-------------- --------------
Insurance $ 21,959 $ 18,086
Marketing - 35,841
Other 26,585 58,064
-------------- --------------
Total prepaid expenses $ 48,544 $ 111,991
============== ==============
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at September 30:
1998 1997
Accounts payable $ 1,614,943 $ 754,020
Bank overdraft - 179,985
Payroll 209,290 117,531
Accrued property taxes 155,834 91,263
Accrued payroll taxes,
penalties and interest 300,788 -
Other 384,950 39,318
-------------- --------------
Total accounts payable and
accrued expenses $ 2,665,805 $ 1,182,117
============== ==============
F-14
<PAGE>
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following at September 30:
1998 1997
------------------ --------------
<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. Secured by substantially all Company assets. $ 1,221,388 $ 1,308,047
Unsecured note payable to a financial institution,
due in monthly installments of $6,295, including
interest at 7.5% through July 1998. - 53,455
Unsecured note payable to a company, due in
monthly installments of $4,000, including
imputed interest at 8% through October 1998. - 47,000
Unsecured note payable to a financial institution,
due in monthly installments of $2,000, including
interest at 12% through March 2001. - 94,729
Notes payable to a financial institution, due in
monthly installments totaling $26,584 including
interest at 8.68% through October 2013. Secured
by substantially all Company assets. 2,671,000 -
Annual lines of credit with a financial institution
for borrowings of $2,500,000. Interest is payable
monthly at 8.5% and 9.5% with principal balance
due December 20, 1998 and May 22, 1999,
respectively, subject to annual renewal approval
by the financial institution. Secured by
substantially all Company assets. 210,708 -
------------- -------------
4,103,096 1,503,231
Less - current portion (390,399) (204,122)
------------- -------------
Long-term debt $ 3,712,697 $ 1,299,109
============= =============
</TABLE>
Annual maturities of long-term debt as of September 30, 1998 are as follows:
1999 $ 390,399
2000 197,935
2001 218,054
2002 240,247
2003 264,724
Thereafter 2,791,737
---------------
$ 4,103,096
===============
F-15
<PAGE>
7. 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, which are being held as treasury stock
at September 30, 1998 and 1997.
During June, August and September of 1996, a total of 15,000 shares of the
Company's common stock were redeemed for $15,000 which are being held as
treasury stock at September 30, 1998 and 1997.
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
5,000 shares for $5,000 per month for 86 months. During the years ended
September 30, 1998 and 1997, the Company redeemed 60,000 and 25,000,
respectively, of these preferred shares for $60,000 and $25,000, respectively.
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
which are being held as treasury stock at September 30, 1998 and 1997.
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 at September 30, 1998 and 1997.
See Note 2 for the terms and conditions of the Company's mandatorily redeemable
Restricted Class A preferred stock.
During 1998, the Company issued 5,731 shares of common stock to its board of
directors. Also in 1998, the Company issued 33,838 shares of common stock to its
employees as bonuses. Compensation expense of $24,720 was recorded in connection
with these issuances.
8. RELATED PARTY TRANSACTIONS
Amounts due from affiliates at September 30, 1997 represent non-interest bearing
advances made primarily to certain entities controlled by the principal
stockholders of the Company. The amounts relate to bookkeeping 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 was for a 12-month period beginning October 1, 1997
and was terminated early on September 1, 1998. Monthly rental was $33,066, plus
6.5% tax. Under the terms of the lease, the Company was required to pay all
operating costs and maintain certain minimum insurance coverages on the
aircraft. Prior to September 8, 1997 and since October 1, 1998, when the lease
term expired, the Company leased an aircraft on a periodic basis and incurred
rent expense of approximately $0 and $63,000 in 1998 and 1997, respectively. The
lease and periodic use of an aircraft requires a deposit of $160,438 which is
included in deposits in the accompanying consolidated balance sheet as of
September 30, 1998 and 1997.
F-16
<PAGE>
The Company leases equipment from First Southern Financial Corp., a Florida
corporation controlled by Messrs. Berg and Wemple. Currently, the Company is
paying First Southern Financial Corp. the sum of approximately $900 per month
for the equipment. In association with the refinancing of its debt,
the Company purchased all leased equipment from First Southern Financial
Corporation and terminated all its leases.
On December 11, 1997, the Company entered into a lease agreement controlled by
J. Russell Jones, a Director of the Company, for a Popeye's restaurant located
in Baton Rouge, Louisiana. The lease is a long-term lease with a purchase
option. The Company purchased and sold, in a sale-leaseback transaction, the
restaurant's property and thereby terminated such lease.
9. INCOME TAXES
The components of the (provision) benefit for federal income taxes for 1998 and
1997 are as follows:
1998 1997
------------- -------------
Current $ - $ -
Deferred (114,095) 164,900
------------- -------------
$ (114,095) $ 164,900
============= =============
The tax effects of temporary differences that give rise to deferred tax assets
and deferred tax liabilities at September 30, 1998 and 1997 are presented below:
1998 1997
-------------- --------------
Depreciation and amortization
differences $ (152,559) $ -
Gain deferred for book purposes 164,715 -
Other (1,956) -
Net operating loss carryforward 40,605 164,900
-------------- --------------
Net deferred income tax asset $ 50,805 $ 164,900
============== ==============
At September 30, 1998 and 1997, the Company had net operating loss carryforwards
available to offset taxable income and tax liabilities of approximately $119,400
and $485,000, respectively.
F-17
<PAGE>
The effective income tax provision on pre-tax income differed from the
(provision) benefit computed at the U.S. Federal statutory rate for the
following reasons:
1998 1997
------------- -------------
Provision computed at Federal
statutory rate of 34% $ 14,471 $ (52,370)
Utilization of net operating losses (124,295) -
Other (4,271) 7,270
Change in valuation allowance - 210,000
-------------- --------------
$ (114,095) $ 164,900
============== ==============
10. COMMITMENTS AND CONTINGENCIES
a. Office and Store Leases
During September 1996, under a sale - 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, under a
sale-leaseback agreement, 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.
During December 1997, under a sale - leaseback agreement, the Company sold eight
owned stores (land and buildings) for approximately $3,700,000 and leased them
back under twenty-year operating lease agreements. The transactions resulted in
a gain of approximately $530,000 and is being amortized over the twenty-year
lease term. During July 1998, under a sale and leaseback agreement, the Company
sold two owned stores (land and buildings) for $1,650,000 and leased them back
under twenty-year operating lease agreements.
Future minimal rental commitments for operating leases over the next five years
with noncancellable terms in excess of one year as of September 30, 1998, are as
follows:
1999 $ 1,630,698
2000 1,601,544
2001 1,537,815
2002 1,547,969
2003 1,481,810
Thereafter 16,289,781
---------------
$ 24,089,617
===============
Rent expense for the years ended September 30, 1998 and 1997 was $1,511,228 and
$878,662, respectively.
F-18
<PAGE>
b. Litigation
In November 1997, the former chairman of the board of the Company filed suit
against the Company and the current chairman of the board and chief executive of
the Company for an injunction and damages resulting from an alleged breach of
contract by the Company. The suit alleges that the Company breached an agreement
to repurchase 150,000 shares of common stock at a price of approximately
$130,000. The Company believes the resolution of this matter will not materially
impact its financial position or results of operations.
11. SUBSEQUENT EVENTS
On October 19, 1998, the Company entered into a stock purchase agreement to
acquire eight Popeye's locations in Missouri for approximately $10 million.
On November 20, 1998, the Company entered into an asset purchase agreement to
acquire ten Popeye's locations in Louisiana for approximately $9 million.
The closing of these acquisitions is subject to a number of factors including
completion of due diligence.
In November 1998, the Company opened a new store in North Miami Beach, Florida
and in December 1998, opened a new store in Ft. Lauderdale, Florida. The Company
currently has five new stores in various stages of development within the
markets it currently operates.
