SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE OF 1934
For the quarterly period ended June 30, 1999
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
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Address of principal executive offices
Registrant's telephone number, including area code (305) 670-0746
Check whether the issuer (1) has filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
As of July 15, 1999 there were 5,717,484 shares of the Issuer's Common Stock
outstanding.
<PAGE>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
PAGE(S)
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<S> <C>
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1999 1
(unaudited) and September 30, 1998
Consolidated Statements of Operations for the three and nine 2
months ended June 30, 1999 and 1998 (unaudited)
Consolidated Statements of Stockholders' Equity for 3
the nine months ended June 30, 1999 (unaudited)
and for the year ended September 30, 1998
Consolidated Statements of Cash Flows for the nine 4-5
months ended June 30, 1999 and 1998 (unaudited)
Notes to the Consolidated Financial Statements (unaudited) 6-7
Item 2. Management's Discussion and Analysis 8-11
Part II. Other Information
Item 1. Legal Proceedings 12
Signatures 12
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INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1999 and September 30, 1998
ASSETS:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1999 1998
(UNAUDITED)
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 518,967 $ 1,523,915
Accounts receivable 12,693 42,118
Inventories 273,162 120,396
Prepaid expenses 54,551 48,544
Deferred tax asset 184,138 50,805
------- ------
Total current assets 1,043,511 1,785,778
--------- ---------
Furniture, equipment and construction in progress, net 12,399,639 6,077,343
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Other assets:
Deposits 228,443 272,012
Goodwill, less accumulated amortization of $240,540 and $152,824 6,848,939 2,442,527
Other intangible assets, less accumulated amortization
of $209,701 and $198,309 426,415 171,266
Investment in JRECK 357,952 400,000
Debt issuance costs 25,275 101,117
Other assets 162,500 107,500
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Total other assets 8,049,524 3,494,422
--------- ---------
Total assets $21,492,674 $11,357,543
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable and accrued expenses $ 3,286.283 $ 2,665,805
Current portion of long term debt 2,152,745 390,399
Current portion of deferred income on sale and leaseback transactions 45,248 41,894
------ ------
Total current liabilities 5,484,276 3,098,098
Long-term debt, excluding current portion 11,825,713 3,712,697
Deferred income on sale and leaseback transactions, net 764,978 795,993
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Total liabilities 18,074,967 7,606,788
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Mandatory redeemable preferred stock class A and B 300,000 395,000
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Stockholders' equity:
Common stock, 25,000,000 shares authorized at $.001 par value;
8,270,817 and 8,262,405 shares issued , 5,717,484 and 5,709,072
shares outstanding 8,271 8,262
Additional paid-in capital 4,349,093 4,321,727
Retained earnings and accumulated deficit (511,389) (245,966)
Treasury stock at cost, 2,553,333 shares (728,268) (728,268)
--------- ---------
Total stockholder's equity 3,117,707 3,355,755
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Total liabilities and stockholders' equity $21,492,674 $11,357,543
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Operations For
the three and nine months ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED 6/30/99 ENDED 6/30/98 ENDED 6/30/99 ENDED 6/30/98
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales $11,849,198 $4,694,412 $25,325,019 $12,587,827
Royalties and fee 0 0 0 42,214
- - - ------
Total revenues 11,849,198 4,694,412 25,325,019 12,630,041
---------- --------- ---------- ----------
Cost and expenses:
Cost of restaurant operations 9,910,107 3,879,192 21,245,119 10,406,407
General and administrative expenses 1,180,307 614,753 2,823,570 1,851,160
Depreciation and amortization 247,950 57,162 476,460 197,231
------- ------ ------- -------
Operating profit 510,834 143,305 779,870 175,243
Other income (expense):
Gain (loss) on sale of subsidiary 34,862 0 (42,048) 1,036,237
Other income (expenses) (106,915) 382 (622,330) (385,714)
Interest income 5,219 12,130 17,271 20,539
Interest expense (321,147) (36,051) (518,613) (146,802)
--------- -------- --------- ---------
Income (loss) before income tax provision 122,853 119,766 (385,850) 699,503
Income tax (provision) benefit (37,754) (39,471) 121,177 (242,150)
------- ------- ------- --------
Net income (loss) $85,099 $80,295 $(264,673) $457,353
======= ======= ========== ========
Net earnings (loss) per share, basic and diluted $0.01 $0.01 $(0.05) $0.08
===== ===== ======= =====
Weighted average shares outstanding 5,717,484 5,681,554 5,712,369 5,681,554
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements
2
<PAGE>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the nine months ended June 30, 1999 (unaudited) and for the year ended
September 30, 1998
<TABLE>
<CAPTION>
ADDITIONAL ACCUMULATED
COMMON STOCK PAID-IN DEFICIT TREASURY
SHARES AMOUNT CAPITAL ------- 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 (264,673) 0 (264,673)
Preferred stock-class A dividend 0 0 0 (750) 0 (750)
Common stock issued to employees 8,412 9 27,366 0 0 27,375
----- - ------ - - ------
BALANCE, JUNE 30, 1999 8,270,817 $ 8,271 $ 4,349,093 $ (511,389) $ (728,268) $ 3,117,707
========= ======= =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
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INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the nine months ended June 30, 1999 and 1998
(unaudited)
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (264,673) $ 457,353
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 476,460 197,231
(Gain) loss on sale of subsidiary 42,048 (1,036,237)
Non-recurring charges 0 411,584
Common stock issued to employees 27,375 27,812
Debt issue amortization 75,842 0
Deferred income tax expense (benefit) (133,333) 0
Cash provided by (used for) changes in assets and liabilities:
Accounts receivable 29,425 52,220
Deposits 43,569 (78,547)
Inventories (152,766) (14,517)
Accounts payable and accrued expenses 620,478 872,386
Prepaid expenses (6,007) 2,305
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Net cash provided by operating activities 758,418 891,590
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Cash flows from investing activities:
Capital expenditures (4,019,031) (685,234)
Proceeds from sale of subsidiary- SBK 0 90,000
Proceeds from sale-leaseback transactions 13,100,000 3,830,517
Acquisition of restaurants (20,448,822) (3,704,057)
Addition of intangibles (175,125) (160,000)
Due from affiliates 0 26,314
- ------
Net cash used in investing activities (11,542,978) (602,460)
----------- ---------
Cash flows from financing activities:
Proceeds from long term debt 10,285,632 157,408
Repayment of long-term debt (410,270) (200,587)
Redemption of Class A Preferred Stock (50,000) (150,000)
Redemption of Class B Preferred Stock (45,000) (45,000)
Preferred Stock Class A dividend (750) (10,000)
----- --------
Net cash provided by (used in) financing activities 9,779,612 (248,179)
--------- ---------
Net increase (decrease) in cash and cash equivalents (1,004,948) 40,951
Cash and cash equivalents:
BegiRunning of period 1,523,915 0
--------- -
End of period $518.967 $ 40,951
======== ========
</TABLE>
(continued)
4
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INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the nine months ended June 30,1999 and 1998
(unaudited)
Supplemental disclosure of non cash financing and investing activities:
On December 4, 1997, the Company sold to Jreck its subsidiary SBK Franchise
Systems, Inc for $1.1 million. The consideration consisted 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, of fiscal 1998, management elected to reserve 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. On June 11,1999, a new agreement was reached with
Jreck whereby a new note for $ 200,000 was signed and all the existing put
options were agreed to be waived. The existing certificates in Jreck stock were
written down to market value and the Company received an additional 700,187
shares of Jreck stock . Management has elected to reserve the $ 200,000 note on
the transaction, and the Company has recorded a $ 42,048 market loss in the 1999
fiscal year.
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: 1999 1998
---- ----
Cash paid during the year:
Income taxes $ 12,156 $ 0
======== ===
Interest $ 460,342 $ 146,584
========= =========
The accompanying notes are an integral part of these consolidated statements.
(continued)
5
<PAGE>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted in this Form
10-QSB in compliance with the Rules and Regulations of the Securities
and Exchange Commission. However, in the opinion of Interfoods of
America, Inc. and Subsidiaries ("the Company"), the disclosures
contained in this Form 10-QSB are adequate to make the information
fairly presented. See Form 10-KSB 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 June 30, 1999 and the results of operations for the nine month
periods ended June 30, 1999 and 1998 and cash flows for each of the
nine-month periods ended June 30, 1999 and 1998. The results of
operations for the nine month periods ended June 30, 1999 are not
necessarily indicative of the results which may be expected for the
entire year. Certain 1998 Sales and Cost of restaurant operation
amounts have been reclassified to conform to the 1999 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 that extends the maturity date until July 1,
1999. The Company received an additional 106,857 shares as an extension
fee. In the fourth quarter of 1998, the promissory note was fully
reserved with a corresponding reduction of the gain on sale. On June
11,1999, a new agreement was reached with Jreck whereby a new note for
$ 200,000 was signed and all the existing put options were agreed to be
waived. The existing certificates in Jreck stock were written down to
market value and the Company received an additional 700,187 shares of
Jreck stock . Management has elected to reserve the $200,000 note.
2. MANDATORILY REDEEMABLE CLASS A AND B PREFERRED STOCK
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1999 1998
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<S> <C> <C>
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, 300,000 and
345,000 shares issued and
outstanding $ 300,000 $ 345,000
--------- ---------
Total mandatory redeemable
Class A & B preferred stock $ 300,000 $ 395,000
========= =========
</TABLE>
6
<PAGE>
3. NEW PURCHASES AND MORTGAGE TRANSACTION
On November 17,1998, the Company entered into a purchase transaction
for the land and building of one Popeye's location in Ft. Pierce
Florida for $597,694. FFCA Acquisition Corporation provided a mortgage
of $600,000 for the term of twenty years using an adjustable interest
rate. The current rate on the mortgage is 9.00%.
On March 8, 1999, the Company acquired ten Popeye's locations in Baton
Rouge, La. for approximately $5.75 million in cash and $3.5 million of
debt. The transaction was accounted as an asset purchase.
On March 22,1999, the Company acquired an additional nine Popeye's
restaurants in St. Louis, Mo. for approximately $ 6.1 million in cash
and $4.5 million of debt. The transaction was accounted for as a stock
purchase.
In both of the above acquisitions, none of the Company's stock was
used.
The following table sets forth the estimated fair value of the assets
acquired for the above acquisitions (in thousands):
Assets, including cash $ 16,058
Goodwill 4,494
Other intangibles 159
Liabilities assumed (263)
--------
$ 20,448
--------
The pro forma results for fiscal 1999 with additional operations
described above are presented as if the acquisitions were consummated
as of the beginning of the period:
Revenue $33,985,019
-----------
Net income $ 469,327
---------
Basic and diluted earnings per share $ .08
-----
The above-unaudited pro forma results are based upon certain
assumptions and estimates, which the Company believes are reasonable.
The results of operations may not be indicative of the operating
results that actually would have been reported had the Company made
these acquisitions on October 1, 1998, nor are they necessarily
indicative of results that will be reported in the future.
4. NEW LEASES AND SALE-LEASEBACK TRANSACTIONS
On March 8,1999, the Company entered into sale-leaseback transactions
for the land and buildings of nine Popeye's locations purchased in
Baton Rouge La. for approximately $6.1 million.
On March 16,1999, the Company entered into a $ 650,000 sale-leaseback
transaction for the land, building and equipment on one of the new
Popeye's store locations in Ft. Lauderdale Florida.
On March 22,1999, the Company entered into sale-leaseback transactions
for the land and buildings of nine Popeye's locations purchased in St.
Louis Mo. for approximately $6.2 million.
On June 16, 1999 the Company entered into a $ 200,000 sale - leaseback
transaction for the equipment on two new Popeye's locations recently
opened.
5. SUBSEQUENT EVENTS
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 were consistent with and conditioned upon valuations
prepared by an independent appraiser. On May 5,1999 the Company
announced it would not move forward with the Tubby's intended merger
because the Board of Directors felt it was not in the best interest of
the shareholders.
Currently, the Company operates fifty-four Popeye's restaurants and has
one additional store in the early stages of development within the
markets it 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 AND NINE MONTHS ENDED JUNE 30, 1999 COMPARED TO JUNE 30, 1998
For the three and nine months ended June 30,1999, the Company had total revenues
of $11,849,198 and $25,325,019 compared to total revenues of $4,694,412 and
$12,630.041 for the three and nine months ended June 30, 1998. The increase in
revenues was primarily attributable to the sales generated by the Company's
acquisition of nine stores in St. Louis, Missouri on March 22,1999, ten stores
in Baton Rouge, Louisiana, on March 8,1999, five stores in Pensacola, Florida on
July 6, 1998 The Company opened five additional new stores during the year of
which two were in Birmingham, Alabama and one each in Ft Pierce, North Miami
Beach and Lauderdale Lakes, Florida.The remaining sales increase was due to an
increase in comparable sales of 11.8 % for the three months and 13.2 % for the
nine months ended June 30,1999. The 1998 promotional sales have been adjusted to
conform to the 1999 presentation.
Cost of restaurant operations for the three and nine months ended June 30, 1999
were $9,910,107 and $21,245,119 compared to $3,879,192 and $10,406,407 for the
three and nine months ended June 30,1998. The increase is attributable to the
number of stores and the additional expenses that were incurred to assimilate
the Company's procedures and systems into the acquired stores. The 1998
promotional expenses were adjusted to conform to the 1999 presentation.
General and administrative expenses for the three and nine months ended June
30,1999 were $1,180,307 and $2,823,570 compared to $614,753 and $1,851,160 for
the three and nine months ended June 30,1998. The increase is primarily
attributable to expenses related to the indirect costs of recent acquisitions
that were not capitalized in accordance with the recent accounting pronouncement
SOP 98-5 (Reporting on Start-up Activities) and additional personnel needed to
handle the current growth.
Depreciation and amortization for the three and nine months ended June 30,1999
were $247,950 and $476,460 compared to $57,162 and $197,231 for the three and
nine months ended June 30,1998. The increase was primarily attributable to the
acquisition of additional restaurants and the new remodeling programs in
existing restaurants.
Operating profit of the Company was $510,834 and $779,870 for the three and nine
months ended June 30, 1999 compared to an operating profit of $143,305 and
$175,243 for the three and nine months ended June 30, 1998. The increase in
operating profit is attributable to the increase in number of stores and
increase in store level profits resulted from the favorable comparable sales.
The gain (loss) on the sale of subsidiary was $34,862 and ($42,048) for the
three and nine months ended June 30, 1999 as compared to a gain of $0 and
$1,036,237 for the three and nine months ended June 30, 1998. In the prior year,
the sale of one of the Company's subsidiaries, SBK Franchise Systems, Inc. for
$1.1 million resulted in a gain of $1,036,237, for the nine months ended June
30,1998, but this was subsequently reserved by $500,000 in the fourth quarter of
1998. In the current three and nine months ended June 30,1999, a new agreement
was reached to write down the stock options it had in Jreck stock to market. The
current quarter gain was due to an increase in the stock price of the investment
from the prior quarter but for the nine months, the loss reflects the decrease
in put option verses the stock market price.
Other expenses, for the three and nine months ended June 30,1999 were $106,915
and $622,330 as compared to $382 income and $385,714 in expenses for the three
and nine months ended June 30,1998. The charges in the current year were
attributable to the acquisition costs associated with the purchase of the
restaurants in Baton Rouge and St. Louis. In 1998, there were non-recurring
charges and accruals of $411,584 offsetting the 1998 sales gain.
Interest increased from $23,921 and $126.263 for the three and nine months ended
June 30,1998 to $315,928 and $501,342 for the three and nine months ended June
30,1999. The increase was due to higher average debt outstanding in fiscal 1999
as compared to fiscal 1998 and this was attributable to additional borrowings
made under the Company's acquisition and remodeling programs.
8
<PAGE>
The Company 's pretax net income (loss) for the three and nine months ended June
30, 1999 was $122,853 profit and $ 385,850 loss compared to a profit of $119,766
and $699,503 for the three and nine months ended June 30,1998. With the
acquisition of the new stores in March 1999, the Company has incurred expenses
that are non-recurring and has caused the overall losses for nine months. The
current quarter reflects the positive operating results that management believes
will continue in future quarters to offset those losses.
The net earning (loss) after tax was equivalent to an earnings per share of
$0.01 and loss ($0.05) for the three and nine months ended June 30, 1999
compared to a $0.01 and $0.08 per share for the three and nine months ended June
30,1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations for the nine months ended June 30,1999 was
$758,418 compared to net cash provided by operations of $891,590 for the nine
months that ended June 30,1998. The increase in net cash provided by operating
activities for this period was primarily attributable to increases in accounts
payable and accrued expenses of $620,478 but this was offset by higher cash
usage for inventories and prepaid expenses.
At June 30,1999, the Company had total current assets of $1,043,511 and total
assets of $21,492,674 as compared to total current assets of $1,785,778 and
total assets of $11,357,543 at September 30, 1998. The increase in total assets
was primarily due to the acquisition of 19 restaurant from Baton Rouge and St.
Louis and the Company's new remodeling program.
Net cash used in investing activities was $11,542,978 for the nine months ended
June 30,1999 as compared to net cash used in investing activity for the nine
months ended June 30, 1998 of $602,460. The cash was used primarily for the
acquisition of restaurants in the amount of $20,448,822 and the Company's new
remodeling program of capital improvements $4,019,031 offset by sale of
restaurants and equipment in the amount of $13,100,000.
Net cash provided by financing activities was $9,779,612 for the nine months
ended June 30,1999 as compared to cash used by financing activities of $248,179
in the nine months ended June 30,1998. The increase resulted primarily from the
proceeds of a new debt of $10,285,632 from the new acquisitions and construction
loans, which was offset by the reduction of existing debt of $410,270.
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
Popeye's 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.
NEW ACCOUNTING PRONOUNCEMENTS
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. Currently, the
Company has one reporting segment and therefore the impact of adopting SFAS No
131 is immaterial
9
<PAGE>
START UP COSTS
The Company capitalized costs relating to new restaurant start-up cost
activities, such costs include training and labor costs prior to opening the 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." This SOP requires the write off of start-up costs capitalized by
the Company. The write off will be reported as a cumulative change in accounting
principle. The effective date of the SOP is for fiscal years beginning after
December 15, 1998. As of June 30,1999 the Company had capitalized start-up costs
of approximately $20,068 which is being amortized during the balance of the
fiscal year and current years costs are written off as incurred.
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 may be
extended for an additional ten-year term upon the payment of one-half of the
then-applicable franchise fee (currently $25,000) 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 No. ("SFAS") 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. 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 June 30, 1999.
DEBT ISSUANCE COSTS
The costs of obtaining financing in prior years are included in the accompanying
balance sheets as deferred financing costs and are to be amortized over the
fiscal 1999 year. At June 30,1999 the balance of the deferred issuance costs
were $25,275.
YEAR 2000
The term "Year 2000" is a general term used to describe the various problems
that may result from the improper processing of dates and date-sensitive
calculations by computers and other equipment as the year 2000 is approached and
thereafter. These problems generally arise from the fact that most of the
world's computer hardware and software has historically used only two digits to
identify the year, often meaning that the computer will fail to distinguish
dates in the "2000's" from dates in the "1900's."
The Company's State of Readiness. The Company has established a plan to (1) test
its financial and information systems to evaluate Year 2000 compliance, (2)
assess its technology systems that utilize embedded technology such as
micro-controllers in the point of sale equipment in all stores, (3) determine
the readiness of third parties such as critical vendors ,utility companies,
telecommunication companies, banks and other third party suppliers. The Company
has completed the testing and assessment of its financial and information
systems including the technology systems that utilize embedded technology. The
Company hired an external consultant to review the technology systems and new
released software that was Year 2000 compliant was installed. The Company has
determined that the point of sale equipment in 39 of its 54 restaurants is Year
2000 compliant and will anticipate to upgrade the balance of equipment by
October, 1999.
Costs to address the Company's Year 2000 Issues. The Company expenses costs
associated with its Year 2000 plan as the costs are incurred except for costs
that the Company would otherwise capitalize. Management does not expect that the
costs associated with its Year 2000 Plan to have a material adverse affect its
financial position or results of operations. The Company is unable to estimate
the costs it may incur as a result of Year 2000 problems suffered by third
parties with which it deals. The Company has surveyed its critical vendors,
other than utilities, and believes that each vendor will be compliant for Year
2000 or, if not, suitable alternative suppliers that are Year 2000 compliant
will be available.
10
<PAGE>
Risks Presented by Year 2000 Problems. To operate its business, The Company
relies upon critical vendors, banks, utility companies, telecommunications
companies, and other third party service providers over which it can assert
little control. The Company's ability to conduct its business is dependent upon
the ability of third parties to avoid Year 2000 related disruption. If they do
not adequately address their Year 2000 issues, the company's business may be
materially affected which could result in a materially adverse effect on the
Company's results of operations and financial condition.
The Company's Contingency Plans. The Company's Plan calls for the development of
contingency plans for areas of its business that are susceptible to a
substantial risk of a year 2000 related disruption. The Company has not yet
developed detailed contingency plans specific to Year 2000 events. Consistent
with its Plan, the Company will develop specific contingency plans as potential
risks arise.
11
<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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27 Financial Data Schedule.
(b) Reports on Form 8-K. None.
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: August 10, 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
12
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 518,967
<SECURITIES> 0
<RECEIVABLES> 12,693
<ALLOWANCES> 0
<INVENTORY> 273,162
<CURRENT-ASSETS> 1,043,511
<PP&E> 12,399,639
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,492,674
<CURRENT-LIABILITIES> 5,484,276
<BONDS> 0
300,000
0
<COMMON> 4,357,364
<OTHER-SE> (1,239,657)
<TOTAL-LIABILITY-AND-EQUITY> 21,492,674
<SALES> 25,325,019
<TOTAL-REVENUES> 25,325,019
<CGS> 21,245,119
<TOTAL-COSTS> 24,545,149
<OTHER-EXPENSES> (664,378)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (518,613)
<INCOME-PRETAX> (385,850)
<INCOME-TAX> 121,177
<INCOME-CONTINUING> (264,673)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (264,673)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
