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 March 31, 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
---------------------------------------------------------
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 May 4, 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
Part I Financial Information PAGE(S)
-------
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1999 1
(unaudited) and September 30, 1998
Consolidated Statements of Operations for the three 2
and six months ended March 31, 1999 and 1998
(unaudited)
Consolidated Statements of Stockholders' Equity for 3
the six months ended March 31, 1999
(unaudited) and for the year ended
September 30, 1998
Consolidated Statements of Cash Flows for the six 4-5
months ended March 31, 1999 and 1998
(unaudited)
Notes to the Consolidated Financial Statements
(unaudited) 6-7
Item 2. Management's Discussion and Analysis 8-10
Part II. Other Information
Item 1. Legal Proceedings 11
Signatures 11
<PAGE>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, and September 30, 1998
ASSETS:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1999 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 751,309 $ 1,523,915
Accounts receivable 163,243 42,118
Inventory 264,237 120,396
Prepaid expense 213,620 48,544
Deferred tax asset 224,049 50,805
------------ ------------
Total current assets 1,616,458 1,785,778
------------ ------------
Furniture, equipment and construction in progress, net 12,447,019 6,077,343
------------ ------------
Other assets:
Deposits 235,266 272,012
Goodwill, less accumulated amortization of $193,418 and $152,824 6,896,061 2,442,527
Other intangible assets, less accumulated amortization
of $199,446 and $198,309 395,419 171,266
Investment in JRECK 323,090 400,000
Debt issuance costs 50,555 101,117
Other assets 107,500 107,500
------------ ------------
Total other assets 8,007,891 3,494,422
------------ ------------
Total assets $ 22,071,368 $ 11,357,543
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable and accrued expenses $ 4,148,684 $ 2,665,805
Current portion of long term debt 1,537,545 390,399
Current portion of deferred income on sale and leaseback transactions 45,248 41,894
------------ ------------
Total current liabilities 5,731,477 3,098,098
Long-term debt, excluding current portion 12,210,993 3,712,697
Deferred income on sale and leaseback transactions, net 776,290 795,993
------------ ------------
Total liabilities 18,718,760 7,606,788
------------ ------------
Mandatory redeemable preferred stock class A and B 320,000 395,000
------------ ------------
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 8,270 8,262
Additional paid-in capital 4,349,094 4,321,727
Retained earnings and accumulated deficit (596,488) (245,966)
Treasury stock at cost, 2,553,333 shares (728,268) (728,268)
------------ ------------
Total stockholder's equity 3,032,608 3,355,755
------------ ------------
Total liabilities and stockholders' equity $ 22,071,368 $ 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 six months ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED 3/31/99 ENDED 3/31/98 ENDED 3/31/99 ENDED 3/31/98
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales $ 7,432,948 $ 4,483,803 $ 13,475,821 $ 7,893,415
Royalties and fee 0 0 0 42,214
------------ ------------ ------------ ------------
Total revenues 7,432,948 4,483,803 13,475,821 7,935,629
------------ ------------ ------------ ------------
Cost and expenses:
Cost of restaurant operations 6,092,424 3,716,337 11,335,012 6,527,215
General and administrative expenses 835,975 618,828 1,643,263 1,236,407
Depreciation and amortization 165,036 54,955 228,510 140,069
------------ ------------ ------------ ------------
Operating profit 339,513 93,683 269,036 31,938
Other income (expense):
Gain (loss) on sale of subsidiary (12,988) 0 (76,910) 1,036,237
Other expenses, net (485,099) 37,769 (515,415) (386,096)
Interest, net (107,128) (28,489) (185,414) (102,342)
------------ ------------ ------------ ------------
Income (loss) before income tax provision (265,702) 102,963 (508,703) 579,757
------------ ------------ ------------ ------------
Income tax (provision) benefit 76,311 36,574 158,931 202,679
------------ ------------ ------------ ------------
Net income (loss) $ (189,391) $ 66,389 $ (349,772) $ 377,058
============ ============ ============ ============
Net earnings (loss) per share, basic and diluted $ (0.03) $ 0.01 $ (0.06) $ 0.06
============ ============ ============ ============
Weighted average shares outstanding 5,709,812 5,876,272 5,709,812 5,876,272
============ ============ ============ ============
</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 six months ended March 31, 1999 (unaudited)
and for the year ended September 30, 1998
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL DEFICIT SHARES TOTAL
---------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1997 8,079,979 $ 8,080 $ 4,197,189 $ (79,309) $ (728,268) $ 3,397,692
Net loss 0 0 0 (156,657) 0 (156,657)
Preferred stock-class A dividend 0 0 0 0 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 (349,772) 0 (349,772)
Preferred stock-class A dividend 0 0 0 (750) 0 (750)
Common stock issued to employees 8,412 8 27,367 0 0 27,375
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, MARCH 31, 1999 8,270,817 $ 8,270 $ 4,349,094 $ (596,488) $ (728,268) $ 3,032,608
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
<PAGE>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the six months ended March 31, 1999 and 1998
(unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss ) $ (349,772) $ 377,058
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization 244,858 154,709
(Gain) loss on sale of subsidiary 76,910 (1,036,237)
Non-recurring charges 0 411,584
Common stock issued to employees 27,375 27,812
Debt issue cost write down 50,562 0
Amortization of deferred income (16,348) (14,658)
Deferred income tax expense (benefit) (173,244) 0
Cash provided by (used for) changes in assets and liabilities:
Accounts receivable (121,125) 52,220
Deposits 36,746 40,409
Inventories (143,841) (21,759)
Accounts payable and accrued expenses 1,482,879 749,781
Prepaid expenses (165,076) 14,493
------------ ------------
Net cash provided by operating activities 949,924 755,412
------------ ------------
Cash flows from investing activities:
Capital expenditures (4,265,218) (427,880)
Proceeds from sale of subsidiary- SBK 0 90,000
Proceeds from sale of real estate 12,900,000 3,830,517
Acquisition of restaurants (19,692,129) (3,704,057)
Addition of intangibles (234,875) (152,500)
Due from affiliates 23,774
------------ ------------
Net cash used in investing activities (11,292,222) (340,146)
------------ ------------
Cash flows from financing activities:
Proceeds from long term debt 9,728,175 (119,874)
Repayment of long-term debt (82,733) 0
Redemption of Class A Preferred Stock (50,000) (150,000)
Redemption of Class B Preferred Stock (25,000) (30,000)
Preferred Stock Class A dividend (750) (10,000)
------------ ------------
Net cash provided by (used in) financing activities 9,569,692 (309,874)
------------ ------------
Net increase (decrease) in cash and cash equivalents (772,606) 105,392
Cash and cash equivalents:
Beginning of period 1,523,915 0
------------ ------------
End of period $ 751,309 $ 105,392
============ ============
</TABLE>
(continued)
4
<PAGE>
INTERFOODS OF AMERICA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the six months ended March 31,1999 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, 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 additional 106,857 shares of Jreck stock as
an extension and late fee. The Company recorded a $ 26,714 gain on this
transaction. Also in December, 1998 the Company decided to waived the $100,000
put option that was due and elected to write down the Jreck stock to market
value which resulted in a loss of $103,624.
On December 11, 1997, the Company entered into a sale-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.
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.
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.
Supplemental disclosures of cash flow information: 1999 1998
---- ----
Cash paid during the year:
Income taxes $ 10,000 $ 0
======== ========
Interest $185,414 $102,242
======== ========
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 March 31, 1999 and the results of operations for the six month
periods ended March 31, 1999 and 1998 and cash flows for each of the
six-month periods ended March 31, 1999 and 1998. The results of
operations for the six month periods ended March 31, 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.
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 has an option to redeem or retain one-fifth of the $ 500,000
worth of the acquirer's common stock. As of March 31, 1999 $100,000 has
been received by the Company in cash and another $100,000 of common
stock was retained and has been written down to market value.
2. MANDATORILY REDEEMABLE CLASS A AND B PREFERRED STOCK
DECEMBER 31, SEPTEMBER 30,
1999 1998
------------ -------------
Restricted Class A preferred stock,
nonvoting, 228,640 shares authorized,
0 and 28,580 shares issued and
outstanding, 6% annual dividend 0 $ 50,000
Restricted Class B preferred
stock, nonvoting, 430,000
shares authorized, 320,000 and
345,000 shares issued and
outstanding $320,000 $345,000
-------- --------
Total mandatory redeemable
Class A & B preferred stock $320,000 $395,000
======== ========
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
acquired 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 acquired 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):
<TABLE>
<S> <C>
Assets, including cash $ 15,461
Goodwill 4,494
Other intangibles 159
Liabilities assumed 263
</TABLE>
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.
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.
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 are 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 in the best interest of the stockholders
to seek other options.
The Company has opened a new store in Birmingham, Alabama on April
20,1999 and an additional one in Ft Pierce Fl. on May 6, 1999.
Currently, the Company operates fifty-three Popeye's restaurants and
has an additional three stores in various 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 for the year ended September 30,
1998.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED MARCH 31, 1999 COMPARED TO MARCH 31, 1998
For the three and six months ended March 31,1999, the Company had total revenues
of $7,432,948 and $13,475,821 compared to total revenues of $4,483,803 and
$7,893.415 for the three and six months ended March 31, 1998. The increase in
revenues was primarily attributable to the sales generated by the Company's
acquisition five stores in Pensacola, Florida on July 6, 1998 and two additional
new store openings in North Miami Beach and Lauderdale Lakes, FL in November and
December 1998. The remaining sales increase was due to an increase in comparable
sales of 14.7% for the three months and 13.9% for the six months ended March
31,1999. The 1998 promotional sales have been adjusted to conform to the 1999
presentation.
Cost of restaurant operations for the three and six months ended March 31, 1999
were $6,092,424 and $11,335,012 compared to $3,716,337 and $6,527,215 for the
three and six months ended March 31,1998. 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 costs for the three and six months ended March
31,1999 were $835,975 and $1,643,263 compared to $618,828 and $1,236,407 for the
three and six months ended March 31,1998. The increase is primarily attributable
to expenses related to the indirect costs of recent acquisitions that were not
capitalized and additional personnel needed to handle the current growth.
Depreciation and amortization for the three and six months ended March 31,1999
were $165,036 and $228,510 compared to $54,955 and $140,069 for the three and
six months ended March 31,1998. 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 $339,513 and $269,036 for the three and six
months ended March 31, 1999 compared to an operating profit of $93,683 and
$31,938 for the three and six months ended March 31, 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 loss on the sale of subsidiary was $12,988 and $76,910 for the three and six
months ended March 31, 1999 as compared to a gain of $1,036,237 for the six
months ended March 31, 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 six months ended March 31,1998, but this was subsequently
reserved by $500,000 in the fourth quarter of 1998. In the current three and six
months ended March 31,1999, management decided to write down the $100,000 stock
option and additional shares it received in Jreck stock to market.
Other expenses, for the three and six months ended March 31,1999 were $485,099
and $515,415 as compared to $37,769 income and $386,096 in expenses for the
three and six months ended March 31,1998. 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 $28,489 and $102.342 for the three and six months ended
March 31, 1998 to $107,128 and $185,414 for the three and six months ended March
31,1999. 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 loss for the three and six months ended March 31, 1999
was $265,702 and $ 508,703 compared to a profit of $102,963 and $579,757 for the
three and six months ended March 31,1998. With the acquisition of the new stores
in March 1999, the Company has incurred expenses that are non-recurring and
management believes that the operating results of future quarters will offset
those losses.
The net loss after tax was equivalent to an earnings per share of ($0.03) and
($0.06) for the three and six months ended March 31, 1999 compared to a $0.01
and $0.06 per share for the three and six months ended March 31,1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations for the six months ended March 31,1999 was
$949,924 compared to net cash provided by operations of $755,412 for the six
months that ended March 31,1998. The increase in net cash provided by operating
activities for this period was primarily attributable to increases in accounts
payable and accrued expenses of $1,482,879 but this was offset by higher cash
usage for accounts receivable, inventories and prepaid expenses.
At March 31,1999, the Company had total current assets of $1,616,458 and total
assets of $22,071,368 as compared to total current assets of $1,785,778 and
total assets of $11,357,543 at September 30, 1998. The increase 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 $11,292,222 for the six months ended
March 31,1999 as compared to net cash used in investing activity for the six
months ended March 31, 1998 of $340,146. The cash was used primarily for the
acquisition of restaurants in the amount of $19,692,129 and the company's new
remodeling program of capital improvements $4,265,218 offset by sale of
restaurants in the amount of $12,900,000.
Net cash provided by financing activities was $9,569,692 for the six months
ended March 31,1999 as compared to cash used by financing activities of $309,874
in the six months ended March 31,1998. The increase resulted primarily from the
proceeds of a new debt of $9,728,175 from the new acquisitions and construction
loans, which was offset by the reduction of existing debt of $158,483.
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 130, "Reporting Comprehensive Income,"
effective for fiscal years beginning after December 31, 1997. This statement
establishes standards to reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. This statement
requires that an enterprise (a) classify items of other comprehensive income by
their nature in financial statements and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional paid
in capital in the equity section of statements of financial position.
Comprehensive income is defined as the change in equity during the financial
reporting period of a business enterprise resulting from non-owner sources.
Currently, the Company does not have other comprehensive income and therefore
the impact of adopting SFAS No 130 in fiscal 1999 is immaterial.
9
<PAGE>
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.
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 March 31,1999 the Company had capitalized start - up
costs of approximately $39,000 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 March 31, 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 March 31,1999 the balance of the deferred issuance costs
were $50,555.
YEAR 2000
The Company has assessed its computerized systems to determine their ability to
correctly identify the Year 2000 and is devoting the necessary resources to
replace, upgrade or modify all significant systems which do not correctly
identify the Year 2000. The Company expects to complete all the modifications
and testing by the end of third quarter 1999. Management does not expect that
the implementation of the changes to have a material adverse impact on the
Company's financial position, results of operations or cash flow.
The Company has implemented an ongoing program to review the status of its key
suppliers. Management does not expect the Year 2000 issue to pose significant
operational or financial problems for the Company.
10
<PAGE>
INTERFOODS OF AMERICA, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In November , 1997, James Byrd, the former Chairman of the Board and Director of
the Company, filed suit against the Company and Mr. Berg for an injunction and
damages resulting from an alleged breach of contract by the Company. Mr. Byrd
alleges that the Company breached an agreement to repurchase 150,000 shares of
common stock at a price of approximately $130,000. On November 26, 1997, Mr.
Byrd's Emergency Motion for Temporary Injunction in that action was denied. The
Company believes that the suit is without merit and the Company will vigorously
defend this action.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERFOODS OF AMERICA, INC.
Date: May 11, 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
11
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27.0 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 751,309
<SECURITIES> 0
<RECEIVABLES> 163,243
<ALLOWANCES> 0
<INVENTORY> 264,237
<CURRENT-ASSETS> 1,616,458
<PP&E> 12,447,019
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,071,368
<CURRENT-LIABILITIES> 5,731,477
<BONDS> 0
320,000
0
<COMMON> 4,357,364
<OTHER-SE> (1,324,756)
<TOTAL-LIABILITY-AND-EQUITY> 22,071,368
<SALES> 13,475,821
<TOTAL-REVENUES> 13,475,821
<CGS> 11,335,012
<TOTAL-COSTS> 13,206,785
<OTHER-EXPENSES> (515,415)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (185,414)
<INCOME-PRETAX> (508,703)
<INCOME-TAX> 158,931
<INCOME-CONTINUING> (349,772)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (349,772)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
