FORM 10-QSB
SECURITY AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998.
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ______________________ to _____________________.
Commission file number: 0-24681
UNISERVICE CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 65-0816177
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1900 Glades Road, Suite 351, Boca Raton, Florida 33431
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 347-6398
Indicate by check mark whether the registrant (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 report(s), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
As of June 30, 1998, there were 30,000 shares of Class A Common Stock, par value
$.0001 per share, and 1,400,000 shares of Class B Common stock, par value $.0001
per share, outstanding.
<PAGE>
UNISERVICE CORPORATION
INDEX
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. Other Information
<PAGE>
UNISERVICE CORPORATION
Supplemental Consolidated Balance Sheets
A S S E T S
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------------- ---------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 314,685 $ 647,549
Accounts receivable, net 306,446 373,946
Due from related party - 148,000
Other receivables 161,231 115,195
Inventory 453,628 515,563
Income taxes receivable 58,443 145,435
Offering costs 265,976 118,311
Other current assets 33,235 114,723
---------------- ---------------
Total Current Assets 1,593,644 2,178,722
---------------- ---------------
Property and Equipment, net 6,875,192 6,468,247
---------------- ---------------
Other Assets:
Intangibles, net 133,318 139,404
Deposits 448,591 473,259
---------------- ---------------
Total Other Assets 581,909 612,663
---------------- ---------------
$ 9,050,745 $ 9,259,632
================ ===============
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
<PAGE>
UNISERVICE CORPORATION
Supplemental Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------------- ---------------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Accounts payable $ 1,237,118 $ 1,300,659
Obligations with banks:
Lines-of-credit - 81,117
Current portion 214,270 319,249
Notes payable 24,772 70,206
Bridge loan payable 150,000 -
Sales tax and withholdings 145,189 163,761
Accrued expenses and other current liabilities 577,226 843,988
Current portion of capital lease obligations 65,511 190,347
Deferred revenue 158,157 239,335
---------------- ---------------
Total Current Liabilities 2,572,243 3,208,662
---------------- ---------------
Long-Term Liabilities:
Obligations with banks, excluding current portion 1,295,252 1,331,733
Due to related party 1,008,758 679,095
Capital lease obligations, excluding current portion 754,825 864,583
---------------- ---------------
Total Long-Term Liabilities 3,058,835 2,875,411
---------------- ---------------
Stockholders' Equity:
Class A common stock, $.0001 par value; 20,000,000
shares authorized; 30,000 and -0- issued and outstanding
at June 30, 1998 and December 31, 1997, respectively 3 -
Class B common stock, $.0001 par value; 2,000,000
shares authorized; 1,400,000 shares issued and
outstanding at June 30, 1998 and December 31, 1997 140 140
Preferred stock, $.0001 par value; 5,000,000 shares
authorized; no shares issued and outstanding - -
Additional paid-in capital 3,355,259 3,287,762
Retained earnings 598,759 93,176
Cumulative translation adjustment (534,494) (205,519)
---------------- ---------------
Total Stockholders' Equity 3,419,667 3,175,559
---------------- ---------------
$ 9,050,745 $ 9,259,632
================ ===============
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
<PAGE>
UNISERVICE CORPORATION
Supplemental Consolidated Statements of Income
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------- --------------------------------------
1998 1997 1998 1997
----------------- --------------- ----------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 3,461,487 $ 3,392,258 $ 6,914,451 $ 6,637,210
Cost of Operations 1,402,749 1,467,370 2,829,130 2,874,572
--------------- --------------- --------------- --------------
Gross Profit 2,058,738 1,924,888 4,085,321 3,762,638
--------------- --------------- --------------- --------------
Selling and Administrative Expenses:
Payroll and employee benefits 470,297 414,346 1,013,393 861,129
Occupancy 494,586 494,360 970,197 956,775
Other selling and administrative 787,868 836,868 1,662,595 1,712,576
--------------- --------------- --------------- --------------
1,752,751 1,745,574 3,646,185 3,530,480
--------------- --------------- --------------- --------------
Income from Operations 305,987 179,314 439,136 232,158
Other Income (Expenses):
Other, net 88,348 238,963 203,680 372,227
Interest expense (104,378) (87,283) (137,233) (165,197)
--------------- --------------- ---------------- --------------
(16,030) 151,680 66,447 207,030
--------------- --------------- --------------- --------------
Net Income $ 289,957 $ 330,994 $ 505,583 $ 439,188
=============== =============== =============== ==============
Net Income Per Common Share $ 0.21 $ 0.24 $ 0.36 $ 0.31
=============== =============== =============== ==============
Weighted Average Common Shares
Outstanding 1,415,000 1,400,000 1,415,000 1,400,000
=============== =============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
<PAGE>
UNISERVICE CORPORATION
Supplemental Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL RETAINED CUMULATIVE TOTAL
COMMON COMMON PAID-IN EARNINGS TRANSLATION STOCKHOLDERS'
STOCK STOCK CAPITAL (DEFICIT) ADJUSTMENT EQUITY
-------- -------- ----------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 - 140 $ 3,287,762 $ 93,176 $ (205,519) $ 3,175,559
Net income (unaudited) - - - 505,583 - 505,583
Class A Common stock issued in
connection with bridge loan 3 - 67,497 - - 67,500
Translation adjustment (unaudited) - - - - (328,975) (328,975)
-------- -------- ----------- --------- ---------- ------------
Balance at June 30, 1998
(unaudited) $ 3 $ 140 $ 3,355,259 $ 598,759 $ (534,494) $ 3,419,667
======== ======== =========== ========= ========== ============
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
<PAGE>
UNISERVICE CORPORATION
Supplemental Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------------------------------
1998 1997
------------------- ------------------
(Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 505,583 $ 439,188
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 128,126 276,249
Deferred income taxes - (730)
Translation adjustment (328,975) 56,571
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable, net 67,500 185,043
Other receivables (46,036) (188,402)
Inventory 61,935 (52,481)
Income taxes receivable 86,992 (4,661)
Offering costs (147,665) -
Other current assets 81,488 (203,213)
Intangibles 6,086 (2,902)
Deposits 24,668 (16,417)
Increase (decrease) in:
Accounts payable (63,541) 221,570
Sales tax and withholdings (18,572) (21,673)
Accrued expenses and other current liabilities (266,762) 270,543
Deferred revenue (81,178) (67,638)
------------------- ------------------
Net Cash Provided by Operating Activities 9,649 891,047
------------------- ------------------
Cash Flows from Investing Activities:
Acquisition of property and equipment (535,071) (603,401)
------------------- ------------------
</TABLE>
<PAGE>
UNISERVICE CORPORATION
Supplemental Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------------------------------
1998 1997
------------------- -------------------
(Unaudited)
<S> <C> <C>
Cash Flows from Financing Activities:
Repayment of notes payable to banks (150,413) (505,860)
Dividends paid - (19,487)
Proceeds from bridge loan 150,000 -
Net proceeds (repayment) of lines-of-credit (81,117) -
Net proceeds from related parties 395,164 (40,085)
Payments on capital lease obligations (234,595) (92,324)
Proceeds from long-term debt 113,519 419,439
Repayment of long-term debt - (87,951)
------------------- ------------------
Net Cash Provided by (Used in) Financing Activities 192,558 (326,268)
------------------- ------------------
(Decrease) in Cash and Cash Equivalents (332,864) (38,622)
Cash and Cash Equivalents - Beginning of Period 647,549 142,775
------------------- ------------------
Cash and Cash Equivalents - End of Period $ 314,685 $ 104,153
=================== ==================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period of interest $ 137,233 $ 165,197
Supplemental Disclosure of Non-Cash Financing Activities:
Issuance of Class A common stock in connection
with bridge loan 67,500 -
</TABLE>
<PAGE>
UNISERVICE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company generates revenues in two ways: sales of products from restaurant
locations (approximately 92% of total revenues) and sales of coupon books
(approximately 8% of total revenues). Typically, business entities will receive
coupon books from the Company and give them to employees as incentives. The
coupon holders present the coupons to the individual restaurants which will
subsequently bill the employer for the food purchased by the coupon holders.
The Company incurs costs primarily for raw food and paper supplies, which
represent approximately 40% of total revenues, as well as payroll and rent which
represent 19% and 12% of total revenues, respectively.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
RESULTS OF OPERATIONS
Gross revenues for the six months ended June 30, 1998 increased $277,241 over
the six months ended June 30, 1997 from $6,637,210 to $6,914,451, an increase of
approximately 4%. This increase is primarily due to the opening of three new
restaurants.
Cost of operations for the six months ended June 30, 1998 decreased $45,442 from
$2,874,572 to $2,829,130, a decrease of approximately 2%. Although three new
restaurants were operational during the six months ended June 30, 1998, a
decrease in the cost of fresh chicken and the successful efforts of management
to control costs limited the increase in costs of operations during the six
months ended June 30, 1998.
Gross profits increased from $3,762,638 or 57% during the six months ended June
30, 1997, to $4,085,321 or 59% in the comparable period in 1998, due to an
increase in the sales prices of the principle combination (the popular item of
sale).
Selling and administrative expenses for the six months ended June 30, 1998 were
$3,646,185 compared to $3,530,480 for the six months ended June 30, 1997, an
increase of $115,705 or 3%. This slight increase is due to the hiring and
training of personnel to support the expected increased growth of the Company in
1998 and the opening of three new restaurants in early 1998.
Other income (expenses) decreased from $207,030 for the six months ended June
30, 1997 to $66,447 for the six months ended June 30, 1998. This decrease of
$140,583 is principally due to timing recognition issues related to the receipt
of the Company's promotional fees for advertising with its suppliers. The
Company has delayed recognition of these receipts from the first quarter of 1998
to the last quarter of 1998. This has resulted in a reduction of about $169,000
of fees at June 30, 1998. This decrease in other income was offset by a decrease
in interest expense of approximately $27,964 due to a decrease in bank
obligations of approximately $80,000 and an increase due to the amortization of
$50,625 of bridge loan financing.
<PAGE>
UNISERVICE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
As a result of the factors discussed above, net income for the six months ended
June 30, 1998 was $505,583 compared to $439,188 for the six months ended June
30, 1997, an increase of $66,395 or 15%.
LIQUIDITY AND CAPITAL RESOURCES
While the Company and its restaurants have a significant presence in Chile and
particularly in Santiago, the Company is seeking to accelerate its growth and
expand its operations not only in the Santiago area, but also in other cities in
Chile with populations of approximately 100,000 or more. The Company's growth to
date has been financed through internally generated revenues and bank financing.
In order to facilitate its proposed growth, the Company has allocated
approximately $2,465,000 from an initial public offering (IPO), which was
completed in August 1998, to open approximately four to five new KFC(R)
restaurants during the next twelve months. See Item S Subsequent Events for
explanation of IPO.
At June 30, 1998, accounts receivable decreased by $67,500 to $306,446 from
$373,946 at December 31, 1997. The amount of receivables outstanding and the
number of days outstanding is attributable to the timing of recognition of
revenues as compared to the date of payment. Furthermore, during 1998, in order
to provide greater financial strength to the Company, management emphasized an
acceleration of collections in an attempt to reduce short term liabilities, in
particular accounts payable. As a result of these efforts, both accounts
receivable and accounts payable have decreased substantially.
Due from related parties decreased from $148,000 at December 31, 1997 to $-0- at
June 30, 1998 as a result of a payment received from Kyoto, the Company's
principal shareholder.
Due to related parties increased from $679,095 at December 31, 1997 to
$1,008,758 at June 30, 1998 as a result of additional borrowing from its
affiliated company, Kyoto. This amount represented two loan agreements for an
aggregate principal amount of $1,110,398 entered into with Kyoto. $400,000
principal amount of the loan, plus accrued interest, bore interest at an annual
rate of 7.8%, and was repaid from the proceeds of the IPO. The remaining
$608,758 plus accrued interest, bears interest at 9% per annum and shall be
repaid from the Company's operations before year end.
Current obligations to banks decreased to $214,270 at June 30, 1998 from
$319,249 at December 31, 1997, a decrease of $104,979. This decrease is
attributable to management's efforts to reduce debt as well as to a decrease in
working capital needs.
<PAGE>
UNISERVICE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Between January and March 1998, the Company received a loan in the amount of
$150,000 from an accredited investor to be used to pay a portion of the costs
and expenses of the IPO (the "Bridge Financing"). This loan is evidenced by a
promissory note bearing an interest rate of 8.5% per year. The Company was
obligated and repaid this note on the closing date of the IPO. As additional
consideration, the investor received 30,000 shares of Class A Common Stock. In
connection with such loan, the Company capitalized approximately $67,500 and
will incur an amortization expense of $67,500. Such expense will result in a
charge to earnings of approximately $17,000 through June 30, 1998 and an
additional charge of $50,500 for the third quarter of 1998 and ending upon
repayment of such loan.
Other current assets decreased to $33,235 at June 30, 1998 from $114,723 at
December 31, 1997, a decrease of $30,863 due to prepayment of certain expenses
offset by the capitalization of the cost of the Bridge Financing of $67,500.
The Company did not incur Chilean income taxes in 1997 or 1998 as a result of
various Chilean government incentives designed to promote expansion and
continued development of business in the country. Tax credits for building
acquisitions, rapid acceleration of depreciation, and employee education have
resulted in the elimination of any tax liability for the Company. This tax
benefit is not anticipated to continue in the future and, therefore, to the
extent any tax liability exists.
The Company utilizes bank lines-of-credit for periodic operational expenses. At
December 31, 1997, the Company had $81,117 outstanding on its line-of-credit of
approximately $450,000. As of June 30, 1998, the Company had no amounts
outstanding on its line-of-credit.
Long-term obligations with banks consists of various amounts payable to banks
with maturity dates through 2005, all of which are collateralized with personal
guarantees from a stockholder of the Company and certain assets of the Company
and its affiliates. Interest rates on the obligations range from 9.02% to 11%
APR, and are payable in Chilean Pesos and Unidad de Fomento ("UF"). The UF is an
indexed unit of account expressed in pesos and adjusted according to inflation.
Total long-term obligations with banks at June 30, 1998 and December 31, 1997,
were $295,252 and $1,331,733, respectively. The Company paid off its long term
obligations with banks in the amount of $1,715,928 with the proceeds received
from the Initial Public Offering in August 1998. In the future, the Company may
have to borrow additional funds for continued expansion beyond the construction
of the restaurants referred to above.
The Company's cost of capital, to the extent determinable, is TAB plus 2% (TAB
is the average interest rate Chilean banks pay on deposits which varies between
6% - 8%). While cash flow from the Company's current business may provide a
cushion with respect to the operating expenses to be incurred in connection with
its asset based expansion, management intends to provide separate sources of
funding for the present and proposed projects.
<PAGE>
UNISERVICE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
In August 1994, the Company entered into an agreement with Pepsico requiring the
exclusive use of Pepsi products for each KFC(R) restaurant then owned for the
following five years. Additionally, the agreement also provided that each new
KFC(R) restaurant owned by the Company would be subject to a similar agreement
for a period of five years from the opening of such restaurant. In exchange for
this exclusivity agreement, the Company received approximately $780,000 net of
taxes, which is being recognized and amortized over a five year period. For the
periods ended June 30, 1997 and 1998, the Company recognized $67,638 and
$81,177, respectively, of the deferred revenue. The Company intends to enter
into a new agreement with Pepsico during 1998 which shall supersede the previous
agreement.
SEASONALITY
The Company generates the highest amount of sales in June, July and December.
The slowest month for sales is February, when many Chileans are on summer
vacation. The fourth quarter is normally the most profitable and this is due to
the cash rebates received based on usage from suppliers. As the Company opens
additional stores, the Company anticipates amounts received in rebates will
increase.
INFLATION
Over the past five years, Chile has experienced a decrease in inflation. The
Chilean economic system is based on an indexed inflation system and therefore,
no material inflation is anticipated in the immediate future.
YEAR 2000 COMPLIANCE
The Company recognizes the need to ensure its operations will not be adversely
impacted by Year 2000 software failures. Software failures due to processing
errors potentially arising from calculations using the year 2000 date are a
known risk. The Company is addressing this risk to the availability and
integrity of financial systems and the reliability of operational systems. The
Company has established processes for evaluation and managing the risks and
costs associated with this problem.
Major areas of potential business impact have been identified and initial
conversion efforts are underway. The Company also is communicating with
suppliers, dealers, financial institutions and others with which it does
business to coordinate year 2000 conversion. The total cost of compliance and
its effect on the Company's future results of operations is being determined as
part of the detailed conversion planning.
<PAGE>
UNISERVICE CORPORATION
PART II: OTHER INFORMATION
ITEM 1: Legal Proceedings
None
ITEM 2: Changes in Securities and Use of Proceeds
On August 4, 1998, the Company completed the public offering of
1,400,000 shares of Class A Common Stock at an offering price of $5.00
per share and 1,400,000 Redeemable Common Stock Purchase Warrants (the
"Warrants") at an offering price of $.125 per share, through
Werbel-Roth Securities, Inc. The offering was undertaken pursuant to a
Registration Statement on Form SB-2 (File No. 333-50897), which became
effective on August 3, 1998. The total offering price for the offering
was $7,175,000 less underwriting discounts of $.50 per share for the
Class A Common Stock and $.0125 per Warrant for an aggregate of
$717,500. In addition, the Company paid a non-accountable expense
allowance equal to 3% of the gross proceeds of the offering ($215,250)
and a financial advisory fee of $105,000. Also, on August 4, 1998,
Werbel-Roth Securities, Inc. exercised an over-allotment option and
acquired 210,000 additional Warrants under the same terms and subject
to the same discounts and expense allowance. Expenses of the offering
paid through July 31, 1998, were $697,747. The proceeds of the offering
have been used to date solely to pay certain of the aforementioned
offering expenses and to repay indebtedness to banks and related
parties in the amount of $2,704,329 and a franchise payment to Tricon
in the amount of $690,000. The balance of the proceeds are being
maintained by the Company in cash and cash equivalents. The net
offering proceeds to the Company after deducting such total expenses to
date were $2,758,012.
ITEM 3: Defaults upon Senior Securities
None
ITEM 4: Submission of Matters to a vote of Securities Holders
None
ITEM 5: Other Information
<PAGE>
UNISERVICE CORPORATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-B
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURE
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 as a duly authorized officer as the chief financial officer of the
Registrant.
UNISERVICE CORPORATION
By: /s/ RICARDO VILENSKY
-------------------------------------------
Ricardo Vilensky, President
and Chief Executive Officer
By: /s/ MAURICIO AGUIRRE
-------------------------------------------
Mauricio Aguirre, Chief Financial Officer
(Chief Accounting Officer)
DATED: September 10, 1998
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 314,685
<SECURITIES> 0
<RECEIVABLES> 306,446
<ALLOWANCES> 0
<INVENTORY> 453,628
<CURRENT-ASSETS> 1,593,644
<PP&E> 9,029,294
<DEPRECIATION> 2,154,102
<TOTAL-ASSETS> 9,050,745
<CURRENT-LIABILITIES> 2,572,243
<BONDS> 0
0
0
<COMMON> 143
<OTHER-SE> 3,419,524
<TOTAL-LIABILITY-AND-EQUITY> 9,050,745
<SALES> 0
<TOTAL-REVENUES> 6,914,451
<CGS> 2,829,130
<TOTAL-COSTS> 3,646,185
<OTHER-EXPENSES> (203,680)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137,233
<INCOME-PRETAX> 505,583
<INCOME-TAX> 0
<INCOME-CONTINUING> 505,583
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 505,583
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
