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 September 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
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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 September 30, 1998, there were 1,430,000 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.
1
<PAGE>
UNISERVICE CORPORATION
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
2
<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
3
<PAGE>
UNISERVICE CORPORATION
Supplemental Consolidated Balance Sheets
A S S E T S
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------- -----------------
(Unaudited)
Current Assets:
<S> <C> <C>
Cash and cash equivalents (Note 1) $ 1,606,119 $ 647,549
Accounts receivable, net 256,608 373,946
Due from related party - 148,000
Other receivables 377,970 115,195
Inventory 505,911 515,563
Income taxes receivable 259,968 145,435
Offering costs (Note 1 and 3) - 118,311
Other current assets 210,533 114,723
---------------- ---------------
Total Current Assets 3,217,109 2,178,722
---------------- ---------------
Property and Equipment, net 7,598,903 6,468,247
---------------- --------------
Other Assets:
Intangibles, net 115,110 139,404
Deposits 445,658 473,259
---------------- ---------------
Total Other Assets 560,768 612,663
---------------- ---------------
$ 11,376,780 $ 9,259,632
================ ===============
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
4
<PAGE>
UNISERVICE CORPORATION
Supplemental Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------- -----------------
(Unaudited)
Current Liabilities:
<S> <C> <C>
Accounts payable $ 1,392,620 $ 1,300,659
Obligations with banks:
Lines-of-credit (Note 3) - 81,117
Current portion (Note 3) - 319,249
Notes payable 56,018 70,206
Sales tax and withholdings 188,653 163,761
Accrued expenses and other current liabilities (Note 3) 238,122 843,988
Current portion of capital lease obligations 54,239 190,347
Deferred revenue 123,957 239,335
---------------- ---------------
Total Current Liabilities 2,053,609 3,208,662
---------------- ---------------
Long-Term Liabilities:
Obligations with banks, excluding current portion (Note 3) - 1,331,733
Due to related party (Note 3) - 679,095
Capital lease obligations, excluding current portion 938,200 864,583
---------------- ---------------
Total Long-Term Liabilities 938,200 2,875,411
---------------- ---------------
Stockholders' Equity:
Class A common stock, $.0001 par value; 20,000,000
shares authorized; 30,000 and 1,430,000 issued and
outstanding at September 30, 1998 and December 31,
1997, respectively (Note 3) 143 -
Class B common stock, $.0001 par value; 2,000,000
shares authorized; 1,400,000 shares issued and
outstanding at September 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 8,237,726 3,287,762
Retained earnings 1,081,292 93,176
Cumulative translation adjustment (934,330) (205,519)
---------------- ---------------
Total Stockholders' Equity 8,384,971 3,175,559
---------------- ---------------
$ 11,376,780 $ 9,259,632
================ ===============
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
5
<PAGE>
UNISERVICE CORPORATION
Supplemental Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------- -----------------------------------------
1998 1997 1998 1997
------------------ ------------------- -------------------- -------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 3,273,194 $ 3,818,085 $ 10,187,645 $ 10,455,295
Cost of Operations 1,321,721 1,632,908 4,150,851 4,507,480
--------------- --------------- --------------- --------------
Gross Profit 1,951,473 2,185,177 6,036,794 5,947,815
--------------- --------------- --------------- --------------
Selling and Administrative Expenses:
Payroll and employee benefits 436,852 513,793 1,450,245 1,374,922
Occupancy 253,109 257,507 1,223,306 1,214,282
Other selling and administrative 1,075,024 1,301,379 2,737,619 3,013,955
--------------- --------------- --------------- --------------
1,764,985 2,072,679 5,411,170 5,603,159
--------------- --------------- --------------- --------------
Income from Operations 186,488 112,498 625,624 344,656
Other Income (Expenses):
Other, net (Note 2) 675,409 454,955 879,089 827,182
Interest expense (379,364) (61,735) (516,597) (226,932)
--------------- --------------- --------------- --------------
296,045 393,220 362,492 600,250
--------------- --------------- --------------- --------------
Net Income $ 482,533 $ 505,718 $ 988,116 $ 944,906
=============== =============== =============== ==============
Net Income Per Common Share $ 0.21 $ 0.37 $ 0.57 $ 0.74
=============== =============== =============== ==============
Weighted Average Common Shares
Outstanding 2,363,340 1,400,000 1,731,111 1,400,000
=============== =============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
6
<PAGE>
UNISERVICE CORPORATION
Supplemental Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Class A Class B Additional
Common Common Paid-in Retained
Stock Stock Capital Earnings
----- ----- ------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $ - $ 140 $ 3,287,762 $ 93,176
Issuance of Class B common stock for
bridge financing - 3 67,497 -
Net income - - - 988,116
Issuance of Class A common stock from
public offering 140 - 4,856,217 -
Over allotment of warrants - - 26,250 -
Translation adjustment - - - -
----------- ------------ ------------- -------------
Balance at September 30, 1998
(unaudited) $ 140 $ 143 $ 8,237,726 $ 1,081,292
=========== ============ ============= =============
(RESTUBBED TABLE)
Cumulative Total
Translation Stockholders'
Adjustment Equity
---------- ------
<S> <C> <C>
Balance at December 31, 1997 $ (205,519) $ 3,175,559
Issuance of Class B common stock for
bridge financing - 67,500
Net income - 988,116
Issuance of Class A common stock from
public offering - 4,856,357
Over allotment of warrants - 26,250
Translation adjustment (728,811) (728,811)
-------------- ---------------
Balance at September 30, 1998
(unaudited) $ (934,330) $ 8,384,971
============== ===============
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
7
<PAGE>
UNISERVICE CORPORATION
Supplemental Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------------
1998 1997
------------------ ------------------
(Unaudited) (Unaudited)
Cash Flows from Operating Activities:
<S> <C> <C>
Net income $ 988,116 $ 944,906
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 379,451 363,162
Deferred income taxes - -
Translation adjustment (728,811) 61,098
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable, net 117,338 182,897
Other receivables (262,775) (24,193)
Inventory 9,652 (203,961)
Income taxes receivable (114,533) 28,723
Other current assets (95,810) 9,346
Intangibles 24,294 (8,521)
Deposits 27,601 (64,006)
Increase (decrease) in:
Accounts payable 91,961 34,963
Sales tax and withholdings 24,892 4,093
Accrued expenses and other current liabilities (605,866) 391,531
Deferred revenue (115,378) (103,659)
------------------ ------------------
Net Cash Provided by Operating Activities (259,868) 1,616,379
------------------ ------------------
Cash Flows from Investing Activities:
Acquisition of property and equipment (1,510,107) (397,965)
------------------ ------------------
</TABLE>
8
<PAGE>
UNISERVICE CORPORATION
Supplemental Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------------
1998 1997
------------------ ------------------
(Unaudited) (Unaudited)
Cash Flows from Financing Activities:
<S> <C> <C>
Repayment of notes payable to banks $ - $ (492,000)
Net proceeds from notes payable to vendors (14,188) -
Payment of underwriting discounts (1,030,562) -
Payment of offering costs (1,076,020) -
Dividends paid - (326,115)
Net proceeds (repayment) of lines-of-credit (81,117) (81,324)
Net proceeds (repayment) to related parties (531,095) -
Payments on capital lease obligations (62,491) (155,885)
Proceeds from public offering 7,175,000 -
Proceeds from bridge loans 150,000 -
Repayment of bridge loan after public offering (150,000) -
Proceeds from long-term debt - -
Repayment of long-term debt (1,650,982) (152,140)
------------------ ------------------
Net Cash Provided by (Used in) Financing Activities 2,728,545 (1,207,464)
------------------ ------------------
Increase in Cash and Cash Equivalents 958,570 10,950
Cash and Cash Equivalents - Beginning of Period 647,549 142,775
------------------ ------------------
Cash and Cash Equivalents - End of Period $ 1,606,119 $ 153,725
================== ==================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period of interest 516,597 226,932
Supplemental Disclosure of Non-Cash Financing Activities:
Issuance of Class A common stock in connection
with bridge loan 67,500 -
</TABLE>
9
<PAGE>
UNISERVICE CORPORATION
Notes to Supplemental Consolidated Financial Statements
(Unaudited) With Respect to September 30, 1998 and 1997
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Uniservice Corporation, (the "Company"), is a
Florida corporation incorporated in November 1997 as a holding
company to acquire Inversiones e Inmobiliaria Kyoto, S.A.'s
("Kyoto") 99.97% interest in Kentucky Foods Chile, S.A. ("KyF
Chile" collectively, the "Company"). KyF Chile is in the fast food
service business and presently operates 32 restaurants in the
Santiago, Chile area pursuant to its international franchise
agreement with Kentucky Fried Chicken International Holdings, Inc.
("KFCIH"), then a subsidiary of Pepsico, Inc. ("Pepsico") and
currently an affiliate of Tricon Global Restaurants, Inc.
("Tricon").
Basis of Presentation - During 1998, the Company acquired 99.7% of
Kyoto's interest in KyF Chile in exchange for 1,399,900 shares of
Class B common stock which was effected as of the closing of the
initial public offering of the Company's stock. In order to comply
with Chilean law and the requirements of the Central Bank of Chile
for foreign investments, two stock purchase agreements were
effectuated at the time of the closing of the initial public
offering of the Company's stock whereby (i) Kyoto purchased
1,399,900 shares of Class B common stock for $2.2 million, and,
(ii) the Company purchased Kyoto's 99.97% interest in Kentucky
Foods Chile, S.A. for $2.2 million and KyF Chile became a majority
owned (99.97%) subsidiary of the Company. The substance of this
transaction is an exchange of shares between the Company and Kyoto
which was accounted for by the pooling of interests. Generally
accepted accounting principles prescribe giving effect to a
consummated business combination accounted for by the pooling of
interests method in financial statements that do not include the
date of consummation as if the business combination occurred for
the periods presented. Accordingly, the supplemental consolidated
financial statements for all periods presented for 1997
supplemental consolidated financial statements have been prepared
assuming the acquisition by the Company took place on January 1,
1996, that the Company was incorporated on that date, and the
exchange of shares was effectuated at that time. Since the Company
was not formed until November 1997, historical and proforma
consolidating financial statements are not included herein because
the assets, liabilities, revenues and expenses and net income of
Uniservice Corporation are not material to the information
presented.
Functional Currency - The financial statements have been
translated in accordance with the provisions set forth in
Statement of Financial Accounting Standards No. 52, from Chilean
pesos (the functional currency) into US dollars (the reporting
currency).
10
<PAGE>
UNISERVICE CORPORATION
Notes to Supplemental Consolidated Financial Statements (Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Revenue Recognition - Revenue is recognized at the point of sale
of goods to its customers on a daily basis.
Cash and Cash Equivalents - Cash equivalents consist of highly
liquid investments, which are readily convertible into cash and
have maturities of three months or less.
Offering Costs - Offering costs represent legal, accounting, and
underwriting fees incurred in connection with a registration
statement to be part of a public offering of the Company's shares.
(See Note 3)
Earnings Per Common Share - Earnings per common share are based on
the weighted average number of shares outstanding of 1,400,000 for
all periods presented, giving effect to common stock equivalents,
none of which existed in the aforementioned periods.
NOTE 2 - OTHER INCOME (EXPENSES)
Included in other, net, is the recognition of approximately
$115,000 of deferred revenue from the Pepsico exclusivity
agreement and approximately $764,000 of refunds and advertising
credits from vendors and suppliers.
NOTE 3 - INITIAL PUBLIC OFFERING
The Company completed its initial public offering on August 7,
1998; selling 1,400,000 shares of common stock and 1,610,000
warrants and received approximately $6,265,000 after deducting
underwriting discounts. A portion of the proceeds from the public
offering was used to reduce long-term debt of approximately
$1,651,000; payment of back royalties of approximately $690,000;
repayments of loans to third parties of approximately $680,000.
Prior to the public offering the Company's growth has been
financed through internally generated revenues and bank financing.
Since the completion of the public offering, the Company has
opened three new KFC restaurants and will open another KFC
restaurant during January of 1999. The Company intends to open 5
to 8 new restaurants during 1999. From the proceeds of its public
offering the Company has used: approximately $441,000 for
construction costs and for equipment related to the opening of new
restaurants. The Company has working capital of approximately
$1,606,000 from the offering and intends to use this and its
internally generated revenues to open additional restaurants
during 1999.
Offering costs paid by the Company after completion of the
offering amounted approximately to $2,107,000 and was charged
against paid-in capital accordingly.
11
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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.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
Results of Operations
- ---------------------
Gross revenues for the nine months ended September 30, 1998 decreased $266,650
over the nine months ended September 30, 1997 from $10,455,295 to $10,187,645, a
decrease of approximately 3.5%. This is after an increase was seen during the
first six months of 1998 compared to 1997. The main reason for this decline
during the third quarter was due to a 10% devaluation of the peso during the
period. This accounted for an approximate $270,000 decrease in revenues during
the quarter. With the increase of three new stores during 1998, total revenues
for the year are anticipated to be comparable by the end of the year.
Cost of operations for the nine months ended September 30, 1998 decreased
$356,629 from $4,507,480 to $4,150,851, a decrease of approximately 8%. Although
three new restaurants were operational during the year, a decrease in cost of
fresh chickens and management's continued efforts to control costs of operations
is reflective of these favorable results. This fact coupled with the reduction
in revenues triggered by the 10% devaluation in the peso contributed heavily to
this positive impact. Cost of sales at September 1998 actually decreased from
43% of revenues at September 1997, to about 41% presently.
With the decrease in cost of operations percentages, gross profits actually
increased from $5,947,815 to $6,036,794, despite the reduction in revenues.
Again, this is as a result of decreases in fresh food costs, and management's
effort to contain costs. As a last note, the Company has been able to introduce
a "combination meal" which has not only gained great popularity with customers,
but has also had a favorable impact on the gross profit.
12
<PAGE>
UNISERVICE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Results of Operations (Continued)
- ---------------------
Selling and administrative expenses for the nine months ended September 30, 1998
were $5,411,170 compared to $5,603,159, for the nine months ended September 30,
1997, a decrease of $191,989 or approximately 3.5%, again in part due to the
devaluation of the peso as well as the economies of scale in spreading such
costs over three more stores then in 1997. This benefit was offset to some
extent by the hiring and training of new personnel for those three new stores.
The economy of scale are expected to continue as new stores are open.
Other income (expenses) consisted of two major categories: other revenues and
interest expense and their composition is as follows:
Other revenues includes advertising credits and refunds from vendors and
suppliers and amortization of deferred revenue arising from the Pepsico
exclusivity agreement, received in previous years. The increase in this category
was from $827,182 in September 1997 to $879,089 in September 1998, a change of
approximately $52,000. For the nine months ended September 30, 1998,
approximately $115,000 relates to the amortization of deferred revenue and
$764,000 relates to refunds and credits from vendors, of which $263,000 is for
the opening of the new stores.
The second category relates to interest expense paid to banks which increased
from $226,932 in September 1997 to $516,597 in September 1998.
This increase of approximately $290,000 relates to additional interest of
approximately $72,500 on increased long-term debt, prior to the public offering,
a one time payment in the amount of approximately $150,000 to Tricon as interest
on the past due royalties which were paid from the proceeds of the public
offering.
Additionally, the unamortized balance of the bridge loan, $16,875 was charged to
interest for the quarter ended September 30, 1998. This year to date charge of
$67,500 completed all charges related to the bridge loan.
As a result of the factors discussed above, net income for the nine months
ended September 30, 1998 was $988,116 as compared to $944,906 at September 30,
1997, an increase of $43,210 or approximately 4.6%.
Revenues, cost of sales and net income in thousand of Chilean pesos for the
nine months ended September 30, 1998 were C$4,650,000, C$1,894,000 and
C$451,000, respectively, compared to C$4,343,000, C$1,872,000 and C$392,000 at
September 30, 1997, respectively.
13
<PAGE>
UNISERVICE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Results of Operations (Continued)
- ---------------------
Therefore, based on the Chilean peso, there was an increase in gross sales, cost
of sales and net income of 7%, 2%, and 15%, respectively, for the nine months
ended September 30, 1998 compared to the nine months ended September 30, 1997.
However, management believes that the quarterly results were negatively impacted
in dollars by the Asiatic crisis which forced the Chilean government to raise
interest rates to approximately 20% in an effort to stabilize the Chilean peso.
The dramatic increase in interest rates decreased overall consumer spending
during the period and had a negative impact on the quarterly results.
During the last month, interest rates have decreased to approximately 12% and
the peso has stabilized at approximately 460 pesos to the US dollar, down from a
high of 470 pesos to the US dollar. Although interest rates have not returned to
the same levels as one year ago, management anticipates that the present
reduction will have a positive effect on consumer spending and that gross
revenues and net profits should increase. Therefore, the Company intends to
maintain its development schedule of new store openings. Further, management
believes that all the Chilean government indexes support the fact that the
Chilean economy is still very strong and the outlook of the Company is very
positive.
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.
The Company completed its initial public offering on August 7, 1998; selling
1,400,000 shares of common stock and 1,610,000 warrants and received
approximately $6,265,000 after deducting underwriting discounts. A portion of
the proceeds from the public offering was used to reduce long-term debt of
approximately $1,651,000; payment of back royalties of approximately $690,000;
repayments of loans to third parties of approximately $680,000. Prior to the
public offering the Company's growth has been financed through internally
generated revenues and bank financing. Since the completion of the public
offering, the Company has opened three new KFC restaurants and will open another
KFC restaurant during January of 1999. The Company intends to open 5 to 8 new
restaurants during 1999. From the proceeds of its public offering the Company
has used: approximately $441,000 for construction costs and for equipment
related to the opening of new restaurants. The Company has working capital of
approximately $1,606,000 from the offering and intends to use this and its
internally generated revenues to open additional restaurants during 1999.
Offering costs paid by the Company after completion of the offering amounted
approximately to $2,107,000 and was charged against paid-in capital accordingly.
14
<PAGE>
UNISERVICE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (Continued)
- -------------------------------
At September 30, 1998, accounts receivable decreased by $117,338 to $256,608
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 September 30, 1998 as a result of a payment received from Kyoto, the
Company's principal shareholder.
Other current assets increased to $210,533 at September 30, 1998 from $114,723
at December 31, 1997, an increase of $95,810 due to an increase in sales taxes
receivable and other prepaid expenses.
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.
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 September 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 September 30, 1998 and December 31,
1997, were $-0- and $1,650,982, respectively. The Company paid off its long term
obligations with banks in the amount of $1,650,982 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.
15
<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 September 30, 1997 and 1998, the Company recognized $103,659 and
$115,378, respectively, of the deferred revenue. The Company intends to enter
into a new agreement with Pepsico during 1999 which shall supersede the previous
agreement.
Seasonality
- -----------
The Company generates the highest amount of sales in September, 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. After evaluation of the responses
from such communications, the Company will prepare a contingency plan to
mitigate year 2000 issues, if necessary. 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.
16
<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 September 30, 1998, were approximately $1,107,000
excluding aforementioned underwriting discounts. The proceeds of the
offering have been used to date solely to pay certain of the
aforementioned offering expenses, to repay indebtedness to banks and
related parties in the amount of $2,330,000, a franchise payment to
Tricon in the amount of $690,000 and construction costs of
approximately $441,000. 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 $1,606,000.
ITEM 3: Defaults upon Senior Securities
None
ITEM 4: Submission of Matters to a vote of Securities Holders
None
ITEM 5: Other Information
17
<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
18
<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
(authorized Officer and Chief Accounting Officer)
DATED: November 13, 1998
19
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,606,119
<SECURITIES> 0
<RECEIVABLES> 896,690
<ALLOWANCES> 2,144
<INVENTORY> 505,911
<CURRENT-ASSETS> 210,533
<PP&E> 10,004,330
<DEPRECIATION> 2,405,427
<TOTAL-ASSETS> 11,376,780
<CURRENT-LIABILITIES> 2,053,609
<BONDS> 0
0
0
<COMMON> 8,238,009
<OTHER-SE> 11,376,780
<TOTAL-LIABILITY-AND-EQUITY> 146,962
<SALES> 10,187,645
<TOTAL-REVENUES> 11,066,734
<CGS> 4,150,851
<TOTAL-COSTS> 5,411,170
<OTHER-EXPENSES> (879,089)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 516,597
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 625,624
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 988,116
<EPS-PRIMARY> 0.57
<EPS-DILUTED> 0
</TABLE>
