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 March 31, 1999.
( ) 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 [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
As of March 31, 1999, there were 1,445,000 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.
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UNISERVICE CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 (UNAUDITED) AND
DECEMBER 31, 1998
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<TABLE>
<CAPTION>
UNISERVICE CORPORATION
INDEX
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (unaudited) 3
Item 2. Management's Discussion and Analysis of Financial Condition 9
and Results of Operations
Part II. Other Information 14
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2
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<CAPTION>
UNISERVICE CORPORATION
Consolidated Balance Sheets
A S S E T S
March 31, 1999 December 31, 1998
-------------- -----------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,030,186 $ 1,618,179
Accounts receivable, net 92,233 105,061
Due from related party 73,716 120,038
Other receivables 193,283 208,939
Inventory 458,639 430,361
Income taxes receivable 202,384 155,754
Other current assets 138,881 236,647
---------------- ---------------
Total Current Assets 2,189,322 2,874,979
Property and Equipment, net 8,538,564 8,304,932
Prepaid Expense 291,666 50,417
Intangibles, net 107,632 98,787
Deposits 437,136 445,431
---------------- ---------------
$ 11,564,320 $ 11,774,546
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,609,541 $ 1,187,074
Lines-of-credit 186,216 94,322
Current portion of capital lease obligations 360,802 502,549
Deferred revenue 54,312 88,889
---------------- ---------------
Total Current Liabilities 2,210,871 1,872,834
---------------- ---------------
Long-Term Liabilities:
Capital lease obligations, excluding current portion 976,849 1,022,249
---------------- ---------------
Stockholders' Equity:
Class A common stock 143 143
Class B common stock 140 140
Preferred stock - -
Additional paid-in capital 8,707,157 8,707,157
Retained earnings 1,274,344 1,232,488
Cumulative translation adjustment (1,605,184) (1,060,465)
---------------- ---------------
Total Stockholders' Equity 8,376,600 8,879,463
---------------- ---------------
$ 11,564,320 $ 11,774,546
================ ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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<CAPTION>
UNISERVICE CORPORATION
Consolidated Statements of Income
Three Months Ended
March 31,
---------
1999 1998
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 3,200,148 $ 3,452,964
Cost of Operations 1,253,930 1,426,381
---------------- ----------------
Gross Profit 1,946,218 2,026,583
---------------- ----------------
Selling and Administrative Expenses:
Payroll and employee benefits 747,362 543,096
Occupancy 542,337 475,611
Other selling and administrative 704,501 874,727
---------------- ----------------
1,994,200 1,893,434
---------------- ----------------
(Loss) Income from Operations (47,982) 133,149
Other Income (Expenses):
Other, net 110,762 115,332
Interest expense (20,924) (32,855)
---------------- ----------------
89,838 82,477
---------------- ----------------
Net Income $ 41,856 $ 215,626
================ ================
Net Income Per Common Share $ 0.02 $ 0.15
================ ================
Weighted Average Common Shares Outstanding 2,363,333 1,410,000
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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<CAPTION>
UNISERVICE CORPORATION
Consolidated Statements of Stockholders' Equity
Class A Class B Additional Cumulative Total
Common Common Paid-in Retained Translation Stockholders'
Stock Stock Capital Earnings Adjustment Equity
----- ----- ------- -------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 143 $ 140 $ 8,707,157 $ 1,232,488 $ (1,060,465) $ 8,879,463
Net Income - - - 41,856 - 41,856
Translation adjustment - - - - (544,719) (544,719)
----------- ----------- ------------ ------------- ------------- --------------
Balance at March 31, 1999 $ 143 $ 140 $ 8,707,157 $ 1,274,344 $ (1,605,184) $ 8,376,600
=========== =========== ============ ============= ============= ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
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<CAPTION>
UNISERVICE CORPORATION
Consolidated Statements of Cash Flows
Three Months Ended
March 31,
---------
1999 1998
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 41,856 $ 215,626
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 56,567 197,128
Deferred income taxes - 889
Translation adjustment (544,719) (96,682)
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable, net 12,828 (815)
Other receivables 15,656 (43,953)
Inventory (28,278) 63,101
Income taxes receivable (46,630) (594)
Offering costs - (20,087)
Other current assets 132,766 (7,486)
Intangibles (8,845) (712)
Deposits 8,295 10,449
Prepaid expense (276,249) -
Increase (decrease) in:
Accounts payable and accrued expenses 422,467 (90,074)
Deferred revenue (34,577) (42,620)
---------------- ---------------
Net Cash Provided by (Used in) Operating Activities (248,863) 184,170
---------------- ---------------
Cash Flows from Investing Activities:
Acquisition of property and equipment (290,199) -
---------------- ---------------
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6
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<TABLE>
<CAPTION>
UNISERVICE CORPORATION
Consolidated Statements of Cash Flows (Continued)
Three Months Ended
March 31,
---------
1999 1998
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows from Financing Activities:
Net repayment of notes payable to banks $ - $ (26,305)
Proceeds from bridge loan - 150,000
Net proceeds (repayment) of lines-of-credit 91,894 (81,117)
Net proceeds from related party 46,322 17,277
Payments on capital lease obligations (187,147) (112,754)
Repayment of long-term debt - (233,580)
--------------- --------------
Net Cash Used in Financing Activities (48,931) (286,479)
--------------- --------------
Decrease in Cash and Cash Equivalents (587,993) (102,309)
Cash and Cash Equivalents - Beginning of Period 1,618,179 647,549
--------------- --------------
Cash and Cash Equivalents - End of Period $ 1,030,186 $ 545,240
=============== ==============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 20,924 $ 32,855
Supplemental Disclosure of Non-Cash Financing Activities:
Issuance of Class A common stock in connection with
bridge loan - 67,500
</TABLE>
7
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UNISERVICE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited) With Respect to March 31, 1999 and 1998
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 35 restaurants of which
the greater majority are in the Santiago, Chile area pursuant to
its international franchise agreement with Tricon Global
Restaurants, Inc. ("Tricon").
Basis of Presentation - In August 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 occurred simultaneously with 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.
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).
Earnings Per Common Share - Earnings per common share are based on
the weighted average number of shares outstanding of 2,363,333 and
1,410,000 for the period ended March 31, 1999 and 1998,
respectively, after giving effect to common stock equivalents
which consist of warrants issued with the initial public offering
that would have a dilutive effect on earnings per share. Warrants
issued with exercise prices greater than the existing market value
of the company stock are deemed anti-dilutive and are not
components of earnings per share.
8
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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 23% and 17% of total revenues, respectively.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Results of Operations
- ---------------------
Gross revenues decreased from $3,452,964 for the three months ended March 31,
1998 to $3,200,148 for the three months ended March 31, 1999, a decrease of
$252,816 or approximately 7%. The primary reason for this decline is
attributable to a severe drought in Chile where the main source of electricity
is Hydro-electric power. In an effort to conserve electricity, the Chilean
government mandated power outages of up to 2 hours per day during the store
operating hours. This power reduction caused the Company to curtail store
operations in its Santiago stores during this period, thereby, substantially
reducing sales.
Cost of operations for the three months ended March 31, 1999 decreased $172,451
from $1,426,381 to $1,253,930, a decrease of approximately 12%. Although new
restaurants were operational during the period, a decrease in cost of fresh
chickens and management's continued efforts to control costs of operations is
reflective of these favorable results. Cost of operations at March 31, 1999
actually decreased from 41% of gross revenues at March 31, 1998, to
approximately 39% presently.
With the decrease in the cost of operations gross profit increased from 59% to
61%, despite the reduction in revenues. As noted previously, this is a result of
decreases in fresh food costs, and management's effort to contain costs. In
addition, the Company introduced a "combination meal" which has not only gained
popularity with customers, but has also had a favorable impact on the gross
profit.
Payroll and employee benefits increased from $543,096 for the three months ended
March 31, 1998 to $747,362 for the three months ended March 31, 1999 an increase
of $204,266 or 38%. The increase is primarily due to the opening of new
restaurants and the cost of additional personnel to operate these restaurants.
9
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UNISERVICE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Results of Operations (Continued)
- ---------------------
Occupancy costs increased from $475,611 for the three months ended March 31,
1998 to $542,337 for the three months ended March 31, 1999, an increase of
$66,726 or 14%. The increase is due primarily to the opening of new restaurants.
Selling and administrative expenses for the three months ended March 31, 1999
were $704,501 compared to $874,727, for the three months ended March 31, 1998, a
decrease of $170,226 or approximately 19%. Selling and administrative expenses
at March 31, 1999 decreased from 25% of gross revenues at March 31, 1998 to 22%.
This decrease is attributable to the devaluation of the Peso as well as taking
advantage of economics of scale which spread central office expenses over more
stores.
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 decrease in this category
was from $115,332 in March 31, 1998 to $110,762 in March 31, 1999, a change of
$4,570 or 4%. For the three months ended March 31, 1999, approximately $33,000
relates to the amortization of deferred revenue and $77,000 related to refunds
and credits from vendors, mostly from the opening of the new stores.
The second category relates to interest expense paid to banks and leasing
companies which decreased by $11,931 to $20,924 in March 31, 1999 from $32,855
in March 31, 1998 or 36%. The decrease is due primarily to the average
outstanding balance of debt during the related periods.
As a result of the factors discussed above, net income for the three months
ended March 31, 1999 was $41,856 as compared to $215,626 at March 31, 1998, a
decrease of $173,770 or approximately 81%. This decrease in net income is
attributable to the aforementioned power outages, a devaluation of the Peso and
a decrease in discretionary spending all of which impacted profits.
Revenues, cost of sales and net income in thousand of Chilean pesos for the
three months ended March 31, 1999 were C$1,511,430,083, C$592,231,186 and
C$23,901,472, respectively, compared to C$1,568,267,190, C$647,833,723 and
C$97,933,017 at March 31, 1998, respectively.
10
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UNISERVICE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Results of Operations (Continued)
- ---------------------
Beginning in April, interest rates have decreased approximately 8%-10% and the
peso has stabilized. 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. In addition, the Company has begun an aggressive
advertising campaign which includes a return to television advertising. The
Company has experienced a positive increase in revenues since the campaign was
introduced. Moreover, the Company believes that the "Star Wars" promotion which
will begin in Chile in June, will also have a positive impact on gross revenues
and profits.
The Company intends to maintain its development schedule of new store openings
and will continue to seek potential acquisition of other restaurant chains in
Chile. To facilitate such potential acquisitions the Company entered into an
agreement with Nutmeg Securities, Ltd. to raise additional equity capital,
however, there can be no assurances that the Company will be successful in
completing any financing. 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
The Company's growth to date has been financed through internally generated
revenues, bank financing, and its public offering in August 1998.
At March 31, 1999, accounts receivable decreased by $12,828 to $92,233 from
$105,061 at December 31, 1998. 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, accounts receivable
have decreased substantially.
Due from related parties decreased from $120,038 at December 31, 1998 to $73,716
at March 31, 1999 as a result of a payment received from Kyoto, the Company's
principal shareholder.
Other current assets decreased to $138,881 at March 31, 1999 from $236,647 at
December 31, 1998, a decrease of $97,766 due to a decrease 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 for such
periods.
11
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UNISERVICE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (Continued)
- -------------------------------
The Company utilizes bank lines-of-credit for periodic operational expenses. At
March 31, 1999, the Company had approximately $186,000 outstanding on its
line-of-credit of approximately $450,000. An increase of almost $92,000 from
December 31, 1998 to partially finance short-term operations during the Chilean
vacation period.
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.
The Company had no outstanding long-term debt obligations with banks at March
31, 1999 and at December 31, 1998, respectively. The Company paid off its long
term obligations with banks 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%).
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 March 31, 1999 and 1998, the Company recognized approximately
$33,000 and $35,000, 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.
12
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UNISERVICE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 evaluations 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.
13
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UNISERVICE CORPORATION
Part II: Other Information
ITEM 1: Legal Proceedings
None
ITEM 2: Changes in Securities and Use of Proceeds
None
ITEM 3: Defaults upon Senior Securities
None
ITEM 4: Submission of Matters to a vote of Securities Holders
None
ITEM 5: Other Information
14
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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
15
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SIGNATURE
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
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: May 21, 1999
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Mar-31-1999
<CASH> 1,030,186
<SECURITIES> 0
<RECEIVABLES> 92,233
<ALLOWANCES> 0
<INVENTORY> 458,639
<CURRENT-ASSETS> 2,189,322
<PP&E> 11,055,276
<DEPRECIATION> (2,516,712)
<TOTAL-ASSETS> 11,564,320
<CURRENT-LIABILITIES> 2,210,871
<BONDS> 0
0
0
<COMMON> 8,707,440
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,564,320
<SALES> 3,200,148
<TOTAL-REVENUES> 3,310,910
<CGS> 1,253,930
<TOTAL-COSTS> 3,269,054
<OTHER-EXPENSES> (20,924)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82,954
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (47,982)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,856
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
