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, 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) 416-8930
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 June 30, 1999, 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
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UNISERVICE CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 (UNAUDITED) AND
DECEMBER 31, 1998
2
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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
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<TABLE>
<CAPTION>
UNISERVICE CORPORATION
Consolidated Balance Sheets
A S S E T S
June 30, 1999 December 31, 1998
(Unaudited)
---------------- ----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 502,864 $ 1,618,179
Accounts receivable, net 88,385 105,061
Due from related party 254,150 120,038
Other receivables 281,090 208,939
Inventory 596,590 430,361
Income taxes receivable 213,855 155,754
Other current assets 133,085 236,647
---------------- ---------------
Total Current Assets 2,070,019 2,874,979
Property and Equipment, net 8,141,873 8,304,932
Prepaid Expense 471,639 50,417
Intangibles, net 84,577 98,787
Deposits 413,548 445,431
---------------- ---------------
$ 11,181,656 $ 11,774,546
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,649,186 $ 1,187,074
Lines-of-credit 427,548 94,322
Current portion of capital lease obligations 213,457 502,549
Deferred revenue 20,141 88,889
---------------- ---------------
Total Current Liabilities 2,310,332 1,872,834
---------------- ---------------
Long-Term Liabilities:
Capital lease obligations, excluding current portion 864,865 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 1,294,133 1,232,488
Cumulative translation adjustment (1,995,114) (1,060,465)
---------------- ---------------
Total Stockholders' Equity 8,006,459 8,879,463
---------------- ---------------
$ 11,181,656 $ 11,774,546
================ ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<TABLE>
<CAPTION>
UNISERVICE CORPORATION
Consolidated Statements of Income
Six Months Ended
June 30,
------------------------------------------
1999 1998
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 6,430,369 $ 6,914,451
Cost of Operations 2,665,425 2,829,130
---------------- ----------------
Gross Profit 3,764,944 4,085,321
---------------- ----------------
Selling and Administrative Expenses:
Payroll and employee benefits 1,289,385 1,013,393
Occupancy 996,406 970,197
Other selling and administrative 1,516,222 1,662,595
---------------- ----------------
3,802,013 3,646,185
---------------- ----------------
(Loss) Income from Operations (37,069) 439,136
Other Income (Expenses):
Other, net 219,640 203,680
Interest expense (120,926) (137,233)
---------------- ----------------
98,714 66,447
---------------- ----------------
Net Income $ 61,645 $ 505,583
================ ================
Net Income Per Common Share $ 0.02 $ 0.36
================ ================
Weighted Average Common Shares Outstanding 2,830,000 1,415,000
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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UNISERVICE CORPORATION
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
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 - - - 61,645 (934,649) (873,004)
Translation adjustment - - - - - -
----------- ----------- ------------ ------------- ------------- -------------
Balance at June 30, 1999 $ 143 $ 140 $ 8,707,157 $ 1,294,133 $ (1,995,114) $ 8,006,459
=========== =========== ============ ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<TABLE>
<CAPTION>
UNISERVICE CORPORATION
Consolidated Statements of Cash Flows
Three Months Ended
----------------------------------------------------
June 30,
1999 1998
(Unaudited) (Unaudited)
-------------------- --------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 61,645 $ 505,583
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 310,855 128,126
Translation adjustment (368,628) (328,975)
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable, net 16,676 67,500
Other receivables (72,151) (46,036)
Inventory (166,229) 61,935
Income taxes receivable (58,101) 86,992
Offering costs - (147,665)
Other current assets 103,562 81,488
Intangibles 14,210 6,086
Deposits 31,883 24,668
Prepaid expense (421,222) -
Increase (decrease) in:
Accounts payable and accrued expenses 462,112 (348,875)
Deferred revenue (68,748) (81,178)
---------------- ---------------
Net Cash (Used in) Provided by Operating Activities (154,136) 9,649
---------------- ---------------
Cash Flows from Investing Activities:
Acquisition of property and equipment (713,817) (535,071)
---------------- ---------------
</TABLE>
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<TABLE>
<CAPTION>
UNISERVICE CORPORATION
Consolidated Statements of Cash Flows (Continued)
Three Months Ended
----------------------------------------------------
June 30,
1999 1998
(Unaudited) (Unaudited)
-------------------- -------------------
<S> <C> <C>
Cash Flows from Financing Activities:
Net repayment of notes payable to banks $ - $ (150,413)
Proceeds from bridge loan - 150,000
Net proceeds (repayment) of lines-of-credit 333,226 (81,117)
Net repayments to related party (134,112) 395,164
Payments on capital lease obligations (446,476) (234,595)
Proceeds from long-term debt - 113,519
--------------- --------------
Net Cash (Used) Provided by Financing Activities (247,362) 192,558
--------------- --------------
Decrease in Cash and Cash Equivalents (1,115,315) (332,864)
Cash and Cash Equivalents - Beginning of Period 1,618,179 647,549
--------------- --------------
Cash and Cash Equivalents - End of Period $ 502,864 $ 314,685
=============== ==============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 120,926 $ 137,233
Supplemental Disclosure of Non-Cash Financing Activities:
Issuance of Class A common stock in connection with
bridge loan - 67,500
</TABLE>
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UNISERVICE CORPORATION
Notes to Consolidated Financial Statements
(Unaudited) With Respect to June 30, 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 2,830,000 and
1,415,000 for the period ended June 30, 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.
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UNISERVICE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 41% of total revenues, as well as payroll and rent which
represent 20% and 15% of total revenues, respectively.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Results of Operations
- ---------------------
Gross revenues decreased from $6,914,451for the six months ended June 30, 1998
to $6,430,369 for the six months ended June 30, 1999, a decrease of $484,082 or
approximately 7%. A decline in sales for the six months ended June 30, 1999 in
U.S. dollars was prompted by the devaluation of the Chilean peso against the
dollar. Sales in Chilean pesos actually increased when compared to the six
months ended June 30, 1998 from 3.065 billions in 1998 to 3.123 billions for the
same period in 1999, an increase of 58 millions Chilean pesos. Gross revenues
were also impacted by a continuation of the shutting down of electricity
throughout Santiago for two hours per day during April and the first two weeks
of May.
Cost of operations for the six months ended June 30, 1999 decreased $163,705
from $2,829,130 for the six months ended June 30, 1998 to $2,665,425, a decrease
of approximately 6%. Although new restaurants were operational during the
period, changes in exchange rates reflected lower costs of operations.
Although cost of operations and gross profit percentages remained the same when
compared to the six months ended June 30, 1998, actual costs were reduced if the
impact of the highly inflationary Chilean economy is taken into consideration.
The Chilean peso devaluated from $465.22 in June 1998 to $518.90 in June 1999 a
devaluation of 12%.
Payroll and employee benefits increased from $1,013,393 for the six months ended
June 30, 1998 to $1,289,385 for the six months ended June 30, 1999 an increase
of $275,992 or 27%. The increase is primarily due to the opening of new
restaurants and the cost of additional personnel to operate these restaurants.
10
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UNISERVICE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Results of Operations (Continued)
- ---------------------
Occupancy increased from $970,197 for the six months ended June 30, 1998 to
$996,406 for the six months ended June 30, 1999, an increase of $26,209 or 3%.
The increase is due primarily to opening of new stores.
Selling and administrative expenses for the six months ended June 30, 1999 were
$1,516,222 compared to $1,662,595, for the six months ended June 30, 1998, a
decrease of $146,373 or approximately 9%. This decrease is attributable to the
devaluation of the Peso as well as taking advantage of economies 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 income 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
$203,680 in June 30, 1998 to $219,640 in June 30, 1999, a change of $15,960 or
8%. For the six months ended June 30, 1999, approximately $64,550 relates to the
amortization of deferred revenue and $155,090 relates 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 decrease by $16,307 to $120,926 in June 30, 1999 from $137,233
in June 30, 1998 or 13%. The decrease is due primarily to the average
outstanding balance of debt during the related periods.
The net income for the six months ended June 30, 1999 was $61,645 as compared to
$505,583 at June 30, 1998, a decrease of $443,938 or approximately 88%. This
decrease in net income is attributable to the following factors:
1. As previously mentioned the Chilean peso devaluated approximately 12%
against the U.S. dollar.
2. The opening of new stores increase payroll and employee benefits
approximately $276,000 or 27% when compared to 1998.
3. Power outages throughout Santiago which caused the loss of up to two
hours of individual store operation hours during April and two weeks in
May.
All of these factors and a decrease in discretionary spending decreased profits
for the period.
11
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UNISERVICE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Results of Operations (Continued)
- ---------------------
During the last two months, interest rates have decreased and it appears that
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.
Moreover, the Company believes that the "Star Wars" promotion which began in
Chile on June 24, will have a positive impact on gross revenues and profits.
Therefore, 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. The Company has signed a letter of intent to acquire Comercial
Submarine S.A., a 12 store food chain located in Santiago, for $1.5 million. To
facilitate such potential acquisitions the Company entered into an agreement
with Nutmeg Securities, Ltd. to raise additional equity capital. 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 initial public offering in August 1998.
At June 30, 1999, accounts receivable decreased by $16,676 to $88,385 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.
Due from related parties increased from $120,038 at December 31, 1998 to
$254,150 at June 30, 1999 as a result of an increase of $134,112. This increase
was in part due to a loan the Company made to Kyoto Limitada, a related party,
during the last quarter.
Other current assets decreased to $133,085 at June 30, 1999 from $236,647 at
December 31, 1998, a decrease of $103,562 due to a decrease in sales taxes
receivable and other prepaid expenses.
12
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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 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
June 30, 1999, the Company had approximately $428,000 outstanding on its
line-of-credit of approximately $450,000. An increase of almost $334,000 from
December 31, 1998 to finance the opening of new stores and the purchase and
finance of new equipment.
The Company had no outstanding long-term debt obligations with banks at June 30,
1999 and at December 31, 1998, respectively. The Company paid off its long term
obligations with banks with the proceeds received from its Initial Public
Offering in August 1998. In the future, the Company may have to borrow
additional funds for continued expansion.
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 relative to the Company's present
KFC operations.
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, 1999 and 1998, the Company recognized approximately
$65,000 and $71,000, respectively, of the deferred revenue. The Company is
currently negotiating a new agreement with Pepsico during 1999 which it intends
to sign in the third quarter of 1999.
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.
13
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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.
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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
15
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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
16
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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: Mauricio Aguirre
--------------------
Mauricio Aguirre, Chief Financial Officer
(authorized Officer and Chief Accounting Officer)
DATED: August 20, 1999
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Jun-30-1999
<CASH> 502,864
<SECURITIES> 0
<RECEIVABLES> 88,385
<ALLOWANCES> 0
<INVENTORY> 596,590
<CURRENT-ASSETS> 346,940
<PP&E> 10,727,983
<DEPRECIATION> 2,586,110
<TOTAL-ASSETS> 11,181,656
<CURRENT-LIABILITIES> 2,310,332
<BONDS> 0
0
0
<COMMON> 283
<OTHER-SE> 8,006,176
<TOTAL-LIABILITY-AND-EQUITY> 11,181,656
<SALES> 6,430,369
<TOTAL-REVENUES> 6,650,009
<CGS> 2,665,425
<TOTAL-COSTS> 6,467,438
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 120,926
<INCOME-PRETAX> 61,645
<INCOME-TAX> 0
<INCOME-CONTINUING> 61,645
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61,645
<EPS-BASIC> (0.02)
<EPS-DILUTED> 0
</TABLE>
