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, 2000.
( ) 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
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(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.)
Carmencita 25, Suite 102, Las Condes, Santiago, Chile
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 766-7879
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, 2000, there were 1,435,000 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
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 (UNAUDITED) AND
DECEMBER 31, 1999
2
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
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>
<TABLE>
<CAPTION>
UNISERVICE CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
A S S E T S June 30, 2000 December 31, 1999
------------- -----------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 378,950 $ 522,497
Accounts receivable, net 146,335 235,259
Due from related parties 347,607 416,436
Other receivables 348,679 553,464
Inventory 487,486 581,935
Income taxes receivable 54,398 124,006
Other current assets 172,300 146,928
----------------- ----------------
Total Current Assets 1,935,755 2,580,525
Property and Equipment, net 9,019,647 9,098,890
Intangibles 204,246 264,193
Long-term receivable - deferred revenue 132,000 332,000
Long-term prepaid contract 247,907 265,409
Deposits 413,700 411,452
----------------- ----------------
$ 11,953,255 $ 12,952,469
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,428,047 $ 1,545,223
Lines-of-credit 654,394 730,837
Current maturities of long-term debt 131,437 131,437
Current portion of capital lease obligations 177,270 148,601
Current portion of deferred revenue 195,144 195,144
----------------- ----------------
Total Current Liabilities 2,586,292 2,751,242
----------------- ----------------
Long-Term Liabilities:
Long-term debt 565,024 503,691
Capital lease obligations, excluding current portion 412,039 490,309
Deferred revenue, excluding current portion 1,069,865 1,170,865
----------------- ----------------
2,046,928 2,164,865
----------------- ----------------
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 1,036,406 1,371,750
Cumulative translation adjustment (2,423,811) (2,042,828)
----------------- ----------------
Total Stockholders' Equity 7,320,035 8,036,362
----------------- ----------------
$ 11,953,255 $ 12,952,469
================= ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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UNISERVICE CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------------------
June 30,
-------------------------------------------
2000 1999
---------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues $ 5,936,361 $ 6,430,369
Cost of Operations 2,255,590 2,665,425
---------------- ----------------
Gross Profit 3,680,771 3,764,944
---------------- ----------------
Selling and Administrative Expenses:
Payroll and employee benefits 1,480,406 1,289,385
Occupancy 952,674 996,406
Other selling and administrative 1,657,545 1,516,222
---------------- ----------------
4,090,625 3,802,013
---------------- ----------------
Loss from Operations (409,854) (37,069)
---------------- ----------------
Other Income (Expenses):
Other, net 207,772 219,640
Interest expense (133,262) (120,926)
---------------- ----------------
74,510 98,714
---------------- ----------------
Net (Loss) Income $ (335,344) $ 61,645
================ ================
Net (Loss) Income Per Common Share $ (0.12) $ 0.02
================ ================
Weighted Average Common Shares Outstanding 2,831,250 2,713,333
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
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, 1999 $ 143 $ 140 $ 8,707,157 $ 1,371,750 $ (2,042,828) $ 8,036,362
Net loss (Unaudited) - - - (335,344) - (335,344)
Translation adjustment (Unaudited) - - - - (380,983) (380,983)
----------- ----------- ------------- -------------- --------------- --------------
Balance at June 30, 2000 (Unaudited) $ 143 $ 140 $ 8,707,157 $ 1,036,406 $ (2,423,811) $ 7,320,035
=========== =========== ============= ============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------------------
June 30,
--------------------------------------------
2000 1999
---------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net (loss) income $ (335,344) $ 61,645
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation and amortization 183,640 310,855
Translation adjustment (380,983) (368,628)
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable, net 88,924 16,676
Other receivables 404,785 (72,151)
Inventory 94,449 (166,229)
Income taxes receivable 69,608 (58,101)
Other current assets (25,372) 103,562
Intangibles 59,947 14,210
Deposits (2,249) 31,883
Prepaid expense 17,502 (421,222)
Increase (decrease) in:
Accounts payable and accrued expenses (117,176) 462,112
Deferred revenue (101,000) (68,748)
---------------- ----------------
Net Cash Provided by (Used in) Operating Activities (43,269) (154,136)
---------------- ----------------
Cash Flows from Investing Activities:
Acquisition of property and equipment (104,396) (713,817)
---------------- ----------------
7
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UNISERVICE CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
Six Months Ended
--------------------------------------------
June 30,
--------------------------------------------
2000 1999
---------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flows from Financing Activities:
Net (repayments) proceeds of lines-of-credit $ (76,443) $ 333,226
Net proceeds (repayments) to related party 68,829 (134,112)
Payments on capital lease obligations (49,601) (446,476)
Proceeds from long-term debt 61,333 -
---------------- ----------------
Net Cash Used in Financing Activities 4,118 (247,362)
---------------- -----------------
Decrease in Cash and Cash Equivalents (143,547) (1,115,315)
Cash and Cash Equivalents - Beginning of Period 522,497 1,618,179
---------------- -----------------
Cash and Cash Equivalents - End of Period $ 378,950 $ 502,864
================ =================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 133,262 $ 120,926
</TABLE>
8
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UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited) With Respect to June 30, 2000 and 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Uniservice Corporation, (the "Company"), a Florida
corporation, was 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. On June
30, 2000, the Company's operating subsidiary was divided into
three separate entities, of which the Company owns a 99.97%
interest in each. Kentucky Foods Chile Ltda. contains the
Company's fast food service operations, which includes purchases
and sales. Administradora de Equipos, Maquinarias y Rentas
Inmobiliarias Ltda. contains all Company assets, including
machinery, equipment and restaurant leases. Administradora de
Servicios de Personal Millantue Ltda. maintains the Company's
administration division, which includes employee and personnel
contracts. Collectively, these subsidiaries are referred to as
"KyF Chile". KyF Chile is in the fast food service business and
presently operates 35 restaurants of which the majority are
located in Santiago, Chile. These restaurants are operated
pursuant to franchise agreements with Tricon Global Restaurants,
Inc. ("Tricon"). The Company and its three operating subsidiaries
may be collectively referred to as "the Company".
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.
During 1999, the Company increased its estimate of the useful
lives of certain restaurant equipment and leasehold improvements
to better reflect the remaining estimated useful lives of these
assets. This change has the effect of increasing income from
operations for 1999 by approximately $396,000 ($0.14 per share).
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 2,831,250 for
the period ended June 30, 2000 and 2,713,333 for the period ended
June 30, 1999. All warrants issued have exercise prices greater
than the existing market value of the company stock and therefore
are deemed anti-dilutive and are not components of earnings per
share.
9
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company generates operating revenues in two ways: sales of products from
restaurant locations (approximately 93% of total revenues) and sales of coupon
books (approximately 7% 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 37% of total revenues, as well as payroll and rent which
represent 24% and 16% of total revenues, respectively, as of June 30, 2000.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Results of Operations
---------------------
Gross revenues decreased from $6,430,369 for the six months ended June 30, 1999
to $5,936,361 for the six months ended June 30, 2000, a decrease of $494,008 or
approximately 8%. A decline in sales for the six months ended June 30, 2000 in
U.S. dollars was prompted by competition in the fast-food market, the
devaluation of the Chilean peso against the dollar which was $538.61 Chilean
Pesos (the functional currency) to U.S. $1.00 at June 30, 2000 and $518.90 pesos
to U.S. $1.00 at June 30, 1999 and the inflation the country has recently
experienced.
Cost of operations for the six months ended June 30, 2000 decreased $409,835
from $2,665,425 for the six months ended June 30, 1999 to $2,255,590, a decrease
of approximately 15%. The decline in cost of operations is principally
attributable to the devaluation of the Chilean peso against the dollar and the
decrease in sales, as well as a decrease in the cost of certain supplies.
Gross profit percentages increased by 3% for the six months ended June 30, 2000
when compared to the six months ended June 30, 1999. This increase from 59% to
62% was attributable to the Company's negotiations with vendors to reduce costs.
Payroll and employee benefits increased to $1,480,406 for the six months ended
June 30, 2000 from $1,289,385 for the six months ended June 30, 1999, an
increase of $191,021 or 15%. The increase is primarily due to cost of living
increases in Chile and the inflation the country has recently experienced.
10
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Results of Operations (Continued)
---------------------------------
Occupancy expense decreased from $996,406 for the six months ended June 30, 1999
to $952,674 for the six months ended June 30, 2000, a decrease of $43,732 or 4%,
due to the Company renegotiating some of the stores' leases subject to a
percentage of sales by obtaining more favorable leasing terms.
Selling and administrative expenses for the six months ended June 30, 2000 were
$1,657,545 compared to $1,516,222, for the six months ended June 30, 1999, an
increase of $141,323 or approximately 9%. This increase is attributable to the
increase in inflation the country has experienced in the last year when compared
to 1999.
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 ECUSA (Pepsico franchise
and bottling company in Chile) exclusivity agreement. The decrease in this
category was from $219,640 for the six months ended June 30, 1999 to $207,772
for the six months ended June 30, 2000, a change of $11,868 or 6%. The decrease
was primarily due to a decline in the incentive fees paid to the Company by
vendors. For the six months ended June 30, 2000, approximately $93,000 relates
to the amortization of deferred revenue and $115,000 relates to refunds and
credits from vendors.
The second category relates to interest expense paid to banks and leasing
companies which increased by $12,336 to $133,262 in June 30, 2000 from $120,926
in June 30, 1999 or 10%. The increase is due primarily to the average
outstanding balance of debt during the related periods.
For the six months ended June 30, 2000, the Company had a net loss of $335,344
compared to net income of $61,645 for the six months ended June 30, 1999. The
reasons for this decrease was the competition in the fast-food market in Chile
and the higher inflation the country has recently experienced.
Liquidity and Capital Resources
-------------------------------
At June 30, 2000, accounts receivable decreased by $88,924 to $146,335 from
$235,259 at December 31, 1999, due to the decrease in sales and improved
collection efforts.
Other receivables decreased to $348,679 at June 30, 2000 from $553,464 at June
30, 1999, a decrease of $204,785, due to the collection of its second
installment due as the result of the Company's exclusivity agreement with ECUSA
(the Chilean bottling company representing Pepsico).
11
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (Continued)
-------------------------------------------
Other current assets increased to $172,300 at June 30, 2000 from $146,928 at
December 31, 1999, an increase of $25,372, due to an increase in sales taxes
receivable and other prepaid expenses.
The Company did not incur Chilean income taxes in 2000 or 1999, 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 current tax liability for the Company.
In September 1999, the Company entered into a seven-year agreement with ECUSA (a
supplier) requiring the exclusive use by the Company of Pepsi products for each
of its existing KFC(R) restaurants. Additionally, the agreement provides that
each new KFC(R) restaurant owned by the Company would also be subject to the
same agreement. In exchange for this exclusivity agreement, the Company received
and deferred approximately $1,300,000 net of tax, which is being recognized and
amortized ratably over a seven year period. For the periods ended June 30, 2000,
the Company recognized approximately $93,000 of the deferred revenue.
The Company utilizes bank lines-of-credit for periodic operational expenses. At
June 30, 2000, the Company had approximately $654,000 outstanding on its
$800,000 line-of-credit facility.
Seasonality
-----------
The Company generates the highest amount of sales during 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 purchases from suppliers.
Inflation
---------
While inflation increased over the past four months, over the past five years,
Chile has not experienced any significant increase in inflation. The Chilean
economic system is based on an indexed inflation system and therefore, no
material inflation is anticipated in the immediate future.
12
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UNISERVICE CORPORATION AND SUBSIDIARY
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
On January 27, 2000, the Company received notice from Tricon Restaurants
International that the opening and operation of certain restaurants without
prior approval from Tricon may constitute a default under the Company's
franchise agreement. The Company has sought to cure contractual non-compliance
by paying unpaid initial fees for restaurants and obtaining Tricon's approval
for the sale of certain food products. On May 21, 2000, the Company was notified
that, while it had cured some of the claims that existed on January 27, 2000,
contractual non-compliance continued and new breaches were alleged. These
include the operation of restaurants without the execution of franchise
agreements for each restaurant, unpaid fees and the unauthorized use of
trademarks and other proprietary information in relation to the restaurants
operating without a franchise agreement. The Company has executed new franchise
agreements for each restaurant that was operating without a franchise agreement.
As of the date of this report, the Company believes that it is in full
compliance with Tricon's requirements.
After June 30, 2000, the Company commenced an internal restructuring of its
operations, which includes a reduction in personnel, reduction in executive
salaries and benefits and the possible relocation of executive offices to a less
expensive location.
13
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UNISERVICE CORPORATION AND SUBSIDIARY
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
14
<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 AND SUBSIDIARY
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: August 18, 2000
15
