U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission file number 0-24681
UNISERVICE CORPORATION
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(Name of Small Business Issuer in its Charter)
Florida 69-0516177
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
350 East Las Olas Blvd., Suite 1700, Fort Lauderdale, Florida 33301
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(Address of Principal Executive Offices) (Zip Code)
(954)766-7879
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(Issuer's Telephone Number)
Securities registered under Section 12(b)
of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
None
Securities registered under Section 12(g) of the Exchange Act:
Class A Common Stock, $.0001 par value and Class A Common Stock Warrants
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $12,893,382
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. $2.50 as of March 31, 2000.
<PAGE>
Based on the closing price of the Class A Common Stock quoted on the Nasdaq
Small Cap Market as reported on March 31, 2000 ($2.50), the aggregate market
value of the 1,361,000 shares of the Class A Common Stock held by the persons
other than officers, directors and persons known to the Registrant to be the
beneficial owner (as that term is defined under the rules of the Securities and
Exchange Commission) of more than five percent of the Class A Common Stock on
that date was approximately $3,410,000.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: March 31, 2000: 1,430,000 Shares of
Class A Common Stock and 1,400,000 Shares of Class B Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
- - None -
Transitional Small Business Disclosure Format (Check One)
Yes X No
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<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
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PART I
<S> <C> <C>
Item 1. Description of Business............................................................ 1
Item 2. Description of Property............................................................ 11
Item 3. Legal Proceedings.................................................................. 11
Item 4 Submission of Matters to a Vote of Security Holders................................ 11
PART II
Item 5. Market for Common Equity and
Related Stockholder Matters........................................................ 11
Item 6. Management Discussion and Analysis................................................. 12
Item 7. Financial Statements............................................................... 16
Item 8. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure............................................. 16
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance With Section 16(a)
of the Exchange Act................................................................ 17
Item 10. Executive Compensation............................................................. 20
Item 11. Security Ownership of Certain Beneficial
Owners and Management.............................................................. 23
Item 12. Certain Relationships and Related Transactions..................................... 23
Item 13. Exhibits, Lists and Reports on Form 8-K............................................ 25
</TABLE>
<PAGE>
PART I
Item 1. Description of Business
General
We were organized as a Florida corporation on November 21, 1997
under the name Uniservice Corp. and subsequently changed our name to Uniservice
Corporation. On August 4, 1998 we acquired 99.97% of Inversiones e Inmobiliaria
Kyoto S.A.'s interest in Kentucky Foods Chile S.A. in a series of transactions
in exchange for 1,399,900 shares of our class B common stock. These transactions
were effected simultaneously with the initial public offering of our class A
common stock and warrants to purchase shares of our class A common stock. These
securities are listed on the Nasdaq SmallCap under the symbols UNSRA and UNSRW.
The remaining interest in Kentucky Foods Chile is held by Ricardo Vilensky.
Our principle executive offices are located at Carmencita 25,
Suite 102, Santiago, Chile, our telephone number is 011(562) 334-3000 and our
e-mail address is [email protected]. Our U.S. offices are currently located
at 350 East Las Olas Blvd., and our telephone number is (954) 766- 7879. When we
use the terms "Uniservice," "Kentucky Foods Chile," "we," "our," and similar
terms, this includes Uniservice Corporation and Kentucky Foods Chile S.A., our
99.97% subsidiary. All references to our historical activities before August
1998 refer to the historical activities of Inversiones e Inmobiliaria Kyoto and
Kentucky Foods Chile.
Our background
We have been involved in the restaurant business since our
subsidiary, Kentucky Foods Chile, commenced business in November 1986. We
operated our first four restaurants under the name Papa Pollo. During the second
half of 1991 we changed the names of our restaurants to Chicken Inn. In 1994,
when we were operating nine restaurants, we entered into a franchise agreement
with Kentucky Fried Chicken International Holdings and Tricon Restaurants
International and converted all of our restaurants into KFC restaurants. We
opened eight KFC restaurants in 1995, and an additional seven, five, seven and
three restaurants during 1996, 1997, 1998 and 1999, respectively.
We are currently the only KFC franchisee in Chile and the largest
KFC franchisee in Central and South America. We currently own and operate 36 KFC
Restaurants throughout Chile. We are also currently evaluating acquisition
opportunities throughout Latin America.
<PAGE>
Fast food industry background
Overview
The fast food service industry consists of quick service
restaurants, referred to as QSRs, full service restaurants, other commercial
restaurants, including cafeterias and non-commercial restaurants such as those
in schools and hospitals. The QSR segment of the fast food service industry is a
multi-billion dollar industry.
Fast food restaurant industry in Chile
Listed below is the number of restaurants for each of the major
fast food franchises located in Chile as of December 31, 1999.
<TABLE>
<CAPTION>
Name Number of Restaurants Major Types of Products
---- --------------------- -----------------------
<S> <C> <C>
Lomiton(R) 82 Pork sandwiches
Doggis(R) 58 Hot dogs
McDonald's(R) 62 Hamburgers
KFC(R) 36 Chicken
Burger King(R) 25 Hamburgers
Pizza Hut(R) 30 Pizza
Domino's(R) 21 Pizza
Embers(R) 17 Roast beef sandwiches
Submarine(TM) 12 Subs/hoagies
Mr. Chips(R) 11 Roast beef sandwiches
Taco Bell(R) 11 Tacos and burritos
Mei Lin Ta(R) 10 Chinese food
Burger Inn(TM) 10 Hamburgers
Natural Juice(TM) 7 Salads and natural juices
</TABLE>
Strategy
Our strategy is to expand our business throughout Chile and Latin
America through the acquisition of businesses and the expansion of our current
restaurants. The following is an overview of our acquisition and expansion
strategy:
o Acquire fast food or other businesses located in Chile. We have
entered into discussions with several businesses located in Chile, with a view
towards expanding our operations in Chile.
We believe that this acquisition would result in greater economies
of scale in:
o reduced management ratio;
o purchase of food;
o purchase of consumables;
o negotiation with vendors;
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o more favorable advertising rates; and
o the ability to formulate and implement cross-promotional
opportunities.
o Seek acquisition possibilities throughout Latin American and the
Carribean.
o Increase our existing KFC restaurants overall margins and
profitability.
o Maximize operating efficiencies through continued centralized
management and advanced management information systems. This enables us to:
o control corporate overhead and individual restaurant
costs;
o capture economics of scale by utilizing our existing
corporate management structure; and
o continuously monitor point-of-sale data to more
efficiently manage our restaurant operations.
We believe we will experience both restaurant level and corporate
level savings as a result of an increase in size and related bargaining power,
particularly with respect to food and paper purchasing and distribution, and
restaurant maintenance services. As the number of our restaurants increase, we
believe our bargaining power should continue to increase. In particular, we
believe that we will be able to continue to spread our corporate overhead and
continue to reduce our cost of operations by centralization of management and
purchasing of food and other products in greater quantities as the restaurants
we acquire, own and operate increase business. We also believe that our risks of
expansion are substantially reduced due to:
o our management's extensive experience within the fast
food restaurant business;
o an increased Chilean middle class with discretionary
income;
o the predictability of development costs and restaurant
profitability; and
o the proven success of the chicken concept in Chile.
Our operations
Overview
All executive management, financing, marketing and operations
support functions are conducted centrally at our Santiago Chile headquarters. At
our headquarters we maintain a state-of-the-art centralized computer system that
is linked with the cash register at each of our restaurants. Through this
computer system, we have access to up-to-the-minute information including, among
other things, revenues, inventory control, and the ability to monitor the
progress of various promotions.
Under our KFC franchise agreement, we are presently prohibited
from engaging in any KFC(R) brand business outside of Chile. Subject to
compliance with our franchise agreement and the
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development agreement, we may, however, engage in other businesses which do not
conflict with the KFC(R) brand, subject to prior approval by Tricon.
Acquisition developments
We are seeking to acquire a business located in Chile or other
businesses throughout Latin America. We have identified specific acquisition
possibilities are have begun preliminary negotiations with their individual
representatives. We have recently filed a registration statement with the
Securities and Exchange Commission to register securities for a potential public
offering. The proceeds from this potential offering will be used to finance a
specific acquisition to be determined by our board of directors and subject to
the approval of our underwriter. The completion of any acquisition will be
subject to approval of the respective board of directors, our underwriters, and
the completion of our due diligence.
Any potential acquisition will not compete directly with our KFC
business, since the companies we are focusing on do not sell fast food chicken
products. We will continue to look for companies to complement, but not directly
compete with our current business.
Our KFC restaurants
KFC restaurants offer basically the same menu, meal options and
distinctive KFC design as the KFC restaurants found throughout the United
States. Our KFC restaurants are of distinctive design and are generally located
in high-traffic areas including shopping malls, food courts, shopping centers,
and downtown areas. Our KFC restaurants consist of several building types with
various layouts and seating capacities. We currently have 36 restaurants, 34 of
which are open seven days a week, typically from 10:00 a.m. to midnight.
Currently, we do not accept credit cards, although we may elect to do so in the
future. Some of our restaurants offer drive-through service. Home delivery is
available at no-charge from 17 of our restaurants.
All of our KFC restaurants offer a full line of KFC products,
including chicken pieces, chicken sandwiches, a variety of side items including
cole slaw, mashed potatoes, salads and corn, and dessert. In addition to a
full-line of soft drinks, 21 of our current restaurants are licensed to sell
beer (the drinking age in Chile is 18).
Quality assurance
Our operations are focused on achieving a high level of customer
satisfaction, with speed, accuracy and quality of service closely monitored. Our
senior management and restaurant management staff are principally responsible
for ensuring compliance with our internal and Tricon's operating procedures. We
and Tricon have uniform operating standards and specifications relating to the
quality, preparation and selection of menu items, maintenance and cleanliness of
the premises and employee conduct and internal surveys, detailed reports from
our own management information system and detailed reports from Tricon are
tabulated and distributed to management on a regular basis to help maintain
compliance. In addition to customer satisfaction, these reports track
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comparable sales and customer counts, labor and food costs, inventory levels,
waste losses and cash balances.
We closely supervise the operation of all of our restaurants to
help ensure that standards and policies are followed and that product quality,
customer service and cleanliness of the restaurants are maintained. Management
also conducts unscheduled inspections and audits of our restaurants to ensure
quality.
Our restaurants are also subject to standards set by Chilean,
provincial and local governmental laws and regulations. These standards include
food preparation rules regarding, among other things, minimum cooking times and
temperatures, sanitation and cleanliness. In addition, KFC has set maximum time
standards for holding unsold prepared food in order to maintain freshness of our
KFC products.
Supplies and distribution
We inspect the facilities of our suppliers and request samples for
testing and other quality control monitoring from time to time. Many of these
suppliers are also subject to Chilean government inspection. In addition,
representatives of our quality assurance department visit restaurants from time
to time to ensure that food is properly stored, handled and prepared in
accordance with prescribed standards and specifications, as well as to provide
training in food safety and sanitation measures to the restaurant operators. The
quality assurance department is also responsible for remaining current on issues
related to food safety, and interacting with regulatory agencies as may be
required or desirable on these matters.
Under our KFC franchise agreement, we are required to buy food
supplies, ingredients, seasonings, and equipment for our KFC restaurants only
from approved suppliers who are required to meet or exceed system standards
designed to ensure product quality, safety and consistency. We purchase KFC's
pre-packaged seasoning which contain KFC's proprietary recipes directly from
Tricon's principal U.S. supplier.
We purchase much of our products by means of centralized buying in
order to obtain the best prices. As the number of our restaurants increase, we
believe that our bargaining power to purchase goods at the best prices and on
favorable terms should also increase. We purchase our supplies and foodstuffs
from vendors on favorable terms and conditions (including quantity discounts).
We believe there are a number of vendors who can supply us with adequate
quantities of products and that the loss of any one supplier would not have a
material impact on our operations.
Additionally, to ensure the wholesomeness of all food products,
suppliers are required to meet or exceed strict quality control standards.
Competitive bids, long-term contracts and long-term vendor relationships have
been used to ensure availability of products. We have not experienced any
significant continuous shortages of supplies. Prices paid for these supplies may
be subject to fluctuation. When prices increase, we may be able to pass on such
increases to our customers.
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Marketing, advertising and promotion
Each year, we typically introduce different types of promotions,
either in conjunction with Tricon or independently, including:
o value-type combination meals;
o new products;
o kids meals; and
o coupons.
A portion of our marketing and advertising plan includes
participating in certain of Tricon's internationally licensed promotions and
marketing fund. We also advertise on cable television and radio.
Franchise agreement with Kentucky Fried Chicken International Holdings and
Tricon
Of our 36 restaurants currently in operation, 28 are operating
under our franchise agreement, 5 are operating under a temporary license
agreement, and 3 of our restaurants are operating without any agreement.
Kentucky Fried Chicken International Holdings and Tricon have prohibited us from
opening any additional restaurants until a new franchise and development
agreement covering our 8 restaurants operating outside our KFC franchise
agreement and any future restaurants has been executed.
We have received notice from Tricon that the opening and operating
of restaurants without approval from Tricon may be a breach and default of our
franchise agreement. Specifically, Tricon requested that we pay initial fees for
our 3 restaurants operating without an agreement. We have paid the initial fees.
Our management believes we have resolved this issue and we continue to focus on
finalizing a new franchise agreement.
Our new franchise agreement should be consistent with the original
franchise agreement, permitting us to use, among other things, KFC's proprietary
trade names, trademarks, service marks, recipes, and trade dress. We are also
permitted to sell and promote only KFC approved products. Although Tricon wants
to increase our royalty payments to 6% of our total revenues.
Under our original franchise agreement at all times, Mr. Vilensky
must retain voting control of Kentucky Foods Chile and our company. As result,
we have created two classes of common stock--Class A common stock and Class B
common stock--which are identical except that holders of Class B common stock
are entitled to ten votes for each one share held. Additionally, unless Mr.
Vilensky obtains approval from Tricon, he must retain at all times a minimum of
30% ownership of our company. As a condition to our franchise agreement, Mr.
Vilensky may sell up to
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the lesser of 10% of the outstanding amount of our capital stock or an amount so
that his ownership interest will not be below 30% provided, however, that the
proceeds from sale received by Mr. Vilensky may not be used to start a new
company. When our warrants are exercised, Mr. Vilensky's ownership interest will
fall below 30%, in which case we will be in technical default of our KFC
franchise agreement.
Another condition of our franchise agreement requires us to have a
designated operator, who is the person that oversees the management of our
day-to-day operations. Currently, the designated operator is Mr. Vilensky. In
the event Mr. Vilensky is unwilling to serve as the designated operator or
becomes disabled or deceased, management or Mr. Vilensky's heirs will propose a
new designated operator, who will be subject to approval by Tricon. Although not
required, Tricon has indicated that it would prefer the designated operator to
also control our company. In the event that Tricon determines that the proposed
designated operator is not capable of performing the necessary duties and
obligations, Mr. Vilensky or his heirs are required to use their best efforts to
sell their interest in our company within six months. In the event that no sale
is completed within the six month period, Tricon has the option to purchase Mr.
Vilensky's interest, or the interest of Mr. Vilensky's heirs, for a market value
determined by three appraisers.
The initial franchise term for each of our restaurants operating
under our franchise Agreement is ten years. Expiration dates range between
December 31, 2003 and December 31, 2007, depending on when the particular
restaurant was opened. The initial franchise term is renewable, at our option,
for additional ten year periods, provided that:
o the renewal is permitted by local law;
o we have corrected any default under the franchise
agreement and has not been in material default within the
24 months preceding the renewal request;
o we comply with annual performance criteria;
o we request renewal within 12 to 18 months prior to the
expiration of the initial term;
o we agree to make capital improvements to conform with
Tricon's then current standards and completes the
improvements, as agreed;
o we agree to relocate any restaurants Tricon determines
cannot be renovated to meet the then current standards;
o we execute a new franchise agreement if the current form
has been modified;
o we are current in all obligations, monetary or otherwise,
to Tricon; and
o we pay a renewal fee as agreed upon with Tricon.
The monthly royalty fees for each of our KFC restaurants operating
under our franchise agreement is 5% of net revenues. The monthly royalty fees
for each of our KFC restaurants operating under our temporary license agreement
is 5% of net revenues. Royalty fees will increase to 6% in 2005.
Under our franchise agreement, Tricon's approval is required for
our operation of any new KFC restaurants or other fast food restaurant and
Tricon's consent to such renewals, acquisitions or development may be withheld
in Tricon's sole discretion.
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We intend to continue with our acquisition strategy and the
operation of our current restaurants regardless of the status of our
relationship with Tricon. If we lose our right to the KFC concept we will
operate our current restaurants without the KFC concept and methods. However, if
our KFC franchise agreement is terminated (either by default or expiration) we
are prohibited from competing with KFC for 12 months. While our franchise
agreement contains this non-compete clause, non-compete agreements are generally
not enforced to the fullest extent under Chilean law. Chilean courts generally
impose monetary fines and penalties.
Competition
The overall food service industry and the quick service restaurant
(QSR) segment are intensely competitive with respect to food quality, price,
service, convenience, restaurant location and concept. The restaurant business
is often affected by changes in consumer tastes; national, regional or local
economic conditions; demographic trends; traffic patterns; the type, number and
location of competing restaurants; and disposable purchasing power. We compete
within the Chilean market with international and regional chains as well as
locally-owned restaurants, not only for customers, but also for management and
hourly personnel and suitable real estate sites. Typically, international chains
such as McDonald's(R) and Burger King(R) compete with one another and do not
serve a variety of chicken products, while our actual competitors are fast food
restaurants that offer similar menus which include chicken. Certain of these
companies may have greater financing, personnel, technical and other resources
than us. During 1999 there was an increase of approximately 7% in the number of
QSRs in Chile from 365 to 392.
Patents and trademarks
Under our franchise agreement with Tricon we may use KFC's
proprietary trade names, trademarks, service marks, recipes, and trade dress. If
our franchise agreement is terminated or expires we will lose all rights to use
KFC's proprietary trade names, trademarks, service marks, recipes, and trade
dress.
Our company does not have any proprietary trade name protection,
trademark protection, patents, or service marks, however, our subsidiary,
Kentucky Foods Chile, holds several proprietary trade names, trademarks and
service marks in Chile.
Government regulation
We are subject to various Chilean national, provincial, and
municipal laws affecting its business. Each of our restaurants must comply with
various licensing requirements and regulations of governmental authorities,
including health, sanitation, safety and fire agencies in the region and
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municipality in which the restaurant is located. To date, we have obtained all
necessary licenses and approvals.
A small portion of our sales are attributable to the sale of beer.
A license is required from the provincial governing authority for each
restaurant that sells beer and regulations governing the sale of beer relate to
many aspects of restaurant operations, including the minimum age eighteen of
patrons to purchase beer.
We are also subject to Chilean national minimum wage laws
governing matters as overtime and working conditions. Since the bulk of our
employees are paid on an hourly basis at rates related to the minimum wage,
increases in the minimum wage could significantly increase our labor costs. We
have not, to date, been materially adversely affected by these laws. Our
business is also subject to the full range of governmental regulation and
supervision generally applicable to companies engaged in business in Chile,
including labor laws, social security laws, public health, environmental laws,
securities laws and anti-trust laws.
Personnel
We believe that high quality, customer-focused restaurant
management is critical to long-term success. Generally, each of our restaurants
has one restaurant general manager, two supervisors and teams of workers.
Restaurant management structure varies by unit size. Each restaurant usually has
between 10 and 35 hourly employees, most of whom work part-time. We pay an
hourly wage of $1.20 per hour, the average hourly wage in Chile. Overtime is
paid (one and one half time minimum wage, or $1.79 per hour) to any employee who
works more than 48 hours weekly. However, Chilean law only permits employees to
work a maximum of two extra hours daily. Overtime (of two times Chilean minimum
wage, the equivalent of U.S.$2.40 per hour) is paid on Sundays and holidays.
Restaurant general managers receive base salaries, as well as incentive bonuses,
based upon that restaurant's productivity and profitability.
Foreign Corrupt Practices Act
Substantially all of our operations are conducted in South
America. To the extent that we conduct operations and sell our products outside
the U.S., we are subject to the Foreign Corrupt Practices Act which makes it
unlawful for any issuer to pay or offer to pay, any money or anything of value
to any foreign official, foreign political party, foreign political party
official or any candidate for foreign political office or any person with
knowledge that all or a portion of money or thing of value will be offered,
given, or promised, directly or indirectly, to any of these people.
We have not made any offers, payments, promises to pay, or
authorization of any money or anything of value to any foreign official, foreign
political party or foreign political party official or candidate for foreign
political office and have implemented a policy to be followed by our officers,
directors, employees and anyone acting on our behalf, that no payments can and
will be made. We have made all employees cognizant of the need for compliance
with the Foreign Corrupt
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Practices Act and any violation of our policy will result in dismissal. We also
conduct periodic reviews of this policy with all employees to ensure full
compliance.
Foreign investment laws and regulations
The Chilean Constitution establishes that any Chilean or foreigner
may freely develop any activity in Chile so long as the activity in Chile does
not contravene existing laws dealing with public morals, public safety or
national security and follows the laws that regulate such activity. It also
establishes the principle of non-discrimination, thus guaranteeing foreign
investors equal protection under Chilean law. Additionally, Chilean law
prohibits any discretionary acts by the Chilean government or other entities
against the rights of persons or property in derogation of this principle.
Foreign investors may transfer capital and net profits abroad. There are no
exchange control regulations which restrict the repatriation of the investment
or earnings except that the remittance of capital may take place starting a year
after the date the funds were brought into the country, but net profits can be
remitted at any time, after deduction of applicable withholding income taxes.
Therefore, equity investments in Chile by persons who are not Chilean residents
follow the same rules as investments made by Chilean citizens.
These principles are the basis for the Chilean Decree-Law No. 600
of 1974, as amended. DL 600 requires that a foreign investor and the government
of Chile sign a legally-binding investment contract which may only be modified
by mutual consent. The contract sets forth the current tax and foreign exchange
laws as each relates to the specific investments by that investor in Chile.
Thus, investors are protected against any subsequent changes in the law which
could adversely affect an investor or their investments in Chile. Although the
Chilean government has been successful in keeping this principle in place for
the last 26 years, there can be no assurances that a breach by or political
changes within the Chilean government will not occur in the future or which
would adversely affect our rights to do business in Chile.
Employees
As of December 31, 1999, we employed 852 employees, of which 40
were full-time salaried employees in administration, 115 were full-time salaried
employees in supervisory and management positions and 697 were full-time and
part-time hourly employees who were employed in food preparation and serving.
All of our management and employees who reside in Chile speak Spanish and our
senior management team in Chile also communicates in English. None of our
employees are covered by a collective bargaining agreement. We believe that the
dedication of our employees is critical to our success, and that our relations
with our employees are good.
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Item 2. Description of Property
All of our restaurants are presently located in leased space. The
leases for our restaurants are for a period ranging from six years to 15 years
and provide for one or more options to renew for at least one additional term.
Our leases either specify a fixed annual rent with fixed increases or are
variable. Generally, our leases are net leases which require us to pay all or a
portion of the cost of taxes, maintenance and utilities. Certain of the leases
provide that in the event of non-payment of rent, the lessor may terminate the
lease without notice. Chilean law provides that a landlord may not evict a
tenant without a court hearing, although the tenant is responsible for all costs
related to such court hearing.
We lease approximately 4,000 square feet of executive offices in
Santiago, Chile from Inmobiliaria KilKil S.A., our affiliate, at a rate of
$9,050 per month, plus common area maintenance and general expenses of $1,100
per month. The lease is for ten years, ending May 1, 2007.
In August 1998, we entered into a two year lease with Andean
Financial Corporation for our corporate U.S. offices in Boca Raton, Florida.
David Mayer, a former director and officer of our company, is the sole
shareholder, officer and director of Andean Financial Corporation. The annual
lease amount is $10,000 annually, payable quarterly, which includes all
telephone and facsimile, secretarial and other expenses. We have recently
terminated our lease with Andean Financial Corporation and have moved our
corporate U.S. offices to 350 East Las Olas Blvd., Suite 1700, Fort Lauderdale,
Florida. We are occupying this space at no expense.
Item 3. Legal Proceedings
We are involved in legal proceedings arising in the ordinary
course of business. We are not involved in any legal proceedings that we believe
will result, individually or in the aggregate, in a material adverse effect upon
our financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Our class A common stock and our class A common stock warrants are
traded on the Nasdaq SmallCap Market under the symbols UNSRA and UNSRW,
respectively, and commenced their trading on August 4, 1998. The following table
sets forth the high and low bid quotations for the common stock and warrant for
the periods indicated. These quotations, as reported by Bridge Information
Systems, reflect prices between dealers, do not include retail mark-ups,
markdowns, commissions and may not necessarily represent actual transactions.
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<TABLE>
<CAPTION>
Period High Low
- ------ ---- ---
<S> <C> <C>
Common Stock
August 4, 1998 through quarter ended December 31, 1998 $5.625 $2.37
Quarter ended March 31, 1999 $3.90 $3.25
Quarter ended June 30, 1999 $3.75 $2.80
Quarter ended September 30, 1999 $3.25 $1.70
Quarter ended December 31, 1999 $2.75 $1.75
Warrants
August 4, 1998 through quarter ended December 31, 1998 $1.53 $0.62
Quarter ended March 31, 1999 $0.90 $0.55
Quarter ended June 30, 1999 $0.80 $0.375
Quarter ended September 30, 1999 $0.625 $0.125
Quarter ended December 31, 1999 $0.60 $0.125
</TABLE>
As of December 31, 1999, there were approximately 20 holders of
record of our class A common stock. We have approximately 300 holders in street
name for our class A common stock.
We have never paid dividends on our outstanding securities since
our formation in November 1997. However, Kentucky Foods Chile has declared the
following dividends to its shareholders in the corresponding years:
1994.................. $ 71,565
1995.................. $730,648
1996.................. $768,018
1997.................. $ 19,305
Of the $730,648 declared in 1995, the total amount was reinvested
as paid-in capital. Of the $768,018 declared in 1996, $139,909 was distributed
in 1996 and the balance ($628,409) was distributed in 1997, of which $324,286 of
the $628,409 was reinvested in Kentucky Fried Chicken Chile. Kentucky Fried
Chicken Chile currently intends to retain earnings for use in its business and
does not anticipate paying dividends in the foreseeable future, except to our
preferred shareholders.
Upon distribution of a dividend by Kentucky Foods Chile, we, as a
foreign non-resident shareholder of a Chilean corporation, will be subject to a
35% percent withholding tax less a credit for any corporate taxes paid by the
Chilean corporation. However, the payment of foreign taxes may be credited
against U.S. federal income tax.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
12
<PAGE>
Management's discussion and analysis contains various forward
looking statements. These statements consist of any statement other than a
recitation of historical fact and can be identified by the use of
forward-looking terminology such as "may," "expect," "anticipate," "estimate" or
"continue" or use of negative or other variations or comparable terminology.
We caution that these statements are further qualified by
important factors that could cause actual results to differ materially from
those contained in the forward-looking statements, that these forward-looking
statements are necessarily speculative, and there are certain risks and
uncertainties that could cause actual events or results to differ materially
from those referred to in such forward-looking statements.
Overview
We generate 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 our coupon books 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.
We incur costs primarily for raw food and paper supplies, which
represent approximately 41% and 37% of the total revenues for 1999 and 1998,
respectively. Payroll represents 21% and 23%, and rent represents 14% and 13%,
respectively, for 1999 and 1998. Our royalty and marketing costs are each 5% of
our total revenues each year.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Results of Operation
Our gross revenues decreased from $13,415,518 for the year ended
December 31, 1998 to $12,893,382 for the year ended December 31, 1999, a
decrease of $522,136 or approximately 4%. A decline in sales for the year ended
December 31, 1999 in U.S. dollars was prompted by the devaluation of the Chilean
peso against the dollar. Sales in Chilean pesos actually increased from Ch$6.242
billion in 1998 to Ch$6.641 billion in 1999, an increase of Ch$399 million.
Our cost of operations for the year ended December 31, 1999
increased $271,398 from $4,988,852 for the year ended December 31, 1998 to
$5,260,250, an increase of approximately 5%. The increase in cost of operations
is principally attributable to inflation and higher operating costs.
Gross profit percentage declined 4% from 63% in 1998 to 59% in
1999. This decline was prompted by higher inflation in Chile which increased
operating costs. The Chilean peso was devalued from Ch$465.25 per U.S. dollar at
December 31, 1998 to Ch$515.08 per U.S. dollar at December 31, 1999, a
devaluation of 11%.
13
<PAGE>
Payroll and employee benefits decreased from $3,089,405 for the
year ended December 31, 1998 to $2,693,160 for the year ended December 31, 1999,
a decrease of $396,245 or 13%. This decrease was due to the effort the Company
made in reducing costs in an inflationary economy. The Company operated the
stores with better trained personnel and eliminated overstaffed shifts during
hours of less sales. Overall, operations were conducted efficiently.
Occupancy increased from $1,677,986 for the year ended December
31, 1998 to $1,765,306 for the year ended December 31, 1999, an increase of
$87,320 or 5%. This increase is due to an increase in the cost of living which
was reflected in the monthly rent paid on operating leases.
Selling and administrative expenses for the year ended December
31, 1999 were $3,372,953 compared to $2,936,985 for the year ended December 31,
1998, an increase of $435,968 or approximately 15%. This increase is
attributable to higher operating costs in an inflationary economy.
Other income (expenses) consisted of two major categories (1)
other revenues and (2) interest expense. Their composition is as follows:
The first category of other income includes advertising credits
and refunds from vendors and suppliers and amortization of deferred revenue
arising from an exclusivity agreement with ECUSA. ECUSA is the Pepsico franchise
and bottling company in Chile. The decrease in this category was from $762,010
for the year ended December 31, 1998 to $723,519 for the year ended December 31,
1999, a change of $38,491 or 5%. Other income decreased because the previous
ECUSA contract expired in the middle of 1999. Therefore only eight months of
deferred revenue was amortized during 1999. For the year ended December 31,
1999, approximately $143,000 relates to the amortization of deferred revenue and
$580,000 relates to refunds and credits from vendors.
The second category relates to interest expense paid to banks and
leasing companies which increased by $40,983 to $385,971 in December 31, 1999
from $344,988 in December 31, 1998 or 12%. The increase is due primarily to the
average outstanding balance of debt during the related periods.
For the year ended December 31, 1999, we had a net income of
$139,262 compared to net income of $1,139,312 for the year ended December 31,
1998. The main reason for this decrease was the decrease in our gross revenues
accompanied by higher operating costs and inflation. We also experienced
start-up costs connected with the opening of new stores, all of which required
new equipment, new personnel and training, in addition to new and extensive
advertising efforts. Included in these new advertising efforts were special
promotions for the "Super Crunch" sandwich and "Star Wars." To facilitate these
promotions, we introduced new products at prices below their regular profit
margins. Also, the decline in gross profit percentage and the increase in
operating costs caused by inflation had a negative effect on revenues.
14
<PAGE>
Liquidity and Capital Resources
At December 31, 1999, accounts receivable increased by $130,198 to
$235,259 from $105,061 at December 31, 1998, due to an increase in the sale of
coupon books.
Due from related parties increased to $416,436 at December 31,
1999 from $120,038 at December 31, 1998, an increase of $296,398 due to advances
made to related parties during the year.
Other current assets decreased to $146,928 at December 31, 1999
from $236,647 at December 31, 1998, a decrease of $89,719, due to a decrease in
sales taxes receivable and other prepaid taxes.
At December 31, 1999, we had approximately $731,000 outstanding on
our line-of-credit facility. The increase of almost $636,000 from December 31,
1998 was used to partially finance short-term operations.
Long term prepaid contract increased to $265,409 at December 31,
1999 from $50,417 at December 31, 1998, an increase of $214,992, due to the
final payment to a former member of our board of directors.
We have approximately $635,000 of outstanding long-term debt
obligations with banks at December 31, 1999. These loans will be used in the
projected expansion of the company during the year 2000. This new debt is fully
guaranteed by a related party.
Our total of capital lease obligations was approximately $639,000,
a decrease of approximately $886,000 when compared to December 31, 1998. The
monies received under the new exclusivity agreement with ECUSA were used to
reduce this debt.
In August 1999, we entered into a new seven year agreement with
ECUSA, our supplier of Pepsi products, requiring our exclusive use of Pepsi
products for each of our existing Kentucky Foods Chile restaurants and each
Kentucky Foods Chile restaurant we open during the term of the agreement. In
exchange for this exclusivity agreement, we received and deferred approximately
$780,000 net of tax, which is being recognized and amortized ratably over a
seven year period. For the periods ended December 31, 1999 and 1998, we
recognized deferred revenues of approximately $83,000 and $136,000,
respectively. See note 11 included in our December 31, 1999 Consolidated
Financial Statements for further explanation.
The new exclusivity agreement contains similar terms as the
previous agreement with respect to the use of Pepsi products in our KFC
restaurants. We received and deferred in exchange for committing to continue to
use Pepsi products exclusively, approximately $800,000 net of tax, at the
signing of the contract. We receive an additional payment of $300,000 net of tax
on January 15, 2000 and receive $200,000 net of tax on January 15, 2001. In
addition, the agreement grants us significant purchase discounts on various
products. Our supplier has also agreed to pay us, on a monthly basis, a
marketing allowance based on the amount purchased from the supplier and to
provide us with certain equipment and to fund miscellaneous promotional
expenses.
15
<PAGE>
We estimate that based on this agreement, we will receive cash,
other certain payments and discounts from ECUSA as follows:
<TABLE>
<CAPTION>
Cash and Estimated Revenue/
Calendar Other Certain Marketing Credit Total Discounts to
Year Payments and Purchase Payments be Recognized
---- -------- ------------ -------- -------------
<S> <C> <C> <C> <C>
2000 318,000 713,000 1,031,000 917,571
2001 218,000 792,000 1,010,000 996,571
2002 18,000 875,000 893,000 1,079,571
2003 18,000 962,000 980,000 1,166,571
2004 18,00 1,054,000 1,072,000 1,258,571
2005 to 2006 36,000 2,361,000 2,397,000 2,701,952
Total $ 626,000 $6,757,000 $7,383,000 $8,120,000
</TABLE>
We computed discounts and other payments based on our plans to
place three additional restaurants in service during each year of the
exclusivity agreement.
We recorded $1,170,865 in deferred revenue in 1999 for the cash
and other certain payments per the terms of the contract and to amortize them
over the life of the contract. We can only estimate future purchases and,
accordingly, discounts earned will be recorded as they are granted.
Seasonality
We generate the highest amount of sales during July and December.
The slowest month for sales is February, when many Chileans are on summer
vacations. The fourth quarter is normally the most profitable and this is due to
the cash rebates we receive based on purchases from suppliers. As we operate and
open additional stores, we anticipate amounts received in rebates will increase.
Inflation
Chile experienced an increase in inflation for the first time in
five years. However, since the Chilean economic system is based on an indexed
inflation system, no material inflation is anticipated in the immediate future.
Item 7. Financial Statements
The financial statements required by this report are included,
commencing on F-1.
Item 8. Changes In and Disagreements With Accountants
None.
16
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Directors and executive officers of Uniservice Corporation
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Ricardo Vilensky 43 Chief Executive Officer, President, Chairman of the
Board of Directors
Mauricio Aguirre 36 Chief Financial Officer, Vice President of Finance
and Administration, Director
Juan Carlos Cerda 43 Director
Avram Fritch 41 Director
David Mayer* 57 Director, Assistant Secretary*
Sergio Vivanco 46 Director, Secretary
</TABLE>
*David Mayer has recently resigned as director and assistant secretary of our
company.
Ricardo Vilensky has served as our chief executive officer,
president and chairman since our formation in November 1997 and as the chief
executive officer, president and chairman of Kentucky Foods Chile since its
formation in 1986. From July 1991 to the present, Mr. Vilensky has served as the
chairman and owns a 50% interest in Ann Arbor Foods, S.A., which owns 21
Domino's pizza franchises in Chile. From June 1991 to September 1996, Mr.
Vilensky was the general manager of Comercial Submarine Chile Limitada, which
owned 10 submarine and hoagie restaurants in Chile. From 1982 to 1994, Mr.
Vilensky was the general manager and legal representative for El Vegetariano, a
vegetarian restaurant in Santiago, Chile.
Mauricio Aguirre has served as our chief financial officer, vice
president of finance and administration and director since August 1998. He has
served as vice president of administration and finance of Kentucky Foods Chile
since September 1994 and as director of Kentucky Foods Chile since October 1995.
From 1989 to September 1994, Mr. Aguirre was the controller and a vice-president
of Lan Chile, the national airline of Chile. Mr. Aguirre is a commercial
engineer, public accountant and auditor.
17
<PAGE>
Juan Carlos Cerda has served as our director since August 1998. He
has served as directors of Kentucky Foods Chile since May 1996. From June 1994
through 1998, Mr. Cerda was a partner with the law firm of Estudio Juridico
Figueroa and Valenzuela in Chile. He is currently a partner with the tax
consulting firm of Cerda y Compania, located in Chile. Since March 1994, Mr.
Cerda has been a professor of Planification and Tributary Management at the
University of Santiago. From 1991 through May 1994, he was a tax advisor to the
Arauco Enterprise Group in Chile.
Avram Fritch has served as our director since August 1998. Mr.
Fritch is the founder of and currently serves as president of General Security
Chile, S.A., a residential and commercial security and alarm company located in
Santiago, Chile, since 1991. General Security is a wholly-owned subsidiary of
Tyco International. Since 1996, he has served as the general manager of
Inversiones y Rentas Carmel S.A., a Chilean investment company. Since January
2000 he has served as vice president of Rebrisa, S.A., a Chilean investment
company. Mr. Fritch is a mechanical engineer and was a captain in the Defense
Force of Israel.
Sergio Vivanco has served as a member of our board of directors
since August 1998. Mr. Vivanco has been a member of the board of directors of
Kentucky Foods Chile since 1991 and is a member of the board of directors of
Inversiones Huillimapu S.A., an affiliate of Inversiones e Inmobiliaria Kyoto.
Mr. Vivanco is a director of Bio-Aqua systems, Inc., a publicly trading company
on the American Stock Exchange. Mr. Vivanco has been an attorney since 1979 and
has served as general counsel since 1986 to Inversiones e Inmobiliaria Kyoto and
Kentucky Foods Chile. Mr. Vivanco is a partner in the law firm of Abud, Vivanco
and Vergara in Santiago, Chile, which serves as our legal counsel in Chile.
Directors and executive officers of Kentucky Foods Chile
The directors and executive officers of Kentucky Foods Chile are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Ricardo Vilensky(1) 43 Chief Executive Officer, President, Chairman of the
Board, Director
Mauricio Aguirre(1) 35 Chief Financial Officer, Vice President of Finance and
Administration, Director
Sergio Vivanco(1) 46 Director
</TABLE>
(1) See Directors and executive officers of Uniservice Corporation.
18
<PAGE>
Election of directors
Each of our directors are elected at our annual meeting of
shareholders and holds office until the next annual meeting of shareholders or
until his or her successor is elected and qualified. Our bylaws permit our board
of directors to fill any vacancy. Directors appointed by our board of directors
may serve until the next annual meeting of shareholders or until his successor
is elected and qualified.
Committees of our board of directors
Our audit committee consists of Juan Carlos Cerda, Sergio Vivanco,
and Avram Fritch. Our audit committee reviews the work of the audit staff and
direct reports to be prepared. Our audit committee oversees our continuous audit
program to protect against improper and unsound practices and to furnish
adequate protection for all of our assets and records. Our audit committee also
acts as liaison to our independent certified public accountants, and conducts
audit work as is necessary and receives written and oral reports from our
independent certified public accountants.
Our compensation and stock option committee consists of Messrs.
Vivanco, Fritch and Cerda. Our compensation and stock option committee makes
recommendations with respect to compensation of senior officers and granting of
stock options and stock awards.
Our nominating committee consists of Messrs. Vilensky, Fritch and
Cerda. Our nominating committee makes recommendations with respect to qualified
individuals to become members of our board of directors.
Of the six members of our board of directors, Messrs. Cerda,
Fritch and Vivanco are non- employee directors. However, Mr. Vivanco serves as
our Chilean legal counsel and Mr. Cerda has provided us with tax consultation.
There are no family relationships among any of the executive
officers or directors.
Appointment of officers
Our officers are elected annually by our board of directors and
their terms of office are, except to the extent governed by employment
contracts, at the discretion of our board of directors. Our officers devote full
time to our business.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act requires our
directors, officers and beneficial owners to file reports of changes in
ownership of our common stock. Ricardo Vilensky, Sergio Vivanco and Avram Fritch
failed to file reports of changes in their ownership interests on a timely
basis. These reports have subsequently been filed. The table of beneficial
ownership in this annual report accurately reflects current ownership interests
as of the date of this filing.
19
<PAGE>
Item 10. Executive compensation
The following table sets forth compensation awarded to, earned by
or paid to our chief executive officer and each executive officer whose
compensation exceeded $100,000 for the year ended December 31, 1999. We did not
grant any stock options, restricted stock awards or stock appreciation rights or
make any long-term incentive plan payments during 1999. The compensation Mr.
Vilensky derived in 1996 and 1997 was received from Kentucky Foods Chile.
Summary Compensation Table
<TABLE>
<CAPTION>
Other Annual
Name and Principal Position Year Salary($) Bonus ($) Compensation ($)
- --------------------------- ---- --------- --------- ----------------
<S> <C> <C> <C> <C>
Ricardo Vilensky, CEO, 1999 $80,000 $44,559 $36,000
President and Chairman 1998 -0- -0- -0-
1997 $85,868 -0- $19,305
</TABLE>
Employment agreements
Ricardo Vilensky, chief executive officer, president and chairman.
We have entered into a written three-year employment agreement with Mr.
Vilensky, which commenced August 1998. Under the terms and conditions of his
employment agreement, Mr. Vilensky receives an initial annual base salary of
$80,000, annual bonuses of up to $100,000, as determined by our board of
directors, and other annual compensation of up to $90,000, which includes:
o $15,000 for school expenses for Mr. Vilensky's children,
o $10,000 for entertainment,
o $20,000 for travel,
o $20,000 for medical reimbursement, and
o $28,000 for automobile expenses including cost of
vehicle, maintenance and insurance.
Mr. Vilensky is reimbursed for his ordinary and necessary business expenses
including fees for membership in one business or social club, up to a maximum of
$5,000 per year, and in other clubs and organizations as we and Mr. Vilensky
mutually agree are necessary and appropriate. In 1998 Mr. Vilensky deferred all
compensation due to him. Mr. Vilensky's compensation for 1998 is being
negotiated.
Mauricio Aguirre, Chief Financial Officer. We entered into a
written one year employment agreement with Mauricio Aguirre, which commenced
August 1998. This contract has been renewed. Pursuant to the terms and
conditions of his employment agreement, Mr. Aguirre receives an initial annual
base salary of $60,000, bonuses of up to $30,000 per year, as determined
20
<PAGE>
by our board of directors, and other annual compensation of $20,000, which
includes $10,000 for medical reimbursement and $10,000 for automobile expenses.
Chilean Social Security/AFP and ISAPRE. Messrs. Vilensky and
Aguirre are also entitled to receive certain social security benefits under
Chilean law. The social security laws in Chile were established as a private
system that requires all companies to retain approximately 20% of the gross
salaries of its employees, up to a maximum of $4,408.95 per year, which is used
to pay both Administrators of Pension Funds Companies (AFP) and Institutions of
Previsional Health (ISAPRE).
The allocation of this 20% to each service is approximately as
follows:
(1) 10% to the AFP: This amount is deposited in an individual
interest-bearing account of each employee to cover their
retirement. In Chile, the age of retirement is 60 for
women and 65 for men.
(2) 3% to the AFP: This amount covers any partial or permanent
disability and, in the case of death, will provide a
monthly amount to the deceased's spouse. The amount paid
corresponds to 70% of an employee's average salary, based
upon the last 10 years of the employee's life.
(3) 7% to the ISAPRE: This amount covers medical fees,
hospitalization and clinical examinations. This percentage
may be voluntarily increased by the employee according to
the employee's contractual agreement with the employee's
ISAPRE. In many instances it may be necessary for
individuals to pay additional costs for health care.
Additionally, Chilean law requires the payment of one month salary
(up to a maximum of approximately $1,713.00) for each year (or portion thereof
in excess of six months worked in the last year), worked by the employee when he
is dismissed without cause, subject to a maximum of eleven months (up to a
maximum of $1,713.00 per month, or an aggregate of $18,844.00). When the
employee terminates his or her employment, no compensation is legally required.
Stock options
During fiscal year 1998, there were no option or SAR grants to any
persons, including any of our executive officers or directors.
Incentive and non-qualified stock option plan
On January 5, 1998, our board of directors and a majority of our
shareholders adopted our stock option plan. The purpose of our stock option plan
is to increase our employees', advisors', consultants', and directors'
proprietary interest in our company, to align more closely their interests with
the interests of our shareholders, and to enable us to attract and retain the
services of experienced and highly qualified employees and directors. We have
reserved an aggregate of 200,000 shares of class A common stock under our stock
option plan.
21
<PAGE>
Our board of directors, or a committee of our board of directors,
administers and interprets our stock option plan and is authorized to grant
options to all our eligible employees. Our stock option plan includes our
officers and directors (whether or not employees). Our stock option plan
provides for the granting of incentive stock options (as defined in Section 422
of the Internal Revenue Code), non-statutory stock options and reload options.
Options may be granted under our stock option plan on terms and at prices
determined by our board of directors, or a committee of our board of directors,
except that in the case of an incentive stock option granted to a 10%
shareholder, the per share exercise price will not be less than 110% of such
fair market value. The aggregate fair market value of the shares covered by
incentive stock options granted under our stock option plan that become
exercisable by a grantee for the first time in any calendar year is subject to a
$100,000 limit.
The exercise price for any option under our stock option plan may
be paid in cash, in shares of class A common stock or other consideration that
is acceptable to our board of directors or a committee of our board of
directors. If the exercise price is paid in whole or in part in class A common
stock, the exercise may result in the issuance of additional options, known as
reload options, for the same number of shares of class A common stock
surrendered upon the exercise of the underlying option. The reload option would
be generally subject to the same provisions and restrictions stated in our stock
option plan with respect to the underlying option except as varied by our board
of directors or a committee of our board of directors. A reload option enables
the optionee to ultimately own the same number of shares as the optionee would
have owned if the optionee had exercised all options for cash.
Options granted under our stock option plan will be exercisable
after the period or periods specified in the option agreement. Options granted
under our stock option plan are not exercisable after the expiration of five
years from the date of grant and are not transferable other than by will or by
the laws of descent and distribution. Our stock option plan also authorizes us
to make loans to optionees to enable them to exercise their options.
Option exercises and holdings
To date, we have not issued any options or SARs to any persons. No
options or SARs were exercised or unexercised during fiscal year 1998.
Directors' compensation
Our non-employee directors, Sergio Vivanco, Avram Fritch, and
Carlos Cerda, receive $200 plus expenses for attendance at each meeting of our
board of directors, as well as reimbursement of reasonable out-of-pocket
expenses incurred in connection with their attendance at the meetings. We intend
to purchase directors and officers insurance as soon as practicable to the
extent that it is available and cost effective to do so.
22
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table provides certain information regarding our
common stock beneficially owned as of the date of this report by:
o each person who is known by us to own beneficially 5% or
more of our common stock;
o by each of our executive officers and directors; and
o by all of our executive officers and directors as a
group.
The conversion of our warrants are not taken into consideration
in computing the ownership and voting percentages below.
<TABLE>
<CAPTION>
Number of Shares
Name and Address of of Common Stock Ownership Voting
Beneficial Owner Beneficially Owned Percentage Percentage
---------------- ------------------ ---------- ----------
<S> <C> <C> <C>
Ricardo Vilensky 1,457,000(1)(2) 51.5% 91.3%
Mauricio Aguirre 5,000 * *
Juan Carlos Cerda -0- -0- -0-
Avram Fritch 5,000 * *
Sergio Vivanco 2,000 * *
Inversiones e Inmobiliaria Kyoto 1,399,900 49.5% 90.9%
All executive officers and
directors as a group (5 persons) 1,469,400(1)(2) 51.9% 91.3%
</TABLE>
* Less than one percent.
(1) Includes 1,400,000 shares of class B common stock.
(2) Includes 1,399,900 shares of class B common stock issued to Inversiones
e Inmobiliaria Kyoto and 100 shares of class B common stock issued to
Mr. Vilensky as founder's shares.
Item 12. Certain Relationships and Related Transactions
On August 4, 1998, Inversiones e Inmobiliaria Kyoto purchased
1,399,900 shares of class B common stock from us for $2,200,000, and we
purchased Inversiones e Inmobiliaria Kyoto's 99.97% interest in Kentucky Foods
Chile for $2,200,000 and Kentucky Foods Chile became our majority owned (99.97%)
subsidiary. The remaining 15 shares of Kentucky Foods Chile stock are owned by
Ricardo Vilensky, individually. Mr. Vilensky retained this minority interest
because Chilean law requires that a Chilean corporation be owned by not less
than two shareholders.
Inversiones e Inmobiliaria Kyoto is a Chilean limited partnership
whose partners are Inversiones Huillimapu S.A. (99%) and Ricardo Vilensky (1%),
who is also its general manager. The
23
<PAGE>
shareholders of Inversiones Huillimapu S.A. are Ricardo Vilensky (90%) and
Compania Administradora de Restaurantes Limitada (10%). The partners of Compania
Administradora de Restaurantes Limitada are Inversiones e Inmobiliaria Kyoto
(98%) and Mr. Vilensky (2%). The general manager of Compania Administradora de
Restaurantes Limitada is Mr. Vilensky.
Mr. Vilensky owns a 50% interest in Ann Arbor Foods S.A. which
owns 21 Domino's Pizza restaurants in Chile. In 1998, Mr. Vilensky agreed with
Tricon to resign as an officer and director in Ann Arbor and to divest himself
of all interest in these franchises in the future.
On April 30, 1997, Kentucky Foods Chile sold its office facility
in Santiago, Chile to Inmobiliaria KilKil S.A., whose shareholders include
Inversiones Huillimapu (99%) and Mr. Vilensky (1%). In consideration for the
payment price of $577,574, Inmobiliaria KilKil issued to Kentucky Foods Chile a
promissory note for the total amount due, and in turn, Kentucky Foods Chile
transferred the note to its principal shareholder, Inversiones e Inmobiliaria
Kyoto. Of the total amount due, $303,191 was paid in the form of dividends to
Inversiones e Inmobiliaria Kyoto for 1996 and $274,383 has been used to satisfy
a loan obligation due by Kentucky Foods Chile to Inversiones e Inmobiliaria
Kyoto in connection with the remodeling of two of our restaurants. On May 1,
1997, Kentucky Foods Chile entered into a ten year lease agreement with
Inmobiliaria KilKil, at a rate of $9,050 per month, plus common area maintenance
and general expenses of $1,100 per month.
We entered into a two year lease agreement in August 1998, with
Andean Financial Corporation to use a portion of Andean Financial Corporation's
facilities in Boca Raton, Florida, for our corporate U.S. offices. David Mayer,
our former assistant secretary and director, is the sole shareholder, officer
and director of Andean Financial Corporation. The annual lease amount was
$10,000, payable semi-annually or as otherwise agreed upon between the parties.
This lease agreement has been terminated.
In August 1998, Kentucky Foods Chile entered into a ten year
consulting agreement with David Mayer. In consideration for these services, Mr.
Mayer receives an annual fee of approximately $35,000, or as otherwise agreed
upon by the parties. This agreement was paid in full as of December 31, 1999.
Sergio Vivanco, a member of our board of directors, serves as our
Chilean legal counsel.
Juan Carlos Cerda, a member of our board of directors, also serves
as our tax advisor. He receives $10,000 per year for his services.
We currently lease our U.S. offices at no expense from Atlas
Pearlman, P.A. The firm of Atlas Pearlman serves as our legal counsel.
We believe that all transactions with our officers, shareholders
and each of our affiliated companies have been made on terms no less favorable
to our company than those available from unaffiliated parties.
24
<PAGE>
Item 13. Exhibits, Lists and Reports on Form 8-K
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
1.1 Underwriting Agreement*
2.1 Stock Purchase Agreement between Kyoto and Uniservice Corporation for the
purchase of Class B common stock*
2.2 Stock Purchase Agreement between Uniservice Corporation and Inversiones e
Inmobiliaria Kyoto for the purchase of shares of Kentucky Foods Chile
S.A. Stock*
3.1(a) Uniservice Corporation's Amended and Restated Articles of Incorporation*
3.1(b) Articles of Amendment to Articles of Incorporation*
3.2 Uniservice Corporation's Bylaws*
4.3 Form of Class A Common Stock Certificate*
10.1 Stock Option Plan*
10.2 Master Franchise Agreement between Kentucky Foods Chile, S.A. and Tricon, Inc.,
as amended*
10.6 Employment Agreement between Uniservice Corporation and Ricardo Vilensky*
10.7 Employment Agreement between Uniservice Corporation and Mauricio Aguirre*
10.8 Lease Agreement between Kentucky Fried Chicken Chile and Inmobiliaria KilKil
S.A.*
21 Subsidiaries of Registrant*
27 Financial Data Schedule
</TABLE>
*Previously filed
We have not filed any reports on Form 8-K during the last period
of the quarter covered by this report.
25
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant caused this report to be signed on its
behalf by the undersigned and duly authorized on April 14, 2000.
UNISERVICE CORPORATION
By: /s/ Ricardo Vilensky
---------------------------------------
Ricardo Vilensky
President and Chief Executive Officer
In accordance with the requirements of the Securities Exchange
Act, this report was signed by the following persons in the capacities and on
the dates stated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/Ricardo Vilensky President and Chief April 14, 2000
- ---------------------------------------- Executive Officer and
Ricardo Vilensky Director
/s/Mauricio Aguirre Chief Financial Officer, April 14, 2000
- ---------------------------------------- Vice President of Finance
Mauricio Aguirre and Administration and
Director
/s/Sergio Vivanco Director, Secretary April 14, 2000
- ----------------------------------------
Sergio Vivanco
/s/Avram Fritch Director April 14, 2000
- ----------------------------------------
Avram Fritch
/s/Juan Carlos Cerda Director April 14, 2000
- ----------------------------------------
Juan Carlos Cerda
</TABLE>
<PAGE>
UNISERVICE CORPORATION
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
UNISERVICE CORPORATION AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
Page
<S> <C>
Independent Auditors' Report....................................................................F-2
Consolidated Balance Sheet......................................................................F-3
Consolidated Statements of Income...............................................................F-4
Consolidated Statements of Stockholders' Equity.................................................F-5
Consolidated Statements of Cash Flows...........................................................F-6
Notes to Consolidated Financial Statements......................................................F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Uniservice Corporation and Subsidiary
Boca Raton, Florida
We have audited the accompanying consolidated balance sheet of Uniservice
Corporation and Subsidiary (the "Company") as of December 31, 1999, and the
related consolidated statements of income, stockholders' equity and cash flows
for the years ended December 31, 1999 and 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Uniservice
Corporation and Subsidiary as of December 31, 1999, and the results of their
operations and their cash flows for the years ended December 31, 1999 and 1998
in conformity with generally accepted accounting principles.
SPEAR, SAFER, HARMON & CO.
Miami, Florida
February 18, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
UNISERVICE CORPORATION AND SUBSIDIARY
Consolidated Balance Sheet
December 31, 1999
A S S E T S
<S> <C>
Current Assets:
Cash and cash equivalents $ 522,497
Accounts receivable, net 235,259
Due from related parties 416,436
Other receivables 553,464
Inventory 581,935
Income taxes receivable 124,006
Other current assets 146,928
---------------
Total Current Assets 2,580,525
Property and Equipment, net 9,098,890
Intangibles, net 264,193
Long-term receivable 332,000
Long-term prepaid contract 265,409
Deposits 411,452
---------------
$ 12,952,469
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 1,545,223
Lines-of-credit 730,837
Current maturities of long-term debt 131,437
Current portion of capital lease obligations 148,601
Deferred revenue 195,144
---------------
Total Current Liabilities 2,751,242
---------------
Long-Term Liabilities:
Long-term debt 503,691
Capital lease obligations, excluding current portion 490,309
Deferred revenue, excluding current portion 1,170,865
---------------
Total Long-Term Liabilities 2,164,865
---------------
Stockholders' Equity:
Class A - common stock 143
Class B - common stock 140
Preferred stock -
Additional paid-in capital 8,707,157
Retained earnings 1,371,750
Cumulative translation adjustment (2,042,828)
---------------
Total Stockholders' Equity 8,036,362
---------------
$ 12,952,469
===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
UNISERVICE CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
Years Ended December 31, 1999 and 1998
1999 1998
-----------------------------------------
<S> <C> <C>
Revenues $ 12,893,382 $ 13,415,518
Cost of Operations 5,260,250 4,988,852
--------------- ----------------
Gross Profit 7,633,132 8,426,666
--------------- ----------------
Selling and Administrative Expenses:
Payroll and employee benefits 2,693,160 3,089,405
Occupancy 1,765,306 1,677,986
Other selling and administrative 3,372,953 2,936,985
--------------- ----------------
7,831,419 7,704,376
--------------- ----------------
(Loss) Income from Operations (198,287) 722,290
Other Income (Expenses):
Other, net 723,519 762,010
Interest expense (385,970) (344,988)
--------------- ----------------
337,549 417,022
--------------- ----------------
Net Income $ 139,262 $ 1,139,312
=============== ================
Net Income Per Common Share $ 0.05 $ 0.57
=============== ================
Weighted Average Common Shares Outstanding 2,830,000 2,005,833
=============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
UNISERVICE CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1999 and 1998
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, 1997 $ -- $ 140 $ 3,287,762 $ 93,176 $ (205,519) $ 3,175,559
Issuance of Class A common stock from
public offering, net 140 -- 5,325,648 -- -- 5,325,788
Issuance of Class A common stock for
bridge financing 3 -- 67,497 -- -- 67,500
Over allotment of warrants -- -- 26,250 -- -- 26,250
Net income -- -- -- 1,139,312 -- 1,139,312
Translation adjustment -- -- -- -- (854,946) (854,946)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 143 140 8,707,157 1,232,488 (1,060,465) 8,879,463
Net income -- -- -- 139,262 -- 139,262
Translation adjustment -- -- -- -- (982,363) (982,363)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 $ 143 $ 140 $ 8,707,157 $ 1,371,750 $(2,042,828) $ 8,036,362
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
UNISERVICE CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1999 and 1998
1999 1998
-----------------------------------------
Cash Flows from Operating Activities:
<S> <C> <C>
Net income $ 139,262 $ 1,139,312
Adjustments to reconcile net income to net cash
Depreciation and amortization 240,944 685,918
Translation adjustment (982,363) (854,946)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable, net (130,198) 268,885
Deferred revenue receivable (332,000) -
Long-term prepaid contract (214,992)
Other receivables (344,525) (323,616)
Inventory (151,574) 85,202
Income taxes receivable 31,748 (10,319)
Other current assets (89,719) (121,924)
Intangibles (78,712) 9,733
Deposits 33,980 27,828
Increase (decrease) in:
Accounts payable and accrued expenses 358,149 (1,121,334)
Deferred revenue 1,277,120 (150,446)
--------------- ----------------
Net Cash Used in Operating Activities (242,880) (416,124)
--------------- ----------------
Cash Flows from Investing Activities:
Acquisition of property and equipment (855,465) (1,636,245)
--------------- ----------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
UNISERVICE CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
Years Ended December 31, 1999 and 1998
1999 1998
-----------------------------------------
Cash Flows from Financing Activities:
<S> <C> <C>
Repayments of note payable to banks $ - $ (70,206)
Net proceeds (repayment) of lines-of-credit 636,515 13,205
Net payments to related parties (296,398) (421,261)
Repayments on capital lease obligations (885,888) (385,606)
Net proceeds from public offering - 6,483,750
Payment of offering costs (86,694) (945,901)
Proceeds from bridge loan - 150,000
Repayment of bridge loan - (150,000)
Proceeds (repayment) of long-term debt 635,128 (1,650,982)
--------------- ----------------
Net Cash Provided by Financing Activities 2,663 3,022,999
--------------- ----------------
(Decrease) Increase in Cash and Cash Equivalents (1,095,682) 970,630
Cash and Cash Equivalents - Beginning of Year 1,618,179 647,549
--------------- ----------------
Cash and Cash Equivalents - End of Year $ 522,497 $ 1,618,179
=============== ================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 388,764 $ 529,503
Cash paid during the year for income taxes 52,605 115,370
Supplemental Disclosure of Non-Cash Financing Activities:
Acquisition of property and equipment subject
to capital lease - 855,474
Capital leases reclassified to property, plant
and equipment 816,524 557,547
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years Ended December 31, 1999 and 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation and Basis of Presentation - The consolidated
financial statements include Uniservice Corporation, a Florida
corporation and its 99.97% owned subsidiary, Kentucky Foods Chile,
S.A. ("KyF Chile") (collectively, the "Company"). KyF Chile is in
the fast food service business and presently operates 36
restaurants in the Santiago, Chile area pursuant to its
international franchise agreement with Kentucky Fried Chicken
International Holdings ("KFCIH").
In August 1998, immediately after the closing of the initial
public offering, two stock purchase agreements were transacted.
This was done in order to comply with Chilean law and the
requirements of the Chilean Central Bank for foreign investments.
Uniservice 1) purchased Inversiones e Inmobiliaria Kyoto, S.A.'s
("Kyoto") 99.97% interest in KyF Chile, S.A. for $2.2 million and
2) sold 1,399,000 shares of Class B common stock to Kyoto for $2.2
million.
The substance of this transaction was an exchange of shares
between Uniservice and Kyoto, which was accounted for by the
pooling of interests method. Accordingly, the consolidated
financial statements for the periods presented were prepared
assuming the acquisition and the sale of shares by the Company
took place on January 1, 1997 and that the Company was
incorporated on that date.
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). The exchange rate used at December 31, 1999 was 527.70
pesos to U.S. $1.00. The weighted average exchange rate used in
December 31, 1999 and 1998, respectively was 515.08 pesos to U.S.
$1.00 and 465.25 pesos to U.S. $1.00.
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. The Company places its
cash with high credit quality financial institutions and, at
times, maintain balances in excess of insured limits.
Fair Values of Financial Instruments - The fair value of a
financial instrument is the amount at which the instrument could
be exchanged in a current transaction between willing parties. The
fair value of cash and cash equivalents, accounts receivable,
accounts payable and notes payable approximate their carrying
amounts at December 31, 1999.
F-8
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years Ended December 31, 1999 and 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Accounts Receivable - In Chile, it is customary to offer various
sorts of coupons and coupon books to other corporations who
provide meal services to their employees, as well as, for bonuses
to its customers. The company bills the various corporations, on a
monthly basis, for coupons redeemed and recognizes income,
accordingly. Approximately 6% and 8%, respectively, of revenues
generated in 1999 and 1998 originated from these coupon books.
Included in accounts receivable are amounts due from the various
corporations in connection with coupon redemptions. Historically,
the Company has had very few non-remittances on its billings. As a
result, the Company has provided an allowance for doubtful
accounts of approximately $14,000 as of December 31, 1999.
Concentrations of credit risk with respect to accounts receivables
are reduced due to the large amount of customers, and the strict
local credit laws in Chile.
Inventory - Inventory consists primarily of fresh chicken, produce
and restaurant supplies and are stated at the lower of cost or
market. Cost is determined using the first-in, first-out (FIFO)
method.
Offering Costs - Offering costs representing legal, accounting,
and underwriting fees incurred in connection with the public
offering of the Company's shares are charged against paid in
capital. Offering costs amounted to approximately $1,849,000.
Property and Equipment - Property and equipment are recorded at
cost. Depreciation is provided on a straight-line method based on
the estimated useful life of the asset ranging from three to
twenty years.
Income Taxes - The Company was not liable for U.S. and Chilean
income taxes for the years ended December 31, 1999 and 1998. All
earnings were generated by the Chilean subsidiary and no earnings
were repatriated to the United States for these reporting periods.
No deferred tax assets or liabilities and the related tax
provisions with regard to the Chilean operation have been provided
for since it is management's position that they represent
permanent deferrals. If deferred taxes had been recorded, it would
approximate a net deferred tax liability of $183,000 at December
31, 1999.
Foreign Operations - As the Company operates exclusively in Chile,
one must be aware of the potential for both economic and political
changes in the business environment, different than that of the
United States. The success of the Company depends on the success
of the Chilean operations and a stable economic and political
environment.
Earnings Per Common Share - Earnings per common share are based on
the weighted average number of shares outstanding of 2,830,000 and
2,005,833, respectively, for the years ended December 31, 1999 and
1998, giving effect to common stock equivalents, none of which
existed in the aforementioned periods.
F-9
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years Ended December 31, 1999 and 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Comprehensive Income - Effective January 1, 1998, the Company
adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS No.
130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of financial
statements. The Statement requires only additional disclosures in
the financial statements; it does not affect the Company's
financial position or results of operations. For the years ended
December 31, 1999 and 1998, comprehensive income is equal to net
income.
Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect certain reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Year 2000 Compliance - The Company is currently not aware of any
Year 2000 problems in any of its systems or services. Through
February 2000, the Company's operations were fully functioning and
have not experienced any significant issues associated with the
Year 2000 transition.
The Company does not anticipate future significant business
interruptions. The success to date of the Company's Year 2000
efforts cannot guarantee that a Year 2000 problem regarding its
systems and those affecting third parties upon which the Company
relies will not become apparent in the future.
Recent Pronouncements - In February 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards
No. 132 "Employers' Disclosures About Pensions and other
Postretirement Benefits, an amendment of FASB Statements No. 87,
88 and 106" which is effective for fiscal years beginning after
December 15, 1997. SFAS No. 132 revises only the employers'
disclosures about pension and other postretirement benefit plans;
it does not change the measurement or recognition of such plans.
Since the Company does not have such plans, there is no impact to
the Company's financial reporting or presentation due to the
adoption of SFAS No. 132.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 "Accounting
for Derivative Instruments and Hedging Activities" which is
effective for fiscal periods beginning after June 15, 2000. The
Company does not expect a material impact upon its financial
reporting or presentation due to the adoption of SFAS No. 133.
In October 1998, the Financial Accounting Standards Board Issued
Statement of Financial Accounting Standards No. 134 "Accounting
for Mortgage-Backed Securities Retained After the Securitization
of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise"
which is effective for the first fiscal quarter beginning after
December 15, 1998. There is no impact to the Company's financial
reporting or presentation due to the adoption of SFAS No. 134.
F-10
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years Ended December 31, 1999 and 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
In February 1999, the Financial Accounting Standards Board Issued
Statement of Financial Accounting Standards No. 135 "Recission of
FASB Statement No. 75 and Technical Corrections" which is
effective for financial statements issued after February 15, 1999.
There is no impact to the Company's financial reporting or
presentation due to the adoption of SFAS No. 135.
NOTE 2 - OTHER RECEIVABLES
<TABLE>
<CAPTION>
Other receivables consist of the following at December 31, 1999:
<S> <C> <C>
Due from ECUSA (see Note 11) $ 300,000
Advances to vendors 109,000
Employee loans 97,000
Travel and other sundry advances 14,500
Other 32,964
---------------
$ 553,464
===============
</TABLE>
NOTE 3 - INCOME TAXES
In Chile, the Company is subject to income taxes at a statutory
rate of 15% of taxable income, as defined. For the years ended
December 31, 1999 and 1998, the Company had no taxable income, due
to various credits and incentives provided by the government of
Chile. Therefore, no provision for income taxes were made. In
addition, the Company made estimated income tax payments during
those years and is due a refund.
The following is a reconciliation of the statutory tax rates:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1999 1998
---------------------------------
<S> <C> <C>
Statutory tax rate 15% 15%
Credits and incentives from government (15) (15)
---------- ----------
Effective tax rate 0% 0%
========== ==========
</TABLE>
F-11
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years Ended December 31, 1999 and 1998
NOTE 3 - INCOME TAXES (CONTINUED)
As mentioned above, while the Company has incurred no income taxes
for the years ended December 31, 1999 and 1998, it has made
monthly estimated tax payments which coupled with the
aforementioned credits has yielded income tax recoverables.
Following are the components of the income tax receivable balance
at December 31, 1999:
<TABLE>
<S> <C>
Balance at beginning of year $ 155,754
Payments of estimated income taxes 52,605
Refunds received (155,754)
Other, net 86,485
---------------
$ 124,006
===============
</TABLE>
NOTE 4 - OTHER CURRENT ASSETS
Other current assets consist of the following at December 31,
1999:
<TABLE>
<S> <C>
Prepaid expenses $ 100,000
Short term prepaid contract 35,000
Other 11,928
----------------
$ 146,298
================
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT, NET
Property and equipment, net at December 31, 1999 consists of the
following:
<TABLE>
<S> <C>
Furniture and stores fixtures and installations $ 8,029,000
Office equipment and machinery 2,583,000
Capital leases 907,000
Other 286,057
----------------
11,805,057
Less accumulated depreciation and amortization (2,706,167)
----------------
$ 9,098,890
================
</TABLE>
Depreciation and amortization expense approximated $241,000 and
$686,000 for the years ended December 31, 1999 and 1998,
respectively.
F-12
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years Ended December 31, 1999 and 1998
NOTE 5 - PROPERTY AND EQUIPMENT, NET (CONTINUED)
Change in Accounting Estimate - During 1999, the Company changed
its estimated useful life on the stores' furniture, fixtures,
installations, equipment and machinery. The change increased 1999
net income by approximately $396,000 or $0.14 per share. The
change was made to better reflect the estimated useful life of
these assets used in the stores and to be consistent with similar
prevalent restaurant industry in Chile.
NOTE 6 - INTANGIBLES, NET
Intangibles, net consist of the following at December 31, 1999:
<TABLE>
<S> <C> <C>
Offering costs (Note 17) $ 87,000
Goodwill 92,000
Franchisee fees, other rights,
trademarks and patents 124,614
---------------
303,614
Less accumulated amortization (39,421)
---------------
$ 264,193
===============
</TABLE>
Intangibles, except for offering costs, are being amortized using
the straight-line method. Goodwill is being amortized over a
period of 40 years and trademarks, licenses and other are being
amortized over a period of 17 years. For the years ended December
31, 1999 and 1998, amortization expense amounted to approximately
$5,000 and $31,000, respectively.
NOTE 7 - DEPOSITS
KyF Chile conducts its operations in leased facilities which
require security deposits based on the square footage, location,
and term of each lease (see Note 15). The balance of the security
deposits at December 31, 1999 amounted to approximately $411,000.
F-13
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years Ended December 31, 1999 and 1998
NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at
December 31, 1999:
<TABLE>
<S> <C>
Vendors $ 1,043,000
Sales tax 54,000
Salaries and other employee benefits 271,000
Royalties 123,000
Other 54,223
---------------
$ 1,545,223
===============
</TABLE>
NOTE 9 - LINES-OF-CREDIT AND LONG-TERM DEBT
LINES OF CREDIT
The Company has lines-of-credit with several Chilean banks with
monthly semiannual and annual maturity dates. The lines-of-credit
bear interest at rates ranging from 11% to 23% per annum and are
collateralized by a personal guarantee from a stockholder and
certain assets of the Company. As of December 31, 1999,
approximately $750,000 was available to the Company in Chilean
Pesos and UF. The UF (Unidad de Fomento, Incremental Unit) is an
indexed unit of account expressed in pesos and adjusted according
to inflation (CPI). At December 31, 1999 one U.F. was equivalent
to 15,066.96 Chilean pesos.
Interest rates on all of these flexible rate loans are based on
the Asociacion de Bancos y Entidades Financieras, (T.A.B.) rate,
which represents a daily average of the interest paid by banks on
its deposits. The rate is then adjusted upwards approximately 1.5%
for the banks profit, and then an additional 1.0% - 1.7%
reflecting the risk the banks' perceive exists on the individual
loans. There are no covenants or restrictions imposed on the
aforementioned obligations with any of the banks involved.
The weighted average interest rate was 9.0% and 8.03% for the
years ended December 31, 1999 and 1998, respectively.
LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<S> <C>
Loan payable - bank; effective interest rate of 7% at December 31,
1999 due in 96 equal monthly installments of approximately
$11,000, matures July 2007, guaranteed by
real estate in Chile owned by a related party $ 635,128
Less current maturities (131,437)
---------------
$ 503,691
===============
</TABLE>
F-14
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years Ended December 31, 1999 and 1998
NOTE 9 - LINES-OF-CREDIT AND LONG-TERM DEBT (CONTINUED)
Aggregate maturities of long-term debt for the years subsequent to
December 31, 1999 are as follows:
<TABLE>
<S> <C> <C>
2000 $ 131,000
2001 131,000
2002 131,000
2003 131,000
Thereafter 111,000
---------------
$ 635,000
===============
</TABLE>
Interest expense approximated $389,000 and $345,000 in 1999 and
1998, respectively.
NOTE 10 - CAPITAL LEASE OBLIGATIONS
KyF Chile leases various equipment under capital leases. The
capital leases in effect as of December 31, 1999, are scheduled to
expire between the years 2000 and 2007. At the expiration of the
lease terms, KyF Chile may exercise options to purchase the
equipment at a bargain purchase price. During 1999, the Company
purchased approximately $886,000 of equipment under capital lease
by paying off the balances of related capital leases. As of
December 31, 1999, the gross amount of assets recorded under
capital leases approximated $907,000. Amortization is computed by
the straight-line method and has been included in depreciation.
Accumulated amortization relating to those assets approximated
$58,000 as of December 31, 1999.
Future minimum lease payments under non-cancelable lease
agreements with third parties are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
<S> <C> <C>
2000 $ 180,000
2001 179,000
2002 92,000
2003 84,000
2004 78,000
Thereafter 350,760
---------------
963,760
Less: Amount representing interest (325,850)
---------------
638,910
Less: Current portion (148,601)
---------------
Long-term portion $ 490,309
===============
</TABLE>
F-15
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years Ended December 31, 1999 and 1998
NOTE 11 - DEFERRED REVENUE
In August 1994, KyF Chile entered into an agreement with ECUSA
(the Chilean bottling company representing PepsiCo) requiring the
exclusive use of Pepsi products in the Company's restaurants for
five years. In exchange for executing the exclusivity agreement,
KyF Chile received approximately $780,000, net of taxes, which was
record as deferred revenue and amortized as income over the
five-year period. For the years ended December 31, 1999 and 1998,
KyF Chile recognized approximately $83,000 and $136,000,
respectively, of the deferred revenue.
In September 1999, the Company entered into a new agreement with
ECUSA, which contains similar terms as the previous agreement with
respect to the use of Pepsi products in the Company's stores. In
exchange for committing to continue its exclusive use of Pepsi
products, the Company received net of tax approximately $800,000,
at the signing of the contract and a payment of $300,000 on
January 15, 2000. The Company will receive an additional payment
of $200,000 on January 15, 2001, net of tax. In addition to the
above, ECUSA has agreed to pay, on a monthly basis, other certain
payments amounting to $132,000 over the life of the contract. The
Company recorded $1,432,000 in deferred revenue for the cash and
other certain future payments per the terms of the contract and
plans to amortize this amount as income over the term of the
contract, seven-years.
In addition, the contract grants the Company significant purchase
discounts on Pepsi products to the Company. ECUSA has also agreed
to pay the Company, on a monthly basis, a marketing allowance
based on the amount purchased and to provide the Company with
certain equipment and signage and to fund miscellaneous
promotional expenses. Since future purchases can only be
estimated, discounts and the marketing allowances earned will be
recorded as they are granted.
The contract expires December 31, 2006. As of December 31, 1999
deferred revenue on the new agreement amounted to $1,366,009 and
the Company recognized approximately $60,000 as other income.
NOTE 12 - STOCKHOLDERS' EQUITY
The Company is currently authorized to issue 20,000,000 shares of
Class A non-voting common stock, which has one vote per share,
2,000,000 shares of Class B voting common stock, which has ten
votes per share, 8,000,000 shares of undesignated common stock and
5,000,000 shares of preferred stock all at $.0001 per share par
value.
Uniservice incorporated in November 1997 and issued 1,400,000
shares of Class B common stock at that time.
F-16
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years Ended December 31, 1999 and 1998
NOTE 12 - STOCKHOLDERS' EQUITY (CONTINUED)
In 1998, the Company entered into a bridge loan in the amount of
$150,000 with an investor, which was used for short-term
operations. In consideration for the bridge loan, the investor
received 30,000 shares of Class A common stock.
In addition, as part of its initial public offering in 1998, the
Company issued 1,400,000 shares of Class A common stock and
1,610,000 warrants to the public. This increased the outstanding
shares of Class A common stock to 1,430,000 shares.
As of December 31, 1999, the Company had 1,430,000 shares of Class
A common stock and 1,400,000 shares of Class B common stock issued
and outstanding. The Company currently has a total of 2,830,000
shares outstanding, without giving effect to the exercise of the
warrants.
NOTE 13 - OTHER INCOME
Other, net consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------
<S> <C> <C>
Exclusivity income $ 143,000 $ 136,000
Incentive fee 540,000 591,000
Other 40,519 35,010
-------------- --------------
$ 723,519 $ 762,010
============== ==============
</TABLE>
NOTE 14 - RELATED PARTY TRANSACTIONS
In April 1997, KyF Chile sold its new office facility to a party
with principal shareholders in common with the Company. In
consideration for the approximate price of $568,000, KyF Chile
issued a promissory note for the total amount due, which was later
transferred to Kyoto as part of various loans due to Kyoto from
KyF Chile. In May 1997, KyF Chile entered into a ten-year lease
agreement for the facility at a monthly rate of $9,050 plus common
area maintenance and general expenses of $1,100 per month.
In addition, the Company received advances for $679,095 from Kyoto
bearing interest rates of 7.8% and 9% per annum. A portion of the
proceeds from the closing of the initial public offering was used
to repay Kyoto during 1998.
In August 1998, the Company entered into a two-year lease
agreement with a company owned by a shareholder and director of
the Company for rental space of its Florida office. Rent charged
for the office amounted to annual payments of $10,000.
Simultaneously, the Company entered into a ten-year agreement with
the related company for $35,000 annually to provide certain
services to the Company including acting as the U.S. liaison for
the Company.
F-17
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years Ended December 31, 1999 and 1998
NOTE 15 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASE COMMITMENTS
KyF Chile conducts its operations in facilities, which are leased
under terms ranging from six to 20 years expiring between the
years 2006 and 2020. Most leases provide for one or more options
to renew for at least one additional term. In addition to a
minimum monthly base rent, some of the leases provide for
additional rents, which are calculated on a percentage of gross
sales over a base sales amount. Total rent expense for the years
ended December 31, 1999 and 1998 was approximately $1,765,000 and
$1,678,000, respectively.
Approximate future minimum obligations over the primary terms of
KyF Chile's long-term leases as of December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
<S> <C> <C>
2000 $ 1,523,000
2001 1,343,000
2002 1,092,000
2003 974,000
2004 993,000
Thereafter 4,902,000
---------------
Total Minimum Lease Payments Required $ 10,827,000
===============
</TABLE>
FRANCHISE AGREEMENT
KyF Chile entered into a franchise agreement with KFCIH to use the
trademark, service mark and trade name Kentucky Fried Chicken.
Under the franchise agreement, Ricardo Vilensky, the Company's
CEO, President, and Chairman, is to retain voting control of KyF
Chile and a minimum of 30% ownership of the Company at all times.
Mr. Vilensky is permitted under the agreement to sell up to the
lesser of (a) 10% of the outstanding capital stock of the Company
or (b) such amount so that Mr. Vilensky's ownership interest will
not fall below 30% of the outstanding capital stock. In order for
Mr. Vilensky holdings to fall below a 30% interest in the Company,
the Company must obtain KFCIH approval. Currently, Mr. Vilensky
directly and indirectly owns approximately 51.5% of the Company.
F-18
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years Ended December 31, 1999 and 1998
NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
As a condition of the franchise agreement, the Company is also
required to have a "designated operator", which is the person that
oversees the management of the day-to-day operations of the
Company's restaurants. Currently, the designated operator is Mr.
Vilensky. There can be no assurance that the Company will be in a
position to meet the criteria required by KFCIH in the event Mr.
Vilensky is unable or unwilling to continue as the designated
operator and/or controls not less than a 30% ownership interest in
the Company.
The initial franchise term for each restaurant is ten years. All
eligible restaurants are currently operating under the initial
term of the franchise agreement which expires between December 31,
2003 and December 31, 2017, depending on when a particular
restaurant was opened.
The initial franchise terms are renewable for additional ten year
periods, provided that, among other things, (i) the renewal is
permitted by local law; (ii) the Company has corrected any default
under the agreement and has not been in material default within
the 24 months preceding the renewal request; (iii) the Company
complies with annual performance criteria; (iv) the Company
requests renewal within 12 to 18 months prior to the expiration of
the initial term; (v) the Company agrees to make capital
improvements to conform with KFCIH's then current standards and
completes the improvements, as agreed; (vi) the Company agrees to
relocate any restaurants KFCIH determines cannot be renovated to
meet the then current standards; (vii) the Company executes a new
franchise agreement if the current form has been modified; (viii)
the Company is current in all obligations, monetary or otherwise,
to KFCIH; and (ix) the Company pay a renewal fee as agreed upon
with KFCIH.
Pursuant to current KFCIH policies and procedures, KFCIH's
approval is required for the development of any new KyF Chile
restaurants by the Company and KFCIH's consent to such renewals,
acquisitions or development may be withheld in KFCIH's sole
discretion.
The agreement requires a monthly franchise fee of 5% of revenues,
as defined, subject to a monthly minimum, which may be set and
updated by KFCIH from time to time. The agreement also requires
the Company to contribute annually for advertising and promotions
not less than 5% of its annual revenues, as defined. Franchise
fees totaled approximately $652,000 and $671,000 for the years
ended December 31, 1999 and 1998, respectively. Approximately
$123,000 of the 1999 franchise fees are payable to KFCIH as of
December 31, 1999.
The Company and KFCIH are negotiating a new franchise agreement,
under which, the Company will construct, develop, open and operate
additional new KyF Chile restaurants. The new franchise agreement
should be consistent with the original franchise agreement,
permitting the Company to use, among other things, KFC's
proprietary trade names, trademarks, service marks, recipes, and
trade dress. The Company is also permitted to sell and promote
KFC(R) approved products.
F-19
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years Ended December 31, 1999 and 1998
NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company may be in default of the KFC(R) franchise agreement.
Of the 36 restaurants currently in operation, 28 are operating
under the franchise agreement, 5 are operating under a temporary
license agreement, and 3 of the restaurants are operating without
any agreement. KFCIH has prohibited the Company from opening any
additional restaurants until a new franchise and development
agreement covering the 8 restaurants operating outside the KFC(R)
franchise agreement is put in place.
The Company was served with notice by KFCIH that the opening and
operation of the three restaurants without approval may represent
a breach of the KFC(R) franchise agreement. In response to KFCIH's
notice, the Company paid the initial franchise fees required by
KFCIH for the three restaurants subsequent to December 31, 1999.
Employment Agreements - In 1998, the Company entered into
three-year employment agreements with the Company's President and
the Company's Chief Financial Officer. Pursuant to the terms and
conditions of the employment agreements, the President shall
receive an initial annual base salary of $80,000 and the Chief
Financial Officer shall receive an initial annual base salary of
$60,000. In addition to the base salaries, they are entitled to
receive various incentives and other compensation amounting to
$190,000 and $50,000 for the President and Chief Financial
Officer, respectively. For 1999 and 1998, the President
relinquished his rights to all compensation that was due him. This
contract is being re-negotiated in 2000.
Stock Option Plan - In January 1998, the Board of Directors of the
Company and a majority of the Company's shareholders adopted a
Stock Option Plan (the "Plan"). The Company has reserved an
aggregate of 200,000 shares of Class A common stock for issuance
under this Plan. No options have been issued under the Plan.
Off Balance Sheet - KyF Chile has guaranteed certain obligations
for affiliated entities. As of December 31, 1999, these
obligations amounted to approximately $150,000.
NOTE 16 - OTHER MATTERS
The Company completed its initial public offering in August 1998;
selling 1,400,000 shares of common stock and 1,610,000 warrants
and received approximately $6,483,750 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 $874,000 and repayment of loans
to related parties of approximately $680,000. Since the completion
of the public offering, the Company has opened 9 new KFC
restaurants and is projecting to open another 2 KFC(R) restaurants
during 2000. From the proceeds of its public offering, the Company
has used approximately $441,000 for construction costs and
equipment related to the opening of new restaurants.
F-20
<PAGE>
UNISERVICE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
Years Ended December 31, 1999 and 1998
NOTE 17 - SUBSEQUENT EVENTS
Subsequent to year end, the Company is planning to file a
secondary public offering, where Series A, 8% convertible
preferred stock and Class A common stock purchase warrants will be
sold to the public. In connection with this offering, the Company
has incurred approximately $87,000 in offering costs as of
December 31, 1999, which have been capitalized and included in
intangibles in the accompanying balance sheet.
F-21
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001059024
<NAME> Uniservice Corporation
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 527.70
<CASH> 522,497
<SECURITIES> 0
<RECEIVABLES> 235,259
<ALLOWANCES> 0
<INVENTORY> 581,935
<CURRENT-ASSETS> 2,580,525
<PP&E> 11,805,057
<DEPRECIATION> 2,706,167
<TOTAL-ASSETS> 12,952,469
<CURRENT-LIABILITIES> 2,751,242
<BONDS> 0
0
0
<COMMON> 283
<OTHER-SE> 7,735,666
<TOTAL-LIABILITY-AND-EQUITY> 12,952,469
<SALES> 12,893,382
<TOTAL-REVENUES> 12,893,382
<CGS> 5,260,250
<TOTAL-COSTS> 13,091,669
<OTHER-EXPENSES> 385,970
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 385,970
<INCOME-PRETAX> 139,262
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 174,266
<EPS-BASIC> 0.06
<EPS-DILUTED> 0.06
</TABLE>
