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U.S. Securities and Exchange Commission
Washington, D. C. 20549
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Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g)
of the Securities Exchange Act of 1934
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INTERNATIONAL MENU SOLUTIONS CORPORATION
(Name of small business issuer in its charter)
Nevada 91-1849433
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
350 Creditstone Road, Unit 203/202 M5A 1J3
Concord, Ont Canada (Zip Code)
(Address of principal executive offices)
Issuer's telephone number, (416) 614-6368
Securities to be registered under Section 12(b) of the Act: None
Securities to be registered under Section 12(g) of the Act:
Common Stock, Par Value $0.001 Per Share
(Title of Class)
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International Menu Solutions Corporation
CROSS REFERENCE SHEET
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Item Number and Caption in Form 10-SB Caption in Form 10-SB
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1. Item 101. Description of Business .......................... Description of Business
2. Item 303. Management's Discussion and Analysis Management's Discussion and
or Plan of Operation ........................................ and Analysis
3. Item 102. Description of Property .......................... Description of Properties
4. Item 403. Security Ownership of Certain Security Ownership of Certain
Beneficial Owners and Management ............................ Beneficial Owners and Management
5. Item 401. Directors, Executives Officers, Directors, Executives Officers,
Promoters and Control Persons ............................... Promoters and Control Persons
6. Item 402. Executive Compensation ........................... Executive Compensation
7. Item 404. Certain Relationships and Related Certain Relationships and Related
Transactions ................................................ Transactions
8. Item 202. Description of Securities ........................ Description of Securities
9. Item 201. Market for Common Equity and Market for Common Equity and
Related Stockholder Matters ................................. Related Stockholder Matters
10. Item 103. Legal Proceedings ................................ Legal Proceedings
11. Item 304. Changes in and Disagreements with Changes in and Disagreements with
Accountants on Accounting and Financial Accountants and Financial
Disclosure .................................................. Disclosure
12. Item 701. Recent Sales of Unregistered Securities .......... Recent Sales of Unregistered
Securities
13. Item 702. Indemnification of Directors and Indemnification of Directors and
Officers .................................................... Officers
14. Item 601. Index to Exhibits ................................ Index to Exhibits
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TABLE OF CONTENTS
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PART ITEM ITEM DESCRIPTION PAGE
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PART I ITEM 1. Description of Business .......................................5
Business Development .....................................5
Business of the Issuer ...................................9
ITEM 2. Management's Discussion and Analysis or Plan of
Operation .....................................................17
Cautionary Statement Involving Forward
Looking Statements .......................................17
Industry Overview ........................................17
Result of Operations .....................................18
Liquidity and Capital Resources ..........................21
Year 2000 Discussion .....................................22
Factors That May Effect Future Results of
Operation ................................................23
ITEM 3. Description of Property .......................................23
ITEM 4. Security Ownership of Certain Beneficial Owners
and Management ................................................29
ITEM 5. Directors, Executive Officers, Promoters and
Control Persons ...............................................29
Directors and Executive Officers .........................31
Business Experience ......................................32
Directors of Other Reporting Companies ...................34
Significant Employees ....................................34
Involvement in Certain Legal Proceedings .................34
ITEM 6. Executive Compensation ........................................35
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ITEM 7. Certain Relationships and Related Transactions ................37
ITEM 8. Description of Registrant's Securities ........................37
Common Stock .............................................37
Convertible Debentures ...................................38
Warrants .................................................38
"Anti-Takeover" Provisions ...............................38
PART II ITEM 1. Market Price of Common Equity and Related
Shareholder Matters ...........................................39
Market Information .......................................39
Holders ..................................................39
Dividends ................................................39
ITEM 2. Legal Proceedings .............................................40
ITEM 3. Changes in and Disagreements with
Accountants ...................................................40
ITEM 4. Recent Sales of Unregistered Securities .......................40
ITEM 5. Indemnification of Directors and Officers .....................44
PART F/S ITEM 1. Financial Statements ..........................................46
PART III ITEM 1. Index to Exhibits .............................................46
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
a. Business Development
International Menu Solutions Corporation, formerly known as ANM Holding
Corporation, is a Nevada corporation which was incorporated on June 24, 1997
(hereinafter, "the Company;" "we;" "us;" and "our;" will each refer to
International Menu Solution Corporation). We were authorized to issue an
aggregate of 25,000,000 shares of common stock with a par value of $0.001 per
share. Originally, the Company's mission was to offer quality clinical research
facilities providing our customers with a cost effective and efficient method
for conducting clinical research. At the same time, we endeavored to create
value and long term benefits for our shareholders, employees and end users of
our services. The Company became inactive after ANM Holding Corporation was
unable to achieve these goals.
The Company now operates completely through its wholly owned subsidiaries.
On July 16, 1998, the Company, through its wholly owned subsidiary 1308864
Ontario, Inc., a corporation incorporated under the laws of the Province of
Ontario, amalgamated1 pursuant to the Business Corporations Act (Ontario) with
International Menu Solutions, Inc. and its wholly owned subsidiary Prime Foods
Processing, Inc. The surviving company of the amalgamation is called
International Menu Solutions Inc. ("International Menu").
International Menu's product lines target consumers who desire delectable,
restaurant quality meals that are conveniently prepared for home consumption,
the basis for Home Meal Replacement ("HMR"). The National Restaurant Association
predicts that by the year 2005, the average consumer will allocate greater than
50% of his/her food budget towards prepared meals purchased outside the home,
for home consumption.
HMR has evolved from home cooked meals of the 1950's to frozen TV dinners
of the 1970's and 1980's to frozen microwaveable dishes and freshly prepared
meals "ready to heat" and "ready to eat" in the 1990's and beyond. The consumer
has also grown to appreciate the sophisticated quality and presentation of local
and international cuisine prepared by restaurants.
As a result of the amalgamation, the Company owned all of the issued and
outstanding shares of common stock of International Menu. The original holders
of 4,000,000 shares of common stock of International Menu received 4,000,000
Class X Shares of the continuing
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1 An amalgamation of two companies in the Province of Ontario pursuant
to the Business Corporations Act (Ontario) is equivalent to a merger
of two companies in the United States.
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Ontario corporation following the amalgamation and in addition received
4,000,000 Class N Shares of the Company.
Pursuant to the agreements with respect to the amalgamation of 1308864
Ontario Inc. and International Menu, we agreed to maintain $US 925,0001 ($CD
1,348,558) in unencumbered capital in the Company. In order to comply with this
capital requirement, in July 1998, we issued an aggregate of 1,400,000 shares of
common stock, at a purchase price of $US 0.70 ($CD 1.02) per share, pursuant to
Rule 504 of Regulation D of the Securities Act of 1933 (the "Securities Act"),
as amended. We received $US 925,000 ($CD 1.02), net of commission and offering
costs. The proceeds from the offering were used for new product sales in the
United States and Canada, research and development, new equipment purchases and
general working capital.
The Company maintains an office at 350 Creditstone Rd., Units 203/202,
Concord, Ontario.
To our knowledge we have not been subject to bankruptcy, receivership or
any similar proceedings.
Since inception, we have purchased the businesses of competing food
processing companies whose goals are complimentary to those of the Company.
International Menu Solutions Inc.: International Menu is a manufacturer and
sales/marketer of fresh and frozen entree products for both the United States
and Canadian private and control label retail marketplace for the HMR market.
Acquisition of Prime Foods Processing Inc.: In November of 1997,
International Menu acquired all of the issued and outstanding shares in the
capital of Prime Foods Processing Inc., an Ontario corporations located in
Waterloo, Ontario ("Prime Foods"). The shares were purchased for a cash
consideration of $1.00 per share, the purchase of certain notes in consideration
of $374,000 and the funding of Prime Foods to permit Prime Foods to purchase the
land and buildings where it conducts its business for the sum of $726,000.
Acquisition of Pasta Kitchen: In October 1998, we acquired through Prime
Foods from 1218951 Ontario Inc., doing business as Pasta Kitchen, all of the
assets of the fresh meal producer marketing its products under the trade name
Pasta Kitchen. We purchased the assets
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1 Although we conduct most of our business in Canadian Dollars ("$CD"),
we have used a reference in United States Dollars ("US") when
transactions involved United States Dollars. As of May 12, 1999, the
conversion rate was $US 1.00 equals $CD 1.457. All United States
Dollar denominations have also been converted into the Canadian Dollar
equivalent.
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for cash consideration of $372,212 and additional consideration, currently
estimated at $340,000 payable in shares of common stock of the Company or in
cash at October 1999 based on the achievement of certain revenue targets. Pasta
Kitchen operates as a division of Prime Foods and offers several of Canada's
leading supermarket chains with a full line of heat and fully prepared meal
solutions in single and multi-serve portions.
Acquisition of Transcontinental Gourmet Foods Inc.: In November 1998, we
acquired through International Menu all the issued and outstanding shares of
Transcontinental Gourmet Foods Inc., an Ontario corporation, which was
incorporated in January of 1983 ("Transcontinental"). Transcontinental is a
producer of fillo pastry hors d'oevres. Concurrent with this acquisition, we
purchased 59% of Norbakco Ltd., a sister corporation of Transcontinental
("Norbakco"). These acquisitions have allowed us to expand our product line to
include hors d'oeuvres and desserts.
When we purchased all of the issued and outstanding shares of
Transcontinental and the 59% interest in Norbakco, we paid cash consideration of
$1,000,000 at closing with an additional cash payment estimated at $600,000
which is payable in 1999 based on the net book value of Transcontinental in
excess of $1,000,000, as determined at February 28, 1999. The $1,000,000
consideration has allocated $860,000 for Transcontinental and $140,000 for
Norbakco interest. The balance of the purchase price was satisfied by the issue
to the selling shareholders of 3 classes of shares of stock, being 300,000 Class
B shares, 100,000 Class C shares and 59,000 Class D shares of International
Menu, which were issued on December 1, 1998. The said shares issued to the
selling shareholders are exchangeable for shares in the common stock of the
Company in accordance with the following formulas:
The Class B shares are exchangeable into a number of Common shares of the
Company such number of shares to be determined by calculating the earnings
before income tax, depreciation and amortization ("EBITDA") of Transcontinental
for the twelve month period ended February 28, 1999, multiplying such amount by
5, less the adjusted book value; then by dividing that amount by the Canadian
dollar equivalent of $US 1.40 ($CD 2.04) at February 28, 1999.
The Class C shares are exchangeable into a number of Common shares of the
Company such number of shares to be determined by calculating the EBITDA of
Transcontinental for the twelve month period ended February 28, 2000; then by
dividing that amount by the Canadian dollar equivalent at February 28, 2000 of
the lesser of $US 2.00 ($CD 2.92) or the current market price of one share of
our common stock determined at February 28, 2000.
The Class D shares are exchangeable into a number of Common shares of the
Company such number of shares to be determined by calculating the EBITDA of
Transcontinental for the twelve month period ended February 28, 2001 minus the
adjusted EBITDA of Transcontinental for the twelve month period ended February
28, 2000; then by dividing that amount by the
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Canadian dollar equivalent at February 28, 2001 of the lesser of $US 2.00 ($CD
2.92) or the current market price of one share of International Menu common
stock determined at February 28, 2001.
A total of 2,200,000 Common shares in the capital stock of the Company have
been reserved for issuance based on the exchange formulas outlined above.
Management estimates that approximately 1,900,000 Common shares will be issued
to the former shareholders of Transcontinental in exchange for the Class B
Shares.
Subsequent to the purchase of Transcontinental and the 59% equity interest
in Norbakco, the Company through International Menu acquired the remaining 41%
equity interest in Norbakco in May, 1999. The common shares that represent the
41% equity interest were acquired in consideration of the issue of 53,000 Class
X shares by International Menu and the issue of 53,000 Class N shares by the
Company. In addition, International Menu purchased outstanding shareholder loans
from the selling shareholders owing by Norbakco in the aggregate amount of
$180,000 with the purchase price being the face amount of the loans.
Acquisition of Tasty Selections Inc.: On April 15, 1999, we purchased
through International Menu all of the issued and outstanding shares of Tasty
Selections Inc., a manufacturer of muffin and cookie batters, located in
Concord, Ontario ("Tasty Selections"). We acquired Tasty Selections for a cash
consideration of $1,000,000 and by issuing 442,750 Class N shares of the Company
and 442,750 Class X shares of International Menu to the shareholders of Tasty
Selections. The Class X shares are held in escrow with 1/3 of the Class X shares
to be released on April 15, 2000, 1/3 of the Class X shares to be released from
escrow on April 15, 2001 and the remaining 1/3 of the Class X shares to be
released from escrow on April 15, 2002. The sellers of the shares to
International Menu entered into an escrow agreement that provides that the said
Class X shares will be released from escrow as to 1/3 on March 15, 2000, as to
1/3 on March 15, 2001 and as to 1/3 on March 15, 2002.
Acquisition of 1005549 Ontario Limited: On May 10, 1999, the Company
through International Menu purchased all the issued and outstanding shares of
1005549 Ontario Limited which owns all of the issued and outstanding shares of
D.C. Foods Processing Inc. (collectively "D.C. Foods"). Under the terms of the
acquisition, the Company satisfied the purchase price payable to the
shareholders of 1005549 Ontario Limited by paying $4,000,000 in cash, the issue
of 893,333 Class X shares and 893,333 Class N shares, 250,000 Class E Series 1
shares, 250,000 Class E Series 2 shares, 250,000 Class E Series 3 shares and
250,000 Class E Series 4 shares. The Class E Series 1 shares and the Class E
Series 2 shares are exchangeable into a number of Common shares of the Company
such that number of shares to be determined by calculating the amount equal to
the greater of: (i) the EBITDA of D.C. Foods for the period from December 7,
1998 to and including December 31, 1999; and (ii) zero, then by dividing that
amount by the Canadian dollar equivalent of the current market price of one
share of the Company's common stock
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determined at December 31, 1999. The Class E Series 3 shares and the Class E
Series 4 shares are exchangeable into a number of Common shares of the Company
such number of shares to be determined by calculating the amount equal to the
greater of (i) four times the EBITDA of D.C. Foods for the one year period
ending March 31, 2002 or December 31, 2002 (as decided by the selling
shareholders of D.C. Foods) minus (A) $6,000,000 and (B) an amount equal to the
greater of (i) the EBITDA of D.C. Foods for the period from December 6, 1998 to
and including December 3, 1999, and (ii) zero then by dividing that amount by
the Canadian dollar equivalent of the current market price of one share of
International Menu common stock determined at March 31, 2002 or December 31,
2002. The sellers of the shares of 1005549 Ontario Limited to International Menu
entered into a limited escrow agreement whereby 702,857 Class X shares and the
Class E shares are subject to escrow arrangements based on various time periods
with the release from escrow being on the basis of 1/3 per year over three
years, except that upon certain events, all the shares from escrow could be
released by the Company. All Class E Series shares are shares of International
Menu.
Right of First Refusal: in each of the acquisitions of Transcontinental,
Tasty Selections and D.C. Foods, we have acquired a first right of refusal with
respect to the sale of shares of International Menu and the Company by the
parties receiving such shares as part of the payment of the purchase price.
b. Business of the Issuer
Through our wholly owned subsidiaries, we develop, market and produce a
series of specialty food products for sale to large food retailer chains and
specialty food chains.
1. Principle Products and Services: We offer a line of food products to
consumers who are looking to purchase components of a complete meal or to
purchase a complete meal consisting of a protein, starch and vegetable. These
meals consist of meat (chicken, roast beef or salmon), rice, pastas, steamed
vegetables and sauces which can be purchased fresh or frozen. In addition to
these center-of-the-plate items, we also offer a line of hors d'oevres and
deserts.
The products we offer are enhanced, restaurant quality meals that are
derived from restaurant menus. The products are sold in supermarkets as fresh
and frozen entrees. The frozen products have a shelf life of 6-8 months and the
fresh products have a shelf life of 21 days. The frozen meals are displayed in
aesthetically appealing three-door freezers strategically located in HMR areas
of the supermarkets. The fresh meals are available in open eight-foot self-serve
refrigeration units in the delicatessen section of the supermarkets.
The business cycle of our products is in the early developmental stage in a
market which management believes is rapidly expanding. However, the products
themselves are not new to a marketplace where consumers have been purchasing and
eating the traditional food items as
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single item purchases. Our marketing strategy is to take those single items and
enhance their presentation, taste and packaging. We then bundle the items as
complete meal solutions that consumers can mix and match to create an
international and ethnic line of restaurant quality complete meals.
2. Product Development and Strategy: Our products are developed in response
to consumer demands and according to our own specifications. Often, retail
clients will request that we manufacture products tailored to certain
specifications demanded by the consumer. For example, retailers of our products
have jointly developed efforts with their own design teams to create lines of
food products to be sold under our label. Otherwise, our meals are manufactured
in accordance with internally generated specifications and are sold directly to
retailers and organizations selling directly to retailers.
Our products are developed in component parts that when joined together
form a complete "meal solution." This meal solution program is developed for
each retailer client. We offer two programs to retailers depending on the size
of the retailer. Under the "retailer branding" method, the retailer owns a
brand. To qualify for this program, the retailer must own a minimum of 200
stores to ensure adequate market share to capitalize on economies of scale.
Under the "control branding" method, we provide complete meal solution programs
to small retailers who do not have the expertise or market share to own their
own brand. The brand developed for this program is called "Selections" which can
be adapted for several different retailers by incorporating their label with our
brand name.
Our long-term product development objective is to capture popular culinary
awareness which management believes is an integral part of the food industry. To
capture this awareness, our meals are developed under various local and
international theme canopies and are derived from restaurant menus. We plan to
focus on the following food service theme canopies:
o Grill/American Grille
o Trattoria
o Mediterranean Taverna
o Bistro/New American Bistro
o Southwestern Cantina
o Asian Cafe
o Kids Connection
3. Product Marketing and Strategy: We market five brands of meals and meal
components through our wholly owned subsidiaries. These brands include: (i)
"Royal Selection," a line of frozen meal entrees; (ii) "International
Selection," a line of frozen meal entrees; (iii) the Pasta Kitchen label; (iv)
"Thornhill Bakery," "Meli's Bakery," and "Margies Sweets," a line of fresh and
frozen deserts under the Norbakco label; and (v) frozen hors
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d'oeurves under the Transcontinental label. We seek to maintain a broad list of
customers in order to minimize the ability for one major customer to dictate
non-competitive terms to the Company. Our target customers are supermarkets,
specialty gourmet stores, club stores and big boxed meat stores.
In addition to these four brands, we are creating internationally labeled
food categories known as the "Selections" line. Our strategy is to generate a
series of internationally and ethnic based meal solutions that will be sold by
smaller retail clients under a control label brand that is partly owned by the
Company. As a result, we anticipate that these retailers will be able to choose
various menu components which parallel restaurant menus.
We sell most of our products under the retailers' private labels through a
sub-branding approach or under alliances with owners of other known brands. This
is known as co-branding. We believe that selling our products under private
labels or known brands, which are more recognizable by consumers, will create
brand awareness of our products since our name appears on the label of the known
brand. It has become generally accepted that supermarkets, specialty gourmet
stores and big boxed meat stores sell complete meals and meal components. To
date, we have manufactured our products under major private labels belonging to
supermarkets, club stores, big boxed meat stores, convenience store chains and
non-traditional food retailers.
We plan to utilize our own direct sales force in our target markets. Our
sales representatives will convey to new and existing customers our belief that
we offer nutritious, restaurant quality meals because we control product
development and production in our wholly owned facilities.
Our long-term marketing objective is to reach retail consumers in all areas
of the supermarkets and stores which carry our products, particularly in the
delicatessen and frozen sections.
4. Product Distribution and Strategy: We utilize various ways to distribute
our products directly and indirectly to our customers. Our products are
distributed directly to major retailers as either private label or co-branded
products. The products are also distributed directly to major club stores under
our own label. We distribute our products indirectly to major club stores and
retailers under co-packing agreements or to various distributors under our own
label. With the addition of Tasty Selections and D.C. Foods, our reliance on any
one of our distribution methods has been significantly reduced.
5. Strategic Relationships and Joint Ventures: We expect to establish
partnerships with private label retailers who will promote and advertise our
products under their private labels. To date, though, no such partnership has
been developed. Through these partnerships, we would be able to take advantage
of promotion and advertising techniques used by seasoned retailers. These
include in-store demonstrations of our new products, food
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sampling, and interactive showcases of our products where consumers will be
given the opportunity to combine different meal components as part of their home
meal solutions. Through partnership programs with retailers, we also plan to
collaborate in such areas as product development and profile, package design,
merchandising, promotion and product demonstration.
6. Status of Publicly Announced New Products or Services: To date, we have
announced several new products and services:
"Seafood Selections": On February 10, 1999 we announced that our Canadian
based seafood division "Seafood Selections" received its first U.S. based orders
to launch four of its seafood HMR products. We announced that "Seafood
Selections" would begin releasing its lobster and salmon products to the Western
United States in February of 1999 and that opening orders, valued at
approximately $1.1 Million, would be distributed to select Club Stores and some
mid-sized food retail stores.
Seafood Selections commenced shipment of its products to the United States
in late February of 1999. After full production of Seafood Selections products
began in March of 1999, two HMR Products including Lobster Ravioli and Lasagna
were shipped to retailers located in the Western United States. In addition, the
Lobster Ravioli and Lasagna meals, as well as Smoked Salmon Tortellini and
Seafood Penne meals were shipped under the co-branded Northern Chef label to
several retailers in the east and west coasts of the United States.
In April of 1999, we commenced shipment of Seafood Selections meals to
Canadian retailers. At the present time, we rely on third party manufacturers to
manufacture and package our Seafood Selections products. However, we purchase
our own seafood raw materials and use our own recipes for the production of
Seafood Selections meals.
Prime Foods Processing Facility: On February 4, 1999, we announced the
expansion of the Prime Foods processing facility, our frozen food facility based
in Kitchener, Ontario. We received confirmation of expansion financing which
would more than triple the production capacity. However, in view of the recent
addition of D.C. Foods, we have temporarily suspended expansion of the Prime
Foods facility in order for management to evaluate how we could make the best
use of all our facilities.
7. Competition: The specialty food industry is highly competitive. Our
products are sold in competition with all food service operators such as
restaurants, fast food outlets and large food processors. The specialty food
industry is highly competitive and there can be no assurance that we will be
able to compete successfully. Many of our competitors have far greater
financial, operational and marketing resources than the Company. Furthermore,
the specialty food industry is characterized by rapid changes, including changes
in consumer tastes
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and preferences, which may result in product obsolescence or short product life
cycles. As a result, competitors may be developing products which may be similar
or superior to our products. Accordingly, there is no assurance that we will be
able to compete successfully or that our competitors or future competitors will
not develop products that render our products less marketable.
Our products are primarily competing in the fresh and frozen specialty food
industry. The principal method of competition include brand recognition, price
and price promotion, retail space management, service to the retail trade, new
product introductions, packaging changes, distribution methods and advertising.
Few of our competitors in the specialty food industry manufacture entrees or
bundled meal components in the unique restaurant style canopies that are offered
by the Company. We plan to penetrate this market and plan to expand our market
share by producing culinary unique entrees, bundled meals and meal kits at
competitive prices. We believe that our flexibility and innovation in developing
and implementing new methods of marketing and distributing our product will
permit us to compete effectively against these competitors.
On a North American branded basis, our direct competitors are Stouffers,
Kraft Foods and Maple Leaf Foods, among others. Several of these well-known
brands have recently introduced lines of component meals. However, we believe
the Company will remain competitive in this industry because of the depth and
breadth of our product lines. Most of our competitors focus their product lines
on single items and their manufacturing focuses on homogenous product assembly.
Our manufacturing process is based on raw material and components for complete
meal assembly. Because of this unique component manufacturing process, we have
the ability to adapt to rapidly changing market demographics.
We also believe that our meals will be able to effectively compete with
products offered by our competitors due to the ownership of our own facilities.
Other private label marketers and food brokers provide only co-packed entrees to
their customers and do not have control over their own manufacturing facilities.
Management believes that ownership of our own facilities allow us to maintain
high quality control and to quickly respond to customers' changing needs.
Ownership of our own meal processing facilities as well as our unique component
approach to meal assembly may allow us to develop and introduce new products in
as little as 4-6 months.
The Company may have difficulty competing with large brand name
manufacturers for retail shelf space. Retailers, particularly supermarkets,
command high prices to display products on strategically located shelves.
However, management believes that it can obtain or secure strategically located
shelves at a lower cost by sub-branding our products under private labels
belonging to retailers.
Management believes that the Company's unique capability to offer products
that are fresh,
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nutritious, economical and aesthetically appealing to the consumer makes the
Company a viable competitor in the HMR industry. Our products will be
differentiated from those of our competitors on the basis of taste, appearance
and quality at competitive price points.
8. Sources and Availability of Raw Materials and Principal Suppliers: Our
business operations include the development, marketing and production of a
series of specialty food products for sale to large food retailer chains and
specialty food retailers. The raw materials required to manufacture our meals
are commodities such as flour, cheese and sugar which are readily available in
the market place. We have no major principal suppliers. Furthermore, the Company
believes that the markets for these commodities are stable and no supply change
is imminent.
9. Dependence on One or a Few Major Customers: The Company has one major
customer. Based on historical pro forma sales of $36,100,000, this customer
represents 12.5% of our sales. The loss of this customer could have a material
adverse effect on the sales of the Company. We currently have a good
relationship with this customer and anticipate that we will expand our business
with this customer.
10. Patents and Trademarks: The Company owns registered trademarks and
service marks under the names "Poppa Jimis(R)", "Poppa Jimis Deli & Design(R)",
"Royal Selections & Design(R)", "Pasta Kitchen(R)", "Transcontinental Gourmet
Foods Inc.(R)" and "Jonathan T(R)". We intend to apply for numerous United
States and International patents, trademarks and copyrights in connection with
certain products. In addition, we use several other trade names for our products
and services, many of which we believe are common law trademarks. We will review
additional trade names for which we will seek formal trademark registration at a
later date. We also keep confidential various recipes, formulation
specifications and production specifications. We attempt to avoid infringing
patents of others by monitoring, on a regular basis, patents issued with respect
to food processing equipment.
All trademarks or service marks appearing in this Form 10-SB that do not
relate to our products are the property of their respective holders.
11. Labor Contracts: Norbakco has a collective bargaining agreement with
Thornhill Bakery Ltd. Confectionery and Tobacco Workers' International Union,
Local 264. We believe that our relationship with the union and our employees is
good.
12. Governmental Approval and Effect of Governmental Regulation: The
production, distribution and sale of our products are subject to various
federal, state and local laws promulgated in the United States and Canada.
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(a) United States: The Company is subject to regulation by federal, state
and local governmental laws in the United States. These include: the
Environmental Protection Act, for labeling, sanitary conditions and product
contamination; the Occupational Safety and Health Act for equipment and work
area safety; the Federal Food, Drug and Cosmetic Act, for labeling, sanitary
conditions and product contamination; United States Department of Agriculture;
state and local building codes; and property zoning codes. Our operations are
subject to a variety of other federal, state and locals laws such as labor,
insurance, transportation and wage regulations. Compliance with all such
regulations may be time-consuming and expensive. To the best of management's
knowledge, the Company complies with necessary state and federal laws necessary
to operate a food production and distribution company in the United States.
(b) Canada: The Canadian Federal Government must approve all processed food
and food processing facilities. All plants processing meat, poultry, fish and
seafood are regulated and monitored by government inspectors. Plants producing
meat and poultry items must have an establishment number, which is issued only
if the plant has passed an inspector's audit. If the food processed is sold
frozen, once an establishment number is issued, the inspector retains an office
at the processing facility. However, if the food processed is sold fresh, the
food processing facility is subject to additional regulation. The inspection of
meat and poultry is much more stringent than inspection of seafood. Inspectors
also regulate seafood, however, once the inspectors are comfortable that the
plants are operating with satisfactory manufacturing processes and meet all
health requirements, they do not monitor production as often as they monitor the
production of meal and poultry. The Seafood inspectors visit, on average, three
times per year to monitor systems, ingredients, processes and production. Meat
and Poultry inspectors visit on average as often as on a daily basis to monitor
systems, ingredients, processes and production. As the Canadian Government is
now in the process of switching agencies, all inspections fall under the
Canadian Food Inspection Agency ("CFIA"). All of the inspectors have the
authority to close down a production facility if the plant does not meet
established manufacturing requirements.
Government regulation requires that correct ingredients and nutritional
information be clearly stated on the package when fresh or frozen food is
packaged to be sold for retail. An accredited laboratory using calibrated
analyzing equipment must also do nutritional analysis. CFIA may, at any time,
independently monitor and test ingredients to ensure that all values listed on
the packages are accurate and correct.
We cannot predict the impact of possible changes that may be required in
response to future legislation, rules or inquiries made from time to time by
governmental agencies. Government regulations may, in certain circumstances,
affect the ability of the Company, as well as others in the industry, to develop
and market new products. However, we do not
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presently believe that existing applicable legislative and administrative rules
and regulations will have a significant impact on operations.
13. Amount Spent on Research and Development: The amount spent for research
and development of our products for the years ending December 31, 1998 and
December 31, 1997 were $425,542 and $5,663 respectively. Although research and
development is not directly borne by the customer, it is a factor in the
determination of the pricing of our products.
14. Cost and Effects of Compliance with Environmental Laws: The production,
distribution and sale of our products are subject to various federal, state,
provincial and local environmental laws of the United States and Canada. The
Company is subject to laws and regulations which impose limitations on the
discharge of pollutants into the air and water and establish standards for the
treatment, storage and disposal of solid wastes. We cannot predict with any
certainty our future capital expenditure requirements for environmental
compliance because of constantly changing standards and technology. In addition,
we may incur liabilities in the future to regulatory agencies or private
individuals for alleged environmental damage associated with waste disposal or
waste material handling practices in the operation of our business. The Company
does not currently have any insurance coverage for environmental liabilities and
does not anticipate obtaining such coverage in the future.
15. Employees: As of May 13, 1999, we had a total of 235 employees, all of
which are full-time.
16. Reports to Security Holders
Prior to filing this Form 10-SB, we have not been required to deliver
annual reports. However, once we become a reporting company, we shall deliver
annual reports to securities holders as required by the Securities Exchange Act
of 1934 (the "Exchange Act"), as amended. Also, we shall deliver annual reports
to securities holders as required by the rules or regulations of any exchange
upon which our shares may be traded. If we are not required to deliver annual
reports, it is not likely that we will go to the expense of producing and
delivering such reports. If we are required to deliver annual reports, such
reports will contain audited financial statements as required.
Prior to the filing of this Form 10-SB, we have not filed reports with the
Securities and Exchange Commission (the "Commission"). Once we become a
reporting company, management anticipates that Forms 3, 4, 5, 10K-SB, 10Q-SB,
8-K and Schedules 13D along with appropriate proxy materials will have to be
filed as they come due. If we issue additional shares, then we may file
additional registration statements for those shares.
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The public may read and copy any materials we filed with the Commission at
the Commission's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. The public may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. The Commission
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the Commission. The Internet address of the Commission's Web site is
http://www.sec.gov.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
a. Cautionary Statement Involving Forward Looking Statements
Some of the information in this Form 10-SB may constitute forward-looking
statements which are subject to various risks and uncertainties. Such statements
can be identified by the use of forward-looking terminology such as "may,"
"will," "expect," "anticipate," "estimate," "continue," "plan," or other similar
words. These statements discuss future expectations, contain projections of
results of operations or of financial conditions or state other
"forward-looking" information. Actual results could differ materially from those
contemplated by the forward- looking statements as a result of certain factors,
including but not limited to: competitive factors and pricing pressures;
relationships with its manufacturers and distributors; legal and regulatory
requirements; general economic conditions; and other risk factors which may be
described in our future filings with the Commission. We do not promise to update
forward-looking information to reflect actual results or changes in assumptions
or other factors that could affect those statements. In addition, when
considering such forward-looking statements, the reader should keep in mind the
factors described in other cautionary statements appearing elsewhere in this
Form 10-SB. Such statements describe circumstances which could cause actual
results to differ materially from those contained in any forward looking
statement.
This Form 10-SB may also include statistical data or disclose trends
regarding the food processing industry. This data may have been obtained from
industry publications and reports which we believe to be reliable sources. We
have not independently verified such data nor sought the consent of any
organizations to refer to their reports herein.
b. Industry Overview
The booming North American economy combined with an increase in percentage
of dual career families has expanded the market for Home Meal Replacement
("HMR") products. In today's dual career family society, people are time
constrained. Lives no longer revolve around
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household chores, such as grocery shopping and scratch cooking. According to the
P.C. Revolution magazine, The North American consumer has a positive attitude
toward premium frozen foods. The National Restaurant Association predicts that
by the year 2000, greater than 50% of the average of consumer's food spending
will be on prepared meals purchased outside the home. The Company's strategic
acquisitions of organizations competing in the home meal replacement market will
allow the Company to produce complete meal kits or bundled meals to compete with
fast-food restaurants and supermarket chains in the consumer take-out market.
General: For accounting purposes, the following information reflects the
result of operations of the Company as the surviving corporation of the merger
between International Menu Solutions Corporation (a Nevada corporation, formerly
known as ANM Holdings Corporation) and International Menu Solutions Inc., an
Ontario corporation.
The Company has completed several acquisitions since inception.
Accordingly, a pro forma balance sheet and income statement has been prepared by
management to reflect acquisitions that occurred during fiscal 1998 and 1999.
The pro forma financial statements should be read in conjunction with 'Results
of Operations' and the audited consolidated financial statements of the Company
and notes thereto included elsewhere in this Form 10-SB. The pro forma balance
sheet assumes that all acquisitions and related transactions since January 1,
1999 occurred on December 31, 1998. The pro forma statement of operations
assumes that such transactions occurred on January 1, 1998. Results of
operations or acquired companies are included in the Company's audited financial
statements from the date of acquisition.
Transactions incurred in currencies other than the Canadian dollar, the
functional currency of the Company, are converted to the functional currency at
the exchange rate in effect at each period end. All foreign currency transaction
gains or losses have been included in earnings.
c. Result of Operations
Pro forma year ended December 31, 1998 (or "pro forma 1998") compared to
year ended December 31, 1998 (or "fiscal 1998")
Revenue: Pro forma 1998 revenue increased $30,071,000, or 493.3%% to
$36,167,000 compared to $6,096,000 in fiscal 1998. The growth in revenue can be
primarily attributed the effect of the Tasty Selections and D.C. Foods
acquisitions which had combined revenues of $23,154,000 in 1998. In addition,
pro forma 1998 results include a full year's revenue associated with the
Transcontinental, Norbakco and Pasta Kitchen subsidiaries.
Cost of Goods Sold: Cost of goods sold increased to $30,001,000 for pro
forma 1998,
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up $25,271,000 (or 534.3%) compared to the fiscal 1998 figure of $4,730,000. As
a percentage of revenue, cost of goods sold represented 83.0% of revenue
compared to 77.6% of revenue for fiscal 1998. The change in absolute dollars is
attributed to the inclusion of the cost of goods sold for Tasty Selections and
D.C. Foods and a full years cost of goods sold for Transcontinental, Norbakco
and Pasta Kitchen. The increase in cost of sales as a percentage of revenues is
a primarily a result of the acquisition of D.C Foods whose margins are somewhat
lower than other subsidiaries in the group because of the focus on breaded and
battered food products. In addition, Fiscal 1998 included only one month of the
results of Transcontinental, whose gross margins are higher in December of each
year due to the demand for hors d'oevres and pastries during the holiday season.
Selling Expenses: Selling expenses increased $1,086,000 (178.0%) to
$1,696,000 (4.7% of revenue) for pro forma 1998 compared to $610,000 (10.0% of
revenue) in fiscal 1998. The pro forma 1998 increase is largely attributable to
the selling expenses totaling $931,000 incurred by Transcontinental and Tasty
Selections in 1998 which were not included in fiscal 1998 results.
Research and Development: Research and development expenses increased did
not change from pro forma 1998 compared to fiscal 1998 as research and
development activities are conducted by International Menu on behalf of all
other subsidiaries of the Company. Accordingly 100% of the research and
development expenditures incurred during the year ended December 31, 1998 were
included in both fiscal 1998 and pro forma 1998 results of operations.
Administrative Expenses: Administrative expenses increased $2,078,000
(271.5%) from 764,000 (12.5% of revenue) in fiscal 1998 to $2,876,000 (7.9% of
revenue) for pro forma 1998. The increase in absolute dollars is attributed to
the inclusion of the administrative expenses for Tasty Selections and D.C. Foods
and a full year's administrative expenses for Transcontinental, Norbakco and
Pasta Kitchen. The decrease in such costs as a percentage of revenues is due
primarily to the acquisition of D.C. Foods, whose administrative expenses
represent only 3.2% of revenues due to the significant volume of product
turnover in the D.C Foods operation. The Company expects that administrative
expenses will decline as a percentage of revenue as recent acquisitions are
integrated, synergies are realized and revenue growth expectations are
fulfilled.
Amortization of Intangibles: Amortization of intangibles increased to
$640,000 (1.8% of revenue) for pro forma 1998 compared to $67,000 (0.6% of
revenue) in fiscal 1998. The growth of $573,000 in intangibles amortization
charges is a result of a full year's amortization on intangibles associated with
all acquisitions completed to-date. Fiscal 1998 included only one month's
intangibles goodwill amortization on the Transcontinental and Norbakco
acquisitions and three months' goodwill amortization with respect to Pasta
Kitchen. Intangibles that arose on recent acquisitions is amortized over 40
years, except for the intangibles associated with Prime Foods
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and Pasta Kitchen, which is amortized over a 20-year period.
Loss from Operations: The Company's loss from operations decreased slightly
from $549,000 (9.0% of revenue) in fiscal 1998 compared to $514,000 (1.4% of
revenue) for pro forma 1998. The acquisitions of D.C. Foods and Tasty Selections
contributed over $826,000 in net income to pro forma 1998 results. However, the
positive income contributed by D.C. Foods and Tasty Selections was offset by
increases in goodwill amortization and interest charges associated with the
convertible debenture and recent acquisitions (see 'Interest revenue and
expense' below). The Company expects that profitability will improve as recent
acquisitions are integrated and economies of scale take effect.
Interest Revenue and Expense: Interest expense increased by $647,000
(660.2%) to $745,000 (2.1% of revenue) for pro forma 1998 compared to $98,000
(1.6% of revenue). The change is attributable to a full year's interest expense
in connection with D.C. Foods, Tasty Selections and Transcontinental, which
totaled approximately $360,000. In addition, the Company issued $4,000,000 in
convertible debentures which bear interest at 7% and accordingly, $280,000 in
interest expense was charged to pro forma 1998 results.
Year ended December 31, 1998 (or "fiscal 1998") compared to the period from
incorporation, September 26, 1997 to December 31,1997 (or "three month
period ended December 31, 1997")
Revenue: Revenue increased $5,654,000 or 1,279% to $6,096,000 in fiscal
1998 up from $442,000 for the three-month period ended December 31, 1997. The
growth in revenue can be attributed to both the short reporting period for 1997
and to the above mentioned acquisitions that were completed in fiscal 1998.
Cost of Goods Sold: Cost of goods sold increased to $4,730,000 in fiscal
1998, up $4,365,000 or 1,196% from the figure of $365,000 incurred during the
three-month period ended December 31, 1997. As a percentage of revenue, cost of
goods sold represented 77.6% of revenue for fiscal 1998, compared with 82.6% for
the three-month period ended December 1997. The change in absolute dollars is
attributed to short reporting period for 1997 and the previously mentioned
acquisitions. The change in percentage of revenues is a primarily a result of
the acquisition of Transcontinental Gourmet Foods, whose gross margins are
higher in December of each year due to the demand for hors d'oevres and pastries
during the holiday season.
Selling Expenses: Selling expenses increased $597,000 to $610,000 (10.0% of
revenue) in fiscal 1998 compared to $13,000 (2.9% of revenue) for the
three-month period ended December 31, 1997. The increase is largely attributable
to the acquisitions of Transcontinental,
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Norbakco and Pasta Kitchen who have higher promotional and delivery costs than
other subsidiaries of the Company.
Research and Development: Research and development expenses increased
$420,000 to $426,000 (7.0% of revenue) in fiscal 1998 compared to $6,000 (1.4%
of revenue) for the three-month period ended December 31, 1997. The increase is
due primarily to product development efforts associated with new meal components
and meal kits created in 1998.
Administrative Expenses: Administrative expenses increased $673,000 to
$765,000 (13.7% of revenue) in fiscal 1998 compared to $92,000 (20.8% of
revenues) for the three month period ended December 31, 1997. The increase in
absolute dollars is due to the short reporting period in 1997 and acquisitions
that were completed during 1998. In addition, during 1998 the Company incurred
increased costs associated with building management infrastructure, corporate
governance and reporting obligations, seeking out strategic acquisitions and
investor relations. The decrease in such costs as a percentage of revenues is
due primarily to the acquisition of Transcontinental, whose administrative
expenses are disproportionately low in December of each year due to high sales
volumes in that month. The Company expects that administrative expenses will
continue to decline as a percentage of revenue as the results of new
acquisitions are included in the Company's financial statements.
Loss from operations: The Company's loss from operations increased $463,000
to $502,000 (8.2% of revenue) compared to $39,000 (8.8% of revenue) for the
three months ended December 31, 1997. The increase in the loss is due primarily
to significant increases in expenditures for product development and
administrative functions during 1998. Acquisitions that occurred during 1998
contributed $603,000 in operating income during 1998. The Company expects that
profitability will improve as new acquisitions are integrated and economies of
scale take effect.
Interest revenue and Expense: Interest revenue increased to $25,000 in
1998, an increase of $24,000 compared to the three months ended December 31,
1997. The change is largely attributable the short reporting period for 1997 and
to interest on short-term investments on excess cash available in the Company
during the third and fourth quarter of 1998. Interest expense increased $94,000
to $98,000 compared to $4,000 for the three-month period ended December 31,
1997. The increase is due primarily to the short reporting period for 1997 and
to interest charges with respect to long-term debt and capital lease obligations
associated with companies acquired during 1998.
d. Liquidity and Capital Resources
The Company's cash and cash equivalents increased from $299,274 at December
31,
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1997 to $1,865,612 at December 31, 1998. The increase was primarily due to
financings in July 1998 and November 1998 which raised approximately $4,212,000,
net of issuance costs. Approximately $1,400,000 of the funds raised was used to
satisfy the cash requirements of acquisitions that occurred during 1998.
Historically, the Company's cash flows from product sales have not been
sufficient to fund 100% of its operations. Cash flows from operations were
approximately ($505,000) and ($7,000) in fiscal 1998 and for the three-month
period ended December 31, 1997, respectively. However, the operations of
Transcontinental, Tasty Selections and D.C. Foods have positive cash flows from
operations. The Company will begin to experience the operating cash flow effect
of these acquisitions during 1999.
As of December 31, 1998, the Company had cash and cash equivalents totaling
$1,866,000. During April 1999, the Company raised approximately $7.8 million
through convertible debentures and the sale of common stock. Approximately $5.0
million was used to fund the cash portion of the acquisitions of D.C. Foods and
Tasty Selections Inc. In addition, approximately $600,000 is payable during 1999
to the former shareholders of Transcontinental pursuant to the purchase
agreement.
As of December 31, 1998, the Company has unutilized banking credit
facilities totaling $720,000. The Company believes that existing cash balances
and credit facilities will be adequate to meet the Company's cash requirements
through the end of fiscal 1999.
The Company believes that cash balances and credit facilities will be
adequate to meet the Company's cash requirements through the end of fiscal 1999.
Dividends: The Company has not paid cash dividends on its common stock to
date and does not plan to pay cash dividends to its shareholders in the near
future. The Company presently intends to retain any earnings to finance future
growth of its business.
e. Year 2000 Issues
The "Year 2000" problem is the result of computer programs being written
using two digits, rather than four, to define the applicable year. Computer
programs and microprocessors that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000, or not recognize the
date at all. This could result in major system failures or miscalculations
causing disruptions in operations, including among other things, a temporary
inability to process transactions, send invoices, access internal financial
information or engage in normal business activities. Year 2000 problems
experienced by our suppliers, or us could adversely impact our ability to meet
the demands of, or service our customers or otherwise carry on our business. We
have not yet developed a contingency plan to address situations that may
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result if our suppliers or we are unable to achieve Year 2000 compliance. The
cost of developing and implementing this kind of plan, if necessary, could be
material.
To assist in the integration of recent acquisitions, and to mitigate the
uncertainties associated with Year 2000 issues the Company decided to purchase a
new financial accounting and management information system that will be
integrated and implemented across all operating and management functions. The
implementation of the new computer system has begun and the Company estimates
that the cost of the new system, including the software, hardware and
installations costs will total approximately $250,000. The Company expects that
the new computer system will be completely installed and tested by September 30,
1999.
In addition, the Company has communicated with parties with which it does
significant business to assess their Year 2000 compliance and the extent to
which the Company is exposed to any significant third party Year 2000 compliance
issues. These determinations are expected to be made by June 30, 1999. The costs
associated with these activities are not expected to be significant. This
process will not guarantee that systems of other parties upon which the
Company's systems directly or indirectly rely will be Year 2000 compliant on a
timely basis, or that a failure by another party to render their systems
compliant with Year 2000 issues will not have a material adverse effect on the
Company.
f. Factors That May Effect Future Results of Operation
The Company believes that in the future results of operations could be
impacted by factors such as market acceptance of new products, the success of
the company's employees marketing Home Meal Replacements and adverse changes in
the general economic conditions in any of the countries involved in which the
Company does business.
The Company's ability to develop and market products that successfully
adapt to current market needs and may also have an impact on the results of
operation. A portion of future revenues will come from n ew products. The
Company cannot determine the ultimate effect that new products and services will
have on revenue, earnings or stock prices.
Due to the factors noted above and elsewhere in the Management's Discussion
and Analysis of Financial Conditions and Results of Operation, the Company's
future earnings and stock price may be subject to significant volatility. Past
financial performance should not be considered and a reliable indicator of
future performance and investors should not use historical trends to anticipate
trends in future periods.
ITEM 3. DESCRIPTION OF PROPERTY
The Company's headquarters are located at 350 Creditstone Rd., Units
203/202, Concord,
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Ontario. The building, aggregating approximately 6,800 square feet, is
pre-existing and in good condition. We have been leasing the office space on a
month-to-month basis since April of 1999. The Company commenced a three year
lease at $6,000 per month including utilities, maintenance and taxes.
Prime Foods: Prime Foods' 15,000 square foot frozen food facility is
situated on a 1 acre lot located at 620 Colby Drive, Waterloo, Ontario. Prime
Foods owns the property. The building is a stand alone structure of brick and
concrete with a large paved parking lot on one side of the building and a
smaller paved parking lot in the front of the building. Management believes that
the building is in good repair. In December of 1997, Prime Foods began to
operate this frozen food facility to produce frozen entrees, bundled meals and
stir fry kits for the HMR Market in the United States and Canada. The production
facility is equipped with mixers, filling and wrapping units, cooking ovens,
cutting units, conveyer system and a new Individually Quick Frozen ("IQF")
chrogenic freezing line. Management believes that the equipment is maintained in
good working order.
In February 1999, we announced the planned expansion of the frozen food
facility to 25,000 square feet of manufacturing space. This expansion has
increased the production capacity of the facility from approximately $8 Million
to $16 million is anticipated to double production of products per year.
We have initiated a Hazard Analysis Critical Control Point Program (HACCP)
and have instituted proper documentation of the frozen food facility's
expansion. HACCP is a self-regulatory program generally accepted and implemented
in the food processing industry which emphasizes safety and health precautions
in food processing facilities. Management believes that the re-design of the
facility has taken into account proper HACCP guidelines and will meet
international standards.
Pasta Kitchen: Pasta Kitchen's fresh commissary style kitchen is 10,000
square foot facility is located at 62 Milford Avenue, Toronto, Ontario. The
monthly rental payment is $3,060. Management believes that the building is in
good condition.
Transcontinental: Transcontinental's 34,000 square foot facility is located
at 610 Oster Lane, Concord, Ontario. The monthly rental payment is $8,000.
Management believes that the building is in good condition.
Norbakco: Norbakco's 34,000 square foot facility is located at 350
Creditstone, Unit D in Concord, Ontario. The monthly rental payment is $11,340
Management believes that the building is in good condition.
D.C. Foods: D.C. Food's 25,500 square foot facility is located at 35
Northland Road,
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Waterloo, Ontario. The facility contains approximately 20,500 square feet of
production space and 5,000 square feet of office space. The building is owned by
1005549 Ontario Limited, doing business through its wholly owned subsidiary D.C.
Foods. The building is equipped with three dock loading doors and two drive-in
doors. Management believes that the building is in good condition.
Tasty Selections: Tasty Selections' 21,000 square foot facility is located
at 610 Oster Lane, Concord Ontario. The monthly rental payment is $10,480.
Management believes that the building is in good condition.
Line of Credit: As of December 31, 1998, the Company and its subsidiaries,
not including Tasty Selections and D.C. Foods, have utilized an aggregate of
$1,030,000 of authorized lines of credit totaling $1,750,000. The lines of
credit bear interest ranging from Prime to Prime plus 1.5%. The outstanding
balances are due on demand and are secured by a general assignment of all assets
of the subsidiaries and a $950,000 limited guarantee of the Company.
Business Development Bank of Canada - Mortgage: On In November 1997, we
received a mortgage from the Business Development Bank of Canada ("BDC") with a
note for $550,000. The mortgage is repayable in monthly installments of $3,200
plus interest. Interest is calculated based on the BDC's floating base rate plus
1%. The note matures on June 23, 2012. The loan is secured by a first charge on
the land and building and a second charge on inventory and accounts receivable,
a $250,000 guarantee by an officer of the Company, a guarantee by the Company
for the full amount of the loan and an assignment of shareholders' loans owed by
Prime Foods to International Menu. Currently, this mortgage is outstanding as
follows:
Date Amount Outstanding
- - - - - - - - - - - - - - ---- ------------------
December 31, 1997 $597,000
December 31, 1998 $518,400
Business Development Bank of Canada - Equipment Loan: In December 1997, we
received a loan of $660,000 extended by the BDC. On December of 1998 we received
an additional $400,000 from the BDC. The loan is repayable in two principal
installments at December and January of each year for a 5-year term. Interest is
payable monthly at 1.25% above the BDC's daily floating base rate. The loan is
secured by a first charge on all personal property of Transcontinental.
Currently, this loan is outstanding as follows:
Date Amount Outstanding
- - - - - - - - - - - - - - ---- ------------------
December 31, 1997 $597,000
--------
December 31, 1998 $832,000
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Bank of Nova Scotia - Equipment Financing Loan: In November 1998, we
received a loan of $135,264 extended by the Bank of Nova Scotia. The loan is
repayable in monthly installments of $2,137 for a 5-year term. Interest is
payable monthly at the Bank of Nova Scotia's Prime rate plus 2.5%. The loan is
secured by a first charge over assets financed. Currently, this loan is
outstanding as follows
Date Amount Outstanding
- - - - - - - - - - - - - - ---- ------------------
December 31, 1997 $0
December 31, 1998 $133,128
Bank of Nova Scotia - To Repay BDC Loan: In July 1998, we received a loan
of $47,319 extended by the Bank of Nova Scotia. The loan is repayable in monthly
installments of $1,500 for a period of 39 months. Interest is payable monthly at
the Bank of Nova Scotia's Prime rate plus 2.5%. The loan is secured by a general
security agreement over all present and future personal property. Currently, the
loan is outstanding as follows:
Date Amount Outstanding
- - - - - - - - - - - - - - ---- ------------------
December 31, 1997 $0
December 31, 1998 $45,819
Royal Bank of Canada - Mortgage: In September 1996, D.C. Foods received a
mortgage from Royal Bank of Canada ("RBC") with a note for $700,000. The note is
repayable in monthly installments of $6,500 and matures at October 2010.
Interest is payable monthly at 7.52%. The note is secured by a general security
agreement covering all assets, except real property, and a collateral mortgage
covering property at 25 Northland Road, Waterloo, Ontario. Currently, the
mortgage is outstanding as follows:
Date Amount Outstanding
- - - - - - - - - - - - - - ---- ------------------
December 31, 1997 $666,937
December 31, 1998 $640,642
Royal Bank of Canada - Loan: In September 1999, D.C. Foods received a loan
of $200,000 extended by the RBC. The loan is repayable in monthly installments
of $4,010 and is due at October
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2001. Interest is payable monthly at RBC's Prime rate plus 1%. The loan is
secured by a general security agreement covering all assets except real
property, and a collateral mortgage covering property at 35 Northland Road,
Waterloo, Ontario. Currently, the loan is outstanding as follows:
Date Amount Outstanding
- - - - - - - - - - - - - - ---- ------------------
December 7, 1997 $155,920
December 6, 1998 $115,717
Royal Bank of Canada - Loan: In July 1995, D.C. Foods received a loan of
$28,000 extended by the RBC. The loan is repayable in monthly installments of
$705 and is due at May 1999. Interest is payable monthly at RBC's prime rate
plus 1%. The loan is secured by a general security agreement. Currently, the
loan is outstanding as follows:
Date Amount Outstanding
December 7, 1997 $11,931
December 6, 1998 $4,035
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Royal Bank of Canada - Loan: On August 1996, Tasty Selections received a
loan (secured debenture) of $280,000 from RBC. The loan is repayable in monthly
installments of $5,000 for a 5- year term. Interest is payable monthly at RBC's
floating base rate plus 3.5%. The loan is secured by (i) a first charge on all
fixed assets; (ii) a first floating charge on all other assets; (iii)
postponement for the period of financing of the landlord's interest in our
assets; and (iv) a priorities agreement.
Date Amount Outstanding
- - - - - - - - - - - - - - ---- ------------------
December 1997 $165,000
December 1998 $105,000
Royal Bank of Canada - Loan: On August 1996, Tasty Selections received a
loan (secured debenture) of $400,000 from RBC. The principal amount of the loan
is to repaid annually for a 5- year term, calculated at 20% of net after tax
profit. Interest is payable monthly at the RBC's floating base rate plus 3.5%.
At our option, we may pay annually additional interest calculated at 10% of
pre-tax profits with a minimum of $20,000 and a maximum of $50,000 due each
year. Upon the receipt of full payment of the year's additional interest, 4% of
the outstanding shares of the issuer which are held by the Holder shall be
returned to the issuer. The loan is secured by (i) a first charge on all fixed
assets; (ii) a first floating charge on all other assets; (iii) postponement for
the period of financing of the landlord's interest in our assets; and (iv) a
priorities agreement.
Date Amount Outstanding
- - - - - - - - - - - - - - ---- ------------------
December 1997 $398,627
December 1998 $356,627
Toronto Dominion Bank - Loan: On August 1996, Tasty Selections received a
loan of $250,000 from the Toronto Dominion Bank ("TDB"). The loan is repayable
in monthly installments of $4,166 for a period of 60 months. Interest is payable
at TDB's Prime rate plus 3%
Date Amount Outstanding
- - - - - - - - - - - - - - ---- ------------------
December 1997 $158,333
December 1998 $108,333
28
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of shares of voting
stock of the Company, as of May 13, 1999, of (i) each person known by the
Company to beneficially own 5% or more of the shares of outstanding common
stock; (ii) each of the Company's executive officers and directors; and (iii)
all of the Company's executive officers and directors as a group. Except as
otherwise indicated, all shares are beneficially owned, and the persons named as
owners hold investment and voting power.
Amount and Nature
Name and Address of of Shares Beneficially Percentage
Beneficial Owner Owned Owned(1)
---------------- ----- --------
Southbridge, Inc.(2) 1,523,810 8.8%
Michael Steele(3)(4) 1,513,712 8.7%
G.E. Creber(3)(5) 240,000 1.4%
Len Shiffman(3)(6) 380,000 2.2%
Larry Hoffman(3)(7) 545,000 3.2%
Victor Fradkin(3)(8) 1,200,000 6.9%
James 16,000 <1%
Guinchard(9)(10)
Sania Shechtman(11)(12) 25,000 <1%
Walter Vaz(11)(13) 1,000 <1%
Allan Greenspoon(14) 287,788 1.7%
Don Kilimnik(15) 446,667 2.6%
All Executive Officers
and Directors as a
Group 6,178,977 35.5%
- - - - - - - - - - - - - - ----------
(1) The percentage calculations are based on 17,389,253 shares which are
outstanding (including shares that are paid for in full but are not
issued) on a fully diluted basis as of May 13, 1999. The calculation
of
29
<PAGE>
the 17,389,253 shares is based on the following assumptions: (i) the
conversion of all Class N shares of common stock; (ii) the conversion
of Special B shares of International Menu into 1,900,000 shares of
common stock (the 1,900,000 Special B shares is based on an estimation
made by management); and (iii) the inclusion of underlying common
stock convertible from the exercise of in the money options and
warrants within 60 days.
(2) The address for 972198 Ontario, Ltd., a private Ontario corporation,
is 172 King Street East Toronto, Ontario.
(3) The address for Michael Steele, G.E. Creber, Len Shiffman, Victor
Fradkin and Larry Hoffman is 350 Creditstone, Suite 220, Concord,
Ontario.
(4) Michael Steele serves as the Company's Director and President.
(5) G.E. Creber serves as the Company's Director and Secretary.
(6) Len Shiffman serves as the Company's Director.
(7) Larry Hoffman serves as the Company's Treasurer, Vice President and
Chief Financial Officer.
(8) Victor Fradkin serves as the Director and President of
Transcontinental.
(9) The address for James Guinchard is 34 Mitton Place, Kitchener, Ontario
N2G 1B4.
(10) James Guinchard serves as the Director and President of Prime Foods.
(11) The address for Sania Shechtman and Walter Vaz is 350 Creditstone,
Suite 220, Concord, Ontario.
(12) Sania Shechtman serves as the Director of Norbakco.
(13) Walter Vaz serves as the Director and Secretary of Norbakco.
(14) Allan Greenspoon serves as the President of Tasty Selections. His
address is 50 Renaissance Court, Thornhill, Ontario L4J 7W4.
30
<PAGE>
(16) Don Kilimnik serves as President of D.C. Foods.
To the best of management's knowledge, there are no arrangements which may
result in a change of control of Company.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
a. Directors and Executive Officers: The Company's directors are elected at the
annual meeting of stockholders and hold office until their successors are
elected and qualified. The Company's officers are appointed annually by the
Board of Directors and serve at the pleasure of the Board.
There are no family relationships between any of the officers or directors
of the Company or its wholly owned subsidiaries.
As of May 13, 1999, the directors and executive officers of the Company and
its wholly owned subsidiaries, their ages, positions, the dates of their initial
election or appointment as directors or executive officers are as follows:
<TABLE>
<CAPTION>
International Menu Solutions Corporation:
Name Age Positions and Offices Presently Held with the Company
- - - - - - - - - - - - - - ---- --- -----------------------------------------------------
<S> <C> <C>
Michael Steele 41 President, Director
G.E. Creber 68 Secretary, Director
Len Shiffman 41 Director
Larry Hoffman 54 Treasurer, Vice President and Chief Financial Officer
<CAPTION>
International Menu:
Name Age Positions and Offices Presently Held with the Company
- - - - - - - - - - - - - - ---- --- -----------------------------------------------------
<S> <C> <C>
Michael Steele 41 President, Director
G.E. Creber 68 Secretary, Director
Len Shiffman 41 Director
Larry Hoffman 54 Treasurer, Vice President and Chief Financial
Officer
<CAPTION>
Prime Foods:
Name Age Positions and Offices Presently Held with the Company
- - - - - - - - - - - - - - ---- --- -----------------------------------------------------
<S> <C> <C>
James Guinchard 52 President, Director
</TABLE>
31
<PAGE>
<TABLE>
<S> <C> <C>
Michael Steele 41 Secretary, Treasurer and Director
<CAPTION>
Transcontinental:
Name Age Positions and Offices Presently Held with the Company
- - - - - - - - - - - - - - ---- --- -----------------------------------------------------
<S> <C> <C>
Michael Steele 41 Director
Victor Fradkin 42 President
Larry Hoffman 54 Vice President and Chief Financial Officer
<CAPTION>
Norbakco:
Name Age Positions and Offices Presently Held with the Company
- - - - - - - - - - - - - - ---- --- -----------------------------------------------------
<S> <C> <C>
Michael Steele 41 Director
Sania Shechtman 62 Director
Larry Hoffman 54 President and Director
Walter Vaz 32 Secretary and Director
<CAPTION>
Tasty Selections:
Name Age Positions and Offices Presently Held with the Company
- - - - - - - - - - - - - - ---- --- -----------------------------------------------------
<S> <C> <C>
Allan Greenspoon 45 President
<CAPTION>
D.C. Foods:
Name Age Positions and Offices Presently Held with the Company
- - - - - - - - - - - - - - ---- --- -----------------------------------------------------
<S> <C> <C>
Don Kilimnik 40 President
</TABLE>
b. Business Experience
32
<PAGE>
Michael Steele has served as the Company's President and Director since the
Company's inception in June 24, 1997. He also holds director and executive
officer positions with International Menu, Prime Foods, Transcontinental, and
Norbakco. Prior to joining the Company, from 1993 to 1995, Mr. Steele served as
an officer of Thermco Canada, an environmental technology company which he
founded. In 1993, Mr. Steele established headquarters for Thermco Canada in
Toronto, Canada and in Phoenix, Arizona. Other branch offices were established
in Europe and in the United Kingdom. In late 1994, Thermco Canada was purchased
by Halozone Technologies, a publicly traded environmental corporation publicly
traded on the Toronto Stock Exchange. From 1995 to 1997, Mr. Steele served as
Senior Vice President of Cott Corporation, a private food label. In late 1997,
he left the Cott Corporation and founded International Menu. Mr. Steele holds a
BAS.
G.E. Creber has served as Director and Secretary of the Company since its
inception in June 24, 1997. Mr. Creber also serves as a director and officer of
other reporting companies. He is the President and Chief Executive Officer of
International Pursuit Corporation, Director and Secretary of World Point
Terminals Inc. and Director of CML Industries Ltd. Mr. Creber is also a partner
at Fogler, Rubinoff, Barristers and Solicitors. He has held these positions
since 1994.
Len Shiffman has served as Director of the Company since December of 1998.
He also serves as Director of International Menu. Prior to joining the Company,
from 1985 to 1996, Mr. Shiffman served as Vice President in the Real Estate
Corporate Finance Department of Citibank Canada. Mr. Shiffman holds a BA and
MBA.
Larry Hoffman is the Treasurer, Vice President and Chief Financial Officer
of the Company. He has held these positions since the Company's inception in
June 24, 1997. He also holds director and executive officer positions with
International Menu, Transcontinental and Norbakco. Prior to joining the Company,
Mr. Hoffman served, from October 1995 to January 1997 as President of Prime
Bakers, Inc., a producer of frozen bakery products. From October 1994 to October
1995, he served as President of Prime Pastries, Inc., a producer of frozen non-
baked products. Mr. Hoffman holds a BA and CA.
Victor Fradkin has served as Director of Transcontinental since the
company's inception in 1986. After founding Transcontinental, he developed
manufacturing practices to mass- produce Fillo Dough and Fillo Hors D'oeuvres
which has allowed Transcontinental to grow into a major producer of these
specialty products in Canada.
James Guinchard has served as President of Prime Foods since its inception
in May of 1990. Mr. Guinchard has experience in various facets of the food
processing industry including production planning, product costing, inventory
control and master scheduling. He is also proficient in gas package
methodologies and vacuum machinery.
33
<PAGE>
Sania Shechtman has served as Vice President and Director of Norbakco since
April of 1998. Prior to joining Norbakco, from 1996 to 1998, Mr. Shechtman
served as President of Upper Crust International. From 1992 to 1996, He served
as Vice President of Prime Pastries, Inc. and Prime Bakers, Inc. Mr. Shechtman
has over 20 years of experience in the bakery industry and specializes in frozen
dough and baked frozen production of sweet goods.
Walter Vaz has served as Secretary and Director of Norbakco since May of
1998. Since 1994, Mr. Vaz has held management positions in hotels and
restaurants located in the Niagara region. He also lead the manufacturing
division of Peter Graben Fine Foods. Mr. Vaz is a graduate of Centennial
College's Food Service and Hospitality Program and has fourteen years of food
service experience.
Allan Greenspoon has served as President of Tasty Selections since 1996.
Prior to joining Tasty Selections, from 1987 to 1995, Mr. Greenspoon served as
President of Circlet Foods, Inc. Mr. Greenspoon has 19 years of experience in
the food processing industry.
Don Kilimnik has served as President of D.C. Foods since its inception in
1991. Prior to co-founding D.C. Foods, from 1987 to 1991, He served as General
Manager for Stillmeadow Farm in Elora, Ontario. Mr. Kilimnik has over 15 years
of experience in the food processing industry. He holds an MBA and BSc.
c. Directors of Other Reporting Companies
G.E. Creber, the Company's Director and Secretary is currently serving as
an officer and director of other reporting companies including International
Pursuit Corporation, World Point Terminals Inc. and CML Industries Ltd. See
"Directors, Executive Officers, Promoters and Control Persons - Business
Experience."
d. Significant Employees
The officers and directors who are identified above are the significant
employees of the Company.
e. Involvement in Certain Legal Proceedings
None of the officers and directors of the Company have been involved in the
past five years in any of the following:
(1) Bankruptcy proceedings;
(2) Subject to criminal proceedings or convicted of a criminal act;
34
<PAGE>
(3) Subject to any order, judgment or decree entered by any Court for
violating any laws relating to business, securities or banking
activities; or
(4) Subject to any order for violation of federal or state securities laws
or commodities laws.
ITEM 6. EXECUTIVE COMPENSATION
The following tables set forth information about compensation paid or
accrued by the Company during the years ended December 31, 1998 and 1997 to the
Company's officers and directors. Only one of the executive officers, Michael
Steele, President of the Company, earned over $US 100,000 ($CD 145,000) during
the year ended December 31, 1998. None of the other executive officers of the
Company earned more than $US 100,000 ($CD 145,000) during the years ended
December 31, 1998 and 1997.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensaton
Long Term Compensation
Securities
Name and Other Annual Restricted Underlying
Principal Salary Bonus Compensation Stock Options / LTIP Payout
Position Year ($) ($) ($) Awards ($) SARs (#) ($)
- - - - - - - - - - - - - - -------- ---- ------ ----- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael Steele,
President and
Director 1999 60,000 75,000 0 0 0 0
1998 150,000 0 0 642,400 0 0
1997 0 0 0 0 0 0
G.E. Creber,
Secretary and Director 1999 0 0 0 0 0 0
1998 0 0 0 0 100,000 0
1997 0 0 0 0 0 0
Len Shiffman,
Director 1999 36,000 0 0 0 100,000 0
1998 36,000 0 0 0 0 0
1997 0 0 0 0 0 0
</TABLE>
35
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Larry Hoffman,
Treasurer, Vice
President & Chief
Executive Officer 1999 30,000 0 0 0 0 0
1998 100,000 0 0 0 0 0
1997 100,000 0 0 0 0 0
Victor Fradkin,
Director 1999 27,000 0 0 0 0 0
1998 110,000 0 0 0 0 0
1997 110,000 0 0 0 0 0
James Guinchard,
President and
Director 1999 20,000 0 0 0 0 0
1998 70,000 0 0 0 0 0
1997 60,000 0 0 0 0 0
Sania Shechtman,
Director 1999 16,800 0 0 0 0 0
1998 5,200 0 0 0 0 0
1997 0 0 0 0 0 0
Walter Vaz,
Secretary and
Director 1999 0 0 0 0 0 0
1998 0 0 0 0 0 0
1997 0 0 0 0 0 0
Allan Greenspoon,
President 1999 30,000 0 0 0 0 0
1998 90,000 0 0 0 0 0
1997 90,000 0 0 0 0 0
Don Kilimnik,
President 1999 -- 0 0 0 0 0
1998 32,784 0 0 0 0 0
1997 259,464 0 0 0 0 0
</TABLE>
36
<PAGE>
Option / SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Number of
Securities % of Total Options Exercise or Base
Underlying Options / SARs Employees Price Expiration
Name and Principal / SARs (#) in Fiscal Year ($US/Share) Date
- - - - - - - - - - - - - - ------------------ ------------------ ------------------ ----------------- ----------
<S> <C> <C> <C> <C>
Michael Steele, President and Director 625,000 75.6% 0.70 ($CD 1.02) December 2003
G.E. Creber, 100,000 12.1% 0.70 ($CD 1.02) December 2003
Secretary and
Director
Len Shiffman, Director 100,000 12.1% 1.50 ($CD 2.19) December 2003
</TABLE>
Aggregated Option / SAR Exercises in Last Fiscal Year and FY-End Option / SAR
Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Name and Shares Options/ SAR's at In-the-Money Options/ SAR's
Principal Acquired on Value FY-End (#) Exercisable/ at FY-End ($) Exercisable/
Positions Exercise # Realized ($) Unexercisable Unexercisable
- - - - - - - - - - - - - - --------- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Michael Steele, 0 0 0 / 625,000 0 / 762,562
President and
Director
G.E. Creber, Secretary 0 0 0 / 100,000 0 / 122,193
and Director
Len Shiffman 0 0 0 / 100,000 0 / 4,594
Director
</TABLE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past two years, we have not entered into a transaction with a
value in excess of $US 60,000 ($CD 87,474) with a director, officer or
beneficial owner of 5% or more of the Company's capital stock.
ITEM 8. DESCRIPTION OF REGISTRANT'S SECURITIES
a. Common Stock: On June 24, 1997, the Company authorized the issuance of
25,000,000 shares of common stock, with a par value of $0.001. As of May 13,
1999, 9,746,735 shares of common stock are outstanding (including shares which
have been paid for in full, but not issued) and are being held by 72 holders of
record. All shares of common stock issued and outstanding are validly issued,
fully paid and non-assessable.
Each share of common stock entitles the holder thereof to one
non-cumulative vote, either in person or by proxy, at meetings of shareholders.
Shareholders of our common stock do not have cumulative voting rights.
Therefore, shareholders of more than 50% of the issued and outstanding shares of
common stock can elect all of the directors of the Company.
Class N Shares: The Class N shares are non-equity participating and are
entitled to identical voting rights as shares of common stock. We issued
4,000,000 Class N shares in connection with our acquisition of International
Menu and reserved for issuance an additional 2,200,000. Class N shares in our
acquisition of Transcontinental. As of May 13, 1999 there were a total of
3,602,170 Class N shares issued and outstanding.
International Menu has issued 3,602,170 Class X shares which are
convertible on the basis of one Class X share and one class N share for one
share of common stock of the Company. We have reserved for issuance 2,200,000
Class N shares. International Menu has issued Class B shares, Class C shares and
Class D shares. The shareholders of the Class B shares, the Class C shares and
the
37
<PAGE>
Class D shares are entitled to purchase for nominal consideration a number of
Class N shares based upon formulas contained in the Class B shares, the Class C
shares and the Class D shares. The Class B shares, the Class C shares and the
Class D shares together with a Class N share may be converted for shares of
common stock of the Company based upon the formulas contained in the Class B
shares, the Class C shares and the Class D shares.
b. Convertible Debenture: On May 3, 1999, International Menu completed a $4
Million financing in the form of a 5-year convertible debenture issued to First
Ontario Fund (Crosbie & Company) and Bank of Montreal Capital Group ("BMO
Capital Group"). The terms of the debenture are as follows: (i) the coupon rate
for year 1 is 7% and the coupon rate from year 2 to year 5 is 13%; (ii) The
debentures are convertible, at the option of the holder, into Class X shares of
International Menu and Class N shares of the Company at a price of $2.62 per
share; (iii) International Menu has the option to force conversion into Class X
and N shares at any time that the Company's stock trades above the United States
Dollar equivalent of $CD 5.50 as long as the Company's stock's daily trading
volume is maintained at a minimum of 20,0000 Shares per day for 20 business
days.
c. Private Placement Units: In November 1998, we offered 3,300,000 private
placement units consisting of 3,300,000 shares of common stock, with a par value
of $0.001 per share, and 1,500,000 redeemable stock purchase warrants, pursuant
to Regulation S of the Securities Act, as amended. Each warrant entitles the
registered holder to purchase one share of the Company's common stock at $US
1.40 ($CD 2.04) per share. The warrants may be exercised in whole or in part at
any time during the exercise period which expires May 30, 1999. To protect the
unit holders against dilution of the common shares underlying the warrants, the
number and kind of the securities purchasable upon the exercise of the warrants
will be adjusted if the Company (i) declares a dividend or makes a distribution
on its outstanding shares of Common stock in shares of Common stock; (ii)
subdivides or re-classifies its outstanding shares of Common stock into a
greater number of shares; or (iii) combines or reclassifies its outstanding
shares of Common stock into a smaller number of shares. The units have a minimum
holding period of one year from the date of the subscription agreements. We sold
1,997,300 units to seven investors for a total cash consideration of $US
1,666,124 ($CD 2,429,042) net of commission and offering costs.
d. "Anti-Takeover" Provisions: The Company's Certificate of Incorporation
contains certain provisions which may be deemed to be "anti-takeover" in nature
in that such provisions may deter, discourage or make more difficult the
assumption of control of the Company by another entity or person.
38
<PAGE>
PART II
ITEM 1. MARKET PRICE OF COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
a. Market Information
Since July 20, 1998, the common stock of the Company has been traded under
the symbol "MENU" on the system of the National Association of Securities
Dealers, Inc. known as the OTC Bulletin Board (the "Bulletin Board"). Prior to
the amalgamation of International Menu with and into the Company, our common
stock was traded under the symbol "ANMH."
To the best of our knowledge, there are presently five market-makers for
our common stock. When stock is traded in the public market, characteristics of
depth, liquidity and orderliness of the market being made in the stock depends
on the existence of market-makers as well as the presence of willing buyers and
sellers. There can be no assurance that these market-makers will continue to
make a market for our common stock.
The principal market for our common stock is the Bulletin Board. The range
of high and low bids to purchase our common stock on the Bulletin Board for the
first quarter of 1999 and each quarter within the last two fiscal years is as
follows:
Quarter Low Bid High Bid
1998 (2nd Quarter) $3/8 $1
1998 (3rd Quarter) $1 $1 1/32
1998 (4th Quarter) $7/8 $1 5/8
1999 (1st Quarter) $1 1/4 $2 1/5
April 1999 $2 1/8 $2.46
b. Holders
As of March 31, 1999, the total number of issued and outstanding Class X
shares of International Menu and the total number of issued and outstanding
Class N shares of the Company was 5,090,462. One Class X share and one Class N
share, when combined, are convertible into one common share of the Company.
c. Dividends
39
<PAGE>
The Company has never paid cash dividends on its stock and does not intend
to do so in the foreseeable future. We currently intend to retain our earnings
for the operation and expansion of the business. Our continued need to retain
earnings for operations and expansion is likely to limit our ability to pay
dividends in the future.
ITEM 2. LEGAL PROCEEDINGS
The Company and its wholly owned subsidiaries each experiences routine
litigation in the normal conduct of its business. Neither the Company nor its
subsidiaries believes that any such pending litigation, if any, will have,
individually or in the aggregate, a material adverse effect on its respective
business or financial condition.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There have been no disagreements with our independent accountants over any
item involving the Company's financial statements. Our independent accountants
are Deloitte & Touche, LLP, 55 King Street West, Suite 700, Kitchener, Ontario
N2G 4W1.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In September 1997, we issued an aggregate of 1,000,000 shares of restricted
common stock, with a par value of $0.001 per share, pursuant to Regulation D of
the Securities Act, as amended. All 1,000,000 shares were sold to two investors
for total cash consideration of $1,000 net of commission and offering costs. The
shares were issued as follows:
Purchaser Date of Purchase Number of Common
Shares
Knight Financial, Ltd. 8/25/97 100,000
G.M. Capital Partners, Ltd. 9/25/97 900,000
In July of 1998, as a condition of the amalgamation agreement between the
Company and International Menu, G.M. Capital Partners, Ltd. and Knight
Financial, Ltd. Canceled and returned to the treasury of the Company all
restricted shares of common stock subscribed to in the September 1997 offering.
In October 1997, we issued a total of 1,250,000 shares of common stock,
with a par value of $0.001 per share, pursuant to Rule 504 of Regulation D of
the Securities Act, as amended. All
40
<PAGE>
1,250,000 shares were sold to seven investors for a total cash consideration of
$12,500 net of commission and offering costs. The shares were issued as follows:
Purchaser Date of Purchase Number of Common
Shares
International Treasury &
Investments 10/21/97 220,000
International Commerce
Clearing Corporation 10/21/97 220,000
Norton International
Holdings, Ltd. 10/21/97 220,000
Tiger Eye Investments
(Cayman), Ltd. 10/21/97 220,000
Llewellyn Capital Trust
Foundation 10/21/97 220,000
Knight Family Trust 10/21/97 40,000
Michie Family Trust 10/21/97 110,000
In November 1997, we issued a total of 28,000 shares of common stock, with
a par value of $0.001 per share, pursuant to Rule 504 of Regulation D of the
Securities Act, as amended. All 28,000 shares were sold to twenty-eight
investors for a total cash consideration of $1,400 net of commission and
offering costs. The shares were issued as follows:
Purchaser Date of Purchase Number of Common
Shares
Earle Lewis 11/1/97 1,000
Pam Lewis 11/1/97 1,000
Melanie Lewis 11/1/97 1,000
Sherrye Sailes 11/1/97 1,000
Sheyne Almond 11/1/97 1,000
Sheyanne Almond 11/1/97 1,000
Rheece Metcalfe 11/1/97 1,000
Raelyn Metcalfe 11/1/97 1,000
Cathryn Newman 11/1/97 1,000
Gary Newman 11/1/97 1,000
Mitchell Newman 11/1/97 1,000
41
<PAGE>
Nicholas Newman 11/1/97 1,000
Philip Fox 11/1/97 1,000
Carole Fox 11/1/97 1,000
David Shaw 11/1/97 1,000
Mary-Margaret Mackinnon 11/1/97 1,000
Thomas Shaw 11/1/97 1,000
Sandy Michie 11/1/97 1,000
Pat Michie 11/1/97 1,000
Dene Knight 11/1/97 1,000
Lorraine Knight 11/1/97 1,000
Doug Knight 11/1/97 1,000
Kathy Knight 11/1/97 1,000
Darcy Knight 11/1/97 1,000
Tyler Knight 11/1/97 1,000
Bill Roberts 11/1/97 1,000
Doug Harrington 11/1/97 1,000
Ed Smith 11/1/97 1,000
In April 1998, we issued 400,000 shares of common stock, with a par value
of $0.001 per share, pursuant to Rule 504 of Regulation D of the Securities Act,
as amended. All 400,000 shares were sold to three investors for a total cash
consideration of $4,000 net of commission and offering costs. The shares were
issued as follows:
Purchaser Date of Purchase Number of Common
Shares
Tiger-Eye Investments
(Cayman) Ltd. 4/9/98 150,000
Llewellyn Capital Trust
Foundation 4/9/98 150,000
Luserna Stiftung 4/9/98 100,000
In July 1998, we issued a total of 1,400,000 shares of common stock, with a
par value of $0.001 per share, pursuant to Rule 504 of Regulation D of the
Securities Act, as amended. All 1,400,000 shares were sold to six investors for
a total cash consideration of $US 925,000 ($CD 1,348,557.50) net of commission
and offering costs. The shares were issued as follows:
42
<PAGE>
Purchaser Date of Purchase Number of Common
Shares
Tinamilu Holdings, Inc. 7/6/98 233,333
Brockton International 7/6/98 233,333
Wifsta Limited 7/6/98 233,333
Deevale Limited 7/6/98 233,333
Dover IX Investment Limited 7/6/98 233,335
IPO International, Ltd. 7/6/98 233,333
In November 1998, we offered 3,300,000 private placement units consisting
of 3,300,000 shares of common stock, with a par value of $0.001 per share, and
1,500,000 redeemable stock purchase warrants, pursuant to Regulation S of the
Securities Act, as amended. Each warrant entitles the registered holder to
purchase one share of the Company's common stock at $1.40 per share. We sold
1,997,300 units to seven investors for a total cash consideration of $US
1,666,124 ($CD 2,620,677.30) net of commission and offering costs. The units
were issued as follows:
Purchaser Date of Purchase Number of Common
Shares
Christopher Smith 157,000
Larry Hoffman 110,000
Victor Fradkin 220,000
Thinomen Gronberg and
William Gronberg 110,000
Dover IX Investments, Ltd. 575,300
Mario Girorgio in Trust 220,000
Canadian Food Fund Corp. 165,000
On May 3, 1999, International Menu completed a $4 Million financing in the
form of a convertible debenture issued to First Ontario Fund (Crosbie & Company)
and "BMO Capital Group. The First Ontario Fund and BMO Capital Group advanced
$2.5 Million and $1.5 Million respectively to the Company. The strike price for
the convertible debenture is $2.62 per share.
On April 16, 1999 Southbridge Inc. subscribed for 1,523,810 Common shares
of the Company at a subscription price of $2.625 per Common share. As part of
the subscription the Company granted to Southbridge 400,000 warrants which
entitle Southbridge to purchase up to 200,000 Common shares at the price of
$2.25 per Common Share during the period to April 16,
43
<PAGE>
2000 and 200,000 Common shares at the price of $2.625 per Common share during
the period to April 16, 2001. In connection with such subscription the Company
entered into additional agreements with Southbridge which address registration
rights and future financings of the Company.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our By-laws provide for such indemnification of our officers and directors
to the extent permitted by the Nevada General Corporation Law ("NGL"). Section
78.7502 of the NGL permits a corporation to indemnify any officer, director,
employee, or agent, who is, was, or is threatened to be made a party to any
action, whether civil, criminal, administrative, or investigative, except an
action by or in the right of the corporation, by reason of the fact that he is
or was an officer, director, employee, or agent, if he acted in good faith and
in a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in the case of a criminal action, he had no
reasonable cause to believe that his conduct was unlawful. In the case in which
a director, officer, employee, or agent of a corporation has been successful on
the merits or otherwise in defense of such action, the corporation must
indemnify him for expenses, including attorneys' fees, actually and reasonably
incurred by him insofar as indemnification for liabilities arising under the
federal securities laws may be permitted to directors and controlling persons of
the issuer, the issuer has been advised that in the opinion of the securities
and exchange commission such indemnification is against public policy as
expressed in the law and is, therefor, unenforceable. In the event a demand for
indemnification is made, the issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the law and will be governed by the final
adjudication of such issues.
Such indemnification provisions are intended to increase the protection
provided directors and, thus, increase our ability to attract and retain
qualified persons to serve as directors. Because directors liability insurance
is only available at considerable cost and with low dollar limits of coverage
and broad policy exclusions, we do not currently maintain a liability insurance
policy for the benefit of our directors, although we may attempt to acquire such
insurance in the future. We believe that the substantial increase in the number
of lawsuits being threatened or filed against corporations and their directors
and the general unavailability of directors liability insurance to provide
protection against the increased risk of personal liability resulting from such
lawsuits have combined to result in a growing reluctance on the part of capable
persons to serve as members of boards of directors of companies, particularly of
companies which intend to become public companies. We also believe that the
increased risk of personal liability without adequate insurance or other
indemnity protection for our directors could result in overcautious and less
effective direction and management of the Company. Although no directors have
resigned or have threatened to resign as a result of our failure to provide
insurance or other indemnity protection from liability, it is uncertain whether
our directors would continue to serve in such capacities if improved
44
<PAGE>
protection from liability were not provided.
The provisions affecting personal liability do not abrogate a director's
fiduciary duty to the Company and its stockholders, but eliminates personal
liability for monetary damages for breach of that duty. The provisions do not,
however, eliminate or limit the liability of a director for failing to act in
good faith, for engaging in intentional misconduct or knowingly violating a law,
for authorizing the illegal payment of a dividend or repurchase of stock, for
obtaining an improper personal benefit, for breaching a director's duty of
loyalty (which is generally described as the duty not to engage in any
transaction which involves a conflict between the interest of the Company and
those of the director) or for violations of the federal securities laws. The
provisions also limit or indemnify against liability resulting from grossly
negligent decisions including grossly negligent business decisions relating to
attempts to change control of the Company.
The provisions regarding indemnification provide, in essence, that we will
indemnify our directors against expenses (including attorney's fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred in
connection with any action, suit or proceeding arising out of the director's
status as a director of the Company, including actions brought by or on behalf
of the Company (shareholder derivative actions). The provisions do not require a
showing of good faith. Moreover, they do not provide indemnification for
liability arising out of willful misconduct, fraud, or dishonesty, for
"short-swing" profits violations under the federal securities laws, or for the
receipt of illegal remuneration. The provisions also do not provide
indemnification for any liability to the extent such liability is covered by
insurance. One purpose of the provisions is to supplement the coverage provided
by such insurance. However, as mentioned above, we do not currently provide such
insurance to its directors, and there is no guarantee that we will provide such
insurance to our directors in the near future, although we may attempt to obtain
such insurance.
These provisions diminish the potential rights of action which might
otherwise be available to shareholders by limiting the liability of officers and
directors to the maximum extent allowable under Nevada law and by affording
indemnification against most damages and settlement amounts paid by a director
of the Company in connection with any shareholder derivative action. However,
the provisions do not have the effect of limiting the right of a shareholder to
enjoin a director from taking actions in breach of his fiduciary duty, or to
cause the Company to rescind actions already taken, although as a practical
matter courts may be unwilling to grant such equitable remedies in circumstances
in which such actions have already been taken. Also, because we do not presently
have directors liability insurance and because there is not assurance that we
will retain such insurance or that if such insurance is procured it will provide
coverage to the extent directors would be indemnified under the provision, we
may be forced to bear a portion or all of the cost of the director's claims for
indemnification under such provisions. If we are forced to bear the cost for
indemnification, the value of our stock may be adversely affected.
Insofar as indemnification for liabilities arising under the Securities
Act, as amended, may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing
45
<PAGE>
provisions, or otherwise, the Company has been advised that such
indemnification, in the opinion of the SEC, is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
We believe that these provisions will assist the Company in attracting and
retaining qualified individuals to serve as directors.
PART F/S
ITEM 1. FINANCIAL STATEMENTS
For information regarding this item, reference is made to the "Index of
Financial Statements."
PART III
ITEM 1. INDEX TO EXHIBITS
2.0 Acquisition of International Menu(1)
2.1 Acquisition of Prime Foods(1)
2.2 Acquisition of Pasta Kitchen(1)
2.3 Acquisition of Transcontinental(1)
2.4 Acquisition of Norbakco(1)
3.0 Articles of Incorporation(1)
3.1 By-Laws(1)
4.0 Instruments defining the rights of security holders, including
indentures(1)
5.0 Opinion re: Legality(1)
10.0 Lease Agreement between Prime Foods and Add Commercial Leasing, for metal
detector and conveyor(1)
10.1 Lease Agreement between Thornhill Bakery Ltd. and Contemar Manufacturing
Inc., for flour silos and weigh hopper(1)
10.2 Lease Agreement between Norbakco, Transontinental and Dinetz Restaurant
Equipment Ltd., for utensil cart washer(1)
10.3 Lease Agreement between Norbakco, and MTC Leasing Inc., for label
applicator and electrical dispenser(1)
10.4 Lease Agreement between Transcontinental and Toshiba, for copier, stand
and bin sorter(1)
10.5 Lease Agreement between Transcontinental and Northstar Leasing Corp., for
lift truck, 1996 Chevrolet Cutaway Van and 1995 Dodge Neon(1)
10.6 Lease Agreement between Prime Foods and Newcourt Financial Ltd., for used
Crown equipment(1)
10.7 Amending Agreement between Prime Foods and Newcourt Financial Ltd(1)
10.8 Lease Agreement between Prime Foods and BML Leasing Limited for 1996
Honda Civic(1)
10.9 Lease Agreement between Prime Foods and Scherer Pontiac Buick GMC Ltd.,
for a 1997 GMC Safari Van and 1997 Buick Riveria(1)
10.10 Lease Agreement between Prime Foods and Add Commercial Leasing, for two
Pentium computers, including monitors and laser jet printer(1)
10.11 Amended Agreement between Prime Foods and Add Commercial Leasing(1)
10.12 Lease Agreement between Prime Foods and Add Commercial Leasing, for a
Coulter Cook Unit(1)
10.13 Rental Agreement between Prime Foods and Union Gas, for two commercial
water heaters(1)
10.14 Lease Agreement between Prime Foods and Somerville packaging, for
equipment(1)
10.15 Lease Agreement between Prime Foods and GE Capital Canada Inc., for a
vacuum filing machine(1)
10.16 Consulting Agreement between International Menu and Michael Bayback and
Company, Inc., for investor relations and media consulting services(1)
10.17 Contract Agreement between International Menu and Brian Katz(1)
10.18 Consultant Agreement between International Menu and Patti Ensor(1)
10.19 Consultant Agreement between International Menu and Bernard McGouran(1)
10.20 Consultant Agreement between International and Theodore Geatros(1)
10.21 Contract Agreement between Transcontinental and Rhys Quin(1)
10.22 Contract Agreement between Interantional and Larry Hoffman(1)
10.23 Contract Agreement between Transcontinental and Victor Fradkin(1)
11.0 Statement re: computation of earnings per share(1)
12.0 Statement re: computation of ratios(1)
14.0 Material foreign patents(1)
46
<PAGE>
21.0 Subsidiaries of the registrant(1)
21.1 International Menu(1)
21.2 Prime Foods(1)
21.3 Pasta Kitchen(1)
21.4 Transcontinental(1)
21.5 Norbakco(1)
27.0 Financial data schedule(1)
99.0 Additional Exhibits(1)
- - - - - - - - - - - - - - ----------
(1) To be provided in subsequent amendment.
INDEX TO FINANCIAL STATEMENTS
The following documents are filed as part of this Registration Statement.
Independent Auditor's Report for Audited Consolidated Financial Statements for
the years ended December 31, 1998 and 1997.
Audited Consolidated Balance Sheets for the years ended December 31, 1998 and
1997.
Audited Consolidated Statements of Operation for the years ended December 31,
1998 and 1997.
Audited Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 1998 and 1997.
Audited Consolidated Statements of Cash Flow for the years ended December 31,
1998 and 1997.
Notes to Consolidated Financial Statements for the years ended December 31, 1998
and 1997.
Pro Forma Consolidated Balance Sheets.
Notes to Pro Forma Consolidated Balance Sheets.
47
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form 10-SB and authorized this Registration
Statement to be signed on its behalf by the undersigned, on May 13, 1999.
International Menu Solutions Corporation
By:___________________________
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
Signature Title Date
/s/ Michael Steele Director and President May 14, 1999
- - - - - - - - - - - - - - ---------------------------
(Michael Steele)
/s/ G.E. Creber Director and President May 14, 1999
- - - - - - - - - - - - - - ---------------------------
(G.E. Creber)
/s/ Len Shiffman Director May 14, 1999
- - - - - - - - - - - - - - ---------------------------
(Len Shiffman)
<PAGE>
Independent Auditors' Report
To the Stockholders of International Menu Solutions Corporation
We have audited the accompanying consolidated balance sheets of International
Menu Solutions Corporation and subsidiaries as of December 31, 1998 and December
31, 1997 and the related consolidated statements of operations, stockholders'
equity and cash flows for the year ended December 31, 1998 and for the period
from the date of incorporation, September 26, 1997 to December 31, 1997. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 our audits provide a reasonable basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of International Menu Solutions
Corporation and subsidiaries as of December 31, 1998 and December 31, 1997 and
the results of their operations and their cash flows for year ended December 31,
1998 and for the period from the date of incorporation, September 26, 1997 to
December 31, 1997 in conformity with accounting principles generally accepted
accounting principles in the United States.
/s/ Deloitte & Touche LLP
- - - - - - - - - - - - - - -------------------------
Chartered Accountants
March 25, 1999, except as to
Notes 19c), d) and e) which are as
of April 16, 1999
<PAGE>
INTERNATIONAL MENU SOLUTIONS CORPORATION
Consolidated Balance Sheets
(Canadian dollars)
================================================================================
<TABLE>
<CAPTION>
December 31,
1998 1997
------------ ------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,865,612 $ 299,274
Accounts receivable - net 2,270,251 269,466
Inventories 1,299,890 236,434
Prepaid expenses 100,633 16,766
- - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------
5,536,386 821,940
CAPITAL ASSETS, NET (Note 4) 3,617,196 905,475
INTANGIBLE ASSETS, NET (Note 5) 4,627,070 339,365
- - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------
$ 13,780,652 $ 2,066,780
====================================================================================================
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (Note 6) $ 1,100,849 $ 40,000
Accounts payable 2,072,485 512,386
Accrued liabilities 937,940 53,220
Current portion of capital lease obligation (Note 7) 94,486 --
Current portion of long-term debt (Note 8) 279,044 31,600
- - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------
4,484,804 637,206
CAPITAL LEASE OBLIGATION (Note 7) 297,387 --
LONG-TERM DEBT (Note 8) 1,250,303 518,400
DEFERRED INCOME TAXES 93,000 --
- - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------
6,125,494 1,155,606
- - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------
MINORITY INTEREST (Note 10) 3,374,000 --
- - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------
COMMITMENTS (Note 9)
STOCKHOLDERS' EQUITY
Class A preferred stock - no par value; unlimited shares
authorized; Nil and 700,000 shares issued -- 280,320
Class N voting, non-participating stock - US$0.001 par value;
10,000,000 shares authorized; 3,190,462 and 4,000,000
shares issued 4,586 5,800
Common stock - US$0.001 par value; 25,000,000 shares
authorized; 5,884,838 and 1,678,000 shares issued 8,164 1,854
Additional paid-in capital 4,871,951 664,997
Deficit (603,543) (41,797)
- - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------
4,281,158 911,174
- - - - - - - - - - - - - - ----------------------------------------------------------------------------------------------------
$ 13,780,652 $ 2,066,780
====================================================================================================
</TABLE>
See notes to consolidated financial statements
<PAGE>
INTERNATIONAL MENU SOLUTIONS CORPORATION
Consolidated Statements of Operations
(Canadian dollars)
================================================================================
<TABLE>
<CAPTION>
Period from
The date of
of incorporation,
Year ended September 26,
December 31, 1997 to
1998 December 31, 1997
----------- -----------------
<S> <C> <C>
REVENUE $ 6,096,048 $ 442,493
- - - - - - - - - - - - - - -------------------------------------------------------------------------------
COSTS AND EXPENSES
Cost of goods sold 4,729,806 365,385
Selling expenses 610,033 12,516
Research and development 425,542 5,663
Administrative expenses 765,089 92,143
Amortization of Intangibles 67,473 5,728
- - - - - - - - - - - - - - -------------------------------------------------------------------------------
6,597,943 481,435
- - - - - - - - - - - - - - -------------------------------------------------------------------------------
LOSS FROM OPERATIONS (501,895) (38,942)
- - - - - - - - - - - - - - -------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest revenue 24,763 1,268
Interest expense (98,066) (4,123)
- - - - - - - - - - - - - - -------------------------------------------------------------------------------
(73,303) (2,855)
- - - - - - - - - - - - - - -------------------------------------------------------------------------------
LOSS BEFORE
NON-CONTROLLING INTEREST (575,198) (41,797)
MINORITY INTEREST 26,000 --
- - - - - - - - - - - - - - -------------------------------------------------------------------------------
NET LOSS $ (549,198) $ (41,797)
===============================================================================
NET LOSS PER SHARE - BASIC AND DILUTED (Note 15) $ (0.09) $ (0.01)
===============================================================================
WEIGHTED AVERAGE OUTSTANDING
COMMON SHARES (Note 15)
6,419,141 5,278,000
===============================================================================
</TABLE>
See notes to consolidated financial statements
<PAGE>
INTERNATIONAL MENU SOLUTIONS CORPORATION
Consolidated Statements of Stockholders' Equity
(Canadian dollars)
- - - - - - - - - - - - - - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Additional
Preferred Class N Common Paid-In
Shares Amount Shares Amount Shares Amount Capital
--------- ----------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, September 26, 1997 -- $ -- -- $ -- -- $ -- $ --
Issuance of common shares 4,000,000 672,651
Issuance of Class A
preferred shares 700,000 280,320
Effect of reverse
acquisition (see Note 10) 4,000,000 5,800 (2,322,000) (670,797) 664,997
Net loss
- - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1997 700,000 280,320 4,000,000 5,800 1,678,000 1,854 664,997
Issuance of common shares 3,397,300 5,096 4,206,954
Fair value of brokers'
options (Note 10) (1,058,300)
1,058,300
Fair value of warrants'
issued in private
placement (Note 10) (1,622,900)
1,622,900
Redemption of Class A
preferred shares (700,000) (280,320)
Share exchange (Note 10) (809,538) (1,214) 809,538 1,214
Net loss
- - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1998 $ -- $ -- 3,190,462 $ 4,586 5,884,838 $ 8,164 $ 4,871,951
====================================================================================================================================
<CAPTION>
Total
Accumulated Shareholders'
Deficit Equity
----------- ---------
<S> <C> <C>
Balances, September 26, 1997 $ -- --
Issuance of common shares 672,651
Issuance of Class A
preferred shares 280,320
Effect of reverse
acquisition (see Note 10)
--
Net loss (41,797) (41,797)
- - - - - - - - - - - - - - -------------------------------------------------------------
Balances, December 31, 1997 (41,797) 911,174
Issuance of common shares 4,212,050
Fair value of brokers'
options (Note 10) (1,058,300)
1,058,300
Fair value of warrants'
issued in private
placement (Note 10) (1,622,900)
1,622,900
Redemption of Class A
preferred shares (12,548) (292,868)
Share exchange (Note 10)
--
Net loss (549,198) (549,198)
- - - - - - - - - - - - - - -------------------------------------------------------------
Balances, December 31, 1998 $ (603,543) $ 4,281,158
=============================================================
</TABLE>
See notes to consolidated financial statements
<PAGE>
INTERNATIONAL MENU SOLUTIONS CORPORATION
Consolidated Statements of Cash Flows
(Canadian dollars)
================================================================================
<TABLE>
<CAPTION>
Period from the date
of incorporation,
Year ended September 26, 1997
December 31, to December 31,
1998 1997
------------ ---------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (549,198) $ (41,797)
Item not requiring cash
Depreciation and amortization 163,946 17,144
Minority interest (26,000) --
Changes in operating assets and liabilities
Accounts receivable (489,189) (75,067)
Inventories 408,787 (33,406)
Prepaid expenses (21,271) (4,216)
Accounts payable 7,568 80,026
Accrued liabilities -- 50,051
- - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------
(505,357) (7,265)
- - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (216,397) (16,835)
Additions to intangible assets (14,332) (4,050)
Acquisitions, net of cash acquired in 1997 - $2,514; including
bank overdraft assumed in 1998 - $1,126,779 (2,671,529) (665,547)
- - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------
(2,902,258) (686,432)
- - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of shares 4,212,050 952,971
Bank loans 1,202,348 40,000
Payment of long-term debt and capital lease principal (147,577) --
Redemption of Class A preferred stock (292,868) --
- - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------
4,973,953 992,971
- - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,566,338 299,274
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 299,274 --
- - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,865,612 $ 299,274
================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 98,066 $ 4,123
================================================================================================
Cash paid during the period for income taxes $ -- $ --
================================================================================================
</TABLE>
See notes to consolidated financial statements
<PAGE>
INTERNATIONAL MENU SOLUTIONS CORPORATION
Notes to Consolidated Financial Statements
(Canadian dollars)
================================================================================
1. DESCRIPTION OF BUSINESS
The Company develops, markets and produces a series of specialty food
products for sale to large food retailer chains and specialty food
retailers.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States, the most significant of
which are as follows:
Basis of presentation
The consolidated financial statements include the accounts of the
International Menu Solutions Corporation (a Nevada corporation) (the
"Company" or "IMSC") and its wholly owned operating subsidiaries,
International Menu Solutions Inc. ("IMSI"), Prime Foods Processing Inc.
("PFPI"), Transcontinental Gourmet Foods Inc. ("TGF"), and Norbakco Ltd.
("Norbakco") which is 59% owned by IMSI, (all are Ontario corporations).
On July 16, 1998, the Company (which at the time was named ANM Holdings
Corporation, a Nevada Corporation ("ANM")) acquired all of the outstanding
common stock of IMSI. This transaction was treated as a reverse acquisition
of ANM as the former shareholders of the IMSI retained the majority voting
interest of the combined entity. Accordingly, IMSI is deemed to be the
accounting acquirer, whereby the financial statements represent those of
the IMSI and not the legal acquirer, ANM. The historical financial
statements are those of IMSI. The entity's outstanding capital stock
represents the historical capital stock of ANM and the stock issued in the
reverse acquisition.
Foreign currency translation
The Company's functional currency is the Canadian dollar. Transactions
incurred in currencies other than the functional currency are converted to
the functional currency at the transaction date. Monetary assets and
liabilities denominated in a currency other than the functional currency
are converted to the functional currency at the exchange rate in effect at
each period end. All foreign currency transaction gains or losses have been
included in earnings.
Revenue recognition
Revenue is recognized upon shipment of goods to customers net of allowances
for expected returns for fresh-food deliveries.
Inventory
Inventory is valued at the lower of cost and net realizable value with cost
being determined on a first-in, first-out basis.
<PAGE>
Capital assets
Capital assets are recorded at cost. Depreciation is provided at the
following rates:
Building 20 years straight-line
Plant equipment 5 to 10 years straight-line
Leasehold improvements Straight line over the lease term,
typically five years
Office equipment 20% declining-balance
Computer equipment 30% declining-balance
Intangible assets
Intangible assets are recorded at cost and represent packaging artwork and
goodwill. Amortization periods are as follows:
Packaging artwork 3 to 5 years straight-line
Goodwill 20 to 40 years straight-line
Asset impairment
The Company reviews the carrying value of intangible and other long-lived
assets on a periodic basis for evidence of impairment. An impairment loss
is recognized when the estimate of undiscounted future cash flows generated
by such assets is less than the carrying amount. Measurement of the
impairment loss is based on the present value of the expected future cash
flows.
Income taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). SFAS 109 requires the determination of deferred tax assets
and liabilities based on the differences between the financial statement
and income tax bases of tax assets and liabilities, using enacted tax rates
in effect for the year in which the differences are expected to reverse.
The measurement of a deferred tax asset is adjusted by a valuation
allowance, if necessary, to recognize tax benefits only to the extent that,
based on available evidence, it is more likely than not that they will be
realized.
Cash and cash equivalents
Investments in highly liquid debt instruments with original maturities of
90 days or less are designated as cash and cash equivalents.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenues and expenses
during the reported periods. Actual results could differ materially from
those estimates and assumptions.
<PAGE>
Recently issued accounting pronouncements
In February, 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share", which has been adopted by the Company. Upon the adoption of SFAS
No. 128, the Company is presenting basic earnings per share and diluted
earnings per share. Basic earnings per share is computed by dividing the
net earnings available to common shareholders by the weighted average
number of common shares outstanding for the year. Diluted earnings per
share is derived by adjusting the basic earnings per share calculation to
reflect the effect of securities with dilutive potential. The computation
of diluted earnings per share does not include securities with dilutive
potential that would have an anti-dilutive effect on earnings per share.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for the reporting
and presentation of comprehensive income and its components. The Company's
adoption of SFAS No. 130 had no material effect on the consolidated
financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards
for the reporting and identification of operating segments and requires
certain financial and descriptive information regarding those segments. The
Company operates in one business segment and consequently the adoption of
SFAS No. 131 had no material effect on the consolidated financial
statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes standards for
the reporting and accounting for derivative instruments. Presently, the
Company currently does not use derivative instruments or conduct hedging
activities. Management is in the process of determining the impact of such
statement on the consolidated financial statements.
3. ACQUISITIONS
Year ended December 31, 1998
During the year ended December 31, 1998, the Company acquired the
businesses, set out in the table below, which have been accounted for using
the purchase method:
<TABLE>
<CAPTION>
Pasta Kitchen(1) TGF/Norbakco(2)
--------------- ---------------
<S> <C> <C>
Acquisition date October 9, 1998 December 1, 1998
Estimated purchase price including acquisition costs $ 395,000 $ 4,970,000
--------------------------------------------------------------------------------------------------------------------
Assigned to fair values of net assets acquired:
Current assets 105,480 2,922,456
Capital assets 200,000 2,222,690
Current liabilities (146,408) (2,957,865)
Long-term liabilities -- (1,199,268)
--------------------------------------------------------------------------------------------------------------------
159,072 988,013
--------------------------------------------------------------------------------------------------------------------
Goodwill $ 235,928 $ 3,981,987
====================================================================================================================
</TABLE>
(1) The Company acquired the assets of Pasta Kitchen for cash
consideration of approximately $375,000 plus acquisition costs of
$20,000. Additional consideration, currently estimated at $340,000, is
payable, at the option of the Company, in cash or common shares during
1999 based on the achievement of certain revenue targets. Due to the
contingent nature of the additional consideration, its value will be
recorded as goodwill when the conditions are resolved.
<PAGE>
(2) The Company acquired all of the outstanding shares of TGF and 59% of
the outstanding shares of Norbakco Ltd., a sister corporation of TGF.
Cash of $1,000,000 was paid to the vendors on closing. An estimated
additional cash payment of $600,000 is payable during 1999 based on
the net book value of TGF in excess of $1,000,000. The estimated
additional cash payment has been recorded as a liability as of
December 31, 1998. The balance of the purchase price of $3.4 million
was paid in the form of shares of IMSI, issued December 1, 1998, which
are exchangeable for shares of the Company (see Note 10).
Unaudited supplemental pro forma results of operations
The following table presents unaudited pro forma revenue, net loss and loss
per share as if the Company had acquired all of TGF, Norbacko and Pasta
Kitchen on January 1, 1998.
Year ended
December 31, 1998
-----------------
Revenue $ 13,013,807
Net Loss (458,123)
Net Loss per share $ (0.07)
==========================================================================
Period ended December 31, 1997
PFPI
----------------
Acquisition date November 1, 1997
Total consideration and acquisition costs $ 665,547
------------------------------------------------------------------------
Assigned to fair values of net assets acquired
Current assets 412,491
Capital assets 968,793
Current liabilities (438,093)
Long-term debt (550,000)
------------------------------------------------------------------------
393,191
------------------------------------------------------------------------
Goodwill $ 272,356
========================================================================
The Company acquired all the issued and outstanding shares of PFPI for cash
consideration of $374,000. Pro forma supplementary information has not been
presented as the Company was incorporated September 26, 1997.
<PAGE>
4. CAPITAL ASSETS
December 31,
1998 1997
---------- ----------
Cost
Land $ 120,000 $ 120,000
Building 854,524 764,803
Leasehold improvements 104,671 --
Plant equipment 2,383,349 20,686
Office equipment 225,973 4,677
Computer equipment 31,285 6,725
------------------------------------------------------------------------
3,719,802 916,891
------------------------------------------------------------------------
Accumulated depreciation
Building 43,687 4,844
Leasehold improvements 1,230 --
Plant equipment 49,503 6,180
Office equipment 5,006 150
Computer equipment 3,180 242
------------------------------------------------------------------------
102,606 11,416
------------------------------------------------------------------------
$3,617,196 $ 905,475
========================================================================
The net book value of assets recorded under capital leases totaled $367,490
(1997 - $Nil), net of accumulated depreciation of $5,694 (1997 - $Nil).
5. INTANGIBLE ASSETS
December 31,
1998 1997
---------- ----------
Cost
Packaging artwork $ 210,000 $ 72,737
Goodwill 4,490,271 272,356
--------------------------------------------------------------------------
4,700,271 345,093
--------------------------------------------------------------------------
Accumulated amortization
Packaging artwork 36,936 3,484
Goodwill 36,265 2,244
--------------------------------------------------------------------------
73,201 5,728
--------------------------------------------------------------------------
$4,627,070 $ 339,365
==========================================================================
<PAGE>
6. BANK INDEBTEDNESS
The Company and its subsidiaries have utilized an aggregate of $1,030,000
of authorized lines of credit totaling $1,750,000 (1997 - utilized $40,000
of a $200,000 line of credit). The lines of credit bear interest at prime
plus 1.5% (8.25% at December 31, 1998). The outstanding balances are due on
demand and are secured by a general assignment of assets of the Company and
its subsidiaries and a total of $950,000 in limited guarantees of the
Company.
7. CAPITAL LEASE OBLIGATIONS
The Company has acquired various processing equipment and vehicles under
capital leases expiring July 2003. Monthly principal payments vary from
$330 to $4,265. Capital leases are recorded by discounting payments based
on the lower of the Company's incremental borrowing rate or the interest
rate inherent in the lease.
Minimum lease payments are due as follows:
1999 $131,378
2000 127,665
2001 103,275
2002 100,050
2003 11,242
----------------------------------------------------------------------
Gross value of minumum lease payments 473,610
Less amount representing interest 81,737
----------------------------------------------------------------------
391,873
Less principal amounts due in one year 94,486
----------------------------------------------------------------------
$297,387
======================================================================
<PAGE>
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31,
1998 1997
--------- ---------
<S> <C> <C>
Business Development Bank of Canada ("BDC")- Mortgage
Repayable in monthly installments of $3,200 plus interest. Interest is
calculated based on BDC's floating base rate plus 1% (9.75% at
December 31, 1998), and matures June 23, 2012. The loan to PFPI is
secured by a first charge on PFPI's land and building, a second charge
on PFPI's inventory and accounts receivable, a $250,000 guarantee by
an officer of the Company, a guarantee by the Company for the full
amount of the loan and an assignment shareholder loans owing by PFPI $ 518,400 $ 550,000
to IMSI.
BDC - Equipment loan
Repayable in two principal instalments during December and January of
each year for a 5 year term. Interest is payable monthly at 1.25%
(10.00% at December 31, 1998) above BDC's daily floating base rate.
The loan is secured by a first charge on all personal property of TGF. 832,000 --
Bank of Nova Scotia - Equipment loan
Repayable in monthly installments of $2,137 for a 5 year term.
Interest is payable monthly at the Bank of Nova Scotia prime rate plus
2.5% (9.25% at December 31, 1998). The loan is secured by a first 133,128 --
charge over the assets financed.
Bank of Nova Scotia - BDC repayment loan
Repayable in monthly installments of $1,500 for a period of 39 months.
Interest is payable monthly at the Bank of Nova Scotia prime rate plus
2.5% (9.25% at December 31, 1998). The loan is secured by a general
security agreement over all present and future personal property. 45,819 --
-------------------------------------------------------------------------------------------------------------
1,529,347 550,000
Less amount due within one year 279,044 31,600
-------------------------------------------------------------------------------------------------------------
$ 1,250,303 $ 518,600
=============================================================================================================
Principal payments required are due as follows:
1999 $ 279,044
2000 289,041
2001 285,860
2002 225,041
2003 123,961
Thereafter 326,400
-------------------------------------------------------------------------------------------------------------
$1,529,347
=============================================================================================================
</TABLE>
<PAGE>
9. COMMITMENTS
The Company is committed under operating leases for business premises and
equipment with terms expiring at various dates through 2005. The minimum
annual payments required under the lease agreements are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 294,113
2000 213,658
2001 216,492
2002 216,492
2003 216,492
Thereafter 207,468
-------------------------------------------------------------------------------------------------------------
$1,364,715
=============================================================================================================
</TABLE>
10. CAPITAL TRANSACTIONS
Reverse acquisition
On July 16, 1998, ANM, then a non-operating corporation, acquired all of
the outstanding common shares of IMSI. As a condition of the transaction,
ANM issued 1,400,000 common shares for proceeds of US$925,000
(CDN$1,373,000), net of issuance costs of US$55,000 (CDN$81,600) on July
15, 1998. For accounting purposes, the transaction was treated as a reverse
acquisition of ANM by IMSI. In conjunction with the reverse acquisition
transaction, the Company created and authorized 10,000,000 Class N shares,
and issued 4,000,000 Class N shares to the former shareholders of IMSI. The
Class N shares are non-equity participating and are entitled to identical
voting rights as the common stockholders. In addition, one Class N share
together with one Class X share of IMSI are convertible into common shares
of the Company on a one for one basis at the option of the holder until
2013, at which time the Company can force conversion of the Class N shares.
During 1998, 809,538 Class N and 809,538 Class X shares of IMSI were
exchanged for common shares of the Company.
Private placement financing
During the period November 17 to November 28, 1998, the Company sold, by
private placement, 1,997,300 units for US$0.90 each, consisting of one
common share and one-half of a warrant. In exchange for one warrant and
US$1.40, the holder may purchase one common share of the Company. The
warrants expire May 30, 1999. The units have a minimum holding period of
one year from the date of the subscription agreements. Proceeds, net of
broker commissions, were US$1,666,124 ($2,550,000 CDN).
Acquisition - TGF/Norbakco
In conjunction with the acquisition of TGF/Norbakco, the IMSI issued a
total of 459,000 exchangeable shares to satisfy the share consideration
requirements of the share purchase agreement. The shares are exchangeable
into common shares of the Company at the holder's option based on an
exchange ratio. The exchange ratio is determined by a formula which is
primarily based upon the earnings before interest, depreciation and taxes
("EBITDA") of the acquired businesses for the years ending February 28,
1999 and 2000 and the Company's common stock market price on those dates.
<PAGE>
The value of the exchangeable shares is recorded as minority interest.
Based on the financial results of the acquired operations to-date and the
current market price of the Company's common stock, management has
estimated that approximately 2,500,000 shares of the Company's common stock
could be issued pursuant to the future conversion rights of the holders of
the exchangeable shares. These shares have been treated for accounting
purposes as being issued. It is impossible to predict with absolute
certainty the exact number of shares that could be issued as the EBITDA of
the acquired businesses for the years ending February 28, 1999 and February
28, 2000 is unknown.
11. BROKERS OPTIONS
In conjunction with the share issuance and reverse acquisition of ANM, the
Company granted 1,000,000 stock options to brokers on July 15, 1998.
Pursuant to the stock option agreements, the option holders have the right
to purchase common shares of the Company at a price of US$1.00, commencing
February 1, 1999 and expiring July 1, 1999.
12. STOCK OPTION PLAN
On August 10, 1998, the Board of Directors of the Company approved a stock
option plan (the "Option Plan") applicable to the Company's officers and
directors and authorized 2,500,000 common shares to be granted. Pursuant to
the Option Plan, options are granted at an amount not less than the
then-current fair market value of the common shares of the Company. Options
may generally be exercised in equal proportions during the years following
the first to fifth anniversary of the date of grant and expire on the tenth
anniversary or upon termination of employment.
A summary of the activity in the Option Plan since inception is set forth
below:
<TABLE>
<CAPTION>
Options
Available Number of Weighted Average
For Grant Options Exercise Price (US$)
--------- ------------ --------------------
<S> <C> <C> <C>
Balance at December 31, 1997 -- --
Authorized 2,500,000 --
Granted (825,000) 825,000 $ 0.80
----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 1,675,000 825,000 $ 0.80
============================================================================================================================
Exercisable at December 31, 1997 -- $ --
Exercisable at December 31, 1998 -- $ --
============================================================================================================================
</TABLE>
The following table summarizes information concerning currently outstanding
options at December 31, 1998:
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Options Contractual Exercise Options Exercise
Exercise price Outstanding Life Price (US$) Exercisable Price (US$)
--------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
$0.70 - $1.50 825,000 9.7 years $ 0.80 -- $ --
--------------------------------------------------------------------------------------------------------------------------
825,000 --
==========================================================================================================================
</TABLE>
<PAGE>
13. STOCK BASED COMPENSATION
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options. Pro forma information regarding
net income and earnings per share is required by SFAS 123, and has been
determined as if the Company had accounted for its employee stock options
under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes option
pricing model. Weighted average assumptions for stock price volatility,
dividend yield, expected life of stock options and risk free interest rate
were 326%, 0%, 5.32 years and 5.5%, respectively, for 1998. There were no
options issued during 1997.
SFAS 123 requires that, for the pro forma disclosure, the compensation cost
based on the fair values of the options at the grant date be amortized over
the vesting period. If compensation cost for stock options had been
determined based on the fair value at the grant dates consistent with the
method prescribed by SFAS 123, the Corporation's net loss and loss per
share would have been adjusted to the pro forma amounts indicated below:
Year ended Period ended
December 31, December 31,
1998 1997
------------ -----------
Net loss
As reported $ (549,198) $ (41,797)
Pro forma $ (565,467) $ (41,797)
Net Loss per share, basic and diluted
As reported $ (0.09) $ (0.01)
Pro forma $ (0.09) $ (0.01)
The weighted average fair value for stock options granted during the
periods ending December 31, 1997 and December 31, 1998 were $nil and $0.20,
respectively.
14. INCOME TAXES
The components of the provision for income taxes are as follows:
Year ended Period ended
December 31, December 31,
1998 1997
----------- ------------
Current $ -- $ --
Deferred -- --
---------------------------------------------------------------------------
$ - $ -
===========================================================================
<PAGE>
The components of the net deferred tax asset (liability) are as follows:
December 31,
1998 1997
--------- ----------
Net operating losses $ 680,000 $ 318,000
Difference between tax basis and accounting
basis of capital assets (167,000) --
-------------------------------------------------------------------------
513,000 318,000
Valuation allowance (606,000) (318,000)
-------------------------------------------------------------------------
$ (93,000) $ --
=========================================================================
The provision for income taxes varies from the expected provision at the
statutory rates for the following reasons:
<TABLE>
<CAPTION>
Year ended Period ended
December 31, December 31,
1998 1997
----------- ----------
<S> <C> <C>
Combined Canadian basic federal and provincial tax rates 44.6% 44.6%
===========================================================================================
Recovery of income taxes based on the above rates $(244,900) $ (18,600)
Increase (decrease) in income taxes resulting from the following:
Permanent differences including goodwill amortization 15,200 1,900
Manufacturing and processing (34,100) 3,200
Change in valuation allowance 288,000 13,500
Other (24,200) --
-------------------------------------------------------------------------------------------
$ -- $ --
===========================================================================================
</TABLE>
The Company and its subsidiary have losses totaling $2,089,000 to apply
against future years' taxable income. The losses, if not utilized, expire
as follows:
1999 $ 19,000
2000 34,000
2001 258,000
2002 217,000
2003 331,000
2004 1,230,000
---------------------------------------------------------------------------
$ 2,089,000
===========================================================================
<PAGE>
15. LOSS PER SHARE
<TABLE>
<CAPTION>
Year ended Period ended
December 31, December 31,
1998 1997
---------- ----------
<S> <C> <C>
Basic net loss per share
Numerator
Net Loss available to common shareholders $ 549,198 $ 41,797
--------------------------------------------------------------------------------
Denominator
Weighted average shares outstanding 6,419,141 5,278,000
--------------------------------------------------------------------------------
$ 0.09 $ 0.01
================================================================================
</TABLE>
No diluted net loss per share disclosure is presented as the conversion of
securities with dilutive potential in both periods had an anti-dilutive
effect on loss per share. The Class N shares outstanding are considered
common stock equivalents for the purposes of the basis loss per share and
weighted average outstanding common shares calculations.
16. FINANCIAL INSTRUMENTS
Fair value
At December 31, 1997 and December 31, 1998 the estimated fair values of
cash and cash equivalents, accounts receivable, accounts payable and
accrued liabilities were equal to their carrying values due to the
short-term nature of the items. The estimated fair value of long-term debt
approximates fair value as the debt bears interest at floating rates.
Credit risk
Credit risk arises due to the concentration of accounts receivable in one
geographic area or with certain customers. This risk is minimized by the
fact that the Company sells product to large supermarket chains and
specialty food retailers. Substantially all customers pay within 10 days of
product delivery.
17. SEGMENTED INFORMATION
The Company operates in one business segment; the development, marketing
and production of a series of specialty food products for sale to large
food retailer chains and specialty food retailers.
Significant customers accounted for the following sales volume percentages:
Year ended Period ended
Type of December 31, December 31,
Customer 1998 1997
---------- ------------ -------------
Customer 1 Distributor 12% 14%
Customer 2 Distributor 14% 15%
Customer 3 Retailer 25% 0%
===========================================================================
During the year, sales to customers outside Canada totaled approximately
$1,017,500
<PAGE>
18. SUBSEQUENT EVENTS (unaudited)
a) Convertible debenture financing
On February 16, 1999, the Company's subsidiary IMSI entered into a
financing arrangement to issue approximately $4,000,000 in convertible
debentures to two investors. The debentures will have a term of 48
months, bear interest at 7% per annum for the first 12 months and 13%
thereafter, and will be convertible at the holder's option at any time
into exchangeable shares of IMSI which are then exchangeable into
shares of the Company. IMSI will have the right to force conversion of
the debentures if certain trading statistics are maintained after July
1, 1999. A fee of 1% and 3% of the amount financed is payable at
signing and at closing, respectively. The closing of the financing
arrangement is subject to the satisfactory completion of due diligence
procedures by the investors.
b) Acquisition of DC Food Processing Inc. ("DC Food")
On March 10, 1999, IMSI entered into a letter of intent with the
shareholders of 1005549 Ontario Inc. and DC Food, a provider of custom
and private label food processing services to Canadian and
International markets located in Waterloo, Ontario to acquire the
company for approximately $20,000,000. Under the terms of the letter
of intent, the Company would pay $4,000,000 on closing. The balance of
the purchase price will be satisfied on closing by issuing shares of
IMSI which are exchangeable into shares of the Company at the option
of the holder.
c) Conditional real property purchase agreement
On March 31, 1999, IMSI entered into an agreement whereby IMSI has the
option to purchase real property located in Claresholm, Alberta for a
purchase price of $1,075,000. The conditional agreement expires May
31,1999.
d) Share subscription
On April 16, 1999, the Company executed a subscription agreement with
an investor to issue 1,523,810 common shares for proceeds of
approximately $4,000,000.
e) Acquisition of Tasty Selections Inc. ("Tasty")
On April 16, 1999, IMSI acquired all of the outstanding common shares
of Tasty, manufacturer of muffin and cookie batters located in
Concord, Ontario for consideration totaling approximately $2,160,000.
Under the terms of the agreement, the IMSI paid $750,000 cash and
issued 442,750 Class X shares on closing. An additional $250,000 cash
is payable upon the receipt of the financial statements of Tasty for
the nine month period ended March 31, 1999.
<PAGE>
Pro Forma Consolidated Balance Sheet
(Unaudited)
================================================================================
<TABLE>
<CAPTION>
Historical Historical Historical
International Menu Tasty Batters DC Food Processing
Solutions ("Tasty") Inc. ("DC") Pro forma
Corporation ("IMSC") December 31, 1998 December 6, 1998 Adjustments
December 31, 1998 (unaudited) (unaudited) (unaudited)
-------------------- ----------------- ------------------ -------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,866,000 $ 176,000 $ -- $ 2,880,000
Accounts receivable - net 2,270,000 693,000 1,408,000 --
Inventory 1,300,000 371,000 405,000 --
Prepaid expenses and other current
assets 98,000 38,000 -- --
- - - - - - - - - - - - - - ------------------------------------------------------------------ ------------- ------------ ------------
5,534,000 1,278,000 1,813,000 2,880,000
CAPITAL ASSETS, NET 3,617,000 502,000 3,116,000 1,500,000
INTANGIBLE ASSETS, NET 4,627,000 -- 143,000 18,733,000
- - - - - - - - - - - - - - ------------------------------------------------------------------ ------------- ------------ ------------
$ 13,778,000 $ 1,780,000 $ 5,072,000 $ 23,113,000
================================================================== ============= ============ ============
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness $ 1,101,000 $ -- $ 168,000 $ --
Accounts payable 2,072,000 121,000 918,000 --
Accrued liabilities 938,000 290,000 -- 200,000
Income taxes payable -- 37,000 216,000 --
Current portion of capital lease
obligation 94,000 -- 223,000 --
Current portion of long-term debt 279,000 110,000 77,000 --
- - - - - - - - - - - - - - ------------------------------------------------------------------ ------------- ------------ ------------
4,484,000 558,000 1,602,000 200,000
CAPITAL LEASE OBLIGATION 297,000 -- 709,000 --
LONG-TERM DEBT 1,250,000 569,000 683,000 --
DUE TO SHAREHOLDERS -- 200,000 130,000 (330,000)
CONVERTIBLE DEBENTURES
ISSUED BY SUBSIDIARY -- -- -- 4,000,000
DEFERRED INCOME TAXES 93,000 52,000 87,000 --
- - - - - - - - - - - - - - ------------------------------------------------------------------ ------------- ------------ ------------
6,124,000 1,379,000 3,211,000 3,870,000
- - - - - - - - - - - - - - ------------------------------------------------------------------ ------------- ------------ ------------
MINORITY INTEREST 3,374,000 -- -- --
- - - - - - - - - - - - - - ------------------------------------------------------------------ ------------- ------------ ------------
STOCKHOLDERS' EQUITY
Capital stock 12,000 -- 2,000 1,000
Additional paid-in capital 4,872,000 -- 47,000 21,455,000
Retained earnings (deficit) (604,000) 401,000 1,812,000 (2,213,000)
- - - - - - - - - - - - - - ------------------------------------------------------------------ ------------- ------------ ------------
4,280,000 401,000 1,861,000 19,243,000
- - - - - - - - - - - - - - ------------------------------------------------------------------ ------------- ------------ ------------
$ 13,778,000 $ 1,780,000 $ 5,072,000 $ 23,113,000
================================================================== ============= ============ ============
<CAPTION>
Pro forma
IMSC Consolidated
December 31, 1998
Note (unaudited)
------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents 2,3 $ 4,922,000
Accounts receivable - net 4,371,000
Inventory 2,076,000
Prepaid expenses and other current
assets 136,000
- - - - - - - - - - - - - - ------------------------------------------------- ------------- ------------
11,505,000
CAPITAL ASSETS, NET 2 8,735,000
INTANGIBLE ASSETS, NET 2 23,503,000
- - - - - - - - - - - - - - ------------------------------------------------- ------------- ------------
$ 43,743,000
================================================= ============= ============
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness $ 1,269,000
Accounts payable 3,111,000
Accrued liabilities 2 (iii), (iv) 1,428,000
Income taxes payable 253,000
Current portion of capital lease
obligation 317,000
Current portion of long-term debt 466,000
- - - - - - - - - - - - - - ------------------------------------------------- ------------- ------------
6,844,000
CAPITAL LEASE OBLIGATION 1,006,000
LONG-TERM DEBT 2,502,000
DUE TO SHAREHOLDERS 2 --
CONVERTIBLE DEBENTURES
ISSUED BY SUBSIDIARY 3 (i) 4,000,000
DEFERRED INCOME TAXES 232,000
--
- - - - - - - - - - - - - - ------------------------------------------------- ------------- ------------
14,584,000
- - - - - - - - - - - - - - ------------------------------------------------- ------------- ------------
MINORITY INTEREST 3,374,000
- - - - - - - - - - - - - - ------------------------------------------------- ------------- ------------
STOCKHOLDERS' EQUITY
Capital stock 15,000
Additional paid-in capital 2,3 26,374,000
Retained earnings (deficit) 2 (604,000)
- - - - - - - - - - - - - - ------------------------------------------------- ------------- ------------
25,785,000
- - - - - - - - - - - - - - ------------------------------------------------- ------------- ------------
$ 43,743,000
================================================= ============= ============
</TABLE>
See footnotes to pro forma financial statements
<PAGE>
Pro Forma Consolidated Balance Sheet
(Unaudited)
================================================================================
<TABLE>
<CAPTION>
Historical
Historical Historical Historical Transcontinental
International Menu Pasta Kitchens Norbakco Ltd. Gourmet Foods
Solutions ("Pasta") ("Norbakco") ("TGF")
Corporation ("IMSC") Nine Months Ended Six months ended Eleven months ended
Year ended October 8, 1998 November 30, 1998 November 30, 1998
December 31, 1998 (unaudited) (unaudited) (unaudited)
-------------------- ----------------- --------------- --------------------
<S> <C> <C> <C> <C>
REVENUE $6,096,000 $694,000 $ 1,976,000 $ 4,247,000
- - - - - - - - - - - - - - ------------------------------------------------------ -------- -------------- -----------
COSTS AND EXPENSES
Cost of goods sold 4,730,000 418,000 1,762,000 2,825,000
Selling expenses 568,000 84,000 50,000 539,000
Research and development 426,000 -- -- --
Administrative expenses 764,000 198,000 170,000 688,000
Amortization of goodwill 67,000 -- -- --
- - - - - - - - - - - - - - ------------------------------------------------------ -------- -------------- -----------
6,598,000 700,000 1,982,000 4,052,000
- - - - - - - - - - - - - - ------------------------------------------------------ -------- -------------- -----------
INCOME(LOSS) FROM
OPERATIONS (502,000) (6,000) (6,000) 195,000
- - - - - - - - - - - - - - ------------------------------------------------------ -------- -------------- -----------
OTHER INCOME (EXPENSE)
Interest revenue 25,000 -- -- --
Interest expense (98,000) 13,000 (20,000) (117,000)
- - - - - - - - - - - - - - ------------------------------------------------------ -------- -------------- -----------
(73,000) 13,000 (20,000) (117,000)
- - - - - - - - - - - - - - ------------------------------------------------------ -------- -------------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES AND
MINORITY INTEREST (575,000) 7,000 (26,000) 78,000
INCOME TAXES -- -- -- (29,000)
- - - - - - - - - - - - - - ------------------------------------------------------ -------- -------------- -----------
NET INCOME (LOSS) (575,000) 7,000 (26,000) 107,000
MINORITY INTEREST 26,000 -- -- --
- - - - - - - - - - - - - - ------------------------------------------------------ -------- -------------- -----------
INCOME (LOSS) Before Minority Interest $ (549,000) $ 7,000 $ (26,000) $ 107,000
====================================================== ======== ============== ===========
NET LOSS PER SHARE -
DILUTED AND BASIC $ 0.09
======================================================
WEIGHTED AVERAGE
OUTSTANDING COMMON
SHARES 6,419,141
======================================================
<CAPTION>
Historical Historical
Tasty Selections DC Food Processing
("Tasty") Inc. ("DC") Pro Forma
Twelve months ended Twelve months ended Pro Forma IMSC Consolidated
December 31, 1998 December 6, 1998 Adjustments Twelve months ended
(unaudited) (unaudited) (unaudited) Note December 31, 1998
-------------------- -------------------- ----------- -------- ---------------------
<S> <C> <C> <C> <C> <C>
REVENUE $5,574,000 $17,580,000 $ -- $36,167,000
- - - - - - - - - - - - - - ------------------------------------------------- ----------- ---------- ------ -----------
COSTS AND EXPENSES
Cost of goods sold 4,287,000 15,979,000 -- 30,001,000
Selling expenses 392,000 21,000 -- 1,654,000
Research and development -- -- -- 426,000
Administrative expenses 461,000 561,000 -- 2,842,000
Amortization of goodwill -- 7,000 599,000 4 673,000
- - - - - - - - - - - - - - ------------------------------------------------- ----------- ---------- ------ -----------
5,140,000 16,568,000 599,000 35,639,000
- - - - - - - - - - - - - - ------------------------------------------------- ----------- ---------- ------ -----------
INCOME (LOSS) FROM
OPERATIONS 434,000 1,012,000 (599,000) 528,000
- - - - - - - - - - - - - - ------------------------------------------------- ----------- ---------- ------ -----------
OTHER INCOME (EXPENSE)
Interest revenue -- -- -- 25,000
Interest expense (126,000) (117,000) (280,000) 3(i) (745,000)
- - - - - - - - - - - - - - ------------------------------------------------- ----------- ---------- ------ -----------
(126,000) (117,000) (280,000) (720,000)
- - - - - - - - - - - - - - ------------------------------------------------- ----------- ---------- ------ -----------
(720,000)
- - - - - - - - - - - - - - ------------------------------------------------- ----------- ---------- ------ -----------
INCOME (LOSS) BEFORE
INCOME TAXES AND
MINORITY INTEREST 308,000 895,000 (879,000) (192,000)
INCOME TAXES (88,000) (289,000) -- (348,000)
- - - - - - - - - - - - - - ------------------------------------------------- ----------- ---------- ------ -----------
NET INCOME (LOSS) 220,000 606,000 (879,000) (540,000)
MINORITY INTEREST -- -- -- 26,000
- - - - - - - - - - - - - - ------------------------------------------------- ----------- ---------- ------ -----------
INCOME (LOSS) Before Minority Interest $ 220,000 $ 606,000 $ (879,000) $ (514,000)
================================================= =========== ========== ====== ===========
NET LOSS PER SHARE -
DILUTED AND BASIC $ 0.04
================================================= =========== ========== ====== ===========
WEIGHTED AVERAGE
OUTSTANDING COMMON
SHARES 5,336,083 2,3(ii) 11,755,224
================================================= =========== ========== ====== ===========
</TABLE>
See footnotes to pro forma financial statements
Footnotes to Pro Forma Consolidated Financial Statements
1. Basis of presentation
The accompanying pro forma consolidated balance sheet as of December 31,
1998 and pro forma consolidated statement of operations for the year then
ended of International Menu Solutions Corporation ("IMSC") have been
prepared to give effect to the business combinations involving Pasta
Kitchens ("Pasta"), Transcontinental Gourmet Foods Inc. ("TGF") and
Norbakco Ltd. ("Norbakco"), Tasty Selections Inc. ("Tasty") and 1005549
Ontario Limited ("D.C. Foods") and related transactions as described
elsewhere herein on the basis of the assumptions described in Notes 2 to 4
below. The pro forma consolidated balance sheet and pro forma consolidated
statement of operations of IMSC have been prepared from the following:
a) The audited consolidated financial statements of IMSC for the year
ended December 31, 1998;
b) The unaudited financial statements of Pasta for the period from
January 1, 1998 to October 8, 1998;
c) The unaudited financial statements of TGF for the eleven month period
ended November 30, 1998;
d) The unaudited financial statements of Norbakco for the six month
period ended November 30, 1998;
e) The unaudited financial statements of Tasty for the year ended
December 31, 1998; and
f) The audited financial statements of D.C. Foods for the year ended
December 6, 1998.
<PAGE>
The pro forma consolidated balance sheet and pro forma consolidated
statement of operations are not intended to reflect the financial position
of IMSC which would have actually resulted had the combination, related
transactions and other pro forma adjustments been effected on the dates
indicated. Further, the pro forma financial information is not necessarily
indicative of the financial position that may prevail in the future.
2. Pro forma assumptions related to acquisitions
During the year ended December 31, 1998, the Company acquired the
businesses, set out in the table below, which have been accounted for using
the purchase method:
<TABLE>
<CAPTION>
Pasta Kitchen (i) TGF/Norbakco (ii) Tasty (iii) D.C. Foods (iv)
----------------- ----------------- ------------ ----------------
<S> <C> <C> <C> <C>
Estimated purchase price
including acquisition costs $ 395,000 $ 4,970,000 $ 2,235,000 $ 20,470,000
Assigned fair values
of net assets acquired
Current assets 105,000 2,922,000 1,278,000 1,813,000
Capital assets 200,000 2,223,000 502,000 4,616,000
Current liabilities (146,000) (2,958,000) (558,000) (1,602,000)
Long-term liabilities -- (1,199,000) (621,000) (1,479,000)
--------------------------------------------------------------------- -------------------------------
159,000 988,000 601,000 3,348,000
--------------------------------------------------------------------- -------------------------------
Goodwill $ 236,000 $ 3,982,000 $ 1,634,000 $ 17,122,000
===================================================================== ===============================
</TABLE>
(i) International Menu, through its subsidiary Prime Foods, acquired the
assets of Pasta Kitchen for cash consideration of approximately
$375,000. Additional consideration, currently estimated at $340,000,
is payable, at the option of the Company, in cash or common shares
during 1999 based on the achievement of certain revenue targets. Due
to the contingent nature of the additional consideration, its value
will be recorded as goodwill when the conditions are resolved.
(ii) International Menu acquired all of the outstanding shares of TGF and
59% of the outstanding shares of Norbakco Ltd., a sister corporation
of TGF. Cash of $1,000,000 was paid to the vendors on closing. An
estimated additional cash payment of $600,000 is payable during 1999
based on the net book value of TGF in excess of $1,000,000. The
estimated additional cash payment has been recorded as a liability as
of December 31, 1998. The balance of the purchase price of $3.4
million was paid in the form of shares of IMSI, issued December 1,
1998, which are exchangeable for common shares of the Company.
(iii) International Menu acquired all of the outstanding shares of Tasty
for total consideration of approximately $2,160,000. Cash of
$1,000,000 was paid and 442,750 Class X exchangeable shares of IMSI
and 442,750 Class N shares of the Company were issued to the selling
shareholders of Tasty on closing. Professional fees and other
acquisition costs, estimated at $75,000 are included in accrued
liabilities at December 31, 1998
<PAGE>
(iv) International Menu acquired all of the outstanding shares of D.C.
Foods for total consideration valued at $20,345,000. Under the terms
of the agreement, the Company paid $4,000,000 in cash, issued 893,333
Class X exchangeable shares of IMSI, issued 893,000 Class N shares of
the Company, issued 250,000 Class E Series 1 shares, issued 250,000
Class E Series 2 shares, issued 250,000 Class E Series 3 shares and
issued 250,000 Class E Series 4 shares to the selling shareholders of
D.C. Foods. All Class E series shares were issued by IMSI.
Professional fees and other acquisition costs, estimated at $125,000
are included in accrued liabilities at December 31,1998
3. Pro forma assumptions related to acquisition financing
(i) The Company's subsidiary International Menu entered into a financing
arrangement to issue approximately $4,000,000 in convertible
debentures to two investors. The debentures will have a term of 48
months, bear interest at 7% per annum for the first 12 months and 13%
thereafter, and will be convertible at the holder's option at any time
into exchangeable shares of International Menu which are then
exchangeable into shares of the Company. International Menu will have
the right to force conversion of the debentures if certain trading
statistics are maintained after July 1, 1999. A management fee of 1%
and 3% of the amount financed is payable at signing and at closing,
respectively. These fees are amortized over the term of the debenture.
(ii) The Company executed a subscription agreement with an investor to
issue 1,523,810 common shares for proceeds of approximately
$4,000,000.
4. Pro forma assumptions related to goodwill amortization
Goodwill that arose on the acquisition of certain assets of Pasta is
amortized over a 20-year period. Goodwill relating to all other
acquisitions presented in the pro forma financial statements is amortized
over a 40-year period.
