<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-QSB
(X) Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2000
( ) Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Transition period from to
Commission file number 0-30092
INTERNATIONAL MENU SOLUTIONS CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
Nevada 91-1849433
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
350 Creditstone Road, Unit 202
Concord, Ontario Canada L4K 3Z2
(Address of Principal Executive Offices)
(416) 366-6368
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. YES(X) NO( )
10,476,048 shares of the issuer's common stock, par value $0.001 per share, and
3,110,795 shares of the issuer's Class N Shares, par value $0.001 per share,
were outstanding at April 30, 2000.
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<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL MENU SOLUTIONS CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheet (unaudited) as of March 31, 2000 2
Consolidated Statements of Income (unaudited) for the three month periods
ended March 31, 2000 and 1999 3
Consolidated Statements of Cash Flows (unaudited) for the three month
periods ended March 31, 2000 and 1999 4
Notes to Consolidated Financial Statements 5 - 7
</TABLE>
1
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INTERNATIONAL MENU SOLUTIONS CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(CANADIAN DOLLARS)
================================================================================
<TABLE>
<CAPTION>
March 31,
2000
------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,360,755
Accounts receivable 5,511,399
Inventories 8,703,197
Prepaid expenses 939,338
------------
18,514,689
CAPITAL ASSETS, NET 16,080,083
INTANGIBLE ASSETS, NET 15,554,797
------------
TOTAL ASSETS $ 50,149,569
============
LIABILITIES
CURRENT LIABILITIES
Bank operating loans $ 10,914,127
Accounts payable 4,059,528
Accrued liabilities 2,035,760
Current portion of capital lease obligations 443,625
Current portion of long-term debt 376,520
------------
17,829,560
CAPITAL LEASE OBLIGATIONS 1,320,129
LONG-TERM DEBT 3,663,549
CONVERTIBLE DEBENTURE 4,000,000
DEFERRED INCOME TAXES 753,400
------------
TOTAL LIABILITIES 27,566,638
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Class N voting, non-participating stock - US$0.001 par
value; 10,000,000 shares authorized; 3,110,795
shares issued 4,467
Common stock - US$0.001 par value; 25,000,000 shares
authorized; 10,476,048 shares issued 15,051
Additional paid-in capital 28,044,175
Accumulated other comprehensive loss (150,152)
Deficit (5,330,610)
============
TOTAL STOCKHOLDERS' EQUITY 22,582,931
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 50,149,569
============
</TABLE>
2
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INTERNATIONAL MENU SOLUTIONS CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(CANADIAN DOLLARS)
================================================================================
<TABLE>
<CAPTION>
Three months ended
March 31,
2000 1999
------------ ------------
<S> <C> <C>
REVENUE $ 15,376,259 $ 3,763,311
------------ ------------
COSTS AND EXPENSES
Cost of goods sold 12,745,800 3,183,356
Selling expenses 1,398,909 309,477
Research and development 208,177 96,970
Administrative expenses 2,410,019 594,303
Amortization of intangibles 394,682 30,381
------------ ------------
17,157,587 4,214,487
------------ ------------
LOSS FROM OPERATIONS (1,781,328) (451,176)
------------ ------------
OTHER INCOME (EXPENSE)
Interest revenue 2,116 18,273
Interest expense (404,058) (84,629)
------------ ------------
(401,942) (66,356)
------------ ------------
LOSS BEFORE INCOME TAXES (2,183,270) (517,532)
INCOME TAXES - 144,400
------------ ------------
NET LOSS $ (2,183,270) $ (373,132)
============ ============
NET LOSS PER SHARE - BASIC
AND DILUTED $ (0.14) $ (0.04)
============ ============
WEIGHTED AVERAGE OUTSTANDING
COMMON SHARES 15,845,561 9,075,300
============ ============
</TABLE>
3
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INTERNATIONAL MENU SOLUTIONS CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(CANADIAN DOLLARS)
================================================================================
<TABLE>
<CAPTION>
Three months ended
March 31,
2000 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,183,270) $ (373,132)
Item not requiring cash
Depreciation and amortization 816,450 102,313
Loss on disposal of capital assets 3,197 -
Deferred income taxes - (144,400)
Changes in operating assets and liabilities
Accounts receivable 6,313,219 (109,624)
Inventories (2,722,116) (1,226,520)
Prepaid expenses (142,785) (465,918)
Accounts payable (1,357,447) (357,091)
Accrued liabilities (1,087,952) 382,867
----------- -----------
(360,704) (2,191,505)
----------- -----------
INVESTING ACTIVITIES
Purchase of capital assets (1,207,477) (287,807)
Additions to intangible assets (253,948) (223,416)
----------- -----------
(1,461,425) (511,223)
----------- -----------
FINANCING ACTIVITIES
Proceeds from bank loans 1,110,151 2,528,660
Proceeds from long term debt 199,797 -
Payment of long-term debt and
capital lease principal (292,434) (134,801)
----------- -----------
1,017,514 2,393,859
----------- -----------
NET CHANGE IN CASH AND
CASH EQUIVALENTS (804,615) (308,869)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 4,165,370 1,865,612
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 3,360,755 $ 1,556,743
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 404,058 $ 84,629
=========== ===========
Cash paid during the period for income taxes $ - $ -
=========== ===========
</TABLE>
4
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INTERNATIONAL MENU SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CANADIAN DOLLARS)
(UNAUDITED)
================================================================================
1. ORGANIZATION
The Company and its subsidiaries develop, market and produce a series of
specialty food products for sale to food distributors, food retailer
chains and specialty food retailers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial statements and the instructions to Form 10-QSB and
Regulation S-B. Consequently, the accompanying unaudited consolidated
financial statements are not presented with footnotes required by
generally accepted accounting principles. These financial statements
should be read in conjunction with the audited consolidated financial
statements for December 31, 1999 and the accounting policies described
therein filed on Form 10-KSB on April 14, 2000.
The financial information presented reflects all adjustments (including
normal recurring adjustments) which are, in the opinion of management,
necessary to produce a fair statement of the financial position and
results of operations for the periods included in this report.
3. ACCOUNTING FOR EXCHANGEABLE SHARES ISSUED BY SUBSIDIARY
In connection with the acquisition of Transcontinental Gourmet Foods and
Norbakco Limited in 1998, the Company accounted for the issuance of
exchangeable shares in connection with the business combinations by
having an independent valuation performed and including the value of the
exchangeable shares in the purchase price as of the acquisition date.
This method of accounting resulted in recognition of substantially all of
the purchase price (and related intangible assets) being recognized at
the date of acquisition and the presentation of the exchangeable shares
as minority interest on the consolidated balance sheet of the Company.
However, this method of accounting of the shares was challenged by the
staff of the Securities and Exchange Commission ("SEC") in connection
with the Corporation's filings on Form 10-SB. In the opinion of the staff
of the SEC, the underlying nature of the shares was that of contingent
consideration since the shares are exchangeable into common shares of the
parent based on future earnings of the business acquired. Consequently,
the Company has restated the consolidated balance sheets, statements of
operations and the statement of stockholders' equity for the three months
ended March 31, 1999 and used the principles of contingent consideration
accounting for such acquisitions as prescribed by paragraphs 79 to 80 of
APB No. 16, "Business Combinations".
The effect of applying contingent consideration accounting was as
follows:
Effect on reported net loss for the three months ended March 31, 1999:
<TABLE>
<S> <C> <C>
Net loss as previously reported: $(403,132)
Reduction of amortization charges related to decreased
goodwill recorded at acquisition date 42,000
Non recognition of minority interest (12,000)
---------
Net effect of restatement on net loss and accumulated deficit 30,000
---------
Net loss as restated $(373,132)
=========
</TABLE>
5
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INTERNATIONAL MENU SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CANADIAN DOLLARS)
(UNAUDITED)
================================================================================
4. COMMITMENT TO ISSUE SHARES TO SELLING SHARE HOLDERS OF ACQUIRED COMPANIES
In connection with the acquisitions of D.C. Foods and Huxtable's which
were completed in May 1999 and November 1999, respectively, the Company
has performed calculations to determine additional consideration payable
to the selling shareholders of the businesses acquired. The calculations
were based upon the provisions in the purchase agreements between the
Company and the selling shareholders.
Based upon the operating results of D.C. Foods for the period from
December 7, 1998 to December 31, 1999, the Company is obligated to issue
approximately 418,400 Class N shares pursuant to the conversion formula
contained in the Class E Series 1 and Series 2 shares issued by
International Menu Solutions Inc. The value of the Class N shares to be
issued, based on a price of US$2.94 (CDN$4.24) per share is approximately
$1,774,000.
Based upon the operating results of Huxtable's for the period from
November 1, 1999 to December 31, 1999, the Company is obligated to issue
approximately 956,300 common shares, valued at US$2.94 (CDN$4.24) per
share to the selling shareholders of Huxtable's.
The calculations above have not been approved by the selling shareholders
of the respective companies and the board of directors of the Company.
Consequently, the Company will record the value of the shares as
additional purchase price (goodwill) when the shares are issued, which is
expected to be during the second quarter.
The Company is committed to issue additional consideration, generally in
the form of common shares, to selling shareholders of businesses acquired
based upon the operating results of the businesses acquired. Further
details are set out in the Company's Annual Report on 10-KSB filed on
April 14, 2000.
5. BANKING FACILITIES AND CONVERTIBLE DEBENTURES
As of March 31, 2000, the Company and its subsidiaries have utilized an
aggregate of approximately $10,000,000 of authorized lines of credit
totaling $10,000,000 (unaudited). The lines of credit bear interest at
Canadian prime plus 1/2% or 7.25% at March 31, 2000 except for borrowings
secured by cash deposits, in which case interest is calculated at prime
or 6.75%. The outstanding balances are due on demand and are secured by a
general assignment of book debts, a general security agreement over all
assets of the Company, life insurance on certain executives totaling
$2,500,000 and a priority agreement with other lenders of the Company.
In addition to the authorized lines of credit, the Company has a
revolving facility of $3,500,000 for equipment loans, bearing interest at
prime plus 1 1/4% and a forward exchange contract facility totaling
$7,500,000.
On May 10, 1999, the Company's subsidiary IMSI issued approximately
$4,000,000 in convertible debentures to two investors. The debentures
have a term of 48 months, bear interest at 7% per annum for the first 12
months and 13% thereafter, and are convertible at the holder's option at
any time into exchangeable shares of IMSI which are then exchangeable
into shares of the Company. IMSI has the right to force conversion of the
debentures if certain trading statistics are maintained after July 1,
1999. A total of $359,000 was paid by IMSI in respect of issuance costs,
which have been recorded as deferred financing costs and are being
amortized over the term of the debenture.
6
<PAGE> 8
INTERNATIONAL MENU SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CANADIAN DOLLARS)
(UNAUDITED)
================================================================================
5. CONTINGENCY
The Corporation is defending a legal action in which the plaintiff has
asserted a claim of approximately $200,000 for breach of contract. The
likelihood of loss, if any, is not determinable and no accrual for this
item has been recorded as of March 31, 2000.
6. NET LOSS PER SHARE
<TABLE>
<CAPTION>
Three months ended
March 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
Net loss per share
Numerator
Net loss available to common shareholders $ (2,183,270) $ (373,132)
------------ ------------
Denominator
Weighted average shares outstanding 15,845,561 9,075,300
------------ ------------
$ (0.14) $ (0.04)
============ ============
</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 deemed or
actually outstanding are considered common stock equivalents for the
purposes of the basis loss per share and weighted average outstanding
common shares calculations.
7
<PAGE> 9
INTERNATIONAL MENU SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CANADIAN DOLLARS)
(UNAUDITED)
================================================================================
7. SEGMENTED INFORMATION
The Corporation operated in four business segments. Information regarding
the Corporation's activities on a segmented basis includes the term of
earnings measurement of "EBITDA" which refers to earnings from before
interest, income taxes, depreciation and amortization. EBITDA is the
measure of profit or loss used by the chief operating decision maker when
making decisions regarding operations. The four operating segments are
defined as follows:
"Desserts" - operations of the Corporation producing fresh and frozen
baked goods and desserts.
"Fresh" - operations of the Corporation producing fresh entrees.
"Frozen" - operations of the Corporation producing frozen entrees
and meal components
"Corporate" - operations of the Corporation providing administrative,
marketing, product development and financial services
for all the various manufacturing operations
The relevant information in each segment is as follows:
<TABLE>
<CAPTION>
MARCH 31, 2000 Desserts Fresh Frozen Corporate Total
=======================================================================================
<S> <C> <C> <C> <C> <C>
Revenue $ 2,853,826 $ 1,142,577 $ 11,446,640 $ (66,784) $ 15,376,259
Inter-segment
Revenue
EBITDA 67,236 126,325 122,796 (1,281,235) (964,878)
Interest expense (83,110) (24,118) (205,268) (91,562) (404,058)
=======================================================================================
Identifiable
assets 3,407,967 1,216,709 12,068,093 17,902,002 34,594,771
Goodwill 2,052,400 559,560 12,124,429 818,408 15,554,797
=======================================================================================
Total assets 5,460,367 1,776,269 24,192,522 18,720,410 50,149,568
=======================================================================================
Capital
expenditures 136,618 46,151 958,700 66,008 1,207,477
Depreciation and
Amortization $ 140,243 $ 32,771 $ 557,604 $ 85,832 $ 816,450
=======================================================================================
</TABLE>
8
<PAGE> 10
INTERNATIONAL MENU SOLUTIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CANADIAN DOLLARS)
(UNAUDITED)
================================================================================
7. SEGMENTED INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, 1999 Desserts Fresh Frozen Corporate Total
=========================================================================================
<S> <C> <C> <C> <C> <C>
Revenue $ 1,036,643 $ 403,907 $ 2,322,760 $ 0 $ 3,763,310
Inter-segment
Revenue - - - -
EBITDA 24,006 37,029 10,420 (420,368) (348,863)
Interest expense (14,192) (2,376) (64,724) (3,337) (84,629)
Identifiable assets 1,423,177 769,619 2,616,676 6,167,337 10,976,809
Goodwill 272,356 226,219 674,525 247,161 1,420,261
=========================================================================================
Total assets 1,695,533 995,838 3,291,201 6,414,498 12,397,070
=========================================================================================
Capital expenditures 71,247 80,126 109,943 26,491 287,807
Depreciation and
Amortization $ 16,948 $ 17,654 $ 62,293 $ 5,418 $ 102,313
=========================================================================================
</TABLE>
9
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Result of Operations
THREE MONTHS ENDED MARCH 31, 2000 (OR "Q1-00") COMPARED TO THREE MONTHS ENDED
MARCH 31, 1999 (OR "Q1-99")
REVENUE: Revenue for the three months ended March 31, 2000 increased $11,612,948
or 308% to $15,376,259 from $3,763,311 during the same period in 1999. The
growth in revenue can be attributed to the acquisitions made in April/May 1999
- -- Tasty Selections and DC Foods, respectively and October/November 30,
1999--Ultimate and Huxtables. In addition the Company began to realize revenues
generated from the sales activities of the Company's sales personnel through the
development of new sales opportunities and expanding the customer base beyond
those of the customer bases of the acquired companies.
COST OF GOODS SOLD/GROSS MARGIN: Cost of goods sold for the three months ended
March 31, 2000 increased to $12,790,800 up $9,562,444 or 300% from $3,183,356
for the same period last year. As a percentage of revenue, cost of goods sold
represented 83.2% of revenue for the three months then ended, compared to 84.6%
for the same period in 1999. The change in absolute dollars is largely
attributable to the previously mentioned acquisitions and establishment of the
Seafood Selections division. The reduced cost as a percentage of revenue can be
attributed to a more diverse product group of products with better margins.
The sales cycle for some of the Company's divisions' products reflect lower
sales during the first three quarters resulting in partial underabsorbtion of
some direct overhead costs. Therefore, during this period margins are typically
lower than the overall percentage for the year. Also, a larger percentage of the
Company's revenues during this period are related to the sales by the Company's
DC Foods subsidiary, which is characterized by larger sales volume and lower
margin than the rest of the divisions.
SELLING EXPENSES: Selling expenses increased $1,089,432 to $1,398,909 (9.1% of
revenue) for the three months ended March 31, 2000 compared to $309,477 (8.2% of
revenue) for the same period ended March 31, 1999. The increase in the quarter
is primarily attributable to the 1999 acquisitions. The Company increased
selling expenses beyond those of the combined costs of the existing and acquired
manufacturing divisions as a result of the corporate involvement in the
promotion of each division's products and the Company's Selections line, the
introduction of its new products to the market, and the establishment of a
western Canada corporate sales office. The Company began incurring costs in the
execution of its sales and marketing strategy in the second quarter and early
third quarter of 1999, therefore these costs were not incurred at the increased
level until after Q1-99.
RESEARCH AND DEVELOPMENT: Research and development expenses increased $111,207
to $208,177 (1.4% of revenue) for the three months ended March 31, 2000 compared
to $96,970 (2.6% of revenue) for the same period last year. The increase is
primarily due to continued product development efforts associated with new meal
components and meal kits being developed in conjunction with new retail
customers/products for launch in the second and third quarter of 2000.
ADMINISTRATIVE EXPENSES: Administrative expenses increased $1,815,716 to
$2,410,019 (15.7% of revenue) for the three months ended March 31, 2000 compared
to $594,303 for the same period last year (15.8% revenue). The increase in
absolute dollars is due largely to previously mentioned acquisitions that were
completed during 1999. In addition, the Company has continued to incur increased
costs at the corporate level associated with building management infrastructure
and information systems, corporate governance and reporting obligations, seeking
out strategic acquisitions, investor relations, product marketing. The Company
began incurring costs in the execution of its administrative strategy in the
second quarter and early third quarter of 1999, therefore these cost levels were
not reflected in Q1-99. These costs include the establishment of corporate
offices and the implementation of information, production, and management
integration strategies.
10
<PAGE> 12
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES: Amortization of intangibles
increased to $394,682 (2.6% of revenues) for three months ended March 31, 2000
compared to $30,381 (0.8% of revenue) in the same period in 1999. The growth of
$364,301 in the expense for intangibles amortization is a result of increased
purchased goodwill on acquired businesses and continued increased expenditures
on packaging and artwork in conjunction with the launch of products with new
customers and the branding of existing products in accordance with the company's
strategy for better brand recognition through uniformity in the quality of
product presentation.
LOSS FROM OPERATIONS: The Company's loss from operations increased $1,330,152 to
$1,781,328 (11.6% of revenues) for the three months ended March 31, 2000 over
the same period in 1999. The increase in the loss is primarily due to
significant increases in product development efforts and new administrative
costs incurred to execute the growth strategy of the Company.
FINANCING COSTS: Net interest expense increased $335,586 to $401,942 for the
current year to date compared to $66,356 for the same period last year. The
increase is due primarily to the combined operating line financing for the
Company's divisions, including all of the acquisitions, and to interest charges
with respect to long-term debt, including the Company's convertible debt and
capital lease obligations associated with new capital equipment acquired during
1999. In addition, the Company's operating line was higher during the Q1-00
period as compared to the same period in 1999.
RISKS AND UNCERTAINTIES
The Company believes that the future results of operations could be impacted by
factors such as market acceptance of new products, and the success of the
Company's marketing of its home meal replacements. Similarly, future earnings
may be adversely effected by changes in the costs of goods sold, business and
labor. Additionally, where the Company continues to expand its business
internationally, and fluctuations in the foreign currency or general economic
conditions in any of the countries in which the Company does business could
adversely effect future results of operations.
The Company's ability to develop and market products that successfully adapt to
current market needs may also have an impact on the Company's results of
operation. A portion of future revenues will come from new products. The Company
cannot determine the ultimate effect that new products and services will have on
revenues, earnings or stock prices.
The Company's recent acquisitions and growth strategy to continue to acquire
other food processing companies may effect future results of operations. The
inability of the Company to address its non-compliance issues with its bankers
could have a material adverse affect on the Company. Our operating results could
be adversely effected if we fail to successfully integrate or manage acquired
companies or if we are not able to obtain the cost savings which we anticipate.
Furthermore, the Company's result of operations could suffer if the acquired
companies do not perform as we expect.
Due to the factors noted above and elsewhere in this Management's Discussion And
Analysis or Plan of Operation, the Company's future earnings and stock price may
be subject to significant volatility. Past financial performance should not be
considered as a reliable indicator of future performance and investors should
not use historical results to anticipate trends in future periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased from $4,165,370 at December
31,1999 to $3,360,755 at March 31, 2000. Of these funds $4,200,000 represent
funds required to be maintained by the Company as part of its banking facilities
agreements. Bank credit facilities utilized at March 31, 2000 totaled
approximately $10,000,000. Total credit facilities available at March 31, 2000
were $10,000,000. The Company's Huxtables Division had net cash of approximately
$537,000 at March 31, 2000.
11
<PAGE> 13
Historically, the Company's business cycle involves a significant investment in
working capital during the first six to nine months of the year in anticipation
of its late third quarter and fourth quarter sales. The Company has also made
investments in new capital equipment and leases during the current period. The
Company continued to build or maintain high levels of inventories in its
Transcontinental Gourmet Food, Prime Foods and Seafood Selections divisions. For
these divisions, inventories will decline in October for Transcontinental,
consistent with its sales cycle, and in the other divisions as sales increase.
In addition, the Company has continued to incur increased product development
costs and costs associated with building management infrastructure and
information systems, corporate governance and reporting obligations, seeking out
strategic acquisitions, investor relations and obtaining new sources of
financing. The operations of D.C. Foods and Pasta Kitchens have had positive
cash flows from operations during this period which funded their operations and
contributed to the costs in IMSI.
The Company's credit facilities with The Bank of Nova Scotia consists of the
following facilities:
(1) an operating line in the maximum authorized amount of $10,000,000. The
operating line may be utilized by way of direct advances or bankers' acceptance
and bears interest on direct advances ranging from The Bank of Nova Scotia's
Prime to Prime plus 1/2%. The operating line is repayable on demand. As security
for the operating line, IMSI provided to The Bank of Nova Scotia cash collateral
of $4,000,000 as well as the general security referred to below; and
(2) a revolving term facility to purchase equipment in the maximum authorized
amount of $3,500,000. The term facility may be utilized by way of term
promissory notes with a maximum term of 5 years and bearing interest at The Bank
of Nova Scotia Prime plus 1 1/4% or by way of equipment lease bearing interest
at The Bank of Nova Scotia Prime plus 1 1/4%. As security for the term facility,
IMSI is to provide appropriate lease and/or conditional sales contracts as well
as to maintain certain insurance coverage on the assets financed. In addition,
the general security referred to below is security for the term facility.
As general security for the credit facilities, IMSI provided a general
assignment of all of the assets of IMSI, a general assignment of book debts and
life insurance on the life of Michael Steele. Each of Prime, TGF, Norbakco,
Tasty Selections, 1005549 Ontario Limited and D.C. Foods, Huxtables and the
Company have provided unlimited guarantees of the indebtedness of IMSI to The
Bank of Nova Scotia supported by general assignments of all of the assets of
such subsidiaries. In addition, the Company provided to The Bank of Nova Scotia
a postponement and assignment of any amounts owing to it from time to time by
IMSI.
The Company is currently not in compliance with certain of its financial
covenants with the Bank of Nova Scotia. The Company is presently addressing
these non-compliance issues with the Bank. Management is currently in the
process of seeking additional financing through either debt or equity to fund
the operations of the Company and further acquisitions and capital expansion. To
this end, in October, the Company's subsidiary, IMSI engaged Scotia Capital
Markets Inc., a division of Scotiabank & Scotia McLeod Canada, to act as its
financial advisor for capital raising projects to fund the Company's acquisition
strategy and infrastructure expansion and production integration plans. The
Company has also recently approached several other financial services companies
to assist in the raising of debt or equity financing to fund acquisitions and
working capital. However, there can be no assurance that the Company or IMSI
will be able to raise additional capital or whether such capital will be
sufficient to satisfy financial covenants, meet the Company's plan or other
ongoing needs.
YEAR 2000
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.
The Company did not experience any significant or material Year 2000 related
problems and does not forsee any future expenditures on such issues.
12
<PAGE> 14
CAUTIONARY STATEMENT INVOLVING FORWARD LOOKING STATEMENTS
Some of the information in this Form 10-QSB 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, distributors, and banks; legal and
regulatory requirements; general economic conditions; and other risk factors
which may be described in our future filings with the Securities and Exchange
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-QSB. Such statements describe
circumstances which could cause actual results to differ materially from those
contained in any forward looking statement.
This Form 10-QSB 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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
No unregistered securities were sold during the three months ended March 31,
2000, but the Company expects to make the following issuances in the next
several months:
Huxtable's Kitchens Acquisition:
The Company has an obligation to issue approximately 956,300 Common
shares of the Company under the terms of the Company's November 1999
acquisition of the assets of Huxtables Kitchens LLC based on the
performance of the division during the period to December 31, 1999 as
defined in the purchase agreement These shares have not yet been
issued. The Company is currently in the process of verifying the number
of shares to be issued in accordance with the agreement but does not
expect the amount to be issued to be materially different from the
amount above. The issue of said shares is subject to the approval of
the calculations by the selling shareholders of Huxtables and must be
approved by the Company's Board.
D.C. Foods/1005549 Ontario Limited Acquisition:
The Company has estimated that the Class E Series 1 and 2 shares of
International Menu Solutions Inc. shall entitle the holders thereof to
a total of approximately 418,000 Class N shares of the Company
under the terms of the Company's May 1999 acquisition of D.C. Foods
and 1005549 Ontario Limited based on the performance of the division
during the period to December 31, 1999 as defined in the purchase
agreement These shares have not yet been issued. The Company is
currently in the process of verifying the entitlement of the shares in
accordance with the agreement but does not expect the amount to be
issued to be materially different from the amount above. The share
entitlement calculations are subject to the approval by the selling
shareholders of D.C. Foods and must be approved by the Company's Board.
13
<PAGE> 15
Options to be granted to Transcontinental Gourmet Foods:
The Company has an obligation to grant options for the purchase of
Common Stock of the Company of approximately 256,000 shares to
management of Transcontinental under the terms of the Company's
November 1998 purchase agreement with Transcontinental based on the
performance of the division during the period to December 31, 1999 as
defined in the purchase agreement These shares have not yet been
formally granted. The Company is currently in the process of verifying
the number of options to be granted in accordance with the agreement
but does not expect the amount to be granted to be materially different
from the amount above. The grant of said options must be approved by
the Company's Board.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As discussed in "Part I, Item 2--Management's Discussion and Analysis
or Plan of Operation--Liquidity and Capital Resources," the Company is
currently not in compliance with certain of its financial covenants with the
Bank of Nova Scotia.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Data Schedule for the three months
ended March 31, 2000.
(b) On January 18, 2000 the Company filed an amendment on Form
8-K/A to its Form 8-K dated November 24, 1999 relating to its
acquisition of substantially all of the assets of Huxtable's
Foods, L.L.C. The amendment included financial statements and
proforma financial information relating to the acquisition.
14
<PAGE> 16
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, as
amended, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: May 12, 2000
INTERNATIONAL MENU SOLUTIONS CORPORATION
By: /s/ Michael Steele
-------------------------------------
Michael Steele
President and Chief Executive Officer
/s/ Larry Hoffman
-------------------------------------
Larry Hoffman
Chief Financial Officer
15
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