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INTEGRATED FOOD RESOURCES, INC.
FORM 10-QSB
2ND QUARTER, FISCAL YEAR 1999
NOVEMBER 1, 1998 - JANUARY 31, 1999
ITEM 1 - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEET
UNAUDITED
JANUARY 31, 1999
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<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 13,735
Accounts Receivable $ 131,967
Note Receivable $ 27,525
Inventory $ 209,455
Prepaid Expenses $ 170,260
Prepaid Interest $ 5,953
------------
TOTAL CURRENT ASSETS $ 558,894
FIXED ASSETS
Office and Fact. Equip $ 408,348
Tuna Packing Plant $ 918,735
Less Accumulated Depreciation $ (142,076)
Land Held for Development $ 74,498,400
Valuation Adj-Foreign Land Grant $(74,498,400)
Wireless Contract-Long Term $ 349,172
Other Assets $ 16,241
------------
TOTAL FIXED ASSETS $ 1,550,420
INTANGIBLE ASSETS
Goodwill $ 4,591,035
Less: Amortization $ (150,198)
------------
TOTAL INTANGIBLE ASSETS $ 4,440,837
TOTAL ASSETS $ 6,550,151
------------
------------
LIABILITIES
Current Liabilities
Accounts Payable $ 300,790
Accrued Liabilities $ -
Notes Payable (Stockholder) $ 253,166
Short Term Notes Payable $ 108,457
------------
TOTAL CURRENT LIABILITIES $ 662,413
LONG TERM LIABILITIES
Deferred Income-Contracts $ 349,172
Longterm Capital Lease $ 19,006
Long Term Note payable $ 565,056
------------
TOTAL LONG TERM LIABILITIES $ 933,234
TOTAL LIABILITIES $ 1,595,647
EQUITIES
Preferred Stock, $.001 par value 10,000,000 shares
authorized, 800 issued and outstanding $ 4,051
Additional Paid-in-capital(Preferred) $ 4,045,950
Common Stock, $.001 par value, 50,000,000 shares
authorized, 16,184,643 issued and outstanding $ 16,180
Additional Paid-in-capital (Common) $ 4,120,596
Retained Earnings $ (2,505,732)
Net Income $ (726,541)
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TOTAL EQUITY ACCOUNTS $ 4,954,504
TOTAL LIABILITIES & OWNERS EQUITY $ 6,550,151
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CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
FOR THE PERIODS ENDING JANUARY 31
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<CAPTION>
QUARTER ENDED JANUARY 31 SIX MONTHS ENDED JANUARY 31
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
GROSS SALES $ 266,155 $1,791,206 $ 433,245 $2,812,325
COST OF GOODS SOLD $ 85,536 $1,749,653 $ 148,746 $2,779,152
SELLING, GENERAL AND ADMIN
EXPENSES
Administrative/Consulting $ 182,512 $ 335,496 $ 327,931 $ 595,621
Other selling and general $ 182,565 $ 125,589 $ 316,623 $ 198,131
Depreciation & Amortization $ 127,136 $ 7,905 $ 255,517 $ 15,127
Interest Expense $ 4,184 $ 66,922 $ 110,968 $ 117,362
Miscellaneous Expense $ - $ - $ - $ -
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TOTAL OPERATING EXP. $ 496,398 $ 535,912 $1,011,040 $ 926,241
TOTAL INCOME $(315,780) $ (494,358) $ (726,541) $ (893,067)
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OTHER INCOME
Interest Income $ - $ 87 $ - $ 860
Miscellaneous Income $ - $ - $ - $ -
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TOTAL OTHER INCOME $ - $ 87 $ - $ 860
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NET INCOME $(315,780) $ (494,272) $ (726,541) $ (892,208)
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SHARES OUTSTANDING
LOSS PER SHARE
2
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CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
FOR THE PERIOD ENDING JANUARY 31, 1999
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CASH FLOWS RELATED TO OPERATING ACTIVITIES
Net Loss $ (726,541)
ADJUSTMENTS TO RECONCILE NET LOSS TO CASH FROM
OPERATING ACTIVITIES
Depreciation and Amortization $ 255,517
Increase/Decrease in:
Receivables $ 460,236
Note Receivable $ (27,525)
Inventories $ 14,428
Prepaid expenses $ (166,430)
Accounts Payable $ 46,132
Accrued Liabilities $ (33,453)
-----------
Net cash from Operating activities $ 548,906
CASH FLOWS RELATED TO INVESTING ACTIVITIES
Purchase of equipment $ (112,297)
Tuna packing plant costs $ (118)
Other Assets $ 3,255
Goodwill $ (179,601)
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Net cash from financing activities $ (288,761)
CASH FLOWS RELATED TO FINANCING ACTIVITIES
Repayment of related-party notes payable $(4,008,334)
Repayment of related-party notes payable $ (11,768)
Proceeds from Long Term Capital Lease $ 10,974
Proceeds from Long Term Notes Payable $ 157,549
Issuance of Preferred Stock $ 4,050
Additional Paid-in-Capital-Preferred $ 4,045,950
Issuance of Common Stock $ 100
Additional Paid-in-Capital-Common $ 66,512
-----------
NET CASHING FROM FINANCING ACTIVITIES $ 265,033
NET INCREASE /(DECREASE) IN CASH $ (201,362)
CASH, BEGINNING OF PERIOD $ 215,097
CASH, END OF PERIOD $ 13,735
</TABLE>
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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
UNAUDITED
FOR THE PERIOD ENDED JANUARY 31, 1999
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<CAPTION>
Common Stock Preferred Stock Additional Paid-in-Capital Total
-------------------- ------------------- --------------------------- Accumulated Stockholders'
Shares Amount Shares Amount Common Preferred Deficit Equity
---------- ------- --------- ------ ---------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1998 16,084,643 $16,080 799 $ 1 $4,054,084 $(2,505,732) $1,564,433
Conversion of Notes to ITG &
ITGF into Preferred Stock 4,050,000 $4,050 $4,045,950 $4,050,000
Issuance of Common stock
for Netbridge Acquisition 20,000 $ 20 $ 66,512 $ 66,532
Issuance of Common Stock
to Grupo Megaplus 80,000 $ 80 $ 80
Net Loss $ (726,541) $ (726,541)
Balance, January 31, 1999 16,184,643 $16,180 4,050,799 $4,051 $4,120,596 $4,045,950 $(3,232,273) $4,954,504
</TABLE>
4
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
REVIEW OF OPERATING RESULTS
CLIPPERNET CORPORATION, INC. (CNC)
During the quarter November 1, 1998 to January 31, 1999, CNC had
earnings (losses) of ($106,534) on sales of $261,966. As previously disclosed,
CNC's financial data prior to its acquisition in July of 1998 is not available
for comparison. At the current annualized revenue levels, CNC is operating in
a single regional market at close to break-even at the EBITDA level of
($16,269). As CNC expands its market dominance in the Eugene/Springfield,
Oregon market and reaches demonstrated profitability, this regional business
model will be duplicated in a nationwide roll-out achieved through licensing,
acquisition of local Internet Service Providers (ISP), joint ventures and
internally-funded deployment of the technology.
Growth and expansion of CNC's operations continued apace with previous
forecasts. CNC expanded its customer base of Internet users to approximately
10,000 and captured in excess of a 20% share of the Eugene/Springfield market.
Additional employees have been added to CNC's staff to support these on-going
developments. New commercial accounts and private subscriptions have been
added in several locations in the Willamette Valley, and CNC's sales activities
throughout the Western States Region continue according to plans.
The Company is actively negotiating the acquisition of existing
internet access companies. Growth will occur through acquisition and the
deployment of the technology in new markets. These acquisitions will be
undertaken in a manner supportive of the Company's long-term operational and
strategic goals.
5
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SEABOURNE VENTURES, INC. (SEABOURNE)
During the quarter November 1, 1998 to January 31, 1999, Seabourne had
earnings (losses) of ($209,246) on sales of $4,189. This compares with
earnings (losses) of ($494,272) on sales of $1,791, 206 from the same period
from the previous fiscal year.
This decline in revenue is attributed to management's decision to
terminate the company's tuna packing activity in Mexico. Abnormal weather
patterns caused by El Nino and La Nina conditions are seen as the cause behind
a rise to all time high levels in the price for frozen tuna. The result has
been the inability of the Company to gain access to a consistent supply of
competitively-priced, high-quality, dolphin-safe frozen tuna raw material.
As previously disclosed in Form 10-SB, Seabourne foresaw that it would
be difficult for the independent operators of small bait-boats to fulfill the
terms of their supply contracts, given the prevailing El Nino and La Nina
conditions in the Eastern Tropical Pacific fishing grounds and the need for
extended more-costly voyages. The increasing demand for dolphin-safe tuna
pushed raw material prices up to the point where fully compensatory pricing
exceeded what the market would bear.
Seabourne's current strategy is to take full control of the sourcing
operation for raw material. The Company's plans to build and operate its own
fleet of fishing and processing vessels has been accelerated. The design of
super-efficient fishing vessels has been completed and negotiations are
underway to complete the financing and ship building contracts. The Company
contemplates contracting with a European shipyard for the construction of up to
six 79 meter vessels. The ships will be financed through pre-sold contracts to
major U.S. food retailers, export loans, grants and local government subsidies.
The Company expects to finance most of the cost of the vessels.
In the opinion of Seabourne management, the interests of the
shareholders will be best served by suspending the current operations at the
cannery in Mexico. Instead of continuing to operate at a negative gross
margin, management opted instead to stop production and regain control of low
cost raw material. It has further been decided that the Company will hold in
abeyance its option to acquire the Ensenada, Mexico tuna canning plant until
such time as it is able to fully control the supply of raw material through the
operation of its own fishing fleet.
CAPITAL NEEDS AND FUTURE REQUIREMENTS
CNC
6
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CNC's growth will be funded through a private placement to institutional
and accredited investors for a combination of convertible preferred stock and
warrants issued at the parent company level. Negotiations with major funding
sources are expected to result in the successful closing of a $20 to $25
million financing package in the 3rd fiscal quarter for the Company's
technology division. The preferred shares are convertible at a pre-set
percentage of any proposed initial public offering price.
The Company is giving consideration to selling a minority interest in CNC
for the purpose of raising capital. It is contemplated that the Company will
combine its technology assets (CNC's proprietary high-speed wireless microwave
Internet access technology and Project Harvest-Registered Trademark-) prior to
this offering.
SEABOURNE
The ships will be financed through pre-sold contracts to major U.S.
food retailers, export loans, grants and local government subsidies. The
company expects to finance most of the cost of the vessels.
CAPITAL-INTENSIVE PROJECTS
On January 26, 1999, the Company's Board of Directors announced the
acquisition of a 20 year exclusive worldwide licensing agreement for Project
Harvest-Registered Trademark-. a software technology that is the subject of
several U.S. and international patent-pending applications. The license
includes the use of the registered trademarks "Project Harvest-Registered
Trademark-" and "World Trade Through Pioneering Technology-Registered
Trademark-".
Project Harvest-Registered Trademark- is a software-driven technology
that links global buyers and sellers of food products via secure internet
connections, and it will enable them to consummate business to business
E-commerce transactions. Buyers will be able to identify specific suppliers
who meet their customized requirements for hazard control, food safety,
process control, hygiene, manufacturing practices, financial stability and
product quality. As Standard & Poors did for the financial industry, Project
Harvest-Registered Trademark- will create the first global standard for the
rating of factories and product quality. This business to business E-Commerce
technology is expected to revolutionize the way food products are bought and
sold worldwide.
The Company expects to need $10 million to finish the programming, hire
a top-flight management team and complete the launch plans. These funds will
be provided as explained above through the Company's sale of convertible
preferred stock.
CNC
7
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CNC continues to develop Points-of-Presence (PoP) in selected regional
markets. The PoP's will serve as hub sites to connect new commercial accounts
to CNC's wireless, microwave, internet access network. The approximate cost for
this phase of expansion in the third and fourth fiscal quarters is projected at
$1 million. CNC will need an additional $9 to $12 million to complete its
roll-out strategy and recruitment and staffing efforts.
SOURCES OF LIQUIDITY
On January 18, 1999, the Company converted $4,050,000 of its unsecured
convertible notes to International Trade Group, LLC and ITG Finance, LLC into
Series A convertible preferred stock. These shares will be issued to each
lender at the rate of 1 share for each $1 of loan amount.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On December 1, 1998 , the Company, as plaintiff, filed a 7-count civil
action in the Superior Court of New Jersey, Bergen County Law Division, docket
no. BER-L, against Kennedy Funding, Inc., (KFI), a commercial lending
institution organized under the laws of New Jersey, as defendant, alleging,
among other complaints, breach of written and oral contract, failure to perform
and equitable estoppel. The Company entered into a negotiation with KFI for a
commercial loan of $16,000,000 to be used as working capital to finance the
Company's food trading activities. KFI predicated granting the loan on the
Company meeting specific conditions and collateralization requirements, and it
required from the Company a commission prepayment fee of $90,000. The Company
deposited this sum with KFI with the written understanding that is was
refundable should the loan fail to close for any reason whatsoever, and it
complied with all conditions of collateralization. KFI failed to grant the
loan, and it declared the deposit to be non-refundable and withheld its return.
The Company intends to vigorously defend its position in this matter, and it is
confident it will receive a favorable judgment. No adverse material outcome is
expected.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
As disclosed above, the Company will issue 4,050,000 shares of its
Series A convertible preferred stock. Management believes this contribution to
the Company's capitalization will enable it to fulfill its growth and expansion
plans.
ITEM 3 - DEFAULTS ON SENIOR SECURITIES
During the covered period, there were no defaults on any senior
securities.
8
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ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the covered period, no matters were submitted to a vote of the
shareholders.
ITEM 5 - OTHER INFORMATION
The following additional matters of interest occurred during the
covered period.
On October 20, 1998, the Board of Directors appointed Ransom
Southerland, President and CEO of CNC to the Board of the Company.
On October 20, 1998, the Board of Directors approved a stock option
program for key employees, directors and new Company hires. The salient points
of this program are:
- 1.7 million shares of the Company's common stock allocated for the
program
- directors to be issued options for 150,000 shares with vesting to
occur over 3 years at the rate of 50,000 per year
- options set to expire on October 20, 2008
- exercise price of the options set at $1 1/32 (the trading price at the
time of the Board's decision)
- shares proportionally vested if a director for any reason leaves the
board
- option plan subject to review by corporate legal counsel
On November 2, 1998, the Board of Directors appointed Philip M. Chrusz
to the Board of the Company. Mr. Chrusz tendered his resignation to the Board
on February 11, 1999.
During the covered period, the Board approved the issuance of 100,000
new shares of the Company's common stock. The total now issued and outstanding
is 16,184,643 shares.
ITEM 6 - EXHIBITS
All relevant and previously disclosed exhibits incorporated by
reference. No new exhibits attached.
9
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SECOND
QUARTER 1999 CONSOLIDATED BALANCE SHEET, STATEMENTS OF INCOME, CASH FLOWS AND
CHANGES IN STOCKHOLDER'S EQUITY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> OCT-31-1998
<PERIOD-END> JAN-31-1999
<CASH> 13,735
<SECURITIES> 0
<RECEIVABLES> 159,492
<ALLOWANCES> 0
<INVENTORY> 209,455
<CURRENT-ASSETS> 558,894
<PP&E> 1,327,083
<DEPRECIATION> (142,076)
<TOTAL-ASSETS> 6,550,151
<CURRENT-LIABILITIES> 662,413
<BONDS> 0
0
4,051
<COMMON> 16,150
<OTHER-SE> 4,934,273
<TOTAL-LIABILITY-AND-EQUITY> 6,550,151
<SALES> 266,155
<TOTAL-REVENUES> 266,155
<CGS> 85,536
<TOTAL-COSTS> 496,398
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,184
<INCOME-PRETAX> (315,780)
<INCOME-TAX> 0
<INCOME-CONTINUING> (315,780)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (315,780)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.013)
</TABLE>
