<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-KSB
(Mark One)
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the transition period from __________ to __________ .
Commission file number 000-28131
INTERALLIED GROUP, INC.
(Name of Small Business Issuer in Its Charter)
Nevada 14-1775226
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1 Jacqueline Street
Suite 102
New Windsor, New York 12553
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(Address of Principal Executive Offices)
(914) 534-4909
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
- ------------------- -----------------------------------------
Not Applicable Not Applicable
Securities registered under Section 12(g) of the
Exchange Act:
Common Stock, par value $0.01 per share
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days. Yes ___X___
No _______
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [_X_]
Issuer had no revenues for its most recent fiscal year.
<PAGE>
Documents incorporated by reference: See Item 13 of this report.
As of April 21, 2000, 1,722,973 shares of the registrant's common stock
were issued and outstanding, and the aggregate market value of such shares held
by non-affiliates of the registrant on such date, based on the average of the
closing bid and asked prices for such shares on such date, was approximately
$5,948,108.
Transitional Small Business Disclosure Format:
Yes /_ _/ No /_X_/
The Exhibit Index, Part IV, Item 13, is located at page 13 of this Form
10-KSB.
This Form 10-KSB contains a total of __ pages, including any exhibits.
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PART I
Item 1. Description of Business.
History
Interallied Group, Inc. (the "Company") is engaged in establishing and
marketing a monthly gourmet meal through its subsidiary, Dining Experience, Inc.
("Dining Experience"). Dining Experience, which was formed in December 1998, is
a development stage venture acquired by the Company in March 1999 through a
stock acquisition. The first product and service to be offered through Dining
Experience will be its "gourmet meal-of-the-month" program, which is designed to
provide fresh, gourmet meals directly to customers' homes by overnight courier.
We anticipate that Dining Experience will commence operations in the third
quarter of 2000. Currently, the Company has no significant operations other than
those of Dining Experience.
The Company was engaged in establishing and operating franchised
restaurants from 1996 until January 1999, when the Company sold its 51% interest
in the joint venture, which was formed as a limited liability company to operate
a "Place for Ribs" restaurant under a franchise agreement in Buffalo, New York.
This entity was under the name, Interallied Restaurant Group of Buffalo, LLC.
The Company sold its interest in the joint venture effective as of December 28,
1999 to the holder of a minority interest in the venture for $161,449, plus a
percentage of profits of the restaurant, if any, through the end of 2003, not to
exceed $68,051. Of the $161,499, $100,000 was paid to the Company in cash and
the balance of $61,449 was paid by a note due in 16 monthly installments of
$4,062 each, commencing February 1, 1999. The Company's only remaining interest
in this business is its 25% interest, acquired in 1997, in Interallied
Restaurant Group of Rochester, LLC, the owner of another Damon franchise
restaurant located in Rochester, New York. These restaurants have never
generated significant income and have operated at a loss.
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In September 1998, the Company entered into an agreement granting it
the option to acquire a women's apparel company that designs handbags with a
cigar box theme. At that time, the Company also entered into agreements to
provide marketing and consulting services to several entities, including cigar
manufacturers and distributors. As consideration for the option, the Company
issued shares of preferred stock which were convertible in common stock of the
Company. As the result of modifications made in the option agreement in December
1998, these shares were returned to the Company. See "Item 5. Market For Common
Equity and Related Stockholder Matters - Recent Resales of Unregistered
Securities." The Company declined to exercise the option, and all consulting
arrangements were terminated during 1999.
The Company was initially organized in Nevada on May 27, 1975, under
the name European American Leasing Corporation. In November 1993, the Company
acquired Sunnyland Tours, Inc., a corporation organized to engage in the
restaurant business, through a reverse acquisition. At that time, the Company
changed its name to Interallied Restaurant Group, Inc. In January 1999, the
Company adopted its current name, Interallied Group, Inc.
The Company is located at 1 Jacqueline Street, Suite 102, New Windsor,
New York 12553. As used in this report, each of the terms "Company,"
"Interallied" and "we" includes the Company and its subsidiaries.
Dining Experience
Under the Dining Experience gourmet meal-of-the month program, each
month, a member will receive all of the ingredients for a gourmet meal pursuant
to a recipe from a participating restaurant. The Company intends to provide its
members, by overnight courier, substantially all ingredients for a meal,
accompanied by a recipe and instructions for preparation. The Company's strategy
is to market its program primarily through a network of independent participants
or "member-marketers" in a multi-level marketing program, while also marketing
through its participating merchants. Under the Company's marketing plan, each
customer would receive a membership card entitling the customer to certain
additional benefits. Each month, the member would receive a package containing
the ingredients, recipe and cooking instructions for that month's featured
entree. The ingredients to be provided will include a main dish together with a
vegetable and, should the recipe provide, rice or pasta, as well as soup and/or
an appetizer, all condiments, dessert and salad. The only ingredients not
included will be dairy products and eggs. Meals will be provided for a minimum
of two persons. Each monthly package is also expected to contain written
information, including:
o a complete history of the participating restaurant and the city in
which it is located;
o the restaurant owner and the chef who created the recipe;
o the origin of the main course;
o a list of the enclosed ingredients; and
o a nutritional fact sheet.
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The Company intends to provide instructions that will be easy to use
and that will guide the member through all steps in the preparation of the meal.
The instructions will be accompanied by full-color photographs to assist in the
creation of the meal.
Although the Company has not begun distributing meals, it is
undertaking the following steps to implement the gourmet meal-of-the-month
program. These steps include negotiations with a number of upscale restaurants
from coast to coast to serve as participating restaurants. The type of
restaurants which the Company seeks as participants range from cozy country inns
to big city restaurants. To date, the Company has entered into agreements with
over 12 restaurants, including those which feature Italian, Spanish and
Continental cuisine. Under these agreements, the participating restaurant will
supply the recipe along with descriptions of the restaurant, its owner and the
chef, free of charge to the Company, in consideration of the Company's promotion
of the restaurant through its meal-of-the-month program.
The Company has also entered into an arrangement with an unaffiliated
firm in the Philadelphia area to deliver the meals to plan members. This firm
will obtain the ingredients required by each monthly recipe, package the
ingredients as well as the written materials, and deliver the gourmet meal
packages on the Company's behalf. The Company is not required to maintain an
inventory.
The heart of the Company's plan is creation of a network of
participants who will use the program and market it to others. These
member-marketers will be independent contractors. The Company has formulated its
marketing and distribution plan and prepared a manual for members as well as
other promotional materials. The Company's marketing and distribution plan (the
"Plan") assumes that each member-marketer will pay a membership fee of less than
$100. Under the Plan, there will be five levels of achievement for each
member-marketer, based on the number of meals sold by such member and the number
of additional members and member-marketers enlisted by the member. The
compensation to be given to each member-marketer will be comprised of sales
commissions and discounts on meals ordered for the member's personal use and
discounts on services and products provided by member-participants. The level of
compensation each member-marketer receives will depend on meal program sales by
the member-marketer and the other member-marketers enlisted. To date, the
Company has entered into arrangements with 76 member-marketers.
Under the Company's marketing plan, it will enlist participating
merchants, each of which will cover a particular geographic area. The area of
each participating merchant will be listed on the "Participating Merchants Page"
of the Company's web site. The Company has also established Website for Dining
Experience designed to inform prospectus participants. Each listing will
indicate the merchants' name, address, telephone number, description of its
business, and the incentives or discounts being offered by that merchant to
member-marketers. The Company will also provide to each participating merchant a
window decal, a counter card with logo, a merchant membership card for personal
use for discount and a listing in the Company's promotional material. Those who
may become participating merchants are not only restaurants, but also cleaners,
florists, hair salons and other stores.
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Future Plans
The Company is developing other programs that will feature gourmet food
and food related-items, such as a Wine-of-the-Month program, dietetic,
vegetarian and Kosher meal programs. Future products are intended to include
once-a-year picnic packages, holiday season packages, spice racks, aged Balsamic
Vinegar, extra virgin olive oil and pasta serving bowls and plates.
All members and participating merchants will receive membership cards
which will entitle the holder to discounts from participating restaurants and
other merchants nationwide. The names and addresses of the participating
restaurants will be published in the Company's newsletter and listed on the
Company's web site.
To increase the customer base of Dining Experience, the Company intends
to sell participating memberships through local area fund raising organizations,
little league, civic and religious organizations and the like which will expose
Dining Experience to potential corporate as well as individual customers.
The Company intends to focus on specific demographic markets in order
to provide sufficient merchant participation providing a broad selection of
outlets for the Dining Experience members in those areas.
The Company also intends to sponsor gourmet food and cooking seminars,
to be held at participating restaurants, local hotels and in selected areas
utilizing the Company's mobile kitchen to be acquired by the Company.
Employees
Each of the Company and Dining Experience has two paid employees.
Competition
The Company is not aware of any competing monthly gourmet meal plan.
Nevertheless, the Company may face substantial competition for disposable income
for gourmet food and other from restaurants, gourmet food stores and gourmet
food and other catalogs. The market for the Company's food programs will also
depend upon the number of member-marketers that enroll. The Company intends to
attract members on the basis of its multi-level marketing plan, which will
enable each member to earn income based upon its enrollment of new members and
their purchasing levels. The Company believes it will face competition for
members from the substantial number of established marketing organizations, such
as Amway. The Company will also compete with restaurants, gourmet food stores
and gourmet food catalogs. Many of the
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Company's competitors are established business that have far greater brand name
recognition than the Company has and far greater financial resources than those
available to the Company.
The ability of the Company and its member-marketers to enroll
additional members will depend, in part, upon the number, geographic location,
quality and type of restaurants and other merchants that participate in the
Company's program by offering discounts on products and services to members. The
Company will compete for such participants with other discount programs, such as
Transmedia and programs sponsored by credit card companies, such as American
Express and Citibank Visa, which offer products and services for dollars spent.
These companies have established program with recognized brand names and far
greater financial resources than those available to the Company.
Trademark
Dining Experience has developed a logo, but it has not caused the logo
to be registered with the U.S. Patent and Trademark Office.
Item 2. Description of Property.
The Company's executive offices are located at 1 Jacqueline Street,
Suite 102, New Windsor, New York 12553, where it leases approximately 750 square
feet. The lease for these premises expires on February 28, 2001. The annual base
rental for this space is approximately $10,000.
Item 3. Legal Proceedings.
There are no legal proceedings involving the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1999.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Market Information. The Company's Common Stock is quoted on the OTC
Bulletin Board under the symbol "ILRG." Set forth below are the high and low
closing bid quotations for our common stock for each quarter during the last two
fiscal years, as reflected on the electronic bulletin board. This information is
believed to be accurate, but is not guaranteed. The quotations listed below
represent prices between dealers and do not include retail mark-up, mark-down
or commission, and there can be no assurance that they represent actual
transactions. The
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prices set forth below for periods prior to September 1998 also do not reflect a
one-for-twenty stock split effected at that time.
Fiscal Years Ended December 31, 1999 and December 31, 1998
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Quarter/Fiscal Year High Low
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1st 1999 5.250 4.625
2nd 1999 5.500 4.750
3rd 1999
4th 1999
1st 1998 0.375 0.063
2nd 1998 0.125 0.063
3rd 1998 0.313 0.063
4th 1998 4.250 4.000
Recent Sales of Unregistered Securities.
In March 1999, the Company issued 500,000 shares of its common stock to
the three shareholders of Dining Experience in exchange for all of its issued
and outstanding shares. The Company believes that the issuance of such shares is
exempt from the registration requirements of the Securities Act of 1933 pursuant
to section 4(2) thereof. See Item 11 "Security Ownership of Certain Beneficial
Owners and Management."
As of June, 1999 the Company issued 154,240 shares of its common stock
to an investor in consideration of cancellation of indebtedness. The Company
believes the issuance of these shares is exempt from the registration requests
of the Securities Act of 1933 pursuant to section 4(2) thereof.
Dividends. The Company has never paid cash dividends on its common
stock. The Company does not anticipate paying cash dividends because it intends
to retain net income, if any, to be used as working capital for the development
of its business. Any decision as to payment of cash dividends is solely in the
discretion of the Company's board of directors and will depend on various
factors, including the Company's results of operations and financial condition
and the availability of other sources of capital for the continued development
and expansion of the Company's business.
Security Holders. As of April 3, 2000, there were approximately 189
holders of record of the Company's common stock. There are no shares of the
Company's preferred stock currently outstanding.
Transfer Agent. The transfer agent for the Company's common stock is
Jersey Transfer Trust Company, located at 201 Bloomfield Avenue, Veronia, New
Jersey 07044. The telephone number of our transfer agent is: (973) 239-2712.
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Independent Auditors. The Company's financial statements for 1999 and
1998 were audited by the independent accounting firm of Richard A. Eisner &
Company, LLP, 575 Madison Avenue, New York, New York.
Item 6. Management's Discussion and Analysis or Plan of Operation.
Plan of Operation
During the year 2000, the Company will continue to focus on launching
the gourmet meal-of-the-month program to be sponsored by its subsidiary, Dining
Experience. Prior to its acquisition by the Company, Dining Experience had begun
and is continuing to develop this program by:
o entering into arrangements with participating restaurants;
o developing its membership and multi-level marketing programs;
o developing marketing and promotional material; and
o entering into arrangements for the distribution of meals of the
month.
The market for the Company's food programs will depend in large part on
the number of member-marketers that enroll. The Company intends to attract
members to its gourmet meal-of-the-month program on the basis of a multi-level
marketing plan, which will enable each member to earn income based upon its
enrollment of other members and their purchasing levels. The quality, number and
location of the restaurants that participate in the program will also affect the
Company's ability to attract members, as will the number, location, and quality
of products or services provided by other merchants that participate in the
program by providing discounts to members on these products and services. To
date, 76 member-marketers have enrolled in this program, and 12 restaurants have
agreed to become participants in the gourmet meal-of-the-month program. These
restaurants offer Italian, Spanish or Continental cuisine. See Item 1 "Business
- - Competition." Operations of the gourmet-meal-of-the-month program are intended
to commence in the fourth quarter of 2000.
After the gourmet-meal-of-the-month program is launched, the Company
plans to offer different types of meals and to develop additional products and
services involving gourmet food items, including the development of food
seminars to enhance the Dining Experience marketing program. See Item 1 -
Business - Dining Experience" and "Business - Future Plans.
Year Ended December 31, 1999 Compared to the Year Ended December 31,
1998
During the 12 months ended December 31, 1998, the Company had revenues
of $1,321,156 as compared to no revenue for the year ended December 31, 1999.
All of the 1998 revenues were derived from the operations of the "Place For
Ribs" restaurant in Buffalo, New York, owned by the joint venture. The Company
sold its interest in the joint venture effective December 1998. The business of
Dining Experience is under development, this subsidiary has
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not commenced operations. The Company's only other asset is its 25% interest in
another "Place For Ribs" restaurant, which has generated losses since inception
in 1997.
During 1999, the Company's general, administrative and operating
expenses were $225,110 compared to $1,100,011 in 1998. Most of these expenses in
1999 were incurred in connection with start-up activities of Dining Experience.
These expenses in 1999 also included a non-cash expense of $66,717 for
amortization of acquisition costs for Dining Experience. In January 1999, the
Company experienced a non-recurring gain of $176,880 from the sale of its
interest in the joint venture. Because cumulative losses exceeded the Company's
basis, the Company did not record any loss related to its investment in its 25%
minority interest. The Company had a net loss of $116,039 in 1999 as compared to
a net loss of approximately $264,177 in 1998. The 1999 loss was attributable to
the absence of revenue in 1999, start-up costs incurred in connection with the
business of Dining Experience, and amortization of the acquisition costs for
Dining Experience.
Liquidity
The Company has not been able to pay its obligations in the normal
course and the Company's financial statements included herein are subject to a
going concern condition. The Company must receive additional capital to continue
its existence and commence the operations of Dining Experience.
The Company has historically experienced negative cash flow from
operations, and has covered cash flow short falls through advances made by
certain shareholders and sales of common stock. In 1999 Dining Experience
received $75,000 of which $50,000 was received prior to its acquisition.
For information concerning the Company's results of operations for the
last two fiscal years, see the Company's financial statements for those years
and the notes to those statements contained elsewhere in this report. It should
be noted that shortly after selling its interest in the restaurant joint venture
effective December 1998, the Company acquired Dining Experience and began to
concentrate on the development of this subsidiary's prospective business.
Consequently, year-to-year comparisons of financial information for 1999 and
1998 may not be useful to an understanding of the Company's current financial
condition.
Item 7. Financial Statements.
See pages F-1 through F-10 attached hereto for copies of the audited
financial statements of the Company for the years ended December 31, 1999 and
December 31, 1998. Preceding page F-1 is an index to these financial
statements.
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
None.
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PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons
Set forth below is information concerning the Company's directors and
executive officers:
<TABLE>
<CAPTION>
Name Age Position
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<S> <C> <C>
Ira Keeperman 47 President, Chief Executive Officer and Director
Patrice Croghan 38 Secretary/Treasurer, Director
Maureen Sirull 42 Vice President
Scott Morris 36 President, Dining Experience
</TABLE>
Ira Keeperman has served as the Company's President and Director since
1994. Mr. Keeperman was responsible for the development of the two franchise
restaurants operated under the name Damon's Place for Ribs and in which the
Company has had an ownership interest. Mr. Keeperman has been the President of
Keep Food Brokers, a food brokerage company, for more than the last five years.
Mr. Keeperman is currently responsible for implementation and oversight of the
Company's sales and marketing strategies.
Patrice Croghan has served as Secretary/Treasurer and a Director of the
Company since 1994. Ms. Croghan's responsibilities include oversight of the
financial and accounting areas for the Company along with marketing research and
survey analysis.
Maureen Sirull joined the Company in 1995 and works as Assistant to the
President with responsibility for day-to-day operations. Ms. Sirull was
appointed Vice President of the Company in September, 1998, a position in which
she still serves. She has also served as a Director of the Company since
September, 1998. Prior to joining the Company, Ms. Sirull was employed for over
ten years as a legal assistant. In this capacity her duties included training of
staff, interviewing clients and overseeing all aspects of cases, including
preparation for trial. Ms. Sirull manages the Company's staff and is directly
responsible for sales and marketing material along with the Company's daily
accounting. In addition, Ms. Sirull has served on the board of directors of
Dining Experience since April, 1999.
Scott Morris has served as the President of Dining Experience since
October, 1998. From 1988 to 1998, Mr. Morris worked as a marketing consultant
for Express Industries.
There are no audit, compensation or other committees of the board of
directors.
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Compliance with Section 16(a) of the Exchange Act. The Company had no
securities registered under the Exchange Act prior to its last fiscal year and
therefore no such reporting person was required to file reports under Section
16(a) of the Exchange Act in prior years.
Item 10. Executive Compensation.
The following table sets forth information concerning compensation paid
or accrued by the Company or its subsidiaries for services rendered during the
1999, 1998 and 1997 to our chief executive officer. No other executive officer's
compensation exceeded $100,000 during either of these fiscal years.
Summary Compensation Table
Name and Principal Position Year Salary
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Ira Keeperman, Chief Executive Officer 1999 $ 0
1998 0
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of February 29,
2000 with respect to beneficial ownership of the Company's common stock by each
person whom we know to own 5% or more of our outstanding shares; each of our
directors; and all officers and directors of the Company as a group. Each such
owner of common stock has sole voting and investment power for all shares listed
below, except as otherwise indicated:
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Ownership Class
------------------- -------------------- -----------
<S> <C> <C>
Joseph Columbo 300,000(1) 19%(1)
Rhonda Rabetsky 150,000 10%
Ira Keeperman 45,000 2%
Maureen Siruell -0- -
Patrice Croghan 45,000 2%
All officers and directors
as a group (3 persons)(2) 90,000 6%
------ ---
</TABLE>
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(1) Does not include shares owned by Mr. Columbo's spouse or on entity
in which his spouse has an interest. Mr. Columbo disclaims
beneficial ownership of such shares.
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Item 12. Certain Relationships and Related Transactions
In April 1999 the Company exchanged 500,000 shares of its common stock
for all of the issued and outstanding shares of Dining Experience, Inc., then a
start-up venture intending to market gourmet meals pursuant to monthly and other
programs. These shares were issued to Dining Experience's three shareholders,
two of whom became affiliates as follows.
In September 1998, as consideration for the option to acquire a women's
accessory company, the Company issued shares of preferred stock, which were
converted into 245,000 shares of the Company's common stock in September 1998.
The shares were issued in a transaction exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof. All these
shares were returned to the Company and cancelled upon modification of the
option. See "Certain Relationships and Related Transactions."
In March 1999, the Company issued 500,000 shares of its common stock to
the three former owners of Dining Experience in exchange for all of its issued
and outstanding shares. The Company believes that the issuance of such shares is
exempt from the registration requirements pursuant to Section 4(2) of the
Securities Act. Of these shares, 300,000 were issued to Joseph Columbo and
150,000 shares were issued to Rhonda Rabetsky, each of whom thereby became an
affiliate of the Company. See "Security Ownership of Certain Beneficial Owners
and Management."
A corporation owned by the spouse of or an affiliate of the Company is
the lessor of the Company's offices pursuant to a five-year lease terminating
February 2001 with a base annual rent of approximately $10,000.
Item 13. Exhibits and Reports
An index to the Financial Statements precedes the accompanying
Financial Statements.
Exhibit No. Description of Document
- ---------- -----------------------
3.1(a) Articles of Incorporation*
3.1(b) Amendment to Articles of
Incorporation*
3.1(c) Amendments to Articles of Incorporation*
3.2 By-laws*
10.1 Agreement dated December 27, 1998
Between the Company and H&H
Management LLC for sale of interest
in Interallied Restaurant Group of
Buffalo
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Exhibit No. Description of Document
- ---------- -----------------------
10.2 Exchange Agreement dated March 31,
1999 among the Company and the
Shareholders of Dining Experience*
11 Statement re: computation of
per share earnings**
21 Subsidiaries of the registrant.
27 Financial Data Schedules
* Filed with the Company's Form 10SB in November 26, 1999.
** Filed with Amendment to the Company's Form 10SB in December 1999.
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the last
quarter of 1999.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
Dated: April 28, 2000
INTERALLIED GROUP, INC.
By: /s/ Ira Keeperman
----------------------------------------
Ira Keeperman, President, Chief Executive
Officer
In accordance with the Exchange Act, this report has been signed below
by the following person on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Ira Keeperman President, Chief Executive Officer April 28, 2000
- ------------------- Financial and Accounting Officer
Ira Keeperman
/s/ Patrice Croghan
- -------------------
Patrice Croghan
/s/ Maureen Sirull
- ------------------
Maureen Sirull
</TABLE>
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INTERALLIED GROUP, INC. AND SUBSIDIARIES
Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Financial Statements
Independent auditors' report F-1
Balance sheet as of December 31, 1999 F-2
Statements of operations for the years ended December 31, 1999 and 1998 F-3
Statement of stockholders' equity for the years ended December 31, 1999 and 1998 F-4
Statements of cash flows for the years ended December 31, 1999 and 1998 F-5
Notes to financial statements F-6
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Interallied Group, Inc.
We have audited the accompanying consolidated balance sheet of Interallied
Group, Inc. and subsidiaries as of December 31, 1999 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 1999 and 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of Interallied Group,
Inc. and subsidiaries as of December 31, 1999, and the consolidated results of
their operations and their consolidated cash flows for the years ended December
31, 1999 and 1998 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company has suffered recurring net losses since
inception and, as of December 31, 1999, has a working capital deficiency which
raises substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note A. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Richard A. Eisner & Company, LLP
New York, New York
March 31, 2000
F-1
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INTERALLIED GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash $ 2,069
Note receivable (Note C) 15,980
Other receivables 1,991
-----------
Total current assets 20,040
Fixed assets, net 16,318
Intangible asset, net (Note H) 200,148
-----------
$ 236,506
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 29,982
Notes payable and accrued interest (Note E) 88,768
-----------
Total current liabilities 118,750
-----------
Commitment (Note I)
Stockholders' equity (Note G):
Preferred stock; $.001 par value; 5,000,000 shares authorized;
no shares issued
Common stock; $.01 par value; 20,000,000 shares authorized;
1,722,993 shares issued and outstanding 17,230
Additional paid-in capital 1,311,105
Stock subscription receivable (10,000)
Accumulated deficit (1,200,579)
-----------
117,756
-----------
$ 236,506
===========
</TABLE>
See notes to financial statements F-2
<PAGE>
INTERALLIED GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------------
1999 1998
---------- -----------
<S> <C> <C>
Sales $ 1,321,156
Cost of sales 439,915
-----------
Gross profit 881,241
General, administrative and other operating expenses $ 225,110 1,100,011
Amortization of intangible asset 66,717
----------- -----------
Loss before other income (expense) and minority Interest (291,827) (218,770)
----------- -----------
Other income (expense):
Gain on sale of subsidiary 176,880
Share of loss of affiliate (59,621)
Interest income 4,183 490
Interest expense (5,275) (20,653)
----------- -----------
175,788 (79,784)
----------- -----------
Loss before minority interest (116,039) (298,554)
Minority interests' share of loss 33,857
----------- -----------
Net loss $ (116,039) $ (264,697)
=========== ===========
Net loss per share - basic and diluted $(.07) $(.58)
===== =====
Weighted average shares outstanding 1,549,150 460,049
========= =======
</TABLE>
See notes to financial statements F-3
<PAGE>
INTERALLIED GROUP, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Total
Common Stock Additional Stock Stockholders'
------------------- Paid-in Accumulated Subscription Equity
Shares Amount Capital Deficit Receivable (Deficiency)
------- ------- ----------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 320,272 $ 63,771 $ 1,260,491 $ (819,843) $ (597,500) $ (93,081)
Issuance of common stock in
connection with an
offering at $.20 per share 50,000 10,000 10,000
Issuance of common stock in
connection with services
provided to the Company 32,500 6,500 6,500
Issuance of common stock in
connection with repayment
of loans and accrued interest 657,500 131,500 131,500
Rescind issuance of stock (71,700) (14,340) (583,160) 597,500 0
Transfer par value of common
stock in connection with
1 for 20 reverse stock split (187,545) 187,545 0
Issuance of common stock in
connection with an
offering at $1 per share 145,000 1,450 143,550 (10,000) 135,000
Issuance of common stock in
connection with repayment
of loans 27,725 277 27,448 27,725
Net loss for the year (264,697) (264,697)
----------- ----------- ------------ ------------- ------------ ------------
Balance at December 31, 1998 1,161,297 11,613 1,035,874 (1,084,540) (10,000) (47,053)
Stock issued for acquisition
of subsidiary 500,000 5,000 245,000 250,000
Issuance of common stock in
connection with repayment
of loans and accrued interest 61,696 617 30,231 30,848
Net loss for the period (116,039) (116,039)
----------- ----------- ------------ ------------- ------------ ------------
Balance at December 31, 1999 1,722,993 $ 17,230 $ 1,311,105 $ (1,200,579) $ (10,000) $ 117,756
========== =========== ============ ============= ============ ===========
</TABLE>
See notes to financial statements F-4
<PAGE>
INTERALLIED GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------------------
1999 1998
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (116,039) $ (264,697)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 70,894 1,942
Expenses paid by issuance of stock 6,500
Gain on sale of subsidiary (176,880)
Share of loss of affiliate 59,621
Changes in:
Other receivables 29,864 (20,201)
Accounts payable and accrued expenses (10,258) 1,767
Net liabilities applicable to subsidiary to be sold 35,238
------------ ------------
Net cash used in operating activities (202,419) (179,830)
------------ ------------
Cash flows from investing activities:
Purchase of fixed assets (2,214)
Proceeds from sale of subsidiary 145,469
Net cash acquired in connection with acquisition of subsidiary 14,559
------------
Net cash provided by investing activities 157,814
------------
Cash flows from financing activities:
Advances from stockholders 38,393 41,725
Proceeds from sale of stock 145,000
------------ ------------
Net cash provided by financing activities 38,393 186,725
------------ ------------
Net increase (decrease) in cash (6,212) 6,895
Cash, beginning of period 8,281 1,386
------------ ------------
Cash, end of period $ 2,069 $ 8,281
============ ============
Supplemental disclosures of noncash activities:
Issuance of stock for acquisition of subsidiary $ 250,000
Issuance of stock in repayment of stockholder loans $ 30,848 $ 159,225
Recission of stock not paid for $ 597,500
Note received in connection with sale of subsidiary $ 61,449
</TABLE>
See notes to financial statements F-5
<PAGE>
INTERALLIED GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1999
NOTE A - GENERAL
Interallied Group, Inc. (the "Company"), which changed its name from Interallied
Restaurant Group, Inc. on January 12, 1999, is a holding company. The Company
owned a 51% interest in a franchised restaurant which was sold in January 1999,
(see Note C). The Company continues to hold a 25% interest in a second
franchised restaurant which was acquired in 1997 (see Note D). During March
1999, the Company acquired Dining Experience, Inc., a development stage
marketing company (see Note H).
The accompanying financial statements have been prepared on a going-concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. At December 31, 1999, the Company
had a working capital deficiency of $98,710. For the years ended December 31,
1999 and 1998, the Company incurred net losses of $116,039 and $264,697,
respectively.
The Company has been heavily reliant on financial support from stockholders to
assist in meeting its cash flow needs. Management plans to continue, and expects
to ultimately complete, the Company's development of Dining Experience, Inc. as
a viable business concept. Additionally, management is seeking additional
sources of capital, and anticipates controlling costs at levels sufficient to
complete development activities, and ultimately to achieve sales volumes that
are sufficient to support the Company's cost structure. The Company expects to
receive additional financial support from its stockholders while it seeks other
sources of capital.
The Company's continuation as a going concern is dependent on its ability to
complete the development of Dining Experience, Inc. discussed in the preceding
paragraph and ultimately to attain profitable operations. However, no assurance
can be given as to whether the Company will be able to achieve these objectives.
These factors, among others raise substantial doubt about the Company's ability
to continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern for a reasonable
period of time.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] Principles of consolidation:
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Dining Experience, Inc. (from the date
of its acquisition in March 1999), and, for the year ended December 31,
1998, its 51% owned subsidiary, Interallied Restaurant Group of Buffalo,
LLC ("Interallied of Buffalo") which was sold in January 1999.
Interallied of Buffalo had adopted a 52/53 week fiscal year, ending on
the Sunday closest to December 31. All significant intercompany
transactions have been eliminated in consolidation. The Company has a 25%
interest in Interallied Restaurant Group of Rochester, LLC which is
accounted for under the equity method.
[2] Revenue recognition:
Revenue is recognized at the time of sale.
F-6
<PAGE>
INTERALLIED GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1999
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[3] Per share data:
Net loss per share is computed based on the weighted average number of
shares of common stock outstanding during each period after giving
retroactive effect to the 1 for 20 reverse split and excluding rescinded
shares from the calculation.
The number of shares and per share prices reflected in the financial
statements and accompanying footnotes give retroactive effect to a 1 for
20 reverse split of common stock effected September 30, 1998.
[4] 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 amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
NOTE C - SALE OF SUBSIDIARY
During January 1999, effective as of December 27, 1998, the Company sold at a
gain of $176,880 its 51% interest in Interallied of Buffalo to one of the
minority stockholders. Interallied of Buffalo operated a "Damons the Place for
Ribs", restaurant in the Buffalo, New York area under a franchise agreement. The
sales price was $161,449 of which $100,000 was paid in cash on January 15, 1999,
and $61,449 was paid by a note which bears interest at 8% and is due in 16
monthly installments of $4,062 beginning February 1, 1999. In addition, the
sales agreement provides for additional consideration not to exceed $68,051 due
over the next five years through 2003 based upon the profits of Interallied of
Buffalo. The balance of the note as of December 31, 1999 totaled $15,980.
Results of operations of Interallied of Buffalo included in the accompanying
statements of operations for the year ended December 31, 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Sales $ 1,321,156
Cost of sales 439,915
-------------
Gross profit 881,241
General, administrative and other operating expenses 934,302
Interest expense 16,033
-------------
Loss before minority interest (69,094)
Minority interests' share of loss 33,857
-------------
Net loss $ (35,237)
=============
</TABLE>
Rent expense for the restaurant site for the year ended December 31, 1998 was
$60,000.
Royalty expense incurred pursuant to a franchise agreement with an affiliate of
one of the minority stockholders for the year ended December 31, 1998 amounted
to $52,868. Management fees incurred pursuant to an agreement with an affiliate
of one of the minority stockholders for the year ended December 31, 1998
amounted to $26,434.
F-7
<PAGE>
INTERALLIED GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1999
NOTE D - INVESTMENT IN AFFILIATE
In 1997, the Company invested $82,500 for a 25% interest in Interallied of
Rochester, LLC ("Rochester") which was formed in 1997 to build and operate under
a franchise agreement a "Damons the Place for Ribs" restaurant. The restaurant
commenced operations in December 1997. The Company accounts for its investment
under the equity method and reflected losses of $59,621 in fiscal 1998 and
$22,879 in fiscal 1997 as its share of losses incurred by Rochester. The
Company's share of Rochester's losses in excess of its investment in Rochester,
amounting to $32,493 for the year ended December 31, 1999 and $6,490 for the
year ended December 31, 1998, have not been reflected in the accompanying
financial statements as the Company has not guaranteed obligations of Rochester
and is not otherwise committed to provide financial support to Rochester.
Condensed financial information of Rochester follows:
December 31,
1999
------------
Assets $ 897,781
Liabilities (1,053,711)
----------
Members' deficiency $ (155,930)
==========
Year Ended
December 31,
----------------------------
1999 1998
----------- -----------
Sales $ 1,965,122 $ 1,865,737
=========== ===========
Net loss $ (129,972) $ (264,442)
========== ==========
NOTE E - NOTES AND ADVANCES PAYABLE - STOCKHOLDERS
On June 30, 1995, the Company issued a promissory note in connection with a
$88,000 loan from a stockholder. Such note bore interest at 5.75% per annum. The
balance of the note and accrued interest totaled $30,848 at November 20, 1998,
at which time substantially all of the note was repaid through the issuance of
common stock valued at $75,000. In August 1999, the holder of the note agreed to
accept 61,696 shares of common stock in payment of the balance of the note and
the accrued interest. Such shares were issued in October 1999. Interest expense
related to the note amounted to $4,908 for the year ended December 31, 1998.
During 1996, the Company issued a promissory note in connection with a $42,500
loan from another stockholder. Such note was unsecured, payable during 1998, and
bore an interest rate of 5.75% per annum. Interest expense related to the note
amounted to $2,035 for the year ended December 31, 1998. Such note was paid by
the issuance of common stock during the year ended December 31, 1998. In
connection therewith, accrued interest of $6,740 on the note was forgiven and
credited to interest expense.
During the year ended December 31, 1998, the Company received advances from
stockholders totaling $41,725 which were repaid during the year by the issuance
of common stock. No interest was charged on these advances.
F-8
<PAGE>
INTERALLIED GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1999
NOTE F - INCOME TAXES
Income taxes consist of taxes currently due plus deferred taxes related to net
operating loss carryforwards and to differences between the financial statement
and tax bases of assets and liabilities. Deferred tax assets and liabilities
represent the future tax return consequences of these temporary differences,
which will either be taxable or deductible when the assets and liabilities are
recovered or settled.
A reconciliation of the income tax benefit computed at the federal statutory tax
rate to income tax benefit of zero reflected in the financial statements is as
follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------
1999 1998
---------- ---------
<S> <C> <C>
Federal tax benefit at statutory income tax rate (34)% (34)%
Increases (reductions) resulting from:
State and local income tax benefit, net of federal effect (6) (6)
Increase in valuation allowance 40 40
------ ------
Income tax benefit reflected in financial statements 0% 0%
====== ======
</TABLE>
The net deferred tax asset is comprised of the following:
December 31,
1999
------------
Net operating loss carryforward $ 359,000
Valuation allowance (359,000)
---------
Net deferred tax asset $ 0
========
As of December 31, 1999, the Company had a net operating loss carryforward of
approximately $898,500, which expires from 2011 through 2019. The Company has
provided a valuation allowance offsetting the deferred tax asset since
management could not determine that it was more likely than not that the
deferred tax asset would be realized in the future. The valuation allowance
increased by $46,000 and $105,900 for the years ended December 31, 1999 and
1998, respectively. The Company's ability to utilize its NOL carryforward for
federal income tax purposes in the future may be limited by the provisions of
Section 382 of the Internal Revenue Code regarding certain changes in ownership.
NOTE G - STOCKHOLDERS' EQUITY
Common stock offerings:
[1] On June 17, 1996, the Company commenced a sale under Rule 504 of
Regulation D of 96,000 shares of common stock to a limited number of
accredited investors at a price of $10 per share. The Company agreed that
the common stock purchased may be paid by cash or by short term eight
percent notes fully secured by marketable securities of the purchasers and
due 120 days from the date of sale. During the year ended December 31,
1996, the entire 96,000 shares of common stock were subscribed; however,
during the year ended December 31, 1998, 59,750 of such shares (together
with additional shares issued as a stock dividend totaling 11,950 shares)
were returned upon rescission of the original transaction.
F-9
<PAGE>
INTERALLIED GROUP, INC. AND SUBSIDIARIES
Notes to Financial Statements
December 31, 1999
NOTE G - STOCKHOLDERS' EQUITY (CONTINUED)
[2] On September 29, October 30, and November 20, 1998, the Company commenced
additional sales under Rule 504 of Regulation D, of 740,000, 145,000 and
27,725 shares, respectively, of common stock to a limited number of
accredited investors and certain debt holders of the Company at prices of
$.20, $1.00 and $1.00 per share, respectively. Total proceeds, in the form
of cash, repayment of amounts due the subscribers and services provided,
were $148,000, $145,000 and $27,725, respectively.
NOTE H - ACQUISITION OF SUBSIDIARY
During March 1999, the Company acquired all of the outstanding stock of Dining
Experience, Inc. in return for the issuance of 500,000 shares of the Company's
common stock valued at $250,000. Dining Experience, Inc., which was formed in
December 1998, has developed a unique marketing concept for its products which
involve sales through a network of independent participants in a multi-level
marketing program. As its original product and concept, it has developed a
gourmet meal of the month program delivered fresh to the purchaser's home via
overnight carrier. It is anticipated that Dining Experience, Inc. will commence
operations in the fourth quarter of 2000. As Dining Experience, Inc. is in the
development stage, the transaction has been accounted for as the acquisition of
assets, the principal asset being an intangible valued at $266,865 which is
being amortized on a straight-line basis over thirty-six months. Amortization
for the year ended December 31, 1999 totaled $66,717. Liabilities of the
acquired company at date of acquisition, which exceeded tangible assets
(consisting principally of cash, receivables and fixed assets) by $16,865,
amounted to $60,224, including $50,000 of notes payable to stockholders bearing
interest at 9% and due in March 2000. Subsequent to the acquisition, an
additional $25,000 was loaned to Dining Experience, Inc. on the same terms.
NOTE I - LEASES
During May 1995, the Company entered into an operating lease for office space
which expires on May 1, 2000. Rent expense under this operating lease for the
years ended December 31, 1999 and 1998 amounted to $4,800 and $4,500,
respectively. As of December 31, 1999 future minimum rentals payable under the
lease total $2,100 in 2000.
During January 1999, the Company entered into a month-to-month operating lease
for office space at a monthly rental of $850 from a company owned by the wife of
a party who became a significant stockholder of the Company during March 1999.
F-10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from Balance Sheet,
Statement of Operations, Statement of Cash Flows and Notes thereto incorporated
in Part II, Item 7 of this Form 10-KSB an is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,069
<SECURITIES> 0
<RECEIVABLES> 17,971
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,040
<PP&E> 16,318
<DEPRECIATION> 0
<TOTAL-ASSETS> 236,506
<CURRENT-LIABILITIES> 118,750
<BONDS> 0
0
0
<COMMON> 17,230
<OTHER-SE> 1,311,105
<TOTAL-LIABILITY-AND-EQUITY> 117,756
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 291,827
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (5,275)
<INCOME-PRETAX> (116,039)
<INCOME-TAX> 0
<INCOME-CONTINUING> (116,039)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (116,039)
<EPS-BASIC> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
