<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[xx] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from______________to_____________
Commission File Number: 0-12775
Odessa Foods International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-1613360
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o M. Walter Levine, 1 River Road, Cos Cob, Connecticut 06807
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(203) 869-8033
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [x] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
The number of shares outstanding of each of the registrant's classes of common
stock, as of August 14, 1997 is 14,076,810 shares, all of one class of $.00001
par value common stock.
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<PAGE> 2
TABLE OF CONTENTS
Page No.
PART I
Item 1. Financial Statements 3-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations and Plan of
Operations 8-10
PART II
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a
Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
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<PAGE> 3
ODESSA FOODS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(Unaudited)
<TABLE>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash $ 47,927
Accounts receivable, less allowance for doubtful accounts 14,718
Inventories 54,372
Prepaid expenses 4,400
-----------
TOTAL CURRENT ASSETS 121,417
-----------
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation of $918,082 3,309,782
-----------
OTHER ASSETS:
Intangible asset, less amortization of $117,000 243,000
Prepaid lease costs 823,561
-----------
TOTAL OTHER ASSETS 1,066,561
$ 4,497,760
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 243,027
Note payable - bank 75,000
Loans payable 226,299
Current maturities of note payable - officer 100,000
-----------
TOTAL CURRENT LIABILITIES 644,326
-----------
NOTE PAYABLE - OFFICER 100,000
-----------
STOCKHOLDERS' EQUITY:
Common stock, $.00001 par value, authorized
25,000,000 shares; issued and outstanding
13,716,810 shares 137
Additional paid-in capital 9,166,511
Foreign currency translation adjustment (28,629)
Accumulated deficit (5,384,585)
-----------
TOTAL STOCKHOLDERS' EQUITY 3,753,434
-----------
$ 4,497,760
===========
</TABLE>
See notes to financial statements
3
<PAGE> 4
ODESSA FOODS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES $ 18,274 $ 102,781 $ 147,262 $ 244,759
COST OF SALES 32,117 78,683 148,602 188,432
------------ ------------ ------------ ------------
GROSS PROFIT (LOSS) (13,843) 24,098 (1,340) 56,327
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling, general and
administrative expenses 119,982 333,154 242,414 474,343
Depreciation and amortization 79,004 93,082 154,839 161,082
------------ ------------ ------------ ------------
198,986 426,236 397,253 635,425
------------ ------------ ------------ ------------
OPERATING LOSS (212,829) (402,138) (398,593) (579,098)
------------ ------------ ------------ ------------
OTHER EXPENSES (INCOME):
Interest (12,974) 20,500 1,867 20,500
Foreign currency exchange rate changes (23,391) (10,639) (41,676) (10,639)
------------ ------------ ------------ ------------
(36,365) 9,861 (39,809) 9,861
------------ ------------ ------------ ------------
NET LOSS $ (176,464) $ (411,999) $ (358,784) $ (588,959)
============ ============ ============ ============
NET LOSS PER SHARE $ (.01) $ (.04) $ (.03) $ (.06)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 13,716,810 10,667,819 12,781,254 10,456,000
============ ============ ============ ============
</TABLE>
See notes to financial statements
4
<PAGE> 5
ODESSA FOODS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FROM OPERATING ACTIVITIES:
Net loss $ (176,464) $ (411,999) $ (358,784) $ (588,959)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 79,004 93,082 154,839 161,082
Sundry other items -- (73) -- 461
Changes in assets and liabilities:
Accounts receivable 7,943 1,207 12,740 (3,916)
Inventories (48,028) 8,527 (39,147) (8,172)
Prepaid expenses and sundry receivables (179,682) (104,449) (179,682) (160,118)
Accounts payable and accrued expenses 2,012 123,674 (229,310) 146,565
----------- ----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (315,215) (290,031) (639,344) (453,057)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (57,177) (146,644) (227,374) (171,287)
----------- ----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (57,177) (146,664) (227,374) (171,287)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock -- 516,396 1,086,250 666,555
Repayments to stockholders (262,026) (22,101) (156,360) 27,899
----------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (262,026) 494,295 929,890 694,454
----------- ----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (33,330) 10,639 (28,629) 10,639
----------- ----------- ----------- -----------
INCREASE (DECREASE) IN CASH (667,748) 68,259 34,543 80,749
CASH - BEGINNING OF PERIOD 715,675 116,840 13,384 104,350
----------- ----------- ----------- -----------
CASH - END OF PERIOD $ 47,927 $ 185,099 $ 47,927 $ 185,099
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
5
<PAGE> 6
ODESSA FOODS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Odessa
Foods International, Inc. (the "Company") as of June 30, 1997 and for the six
month periods ended June 30, 1997 and 1996 have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
Certain information and footnote disclosures required under generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission, although the Company
believes that the disclosures are adequate to make the information presented not
misleading. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. The results of operations for any interim period are not necessarily
indicative of a full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. BUSINESS
The Company continues to operate its own sausage manufacturing and meat
production facility in order to produce, fresh and on a daily basis, a wide
range of sausages utilizing what it considers to be a technologically advanced
installation in Odessa, Ukraine and most recently (as hereinafter indicated) in
Teplodar, near Odessa. Its present facilities have been, and remain, in the
process of being expanded into a fully integrated food production plant. Most
recently, in March, 1997, a new facility became operational with meat and
sausage production supplemented by modern slaughter houses (new plant and
machinery having recently been purchased in Switzerland so as to encompass to
operations). The smaller of such facilities is expected to be operational during
1997 with a slaughter house capacity of 200 head per day. The larger facility
has been fully disassembled for shipment and has arrived in Teplodar, near
Odessa, for reassembly and is expected to be operational in early 1998 after the
building for production has been erected. The land for such new building for
production has been provided to the Company by Odessa governmental authorities
without charge or cost. Once operational (and operating in accordance with
European Union standards and supplied from piggeries functioning in accordance
with Western standards) the Company expects to employ approximately 300 to 350
persons, thereby creating a capacity for slaughtering and processing of
approximately 1,000 to 2,000 pigs and 400 to 500 cattle per day with
approximately half of the meat processed into sausage production and the balance
to be sold on the market in the form of raw meat.
3. FINANCIAL CONDITION AND OPERATING RESULTS
Net sales for the six months ended June 30, 1997 were $147,262, a
decrease of $97,497 or 39.8% from $244,759 in the comparable 1996 quarter.
The Company had net loss of $358,784, or $.03 per share, for the six
months ended June 30, 1997 compared to net loss of $588,959, or $.06 per share,
for the comparable quarter in 1996.
6
<PAGE> 7
4. SALE OF COMMON STOCK
(a) On March 7, 1997 the Company issued 160,000 shares of common stock
for the conversion of $100,000 of the Company's debt.
(b) On March 20, 1997 the Company sold 2,000,000 shares of common stock
for an aggregate of $986,250 net of related expenses.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS AND PLAN OF OPERATIONS
Odessa Foods International, Inc. (the "Company") is engaged, through
its subsidiaries (Odessa Foods Inc. and Hilmac GmbH) in the manufacture of
sausages and related food products in Odessa, Ukraine.
This discussion summarizes the significant factors affecting the
consolidated operating results, financial condition and/or liquidity/cash flows
of Company for the three month period ended June 30, 1997 and the comparative
three month period ended June 30, 1996 (as well as for the six month period
ended June 30, 1997 and the comparative six month period ended June 30, 1996)
and should be read in conjunction with the unaudited consolidated financial
statements and notes thereto included herein.
As heretofore indicated in the Company's Form 10-KSB for calendar year
ended December 31, 1996, the Company acquired its wholly owned subsidiary,
Odessa Foods, Inc., in November of 1994, in a transaction accounted for using
the pooling of interest method of accounting.
CONSOLIDATED STATEMENTS OF OPERATIONS:
Comparative three month periods ended June 30, 1996 and June 30, 1997.
Net loss for the three months ended June 30, 1997 was $176,464 compared
to a net loss of $411,999 for the three months ended June 30, 1996. Gross profit
decreased by $37,941 in 1997 as compared to 1996 as a result of lower sales and
higher cost of sales percentages. Operating expenses decreased for the
comparative three month period indicated by $227,250 as a result of selling,
general and administrative expenses decreasing by $213,172, while depreciation
and amortization decreased by $14,078. In addition, the Company incurred
additional "Other Expenses" for the three month period ended June 30, 1997 of
$36,365 consisting of interest income - $12,974 and foreign currency exchange
rate changes - $23,391 (as compared to "Other Income" for the three month period
ended June 30, 1996 of $9,861 consisting of interest income of $20,500 offset by
foreign currency exchange rage changes loss of $10,639).
Comparative six month periods ended June 30, 1996 and June 30, 1997.
Net loss for the six months ended June 30, 1997 was $358,784 compared
to a net loss of $588,959 for the six months ended June 30, 1996. Gross profit
decreased by $57,667 in 1997 as compared to 1996 as a result of lower sales and
higher cost of sales percentages. Operating expenses decreased for the
comparative six month period indicated by $238,172 as a result of selling,
general and administrative expenses decreasing by $231,929, while depreciation
and amortization decreased by $6,243. In addition, the Company incurred
additional "Other Expenses" for the six month period ended June 30, 1997 of
$39,809 consisting of interest income of $1,867 offset by foreign currency
exchange rate changes loss of $41,676 (as compared to "Other Income" for the six
month period
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<PAGE> 9
ended June 30, 1996 of $9,861 consisting of interest income of $20,500 offset by
foreign currency exchange rage changes loss of $10,639).
CONSOLIDATED BALANCE SHEET:
Total assets of the Company at June 30, 1997 and December 31, 1996 were
$4,497,760 and $4,184,593 respectively, an increase of $313,167. Such increase
is primarily attributable to an increase in (a) current assets of $63,650
(primarily as a result of increases in cash of $34,543, inventories of $39,147
and prepaid expenses of $2,700 offset by a decrease in accounts receivable of
$12,740), (b) property and equipment of $90,535 (after taking into account
accumulated depreciation) and (c) other assets of $158,982 (i.e. increase in
prepaid lease costs of $176,982 offset by a $18,000 decrease in intangible
assets).
Current liabilities of the Company at June 30, 1997 and December 31,
1996 were $644,326 and $1,029,996 respectively. The decrease in total current
liabilities of $385,670 is attributable to the fact that accounts payable and
accrued expenses decreased by $229,310 and loan(s) payable decreased by
$156,360.
Stockholders' equity increased by $698,837 from $3,054,597 at December
31, 1996 to $3,753,434 at June 30, 1997. This increase primarily resulted from
the Company's sale of 2,160,000 shares of its common stock during the three
month period ended March 31, 1997 for an aggregate of $1,086,250 (net of related
expenses) minus the net loss of $358,784 sustained for the six months ended June
30, 1997.
CASH REQUIREMENTS AND LIQUIDITY
The Company has been able to satisfy its cash requirements and raise
the necessary capital in order to finance its proposed growth through the sale
and issuance of 1,454,900 shares of its common stock during fiscal year ended
June 30, 1996 for a cash consideration of $1,679,010 and has recently (during
subsequent six month period ended December 31, 1996) sold an additional 200,000
shares for a cash consideration of $335,000. The shares of Company common stock
referred to herein were sold in accordance with certain terms and conditions
contained in Off-Shores Securities Subscription Agreements and, accordingly,
were sold outside the U.S., not as a registered public offering but rather in
reliance upon Regulation S of the General Rules and Regulations under the
Securities Act of 1933. A significant portion of the funds raised through sale
of such common shares have been utilized for the purchase of property and
equipment and for prepaid lease costs. An additional 114,533 shares of common
stock were issued during such period in exchange for goods and services valued
at $104,540.
Since the close of its December 31, 1996 calendar year the Company has
issued certain additional shares either for (a) conversion of debt into equity
or (b) sale of shares of common stock. With respect to debt converted into
equity, the Registrant issued an aggregate of 160,000 shares in exchange for
cancellation of indebtedness totaling $100,000. Such shares were issued on or
about March 7, 1997. Additionally, and in accordance with Regulation D under the
Securities Act of 1933 the Registrant issued 2,000,000 shares of its common
stock for gross cash consideration of $1,000,000 with said shares being issued
on or about March 25, 1997.
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<PAGE> 10
While the Company did not issue any shares of its common stock for cash
consideration (by way of debt and/or equity financing) during the quarter ended
June 30, 1997 it did, however, issue 360,000 shares of its common stock in
exchange for and in full consideration for its purchase of its salami production
facilities in Stabio, Switzerland, which shares were issued in the name of an
otherwise unaffiliated third party pursuant to contractual agreement whereby
such third party is to receive such shares upon completion of certain specified
services directly related to the purchase of the aforesaid facilities.
Notwithstanding the working capital deficit heretofore referred to and
the fact that the consolidated financial statements to the Company's Form 10-KSB
for calendar year ended December 31, 1996 indicated (in Note 1 thereto) certain
factors which created an uncertainty about the Company's ability to continue as
a going concern and further notwithstanding the loss most recently incurred of
$(176,464) for the quarter ended June 30, 1997, Company management nevertheless
continues to believe that the Company will be able to continue its operations
through (a) the raising of additional capital through either debt or equity
financing when, as and if necessary and/or (b) its belief that its operations
will eventually improve sufficiently through utilization of property and
equipment recently purchased so as to enable the Company to increase
productivity and obtain profitability and/or (c) the purchase of necessary
facilities through issuance of shares of common stock in the manner indicated in
the preceding paragraph.
The Company does not anticipate any significant changes in the number
of its employees and there are no current formal plans with regard to hiring of
any significant number of additional employees.
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<PAGE> 11
PART II
Item 1. Legal Proceedings - (1)
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a
Vote of Security Holders - None
Item 5. Other Information - None
Item 6. (a) Exhibits - None
(b) Reports on Form 8-K - None
(1) None except with respect to on-going litigation as previously reported
in Item 3 to the Company's Form 10-KSB for calendar year ended December
31, 1996 as well as in Note 12 to the notes to consolidated financial
statements of such Form 10-KSB.
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<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ODESSA FOODS INTERNATIONAL, INC.
By /s/M. Walter Levine, President
-----------------------------
M. Walter Levine, President
Dated: August 18, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 47,927
<SECURITIES> 0
<RECEIVABLES> 14,718
<ALLOWANCES> 0
<INVENTORY> 54,372
<CURRENT-ASSETS> 121,417
<PP&E> 4,227,864
<DEPRECIATION> 918,082
<TOTAL-ASSETS> 4,497,760
<CURRENT-LIABILITIES> 644,326
<BONDS> 0
0
0
<COMMON> 9,166,648
<OTHER-SE> (5,413,214)
<TOTAL-LIABILITY-AND-EQUITY> 4,497,760
<SALES> 147,262
<TOTAL-REVENUES> 147,262
<CGS> 148,602
<TOTAL-COSTS> 148,602
<OTHER-EXPENSES> 235,351
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,974
<INCOME-PRETAX> (176,464)
<INCOME-TAX> 0
<INCOME-CONTINUING> (176,464)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (176,464)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
