U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR 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: 33-43621
INTERNATIONAL FOOD & BEVERAGE, INC. (1)
(Exact name of registrant as specified in its charter)
Delaware
State or jurisdiction of incorporation or organization)
33-0307734
I.R.S. Employer Identification No.)
30152 Aventura, Rancho Santa Margarita, California (2) 92688 (2)
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (714) 858-8800 (2)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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) been subject to such filing requirements for
the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not 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-K or any amendment to this Form 10-K [].
Not Applicable.
The aggregate market value of the voting stock held by non-
affiliates of the registrant as of March 25, 1999: Common Stock, par
value $0.001 per share -- $32,416,985. As of March 25, 1999, the
registrant had 177,302,997 shares of common stock issued and
outstanding.
(1)As of February 17, 1999, the name was change to: Internet
Business's International, Inc.
(2) As of March 1, 1999, the address and telephone number was
changed
to: 3900 Birch Street, Suite 111, Newport Beach, California 92660;
(949) 833-0261
TABLE OF CONTENTS
PART I
PAGE
ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 7
ITEM 3. LEGAL PROCEEDINGS 7
ITEM 4. SUBMISSION TO MATTERS TO VOTE
OF SECURITY HOLDERS 7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS 7
ITEM 6. SELECTED FINANCIAL DATA 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 9
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 13
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT 13
ITEM 11. EXECUTIVE COMPENSATION 16
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 17
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS 18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES,
AND REPORTS ON FORM 8-K 19
SIGNATURES 21
PART I.
ITEM 1. BUSINESS.
Introduction.
International Food & Beverage, Inc. ("Company") manufactures a
complete line of pizzas, pizza components, and specialty baked
products and markets them nationally through foodservice customers
which include retail supermarket service delicatessens as well as
restaurants, hotels, sport and theme parks, and other catering
locations. The Company utilizes its proprietary manufacturing
process to produce premium quality HAND-TOSSED crusts that deliver
the unique taste, texture and appearance of fresh pizzeria pizzas.
Since 1986 the Company has continued to develop its distinctive
product line and strong industry relationships. From 1986 through
early 1990 the Company relied solely on a number of outside contract
manufacturers for production but in 1990 opened the bakery section
of
its state-of-the-art 50,000 sq. ft. facility. The Company's
manufacturing plant was completed in mid-1993 with the addition of a
USDA certified pizza topping section, providing the capacity to
produce a much improved line of premium quality pizzas at a
significantly reduced cost.
In July 1995 the Company entered into an agreement with a
marketing and sales organization under which the Company provides
manufacturing and distribution services. Pizzas are produced for
shipment to domestic customers and for export to Pacific Rim
countries. The President of this organization is also a member of
the Company's Board of Directors. Management believes that this
type
of contract production will continue to enable a greater utilization
of the Company's manufacturing facility and deliver incremental
margin contribution.
Market.
Pizza is "America's favorite food" according to the trade press
with estimated annual sales at $30 billion within the United States.
Over the past decade, pizza has become the nation's leading take-
home
and home-delivered food while category growth continues. American-
style pizza has also become popular around the world as various
cultures accept the value, convenience, nutrition and, most of all,
fun of eating pizza!
The Company primarily sells to customers within the retail
supermarket and the foodservice/catering segments of this market.
SUPERMARKET BUSINESS MAGAZINE and Chicago-based Information
Resources, Inc. estimate that 1995 annual sales of pizza at retail
supermarkets reached nearly $3 billion and that over the past five
years pizza has been one of the supermarkets' fastest growing
categories.
The Company believes the sales of pizza at foodservice
locations (other than pizzeria restaurants or institutional feeding
locations) exceeds $5 billion annually and that pizza sales continue
to grow in these locations.
Products.
The Company's product line consists of fully prepared pizzas
(cheese pizzas or pizzas complete with assorted meat and/or
vegetable
toppings) available on a variety of crusts; various sizes, shapes
and
styles of hand-made pizza crusts; and a variety of cheeses, topping
ingredients, and packaging supplies which are purchased for resale
to
customers. Additionally, the Company manufactures Gourmet Italian
Cheese Crusts (similar to the Boboli-Registered Trademark-product
from CPC International) and other specialty flavored bread products.
The Company manufactures and distributes nationally a line of
HAND-TOSSED pizzas. Unlike competitive products which are either
stamped into a mold or die cut from a sheet of dough, the Company's
crusts are hand-formed and then hearth baked to provide the taste,
texture and appearance of "fresh pizzeria" quality. Utilizing a
variety of dough recipes, the Company produces its crusts and baked
products in a highly automated manufacturing process that nearly
replicates the steps performed in a pizzeria restaurant. A number
of
products involve hand-stretching and hand-tossing of dough pieces to
form desired shapes while preserving the naturally fermented gases
that contribute to product taste and texture. While costing
slightly
more than competitive pizza crusts, the Company's products are
viewed
by executive chefs and service deli merchandisers as superior in
quality to either stamped or die cut crusts available from
competitive suppliers. The Company's proprietary baking process has
evolved over the years with an important breakthrough achieved late
in 1994 that ensures a significantly crispier crust with more yeasty
flavor and "fresh made" texture.
Many of the Company's products have been developed after
collaborative efforts with executive chefs and research and
development personnel of the Company's major customers. The Company
offers a custom development service to these large customers whereby
premium quality products can be designed to meet specific operator
requirements for serving application, taste and distinctiveness, and
to satisfy preparation constraints. These "signature" products
satisfy the customers' need for unique offerings while adding to the
Company's capability and technical expertise.
The Company's products and programs are generally designed to
replace or be alternatives to traditional component programs which
are more labor, ingredient and space intensive. In addition, these
other programs result in products which are inconsistent in
appearance and sometimes lacking in availability due to peaks and
valleys in consumption demand. Increasingly, customers are
searching
for "labor friendly" alternatives that offer ready-to-top or fully
prepared pizzas that are "hand-made" in appearance and deliver
"pizzeria quality" in taste and texture.
Sales and Marketing.
The Company markets products under its own brand names
(JUKEBOX-Registered Trademark-, MAMA MIA ITALIANO-TM-, MAMA MIA
HOMESTYLE-TM- and MAMMA GINA'S); sells its products under
foodservice
distributor private labels, including Sysco Corporation's IMPERIAL
and ARREZZIO labels and S.E. Rykoff/John Sexton and Company's
BELLAGIO-Registered Trademark-label; and is the primary supplier to
Safeway, Inc. under a controlled PIZZERIA FRESCA label and SAFEWAY
Brand private label.
The Company's sales efforts are conducted by an in-house sales
management team together with field merchandisers assigned to
specific accounts. The Company's sales organization directs its
primary efforts at identifying large regional or national accounts
and distributor organizations, presenting product and program
offerings tailored to each user and managing the resulting
implementation and customer relationships. Additionally, the sales
organization manages independent food brokers in various regions
throughout the United States and also works in concert with sales
organizations provided by full-line foodservice distributors who
service individual end user customers.
The majority of the Company's foodservice business is conducted
through traditional foodservice distribution channels. Sales to
retail customers are made direct or with the assistance of
specialized brokers, with shipments generally made directly to the
customers' warehouses.
The Company generally sells its products pursuant to customer
purchase orders and fills orders within ten days of receipt.
Because
purchase orders are filled shortly after receipt, backlog is not
material to the Company's retail or foodservice businesses.
Substantially all of the Company's domestic products are delivered
to
customers by independent trucking companies or picked up by
customers
at one of the Company's warehouses. With regard to the Company's
export sales (currently to Korea only), backlog of orders are normal
and the Company receives payment in full at time of shipment.
Seasonality.
The Company's retail pizza business experiences moderate
seasonality with the highest sales periods occurring between fall
and
early spring. Foodservice sales are comparatively stable throughout
the calendar year.
Customers.
The Company sells its products to full line foodservice
distributors, direct to major foodservice customer's warehouses, and
to retail grocery warehouses and distributors throughout the United
States. Products sold to foodservice distributors are resold to end
user customers ranging in size from national accounts to multi-unit
regional organizations to single location accounts. Given the fact
that the Company focuses its own selling efforts on national and
multi-unit regional accounts, the majority of its foodservice sales
are to these types of organizations.
The Company's retail customers include, among others, Safeway
Inc., Von's Grocery Company and Albertson's. Its principal
foodservice distributor customers are Sysco Corporation, U.S.
Foodservice (recently acquired S.E. Rykoff/John Sexton and Company),
Martin-Brower, MBM Foodservice and Alliant Foodservice (formerly
Kraft Foodservice). These distributor organizations in turn sell to
end user customers of the Company including restaurant chains such
as
Friendly's Ice Cream, Golden Corral Restaurants, Marie Callender's
Restaurants, Old Country Buffet Restaurants, and Tony Roma's; hotel
chains such as Marriott, Radisson and Doubletree; theme and event
centers such as Knott's Berry Farm, Anaheim Stadium and the Great
Western Forum; transportation terminals such as Host Airport
locations; and military locations such as Camp Pendleton.
Suppliers.
The Company believes that the raw materials utilized in
manufacturing its products, which principally include flour, cheese,
tomatoes, spices, meat products, and packaging materials, are
readily
available from a number of potential suppliers. The Company
utilizes
at least two sources of supply for each of its key raw material
categories although pricing and current production volumes dictate
that the majority of purchases for an item be made from a single
principal supplier. Although the Company does not maintain
contracts
with most of its suppliers, the Company believes that there are
numerous alternative sources of supply available to meet production
requirements.
Many of the Company's raw materials are agricultural
commodities; consequently, the prices the Company pays for its
materials vary over time due to commodity market conditions
including
demand, crop yield and weather. The Company believes that normal
historical commodity price variations would not have a material
effect on gross profit margins beyond the extent to which raw
material cost increases could be passed on to the Company's
customers.
Competition.
The Company faces significant competition in the marketing and
sale of its products. The Company competes with a number of
national
organizations and numerous regional companies, which have
significantly greater financial, manufacturing, marketing and
distribution resources than the Company. The Company believes that
the principal competitive factors in the marketing of pizza and
specialty baked products are quality, price, ease of preparation,
and
variety of product offerings. While the Company believes that its
products compete favorably with respect to these factors, and
believes that its willingness and ability to develop custom products
to meet specific customer requirements represents a substantial
benefit to potential customers, there can be no assurance that the
Company will be able to compete successfully. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources".
Regulation.
The Company's manufacturing facility and its products are
subject to extensive regulation by the United States Food and Drug
Administration, the United States Department of Agriculture, and by
other state and local authorities in jurisdictions in which the
Company's products are processed or sold. The manufacturing
facility
is subject to periodic inspection by federal, state and local
authorities. The Company believes that its manufacturing facility
is
currently in substantial compliance with all material governmental
laws and regulations and that all material permits and licenses
relating to their operations have been maintained.
Employees.
The Company currently employs approximately 50 people. No
employee of the Company is a member of a collective bargaining unit
and the Company is unaware of any attempt by its employees to
organize such units. The Company believes that its relationship
with
its employees is good.
ITEM 2. PROPERTIES.
The Company's principal executive offices and 50,000 square
feet manufacturing facility is located at 30152 Aventura, Rancho
Santa Margarita, California 92688. The Company leases that facility
pursuant to a ten year lease, with two 5-year renewal options, at a
monthly rent of $25,000 exclusive of insurance and taxes. The
Company also utilizes public warehouses for finished goods storage.
Utilization of these warehouses is the result of arrangements with
large distributor organizations to facilitate mixed load shipments
of
private label products, accommodation to certain customers to ensure
convenient small lot shipments to local operating units or temporary
storage for finished goods inventory when levels exceed the storage
capacity of the Company's own on-site freezer.
The Company's manufacturing facility is equipped with a single
baking and topping line. The facility contains sufficient space for
future installation of a second baking and topping line.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material pending legal
proceedings and, to the best of its knowledge, no such action by or
against the company has been threatened.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's
stockholders during the fourth quarter of the fiscal year covered by
this report.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's Common Stock is not quoted on NASDAQ but has been
traded in the over-the-counter market since approximately October
1987. There has been relatively little trading in the Company's
Common Stock and there can be no assurance that a more active market
will develop or be sustained. Throughout the two years ended June
30, 1997 the high and low bid quotations for the Company's Common
Stock has been less than or equal to $.01 per share. The high and
low bid quotations represent prices between dealers and do not
include retail markups, markdowns or commissions, and may not
represent actual transactions. Throughout the two years ended June
30, 1997 there has been considerable disparity between the quoted
bid
and ask prices, regularly approaching as much as a $.10 per share
spread. Accordingly, the market price for shares of the Company's
Common Stock may be highly volatile, with a limited public float.
The approximate number of holder of records of the Company's
Common Stock on September 1, 1997 was 500.
The Company has not and does not expect to pay cash dividends
on its Common Stock in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data for the years ended June 30, 1997
and 1996, for the six months ended June 30, 1995 and December 31,
1994, and for the years ended June 30, 1994 and 1993 are derived
from
the audited financial statements of the Company and should be read
in
conjunction with the audited financial statements included herein.
The selected financial data for the six months ended June 30, 1995
and December 31, 1994, and the years ended June 30, 1994 and 1993
are
derived from the audited financial statements of the Company which
are not included herein.
Years ended Six Months Ended (1) Years Ended
June 30 December 31 June 30 June 30
1993 1994 1994 1995 1996 1997
Statement of Operations Data:
(In thousands, except for share data)
Revenues
$ 8,446 $10,703 $ 3,580 $2,718 $6,572 $7,358
Cost of sales
8,257 8,385 3,279 2,212 5,374 5,847
Gross profit
189 2,318 301 506 1,198 1,511
Selling and distribution
Expense
2,534 2,927 1,412 702 1,135 1,512
General and administrative
Expense
1,180 1,841 361 29 524 407
Interest expense, net
139 113 111 3 54 122
Net income (loss)
(3,331) (2,563) (1,583) (497) (515) (530)
Net income (loss) applicable to
common shareholders
(3,657) (2,563) (1,583) (497) (515) (530)
Years ended Six Months Ended (1) Years Ended
June 30 December 31 June 30 June 30
1993 1994 1994 1995 1996 1997
Statement of Operations Data:
(In thousands, except for share data)
Net income (loss)
per common share
(0.04) (0.02) (0.01) nil nil nil
Weighted average shares
Outstanding
88,169 53,924 153,924 153,924 154,145 154,763
June 30,
1993 1994 1995 1996 1997
Balance Sheet Data:
(In thousands)
Current assets $1,691 $2,019 $ 922 $1,175 $711
Fixed assets 2,001 1,760 1,053 905 800
Total assets 4,591 4,547 1,975 2,080 1,511
Current liabilities 1,617 2,396 1,711 1,941 1,947
Long-term debt 504 2,316 373 756 677
Shareholders' equity
(deficiency) 2,398 (165) (109) (617) (1,113)
(1) A change in control transaction occurred December 31, 1994 and
was recorded in conformity with Accounting Principles Board Opinion
No. 16. Accordingly, assets and liabilities as of January 1, 1995,
and the results of operations for the six months ended June 30,
1995,
reflect the "push-down" of the new controlling shareholder's basis,
minority interest at its historical basis, and the consideration
received from BT Capital Corporation. See accompanying footnotes to
the audited financial statements for a description of the
transaction.
The company has not paid dividends in any of the periods presented.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the
financial statements of the Company and notes thereto contained
elsewhere in this report.
Results of Operations.
Fiscal 1997 Compared To Fiscal 1996
Revenues for the twelve month period ended June 30, 1997 of
$7,358,000 increased approximately 11% when compared with revenues
of
$6,572,000 in the prior year. This revenue increase is due to a
full year of contract manufacturing for a marketing company that
sells to both domestic retail chains and export customers. The
Company continues to market its pizzas and crusts nationally to
retail supermarket service delicatessen customers and major
foodservice accounts. Beginning in May 1996, the Company began a
private label program producing a line of pizzas being sold in the
frozen food section of a major national grocery retailer.
The gross profit margin of 20.5% for the twelve months ended
June 30, 1997 was roughly comparable to the gross margin of 18.2%
reported for twelve months ended June 30, 1996. Current year
margins
in the past twelve months reflect cost reduction improvements
combined with gains in operating efficiencies.
Fixed overhead per unit sold remains high at the Company's low
level of production. The Company anticipates an increase in its
gross profit contribution rate given recent price increases and
assuming the Company is able to achieve increased production volume.
Additionally, gross profit would be further benefited if cheese
prices return to historical price levels.
The improvement as a percent of sales in fiscal 1997 versus the
fiscal year 1996 reflects the impact of a full year of operations
following restructuring and cost containment efforts that were
initiated early in calendar 1995. The Company does not anticipate
having to add substantially to fixed overhead costs to support
revenue growth of fifty to one hundred percent of its current
revenue
level assuming a similar mix of products and customers.
The resulting loss for the twelve month period ended June 30, 1997
was $530,000 versus a reported loss for the year ended June 30,
1996 of $515,000.
Fiscal 1996 Compared to Fiscal 1995.
The change in control and utilization of purchase accounting as
of January 1, 1995 has resulted in the accompanying statements for
the twelve months ended June 30, 1996 being non comparable versus
the
prior year twelve month corresponding period. Accordingly, the
following discussion addresses historical results in periods since
January 1, 1995.
Revenues for the twelve month period ended June 30, 1996 of
$6,572,000 increased approximately 20% when compared with revenues
of
$5,436,000 in the prior year (utilizing the revenues for the six
month period ended June 30, 1995 of $2,718,000, annualized). This
revenue increase is due to a full year of contract manufacturing
for
a marketing company that sells to both domestic retail chains and
export customers. The Company continues to market its pizzas and
crusts nationally to retail supermarket service delicatessen
customers and major foodservice accounts. Beginning in May 1996,
the
Company began a private label program producing a line of pizzas
being sold in the frozen food section of a major national grocery
retailer.
The gross profit margin of 18.2% for the twelve months ended
June 30, 1996 was roughly comparable to the gross margin of 18.6%
reported for the six months ended June 30, 1995. Current year
margins in the past twelve months reflect cost reduction
improvements
combined with gains in operating efficiencies, offset by higher
material costs (principally in cheese) that have occurred over the
past six months. To combat the higher material costs the Company
raised prices. These price increases however were primarily made
beginning late in fiscal 1996 and in certain cases not until
September 1996. Fixed overhead per unit sold remains high at the
Company's low level of production. The Company anticipates an
increase in its gross profit contribution rate given recent price
increases and assuming the Company is able to achieve increased
production volume. Additionally, gross profit would be further
benefited if cheese prices return to historical price levels.
Selling, general and administrative expenses for the Company's
first, second and third fiscal quarters ended March 30, 1996 were
substantially constant in dollars and as a percent of sales and
decreased slightly as a percent of sales for the fourth quarter of
fiscal 1996 with the increase in revenues. The improvement as a
percent of sales in fiscal 1996 versus the six month period ended
June 1995 reflects the impact of a full year of operations following
restructuring and cost containment efforts that were initiated early
in calendar 1995. The Company does not anticipate having to add
substantially to fixed overhead costs to support revenue growth of
fifty to one hundred percent of its current revenue level assuming a
similar mix of products and customers.
The resulting loss for the twelve months ended June 30, 1996
was $515,000 versus a reported loss for the six months ended June
30,
1995 of $497,000.
Inflation.
The moderate rate of inflation over the past few years has had
an insignificant impact on the Company's sales and results of
operations during the period.
Liqiudity and Capital Resources.
Net cash provided by operating activities was $169,000 for the
twelve month period ended June 30, 1997. This cash results largely
from (i) accounts receivable of $251,000, (ii) inventories of
$220,000, and (iii) depreciation and amortization of $166,000.
Capital Expenditures.
The Company has however committed to a capital improvement
which will result in the replacement of its current CO(2) tunnel
freezer with a higher capacity CO(2) spiral freezer. This
undertaking affords the Company the opportunity to significantly
improve (i) line efficiencies with resulting expected lower per unit
production costs and (ii) overall product quality. The improvement
is being financed by the holder of the note for the equipment being
replaced, with the down payment to be satisfied with the underlying
equity in the current equipment. The resulting eighty four month
equipment contract increases the Company's present monthly payment
by
approximately $3,500 before giving effect to expected production
cost
savings.
Net Operating Loss Carryforwards.
As of June 30, 1997, the Company, had net operating loss
carryforwards for federal and state purposes of approximately
$505,437 and $505,437, respectively. These carryforwards begin to
expire in 2011 and 2001, respectively.
Year 2000 Issue.
The Year 2000 issue arises because many computerized systems
use two digits rather than four to identify a year. Date sensitive
systems may recognize the year 2000 as 1900 or some other date,
resulting in errors when information using the year 2000 date is
processed. In addition, similar problems may arise in some systems
which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 issue may be experienced before,
on, or after January 1, 2000, and if not addressed, the impact on
operations and financial reporting may range from minor errors to
significant system failure which could affect the Company's ability
to conduct normal business operations. This creates potential risk
for all companies, even if their own computer systems are Year 2000
compliant. It is not possible to be certain that all aspects of the
Year 2000 issue affecting the Company, including those related to
the
efforts of customers, suppliers, or other third parties, will be
fully resolved.
The Company is in the process of developing an ongoing program
of communication with suppliers and vendors to determine the extent
to which those companies are addressing Year 2000 compliance issues.
There can be no assurance that the Company will be able to develop a
contingency plan that will adequately address issues that may arise
in the Year 2000.
The Company's Year 2000 plans are based on management's best
estimates. Based on currently available information, management
does
not believe that the Year 2000 issues will have a material adverse
impact on the Company's financial condition or results of
operations;
however, because of the uncertainties in this area, no assurances
can
be given in this regard.
Forward Looking Statements.
The foregoing Management's Discussion and Analysis contains
"forward looking statements" within the meaning of Section 27A of
the
Securities Act of 1933, as amended, and Section 21E of the
Securities
Act of 1934, as amended, and as contemplated under the Private
Securities Litigation Reform Act of 1995, including statements
regarding, among other items, the Company's business strategies,
continued growth in the Company's markets, projections, and
anticipated trends in the Company's business and the industry in
which it operates. The words "believe," "expect," "anticipate,"
"intends," "forecast," "project," and similar expressions identify
forward-looking statements. These forward-looking statements are
based largely on the Company's expectations and are subject to a
number of risks and uncertainties, certain of which are beyond the
Company's control. The Company cautions that these statements are
further qualified by important factors that could cause actual
results to differ materially from those in the forward looking
statements, including, among others, the following: reduced or lack
of increase in demand for the Company's products, competitive
pricing
pressures, changes in the market price of ingredients used in the
Company's products and the level of expenses incurred in the
Company's operations. In light of these risks and uncertainties,
there can be no assurance that the forward-looking information
contained herein will in fact transpire or prove to be accurate.
The
Company disclaims any intent or obligation to update "forward
looking
statements".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information with respect to this Item is set forth in "Index to
Financial Statements."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
On March 15, 1998, the Company engaged the services of Henry
Schiffer C.P.A., a P.C., of Beverly Hills, California to provide an
audit of its financial statements for the fiscal years ended June
30,
1997 and 1996. Mr. Schiffer is not associated with the June 30,
1995
audited financial statements nor any other financial statements
prior
to the June 30, 1996 financial statements. The former accountants,
Coopers & Lybrand of Newport Beach, California, declined to stand
for
re-election for the 1997 engagement. The decision to change
accountants was approved by the Company's Board of Directors with
the
selection of the successor accountant. The Company and its former
accountants had no disagreements during the fiscal year ended June
30, 1997 or any prior periods, and through the date they declined to
stand for re-election.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and executive officers of the Company and their
ages as of September 1, 1997 are as follows:
Name Age Position
Michael W. Hogarty 54 President, Chief
Executive Officer
and Director
Daniel E. Ferrari 48 Vice President of Sales
Patrick A. Cusack 49 Vice President of Operations
Ann M. Gooch 40 Vice President of Finance,
Secretary and Treasurer
Norman N. Habermann (1) 64 Chairman of the Board
Eber E. Jaques (1) 58 Director
David R. Newstadt (1) 67 Director
James R. Tolliver 51 Director
(1) Member of the audit and compensation committees.
Each member of the Board of Directors of the Company is elected
for a one-year term and until his successor is elected and
qualified.
Michael W. Hogarty.
Mr. Hogarty has been President and Chief Executive Officer and
a director of the Company since March 1988. From December 1984 to
December 1987, Mr. Hogarty was the President and Chief Executive
Officer of Edy's Grand Ice Cream, Dreyer's Grand Ice Cream's midwest
and eastern subsidiary, a manufacturer and marketer of ice cream and
related products. From July 1978 to December 1984, Mr. Hogarty was
President and Chief Executive Officer of S.B. Thomas, Inc., the
specialty baking subsidiary of CPC International, a food processing
corporation and Executive Vice President of S.B. Thomas, Inc., from
1974 to 1978. Mr. Hogarty previously served as a Vice President of
Johnson and Johnson.
Daniel E. Ferrari.
Mr. Ferrari joined the Company in January 1995 as Vice
President of Sales. From January 1994 to December 1994, Mr. Ferrari
served as District Manager for Kraft USA products in the Southern
California market area. From 1989 through 1993 while at Kraft USA
he
held the positions of Director of Sales for Kraft's Western Dairy
Group and was District Manager at Kraft's Knudsen Division of Los
Angeles. From 1984 to 1988, Mr. Ferrari was Western Regional Sales
Manager for No Nonsense Fashions and from 1976 to 1984 he held
various sales positions with Proctor & Gamble.
Patrick A Cusack.
Mr. Cusack joined the Company in July 1994 as Vice President of
Operations. From April 1989 to July 1994, Mr. Cusack held positions
as Plant Manager and Division Service/Quality Manager of Operations
for International Multifoods, Frozen Specialty Division in
Riverside,
California. Prior to that time, Mr. Cusack held various operational
management positions with Pillsbury, Van De Kamps Division and North
Consumer Products, a division of Siebe North, Inc., a manufacturer
of
personal safety products.
Ann M. Gooch.
Ms. Gooch joined the Company in June 1988 as Director of
Finance. She was appointed Treasurer of the Company in May 1991 and
Vice President of Finance and Secretary in March 1992. From 1986
until 1988, Ms. Gooch served as Corporate Controller for Rusty
Pelican Restaurants, Inc. from 1978 to 1986 she was employed by
Deloitte & Touche, an international public accounting firm. Ms.
Gooch is a certified public accountant.
Norman N. Habermann.
Mr. Habermann has served as Chairman of the Board of the
Company since May 1991. From 1986 until February 1994, Mr.
Habermann
was President and Chief Executive Officer of the Restaurant
Enterprises Group (formerly the restaurant division of W.R. Grace &
Co.) an owner and operator of over 600 restaurants including Coco's,
Carrows, El Torito, Reubens and others. He is now President of
Scobrett Associates, Inc. which is involved in consulting and
venture
capital activities.
Eber E. Jaques.
Mr. Jaques has been a director of the Company since 1989. From
1981 to 1988, he served as Executive Vice President of Del Taco,
Inc., which operated and franchised fast service Mexican-American
restaurants. Mr. Jaques is currently Executive Vice President of
Empire Entertainment, an entertainment company.
David R. Newstadt.
Mr. Newstadt has been a director of the Company since 1989; he is
currently retired. From May 1986 through July 1987, Mr. Newstadt
served as President and Chief Executive Officer of Sun-Diamond
Growers of California, a cooperative of growers. From 1981 to 1985,
he was President of the Best Foods Division of CPC
International, a food processing corporation.
James R. Tolliver.
Mr. Tolliver has been a Director of the Company since July
1996. Since December 1987, Mr. Tolliver has been the President and
sole owner of Sunset Specialty Foods, Inc., a Company that markets
and distributes frozen pizza products to retail supermarket and
export customers.
Subject to modification by the Board of Directors, Mssrs.
Habermann, Jaques and Newstadt receive an annual retainer of $2,500.
In addition, each of these directors have been granted an option to
purchase up to 800,000 shares of the Company's Common Stock at the
fair market value of the Common Stock on the date of individual
grants. Options granted to these directors become exercisable
ratably over the period during the continuing service as a director
and expire seven years from the date of grant. All directors are
reimbursed for expenses incurred on behalf of the Company.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the cash compensation paid by
the Company during its fiscal year ended June 30, 1997 to (i) the
four most highly compensated current executive officers of the
Company and (ii) all executive officers of the Company as a group:
Name of Individual
or Number of Capacities in Cash
Persons in Group Which Served Compensation (1)
Michael W. Hogarty President and
Chief Executive
Officer $150,000
Daniel E. Ferrari Vice President
of Sales $ 95,000 (2)
Patrick A. Cusack Vice President
of Operations $ 70,000
Ann M. Gooch Vice President
of Finance,
Treasurer and
Secretary $ 68,000
All executive officers
as a group (4 persons) All capacities $383,000
(1) The Company provides executive officers with certain personal
benefits which do not exceed in value 10% of the officer's cash
compensation or, as to all executive officers as a group, 10% of the
aggregate cash compensation for the group.
(2) Mr. Ferrari began his employment with the Company in January
1995
and resigned in December 1995. He subsequently rejoined the Company
in late June 1996. His current annual salary is $95,000.
Employment Agreements.
Mr. Hogarty has an employment agreement with the Company that
provides for a minimum base salary of $150,000 per year. The
employment agreement continues until Mr. Hogarty's death or
voluntary
resignation, until he is removed for cause or until all the members
of the Board of Directors (except for Mr. Hogarty) determine that
the
Company is failing to make reasonable progress toward its business
plan goals.
Bonus Plan.
The Board of Directors has approved a bonus plan that provides
for management bonuses. The bonus pool is to be allocated to key
members of the management in accordance with a plan approved by the
Board of Directors. As of this date, the Company has made no
payments of bonuses.
Stock Option Plan.
The Company has adopted the 1988 Stock Option Plan for Key
Employees (the "Plan"). All employees of the Company are eligible
to
receive options under the Plan. The maximum aggregate amount of
stock to be issued upon exercise of all options granted under the
Plan may not exceed 1,800,000 shares, subject to adjustment upon the
occurrence of certain events such as a stock split, stock dividend,
reorganization, merger or similar corporate change. Unless earlier
terminated by the Board of Directors, the Plan will terminate in
November 1998.
The Plan provides for administration by the Board of Directors
or if the Board of Directors authorizes, by a committee appointed by
the Board (the "Committee"). The Board of Directors has a
Compensation Committee of disinterested directors who, among their
duties, will make recommendations to the Board of Directors
regarding
grants of options under the Plan. The Board of Directors has the
authority, subject to the express provisions of the Plan, to
determine the persons to be granted options, to determine whether
options granted under the Plan are intended to be non-statutory
stock
options or incentive stock options, to determine the terms and
provisions of options, including the times at which such options
shall be granted, the number of shares subject to each option, the
option price and the duration of each option, to interpret and
construe the Plan, to prescribe, amend and rescind rules and
regulations relating to the Plan and to make all other
determinations
necessary or advisable for the administration of the Plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth information regarding the
beneficial ownership of shares of the Company's Common Stock as of
September 1, 1997 by (i) all stockholders known to the Company to be
beneficial owners of more than 5% of the outstanding Common Stock;
(ii) each director; and (iii) all officers and directors of the
Company as a group. Except as may be otherwise indicated in the
footnotes to the table, each person has sole voting power and sole
dispositive power as to all of the shares shown as beneficially
owned
by them.
Shares of
Name of Common Stock Percent
Beneficial Owner(1)(2) Beneficially Owned Beneficially Owned
Michael W. Hogarty(3) 124,409,179 78.71%
BT Capital Corporation(4) 18,000,000 11.39
Ann M. Gooch(5) 6,338,214 4.01
Daniel E. Ferrari(6) 6,211,766 3.93
Patrick A. Cusack(7) 6,211,766 3.93
Shares of
All directors and
executive officers as
a group(4 persons)(8) 143,170,925 90.58
(1) Unless otherwise indicated in these footnotes, the address of
each person listed is c/o International Food and Beverage, Inc.,
30152 Aventura, Rancho Santa Margarita, California 92688.
(2) Does not give effect to the potential issuance of shares upon
the
exercise of (i) 316,666 shares granted to other members of
management
under the Company's Stock Option Plan (exercise prices between
$.00177 and $.40 per share) and (ii) other options and warrants to
acquire up to 122,000 shares (exercise price $.35 per share).
(3) Included in Mr. Hogarty's beneficially owned shares are
18,000,000 shares of Common Stock which BT Capital Corporation has
the right to purchase under an option agreement received in
connection with the change in control transaction in December 1994
(exercise price of $.00177) expiring December 1999.
(4) The address of BT Capital Corporation is 280 Park Avenue, 32
West, New York, New York 10017. Represents shares owned by Mr.
Hogarty over which BT Capital Corporation has an option. The
exercise price is $.00177 and the option expires in December 1999.
(5) Includes 3,078,471 shares which under a Stock Purchase
Agreement
with Mr. Hogarty are subject to certain purchase rights by him which
expire in December 1998. Includes 140,000 shares which Ms. Gooch
has
the right to acquire upon exercise of outstanding options.
(6) Includes 4,309,860 shares which under a Stock Purchase
Agreement
with Mr. Hogarty are subject to certain purchase rights by him which
expire in December 1998.
(7) Includes 4,309,860 shares which under a Stock Purchase
Agreement
with Mr. Hogarty are subject to certain purchase rights by him which
expire in December 1998.
(8) Includes currently vested options held by directors and
officers
of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On various dates during the first six months of fiscal 1995 BT
Capital Corporation ("BTCC") loaned a total of $700,000 to the
Company pursuant to notes and a Security Agreement collateralized by
the Company's accounts receivable and inventories. The proceeds
were
used primarily for working capital.
On December 31, 1994 BTCC, MH Investments, Inc., a California
corporation wholly-owned by Michael W. Hogarty, the Chief Executive
Officer and President of the Company, and Michael W. Hogarty entered
into agreements which provided for the sale by BTCC of 91.8% of the
outstanding shares of Common Stock of the company to MH Investments,
Inc. for $250,000. Concurrent with the foregoing transaction, the
Company entered into a Tax Allocation Agreement with BTCC. The
parties elected under Section 338(h)(10) of the Internal Revenue
Code
to treat the transaction as an asset acquisition for tax purposes.
Under the terms of the Tax Allocation Agreement, BTCC agreed to pay
to the Company $3,475,000 as full consideration for the potential
tax
benefits which have or may in the future inure to the benefit of
BTCC
and its affiliates with such amount paid by (i) elimination of
$2,675,000 of debt and interest owed to BTCC by the Company, and
(ii)
payment of $800,000 in cash and short term notes receivable. As a
result of the Section 338(h)(10) election, BTCC and its affiliates
will be entitled to use, subject to applicable limitations and
restrictions, any net operating losses of the Company existing as of
December 31, 1994. In connection with the foregoing transaction, MH
Investments, Inc. has given BTCC a five year option to purchase up
to
18,000,000 shares of Common Stock of the Company from MH
Investments,
Inc. at the same price per share paid
by MH Investments, Inc.
In February 1996, the Company entered into a "Manufacturing
Services and Marketing Agreement" as amended, (the "Agreement") with
Sunset Specialty Foods, Inc. ("Sunset") and James R. Tolliver, the
sole owner of Sunset. The Agreement provides the terms by which the
Company will contract manufacture product for Sunset, who heretofore
has purchased product for sale to both domestic retail chains and
export customers. Pursuant to the Agreement the Company is
obligated
to issue as a commission to Sunset at the completion of each quarter
Common Stock of the Company equal to four shares of Common Stock for
each $1.00 of pizza finished product produced and purchased during
the period from February 1, 1996 through June 30, 1996, and three
shares of Common Stock for each $1.00 of pizza finished product
produced and purchased during the two quarters ending December 31,
1996. Effective July 1, 1996 the Agreement was amended to exclude
the stock commission on purchases by Sunset for export. Through the
quarter ended June 30, 1996 the Company issued or was obligated to
issue 2,555,782 shares.
With respect to each of the major transactions described above,
the transactions were approved by a majority of the disinterested
directors of the Company.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) Index to Financial Statements and Schedules Page
Report of Independent Accountants . . . . . .. . . . . . . F-1
Balance Sheets of the Company as
of June 30, 1997 and June 30, 1996 . . . . . . . . . . . . F-2
Statements of Operations for the year
ended June 30,1997, the year ended
June 30, 1996, and the six months ended
June 30, 1995 and December 31, 1994 . . . . . . . . . . . F-3
Statements of Shareholders' Equity
Deficiency) for the year ended
June 30, 1997, the year ended June 30, 1996, and
the six months ended June 30, 1995 and
December 31, 1994 . . . . . . . . . . . . . . . . . . . . F-4
Statements of Cash Flows for the year
ended June 30,1997,the year ended
June 30, 1996, and the six months ended
June 30, 1995 and December 31, 1994 . . . . . . . . . . . F-5
Notes to Financial Statements . . . . . . . . . . . . . . F-6
(b) Reports on Form 8-K. There are no reports on Form 8-K
filed during the last quarter of the fiscal year covered by this
report.
(c) Exhibits included or incorporated by reference herein:
See Exhibit Index
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INTERNET BUSINESS'S INTERNATIONAL,
INC.
(formerly known as International
Food & Beverage, Inc.)
Dated: April 28, 1999 By: /s/ Albert R. Reda
Albert R. Reda
Chief Executive Officer, Secretary
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date
indicated.
/s/ Albert R. Reda
Albert R. Reda Chief Executive Officer,
Secretary, and Director April 28, 1999
/s/ Arnold Sock
Arnold Sock President and Director April 28, 1999
/s/ Louis Cherry
Louis Cherry Chairman of the Board and
Treasurer (Principal
Financial and Accounting
Officer) April 28, 1999
/s/ Greg Stack
Greg Stack Director April 28, 1999
REPORT OF INDEPENDENT ACCOUNTANT
To the Board of Directors and Stockholders of
International Food & Beverage, Inc.
I have audited the accompanying balance sheets of International Food
& Beverage, Inc. at June 30, 1997 and 1996, and the related
statements of income, stockholders' deficiency and cash flows for
the
years then ended. These financial statements are the responsibility
of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the
audit
to obtain reasonable assurance about whether the financial
statements
are free of material misstatement. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. I believe that my audit provides a reasonable basis
for my opinion.
The accompanying financial statement have been prepared assuming
that
the Company will continue as a going concern. The Company ceased
operations on January 18, 1998 and will not resume until management
has unsuccessfully raised the funds needed to acquire the necessary
working capital.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
International Food & Beverage, Inc. at June 30, 1997 and 1996, and
the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ Henry Schifffer C.P.A., a P.C.
Beverly Hills, California
April 1, 1998
INTERNATIONAL FOOD & BEVERAGE, INC.
BALANCE SHEET
Year Ended Year Ended
June 30, 1996 June 30, 1997
CURRENT ASSETS
Current Assets:
Cash and cash equivalents $ 20,000 $ 28,000
Accounts receivable, net of
allowance for doubtful accounts
of $40,000 at 6-30-97 & $70,000
at 6-30-96 505,000 254,000
Inventories 643,000 423,000
Prepaid expenses 7,000 6,000
Total current asset 1,175,000 711,000
Fixed Assets 905,000 800,000
Total Assets $2,080,000 $1,511,000
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICT)
CURRENT LIABILITIES:
Notes payable and current
maturities of long-term debt $ 429,000 $ 408,000
Accounts payable 840,000 918,000
Accrued wages and benefits 373,000 207,000
Accrued commissions and marketing 181,000 261,000
Other accrued expenses 118,000 153,000
Total current liabilities 1,941,000 1,947,000
LONG TERM DEBT 756,000 677,000
COMMITMENTS:
SHAREHOLDERS' EQUITY (DEFICT):
Preferred Stock, par value $0.01
per share;1,000,000 shares
authorized Common Stock, par
value $0.01 per share;
199,000,000 shares authorized,
158,060,194, and 154,763,438
shares issued and outstanding at
June 30, 1997 and 1996,
Respectively 394,000 428,000
Additional paid-in capital 1,000 1,000
Retained earnings (deficit) (1,012,000) (1,542,000)
Total Shareholders'
Equity(Deficit) (617,000) (1,113,000)
Total Liabilities &
Shareholders' Equity (Deficit) $2,080,000 $1,511,000
See Accompanying Notes to Financial Statement
INTERNATIONAL FOOD & BEVERAGE, INC.
STATEMENTS OF OPERATIONS
Six Months Ended Six Months Ended Year Ended Year
Ended
December 31, 1994 June 30, 1995 June 30, 1996 June
30, 1997
REVENUES
$3,580,000 $2,718,000 $6,572,000
$7,358,000
COST OF SALES
3,279,000 2,212,000 5,374,000
5,847,000
GROSS PROFIT
301,000 506,000 1,198,000
1,511,000
OPERATING EXPENSES:
Selling and distribution
1,412,000 702,000 1,135,000
1,512,000
General and administration
361,000 298,000 524,000
407,000
Interest expense, net
111,000 3,000 54,000
122,000
1,884,000 1,003,000 1,713,000
2,041,000
NET LOSS
$(1,583,000) $ (497,000) $ (515,000) $
(530,000)
NET LOSS PER
COMMON SHARE
$ nil $ nil $ nil $
nil
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING
153,923,569 153,923,569 154,144,914
154,763,438
See Accompanying Notes to Financial Statement
INTERNATIONAL FOOD & BEVERAGE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Six Months Ended Six Months Ended Year Ended Year Ended
December 31, 1994 June 30, 1995 June 30, 1996 June 30,
1997
Common Stock:
Balance, beginning
of year
$ 1,539,000 $ 386,000 * $387,000 $ 394,000
Common Stock issued and
capital contributions
0 1,000 7,000 34,000
Balance, end of year
1,539,000 387,000 394,000 428,000
Additional Paid In Capital
Balance, beginning of year
20,126,000 0 * 1,000 1,000
Common Stock issued and
capital contributions
0 1,000 0 0
Balance, end of year
20,126,000 1,000 1,000 1,000
Retained Earnings (Deficit)
Balance, beginning of year
(21,830,000) 0 * (497,000) (1,012,000)
Net income (loss)
(1,583,000) (497,000) (515,000) (530,000)
Balance, end of year
(23,413,000) (497,000) (1,012,000) (1,542,000)
Total stockholders' equity (deficit)
(1,748,000) (109,000) (617,000) (1,113,000)
* Effect of "push-down" accounting in connection with change in
control of registrant. See Note 2 to the accompanying Notes to
Financial Statements.
See Accompanying Notes to Financial Statements
INTERNATIONAL FOOD & BEVERAGE, INC.
STATEMENTS OF CASH FLOWS
Six Months Ended Six Months Ended Year Ended Year
Ended
December 31, 1994 June 30, 1995 June 30, 1996 June 30,
1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss
$(1,583,000) $(497,000) $(515,000)
$(530,000)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization
304,000 84,000 165,000
166,000
Issuance of Common Stock under
distribution agreement
7,000
34,000
Deferred interest on debt
110,000 111,000 2,000
Deferred payments on litigation settlement
550,000
Changes in assets and liabilities:
Accounts receivable
297,000 (186,000) (319,000)
251,000
Inventories
(72,000) (504,000) (139,000)
220,000
Prepaid expenses
(38,000) 23,000 33,000
1,000
Accounts payable
19,000 422,000 338,000
78,000
Accrued wages and benefits
31,000 137,000 (40,000)
(166,000)
Accrued commissions and marketing
125,000 408,000 (265,000)
80,000
Other accrued expenses
(305,000) 43,000 8,000
35,000
Net cash provided by (used in)
operating activities
(1,050,000) (91,000) (727,000)
169,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to fixed assets
(83,000) (1l,000) (17,000)
(61,000)
Cash used to satisfy net acquired
liabilities of predecessor company
(557,000)
Net cash provided by (used in)
investing activities
(83,000) (568,000) (17,000)
(61,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable
700,000 100,000 684,000
Principal payments on notes payable
(48,000) (49,000) (112,000)
(100,000)
Net cash provided by (used in)
financing activities
652,000 51,000 572,000
(100,000)
NET INCREASE (DECREASE) IN CASH
(481,000) (608,000) (172,000)
8,000
CASH AND CASH EQUIVALENTS,
beginning of period
481,000 800,000 192,000
20,000
CASH AND CASH EQUIVALENTS,
end of period
$ 0 $ 192,000 $ 20,000 $
28,000
See Accompanying Notes to Financial Statement
INTERNATIONAL FOOD & BEVERAGE, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
Note 1 - Description of the Business
International Food & Beverage, Inc. (the "Company"), manufactures
and
markets fully prepared pizzas, pizza components and specialty baked
products to customers within the food service industry including
retail supermarket service delicatessens, restaurants, hotels,
sports
and theme parks, and catering locations.
Note 2 - Change in Control
On December 31, 1994, BT Capital Corporation ("BTCC"), MH
Investments, Inc., a California corporation wholly owned by Michael
W. Hogarty, the Chief Executive Officer and President of the
Company,
and Michael W. Hogarty entered into agreements which provided for
the
sale of 91.8% by BTCC of the outstanding shares of Common Stock of
the company to MH Investments, Inc. for $250,000. Concurrent with
the
foregoing transaction the Company entered into a Tax Allocation
Agreement with BTCC. The parties elected under Section 338(h)(10) of
the Internal Revenue Code to treat the transaction as an asset
acquisition for tax purposes. Under the terms of the tax Allocation
Agreement, BTCC agreed to pay to the company $3,475,000 as full
consideration for the potential tax benefits which have or may in
the
future inure to the benefit of BTCC and its affiliates with such
amount paid by (i) elimination of $2,675,000 of debt and interest
owed to BTCC by the Company, and (ii)payment of $800,000 in cash and
short term notes receivable. As a result of the Section 338(h)(10)
election, BTCC and its affiliates will be entitled to use, subject
to
applicable limitations and restrictions, any net operating losses of
the company existing as of December 31, 1994.
In connection with the foregoing transaction, MH Investments, Inc.
has given BTCC a five year option to purchase up to 18,000,000
shares
of Common Stock of the Company from MH Investments, Inc. at the same
price per share paid by MH Investments, Inc.
For financial reporting purposes this transaction was recorded in
conformity with Accounting Principles Board Opinion No. 16.
Accordingly, the assets and liabilities as of January 1, 1995, and
the results of operations for the six months ended June 30, 1995,
reflect the "push-down" of the new controlling shareholder's basis,
minority interest at its historical basis, and the consideration
received from BTCC.
Note 3 - Summary of Significant Accounting Policies
Fiscal Year
The Company's fiscal year is the 52-53 week period ending on the
Saturday closest to June 30. The fiscal year end and period end
dates
for the periods being reported on herein are June 29, 1996 and June
28, 1997. For clarity of presentation, fiscal year end and period
end dates in the accompanying financial statements and notes are
referred
to as June 30 for thc applicable period presented.
Accounts Receivable and Revenues
Substantially all of the Company's sales are made to full-line food
service distributors, national food service chains major regional
supermarket chains or a related party who sells to such
organizations. Concentrations of credit risk exist because of the
concentration of the Company's customers within these industries and
its dependence on a limited number of customers for a large portion
of annual revenues. Such risk, however, is mitigated by the
longevity
of the Company's customer relationships and is considered a normal
part of the food service, institutional and retail grocery
industries.
Inventories
Inventories consist of furnished goods and raw materials and are
stated at the lower of cost (first-in, first-out method) or market.
Fixed Assets
Substantially all of the Company's fixed assets were acquired within
the past six years. The historical acquisition cost of these assets
was approximately $4,000,000, however, as a result of the
application
of "push-down" accounting in connection with the change of control
these assets are reported currently on the Company's financial
statements with a cost before accumulated depreciation and
amortization of $1,154,000. Asset additions subsequent to December
31, 1994 are stated at cost. Depreciation is provided using the
straight-line methods over the shorter of the estimated useful life
of an asset or the remaining lease term for leasehold improvements
(three to seven years).
Significant improvements are capitalized. All maintenance and repair
costs are charged to operations as incurred. When assets are sold or
otherwise disposed of, the costs and accumulated depreciation or
amortization are removed from the accounts and any resulting gain or
loss is reflected in operations.
Other Assets
Other assets consisted primarily of cost capitalized in connection
with a June 1990 debt restructuring. These costs were being
amortized
using the interest method over seven years, and were reduced to
zero,
effective January 1, 1995, in connection with the change in control
of the Company.
Goodwill
The excess of cost over the fair value of net assets acquired by the
predecessor company was recorded as goodwill and amortized using the
straight-line method over twenty-five years. Th
goodwill was reduced to zero effective January 1, 1995, in
connection
with the change on control of the Company.
Income Taxes
The Company follows Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes". Under this method,
deferred income taxed are recognized for the tax consequences in
future years of difference between the tax bases of assets and
liabilities, and their financial reporting amounts at each year-end
based on enacted tax laws and statutory tax rates applicable to the
periods in which the differences are expected to affect taxable
income. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized.
Under this standard the provision for income taxes represents the
tax
payable for the period and the change during the period in deferred
tax assets and liabilities.
Net Loss Per Common Share
Net loss per common share is based on the reported net loss divided
by the weighted average number of common shares outstanding. Shares
issuable under options have been excluded from the calculation in
each period presented because of their anti-dilutive effect.
Cash and Cash Equivalents
The Company considers highly liquid debt instruments purchased with
a
maturity of three months or less to be cash equivalents.
Fair Value of Financial Instruments
The carrying value of the Company's cash and cash equivalents,
accounts receivable, accounts payable, accrues expenses and notes
payable approximates fair value.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimated
and assumptions that affect the reported amounts of 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.
Note 4 - Commitments
Leases
The company has an operating lease for its manufacturing and
corporate office facility. The lease, which expires in June 2000,
requires monthly payments of approximately $25,000 through
October 31, 1996 and thereafter is subject to annual adjustments of
at least 4%, but not more than 7% based on the Consumers Price
Index.
Building and equipment rent expense for the periods ended June 30,
1996 and 1995. December 1, 1994, and June 30, 1994 was $298,000,
$156,000, $150,000 and $249,000, respectively.
Future minimum lease commitments on non-cancellable operating leases
are as follows:
For the years ended June 30 Amount
1998 $ 322,000
1999 333,000
2000 346,000
$ 1,001,000
Note 5 - Stock Issuance
In February 1996, the Company entered into a "Manufacturing
Service
and Marketing Agreement" as amended, (the Agreement") with Sunset
Specialty Foods, Inc. ("Sunset") and James R. Tolliver, the sole
owner of Sunset. The Agreement the Company is obligated to issue as
a
commission to Sunset at the completion of each quarter Common Stock
of the Company equal to four shares of Common Stock for each $ 1.00
of pizza finished product produced and purchased during the period
from February 1, 1996 through June 30, 1996, and three shares of
Common Stock for each $ 1.00 of pizza finished product produced and
purchased during the two quarters ending December 31,1996. Effective
July 1, 1996 the Agreement was amended to exclude the stock
commission on purchases by Sunset for export. Through the quarter
ended June 30, 1996 the Company has issued 729,869 shares of Common
Stock and is accounted for as a non-cash transaction on the
Statement
of Cash Flows. In August 1996 the Company issued an additional
1,825,913 shares of Common Stock in satisfaction of the commissions
earned as of June 29, 1996.
EXHIBIT INDEX
Exhibit No. Description
3.01 Certificate of Incorporation, as amended
(incorporated by reference to
Exhibit 3.01 of the Registrant's Annual
Report on Form 10-K for the
fiscal year ended June 26, 1993).
3.02 Bylaws (incorporated by reference to Exhibit 3.02
to the
Company's registration statement on Form S-1 filed
with
the Securities and Exchange Commission on October
29, 1991,
the "Registration Statement").
4.01 Specimen Common Stock Certificate (incorporated by
reference to Exhibit 4.01 to the Registration
Statement).
10.1 Employment Agreement, dated March 15, 1988, as
amended January 5, 1989, and November 9, 1990
between
Michael W. Hogarty and the Company (incorporated
by reference to Exhibit 10.11 to the Registration
Statement).
10.2 Standard Form Industrial Lease, dated August 31,
1989, between Tijeras Partnership, as landlord,
and the
Company (incorporated by reference to Exhibit
10.13
to the Registration Statement).
10.3 1988 Stock Option Plan for Key Employees of
International Food and Beverage, Inc.
(incorporated by
reference to Exhibit 10.19 to the Registration
Statement).
10.4 Lease Amendment, dated December 8, 1992 to the
Standard Form Industrial Lease, dated August 31,
1989,
Between Tijeras Partnership, as landlord, and the
Company
(incorporated by reference to Exhibit 10.8 of the
Registrant's Annual Report on Form 10-K for the
fiscal
year ended June 26, 1993).
10.5 Promissory Note of the Company dated June 29,
1995,
in the principal amount of $100,000 in favor of
Michael W.
Hogarty. Promissory Notes of the Company in
substantially
the same form as in Exhibit 10.5 herein were
issued at
various times between October 16, 1995 and January
31,
1996 in the total principal amount of $355,000 in
favor of
Michael W. Hogarty (incorporated by reference to
Exhibit
10.6 of the Registrant's Annual Report on Form 10-
K for the
fiscal year ended June 30, 1995).
10.6 Loan and Security Agreement, dated June 29, 1995
between the Company and Michael W. Hogarty
(incorporated
by reference to Exhibit 10.7 of the Registrant's
Annual
Report on Form 10-K for the fiscal year ended
June 30, 1995).
10.7 Loan and Security Agreement, dated March 15, 1996
between Fremont Business Credit and the Company
and related
documents and agreements executed in connection
therewith
(incorporated by reference to Exhibit 10.7 of the
Registrant's Annual Report on Form 10-K for the
fiscal
year ended June 30, 1996).
10.8 Building lease Estoppel Certificate dated December
11, 1995
to Ms. Nancee Ehlers Boldman and Ms. Sally Ehlers
Stillion
as Purchasers of the real property subject to the
building
lease included in this Exhibit Index as Exhibit
10.2 and
Exhibit 10.4 incorporated by reference to Exhibit
10.8
of the Registrant's Annual Report on Form 10-K for
the
fiscal year ended June 30, 1996).
22.1 Subsidiaries (incorporated by reference to Exhibit
22.1
to the Registration Statement).
27 Financial Data Schedule.
<TABLE> <S> <C>
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
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<RECEIVABLES> 294
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<INVENTORY> 423
<CURRENT-ASSETS> 711
<PP&E> 800
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 1,511
<SALES> 7,358
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<OTHER-EXPENSES> 0
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<INCOME-PRETAX> (530)
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