U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 1998
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 33-0307734
(State or jurisdiction of incorporation I.R.S. Employer
or organization) Identification No.)
30152 Aventura, Rancho Santa Margarita, California (2) 92688 (2)
(Address of principal executive offices) (Zip Code)
Registrants 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 registrants 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 May 10, 1999: Common Stock, par
value $0.001 per share -- $27,085,595. As of May 10, 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
Businesss 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. FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS AS OF MARCH 31, 1998
AND JUNE 30, 1997 3
STATEMENTS OF OPERATIONS FOR THE THREE
AND NINE MONTHS ENDED MARCH 31, 1998
AND MARCH 31, 1997 4
STATEMENTS OF CASH FLOWS FOR THE NINE
MONTHS ENDED MARCH 31, 1998 AND
MARCH 31, 1997 5
NOTES TO FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
PART II
ITEM 1. LEGAL PROCEEDINGS 11
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 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
SIGNATURE 12
PART I.
ITEM 1. FINANCAL STATEMENTS.
INTERNATIONAL FOOD & BEVERAGE, INC.
BALANCE SHEETS (Unaudited)
June 30, 1997 March 31, 1998
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 28,000 $ 1,041
Accounts receivable,
net of allowance for
doubtful accounts of
$40,000 at 6-30-97 254,000 100,000
Inventories 423,000 1,000
Prepaid expenses 6,000 8,417
Total current assets 711,000 110,458
FIXED ASSETS: 800,000 0
Total Assets $ 1,511,000 $ 110,458
LIABILITIES AND SHAREHOLDERS EQUITY (DEFICT)
CURRENT LIABILITIES:
Notes payable and current
maturities of long-term debt $ 408,000 $ 216,901
Accounts payable 918,000 1,102,003
Accrued wages and benefits 207,000 178,727
Accrued commissions
and marketing 261,000 216,208
Other accrued expenses 153,000 115,161
Total current liabilities 1,947,000 1,829,000
LONG TERM DEBT: 677,000 455,000
SHAREHOLDERS EQUITY (DEFICIT):
Preferred Stock 0 0
Common Stock 428,000 428,000
Additional paid-in capital 1,000 1,000
Retained earnings (deficit) (1,542,000) (1,542,000)
Current earnings (deficit) (1,060,542)
Total Shareholders Equity (1,113,000) (2,073,542)
Total Liabilities &
Shareholders Equity $1,511,000 $ 110,458
See Accompanying Notes to Financial Statements
INTERNATIONAL FOOD & BEVERAGE, INC.
STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended
March 31 March 31 March 31 March 31
1997 1998 1997 1998
REVENUES $1,893,000 $ 72,000 $5,965,000 $2,376,000
COST OF SALES 1,449,000 371,839 4,670,000 2,346,839
GROSS PROFIT 444,000 (299,839) 1,295,000 29,161
OPERATING EXPENSES:
Selling and
Distribution 364,000 7,000 1,077,000 424,998
General and
Administration 146,000 39,000 438,000 296,002
Interest expense,
Net 36,000 19,000 96,000 69,000
Total Operating Expenses
546,000 65,000 1,611,000 790,000
GAIN (LOSS) ON DISPOSITION
(299, 703) (299,703)
NET INCOME (LOSS)
$(102,000) $(664,542) $(316,000) $(1,060,542)
NET INCOME (LOSS) PER COMMON SHARE
$(nil) $(nil) $(nil) $(nil)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
156,599,351 154,763,438 156,285,864 154,763,438
See Accompanying Notes to Financial Statements
INTERNATIONAL FOOD & BEVERAGE, INC.
STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended
March 31, 1997 March 31, 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $(316,000) $(1,060,542)
Adjustments to reconcile
net income (loss)
to net cash provided
by (used in) operating
activities:
Depreciation and
Amortization 122,000 0
Issuance of Common
Stock under
distribution agreement 18,000
Changes in assets and
liabilities:
Accounts receivable 65,000 154,000
Inventories 63,000 422,000
Prepaid expenses 2,000 (2,417)
Accounts payable 230,000 183,913
Accrued wages
and benefits (35,000) (28,273)
Accrued commissions and
Marketing 1,000 (44,792)
Other accrued expenses 24,000 (37,839)
Net cash provided by (used in)
operating activities 174,000 (413,950)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to, and
reduction of, fixed assets (61,000) 800,000
Net cash provided by (used in)
investing activities (61,000) 800,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on
notes payable (76,000) (413,009)
Net cash provided by (used in)
financing activities (76,000) (413,009)
NET INCREASE (DECREASE) IN CASH
37,000 (26,959)
CASH AND CASH EQUIVALENTS, beginning of period
20,000 28,000
CASH AND CASH EQUIVALENTS, end of period
$ 57,000 $ 1,041
See Accccompanying Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
Note 1. Description of the Business
International Food & Beverage, Inc. (the Company), was in the
business, of the manufacturing and marketing of 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. These operations ceased as of
December 31, 1997.
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 9l.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.
gave 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,
reflected the push-down of the new controlling shareholders
basis, minority interest at its historical basis, and the
consideration received from BTCC.
Note 3. Summary of Significant Accounting Policies
Fiscal Year
The Companys fiscal year was the 52-53 week period ending on the
Saturday closest to June 30. For clarity of presentation, fiscal
year end and period end dates in the accompanying financial
statements and notes are referred to as June 30 and March 31 for
the applicable periods presented.
Accounts Receivable and Revenues
Substantially all of the Companys sales were 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 Companys customers within these industries
and its dependence on a limited number of customers for a large
portion of annual revenues. Such risk, however, was mitigated by
the longevity of the Companys customer relationships and was
considered a normal part of the food service, institutional and
retail grocery industries.
Inventories
Inventories consisted of finished goods and raw materials and were
stated at the lower of cost (first-in, first-out method) or
market,; as of the date of these financials there was no
inventory.
Fixed Assets
Substantially all of the Companys 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
Companys 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). All the assets
of the company were sold at auction on March 13, 1998 and the
proceeds paid to secured creditors.
Significant improvements were capitalized. All maintenance and
repair costs had been charged to operations as incurred. When
assets are sold or otherwise disposed of, the costs and
accumulated depreciation or amortizations are removed from the
accounts and any resulting gain or loss is reflected in
operations. During the week of the auction in March 1998 the
facilities were vacated and the improvements were either auctioned
of or reverted to the landlord upon the vacating of the
facilities.
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. The
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
(SPAS) No. 109, Accounting for Income Taxes. Under this
method, deferred income taxed was 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 were expected
to affect taxable income. Valuation allowances were 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
antidilutive effect.
Cash Equivalents
The Company considered 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 Companys 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 required 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 had an operating lease for its manufacturing and
corporate office facility. The lease ceased on the eviction of the
Company from the facilities on January 1, 1998.
Note 5. Stock Issuance
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 noncash
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 commissions earned as of June 29, 1996.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FIINANCIAL
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.
Revenues for the nine month period ended March 31, 1998 of
$2,378,000 decreased approximately 60% when compared with revenues
of $5,965,000 in the prior year comparable period. This decrease
was primarilt due to the shutdown of Company operations on
December 31, 1997.
The gross profit margin for the nine months ended March 31,
1998 decreased to 1.3% versus the prior year comparable period
gross margin of 21.7%. This decrease was primiarly due to
increased costs and declining sales, which led to a shut down of
Company operations on December 31, 1997.
Selling, general and administrative expenses for the nine
months ended March 31, 1998 were approximately 34.6% of sales
versus the prior year comparable period at approximately 25.4%.
As a result of lower borrowings in the current fiscal year,
interest expense for the nine months ended March 31, 1998
decreased to $69,000 from $96,000 for the comparable prior year
period. The resulting loss for the nine months ended March 31,
1998 was $1,160,542 versus reported comparable prior year period
losses of $316,000.
Liqiudity and Capital Resources.
Net cash used in operating activities was $505,159 for the
nine month period ended March 31, 1998 versus cash provided by
operating activities of $174,000 in the comparable prior year
period..
Capital Expenditures.
No capital expenditures were made during the quarter ended on
March 31, 1998.
Net Operating Loss Carryforwards.
For the quarter ended March 31, 1998, the Company had net
operating loss carryforwards for federal and state purposes of
approximately $820,386 and $820,856, 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
Companys 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 was 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. However, these plans were stopped when the
Company shut down its operations.
Forward Looking Statements.
The foregoing Managements 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 comptemplated under the
Private Securities Litigation Reform Act of 1995, including
statements regarding, among other items, the Companys business
strategies, continued growth in the Companys markets,
projections, and anticipated trends in the Companys 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 Companys expectations
and are subject to a number of risks and uncertainties, certain of
which are beyond the Companys 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 Companys
products, competitive pricing pressures, changes in the market
price of ingredients used in the Companys products and the level
of expenses incurred in the Companys 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.
PART II.
ITEM 1. 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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Companys
stockholders during the first quarter of the fiscal year covered
by this report.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Reports on Form 8-K. A report on Form 8-K has been
filed during the third quarter of the fiscal year covered by this
Form 10-Q. this report, dated February 17, 1998, covered the
following items:
On February 17, 1998 the Registrant was informed by
its independent auditors, Coopers & Lybrand (C & L),
of C & Ls resignation, effective as of that date.
The reports of C & L on the financial statements of
the Registrant for each of the two fiscal years in the
period ended June 30, 1996 did not contain any adverse
opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope
or accounting principles. In the opinion of
management of the Registrant, the financial statements
contained in the Registrants report on Form 10-Q for
the March 31, 1997 quarter of fiscal year ending June
30, 1997 appropriately reflect all business
transactions and all adjustments necessary for a fair
presentation of the financial position and the results
of operations of the Registrant for the periods
presented. C & L elected to resign as registrants
certifying account for reasons of non-payment of C&Ls
fees.
On March 13, 1998, as part of the winding down of the
Registrants business, the Registrant disposed of
substantially all of its assets at public auction sale
conducted by Hackman Capital Partners, LLC, the
proceeds of which sale were paid to Registrants
secured creditors. The value of any assets remaining
following the auction sale and disbursement of funds
to creditors was negligible.
On March 15, 1998, the Registrant engaged Henry
Schiffer, C.P.A., a P.C., to act as the Registrants
independent certified public accountant. Mr. Schiffer
replaces C & L. Mr. Schiffer is located at 315 South
Beverly Drive, Suite 302, Beverly Hills, California
90212.
(b) Exhibits included or incorporated by reference herein:
See Exhibit Index
SIGNATURE
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 BUSINESSS
INTERNATIONAL, INC.
(formerly known as
International Food & Beverage,
Inc.)
Dated: May 10, 1999 By: /s/ Albert R. Reda
Albert R. Reda
Chief Executive Officer,
Secretary
EXHIBIT INDEX
Exhibit No. Description
3.01 Certificate of Incorporation, as amended (incorporated
by reference to Exhibit 3.01 of the Registrants 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 Companys 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 1988 Stock Option Plan for Key Employees of
International Food & Beverage, Inc. (incorporated by reference to
Exhibit 10.19 to the Registration Statement).
10.3 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 Registrants Annual Report on
Form 10-K for the fiscal year ended June 30, 1995).
10.4 Loan and Security Agreement, dated June 29, 1995
between the Company and Michael W. Hogarty (incorporated by
reference to Exhibit 10.7 of the Registrants Annual Report on
Form 10-K for the fiscal year ended June 30, 1995).
10.5 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 Registrants
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.