-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SwBcIYtF90A1DfY5xduUMLXDIDiVwMiOKxQYEn680eI7TfXb/gRX9Ro6t7Y0iMbw nnHFl5UDRiPjIEOZQ0PssA== 0001058985-99-000046.txt : 19990519 0001058985-99-000046.hdr.sgml : 19990519 ACCESSION NUMBER: 0001058985-99-000046 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19990518 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNET BUSINESS INTERNATIONAL INC CENTRAL INDEX KEY: 0000880584 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FOOD PREPARATIONS & KINDRED PRODUCTS [2090] IRS NUMBER: 330307734 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-43621 FILM NUMBER: 99629069 BUSINESS ADDRESS: STREET 1: 30152 AVENTURA CITY: RANCHO SANTA MARGARI STATE: CA ZIP: 92688 BUSINESS PHONE: 7148588800 MAIL ADDRESS: STREET 1: 30152 AVENTURA CITY: RANCHO SANTA MARGARI STATE: CA ZIP: 92688 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL FOOD & BEVERAGE INC /DE/ DATE OF NAME CHANGE: 19930328 10-K 1 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. EX-27 2 FINANCIAL DATA SCHEDULE
5 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. 1,000 YEAR JUN-30-1997 JUL-01-1996 JUN-30-1997 28 0 294 40 423 711 800 0 1,511 1,947 0 0 0 428 (1,113) 1,511 7,358 7,358 5,847 1,919 0 0 122 (530) 0 (530) 0 0 0 (530) (.00) (.00) -----END PRIVACY-ENHANCED MESSAGE-----