UNITED STATES
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 September 30, 2011
or
o
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: 333-142658
FOODFEST INTERNATIONAL 2000 INC.
(Exact name of registrant as specified in its charter)
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Delaware
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74-3191757
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification No.)
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361 CONNIE CRESCENT
CONCORD, ONTARIO, CANADA, L4K 5R2
(Address of principal executive offices)(Zip Code)
_______________
(905) 709-4775
(Registrant’s telephone number, including area code)
_______________
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
o
Accelerated Filer
o
Non-Accelerated Filer
o
(Do not check if a smaller reporting company) Smaller Reporting Company
x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock: As of 21 November 2011, there were 52,350,809 shares, par value $.001, of common stock issued and outstanding.
FOODFEST INTERNATIONAL 2000 INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q for the
Quarterly Period Ended September 30, 2011
Table of Contents
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Page
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
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1
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Condensed Consolidated Balance Sheets as of September 30, 2011 (unaudited) and June 30, 2011 (audited)
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Condensed Consolidated Statements of Operations for the Three Months Ended September 30, 2011 and 2010 (unaudited):
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Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2011 and 2010 (unaudited):
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Notes to Unaudited Condensed Consolidated Financial Statements:
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
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Item 4 Controls and Procedures
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PART II. OTHER INFORMATION
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Item 1. Legal Proceedings
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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Item 3. Defaults upon Senior Securities
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Item 4. (Removed and Reserved)
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Item 5. Other Information
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
FOODFEST INTERNATIONAL 2000 INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
SEPTEMBER 30, 2011
FOODFEST INTERNATIONAL 2000 INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2011 AND JUNE 30, 2011
(Expressed in United States Dollars)
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September 30,
2011
(Unaudited)
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June 30,
2011
(Audited)
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ASSETS
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Current Assets
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Accounts receivable, net
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$
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1,242,102
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$
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1,559,741
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Inventory, net
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2,059,562
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2,212,629
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Prepaid and sundry assets
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5,501
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5,926
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Advances to related party
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239,611
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103,700
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Total Current Assets
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3,546,776
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3,881,996
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Long Term Assets
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Property and equipment, net
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308,558
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350,578
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Deferred income taxes
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69,259
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70,252
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Total Long Term Assets
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377,817
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420,830
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Total Assets
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$
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3,924,593
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$
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4,302,826
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LIABILITIES AND STOCKHOLDERS' DEFICIT
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Current Liabilities
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Bank indebtedness
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$
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880,352
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$
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1,239,331
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Accounts payable and accrued liabilities
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3,165,785
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2,950,727
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Loan payable
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101,725
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96,029
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Long term debt - current portion
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114,538
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141,213
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Obligations under capital lease - current portion
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92,576
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60,723
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Total Current Liabilities
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4,354,976
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4,488,023
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Long Term Liabilities
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Long term debt
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-
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-
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Obligations under capital lease
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100,437
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27,025
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Advances from stockholders
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31,856
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39,222
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Advances from related parties
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1,346,826
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1,435,581
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Total Long Term Liabilities
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1,479,119
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1,501,828
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Commitments, Contingencies and Guarantee
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Stockholders' Deficit
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Preferred stock - no par value, non-cumulative, non-voting, redeemable at amount paid thereon, unlimited shares authorized, none issued and outstanding
(June 30, 2011 - none issued and outstanding)
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-
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-
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Common stock - no par value, unlimited shares authorized, 52,350,809 issued and outstanding (June 30, 2011 - 52,350,809 issued and outstanding)
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52,351
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52,351
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Additional paid-in capital
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554,088
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554,088
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Accumulated other comprehensive loss
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(178
,654
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)
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(281,129
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Accumulated deficit
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(2,337,287
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)
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(2,012,335
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Total Stockholders' Deficit
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(1,909
,50
2
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)
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(1,687,025
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Total Liabilities and Stockholders' Deficit
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$
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3,924
,
593
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$
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4,302,826
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The accompanying notes are an integral part to these consolidated financial statements.
FOODFEST INTERNATIONAL 2000 INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(Expressed in United States Dollars)
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2011
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2010
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SALES
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$
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3,401,296
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$
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3,745,164
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COST OF GOODS SOLD
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2,907,808
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2,746,249
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GROSS PROFIT
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493,488
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998,915
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EXPENSES
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General and administrative
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597,702
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590,817
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Selling and delivery
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170,170
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162,944
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Interest and financing charges
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54,859
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52,664
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TOTAL EXPENSES
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822,731
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806,425
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(LOSS) EARNINGS BEFORE TAXES
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(329,243
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)
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192,490
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Current income taxes
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-
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13,574
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Deferred income tax recovery
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(4,291
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)
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-
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NET (LOSS) EARNINGS
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$
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(324,952
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$
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178,916
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OTHER COMPREHENSIVE LOSS
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Foreign currency translation
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88,542
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(27,678
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Unrealized gain (loss) on foreign exchange
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13,931
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(35,420
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)
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COMPREHENSIVE (LOSS) INCOME
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(222,479
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)
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115,818
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(LOSS) EARNINGS PER WEIGHTED NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED
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$
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(0.01
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$
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0.00
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WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED
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52,350,809
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52,350,809
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The accompanying notes are an integral part to these consolidated financial statements.
FOODFEST INTERNATIONAL 2000 INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(Expressed in United States Dollars)
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2011
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2011
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CASH FLOWS FROM OPERATING ACTIVITIES
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Net (loss) earnings
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$
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(324,952
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$
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178,916
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Items not requiring an outlay of cash:
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Depreciation
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21,700
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25,152
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Accrued interest
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4,923
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3,021
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Deferred income tax recovery
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(4,291
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)
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-
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Stock-based compensation
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-
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31,250
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Changes in non-cash working capital:
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Accounts receivable
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215,645
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(193,440
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Inventory
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(6,015
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(603,763
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)
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Prepaid and sundry assets
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-
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93,653
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Accounts payable and accrued liabilities
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450,127
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585,359
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Income taxes payable
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-
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14,903
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CASH PROVIDED BY OPERATING ACTIVITIES
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357,137
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135,051
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CASH FLOWS FROM FINANCING ACTIVITIES
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(Repayment of) proceeds from bank indebtedness
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(285,642
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)
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32,874
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Repayment of loan payable
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-
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(20,004
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)
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(Repayment of) proceeds from long-term debt
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(17,538
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)
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72,335
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Advances to related party
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(168,395
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)
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(148,728
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)
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Obligations under capital lease
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118,258
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(27,418
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)
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CASH USED IN FINANCING ACTIVITIES
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(353,316
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)
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(90,941
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)
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CASH FLOWS FROM INVESTING ACTIVITIES
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Acquisition of property and equipment
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(3,820
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)
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(44,110
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)
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CASH USED IN INVESTING ACTIVITIES
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(3,820
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)
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(44,110
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)
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NET CHANGE IN CASH
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-
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-
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CASH, BEGINNING OF PERIOD
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-
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-
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CASH, END OF PERIOD
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$
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-
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$
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-
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The accompanying notes are an integral part to these consolidated financial statements.
FOODFEST INTERNATIONAL 2000 INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011
(Expressed in United States Dollars)
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1.
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ORGANIZATION AND NATURE OF OPERATIONS
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Foodfest International 2000 Inc. and Subsidiary (the "Company" or "Foodfest USA") was incorporated on September 20, 2006 in the State of Delaware, under the name Henya Food Corp.
On December 20, 2010, pursuant to a share exchange agreement (the "Share Exchange Agreement"), the Company completed the acquisition of all the issued and outstanding shares of Foodfest International 2000 Inc. ("Foodfest Canada"), a private company incorporated under the laws of the Province of Ontario, Canada.
The acquisition of Foodfest Canada is accounted for under the purchase method as a reorganization of entities under common control, as both companies were managed by the same individuals prior to the transaction. The results are similar to a pooling of interests whereby the assets and liabilities were transferred at historical cost. The outstanding common stock of Foodfest USA is accounted for at its net book value and no goodwill was recognized.
Foodfest Canada has been operating since June 25, 1987 and is in the business of importing, marketing and distributing kosher, vegetarian and organic food products to grocery stores in Canada and the United States.
These financial statements include in consolidation the accounts of Foodfest USA and its wholly owned subsidiaries, Foodfest Canada, Foodfest Acquisition Corp. (a wholly owned subsidiary of Foodfest USA incorporated under the laws of Ontario, Canada) and Foodfest Call Corp. (a company incorporated under the laws of Ontario, Canada). All significant intercompany transactions and balances have been eliminated upon consolidation.
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Security and Exchange Commission ("SEC") Form 10-Q and Article 8 of SEC Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending June 30, 2012.
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3.
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PROPERTY AND EQUIPMENT
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Cost
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Depreciation
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Net
September 30,
2011
(Unaudited)
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Net
June 30,
2011
(Audited)
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Equipment
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$
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519,781
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$
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364,546
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$
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155,235
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$
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176,035
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Furniture and fixtures
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262,550
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185,397
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77,153
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85,905
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Vehicles
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62,455
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25,645
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36,810
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42,870
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Computer hardware
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88,614
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57,938
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30,676
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33,295
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Leasehold improvements
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765,092
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756,408
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8,684
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12,473
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$
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1,698,492
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$
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1,389,934
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|
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$
|
308,558
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$
|
350,578
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4.
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ADVANCES TO RELATED PARTY
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The Company has advances owing from a related company, Strubs Food Corp. ("Strubs"), a company under common control. These advances are unsecured, non-interest bearing and are repayable on demand.
The Company has available a $962,600 ($1,000,000 Canadian dollars ("CAD")) revolving operating line which bears interest at the Royal Bank of Canada ("RBC") prime rate plus 2.75% and is repayable on demand. This revolving loan is secured under a general security agreement covering all of the Company's assets and also secured by limited personal guarantees from the stockholders of the Company. As of September 30, 2011, $840,000 CAD of the line of credit is in use ($1,000,000 CAD as of June 30, 2011) and is included in bank indebtedness on the Consolidated Balance Sheets.
The loan payable is unsecured, bears interest at 25% per annum and was initially set to mature one year from the grant date. The Company initially borrowed $50,000 from this stockholder in August 2008 to finance operations. This loan has been renewed annually under the same terms including accrued interest.
Each of the loans below are payable to the Business Development Bank of Canada ("BDC"), are secured by a general security agreement and limited guarantees from the stockholders of the Company and Coastal Water Seafoods Ltd (the related party described in note 10).
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September 30,
2011
(Unaudited)
|
|
|
June 30,
2011
(Audited)
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Term loan bearing interest at the BDC daily floating base rate plus 1.5%, repayable monthly by principal payments of $2,150 CAD plus interest maturing on February 23, 2013.
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|
$
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35,183
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|
$
|
44,590
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|
Term loan bearing interest at the BDC daily floating base rate plus 4.0%, repayable monthly by principal payments of $1,825 CAD plus interest maturing on September 23, 2011.
|
|
|
-
|
|
|
|
5,678
|
|
|
Term loan bearing interest at the BDC daily floating base rate plus 1.5%, repayable monthly by principal payments of $1,754 CAD plus interest maturing on August 23, 2015.
|
|
|
79,355
|
|
|
|
90,945
|
|
|
|
|
|
114,538
|
|
|
|
141,213
|
|
|
Less: current portion
|
|
|
114,538
|
|
|
|
141,213
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company's future commitments under this long-term debt are summarized as follows:
|
2012 (Nine months)
|
|
$
|
33,821
|
|
|
2013
|
|
|
36,818
|
|
|
2014
|
|
|
20,261
|
|
|
2015
|
|
|
20,261
|
|
|
2016
|
|
|
3,377
|
|
|
|
|
|
-
|
|
|
|
|
$
|
114,538
|
|
|
8.
|
OBLIGATIONS UNDER CAPITAL LEASE
|
On July 13, 2011 the Company and Strubs (the related party described in note 4) entered into a direct financing lease with Gould Leasing for equipment which is to be used by Strubs. Under the lease agreement, both companies are jointly obligated to remit monthly payments of $4,647 CAD for a term of 39 months. Interest is calculated at the rate implicit in the lease of 15%. The financing has been secured by the leased equipment. To date, the Company has made all payments related to this joint lease.
The Company's future commitments under its capital leases are summarized as follows:
|
2012 (Nine months)
|
|
$
|
89,447
|
|
|
2013
|
|
|
86,065
|
|
|
2014
|
|
|
53,679
|
|
|
2015
|
|
|
13,420
|
|
|
|
|
|
242,611
|
|
|
Less: imputed interest
|
|
|
(49,599
|
)
|
|
|
|
|
193,012
|
|
|
Less: current portion
|
|
|
(92,576
|
)
|
|
|
|
$
|
100,437
|
|
|
9.
|
ADVANCES FROM STOCKHOLDERS
|
The advances from stockholders are unsecured, non-interest bearing and have been postponed in favor of RBC in respect of the Company's line of credit.
|
10.
|
ADVANCES FROM RELATED PARTIES
|
Each of the loans below bear interest at the RBC prime rate plus 1.5% and are repayable in monthly installments of interest only. These loans have been postponed in favor of RBC in respect of the Company's line of credit. Changes in the balances from year-to-year are due to changes in foreign exchange rates.
|
|
|
September 30,
2011
(Unaudited)
|
|
|
June 30,
2011
(Audited)
|
|
|
|
|
|
|
|
|
|
|
Coastal Water Seafoods Ltd. - (i)
|
|
$
|
241,447
|
|
|
$
|
260,109
|
|
|
Canadian Triloon Corporation - (ii)
|
|
|
281,450
|
|
|
|
294,050
|
|
|
Yael Ender - (iii)
|
|
|
493,170
|
|
|
|
526,649
|
|
|
Triloon Corporation - (iv)
|
|
|
329,319
|
|
|
|
354,773
|
|
|
|
|
$
|
1,345,386
|
|
|
$
|
1,435,581
|
|
(i) A company controlled by a director and stockholder of the Company.
(ii) A company controlled by a director of the Company.
(iii) A director of the Company.
(iv) A company controlled by directors and stockholders of the Company.
|
11.
|
COMMITMENTS, CONTINGENCIES AND GUARANTEE
|
Commitments
The Company's future commitments under various lease agreements including vehicles, equipment, and premises are summarized as follows:
|
2012 (Nine months)
|
|
$
|
423,519
|
|
|
2013
|
|
|
517,634
|
|
|
2014
|
|
|
474,456
|
|
|
2015
|
|
|
497,314
|
|
|
2016
|
|
|
497,314
|
|
|
Thereafter
|
|
|
2,063,864
|
|
|
|
|
$
|
4,474,101
|
|
Contingencies
On January 21, 2008, the Company entered into a settlement agreement with a former stockholder of the Company whereby, in exchange for the return of 10,667 shares on October 31, 2007, the Company agreed to pay $200,000 to the former stockholder with the following terms:
|
|
1) This amount is payable one day following a restriction period of one year from the date the Company's shares of common stock begin to trade publicly. The funds will be raised by issuing new shares of common stock in a private placement. As security for this transaction, 3,000 of the shares were to be placed in escrow with a law firm, however to date no shares have been placed in escrow. $200,000 was accrued for this as severance expense during the fiscal year ended June 30, 2008.
|
|
|
2)
Within five business days of the Company receiving funds totaling $3,500,000 from a private placement, the Company will pay a total of $50,000 in final settlement of all obligations owed to the former stockholder. If the Company does not receive the funds from a private placement before the end of the restriction period stated in #1 above, interest at a rate of 5% per annum will accrue on the outstanding balance from the end of the restriction period. Additionally, if the Company does not receive the funds from a private placement before the end of the restriction period stated in #1 above, an amount of the shares held in escrow valued at $50,000 shall be delivered to the former stockholder. As indicated above, to date no shares have been place in escrow, therefore $50,000 of accrued management fees remains payable in relation to this.
|
In May 2011, Foodfest Canada initiated a claim against one of its suppliers for $3,475,000 for breach of the distribution agreement between the two parties. The supplier has counterclaimed against Foodfest Canada for failure to pay a series of outstanding invoices which total approximately $1,000,000. The full amount of these invoices are included in accounts payable, less certain credits which are in also dispute. At present, both parties have exchanged pleadings and have agreed to participate in a mediation which is scheduled to take place at the end of November 2011. Management expects a reasonable settlement will be achieved through the mediation.
Guarantee
In August 2010, Foodfest Canada entered into a guarantee on behalf of Strubs, the related party described in note 4. Foodfest Canada guaranteed up to a total amount of $200,000 in the event that Strubs was unable to make certain principal payments on its subordinated debts. The required subordinated debt payments are due February 20, 2011 for $100,000 and February 20, 2012 for $100,000.
In March 2011, the Company paid $100,000 in respect of its obligation for the first year of the guarantee and has recorded a receivable from Strubs in respect of this amount. In the event that Strubs is unable to repay its obligation, the Company will offset the full amount of this receivable against accounts payable owing to Strubs. As of June 30, 2011, the Company has not accrued a liability in respect of the remaining $100,000 outstanding under this guarantee as it is not known at this time if Foodfest Canada will be required to make this payment on February 20, 2012.
|
|
12. RELATED PARTY TRANSACTIONS
|
The following transactions with related parties were in the normal course of operations and were measured at the exchange value, which represented the amount of consideration established and agreed to by the related parties.
Management fees of $31,250 were paid to Coastal Water Seafoods Ltd. during the three months ended 30 September 2011 (three months ended 30 September 2010 - $31,250). As of 30 September 2011 accounts payable of $146,092 (30 June 2011 - $140,573) were due to Coastal Water Seafoods Ltd. (the related party described in note 10) and are subject to normal trade terms.
Management fees of $37,500 were paid to Canadian Endernational Ltd (a company controlled by a director and stockholder one of the Company) during the three months ended 30 September 2011 (three months ended 30 September 2010 - $37,500). As of 30 September 2011 the Company owed $346,192 (30 June 2011 - $375,958) to Canadian Endernational Ltd. and is included in accounts payable and accrued liabilities, subject to normal trade terms.
Management fees of $19,000 were paid a stockholder of the Company for the three months ended 30 September 2011 (three months ended 30 September 2010 - $17,333).
Interest payments totaling $24,827 were accrued to related parties during the three months ended 30 September 2011 (three months ended 30 September 2010 - $21,337) on the advances described in note 10.
Rental payments totaling $85,063 were made to Triloon Corp. during the three months ended 30 September 2011 (three months ended 30 September 2010 - $75,747). As of 30 September 2011 the Company owed $38,253 (30 June 2010 - $44,574) to Triloon Corp. and is included in accounts payable and accrued liabilities, subject to normal trade terms.
The Company made purchases of inventory from Naknik Nahariya Kasher Soglowek Ltd. (a related party whose director is also a director of the Company) during the three months ended 30 September 2011 totaling $166,101 (three months ended 30 September 2010 - $254,945). As of 30 June 2011 accounts payable were due to Naknik Nahariya Kasher Soglowek Ltd. in the amount of $158,579 (2010 - $262,614) and are subject to normal trade terms.
The Company transacted with Strubs (the related party described in note 4) as follows:
|
·
|
Accounts payable, subject to normal trade terms, of $331,008 as of 30 September 2011 (30 June 2010 - $1,035,012)
|
|
·
|
Rental payments received of $3,046 for the three months ended 30 September 2011 (three months ended 30 September 2010 - $2,887).
|
|
·
|
Management fees received of $42,367 for the three months ended 30 September 2011 (three months ended 30 September 2010 - $48,987)
|
|
·
|
Purchases made of $396,849 for the three months ended 30 September 2011 (three months ended 30 September 2010 - $248,801).
|
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Caution Regarding Forward-Looking
Information
Certain statements contained herein, including, without limitation, statements containing the words “believes”, “anticipates”, “expects” and words of similar import, constitute forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.
Such factors include, among others, the following: international, national and local general economic and market conditions: demographic changes; the ability of the Company to sustain, manage or forecast its growth; the ability of the Company to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other factors referenced in this and previous filings.
Results of Operations for the Three Months Ended September 30, 2011 Compared to the Three Months Ended September 30, 2010
Sales
We had $3,401,296 in sales for the three months ended September 30, 2011 compared to $3,745,164 for the three months ended September 30, 2010. This represents a decrease of 9.2%. This decrease is primarily due to the loss of one significant supplier choosing to go direct to the retail chains through warehouse listings rather than having the company deliver on a direct store basis. To offset this loss in sales, we have begun introducing competitive product lines. We will also be introducing new product lines such as a line of mustards and a line of products from Turkey. We will continue to acquire new product listings with major retail chains.
Gross profit margin
Total cost of goods sold for the three months ended September 30, 2011 was $2,907,808 and our gross profit margin was 15% as compared to cost of goods sold of $2,746,249 and gross profit margin of 26% for the three months ended September 30, 2010. The gross profit margin decreased mainly as a result of:
|
·
|
The loss of one significant supplier, as mentioned above. The products provided from this supplier generally had higher profit margins than other products we are currently selling, resulting in a decrease in gross profit margin. We expect our margins to increase in the future as we introduce and establish new product lines.
|
|
·
|
We also sold off excess inventories at a discount to recover monies invested, resulting in lower margin sales.
|
Our head office is located in Canada and our functional currency is the Canadian dollar. The majority of our purchases are in U.S. dollars. The value of the Canadian dollar weakened during the three months ended September 30, 2011, resulting in higher inventory purchase costs which were paid in U.S. dollars. At the beginning of the quarter, the Canadian dollar was worth approximately $1.05 for $1.00 US. At the end of the quarter it was worth approximately $0.96 for $1.00 US.
Selling, general and administrative expenses
Total expenses for the three months September 30, 2011 were $822,731 as compared to $806,425 for the three months ended September 30, 2010.
Our expenses are generally consistent with the prior period. We are focusing on decreasing our overheads by reducing the number of employees as a result of the decline in our sales. In addition the company has eliminated the use of brokers in most areas and is dealing directly with its customers.
Interest and bank charges have remained constant in the first three months of fiscal 2012. Despite a slight decrease during the quarter, the Canadian dollar remains strong minimizing our foreign exchange risk.
Income taxes
We recorded a current tax provision of $Nil for the three months ended September 30, 2011 which represents no taxable income in Foodfest Canada, less tax loss carry-forwards.
We recorded a deferred tax recovery of $4,291 for the three months ended September 30, 2011. This provision resulted from our tax losses carried forward and the difference in the carrying value of our property and equipment compared to the tax values.
Net (loss) earnings
Net loss was $324,952 for the three months ended September 30, 2011 compared to net income of $178,916 for the three months ended September 30, 2010. The overall loss was mainly related to the loss of a significant supplier, which resulted is a decrease in sales and gross margin. We also sold off excess inventories at a discount to recover monies invested, resulting in lower margin sales.
Liquidity and Capital Resources
As of September 30, 2011, we had current ratio of 0.81 to 1 or working capital deficit of $808,200. We reduced our inventory levels which accounted for the decrease in liquidity. Over the next three months of our fiscal year, we expect to decrease bank indebtedness and our accounts payable which will help to increase our working capital and fund operating activities. We also have repaid one of our term loans as of September 30, 2011, which helps to reduce our overall debt.
Cash flows from operating activities
Cash flows from operating activities improved during the three months ended September 30, 2011 as compared to the three months ended September 30, 2010. During the three months ended September 30, 2011, we improved the collection of accounts receivable compared to the three months ended September 30, 2010.
Cash flows from investing activities
During the three months ended September 30, 2011 the only capital additions were $3,820 for the purchase of office furniture.
Cash flows from financing activities
During the three months ended September 30, 2011 we paid down balances in our bank indebtedness, long-term debt and obligations under capital leases as required.
We intend to raise $5,000,000 through equity financing to support our sales and marketing efforts in the North American market as well as pursue acquisitions of manufacturers and distribution based companies that focus on Kosher, organic and natural foods. We anticipate completing our financing goals by the end of the fourth quarter 2012 to enable us to continue our sales growth, introduction of new product lines, and actively pursue potential acquisitions and/or joint ventures.
We will be seeking out and pursuing foreign manufacturers that specialize in Kosher, organic and natural foods to import into the North American market. The addition of such products will further enhance the Company’s overall business plan. Concurrently we will be seeking out opportunities to export domestically produced Kosher, organic and natural foods that can fill a need in foreign markets.
While we continually seek out new products, acquisition and/or joint venture opportunities in the domestic market we will be looking at the same opportunities in foreign markets to potentially establish domestic production facilities for new products or for products previously imported. If successful this would reduce costs, lead times and reduce inventories, improve cash flow and result in better value for the customer.
We do not anticipate the purchase or sale of any significant equipment in the near future. We also do not expect any significant changes in the number of employees although depending on if financing is raised we may add additional representatives. We do not intend to increase our staff until such time as we can raise the capital or generate revenues to support the increase in overhead expense. The foregoing represents our best estimate of our cash needs based on current planning and business conditions. The exact allocation, purposes and timing of any monies raised in subsequent private financings may vary significantly depending upon the exact amount of funds raised and status of our business plan.
Seasonal
The only seasonal aspect of our business is around Passover, which raises inventory levels and sales around March to April which is typically in our 3rd and 4th quarter of our fiscal year.
Off-Balance Sheet Arrangements
We do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is subject to certain market risks, including changes in interest rates and currency exchange rates. The Company does not undertake any specific actions to limit those exposures.
Item 4. Controls and Procedures
Disclosure Controls and Procedures.
Management is responsible for maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. In addition, the disclosure controls and procedures must ensure that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required financial and other required disclosures.
Our management, including our principal executive officer along with our principal financial officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a — 15(e) under the Exchange Act of 1934, as amended) as of September 30, 2011. Based upon this review and evaluation, these officers have concluded that our disclosure controls and procedures are ineffective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission; and to ensure that the information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management including our principal executive and principal financial officers, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Internal control over financial reporting.
There were no changes in our internal control over financial reporting that occurred during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In May 2011, Foodfest Canada initiated a claim against one of its suppliers for $3,475,000 for breach of the distribution agreement between the two parties. The supplier has counterclaimed against Foodfest Canada for failure to pay a series of outstanding invoices which total approximately $1,000,000. The full amount of these invoices are included in accounts payable, less certain credits which are in also dispute. At present, both parties have exchanged pleadings and have agreed to participate in a mediation which is scheduled to take place at the end of November 2011. Management expects a reasonable settlement will be achieved through the mediation.
Item 1A. Risk Factors
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities.
None
Item 4. (Removed and Reserved).
Item 5. Other Information.
None
Item 6. Exhibits
(a) Exhibits
31.1 Certification of Principal Executive Officer pursuant to Section 302 of Sarbanes Oxley Act of 2002
31.2 Certification of Principal Financial Officer pursuant to Section 302 of Sarbanes Oxley Act of 2002
32.1 Certification of Principal Executive Officer pursuant to Section 906 of Sarbanes Oxley Act of 2002
32.2 Certification of Principal Financial Officer pursuant to Section 906 of Sarbanes Oxley Act of 2002
101 Interactive Date File (Form 10-Q for the quarterly period ended September 30, 2011 furnished in XBLR)*
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are furnished and not filed.
* To be filed by amendment.
SIGNATURES
Pursuant to the requirements 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.
|
Signature
|
Title
|
Date
|
|
|
|
|
|
/s/ Henry Ender
|
President and Chief Executive Officer
(Duly Authorized Officer and Principal Executive Officer)
|
November 21, 2011
|
|
Henry Ender
|
|
|
|
|
|
|
|
/s/ Fred Farnden
|
Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
|
November 21, 2011
|
|
Fred Farnden
|
|
|
|
|
|
|
|
|
|
|
Foodfest International 2... (CE) (USOTC:FDFT)
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