Heritage Concepts reviews the year
Heritage Concepts International Inc HCI
Shares issued 88,767,334 Dec 30 close $0.045
Thu 30 Dec 99 Company Review
Mr. Jerry Janik reviews the company
The annual report, at first blush, evidences less than encouraging results
for the year. When viewing the numbers, the reader of the annual report
should recognize that these yearly results were not the result of the
operations in this singular year, but were borne from the practices of this
company over the past 20 years. With a new board on hand, it was decided to
make the transition now, however painfully, to a company poised to
undertake the new business opportunities which are now available to it.
Management has reacted strongly. As of the writing of this message on Dec.
8, 1999, it has taken the better part of the year to right this ship and to
put it back on course -- the company is now stable and ready to commence
its new life. The continued disposition of certain of its real estate
investments and the sale of master franchises shall position the company to
be in a strong financial condition early in the new year.
Management and the board of directors of the company decided that to move
forward, they needed to cleanse the balance sheet and remove any obstacle
from the company's ability to gain further growth. Therefore, the company
wrote off any items that it felt could be questioned in the future by the
new board of directors. Consequently, the company shows a loss of
$5.3-million. This loss was generated through the removal of any doubtful
receivables, all of the development costs of The Great Canadian Soup
Company and settlement of old law suits. The company also sold most of its
real estate holdings to generate cash flow. With the past behind it, the
company can now move forward and deliver a company in a position to grow.
The company has reconstituted the board so as to bring new directors that
can strengthen the management of the company. They bring a wealth of
business experience from a diversified discipline.
Heritage Concepts International has successfully opened The Great Canadian
Soup Company at 330 Bay St. It is delivering a soup and sandwich product
that is superior to any of its competition. Patrons who fondly remember The
Great Canadian Soup Company when it was in numerous locations in downtown
Toronto have welcomed the latest version of The Great Canadian Soup
Company. The business model has been refined and franchising of the concept
has commenced. The company's goal is to brand The Great Canadian Soup
Company as the best soup available. The company is currently developing an
aggressive delivery program which is geared to providing the highest level
of customer service within the downtown core of Toronto. It will also aid
in the expansion of a franchise system so as to create ready customers for
new stores and their franchisees. As in every new venture, the kinks and
bugs are being worked out and effective marketing programs are being
established. The company is excited about this concept and looks forward to
a strong year 2000.
Heritage Concepts International will be opening Carvers on Bay restaurant
in December, 1999. This location will be its first carvery concept and will
bring to the market of downtown Toronto the finest and best hand-carved
meats in one of the most unusual and attractive settings in the market
place. It will join with The Great Canadian Soup Company to provide an
excellent complement to the products being delivered by the soup company
and allow the company to accomplish a more effective catering program. The
company expects that before this concept is franchisable, it will require
at least 18 months to perfect its systems.
Grandma Lee's has now been master franchised in Ontario in a manner similar
to the master franchise arrangement in Western Canada. This formula will be
used as a template for future deals to allow the company to focus its
efforts on creating a smaller organization which is committed to the four
basic elements of a franchise company: real estate, finance, marketing and
support. The company is in the process of master franchising the operations
of the company to others so as to focus on creating a winning formula for
the master franchisee, its customer the franchisee and to the end customers
to provide a product and service they desire. Recently the company has
entered into a deal to master franchise The Great Canadian Soup Company in
Europe. The company's European partners are under way and are busily
translating, both in language and in law, the company's written materials
and adding a European flair to design and marketing programs. Heritage
Concepts anticipates that over the next five years, HCI will earn $200,000
per year from franchise operations through the sale of country master
franchises and individual stores with royalties growing from there. The
company is looking to do the same in North America. In order to complete
these tasks, it has been forced to handle many difficulties and to clear up
the fiscal operation of the company. As of this date this process is almost
complete. As the company becomes more focused, it will be a much more
efficient and aggressive operation. Its goal is to create a growth path for
the company to increase shareholder value.
The year of 1999 may well be called the year of the Internet. While having
heard the word Internet for years, it was in 1999 that the Internet
virtually overtook the business environment. Ultimately the Internet value
will be realized through its ability to allow retailer, information or
service providers to more easily transact business with their customers.
Countless millions have been spent on the hardware information structure
and software necessary to carry on business electronically. Hence the
phrase e-commerce. The company believes that the real growth in Internet
will be in how business is done over the net, how one can create a sale
through the net and how one communicates across the net or in what the
company refers to as mindware.
The mindware of the net will become its most valuable product in every
sense of the word. Franchising is about systems, products, programming,
training and positioning. This is the mindware of the franchise business.
The company will embrace these technologies to better serve its existing
customer base and then to attract new ones. The Internet is a new
communication medium that allows the company to communicate with its
customers, who are the franchisees, and similarly allows the franchisees to
reach their customers. These kinds of services are not only valuable to
Heritage Concepts but they will be valuable to other operations, franchised
or not, food service or not. To that end, the company is in the process of
purchasing a small Internet entity that can provide it with an entree into
the explosive e-commerce world. It will continue to purchase or partner
with other players in order to become an effective brand and marketing
organization geared to better servicing and creating value for customers.
To that end, the new year shall see Heritage Concepts incubate ideas and
products that have opportunity to better service customers. Through great
difficulty, the company is attaining a clearer vision by concentrating its
focus. The company looks forward to saying goodbye to this century and to
enthusiastically embracing the coming of the next.
Revenues
Revenues decreased to $582,883 from $1,656,170 a year ago. This decrease of
$1,073,287 is primarily due to lack of franchise sales during the fiscal
year. Efforts were spent in the development of The Great Canadian Soup
Company, franchise sales for which will take place during the current
fiscal year. The decline in rental income contributes to the decrease in
revenue that was brought on by the sale of the Dundas St. property at the
beginning of the fiscal year.
Mix sales, royalty, rebate and other revenues have continued their decline
as has been noted in previous years. With the introduction of The Great
Canadian Soup Company concept, these revenues should start to increase
during fiscal 2000.
Costs and expenses
Selling, general and administrative expenses increased to $1,868,656 from
$1,056,196 primarily due to temporary overstaffing, which has since been
corrected. Furthermore, the company wrote off all of the franchise concept
development costs of The Great Canadian Soup Company of $424,017 and any
debts where management felt collection was doubtful of $440,104. Additional
writedowns and expenses totalling $2,630,008 resulted in a loss for the
year of $5,350,440.
Financial position
In early August, 1998, the company completed the sale of the Dundas St.
property which netted $2-million in cash flow. Due to heavy expenditures in
the year, the cash position of the company did not change remarkably from
the year before, consequently total assets declined by $5,835,859. Further
contributing factors to this loss were the company's aggressive writedown
and recognition policies. However, it is anticipated that the sale of the
remaining property and disposal of the company's real estate investment in
Texas should see its cash position increase dramatically. Furthermore, the
sale of The Great Canadian Soup Company franchises both domestically and in
Europe should increase revenues, cash and assets during the year 2000.
As at June 30, 1999, shareholders' equity was $1,044,024, compared with
$6,194,476 at June 30, 1998.
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