Audit of Shakey's parent, Inno-Pacific, reveals financial strain

May 16, 2002

A May 15 auditor's report published on the Web site of the Singapore Stock Exchange revealed that subsidiaries of Inno-Pacific Holdings Ltd., parent of Garden Grove. Calif.-based pizza chain, Shakey's, Inc., are facing liquidity.

Conducted by Ernst & Young, the audit centered on the financial statements of Inno-Pacific Holdings Ltd., and the consolidated financial statements of its subsidiary companies. (In the report, Inno-Pac and its subsidiaries are referred to as the Company and the Group respectively.)

In 2001, "the Group and the Company" lost S $12.81 million (U.S. $7 million) and S $10.15 million (U.S. $5.6 million) respectively, and the "current liabilities exceeded current assets by S $2.73 million (U.S. $1.5 million) and S $1.07 million (U.S. $591,000) respectively."

The report said that the losses leave Inno-Pac's subsidiaries facing "liquidity requirements given the impending need to settle liabilities where payments have been deferred due to cash flow constraints." Based on estimated cash available, "the Group does not have sufficient cash to make repayments due to creditors and to meet daily operational requirements."

In an effort to generate cash, Inno-Pac announced on April 29 that it would drop the price of some of its stock to S 1 cent a share from S 20 cents a share.

On May 13, Inno-Pac announced that Kim Eng Ong Asia Securities Pte Ltd., planned to broker 62,500,000 new ordinary shares, amounting to almost one-fifth of the total available shares. The firm will earn a commission of a half of a percent of the gross proceeds from the sale.

Shakey's, Inc., Inno-Pac's only U.S. subsidiary, is facing two lawsuits brought by franchisees claiming fraud, negligent misrepresentation and breach of contract. The franchisees are seeking approximately $6 million in damages.

Due to their similarity, the cases will be heard simultaneously in Los Angeles Superior Court beginning May 28.

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