SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
QUARTERLY REPORT
UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
COMMISSION FILE NUMBER 0-23251
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SFORZA ENTERPRISES INC.
(Exact name of small business issuer as specified in its charter)
FLORIDA 65-0705377
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
222 CLEMATIS STREET, SUITE 212 33401
WEST PALM BEACH, FLORIDA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (561) 366-0027
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Indicate by a 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 _____
As of September 30, 1999, 1,710,000 shares of the issuer's Common Stock, $.01
par value, were outstanding.
<PAGE>
SFORZA ENTERPRISES INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements (Unaudited):
Consolidated Condensed Balance Sheet--September 30, 1999 1
Consolidated Condensed Statements of Operations for the nine
Months and three months ended September 30, 1999 and 1998 2
Consolidated Condensed Statements of Cash Flows for the nine
Months ended September 30, 1999 and 1998 3
Notes to Interim Consolidated Financial Statements 4 - 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation 6 - 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 14
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited)
September 30, 1999
ASSETS
Current assets:
Cash and cash equivalents $ 605,095
Inventories 130,251
Other current assets 132,174
-----------
Total current assets 867,520
Property and equipment, net 2,638,428
Other assets, net 930,993
Total assets $ 4,436,941
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 450,208
Accrued expenses and other current liabilities 520,446
Current portion of long-term debt and
obligations under capital leases 92,140
Total current liabilities 1,062,794
Long-term debt and obligations under capital
leases - net 169,384
-----------
Total liabilities 1,232,178
Shareholders' equity:
Common stock, $.01 par value 17,100
Additional paid in capital 5,097,064
Retained earnings (deficit) (1,909,401)
-----------
Total shareholders' equity 3,204,763
Total liabilities and shareholders' equity $ 4,436,941
===========
1
<PAGE>
<TABLE>
<CAPTION>
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
For the Nine Months and Three Months Ended September 30, 1999 and 1998
1999 1998
--------------------------------------- --------------------------------------
Nine Months Three Months Nine Months Three Months
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net sales $ 3,977,004 $ 1,735,483 $ 2,879,549 $ 739,940
----------- ----------- ----------- -----------
Cost and expenses:
Cost of sales 1,985,956 883,886 1,434,587 393,920
Operating expenses 2,401,757 1,158,867 1,738,688 579,551
Interest expense 10,176 6,882 8,881 6,726
----------- ----------- ----------- -----------
Total cost and
expenses 4,397,889 2,049,635 3,182,156 980,197
----------- ----------- ----------- -----------
Operating loss (420,885) (314,152) (302,607) (240,257)
Other income:
Other income 43,496 17,895 16,085 (12,611)
Equity in losses of
unconsolidated
affiliates (74,269) (81,366) (173,821) (188,692)
---------- ----------- ----------- -----------
Loss before income taxes (451,658) (377,623) (460,343) (441,560)
Income taxes - - - -
----------- ----------- ----------- -----------
Net loss $ (451,658) $ (377,623) $ (460,343) $ (441,560)
=========== =========== =========== ===========
Basic net loss per
common share $ (.26) $ (.22) $ (.27) $ (.26)
=========== =========== =========== ===========
Weighted average common
shares outstanding 1,710,000 1,710,000 1,710,000 1,710,000
=========== =========== =========== ===========
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1999 and 1998
(Unaudited)
1999 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(451,658) $(460,343)
Adjustments to reconcile net loss to net cash
cash used in operating activities:
Equity in losses of unconsolidated affiliates 74,269 173,821
Depreciation and amortization 200,847 157,713
Decrease in inventories 17,922 9,353
Decrease in other current assets 113,870 40,326
Decrease in accounts payable (192,996) (150,857)
Increase (decrease) in accrued expenses and
other current liabilities (39,140) 37,180
--------- ---------
Net cash used in operating activities (276,886) (192,807)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (56,370) (83,383)
Increase (decrease) in other assets 729 (3,142)
Return of investment in limited partnership 614,000 --
Advances to related party -- (21,417)
--------- ---------
Net cash provided by (used in) investing activities 558,359 (107,942)
--------- ---------
Cash flows from financing activities:
Principal payments on installment note payable (4,513) (22,189)
Principal payments on obligations under
capital leases (25,066) (16,923)
Proceeds from long-term borrowing 75,000 --
Purchase of limited partnership interests,
less cash acquired (161,275) --
--------- ---------
Net cash used in financing activities (115,854) (39,112)
--------- ---------
Net increase (decrease) in cash and cash equivalents 165,619 (339,861)
Cash and cash equivalents, beginning of period 439,476 591,269
--------- ---------
Cash and cash equivalents, end of period $ 605,095 $ 251,408
========= =========
</TABLE>
3
<PAGE>
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
BASIS OF PRESENTATION
The consolidated statements of Sforza Enterprises Inc. and subsidiaries (the
Company) as of September 30, 1999 and for the nine months and three months ended
September 30, 1999 and 1998 are unaudited; however, in the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the consolidated financial statements for
these interim periods have been included. The results of the interim periods
ended September 30, 1999 are not necessarily indicative of the results to be
obtained for the full fiscal year ending December 31, 1999.
INVESTMENTS IN UNCONSOLIDATED AFFILIATES
On December 30, 1997, the Company acquired 51% limited partnership interests in
each of four limited partnerships for an aggregate of $3,000,000, pursuant to a
partnership interest subscription agreement. Each of the limited partnerships
operates or planned to operate a Max's Grille Restaurant at a separate location
in South Florida. The business of the limited partnerships is governed by
substantially identical limited partnership agreements which vested overall
management and control of the limited partnerships to Unique Restaurant
Concepts, Inc. (URCI) through separate management agreements with URCI executed
by each of the limited partnerships. Three of the restaurants were developed and
operating as of December 31, 1998. During June 1999, the Company elected to
forego the development of the fourth restaurant and the related limited
partnership was liquidated. The Company received approximately $614,000 in cash
representing a return of its investment upon the liquidation of such limited
partnership. The Company accounted for the investments in the limited
partnerships using the equity method through August 5, 1999.
On August 5, 1999, the Company purchased from an affiliate of URCI the remaining
49% interests in each of the three remaining limited partnerships for an
aggregate purchase price of $160,000. In addition, the affiliate was granted
options to purchase up to 20,000 shares of the Company's common stock at $2.50
per share. The agreement also terminates the management agreements with URCI and
requires the limited partnerships to pay license fees to URCI ranging from .75%
to 1.75% of the three Max's Grille Restaurants' revenue during the twelve month
period following the acquisition. The licensing arrangement generally may be
terminated after twelve months.
The Company consolidates the three remaining limited partnerships in its
financial statements for periods subsequent to August 5, 1999. The excess of the
Company's aggregate investment in the three limited partnerships plus the
incremental purchase price for the 49% interests, including transaction costs,
over the book value of the net assets acquired was recorded as goodwill and is
being amortized over eight years. The acquisition was recorded as follows:
4
<PAGE>
Assets acquired:
Current assets $ 191,673
Property and equipment 1,840,393
Other assets, including goodwill
of $895,040 922,021
Liabilities assumed:
Current liabilities (759,404)
Long-term obligations (172,092)
Balance of equity method investment
applied to purchase (1,861,316)
----------
Net purchase price and transaction costs,
less cash acquired $ (161,275)
==========
Summarized statement of operations information for the three limited
partnerships prior to August 5, 1999 follows:
January 1, 1999 July 1, 1999
to to
August 5, 1999 August 5, 1999
--------------- --------------
Sales, net $ 5,366,925 $ 614,808
----------- -----------
Cost and expenses:
Cost of sales 2,756,013 362,905
Operating expenses 2,710,780 403,429
Interest expense 19,157 2,887
----------- -----------
Total cost and expenses 5,485,950 769,221
----------- -----------
Operating loss (119,025) (154,413)
Other income 5,101 25
----------- -----------
Net loss $ (113,924) $ (154,388)
=========== ===========
INCOME TAXES
As of September 30, 1999, the Company has loss carryforwards approximating
$965,000, which expire through 2013. No income tax benefit is recognized for the
nine months and three months ended September 30, 1999 for the loss carryforwards
due to the Company's limited operating history. Management intends to recognize
the loss carryforwards when they are realized or it determines that it is more
likely than not that such loss carryforwards will be realized.
5
<PAGE>
STOCK OPTIONS GRANTED
A summary of outstanding options to purchase common stock pursuant to the
Company's equity incentive plan (the plan) at September 30, 1999 follows:
<TABLE>
<CAPTION>
Date of grant Number of shares Exercise price Date(s) exercisable
------------- ---------------- -------------- -------------------
<S> <C> <C> <C> <C>
February 1999 12,000 $1.00 December 1999
May 1999 20,000 $.875 November 1999
July 1999 39,000 $.53 July 2000-July 2002
August 1999 16,750 $1.375 August 2000
August 1999 31,500 $1.75 August 2000-August 2001
</TABLE>
In addition, during May 1999, the Company granted non-qualified, non-plan
options to certain employees to purchase 30,000 shares at $.875 per share, of
which 15,000 become exercisable in November 1999 and 15,000 become exercisable
in November 2000. The qualified and nonqualified options granted in May 1999
replaced options previously granted in February 1999 which were cancelled.
No compensation expense was recorded in connection with the granting of these
options.
NET LOSS PER COMMON SHARE
Net loss per common share is computed in accordance with Financial Accounting
Standards Board Statement 128 (FAS 128). Basic earnings per common share
excludes dilution and is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period.
Diluted earnings per share reflects, where appropriate, the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the Company's earnings. The Company utilizes the
treasury stock method for computing diluted earnings per share. The effects of
this calculation are anti-dilutive for the nine months and three months ended
September 30, 1999 and 1998, since the exercise prices exceed the average market
price. Therefore, diluted earnings per share for the nine months and three
months ended September 30, 1999 and 1998 is not presented. Securities that could
potentially dilute basic earnings per share in future periods include
outstanding options to purchase 75,000 shares at $5.00 per share, options to
purchase 65,000 shares at $11.63 per share, options to purchase 12,000 shares at
$1.00 per share, options to purchase 20,000 shares at $.875 per share, options
to purchase 30,000 shares at $.875 per share, options to purchase 20,000 shares
at $2.50 per share, options to purchase 39,000 shares at $.53 per share, options
to purchase 16,750 shares at $1.375 per share, options to purchase 31,500 shares
at $1.75 per share, and warrants to purchase 650,000 shares at $9.50 per share.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-QSB under Item 2, "Management's Discussion
and Analysis of Financial Condition and Results of Operation", which are not
historical facts constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 and are intended to be
covered by the safe harbors created thereby. Forward-looking statements involve
known and unknown risks, uncertainties, and other factors which may cause the
actual results, performance, or achievements of Sforza Enterprises Inc. and its
subsidiaries to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Such
risks, uncertainties, and other factors include, but are not necessarily limited
to, the following: changes in general economic conditions which affect consumer
spending patterns for restaurant dining occasions; increasing competition in the
upscale casual dining segment of the restaurant industry; adverse weather
conditions which cause the temporary underutilization of outdoor patio seating
available at several of the Company's restaurants; events which increase the
cost to develop and/or delay the development and opening of new restaurants;
changes in the availability and/or cost of raw materials, labor, and other
resources necessary to operate the Company's restaurants; the success of
operating initiatives; depth of management; adverse publicity; and technological
difficulties associated with the Company's management information systems; and
the rate of growth of general and administrative expenses associated with
building a strengthened corporate infrastructure to support the Company's
expanded restaurant operations; the availability, amount, type, and cost of
capital for the Company and the deployment of such capital; changes in, or any
failure to comply with, governmental regulations; the revaluation of any of the
Company's assets; the amount of, and any changes to, tax rates; and other
factors referenced in this Form 10-QSB and the Company's Form 10-KSB for the
fiscal year ended December 31, 1998.
GENERAL COMMENTS
Sforza Enterprises Inc. and subsidiaries (the Company) operate Sforza
Ristorante, a full-service northern Italian restaurant, which opened in February
1996, and My Martini Grille, a full-service up-scale grill which opened in
February 1997. Both restaurants are located in downtown West Palm Beach,
Florida. In addition, as discussed below, commencing August 6, 1999, the Company
also operates three Max's Grille Restaurants located in separate South Florida
locations. A summary of restaurants owned and operated by the Company at
September 30, 1999 follows:
<TABLE>
<CAPTION>
Restaurant Name Location Date Opened
--------------- -------- -----------
<S> <C> <C>
Sforza Ristorante West Palm Beach, FloridaFebruary 1996
My Martini Grille West Palm Beach, FloridaFebruary 1997
Max's Beach Place
Restaurant Ft. Lauderdale beach, FloridaApril 1997
Max's Grille Las
Olas Riverfront Downtown Ft. Lauderdale,
Restaurant Florida June 1998
Max's Grille Weston (West Broward County),
Restaurant Florida October 1998
</TABLE>
7
<PAGE>
On December 30, 1997, the Company acquired 51% limited partnership interests in
each of four limited partnerships which operate or planned to operate Max's
Grille Restaurants in separate South Florida locations for $3,000,000. The first
Max's Grille Restaurant began operations in April 1997, the second opened in
June 1998 and the third in October 1998. The business of the limited
partnerships was governed by substantially identical limited partnership
agreements which vested overall management and control of the limited
partnerships to Unique Restaurant Concepts, Inc. (URCI) through separate
management agreements with URCI executed by each of the limited partnerships.
During June 1999, the Company elected to forego the development of the fourth
restaurant and the related limited partnership was liquidated. The Company
received $614,000 in cash representing a return of its investment upon the
liquidation of such limited partnership. The Company accounted for the
investments in the limited partnerships using the equity method through August
5, 1999.
On August 5, 1999, the Company purchased from an affiliate of URCI the remaining
49% interests in each of the three remaining limited partnerships for an
aggregate purchase price of $160,000. In addition, the affiliate of URCI was
granted options to purchase up to 20,000 shares of the Company's common stock at
$2.50 per share. The agreement also terminates the management agreements and
requires the limited partnerships to pay license fees to URCI ranging from .75%
to 1.75% of the three Max's Grille Restaurants' revenue during the twelve month
period following the acquisition. The licensing agreement generally may be
terminated after twelve months.
The Company consolidates the three remaining limited partnerships in its
financial statements for periods subsequent to August 5, 1999. The excess of the
Company's aggregate investment in the three limited partnerships plus the
incremental purchase price for the 49% interests, including transaction costs,
over the book value of the net assets acquired was recorded as goodwill and is
being amortized over eight years.
This management's discussion and analysis of financial condition and results of
operation should be read in conjunction with the Company's unaudited interim
consolidated financial statements and notes thereto presented elsewhere herein.
EQUITY METHOD OF ACCOUNTING
The Company owned 51% limited partnership interests in each of three limited
partnerships which operate Max's Grille Restaurants at separate locations prior
to acquiring the remaining 49% ownership interests on August 5, 1999. Because
the Company did not exercise control over the limited partnerships, the
Company's investments were accounted for using the equity method of accounting
through August 5, 1999. As a result, the revenue and expenses of these
restaurants were not incorporated into the consolidated revenue and expenses for
Sforza Enterprises Inc. for periods prior to August 6, 1999. Instead, 51% of the
profit or losses from the limited partnerships is recognized in results of
operations as "equity in losses of unconsolidated affiliates".
The Company purchased the remaining 49% interests in the limited partnerships on
August 5, 1999 and therefore consolidates the three limited partnerships in its
financial statements in periods subsequent to August 5, 1999 (see "General
Comments").
8
<PAGE>
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the consolidated
statements of operations of the Company expressed as percentages of net sales.
The results of operations for the nine months and three months ended September
30, 1999 are not necessarily indicative of the results to be expected for the
full fiscal year ending December 31, 1999.
Comparative Operational Percentages
Stated as a Percentage of Net Sales
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------------------ ------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Cost and expenses:
Cost of sales 48.8 53.2 49.9 49.8
Operating expenses 67.1 78.2 61.5 60.4
Interest expense .2 .9 .2 .3
----- ----- ----- -----
Total cost and
expenses 116.1 132.4 111.6 110.5
----- ----- ----- -----
Operating loss (16.1) (32.4) (11.6) (10.5)
Other income (expense), net .4 (1.7) 1.0 (.6)
Equity in losses of
unconsolidated affiliates (.3) (25.5) (1.8) (6.0)
----- ----- ----- -----
Loss before income
taxes (16.0) (59.6) (12.4) (15.9)
Income taxes - - - -
----- ----- ----- -----
Net loss (16.0)% (59.6)% (12.4)% (15.9)%
===== ===== ===== =====
</TABLE>
NET SALES
The Company's net sales consist of the food and beverage sales realized by the
restaurants it owns and operates. The Company operated the two West Palm Beach,
Florida restaurants, Sforza Ristorante and My Martini Grille, during all periods
presented above and began operating the three Max's Grille Restaurants on August
6, 1999. Net sales increased from $2,879,549 for the nine months ended September
30, 1998 to $3,977,004 for the nine months ended September 30, 1999,
representing an increase of 38.1%. The increase in net sales from 1998 to 1999
was principally due to the consolidation of the three Max's Grille Restaurants
commencing August 6, 1999 (see "General Comments"). The combined net sales for
Sforza Ristorante and My Martini Grille increased by $14,464 for the nine months
ended September 30, 1999 over the comparable period in 1998. Net sales
attributable to the three Max's Grille Restaurants and included in the Company's
net sales for the period August 6, 1999 through September 30, 1999 were
$1,082,991.
9
<PAGE>
Net sales for the three months ended September 30, 1999 of $1,735,483 increased
by $995,543, or 134.5%, from the comparable period in 1998. The increase is
attributable to net sales from the three Max's Grille Restaurants recorded for
the period August 6, 1999 through September 30, 1999, as discussed above. The
Company generally experiences declines in the net sales volumes for the third
quarter as compared with the first and fourth quarters due to the seasonality of
the South Florida restaurant industry.
COST OF SALES
Cost of sales includes the cost of food and beverages sold and the salaries and
wages related to food preparation and service. Cost of sales increased from
$1,434,587 for the nine months ended September 30, 1998 to $1,985,956 for the
nine months ended September 30, 1999, a 38.4% increase. This is a result of
consolidating the three Max's Grille Restaurants commencing August 6, 1999.
Cost of sales, as a percentage of net sales, was 49.9% for the nine months ended
September 30, 1999 and 49.8% for the nine months ended September 30, 1998. The
cost of sales percentage for the three Max's Grille Restaurants was 50.4% for
the period August 6, 1999 to September 30, 1999. The combined cost of sales
percentage for the West Palm Beach restaurants for the nine months ended
September 30, 1999 was 49.7%. Management is continuing its evaluation of the
menu offerings and pricing structure for all of its restaurants in order to
maximize their sales and profits.
Cost of sales for the three months ended September 30, 1999 of $883,886
increased by $489,966, or 124.4%, from the comparable period in 1998. The
increase was principally due to the additional cost of sales attributable to the
Max's Grille Restaurants for the period August 6, 1999 to September 30, 1999.
OPERATING EXPENSES
Operating expenses include other salaries and wages, rent and other occupancy
expenses, advertising, repairs and maintenance, general supplies, depreciation
and amortization, and administrative expenses. Operating expenses increased by
$663,069 from $1,738,688 for the nine months ended September 30, 1998 to
$2,401,757 for the nine months ended September 30, 1999, a 38.1% increase. This
increase is primarily due to the consolidation of the operating expenses for the
three Max's Grille Restaurants commencing August 6, 1999. Operating expenses
totaled 61.5% and 60.4% of net sales for the nine months ended September 30,
1999 and 1998, respectively.
Depreciation and amortization totaled $200,847 for the nine months ended
September 30, 1999 and $157,713 for the nine months ended September 30, 1998.
Operating expenses increased to $1,158,867 for the three months ended September
30, 1999 from $590,521 for the comparable period in 1998. The increase was
primarily attributable to the consolidation of the operating expenses for the
Max's Grille Restaurants commencing August 6, 1999.
EQUITY IN LOSSES OF UNCONSOLIDATED AFFILIATES
On December 30, 1997, the Company acquired 51% equity interests in each of four
limited partnerships which operate or planned to operate Max's Grille
Restaurants.
10
<PAGE>
Two of the restaurants were operating as of September 30, 1998 and an additional
restaurant was opened during October of 1998. During June 1999, the Company
received $614,000 in cash in lieu of developing the fourth restaurant upon
liquidation of the limited partnership. On August 5, 1999, the Company acquired
the remaining 49% interests in the remaining three limited partnerships in a
purchase transaction. The Company's investments were accounted for using the
equity method through August 5, 1999 (see "Equity Method of Accounting" above).
See "Liquidity and Capital Resources" below for combined, summarized financial
information for the limited partnerships.
The Company's share of the combined loss of the limited partnerships during the
nine months ended September 30, 1999 was $(74,269) as compared to $(173,821) for
the nine months ended September 30, 1998. The Company's share of the combined
losses of the limited partnerships for the three months ended September 30, 1999
was $(81,366) compared to $(188,691) for the comparable period in 1998. The
decreases were primarily due to the Company's recording of its share of the
combined losses of the limited partnerships using the equity method through
August 5, 1999 as compared to the nine months ended September 30, 1998.
OTHER INCOME
Other income for the nine months and three months ended September 30, 1999 and
1998 principally consists of interest earned.
INCOME TAXES
The Company reported a net loss for federal income tax purposes for the year
ended December 31, 1998 and, at September 30, 1999, has available net operating
loss carryforwards approximating $965,000 which may be used to reduce future
taxable income. The tax benefits from the operating loss carryforwards was
offset by a valuation allowance at September 30, 1999 and, accordingly, no net
deferred tax assets are recognized in the accompanying consolidated balance
sheet.
INTEREST EXPENSE
Interest incurred principally relates to capital leases for equipment.
NET LOSS
As a result of the above, the Company's net loss was $451,658 and $460,343 for
the nine months ended September 30, 1999 and 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Two of the Company's operating restaurants are located in West Palm Beach,
Florida and the three Max's Grille Restaurants are located in Broward County,
Florida. All of the restaurants are subject to the relative seasonality of the
tourist industry in South Florida. Restaurant sales are expected to be brisk in
the tourist season which is generally from mid-fall to mid-spring and slower
during the off-season. The Company expects to use cash reserves or working
capital generated during its busy season to fund its operations during the
off-season.
11
<PAGE>
The Company's principal financing for the construction and opening of the five
restaurants that it owns and operates as of September 30, 1999 was principally
provided by public and private common stock offerings.
The Company does not have an existing arrangement for a credit facility with a
financial institution for short-term financing. Management believes that cash
flow generated from operations, together with its remaining cash reserves will
be sufficient to meet the Company's working capital requirements and anticipated
capital expenditures through 2000.
As discussed under "General Comments" above, during June 1999, the Company
received $614,000 in cash representing a return of its investment upon
liquidation of a non-operating limited partnership. During August 1999, the
Company acquired the remaining 49% interests of the three remaining limited
partnerships for an aggregate purchase price of $160,000.
The investments in the limited partnerships were accounted for under the equity
method of accounting through August 5, 1999 and consolidated thereafter.
Summarized combined results of operations for the limited partnerships for the
period January 1 through August 5, 1999 and for the nine months ended September
30, 1998 are presented as follows:
1999 1998
------------ -------------
Net sales $ 5,366,925 $ 3,460,185
=========== ===========
Net loss $ (113,924) $ (340,826)
=========== ===========
IMPACT OF INFLATION
The Company has not operated in a highly inflationary period and its management
does not believe that inflation has had a material effect on sales or expenses.
As operating expenses increase, the Company expects to recover increased costs
by increasing prices, to the extent permitted by competition. Because the
Company's business is somewhat dependent on tourism in Florida, any significant
decrease in tourism caused by inflation would likely have a material adverse
effect on sales and profitability.
YEAR 2000 ISSUE
The Company recognizes the need to ensure its operations will not be adversely
impacted by year 2000 software failures. Management has addressed the issue and
believes its operating systems to be year 2000 compliant. The Company is in the
process of contacting its suppliers to determine whether such vendors are year
2000 compliant and the potential effect, if any, on the Company. The Company has
not yet determined the full extent to which it is vulnerable to the failure by
its key vendors to remediate year 2000 compliance issues. There can be no
assurance that the failure of the Company's vendors to be year 2000 compliant
would not have a material adverse affect on the Company's business, financial
condition, or results of operations.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Currently there are no legal proceedings of which the Company
that the Company is aware, and to which the Company is a party.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 21 - Subsidiaries of the Registrant.
Exhibit 27 - Financial Data Schedule.
(b) Reports on Form 8-K. None.
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.
SFORZA ENTERPRISES INC.
Date: November 18, 1999
By:
Jay Visconti, President
By:
Vincent Holland, Chief Financial and Accounting Officer
SUBSIDIARIES OF THE REGISTRANT
As of September 30, 1999
1. Sforza Enterprises, Inc., a Florida corporation
2. Castle Room, Inc., a Florida corporation
3. Clematis Bistro Corporation, a Florida corporation
4. Sushi Enterprises, Inc, a Florida corporation
5. Max's Beach Grille, Ltd., a Florida limited partnership
6. Unique Brickell, Ltd., a Florida limited partnership
7. Unique Weston, Ltd., a Florida limited partnership
8. Beach Place GP, Inc., a Florida corporation
9. Brickell GP, Inc., a Florida corporation
10. Weston GP, Inc., a Florida corporation
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