UNITED STATES
SECURITIES EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
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[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2000
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FLORIDINO'S INTERNATIONAL HOLDINGS, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 59-3479186
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3560 Cypress Gardens Road
Winter Haven, Florida 33884
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (863) 326-1006
Check here whether the issuer (1) has filed all reports required to be filed by
Sections 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, 2000, the following shares of the Registrant's common stock
were issued and outstanding:
25,000,000 shares authorized, $0.001 par value
7,245,000 issued and outstanding
<PAGE>
FLORIDINO'S INTERNATIONAL HOLDINGS, INC.
UNAUDITED BALANCE SHEET
AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
9/30/00 12/31/99
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ASSETS
<S> <C> <C>
Current assets:
Cash $ 118,584 $ 359,449
Accounts receivable 85,289 0
Investment in marketable securities 67,644 471,250
Inventory 101,101 52,354
----------- -----------
Total Current Assets 372,618 883,053
Property and equipment:
Buildings & equipment 1,062,246 1,451,297
Leasehold improvements 1,313,105 942,519
Less accumulated depreciation (406,942) (274,729)
Land 320,000 320,000
Other assets 35,533 42,547
Goodwill (net of amortization) 328,040 0
Organization costs (net of amortization) 0 1,690
----------- -----------
Total Assets $ 3,024,600 $ 3,366,377
=========== ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 760,406 $ 490,924
Accrued expenses 201,320 61,200
Notes payable to banks 0 159,112
Current portion of capital lease obligations 24,670 21,669
Current portion of long term debt 208,111 699,866
----------- -----------
Total Current Liabilities 1,194,507 1,432,771
Long term debt:
Capital lease obligations 143,850 105,889
Long term notes and mortgages 1,023,211 744,812
Convertible debentures (9% payable semiannually) 737,915 361,111
Shareholders' Equity:
Common stock, $.001 par value; authorized
25,000,000 shares, issued, and outstanding
7,245,000 at September 30, 2000 and 7,707,000 at
December 31, 1999 $ 7,757 $ 7,707
Additional paid in capital 3,468,359 3,068,409
Accumulated deficit (3,550,999) (2,354,322)
----------- -----------
Total shareholders' equity (74,883) 721,794
----------- -----------
Total Liabilities & Shareholders' Equity $ 3,024,600 $ 3,366,377
=========== ===========
</TABLE>
Please see the accompanying notes to the financial statements.
<PAGE>
FLORIDINO'S INTERNATIONAL HOLDINGS, INC.
UNAUDITED STATEMENT OF FINANCIAL POSITION
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30TH
<TABLE>
<CAPTION>
9 mos. 9 mos. 3 mos. 3 mos.
9/30/00 9/30/99 9/30/00 9/30/99
------- ------- ------- -------
Revenues:
<S> <C> <C> <C> <C>
Food and beverage sales $ 2,062,991 $ 819,022 $ 1,022,717 $ 272,761
Franchise fee revenue 35,033 53,065 9,595 11,221
----------- ----------- ----------- -----------
Total gross sales 2,098,024 872,087 1,032,312 283,982
Less cost of goods sold (1,582,405) (540,243) (862,904) (186,627)
----------- ----------- ----------- -----------
Gross profit 515,619 331,844 169,408 97,355
Operating expenses:
General and administrative expenses (1,664,385) (1,191,324) (466,324) (335,366)
----------- ----------- ----------- -----------
Net loss from operations (1,148,766) (859,480) (296,916) (238,011)
Other income (expense):
Unrealized gain on short term (19,852) 160,929 (80,104) 103,333
investment
Realized gain on short term 606,814 0 44,415 0
investments
Loss on sale of real estate assets (90,236) 0 0 0
Interest expense (544,637) (16,826) (202,454) (5,754)
----------- ----------- ----------- -----------
Net loss before extraordinary item (1,196,677) (715,377) (535,059) (140,432)
Extraordinary item:
Gain on retirement of debt 0 96,415 0 96,415
Tax effect 0 (32,781) 0 (32,781)
----------- ----------- ----------- -----------
Net loss before tax provision (1,196,677) (651,743) (535,059) (76,798)
Income tax provision 0 0 0 0
----------- ----------- ----------- -----------
Net loss ($1,196,677) ($ 651,743) ($ 535,059) ($ 76,798)
=========== =========== =========== ===========
Net loss per common share:
Basic:
Net loss from operations $ (0.16) $ (0.12) $ (0.07) $ (0.03)
Gain from extraordinary items $ 0.00 $ 0.01 $ 0.00 $ 0.01
Net loss per share $ (0.16) $ (0.11) $ (0.07) $ (0.02)
Weighted average of common shares:
Basic 7,298,700 5,827,915 7,245,000 5,310,717
</TABLE>
Please see the accompanying notes to the financial statements.
<PAGE>
FLORIDINO'S INTERNATIONAL HOLDINGS, INC.
UNAUDITED STATEMENT OF CHANGES IN CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30TH
<TABLE>
<CAPTION>
9/30/00 9/30/99
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Operating Activities:
<S> <C> <C>
Net loss ($1,196,677) ($ 651,743)
Adjustments to reconcile net income items
not requiring the use of cash:
Unrealized loss on short term investment 19,852 (160,929)
Loss on disposal of real estate assets 90,236 0
Compensation expense 0 90,000
Changes in other operating assets and liabilities:
Accounts receivable (85,289) (4,478)
Inventory (48,747) 2,548
Short term investments 383,754 (98,500)
Other assets 7,014 5,093
Accounts payable 236,512 69,557
Accrued expenses 140,120 (83,059)
----------- -----------
Net cash provided (used by) operations 70,263 (692,422)
Investing Activities:
Purchase of land 0 (320,000)
Sale of real estate assets 409,764 0
Purchase and acquisition of property and
equipment (342,649) (55,153)
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Net cash provided by (used by) investing activities 67,115 (375,153)
Financing Activities:
Payment of bank overdrafts 0 (19,903)
Proceeds from issuance of convertible
debentures 0 500,000
Cash proceeds from issuance of common stock 20,233 1,346,500
Loans payable to stockholders 0 (152,799)
Payment of bank loan (159,112) (184,713)
Payment of capital leases (26,008) 0
Payment of long term debt (213,356) (249,532)
----------- -----------
Net cash provided (used by) by financing activities (378,243) 1,239,553
----------- -----------
Net increase (decrease) in cash during the period (240,865) 171,978
Cash balance at beginning of the period 359,449 15,502
----------- -----------
Cash balance at end of the period $ 118,584 $ 187,480
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid during the period $ 42,433 $ 14,951
Income taxes paid during the period $ 0 $ 0
</TABLE>
Please see the accompanying notes to the financial statements.
<PAGE>
FLORIDINO'S INTERNATIONAL HOLDINGS, INC.
UNAUDITED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FROM JANUARY 1, 2000 TO SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Common Stock Paid in Accumulated
Shares Amount Capital Deficit Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 7,707,000 $ 7,707 $ 3,068,409 ($2,354,322) $ 721,794
Issuance of common stock in purchase
of Triton Prestige Products 50,000 50 399,950 400,000
Return of common stock to treasury by officer (512,000) 0
Net loss during the period (1,196,677) (1,196,677)
----------- ----------- ----------- ----------- -----------
Balance at September 30, 2000 7,245,000 $ 7,757 $ 3,468,359 ($3,550,999) ($ 74,883)
=========== =========== =========== =========== ===========
</TABLE>
Please see the accompanying notes to the financial statements.
<PAGE>
FLORIDINO'S INTERNATIONAL HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB. 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 considered necessary for a fair presentation have been included. The
results of operations for the nine months ending September 30, 2000 are not
necessarily indicative of the results to be expected for the full fiscal year.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Annual Report of Floridino's International
Holdings, Inc. and subsidiaries (the "Company") Form 10-KSB/A for the year ended
December 31, 1999.
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Significant inter-company balances and transactions have been
eliminated in consolidation.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make reasonable estimates
and assumptions that affect the reported amounts of the assets and liabilities
and disclosure of contingent assets and liabilities and the reported amounts of
revenues and expenses at the date of the financial statements and for the period
they include. Actual results may differ from these estimates.
Note 2: Earnings Per Share
The Company applies SFAS No. 128, Earnings Per Share. In accordance with SFAS
No. 128, basic net loss per share has been computed based on the weighted
average of common shares outstanding during the period. The effects of the
convertible promissory note which results in 227,273 common stock equivalents at
September 30, 2000, have not been included in the calculation of earnings per
share since their inclusion would be anti-dilutive.
<PAGE>
Note 3: Common Stock Transactions
In February 2000, the Company issued 50,000 shares of common stock to purchase
100% of the issued and outstanding common stock of Triton Prestige Products,
Inc., a privately held company specializing in Italian food processing for
institutional clients. See Note 4 for further discussion.
In addition, an officer of the Company returned 512,000 shares of common stock
to treasury at no cost to the Company.
Note 4: Purchase of Triton Prestige Products Inc.
In February 2000, the Company issued 50,000 shares of common stock to purchase
100% of the issued and outstanding common stock of Triton Prestige Products,
Inc., a privately held company specializing in Italian food processing. Triton
became a wholly owned subsidiary of the Company and its results of operations
are included in the frozen food segment.
The purchase method of accounting was used to record the transaction and
accordingly, the fair market value of the assets acquired and the liabilities
acquired at the date of the transaction are recorded in the books and records of
the Company. The difference between the fair market value of the shares given
and the fair market value of the net assets acquired is recognized as goodwill.
Goodwill resulting from the transaction is being amortized over a period of
twenty years.
The calculation of goodwill at the date of the transaction is as follows:
Fair value of stock transferred
(50,000 at $8 per share) $ 400,000
Less cash balance acquired (20,233)
Less fair value of assets acquired (196,011)
Add fair value of liabilities acquired 157,062
----------
Goodwill $ 340,818
Amortization of goodwill for the period is $12,781.
Note 5: Addendum to Consolidated Statement of Cash Flows
The purchase of Triton was a non-cash transaction and is not included in the
consolidated statement of cash flows for the period. The details of the
transaction included the following:
The issuance of common stock in the Triton purchase valued at $400,000 in
exchange for $20,233 in cash, $196,011 of fixed assets, $66,970 of capital lease
obligations, $57,387 accounts payable, $32,970 of long term debt, and $340,818
of goodwill.
<PAGE>
Note 6: Closed Restaurant
During the quarter, the Company decided to close Floridino's of Delray, a
restaurant located in Delray Beach, Florida.
Note 7: Subsequent Event
In September 2000, the Board of Directors determined that it did not have the
authority to issue any preferred stock. The 12,000 shares of preferred stock
owned by the Company's president will be cancelled and an equal number of shares
of common stock will be issued in their stead.
In November 2000, the Company negotiated a $250,000 bridge loan with a finance
group in order to fund its operations. The loan is unsecured, matures in 90 days
and bears interest at the rate of 15% per annum. The loan agreement provides the
Company with the option to borrow an additional $750,000 with the same terms.
Note 8: Segment Information
The Company's business operations are divided into two segments, restaurants
(including franchising activities) and frozen food processing. The Company's
business segments are based on business units or entities that offer different
products. The restaurant segment includes the results of operations of
Floridino's, Inc. located in lower Manhattan, New York City, New York, and
Lakeland, Inc. located in Lakeland, Florida. Frozen food processing includes the
results of operations of Specialties Distributions, Inc. located in Lakeland,
Florida and Triton Prestige Products located in Palm City, Florida.
The following is a summary of the Company's segment information for the nine and
three months ended September 30, 2000 and September 30, 1999.
Corporate includes the transactions of the Floridino's International Holdings,
Inc., the parent company, and Toho Holdings, organized in early 1999, to hold
title to the real estate assets of the Company. The expenses of the Company not
directly attributable to a specific segment are included in the corporate
segment.
There are no differences in the reporting basis from the Company's Annual Report
on Form 10-KSB/A for the fiscal year ended December 31, 1999.
<PAGE>
<TABLE>
<CAPTION>
9/30/00 9/30/99 9/30/00 9/30/99
Gross Sales
<S> <C> <C> <C> <C>
Restaurants $ 1,808,228 $ 840,481 $ 864,207 $ 252,376
Food processing 289,796 31,606 168,105 31,606
----------- ----------- ----------- -----------
Total gross sales $ 2,098,024 $ 872,087 $ 1,032,312 $ 283,982
=========== =========== =========== ===========
Gross Profit
Restaurants $ 497,877 $ 324,259 $ 162,618 $ 89,770
Food processing 17,742 7,585 6,790 7,585
----------- ----------- ----------- -----------
Total gross profit $ 515,619 $ 331,844 $ 169,408 $ 97,355
=========== =========== =========== ===========
Income (loss) from operations
Restaurants $ 114,995 ($ 262,495) $ 80,879 ($ 59,331)
Food processing (512,931) (360,061) (149,390) (105,259)
Corporate (750,830) (236,924) (228,405) (73,421)
----------- ----------- ----------- -----------
Total from operations ($1,148,766) ($ 859,480) ($ 296,916) ($ 238,011)
=========== =========== =========== ===========
Total Assets
Restaurants $ 1,195,224 $ 1,096,126
Food processing 1,143,732 431,680
Corporate 685,644 1,136,144
----------- -----------
Total assets $ 3,024,600 $ 2,663,950
=========== ===========
Depreciation
Restaurants 83,102 125,253 38,545 40,295
Food processing 33,158 0 21,417 0
Corporate 15,953 13,836 2,307 4,612
----------- ----------- ----------- -----------
Total $ 132,213 $ 139,089 $ 62,269 $ 44,907
=========== =========== =========== ===========
Interest
Restaurants 76,878 11,930 22,890 3,977
Food processing 14,091 0 7,863 0
Corporate 453,668 4,897 171,701 1,778
----------- ----------- ----------- -----------
Total $ 544,637 $ 16,826 $ 202,454 $ 5,754
=========== =========== =========== ===========
</TABLE>
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
Floridino's International Holdings, Inc., (the "Company"), was organized in June
1997 under the laws of the State of Florida, having the stated purpose of
engaging in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Florida.
The Company, through its wholly owned subsidiaries, seeks to generate revenue
through two business segments: the operation and franchising of Floridino's
restaurants and the production and sale of Italian frozen foods products.
The restaurant segment currently comprises the operations of three restaurants.
Floridino's, Inc. is a restaurant located in lower Manhattan, New York, New
York, Floridino's Express in Lake Wales, Florida, and Floridino's of Lakeland
located in Lakeland, Florida.
The goal of the Company's restaurant concept is to serve authentic Italian
cuisine in a fast food environment. This format incorporates express style
restaurants with customers being served at the counter for carry out or on
premises dining. An upscale ambiance is incorporated into the concept to provide
for a casual dining experience in a warm, relaxed setting.
The Company also franchises its concept to individuals interested in operating a
business under the Floridino's name. The franchise concept of the Company
operates through the Company's wholly owned subsidiary, Floridino's
International, Inc., which was incorporated in September 1993. As of September
30, 2000, the Company has four (4) franchise restaurants. Two are located in
Arizona, one is located in Iowa, and one is located in Florida.
The frozen food processing segment comprises the activities of the Company's two
processing plants. Specialties Distributions, Inc. is located in Lakeland,
Florida and Triton Prestige Products is located in Palm City, Florida. The
frozen food processing segment produces calzones, pizzas and pazzo rolls for
sale to restaurants, food service outlets, and institutional accounts.
This segment operates from a 6,000 square foot operating plant in Lakeland,
Florida and a 9,700 square foot plant located in Palm City, Florida.
The Palm City plant (Triton) specializes in supplying various school districts
in the Southeast United States with frozen food products, specifically pizza.
The Lakeland plant (Specialties) seeks to market and sell its Italian frozen
food products to grocery stores, convenience stores, restaurants, caterers and
institutional accounts.
<PAGE>
General Statement: Factors that may affect future results
With the exception of historical information, the matters discussed in
Management's Discussion and Analysis of Financial Condition and Results of
Operations contain forward looking statements under the 1995 Private Securities
Litigation Reform Act that involve various risks and uncertainties. Typically,
these statements are indicated by words such as "anticipates", "expects",
"believes", "plans", "could", and similar words and phrases. Factors that could
cause the Company's actual results to differ materially from management's
projections, forecasts, estimates and expectations include but are not limited
to the following:
* Inability of the Company to secure additional financing
* Unexpected economic changes in the United States
* The imposition of new restrictions or regulations by government agencies that
affect the Company's restaurants and food processing activities.
To the extent possible, the following discussion will highlight the relative
activities of the Company's restaurant segment and frozen food segment. In the
discussion, the amounts indicated have been rounded to the nearest thousand.
Segment Reporting Disclosures:
The Company's business operations are divided into two segments: restaurants
(including franchising activities) and producing Italian frozen foods. The
Company's business segments are based on business units that offer different
products.
I. Results of Operations
It should be noted that the Company's auditors have expressed significant doubt
as to the Company's ability to continue to operate as a going concern (see Form
10-KSB/A for the fiscal year ended December 31, 1999), because of the
significant losses have been incurred in the last two fiscal years. Management
has addressed these concerns as outlined in the annual report 10-KSB/A for the
fiscal year ended December 31, 1999 ("Form 10-KSB/A"). However, the future
success of management's plans implemented to address the going concern issue
cannot be reasonably assured. In fact, the Company continues to experience
significant losses through September 30, 2000.
<PAGE>
Nine months ended September 30, 2000 compared to the nine months ended September
30, 1999:
Consolidated sales, gross profit, and net income:
During the nine months ended September 30, 2000, the Company's combined gross
sales were $2,098,000, compared to $872,000 generated for the nine months ended
in the same period in fiscal 1999, a 240% increase. Consequently, gross profits
reached $516,000 for the period compared to $332,000 for the same period in
fiscal 1999, a 55% increase. Gross profits as a percent of gross sales continued
to decrease from 38% in for the period in fiscal 1999 to 24% in same period in
fiscal 2000. As anticipated by management, the continued growth of food
processing sales will lower the overall gross profit percentage of the firm.
Historically, food processing has lower profit margins but enjoy a higher volume
of sales as compared to restaurants. Currently the restaurant segment is
returning approximately 26% in gross profits while food processing is returning
about 6%. As the sales of the food-processing segment continue to increase, the
overall gross profit percentage of gross sales will decrease. Management expects
the consolidated gross profit percentage to continue to decrease in the future
because the Company intends to concentrate efforts on developing the
food-processing segment while maintaining the restaurant segment at its current
level.
General and administrative expenses for the nine months ended September 30,2000
increased to $1,664,000 as compared to $1,191,000 for the nine months ended
September 30, 1999, an increase of 40%. Below is a comparative detail of some of
the general and administrative expenses for the two periods that account for the
increase.
2000 1999 Increase
---- ---- --------
Advertising $ 49,092 $ 29,878 $ 19,214
Amortization 12,781 0 12,781
Corporate administration 221,987 143,310 78,677
Depreciation 6,738 0 6,738
Insurance 68,792 16,503 52,289
Corporate payroll 168,750 45,000 123,750
Professional fees 285,509 178,506 107,003
Corporate travel 34,206 4,107 30,099
Property taxes 50,158 25,612 24,546
-------- -------- --------
Total $898,013 $442,916 $455,097
======== ======== ========
Most of the cost increases can be attributed to the addition of corporate staff
in the last quarter of fiscal 1999, which had been described in management's
plan outlined in the Form 10-KSB/A. The corporate offices are located in a
building owned by the Company which is located in Winter Haven, Florida. In
addition, corporate offices were opened in Daytona Beach, Florida. Management is
currently trying to sell the Winter Haven building and then transfer staff from
this location to the Daytona office in order to attain more efficiency in the
corporate structure; however, no contract for sale has yet been entered into at
the date of this Report. In addition, the cost of travel between the
Floridino's, Inc. in New York, New York and the corporate office in Winter
Haven, Florida has increased. Management expects that this cost will now level
out and should not increase significantly from its current level.
Amortization expense is the result of the Triton purchase in February 2000.
Property taxes have increased as a result of the plant and land acquisitions in
the last quarter of fiscal 1999. Management has no plans to increase its real
estate holdings in the future as it foresees this cost being maintained at its
current levels.
As expected, general advertising costs for the Company has increased because of
management's efforts to increase the Company's exposure and name recognition to
the public. Management believes that this cost will be maintained at its current
level.
<PAGE>
Professional, legal and accounting fees have increased $107,000 from the same
period in fiscal 1999 as a result of the Company's more rigorous reporting
requirements as a public company. This includes the increased legal and
accounting fees associated with its certified annual report and reporting
obligations. Management expects this cost to continue to rise in the future
because the Company's holdings have increased due to the Triton purchase and
anticipated acquisitions.
After deducting general and administrative costs, the Company experienced a
loss from operations of $1,149,000 for the period as compared to a loss of
$859,000 for the comparable period in fiscal1999, an increase in loss of 34%.
The Company recognized trading gains from common stock investments of $587,000
during the period. The stock investments are accounted as a "trading security"
as defined by SFAS No. 115, Accounting for Debt and Equity Instruments, which
recognizes the unrealized gains or losses from such investments as "Other income
or expenses" in the statement of operations. The Company has been selling its
common stock investments over the last nine months in order to fund its
operations. At September 30, 2000, the market value of the common stock
investments was $67,000.
In addition, the Company sold two parcels of real estate during the nine month
period with a book value of $500,000 for $409,764 and, therefore, recognized a
book loss on the sale of $90,236.
Interest expense increased substantially during the nine month period from
$17,000 in fiscal 1999 to $545,000 in fiscal 2000. It should be noted that
$388,000 of interest expense for the nine months ended September 30, 2000 is
attributable to the amortization of the beneficial conversion feature recognized
at the issuance of the convertible promissory note in October 1999. At issuance,
the Company recognized a $750,000 increase to additional paid in capital in
order to account for the favorable conversion feature that the promissory note
entitled to the holder. This amount is being amortized from the issue date to
October 2000 to interest expense. At September 30, 2000, $12,000 of the
favorable conversion feature remains to be amortized.
Excluding the amortization of the favorable promissory note conversion feature,
interest expense has increased to $157,000 for the period ended September 30,
2000 as compared to the same period $17,000 in fiscal 1999. Interest expense has
increased as a result of the following:
_ The Company signed notes payable of approximately $495,000 at
8.25% interest in the third and fourth quarters of fiscal 1999 in
order to reconstruct the New York restaurant.
_ In November 1999, the Company borrowed $500,000 from a finance
company with interest payable at 9% and $130,000 at 10% interest
in order to purchase the Lakeland plant and the property adjacent
to the plant.
_ The Company currently owns $296,000 of equipment that was acquired
by entering into capital leases for such equipment which is used
in the ordinary course of business. The interest rates on the
capital leases range from 17% to 27% per annum.
<PAGE>
See "Liquidity and Capital Resources" for further discussion on the debt of the
Company.
Net loss for the nine months ended September 30, 2000 increased to $1,197,000
compared to a loss of $652,000 for the nine month period ended September 30,
1999. On a per share basis, loss per share increased to $.16 from $.11 per
share, an increase in the loss of 36%.
Restaurants:
During the nine month period ended September 30, 2000, the Company had four
restaurants effectively operating; Floridino's, Inc., Lakeland, and Express. The
fourth restaurant, located in Delray Beach, Florida, had been opened in late
December 1999 but was closed in July 2000 because it had not met initial
expectations. For the nine month period, Delray's gross sales were $79,000 and
its operating losses were $132,000.
For the nine months ended September 30, 1999, the Company had six restaurants
operating. Four of these six restaurants were in the process of being closed
because they were unprofitable and did not fit in with management's plans to
present a casual, fast Italian, self-service dining experience. In analyzing the
results of operations for the restaurant segment, the following data of the
closed restaurants for the nine month period ended September 30, 1999.
Gross sales $396,442
Gross profits $261,167
General overhead $328,329
Net Loss $(67,162)
Gross sales from the Company's restaurants and franchise segment increased to
$1,808,000 for the nine months ended September 30, 2000 from $840,000 in the
comparable period in fiscal 1999, or an increase of 115%. Gross profits
increased to $498,000 or 53%, from $324,000. Gross profits as a percentage of
gross sales decreased to 28% in the period in fiscal 2000 from 39% in the
comparable period in fiscal 1999. This significant decline in the gross profit
percentage is due to management's decision to convert to a casual, fast
self-service type restaurant from a more traditional restaurant which was
management's intent as outlined in management's plan disclosed in the Form
10-SB/A as of September 30, 1999.
As expected, the conversion has caused the restaurant's gross profits to fall
since the self- service restaurant has lower margins than the traditional
restaurant. The self-service restaurant emphasizes speed of service at a lower
cost while the traditional restaurant will emphasize ambience and higher priced
dishes with more services. The traditional restaurant also includes a bar
service, which is historically a higher margined item.
<PAGE>
The overhead costs of the restaurant segment were $383,000 for Q3 2000 as
compared to $587,000 for Q3 1999, a decrease of 35%. A decrease attributable to
closing the unprofitable traditional style restaurants as discussed above. As a
result, the restaurant segment has generated profit for the period of $115,000
as compared to a loss of $262,000 for the similar period in fiscal 1999.
Depreciation costs for the restaurant segment has significantly decreased to
$83,000 for the nine months ended September 30, 2000 from $125,000 in the same
period in fiscal 1999. The decrease is attributed to the closing of the
unprofitable restaurants. The assets were transferred to storage or to surviving
restaurants. Interest costs; however, increased to $77,000 from $12,000. The
increase is mostly due to the reconstruction of the New York restaurant in
August 1999. The Company signed promissory notes of approximately $495,000 at
interest of 8.25% to finance the reconstruction.
During the period, the Company added no other franchisees. Franchise fees have
decreased 34% for the nine month period ended September 30, 2000 compared to the
same period in fiscal 1999. Management intends to aggressively pursue its new
self- service casual franchise is expected to lead to more business for its
frozen food division. The franchise concept generally requires no initial
capital expenditures on the part of the Company and is therefore a more
attractive area to pursue given the Company's current financial condition.
However, the efforts have not been successful to date. Management intends to
reevaluate its franchise arrangement in order to determine if changes can be
made to make the agreement more attractive to potential franchisees.
In spite of closing four restaurants in the nine month period ended September
30, 1999, the assets attributed to the restaurant segment have increased
approximately $99,000 to $1,195,000 at September 30, 2000. Most of the increase
can be attributed to the cost of reconstructing the Lakeland restaurant in
October 1999. The cost of the improvements approximated $66,000.
The Company has no current plans to open additional restaurants nor are there
any current plans for capital expenditures to be made on behalf of the
restaurant segment.
Frozen Foods:
The frozen foods segment became operational during the fourth quarter of fiscal
1999 and began receiving orders in the first quarter of fiscal 2000. The
Company's food processing plants in Lakeland, Florida and Palm City, Florida
generated sales of approximately $290,000 for the nine month period as compared
to $32,000 generated for the same period in fiscal 1999 Sales generated in
fiscal 1999 were the result of a test sales period and the Company did not begin
receiving actual orders for its frozen food products until the first quarter of
fiscal 2000.
The segment's gross profits as a percent of gross sales were 6.12% for the nine
month period ended September 30, 2000. The frozen food segment produces frozen
pizzas, calzones, and pazza rolls for institutional accounts such as schools,
food service entities, and Italian restaurant chains. The food processing
business has higher volumes of product sold at lower price markups when compared
to the restaurant business. Buyers of the Company's processed food products are
fast food entities, large restaurants, school districts, and other food chains
located in the southeast United States.
<PAGE>
Overhead costs for the segment are $531,000 for the period as compared to
$368,000 for the same period in fiscal 1999; however, it is difficult to make a
fair comparison to last year. Currently, the Lakeland plant is operating at
about 10% capacity and the Triton plant is operating at 20% capacity. The
overhead cost of Triton, which was purchased in February 2000, is $158,000 for
the period.
The fixed assets of the segment increased to $1,144,000 from $432,000 at
September 30,1999. The increase of the assets of the segment is mainly
attributable to the assets acquired in the purchase of Triton and the
recognition of goodwill as a result of this purchase. Management has no plans
for capital expenditures for this segment in the foreseeable future except as
discussed below.
The frozen food segment showed a loss for the period of $513,000. However,
management believes that a significant increase in plant capacity can be
attained without a significant increase in overhead and is unsatisfied with the
results of the segment to date. During the quarter, management decided to
terminate the Company's consulting agreement with the Ephraim Group. Ephraim had
been engaged to oversee the design and construction of the Lakeland plant. In
addition, the Ephraim Group was responsible for the ongoing management of the
plant and the marketing of the plant's frozen food products. It was management's
belief that the sales volume of the Lakeland plant was not progressing at
expected rates and concluded that the operations of the plant could be more
efficient.
The management of the plant is now under the direct control of corporate
management, reporting directly to the Company's Chief Executive Officer. Sales
results will be reviewed on a weekly basis and all costs attendant with the
Lakeland plant will be reviewed in order to achieve optimum use of the plant.
Management is cautious about the future profitability of this segment.
Management plans to increase the gross profit percentage to 26%, which they
believe is achievable based upon their experience and analysis and by comparison
to food processing entities that are similar to the segment. Management believes
that the plant's current gross margin percentage reflects the current
inefficiency of operating at less than 25% of capacity but staffing labor that
is consistent with 75% of capacity. Management intends to aggressively cut the
segment's labor costs and thereby achieve greater production efficiencies.
Currently, the Lakeland plant's overhead averages $60,000 per month. Management
believes that overhead can be reduced to $40,000 per month. Based upon these
goals, management estimates gross break even sales dollars to be $154,000 per
month.
Management plans to generate sales for its frozen Italian food products by
purchasing strategically situated private food service companies within the
United States. It is expected that such entities would have an expanded customer
base but do not currently offer an Italian food product line. If a purchase or
purchases can be achieved, management intends to introduce its Italian frozen
food products to these newly acquired businesses for sale to its current
customer base. This would enable the Company to expand its frozen food product
sales quickly as opposed to a slow growth of a customer base. Management cannot
estimate at this time the amount of sales of its Italian frozen food products
that could be achieved under this plan. It cannot guarantee the success of its
plans for this segment at this time.
<PAGE>
Management expects to purchase these food service entities by offering cash and
shares in the Company. In order to fund its planned acquisition, management has
entered into an agreement with an investment banker to assist in obtaining the
funding necessary for such acquisitions. Towards this end, management has
performed a due diligence audit of various food service companies located in the
United States and has presented this investment banker with a business plan. The
business model presented assumes the purchase of these entities and the
resulting synergies that could be achieved. Examples of such synergies are
efficient use of plant capacities, transportation synergies, increased sales,
and reduced product costs.
At this time it cannot be guaranteed that such financing would be forthcoming or
that any of the Company's due diligence audits to date will result in definitive
agreements with any of these or other food service companies. In November 2000,
the Company received a bridge loan of $250,000, with an option to borrow an
additional $750,000 from a finance group in order to fund its operations while
the Company continues to negotiate for financing of its plans as discussed
above. The loan is unsecured, matures in three months and bears interest of 15%
per annum.
Three months ended September 30, 2000 compared to the three months ended
September 30, 1999:
Consolidated sales, gross profit, and net income:
During the quarter ended September 30, 2000 the Company had combined gross sales
of $1,032,000 compared to $284,000 for the comparable period in fiscal1999, an
increase of 264%. Consequently, gross profits reached $169,000 for the quarter
as compared to $97,000 for the quarter ended September 30, 1999, an increase of
74%. Gross profits as a percent of gross sales decreased to 16.4% for quarterly
period as compared to 34.4% for same quarter in fiscal 1999. This decrease is a
result of the addition of the frozen food segment, which has a lower profit
margin than the restaurant segment. Management expects the consolidated gross
profit percentage to continue to decrease in the future, as the frozen food
segment becomes a larger part of the Company's overall product mix.
Overhead expenses for the quarter increased to $466,000 as compared with
$335,000 incurred in the same period in fiscal1999. Some of the material
increases are due to the following:
2000 1999 Increase
---- ---- --------
Advertising $ 16,364 $ 6,375 $ 9,989
Amortization 4,260 0 4,260
Corporate administration 12,756 1,238 11,518
Corporate payroll & benefits 33,000 10,170 22,830
Office rent 9,900 0 9,900
Professional fees 17,703 572 17,131
Taxes 14,193 1,114 13,079
Corporate travel 7,500 1,575 5,925
-------- -------- --------
Total $115,676 $ 21,043 $ 94,633
======== ======== ========
<PAGE>
Most of the cost increases can be attributed to the addition of corporate staff
in the last quarter of fiscal 1999, which had been outlined in management's plan
in its Form 10-KSB/A. The corporate offices are located in a building owned by
the Company which is located in Winter Haven, Florida. In addition, corporate
offices were opened in Daytona Beach, Florida. Management is currently trying to
sell the Winter Haven building and transfer staff from this location to the
Daytona office in order to attain more efficiency in the corporate structure;
however no contract for sale has yet been entered into at the date of this
Report. In addition, the cost of travel between the Floridino's, Inc. in New
York, New York and the corporate office in Winter Haven, Florida has increased.
Management expects that this cost will now level out and should not increase
significantly from its current level.
Amortization expense is the result of the Triton purchase in February 2000.
Property taxes have increased as a result of the plant and land acquisitions in
the last quarter of fiscal year 1999. Management has no plans to increase its
real estate holdings in the future as it foresees this cost being maintained at
its current levels.
As expected, general advertising costs for the Company has increased because of
management's efforts to increase the Company's exposure and name recognition to
the public. Management believes that this cost will be maintained at its current
level.
Professional, legal and accounting fees have increased over last year's level as
a result of the Company's more rigorous reporting requirements as a public
company. This includes the increased legal and accounting fees associated with
its certified annual report and reporting obligations. Management expects this
cost to continue to rise in the future because the Company's holdings have
increased due to the Triton purchase and anticipated acquisitions.
After deducting general and administrative costs, the Company experienced a
loss from operations for the quarter of $297,000 as compared to a loss of
$238,000 for the comparable quarter in fiscal1999.
The Company recognized trading losses from common stock investments of $36,000
during the period.
Interest expense increased substantially during the three month period from
$6,000 in fiscal 1999 to $202,000 in the third quarter of fiscal 2000. It should
be noted that $125,000 of interest expense for the quarter ended September 30,
2000 is attributable to the amortization of the beneficial conversion feature
recognized at the issuance of the convertible promissory note in October 1999.
Net loss for the quarter ended September 30, 2000 increased to $535,000 compared
to a loss of $77,000 for the comparable period ended September 30, 1999. On a
per share basis, loss per share increased to $.07 from $.02 per share.
<PAGE>
Restaurants:
Gross sales from the Company's restaurants and franchise segment increased to
$864,000 in the quarter ended September 30, 2000 from $252,000 in the comparable
period in fiscal 1999, or an increase of 243%. Consequently gross profits
increased to $163,000 for the period, or 81% higher than the sales level for the
same period in fiscal 1999. The increase in sales revenue is the result of
higher sales volumes achieved and not by an increase in the prices of products
sold by the Company.
Gross profits as a percentage of gross sales decreased to 23% in the three month
period ended September 30, 2000 from 36% in the comparable period in fiscal1999.
As expected, the gross profits earned from restaurant sales shows a decrease
because of management's efforts to emphasize higher volume fast, casual,
self-service style restaurants which have lower markups than the more
traditional type of restaurant that the Company was involved with in the past.
The restaurant segment recognized net operating income of $81,000 for the
quarter as compared to a loss of $59,000 for the quarter ended September 30,
1999. This represents a significant achievement which is attributable to the
implementation of management's plan to close the unprofitable restaurants during
fiscal 1999 and to re-open its new restaurants under the "fast, casual self
service" theme.
The Company has no plans to open any additional restaurants in the foreseeable
future. However, should a favorable opportunity arise, the Company will open
additional restaurants according to its new self-service fast Italian theme.
This would require a smaller initial investment because the reconstruction costs
are lower and they are cheaper to operate because of the lower salary costs
involved with the self-service theme.
During the quarter, the Company added no other franchisees.
Frozen Foods Processing:
Gross sales of frozen food products were $168,000 for the three month period
ended September 30, 2000 as compared with gross sales for the segment in the
same period in fiscal 1999 that were $32,000. Gross profits for the quarter were
$7,000 compared to $8,000 in the same period in fiscal1999. The sales and cost
of sales for the1999 quarterly period represent test sales. The segment began to
receive actual sales orders in the first quarter of fiscal 2000; however, the
frozen food segment showed a loss for the period of $513,000. Gross profit as a
percent of sales has dropped to about 4% during the third quarter for the
segment. Management has attributed this drop to the inefficiencies resulting
from low sales for the segment and the high level of labor costs maintained at
the plant. The lack of sales volume has resulted in a higher per unit cost,
hence the inefficiency.
<PAGE>
Management has addressed this problem by terminating the Company's consulting
agreement with the Ephraim Group. Ephraim had been engaged to oversee the design
and construction of the Lakeland plant. In addition, the Ephraim Group was
responsible for the ongoing management of the plant and the marketing of the
plant's frozen food products. It was management's belief that the sales volume
of the Lakeland plant was not progressing at expected rates and concluded that
the operations of the plant could be more efficient. Management believes that a
significant increase in plant capacity can be attained without a significant
increase in overhead and is unsatisfied with the results of the segment to date.
The management of the plant is now under the direct control of corporate
management, reporting directly to the Chief Executive Officer. Sales results
will be reviewed on a weekly basis and all costs attendant with the Lakeland
plant will be reviewed in order to achieve optimum use of the plant.
Based upon the experience of management and its estimations, management expects
the gross percentage for the segment to be 26% and that the monthly overhead
cost to be approximately $40,000. This would translate into break even gross
sales on a monthly basis to be approximately $154,000 which is a sales level
that management believes can be achieved with a more aggressive sales approach.
Management intends to increase the gross profit percentage by cutting the
segment's labor costs to a level that is more consistent with its current
operating capacity.
II. Discussion of Financial Condition: Liquidity and Capital Resources
At September 30, 2000, the Company had a working capital deficit of $822,000 as
compared to a working capital deficit of $550,000 at December 31,1999.
On a consolidated basis at September 30, 2000, cash on hand was $119,000. The
cash balance at December 31, 1999 was $359,000. During the nine month period
ended September 30, 2000, the Company's operations provided cash of $70,0000. In
addition, the Company sold two buildings for $410,000 and spent $171,000 on
leasehold improvements, $19,000 for furniture, and $152,000 for restaurant
equipment. Some of the restaurant equipment from the closed Delray restaurant
has been transferred to the Lakeland and Express restaurants. The remaining
equipment will be held in storage.
The Company acquired $20,000 in cash when it purchased Triton Prestige in
February 2000. The Company satisfied $159,000 of outstanding debt during the
period. In addition, $26,000 was spent on the capital leases outstanding and
$213,000 was used to satisfy the mortgages on the buildings sold and other
long-term debt.
Account receivables are the amounts due for frozen food product shipped as of
September 30, 2000. Currently, the balance is $85,000 compared to a zero balance
at the beginning of the 2000 fiscal year. The Company recognizes the sale when
the frozen food product is delivered to the buyer. Normally, the buyer is
invoiced at the point of shipment. Payment terms normally allow for 30 days.
Management expects the account receivables to continually increase as the volume
of its frozen food processing increases and believes that the receivables
outstanding are collectible.
Investments in marketable securities were $68,000 at September 30, 2000 as
compared to $471,000 at the beginning of the fiscal year. The Company has been
liquidating its common stock holdings and using the funds to finance its
operations for the nine month period. For the nine months ended September 30,
2000, the Company had realized and unrealized gains from its stock holdings of
$587,000.
<PAGE>
Inventory balances have increased from $52,000 to $101,000 at September 30,
2000. The volume of products ordered by the Company's customer base is sporadic
and requires the Company to hold higher inventory balances in order to satisfy
its current inventory model. Management believes that inventory balances will
continue to rise as the level of activity of the frozen foods segment rises.
During the period, the Company sold two buildings for $410,000. In addition, the
Company spent $171,000 for leasehold improvements and $171,000 for furniture and
equipment during the period.
In February 2000, the Company issued 50,000 shares of common stock to purchase
100% of the issued and outstanding common stock of Triton Prestige Products,
Inc., a privately held company specializing in Italian food processing. Triton
became a wholly owned subsidiary of the Company and its results of operations
are included in the frozen food segment. The purchase method of accounting was
used to record the transaction and accordingly, the fair market value of the
assets acquired and the liabilities assumed at the date of the transaction are
recorded in the books and records of the Company. The difference between the
fair market value of the shares given and the fair market value net assets
acquired is recognized as goodwill. As a result, the Company has recognized
$328,000 of goodwill net of amortization at September 30, 2000.
Total assets at September 30, 2000 decreased to $3,024,000 from $3,366,000 at
December 31, 1999.
Accounts payable balances have increased to $663,000 at September 30, 2000 as
compared $491,000 at December 31, 1999. The increase is mostly the result of the
increased business activities of the frozen food segment. Normally, raw
materials and food products needed to manufacture product is purchased with
terms allowing for payment of between 10 and 30 days. The Company's largest
supplier of raw materials currently has extended 21-day terms to the Company.
Approximately $25,000 of accounts payable is attributable to the restaurants
that were closed in fiscal 1999. The Company is currently trying to negotiate a
favorable settlement with these vendors.
Accrued expenses increased from $61,000 at the beginning of the 2000 fiscal year
to $298,000 at September 30, 2000. The increase in the balance can be attributed
mainly to accrued interest expense on the increased borrowings of the Company as
of September 30, 2000.
The current portion of long-term debt has decreased approximately $491,000 at
September 30, 2000. Most of the decrease is explained as follows. At December
31, 1999, the current portion of long-term debt included $258,000 due October
2000 and January 2000 at 8.25% interest payable to companies owned wholly or in
part by the Chairman of the Board. In January 2000, the Company negotiated the
extension of the maturity date of the note coming due that month to October
2000. The notes were issued to finance the cost of reconstructing the restaurant
located in New York City, New York. In addition, in order to finance the costs
of reconstruction of the New York restaurant, the current portion of long-term
debt at December 31, 1999 includes a promissory note of $237,000 due in October
2000 at 8.25% interest. The notes are payable to the general contractor in
charge of performing the reconstruction of the New York restaurant.
<PAGE>
During the quarter, the Company negotiated an extension of the maturity dates of
these promissory notes from October 2000 to January 2002. The promissory notes
have therefore been classified as long-term debt at September 30, 2000 from
current portion of long-term debt.
Below is a detail of the assets of the Company that have been pledged to secure
mortgages and capital leases at September 30, 2000:
Asset Book Value Pledged Unpledged
Plant, building & land 662,121 564,115 98,006
Restaurant and other equipment 524,227 159,024 365,203
Lease Improvements 1,063,301 132,516 930,785
Vehicle 11,872 9,496 2,376
Furniture 26,888 0 26,888
Net Assets 2,288,409 865,151 1,423,258
The Company's total stockholders' equity decreased from $722,000 at December 31,
1999 to a deficit of $75,000 at September 30, 2000. The decrease is the result
of the combination of approximately $1,197,000 in net losses for the period and
the increase of $400,000 resulting from the acquisition of Triton Prestige
Products in February 2000.
In September 2000, the Board of Directors determined that it did not have the
authority to issue any preferred stock. The 12,000 shares of preferred stock
owned by the Company's president will be cancelled and an equal number of shares
of common stock will be issued in their stead.
During the balance of fiscal year 2000, the Company projects no significant
additional expenditures in connection with any of the Company's restaurant or
frozen food activities. However, if management were successful in achieving the
financing need to implement its plans for expansion, capital expenditures
planned would be significant.
Management expects to fund its operations from the bridge loan it has received
in November 2000. This loan is expected to sustain the Company's operations
until the terms for additional financing can be determined., as to which no
assurances can be given The Company is also considering a private placement of
its capital stock in order to raise capital to sustain its operations until
profitability can be achieved. In the event that the Company is unable to secure
adequate financing to fund its operations beyond the bridge loan, either through
loans, other funding sources or the sale of its debt or equity securities, its
business, operations and financial condition may be adversely affected in a
material manner.
<PAGE>
PART II - Other Information
Item 1. Legal Proceedings
There are currently no pending legal proceedings against the Company.
Item 2. Changes in Securities
The instruments defining the rights of the holders of any class of registered
securities have not been modified.
Item 3. Defaults upon Senior Securities
There has been no default in the payment of principal, interest, sinking or
purchase fund installment.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on July 21,2000 to elect
directors to serve on its Board of Directors and to ratify the appointment of
its auditors, Berkovits & Company, P.A., as the Company's auditors for the
fiscal year ending December 31, 2000.
Item 5. Other information
None.
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
27 Financial Data Schedule
Reports on Form 8-K:
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: November 17, 2000 Floridino's International Holdings, Inc.
By: /s/ Nick Pirgousis
---------------------
Chairman of the Board
