UNITED STATES
SECURITIES EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10SB-12G/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of
The Securities Exchange Act of 1934
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 (941) 326-1006
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Securities to be registered pursuant to Section 12(g) of the Act:
7,245,000 Shares of Voting Common Stock
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
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Item 1. DESCRIPTION OF THE BUSINESS
HISTORY AND ORGANIZATION
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 designs, develops, owns and operates family style neighborhood
Italian food restaurants featuring freshly prepared, moderately priced pizza and
pasta dishes. Floridino's restaurants seek to incorporate a self-service fast
casual dining experience for its customers providing high quality Italian food.
The Company also produces frozen Italian foods, such as pizzas, calzones, and
pazza rolls, for sale to restaurants and institutional customers. Its operations
encompasses to segments which generate revenues: restaurant operations and the
sale of frozen foods. users.
FLORIDINO'S RESTAURANTS
In late 1998, the Company owned and operated the following restaurants:
Floridino's of Lakeland
Hard Ball Cafe
Floridino's of Bartow
Home of the Calzone
Floridino's Inc.
Floridino's Pizza Etc.
All the restaurants were located in Florida, except for Floridino's Inc., which
is located in New York City, New York. In addition, the Company franchised its
Italian food restaurant concept and recipes through its wholly owned subsidiary,
Floridino's International Inc. Floridino's of Lakeland , Inc. ("Lakeland") was
formerly Floridino's of Lake Wales, Inc. ("Lake Wales). In November 1997, the
assets and liabilities of Lake Wales were transferred to Lakeland.
Shareholders in late 1998 were dissatisfied with the Company's progress and
results. As a result, they demanded that changes to management be made and that
the Company undertake a fresh and revised approach to its operations. New
management then took over the Company in early 1999 and assessed the Company's
prior results, its products and its potential for future development. Management
determined that the restaurants were not producing enough revenue for the
Company and that the style and concept of these restaurants were outdated.
Management decided that new products and a new restaurant style should be
introduced which would broaden the Company's product base and potential for
revenue growth.
The Company revamped its Lakeland restaurant and incorporated a fast self
service upscale concept. This restaurant operates under the name "Mama Mia" and
focuses on providing high quality Italian food in a casual dining environment.
In September 1999, the Company opened an additional restaurant in New York
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operating under the name "Floridino's Cafe" which provides sandwiches, soups,
salads and personal size pizza. The Company maintains and operates the
restaurant in New York City, through its wholly owned subsidiary "Floridino's
Inc." Management's goal for this new restaurant is to serve authentic Italian
cuisine in an upscale fast food environment. The format is express style with
customers being served at the counter for carry out or to dine on the premises.
The ambiance provides for a casual dining experience in a warm, relaxed setting.
The entire premise behind Floridino's Cafe is to accommodate the lifestyle of
today's consumer who demands quality, nutritious meals on the run.
Floridino's, Inc. and Zoop Soups, Inc. were acquired by the Company in November
1998 and merged into Floridino's, Inc., a wholly owned subsidiary of the
Company. Zoop Soups specializes in creating soup recipes that are provided to
Floridino's Cafe. The Company intends to market its Zoop Soups items to the
general public and to offer Zoop Soups items at its other restaurants in
Florida.
The Company opened two additional restaurants in 2000. Floridino's Express Inc.,
opened in Lake Wales, Florida in May 2000. In December 1999, the Company had
opened Floridino's of Delray located in Delray Beach, Florida; however this
restaurant was closed in July 2000 because the restaurant had not met
management's expectations of success. The second restaurant in Lake Wales,
Florida was delayed due to problems in obtaining requisite permits and opened in
May 2000. This new restaurant operates under the name "Floridino's Fast
Italian".
All of the Company's restaurants emphasize the prior success of the Company's
calzone which is marketed by the Company as "The World's Biggest Calzone" and
include the Floridino's fast Italian casual self-service upscale concept. The
goal of the Company's new 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 does not focus on either metropolitan or rural areas in selecting
locations for restaurants. Rather, it chooses its location targeting areas which
possess demographics of generally 20,000 homes in a 3.25 mile radius. High
traffic locations are also considered meaning that such locations must have at
least 10,000 cars pass by the location per day. This situates the restaurant in
a location where it has public exposure and which is easily accessible to
customers.
Toho Holdings, Inc. was organized in March 1999 for the purpose of holding title
to the Company's real estate assets and is a wholly owned subsidiary of the
Company.
Suppliers
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The Company's sources of materials and ingredients for its restaurants are
obtained from food suppliers. The major suppliers of the Company are Coca
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Cola(R), Bari Foods, Catilina Food Ingredients, Sysco Foods, Rockets Red Glare
and D & J Tomato Co. These suppliers provide materials such as beverages, and
perishable goods such as sauces, meats, cheeses and bread products for the
Company's products.
Franchising Activities
----------------------
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. Since 1997, there
have been eleven (11) franchise restaurants which have operated under agreement
with the Company. These franchised restaurants have operated in locations
throughout the United States, including in Iowa, Florida, Colorado, South
Dakota, Arizona and Texas. The main source of income from franchising is
generated through the sale of franchises and franchise fees. They have distinct
royalty fee schedules which range from payments of two (2%) percent to four (4%)
percent of revenues generates. Of the eleven (11) restaurants, seven (7) have
closed and four (4) remain operational, two in Arizona and one (1) each in Iowa
and Oklahoma.
Frozen Food Products
--------------------
The Company also operates a frozen foods segment which develops and produces
frozen food products including calzones, pizza and pazzo rolls. This segment
operates from a 6,000 square foot operating plant in Lakeland, Florida and from
a 9,600 square foot plant in Palm City, Florida.
New management, which assessed the Company in April 1999, decided to
temporarily close the plant after finding that its production facility and
capacity were inadequate to meet any significant demand for the Company's frozen
food product. The frozen foods plant in Lakeland was inadequate as it was unable
to produce enough products to meet the projected demand and to be capable of
handling new management's aggressive plans for growth and expansion of the
frozen foods segment. Packaging at the plant was also not standardized or
efficient. After a renovation of the plant and acquisition of new machinery and
equipment, the Company reopened the plant in November 1999 and began receiving
orders in January 2000.
In February 2000, the Company purchased Triton Prestige Products Inc. for 50,000
shares of the Company's common stock. Triton operates an Italian food processing
plant in Palm City, Florida and specializes in supplying school districts in the
southeastern United States with frozen pizzas for consumption in their
cafeterias. The Triton brand products are sold under the Triton brand name and
label. The Company seeks to market and sell its Triton frozen food products to
"institutional" customers such as schools, hospitals, and prisons.
The Lakeland plant's operations is owned and managed by the Company's wholly
owned subsidiary, Floridino's Specialties Distribution, Inc. The Palm City plant
is owned and managed by the Company's wholly owned subsidiary, Triton Prestige
Products Inc.,
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The Company completed the purchase of a purchased the bordering property of the
Lakeland plant and warehouse structure for future expansion in September 1999.
These expansion plans include a full-scale bakery, four separate production
lines, appropriate support facilities and corporate headquarters. Completion is
scheduled for the first quarter of the year 2001, subject to funding. Upon
completion of the new facility, the existing manufacturing area will be
refurbished to strictly manufacture pazzo rolls and pizzas.
Consultants
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The Company's relationships with consultants are premised on a performance based
approach whereby the consultant will be allowed to continue to oversee the daily
operations of the Company so long as it meets specified performance milestones
set by the Company. The consultant group shall also oversee the training of
staff, promotions and advertising. The Company believes this will induce and
inspire an aggressive management approach by a consultant thereby effectuating
positive results for the Company.
The Company has adopted an approach whereby each segment should perform on its
own. In line with this philosophy, the Company does not intend to hire any
consultant to oversee or advise on the entire operations of the Company. Rather,
management believes that it is best to retain consultants to advise or consult
on a particular segment of the Company in which the consultant has expertise.
It is the intent of the Company that consultants hired to advise on a particular
segment of the Company shall be paid, whenever possible, on a performance based
arrangement. Consultants hired for the frozen food segment currently advise and
consult on the marketing of the segment, to organize and oversee the
manufacturing and engineering of that segment's production process, to develop
an organizational structure, policies and procedures for the segment's normal
operations of business and to advise on investor relations promotions for that
segment.
The Company had has retained the Ephraim Group to oversee the entire production
facility and development of the Company's frozen food line in June 1999. The
terms of that agreement was is for five (5) years but the agreement was
terminated by the Company for non-performance in July, 2000. In consideration of
such services, the Ephraim Group received One Hundred Thousand (100,000) shares
of restricted common stock in the Company for entering into of the agreement in
August 1999.
The Ephraim Group had overseen the management of the frozen foods division, been
responsible for employee production and hiring, conducted research into the
Company frozen foods segment and determined that a modernization of its
production plant by acquiring new machinery which would streamline the
production of the Company's products and increase its capacity. The Ephraim
Group had also consulted the Company on organizing the manufacturing and
engineering of the Company's production process and has advised on the purchase
of additional equipment and freezers which would be conducive to the
modernization of the Lakeland plant. Management decided to terminate the
consulting agreement with the Ephraim Group in July 2000 and to take over the
management of the division directly.
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The results of the Ephraim Group's research resulted in a modernization of the
Lakeland plant by acquiring new machinery which will streamline the production
of the Company's products and increase its capacity. To this end, the Company
has expended approximately $456,000 to acquire new machinery and modernize its
plant. The acquisitions and improvements were completed and the plant was opened
for operations in November 1999.
No specific plans to hire consultants have been made beyond the general plan
currently disclosed.
Competition
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The Company recognizes vast competition in both the restaurant and frozen food
industry. In response to this, it has targeted a niche area specializing in
calzones and pazzo rolls which have limited competition. This niche area will be
exploited by management by commencing a national marketing campaign which will
set the Company's products apart from other nationally marketed frozen foods.
Management will insist on an aggressive and innovative market approach in order
to develop and cultivate long term growth for the Company with an aim at
minimizing reliance on any particular segment in the food industry.
The Company believes that competition in the frozen food category is based on
price, quality, marketing, sales, publicity, and distribution. The Company finds
competition in the frozen food pizza market which is extensive and intense.
Floridino's is committed to producing a quality product in order to separate
itself from other competitors. It plans on utilizing only premium ingredients
for all of their products. It also believes that it has identified a market
niche and possesses the ideal product to fill that void. Additionally, the
Company seeks to establish a pricing schedule which is in line with all of tile
competitive products being targeted.
The Company's finds that competition in the calzone market is substantial. The
two primary competitors manufacturing calzones today are Stefanos and
Pellegrinos. Both are regional companies with limited distribution. Stefanos has
found a niche in the southeast region with distribution in a few respectable
grocery chains. The primary retailer for Pellegrinos is the Super Wal-Mart chain
of stores. Stefanos and Pellegrinos offer an average product with fairly nice
packaging. The product of both these companies is machine made with the
ingredients being injected into the crust. Floridino's seeks to separate itself
from these competitors by providing a products with a homemade look and with
quality ingredients.
In the restaurant segment competition is fierce. There is an over abundance of
restaurants in the industry each offering a wide array of themes and cuisine to
choose from. The Company believes that all such restaurants are compete for a
share of the incremental dollars consumers spend in dining out. Floridino's
seeks to separate itself by is staking out the upscale end of this market and
thereby separating itself from the current top competitors in this arena.
Floridino's believes that the upscale
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self-service market has yet to be exploited. It strives to do so by maintaining
a clean, friendly, open and inviting environment, appealing to consumers seeking
quality food products and by focusing on the preparation, presentation of its
foods and service.
Advertising and Marketing
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The Company is currently advertising its restaurants through newspapers, diner
coupon books and through hotels in areas which are in close proximity to each
respective restaurant. The Company believes that this will be the most cost
effective method to attract interest to the restaurants and first time visitors
for the purpose of gaining their repeat business. The Company intends on
researching the possibility of advertising its stores on the radio. In doing so,
it will assess the cost of such advertising with the potential for drawing
additional customers. The Company's frozen food products are currently being
promoted to national food chains and supermarkets on an individual basis.
Additionally, the Company has participate in various trade and food shows to
display its products and attract purchaser interest. Where the Company is able
to identify a potential purchaser of its frozen foods, it intends on shipping to
such potential purchaser a sample of its products in order to attract the
purchaser's interest.
Subsidiaries
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The Company has eight (8) subsidiaries all of which are wholly owned by the
Company.
There are three subsidiaries in existence which oversee and independently
operate the restaurants owned by the Company. The names of these subsidiaries
are as follows: Floridino's, Inc., a New York cCorporation, which operates the
Company's restaurant in New York City; Floridino's Express, Inc., a Florida
cCorporation, which operates the Company's Lake Wales restaurant which opened in
May 2000, and Floridino's of Lakeland, Inc., a Florida corporation, which
operates the Lakeland restaurant. A fourth subsidiary, Floridino's of Delray
Beach, Inc. operated the Delray Beach restaurant which was subsequently closed
in July 2000 because it failed to meet management's initial goals.
The Company's frozen foods segment is managed by the following two subsidiaries:
"Floridino's Specialties Distributions, Inc" which oversees the development and
production of frozen Italian food products at the Company's Lakeland plant, and
Triton Prestige Products, Inc., which manages the Company's Palm City plant.
The Company's franchising concept is owned and managed by the Company's wholly
owned subsidiary, Floridino's International, Inc.
The Company has another wholly owned subsidiary, Toho Holdings, Inc., which
holds title to the Company's real estate properties.
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Properties
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The Company owned five parcels of land in the State of Florida at the end of
1999. The Company sold two of these parcels, located in Winter haven, Florida,
in January 2000 for net proceeds of $89,000 which was used to assist with the
expansion and further development of the Company's business. One of the
remaining three parcels of land, also in Winter haven, Florida, is currently
listed for sale but there has been no agreement for this property to be sold.
Currently, the Company holds title, through Toho Holdings, Inc., to three
parcels of land: the land and warehouse structure at its Lakeland plant, the
land and warehouse structure adjacent to the Lakeland plant, and a building in
Winter Haven, Florida which is used for corporate administration.
On January 17, 2000, the Company acquired all of the outstanding shares of
common stock of Triton Prestige Products, Inc. in exchange for 50,000 shares of
the Company's restricted Common Stock. Triton is now a wholly owned subsidiary
of the Company. Triton has been operating since July 1999. Its primary business
is to provide frozen pizza products through its frozen food plant in Palm City,
Florida to institutions, schools and governmental entities for consumption in
their cafeterias. The Triton brand of products are sold under the Triton brand
name and label.
The Company previously operated the following subsidiaries: Floridino's Pizza
Etc., Inc., Floridino's of Lake Wales, Inc., Hard Ball Cafe, Inc., Floridino's
Home of the Calzone, Inc., Floridino's of Delray, and Floridino's of Bartow,
Inc. Operations of these subsidiaries were discontinued by the Company as they
failed to realize sufficient profit.
Trademarks and Service Marks
----------------------------
The Company is the owner of various trademarks and service marks which are
utilized by the Company in the course of its business. The service mark "Home of
the World's Largest Calzone" is utilized to promote the Company's restaurant
division and also the frozen foods division. The service mark, "Floridino's", is
used to promote the Company's segments which utilize the Floridino's name.
The service mark, "Zoop Soups", was acquired by the Company in November 1998
during the course of its acquisition of Zoop Soups, Inc., and is used to promote
the Zoop Soups concept in the restaurant operated by the Company in New York
City. The trademark "Everything's Going Pazzo at Floridino's" is used to promote
the Company's restaurant division and also by the franchisees under the terms
and conditions of their respective franchise agreements. The Company has also
filed an application for the registration of the service mark, "Fast Italian",
which is currently pending. The Company has assigned no value to trademarks or
service marks in its financial statements at December 31, 1999.
Employees
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As of September 30, 2000, there were 100 employees of the Company. There were 75
employees located in Florida and 25 employees located in New York. The
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restaurant segment had 65 employees, the frozen food processing segment had 29
employees, and corporate administration had 6 employees.
Governmental Approvals and Regulations
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The frozen food products which are produced by the Company are subject to
inspection and approval by the U.S. Department of Agriculture. The Company
facilitates inspection by the requisite government inspector on the premises of
the Company's two production plant who insures that all of the goods produced by
the Company are in compliance with the regulations and guidelines of the
Department of Agriculture.
Item 2. FINANCIAL INFORMATION
Management's Discussion and Analysis or Plan of Operation
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As noted by our auditor's report dated March 22, 2000, except for note 17 for
which the date is November 15, 2000 on the financial statements as of December
31, 1999 and December 31,1997, there is a substantial doubt raised about the
ability of the Company to operate as a going concern based upon the substantial
losses that the Company has incurred. As noted, tThe Company's plans to address
this issue were to close all unprofitable restaurants during fiscal 1999 and to
raise additional capital through a private offering. These funds were to be used
to satisfy outstanding debt of the closed restaurants, to fund the
reconstruction of the Lakeland frozen food processing plant in order to satisfy
the demand requirements of the potential buyers of the Company's products, and
to hire experienced employees and independent contractors to manage and upgrade
the existing restaurant segment and Lakeland frozen food plant. It is estimated
that the Company will need approximately $100,000 to finish construction of the
Lakeland frozen food plant and approximately $159,000 to satisfy debt still
outstanding attributable to the debt of the closed restaurants. Management
cannot guarantee that it will be able to remove the threat against continuing as
a going concern should the Company raise the funds needed to finish the
construction on the plant and satisfy the outstanding debt. Management cannot
guarantee that the frozen food processing segment will be successful once it is
opened. Management feels that the segment will need a year, at least, of
operations, in order to develop a market for its product and for the segment to
become profitable.
Management estimates that it will need to raise at least $2.0 million in order
to complete construction, pay its outstanding debt, and to ensure time for the
frozen food segment to develop. However management cannot guarantee that the
Company will be able to operate as a going concern should the funds be raised
and these goals be accomplished. The Company intends to raise the funds
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necessary through a private placement offering of stock and debt although no
assurances can be given that it will be successful.
Results of Operation
--------------------
During the past two years, the Company's operations failed to realize net income
due to a decrease in revenue and reduction in patrons to its restaurants. The
Company also experienced a decrease in franchising fees and royalties as the
franchise stores operating under the Company's concept were also experiencing
decreased revenue. This led the Company to believe that it required a new
approach to its operations. The Company's management was replaced in March 1999
and new management has sought an aggressive approach to develop and market the
Company's product line which management believes is of very high quality. New
management determined that the Company's restaurants required a fresher,
more-upscale fast service image and ambiance to attract customers.
In the past year, the Company has raised approximately $2.1 million though the
sale of equity and debt. During the year, the Company received $346,500 from the
exercise of warrants. The majority of these funds were used to pay the
outstanding debt of the closed restaurants. In addition, the Company raised
$1,000,000 through the private sale of 2,000,000 shares of Common Stock. The
majority of these funds were used to upgrade and equip the Lakeland frozen food
plant. The Company also raised $750,000 in a convertible promissory note
offering. These funds were used to purchase the Lakeland frozen food plant and
the land adjacent to the plant. Management's goal is to have a state of the art
processing plant producing the Company's line of frozen foods. The Company has
also expended the funds it has raised to revamp its restaurant concept. New
management determined that the Company should create restaurants which were more
upscale and esthetically pleasing to customers than those previously operated.
As a result, the Company shut all of its existing restaurants. After a period of
reconstruction, it reopened and then implemented its new concept at restaurants
in Lakeland, Florida and New York, New York.
The Company opened two additional restaurants in Delray Beach, Florida and Lake
Wales, Florida in December 1999 and May 2000. Funding for the purchase of the
Lakeland frozen food plant and the land adjacent to the plant has been
undertaken primarily through the proceeds from the sale of a $750,000
convertible promissory note. The funds from the exercise of the warrants were
used to repay previous debts of the closed restaurants. The funds from the
$1,000,000 sale of equity in July 1999 was used to acquire equipment and
machinery for the development of the Company's frozen food plant in Lakeland,
Florida. The Company's management believes that it has the ability to raise
additional funds if and when they are required. The Delray Beach restaurant was
closed in July 2000 after management concluded that its initial expectations of
success for this restaurant had not been met.
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Additional funds may be raised through the sale or mortgaging of the parcels of
real estate held by the Company. Additionally, the Company believes that its
newly developed concept and operations will attract investors. At this time, the
Company has no line of credit with any financial institution. However, the
Company believes that its new operations will generate sufficient revenue during
the next twelve months to enable the Company to secure a line of credit with a
financial institution, if needed.
As noted by our auditor's report dated March 22, 2000, except for note 17 for
which the date is November 15, 2000 on the restated financial statements as of
December 31, 1999, there is a substantial doubt raised about the ability of the
Company to operate as a going concern based upon the substantial losses that the
Company has incurred. As noted, the Company's addressed this issue by closing
all unprofitable restaurants during fiscal year 1999. The Company raised
approximately $2.1 million during the year in order to implement management's
plan to reorganize the Company and to redirect the Company's focus to future
profitability.
During the year ended December 31, 1999, the Company raised $1,000,000 in a
private offering of common stock, $750,000 in a convertible promissory note
private offering, and $346,500 upon the exercise of common stock warrants. The
warrants originally were exercisable at $1.00 per share. On March 29, 1999, in
order to induce exercise, the Company lowered the exercise price from $1.00 to
$.50 per share for the warrants remaining. Of the 558,000 warrants exercised in
fiscal 1999, 135,000 were exercised at $1.00 per share and 423,000 were
exercised at $.50 per share.
The convertible promissory note matures in October 2001 and carries interest of
9%. The promissory note is convertible into common stock at the average market
price of the common stock for the five days preceding conversion, less 40%
starting in October 2000.
In addition, the Company borrowed $500,000 from a financial institution during
the last quarter of fiscal 1999. The loan is secured by the Lakeland plant
building and the land adjacent to the plant, and carries interest of 9%. The
loan matures in December 2002. The Company used the loan proceeds to fund its
operations and the opening of the Delray and Lake Wales restaurants.
The Company expended approximately $775,000 during the year to upgrade the
Lakeland plant facility and to reconstruct and upgrade restaurant space.
Management's reorganization efforts were substantially completed by the fourth
quarter of 1999. The Lakeland plant had been reconstructed to satisfy the needs
of the expected demand for the Company's product and USDA requirements. A
testing phase of the Company's frozen food products was completed in the fourth
quarter of 1999 and the results were excellent. The frozen food processing
segment began receiving orders for product in January 2000.
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In addition, the improvement of the New York restaurant and the Lakeland
restaurant was completed and the restaurants were reopened in the latter part of
fiscal 1999. The restaurants were reconstructed to conform to management's
vision of a fast, self-service, casual Italian food restaurant. The Company
opened two additional restaurants in Delray Beach, Florida and Lake Wales,
Florida in December 1999 and May 2000, respectively. However, the Delray Beach
restaurant was closed in July 2000 after management concluded that its initial
expectations of success for the restaurant had not been met.
As of December 31, 1999, the Company's restaurant equipment was used to secure
capital leases and bank loans in the amount of $286,670. In addition, the
Company's real estate assets were used to secure approximately $914,000 of short
and long-term debt. Material commitments for capital expenditures include
approximately $100,000 for an upgrading and completion of the Company's
production facilities as it relates to its Lakeland frozen food plant. Sources
of funding for these expenditures include those derived from the Company's sale
of the two parcels of real estate received from an officer of the Company in
exchange for preferred stock thereafter converted to common stock. The Company
sold two of the parcels, located in Winter Haven, Florida, in January 2000 for
approximately $410,000. A third parcel of land, also in Winter Haven, Florida,
is listed for sale; however, the Company has not entered into any contract of
sale for this property.
Management intends to hold expenses to a minimum and to obtain services on a
contingency basis when possible. Further, the Company's directors will forego
any compensation until such time as the Company begins to generate sufficient
income in the Company to cover such expenses. However, if the Company engages
outside advisors or consultants in search for business opportunities, it may be
necessary for the Company to attempt to raise additional funds. There is no
assurance that the Company will be able to obtain additional funding when and if
needed, or that such funding, if available, can be obtained on terms acceptable
to the Company.
Impact of Inflation
-------------------
In the opinion of management, inflation at this time has not and will not have a
material effect on the operations of the Company. Management focuses on the long
term growth of the Company and therefore any increase in inflation or jump in
the price of raw goods purchased by the Company will not result in an immediate
increase in prices to the consumer. Management believes that an increase in its
prices may lead to a loss of customers and therefore hinder the Company's long
term growth. Management will evaluate the possible effects of inflation on the
Company as it relates to its business and operations and proceed accordingly.
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The Company would consider raising its prices in the event of a significant
increase in the cost of labor. As of September 30, 2000, the Company had100
employees. As the Company opens additional restaurants and expands its frozen
food segment, the Company expects to hire additional employees. As the number of
employees increases, any rise in the cost of labor will have a more significant
impact on the Company which may in turn cause the Company to increase its
prices.
To the extent possible, the following discussion will highlight the relative
needs of the Company with respect to its business activities.
The Company's operating history, including its losses and revenues, primarily
reflect its operations for the past year. For the year ending December 31, 1999
the Company had $1,296,308 in revenue and a net loss of $1,094,146. As of
December 31, 1999 the Company had a net stockholders' equity of $721,794.
I. Segment Reporting Disclosures
---------------------------------
The Company operates two business segments: restaurants and franchising, and
food processing. In November 1998, management decided to close all of its
existing restaurants at that time and to restructure a new restaurant concept
that emphasized a "fast casual, self-service" style of food delivery as opposed
to the more traditional type of restaurant that it had in place at the time. The
Company would still concentrate its marketing efforts in Italian foods. The
Company's staff was reorganized and its restaurant space was reconfigured to
deliver its food products according to the new philosophy. During 1999, the
Company opened two restaurants after a period of reconstruction and staff
reorganization, Floridino's, Inc., and Floridino's of Lakeland, Inc. In the
first and second quarter of fiscal year 2000, a restaurant was opened in Delray
Beach, Florida and a restaurant was opened in Lake Wales, Florida. However, the
Delray restaurant was subsequently closed in July 2000.
The frozen food processing plant in Lakeland, Florida underwent reconstruction
which was completed in 1999 and began receiving orders in January 2000. During
1999, the processing plant was being reconstructed to conform to USDA guidelines
and to the requirements imposed by of potential customers. The potential
customers for the Company's processing plant products are large retail
restaurants and fast food outlets. Based upon the results of the initial testing
phase required by the potential buyers of the Company's product, it became clear
that the plant would not be able to meet the expected demand that was estimated.
In order to meet the anticipated demand that was estimated by the potential
customers, the plant had to be refitted and upgraded. This period of upgrade was
completed and all requirements of the potential customers regarding the plant
had been satisfactorily met in 1999.
13
<PAGE>
Please see the discussion and analysis that follows.
Restaurant Segment: Results of Operations
-----------------------------------------
Gross sales for the year ending December 31, 1999 for the restaurant division
decreased to $1,263,214 or 28% from gross sales for the similar period in 1998.
Consequently gross profit for the year also decreased to $416,304 or 40% as
compared to the similar period in 1998. As expected, this decrease was due to
the closing of the unprofitable restaurants in 1999, thereby decreasing gross
sales revenues. During the fiscal year 1998, the gross sales of the restaurants
that were eventually closed totaled approximately $1,578,000. During the fiscal
year 1999, the subsequently closed restaurants generated approximately $403,000
in restaurant sales.
Gross profits as a percentage of total revenues decreased to 33% for fiscal year
1999 as compared to 39% for fiscal year 1998. The decrease in the gross profit
percentage is mainly attributable to the increased depreciation expense
resulting from the significant increase in capitalized reconstruction costs of
the restaurants, in addition to the assets acquired by the Company in the
acquisition of Floridino's, Inc. in November 1998. For the twelve months ended
December 31, 1999, depreciation expense was approximately $171,000 for the
segment as compared to approximately $70,000 for fiscal year 1998. Approximately
$160,000 of gross profits during fiscal year 1999 are attributable to the
subsequently closed restaurants.
Selling, general, and administrative costs for this segment decreased to
$947,885 as compared to $1,126,214 for the similar period in 1998, or 16%. This
decrease is attributable to closing of the unprofitable restaurants in 1999
resulting in overhead savings.
During the period of reconstruction for the New York restaurant, management
decided to retain many of its employees. Management concluded that the costs of
hiring and training new employees at the end of the reconstruction period would
have been greater than the costs of keeping the employees on salary during the
reconstruction period. The Company spent approximately $120,000 in salaries and
rents during the reconstruction period in 1999. Management has estimated that
the closing of the unprofitable restaurants saved approximately $371,000 in
general and administrative overhead during the fiscal year. Management expects
general and administrative expenses for the segment to continue to decrease as
compared to prior periods since approximately $271,000 of general and
administrative overhead for the period is attributable to the restaurants that
were being closed.
The restaurant segment showed a loss from continuing operations of $531,581 as
compared to a loss of $434,562 for a similar period in 1998. However, management
is encouraged by the results obtained from the reorganization of the restaurant
segment undertaken in late 1998 and through 1999 and
14
<PAGE>
expects the benefits of this reorganization to be realized in 2000. The segment
started to become profitable in the second quarter of fiscal year 2000.
During the year, the equipment from the restaurants that were closed was
transferred to storage. Management determined that the equipment's carrying
value was less than its net realizable value and decided to write-off the
carrying value of this equipment. The amount written off was $55,000.
Processing Plant: Results of Operations
----------------------------------------
Toward the end of 1998, the Company decided that a significant profit could be
made from the production and marketing of its unique style of Italian food
products, specifically, calzones and pizza rolls. Based upon the initial
response to its products from large Italian food franchises located in Florida
and from large nationwide retail fast food outlets, the Company decided to open
this segment in early 1999 and began operations in January 2000. The Company
contracted with a consulting firm to oversee the plant operations and manage
plant personnel. In addition, the Company expended approximately $456,000 for
equipment and construction of its plant facility.
During the year ending December 31, 1999, the processing segment incurred losses
from continuing operations of $515,488. The significant components of this cost
were approximately $258,000 for plant salaries and consulting fees, $178,000 for
supplies, rent and utilities, and $48,000 in depreciation expense. The plant
staff have been on salary since the first quarter of 1999, and throughout the
reconstruction period. The reconstruction was completed during the last quarter
of 1999. The gross sales and cost of sales figures generated reflect the results
of test sales performed in late 1999 for potential customers of the Company's
products. During the last quarter of 1999, the Company succeeded in passing all
phases of the product testing phase and began actual operations in January 2000.
Management is encouraged by the initial results achieved by this segment.
Consolidated Company
--------------------
On a consolidated basis, revenues decreased from $1,758,507 in 1998 to
$1,296,308 in 1999, or 26%, as a result of management's plan to reorganize the
restaurant segment. Gross profit as a percent of revenues decreased in 1999 from
39% to 31%. This decrease is a result of management's efforts to move from a
full service restaurant concept to a fast, self-service concept. Historically, a
full service restaurant has higher profit margins and less volume while the
self-service restaurant has lower profit margins but higher volume. In addition,
depreciation expenses allocated to cost of goods sold were substantially higher
than in fiscal year 1998. These increases resulted from the significant
equipment acquisitions and construction costs incurred during the fiscal year.
15
<PAGE>
On a consolidated basis, corporate overhead increased to $1,805,450 through
December 31, 1999 from $1,190,113 for the similar period in 1998. The main
components of this increase were $250,000 in professional fees and consulting
costs attributable to the Company's restructuring, $100,000 in payroll reflected
the hiring of plant personnel, and $150,000 in rent on the new plant facility in
Lakeland, Florida.
The Company has recognized an unrealized gain on short-term marketable
investments of $380,321 and a realized gain on short-term marketable investments
of $29,793 as a result of its investment in shares of Cantebury Investing Inc.
(CITI). The investment is made for speculative purposes and is classified as a
trading security as per SFAS 115. The Company intends to sell this investment
during fiscal 2000.
Interest expense has increased to $179,031 in 1999 as compared to $29,322 in
1998 as a result of the increase in capital leases the Company has entered into
in 1999, the interest accrued on the $750,000 convertible promissory note and
the assumption and acquisition of mortgages on real estate assets acquired. In
addition, the beneficial conversion feature of the convertible promissory note
calculates to $500,000 and is recognized as an addition to paid-in capital. The
beneficial conversion feature, or debt discount, is being amortized as interest
expense over a period of one year, at which time, the promissory note becomes
convertible. Amortization of the debt discount to interest expense at December
31, 1999 amounted to $111,111.
After interest expense and the recognition of the favorable settlement of the
Company's long-term debt of $78,533, net of tax, the Company realized a net loss
of $1,094,146, or $.18 per share, as compared to a loss of $519,187, or $.19 per
share, for the similar period in 1998.
Discussion of Financial Condition- Liquidity and Capital Resources
------------------------------------------------------------------
At December 31, 1999, the Company had a working capital deficit of $549,718 as
compared to $855,053 at December 31, 1998. On a consolidated basis, the Company
had cash balances totaling $359,449 as compared to $15,502 at December 31, 1998.
This increase is primarily due to the offering of 2,000,000 shares of Common
Stock in May 1999 for $1 million, the issuance of a $750,000 convertible
promissory note in October of 1999, $346,500 raised from the exercise of common
stock warrants, the acquisition of long-term debt of approximately $500,000 less
property and equipment purchases of approximately $931,000, and the payment of
long-term debt of approximately $336,000 and operating losses of approximately
$982,000.
Total current liabilities increased to $1,432,771 at December 31, 1999 as
compared to $897,464 at December 31, 1998. The substantial increase in current
liabilities is primarily due to the increase of
16
<PAGE>
approximately $595,000 of unsecured debt currently due, incurred as a result of
the reconstruction of the New York restaurant. In November 2000, the maturity
dates of this debt were extended to January 2002.
The net property and equipment of the Company increased $1,927,065 during fiscal
1999 to $2,439,087 at December 31, 1999. The main components of this increase
were approximately $220,000 for the purchase of the plant, $456,000 in the
acquisition of plant assets for the processing segment, $318,000 for
construction costs for the restaurant segment, $639,000 in three buildings
acquired from an officer of the firm in return for preferred stock later changed
to common stock, and the purchase of land adjacent to the plant for $320,000. In
addition, the Company decided to write- off the book value of approximately
$55,000 of restaurant equipment from the closed restaurants.
Capital lease financing obligations increased to $127,558 at December 31, 1999
from $49,200 at December 31, 1998. This increase is due primarily to the
increase in equipment leases entered into during 1999 on behalf of the frozen
food processing segment. Long-term debt increased to $1,444,678 at December 31,
1999 as a result of the costs of reconstruction and the assumption of real
estate mortgages in the stock transaction with an officer of the Company noted
above and $500,000 in real estate mortgages acquired in the last quarter of
1999.
The Company is the lessee of certain equipment accounted for as capital leases
in 1999. The assets and liabilities of the capital leases are recorded at the
lower of the present value of the minimum lease payments or the fair value of
the asset purchased. The assets are being amortized over the term of the lease
or the estimated useful life of the asset, whichever is less.
Minimum future lease payments for capital leases as of December 31, 1999 are as
follows:
2000 $ 45,706
2001 46,777
2002 46,777
2003 39,024
2004 12,420
Total future minimum lease payments 190,704
Less amounts representing interest (63,146)
Present value of net minimum lease ---------
payments $ 127,558
=========
17
<PAGE>
Interest rates on capitalized leases range from 17% to 27% imputed based upon
the lower of the Company's incremental borrowing rate at the inception of the
lease or the lessor's implicit rate of return.
The following comprises debt as of December 31, 1999:
$64,114- Notes payable to an unrelated party at a rate of 9% due May 21, 2000
and October 10, 2000. The loan is secured by a building owned by the Company and
requires monthly payments of $718.
$500,000- Mortgages payable to a financial institution at an interest rate of 9%
due in December 2002. The mortgages are secured by the land and a building owned
by the Company. Quarterly payments of $11,251 consisting of interest only.
$84,000- Mortgage payable to an individual at an interest rate of 9% secured by
a building owned by the Company. The loan is due January 2000. Monthly payments
of interest only are $750. The loan is currently being renegotiated.
$126,801- Mortgage payable to an individual at an interest rate of 10% secured
by a building owned by the Company. The loan is due in June 2007. Monthly
payments are $2,023.
$139,276- Mortgage payable to an individual at an interest rate of 9% secured by
the processing plant owned by the Company. The loan is due in June 2007. Monthly
payments are $1,773.
$237,207- Unsecured note payable to a contractor at an interest rate of 8.25%.
Balloon payment due January 2002.
$258,020- Unsecured notes payable to entities controlled by the majority
stockholder and Chairman of the Board at an interest rate of 8.25%. Balloon
payments are due in January 2002.
$35,260- Other notes payable due to individual suppliers with no stated interest
rate
Total debt 1,444,678
Less current maturities 699,866
---------
Long term debt $ 744,812
A schedule of maturities of long term debt by fiscal year is as follows:
18
<PAGE>
Year Amount
---- ------
2000 $ 699,866
2001 262,192
2002 286,934
2003 26,881
2004 29,861
Thereafter 138,944
----------
Total $1,444,678
==========
Stockholders' equity increased to $721,794 at December 31, 1999 from a deficit
of $370,560 at December 31, 1998. The main source of this increase was
$1,000,000 raised in July 1999 through a private placement offering of common
stock, $250,000 of common stock issued to an officer of the Company in exchange
for real estate assets, the recognition of $500,000 as a favorable conversion
feature from the $750,000 convertible promissory note, $346,500 in net proceeds
from the exercise of common stock warrants, and a net loss from operations of
approximately $1,094,000.
Year 2000 Disclosure
The Company did not experience any computer problems related to the year 2000.
19
<PAGE>
PART F/S
RREPORT OF INDEPENDENT AUDITORS
To the Stockholders and Directors Floridino's International Holdings, Inc. and
Subsidiaries
We have audited the accompanying consolidated balance sheet of Floridino's
International Holdings, Inc. ("the "Company"") and its subsidiaries as of
December 31, 1999, and the related consolidated statements of operations,
shareholders' equity and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial statements
based on our audits. The statements of operations, shareholders' equity and cash
flows for Floridino's International Holdings, Inc. and its Subsidiaries for the
year ended December 31, 1998 were audited by other auditors whose report dated
October 12, 1999, except for note 10 for which the date is November 15, 2000,
expressed a qualified opinion on those statements regarding an uncertainty as to
the Company's ability to continue as a going concern.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
the significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Floridino's International Holdings, Inc. and its Subsidiaries at December 31,
1999, and the consolidated results of their operations and their cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
As more fully discussed in Note 2 to the consolidated financial statements,
there are significant matters concerning the Company that raise substantial
doubt as to the ability of the Company to continue as a going concern.
Management's plans with regard to these matters are also described in Note 2 to
the consolidated financial statements. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Berkovits & Company, P.A.
Plantation, Florida
March 22, 2000, except for note 17
for which the date is November 15, 2000
20
<PAGE>
FLORIDINO'S INTERNATIONAL HOLDINGS INC.
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1999
(AS RESTATED)
ASSETS
------
Current Assets
Cash $ 359,449
Investments in marketable equity securities 471,250
Inventory 52,354
-----------
Total Current Assets 883,053
Property and equipment, net 2,439,087
Other assets
Deposits and other assets 42,547
Organizational costs (net of amortization) 1,690
-----------
Total Other Assets 44,237
-----------
TOTAL ASSETS $ 3,366,377
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable $ 490,924
Accrued expenses 61,200
Notes payable to banks 159,112
Current portion of obligations under capital leases 21,669
Current portion of long term debt 699,866
-----------
Total Current Liabilities 1,432,771
Capital lease obligations 105,889
Long term debt 744,812
Convertible promissory note (net of amortization) 361,111
-----------
TOTAL LIABILITIES 2,644,583
STOCKHOLDERS' EQUITY
Common stock, par value $.001; authorized
25,000,000 shares; issued and outstanding
7,707,000 shares at December 31, 1999 $ 7,707
Additional Paid in Capital 3,068,409
Accumulated Deficit (2,354,322)
-----------
Total Stockholders' Equity 721,794
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,366,377
===========
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
FLORIDINO'S INTERNATIONAL HOLDINGS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(AS RESTATED)
December 31, December 31,
1999 1998
----------- -----------
REVENUES
Food and Beverage Sales $ 1,261,167 $ 1,666,800
Franchise revenues -0- 59,500
Royalty revenues 35,141 32,207
----------- -----------
Total Revenues 1,296,308 1,758,507
Less cost of goods sold 894,620 1,066,855
----------- -----------
Gross Profit 401,688 691,652
OPERATING EXPENSES:
General Administrative 1,805,450 1,190,113
----------- -----------
Total Operating Expenses 1,805,450 1,190,113
----------- -----------
Net loss from operations (1,403,762) (498,461)
OTHER INCOME (EXPENSES):
Unrealized gain on short
term investment 380,321 --
Other income 29,793 8,596
Interest expense (179,031) (29,322)
----------- -----------
Total other income (expenses) 231,083 (20,726)
LOSS FROM OPERATIONS BEFORE
INCOME TAX PROVISION AND
EXTRAORDINARY ITEM (1,172,679) (519,187)
Provision for Income taxes -- --
LOSS FROM OPERATIONS BEFORE _______ ______
EXTRAORDINARY ITEM (1,172,679) (519,187)
EXTRAORDINARY ITEM:
Gain on early extinguishment
of debt (net of $40,457
tax credit) 78,533 --
----------- -----------
Net loss (1,094,146) (519,187)
=========== ===========
Net Loss per common share:
Basic:
Loss from continuing operations $ (.19) $ (0.19)
Gain from extraordinary item .01 .00
----------- -----------
Net loss per share $ (.18) $ (0.19)
=========== ===========
Weighted average shares
outstanding 6,306,651 2,698,974
=========== ===========
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
FLORIDINO'S INTERNATIONAL HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(AS RESTATED)
December 31, December 31,
1999 1998
----------- -----------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net Loss $(1,094,146) $ (519,187)
Adjustments to reconcile
net loss to net cash provided by
(used in) operating activities:
Depreciation and
amortization 245,771 91,214
Compensation expense paid
by issuing common stock 90,000 --
Unrealized gain on short
term investment (380,321) --
Bad debt expense 14,255 --
Amortization of debt discount 111,111 --
Changes in Assets and Liabilities
Royalties Receivable 11,826 424
Inventory (37,271) 3,452
Short term investments (90,929) --
Other Assets 42,528 (7,729)
Deferred franchise fee revenue -- (59,500)
Payments of bank overdrafts (19,903) 18,759
Accounts payable 180,369 45,048
Accrued expenses (74,872) 66,091
----------- -----------
NET CASH USED BY OPERATIONS (1,001,582) (361,428)
----------- -----------
INVESTING ACTIVITIES:
Purchase of land adjacent to
plant (320,000) 0
Purchase of
property and equipment (611,045) 39,501
----------- -----------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES (931,045) 39,501
----------- -----------
23
<PAGE>
FINANCING ACTIVITIES:
Obligations to Banks 159,112 --
Proceeds from issuance of
convertible promissory note 750,000 --
Increase (decrease) in loan
to stockholder (152,799) 131,728
Issuance of common stock upon
Exercise of warrants 346,500 261,000
Issuance of common stock 1,000,000 --
Payment of long term capital
lease obligations (49,206) (24,280)
Payment of long term debt (335,608) (31,019)
Proceeds of
long term debt 558,575 --
----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 2,276,574 337,429
----------- -----------
NET INCREASE IN CASH DURING
THE PERIOD 343,947 15,502
CASH BALANCE AT BEGINNING OF
FISCAL YEAR 15,502 --
CASH BALANCE AT END OF -- --
THE PERIOD $ 359,449 $ 15,502
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Interest paid during
the period $ 67,920 $ 29,322
Acquisition of fixed assets by
capital leases $ 127,564 $ 49,200
Acquisition of fixed assets by
long term debt $ 495,227 --
Acquisition of fixed assets by
the assumption of long term
debt and issuance of common
stock $ 509,535 --
Stock issued for acquisition of
fixed assets -- $ 87,079
Stock issued for acquisition
of subsidiary -- $ 337,442
Stock issued for services rendered $ 90,000 --
Stock issued for acquisition of real estate $ 250,000 --
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
FLORIDINO'S INTERNATIONAL HOLDINGS INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
(AS RESTATED)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Paid in Accumulated
Shares Amount Shares Amount Capital Deficit Total
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 1, 1998 2,518,000 $ 2,518 -- $ -- $ 109,631 $ (659,043) $ (546,894)
Issuance of common
stock upon exercise
of warrants 261,000 261 -- -- 260,739 -- 261,000
Issuance of common
stock for the
purchase subsidiary 1,680,000 1,680 -- -- 335,762 -- 337,442
Issuance of common
stock for equipment 500,000 500 -- -- 86,579 -- 87,079
Net Loss -- -- -- -- -- (519,187) (519,187)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1998 4,959,000 4,959 -- $ -- 792,711 (1,178,230) (380,560)
as reported
Reclass purchase of minority
interest in 1997 to properly
disclose purchase of 100% of
the subsidiary 10,000 10,000
Adjust the purchase of subsidiary
for stock in November 1998 from
the purchase method of accounting
to the pooling method of accounting 81,946 (81,946) 0
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1998 4,959,000 -- -- -- 884,657 (1,260,176) (370,560)
as restated
Issuance of common
stock upon exercise
of warrants 558,000 558 -- -- 345,942 -- 346,500
Issuance of
common stock for
compensation 140,000 140 -- -- 89,960 -- 90,000
Issuance of
common stock
for private
offering 2,000,000 2,000 -- -- 998,000 -- 1,000,000
25
<PAGE>
Issuance of
preferred
stock -- -- 50,000 250,000 -- -- 250,000
Convertible promissory note
attributed to
favorable
conversion
feature 233,333 -- 233,333
Net loss (983,035) (983,035)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31,
1999 7,657,000 $7,657 50,000 250,000 2,551,792 (2,243,211) 566,238
as reported
Reclass the issuance
of preferred stock for
real estate assets to an
issuance of common stock 50,000 50 (50,000) (250,000) 249,950 0
Adjust the proceeds received
from promissory note attributable to
the favorable conversion feature
for proper disclosure 266,667 (111,111) 155,556
------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31,
1999 as restated 7,707,000 $7,707 -0- -0- 3,068,409 (2,354,322 721,794
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
FLORIDINO'S INTERNATIONAL HOLDINGS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Nature of Operations and Summary of Significant Accounting Policies
Floridino's International Holdings, Inc. (the "Company") was incorporated on
June 25, 1997 in the State of Florida to develop, own, operate, and franchise
family style Italian restaurants. The Company's operations are located in New
York City, New York and throughout Florida. The consolidated statements of the
Company include the following wholly owned subsidiaries:
Floridino's Pizza Etc., Inc.- a restaurant located in Winter Haven, Florida that
was closed in October 1999.
Hard Ball Cafe,, Inc.- a restaurant located in Winter Haven, Florida that was
closed in April 1999.
Floridino's Home of the Calzone, Inc.- a restaurant located in Lakeland, Florida
that was closed in May 1999.
Floridino's International, Inc.- a restaurant franchisor located in Winter
Haven, Florida.
Floridino's of Bartow, Inc.- a restaurant located in Bartow, Florida that was
closed in December 1998.
Floridino's Specialties Distributions, Inc. ("Specialties")- an Italian food
manufacturer located in Lakeland, Florida incorporated in July 1998.
Floridino's Express, Inc.- a restaurant located in Lake Wales, Florida that was
incorporated in January 1999.
Toho Holdings, Inc.- a company incorporated in 1999 to hold title to the real
estate and lease agreements of the consolidated companies.
Floridino's , Inc.- a restaurant located in New York, New York, formerly Zoop
Soups, Inc. This restaurant was reopened in September 1999 after a period of
reconstruction.
Floridino's of Lakeland- a restaurant located in Lake Wales, Florida
incorporated in September 1997. This restaurant was opened in January 1998,
closed for reconstruction in October 1999, and reopened in November 1999.
Lake Wales- a restaurant located in Lake Wales, Florida that was closed in
September 1998.
Delray- a restaurant incorporated in November 1999 located Delray Beach, Florida
that was opened in December 1999; closed in July 2000.
27
<PAGE>
Consolidation-The accompanying consolidated financial statements include the
accounts of the Company and all its wholly owned and majority owned
subsidiaries. All significant inter-company balances have been eliminated.
Revenue and Cost Recognition-The Company recognizes revenue from food and
beverage sales as the service is provided. Revenue from franchise sales is
recognized, net of allowance of uncollectible amounts, when substantially all
significant services provided by the Company have been performed which normally
occur prior to the start of the operations. Expenditures are recorded on the
accrual basis whereby expenses are recorded when incurred, rather than when
paid.
Use of Estimates-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.
Cash and cash equivalents-Cash equivalents include highly liquid short-term
investments with an original maturity of three months or less. Trading
securities are not considered cash equivalents and are shown separately as
investments in marketable securities.
Investment in Marketable Securities-Investment in marketable securities
represents the purchase of common stock of a publicly traded company. As per
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities", the Company classifies this
investment as a "trading security" and accordingly, the investment is recorded
at fair market value at December 31, 1999 and an unrealized gain of $380,321 has
been reflected as "other income" in the statement of operations.
The Company utilizes the specific identification method in determining holding
gains and losses on investments in marketable securities.
Inventory-Inventory is stated at the lower of cost (first-in, first-out method)
or market and primarily consists of food and beverage products.
Property and Equipment-Property and equipment are stated at cost. Depreciation
of property and equipment is provided using the straight-line method over the
estimated useful life of the asset.
Improvements made to leased property are depreciated on a straight-line basis
over the estimated useful life of the improvement or the period of the lease
remaining, whichever is less. The following is a summary of the estimated useful
lives used in computing depreciation expense:
28
<PAGE>
Equipment 5 years
Leasehold improvements 5-10 years
Vehicles 5 years
Buildings 30 years
Furniture & fixtures 5 years
Expenditures for major repairs and renewals that extend the useful life of the
asset are capitalized. Minor repair expenditures are charged to expense as
incurred.
Income Taxes-The Company accounts for income taxes under the accrual method
established by Statement of Financial Accounting Standards No. 109, which
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences and events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statements and tax bases of assets and liabilities using enacted rates for the
year in which the differences are expected to reverse.
Management believes that based on current operations, the realization of a
tax-deferred asset will not be utilized. Therefore, a deferred tax asset has not
been reflected in the accompanying financial statements as of December 31, 1999.
Extraordinary items-During the year ending December 31, 1999, the Company had
extinguished certain long term debt before its scheduled maturity date. The
difference between the carrying value of this debt and the settlement value of
the debt extinguished has been recognized as an extraordinary item in the
consolidated statement of operations, net of the related tax effect.
Fair Values of Financial Instruments-The carrying amounts of all cash and cash
equivalents, accounts receivables, short term investments, inventories, accounts
payable, and other obligations reported in the statement of financial position
are estimated by management to approximate fair value.
Recent accounting pronouncements - Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities",was issued in June 1998 and is effective for fiscal quarters
beginning after June 15, 1999. This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities and
requires that entities recognize derivative instruments as either assets or
liabilities in the statement of financial position and measure these instruments
at fair value. Management has concluded that the adoptions of SFAS No. 133 will
not have a material impact on the financial position of the Company or its
results of operations.
Reclassifications- Certain accounts in the 1998 financial statements have been
reclassified to conform to the 1999 financial statement presentation.
Concentration of credit risk-Financial instruments which potentially subject the
Company to concentration of credit risk consist primarily of cash deposits and
investments in marketable securities. The Company had cash demand deposit
accounts of approximately $100,000 in domestic
29
<PAGE>
banks at year-end which were not insured. In addition, the Company has an
investment in a common stock of approximately $471,000 at year-end. The market
for this stock is not highly liquid due to the small float of the stock.
Note 2 - Going Concern Considerations
The accompanying consolidated financial statements have been presented in
accordance with generally accepted accounting principles, which assumes the
continuity of the Company as a going concern. However, during the years ending
December 31, 1999 and December 31, 1998, the Company continues to experience
certain going concern and liquidity problems. The Company has incurred net
losses of $1,094,146 and $519,187 for the years ended December 31, 1999 and
December 31, 1998, respectively. This condition raises substantial doubt as to
the ability of the Company to continue as a going concern.
Management's plans with regard to this matter is as follows: The Company,
through a plan formalized in fiscal year 1998 and completed in 1999, closed all
unprofitable restaurants. The Company plans to reopen new restaurants under new
management with more emphasis on a "casual fast food/self-service" theme. During
1999, after a period of reconstruction and reorganization, the Company opened
New York Floridino's and Lakeland. The Delray restaurant was opened in January
2000 but was closed by management in July 2000.
During the year ended December 31, 1999, the Company raised approximately $2.1
million through a Regulation D, Rule 505 offering, the exercise of common stock
warrants, and the sale of a convertible promissory note for $750,000. These
funds were used to satisfy some of the Company's long-term debt, reconstruct and
improve current restaurant space, and to complete the construction of
Specialties, its food manufacturing plant, and purchase of real estate and
investments.
The eventual outcome of the success of management's plans cannot be ascertained
with any degree of certainty. The accompanying consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Note 3 - Closed Restaurants
Through December 31, 1999, the Company had completed its plans to close the
operations of unprofitable restaurants. The restaurants that were closed by
management through 1999 are as follows:
Floridino's Pizza Etc., Inc.
Hard Ball Cafe, Inc.
Floridino's Home of the Calzone, Inc.
Floridino's of Bartow, Inc.
30
<PAGE>
Note 4 - Litigation
The Company and its subsidiaries are defendants in various lawsuits filed by
various suppliers for services rendered in the ordinary course of business. The
Company has accrued the amounts of the proposed settlements in the accompanying
consolidated financial statements, as well as the amounts of potential
outstanding claims disclosed by the Company's outside counsel. Management
believes that the eventual disposition of these lawsuits will not have a
material impact on the consolidated financial statements.
Note 5-Commitments and Contingencies:
The Company is committed to various non-cancelable leases for restaurant space.
At December 31, 1999, total future minimum lease payments under operating leases
is as follows:
2000 $ 353,188
2001 338,024
2002 342,334
2003 335,544
2004 341,008
Thereafter 914,400
----------
Total future minimum lease payments $2,624,498
==========
Rent expense was $224,817 and $179,111 for fiscal years 1999 and1998,
respectively.
The Company is the lessee of certain equipment accounted for as capital leases
in 1999. The assets and liabilities of the capital leases are recorded at the
lower of the present value of the minimum lease payments or the fair value of
the asset purchased. The assets are being amortized over the term of the lease
or the estimated useful life of the asset, whichever is less.
Minimum future lease payments for capital leases as of December 31, 1999 is as
follows:
2000 $ 45,706
2001 46,777
2002 46,777
2003 39,024
2004 12,420
--------
Total future minimum lease payments 190,704
Less amounts representing interest (63,146)
Present value of net minimum lease --------
payments $ 127,558
=========
31
<PAGE>
Interest rates on capitalized leases range from 17% to 27% imputed based upon
the lower of the Company's incremental borrowing rate at the inception of the
lease or the lessor's implicit rate of return.
Note 6 - Common Stock Transactions
During fiscal year ending 1998, 261,000 warrants were exercised for a like
number of shares at $1.00 per share.
During fiscal year ending 1998, the Company acquired a subsidiary for 1,680,000
shares of common stock.
During fiscal year ending 1998, the Company acquired equipment for 500,000
shares of common stock.
During fiscal year ending December 31, 1999, the balance of warrants outstanding
from an offering completed in July 1997 were exercised or expired. During the
period, 558,000 warrants were exercised resulting in proceeds to the Company of
$346,500 and the issuance of 558,000 shares of common stock. The balance of the
outstanding warrants (63,000) expired on March 31, 1999. During the period, the
Company extended the original warrant expiration date to March 31, 1999 and the
exercise price was lowered from $1.00 to $.50 per share in order to induce the
exercise of the remaining warrants. Of the 558,000 warrants, 135,000 were
exercised at $1.00 per share and 423,000 were exercised at $.50 per share.
In August 1999, the Company issued 100,000 shares in return for services
rendered by an outside consultant. As a result, $64,000 was recorded as
compensation expense for this transaction.
In August 1999, the Company issued 40,000 shares of common stock to a director
of the Company for consulting services (see Note 9 for further discussion).
In July 1999, the Company completed a Regulation D, Rule 505 offering resulting
in net proceeds to the Company of $1,000,000 and the issuance of 2,000,000
shares of common stock.
As more fully discussed in Note 9, the Company issued 50,000 shares of common
stock to the president of the Company in exchange for real estate assets
transferred to the Company. The net fair market value of the real estate at the
date of the transaction was $250,000, as determined by management.
Note 7 - Convertible Promissory Note
In the last quarter of fiscal year 1999, the Company received proceeds of
$750,000 by issuing one convertible promissory note to one accredited investor.
The promissory note matures in October 2001 and carries an interest rate of 9%.
The promissory note is convertible into common stock at a 40% discount, from the
preceding five day average market price of the common stock at the date
conversion. The holder of the convertible promissory note will receive an
aggregate fair value of $1,250,000 in common stock as opposed to $750,000 in
aggregate proceeds received by the
32
<PAGE>
Company at the date of conversion based upon the market price of the stock at
issuance. The excess of $500,000 in aggregate proceeds to be paid to the holder
of the convertible promissory note is being amortized to interest expense over a
period of twelve months, when the promissory note become convertible into common
stock. Total amortization of the debt recorded as interest expense at December
31, 1999 is $111,111.
Note 8 - Long-term debt
The following comprises long term debt as of December 31, 1999:
FLORIDINO'S INTERNATIONAL HOLDINGS, INC.
$64,114- Notes payable to an unrelated party at a rate of 9% due May 21, 2000
and October 10, 2000. The loans are secured by a building owned by the Company
and require monthly payments of $718.
$500,000- Mortgages payable to a financial institution at an interest rate of 9%
due in December 2002. The mortgages are secured by the land and a building owned
by the Company. Monthly payments of $11,251 consisting of interest only.
$84,000- Mortgage payable to an individual at an interest rate of 9% secured by
a building owned by the Company. The loan is due January 2000. Monthly payments
of interest only are $750. The loan is currently being renegotiated.
$126,801- Mortgage payable to an individual at an interest rate of 10% secured
by a building owned by the Company. The loan is due in June 2007. Monthly
payments are $2,023.
$139,276- Mortgage payable to an individual at an interest rate of 9% secured by
the processing plant owned by the Company. The loan is due in June 2007. Monthly
payments are $1,773.
$237,207- Unsecured note payable to a contractor at an interest rate of 8.25%.
Balloon payment due January 2002.
$258,020- Unsecured notes payable to entities controlled by the majority
stockholder and Chairman of the Board at an interest rate of 8.25%. Balloon
payment due in January 2002.
$35,260- Other notes payable due to individual suppliers with no stated interest
rates.
Total debt 1,444,678
Less current maturities 699,866
---------
Long-term debt $ 744,812
==========
33
<PAGE>
A schedule of maturities of long-term debt by fiscal year is as follows:
Year Amount
2000 $ 699,866
2001 262,192
2002 286,934
2003 26,881
2004 29,861
Thereafter 138,944
----------
Total $1,444,678
==========
Note 9-Related Party Transactions
The Company is indebted to its majority stockholder and Chairman of the Board
for the cost of certain reconstruction of the New York restaurant incurred
during 1999. Unsecured promissory notes payable of $258,020 to entities
controlled by the Chairman were entered into on August 31, 1999 and carry an
interest rate of 8.25%. The notes mature in fiscal year 2000 and are included in
the current portion of long-term debt in the statement of financial condition.
In May 1999, the Company assumed title to three properties and their
corresponding mortgages from the President of the Company. The estimated fair
market value of the net equity of the properties at the date of the transaction
was $250,000. The President was issued 50,000 shares of common stock in
consideration for this transfer.
In August 1999, the Company issued 40,000 shares of common stock to a director
of the Company for consulting services rendered in early 1999. Management has
recorded $26,000 for the issuance of these shares as consulting expense as part
of general administrative expense in the Balance Sheet.
Note 10-Segments
The segments of the Company follow the same accounting policies as the
consolidated group. The following is a summary of the Company's segment
information for fiscal years 1999 and 1998:
34
<PAGE>
1999 1998
----------- -----------
Revenues
Restaurants $ 1,263,214 $ 1,758,507
Food processing 33,094 --
----------- -----------
Total Revenues $ 1,296,308 $ 1,758,507
=========== ===========
Gross Profit
Restaurants $ 416,304 $ 691,652
Food processing (14,616) --
----------- -----------
Total gross profit $ 401,688 $ 691,652
=========== ===========
Loss from Operations
Restaurants ($ 531,581) ($ 434,562)
Food processing (515,488) --
Corporate (356,693) (63,899)
----------- -----------
Total loss from operations ($1,403,762) ($ 498,461)
=========== ===========
Depreciation & Amortization
Restaurants $ 170,586 $ 69,931
Food processing 47,666 --
Corporate 27,519 21,283
----------- -----------
Total depreciation & amortization $ 245,771 $ 91,214
=========== ===========
Interest Expense
Restaurants $ 44,295 $ 19,509
Food processing 12,307 --
Corporate 122,429 9,813
----------- -----------
Total interest expense $ 179,031 $ 29,322
=========== ===========
Total Assets
Restaurants $ 892,024 $ 566,368
Food processing 510,839 --
Corporate 1,963,514 74,830
----------- -----------
Total assets $ 3,366,377 $ 641,198
=========== ===========
35
<PAGE>
The following table provides the Company's geographic information for gross
sales and assets:
1999 1998
----------- -----------
Gross sales- restaurants
New York $ 578,392 $ 190,721
Florida 684,822 1,567,786
----------- -----------
Total gross sales $ 1,263,214 $ 1,758,507
=========== ===========
Gross sales- processing
New York $ -- $ --
Florida 33,094 --
----------- -----------
Total gross sales $ 33,094 $ --
=========== ===========
Total Assets
New York $ 664,776 $ 349,729
Florida 2,701,601 291,469
----------- -----------
Total assets $ 3,366,377 $ 641,198
=========== ===========
The Company does not have any one customer who represents greater than 10% or
more of consolidated gross sales.
Note 11-Earnings Per Share
The Company applies SFAS No. 128, Earnings Per Share. In accordance with SFAS
No. 128, basic net income per share has been computed based on the weighted
average of common shares outstanding during the fiscal year. The effects the
common stock warrants that expired March 31, 1999 have not been included in the
earnings per share calculation for 1998 since their inclusion would be
anti-dilutive.
The effects of the convertible promissory note (note 7) issued in 1999 has not
been reflected in the earnings per share calculation for 1999 since its
inclusion would be anti-dilutive.
Note 12-Income taxes
At December 31, 1999 and December 31, 1998, the Company had $1,523,805 and
$533,353 of net operating loss carry forwards which expire in years 2005 and
2004, respectively. No portion of the net operating loss carry-forwards has been
recognized as a deferred tax asset at December 31, 1999
36
<PAGE>
and December 31, 1998. The following is a reconciliation between net loss per
the statement of operations and taxable loss at December 31, 1999 and December
31, 1998:
1999 1998
----------- -----------
Net loss ($1,094,146) ($ 519,187)
Allowance for unrealized
gain on investment (402,531) --
Allowance for timing
difference in
depreciation expense (27,128) (14,166)
----------- -----------
Taxable loss ($1,523,805) ($ 533,353)
=========== ===========
Deferred tax asset $ 518,094 $ 181,340
Allowance for tax
recoverability (518,094) (181,340)
----------- -----------
Deferred tax asset
recognized $ -- $ --
=========== ===========
A reconciliation of income tax expense at the statutory rate to income tax
expense at the Company's effective tax rate is as follows:
Statutory U.S. Federal rate 34% 34%
Loss from operations (34%) (34%)
--------- ---------
Effective tax rate 0% 0%
========= =========
Deferred tax benefit $ 518,094 $ 181,340
Adjustment to bring
To net realizable value (518,094) (181,340)
--------- ---------
Net realizable value $ 0 $ 0
========= =========
The statutory federal tax rate of 34% was used to calculate deferred tax assets.
37
<PAGE>
Note 13-Subsequent events
In January 2000, the Company purchased 100% of the issued and outstanding common
stock of Triton Prestige Products Inc., a food manufacturer located in Palm
City, Florida, by issuing 50,000 shares of common stock. The combination was
recorded as a purchase and accordingly, the fair market values of the assets and
liabilities at the date of the transaction were recorded. The difference between
the net fair value of the assets received and the fair value of the common stock
issued at the date of the transaction was recognized as goodwill.
Note 14-Year 2000 Statement
The Company has actively addressed the issues related to the date change in year
2000. This is necessary because many computer systems were programmed using only
two digits to contain the year in the date fields. On January 1, 2000, many of
these programs will fail to perform date calculations correctly and produce
erroneous results. This could temporarily prevent the Company from processing
business transactions. The Company began efforts to address this issue in fiscal
1999. As of the date of this report, the Company has experienced no disruption
of business due to the Year 2000 issue.
There are significant risks associated with the year 2000 issues. Many of these
risks such as those associated with electrical power or telecommunications are
outside the reasonable control of the Company. Although the Company believes its
remediation and contingency planning efforts adequately identify and addressed
the year 2000 issues that are within the Company's reasonable control, there can
be no assurance that the Company's efforts will be fully effective. Due to the
significant risks, the Company's management continues to monitor this very
closely.
Note 15-Notes payable to banks
The Company is currently in default on $159,112 of equipment loans from banks.
The debt had matured in fiscal 1998 and 1999 and is included in current
liabilities under the caption, "Notes payable to banks" in the financial
statements. These notes carried interest at the prime rate plus 2% and were
secured by equipment. The Company is currently negotiating with the bank to
settle this debt.
Note 16-Property and Equipment
The major categories of property and equipment at December 31, 1999 are as
follows:
Land $ 320,000
Equipment 572,180
Leasehold improvements 942,519
Vehicles 17,232
Buildings 859,000
Furniture and fixtures 2,885
-----------
38
<PAGE>
Total property and equipment 2,713,816
Less accumulated depreciation (274,729)
-----------
Net property and equipment $ 2,439,087
===========
The category for equipment includes $127,558 in of equipment acquired under
capital lease agreements. The amount of accumulated amortization of capital
leases is included in accumulated depreciation and was $17,678 at December
31,1999. Depreciation expense was $245,771 and $91,214 for the years ended 1999
and 1998, respectively. During 1999 the Company wrote off approximately $55,000
of restaurant equipment associated with the closed operations. The equipment was
pledged as security for bank loans (See Note 15) and is being held in storage
until the bank debt is satisfied.
Note 17 - Restatement and prior period adjustments
Subsequent to the issuance of the certified financial statements for December
31, 1999, it was determined that the accounting for the convertible promissory
note and the amortization of the resultant debt discount should be restated.
Although not considered material, the restatement affected the balance sheet,
statement of operations, earnings per share, the statement of cash flows and
changes in stockholders' equity.
In addition, the accounting for the operations of the closed restaurants had
been disclosed as "cost of store closings" due to management's decision at the
time that the restaurant segment would be discontinued. Subsequent to year end,
management decided to reopen certain restaurants and not discontinue the
restaurant operations. The restated statement of operations now discloses the
operations of the closed restaurants into their attendant categories. The
restatement affected the balances of food and beverage sales, cost of sales, and
general administrative expenses.
In addition, the issuance of preferred stock to an officer in exchange for real
estate assets has been restated to an issuance of common stock because the
Company's articles of incorporation preclude an issuance of preferred stock. The
balances of common stock, preferred stock, and additional paid in capital have
been affected by the restatement. The restatement of the cost of store closings
and the preferred stock issuance affected the December 31, 1998 balance sheet
and statement of operations.
The following table indicates the accounts that have been affected by the
restatement:
As Restated As Reported
Convertible promissory note $ 361,111 $ 516,667
Common stock $ 7,707 7,657
39
<PAGE>
Preferred stock $ -0- $ 250,000
Paid in Capital $ 3,068,409 $ 2,469,846
Accumulated deficit $(2,354,322) $(2,161,265)
Food & beverage sales $ 1,261,167 $ 858,052
Cost of goods sold $ 894,620 $ 619,082
Gross profit $ 401,688 $ 274,111
General administrative cost $ 1,805,450 $ 1,519,886
Interest expense $ (179,031) $ (67,920)
Net loss $(1,094,146) $ (983,035)
Loss per share $ (.18) $ (.16)
40
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Directors Floridino's International Holdings, Inc. and
Subsidiaries
We have audited the accompanying consolidated balance sheets of Floridino's
International Holdings, Inc. (the "Company") and its subsidiaries as of December
31, 1998 and the related consolidated statements of operations, shareholders'
equity and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and the
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Floridino's International Holdings, Inc. and its Subsidiaries at December 31,
1998, and the consolidated results of their operations and their cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
As more fully discussed in Note 2 to the consolidated financial statements,
there are significant matters concerning the Company that raise substantial
doubt as to the ability of the Company to continue as a going concern.
Management's plans with regard to these matters are also described in Note 2 to
the consolidated financial statements. The financial statements do not include
any adjustments relating that might result from the outcome of this uncertainty.
As more fully disclosed in Note 10 to the financial statements, the Company has
restated the consolidated balance sheet and the related statement of operations,
shareholders' equity, and cash flows as of and for the year ended December 31,
1998. The restatement was necessary in order to reflect the proper accounting
for the purchase of the Company's wholly owned subsidiary in November 1998 and
the closure of certain restaurants during fiscal year 1998.
Infante Lago & Company
North Miami, Florida
October 12, 1999, except for note 10
for which the date is November 15, 2000
41
<PAGE>
FLORIDINO'S INTERNATIONAL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998 AND 1997
As restated
<TABLE>
<CAPTION>
ASSETS 1998 1997
----------- -----------
<S> <C>
Current Assets
Cash $ 15,502 --
Royalties receivable 1,826 12,250
Inventory 15,083 18,535
----------- -----------
Total Current Assets $ 42,411 $ 30,785
Property and Equipment
Equipment 345,266 222,874
Leasehold Improvements 323,077 57,811
Office and Other Equipment 56,925 55,694
----------- -----------
Total Property and Equipment $ 725,268 $ 336,379
Less: Accumulated Depreciation (213,246) (130,408)
----------- -----------
Property and Equipment 512,022 205,971
Other Assets
Organizational costs, net 6,859 13,671
Other Assets (security deposits) 79,906 18,191
----------- -----------
TOTAL ASSETS $ 641,198 $ 268,618
=========== ===========
LIABILITIES
Current Liabilities
Outstanding checks in excess of
bank balance $ 19,903 $ 1,144
Accounts payable and accrued expenses 310,555 255,288
Accrued payroll taxes and related expense 93,989 27,898
Deferred franchise fee revenue -- 59,500
Loans payable - stockholder 152,799 21,071
Loans payable - supplier -- 24,280
Current portion of obligations under capital leases 6,490 --
Current portion of long term debt 313,728 89,872
----------- -----------
Total Current Liabilities $ 897,464 $ 479,053
Long term debt, net of current portion 71,584 326,459
Obligations under capital leases net
of current portion 42,710 --
42
<PAGE>
STOCKHOLDERS' DEFICIT
Common stock, par value $.001; 25,000,000 shares
authorized, 4,959,000 shares issued and outstanding
at December 31, 1998 and 2,518,000 issued and
outstanding at December 31, 1997 $ 4,959 $ 2,518
Additional Paid in Capital 884,657 119,631
Accumulated Deficit (1,260,176) (659,043)
----------- -----------
Total Stockholders' Equity (370,560) (536,894)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $ 641,198 $ 268,618
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
43
<PAGE>
FLORIDINO'S INTERNATIONAL HOLDINGS INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
As restated
1998 1997
----------- -----------
REVENUES
Food and Beverage Sales $ 1,666,800 $ 1,478,196
Franchise Fees 59,500 34,000
Royalty Fees 32,207 49,298
----------- -----------
Total Revenues 1,758,507 1,561,494
COSTS OF SALES:
Costs of goods sold 1,066,855 956,415
----------- -----------
Gross Profits 691,652 605,079
OPERATING EXPENSES:
General Administrative 1,190,743 872,648
----------- -----------
Total Operating Expenses 1,190,113 872,648
----------- -----------
Loss from operations (498,461) (267,569)
OTHER INCOME (EXPENSES):
Equipment sales 0 23,468
Miscellaneous income 8,596 19,601
Interest expense (29,322) (31,842)
----------- -----------
LOSS BEFORE
PROVISION FOR INCOME TAXES (519,187) (256,342)
Provision for income taxes -- --
----------- -----------
NET LOSS $ (519,187) $ (256,342)
=========== ===========
LOSS PER SHARE:
Basic:
Net loss per share (0.19) (0.10)
Weighted average shares
outstanding 2,698,974 2,518,000
=========== ===========
The accompanying notes are an integral part of these financial statements
44
<PAGE>
FLORIDINO'S INTERNATIONAL HOLDINGS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
As restated
1998 1997
--------- ---------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net Loss $(519,187) $(256,342)
Adjustments to Reconcile
net loss to net cash
Used in operating
activities:
Depreciation 84,402 30,645
Amortization 6,812 1,831
Stock issued for services 0 200
Changes in assets and
liabilities
Increase/(Decrease) in:
royalties receivable 424 4,652
Note receivable - shareholder -- 37,715
Inventory 3,452 (205)
Other assets (7,729) (5,449)
Organizational costs -- (12,449)
Increase/(decrease) in:
Accounts payable 45,048 48,784
Accrued payroll taxes and related expenses 66,091 6,433
Deferred franchise fee revenue (59,500) 10,500
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (380,187) (133,685)
CASH FLOW FROM INVESTING ACTIVITIES:
(Additions) disposals to property & equipment 39,501 (40,391)
--------- ---------
NET CASH PROVIDED (USED) IN
INVESTING ACTIVITIES 39,501 (40,391)
45
<PAGE>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt -- 81,885
Outstanding checks in excess of bank balance 18,759 (33,182)
Principal payment on long-term debt (31,019) (37,978)
Issuance of common stock 261,000 118,000
Loans payable - stockholder 131,728 21,071
Loans payable - supplier (24,280) 24,280
--------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 356,188 174,076
--------- ---------
NET INCREASE/(DECREASE) CASH 15,502 --
CASH AT BEGINNING OF YEAR -- --
--------- ---------
CASH AT END OF YEAR $ 15,502 $ --
========= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest expense 29,322 43,007
Stock issued for purchase
of equipment 87,079 --
Stock issued for acquisition
of subsidiary 337,442 --
Equipment acquired through
capital leases 49,200 --
--------- ---------
$ 503,043 $ 43,007
========= =========
The accompanying notes are an integral part of these financial statements.
46
<PAGE>
FLORIDINO'S INTERNATIONAL HOLDINGS INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
As restated
<TABLE>
<CAPTION>
Total Total
Number of Common Additional Accumulated Shareholders'
Shares Stock Paid in Cap Deficit Equity
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE
JANUARY 1, 1997 1,800,000 $ 1,800 $ 2,149 $ (402,701) $ (398,752)
Issuance of common
stock in private
placement 500,000 500 99,500 -- 100,000
Issuance of common
stock in lieu of
payment for services 200,000 200 -- -- 200
Purchase of minority
interest in Bartow, Inc. (10,000) (10,000)
Issuance of common
stock due to exercise
of warrants 18,000 18 17,982 -- 18,000
Net Loss -- -- -- (256,342) (256,342)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE
DECEMBER 31, 1997 2,518,000 2,518 109,631 (659,043) (546,894)
Issuance of common
stock in connection
with acquisition 1,680,000 1,680 335,762 -- 337,442
Issuance of common
stock for the purchase
of equipment 500,000 500 86,579 -- 87,079
Issuance of common
stock in connection
with exercise of
warrants 261,000 261 260,739 -- 261,000
Net Loss -- -- -- (519,187) (519,187)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE
DECEMBER 31, 1998 4,959,000 $ 4,959 $ 792,711 $(1,178,230) (380,560)
as reported
Reclass purchase of minority
interest in 1997 to properly
disclose purchase of 100% of
the subsidiary 10,000 10,000
Adjust the purchase of subsidiary
for stock in November 1998 from
the purchase method of accounting
to the pooling method of accounting 81,946 (81,946) 0
------------------------------------------------------------------------------------------------------------------------------------
Balance at December
31, 1998 as restated 4,959,000 4,959 884,657 (1,260,176) (370,560)
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
47
<PAGE>
FLORIDINO'S INTERNATIONAL HOLDINGS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND DECEMBER 31, 1997
NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Floridino's International Holdings, Inc., the "Company", was incorporated on
June 25, 1997, in the State of Florida to develop, own, operate and franchise
family style neighborhood Italian restaurants.
During July of 1997, the Company acquired all of the outstanding stock in
Floridino's Pizza Etc. Inc., Floridino's of Lake Wales, Inc., Hard Ball Cafe,
Inc., Floridino's Home of the Calzone, Inc., and Floridino's International,
Inc., and Floridino's of Bartow, Inc., in a business combination accounted for
as a pooling of interests. The Company issued 1,800,000 shares of stock having a
$.001 par value per share to Michael Floridino in exchange for his interest in
those corporations, under an exchange intended to qualify as a tax free exchange
under Section 368 of the Internal Revenue Code. The acquired companies are
primarily engaged in restaurant and restaurant franchising operations. The
accompanying financial statements for the year ended December 31, 1997 are based
on the assumption that the companies were combined for the full year, and
financial statements of the prior year have been restated to give effect of the
combination.
Details of the results of operations of the individual companies for the period
before the combination that are included in the consolidated statements of
operations and accumulated deficit are as follows:
Six months ended
June 30, 1997
Revenue Net Loss
----------- -----------
Floridino's Pizza Etc., Inc. $ 214,922 $ (4,223)
Floridino's of Lake Wales, Inc. 128,172 (42,610)
Hard Ball Cafe, Inc. 253,433 (27,022)
Floridino's Home of the Calzone, Inc. 234,979 599
Floridino's International, Inc. 89,649 (14,472)
Floridino's of Bartow, Inc. 144,264 (57,723)
----------- -----------
$ 1,065,419 $ (145,451)
=========== ===========
48
<PAGE>
Floridino's of Lakeland, Inc. ("Lakeland"), a wholly owned subsidiary of the
Company, was incorporated in September 1997, in the State of Florida to own and
operate restaurants. In November 1997, Lakeland acquired the assets and assumed
the liabilities of Floridino's of Lake Wales, Inc.
On November 1, 1998, the Company acquired all of the outstanding stock of
Floridino's of New York, Inc. and Zoop Soups, Inc. for 1,680,000 shares of
common stock. The acquisition described above was accounted for by the pooling
of interests method of accounting for business combinations. Accordingly, the
accompanying consolidated statements of operations for fiscal year 1998 includes
the revenues and expenses related to the acquired company as if the transactions
occurred at the beginning of the fiscal year. The consolidated statement of
operations for fiscal year 1997 has not been restated for the effects of the
combination since the revenues and expenses of the acquired subsidiary was
immaterial in that fiscal year.
Below is selected financial data for the Company and the acquired subsidiary for
January 1 through November 1 for 1997 and 1998:
The Company Subsidiary
----------- ----------
Revenues 1998 $ 1,627,755 $ 190,701
Net loss 1998 ($ 487,288) ($ 145,830)
Revenues 1997 $ 1,472,113 $ 40,078
Net loss 1997 ($ 201,671) ($ 24,744)
On July 13, 1998, Floridino's Distribution Specialties, Inc. ("Specialties") was
formed. Specialties is a development stage company primarily engaged in the
manufacturing and marketing of frozen foods.
CONSOLIDATION POLICY
The accompanying consolidated financial statements include the accounts of the
Company and all of its wholly owned subsidiaries. All significant inter-company
balances and transactions have been eliminated.
REVENUE AND COST RECOGNITION
The Company recognizes revenue from food and beverage sales as the service is
provided. Revenue from franchise sales is recognized, net of allowance for
uncollectible amounts, when substantially all significant services to be
provided by the Company have been performed. Expenditures are recorded on the
accrual basis whereby expenses are recorded when incurred, rather than when
paid.
49
<PAGE>
USE OF ESTIMATES
The preparation of the financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
INVENTORY
Inventory is stated at the lower of cost (first-in, first-out method) or market
and primarily consists of food products.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost. Depreciation is computed by the
straight-line method over the estimated useful lives of the respective assets
that range from five to ten years. Expenditures for maintenance and repairs are
charged to expense as incurred; major replacements and improvements are
capitalized. When items of property or equipment are sold or retired, the
related cost and accumulated depreciation are removed from the accounts and any
gain or loss is included in income.
INCOME TAXES
The Company accounts for income taxes under the accrual method, which requires
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statements and tax
bases of assets and liabilities using enacted tax rates for the year in which
the differences are expected to reverse.
The significant component of the net deferred tax asset at December 31, 1998,
consists of the net operating loss carry-forward that can be utilized to offset
future taxable income. Management believes that, based on earnings through and
subsequent to December 31, 1998, it cannot determine at this time whether a
deferred tax asset can be realized in the near future. Therefore, a deferred tax
asset has not been reflected in the accompanying financial statements as of
December 31, 1998. As of December 31, 1998, the Company has net operating loss
carry forwards for federal income tax purposes. At this time, management is
unable to determine the amount of net operating loss carry forwards available to
offset future profits.
At December 31 1998, the Company had tax loss carry-forwards of $519,187 which
expire in 2013. No portion of net operating loss carry-forwards have been
recognized and accordingly have not been allocated to intangible assets. The
following represents between tax and book entries:
50
<PAGE>
Provision for income taxes is comprised of the following for the years ended
December 31:
1998 1997
--------- ---------
Current tax expense:
Federal $ 0 $ 0
State 0 0
--------- ---------
Provision for income taxes $ 0 $ 0
========= =========
A reconciliation of income tax expense at the
statutory rate to income tax
expense at the Company's effective
tax rate is as follows:
Statutory U.S. Federal rate 34% 34%
Loss from operations (34%) (34%)
--------- ---------
Effective tax rate 0% 0%
========= =========
Deferred tax benefit $ 181,963 $ 91,203
Adjustment to bring
To net realizable value (181,963) (91,203)
--------- ---------
Net realizable value $ 0 $ 0
========= =========
The statutory corporate tax rate of 34% was used to calculate deferred tax
benefits.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value for financial instruments under SFAS NO. 107,
Disclosures about Fair Value of Financial Instruments, are determined at
discrete points in time based on relevant market information. These estimates
involve uncertainties and cannot be determined with precision. The estimated
fair value of the Company's financial instruments, which include cash, accounts
receivable and long-term debt approximates the carrying value in the
consolidated financial statements.
ORGANIZATION COSTS
Organizational costs consist of costs incurred during the formation of the
Company. These costs are being amortized over sixty months.
51
<PAGE>
ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities", was issued in June 1998 and is
effective for fiscal quarters beginning after June 15, 1999. This statement
establishes accounting and reporting standards for derivative instruments and
for hedging activities and requires that entities recognize derivative
instruments as either assets or liabilities in the statement of financial
position and measure these instruments at fair value. Management has concluded
that the adoptions of SFAS No. 133 will not have a material impact on the
financial position of the Company or its results of operations.
RECLASSIFICATIONS
Certain assets in the 1997 financial statements have been reclassified to
conform to the 1998 financials statement presentation.
NOTE 2. SUMMARY OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES GOING
CONCERN CONSIDERATIONS
The accompanying consolidated financial statements have been presented in
accordance with generally accepted accounting principles, which assume the
continuity of the Company as a going concern. However, during the years ended
December 31, 1998 and 1997, the Company experienced, and continues to
experience, certain going concern and liquidity problems. The Company has
incurred net losses of $519,187 and $256,343 for the years ended December 31,
1998 and 1997. The Company's consolidated financial position reflects a working
capital deficiency of $855,053 at December 31, 1998. These conditions raise
substantial doubt as to the ability of the Company to continue as a going
concern.
Management's plans with regard to this matter encompass the following
actions:
The Company plans to raise equity funds from private placements of its
common stock.
From the proceeds of these anticipated offerings, the Company plans to
pay outstanding liabilities, continue to explore selling franchises,
develop divisions for their restaurant operations, and expand the
frozen food division.
The eventual outcome of the success of management's plans cannot be ascertained
with any degree of certainty. The accompanying consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
LITIGATION
The Company and its subsidiaries are defendants in various lawsuits filed by
numerous suppliers for services rendered. The Company has accrued the amounts of
the proposed settlements in the
52
<PAGE>
accompanying consolidated financial statements, as well as the amounts of
potential outstanding claims disclosed by the Company's outside legal counsel.
FRANCHISE OPERATIONS
The following is a description of the most significant risks facing a franchiser
and how the Company mitigates those risks:
Legal/Regulatory Risk - the risk that changes in the regulatory
environment in which the franchiser operates creates additional
expenses not anticipated by the franchiser in pricing its products.
That is, regulatory initiatives designed to regulate franchiser's
disclosures to its franchisee. The Company mitigates this risk by
monitoring proposed regulatory legislation and by assessing the impact
of new laws.
Credit Risk - the risk that a franchise will default on fees owed to
the Company. The Company minimizes this risk by adhering to a
conservative selection process of franchises and by maintaining sound
franchise agreements with each franchisee, and by providing for any
amounts deemed uncollectible.
Interest Rate Risk - the risk that interest rates will change and cause
a decrease in the value of a franchiser's investment. To the extent
that liabilities come due more quickly than assets mature, a franchiser
might have to sell assets prior to maturity and potentially recognize a
gain or a loss. The Company mitigates this risk by attempting to match
the maturity schedule of its assets with the expected payouts of its
liabilities.
NOTE 3. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C> <C>
HARDBALL CAFE INC
Note payable, Colonial Bank, payable in monthly installments of 1.5% of the
outstanding balance, including interest at a fixed annual rate of 9.25%. In
1997, the loan was secured by personal assets owned
by a stockholder of the Company. The loan was refinanced in 1998 $ -- $ 21,427
53
<PAGE>
Note payable, First Union Bank, payable in monthly installments of $500,
including interest at the prime rate as published by the Wall Street Journal,
plus 2%. The loan is secured by restaurant equipment and has a balloon payment
of approximately $37,000,
plus interest, due on November 20, 1999 42,259 42,356
Note payable, First Union Bank, payable in monthly installments of $40,
including interest at a fixed annual rate of 12%. The loan is unsecured 2,556 2,300
FLORIDINO'S OF LAKE WALES, INC
Note payable, First Union Bank, payable in monthly installments of $350,
including interest at the prime rate as published by the Wall Street Journal,
plus 2%. The loan is unsecured and has a balloon payment of approximately
$17,400, plus interest, due on February 2, 2000 20,476 21,570
Note payable, Colonial Bank, payable in monthly installments of $775, including
interest at the prime rate as published by the Wall Street Journal, plus 2%. The
loan is secured by restaurant equipment and was due in full on December 23, 1997
The Company retired the debt in 1999 46,241 38,650
Note payable, payable in monthly installments of $475, including interest at a fixed
annual rate of 8% -- 5,410
FLORIDINO'S INTERNATIONAL INC
Note payable, Colonial Bank, payable in monthly installments of $522, including
interest at a fixed annual rate of 11.25%. The loan is secured by equipment and
has a balloon payment of approximately $24,100, plus interest, due on June 8, 2000 33,987 36,172
Note payable, First Union Bank, payable in monthly installments of $166, including
interest at the prime rate as published by the Wall Street Journal, plus 2%
The loan was retired in 1988 -- 885
Note payable, Lanier, payable in monthly installments of $128, including interest at
a fixed annual rate of $4. The loan was retired in 1998 -- 323
Note payable, Honkamp, Krueger & Co., P.C., payable in monthly installments of
$541, including interest at a fixed annual rate of 9%. The loan is secured by property
owned personally by a stockholder of the company, and has a balloon payment of
approximately $48,800, plus interest due on May 21, 2000 51,060 52,215
Note payable, Honkamp Krueger & Co., P.C., payable in monthly installments of
$177, including interest at a fixed annual rate of 9%. The loan is secured by
property owned personally by a stockholder of the company, and has a balloon
payment of approximately $11,100, plus interest due on October 10, 2000 13,190 13,855
Note payable, David Mills, payable in monthly installments of $200. The loan
is non-interest bearing. The loan was retired in 1998 -- 2,100
FLORIDINO'S OF BARTOW, INC
Note payable, Colonial Bank, payable in monthly principal installments of $655,
plus interest at the prime rate as published by the Wall Street Journal, plus
2%. The loan is secured by restaurant equipment and has a balloon payment of
approximately $33,000 plus interest, due on July 23, 1999 38,359 48,577
54
<PAGE>
Note payable, Citrus & Chemical Bank, payable in monthly installments of $184,
including interest at a fixed annual rate of 9.5%. The loan is secured by
equipment and is due in full on March 29, 1998 752 752
FLORIDINO'S INTERNATIONAL HOLDINGS, INC
Note payable, former shareholder, payable in monthly installments of $500,
including interest at a fixed annual rate of 8%. The loan is due in August 1999 3,591 9,063
Note payable, vendor, payable in monthly installments of $1,500, including interest at
a fixed annual rate of 13%. The loan is unsecured 9,884 --
Note payable, individual, payable on demand. Interest is payable monthly at a fixed annual
rate of 8%. The loan is unsecured 16,510 --
FLORIDINO'S PIZZA ETC., INC
Note payable, Colonial Bank, payable in monthly installments of $212, including
interest at a fixed annual rate of 9.75%. The loan is secured by a second
mortgage on property owned by a stockholder of the company and is due
in full on February 28, 2001 5,133 7,070
Note payable, First Union Bank, payable in monthly installments of $500,
including interest at the prime rate as published by the Wall Street Journal,
plus 2%. The loan is secured by a second mortgage on property owned by a
stockholder of the Company and has a balloon payment of approximately $37,000,
plus interest, due on November 20, 1998 43,161 43,909
Note payable, First Union Bank, payable in monthly installments of $231, including
interest at the prime rate as published by the Wall Street Journal, plus 2%
The loan is secured by vehicles and is due in full on March 3, 2000 5,133 6,945
Note payable, First Union Bank, payable in monthly installments of $332,
including interest at the prime rate as published by the Wall Street Journal,
plus 2%. The loan is secured by personal property owned by a stockholder of the
Company and is due in full on December 20, 2000 7,705 10,290
Note payable, Ledwig, payable in monthly installments of $529, including
interest at a fixed annual rate of 10%. The loan is secured by restaurant
equipment and is due in full in October 1999 5,535 10,602
Note payable, First Union Bank, payable in monthly installments of $500,
including interest at the prime rate as published by the Wall Street journal,
plus 2%. The loan is secured by restaurant equipment and a vehicle owned by a
stockholder of the company, and has a balloon payment of approximately
$36,000, plus interest, due on November 20, 1998 40,036 41,604
-------- --------
385,312 416,331
Less: Current Maturities 313,728 89,872
-------- --------
Long Term Debt 71,584 326,459
======== ========
</TABLE>
There are no sinking fund requirements regarding long term debt. The following
represents the maturities schedule for long term debt at December 31, 1998:
55
<PAGE>
2000 $42,196
2001 16,167
2002 8,133
2003 5,088
-------
Total $71,584
=======
NOTE 4. LEASE OBLIGATIONS
The Company leases certain restaurant and office space, and certain equipment,
under operating leases. Most of the Company's operating leases are for a period
of three or five years with renewal options.
At December 31, 1998, total future minimum lease payments under operating leases
are as follows:
Year ended December 31,
1999 $126,721
2000 45,894
--------
Total future minimum lease payments $172,615
========
The Company is the lessee of certain computer equipment under capital leases
expiring in 2003. The assets and liabilities under capital leases are recorded
at the lower of the present value of the minimum lease payments or the fair
value of the asset. The assets are amortized over the lower of their related
lease terms or their estimated productive lives. There was no amortization of
assets under capital leases for 1998 and 1997. Computer equipment held under
capital leases was $49,200 and $0 for 1998 and 1997, respectively.
Minimum future lease payments, under capital leases as of December 31, 1998, for
each of the next five years and in the aggregate are:
Year ended December 31,
1999 $15,900
2000 15,900
2001 15,900
2002 15,900
2003 15,900
Thereafter --
------
79,500
56
<PAGE>
Less: Amount representing interest (30,300)
-------
Present value of net minimum lease payment 49,200
Less: Current portion (6,490)
-------
Obligations under capital leases net of current portion $ 42,710
========
Interest rates on capitalized leases vary from 19% to 21% imputed based on the
lower the of Company's incremental borrowing rate at the inception of each lease
or the lessor's implicit rate of return.
Capitalized leases are amortized over the life of the assets or the term of the
lease, whichever is less. The amortization periods range from three to seven
years.
NOTE 5. FRANCHISE AGREEMENTS
Under the provisions of the franchise sales agreements, the Company agrees to
provide services to assist the franchise in setting up and operating a
restaurant. The service provided includes assistance in site selection, training
personnel, implementation of an accounting system, design of quality control
programs, and operating assistance.
During the year ended December 31, 1997, Floridino's International, Inc. sold
five franchises. There were eight franchise outlets in operation as of December
31, 1998 and nine as of December 31, 1997.
The Company defers recognition of franchise fee revenue until they have
fulfilled all of their required services stipulated in the franchise agreements.
There were no amounts recorded for deferred revenue from franchised outlets at
December 31, 1998, and $59,500 recorded at December 31, 1997.
NOTE 6. RELATED PARTY TRANSACTIONS
Floridino's International, Inc. and Floridino's Pizza Etc., Inc. rent real
property from a Floridino's International Holdings, Inc.'s shareholder, and
President, Michael Floridino. There is no formal lease agreement between this
shareholder and the Company or its wholly owned subsidiaries, Floridino's
International, Inc. and Floridino's Pizza Etc., Inc. Total rent paid to the
shareholder during the years ended December 31, 1998, and 1997, approximated
$26,000 and $32,000, respectively.
On November 1, 1998, the Company issued 1,680,000 shares of restricted common
stock, subject to Rule 144, to Toho Ventures Ltd., in exchange for 100% of the
outstanding stock of Zoops Soups Inc. and Floridino's Inc.. This consummated an
acquisition of the two entities which became wholly owned subsidiaries of the
Company. Toho Ventures Ltd. is a company whose majority shareholder, Nick
Pirgousis, became the Chairman of the Board of the Company and its majority
shareholder subsequent to the acquisition.
57
<PAGE>
At December 31, 1998, short-term loans payable to officer consisted of
non-interest bearing loan maturing in May 1999.
Interest was not recorded on this transaction due to the fact that the nature of
the loan was of such a short term (six months) and the applicable rate to be
applied (approximately 8%) would have produced an immaterial amount.
NOTE 7. COMMON STOCK AND WARRANTS
PRIVATE OFFERING
During July of 1997, the Company initiated a private offering. The offering
consisted of 20,000 Units, each Unit consisting of 25 shares of common stock,
and 45 redeemable common stock purchase warrants, at a price of $5.00 per Unit.
Each stock purchase warrant included in the Units is exercisable into one share
of the Company's common stock at a price of $1.00 per share during the nine
month period after the closing of the offering. These warrants were extended
until December 6, 1998. Accordingly, the Company issued 500,000 shares of common
stock and 900,000 warrants as a result of the private offering. The Company
issued an additional 200,000 restricted shares of common stock in lieu of
payment for services rendered in connection with the private offering. The
common stock and warrants constituting a Unit may be separately transferred at
any time after issuance. In December 1997, 18,000 shares of common stock were
purchased under the warrants.
In 1998, the Board voted to extend the warrants through March of 1999. In 1998,
261,000 warrants were exercised at $1.00 per share.
RESTRICTED STOCK
Until such time as a public market exists for the common stock of the Company,
the shares owned by insiders, officers and directors totaling 3,469,700 are
deemed "restricted securities" as that term is defined under the Securities Act;
and in the future these shares may be sold under Rule 144, which provides in
essence, that a person holding restricted securities for a period of one year
may sell every three months an amount equal to the greater of (a) one percent of
the Company's issued and outstanding common stock or (b) the average weekly
trading volume of the common stock during the four calendar weeks prior to such
sale.
58
<PAGE>
NOTE 8. SUBSEQUENT EVENTS
RESTAURANTS
During 1999, in order to streamline operations, all unprofitable restaurants
existing in 1998 were closed. The only restaurant remaining in Florida is the
North Lakeland operation. The North Lakeland store is being renovated and will
be fully operational by the end of October 1999. This store will be a full
service restaurant.
The Floridino's New York and Zoop Soups operation have been merged into one
restaurant. The new restaurant, located at Broadway and 23rd Street, in
Manhattan, New York, will serve as the test store for the Company's new urban
concept. The 23rd Street location has been opened since September 1, 1999.
The Company is opening two express concept restaurants in Lake Wales and Delray,
Florida. The "Floridino's Fast Italian" concept restaurants are under
construction and are targeted to open on December 1, 1999.
FROZEN FOOD DIVISION
During 1999, Floridino's Specialties Distribution, Inc., the frozen foods
division, expanded and renovated its manufacturing facility. The division has
secured USDA approval to commence production. It is anticipated that the plant
will begin to fulfill orders in November of 1999. The division will private
label product for restaurant chains and will sell its own brand through food
brokers and super markets.
COMMON STOCK AND WARRANTS
During 1999, the remaining warrants issued under the July 1997 private placement
were exercised. In total, 837,000 of the original warrants have been exercised.
The remaining 63,000 original warrants have lapsed. The exercise price of $1.00
per share was paid for the issuance of 135,000 shares of common stock. An
additional 423,000 shares were issued at $0.50 per share.
In July 1999, the Company raised $1,000,000 in capital through a Regulation
D 505 private placement offering. Two million shares of common stock were sold
at $0.50 per share. Additional shares of stock, totaling 140,000, were issued to
individuals, including a director of the Company, in partial payment for
services rendered and/or to be rendered, during 1999.
FRANCHISE OPERATIONS
The Company is in the process of updating its Uniform Franchise Offering
Circular (UFOC). The Company plans to market several new franchise concepts to
potential franchisees in the second quarter of 2000.
59
<PAGE>
DEBT REDUCTION
A substantial portion of the capital raised through private placement offerings
has been utilized to restructure and reduce the Company's long-term debt. All of
the loans payable to Colonial Bank have been satisfied in 1999. Currently, all
obligations to First Union Bank are being negotiated. It is the opinion of
outside counsel, that the obligations to First Union will be satisfied for
approximately 50% of the principal amounts owing. The accompanying financial
statements do not include the effects of this uncertainty.
NOTE 9. YEAR 2000 READINESS STATEMENT (UNAUDITED)
The Company is actively addressing the issues related to the date change in year
2000. This is necessary because many computer systems were programmed using only
two digits to contain the year in the date fields. On January 1, 2000, many of
these programs will fail to perform date calculations correctly and produce
erroneous results. This could temporarily prevent the Company from processing
business transactions. The Company began efforts to address this issue.
Currently, all computer systems including both IT and non-IT systems and work is
underway to remedy those systems deemed to be year 2000 non-compliant. The
non-IT systems are primarily systems with embedded processors such as telephones
and security systems. The remediation of the IT and non-IT systems is expected
to be completed by the end of 1999. The Company has obtained letters of
certification from its mission critical computer systems and software vendors.
The costs associated with the remediation efforts have been internally
generated. Any external costs, projected to be incurred, to achieve compliance
will be funded from the Company's existing working capital and are not expected
to be material in nature.
There are significant risks associated with the year 2000 issues. Many of these
risks such as those associated with electrical power or telecommunications are
outside the reasonable control of the Company. Although the Company believes its
remediation and contingency planning efforts adequately identify and address the
year 2000 issues that are within the Company's reasonable control, there can be
no assurance that the Company's efforts will be fully effective. Due to the
significant risks, the Company's management is monitoring these efforts very
closely.
NOTE 10: RESTATEMENT AND PRIOR PERIOD ADJUSTMENT
Subsequent to issuance of the financial statements for December 31, 1998,
management determined that the accounting for the acquisition of the subsidiary
on November 1, 1998 and the accounting for the closure of certain restaurants
was incorrect. Originally the accounting method used to record the transaction
was the purchase method. Upon review, management determined that the pooling
method should have been employed. In addition, management determined that the
purchase of the Bartow subsidiary in fiscal year 1997 that resulted in recording
$10,000 as minority interest should be adjusted since a review of the purchase
indicated that 100% of the subsidiary had been purchased and that no minority
interest should be recorded as a result. In addition to this, the accounting for
the cost of store closings as a discontinued operation was incorrect since the
Company continued to operate the restaurant segment and therefore should account
for the operations of the stores that were closed as part of loss from continued
operations.
60
<PAGE>
These errors resulted in a restatement of the consolidated balance sheet,
consolidated statement of operations, and consolidated statement of changes in
shareholders' equity. Below is a schedule of balances that were affected by
these restatements.
As restated As reported
----------- -----------
Additional paid in Capital 884,657 792,711
Retained deficit (1,260,176) (1,178,230)
Food & beverage sales 1,666,800 1,577,564
Cost of goods sold 1,066,855 573,966
Gross profit 691,652 1,131,684
General & administrative cost 1,190,743 666,098
ITEM 3. DESCRIPTION OF PROPERTY
As of September 30, 2000, the Company held ownership to three (3) parcels of
land situated in the State of Florida as follows:
i. A parcel at 3560 Cypress Gardens Road, Winter Haven, Florida, is
valued at approximately $160,000 and possesses encumbrances of
$120,000. This is the location of the Company's corporate offices and
is approximately 2,520 square feet.
ii. The parcel at 8141 State Road 33 North, in Lakeland, Florida is the
site of the Company's frozen food production plant. The production
plant is approximately 6,000 square feet. The land site and building
structure are valued at approximately $400,000.
iii. The parcel at 8135 State Road 33 North, in Lakeland, Florida is
the site adjacent to the Company's Lakeland plant and is approximately
one acre in size. The land site is valued at $350,000.
61
<PAGE>
Item 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the information, to the best knowledge of the
Company as of September 30, 2000, with respect to each person known by the
Company to own beneficially more than 5% of the Company's outstanding common
stock, each director of the Company and all directors and officers of the
Company as a group. The Company also provides beneficial ownership information
with respect to each of its executive officers.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class(4)
---------------- -------------------- -----------
<S> <C> <C>
Michael Floridino (President/Director) 749,700 10.35%
3560 Cypress Gardens Road (5)
Winter Haven, Florida 33884
William C. Keeler (CEO) 3,000 *
5836 Spruce Creek Drive
Port Orange, Florida 32127
Hynford Holdings Ltd. 500,000 6.9%
Cable Beach Court - Ste. #1
Nassau, Bahamas
Chevas Holdings Ltd. 500,000 6.9%
66-Musard Road
London, UK
Nick Pirgousis(Director)(1)(2) 2,144,000 29.6%
494 La Guardia Place
New York, NY 10012
Frank Dolney (Secretary/Treasurer/Director) 1,680,000 23.9%
4291 Old Nine Foot Road (1)
Winter Haven, FL 33880
62
<PAGE>
Toho Ventures Ltd. (1) 1,680,000 23.9%
494 LaGuardia Place
New York, NY 10012
George Pirgousis (Director)(3) 142,000 2.0%
494 La Guardia Place
New York, NY 10012
William C. Scott (Director) 40,000 *
95 Madison Avenue
Morristown, New Jersey 07960
Raffles Toho Ltd.(2) 464,000 6.4%
494 La Guardia Place
New York, NY 10012
Lokee LLC (3) 142,000 2.0%
494 La Guardia Place
New York, NY 10012
Roman Fisher 0 0
3100 N. Ocean Blvd., #809
Ft. Lauderdale, FL 33308
All Directors and 4,758,700 65.7%
Executive Officers as a
Group (7 persons)
-----------------------
</TABLE>
* Less than 1% percent
(1) As of September 30, 2000, Nick Pirgousis, Chairman of the Board, and Frank
Dolney, Secretary/Treasurer and a director, own 100% own a fifty (50%) percent
interest in of Toho Ventures Ltd., which owns 1,680,000 shares of Common Stock
of the Company. The corresponding amount of shares beneficially owned by Nick
Pirgousis and Frank Dolney each individually include all 1,680,000 shares of
Common Stock of the Company owned beneficially through Toho Ventures Ltd. in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934 (the "Exchange
Act").
(2) As of September 30, 2000, Nick Pirgousis, Chairman of the Board, is the sole
beneficial owner of Raffles Toho Ltd., which owns 464,000 shares of Common Stock
of the Company. The corresponding amount of shares beneficially owned by Nick
Pirgousis includes the 464,000 shares of Common Stock of the Company owned
beneficially through Raffles Toho Ltd. in accordance with Rule 13d-3 of the
Exchange Act.
63
<PAGE>
(3) As of December 31, 1999, George Pirgousis, a director, is the sole
beneficial owner of Lokee LLC which owns 142,000 shares of the Company. The
corresponding amount of shares beneficially owned by George Pirgousis includes
the 142,000 shares of Common Stock of the Company owned beneficially through
Lokee LLC in accordance with Rule 13d-3 of the Exchange Act.
(4) Percent of Class is based on 7,245,000 shares of Common Stock outstanding as
of the date of September 30, 2000.
(5) In January 2000, Mr. Floridino, President and a director of the Company,
returned 512,000 shares of Common Stock to the Company and transferred 13,000
shares of Common Stock to an unaffiliated third party in satisfaction of a
mortgage on property the Company purchased from Mr.
Floridino. These shares were returned or transferred pursuant to oral agreements
between Mr. Floridino and the Company.
Rule 13d-3(d)(1)(i) under the Exchange Act, regarding the determination of
beneficial owners of securities, includes as beneficial owners of securities,
among others, any person who directly or indirectly, through any contract,
arrangement, understanding, relationship or otherwise has or shares voting power
and/or investment power with respect to such securities; and, any person who has
the right to acquire beneficial ownership of such security within sixty days
through a means, including, but not limited to, the exercise of any option,
warrant, right or conversion of a security. Any securities not outstanding that
are subject to such options, warrants, rights or conversion privileges shall be
deemed to be outstanding for the purpose of computing the percentage of
outstanding securities of the class owned by such person, but shall not be
deemed to be outstanding for the purpose of computing the percentage of the
class by any other person.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
<TABLE>
<CAPTION>
Position(s) Held and Period Served as Director
Name Age Duration of Service
---------------- --- ------------------- ---------------
<S> <C> <C>
William C. Keeler 47 Chief Executive Officer
Michael Floridino 42 President/Director July 1997 to present
Frank Dolney 44 Secretary/Treasurer/Director January 1999 to present
Nick Pirgousis 45 Chairman of Board January 1999 to present
George Pirgousis 59 Director January 1999 to present
William A. Scott 56 Director March
1999
------------------------------------------------------------
</TABLE>
* Roman Fisher was elected to serve on the Board of Directors at the annual
meeting of stockholders on July 21, 2000.
64
<PAGE>
All directors hold office until the next annual meeting of stockholders, held on
June 15th of each year, and until their successors have been duly elected and
qualified. There are no agreements with respects to the election of directors.
Business Experience:
William Keeler, Chief Executive Officer. Since November 1999, Mr. Keeler has
been the Company's Chief Executive Officer. Mr. Keeler has over twenty years of
experience in the food industry including work in retail restaurants and
wholesale distribution. From January 1998 to November 1999, Mr. Keeler worked as
Vice President of Sales and Marketing for Bari Importing Corp., where he
supervised all marketing aspects of that company, increased sales and profits
over 20%, instituted a new commission program, instituted a new sales software
program, designed an equipment program bringing new customers and opening new
opportunities for the sales force. From1994 to May 1995, he was regional sales
manager, and from May 1995 to September 1996, he was general sales manager, and
from September 1996 to January 1998, he was vice president of sales, all at
Rykoff Sexton US Food Services. Mr. Keeler was district sales manager and
district sales director at Sysco Foods from 1991 to 1994. Prior to being
territory and district sales manager and director of corporate produce sales for
White Swan Food Service from 1984 to 1991, Mr. Keeler was the franchise owner of
five Kentucky Fried Chicken franchises from 1978 to 1984.
Michael Floridino, President and Director. Mr. Floridino is the founder of the
Company and since July 1997, he has been President and a director of the
Company. Mr. Floridino has been in the - restaurant business since he was a
teenager. In 1988, Mr. Floridino moved to Winter Haven, Florida and founded the
first Floridino's restaurant. He is the owner and originator of the recipes of
Floridino's which have been handed down to him through his family and perfected
by him. Mr. Floridino's expertise lies within the food development and
restaurant operations business.
Frank Dolney, Secretary/Treasurer and Director. Mr. Dolney has been
Secretary/Treasurer and a director since January 1999. During the past 18 years,
Mr. Dolney has worked as an investment executive in the areas of portfolio
management, private placements and tax strategy. From 1996 to 1999, Mr. Dolney
served as a private investment consultant for various entities throughout the
United States. From 1990 to 1995, Mr. Dolney worked with AT Broad & Company in
New York as an investment executive identifying corporate finance and merger and
acquisition candidates for top management. From 1979 to 1981, Mr. Dolney was
Assistant Operations Manager with Merrill Lynch Pierce Fenner & Smith. Mr.
Dolney graduated from Hofstra University in 1979 with a Bachelors of Business
Administration in Finance and Economics.
65
<PAGE>
Nick Pirgousis, Chairman of the Board of Directors. Mr. Pirgousis has been
Chairman of the Board since January 1999 and served as Chief Executive Officer
from June1999 until November 1999. Mr. Pirgousis opened his first restaurant at
the age of 18 in New York City. Since the beginning of his career and through
the present, Mr. Pirgousis has operated and managed various restaurants in New
York. From early 1998 until its purchase by the Company in November 1998, he
owned and operated Zoop Soups, Inc. Since 1982, he has been part owner of and
has managed two Silver Spurs restaurants located in New York City with his
brother, George Pirgousis. He has also overseen the growth of a number of
establishments throughout his career in the food and beverage industry as a
consultant utilizing his restaurant expertise to advise on the operation and
management of each entity.
William Scott, Director. Mr. Scott has served as a director of the Company since
March 1999. He is a certified accountant in the State of Florida for over 22
years and has an extensive financial and accounting background. In 1974, Mr.
Scott started his own private accounting firm and continues in this private
practice through the present. During the first seven years of his career, Mr.
Scott worked for Price Waterhouse & Co.
George Pirgousis, Director. Mr. Pirgousis, the brother of Nick Pirgousis, has
served as a director of the Company since January 1999. He has been a
restauranteur for the past 35 years. Since 1982, he has managed and is part
owner of the two Silver Spurs restaurants located in New York City with Nick
Pirgousis, his brother. His expertise is the daily operations of restaurants
with a strong emphasis in purchasing and inventory control.
Roman Fisher, Director. Mr. Fisher has served as a director of the Company since
July 2000. Mr. Fisher has gained his management experience as a founder and
executive officer of several private and public companies over the past 20
years. He is Executive Vice-President of Bork Consulting Corporation, a private
consulting company where he is currently coordinating the consolidation of
technology driven companies through strategic planning and development. Mr.
Fisher was President and a Director of Globatron Corporation., a publicly traded
telecommunications company (formerly known as Win-Gate Equity Group, Inc.) from
its inception in May 1996 until January 2000 and continues to serve on its Board
of Directors, and the Board of Directors of Investors Street, a NASD member
broker-dealer. From 1985 to 1998, he was an executive with Metropolitan Health
Networks, a publicly traded company, where he was responsible for implementing
database management, computer systems as well as the design and development of
the corporate web site. He received a Masters of Science degree from Nova
University in 1984 and his law degree from the University of Basel, Switzerland
in 1972.
66
<PAGE>
Involvement in Certain Legal Proceedings:
-----------------------------------------
To the best knowledge of management, during the past five years, no present or
former director or executive officer of the Company:
(1) filed a petition under the federal bankruptcy laws or any state
insolvency law, nor had a receiver, fiscal agent or similar officer
appointed by a court for the business or present of such a person, or
any partnership in which he was a general partner at or within two
years before the time of such filing, or any corporation or business
association of which he was an executive officer within two years
before the time of such filing;
(2) was convicted in a criminal proceeding or named subject of a
pending criminal proceeding (excluding traffic violations and other
minor offenses);
(3) was the subject of any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining him form or otherwise limiting,
the following activities:
(i) acting as a futures commission merchant, introducing broker,
commodity trading advisor, commodity pool operator, floor broker,
leverage transaction merchant, associated person of any of the
foregoing, or as an investment advisor, underwriter, broker or dealer
in securities, or as an affiliated person, director of any investment
company, or engaging in or continuing any conduct or practice in
connection with such activity;
(ii) engaging in any type of business practice; or (iii) engaging in
any activity in connection with the purchase or sale of any security or
commodity or in connection with any violation of federal or state
securities laws or federal commodity laws;
(4) was the subject of any order, judgment, or decree, not subsequently
reversed, suspended, or vacated, of any federal or state authority
barring, suspending, or otherwise limiting for more than 60 days the
right of such person to engage in any activity described above under
this Item, or to be associated with persons engaged in any such
activity;
(5) was found by a court of competent jurisdiction in a civil action or
by the Securities and Exchange Commission to have violated any federal
or state securities law, and the judgment in subsequently reversed,
suspended, or vacate;
(6) was found by a court of competent jurisdiction in a civil action or
by the Commodity Futures Trading Commission to have violated any
federal commodities law, and the judgment in such civil action or
finding by the Commodity Futures Trading Commission has not been
subsequently reversed, suspended or vacated.
67
<PAGE>
Directors of Other Reporting Companies:
---------------------------------------
Roman Fisher is a director of Globaltron Corporation (formerly known as Win-Gate
Equity Group, Inc.), a company which files reports with the Securities and
Exchange Commission.
Family Relationships:
---------------------
Nick Pirgousis, Chairman of the Board of Directors, and George Pirgousis, a
Director, are brothers. There are no other family relationships between the
directors, executive officers or any other person who may be selected as a
director or executive officer of the Company.
Compliance with Section 16(a) of the Exchange Act:
--------------------------------------------------
Directors, officers, and beneficial owners of more than 10% of any class of
equity securities of the Company registered pursuant to Section 12 of the
Securities Act of 1933, as amended, are required to file on a timely basis
certain reports under Section 16 of the Exchange Act as to their beneficial
ownership of the Company's common stock. The Initial Statements of Beneficial
Ownership on Form 3 for Messrs. Keeler, Pirgousis, Scott and Pirgousis were
filed on June 16, 2000. The Form 3's for Messrs. Dolney and Floridino were filed
on December 6, 2000.
Item 6. EXECUTIVE COMPENSATION
The following table sets forth the total compensation awarded or paid by the
Company to its president, for the fiscal year ended December 31, 1999 and 1998.
No other executive officer of the Company had a total annual salary and bonus in
excess of $100,000 for fiscal 1999 and 1998.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
--------------------
Annual Compensation Awards Payouts
--------------------- ------- --------
and Annual Restricted Under- Other
Principal Compen- Stock lying LTIP Compen-
Position Year Salary Bonus sation Awards Options Payouts sation
-------- ---- ------ ----- ------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael 1999 $75,000 0 0 0 0 0 0
Floridino,
President, 1998 $76,120 0 0 0 0 0 0
William 1999 $20,000 0 0 0 0 0 0
Keeler,
CEO
</TABLE>
*Mr. Keeler was not employed by the Company until November 1999.
68
<PAGE>
The Company has not had a bonus, profit sharing or deferred compensation plan
for the benefit of its employees, officers or directors.
Compensation of Directors: None.
--------------------------
Option Grants in 1999: None
Employment Contracts and Termination of Employment and Change of
----------------------------------------------------------------
Control Arrangements:
---------------------
There are no compensatory plans or arrangements of any kind, including payments
to be received from the Company, with respect to any person which would in any
way result in payments to any such person because of his or her resignation,
retirement, or other termination of such person's employment with the Company or
its subsidiaries, or any change in control of the Company, or a change in the
person's responsibilities following a change in control of the Company.
Item 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the past two (2) years, the Company has not entered into a transaction
with a value in excess of $60,000 with a director, officer or beneficial owner
of 5% or more of the Company's Common Stock, except as disclosed in ITEM
6-Executive Compensation and the following paragraphs:
(a) On November 1, 1998, the Company issued 1,680,000 shares of restricted
common stock to Toho Ventures Ltd. in exchange for 200 shares of common stock of
Zoop Soups, Inc., representing 100% of its issued and outstanding common stock,
and 200 shares of common stock of Floridino's of New York, representing 100% of
its issued and outstanding common stock. Toho Ventures Ltd. is a company whose
shareholders are Nick Pirgousis, the Chairman of the Board of Directors, and
Frank Dolney, Secretary, Treasurer and a Director, of the Company.
(b) In May 1999, the Company issued 50,000 shares of common stock to Michael
Floridino, the Company's president, in connection with the purchase of three (3)
parcels of real estate located at 1810 3rd Street, S.E., Winter Haven, Florida,
300 Cypress Gardens Blvd, Winter Haven, Florida 33880, 3560 Cypress Gardens
Road, Winter Haven, Florida 33884. For additional consideration to Michael
Floridino, the Company assumed the liabilities and encumbrances on each of those
properties. The property provided by Michael Floridino was the fair market value
in accordance with inquiries and appraisals made by the Company through various
real estate brokers in the Winter Haven, Florida area. The total market value of
the three properties, not reduced by mortgages, liens and encumbrances, was
approximately $639,000. The valuation of the liabilities on the properties was
$389,000.
(c) During the course of the 1999 fiscal year, the Company received funding for
reconstruction of the Company's operations from Raffles Toho Inc., in the total
sum of approximately $258,020. Raffles Toho is wholly owned by the Chairman of
the Board of Directors of the Company, Nick Pirgousis. The advance of such funds
is evidenced by three promissory notes. The terms of the notes provide for
interest to be assessed at an annual rate of 8.25%. The individual notes held by
Raffles Toho, issued on August 31, 1999, are for $120,435 and $72,197. These had
a balloon payment due on September 1, 2000, extended to October 31, 2000. A
third individual note issued on August 31, 1999 for $65,388 had a balloon
payment due on January 1, 2000. In November 2000, the maturity dates of all
three promissory notes were extended to January 2002.
69
<PAGE>
TRANSACTIONS WITH MANAGEMENT:
(d) During fiscal year 1998, Floridino's International, Inc. and Floridino's
Pizza Etc., Inc. rented real property from Floridino's International Holdings,
Inc.'s shareholder, and President, Michael Floridino. There was no formal lease
agreement between Mr. Floridino and the Company or its wholly owned
subsidiaries. Total rent paid to the Mr. Floridino during the year ended
December 31, 1998 approximated $26,000. The Company cancelled this oral
agreement in January 1999. The transactions described were on terms that are at
least as favorable to the Company as would be expected to be negotiated with
unaffiliated third parties and no preferences have been given to any of the
parties with whom the Company has transacted.
Item 8. DESCRIPTION OF SECURITIES
Common Stock
------------
The Company is authorized under its Articles of Incorporation to issue
25,000,000 shares of $.001 par value Common Stock Holders of shares of Common
Stock are entitled to one vote for each share on all matters to be voted on by
the stockholders. Holders of shares of Common Stock are entitled to share
ratably in dividends, if any, as may be declared from time to time by the Board
of Directors in its discretion from funds legally available therefore. In the
event of a liquidation, dissolution or winding up of the Company, the holders of
shares of Common Stock are entitled to share pro rata all assets remaining after
payment in full of all liabilities. Holders of Common Stock have no preemptive
or other subscription rights, and there are no conversion rights or redemption
or sinking fund provisions with respect to such shares. All of the shares of
Common Stock issued and outstanding are fully paid and non-assessable.
Convertible Promissory Note
---------------------------
The convertible promissory note issued to one accredited investor in
October 1999 (the "Note") has a face amount of $750,000 and is convertible into
shares of the Company's Common Stock at a 40% discount from the preceding five
(5) day average of the closing price of a share of Common Stock on the date of
conversion. The Note bears interest at the rate of 9% per annum and matures in
October 2001. As of September 30, 2000, $500,000 of the face amount of the Note
became convertible into 151,151 shares of Common Stock but it had yet not been
converted by the holder.
70
<PAGE>
PART II
-------
ITEM 1. MARKET PRICE OF AND DIVIDENDS FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the NASD Electronic Bulletin Board
(OTC:BB) under the trading symbol "FDNO". The following table sets forth, the
highest and lowest bid prices for the Common Stock as reported by the National
Quotation Bureau. The prices set forth below represent inter-dealer quotations,
without retail mark-up, mark-down or commission and may not be reflective of
actual transactions.
High Low
------ ------
Fiscal Year Ended December 31, 1997:
------------------------------------
Fourth Quarter ................................ $6.00 $5.00
Fiscal Year Ended December 31, 1998:
------------------------------------
First Quarter.................................. $5.50 $5.25
Second Quarter................................. $5.50 $4.00
Third Quarter.................................. $5.75 $5.375
Fourth Quarter................................. $5.50 $5.00
Fiscal Year Ended December 31, 1999:
------------------------------------
First Quarter.................................. $6.0625 $5.00
Second Quarter................................. $6.125 $5.00
Third Quarter ................................. $7.875 $5.625
Fourth Quarter ................................ $8.875 $6.00
Fiscal Year Ended December 31, 2000:
------------------------------------
First Quarter.................................. $9.25 $8.25
Second Quarter................................. $9.25 $6.03
Third Quarter ................................. $8.31 $3.50
71
<PAGE>
Holders
-------
There were approximately 73 holders of record of the Company's Common Stock as
of September 30, 2000.
Dividends
---------
The Company has not declared or paid any cash dividends to date and does not
anticipate or contemplate paying dividends in the forseeable future. The Company
plans to retain any future earnings for use in the Company's business.
ITEM 2. LEGAL PROCEEDINGS
There are no material legal proceedings outside of the ordinary course of
business.
Item 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
On January 17, 2000, the Company dismissed the certified public accounting firm,
Infante, Lago and Company, as a result of the departure of Jesus Lago, the
partner overseeing the audit and financial reporting of the Company. Mr. Lago
has become a partner of the certified public accounting firm of Berkovits and
Company, P.A., located in the Plantation, Florida and the Company elected to
retain this firm for the purpose of conducting future audits of the Company and
for providing financial reports for the Company. The engagement of the
accounting firm of Berkovits & Company commenced on January 17, 2000.
The decision to dismiss Infante, Lago and Company was based solely on the
departure of Mr. Lago from that firm and did not stem from any disagreement
between the Company and Infante, Lago on any matter of accounting principles,
practices, financial statements, disclosure or auditing practices or procedures.
No such disagreements existed between the Company and Infante, Lago prior to
their dismissal.
The Company on December 17, 1999 filed a Form 8-K reflecting this change which
has been subsequently amended. The Form 8-K/A is incorporated by reference
herein and investors are directed to that filing for disclosure purposes. The
principal accountant's report on the financial statements for either of the past
two years did not contain an adverse opinion or disclaimer of opinion, or was
modified as to audit scope, or accounting principles. The accountant's report
for the fiscal year ended December 31, 1999 was modified with respect to the
Company's ability to continue as a going concern. Additionally, the decision to
change accountants was approved by the board of directors of the Company and
ratified by stockholders on July 21, 2000 at their annual meeting.
72
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
(a) In October 1999, the Company sold a convertible promissory note with a face
amount of $750,000 to one accredited investor who acquired the promissory note
with investment intent pursuant to Rule 506 of the Securities Act of 1933, as
amended (the "Securities Act").
(b) Pursuant to its Consulting Agreement with the Ephraim Group, and William
Scott, in August 1999, the Company issued 100,000 shares and 40,000 shares,
respectively, of restricted Common Stock to these consultants. The issuance of
these shares was exempt from registration pursuant to Section 4(2) of the
Securities Act.
(c) The Company sold 2,000,000 shares of its restricted Common Stock at $.50 per
share in July 1999 for gross offering proceeds of $1,000,000 to accredited
investors who acquired the shares with investment intent pursuant to Rule 505 of
Regulation D of the Securities Act.
(d) On May 23, 1999, the Company issued 50,000 shares of restricted Common Stock
to Michael Floridino, in connection with the purchase by the Company of three
(3) parcels of real estate located at 1810 3rd Street, S.E., Winter Haven,
Florida, 300 Cypress Gardens Blvd, Winter Haven, Florida 33880, 3560 Cypress
Gardens Road, Winter Haven, Florida 33884. For additional consideration to
Michael Floridino, the Company assumed the liabilities and encumbrances on each
of those properties and other liabilities associated with the Company's business
activities. The issuance by the Company of 50,000 shares of restricted Common
Stock to Michael Floridino was exempt from registration under Section 4(2) of
the Securities Act as it was a private offering of shares by the issuer to an
officer and director of the Company who acquired the shares with investment
intent. The estimated value of the consideration received for the May 1999
issuance was approximately $250,000.
(e) On November 16, 1998, the Company issued 500,000 shares of restricted Common
Stock to Hynford Holdings Inc., a Bahamian corporation, in connection with the
purchase by the Company of various production machinery, auxiliary, plant and
restaurant equipment owned by Hynford Holdings. The issuance of 500,000 shares
to Hynford Holdings, Inc., was exempt from registration under Section 4(2) of
the Securities Act as it was a private offering of shares by the issuer to one
accredited investor who acquired the shares with investment intent. The
estimated value of the consideration received for the November 1998 issuance was
approximately $87,000.
(f) On November 1, 1998, the Company issued 1,680,000 shares of restricted
common stock, to Toho Ventures Ltd., in exchange for 200 shares of common stock
of Zoop Soups, Inc., representing 100% of the issued and outstanding stock of
Zoop Soups, Inc. and 200 shares of common stock of Floridino's of New York,
representing 100% of the issued and outstanding common stock of the two
entities. The two entities were combined to form Floridino's, Inc., which became
a wholly owned subsidiary of the Company. The issuance of 1,680,000 shares to
Toho Ventures was exempt from registration under Section 4(2) of the Securities
Act as it was a private offering of shares by the issuer to one accredited
investor who acquired the shares with investment intent. The estimated value of
the consideration received for the November 1998 issuance was approximately
$337,000.
73
<PAGE>
(g) In July 1997, the Company conducted a private placement of 20,000 units at
$5.00 per unit, each unit consisting of 25 shares of Common stock and 45 Common
Stock purchase warrants exercisable at $1.00 per share until June 1998. The
units were offered at a price of $5.00 per unit. The offering to accredited
investors was exempt from registration pursuant to the exemption provided by
Rule 504 of Regulation D of the Securities Act. In December 1997, 18,000 shares
of Common Stock were issued by the Company upon the exercise of 18,000 warrants
for gross proceeds of $18,000. The expiration date of the warrants was extended
to December 31, 1998 and then to March 31, 1999, and the exercise price was
reduced to $.50 in March 1999 in order to induce the exercise of the outstanding
warrants. In December 1998, 261,000 shares of Common Stock were issued by the
Company upon the exercise of warrants at $1.00 per share for gross proceeds of
$261,000. During 1999, 558,000 shares of Common Stock were issued by the Company
upon the exercise of warrants, 135,000 warrants were exercised for gross
proceeds of $135,000 and 423,000 warrants were exercised at $.50 per share for
gross proceeds of $211,500.
(h) In July 1997, the Company acquired from Michael Floridino all of the
outstanding stock in Floridino's Pizza Etc. Inc., Floridino's of Lake Wales,
Inc., Hard Ball Cafe, Inc., Floridino's Home of the Calzone, Inc., Floridino's
International, Inc., and Floridino's of Bartow, Inc. by issuing to him 1,800,000
shares of restricted Common Stock pursuant to Section 4(2) of the Securities
Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Indemnification of the directors and officers of the Company is authorized
pursuant to the Company's Articles of Incorporation and By-laws and to the
fullest extent permitted by Florida law. It is possible that the Company will be
required to pay certain judgments, fines and expenses incurred by an officer or
director, including reasonable attorneys' fees, as a result of actions or
proceedings in which such officers and directors are involved by reason of being
or having been an officer or director provided that said officer or directors
acted in good faith.
Under Florida Law, a corporation shall have power to indemnify any person who
was or is a party to any proceeding (other than an action by, or in the right
of, the corporation), by reason of the fact that he or she is or was a director,
officer, employee, or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise against
liability incurred in connection with such proceeding, including any appeal
thereof, if he or she acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. The termination of any proceeding by
judgment, order, settlement, or conviction or upon a plea of nolo contendere or
its equivalent shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably believed to be
in, or not opposed to, the best interests of the corporation or, with respect to
any criminal action or proceeding, had reasonable cause to believe that his or
her conduct was unlawful.
74
<PAGE>
PART III
--------
ITEM 1. FINANCIAL STATEMENTS, EXHIBITS AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS
The following financial statements are filed as part of this registration
statement:
Auditors' Reports
Balance Sheet
Statement of Loss
Statement of Cash Flows
Statement of Shareholders' Equity (Deficit)
Selected Financial Data
Notes to Financial Statements
(B) EXHIBITS AND INDEX OF EXHIBITS
The following exhibits are included in Item 13(c).
EXHIBIT
3 Articles of Incorporation*
3.1 By-laws**
10.1 Agreement between Michael Floridino and Company
dated May 20, 1999**
10.2 Promissory Note Between Floridino's Inc. and
Raffles Toho Inc.**
10.3 Promissory Note Between Floridino's Inc. and
Raffles Toho Inc.**
10.4 Promissory Note Between Floridino's Inc. and
Toho Partners, LLC**
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10.5 Promissory Note Between Floridino's Inc. and
Raffles Toho Inc.**
10.6 Promissory Note Between Floridino's Inc. and
Toho Partners, LLC**
10.7 Standard Franchise Agreement**
10.8 Consulting Agreement between Floridino's International
Holdings, Inc. and the Ephraim Group**
10.9 Promissory Note - 9.0% Series A Convertible
Preferred Promissory Note Due October 31, 2001*
21 Subsidiaries of Company**
27 Financial Data Schedule*
------------------------------------
* Filed as an exhibit to Form 10-KSB/A filed contemporaneously herewith. **
Filed as an exhibit to Form 10-SB/A on July 21, 2000.
(C) REPORTS ON FORM 8-K
A report on Form 8-K was filed on December 15, 1999, and subsequently amended on
March 27, 2000, July 21, 2000 and contemporaneously herewith and is incorporated
herein by this reference herein.
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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.
FLORIDINO'S INTERNATIONAL HOLDINGS, INC.
----------------------
(Registrant)
Date: December 29, 2000 By: /s/ Nick Pirgousis
------------------------- ------------------
Chairman of the Board
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