SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
OF 1934
For the quarterly period ended March 31, 1998.
or
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number: 333-40799
THE HAVANA REPUBLIC., INC.
(Exact name of registrant as specified in this charter)
FLORIDA 84-1346897
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
360 WESTON ROAD, WESTON, FL
33326 (Address of principal
executive offices)
Registrant's telephone number, including area code: (954) 384 6333
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes___ No X
As of March 31, 1998, there were 10,028,485 shares of the Issuer=s
Common Stock, no par value, outstanding.
<PAGE>
<TABLE>
<CAPTION>
THE HAVANA REPUBLIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30, 1997 MARCH 31, 1998
-------------- ---------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $219,294 871,642
Accounts Receivable 1,668 6,999
Inventory 477,854 774,455
Other Current Assets - 2,500
Deposits on Inventory Purchases 300,000 616,700
---------- ---------
Total Current Assets 998,816 2,272,296
---------- ---------
PROPERTY AND EQUIPMENT, at Cost
(Net of Accumulated Depreciation and Amortization of $13,907 and
$63,907 at June 30, 1997 and March 31, 1998, respectively) 204,811 394,182
---------- ---------
OTHER ASSETS:
Intangible Assets (Net of Accumulated Amortization of $1,598 and
$3,195 at June 30, 1997 and March 31, 1998, respectively) 10,058 8,611
Deposits 25,253 4,933
Deposits on Inventory Purchases 141,700 -
Investment in 50% Owned Factory 50,000 50,000
---------- ---------
Total Other Assets 227,011 63,544
---------- ---------
Total Assets $1,430,638 $2,730,022
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $97,797 $111,988
Accrued Expenses 41,441 52,652
Due to Related Party 750 -
Deferred Membership Revenue 19,142 4,784
Note Payable 400,000 190,653
---------- ---------
Total Current Liabilities 559,130 360,077
---------- ---------
COMMITMENTS
SHAREHOLDERS' EQUITY:
Common Stock, No Par Value, Authorized 50,000,000 Shares;
Issued and Outstanding 9,121,000 and 10,028,485 Shares at
June 30, 1997 and March 31, 1998, respectively) 1,138,070 2,201,339
Preferred Stock, No Par Value, Non-Voting, Authorized 5,000,000
Shares; Convertible Preferred Stock - Series A, Authorized
2,500 Shares: - -
Issued and Outstanding 2,100 Shares at March 31, 1998
(Aggregate Liquidation Preference of $2,835,000 at
March 31, 1998) - 2,583,450
Subscriptions Receivable - (855,299)
Accumulated Deficit (266,562) (1,559,545)
---------- ---------
Total Shareholders' Equity 871,508 2,369,945
---------- ---------
Total Liabilities and Shareholders' Equity $1,430,638 $2,730,022
========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1998 1997 1998 1997
------------- ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
SALES
<S> <C> <C> <C> <C>
Retail Sales $125,104 $180,139 $466,012 $180,139
Memberships 4,742 - 14,388 -
---------- --------- --------- ---------
Net Sales 129,846 180,139 480,400 180,139
COST OF SALES 60,815 111,332 268,222 111,332
---------- --------- --------- ---------
GROSS PROFIT 69,031 68,807 212,178 68,807
---------- --------- --------- ---------
OPERATING EXPENSES:
Store Expenses 30,746 73,250 185,639 73,250
General and Administrative 141,827 68,538 430,634 131,357
Depreciation and Amortization 20,531 8,400 51,597 8,400
Professional Fees 33,958 5,128 131,199 21,755
---------- --------- --------- ---------
Total Operating Expenses 227,062 155,316 799,069 234,762
---------- --------- --------- ---------
LOSS FROM OPERATIONS (158,031) (86,509) (586,891) (165,955)
---------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest Income 3,259 8,720 13,339 8,720
Interest Expense (5,000) (9,161) (19,431) (9,161)
---------- --------- --------- ---------
(1,741) (441) (6,092) (441)
---------- --------- --------- ---------
LOSS BEFORE PROVISION FOR INCOME TAXES (159,772) (86,950) (592,983) (166,396)
PROVISION FOR INCOME TAXES - - - -
---------- --------- --------- ---------
NET LOSS $(159,772) $(86,950) $(592,983) $(166,396)
========== ========= ========= =========
NET LOSS PER COMMON SHARE $(0.09) $(0.09) $(0.13) $(0.02)
========== ========= ========= =========
NUMBER OF WEIGHTED COMMON
SHARES OUTSTANDING 10,028,485 8,974,000 9,582,718 8,758,249
========== ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE HAVANA REPUBLIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
PREFERRED STOCK COMMON STOCK
----------------------------- ------------------------------- ACCUMULATED SUBSCRIPTIONS
SHARES AMOUNT SHARES AMOUNT DEFICIT RECEIVABLE
------------- ------------- -------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - March 10, 1996 (Date of
inception) - $ - - $ - $ - -
Shares issued in connection with
initial capitalization - 5,500,000 1,000 - - 1,000
Shares issued in connection with
private placement - 1,574,000 - - - -
Net loss for the period from inception
(March 10, 1996) to June 30, 1996 - - - - (500) -
----- --------- --------- --------- ---------- ------------
BALANCE - June 30, 1996 - - 7,074,000 1,000 (500) -
Shares issued in connection with
private placement - 1,900,000 950,000 - - 950,000
Issuance of common stock for services - - 147,000 147,000 147,070 -
Recognition of officers compensation on
donated services - - - 40,000 - -
Net loss for the year ended
June 30, 1997 - - - - (266,062) -
----- --------- --------- --------- ---------- ------------
BALANCE - June 30, 1997 - - 9,121,000 1,138,070 (266,562) -
Issuance of preferred stock series A 2,100 1,883,450 - - - -
Shares issued in connection with
private placement - 38,460 50,000 - - 50,000
Recognition of preferred stock
dividend on beneficial conversion - 700,000 - - (700,000) -
Issuance of common stock for services 869,025 1,013,269 - (855,299)
Net loss for the nine months ended
March 31, 1998 - - - (592,983) - (592,983)
----- --------- --------- --------- ---------- ------------
BALANCE - March 31, 1998 (Unaudited) 2,100 - $2,583,450 - 10,028,485 -
$- $(1,559,545) $- $(855,299) $-
TOTAL
------------
$ -
(500)
---------
500
147,070
40,000
(266,062)
---------
871,508
1,883,450
-
157,970
---------
$2,201,339
$2,369,945
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE HAVANA REPUBLIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED
MARCH 31, MARCH 31,
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(592,983) $(166,396)
Adjustments to Reconcile Net Loss to Net Cash Used in
Operating Activities:
Depreciation and Amortization 51,597 8,400
Common Stock Issued in Exchange for Services 142,970 -
Recognition of Officers Compenation on Donated Services - 33,000
(Increase) Decrease in:
Accounts Receivable (5,331) (5,700)
Inventory (296,601) (408,185)
Prepaid Expenses (2,500) -
Deposits on Inventory Purchases (175,000) (66,700)
Deposits 20,320 (24,903)
Increase (Decrease) in:
Accounts Payable 14,191 47,007
Accrued Expenses 26,211 5,384
Deferred Membership Revenue (14,358) -
Due to Related Party (750) -
----------- ---------
Net Cash (Used in) Provided by Operating Activities (832,234) (578,093)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Property and Equipment (239,371) (71,282)
Increase in Intangible Assets (150) (11,656)
Investment in 50% Owned Factory - (50,000)
----------- ---------
Net Cash Used in Investing Activities (239,521) (132,938)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Common Stock 50,000 950,000
Proceeds from Issuance of Preferred Stock Series A 1,883,450 -
Repayment of Note Borrowings (209,347) (250,000)
Proceeds from Note Borrowings - -
----------- ---------
Net Cash Provided by Financing Activities 1,724,103 700,000
----------- ---------
Net (Decrease) Increase in Cash 652,348 (11,031)
Cash and Cash Equivalents - Beginning of Period 219,294 250,500
----------- ---------
Cash and Cash Equivalents - End of Period $871,642 $239,469
=========== =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash Paid During the Year for Interest $14,431 $9,161
=========== =========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of Common Stock for Services $15,000 $-
=========== =========
Recognition of Preferred Stock Dividend on Beneficial Conversion $700,000 $-
=========== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE HAVANA REPUBLIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE
PERIOD FROM FOR THE THREE FOR THE THREE
FOR THE INCEPTION MONTHS ENDED MONTHS ENDED
YEAR ENDED (MARCH 10, 1996) SEPTEMBER 30, SEPTEMBER 30,
JUNE 30, 1997 TO JUNE 30, 1996 1997 1996
------------- ---------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SALES
Retail Sales $345,330 $- $157,604 $340,908 183,304
Memberships 11,808 - 4,786 9,646 4,860
---------- ------- ---------- --------- -------
-
Net Sales 357,138 162,390 350,554 188,164
-
COST OF SALES 164,667 - 72,561 207,407 134,846
---------- ------- ---------- --------- -------
-
GROSS PROFIT 192,471 - 89,829 143,147 53,318
---------- ------- ---------- --------- -------
-
OPERATING EXPENSES: -
Store Expenses 187,559 - 59,681 110,893 51,212
General and Administrative 148,061 500 81,978 332,807 250,829
Depreciation and Amortization 15,505 - 10,533 31,066 20,533
Professional Fees 100,492 - 16,756 97,241 80,485
---------- ------- ---------- --------- -------
-
Total Operating Expenses 451,617 500 168,948 572,007 403,059
---------- ------- ---------- --------- -------
-
LOSS FROM OPERATIONS (259,146) (500) (79,119) (428,860) (349,741)
---------- ------- ---------- --------- -------
-
OTHER INCOME (EXPENSE): -
Interest Income 9,467 - 3,866 10,080 6,214
Interest Expense (16,383) - (10,000) (14,431) (4,431)
---------- ------- ---------- --------- -------
-
(6,916) - (6,134) (4,351) 1,783
---------- ------- ---------- --------- -------
-
LOSS BEFORE PROVISION FOR INCOME: (266,062) (500) (85,253) (433,211) (347,958)
-
PROVISION FOR INCOME TAXES - - - - -
---------- ------- ---------- --------- -------
NET LOSS $(266,062) $(500) $(85,253) $(433,211) (347,958)
========== ========= ========= =======
NET LOSS PER COMMON SHARE $(0.03) $- $(0.07) $-
========== ======= =========
NUMBER OF WEIGHTED COMMON
SHARES OUTSTANDING 8,835,586 2,968,554 9,139,812 8,333,783
========== ========= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE HAVANA REPUBLIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30, 1997 MARCH 31,
1997 1998
---------------------- ----------------------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $219,294 871,642 $(652,348)
Accounts Receivable 1,668 6,999 $(5,331)
Inventory 477,854 774,455 $(296,601)
Other Current Assets - 2,500 $(2,500)
Deposits on Inventory Purchases 300,000 616,700 $(316,700)
-----------
----------------------------
$-
Total Current Assets 998,816 2,272,296 (1,273,480)
-----------
PROPERTY AND EQUIPMENT, at Cost
(Net of Accumulated Depreciation and Amortization of $13,907 and
$63,907 at June 30, 1997 and March 31, 1998, respectively) 204,811 394,182 $(189,371)
-----------
OTHER ASSETS:
Intangible Assets (Net of Accumulated Amortization of $1,598 and
$3,195 at June 30, 1997 and March 31, 1998, respectively) 10,058 8,611 $1,447
Deposits 25,253 4,933 $20,320
Deposits on Inventory Purchases 141,700 - $141,700
Investment in 50% Owned Factory 50,000 50,000 $-
----------
$-
Total Other Assets 227,011 63,544 $163,467
----------
$-
Total Assets $1,430,638 $2,730,022 (1,299,384)
==========
$-
$-
LIABILITIES AND SHAREHOLDERS' EQUITY $-
$-
CURRENT LIABILITIES: $-
Accounts Payable $97,797 $111,988 $(14,191)
Accrued Expenses 41,441 40,652 $789
Due to Related Party 750 - $750
Deferred Membership Revenue 19,142 4,784 $14,358
Note Payable 400,000 190,653 $209,347
----------
$-
Total Current Liabilities 559,130 348,077 $211,053
----------
COMMITMENTS
SHAREHOLDERS' EQUITY:
Common Stock, No Par Value, Authorized 50,000,000 Shares;
Issued and Outstanding 9,121,000 and 9,159,460 Shares at $-
June 30, 1997 and March 31, 1998, respectively) 1,138,070 2,201,339 (1,063,269)
Preferred Stock, No Par Value, Non-Voting, Authorized 5,000,000 Shares;
Convertible Preferred Stock - Series A, Authorized 2,500 Shares: - - $-
Issued and Outstanding 2,100 Shares at March 31, 1998 $-
(Aggregate Liquidation Preference of $2,835,000 at March 31, 1998) - 2,583,450 $(2,583,450)
Subscriptions Receivable - (855,299) $855,299
Accumulated Deficit (266,562) (1,559,545) $1,292,983
-----------
Total Shareholders' Equity 871,508 2,369,945
-----------
Total Liabilities and Shareholders' Equity $1,430,638 $2,718,022
==============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1997 MARCH 31,
1996 1997
---------------------- ----------------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $250,500 239,468 $11,032
Accounts Receivable - 5,700 $(5,700)
Inventory - 408,185 $(408,185)
Other Current Assets - - $-
Deposits on Inventory Purchases - - $-
$-
Total Current Assets 250,500 653,353 $(402,853)
PROPERTY AND EQUIPMENT, at Cost
(Net of Accumulated Depreciation and Amortization of $13,907 and
$63,907 at June 30, 1997 and March 31, 1998, respectively) - 63,982 $(63,982)
OTHER ASSETS:
Intangible Assets (Net of Accumulated Amortization of $1,598 and
$3,195 at June 30, 1997 and March 31, 1998, respectively) - 10,556 $(10,556)
Deposits - 24,903 $(24,903)
Deposits on Inventory Purchases - 66,700 $(66,700)
Investment in 50% Owned Factory - 50,000 $(50,000)
$-
Total Other Assets - 152,159 $(152,159)
$-
Total Assets $250,500 $869,494 $(618,994)
============
$-
$-
LIABILITIES AND SHAREHOLDERS' EQUITY $-
$-
CURRENT LIABILITIES: $-
Accounts Payable $- $47,007 $(47,007)
Accrued Expenses - 5,383 $(5,383)
Due to Related Party - - $-
Deferred Membership Revenue - - $-
Note Payable 250,000 - $250,000
-----------
$-
Total Current Liabilities 250,000 52,390 $197,610
-----------
COMMITMENTS
SHAREHOLDERS' EQUITY:
Common Stock, No Par Value, Authorized 50,000,000 Shares;
Issued and Outstanding 9,121,000 and 9,159,460 Shares at $-
June 30, 1997 and March 31, 1998, respectively) 1,000 951,000 $(950,000)
Preferred Stock, No Par Value, Non-Voting, Authorized 5,000,000 Shares;
Convertible Preferred Stock - Series A, Authorized 2,500 Shares: - - $-
Issued and Outstanding 2,100 Shares at March 31, 1998 $-
(Aggregate Liquidation Preference of $2,835,000 at March 31, 1998) - - $-
Subscriptions Receivable - - $-
Accumulated Deficit (500) (133,896) $133,396
Total Shareholders' Equity 500 817,104
Total Liabilities and Shareholders' Equity $250,500 $869,494
</TABLE>
<PAGE>
HAVANA REPUBLIC AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 1998
In the opinion of management, the accompanying unaudited condensed financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position of the Company
as of March 31, 1998, and the results of its operations and cash flows for the
nine months ended March 31, 1998 and 1997. Such financial statements have been
condensed in accordance with the applicable regulations of the Securities and
Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these condensed financial statements be
read in conjunction with the Company's audited financial statements and notes
thereto for the year ended June 30, 1997 included in its report filed on Form
SB-2/A, file no. 333-40799, which became effective. The results of operations
for the nine and three months ended March 31, 1998 are not necessarily
indicative of operating results for the full year.
NOTE 1 - LOSS PER SHARE
Loss per share for the nine months ended March 31, 1998 and 1997 is based upon
the weighted average number of shares of common stock outstanding during the
period. For the nine months ended March 31, 1998, net loss has been adjusted for
dividends on the convertible preferred stock.
NOTE 2 - STOCKHOLDERS' EQUITY
COMMON STOCK
In August 1997, the Company sold 38,460 shares at $1.30 per share pursuant to an
offering in accordance with Rule 504 of Regulation D pursuant to Securities Act
of 1933.
On November 13, 1997, the Company issued 600,000 shares valued at $702,000 for
general contracting services to be rendered, and on November 20, 1997, issued
134,025 shares valued at $153,299 for future millwork and investments. These
amounts have been recorded as a stock subscription which is accounted for as a
reduction from equity and applied to the appropriate asset when such costs are
incurred.
The Company issued 99,000 shares on November 13, 1997 valued at $115,830 for
public relations services. This value was charged to operations during the
period. On that date, 36,000 shares valued at $42,120 were primarily issued for
accrued legal costs.
All of the aforementioned issuances were valued at the fair market value (the
quoted market price).
On November 7, 1997, the Board of Directors adopted a Stock Option Plan (the
"Plan"). This Plan provides for the grant of Incentive Stock Options and
Non-qualified Stock Options to employees selected by the Board of Directors or
Compensation Committee. The Plan also sets forth applicable rules and
regulations for Stock Options granted to non-employee directors. To date,
135,000 options each have been granted to the Company's two chief operating
officers at the market price on the date of grant. The Plan is subject to
stockholder approval and will be submitted to the stockholders at the Company's
annual meeting in 1998.
On April 2, 1998, the Board of Directors resolved to issue to each of Stephen
Schatzman and Alex Gimelstein stock options to purchase up to 500,000 shares of
the Company's common stock at a price of $.30 per share, the quoted market price
at that date.
<PAGE>
HAVANA REPUBLIC AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 1998
NOTE 2 - STOCKHOLDERS' EQUITY (CONTINUED)
In consideration of the Company's attorney accepting a reduced fee, the Board of
Directors shall issue Mr. Littman 150,000 shares of common stock. The value of
the consideration, $45,000 based on the quoted market value, will be amortized
over a twelve month period beginning April 1998.
PREFERRED STOCK
The Company's articles of incorporation authorize the issuance of 5,000,000
shares of preferred stock. The Company's Board of Directors has authority,
without action by the shareholders, to issue all or any portion of the
authorized but unissued preferred stock in one or more series and to determine
the voting rights, preferences as to dividends and liquidation, conversion
rights, and other rights of such series.
On August 1, 1997, the Board of Directors of the Company created a series of
preferred stock consisting of 2,500 shares and designated it as the Series A
Convertible Preferred Stock - no par value. The Series A Preferred Stock is
convertible, at the holders option, into that number of shares of common stock
equal to $1,000 divided by the lower of (i) seventy percent (70%) of the average
market price of the common stock for the five trading days immediately prior to
the conversion date or (ii) $1.46, increased proportionally for any reverse
stock splits and decreased proportionally for any forward stock split of stock
dividend. The holders of Series A Preferred Stock have no voting rights, the
shares are redeemable at a price of $1,350 per share upon notice of conversion,
and have a liquidation preference of $1,350 per share. As of December 31, 1997,
the Company has issued 2,100 shares of the Series A Convertible Preferred Stock
for a net amount of $1,883,950. For the unaudited six months ended December 31,
1997, the Company recognized a preferred stock dividend amounting to $700,000
calculated as the difference between the conversion price ($1.47 per share) and
the fair value of the common stock into which the shares are convertible,
multiplied by the number of common shares into which the preferred stock is
convertible. Certain holders of the Series A Convertible Preferred Stock were
issued (i) an option to purchase an aggregate of 200,000 shares of common stock
for two years at an exercise price of $1.92 per common share and (ii) an option
to purchase an aggregate of 200,000 shares of common stock for two years at an
exercise price of $2.88 per common share.
On April 2, 1998, the Board of Directors approved 50,000 shares of Series B
Preferred Stock, market value. The Series B Preferred Stock does not pay
dividends, is not redeemable or convertible and has a liquidating preference of
$.50 per share. Each share of Series B Preferred stock entitles the shareholder
to 400 votes.
In consideration of Stephen Schatzman forgiving $12,500 due him in back salary,
the Board of Directors resolved to issue Stephen Schatzman 25,000 shares of
Series B Preferred Stock.
In consideration of Alex Gimelstein forgiving $12,500 due him in back salary,
the Board of Directors resolved to issue Alex Gimelstein 25,000 shares of Series
B Preferred Stock.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE MONTHS ENDED MARCH 31, 1998
COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Sales for the three months ended March 31, 1998 were $125,104, a decrease of
30.6% as compared to sales for the three months ended March 31, 1997 which were
$180,139. This decrease is due to increased competition in the premium cigar
market.
Cost of sales was $60,815 or 48.6% of sales for the three months ended March 31,
1998 as compared to $111,332 or 61.8% of sales for the three months ended March
31, 1997. This decrease as a percentage of sales was primarily a result of
decreased costs at the Company's foreign operations and a decrease in cigar
costs in relation to the sales value.
Gross profit was $69,031 or 53.2% of sales for the three months ended March 31,
1998 as compared to gross profit of $68,807 or 38.2% of sales for the three
months ended March 31, 1997.
Store expenses, which include marketing and advertising expenses, rent and
salary costs, were $30,746 or 23.7% of sales for the three months ended March
31, 1998 as compared to $73,250 or 40.6% of sales for the three months ended
March 31, 1997. The percentage decrease in store expenses is primarily
attributed to the fact that the Company opened its first store during January
1997 and incurred additional set-up and other expenses during the three-month
period ended March 31, 1997.
General and administrative expenses, which includes administrative salaries,
travel and entertainment, insurance and other expenses, were $141,827 or 109.2%
of sales for the three months ended March 31, 1998 as compared to $68,538 or 38%
of sales for the three months ended March 31, 1997. The increase is primarily
attributable to increases in salaries and wages, travel, telephone expense and
insurance.
The Company incurred interest expense for the three months ended March 31, 1998
of $5,000 as compared to interest expense of $9,161 for the three months ended
March 31, 1997.
<PAGE>
NINE MONTHS ENDED MARCH 31, 1998
COMPARED TO NINE MONTHS ENDED MARCH 31, 1997
Sales for the nine months ended March 31, 1998 were $480,400, an increase of
$300,261 or 166.7% as compared to sales of $180,139 for the nine months ended
March 31, 1997. This is due to the fact that the Company's first store was only
open for the last three months of the period ended March 31, 1997.
Cost of sales was $268,222 or 57.6% of sales for the nine months ended March 31,
1998 as compared to $111,332 or 61.8% of sales for the nine months ended March
31, 1997. This increase as a percentage of sales was primarily a result of the
discounting of some cigar products, and the general decline of premium cigar
sales.
Gross profit was $212,178 or 44.2% of sales for the nine months ended March 31,
1998 as compared to a gross profit or $68,807 of 38.2% of sales for the nine
months ended March 31, 1997. The increase in gross profit reflects the decrease
in cost of sales as described above.
Store expenses, which include marketing and advertising expenses, salaries and
expenses related to the retail operations, were $185,639 or 38.6% of sales for
the nine months ended March 31, 1998 as compared to $73,250 or 40.7% of sales
for the nine months ended March 31, 1997. The decrease in selling expenses
reflects the decrease in expenses associated with the start up of the Company's
first retail store.
General and administrative expenses, which include administrative salaries,
travel and entertainment, insurance and other expenses, were $430,634 or 89.6%
of sales for the nine months ended March 31, 1998 as compared to $131,357 or
95.1% of sales for the nine months ended March 31, 1997. The increase is
primarily attributable to increases in salaries and wages, travel, telephone
expense and insurance.
As a result of the foregoing factors, the Company sustained losses of
approximately $592,983 or ($.13) per share for the nine months ended March 31,
1998 as compared to a loss of approximately $166,396 or ($.02) per share for the
nine-month period ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had working capital of approximately $2,369,945.
Since its inception, it has sustained losses of approximately $1,560,000. The
Company's operations and growth has been funded by loans from third parties, the
sale of common stock through March 31, 1998 with gross proceeds of approximately
$1,000,000 and the issuance of Series A Convertible Preferred Stock which
resulted in net proceeds to the Company of approximately $1,883,000 after
expenses. These funds have been used for working capital, capital expenditures,
information systems development and other corporate purposes.
In April of 1996, the Company entered into an agreement with Tabanica, the 50%
owned factory, for future purchases of premium cigars and has paid $617,000. The
Company anticipated receiving the premium cigars in monthly shipments of 50,000
commencing in January 1998. As of March 31, 1998, the Company has not received
any of these cigars. The primary cause of the delay is due to obtaining the
appropriate clearance for the design of the cigar band. This is being negotiated
with a retailer with a similar logo. The market acceptance of these premium
cigars will determine whether and to what extent the Company's financial
resources will be committed to the distribution of its brand name cigars.
The Company also anticipates opening two additional emporiums within the next 12
months. The first, in Fort Lauderdale, Florida, is scheduled to open in April
1998 and the second, in South Miami, Florida, is expected to open in late 1998.
Leasehold improvements in both emporiums are expected to cost approximately
$600,000.
The Company has no other material commitments for capital expenditures. The
Company believes that it has sufficient liquidity to meet all of its cash
requirements for the next 12 months and that subsequent store and distribution
sales would provide sufficient cash flows to meet their operating needs. The
Company believes, however, that additional funding will be necessary to expand
into markets outside of South Florida.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
THE HAVANA REPUBLIC, INC.
By: STEVEN SCHATZMAN
---------------------------
Steven Schatzman, President
Dated: May 11, 1998
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
HAVANA REPUBLIC, INC. AND SUBSIDIARIES FORM 10-QSB FOR THE NINE MONTH PERIOD
ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1998
<CASH> 871,642
<SECURITIES> 0
<RECEIVABLES> 6,999
<ALLOWANCES> 0
<INVENTORY> 774,455
<CURRENT-ASSETS> 2,272,296
<PP&E> 458,089
<DEPRECIATION> 63,907
<TOTAL-ASSETS> 2,730,022
<CURRENT-LIABILITIES> 360,077
<BONDS> 0
0
2,583,450
<COMMON> 2,201,339
<OTHER-SE> (2,414,844)
<TOTAL-LIABILITY-AND-EQUITY> 2,730,022
<SALES> 480,400
<TOTAL-REVENUES> 480,400
<CGS> 268,222
<TOTAL-COSTS> 268,222
<OTHER-EXPENSES> 799,069
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,431
<INCOME-PRETAX> (592,983)
<INCOME-TAX> 0
<INCOME-CONTINUING> (592,983)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (592,983)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
