10-Q 1 t22607.txt QUARTERLY REPORT FORM 10-QSB Securities and Exchange Commission Washington D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal quarter ended: March 31, 2001 Commission file number: 333-40799 THE HAVANA REPUBLIC, INC. (Exact name of registrant as specified in its charter) FLORIDA 84-1346897 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1360 WESTON ROAD WESTON, FLORIDA 33326 (Address of principal executive offices) (Zip code) (954) 384-6333 (Registrant's telephone number, including area code) Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of March 31,2001 42,957,443 shares of common stock, no par value per share.

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-6- THE HAVANA REPUBLIC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1. BASIS OF PRESENTATION The accompanying financial statements for the interim periods are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the periods presented. These financial statements should be read in conjunction with the financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in the Annual Report on Form 10-KSB for the year ended June 30, 2000, of The Havana Republic, Inc. (the "Company") as filed with the Securities and Exchange Commission. The results of operations for the nine months ended March 31, 2001 are not necessarily indicative of the results for the full fiscal year ending June 30, 2001. Note 2. INVENTORIES The major classes of inventories are as follows: MARCH 31, 2001 Cigars ............................................ $ 411,071 Accessories.......................................... 464,880 --------------- $ 875,951 Note 3. SHAREHOLDERS' EQUITY In November 2000, the Company charged operations $81,000, which represents the fair market value of 1,350,000 shares issued to the Company's attorney for legal services. In November 2000, the Company also charged operations $126,000 which represents the fair market value of 2,100,000 shares issued to a consultant for services provided. Pursuant to the terms of the continuing agreement, the Company is to issue additional shares at a rate of 187,500 shares a month for eight months commencing on March 1, 2001. The Company will charge operations for the fair value of the shares as services are rendered. In January 2001, the Company converted a total of 100 shares of its Series A Convertible Preferred Stock into 4,606,370 shares of common stock. RESULTS OF OPERATIONS NINE MONTHS ENDED MARCH 31, 2001 COMPARED TO NINE MONTHS ENDED MARCH 31, 2000 Net sales for the nine months ended March 31, 2000 were $900,130 a decrease of 7.2% as compared to sales for the nine months ended March 31, 2000 which were $970,374. The Company believes the decline in net sales was reflective of the nationwide trend and the slow down in cigar retail sales. Because the Company expects to face less competition in Fiscal 2001 due to weaker retail establishments closing combined with the Company's new projects which the Company believes are in prime locations, the Company expects sales to increase to its past performances in Fiscal 2001. However, there can be no assurance that these expectations will be met. Cost of sales was $371,713 or 41.3% of sales for the nine months ended March 31, 2001 as compared to $511,934 or 52.7% of sales for the nine months ended March 31, 2000 . Gross profit was 528,417 or 58.7% of sales for the nine months ended March 31, 2001 as compared to gross profit of $458,440 or 47.2% of sales for the nine months ended March 31, 2000. Store expenses, which include marketing and advertising expenses, rent and salary costs, were $403,092 or 44.8 % of sales for the nine months ended March 31, 2001 as compared to $419,996 or 43.3 % of sales for the nine months ended March 31, 2000. General and administrative expenses, which includes administrative salaries, travel and entertainment, insurance and other expenses, were $698,673 or 77.6 % of sales for the nine months ended March 31, 2001 as compared to $443,743 or 45.7% of sales for the nine months ended March 31, 2000. This increase is due primarily due to the costs and expenses of due diligence related to the opening of the Company's new emporium in Las Vegas. The Company had earned interest for the nine months ended March 31, 2001 of $27,395 as compared to net interest expense of $289,965 for the nine months ended March 31, 2000. This is due to the fact that the Company no longer has an interest expense associated with the past conversion of debentures into preferred stock. As a result of the foregoing factors, the Company incurred losses of $773,501 or ($.02) per share for the nine months ended March 31, 2001 as compared to a loss of $789,846 or ($.03) per share for the nine month period ended March 31, 2000. THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000. Net sales for the three months ended March 31, 2001 were $310,257 a decrease of 1.6% as compared to sales for the three months ended March 31, 2000 which were $315,347. The Company believes the decline in net sales was reflective of the nationwide trend and the slow down in cigar retail sales. Because the Company expects to face less competition in Fiscal 2001 due to weaker retail establishments closing combined with the Company's new projects which the Company believes are in prime locations, the Company expects sales to increase to its past performances in Fiscal 2001. However, there can be no assurance that these expectations will be met. Cost of sales was $129,258 or 41.7% of sales for the three months ended March 31, 2001 as compared to $145,792 or 46.2% of sales for the three months ended March 31, 2000. Gross profit was $180,999 or 58.3% of sales for the three months ended March 31, 2001 as compared to gross profit of $169,555 or 53.8% of sales for the three months ended March 31, 2000. Store expenses, which include marketing and advertising expenses, rent and salary costs, were $157,332 or 50.7% of sales for the three months ended March 31, 2001 as compared to $134,544 or 42.7% of sales for the three months ended March 31, 2000. General and administrative expenses, which includes administrative salaries, travel and entertainment, insurance and other expenses, were $230,887 or 74.4% of sales for the three months ended March 31, 2001 as compared to $95,999 or 30.4% of sales for the three months ended March 31, 2000. This increase is due primarily due to the costs and expenses of due diligence related to the opening of the Company's new emporium in Las Vegas. The Company earned interest for the three months ended March 31, 2001 in the amount of $4,746 as compared to net interest expense of $13,277 for the three months ended March 31, 2000. This is due to the fact that the Company no longer has an interest expense associated with the past conversion of debentures into preferred stock. As a result of the foregoing factors, the Company incurred losses of $265,565 or ($.01) per share for the three months ended March 31, 2001 as compared to a loss of $105,765 or ($.00) per share for the three month period ended March 31, 2000. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2001, the Company had working capital of $447,188 Since its inception, the Company has continued to sustain losses. The Company's operations and growth has been funded by the sale of Common Stock, Preferred Stock and Convertible Debentures. For the period ending March 31, 2001, the Company did not raise any money and no new securities were issued. 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. PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS The Company is not involved in any material litigation Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS None Item 6. EXHIBITS AND REPORTS ON FORM 8-K None (b) REPORTS ON FORM 8-K There were no Current Reports on Form 8-K filed by the Company during its fiscal quarter ended March 31, 2001. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE HAVANA REPUBLIC, INC. Dated: May ______, 2001 By: /s/ STEVEN SCHATZMAN -------------------------- Steven Schatzman, President

HAVANA REPUBLIC INC/FL 10-Q