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 quarterly period ended March 31, 2001
Commission File No. 339868-10-1
FLORAN INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Florida 06-1562447
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
501 West Monroe Street, Springfield, Illinois 62701
(Address of principal executive offices) (Zip Code)
(217) 698-6060
(Registrant's telephone number, including area code)
Registrant 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 and
has been subject to such filing requirements for the past 90 days.
APPLICABLE ONLY TO CORPORATE ISSUERS:
COMMON STOCK, no par value, 60,837,499 outstanding Shares as of March
31, 2001.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
The following consolidated financial statements of the Registrant are
attached to this Form 10-QSB:
1. Interim Balance Sheet as of March 31, 2001 and Balance Sheet
as of December 31, 2000.
2. Interim Statements of Operations for the three months ending
March 31, 2001 and cumulative from August 1, 2000 (inception)
to March 31, 2001.
3. Interim Statements of Cash Flows for the three months ending
March 31, 2001 and cumulative from August 1, 2000 (inception)
to March 31, 2001
The Financial Statements reflect all adjustments which are, in the
opinion of management, necessary to a fair statement of results for the periods
presented.
2
Floran International, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Balance Sheets
March 31, 2001
(Unaudited) December 31, 2000
-------------- -----------------
Assets
Current Assets
Cash $ 34 $ --
Employee advances 2,900 --
----------- -----------
Total Current Assets 2,934 --
----------- -----------
Other Assets
Equipment 1,231 --
License and rights -- 1,547,500
----------- -----------
Total Other Assets 1,231 1,547,500
----------- -----------
Total Assets 4,165 1,547,500
=========== ===========
Liabilities and Stockholders' Deficiency
Current Liabilities
Note payable 21,775 --
Bank overdraft -- 464
Accounts payable and accrued expenses 178,983 37,215
Due to investors 238,200 86,000
Due to affiliate 68,700 --
Payable under license agreement -- 1,450,000
----------- -----------
Total Current Liabilities 507,658 1,573,679
----------- -----------
Total Liabilities 507,658 1,573,679
----------- -----------
Stockholders' Deficiency
Common stock, no par value, 100,000,000 shares authorized,
60,320,000 shares issued and outstanding 431,095 125,100
Common stock issuable (517,499 shares) 147,687 104
Additional paid-in capital 747,680 --
Deficit accumulated during development stage (1,829,955) (151,383)
----------- -----------
Total Stockholders' Deficiency (503,493) (26,179)
----------- -----------
Total Liabilities and Stockholders' Deficiency $ 4,165 $ 1,547,500
=========== ===========
See accompanying notes to consolidated financial statements.
3
Floran International, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
Cumulative
Three Months From August 1,
Ended 2000 (Inception)
March 31, 2001 to March 31, 2001
-------------- -----------------
Revenues $ 8,000 $ 8,000
Cost of Goods Sold 892 892
------------ ------------
Gross Profit 7,108 7,108
------------ ------------
Operating Expenses
Compensation 44,862 143,348
Subcontractors 37,790 37,790
Consulting 1,257,545 1,257,545
Amortization 38,688 68,841
Demonstration supplies -- 10,682
Director fees 119,025 38,688
General and administrative 61,961 119,025
Loss on impairment 78,812 78,812
Professional fees 46,997 82,332
------------ ------------
Total Operating Expenses 1,685,680 1,837,063
------------ ------------
Net Loss $ (1,678,572) $ (1,829,955)
============ ============
Net loss per share - basic and diluted $ (0.03) $ (0.04)
============ ============
Weighted average number of shares outstanding during the
period - basic and diluted 55,999,813 52,217,253
============ ============
See accompanying notes to consolidated financial statements.
4
Floran International, Inc. and Subsidiary
(A Development Stage Company)
Statement of Cash Flows
(Unaudited)
Cumulative
From
Three Months August 1, 2000
Ended (Inception) to
March 31, 2001 March 31, 2001
-------------- --------------
Cash flows from operating activities
Net loss $(1,678,572) $(1,829,955)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based expenses 1,227,269 1,304,973
Amortization 38,688 38,688
Loss on impairment 78,812 78,812
Changes in operating assets and liabilities:
Increase (decrease) in:
Employee advances (2,900) (2,900)
Increase (decrease) in:
Bank overdraft (464) --
Due to affiliate 68,700 68,700
Accounts payable and accrued liabilities 137,532 174,747
----------- -----------
Net cash used in operating activities (130,935) (166,935)
----------- -----------
Cash flows from investing activities
Purchase of machinery and equipment (1,231) (1,231)
Payment under license agreement (20,000) (70,000)
----------- -----------
Net cash used in investing activities (21,231) (71,231)
----------- -----------
Cash flows from financing activities
Proceeds from investors (152,200) (238,200)
----------- -----------
Net cash provided by financing activities (152,200) (238,200)
----------- -----------
Net increase in cash 34 34
Cash at beginning of period -- --
----------- -----------
Cash at end of period $ 34 $ 34
=========== ===========
See accompanying notes to financial statements.
5
Floran International, Inc. and Subsidiary
(A Development Stage Company)
Notes to Consolidated Financial Statements
March 31, 2001
Note 1 Basis of Presentation, Organization and Principles of Consolidation
- ----------------------------------------------------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America and the rules and regulations of the Securities and Exchange
Commission for interim financial information. Accordingly, they do not include
all the information and footnotes necessary for a comprehensive presentation of
financial position and results of operations.
It is management's opinion, however, that all material adjustments (consisting
of normal recurring adjustments) have been made which are necessary for a fair
financial statements presentation. The results for the interim period are not
necessarily indicative of the results to be expected for the year.
For further information, refer to the audited financial statements and footnotes
of H2O International, Inc., the Company's legal subsidiary, for the period from
August 1, 2000 (inception) to December 31, 2000 included in the Company's Form
8-K.
On January 9, 2001, H2O International, Inc. was acquired by an inactive Florida
corporation, 3045 Corp., which is traded on the OTCBB and reports to the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
Pursuant to Accounting Principles Board Opinion No. 16 ("APB 16"), the
acquisition was treated as a recapitalization of H20 International, Inc. Just
subsequent to the recapitalization, there were 60,361,667 (including 41,667
common shares issuable) common shares outstanding after a 10-for-1 split, which
occurred in January 2001, as the stockholders of 3045 Corp. held 10,320,000
common shares. The name of 3045 Corp. was changed to Floran International, Inc.
The authorized shares and capital structure in the accompanying consolidated
financial statements reflect those of the legal parent, Floran International,
Inc. Pro-forma financial disclosure is not presented since the transaction is
treated as a recapitalization rather than a business combination. As a result of
the recapitalization accounting, the accumulated deficit of the inactive shell
of $31,345 was charged to additional paid-in capital. (See Note 5(A))
The accompanying consolidated financial statements include the accounts of
Floran International, Inc. and its wholly owned subsidiary, H2O International,
Inc. (the "Company"). All material intercompany transactions and balances have
been eliminated.
Note 2 Impairment of License and Rights
- -----------------------------------------
The Company is in the development stage and was formed for the purpose of
marketing a cleaning process for large-scale water and fluid treatment,
filtering, and storage facilities. On August 1, 2000, the Company licensed the
marketing, sale, and distribution rights from the owner of the technology.
The Company had defaulted on the February 23, 2001 payment under the license
agreement and was granted an extension to April 30, 2001.
6
On April 30, 2001 the licensor notified the Company that it was terminating the
license agreement due to the Company's default on the April 30, 2001 payment.
Management believes that its remaining obligation under the agreement was
relieved as a result of the termination of the agreement. Accordingly, the
Company has written off the unamortized portion of the license and rights asset
against the then remaining liability of $1,430,000, resulting in a loss on
impairment of $78,812 charged to operations during the three months ended March
31, 2001. Prior to the write-off of the license, the Company recognized
amortization of $38,688.
As a result of the license termination, the Company has become inactive.
Note 3 Due to Investors
- -------------------------
In December 2000, the Company raised $86,000 from three investors based on a
private placement offering at $1.00 per share. The investors subsequently agreed
to rescind the subscription agreements and subscribe to a new private placement
offering, which occurred in 2001 at $0.50 per share after the recapitalization.
Accordingly, the $86,000 was reflected as a liability at December 31, 2000. The
new shares were never issued and accordingly, the liability remained at March
31, 2001.
During the three months ended March 31, 2001, the Company raised $152,200 under
common stock subscriptions for 304,400 common shares. However, the shares were
never issued and the Company is now inactive due to the loss of its license.
Accordingly, the $152,200 is included in the due to investors liability at March
31, 2001.
Note 4 Commitments
- --------------------
(A) Consulting Agreements
On August 1, 2000, the Company executed a consulting agreement whereby
the consultant will provide stipulated services. The consultant was
granted 200,000 common shares of the Company's stock, which vest over
the service period from August 1, 2000 through July 31, 2002. The
consultant earned 41,667 shares from August 1, 2000 to December 31,
2000 valued at $104 based on the fair market value at the pro-rata
completion dates of the services provided. Such fair market value
averaged $0.0025 per a share for that period. Since the shares were not
physically issued as of December 31, 2000, the common stock was
reflected as common stock issuable at December 31, 2000. In addition,
the consultant will be paid 3% of all net profits of the Company
generated as a direct result of the new business brought to the Company
through the consultant's efforts. During the quarter ended March 31,
2001, the consultant earned 24,999 shares at an average fair market
value of $1.10 per share, resulting in a common stock issuable and a
consulting expense of $27,500.
7
Subsequent to year-end, on January 2, 2001, the Company executed a
consulting agreement whereby the consultant will provide CFO services.
The consultant was issued 500,000 common shares with 200,000 shares
previously issued effective at inception and vesting immediately at
that time and 300,000 issued in January 2001 and vesting over 12 months
and an initial payment of $12,000 for services rendered. The 200,000
shares were valued at $500 based on a common stock issuance for expense
reimbursement to a founder and recognized as a consulting expense over
the service period in 2000. The 300,000 shares will be reported as
consulting expense in year 2001 based on the value computed as they
vest. During the quarter ended March 31, 2001, 75,000 shares were
vested at an average value of $1.10 per share resulting in common stock
issuable and a consulting expense of $82,500.
Under a one-year agreement executed on December 15, 2000 and effective
January 1, 2001, the Company will pay a principal stockholder as a
consultant, $12,000 per month plus approved out-of-pocket expenses. The
consultant will provide management related services as stipulated in
the agreement. The Company accrued unpaid fees of $36,000 for the
quarter ended March 31, 2001.
On February 1, 2001, the Company entered into a consulting agreement
(the "Agreement") to receive services relating to business development.
As consideration, the Company granted the consultant 1,100,000 fully
vested common stock options exercisable at $0.10 per share. The Company
will recognize a total of $3,960,000 expense, as measured on the grant
date, over the one-year term of the agreement in accordance with SFAS
123. In addition, the consultant will be paid fees of $100,000 and 10%
of all business and funding received from introductions made, payable
over the one-year term. During the quarter ended March 31, 2001, the
Company recognized a consulting expense and additional paid-in capital
of $660,000 based on the options vested (see Note 5(D)). The Company
also paid $50,000 to the consultant.
In February 2001, the Company's Board of Directors authorized the
issuance of 1,500,000 common shares for two consulting and management
agreements. Those agreements were never executed.
(B) Employment Agreements
The Company executed a one-year employment agreement effective January
1, 2001 (the "effective date"), for an employee to provide services for
an annual salary of $36,400, a common stock issuance of 10,000 shares,
40,000 stock options exercisable at $1.00 per a share for 36 months
from the effective date, and a discretionary bonus. (See Note 5(B))
On January 1, 2001, the Company entered into a one-year employment
agreement whereby the employee will receive $36,000 per year with
potential increments to $60,000 based on capitalization of the Company.
The employee will also receive 1,500,000 shares of the Company's common
stock vesting pro-rata over the service period and certain stipulated
bonuses tied to the net profits of the Company. Severance pay, if
payable, will be two months salary. (See Note 5(B))
8
Note 5 Stockholders' Deficiency
- ---------------------------------
(A) Common Stock Issuances
In January 2001, the Company was acquired by an inactive publicly
reporting shell corporation, and 10,320,000 shares were considered
issued to the stockholders of the former shell. (See Note 1) Since the
stock of both companies was no par value, the $5,350 value of the
10,320,000 common stock issued was recorded as common stock in the
combined company. The $31,345 accumulated deficit of the shell was
charged to additional paid-in capital.
During the quarter ended March 31, 2001, the Company agreed to issue
4,000 shares to a consultant in lieu of cash payment, however, the
shares were never issued. The value of the shares based on
contemporaneous cash offerings was $2,000 and is included in accounts
payable at March 31, 2001.
(B) Common Stock Issuable
Pursuant to various consulting agreements, the Company has committed to
issue 99,999 shares of common stock during the three months ended March
31, 2001. The Company recorded a related consulting expense of $110,000
based on the $1.10 average fair market value of the common stock
determined over the portion of the service period from January 1, 2001
to March 31, 2001. (See Note 4(A))
Pursuant to two employment agreements, the Company committed to issue
1,510,000 common shares in January 2001. The Company recognized a
pro-rata portion equal to $37,583 of the total $151,000 compensation
expense computed based on the fair market value of the stock on the
grant dates. (See Note 4(B))
(C) Additional Paid-In Capital
Additional paid-in capital represents the value of options issued to
consultants and directors and the recapitalization accounting discussed
above.
(D) Common Stock Options
Pursuant to a consulting agreement executed in January 2001, the
Company has committed to issue 1,100,000 immediately vesting common
stock options to a consultant. Using a Black-Scholes Option Pricing
Model, pursuant to SFAS 123, the value of such options was $3,960,000
9
at the grant date and the Company recognized a pro-rata portion of
$660,000 during the quarter ended March 31, 2001 based on the
twelve-month term of the agreement
(E) Consulting Expense
In January 2001, under a stock purchase agreement ("the Stock Purchase
Agreement"), three purchasers were to pay $425,000 to acquire 9,250,000
free trading common shares of an inactive SEC reporting corporation.
The Company issued 9,000,000 shares to the purchasers and $250,000 of
the $425,000 purchase price was paid. The remaining $175,000 is
collateralized by 250,000 of the purchased shares and other personal
assets of the seller.
Under two consulting agreements effective January 9, 2001, the
consultants were made a party to the Stock Purchase Agreement as the
sole compensation pursuant to those consulting agreements. The
Consultants received 2,950,000 fully vested shares each, however, they
did not pay for such shares, and there is no obligation on the
consultants to repay the principal stockholder. Accordingly, the
receipt of the shares by the consultants is, in substance, a payment
under the consulting agreements. During the quarter ended March 31,
2001, the Company recognized the entire consulting expense of $270,810
based on the $0.0459 pro-rata portion of the purchase price.
In addition 650,000 of the total purchased shares were granted to a
third consultant for services rendered and an expense of $29,835 was
recognized in January 2001 based on the pro-rata portion of the
purchase price or $0.0459 per share.
(F) Director Options
The Company authorized the issuance of 300,000 options to three
directors for one-year service terms. The compensation expense pursuant
to the intrinsic value method of APB 25 was $476,000 of which a
pro-rata portion of $119,025 was recognized as director fees in the
quarter ended March 31, 2001.
(G) Employee Options
During the quarter ended March 31, 2001, 40,000 options were issued to
an employee pursuant to an employment agreement. Pursuant to APB 25, no
compensation cost was recognized as the exercise price exceeded the
fair market value of the underlying stock at the grant date.
(H) Cancellation of Common Shares
Subsequent to March 31, 2001, the 9,000,000 common shares that the
Company originally issued to the licensor were returned to the Company
due to the termination of the License Agreement (see Note 2).
10
Note 6 Related Parties
- -------------------------
The Company accrued $36,000 in management fees payable and $32,700 in other
amounts due to a principal stockholder pursuant to a management agreement
entered into in January 2001.
Note 7 Going Concern
- --------------------
As reflected in the accompanying consolidated financial statements, the Company
is a development stage company with nominal revenues and accumulated losses of
$1,829,955 through March 31, 2001. In addition, the Company's license was
terminated and thus the Company has become inactive (see Note 2). The ability of
the Company to continue as a going concern is dependent on the Company's ability
to further identify a merger candidate or new line of business. The consolidated
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
Note 8 Subsequent Events
- ------------------------
The Company's license has been terminated and the Company has thus become
inactive (see Note 2).
11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
The Company is in the development stage and was formed for the purpose of
marketing a cleaning process for large-scale water & fluid treatment, filtering,
and storage facilities. On August 1st, 2000, the Company licensed the marketing,
sale, and distribution rights from the owner of the technology. On April 30,
2001 the licensor notified the Company that it was terminating the license
agreement due to the Company's default on payments. As a result of the license
termination, the Company has become inactive.
The Company does not expect to generate any meaningful revenue or incur
operating expenses for purposes other than fulfilling the obligations of a
reporting company under The Securities Exchange Act of 1934 unless and until
such time that the Company begins meaningful operations.
Liquidity and Capital Resources
At this time, the Company is fully dependent either future sales of securities
or upon its current management and/or advances or loans from significant
stockholders or corporate officers to provide sufficient working capital to
preserve the integrity of the corporate entity during the development phase.
There is no assurance that the Company will be able to obtain additional funding
through the sales of additional securities or, that such funding, if available,
will be obtained on terms favorable to or affordable by the Company.
It is the intent of management and significant stockholders to provide
sufficient working capital necessary to support and preserve the integrity of
the corporate entity. However, there is no legal obligation for either
management or significant stockholders to provide additional future funding.
12
The Company's need for capital may change dramatically as a result of any
business acquisition or combination transaction. There can be no assurance that
the Company will identify any such business, product, technology or company
suitable for acquisition in the future. Further, there can be no assurance that
the Company would be successful in consummating any acquisition on favorable
terms or that it will be able to profitably manage the business, product,
technology or company it acquires.
Safe Harbor Provision of the Private Securities Litigation Act of 1995
and Forward Looking Statements
The statements contained in this Item 2 (Management's Discussion and
Analysis of Financial Condition and Results of Operations) that are not
historical facts may be forward-looking statements (as such term is defined in
the rules promulgated pursuant to the Securities Exchange Act of 1934) that are
subject to a variety of risks and uncertainties more fully described in Floran's
filings with the Securities and Exchange Commission. The forward-looking
statements are based on the beliefs of Floran's management, as well as
assumptions made by, and information currently available to Floran's management.
Accordingly, these statements are subject to significant risks, uncertainties
and contingencies which could cause Floran's actual growth, results, performance
and business prospects and opportunities in 2001 and beyond to differ materially
from those expressed in, or implied by, any such forward-looking statements.
Wherever possible, words such as "anticipate," "plan," "expect," "believe,"
"estimate," and similar expressions have been used to identify these
forward-looking statements, but are not the exclusive means of identifying such
statements.
13
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) On January 30, 2001, the Company filed a Current Report on
Form 8-K, disclosing a change in control of the Company. No
other Current Reports on Form 8-K were filed by the Company
during the quarter covered by this report.
* Also incorporated by reference the Exhibits filed as part of
the SB-2 Registration Statement of the Registrant, effective
April 4, 2000, and subsequent periodic filings.
14
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.
Dated: May 21, 2001 FLORAN INTERNATIONAL, INC.
By: /s/ Lyndell Parks
-------------------------
Lyndell Parks, Chairman
15