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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED: OCTOBER 31, 2001
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 333-54822
TDT DEVELOPMENT, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 22-3763835
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
140 DE LIEGE O., H2P 1H2
MONTREAL, QUEBEC, CANADA (Zip Code)
(Address of principal executive offices)
ISSUER'S TELEPHONE NUMBER (866) 827-8836
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE ACT:
NONE
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State registrant's revenues for its most recent fiscal year: $138,308.
As of October 31, 2001 there were 8,381,000 shares of the registrant's
common stock, par value $0.0001 issued and outstanding. Of these, 3,381,000
shares are held by non-affiliates of the registrant. As of October 31, 2001,
TDT's common stock had no trading market.
DOCUMENTS INCORPORATED BY REFERENCE
TDT filed a Form SB-2 on February 1, 2001 and a Form SB-2/A on May 11,
2001. They are incorporated in Parts I and III of this Form 10-KSB.
Transitional Small Business Disclosure Format (check one): Yes [ ]; No [X]
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TABLE OF CONTENTS
Forward-Looking Statements
PART I
Item Description of Business
1.
Item Description of Property
2.
Item Legal Proceedings
3.
Item Submission of Matters to a Vote of Security Holders
4.
PART II
Item Market for Common Equity and Related Stockholder Matters
5.
Item Management's Discussion and Analysis of Financial Condition
6. and Results of Operations
Item Financial Statements
7.
Item Changes in and Disagreements with Accountants on Accounting
8. and Financial Disclosure
PART III
Item Directors, Executive Officers, Promoters and Control
9. Persons; Compliance with Section 16(a) of the Exchange Act
Item Executive Compensation
10.
Item Security Ownership Of Certain Beneficial Owners And
11. Management
Item Certain Relationships And Related Transactions
12.
Item Exhibits, And Reports On Form 8-K
13.
FORWARD-LOOKING STATEMENTS
Except for historical information, this report contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Such forward-looking
statements involve risks and uncertainties, including, among other things,
statements regarding our business strategy, future revenues and anticipated
costs and expenses. Such forward-looking statements include, among others, those
statements including the words "expects," "anticipates," "intends," "believes"
and similar language. Our actual results may differ significantly from those
projected in the forward-looking statements. Factors that might cause or
contribute to such differences include, but are not limited to, those discussed
in the section "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Risk Factors." You should carefully
review the risks described in other documents we file from time to time with the
Securities and Exchange Commission. You are cautioned not to place undue
reliance on the forward-looking statements, which speak only as of the date of
this report. We undertake no obligation to publicly release any revisions to the
forward-looking statements or reflect events or circumstances after the date of
this document.
1
PART I
ITEM 1. DESCRIPTION OF BUSINESS
TDT Development, Inc. ("TDT") through its wholly owned subsidiaries Terre
di Toscana, Inc. and Terres Toscanes, Inc, is an importer, marketer and
distributor of specialized truffle based food products which includes fresh
truffles, truffle oils, truffle pates, truffle cremes and truffle butter. TDT's
target market includes retailers such as restaurants, specialty food stores,
delicatessens, supermarkets, and eventually consumers direct through e-commerce
via the Internet. TDT believes that the key to reaching its target market
distribution goals and channels requires successful development of distributors
such as specialty food brokers and specialty food wholesalers. TDT believes that
the key to supporting the distributor network and generating revenues from the
consumer market is the successful development and deployment of the website to
handle a secure full-service, interactive e-commerce environment.
TDT imports products directly from several Italian producers. The Company
(through its subsidiary) commenced operations in January of 2000, and is
presently focusing its efforts on serving specialty food distributors and
restaurants. Also, TDT continues to build its database of potential clients on
both a national and an international scale. The Company is presently operating
with working capital generated from the gross profits from current sales
activities.
TDT markets its products in the specialty food industry. The competitors in
the US market are generally traders who buy from distributors, with the
exception of big companies such as Urbani USA and Bosco Vivo (both of whom buy
directly from the growers). Urbani is the biggest company worldwide in the
high-end culinary food market, specifically truffle products.
TDT believes that the quality of its products is at parity with the best
quality of similar product lines offered by its competition. In addition, due to
lower overhead and cooperative supplier payment terms and minimum quantity
requirements, TDT believes that it can offer its products at prices below its
competition while keeping its inventory (and working capital requirements) at a
minimum while still enjoying high gross margins.
TDT currently markets its products primarily in Florida, South Carolina,
North Carolina, California and Canada, and has also earned commissions from
Italy on sales made in Belgium, Holland and Germany. TDT will focus its efforts
with trade accounts first through distributor networks, and continue to develop
its e-commerce site to encompass support of this network plus generate revenues
directly with consumer market.
Key to TDT's marketing initiatives are pricing, product attributes,
management culinary knowledge, and the development of a proprietary database for
targeted retail and business-to-business prospects in the category. TDT is
committed to offering and delivering high quality products at reasonable prices.
The products will be marketed by direct methods: interactive e-Commerce on the
Company's website, Telemarketing, printed catalog distribution, direct mail and
catalog on CD. Currently TDT's three major sales accounts represent less than
10% of total revenues. TDT receives its products primarily from two suppliers.
TDT does not have contracts with its two suppliers. Should TDT loose these
suppliers TDT has three alternative sources that it believes can supply
sufficient product to meet TDT's needs.
SUBSIDIARY
We have two wholly owned subsidiaries, Terre di Toscana, Inc., a Florida
corporation and Terres Toscanes, Inc., a Quebec, Canadian corporation. Terre di
Toscana, Inc. is the operating company for TDT in the U.S. and other countries
not including Canada. Terres Toscanes, Inc. is the operating company in Canada.
OUR COMPETITION
The competitors in the US market are generally traders who buy from
distributors, with the exception of big companies such as Urbani USA and Bosco
Vivo (both of whom buy directly from the growers). Urbani is the biggest company
worldwide in the high-end culinary food market, specifically truffle products.
Urbani has offices in New York, Los Angeles, Toronto, Tokyo and Europe.
2
ITEM 2. DESCRIPTION OF PROPERTY
At present, TDT owns no real property. TDT leases approximately 700 square
feet for its headquarters at 140 De Liege O., Montreal, Quebec, Canada, and 600
square feet at 100 Walnut Street in Champlain, New York 12919, for its
distribution needs. The New York distribution center will store and distribute
TDT's inventory. We previously leased office space in Miami, Florida. On August
1, 2001, we moved our headquarters from Miami to Montreal and we believe that we
can operate more efficiently from Montreal. On July 31, 2001 we closed our Miami
office.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to nor are we aware of any existing, pending or
threatened lawsuits or other legal actions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
As of October 31, 2001, TDT's common stock had no trading market. On
October 23, 2001, the NASD cleared TDT's common stock for trading on the NASD
Over-The Counter Bulletin Board ("OTCBB") under the symbol "TDT".
HOLDERS
As of October 31, 2001, there are approximately 37 record holders of our
common stock.
DIVIDENDS
As of the date hereof, no cash dividends have been declared on our common
stock. We presently intend to retain future earnings, if any, for use in our
business and have no present intention to pay cash dividends on our common
stock.
RECENT SALES OF SECURITIES
TDT has not sold any securities other than those sold in TDT's private
offering of equity which are listed in TDT's Form SB-2 filed with the Securities
and Exchange Commission on May 11, 2001.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis should be read in conjunction with
the financial statement of TDT and the accompanying notes appearing subsequently
under the caption "Financial Statements".
3
TDT focused primarily on capital issues and on expanding its business.
During the year ended October 31, 2001 TDT issued common stock in a private
placement in the amount of $335,100.
Total revenues for the year ended October 31, 2001 were $138,308. Total
revenues for the year ended October 31, 2000 were $86,867.
Selling, general and administrative expenses for the year ended October 31,
2001 were $297,489. Selling, general and administrative expenses for the year
ended October 31, 2000 were $117,126.
LIQUIDITY AND CAPITAL RESOURCES
For the twelve months ended October 31, 2001, we had net cash used in
operating activities of $235,578. For the twelve months ended October 31, 2000,
we had net cash used in operating activities of $31,657.
Cash used in investment activities for the twelve months ended October 31,
2001 was $3,062. Cash used in investment activities for the twelve months ended
October 31, 2000 was $14,256.
Cash provided by financing activities for the year ended October 31, 2001
totaled $272,524. Cash provided by financing activities for the year ended
October 31, 2000 totaled $45,913.
At the end of fiscal 2001, the Company had cash in the amount of $33,884 as
compared to $0 at the beginning of the fiscal year.
The Company believes that its current cash will be sufficient to meet its
anticipated cash needs for working capital and capital expenditures for at least
the next twelve months. If cash generated from operations is insufficient to
satisfy liquidity requirements, the Company may seek to sell additional equity
or debt securities or to obtain a credit facility. If the Company issues debt
securities, fixed obligations will increase and the Company may have to comply
with covenants that might inhibit its operations. Moreover, such financing may
not be available in amounts or on terms acceptable to the Company, if at all.
ITEM 7. FINANCIAL STATEMENTS
The financial statements and supplementary data are included beginning
immediately following the signature page to this report including a list of the
financial statements and financial statement schedules included.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth certain information regarding our executive
officers, directors and key employees as of October 31, 2001.
NAME AGE POSITION
---- --- --------
Pietro Bortolatti........................... 47 President & Chairman of the Board
Tiziana DiRocco............................. 40 Vice President of Marketing, Director
David Rector................................ 55 Director
4
PIETRO BORTOLATTI, CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pietro Bortolatti has been President, Chief Executive Officer, Chief
Financial Officer and Director of TDT since its inception in September 8, 2000.
Since 1999 Mr. Bortolatti has been president and sole shareholder of Terre di
Toscana, Inc., our operating subsidiary. Mr. Bortolatti has been in the food
import/export business for the past twelve years. From 1995 to 1999 Mr.
Bortolatti was president of Bortolatti Enterprises, Inc., a restaurant
development company. From 1992 to 1998 Mr. Bortolatti was president of Under the
FarmTree, Inc., a food importer. From 1988 to 1992 Mr. Bortolatti was the
Director of Export-USA for Rancilio Spa, a food products and hotel equipment
company based in Italy. Mr. Bortolatti will work full time for TDT.
Mr. Bortolatti earned his Bachelors Degree in Economic Sciences and
Accounting from Cesare Battisti Commercial Technical Institute in Bolzano, Italy
in 1974; his Master Degree in Economic Science and Business Administration from
Bocconi University, Italy 1979; and his Ph.D. in Economic Science and Business
Administration from Bocconi University, Italy.
TIZIANA DI ROCCO, VICE PRESIDENT MARKETING AND DIRECTOR
Tiziana Di Rocco has served as Vice President Marketing and Director of TDT
since formation. From 1995 to 1996 Ms. Di Rocco was a translator of government
texts for Traductions GAB in Laval, Quebec, Canada. From 1996 to 1997 she worked
for the Italian Embassy in Ottawa, Ontario, Canada as a translator of legal and
administrative texts. From 1997 to 1999 she was the office manager of Bortolatti
Enterprises in Miami, Florida. Ms. Di Rocco will work full time for TDT. Ms. Di
Rocco earned a Bachelor of Arts Degree in Italian Literature and Italian to
French and English Translations from Concordia University in Montreal, Canada.
DAVID RECTOR, DIRECTOR
David Rector has served as Director of TDT since formation. Since 1992, Mr.
Rector has been a principal of the David Stephen Group, a business consulting
firm located in the San Francisco Bay Area, which focuses on the needs of
emerging companies. From August 1996 to January 1999, Mr. Rector served as a
Director of Tamboril Cigar Company ("Tamboril"). From August 1996 to March 1997,
Mr. Rector served as the Executive Vice President and General Manager of
Tamboril. He has also served as the Secretary of Tamboril. From 1996 to the
present Mr. Rector has been a director of Fullcomm Tech, Inc., a designer and
developer of Internet encryption hardware. It is traded on the OTCBB and the
trading symbol is FLTI. From June 1992 to April 1994, he served as the President
and Chief Executive Officer of Supercart International, a distributor of
shopping carts. Prior to that, from 1985 to 1992, Mr. Rector was a principal of
Blue Moon, a women's fashion accessory company specializing in fasteners. From
1980 to 1985, Mr. Rector served as President of Sunset Designs, a designer of
leisure time craft. From 1972 to 1980, Mr. Rector held various financial and
marketing positions with Crown Zellerbach Corporation, a multi-billion dollar
manufacturer of paper and forest products. Mr. Rector holds a Bachelors degree
in Business Administration from Murray State University, Murray, Kentucky.
16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To our knowledge, no officers, directors, beneficial owners of more than
ten percent of any class of our equity securities registered pursuant to Section
12 of the Exchange Act or any other person subject to Section 16 of the Exchange
Act with respect to us, failed to file on a timely basis reports required by
Section 16(a) of the Exchange Act during the most recent fiscal year, which
ended October 31, 2001.
5
ITEM 10. EXECUTIVE COMPENSATION
The following table shows compensation paid during the fiscal years ended
October 31, 2001 and 2000 by our President and CEO, and highest paid executives.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM
------------------------------------- COMPENSATION AWARDS PAYOUTS
OTHER ----------------------------- --------------------------
ANNUAL RESTRICTED SECURITIES ALL OTHER
COMPENSATION STOCK UNDERLYING LTIP COMPENSATION
NAME & PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)(1) AWARDS ($) OPTIONS/SARS (#) PAYOUTS ($) ($)(2)
------------------------- ---- ---------- --------- ------------ ---------- ---------------- ----------- ------------
Pietro Bortolatti...... 2001 0 0 20,500 0 0 0 0
President, CEO & 2000 0 0 4,000 0 0 0 0
Chairman of the Board
Tiziana DiRocco........ 2001 0 0 15,370 0 0 0 0
Vice President of 2000 0 0 20,800 0 0 0 0
Marketing & Director
David Rector........... 2001 0 0 0 0 0 0 16,244
Director 2000 0 0 0 0 0 0 37,677
---------------
(1) Commissions of sales from Terre di Toscana, Inc., and Terres Toscanas, Inc.
(2) Includes consulting service fees paid to the David Stephen Group, of which
David Rector is a principal.
COMPENSATION ARRANGEMENTS
None.
STOCK OPTION PLAN
Our stock option plan provides for the grant of options intended to qualify
as "incentive stock options" or options that are not intended to so qualify or
"nonstatutory stock options" optionee. Options may be granted to our employees
(including officers) and directors and certain or our consultants and advisors.
No stock options have been granted to date. The stock option plan was filed on
Form SB-2 on February 1, 2001.
LIMITATION ON LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our certificate of incorporation provides for the indemnification of the
officers, directors and corporate employees and agents of TDT to the fullest
extent permitted by General Corporation Law of Nevada.
Articles Nine and Ten of TDT's amended certificate of incorporation provide
as follows:
9. Limitation on Liability. To the fullest extent permitted by
Chapter 78 of the Nevada Revised Statutes as the same exists or may
hereafter be amended, an officer or director of the Corporation shall not
be personally liable to the Corporation or its stockholders for monetary
damages due to breach of fiduciary duty as such officer or director."
10. Indemnification. The Corporation is authorized to provide
indemnification of agents for breach of duty to the Corporation and its
stockholders through bylaw provisions or through agreements with agents, or
both, in excess of the indemnification otherwise permitted by law, subject
to any limits on such excess indemnification as set forth therein.
6
OPTION GRANTS IN LAST FISCAL YEAR
None.
DIRECTORS'S COMPENSATION AND COMMITTEES
We have not paid and do not presently propose to pay compensation to any
director for acting in such capacity, except for the grant of shares of common
stock or options and reimbursement for reasonable out-of-pocket expenses in
attending meetings.
We have no formal committees.
- monitoring our financial reporting process and internal control systems;
- reviewing and appraising the audit efforts of our independent accountants
and internal auditing functions;
- reviewing compliance with laws and regulations under which we are
required to operate, including compliance with the Nasdaq corporate
governance standards; and
- providing an open avenue of communication among our independent
accountants, financial and senior management, internal auditing
department and Board of Directors.
The Board of Directors does not have a standing nominating committee.
Nominations for election to the Board of Directors may be made by the Board of
Directors or by any shareholder entitled to vote for the election of directors
in accordance with our bylaws and Nevada Law.
Meetings may be held from time to time to consider matters for which
approval of our Board of Directors is desirable or is required by law. Our Board
of Directors met times during fiscal year 2001.
EXECUTIVES' COMPENSATION POLICIES
Compensation of our executives is intended to attract, retain and award
persons who are essential to the corporate enterprise. The fundamental policy of
our executive compensation program is to offer competitive compensation to
executives that appropriately rewards the individual executive's contribution to
corporate performance. The Board of Directors utilizes subjective criteria for
evaluation of individual performance and relies substantially on our executives
in doing so. The Board focuses on two primary components of our executives
compensation program, each of which is intended to reflect individual and
corporate performance: base salary and long-term incentive compensation.
Executives' base salaries are determined primarily by reference to
compensation packages for similarly situated executives of companies of similar
size or in comparable lines of business with whom we expect to compete for
executive talent and with reference to revenues, gross profits and other
financial criteria. The Board also assesses subjective qualitative factors to
discern a particular executive's relative value to the corporate enterprise in
establishing base salaries.
It is the Board's philosophy that significant stock ownership by management
creates a powerful incentive for executives to build long-term shareholder
value. Accordingly, the Board believes that an integral component of executive
compensation is the award of equity-based compensation, which is intended to
align executives' long-term interests with those of our shareholders. The Board
believes that option grants should be considered on an annual basis.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of our common stock as of October 31, 2001. The information in this
table provides the ownership information for:
- each person known by us to be the beneficial owner of more than 5% of our
common stock,
- each of our directors,
7
- each of our executive officers, and
- our executive officers and directors as a group.
Beneficial ownership has been determined in accordance with the rules and
regulations of the SEC and includes voting or investment power with respect to
the shares. Unless otherwise indicated, the persons named in the table below
have sole voting and investment power with respect to the number of shares
indicated as beneficially owned by them. The address of the person named below
is c/o TDT Development, Inc., 140 De Liege O. Montreal, Quebec, Canada H2P 1H2.
AMOUNT OF
BENEFICIAL PERCENTAGE
NAME POSITION OWNERSHIP OWNED*
---- -------------------------------------------- ---------- ------------
Pietro Bortolatti......... President, CEO and Chairman of the Board 5,000,000 60%
Tiziana Di Rocco.......... Vice President of Marketing and Director 0 0%
David Rector.............. Director 15,000 less than 1%
All officers and directors
as a group.............. 5,015,000 60%
We have contacted stock brokerage firms holding shares of our common stock
in "street name" to determine whether there are additional substantial holders
of our common stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no other related party transactions during fiscal 2001.
ITEM 13. EXHIBITS, AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER TITLE OF DOCUMENT
------- -----------------
3.1 Certificate of Incorporation.(1)
3.2 Certificate of Amendment of Certificate of Incorporation.(2)
3.3 By-Laws.(1)
4.1 Specimen Stock Certificate.(1)
5 Opinion of Kaplan Gottbetter & Levenson, LLP(2)
10.1 2001 Stock Option Plan(1)
21 Subsidiaries of the Registrant
23 Consent of Rogoff & Company, P.C.(2)
23.1 Consent of Kaplan Gottbetter & Levenson, LLP(2)
---------------
(1) Incorporated by reference to Form SB-2 as filed with the Securities and
Exchange Commission on February 1, 2001.
(2) Incorporated by reference to Form SB-2/A as filed with the Securities and
Exchange Commission on May 11, 2001.
(b) Reports on Form 8-K
None.
8
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities and Exchange Act
of 1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TDT Development, Inc.
By /s/ PIETRO BORTOLATTI January 28, 2002
-----------------------------------------
Pietro Bortolatti, President, CEO, Chairman of the Board
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By /s/ PIETRO BORTOLATTI January 28, 2002
-----------------------------------------
Pietro Bortolatti, President, CEO, Chairman of the Board
By /s/ TIZIANA DI ROCCO January 28, 2002
-----------------------------------------
Tiziana Di Rocco, Vice President of Marketing and Director
By /s/ DAVID RECTOR January 28, 2002
-----------------------------------------
David Rector, Director
9
ROGOFF & COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
TDT Development, Inc.:
We have audited the accompanying consolidated balance sheets of TDT
Development, Inc. and its subsidiaries as of October 31, 2001 and 2000 and the
related consolidated statements of operations, of changes in shareholders'
equity and of cash flows for the year ended October 31, 2001 and the period from
November 11, 1999 (inception) to October 31, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TDT Development, Inc. and
its subsidiaries at October 31, 2001 and 2000, and the results of their
operations, their changes in shareholders' equity and their cash flows for the
year ended October 31, 2001 and for the period from November 11, 1999
(inception) to October 31, 2000, in conformity with U.S. generally accepted
accounting principles.
ROGOFF & COMPANY, P.C.
New York, New York
January 24, 2002
275 MADISON AVENUE, NEW YORK, NEW YORK 10016-1101 - 212-557-5666 - 212-557-9330
10
TDT DEVELOPMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, OCTOBER 31,
2001 2000
----------- -----------
ASSETS
Current assets:
Cash...................................................... $ 33,884 $ --
Accounts receivable, net of allowance for doubtful
accounts of $1,358..................................... 38,038 6,419
Deferred offering expenses................................ -- 55,000
Inventory................................................. 55,739 7,490
--------- --------
Total current assets........................................ 127,661 68,909
--------- --------
Fixed assets:
Office furniture, net of accumulated depreciation of
$1,321 and $655 respectively........................... 2,896 3,563
Computers and equipment, net of accumulated depreciation
of $4,026 and $1,343 respectively...................... 9,073 8,695
--------- --------
Total fixed assets.......................................... 11,969 12,258
--------- --------
Other assets:
Security deposits......................................... 160 1,500
--------- --------
Total assets................................................ $ 139,790 $ 82,667
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft............................................ $ 4,307 $ 1,468
Accounts payable.......................................... 1,151 64,713
Accrued interest payable.................................. -- 2,500
Promissory note payable................................... -- 30,000
Loans payable............................................. 14,301 --
Revolving credit line..................................... 5,284 --
Accrued expenses payable.................................. 23,752 5,619
--------- --------
Total liabilities........................................... 48,795 104,300
--------- --------
Shareholders' equity:
Common stock, 50,000,000 shares authorized; 8,381,000 and
5,030,000 shares issued and outstanding; par value
$.0001................................................. 838 503
Preferred stock, 5,000,000 shares authorized; -0- shares
issued and outstanding; par value $.0001............... -- --
Additional paid in capital................................ 305,707 25,942
Retained earnings (deficit)............................... (215,550) (48,078)
--------- --------
Total shareholders' equity.................................. 90,995 (21,633)
--------- --------
Total liabilities and shareholders' equity.................. $ 139,790 $ 82,667
========= ========
See accompanying Notes to Consolidated Financial Statements.
11
TDT DEVELOPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM
YEAR NOVEMBER 11,
ENDED 1999 (INCEPTION)
OCTOBER 31, TO OCTOBER 31,
2001 2000
----------- ----------------
Revenues:
Net sales................................................. $ 138,308 $ 86,867
Cost of sales............................................. 63,808 50,819
---------- ----------
Gross Profit.............................................. 74,500 36,048
---------- ----------
Other Revenues:
Commissions earned........................................ 53,298 33,000
Interest income........................................... 2,157 --
Other..................................................... 62 --
---------- ----------
Total other revenues...................................... 55,517 33,000
---------- ----------
Total income................................................ 130,017 69,048
---------- ----------
Operating Expenses:
General and administrative expenses....................... 210,647 52,641
Selling expenses.......................................... 86,842 64,485
---------- ----------
Total expenses............................................ 297,489 117,126
---------- ----------
Net loss.................................................... $ (167,472) $ (48,078)
---------- ----------
Net loss per share:
Basic..................................................... $ (0.02) $ (0.01)
========== ==========
Diluted...................................................
Weighted average shares of common stock used in calculation
of net loss per share..................................... 8,056,781 5,571,337
========== ==========
See accompanying Notes to Consolidated Financial Statements.
12
TDT DEVELOPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
NOVEMBER 11, 1999 (INCEPTION) TO OCTOBER 31, 2001
NOVEMBER 11, 1999 TO OCTOBER 31, 2000
--------------------------------------------------------
ADDITIONAL RETAINED
NUMBER OF CAPITAL PAID-IN EARNINGS
SHARES STOCK CAPITAL (DEFICIT) TOTAL
--------- ------- ---------- --------- ---------
Issuance of common stock at $0.0001 per
share................................. 5,000,000 $500 $ 13,945 $ -- $ 14,445
Contributed services:
Legal................................. 30,000 3 2,997 -- 3,000
Other................................. -- -- 9,000 -- 9,000
Net loss................................ -- -- -- (48,078) (48,078)
--------- ---- -------- --------- ---------
Balances, October 31, 2000.............. 5,030,000 503 25,942 (48,078) (21,633)
Issuance of common stock in exchange for
conversion of notes payable December
29, 2000.............................. 700,000 70 69,930 -- 70,000
Issuance of common stock at $0.10 per
share, net of $55,000 direct costs
November - January 2001............... 2,651,000 265 209,835 -- 210,100
Net loss................................ -- -- -- (167,472) (167,472)
--------- ---- -------- --------- ---------
Balances, October 31, 2001.............. 8,381,000 $838 $305,707 $(215,550) $ 90,995
========= ==== ======== ========= =========
See accompanying Notes to Consolidated Financial Statements.
13
TDT DEVELOPMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR NOVEMBER 11,
ENDED 1999 (INCEPTION)
OCTOBER 31, TO OCTOBER 31,
2001 2000
----------- ----------------
Cash flows from operating activities:
Net loss.................................................. $(167,472) $(48,078)
Adjustments to reconcile net loss to cash used by
operating activities:
Depreciation........................................... 3,351 1,998
Contributed services................................... -- 9,000
Common stock issued for services....................... -- 3,000
--------- --------
(164,121) (34,080)
(Increase) in accounts receivable...................... (31,619) (6,419)
Decrease (increase) in security deposits............... 1,340 (1,500)
(Increase) in inventory................................ (48,249) (7,490)
(Decrease) increase in accounts payable................ (8,562) 9,713
(Decrease) increase in accrued interest payable........ (2,500) 2,500
Increase in accrued expenses........................... 18,133 5,619
--------- --------
Cash used by operating activities........................... (235,578) (31,657)
========= ========
Cash flows from investing activities:
Purchase of fixed assets.................................. (3,062) (14,256)
--------- --------
Cash flows from financing activities:
Issuance of common stock.................................. -- 14,445
Proceeds from loan from stockholders...................... -- 16,000
Repayment of loan from stockholders....................... -- (16,000)
Proceeds of private placement offering, net of $55,000
direct placement costs................................. 210,100 --
Revolving credit line borrowings.......................... 5,284 --
Proceeds from promissory note payable..................... 40,000 30,000
Proceeds from loans payable............................... 14,301 --
Proceeds of bank overdraft................................ 2,839 1,468
--------- --------
Cash provided by financing activities....................... 272,524 45,913
========= ========
Increase in cash............................................ 33,884 --
Cash, beginning of period................................... -- --
--------- --------
Cash, end of period......................................... $ 33,884 $ --
========= ========
Supplemental cash flow disclosures:
Cash paid for interest.................................... $ 3,374 $ --
Non-cash investing and financing activities:
Conversion of notes payable to common stock............... $ 70,000 $ --
See accompanying Notes to Financial Statements
14
TDT DEVELOPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
TDT Development, Inc. ("TDT", "The Company") imports and distributes,
through its wholly owned subsidiaries, Terre di Toscana, Inc. ("Terre") and
Terres Toscanes, Inc. ("Toscanes"), specialized truffle based food products
which include fresh truffles, truffle oils, truffle pates, truffle cremes, and
truffle butter. TDT's target market includes retailers such as restaurants,
specialty food stores, delicatessens, supermarkets; and distributors such as
specialty food brokers and wholesalers. The Company plans to sell to consumers
directly through e-commerce via the Internet.
TDT has two wholly owned subsidiaries Terre di Toscana, Inc. which is based
in New York and handles TDT's operations in the United States and Europe and
Terres Toscanes, Inc. which is based in Montreal and it handles the Company's
operations in Canada.
TDT imports products directly from an Italian producer. There are no formal
contracts or agreements in place. The U.S. Food and Drug Administration and
Department of Agriculture regulate TDT's products. In the event that a faulted
product is found, the finding would have a material financial impact on TDT.
2. BASIS OF PRESENTATION AND CONSOLIDATION
Terre was formed in November, 1999 in Florida where it commenced marketing
its products in January 2000. In August 2001 Terre moved its headquarters from
Miami, Florida to Champlain, NY. Terre has conducted all of TDT's significant
operations.
TDT was formed in September 2000 by the sole shareholder of Terre. On
September 8, 2000, TDT acquired one hundred percent (2000 shares) of Terre's
common stock in exchange for 5,000,000 shares of TDT's common stock issued to
Terre's sole shareholder, Pietro Bortolatti. Bortolatti, who was TDT's sole
shareholder at that time, is also TDT's president, CEO and Chairman of the Board
of Directors. Accordingly, this business combination was accounted for at
historical cost in a manner similar to a pooling of interests. The consolidated
statements of operations, of changes in shareholders' equity and of cash flows
include the activities of both companies from the inception of Terre in November
1999 as if Terre had been a wholly owned subsidiary of TDT for all periods
presented.
Terres Toscanes, Inc., a Terre di Toscanes, Inc. wholly owned subsidiary
was formed in Montreal, Canada for the sole purpose of enabling the Company to
conduct its business in Canada. Toscanes started doing business in Montreal in
April 2001.
The consolidated financial statements include the accounts of TDT, Toscanes
and Terre. All intercompany transactions and balances have been eliminated.
3. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affect the reported amounts of assets, liabilities and matters
for disclosure at the date of the financial statements, and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ
from those estimates.
REVENUE RECOGNITION
The financial statements have been prepared on the accrual basis of
accounting. Revenue is recognized when the merchandise is shipped to customers
and expenses are recognized when incurred, whether or not such transactions have
been settled by the receipt or payment of cash. Provisions for discounts and
returns are provided for in the same period the related sales are recorded.
15
TDT DEVELOPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's policy is to replace returned goods, if any, with other
merchandise. Anticipated discounts and returns are considered to be immaterial
by management and accordingly, no provision for them has been provided in the
accompanying financial statements.
INVENTORY
Inventory consists entirely of finished goods and is stated at the lower of
cost (determined on the first in, first out basis) or market.
FIXED ASSETS
Fixed assets, consisting of office furniture, computers and equipment are
stated at cost, net of accumulated depreciation. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets.
Depreciation provided in operating expenses was $3,351 for year ended October
31, 2001 and $1,998 for year ended October 31, 2000.
IMPAIRMENT OF FIXED ASSETS
Fixed assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If such events or circumstances occur, the Company will recognize
an impairment loss to the extent of the decrease in the asset's fair value. The
Company has identified no such impairment losses.
FOREIGN CURRENCY TRANSLATION
Transactions with foreign customers and suppliers are translated at the
exchange rates then in effect. At the balance sheet date, accounts receivable
and payable denominated in foreign currency are adjusted to reflect foreign
currency exchange rates at that date. Any resulting gain or loss is reflected in
the determination of current net income (loss).
FINANCIAL INSTRUMENTS
Current assets and liabilities are reported at their face amount which,
because of their short-term nature, approximates fair value
CREDIT RISK
Credit risk in trade receivables is substantially mitigated by the
Company's short collection terms and sales to a large number of customers.
Allowances for potential credit losses are determined based on historical
experience, current evaluation of the composition of accounts receivable and
expected credit trends.
NET LOSS PER SHARE
Basic net loss per share is computed by dividing net loss (after deducting
dividends, if any, declared on preferred stock) by the weighted average number
of shares outstanding for the period. Diluted earnings per share reflects the
potential dilution of securities by adding other common stock equivalents,
including, stock options, warrants, convertible preferred stock and contingently
issuable shares to the weighted average number of common shares outstanding
during the period, if dilutive.
16
TDT DEVELOPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The calculation of basic and diluted net loss per share is as follows:
YEAR ENDED OCTOBER 31
-----------------------
2001 2000
---------- ----------
Net loss per share:
Net loss.................................................. $ (167,472) $ (48,078)
========== ==========
Weighted average shares of common stock outstanding used in
calculation of basic and diluted net loss per share....... 8,056,781 5,571,337
========== ==========
Basic and diluted net loss.................................. $ (0.02) $ (0.01)
========== ==========
COMPREHENSIVE INCOME
There is no difference in the Company's historical net losses as reported
and comprehensive net loss.
DIVIDENDS
The Board of Directors has sole discretion to pay cash dividends based on
the Company's financial condition, results of operations, capital requirements,
contractual obligations and other relevant factors. TDT has not paid any
dividends on common stock since inception.
INCOME TAXES
The Company uses the liability method for income taxes as required by SFAS
No. 109 "Accounting for Income Taxes." Under that method, deferred tax assets
and liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities. Deferred taxes are measured by applying
currently enacted tax laws. Valuation allowances related to deferred tax assets
are established when, in the opinion of management, it is more likely than not
that some or all of the benefits of deferred tax assets will not be realized.
4. SHAREHOLDERS' EQUITY AND RELATED PARTY TRANSACTIONS
In September 2000, TDT issued 5,000,000 shares of common stock to the
Company's President, CEO, Secretary and Chairman of the Board, Mr. Pietro
Bortolatti, in exchange of all of Terre di Toscana's outstanding shares of
common stock. The exchange was treated as a reorganization of entities under
common control, and was accounted for at historical cost in a manner similar to
pooling of interests.
In addition, Mr. Bortolatti provided services to the Company during 2000
valued at $9,000, for which he was not and will not be paid. The value of those
services has been charged to expense and credited to additional paid-in capital.
Also, 30,000 shares of TDT's common stock were issued to Kaplan, Gottbetter
& Levenson, LLP., TDT's legal representative, in exchange for legal services
valued at $3,000.
In November 2000, TDT's Board of Directors authorized a private placement
offering of TDT's common stock to a limited number of sophisticated investors at
a price of $.10 per share. By January 2001, TDT completed the private placement
of 3,351,000 shares of its common stock, resulting in cash proceeds of $335,100.
Direct costs incurred in conjunction with this placement were $55,000.
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights.
On November 15, 2000 Terre borrowed $40,000 and executed an 18% promissory
note that was due on February 15, 2001. On December 29, 2000 the face amount of
the note was paid by a third party in
17
TDT DEVELOPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
consideration of which TDT issued 400,000 shares of common stock. On May 15,
2000 Terre borrowed $30,000 and executed an 18% promissory note that was due on
May 15, 2001. The face value of the note was converted into 300,000 shares of
TDT common stock on December 29, 2000.
Accrued interest of $4,323 that was accumulated on the two notes by the
conversion date remained a liability of the Company and was paid off during the
year ended October 31, 2001.
David Rector is a director of TDT and is also a principal of The David
Stevens Group. TDT has engaged The David Stevens Group to perform certain
management consulting services, for which the Company paid $37,677 and $16,244
during the years ended October 31, 2001 and 2000 respectively.
5. INCOME TAXES
The companies have consolidated net operating losses ("NOL") for tax
purposes at October 31, 2001 and 2000 of approximately $215,550 and $28,000
respectively. The differences between financial reporting and tax bases of
assets and liabilities are not significant.
At a statutory tax rate of fifteen percent, the future tax benefit of the
NOL would be approximately $32,333 and $4,200 for the years ended October 31,
2001 and 2000. However, this has been reduced by a 100% valuation allowance
because, in the opinion of management, it is more likely than not based on
available information that the benefit will not be realized.
6. FOREIGN CURRENCY TRANSLATION
For the years ended October 31, 2001 and 2000 the Company's gains on
payables denominated in foreign currencies were $1521 and $651 respectively. No
gain or loss was recognized on trade receivables denominated in foreign
currencies since they were considered by management to be immaterial.
7. STOCK OPTIONS
TDT adopted its 2000 Stock Option Plan in September, 2000. The plan
provides for the grant of options intended to qualify as incentive stock
options; options not intended to so qualify; and nonstatutory stock options and
stock appreciation rights. The total number of shares of common stock reserved
for issuance under the plan is 1,000,000 subject to adjustment in the event of a
stock split, stock dividend, recapitalization or similar capital change, plus an
indeterminate number of shares of common stock issuable upon the exercise of
reload options. TDT has not yet granted any options or stock appreciation rights
under the plan.
The plan is presently administered by TDT's Board of Directors, which
selects the eligible persons to whom options shall be granted, determines the
number of common shares subject to each option, the exercise price thereof and
the period during which options are exercisable, interprets the provisions of
the plan and, subject to certain limitations, may amend the plan.
Options may be granted to TDT's employees (including officers) and
directors and certain of TDT's consultants and advisors.
8. SERVICES COMPENSATION
Kaplan, Gottbetter & Levenson, LLP (KGL) rendered legal services at a fair
value of $3,000. The $3,000 was paid through the issuance of 30,000 shares of
TDT's common stock valued at $.10 per share.
9. CONCENTRATIONS
During the year ended October 31, 2001 "La Tartufoglia," the Company's
supplier in Italy accounted for 100% of the Company's merchandise purchases.
18
TDT DEVELOPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. DEFERRED OFFERING EXPENSES
TDT has incurred costs of $55,000 to Kaplan, Gottbetter & Levenson, LLP for
the preparation of TDT's Private Offering Memorandum dated November 2, 2000. The
$55,000 was charged against the proceeds of the private placement offering in
January 2001.
11. SEGMENT AND GEOGRAPHIC INFORMATION
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." Certain information is disclosed, per SFAS
No. 131, based on TDT's geographic revenues. In addition to its regular
operations in the United States and Canada, TDT brokers deals for its supplier
in Italy for which the Company receives commissions.
USA CANADA ITALY TOTAL
-------- ------ ------- --------
Year ended Oct. 31, 2001
Net sales................................ $133,078 $5,230 $ -- $138,308
Earned commissions....................... -- -- 53,298 53,298
-------- ------ ------- --------
Total revenue............................ $133,078 $5,230 $53,298 $191,606
======== ====== ======= ========
Year ended Oct. 30, 2000
Net sales................................ $ 86,867 $ -- $ -- $ 86,867
Earned commissions....................... -- -- 33,000 33,000
-------- ------ ------- --------
Total Revenue............................ $ 86,867 $ -- $33,000 $119,867
======== ====== ======= ========
12. OPERATING LEASES
The Company leases office space under a noncancelable operating lease that
expires in June 2002. Future minimum payments under that lease as of October 31,
2001 are $4,480.
Total rental expense for the years ended October 31, 2001 and 2000 amounted
to $12,663 and $11,607 respectively.
13. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statement No.
141 Business Combinations and Statement No. 142 Goodwill and Other Intangible
Assets. These statements become effective to the Company on July 1, 2001 for
Statement No. 141 and August 1, 2002 for Statement No. 142. The Company has not
completed any business combinations as of September 30, 2001 and management
cannot currently assess what effect the future adoption of these pronouncements
will have on the Company's financial statements.
In June 15, 2001, the Financial Accounting Standards Board also issued
Statement No. 143 Accounting For Asset Retirement Obligations and in August 15,
2001, Statement No. 144 Accounting For Impairment and Disposal of Long Lived
Assets.
Statement No. 143 will change the accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs in four significant ways. First, Statement 143 requires
that the amount initially recognized for an asset retirement obligation be
measured at fair market value and not under the current practice of using a
cost-accumulation measurement approach. Second, Statement 143 requires that the
retirement obligation liability is discounted and accretion expense is
recognized using the credit-adjusted risk-free interest rate in effect when the
liability was initially recognized.
19
TDT DEVELOPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Prior practice did not require discounting of the retirement obligation
liability and therefore no accretion was recorded in periods subsequent to the
initial recognition period. Third, under prior practice, dismantlement and
restoration costs were taken into account in determining amortization and
depreciation rates and often the recognized asset retirement obligation was
recorded as a contra-asset. Under Statement 143, recognized asset retirement
obligations are recognized as a liability. Fourth, under prior practice, the
asset retirement obligation was recognized over that useful life of the related
asset and under Statement 143 the obligation is recognized over that useful life
of the related asset and under Statement 143 the obligation is recognized when
the liability is incurred. The effective date for Statement No. 143 is for
fiscal years beginning after June 15, 2002.
Statement No. 144, changes the accounting for long lived assets to be held
and used by eliminating the requirement to allocate goodwill to long-lived
assets to be tested for impairment, by providing a probability-weighted cash
flow estimation approach to deal with situations in which alternative courses of
action to recover the carrying amount of possible future cash flows and
establishing a "primary-asset" approach to determine the cash flow estimation
period for a group of assets and liabilities that represents the unit of
accounting for a long-lived asset to be held and used. Statement No. 144 changes
the accounting for long-lived assets to be disposed of other than the sale by
requiring that the depreciable life of a long lived asset to be abandoned, be
revised to reflect a shortened useful life and by requiring that an impairment
loss be recognized at the date a long-lived asset is exchanged for a similar
productive asset or distributed to owners in a spin-off if the carrying amount
of the asset exceeds its fair value. Statement No. 144 changes the accounting
for long lived assets to be disposed of by sale by requiring that discontinued
operations no longer be measured on a net realizable value basis(but at the
lower of carrying amount or fair value less costs to sell), by eliminating the
recognition of future operating losses of discontinued components before they
occur and by broadening the presentation of discontinued operations in the
income statement to include a component of an entity rather than a segment of a
business. A component of an entity comprises operations and cash flows that can
be clearly distinguished, operationally, and for financial reporting purposes,
from the rest of the entity. The effective date for Statement No. 144 is for
fiscal years beginning after December 15, 2001.
The Company expects that the adoption of the new statements will not have a
significant impact on its financial statements. It is not possible to quantify
the impact until the newly issued statements have been studied.
20