SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For The Quarter Ended August 31, 2000 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For The Transition Period from _______to______
Commission File Number 0-24847
CURTIS INTERNATIONAL LTD.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ONTARIO, CANADA N/A
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
315 Atwell Drive, Toronto, ONTARIO M9W5C1
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 416-674-2123
Indicate by check mark whether the 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: January 11, 2001, 5,277,745
Shares of Common Stock outstanding.
Transitional Small Business Disclosure (check One):
Yes [ ] No [ X ]
CURTIS INTERNATIONAL LTD.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
Interim Balance Sheet - November 30, 2000 and May 31, 2000.......... 3
Interim Statements of Income - For the three and six months
ended November 30, 2000 and 1999.................................... 4
Interim Statements of Cash Flows - For the six months
ended November 30, 2000 and 1999.................................... 5
Interim Statements of Stockholders Equity For the six months
ended November 30, 2000............................................. 6
Notes to Interim Financial Statements............................... 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................10
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS...........................12
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K....................................12
SIGNATURES...................................................................13
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CURTIS INTERNATIONAL LIMITED
INTERIM BALANCE SHEETS
AS OF NOVEMBER 30, 2000 AND MAY 31, 2000
(Amounts expressed in US dollars)
(Unaudited)
November 30 May 31,
2000 2000
$ $
ASSETS
CURRENT ASSETS
Cash -- 1,393,547
Accounts receivable 12,485,136 4,444,740
Income Taxes Recoverable 689,631 --
Inventory 8,071,767 7,283,553
Prepaid expenses and sundry assets 98,783 106,084
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21,345,317 13,227,924
PROPERTY, PLANT AND EQUIPMENT 395,729 428,631
DEFERRED INCOME TAXES 357,640 422,653
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22,098,686 14,079,208
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LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 6,048,668 --
Accounts payable 4,893,020 2,131,049
Income taxes payable -- 19,864
Advances from affiliated parties 208,700 361,244
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11,150,388 2,512,157
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STOCKHOLDERS' EQUITY
COMMON STOCK 7,246,774 7,342,163
ACCUMULATED OTHER COMPREHENSIVE INCOME (559,890) (298,592)
RETAINED EARNINGS 4,261,414 4,523,480
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10,948,298 11,567,051
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22,098,686 14,079,208
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CURTIS INTERNATIONAL LIMITED
INTERIM STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2000 AND 1999
(Amounts expressed in US dollars)
(Unaudited)
For the period ended November 30
three months six months
2000 1999 2000 1999
$ $ $ $
SALES 22,276,262 18,624,623 32,561,939 29,038,121
Cost of sales 18,702,026 15,614,389 27,140,956 24,117,060
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GROSS PROFIT 3,574,236 3,010,234 5,420,983 4,921,061
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EXPENSES
Selling 1,030,444 930,659 1,593,523 1,298,841
Adminstrative 482,731 398,290 963,129 877,409
Financial 156,815 9,786 189,839 35,513
Bad Debt Expense 3,039,616 98,813 3,162,285 399,264
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4,709,606 1,437,548 5,908,776 2,611,027
INCOME BEFORE INCOME TAXES (1,135,370) 1,572,686 (487,793) 2,310,034
Income taxes (517,137) 753,868 (225,727) 1,048,317
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NET INCOME (618,233) 818,818 (262,066) 1,261,717
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NET INCOME PER WEIGHTED
AVERAGE COMMON SHARE (0.12) 0.15 (0.05) 0.23
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WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 5,277,745 5,373,145 5,314,237 5,373,145
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CURTIS INTERNATIONAL LIMITED
INTERIM STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2000 AND 1999
(Amounts expressed in US dollars)
(Unaudited)
2000 1999
$ $
Cash flows from operating activities:
Net income (262,066) 1,261,717
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Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization 53,154 31,471
Deferred Income taxes 56,770 57,577
Increase in accounts receivable (8,404,260) (9,190,454)
(Increase)/Decrease in inventory (990,918) 1,166,872
Increase in prepaid expenses and sundry assets 4,945 (45,053)
Increase in accounts payable and accrued expenses 2,901,697 2,117,448
Increase/(decrease) in income taxes payable (731,551) (838,873)
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Net cash used in operating activities (7,110,163) (6,701,012)
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Net cash used in operating activities (7,372,229) (5,439,295)
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Cash flows from investing activities:
Purchases of property, plant and equipment (29,662) (149,605)
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Net cash used in investing activities (29,662) (149,605)
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Cash flows from financing activities:
Increase/(Decrease) in bank indebtedness 6,048,668 1,074,582
Decrease in advances from affiliated parties (148,360) (99,811)
Repurchase of common stock (95,389) 0
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Net cash provided by financing activities 5,804,919 974,771
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Effect of foreign currency exchange rate changes 203,425 920
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Net increase/(decrease) in cash/cash equivalents (1,393,547) (4,613,209)
Cash and cash equivalents
- -- Beginning of period 1,393,547 4,613,209
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- -- End of period 0 0
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Interest paid 168,884 1,147
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Income taxes paid 511,424 1,816,156
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CURTIS INTERNATIONAL LIMITED
INTERIM STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AS OF NOVEMBER 30, 2000
(Amounts expressed in US dollars)
(Unaudited)
Common Accumulated
Stock Other
Number of Retained Comprehensive
Shares Amounts Earnings Income Total
$ $ $ $
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Balance as of May 31, 1999 5,373,145 7,342,163 2,874,375 (47,062) 10,169,476
Foreign currency translation (251,530) (251,530)
Net income for the year 1,649,105 1,649,105
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Balance as of May 31, 2000 5,373,145 7,342,163 4,523,480 (298,592) 11,567,051
Foreign currency translation (261,298) (261,298)
Repurchase of capital stock (95,400) (95,389) (95,389)
Net income for the six months
ended November 30, 2000 (262,066) (262,066)
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Balance as of November 30, 2000 5,277,745 7,246,774 4,261,414 (559,890) 10,948,298
=================================================================
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CURTIS INTERNATIONAL LIMITED.
Notes to Interim Financial Statements November 30, 2000
(Amounts expressed in US dollars)
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
These interim Financial Statements have been prepared in accordance with Form
10-QSB specifications and, therefore, do not include all information and
footnotes normally shown in full annual financial statements.
b) Principal Activities
The company was incorporated in Canada on December 12, 1990. The company is
principally engaged in the distribution and sales of consumer electronics,
audio, telecommunication products and computer accessories in Canada and the
United States of America.
c) Cash, Cash Equivalents, and Bank indebtedness
Cash, cash equivalents, and bank indebtedness includes cash in bank, amounts due
to banks, and any other highly liquid investments purchased with a maturity of
three months or less. The carrying amount approximates fair value because of the
short maturity of those instruments.
d) Other Financial Instruments
The carrying amount of the company's accounts receivable and other financial
instruments approximate fair value because of the short maturity of these
instruments.
e) Long-term Financial Instruments
The fair value of each of the company's long-term financial assets and debt
instruments is based on the amount of future cash flows associated with each
instrument discounted using an estimate of what the company's current borrowing
rate for similar instruments of comparable maturity would be.
f) Inventory
Inventory is valued at the lower of cost and net realizable value. Cost is
determined on the average cost basis.
g) Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are depreciated on the
declining balance basis over their estimated useful lives.
Leasehold improvements are amortized on the straight-line basis over the term of
the lease.
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h) Sales
Sales represent the invoiced value of goods supplied to customers. Sales are
recognized upon delivery of goods and passage of title to customers. Sales are
translated to US dollars for reporting purposes only.
i) Foreign Currency Translation
The translation of the interim financial statements from Canadian dollars ("CDN
$") into United States dollars is performed for the convenience of the reader.
Balance sheet accounts are translated using closing exchange rates in effect at
the balance sheet date and income and expense accounts are translated using an
average exchange rate prevailing during each reporting period. No representation
is made that the Canadian dollar amounts could have been, or could be, converted
into United States dollars at the rates on the respective dates and or at any
other certain rates. Adjustments resulting from the translation are included in
the cumulative translation adjustments in stockholders' equity.
The following table sets forth, for the end of periods indicated, the exchange
rate and average rate for the periods translating balance sheet, revenue and
expense items:
Period Ending
November 30, November 30,
2000 1999
Closing exchange rate at balance
sheet date 0.6484 0.6783
Average exchange rate for the period 0.6690 0.6785
j) Use of Estimates
The preparation of interim financial statements requires management to make
estimates and assumptions that affect certain reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the interim financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. BANK INDEBTEDNESS
The bank indebtedness bears interest at the bank's prime lending rate relative
to the currency in which the debt is incurred plus 0.50% per annum. As security,
the company has provided a general assignment of accounts receivable, a general
security agreement and an assignment of fire insurance on the business assets.
The company's line of credit extends to $12,968,000, with an additional seasonal
facility available from August 1 through December 31 of $6,484,000, and is
limited based on a formula which relates to accounts receivable, and inventory
held by the company. The company has met all covenants imposed by the bank.
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3. CAPITAL STOCK
a) Authorized
15,000,000 shares of Common Stock
1,000,000 shares of Preferred Stock
Issued
November 30, November 30,
2000 1999
Common shares 5,277,745;(5,373,145 1999) 7,246,774 7,342,163
b) Stock Option Plan
In 1998, the Board of Directors adopted a stock option plan pursuant to which
400,000 shares of common stock are provided for issuance. As at November 30,
2000, 155,000 stock options were issued and outstanding.
c) Earnings Per Share
Net income per common share is computed by dividing net income for the period by
the weighted number of common shares outstanding during the period.
Fully diluted net income per share was the same as the basic net income per
common share.
d) Stock Repurchase
On August 10, 2000 the Company repurchased for cancellation, 95,400 Common
Shares at the then prevailing market price of $1.00 per share, net of
commissions. The cost of the repurchase, in the amount of $95,389, has been
recorded as a reduction of capital stock.
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ITEM 2. Management discussion and analysis
The statements contained in this filing that are not historical are forward
looking statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act, including statements regarding the Company's
expectations, liquidity, anticipated cash needs and availability and anticipated
expense levels. All forward looking statements included in this report are based
on information available to the Company on the date hereof, and the Company
assumes no obligation to update any such forward looking statement. It is
important to note that the Company's actual results could differ materially from
those in such forward looking statements.
Results of Operations
Three and Six Months Ended November 30, 2000 compared to the Three and Six
Months Ended November 30, 1999.
Sales for the three months ended November 30, 2000 were $22,276,000, a 19.6%
increase over the second quarter of fiscal 2000 sales of $18,625,000. Year to
date sales for fiscal 2001 increased 12.1% over the same period in fiscal 2000.
This increase is the result of an expansion of our customer base in the United
States.
Gross profit for the second quarter of fiscal 2001 was $3,574,000, which is a
increase of $564,000 (18.7%) over the second quarter of fiscal 2000. Year to
date gross profit for fiscal 2001 increased by $500,000 (10.2%) over the same
period in fiscal 2000. This was attributed to the increase in sales volume. We
were able to maintain our profit margin percentage despite aggressively seeking
and acquiring sales to major store chains in the United States.
Selling expenses of $1,030,000 for the three months ended November 30, in fiscal
2001 were lower as a percentage of sales (4.6%) as compared to 5.0% for the same
quarter in fiscal 2000. The year to date selling expenses for fiscal 2001 were
$1,594,000 as compared to $1,299,000 for the same period in fiscal 2000.
Administrative expenses of $963,000 for the six months ended November 30, 2000
were $86,000 higher than six months ended November 30, 1999. This was due to
higher office costs and insurance.
Financial expenses for the three months ended November 30, 2000 of $157,000 were
$147,000 higher than the same period of 1999. Year to date financial costs for
fiscal 2001 were $190,000 as compared to $36,000 for the same period in fiscal
2000. This was due higher interest costs due to higher borrowings associated
with the increased volume of business.
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Bad Debt expense for Fiscal 2001 increased significantly to $3,040,000 from
$99,000 (2,970.1%). Bad debt expense for the six months ended November 30, 2000
was $3,162,000 compared to $399,000 for the comparable period in 1999. This was
primarily due to an increase in allowance for uncollectable amounts associated
with one significant customer. This customer has subsequently filed for chapter
11 protection. Management is unable at this time to determine the extent of
recover likely from this account. The provision fully reserves any loss to be
suffered from this uncollectable amount. Management expects this to be a
one-time loss, and does not anticipate any future effects on operating income in
the future.
Income before income taxes for the three months ended November 30, 2000 was a
loss of $1,135,000. This loss reflects the above mentioned bad debt allowance
that offset the increase in total revenue, and gross profit.
Income before income taxes for the six months ended November 30, 2000 was a loss
of $488,000.
As a result of the above factors, net income for the three months ended November
30, 2000 was a net loss of $618,000.
Net income for the six months ended November 30, 2000 was a net loss of
$262,000.
Liquidity and Capital Resources
The company had a net use of cash of $1,394,000 for the six months ended
November 30, 2000. The principle uses of cash were traced to an increase in
accounts receivable due to an increase in sales volume, and the seasonal
increase in sales for the second quarter, and an increase in inventory, also due
to the seasonally high sales period. This was partially offset by an increase in
accounts payable and accrued expenses.
The Company believes that available bank borrowings, coupled with income from
operations will fulfill the Company's working capital needs for the next fiscal
year. It is the Company's intention to utilize a significant portion of the
proceeds to aggressively seek synergistic acquisitions, although we have no
understandings or agreements to acquire any companies at this time. The company
also intends to support its business through increased marketing, advertising
and distribution throughout North America. As the Company continues to grow,
bank borrowings, other debt placements and equity offerings may be considered,
in part, or in combination, as the situation warrants.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company completed an initial public offering of its Common Stock,
no par value ("Common Stock") pursuant to a registration statement declared
effective by the Securities and Exchange Commission on November 12, 1998, File
No. 333-56661 ("Registration Statement").
The following are the Company's expenses incurred in connection with
the issuance and distribution of the Securities in the offering from the
effective date of the Registration Statement to the ending date of the reporting
period of this 10-Q.
EXPENSE AMOUNT
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Underwriter's Discounts and Commission $ 836,573
Financial Advisory Fee $ 82,500
Expenses Paid To or For Underwriters $ 35,950
Other Expenses(1) $ 644,291
Total Expenses $ 1,599,314
None of the foregoing expenses were paid, directly or indirectly, to
any director or officer of the Company or their associates, to any person who
owns 10 percent or more of any class or equity of securities of the Company, or
to any affiliate of the Company.
On December 14, 1998, the Underwriter exercised a portion of the
over-allotment option resulting in additional net proceeds of $754,171 to the
Company.
The net offering proceeds to the Company after deducting the foregoing
expenses were approximately $6,766,411.
To date the Company has utilized the net proceeds from its initial
public offering as follows: repayment of loan $900,000, upgrading of M.I.S
$180,000, relocation to new facilities $100,000, sales and marketing $50,000.
The balance of approximately $5,536,411 has been used to temporarily reduce the
outstanding balance on the Company's line of credit with CIBC and for working
capital and general corporate purposes. The Company's temporary reduction of its
line of credit reduces the interest expense payable by the Company, while
keeping open such line of credit for immediate use by the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Data Schedule.
(b) There were no reports on Form 8-K filed during the quarter for
which this report is filed.
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SIGNATURES
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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.
CURTIS INTERNATIONAL LTD.
January 15, 2001 By: /s/ JACOB HERZOG
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Jacob Herzog
Chairman, Treasurer,
Secretary/Principal
Accounting Officer
January 15, 2001 By: /s/ AARON HERZOG
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Aaron Herzog
President/Chief Executive
Officer
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