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 February 28, 2001 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: April 10, 2001, 5,263,245
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 - February 28, 2001 and May 31, 2000.......... 3
Interim Statements of Income - For the three and nine months
ended February 28, 2001 and 2000.................................... 4
Interim Statements of Cash Flows - For the nine months
ended February 28, 2001 and 2000.................................... 5
Interim Statements of Stockholders Equity For the nine months
ended February 28, 2001............................................. 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 February 28, 2001 and May 31, 2000
(Amounts expressed in US dollars) (Unaudited)
February 28 May 31,
2001 2000
$ $
ASSETS
CURRENT ASSETS
Cash 1,124,995 1,393,547
Accounts receivable 3,874,757 4,444,740
Income Taxes Recoverable 886,237 --
Inventory 5,802,983 7,283,553
Prepaid expenses and sundry assets 86,774 106,084
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11,775,746 13,227,924
PROPERTY, PLANT AND EQUIPMENT 375,993 428,631
DEFERRED INCOME TAXES 332,777 422,653
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12,484,516 14,079,208
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LIABILITIES
CURRENT LIABILITIES
Bank indebtedness -- --
Accounts payable 1,353,583 2,131,049
Income taxes payable -- 19,864
Advances from affiliated parties 285,079 361,244
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1,638,662 2,512,157
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STOCKHOLDERS' EQUITY
COMMON STOCK 7,236,199 7,342,163
ACCUMULATED OTHER COMPREHENSIVE INCOME (470,027) (298,592)
RETAINED EARNINGS 4,079,682 4,523,480
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10,845,854 11,567,051
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12,484,516 14,079,208
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CURTIS INTERNATIONAL LIMITED
INTERIM STATEMENTS OF INCOME
For the three and nine months ended February 28, 2001 and 2000
(Amounts expressed in US dollars)
(Unaudited)
For the period ended February 28
three months nine months
2001 2000 2001 2000
$ $ $ $
SALES 3,311,221 7,175,725 35,873,160 36,213,846
Cost of sales 2,768,488 5,884,869 29,909,444 30,001,929
GROSS PROFIT 542,733 1,290,856 5,963,716 6,211,917
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EXPENSES
Selling 269,481 404,860 1,863,004 1,703,701
Adminstrative 545,329 581,272 1,508,458 1,458,681
Financial 54,009 (8,120) 243,848 27,393
Bad Debt Expense 20,783 (52,567) 3,183,068 346,697
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889,602 925,445 6,798,378 3,536,472
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INCOME BEFORE INCOME TAXES (346,869) 365,411 (834,662) 2,675,445
Income taxes (165,137) 152,827 (390,864) 1,201,144
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NET INCOME (181,732) 212,584 (443,798) 1,474,301
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NET INCOME PER WEIGHTED
AVERAGE COMMON SHARE (0.03) 0.04 (0.08) 0.27
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WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 5,263,245 5,373,145 5,297,426 5,373,145
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CURTIS INTERNATIONAL LIMITED
INTERIM STATEMENTS OF CASH FLOWS
For the nine months ended February 28, 2001 and 2000
(Amounts expressed in US dollars) (Unaudited)
2001 2000
$ $
Cash flows from operating activities:
Net income/(loss) (443,798) 1,474,301
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Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization & Depreciation 79,724 65,674
Deferred Income taxes 84,709 86,510
Increase/(decrease) in accounts receivable 508,806 (2,494,735)
Decrease in inventory 1,390,270 2,023,465
Increase/(decrease) in prepaid expenses
and sundry assets 17,954 (78,816)
Increase/(decrease) in accounts payable
and accrued expenses (622,492) 1,609,065
Decrease in income taxes payable (922,277) (978,628)
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Net cash used in operating activities 536,694 232,535
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Net cash used in operating activities 92,896 1,706,836
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Cash flows from investing activities:
Purchases of property, plant and equipment (32,968) (271,429)
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Net cash used in investing activities (32,968) (271,429)
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Cash flows from financing activities:
Decrease in bank indebtedness 0 (1,711,070)
Decrease in advances from affiliated parties (206,343) (99,977)
Repurchase of common stock (105,964) 0
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Net cash provided by financing activities (312,307) (1,811,047)
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Effect of foreign currency exchange rate changes (16,173) (112,058)
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Net decrease in cash/cash equivalents (268,552) (487,698)
Cash and cash equivalents
-Beginning of period 1,393,547 4,613,209
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-End of period 1,124,995 4,125,511
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Interest paid 206,289 1,149
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Income taxes paid 592,447 1,816,156
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CURTIS INTERNATIONAL LIMITED
INTERIM STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
As of February 28, 2001
(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 (171,435) (171,435)
Repurchase of capital stock (109,900) (105,964) (105,964)
Net income for the nine months
ended February 28, 2001 (443,798) (443,798)
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Balance as of February 28, 2001 5,263,245 7,236,199 4,079,682 (470,027) 10,845,854
==================================================================
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CURTIS INTERNATIONAL LIMITED.
Notes to Interim Financial Statements
February 28, 2001
(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
February 28, February 29,
2001 2000
Closing exchange rate at balance
sheet date 0.6536 0.6888
Average exchange rate for the period 0.6655 0.6861
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
February 28, February 29,
2001 2000
Common shares 5,263,245;(5,373,145 2000) 7,236,199 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 February 28,
2001, 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.
On December 1, 2000 the Company repurchased for cancellation, 14,500 Common
Shares at the then prevailing market price of $0.75 per share, net of
commissions. The cost of the repurchase, in the amount of $10,575, has been
recorded as a reduction of capital stock.
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ITEM 2. Management discussion and analysis of financial condition and
Results of Operations
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 Nine Months Ended February 28, 2001 compared to the Three and Nine
Months Ended February 29, 2000.
Sales for the three months ended February 28, 2001 were $3,311,000, a 53.9%
decrease over the third quarter of fiscal 2000 sales of $7,176,000. Year to date
sales for fiscal 2001 decreased 0.9% over the same period in fiscal 2000. This
decrease resulted from the bankruptcy of several of our customers in the third
quarter coupled with a general slowdown in demand associated with the downturn
of the American economy.
Gross profit for the third quarter of fiscal 2001 was $543,000, which is a
decrease of $748,000 (58.0%) over the third quarter of fiscal 2000. Year to date
gross profit for fiscal 2001 decreased by $248,000 (4.0%) over the same period
in fiscal 2000. This was attributed to the decrease in sales volume and a slight
decrease in gross margin percentage.
Selling expenses of $269,000 for the three months ended February 28, in fiscal
2001 were higher as a percentage of sales (8.1%) as compared to 5.6% for the
same quarter in fiscal 2000. The year to date selling expenses for fiscal 2001
were $1,863,000 as compared to $1,704,000 for the same period in fiscal 2000.
This was due to higher shipping costs associated with an increased proportion of
sales made to customers in the United States relative to overall sales.
Administrative expenses of $1,508,000 for the nine months ended February 28,
2001 were $50,000 higher than nine months ended February 29, 2000.
Financial expenses for the three months ended February 28, 2001 of $54,000 were
$62,000 higher than the same period of 2000. Year to date financial costs for
fiscal 2001 were $244,000 as compared to $27,000 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 the third quarter of Fiscal 2001 increased to $21,000 from
$(53,000) (139.5%). Year to date bad debt expense for fiscal 2001 was $3,183,000
compared to $347,000. 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 February 28, 2001 was a
loss of $347,000. This loss is primarily due to the decrease in sales.
Income before income taxes for the nine months ended November 30, 2001 was a
loss of $835,000.
As a result of the above factors, net income for the three months ended February
28, 2001 was a net loss of $182,000.
Net income for the nine months ended February 28, 2001 was a net loss of
$444,000.
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Liquidity and Capital Resources
The company had a net use of cash of $269,000 for the nine months ended February
28, 2001. The principle uses of cash were traced to an decrease in accounts
payable and accrued expenses, and income taxes payable. This was offset by a
decrease in accounts receivable and inventory.
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) 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.
April 16, 2001 By: /s/ JACOB HERZOG
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Jacob Herzog
Chairman, Treasurer,
Secretary/Principal
Accounting Officer
April 16, 2001 By: /s/ AARON HERZOG
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Aaron Herzog
President/Chief Executive
Officer
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