SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-QSB
(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, 1999 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.
-------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ONTARIO, CANADA N/A
- ---------------- ---
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
315 Atwell Drive, Toronto, ONTARIO M9W5C1
- ---------------------------------- -------
(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: October 14, 1999, 5,373,145
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 - August 31, 1999............................ 2
Interim Statements of Operations - For the three months
ended August 31, 1999 and August 31, 1998.......................... 3
Interim Statements of Cash Flows - For the three months
ended August 31, 1999 and August 31, 1998.......................... 4
Interim Statements of Stockholders Equity For the three months
ended August 31, 1999.............................................. 5
Notes to Financial Statements......................................6-8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...............................9-10
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS....................................................
ITEM 2 - CHANGES IN SECURITIES................................................
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES......................................
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................
ITEM 5 - OTHER INFORMATION....................................................
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.....................................
SIGNATURES...................................................................10
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CURTIS INTERNATIONAL LTD.
Interim Balance Sheets
As of August 31, 1999 and May 31, 1999
(Amounts expressed in US dollars) (Unaudited)
August 31, May 31,
1998 1999
$ $
ASSETS
CURRENT ASSETS
Cash 1,588,046 4,613,209
Accounts receivable 6,050,915 4,108,487
Inventory 4,207,824 4,997,296
Prepaid expenses 117,532 58,752
Income taxes recoverable 144,136 --
----------- -----------
12,108,453 13,777,744
PROPERTY, PLANT AND EQUIPMENT 358,077 310,530
DEFERRED INCOME TAXES 539,955 575,672
----------- -----------
TOTAL ASSETS 13,006,485 14,663,946
----------- -----------
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (note 2) 104,177 1,685,323
Accounts payable 1,980,640 1,042,253
Income taxes payable -- 1,110,132
Advances from affiliated 656,762
----------- -----------
441,232
parties (note 3) 2,526,049 4,494,470
----------- -----------
SHAREHOLDERS' EQUITY
CAPITAL STOCK (note 4) 7,342,163 7,342,163
CUMULATIVE TRANSLATION ADJUSTMENT (179,001) (47,062)
RETAINED EARNINGS 3,317,274 2,874,375
----------- -----------
10,480,436 10,169,476
----------- -----------
13,006,485 14,663,946
----------- -----------
-2-
CURTIS INTERNATIONAL LTD.
Interim Statements of Operations
As of August 31, 1999 and May 31, 1999
(Amounts expressed in US dollars)
(Unaudited)
1999 1998
$ $
SALES 10,413,498 8,693,213
Cost of sales 8,502,671 7,039,370
---------- ----------
GROSS PROFIT 1,910,827 1,653,843
---------- ----------
EXPENSES
Administrative 479,119 545,850
Selling 368,182 397,354
Financial 326,178 143,842
---------- ----------
1,173,479 1,087,046
---------- ----------
INCOME BEFORE INCOME TAXES 737,348 566,797
Income taxes 294,449 226,719
---------- ----------
NET INCOME 442,899 340,078
---------- ----------
NET INCOME PER COMMON SHARE (note 5) 0.08 0.09
---------- ----------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (note 5) 5,373,145 3,700,000
---------- ----------
-3-
CURTIS INTERNATIONAL LTD.
Interim Statements of Cash Flows
For the three months ended August 31, 1999 and 1998
(Amounts expressed in US dollars) (Unaudited)
August 31, August 31,
1999 1998
$ $
Cash flows from operating activities
Net Income 442,899 340,078
Adjustments to reconcile net income to
net cash used in operating activities:
Amortization 14,847 6,888
Increase in accounts receivable (2,008,209) (1,855,718)
Decrease in inventory 731,109 20,007
Increase in prepaid expenses (59,933) (8,494)
Increase (decrease) in accounts payable 958,135 (717,730)
Increase in income taxes payable (1,248,713) (9,257)
---------- ----------
Net cash used in operating activities (1,169,865) (2,224,226)
---------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment (66,685) (19,263)
Payment of mortgage receivable -- (73,665)
---------- ----------
Net cash used in investing activities (66,685) (92,928)
---------- ----------
Cash flows from financing activity:
Decrease in bank indebtedness (1,570,405) (796,000)
Increase (decrease) in advances from
affiliated parties (208,627) 499,472
---------- ----------
Net cash used in financing activities (1,779,032) (296,528)
Effect of foreign currency exchange rate changes (9,581) 88,845
---------- ----------
(1,788,613) (207,683)
---------- ----------
Net decrease in cash/cash equivalents (3,025,163) (2,524,837)
Cash and cash equivalents - Beginning of
period 4,613,209 3,401,180
---------- ----------
End of period 1,588,046 876,343
========== ==========
Interest paid (received), net 26,345 123,945
========== ==========
Income taxes paid 1,547,020 9,258
========== ==========
-4-
CURTIS INTERNATIONAL LTD.
Interim Statements of Stockholders' Equity
For the three months ended August 31, 1999
(Amounts expressed in US dollars)
(Unaudited)
Cumulative
Common Retained Translation
Stock Earnings Adjustment Total
$ $ $ $
Balance as of
November 30, 1998 6,149,549 2,521,046 (118,920) 8,551,675
Proceeds from
public offering
and exercise of
over-allotment
option 1,192,614 1,192,614 -- --
Foreign currency
translation -- -- (220,205) (220,205)
Net income for
the quarter -- -- 197,050 197,050
----------- ----------- ----------- -----------
Balance as of
February 28,1999 7,342,163 2,718,096 (339,125) 9,721,134
Foreign currency
translation -- -- 292,063 292,063
Net income for the
quarter -- 156,279 -- 156,279
----------- ----------- ----------- -----------
Balance as of May 31,
1999 7,342,163 2,874,375 (47,062) 10,169,476
Foreign currency
translation -- -- (131,939) (131,939)
Net income for the
quarter -- 442,899 -- 442,899
----------- ----------- ----------- -----------
Balance as of
August 31,1999 7,342,163 3,317,274 (179,001) 10,480,436
=========== =========== =========== ===========
-5-
CURTIS INTERNATIONAL LTD.
Notes to Interim Financial Statements August 31, 1999
(Amounts expressed in US dollars)
(Unaudited)
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a)Basis of Presentation
These interim 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 Interim 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 and Bank indebtedness
Cash 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 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.
-6-
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.
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 companies maintained their books and records in Canadian Dollars. Foreign
currency transactions are translated using the temporal method. Under this
method, all monetary items are translated at historical rates. Income and
expenses are translated at the rate in effect of the transaction dates.
Transaction gains and losses are included in the determination of earnings for
the period.
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
August 31, August 31,
1999 1998
Closing Exchange rate at
balance sheet date 0.6698 0.6392
Average exchange rate for the period 0.6744 0.6691
-7-
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 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
$8,000,000 and is limited based on a formula which relates to receivables and
cashable instalments held by the company. The company must meet certain
covenants imposed by the bank.
3.ADVANCES FROM AFFILIATED PARTIES
The advances from affiliated parties bear interest at 8% per annum commencing
June 1, 1998. The principal sums shall be repaid in six equal quarter yearly
installments on the last day of the month in which each quarter-year occurs, the
first payment due November 30, 1998 and the last payment is due and payable on
February 28,2000.
4.CAPITAL STOCK
a)Authorized
1,000,000 preferred shares
15,000,000 shares of common stock
Issued
August 31, May 31,
1999 1999
$ $
Common shares(5,373,145) 7,342,163 7,342,163
========= =========
b)Stock Option Plan
The Board of Directors have adopted a stock option plan pursuant to which
400,000 shares of common stock are provided for issuance. As at August 31, 1999,
70,000 stock options were granted.
None of these options have been exercised to date.
5. NET INCOME PER COMMON SHARE
Net income per common share is computed by dividing net income by the weighted
average number of common shares outstanding.
Fully diluted net income per share was the same as basic net income per common
share.
-8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ALANYSIS 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 Months Ended August 31, 1999 compared to the three months ended August 31,
1998.
Revenues for the three months ended August 31, 1999 were $10.4 million, a 19.8%
increase over the first quarter of 1998 revenues of $8.7 million. This increase
reflected the continuing strong expansion of the customer base in the United
States.
Gross profit for the first quarter of 2000 was $2.0 million, which is an
increase of $257,000, (15.5%) over the first quarter of fiscal 1999. All of this
increase was attributed to the increase in sales volume.
Selling expenses of $368,182 for the three months ended August 31, 1999 were in
line with the same period last year.
Administrative expenses of $479,119 for the three months ended August 31, 1999
were 12.2% lower than the three months ended August 31, 1998 primarily due to
reduced payroll costs. There were also cost savings associated with
consolidating operations into one location.
The increase in financial expenses for the three months ended August 31, 1999
was due to higher bad debt expenses related to increased sales volume, partially
offset by lower interest costs as a result of reduced bank indebtedness.
Net Income increased by $102,821, (30.2%) over the same period in the prior year
to $442,899 for the three months ended August 31, 1999. This improvement
reflected continued sales growth year to date through expanded penetration in
the United States and a broadening of product selection.
As a result of the above factors, net income for the first quarter of 2000
increased by 30.2%, to $442,899
-9-
Liquidity and Capital Resources
The company had a net increase in the use of cash for operations of $500,326 for
the three months ended August 31, 1999 over August 31, 1998. The principal use
of cash was traced to an increase in accounts receivable attributable to
increased sales volume, an increase in income taxes paid, and a reduction in
bank indebtedness. This was partially offset by an increase in accounts payable.
The Company received net proceeds from its initial public offering in the amount
of $7,342,163. The Company believes that the proceeds of the initial public
offering, coupled with income from operations will fulfill the Company's working
capital needs for the next 2 years. It is the Company's intention to utilize a
significant portion of the proceeds to aggressively seek synergistic
acquisitions. 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.
October 14, 1999 By: /s/ JACOB HERZOG
----------------------------
Jacob Herzog
Chairman, Treasurer,
Secretary/Principal
Accounting Officer
By: /S/ AARON HERZOG
----------------------------
Aaron Herzog
President/Chief Executive
Officer
-10-