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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 0-21081
CARIBBEAN CIGAR COMPANY
(Exact name of registrant as specified in its charter)
FLORIDA 65-0613303
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
6265 S.W. EIGHTH STREET, MIAMI, FLORIDA
(Address of principal executive offices)
33144
(Zip Code)
(305) 267-3911
(Issuer's telephone number)
Check whether the issuer (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
State the number of shares outstanding of each issuer's classes of
common equity, as of the latest practicable date:
5,130,169 shares as of August 1, 1997
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CARIBBEAN CIGAR COMPANY AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
ASSETS
JUNE 30, 1997 MARCH 31, 1997
------------- --------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 79,824 $ 2,896,620
Accounts receivable 1,184,360 1,080,952
Due from related parties 21,509 58,314
Inventory 6,204,047 4,482,469
Prepaid expenses and other receivables 2,237,463 1,416,563
--------- ---------
Total current assets 9,727,203 9,934,918
Property and equipment (net) 2,680,308 2,235,608
Deposits and other assets 167,530 159,755
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$12,575,041 $12,330,281
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,363,504 $ 1,474,243
Accrued expenses and taxes payable 107,637 157,299
Loans payable - officers and directors 249,700 -
--------- ---------
Total current liabilities 1,720,841 1,631,542
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Commitments and contingencies - -
Stockholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares
authorized, none issued and outstanding - -
Common stock, $.001 value; 10,000,000 shares
authorized; June 30, 1997 - issued and out-
standing - 5,130,169; March 31, 1997 - issued
and outstanding - 5,126,218 5,130 5,126
Capital in excess of par value 11,384,054 11,359,862
Accumulated deficit (534,984) (666,249)
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10,854,200 10,698,739
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$12,575,041 $12,330,281
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The accompanying notes are an integral part hereof.
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CARIBBEAN CIGAR COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
June 30,
------------------
1997 1996
---- ----
Sales $3,031,686 $1,272,307
Cost of goods sold 1,497,004 885,688
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Gross profit 1,534,682 386,619
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Operating expenses:
Selling expenses 706,151 338,057
General and administrative expenses 708,557 324,471
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1,414,708 662,528
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119,974 (275,909)
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Other income (expense):
Interest income 11,291 -
Interest expense - (1,074)
--------- ---------
11,291 (1,074)
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Net income (loss) $131,265 ($276,983)
--------- ---------
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Income (loss) per common share .03 (.08)
Weighted average number of shares outstanding 5,128,852 3,540,880
The accompanying notes are an integral part hereof.
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CARIBBEAN CIGAR COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
June 30,
1997 1996
---- ----
Cash flows from operating activities:
Net income (loss) $ 131,265 ($276,983)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 134,990 30,170
Amortization of unearned compensation - 6,353
Common stock issued for services 24,196 -
(Increase) in accounts receivable (103,408) (137,517)
(Increase) in inventory (1,721,578) (266,619)
(Increase) in prepaid expenses and other
receivables (820,900) (579,048)
(Increase) in deposits and other assets (6,594) (68,003)
Increase (decrease) in accounts payable (110,739) 188,664
Increase (decrease) in accrued expenses and
taxes payable (49,662) 122,551
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Net cash (used) by operating activities (2,522,430) (980,432)
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Cash flows from investing activities:
Additions to property and equipment (579,691) (202,664)
Trademark costs (1,180) -
----------- ----------
Net cash (used) by investing activities (580,871) (202,664)
----------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock - 645,722
Advances from officers and directors 249,700 -
Repayment of advances to related parties 36,805 -
----------- ----------
Net cash provided by financing activities 286,505 645,722
----------- ----------
Net (decrease) in cash (2,816,796) (537,374)
Cash at beginning of period 2,896,620 748,801
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Cash at end of period $ 79,824 $211,427
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Supplemental information:
Cash paid for interest $ - $ 1,074
Cash paid for federal income tax - -
The accompanying notes are an integral part hereof.
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CARIBBEAN CIGAR COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997
In the opinion of management, the accompanying unaudited condensed
financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial position of
the Company as of June 30, 1997, and the results of its operations and cash
flows for the three months ended June 30, 1997 and 1996. Such
financial statements have been condensed in accordance with the applicable
regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. It is suggested that these
condensed financial statements be read in conjunction with the Company's
audited financial statements and notes thereto for the year ended March 31,
1997 included in its Annual Report filed on Form 10-KSB, file no. 0-28728,
which was filed on June 30, 1997. The results of operations for the period
ended June 30, 1997 are not necessarily indicative of operating results for the
full year.
1. INCOME (LOSS) PER SHARE:
Income (loss) per share for the three months ended June 30, 1997 and
1996 is based upon the weighted average number of shares of common stock
outstanding during the period. The calculation gives retroactive effect
(as if to inception of the company) to those shares issued to founders at
par value. Additionally, stock and stock options issued during fiscal 1996
have been treated as outstanding since October 3, 1994 (inception), the
dilutive effective of which was computed using the treasury stock method.
2. In April 1997, the Company granted each of the six members of its
Board of Directors options to purchase 2,500 shares of the Company's common
stock pursuant to the provisions of its Long Term Incentive Stock Option
Plan.
In addition, in May 1997, 3,951 shares of its common stock were issued
in exchange for services rendered to the Company.
3. On June 20, 1997, the Company borrowed $250,000 from five of its
directors. In connection with such borrowing, the Company issued (a) its 8%
subordinated promissory notes due July 1, 1998 in the aggregate principal
amount of $250,000, and (b) five-year warrants to purchase an aggregate of
187,500 share of Common Stock at $6.18 per share. The notes are prepayable from
the proceeds of any debt or equity financing, including any term loan or
revolving credit facilty.
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CARIBBEAN CIGAR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE MONTHS ENDED JUNE 30,1997 AND 1996
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
The results of operations for the three months ended June 30, 1997 are not
comparable with the results of operations for the three months ended June
30, 1996. Although the Company had begun the production of its own brand
of cigars in January 1996, it had not fully expanded its retail and
wholesale distribution operation until after the completion of its initial
public offering in August 1996.
The Company's sales for the three months ended June 30, 1997 were
$3,031,700, representing an increase of 1382% from the Company's sales for
the three months ended June 30, 1996 which were $1,272,300. This increase
is primarily due to the opening of an additional five retail stores, a
manufacturing facility in the Dominican Republic and an increase in the
wholesale distribution of its own and other tobacco and related products,
The combined sales of the retail stores for the three months ended June 30,
1997 were $574,600 as compared to $345,000 for the comparable period of
1996. The remaining sales of $2,457,100 or 81% of sales was attributable
to wholesale sales.
Cost of goods sold increase to $1,497,000 as compared to $885,700 for the
three months ended in June 1996. This represented an increase of 690% and
was primarily attributable to the increase in the volume of sales.
Gross profit increased to $1,534,700 or 51% of sales for the three months
ended June 30, 1997 as compared to a gross profit of $386,600 or 30% of
sales for the comparable period in 1996. The increase in gross profit
reflects improved margins from the manufacture of the Company's cigars in
its Dominican Republic facility; the opening of five additional retail
facilities; and increased wholesale distribution of cigars and related
products.
Selling expenses increased to $706,200 for the three months ended June 30,
1997 as compared to $338,100 for the comparable period of 1996. This
represents an increase of 1088%. The increase in selling expenses reflects
the increase in marketing and advertising expenses associated with the
building of brand awareness for the Company's premium cigars, and an
increase in its sales force. Selling expenses for the three months ended
June 30, 1997 consisted primarily of salaries of $140,000; rents of
$54,600; advertising and promotional costs of $188,000; shipping costs of
$140,000 and other costs of $182,600.
General and administrative expenses increased to $798,600 as compared to
$324,500 for the comparable period in 1996. This represents an increase of
1461% and is attributable to the increase in the volume of the Company's
operations and includes salaries and related costs of $300,000;
professional fees of $101,000: insurance costs of $47,000; travel costs of
$86,800 and other costs of $263,800.
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The Company incurred no interest expense in the period ended June 30, 1997
as compared to interest expense of $1,074 in the comparable period in 1996.
During the period ended June 30, 1997 the Company earned $11,300 in
interest income as a result of investing funds from its initial public
offering in August 1996.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997 the Company had working capital of $8,006,400. The
Company's current ratio as of June 30, 1997 was approximately 5:6:1 as
compared to approximately 6:1 at March 31, 1997. The decrease in the
Company's current ratio is primarily attributable to the $2,800,000
decrease in cash and cash equivalents. The Company has expended
approximately $2,500,000 to finance its tobacco-growing program in the
Dominican Republic and to build raw tobacco inventory levels for its
production facility. At June 30, 1997, the Company had cash of $80,000. In
order to meet its immediate cash requirements. On June 20, 1997, the Company
borrowed $250,000 from five of its directors. The notes are due July 1, 1998
and are payable from any equity or debt financing, including any term loan or
revolving credit facility.
As of July 1997, the Company ceased production of cigars in its Miami
facility and has transferred the entire production of its products to its
facilities in the Dominican Republic and Indonesia. This will result in a
substantial reduction in the cost of manufacturing of its premium cigars as
well as increased productivity. The Company also plans to move (September
1997) into a new, 32,000 square foot distribution facility in Miami and
is committing approximately $400,000 towards the costs of this facility.
In recognition of its decreasing cash position the Company is arranging for
additional short-term funding to cover the costs of completing some of its
projects and providing additional working capital. The failure to obtain such
financing could have a material adverse effect upon the Company's liquidity.
Statements in this Form 10Q that are not descriptions of historical facts may
be forward looking statements that are subject to risks and uncertainties.
Actual results could differ materially from those currently anticipated due to
a number of factors.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: August 13, 1997
CARIBBEAN CIGAR COMPANY
/S/ THOMAS R. DILK
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Thomas R. Dilk
Chief Financial Officer
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