1
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 September 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.)
8305 N.W. 27th STREET, MIAMI, FLORIDA
(Address of principal executive offices)
33122
(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:
5,130,732 shares as of November 18, 1997
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CARIBBEAN CIGAR COMPANY AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
SEPT. 30, MARCH 31,
1997 1997
---- ----
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 39,230 $ 2,896,620
Accounts receivable 982,559 1,080,952
Due from related parties 49,040 58,314
Inventory 7,384,491 4,482,469
Prepaid expenses and other receivables 616,270 1,416,563
------------ ------------
Total current assets 9,071,590 9,934,918
Property and equipment (net) 2,589,554 2,235,608
Deposits and other assets 581,946 159,755
------------ ------------
$ 12,243,090 $ 12,330,281
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,001,893 $ 1,474,243
Short-term borrowings 1,734,081 --
Accrued expenses and taxes payable 441,859 157,299
------------ ------------
Total current liabilities 4,177,833 1,631,542
------------ ------------
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; September 30, 1997
issued and outstanding - 5,130,732;
March 31, 1997 - issued and
outstanding - 5,126,218 5,131 5,126
Capital in excess of par value 11,384,053 11,359,862
Accumulated deficit (3,323,927) (666,249)
------------ ------------
8,066,257 10,698,739
$ 12,243,090 $ 12,330,281
============ ============
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 Six Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
Sales $1,990,900 $1,729,238 $ 5,022,586 $3,001,545
Cost of goods sold 1,543,827 1,180,296 3,177,206 2,161,079
---------- ---------- ---------- ----------
Gross profit 447,073 548,942 1,845,380 840,466
---------- ---------- ---------- ----------
Operating expenses:
Selling expenses 776,445 352,224 1,752,411 662,808
General and administrative
expenses 953,540 353,180 1,994,259 610,029
Write-off of inventory 743,974 - 743,974 -
---------- ---------- ---------- ----------
2,473,959 705,404 4,490,644 1,272,837
---------- ---------- ---------- ----------
Interest income 188 67,136 11,479 67,136
Interest expense (23,893) (2,420) (23,893) (3,494)
---------- ---------- ---------- ----------
(23,705) 64,716 (12,414) 63,642
---------- ---------- ----------- ----------
Net income (loss) $(2,050,591) $ (91,746) $(2,657,678) $ (368,729)
=========== ========== =========== ===========
Income (loss) per common share $ (0.40) $ (0.02) $ (0.52) $ (0.08)
----------- --------- ----------- ----------
Weighted average number of shares
Outstanding 5,130,169 5,254,341 5,130,169 4,604,552
=========== ========== =========== ===========
The accompanying notes are an integral part hereof.
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CARIBBEAN CIGAR COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
September 30,
1997 1996
---- ----
Cash flows from operating activities:
Net loss $(2,657,678) $(276,983)
Adjustments to reconcile net income
(loss) to net cash provided (used)
by operating activities:
Depreciation and amortization 337,376 30,170
Allowance for doubtful accounts 150,000 --
Write-off of inventory 122,483 --
Amortization of unearned compensation -- 6,353
Common stock issued for services 24,196 --
(Increase) in accounts receivable (51,607) (137,517)
(Increase) in inventory (1,711,976) (266,619)
(Increase) in prepaid expenses and
other receivables (389,753) (579,048)
(Increase) in deposits and other assets (422,191) (68,003)
Increase (decrease) in accounts payable 527,650 188,664
Increase (decrease) in accrued expenses
And taxes payable 284,560 122,551
----------- ---------
Net cash (used) by operating activities (3,786,940) (980,432)
----------- ---------
Cash flows from investing activities:
Additions to property and equipment (812,625) (202,664)
Trademark costs (1,180) --
----------- ---------
Net cash (used) by investing activities (813,805) (202,664)
----------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock -- 645,722
Increase in short-term borrowings 1,734,081 --
Advances from officers and directors 249,700 --
Repayments of advances from officers
And officers (249,700)
Repayment of advances to related
parties 9,274 --
----------- ---------
Net cash provided by financing activities 1,743,355 645,722
----------- ---------
Net (decrease) in cash (2,857,390) (537,374)
Cash at beginning of period 2,896,620 748,801
----------- ---------
Cash at end of period $ 39,230 $ 211,427
=========== =========
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
SEPTEMBER 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 September 30, 1997, and the results of its operations and cash
flows for the six months ended September 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 six month ended September 30, 1997 are not necessarily
indicative of operating results for the full year.
1. INCOME (LOSS) PER SHARE:
Income (loss) per share for the six months ended September 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 and October 1997, 3,951 shares and 563 shares,
respectively 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 were repaid from the proceeds of the Finova
credit facility.
4. On August 28, 1997, the Company entered into a credit facility with Finova
Capital Corporation (the "Finova Credit Facility"). Under the terms of the
Finova Credit Facility, the Company can borrow up to a maximum of $3,000,000,
subject to limitations based upon eligible accounts receivable and inventory.
The Finova Credit Facility expires in two years and bears interest at prime plus
2.5% per annum. As of September 30, 1997, the Company had borrowed approximately
$1,700,000 under the facility.
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CARIBBEAN CIGAR COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
SIX MONTHS ENDED SEPTEMBER 30,1997 AND 1996
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
The results of operations for the three months ended September 30, 1997 are not
comparable with the results of operations for the three months ended September
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 September 30, 1997 were
approximately $1,990,900, representing an increase of 15.1% from the Company's
sales for the three months ended September 30, 1996 which were approximately
$1,729,200. This increase is primarily due to the opening of an additional five
retail stores and a manufacturing facility in the Dominican Republic, and an
increase in the wholesale distribution of its own and other tobacco and related
products.
Cost of goods sold increased to approximately $1,543,800 as compared to
approximately $1,180,300 for the three months ended September 30, 1996. This
represented an increase of approximately 30.8% and was primarily a result of the
increase in the volume of sales.
Gross profit decreased to approximately $447,100 or 22.5% of sales for the
three months ended September 30, 1997 as compared to a gross profit of
approximately $548,900 or 31.7% of sales for the three months ended September
30, 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 approximately $776,400 for the three months ended
September 30, 1997 as compared to approximately $352,200 for the comparable
period of 1996. This represents an increase of 120.4%. 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.
General and administrative expenses increased to approximately $953,500 as
compared to approximately $353,200 for the three months ended September 30,
1996. This represents an increase of 170.0% and is attributable to the increase
in the volume of the Company's operations.
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The Company incurred interest expense in the period ended September 30, 1997
as compared to interest expense of $1,074 in the three months ended September
30, 1996. During the period ended September 30, 1997 the Company earned
approximately $11,300 in interest income as a result of investing funds from its
initial public offering in August 1996.
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
The results of operations for the three months ended September 30, 1997 are not
comparable with the results of operations for the three months ended September
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 September 30, 1997 were
approximately $3,031,700, representing an increase of 138.3% from the Company's
sales for the three months ended September 30, 1996 which were approximately
$1,272,300. This increase is primarily due to the opening of an additional five
retail stores and 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
September 30, 1997 were approximately $574,600 as compared to approximately
$345,000 for the three months ended September 30, 1996. The remaining sales of
approximately $2,457,100 or 81.0% of sales were attributable to wholesale sales.
Cost of goods sold increased to approximately $1,733,400 as compared to
approximately $885,700 for the three months ended September 30, 1996. This
represented an increase of approximately 91.6% and was primarily a result of the
increase in the volume of sales.
Gross profit increased to approximately $1,298,300 or 42.8% of sales for the
three months ended September 30, 1997 as compared to a gross profit of
approximately $386,600 or 30.4% of sales for the three months ended September
30, 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 approximately $976,000 for the three months ended
September 30, 1997 as compared to approximately $338,100 for the comparable
period of 1996. This represents an increase of 188.7%. 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
September 30, 1997 consisted primarily of salaries of approximately $140,000,
rents of approximately $54,600, advertising and promotional costs of
approximately $409,000, shipping costs of approximately $140,000 and other costs
of approximately $232,200.
General and administrative expenses increased to approximately $1,140,200 as
compared to approximately $324,500 for the three months ended September 30,
1996. This represents an increase of 251.4% and is attributable to the increase
in the volume of the Company's operations and includes salaries and related
costs of approximately $300,000, professional fees of approximately $260,900,
insurance costs of approximately $47,000, travel costs of approximately $86,800,
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The Company incurred net interest expense in the period ended September 30, 1997
as compared to interest income of $63,600 in the six months ended September
30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997 the Company had working capital of $4,893,757. The
Company's current ratio as of September 30, 1997 was approximately 2.2 to 1 as
compared to approximately 6.1 to 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 September 30, 1997, the
Company had cash of $80,000. In order to meet its immediate cash requirements,
on September 20, 1997, the Company borrowed $250,000 from five of its directors.
The notes were repaid with proceeds from the Finova Credit Facility (which is
described below).
As of July 1997, the Company ceased production of cigars in its Miami facility
and 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 moved into a new 32,000 square foot distribution
facility in Miami in September 1997 and committed approximately $400,000 towards
the costs of this facility.
On August 28, 1997, the Company entered into a credit facility with Finova
Capital Corporation. Under the terms of the Finova Credit Facility, the Company
can borrow up to a maximum of $3,000,000, subject to limitations based upon
eligible accounts receivable and inventory. The Finova Credit Facility expires
in two years and bears interest at prime plus 2.5% per annum. As of September
30, 1997, the Company had borrowed approximately $1,700,000 under the facility.
Due to the limitations on the amount the Company can borrow under the Finova
Credit Facility and the need for additional funding, the Company is pursuing
additional funding to help cover the costs of completing some of its projects
and providing additional working capital. The failure to obtain such funding
could have a material adverse effect upon the Company's liquidity.
Statements in this Form 10QSB 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.
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: November __, 1997
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CARIBBEAN CIGAR COMPANY
/S/ EDWARD C. WILLIAMS
-----------------------
Edward C. Williams
Chief Financial Officer
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