<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 1998
REGISTRATION STATEMENT NO. 333-56661
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
CURTIS INTERNATIONAL LTD.
(Name of small business issuer as specified in its charter)
------------------------------
<TABLE>
<S> <C> <C>
ONTARIO 5064 98-0154299
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer I.D. No.)
incorporation or organization) Classification Code Number)
- --------------------------------------------------------------------------------------------------------------
7 KODIAK CRESCENT
DOWNSVIEW, ONTARIO M3J 3E5
(416) 636-5553
(Address and telephone number of principal executive offices and principal place of business)
- --------------------------------------------------------------------------------------------------------------
AARON HERZOG, PRESIDENT
CURTIS INTERNATIONAL LTD.
7 KODIAK CRESCENT
DOWNSVIEW, ONTARIO M3J 3E5
(416) 636-5553
(Name, address and telephone number of agent for service)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
COPIES TO:
<TABLE>
<S> <C>
JAY M. KAPLOWITZ, ESQ. DALE S. BERGMAN, P.A.
ARTHUR S. MARCUS, ESQ. LINDA C. FRAZIER, ESQ.
GERSTEN, SAVAGE, KAPLOWITZ BROAD AND CASSEL
& FREDERICKS, LLP 201 SOUTH BISCAYNE BOULEVARD
101 EAST 52ND STREET, 9TH FLOOR SUITE 3000
NEW YORK, NEW YORK 10022 MIAMI, FLORIDA 33131
(212) 752-9700 (305) 373-9400
(212) 752-9713 (FAX) (305) 373-9493 (FAX)
</TABLE>
------------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this registration statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
------------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
------------------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT BEING OFFERING PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES BEING REGISTERED REGISTERED PRICE PER SECURITY OFFERING PRICE REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value..... 1,897,500(1) $5.00 $9,487,500 $2,798.81
- ----------------------------------------------------------------------------------------------------------------------------
Underwriters' Warrants......... 165,000 $.0001 $100.00 (2)
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock Issuable on
Exercise of Underwriters'
Warrant...................... 165,000 $8.25 $1,361,250 $401.57
- ----------------------------------------------------------------------------------------------------------------------------
Total Registration Fee......... $3,200.38
- ----------------------------------------------------------------------------------------------------------------------------
Previously paid................ $3,066.52
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Includes up to 247,500 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) No fee due pursuant to Rule 457(g).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 14, 1998
PROSPECTUS
LOGO
CURTIS INTERNATIONAL LTD.
1,650,000 SHARES
This Prospectus relates to an offering (the "Offering") of 1,650,000 shares
(collectively, the "Shares") of common stock, no par value per share (the
"Common Stock"), of Curtis International Ltd., an Ontario corporation (the
"Company"), through Barber & Bronson Incorporated (the "Representative"), the
representative of the underwriters (the "Underwriters"). Of such Shares,
1,498,000 Shares are being sold by the Company and 152,000 Shares (the "Selling
Stockholder Shares") are being sold by Ranch Limited (the "Selling
Stockholder"). The Company will not receive any of the proceeds from the sale of
the Selling Stockholder Shares.
Prior to the Offering, there has been no market for the Common Stock, and
there can be no assurance that a market will develop for the Company's
securities in the future or that, if developed, it will be sustained. The
Company is applying for quotation of the Common Stock on Nasdaq National Market
under the trading symbol "CURTF."
The public offering price of the Shares was determined by negotiation
between the Company and the Representative and does not necessarily bear any
direct relationship to the Company's assets, earnings, book value per share or
other generally accepted criteria of value. See "Underwriting."
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 8
AND "DILUTION" ON PAGE 14.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO
PRICE DISCOUNTS AND PROCEEDS TO SELLING
TO PUBLIC COMMISSIONS(1) COMPANY (2) STOCKHOLDER
- --------------------------------------------------------------------------------------------------------------------------------
Per Share......................... $5.00 $.50 $4.50 $4.50
- --------------------------------------------------------------------------------------------------------------------------------
Total(3).......................... $8,250,000 $825,000 $6,741,000 $684,000
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes the value of warrants to be issued to the Underwriters (the
"Underwriters' Warrants") to purchase up to 165,000 shares of the Company's
Common Stock. In addition, the Company also agreed to indemnify the
Underwriters against certain liabilities under the Securities Act of 1933,
as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting the Underwriters' non-accountable expense allowance,
financial consulting fee and other expenses of the Offering, estimated at
$607,200 and payable by the Company. See "Underwriting."
(3) The Company has granted the Underwriters an option, exercisable for 45 days
after the date the Securities and Exchange Commission declares the Company's
registration statement effective (the "Effective Date"), to purchase up to
an additional 247,500 shares of Common Stock solely for the purpose of
covering over-allotments, if any (the "Over-Allotment Option"). If the
Over-Allotment Option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, Proceeds to Company and Proceeds to
Selling Stockholder will be $9,487,500, $948,750, $7,854,750 and $684,000,
respectively. See "Underwriting."
The Shares are being offered by the Underwriters on a "firm commitment"
basis, when, as and if delivered to and accepted by the Underwriters, subject to
prior sale, and other conditions and legal matters. The Underwriters reserve the
right to withdraw, cancel or modify the Offering and to reject orders, in whole
or in part, for the purchase of any of the securities offered notwithstanding
tender by check or otherwise. It is expected that delivery of the certificates
representing the Shares will be made against payment therefor at the offices of
Barber & Bronson Incorporated, 201 South Biscayne Boulevard, Suite 2950, Miami,
Florida 33131 on or about September , 1998.
BARBER & BRONSON INCORPORATED CARDINAL CAPITAL MANAGEMENT, INC.
, 1998
<PAGE> 3
[PICTURES OF THE COMPANY'S PRODUCTS]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET
PRICE, PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN
THE COMMON STOCK MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE QUALIFIED FOR
SALE UNDER THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA.
THE SECURITIES ARE NOT BEING OFFERED FOR SALE AND MAY NOT BE OFFERED OR SOLD,
DIRECTLY OR INDIRECTLY, IN CANADA, OR TO ANY RESIDENT THEREOF, IN VIOLATION OF
THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
(including the notes thereto) appearing elsewhere in this Prospectus. Unless the
context otherwise requires, the term "Curtis" or "Company" refers to Curtis
International Ltd. as well as any predecessors. All information in this
Prospectus, unless otherwise noted, assumes no exercise of the Over-Allotment
Option or the Underwriters' Warrants. All references to dollar amounts in this
Prospectus, unless otherwise indicated, are in United States dollars.
THE COMPANY
Curtis International Ltd. designs, distributes and markets quality,
value-priced consumer electronics products. The Company offers a broad line of
telecommunication, audio, video and computer products including, telephones,
answering machines, caller ID systems, CD and cassette systems, portable
televisions and computer accessories. The Company's products are primarily sold
under the brand names "Curtis" and "CTP Worx," as well as private labels. The
Company's strategy has been to build a portfolio of diverse consumer electronics
products which offers retailers flexible merchandising programs. The Company's
products are available in approximately 2,300 stores throughout Canada and
10,000 stores in the United States through approximately 30 retail chains in
Canada and the United States. All of the Company's products are manufactured by
independent manufacturers.
The Company's customers include mass merchandisers such as Wal-Mart
(Canada), Ames, Bradlees, Dollar General and Bi-Way Stores; drug store chains
such as Rite-Aid, London Drugs, Thrifty Payless, Jean Coutu and Ker Drugs;
specialty marketers such as QVC, the Home Shopping Network and Amway; consumer
electronic retailers such as Future Shop, Fry's and ABC Warehouse; and appliance
and department stores such as Boscov and Fedco. The Company has operated
profitably and has recently undergone a period of rapid sales growth. For the
year ended May 31, 1998, the Company's sales increased by $12,557,471, or 84.2%,
to $27,471,613 from $14,914,142 for the year ended May 31, 1997. The Company
only entered the United States market in 1996 and has since opened accounts with
approximately 20 retail chains in the United States. The Company's sales in the
United States were $11,716,935 for the year ended May 31, 1998 as compared to
$2,217,058 for the year ended May 31, 1997, an increase of 428%. The Company
believes there is an opportunity to significantly increase its business in the
United States through both its current customers and potential new customers.
THE CONSUMER ELECTRONICS INDUSTRY
The consumer electronics industry is large and diverse, encompassing a wide
variety of technologies and products, including televisions, VCRs, audio
systems, CD players, cassette players and telephones. The Consumer Electronics
Manufacturers Association ("CEMA") estimates that total factory sales of
consumer electronics products in 1997 were approximately $72 billion, an
increase of 4.0% from 1996. CEMA estimates that factory sales will grow to
approximately $92 billion by the year 2001, an increase of 115% in ten years,
and believes that the consumer electronics industry is one of the fastest
growing sectors of the United States economy. It is estimated that in 1998 the
average United States household will spend $825 on consumer electronics
products.
GROWTH STRATEGY
Distributors have traditionally offered consumer electronics to retailers
using three principal branding strategies and corresponding price points: (i)
premium brands, such as Sony and Panasonic; (ii) mass-market brands, such as
General Electric and Magnavox; and (iii) value-priced brands, such as those of
the Company. The Company plans to continue to establish itself as a leading
supplier of quality, value-priced consumer electronics products. The Company
believes that its broad portfolio of products, superior design capabilities,
flexible and low-cost sourcing and superior service offered both prior to and
after-sale provide it with distinct competitive advantages. The Company plans to
grow its business using a strategy comprised of the following principal
elements:
- CONTINUE TO OFFER VALUE-PRICED, QUALITY PRODUCTS. The Company designs
and markets products which are value-priced, yet fill a market void
through their design and up-to-date style. The Company's
3
<PAGE> 5
packaging further distinguishes its products in the marketplace from those
of its competitors. The Company plans to continue to offer its customers
quality products at competitive prices.
- EXPAND CUSTOMER BASE. The Company believes that it has significant
opportunities to expand its customer base both in Canada and the United
States. The Company intends to use its existing relationships in Canada
with retailers such as Wal-Mart, Staples and Toys "R" Us, to penetrate
the United States market in such retailers' stores. In addition, the
Company continually seeks to expand its distribution channels through
various means. For example, the Company recently sold to the Home
Shopping Network its personal televisions as part of a special promotion.
The Home Shopping Network is planning additional promotions of certain of
the Company's products in the Fall of 1998.
- INCREASE PENETRATION AND SALES TO EXISTING UNITED STATES CUSTOMERS. In
the short period in which the Company has focused significant marketing
efforts in the United States, it has established relationships with
several major retailers. The Company plans to focus its efforts on
broadening its product selection being sold by these retailers and
substantially increasing the dollar volume of sales to these existing
customers.
- ACQUIRE AND LICENSE ADDITIONAL PRODUCTS. Discount retail chains and mass
merchants limit the number of vendors with which they deal, preferring to
deal with a limited number of vendors with a wide range of products. The
Company has an extensive line of products and strives to fill
substantially all of its customers' electronic requirements. The Company
believes it can add additional product lines, both through acquisition
and licensing, which will allow it to add to its already wide selection
of consumer electronics products.
- DEVELOP STRATEGIC ALLIANCES. The Company intends to develop strategic
alliances with large discount chain stores and mass merchants. Management
believes that many retailers whose primary business is not consumer
electronics look for a strategic alliance with a vendor who has the
experience, customer service and product selection to create a successful
consumer electronics program in their stores. Development of strategic
alliances whereby the Company provides these services in exchange for
commitments to stock and sell the Company's products will assist the
Company in the establishment of long-term relationships with such
discount chain stores and mass merchants.
Curtis International Ltd. was incorporated in the Province of Ontario on
December 12, 1990. The Company subsequently amalgamated (or merged) with Unique
Investments Limited and AEG Trading Limited on January 26, 1998 and Worldwide
Holdings Limited on May 31, 1998. The amalgamations were effectuated for the
purpose of transferring the Company's ownership from corporate entities to
individuals and to reduce the Company's outstanding shares to 4,000,000. In both
cases, the Company was the surviving entity. In August 1998, the two principal
stockholders returned an aggregate of 300,000 shares to the Company for
cancellation bringing the Company's outstanding shares to 3,700,000. The
Company's principal executive offices are located at 7 Kodiak Crescent,
Downsview, Ontario M3J 3E5 Canada and its telephone number is (416) 636-5553.
4
<PAGE> 6
EXCHANGE RATE DATA
The Company maintains its books of account in Canadian dollars, but has
provided the financial data in this Prospectus in United States dollars with its
audit conducted in accordance with generally accepted auditing standards in the
United States of America. All references to dollar amounts in this Prospectus,
unless otherwise indicated, are in United States dollars.
The following table sets forth, for the periods indicated, certain exchange
rates based on the noon buying rate in New York City for cable transfers in
Canadian dollars. Such rates are the number of United States dollars per one
Canadian dollar and are the inverse of rates quoted by the Federal Reserve Bank
of New York for Canadian dollars per US$1.00. The average exchange rate is based
on the average of the exchange rates on the last day of each month during such
periods. On May 31, 1998, the exchange rate was Cdn$1.00 per US $0.6863.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1994 1995 1996 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
RATE AT END OF PERIOD............................. $0.7143 $0.7353 $0.7299 $0.6991
AVERAGE RATE DURING PERIOD........................ 0.7299 0.7299 0.7353 0.7223
HIGH.............................................. 0.7092 0.7009 0.7212 0.6945
LOW............................................... 0.7642 0.7533 0.7526 0.7493
</TABLE>
The following discussion should be read in conjunction with the Summary
Combined Financial Information and the Company's Financial Statements and the
Notes thereto and the other financial data included elsewhere in this
Prospectus. This Prospectus contains forward-looking statements regarding the
plans and objectives of management for future operations. The forward-looking
statements included herein are based on current expectations and assumptions
that involve numerous risks and uncertainties. Although management believes that
the assumptions underlying the forward-looking statements are reasonable, any of
the assumptions could prove inaccurate and, therefore, there can be no assurance
that the forward-looking statements included herein will prove to be accurate.
In light of the significant uncertainties inherent in the forward-looking
statements included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
5
<PAGE> 7
THE OFFERING
Securities Offered:........ 1,498,000 Shares of Common Stock by the Company and
152,000 Shares of Common Stock by the Selling
Stockholder. See "Description of Securities" and
"Underwriting."
Common Stock Outstanding
Prior to the
Offering(1):............. 3,700,000
Common Stock Outstanding
After the
Offering(1)(2):.......... 5,198,000
Use of Proceeds:........... The Company intends to use the net proceeds of this
Offering to purchase inventory, repay indebtedness,
increase sales and marketing efforts, improve its
management information system, relocate its
existing facilities and for working capital and
general corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National
Market Symbol(3):........ CURTF
- ------------------------------
(1) Does not include an aggregate of 400,000 shares of Common Stock reserved for
issuance upon the exercise of options available for future grant under the
Company's 1998 Stock Option Plan (the "Plan"), 100,000 of which were
granted. See "Management-Stock Option Plan."
(2) Assumes no exercise of the Over-Allotment Option or Underwriters' Warrants.
(3) The proposed symbol does not imply that a liquid and active market will
develop or be sustained for the Shares upon completion of the Offering.
6
<PAGE> 8
SUMMARY COMBINED FINANCIAL INFORMATION
The following summary financial information has been derived from the
financial statements of the Company. The summary financial information set forth
below is qualified by and should be read in conjunction with the financial
statements, including the notes thereto and other financial information included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
---------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Sales................................................ $14,627,378 $14,914,142 $27,471,613
Gross profit......................................... 2,714,451 2,740,394 5,121,646
Income before income taxes........................... 133,677 123,379 1,467,347
Net income........................................... 100,347 93,001 864,905
Earnings per share(1)................................ .03 .03 .23
</TABLE>
<TABLE>
<CAPTION>
AS OF MAY 31, 1998
----------------------------
ACTUAL AS ADJUSTED(2)
----------- --------------
<S> <C> <C>
BALANCE SHEET DATA
Working capital............................................. $ 1,416,422 $ 6,650,222
Total assets................................................ 13,685,372 18,919,172
Long-term debt.............................................. 241,768 241,768
Total liabilities........................................... 12,248,664 11,348,664
Shareholders' equity........................................ 1,436,708 7,570,508
</TABLE>
- ------------------------------
(1) Based on a weighted average number of shares outstanding of 3,700,000 shares
in each of the applicable periods.
(2) As adjusted to reflect the sale by the Company of the 1,498,000 Shares
offered hereby and the application of the net proceeds therefrom. See "Use
of Proceeds."
7
<PAGE> 9
RISK FACTORS
Prospective investors should carefully consider the following factors, in
addition to the other information contained in this Prospectus, in connection
with investments in the Shares offered hereby. This Prospectus contains certain
forward-looking statements which involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in the
forward-looking statements as a result of certain factors, including those set
forth below and elsewhere in this Prospectus. An investment in the Shares
offered hereby involves a high degree of risk.
DEPENDENCE ON NEW PRODUCT INTRODUCTIONS AND MARKET ACCEPTANCE. The
Company's continued success is dependent upon its ability to continue to
identify, obtain and develop products that can be successfully sold to retail
chains and other mass merchants at acceptable profit margins. There can be no
assurance that the Company will be able to successfully develop and introduce
new products under its own brand names, that any such products will meet with
consumer acceptance in the marketplace or that any such products will be sold at
acceptable profit margins.
DEPENDENCE ON KEY CUSTOMERS. During the year ended May 31, 1996 ("Fiscal
1996") and the year ended May 31, 1997 ("Fiscal 1997") approximately 57% of
revenues were derived from sales to the Company's three largest customers.
During the year ended May 31, 1998 ("Fiscal 1998") approximately 63% of revenues
were derived from sales to the Company's five largest customers. The Company
believes that it has good relationships with its customers. However, the Company
has no long-term contracts with any of its customers, all of which purchase
products from the Company pursuant to individually placed purchase orders. There
can be no assurance that the Company's customers, including any of its largest
customers, will continue to purchase merchandise from the Company. A loss of one
or more of these customers could have a material adverse effect on the Company's
business and results of operations. See "Business--Sales and Distribution" and
"Business--Marketing."
DEPENDENCE ON THIRD PARTY MANUFACTURERS AND SUPPLIERS. To date, most of
the merchandise sold by the Company has been purchased by the Company from
third-party manufacturers and distributors, primarily located in Asia. The
Company does not enter into long-term contracts with such third parties but
instead purchases merchandise pursuant to individually placed purchase orders.
There can be no assurance that the Company's manufacturers will dedicate
sufficient production capacity to meet the Company's scheduled delivery
requirements or that the Company's manufacturers will have sufficient production
capacity to satisfy the Company's requirements. Typically, the Company helps
develop the design of a particular product and the manufacturer meets such
specifications. Accordingly, the Company is dependent on the ability of its
manufacturers to, among other things, meet the Company's design, performance and
quality specifications, as well as the quality and delivery requirements of its
customers. Recently, the economies of many Asian countries have experienced
financial pressures, including the devaluation of their currencies and a
shortage of capital. In the event that the crisis were to cause one or more of
the Company's manufacturers to cease operations it could result in delays in
obtaining merchandise.
Although the Company believes that its relationships with its suppliers are
good and that it would be able to locate other sources of merchandise in the
event of the loss of one or more of such suppliers, there can be no assurance
that the Company will not experience delays or other difficulties in obtaining
merchandise. Such delays or difficulties would have a material adverse effect on
the Company's business and results of operations. See "Business--Manufacturing."
INVENTORY MANAGEMENT RISKS. The Company is subject to significant risks in
connection with its inventory management. In order to assure an adequate supply
of products to meet the relatively high demand during the third and fourth
quarters of each calendar year, the Company must commit to acquire products
three months in advance of delivery. If the Company underestimates its need for
inventory or experiences delays in production, the Company may have to pay a
significant premium to obtain the necessary contract-manufacturing capacity or
ship products by air rather than less expensive ground or sea transportation in
order to meet customer orders. In such event, profit margins, sales and/or
customer relationships could be materially adversely affected. Similarly, if the
Company overestimates its inventory needs, the Company will be required to
reduce prices in order to dispose of such inventory or increase borrowings to
finance the carrying costs of such inventory, thereby adversely affecting its
profitability and cash flows. There can be no assurance
8
<PAGE> 10
that the Company will be able to borrow such amounts on reasonable terms, if at
all. To the extent that the Company is unable to adequately plan, time and
budget its sourcing and manufacturing operations, incurs delays in delivery,
fails to adequately forecast prices and demand or reduce costs when necessary, a
material adverse effect on the Company's business, financial condition and
results of operations could result.
The Company incurs expenses as a result of product returns and warranty
claims. Such returns and warranty claims may result from defective goods,
inadequate performance relative to customer expectations, improper packaging,
liberal retailer return policies and other causes which may be outside the
Company's control. During Fiscal 1998, approximately 15% of the Company's gross
sales were made under net sale arrangements, whereby the Company's customers are
responsible for product returns, which cannot be returned to the Company. The
remainder of the sales are returnable only for defects. While the Company plans
to maintain or increase the percentage of sales that are on a net basis, there
can be no assurance that the Company will be successful in maintaining or
increasing such percentage. Any significant increase in product returns and
warranty claims could have a material adverse effect on the Company's business,
financial condition and results of operations.
COMPETITION. The Company's market segment is highly competitive. The mass
merchandise and discount retail market is divided among a large number of
foreign-based manufacturers and distributors. Many of the Company's competitors
have or may obtain significantly greater financial and marketing strength and
resources than the Company, enabling them to compete more effectively than the
Company. In addition, the Company's products compete at the retail store level
for shelf space, which has an impact on the Company's established and proposed
distribution channels. Competition, or failure of consumers to accept existing
or new products, may result in reduced sales, reduced profit margins, or both,
for the Company. There can be no assurance that the Company will not encounter
increased competition in the future, which could have a material adverse effect
on the ability of the Company to successfully market existing products, develop
new products or expand its business. See "Business--Competition."
DEPENDENCE ON KEY PERSONNEL. The Company's future success will depend to a
significant extent on the efforts of key management personnel, particularly
Aaron Herzog, the Company's President and Chief Executive Officer, and Jacob
Herzog, the Company's Chairman, Treasurer and Secretary. The loss of either of
these key employees could have a material adverse effect on the Company's
business. In addition, the Company believes that its future success will depend
in large part upon its continued ability to attract and retain highly qualified
management (including a Chief Financial Officer), as well as technical and sales
personnel. The Company maintains key-man life insurance policies in an amount of
Cdn $1 million on each of the lives of Aaron Herzog and Jacob Herzog, under
which the Company's bank, Canadian Imperial Bank of Commerce, is the
beneficiary. The Company intends to increase such insurance to Cdn $2 million on
each of Messrs. Aaron and Jacob Herzog prior to the Effective Date. Upon the
Effective Date the Company will enter into two-year employment agreements with
each of Aaron Herzog and Jacob Herzog. There can be no assurance that the
Company will be able to attract and retain the qualified personnel necessary for
its business. See "Management."
CONTROL BY EXISTING STOCKHOLDERS. Upon the completion of this Offering,
the Company's management will beneficially own 68.2% (65.1% if the
Over-Allotment Option is exercised in full) of the Company's outstanding Common
Stock. In addition, Aaron and Jacob Herzog are parties to a voting trust
agreement which provides that they will vote their shares together. As a result,
management will continue to elect a majority of the members of the Board of
Directors and decide matters requiring stockholder approval. See "Principal and
Selling Stockholders."
RETAIL INDUSTRY. The retail industry is significantly affected by many
factors, including changes in the national economy and in regional and local
economies, confidence in the overall economy, changes in consumer preferences
and increases in the number of retail operations. Factors such as inflation may
have a greater effect on the retail industry than on other industries. As a
result of these and other pressures, several retail firms have filed for
bankruptcy protection. Although, during the past three years, the Company has
written off only insignificant amounts as a result of such bankruptcies, the
loss of a significant number of the Company's customers could have a material
adverse effect on the business and results of operations of the
9
<PAGE> 11
Company. The Company maintains a credit insurance policy whereby it is insured
against certain customers failure to pay their accounts receivable. Not all of
the Company's customers are covered by such policy.
PRODUCT LIABILITY. Any defects in the Company's products that result in
personal injury might result in consequences that could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company maintains insurance to cover such risks; however, the coverage in
certain events may not be adequate to insure against all product liability
claims.
RISK OF DOING BUSINESS IN FOREIGN COUNTRIES; RISK OF IMPORT
LIMITATIONS. The Company's products are principally manufactured by independent
manufacturers in China, Hong Kong, Indonesia, Malaysia, Thailand, the
Philippines and other Asian countries. The Company does not have long-term
contracts with any of its independent manufacturers. Manufacturing in Asian and
other foreign countries is subject to a number of risks including, but not
limited to, transportation delays and interruptions, political and economic
disruptions, the imposition of tariffs and import and export controls and
quotas, loss of property or revenue from expropriation or political demands, and
changes in governmental policies. While the Company to date has not experienced
any material adverse effects due to such risks, there can be no assurance that
such events will not occur in the future and possibly result in increases in
costs and delays of, or interference with, product deliveries resulting in
losses of sales and damage to customer relationships.
Generally, Asian and other countries in which the Company does business may
not offer legal mechanisms to redress an unfair trade practice, contract breach
or other problem requiring the enforcement of contractual provisions or other
redress. In particular, Asian countries generally do not have a well-developed,
consolidated body of law governing foreign investment enterprises, and the
administration of laws and regulations by government agencies may be subject to
considerable discretion and variation and administrative review and approval by
various national and local agencies of Asian governments. As a result, in the
event of any damage to the Company resulting from the breach of a contract, the
failure to fulfill manufacturing commitments, the taking of Company property, or
other similar event creating a loss for the Company or interruption of its
business, there may not be an adequate avenue of recourse against the parties
responsible for such damages.
MOST FAVORED NATION RISK. Presently, products imported into the United
States from Asian countries are subject to favorable duty rates based on the
"Most Favored Nation" status of such countries ("MFN Status"). MFN Status is
reviewed on an annual basis by the United States President and Congress and was
recently renewed for such countries.
If MFN Status for goods produced in Asian countries was removed, there
would be a substantial increase in tariffs imposed on goods of Asian origin
entering the United States, including those sold by the Company, which could
have a material adverse effect on the supply and cost of products manufactured
in such countries, and consequently on the Company's business, financial
condition and results of operations. Although the Company produces products in
other locations, at the present time, the Company plans to continue its
production primarily in Asia.
CURRENCY RISKS. Although the Company currently effects substantially all
of its transactions in United States dollars and approximately 50% of its sales
are made in the United States, in those situations in which transactions are in
foreign currencies, the Company is exposed to risks such as currency
instability, currency exchange losses and the ability to repatriate earnings
under existing exchange control laws. The Company does not currently engage in
hedging, and no assurance can be given that an effective currency hedging policy
could offset these currency risks.
GOVERNMENT REGULATION. Most of the Company's customers (as well as several
state and local authorities) require that the Company's products meet the
electrical safety standards of the Underwriters' Laboratories, Inc. Certain of
the Company's products sold for use in the United States must be registered with
and approved by the United States Federal Communications Commission (the "FCC").
Products sold in Canada must comply with the standards of the Canadian Standards
Association. In addition, the Company's products must meet the applicable safety
standards imposed by any other countries in which it intends to sell its
products. The Company is subject to numerous tariffs, duties, charges and
assessments on the import of its products. The Company retains import agencies
and expediters to facilitate the import of its products and the
10
<PAGE> 12
payment of these charges and duties. Although these duties and charges have not
substantially affected the Company's ability to market its products for delivery
in the United States and elsewhere, regulations affecting these charges and
duties are subject to change, which could have the effect of increasing the cost
of goods imported and sold by the Company. See "Business--Regulation."
SEASONALITY. The Company generally experiences stronger demand for its
products in the quarter ending November 30. Accordingly, to accommodate such
increased demand, the Company is generally required to place higher orders with
its vendors during the quarter ending August 31, thereby affecting the Company's
need for working capital during such period. On a corresponding basis, the
Company also is subject to increased returns during the quarters ending February
28 and May 31, which adversely affects the Company's collection activities
during such periods, also affecting its liquidity. Operating results may
fluctuate due to other factors such as the timing of the introduction of new
products, price reductions by the Company and its competitors, demand for the
Company's products, product mix, delay, available inventory levels, fluctuation
in foreign currency exchange rates relative to the United States dollar,
seasonal cost increases and general economic conditions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RISKS INVOLVED WITH PRODUCT EXPANSION AND EXPANSION INTO UNITED STATES AND
OTHER MARKETS. As part of its business strategy, the Company intends to acquire
related and complementary businesses and product lines. There can be no
assurance that the Company will be able to acquire such businesses and/or
product lines or, if acquired, be able to manage the expanded operations
effectively. Moreover, failure to implement financial and other systems and to
add resources in connection with such acquisitions could have a material adverse
impact on the Company's results of operations and financial condition. The
Company's acquisitions, if any, could involve a number of risks including the
diversion of management's attention to the assimilation of the product lines to
be acquired, unforeseen difficulties in the acquired intangible assets and
dilution in the ownership interest of stockholders as a result of the issuance
of additional Common Stock or shares of preferred stock (the "Preferred Stock")
in connection with an acquisition. The Company has no present commitments,
understandings or agreements for any acquisitions, and there can be no assurance
that any such acquisitions will occur. See "Business--Growth Strategy."
FREIGHT AND TRANSPORTATION. The Company is dependent on independent
freight haulers to ship the Company's products to distribution facilities. The
ability of the Company to control its transportation and freight expenses is a
significant factor in the Company's gross profit margin. There is no assurance
that the Company will be able to maintain acceptable freight and transportation
pricing and arrangements. Furthermore, a labor slowdown, strike or other matters
beyond management's control may adversely affect the Company's ability to ship
its products on a timely basis or at all.
NO PRIOR PUBLIC MARKET. Prior to this Offering, there has been no public
market for the Common Stock. Accordingly, there can be no assurance that an
active trading market will develop and be sustained upon the completion of this
Offering. The initial public offering price of the Common Stock has been
determined by negotiations between the Company and the Representative and does
not necessarily bear any relation to the Company's asset value, earnings or
other objective criteria. See "Underwriting." The stock market has, from time to
time, experienced extreme price and volume fluctuations which often have been
unrelated to the operating performance of particular companies. Although it has
no obligation to do so, the Representative intends to engage in market-making
activities or solicited brokerage activities with respect to the purchase or
sale of the Common Stock on the Nasdaq National Market. However, no assurance
can be given that the Representative will continue to participate as a
market-maker in the securities of the Company or that other broker/dealers will
make a market in such securities which may adversely impact the liquidity of the
Common Stock. Regulatory developments and economic and other external factors,
as well as period-to-period fluctuations in financial results, may also have a
significant impact on the market price of the Common Stock.
IMMEDIATE AND SUBSTANTIAL DILUTION. This Offering involves an immediate
and substantial dilution to investors. Purchasers of Shares in the Offering will
incur an immediate dilution of $3.54 per Share in the net tangible book value of
their investment from the initial public offering price, which dilution amounts
to approximately 71% of the initial public offering price per Share. Investors
in the Offering will pay $5.00 per Share, as compared to an average cash price
of $0.39 per share paid by existing stockholders. See "Dilution."
11
<PAGE> 13
BROAD DISCRETION IN APPLICATION OF PROCEEDS; UNSPECIFIED
ACQUISITIONS. Approximately 44% of the net proceeds of this Offering will be
applied to working capital and general corporate purposes. Accordingly,
management of the Company will have broad discretion over the use of the
proceeds. Although the Company may utilize a portion of the net proceeds for
potential acquisitions of complementary businesses and of product lines through
licensing or other arrangements, as of the date hereof, the Company has not
identified any particular acquisition targets. Stockholders of the Company may
have no opportunity to approve specified acquisitions or to review the financial
condition of any potential target. In addition, although as of the date hereof
the Company has no agreements, understandings or commitments and is not engaged
in any negotiations relating thereto, the Company may seek to acquire rights to
additional proprietary product lines through licensing or other arrangements,
and intends to use a portion of the proceeds of this Offering for one or more of
such acquisitions in the event opportunities become available on terms
acceptable to the Company. Moreover, there can be no assurance that any such
acquisition opportunities will become available, that the Company would be
successful in acquiring any such rights on favorable terms, or that the Company
would be successful in marketing and selling any product lines so acquired by
it. See "Use of Proceeds" and "Business--Growth Strategy."
NEED FOR ADDITIONAL FINANCING. The Company believes that the proceeds of
the Offering will, together with revenues from operations, be sufficient to
finance the Company's working capital requirements for a period of at least 12
months following the completion of this Offering. However, a part of the
Company's strategy is to acquire related and complementary businesses and/or
individual product lines, although the Company has not presently identified any
specific acquisitions. The Company's ability to make acquisitions may be
dependent upon its ability to obtain additional financing. There can be no
assurance that additional financing will be available on terms acceptable to the
Company, or at all. In the event that the Company is unable to obtain such
additional financing as it becomes necessary, the Company may not be able to
achieve all of its business plans. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
SHARES ELIGIBLE FOR FUTURE SALE. Of the 5,198,000 shares of Common Stock
of the Company to be outstanding upon completion of this Offering, 3,548,000
shares shall be "restricted securities," which are owned by "affiliates" of the
Company, as those terms are defined in Rule 144 promulgated under the Securities
Act. Absent registration under the Securities Act, the sale of such shares is
subject to Rule 144, as promulgated under the Securities Act. All of the
"restricted securities" will be eligible for resale under Rule 144. In general,
under Rule 144, subject to the satisfaction of certain other conditions, a
person, including an affiliate of the Company, who has beneficially owned
restricted shares of Common Stock for at least one year is permitted to sell in
a brokerage transaction, within any three-month period, a number of shares that
does not exceed the greater of 1% of the total number of outstanding shares of
the same class, or, if the Common Stock is quoted on The Nasdaq Stock Market or
a stock exchange, the average weekly trading volume during the four calendar
weeks preceding the sale. Rule 144 also permits a person who presently is not
and who has not been an affiliate of the Company for at least three months
immediately preceding the sale and who has beneficially owned the shares of
Common Stock for at least two years to sell such shares without regard to any of
the volume limitations described above. Holders of all of such shares of Common
Stock are affiliates of the Company. All of the Company's post-offering
stockholders who are affiliates have agreed not to sell or otherwise dispose of
any of their shares of Common Stock now owned or issuable upon the exercise of
any option for a period of 18 months from the Effective Date, without the prior
written consent of the Representative. No prediction can be made as to the
effect, if any, that sales of shares of Common Stock or the availability of such
shares for sale will have on the market prices of the Company's Common Stock
prevailing from time to time. The possibility that substantial amounts of Common
Stock may be sold under Rule 144 into the public market may adversely affect
prevailing market prices for the Common Stock and could impair the Company's
ability to raise capital in the future through the sale of equity securities.
See "Shares Eligible for Future Sale."
NO DIVIDENDS AND NONE ANTICIPATED. To date, no dividends have been
declared or paid on the Common Stock, and the Company does not anticipate
declaring or paying any dividends in the foreseeable future, but rather intends
to reinvest profits, if any, in its business. Investors should, therefore, be
aware that it is unlikely that any dividends will be paid on the Common Stock in
the foreseeable future. See "Dividend Policy."
12
<PAGE> 14
NASDAQ ELIGIBILITY AND MAINTENANCE REQUIREMENTS; POSSIBLE DELISTING OF
COMMON STOCK FROM NASDAQ NATIONAL MARKET SYSTEM. Prior to this Offering, there
has been no established public trading market for the Company's Common Stock and
there is no assurance that a public trading market for the Company's Common
Stock will develop after the completion of this Offering. If a trading market
does in fact develop for the Common Stock offered hereby, there can be no
assurance that it will be sustained.
The Company has applied for listing of the Common Stock on the Nasdaq
National Market upon the Effective Date. The Commission has recently approved
new rules imposing criteria for listing of securities on the Nasdaq National
Market, including standards for maintenance of such listing. In order to qualify
for initial quotation of securities on the Nasdaq National Market, an issuer,
among other things, must have at least $6,000,000 in net tangible assets,
$8,000,000 in market value of the public float and a minimum bid price of $5.00
per share. For continued listing, an issuer, among other things, must have
$4,000,000 in net tangible assets, $5,000,000 in market value of securities in
the public float and a minimum bid price of $1.00 per share. If the Company is
unable to satisfy the Nasdaq National Market's maintenance criteria in the
future, its Common Stock may be delisted from the Nasdaq National Market. In
such event, the Company would seek to list its securities on The Nasdaq SmallCap
Market, however, if it was unsuccessful, trading, if any, in the Company's
Common Stock, would thereafter be conducted in the over-the-counter market in
the so-called "pink sheets" or the OTC Bulletin Board. As a consequence of such
delisting, an investor would likely find it more difficult to dispose of, or to
obtain quotations as to, the price of the Company's Common Stock.
PENNY STOCK REGULATION. In the event that the Company is unable to satisfy
the maintenance requirements for the Nasdaq National Market and its Common Stock
falls below the minimum bid price of $5.00 per share for the initial quotation,
the Company would seek to list its securities on The Nasdaq SmallCap Market. If
it was unsuccessful, trading would be conducted on the "pink sheets" or the OTC
Bulletin Board. In the absence of the Common Stock being quoted on Nasdaq, or
listed on an exchange, trading in the Common Stock would be covered by Rule
15g-9 promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), if the Common Stock is a "penny stock." Under such rule,
broker-dealers who recommend such securities to persons other than established
customers and accredited investors must make a special written suitability
determination for the purchaser and receive the purchaser's written agreement to
a transaction prior to sale. Securities are exempt from this rule if the market
price is at least $5.00 per share.
The Commission adopted regulations that generally define a penny stock to
be any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Such exceptions include an equity security listed
on Nasdaq, and an equity security issued by an issuer that has (i) net tangible
assets of at least $2,000,000, if such issuer has been in continuous operation
for three years, (ii) net tangible assets of at least $5,000,000, if such issuer
has been in continuous operation for less than three years, or (iii) average
revenue of at least $6,000,000 for the preceding three years. Unless an
exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the risks associated therewith.
If the Company's Common Stock were to become subject to the regulations
applicable to penny stocks, the ability of broker-dealers to sell the Common
Stock and the ability of purchasers in this Offering to sell their Common Stock
in the secondary market would be limited thereby severely affecting the market
liquidity of the Common Stock. There is no assurance that trading in the Common
Stock will not be subject to these or other regulations that would adversely
affect the market for such securities.
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<PAGE> 15
DILUTION
Dilution represents the difference between the initial public offering
price paid by the purchasers in the Offering and the net tangible book value per
share immediately after completion of the Offering. Net tangible book value per
share represents the amount of the Company's total assets minus the amount of
its liabilities and intangible assets divided by the number of shares
outstanding. As of May 31, 1998, the net tangible book value of the Company's
Common Stock was $1,436,708 or $0.39 per share. Immediately after the Offering,
the pro forma net tangible book value as of May 31, 1998 will increase to
$7,570,508 or $1.46 per share. Consequently, there will be an immediate increase
in net tangible book value of $1.07 per share to the existing stockholders and
an immediate substantial dilution (i.e., the difference between the offering
price of $5.00 and the pro forma net tangible book value per share after the
Offering) of $3.54 or 71% to new investors purchasing the Shares offered hereby.
The following table illustrates, as of May 31, 1998, this per share
dilution:
<TABLE>
<S> <C> <C>
Public offering price per Share............................ $5.00
Net tangible book value per share before Offering(1)....... 0.39
Increase per share attributable to new investors........... 1.07
-----
Pro forma net tangible book value per share after
Offering(1).............................................. 1.46
-----
Dilution per Share to new investors(1)..................... 3.54
=====
</TABLE>
The following table summarizes, as of May 31, 1998, the total number of
shares of Common Stock purchased from the Company, the total consideration paid,
and the average price per share paid by the existing stockholders and by new
investors who purchase shares of Common Stock pursuant to this Offering.
<TABLE>
<CAPTION>
SHARES PERCENTAGE AVERAGE
PURCHASED OF TOTAL AGGREGATE % OF TOTAL PRICE
(1) SHARES CONSIDERATION CONSIDERATION PER SHARE
------------ ---------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Existing
Stockholders........... 3,700,000 71.2% $1,440,000 16.1% $0.39
New Investors.......... 1,498,000 28.8% $7,490,000 83.9% $5.00
--------- ------ ---------- ------
Total.................. 5,198,000 100.0% $8,930,000 100.0%
</TABLE>
- ------------------------------
(1) This information does not include (i) 165,000 shares issuable upon the
exercise of the Underwriters' Warrants; (ii) 400,000 shares that may be
issued under the Plan; or (iii) 247,500 shares available pursuant to the
Over-Allotment Option.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company as of May
31, 1998 and as adjusted to reflect the sale of 1,498,000 Shares offered hereby.
The information provided below should be read in conjunction with the other
financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MAY 31, 1998
------------------------
ACTUAL AS ADJUSTED
---------- -----------
<S> <C> <C>
Long-term debt, less current maturities............. $ 241,768 $ 241,768
---------- ----------
Stockholders' equity:
Common Stock, no par value, 15,000,000 shares
authorized: 3,700,000 issued and outstanding; and
5,198,000 issued and outstanding as adjusted(1)... 80 6,133,880
Foreign currency transaction adjustment............. (94,664) (94,664)
Retained earnings................................... 1,531,292 1,531,292
---------- ----------
Total stockholders' equity.......................... 1,436,708 7,570,508
---------- ----------
Total capitalization................................ 1,678,476 7,812,276
========== ==========
</TABLE>
- ------------------------------
(1) Reflects the issuance of 1,498,000 Shares offered hereby. Assumes no
exercise of the Underwriters' Warrants or the Over-Allotment Option.
15
<PAGE> 17
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Shares
offered by the Company at a public offering price of $5.00 per Share, after
deducting underwriting commissions, the financial advisory fee payable to an
affiliate of the Representative and other offering expenses to be paid by the
Company, is estimated to be $6,133,800. The Company expects to apply the net
proceeds of the Offering as follows:
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE OF
APPLICATION OF PROCEEDS AMOUNT NET PROCEEDS
----------------------- ----------- -------------
<S> <C> <C>
Acquisition of Inventory.................................... $1,800,000 29.4%
Repayment of Indebtedness(1)................................ 900,000 14.7%
Sales and Marketing(2)...................................... 400,000 6.5%
Management Information System(3)............................ 250,000 4.1%
Relocation of Warehouse and Principal Executive
Offices(4)................................................ 100,000 1.6%
Working Capital and General Corporate Purposes(5)........... 2,683,800 43.7%
---------- ------
Total....................................................... $6,133,800 100.0%
</TABLE>
- ------------------------------
(1) The Company intends to repay a $900,000 loan which it secured from Jacob
Herzog's father-in-law, in July 1998 for interim financing. Such loan bears
interest at 7.5% and is payable on the earlier of demand or October 1, 1998.
(2) Includes costs associated with hiring a national sales manager, a regional
sales manager and opening a sales office in the United States.
(3) Represents the cost to upgrade the Company's current computer system.
(4) Includes moving costs and certain one time capital expenditures to be
incurred in preparing its new warehouse space. The Company believes that the
rental costs associated with the new warehouse will be commensurate with its
current rental costs.
(5) The net proceeds allocated to working capital include funds for general
corporate purposes including the financing of the Company's accounts
receivable and possible strategic acquisitions. The Company has not
currently identified any acquisition candidates.
The foregoing represents the Company's estimate of the allocation of the
net proceeds of the Offering based upon the current status of its operations and
anticipated business needs. It is possible, however, that the application of
funds will differ considerably from the estimates set forth herein due to
changes in the economic climate and/or the Company's planned business operations
or unanticipated complications, delays and expenses, as well as any potential
acquisitions that the Company may consummate, although no specific acquisition
has been identified. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Any reallocation of the net proceeds will
be at the discretion of the Board of Directors of the Company.
Any additional net proceeds realized from the exercise of the
Over-Allotment Option (up to approximately $1,076,625) will be added to the
Company's working capital.
Pending application, the net proceeds will be invested principally in
short-term certificates of deposit, money market funds or short-term treasury
bonds.
The Company estimates that the net proceeds from this Offering will be
sufficient to meet the Company's liquidity and working capital requirements for
a period of at least 12 months from the completion of this Offering. In the
event that the Company acquires any additional product lines, although no
specific acquisition has been identified, such funds will be derived from the
funds currently allocated to working capital or from revenues generated from the
Company's operations.
DIVIDEND POLICY
The Company has never paid or declared dividends on its Common Stock. The
payment of cash dividends, if any, in the future is within the discretion of the
Board of Directors and will depend upon the Company's earnings, its capital
requirements, financial condition and other relevant factors. The Company
intends, for the foreseeable future, to retain future earnings for use in the
Company's business.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the preceding
Summary Combined Financial Data and the Company's Financial Statements and the
Notes thereto and the other financial data included elsewhere in this
Prospectus. This Prospectus contains forward-looking statements regarding the
plans and objectives of management for future operations. The forward-looking
statements included herein are based on current expectations and assumptions
that involve numerous risks and uncertainties. Although management believes that
the assumptions underlying the forward-looking statements are reasonable, any of
the assumptions could prove inaccurate and, therefore, there can be no assurance
that the forward-looking statements included herein will prove to be accurate.
In light of the significant uncertainties inherent in the forward-looking
statements included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
GENERAL
The Company designs, distributes and markets quality, value-priced consumer
electronics products. The Company offers a broad line of telecommunication,
audio, video and computer products, including telephones, answering machines,
caller ID systems, CD and cassette systems, portable televisions and computer
accessories. The Company's products are primarily sold under the brand names
"Curtis" and "CTP Worx," as well as private labels. The Company's strategy has
been to build a portfolio of diverse consumer electronics products which offers
retailers flexible merchandising programs. The Company's products are available
in approximately 2,300 stores throughout Canada and 10,000 stores in the United
States through approximately 30 retail chains in Canada and the United States.
Curtis International Ltd. was incorporated in the Province of Ontario on
December 12, 1990. The Company subsequently amalgamated (or merged) with Unique
Investments Limited and AEG Trading Limited on January 26, 1998 and Worldwide
Holdings Limited on May 31, 1998. In both cases, the Company was the surviving
entity. The Company's principal executive officers are located at 7 Kodiak
Crescent, Downsview, Ontario M3J 3E5 Canada and its telephone number is (416)
626-5553.
RESULTS OF OPERATIONS
Fiscal Year Ended May 31, 1998 ("Fiscal 1998") Compared to Fiscal Year
Ended May 31, 1997 ("Fiscal 1997").
Sales for Fiscal 1998 were $27,471,613, an 84.2% increase over sales of
$14,914,142 for Fiscal 1997. This increase was primarily due to an increase of
428% in sales in the United States and to a lesser degree, a 24.1% increase in
sales in Canada. The Company's strategy is to continue to increase sales in the
United States, while maintaining and maximizing sales in Canada.
As a result of the 84.2% increase in sales, cost of sales for Fiscal 1998
were $22,349,967, an 83.6% increase over cost of sales of $12,173,748 for Fiscal
1997.
Gross profit margin for Fiscal 1998 was 18.6% of net revenues as compared
to 18.4% in Fiscal 1997. The Company's increased purchasing power which resulted
in slightly lower per item costs was largely offset by lower prices charged to
customers who purchased items in large quantities. The Company expects that its
increased buying power and broadened customer base will lead to a slight
increase in gross profit in the coming periods.
As a result of the Company's increased marketing efforts and certain
one-time charges, expenses increased from $2,617,015 in Fiscal 1997 to
$3,654,299 in Fiscal 1998. Selling expenses increased by $610,928 (93.3%) in
Fiscal 1998 over Fiscal 1997 as a result of increased sales efforts particularly
in the United States. These expenses include salaries and commissions, delivery
charges and advertising costs. The Company expects to further increase its
marketing efforts in the United States, but expects increased sales to offset
such costs. As a percentage of sales, selling expenses remained relatively
stable at approximately 4% of sales. Administrative expenses of $1,758,313 were
$27,721 higher than in Fiscal 1997. However, as a percentage of sales,
administrative expenses were significantly reduced (from 11.6% to 6.4%), as a
result of relatively stable expenses coupled with the Company's
17
<PAGE> 19
sales growth. The Company believes that it can continue to increase sales with
only a minor increase in administrative expenses. Financial expenses rose from
$231,445 to $474,154, a 105% increase which was the result of higher interest
expense, from $161,041 to $329,922 as a result of increased borrowing to sustain
the Company's growth and an increase of $73,828 in the Company's reserve for bad
debts. Management believes that the proceeds of the Offering will allow the
Company to increase sales without increasing borrowing expenses like the Company
has historically incurred in order to fund its growth. In Fiscal 1998, the
Company also incurred a one-time lease cancellation fee of $155,926.
Earnings before income taxes ("EBIT") increased $1,343,968 to $1,467,347
(1,089%) for Fiscal 1998 versus Fiscal 1997. As a percentage of sales, EBIT for
Fiscal 1998 was 5.3% compared to .9% in Fiscal 1997. As a result of the
Company's increased income, the provision for income taxes increased from
$30,378 to $602,442. Net income increased from $93,001 for Fiscal 1997 to
$864,905 for Fiscal 1998. This increase in net income is directly a result of
continued sales growth with stable administrative costs, which more than offset
the increase in selling expenses. Management believes, although there can be no
assurance, that the Company can continue this trend in the future.
Fiscal 1997 Compared to Fiscal Year Ended May 31, 1996 ("Fiscal 1996").
Sales for Fiscal 1997 were $14,914,142, a 2.0% increase over the prior year
sales of $14,627,378. Sales in the United States increased by $960,952 (76.5%)
as a result of increased sales efforts during the later part of Fiscal 1997.
This increase offset slightly lower sales in Canada.
Gross profit for Fiscal 1997 was 18.5% of sales, compared to 18.6% in the
prior year.
Expenses increased from $2,580,774 in Fiscal 1996 to $2,617,015 in Fiscal
1997. The primary difference in expenses was an increase of $416,615 (31.7%) in
administrative expenses which resulted from an increase in management fees and
bonus of $321,485 and an increase in insurance expenses of $52,478. These
increases in administrative expenses were partially offset by a decrease in
selling expenses of $246,242 which was a result of a decrease of $283,305 in
advertising, rebate and promotional expenses. Financial expense decreased by
$134,132 in Fiscal 1997, from $365,577 to $231,445. This change was a result of
the reduction in reserves for bad debts from $257,427 to $70,404 which were only
partially offset by a $52,891 increase in interest and bank charges.
Net income decreased $7,346 in Fiscal 1997, from $100,347 to $93,001. In
addition, income was fairly constant as a percentage of net sales.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded its operations from cash flow, its
credit line with Canadian Imperial Bank of Commerce ("CIBC") and advances from
affiliates. The line of credit bears interest at .50% plus prime, has a limit of
$8,250,000 and is personally guaranteed by the Company's President and Chairman
and affiliated companies. The line of credit is secured by a first lien on
substantially all of the Company's assets. In addition, an affiliated company
has agreed to a postponement of the Company's indebtedness to it until the
amount due under the line of credit is paid. Moreover, CIBC is the beneficiary
of the key man life insurance policies maintained by the Company on the lives of
Aaron Herzog and Jacob Herzog. As of May 31, 1998, the line of credit had an
outstanding balance of $5,063,819. The $5,063,819 represents the actual bank
indebtedness ($8,465,000) less the cash balance maintained in the bank
($3,401,181). The Company's executive officers, either directly or through their
affiliated corporations, loaned the Company an aggregate of $725,303 in order to
finance the Company's expansion. These loans were memorialized into notes which
bear interest at 8% and are repayable quarterly over the 18 months following the
Offering, provided the Company is profitable on a post tax basis during each
quarter and CIBC gives its consent to such repayment. In July 1998, the Company
received a $900,000 loan from Jacob Herzog's father-in-law, which loan bears
interest at 7.5% and is due on the earlier of demand or October 1, 1998. The
Company used the proceeds of the loan for working capital. The Company intends
to repay the loan out of the net proceeds of the Offering. See "Use of Proceeds"
and "Certain Transactions."
The Company's cash flow is affected by a number of factors. During Fiscal
1998, the Company experienced a significant increase in its business which has
resulted in a strain on its cash flow. While net
18
<PAGE> 20
income increased from $93,001 for Fiscal 1997 to $864,905 for Fiscal 1998, the
Company's accounts receivable rose from $1,813,898 to $4,084,729 and inventory
increased by $4,512,244. The Company used $4,986,191 in its operating activities
as compared to generating $1,051,798 for Fiscal 1997. As a result of the
Company's increased business, the Company's bank indebtedness increased by
$7,183,701 for Fiscal 1998. The Company had cash on hand of $3,401,181 at May
31, 1998, as compared to $1,251,542 at May 31, 1997. The Company had current
assets of $13,423,318 at May 31, 1998, compared to $4,427,555 at May 31, 1997.
The Company had current liabilities of $12,006,896 at May 31, 1998, as compared
to current liabilities of $3,167,002 at May 31, 1997.
The Company will receive net proceeds from this Offering of approximately
$6,133,800. The Company believes that the net proceeds of the Offering, coupled
with income from operations, will fulfill the Company's working capital needs
for at least the next 12 months. There can be no assurance that the Company will
realize cash flow from operations or that such cash flow will be sufficient, in
which case the Company may require additional financing. In addition, the
Company may seek to acquire rights to additional proprietary product lines
through licensing or other arrangements or make acquisitions of other companies.
Thus, the Company may seek to raise funds through subsequent equity or debt
financings, or through other sources. No assurances can be given that additional
funds will be available to the Company to finance its development. Moreover, the
line of credit places restrictions on the Company's ability to obtain financing
through the issuance of additional debt. Additional financings may result in
dilution to existing stockholders. If funds are needed but are not available in
adequate amounts from additional financing sources or from operations, the
Company's business may be adversely affected. See "Use of Proceeds."
YEAR 2000 PREPARATION
Many computer systems and software products worldwide and throughout all
industries will not function properly as the year 2000 approaches unless
changed, due to a once-common programming standard that represents years using
two-digits. This is the "Year 2000 problem" that has received considerable media
coverage. The Company is in the process of upgrading its management information
systems. As part of this program, the Company will identify those systems and
applications that require modification, redevelopment or replacement. The
Company expects to be Year 2000 compliant by December 31, 1998 with respect to
its internal systems. Management of the Company does not believe that failure of
the Company's vendors or other third-party providers' systems to be Year 2000
compliant will have a material adverse effect upon the Company.
19
<PAGE> 21
BUSINESS
SUMMARY
Curtis International Ltd. designs, distributes and markets quality,
value-priced consumer electronics products. The Company offers a broad line of
telecommunication, audio, video and computer products including, telephones,
answering machines, caller ID systems, CD and cassette systems, portable
televisions and computer accessories. The Company's products are primarily sold
under the brand names "Curtis" and "CTP Worx," as well as private labels. The
Company's strategy has been to build a portfolio of diverse consumer electronics
products which offers retailers flexible merchandising programs. The Company's
products are available in approximately 2,300 stores throughout Canada and
10,000 stores in the United States through approximately 30 retail chains in
Canada and the United States. All of the Company's products are manufactured by
independent manufacturers.
The Company's customers include mass merchandisers such as Wal-Mart
(Canada), Ames, Bradlees, Dollar General and Bi-Way Stores; drug store chains
such as Rite-Aid, London Drugs, Thrifty Payless, Jean Coutu and Ker Drugs;
specialty marketers such as QVC, the Home Shopping Network and Amway; consumer
electronic retailers such as Future Shop, Fry's and ABC Warehouse; and appliance
and department stores such as Boscov and Fedco. The Company has operated
profitably and has recently undergone a period of rapid sales growth. In Fiscal
1998, the Company's sales increased by $12,557,471, or 84.2%, to $27,471,613
from $14,914,142 in Fiscal 1997. The Company only entered the United States
market in 1996 and has since opened accounts with approximately 20 retail chains
in the United States. The Company's sales in the United States were $11,716,935
in Fiscal 1998 as compared to $2,217,058 in Fiscal 1997, an increase of 428%.
The Company believes there is an opportunity to significantly increase its
business in the United States through both its current customers and potential
new customers.
THE CONSUMER ELECTRONICS INDUSTRY
The consumer electronics industry is large and diverse, encompassing a wide
variety of technologies and products, including televisions, VCRs, audio
systems, CD players, cassette players and telephones. The Consumer Electronics
Manufacturers Association ("CEMA") estimates that total factory sales of
consumer electronics products in 1997 were approximately $72 billion, an
increase of 4.0% from 1996. CEMA estimates that factory sales will grow to
approximately $92 billion by the year 2001, an increase of 115% in ten years,
and believes that the consumer electronics industry is one of the fastest
growing sectors of the United States economy. It is estimated that in 1998 the
average United States household will spend $825 on consumer electronics
products.
GROWTH STRATEGY
The Company plans to establish itself as a leading supplier of quality,
value-priced consumer electronics products. The Company believes that its broad
portfolio of products, superior design capabilities, flexible and low-cost
sourcing and superior service offered both prior to and after-sale provide it
with distinct competitive advantages. The Company plans to continue to grow its
business using a strategy comprised of the following principal elements:
- CONTINUE TO OFFER VALUE-PRICED, QUALITY PRODUCTS. The Company designs
and markets products which are value-priced, yet fill a market void
through their design and up-to-date style. The Company's packaging
further distinguishes its products in the marketplace from those of its
competitors. In addition to increasing its product offering (as described
below), the Company plans to continue to offer its customers quality
products at competitive prices.
- EXPAND CUSTOMER BASE. The Company believes that it has significant
opportunities to expand its customer base both in Canada and the United
States. The Company intends to use its existing relationships in Canada
with retailers such as Wal-Mart, Staples and Toys "R" Us, to penetrate
the United States market in such retailers' stores. The Company recently
shipped its first order to Wal-Mart (Canada) and intends to use the
relationship to move into Wal-Mart stores in the United States. In
addition, the Company continually seeks to expand its distribution
channels through various means. For example, the Company recently sold to
the Home Shopping Network its personal
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<PAGE> 22
televisions as part of a special promotion. The Home Shopping Network is
planning additional promotions of certain of the Company's products in the
Fall of 1998. In addition, the Company will attempt to enter selected
international markets in Mexico, South America and Central America in the
year 2000. Management believes there are significant opportunities in such
markets. To date, the Company has not entered such markets due to limited
financial and human resources. With the increased growth of the middle
class in such countries, the Company believes that there are significant
opportunities in such markets. To gain entrance in such markets, the
Company intends to hire additional sales representatives to focus on such
markets and to utilize its contacts with existing customers who already
have a presence in such areas.
- INCREASE PENETRATION AND SALES TO EXISTING UNITED STATES CUSTOMERS. In
the short period in which the Company has focused significant marketing
efforts in the United States, it has established relationships with
several major retailers. The Company plans to focus its efforts on
broadening its product selection being sold by these retailers and
substantially increasing the dollar volume of sales to these existing
customers.
- ACQUIRE AND LICENSE ADDITIONAL PRODUCTS. Discount retail chains and mass
merchants limit the number of vendors with which they deal, preferring to
deal with a limited number of vendors with a wide range of products.
However, the Company has an extensive line of products and strives to
fill substantially all of its customers' electronic requirements. The
Company believes that there are a number of companies which have a
superior niche type product, but have a limited line of customer
electronics products, which makes it difficult to sell their product to
mass merchants and discount chain stores because of their reluctance to
deal with a supplier with a limited number of products. By entering into
arrangements with or acquiring these small companies, the Company can add
to its already wide selection of consumer electronic products.
- DEVELOP STRATEGIC ALLIANCES. The Company intends to develop strategic
alliances with large discount chain stores and mass merchants. Management
believes that many retailers whose primary business is not consumer
electronics look for a strategic alliance with a vendor who has the
experience, customer service and product selection to create a successful
consumer electronics program in their stores. Development of strategic
alliances whereby the Company provides these services in exchange for
commitments to stock and sell the Company's products will assist the
Company in the establishment of long-term relationships with such
discount chain stores and mass merchants.
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<PAGE> 23
PRODUCTS
The Company designs, distributes and markets quality value-priced consumer
electronics products, including telephones, audio equipment, personal
televisions, radios and computer accessories, to a wide variety of customers.
The Company currently offers over 150 models of consumer electronic products.
The Company's core business currently consists of the following consumer
electronic products:
<TABLE>
<S> <C>
TVS HOME AND PORTABLE AUDIO PRODUCTS
- - Portable black and white TVs - Home audio systems with single CD player
- - Portable combination TV/Audio products - Home audio systems with CD changer systems
- Portable AM/FM cassette systems
TELEPHONE PRODUCTS - Portable CD systems with detachable
- - Corded and cordless telephones speakers
- - "Feature" telephones - Portable CD stereo systems
- - Answering machines - Portable CD changer stereo systems
- - Combination telephone/answering machines - Personal CD players
- - Telephone clock radios - Personal cassette players
- - Caller ID systems
- Personal sports electronics products
COMPUTER ACCESSORIES designed for use when exercising or
- - Ergonomically designed keyboards traveling
- - Mouse attachments - Portable radios
- Electronic clock radios
- Electronic clock radios with CD players
- Electronic clock radios with cassette
players
- Hand-held micro cassette recorders
</TABLE>
PRODUCT DESIGN AND DEVELOPMENT
Value-priced consumer electronic products typically do not have unique or
innovative technical features. Competition in this segment is therefore more
dependent on product design, visual appeal and price. As such, the Company
recognizes that superior product design provides an important competitive
advantage. The Company believes that the superior design and style of its
products distinguish them from those of its competitors in the value-priced
category and help drive consumer purchasing decisions.
Management believes that the enhancement and extension of the Company's
existing products and the development of new product categories have contributed
significantly to the Company's growth to date and are necessary for the
Company's continued success and growth. The Company's product design and
engineering team, along with its outside graphic and design artists, evaluate
new ideas and seek to develop new products and improvements to existing products
to satisfy industry requirements and changing consumer preferences. The Company
selects design and manufacturing specifications that adapt and implement
available technology features to satisfy its customers' requirements for
quality, product mix and pricing. Company employees work closely with both
retailers and suppliers to identify trends in consumer preferences and to
generate new product ideas.
In addition, the Company highlights the design and style features of its
products with detailed descriptions and illustrations on packaging, which the
Company believes further distinguishes its products from those of its
competitors. The Company believes that this packaging strategy makes its
products more attractive to consumers and facilitates an understanding of the
product features in retail locations where salespersons may not be available to
provide detailed explanations and demonstrations.
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<PAGE> 24
SALES AND DISTRIBUTION
The Company sells its products in Canada and the United States to mass
merchandisers such as Wal-Mart (Canada), Ames and Bradlees; drug store chains
such as Rite-Aid and London Drugs; and specialty marketers such as QVC and the
Home Shopping Network. The Company does not have long-term contracts with any of
its customers, but rather receives orders on an ongoing basis. Products imported
by the Company are shipped by ocean freight and stored in the Company's
warehouse or contracted public warehouse facilities, for shipment to customers.
All merchandise received by the Company is automatically updated into the
Company's inventory system.
The Company has implemented an integrated system to coordinate purchasing,
sales and distribution segments of its operations. The Company is equipped to
receive orders from its major accounts electronically or by the conventional
modes of facsimile, telephone or mail. The Company is in the process of
upgrading its management information system ("MIS"), which management believes
will increase the efficiency of the Company's distribution efforts. The
Company's new MIS will allow the Company to track its customers inventory levels
and help its customers identify their more popular and profitable items. This
added service will allow the Company to take a more active role in its
customers' electronics business and will help them maintain sufficient inventory
levels. See "Use of Proceeds."
The Company also makes available to its customers a direct import program,
pursuant to which products are imported directly by the Company's customers. To
date, sales in such manner have been limited. Sales under such plan are made at
a reduced cost but also result in savings to the Company. These savings result
from the customer opening its line of credit directly to the manufacturer,
allowing the manufacturer to ship the goods directly to the customer. Under such
arrangement the Company does not incur any interest cost under its line of
credit or for any shipping costs.
MARKETING
The Company's strategy is to initially gain entrance to new accounts with
one or two of its products, and thereafter develop such account. The Company's
goal is to ultimately become its customers' primary consumer electronics
supplier.
The Company does not undertake any direct advertising. However, the
Company's retail customers place advertisements that generally promote the
Company's brand names in newspapers and other publications, catalogs, flyers and
by displaying point-of-purchase advertising. Under such co-op advertising
arrangements, the Company generally pays the customer a small percentage of
sales by the retailer of the Company's products featured in such advertising.
The Company markets its products to retailers at trade shows, including the
Consumer Electronics Show held in Las Vegas, Nevada in January of each year.
Aaron Herzog, the Company's President, has established significant contacts
and is directly responsible for handling the accounts of the Company's primary
customers. The Company intends to utilize a portion of the Offering proceeds to
retain additional in-house sales personnel who can expand upon Mr. Herzog's
existing relationships.
A portion of the Company's sales are made through independent sales
representatives, which receive sales commissions and work closely with Company
sales personnel. The Company has 11 independent sales representatives based in
Canada and the United States. The outside sales representatives also sell, in
addition to the Company's products, allied, but generally non-competitive
products. In most instances, either party may terminate a sales representative
relationship on 30 days prior notice in accordance with customary industry
practice.
MANUFACTURING
The Company is responsible for the final design and specifications of all
of its products. Actual assembly is performed by one of its independent
manufacturers in accordance with specifications mandated by the Company.
During Fiscal 1998 and Fiscal 1997, the Company's three largest independent
manufacturers, which are located in China, supplied approximately 17.0% of the
Company's total products. The Company changes
23
<PAGE> 25
suppliers from time to time as market conditions require. Substantially all of
these suppliers assemble products with components that they purchase from third
parties who manufacture these types of components. The Company has no agreement
with the component suppliers. The Company believes that this is the standard
method of operating and contracting for the manufacture of products in the
consumer electronics industry. During production, the Company's employees
coordinate with the independent manufacturers' facilities to monitor and
facilitate timely manufacture and delivery of products produced to the Company's
specifications.
The Company considers its relationships with its independent manufacturers
and component suppliers to be good and believes that, absent extreme
circumstances affecting the supply of materials or the demand on manufacturing
time, the supply of products will be available when needed. The Company does not
maintain long-term purchase contracts with manufacturers and operates
principally on a purchase order basis. The Company believes that it is not
currently dependent on any single manufacturer for any of its products, and that
the loss of any one manufacturer would not have a long-term material adverse
effect on the Company because other independent manufacturers with which the
Company does business would be able to increase production to fulfill the
Company's requirements. However, the loss of a significant supplier could, in
the short-term, materially and adversely affect the Company's business until
alternative supply arrangements could be secured. See "Risk Factors--Dependence
on Third Party Manufacturers and Suppliers."
QUALITY CONTROL
The Company employs a quality control inspector who inspects the Company's
products before each shipment is sent from its manufacturers to ensure that such
products meet both the Company's quality standards and industry standards.
Additionally, the Company's quality control team does a second quality control
inspection when its products arrive in either the United States or Canada. If
the Company's quality control team feels that the tested products do not meet
both the Company's standards and industry standards, such products are not
accepted by the Company for shipment to its customers and are returned to the
manufacturer, without any expense to the Company.
PRODUCT RETURNS AND WARRANTY CLAIMS
The Company offers its customers limited warranties comparable to those
offered to retailers by its competitors and accepts returns from its customers
in accordance with customary industry practices, on most of its products. If a
low priced item is returned, the Company generally does not repair the item, but
will generally return it to the manufacturer for either credit or exchange.
Higher priced items returned to the Company are generally repaired with parts
supplied by the manufacturer. The Company generally has the ability to return
all defective products to the manufacturer for either credit or exchange.
BACKLOG
From time-to-time, the Company has substantial orders from customers on
hand. Management believes, however, that backlog is not a significant factor in
its operations. As of August 6, 1998, the Company had a backlog of approximately
$6,800,000. Backlog consists of purchase orders and commitments which are to be
filled within the next two months. However, since orders and commitments may be
rescheduled or canceled, management believes that backlog is an inconclusive
indicator of future financial performance. Notwithstanding the foregoing, the
ability of management to correctly anticipate and provide for inventory
requirements is essential to the successful operation of the Company's business.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Certain Transactions."
TRADEMARKS
The Company has trademarked the names "Curtis" and "CTP Worx" in Canada and
has applied for such trademarks in the United States and other countries. The
Company intends to renew all such trademarks before their expiration. The
Company does not consider the "Curtis" and "CTP Worx" trademarks to be of
material importance to its business.
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<PAGE> 26
REGULATION
Most of the Company's customers (as well as several state and local
authorities) require that the Company's products meet the electrical safety
standards of the Underwriters Laboratories, Inc. The Company ensures that all of
its products sold in Canada and the United States which require electrical
safety approval are registered with either the Underwriters Laboratories, Inc.,
Canadian Standards Association or Warnock Hersey. Certain of the Company's
products sold for use in the United States must be registered with and approved
by the FCC. Products sold in Canada must comply with the standards of the
Canadian Standards Association. The Company has not experienced difficulty in
satisfying such standards.
COMPETITION
The consumer electronics industry is extremely competitive and is dominated
by large well-capitalized companies. The Company competes with the entire
electronics industry for consumer dollars, shelf space and promotional displays
for products and sales support. The Company's competitors may not rely on
external financing or relationships with independent manufacturers to the same
extent as the Company. Furthermore, the Company's competitors may have cost
advantages depending on labor costs, currency exchange rates and other factors
in the countries where their manufacturing operations take place, relative to
the countries where the Company's products are manufactured. The Company has
adopted a marketing strategy that targets the value-priced segment of the
consumer electronics market, which is particularly price sensitive. There is
competition among a number of brands in this market, including Emerson, Newtech
and GPX, as well as foreign-based manufacturers and distributors. In addition,
although General Electric, Sony, Aiwa and Panasonic brand products are not
currently emphasized in the value-priced segment of the market, they do compete
with the Company's products for consumer dollars, shelf space and sales support.
To the extent that these brands compete directly with the Company's brands on
the basis of price, or their product prices were otherwise reduced, the
Company's ability to market and sell competitive products could be severely
affected, which would have a material adverse effect on the Company's business,
financial condition and results of operations.
EMPLOYEES
As of May 31, 1998, the Company employs 37 persons, which include two
senior executives, four administrative personnel, 17 support staff, and 14
full-time non-unionized hourly laborers. One of the Company's employees is
located in Asia. The Company believes that its relationships with its employees
are good. The Company is not party to any collective bargaining agreement, nor
is the Company aware of any effort to organize employees of the Company into any
union or similar organization.
25
<PAGE> 27
PROPERTIES
The Company leases the following premises:
<TABLE>
<CAPTION>
CURRENT
LOCATION ADDRESS EXPIRATION DATE SQUARE FEET ANNUAL RENT
-------- ----------------------------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
Toronto, Ontario 7 Kodiak Crescent (Principal August 31, 1998* 38,500 Cdn$148,225
Executive Offices and Warehouse)
Toronto, 300 Steeprock Drive (Warehouse) April 30, 1999 20,000 Cdn$110,000
Ontario.......
Montreal, Quebec 8170 Montview (Sales and Marketing) October 31, 1998 2,500 Cdn$ 20,375
</TABLE>
* The Company is negotiating an extension of the lease on the executive offices
and warehouse facility at such premises until March 31, 1999. There can be no
assurance that the Company will receive such extension.
All of the premises the Company presently occupies are leased. Management
believes its current facilities are adequate and suitable for its present
business, but is seeking larger space to consolidate its warehouses and
principal executive office into one facility in Toronto, Canada, to facilitate
its expected growth. Although no facility has yet been identified, the Company
intends to use a portion of the net proceeds of this Offering to pay the
expenses associated with such relocation. See "Use of Proceeds."
The Company also receives shipment of its products from its manufacturers
at 100 Sonwil Drive, Buffalo, New York, an independently operated distribution
center which ships the Company's products to certain of the Company's customers.
The Company does not lease or own such facility but rather pays a usage charge
for each case of product shipped to such location. The Company owns a
condominium in Florida which it is actively seeking to sell. Management
anticipates selling the condominium within 90 days from the date of this
Prospectus, although there can be no assurance thereof.
LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
26
<PAGE> 28
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Directors
and Executive Officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Aaron Herzog............................. 37 President, Chief Executive Officer and Director
Jacob Herzog............................. 46 Chairman, Treasurer, Secretary and Director
Louis Drazin............................. 62 Director
David Ben David.......................... 36 Director
</TABLE>
Set forth below is a biographical description of each director and
executive officer of the Company based on information supplied by each of them.
AARON HERZOG is a co-founder of Curtis International Ltd., and has served
as the Company's President, Chief Executive Officer and Director since its
formation in 1990. Mr. Herzog also acts as sales director of the Company. Mr.
Herzog earned a degree in Management from McGill College in 1981.
JACOB HERZOG is a co-founder of Curtis International Ltd., and has served
as the Company's Chairman, Treasurer, Secretary and Director since its formation
in 1990. Mr. Herzog has been in the consumer electronics business since the
early 1970's.
LOUIS DRAZIN has been a Director of the Company since August 1998. From
1961 - present, Mr. Drazin has been a Senior Partner at Drazin, Ouaknine &
Friedman, Notaries. From 1990 - present he has been a senior executive at Shutam
Canada Inc., a real estate acquisition, investment and development company. Mr.
Drazin graduated from McGill University in 1957 with a B.A. with honors in
economics and political science. Mr. Drazin earned a Bachelor of Civil Law from
McGill University in 1960.
DAVID BEN DAVID has been a Director of the Company since August 1998. From
July 1990 - June 1997, Mr. David served as Vice President and Chief Financial
Officer of NSI Communications, Inc. From June 1997 - present, Mr. David has
served as President and Chief Operating Officer of NSI Communications, Inc. NSI
Communications, Inc. is a manufacturer of communications products. Mr. David
earned a B.A. in Economics in 1983 from Bar Ilan University in Israel, an M.B.A.
in 1987 from McGill University and a Public Accountant degree in 1989 from
McGill University.
Aaron Herzog and Jacob Herzog are brothers. There are no other family
relationships among the Company's directors and executive officers.
The term of office of each Director is until the next annual meeting of
stockholders and until a successor is elected and qualified or until the
Director's earlier death, resignation or removal from office. Executive officers
hold office until their successors are chosen and qualified, subject to earlier
removal by the Board of Directors.
For the period of three years after the Effective Date, the Representative
shall have the right to designate a nominee to the Company's Board of Directors.
See "Underwriting." Immediately after the Effective Date, the Company intends to
appoint James S. Cassel as the nominee of the Representative. Mr. Cassel is a
shareholder, executive officer and director of the Representative.
Following the Offering, the Company intends to retain a Chief Financial
Officer with public company experience and a Vice President of Marketing. The
Company is actively seeking to fill such positions.
COMMITTEES OF THE BOARD
The Company's Board of Directors will have an Audit Committee, comprised of
Jacob Herzog, Louis Drazin and David Ben David, and a Compensation Committee,
comprised of Aaron Herzog, Louis Drazin and David Ben David.
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<PAGE> 29
COMPENSATION OF DIRECTORS
The Company has not paid compensation to any director for acting in such
capacity. The Company is currently reviewing its policy on compensation of
outside directors and may pay outside directors in the future.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by the Company during each of the last three fiscal years to the Company's
Chief Executive Officer and to each of the Company's executive officers who
earned in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
- --------------------------- ---- ------ ----- ---------------
<S> <C> <C> <C> <C>
Aaron Herzog(2), President,.............................. 1998 $28,000 $0 $177,192
Chief Executive Officer................................ 1997 28,000 0 213,962
and Director........................................... 1996 30,000 0 53,220
Jacob Herzog(3), Chairman,............................... 1998 $34,000 $0 $177,192
Treasurer, Secretary and............................... 1997 33,000 0 213,963
Director............................................... 1996 36,000 0 53,220
</TABLE>
- ------------------------------
(1) Represents compensation paid to corporations (AEG Trading Limited and
Worldwide Holdings Limited) controlled by such persons solely for providing
the full time services of Messrs. Aaron and Jacob Herzog. See "Certain
Transactions."
(2) In addition, Aaron Herzog's wife received annual compensation of $35,000 in
each of the years 1996, 1997 and 1998 in her capacity as an administrative
assistant at the Company.
(3) In addition, Jacob Herzog's wife received annual compensation of $35,000 in
each of the years 1996, 1997 and 1998 in her capacity as an administrative
assistant at the Company.
EMPLOYMENT AGREEMENTS
Effective June 1, 1998, the Company entered into two year employment
agreements with each of Aaron Herzog and Jacob Herzog. Such employment
agreements provide for annual salaries of $175,000 with an annual bonus of
$25,000 if the Company achieves gross revenues of $32,430,000 and $1,657,000 in
net income for the year ended May 31, 1999 and gross revenues of $45,120,000 and
$2,354,000 in net income for the year ended May 31, 2000. In addition, each is
entitled to a $1,000 per month car allowance.
STOCK OPTION PLAN
The Plan will be administered by the compensation committee or the Board of
Directors, who determine among other things, those individuals who shall receive
options, the time period during which the options may be partially or fully
exercised, the number of shares of Common Stock issuable upon the exercise of
the options and the option exercise price.
The Plan is effective for a period for ten years, expiring in 2008. Options
may be granted to officers, directors, consultants, key employees, advisors and
similar parties who provide their skills and expertise to the Company. The Plan
is designed to enable management to attract and retain qualified and competent
directors, employees, consultants and independent contractors. Options granted
under the Plan may be exercisable for up to ten years, require a minimum two
year vesting period, and shall be at an exercise price all as determined by the
Board. Options are non-transferable except by the laws of descent and
distribution or a change in control of the Company, as defined in the Plan, and
are exercisable only by the participant during his or her lifetime. Change in
control includes (i) the sale of substantially all of the assets of the Company
and merger or consolidation with another Company, or (ii) a majority of the
Board changes other than by election by the stockholders pursuant to Board
solicitation or by vacancies filled by the Board caused by death or resignation
of such person.
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If a participant ceases affiliation with the Company by reason of death,
permanent disability or retirement at or after age 70, the option remains
exercisable for one year from such occurrence but not beyond the option's
expiration date. Other types of termination allow the participant three months
to exercise, except for termination for cause which results in immediate
termination of the option.
The exercise price of an option may not be less than the fair market value
per share of Common Stock on the date that the option is granted in order to
receive certain tax benefits under the Income Tax Act of Canada (the "ITA"). The
ITA requires that the exercise price of all future options will be at least 85%
of the fair market value of the Common Stock on the date of grant of the
options. A benefit equal to the amount by which the fair market value of the
shares at the time the employee acquires them exceeds the total of the amount
paid for the shares or the amount paid for the right to acquire the shares shall
be deemed to be received by the employee in the year the shares are acquired
pursuant to paragraph 7(1) of the ITA. Where the exercise price of the option is
equal to the fair market value of the shares at the time the option is granted,
paragraph 110(1)(d) of the ITA allows a deduction from income equal to one
quarter of the benefit as calculated above. If the exercise price of the option
is less than the fair market value at the time it is granted, no deduction under
paragraph 110(1)(d) is permitted. Options granted to any non-employees, whether
directors or consultants or otherwise will confer a tax benefit in contemplation
of the person becoming a stockholder pursuant to subsection 15(1) of the ITA.
The Company, however, has agreed not to grant any options under the Plan at less
than 100% of the fair market value of the Common Stock. Additionally, the
Company has agreed to limit the amount of options granted pursuant to the Plan
to Aaron Herzog and Jacob Herzog to an aggregate of 100,000 options, 50,000 of
which options have been granted and vest over a two-year period but are not be
exercisable for at least six months after the Effective Date. The options are
exercisable at $5.00 per share.
Options may not be transferred by an optionee other than by will or the
laws of descent and distribution, and, during the lifetime of an optionee, the
option will be exercisable only the optionee.
Options under the Plan must be issued within ten years from the effective
date of the Plan.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the Company become available again for issuance under
the Plan.
The Plan may be terminated or amended at any time by the Board of
Directors, except that the number of shares of Common Stock reserved for
issuance upon the exercise of options granted under the Plan may not be
increased without the consent of the stockholders of the Company.
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<PAGE> 31
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information, as of the date hereof,
and as adjusted to give effect to the Offering and the transactions contemplated
thereby, with respect to the beneficial ownership of the Common Stock by (i)
each person known to the Company to beneficially own more than 5% of the
outstanding shares of Common Stock, (ii) each executive officer and director of
the Company and (iii) all executive officers and directors of the Company as a
group:
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY OWNED
NUMBER OF SHARES OF --------------------
NAME AND ADDRESS OF COMMON STOCK BEFORE AFTER
BENEFICIAL OWNER(1) BENEFICIALLY OWNED OFFERING OFFERING
------------------- ------------------- -------- --------
<S> <C> <C> <C>
Aaron Herzog(2)(5)...................................... 1,774,000 47.9% 34.1%
Jacob Herzog(3)(5)...................................... 1,774,000 47.9% 34.1%
Ranch Limited(4)........................................ 152,000 4.1% 0.0%
Louis Drazin............................................ 0 -- --
David Ben David......................................... 0 -- --
All Executive Officers and Directors as a Group (4
persons).............................................. 3,548,000 95.8% 68.2%
</TABLE>
- ------------------------------
(1) Unless otherwise indicated, the address is c/o Curtis International Ltd, 7
Kodiak Crescent, Downsview, Ontario M3J 3E5.
(2) Consists of 1,689,208 shares of Common Stock owned directly by Aaron Herzog
and 84,792 shares of Common Stock owned by the A&E Herzog Family Trust of
which Aaron Herzog and Evelyn Fisher Herzog are the Trustees.
(3) Consists of 1,663,882 shares of Common Stock owned by Jacob Herzog and
110,118 shares of Common Stock owned by the Herzog Family Trust of which
Jacob Herzog, Beatrice Herzog and Aaron Grubner are the Trustees.
(4) The beneficial owner of Ranch Limited, the Selling Stockholder, is Tzvi
Ralbag, the son-in-law of Jacob Herzog, and is not an employee of the
Company. Ranch Limited will sell 152,000 shares of its Common Stock in this
Offering, which represents all of the shares of Common Stock owned by Ranch
Limited.
(5) Aaron and Jacob Herzog are parties to a voting trust agreement which
provides that they will vote their shares together.
CERTAIN TRANSACTIONS
Aaron Herzog and Jacob Herzog advanced monies to the Company, which
advances are evidenced by promissory notes which are non-interest bearing to May
31, 1998. Had such advances been valued at the current value of cash flows at
the Company's current rate of borrowing, the advances would have been valued at
$725,303 in 1998, $832,295 in 1997 and $761,575 in 1996. As of June 1, 1998 the
advances bear interest at the rate of 8% per annum and are repayable in six
quarterly installments in the 18 month period after the Offering. The repayment
of such loans on a quarterly basis is contingent on the Company reporting
profitability for such quarter on a post-tax basis and the Company obtaining the
consent of CIBC to such repayment. The loans were utilized for working capital
to fund the Company's expansion.
During Fiscal 1998, Fiscal 1997 and Fiscal 1996, the Company paid an
aggregate of $354,384, $427,925 and $106,440, respectively, to companies
controlled by Aaron Herzog and Jacob Herzog. These fees were in consideration
solely for such companies providing the Company with the services of Messrs.
Aaron and Jacob Herzog. See "Management--Executive Compensation."
During 1996 and 1997, the Company occupied office and warehouse space which
was owned by Worldwide Holdings Limited ("Worldwide"), a company owned by Jacob
Herzog. The Company paid rent of $140,000 during 1996, $140,000 during 1997 and
$11,667 for the month of January 1998, to Worldwide. Additionally, the Company
guaranteed the mortgage payments due from Worldwide to a mortgage corporation in
the principal amount of $1,305,000. The guarantee was also secured by the issue
of a collateral
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<PAGE> 32
debenture containing a fixed charge and a floating charge on the assets of the
Company. On January 30, 1998, Worldwide sold the office and warehouse space to
an independent third party. The Company paid Worldwide a lease cancellation fee
of $155,926. Thus, Worldwide no longer acts as landlord to the Company. In
addition, on May 31, 1998, Worldwide was amalgamated with and into the Company.
The Company has secured a line of credit facility with Canadian Imperial
Bank of Commerce bank, which 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, with personal guarantees by Aaron Herzog and
Jacob Herzog and companies they control. The Company's line of credit extends to
$8,250,000.
In July 1998, Jacob Herzog's father-in-law loaned the Company $900,000 at
7.5% per annum. Such loan is payable on the earlier of demand or October 1,
1998.
In August 1998, Aaron and Jacob Herzog and their affiliates returned an
aggregate of 300,000 shares of Common Stock to the Company for cancellation, for
which they received no consideration.
Aaron Grubner, a former director, is a partner with the law firm of
Grubner, Krauss, which serves as counsel to the Company. The Company has paid
legal fees to Grubner, Krauss for services rendered. See "Legal Matters."
All future transactions between the Company and its officers, directors or
5% stockholders, and their affiliates, will be on terms no less favorable than
could be obtained from unaffiliated third parties.
DESCRIPTION OF SECURITIES
The total authorized capital stock of the Company consists of 15,000,000
shares of Common Stock, with no par value, and 1,000,000 shares of Preferred
Stock, with no par value per share. The following descriptions contain all
material terms and features of the Securities of the Company, are qualified in
all respects by reference to the Articles of Incorporation and Bylaws of the
Company, copies of which are filed as Exhibits to the Registration Statement of
which this Prospectus is a part.
COMMON STOCK
The Company is authorized to issue up to 15,000,000 of shares of Common
Stock, no par value per share, of which as of the date of this Prospectus,
3,700,000 shares of Common Stock are outstanding, not including the Shares
offered herein. All outstanding Shares of common stock are, and all shares of
Common Stock to be outstanding upon the closing of this Offering will be validly
authorized and issued, fully paid, and non-assessable.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Holders of Common
Stock are entitled to receive ratably dividends as may be declared by the Board
of Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of the Common
Stock are entitled to share ratably in all assets remaining, if any, after
payment of liabilities. Holders of Common Stock have no preemptive rights and
have no rights to convert their Common Stock into any other securities.
Pursuant to the Business Corporation Act, Ontario ("BCA"), a stockholder of
an Ontario Corporation has the right to have the corporation pay the stockholder
the fair market value for his shares of the corporation in the event such
stockholder dissents to certain actions taken by the corporation such as
amalgamation or the sale of all or substantially all of the assets of the
corporation and such stockholder follows the procedures set forth in the BCA.
PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance of up to
1,000,000 shares of Preferred Stock with designations, rights and preferences
determined from time to time by its Board of Directors. Accordingly, the
Company's Board of Directors is empowered, without stockholder approval, to
issue Preferred Stock with dividend, liquidation, conversion, or other rights
that could adversely affect the rights of the holders of the Common Stock.
Although the Company has no present intention to issue any shares of its
Preferred Stock, there can be no assurance that it will not do so in the future.
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<PAGE> 33
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this Offering, the Company will have 5,198,000
shares of Common Stock outstanding. In addition, the Company has reserved for
issuance 400,000 shares upon the exercise of options eligible for grant under
the Plan, 50,000 of which have been granted. Of the shares to be issued and
outstanding after this Offering, the 1,650,000 Shares offered hereby (plus any
additional Shares sold upon exercise of the Over-Allotment Option) will be
freely tradeable without restriction or further registration under the Act,
except for any shares purchased or held by an "affiliate" of the Company (in
general, a person who has a control relationship with the Company) which will be
subject to the limitations of Rule 144 adopted under the Act ("Rule 144"). The
remaining 3,548,000 shares of Common Stock are "restricted securities" as that
term is defined under Rule 144, and may not be sold unless registered under the
Act or exempted therefrom. All of the 3,548,000 restricted shares are currently
eligible to be sold in accordance with the exemptive provisions and the volume
limitations of Rule 144, however, the owners of such shares have agreed with the
Representative not to offer, sell or otherwise dispose of their shares until 18
months from the Effective Date without the consent of the Representative, except
pursuant to gifts or pledges in which the donee or pledgee agrees to be bound by
such restrictions. These agreements are enforceable only by the parties thereto,
and are subject to rescission or amendment at any time without approval of other
stockholders.
Sales of the Company's Common Stock by certain of the present stockholders
in the future, under Rule 144, may have a depressive effect on the price of the
Company's Common Stock.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following describes the principal United States federal income tax
consequences of the purchase, ownership and disposition of the Common Stock by a
stockholder, that is a citizen or resident of the United States or a United
States domestic corporation or that otherwise will be subject to United States
federal income tax (a "U.S. Holder"). This summary is based on the United States
Internal Revenue Code of 1986, as amended (the "Code"), administrative
pronouncements, judicial decisions and existing and proposed Treasury
Regulations, changes to any of which subsequent to the date of this Prospectus
may affect the tax consequences described herein. This summary discusses only
the principal United States federal income tax consequences to those beneficial
owners holding the securities as capital assets within the meaning of Section
1221 of the Code and does not address the tax treatment of a beneficial owner
that owns 10% or more of the Common Stock. It is for general guidance only and
does not address the consequences applicable to certain specialized classes of
taxpayers such as certain financial institutions, insurance companies, dealers
in securities or foreign currencies, or United States persons whose functional
currency (as defined in Section 985 of the Code) is not the United States
dollar. Persons considering the purchase of these securities should consult
their tax advisors with regard to the application of the United States and other
income tax laws to their particular situations. In particular, a U.S. Holder
should consult his tax advisor with regard to the application of the United
States federal income tax laws to his situation.
COMMON STOCK
A U.S. Holder generally will realize, to the extent of the Company's
current and accumulated earnings and profits, foreign source ordinary income on
the receipt of cash dividends, if any, on the Common Stock equal to the United
States dollar value of such dividends determined by reference to the exchange
rate in effect on the day they are received by the U.S. Holder (with the value
of such dividends computed before any reduction for any Canadian withholding
tax). U.S. Holders should consult their own tax advisors regarding the treatment
of foreign currency gain or loss, if any, on any dividends received which are
converted into United States dollars on a date subsequent to receipt. Subject to
the requirements and limitations imposed by the Code. a U.S. Holder may elect to
claim Canadian tax withheld or paid with respect to dividends on the Common
Stock as a foreign credit against the United States federal income tax liability
of such holder. Dividends on the Common Stock generally will constitute "passive
income" or, in the case of certain U.S.
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<PAGE> 34
Holders, "financial services income" for United States foreign tax credit
purposes. U.S. Holders who do not elect to claim any foreign tax credits may
claim a deduction for Canadian income tax withheld. Dividends paid on the Common
Stock will not be eligible for the dividends received deduction available in
certain cases to United States corporations.
Upon a sale or exchange of a share of Common Stock, a U.S. Holder will
recognize gain or loss equal to the difference between the amount realized on
such sale or exchange and the tax basis of such Common Stock.
Generally, any gain or loss recognized as a result of the foregoing will be
a capital gain or loss and will either be long-term or short-term depending upon
the period of time the Common Stock sold or exchanged, as the case may be, was
held.
THIS SUMMARY IS OF GENERAL NATURE ONLY AND IS NOT INTENDED TO BE, AND
SHOULD NOT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PROSPECTIVE INVESTOR
AND NO REPRESENTATION WITH RESPECT TO THE TAX CONSEQUENCES TO ANY PARTICULAR
INVESTOR IS MADE.
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<PAGE> 35
INVESTMENT CANADA ACT
The Investment Canada Act is a Federal Canadian statute which regulates the
acquisition of control of existing Canadian businesses and the establishment of
new Canadian businesses by an entity that is a "non-Canadian" as that term is
defined in the Investment Canada Act.
The Company believes that it is not currently a "non-Canadian" for purposes
of the Investment Canada Act. If the Company were to become a "non-Canadian" in
the future, acquisitions of control of Canadian businesses by the Company would
become subject to the Investment Canadian Act. Generally, the direct acquisition
by a "non-Canadian" of an existing Canadian business with gross assets of
Cdn$5,000,000 or more is reviewable under the Investment Canada Act, with a
threshold of Cdn$168 million for 1996 for "NAFTA investors" as defined under the
Investment Canada Act.
Indirect acquisitions of existing Canadian businesses (with gross assets
over certain threshold levels) as well as acquisitions of businesses related to
Canada's cultural heritage or national identity (regardless of the value of
assets involved) may also be reviewable under the Investment Canada Act. In
addition, acquisitions of control of existing investments to establish new,
unrelated businesses are not generally reviewable but do require that a notice
of the investment be given under the Investment Canada Act. An investment in a
new business that is related to the non-Canadian's existing business in Canada
is not notifiable under the Investment Canada Act unless such investment relates
to Canada's cultural heritage or national identity.
Investments which are reviewable under the Investment Canada Act are
reviewed by the Minister, designated as being responsible for the administration
of the Investment Canada Act. Reviewable investments may not be implemented
prior to the Minister determining that the investment is likely to be of "net
benefit to Canada" based on the criteria set out in the Investment Canada Act.
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<PAGE> 36
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, each of the Underwriters named below, for whom Barber & Bronson
Incorporated is acting as Representative, has severally agreed to purchase from
the Company and the Selling Stockholder, and the Company and the Selling
Stockholder have agreed to sell to the Underwriters, on a firm commitment basis,
the respective number of shares of Common Stock set forth below opposite each
such Underwriter's name:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Barber & Bronson Incorporated...............................
Cardinal Capital Management, Inc............................
Total....................................................... 1,650,000
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to certain conditions precedent, including
the absence of any material adverse change in the Company's business and the
receipt of certain certificates, opinions and letters from the Company and
certain certificates from the Selling Stockholder. The nature of the
Underwriters' obligation is such that they are committed to purchase and pay for
all the Shares if any are purchased.
The Underwriters have advised the Company that they propose to offer the
Shares to the public at the public offering price set forth on the cover page of
this Prospectus and that they may allow to selected dealers who are members of
the NASD, concessions of not in excess of $ per Share, of which not more
than $. per Share may be re-allowed to certain other dealers who are
members of the NASD. After the initial public offering, the public offering
prices, concessions and reallowances may be changed.
The Underwriting Agreement further provides that the Underwriters will
receive a non-accountable expense allowance of 3% of the aggregate public
offering price of the Shares sold hereunder (including any Shares sold pursuant
to the Over-Allotment Option), which allowance amounts to $247,500 (or $284,625
if the Over-Allotment Option is exercised in full), of which $25,000 has been
paid to date.
The Company has granted to the Underwriters the Over-Allotment Option,
which is exercisable for a period of 45 days after the Closing, to purchase up
to an aggregate 247,500 additional shares (up to 15% of the shares being offered
hereby) at the public offering price, less underwriting discounts and
commissions, solely to cover over-allotments, if any.
The Company has agreed to sell to the Underwriters for a nominal
consideration, the Underwriters' Warrants to purchase up to 165,000 Shares,
exclusive of the Over-Allotment Option. The Underwriters' Warrants will be
nonexercisable for one year after the date of this Prospectus. Thereafter, for a
period of four years, the Underwriters' Warrants will be exercisable at $8.25
per Share of Common Stock (165% of the initial public offering price). The
Company has agreed to file, during the four year period beginning one year from
the Effective Date of this Prospectus, on one occasion at the Company's cost, at
the request of the holders of a majority of the Underwriters' Warrants and the
underlying shares of Common Stock, and to use its best efforts to cause to
become effective, a post-effective amendment to the Registration Statement or a
new registration statement under the Securities Act, as required to permit the
public sale of Common Stock issued or issuable upon exercise of the
Underwriters' Warrants. In addition, the Company has agreed to give advance
notice to holders of the Underwriters' Warrants of its intention to file certain
registration statements commencing one year and ending four years after the
Effective Date, and in such case, holders of such Underwriters' Warrants or
underlying shares of Common Stock shall have the right to require the Company to
include all or part of such shares of Common Stock underlying such Underwriters'
Warrants in such registration statement at the Company's expense.
For the life of the Underwriters' Warrants, the holders thereof are given,
at nominal costs, the opportunity to profit from a rise in the market price of
the Company's securities with a resulting dilution in the interest of other
stockholders. Further, the holders may be expected to exercise the Underwriters'
Warrants at a time
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<PAGE> 37
when the Company would in all likelihood be able to obtain equity capital on
terms more favorable than those provided in the Underwriters' Warrants.
The Company has agreed that upon closing of this Offering, that the
Representative shall have the right to designate a nominee to the Company's
Board of Directors for a period of three years from the Effective Date. In
addition, management of the Company will obtain agreements from each of the
pre-offering stockholders to vote all shares of the Company's securities owned
by him or her, whether directly or indirectly, in favor of such nominee.
The Company has agreed to retain Catalyst Financial Corp., an affiliate of
the Representative, as the Company's financial consultant for a period of two
years to commence on the closing of this Offering, at a monthly fee of
$3,437.50, an aggregate of $82,500 (1% of the gross proceeds of the Offering),
all of which shall be payable in advance on the closing of the Offering.
Pursuant to this agreement, Catalyst Financial Corp. shall provide advisory
services related to merger and acquisition activity, corporate finance and other
matters. Catalyst Financial Corp. will be paid a fee in the event a merger,
acquisition or similar activity is undertaken by the Company.
The public offering price of the Shares offered hereby has been determined
by negotiation between the Company and the Representative. Factors considered in
determining the offering price of the Shares offered hereby included the
business in which the Company is engaged, the Company's financial condition, an
assessment of the Company's management, the general condition of the securities
markets and the demand for similar securities of comparable companies.
In connection with this Offering, the Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing their respective market
prices. The Underwriters also may create a short position for the account of the
Underwriters by selling more shares of Common Stock in connection with the
Offering than they are committed to purchase from the Company, and in such case
may purchase shares of Common Stock in the open market following completion of
the Offering to cover all or a portion of such short position. The Underwriters
may also cover all or a portion of such short position by exercising the
Over-Allotment Option. In addition, the Underwriters may impose "penalty bids"
under contractual arrangements with the Underwriters whereby it may reclaim from
an Underwriter (or dealer participating in the Offering) for the account of
other Underwriters, the selling concession with respect to shares of Common
Stock that are distributed in the Offering but subsequently purchased for the
account of the Underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
Common Stock at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required, and,
if they are undertaken they may be discontinued at any time.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
this Offering, including liabilities under the Securities Act.
The foregoing is a summary of the material terms of the Underwriting
Agreement, the Underwriters' Warrant and the Financial Consulting Agreement.
Reference is made to the copies of the Underwriting Agreement, the Underwriters'
Warrant and the Financial Consulting Agreement, which are filed as exhibits to
the Registration Statement of which this Prospectus forms a part.
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<PAGE> 38
LEGAL MATTERS
Certain legal matters relating to Canadian law, including the validity of
the issuance of the Common Stock offered herein, will be passed upon for the
Company by Grubner, Krauss, 5140 Yonge Street, Suite 1540, North York, Ontario,
Canada M2N 6L7. Aaron Grubner, a partner of Grubner, Krauss, is a director of
the Company. Certain legal matters in connection with the Offering will be
passed upon for the Company by its United States counsel, Gersten, Savage,
Kaplowitz & Fredericks, LLP, 101 East 52nd Street, New York, New York 10022.
Certain legal matters will be passed upon for the Underwriters by Broad and
Cassel, a general partnership including professional associations, 201 South
Biscayne Boulevard, Suite 3000, Miami, Florida 33131.
EXPERTS
The financial statements of the Company for each of the two fiscal years in
the periods ended May 31, 1997 and 1998, appearing in this Prospectus and
Registration Statement have been audited by Schwartz Levitsky Feldman, Chartered
Accountants, as set forth in their report thereon appearing elsewhere herein and
in the Registration Statement, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under
the Act with respect to the Common Stock offered hereby. This Prospectus omits
certain information contained in the Registration Statement and the exhibits
thereto, and references are made to the Registration Statement and the exhibits
thereto for further information with respect to the Company and the Common Stock
offered hereby. Statements contained herein concerning the provisions of any
documents are not necessarily complete, and in each instance reference is made
to the copy of such document filed as an exhibit to the Registration Statement.
Each such statement is qualified in itsentirety by such reference. The
Registration Statement, including exhibits and schedules filed therewith, may be
inspected without charge at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549 and at the regional offices of the Commission located at 7 World
Trade Center, Suite 1300, New York, New York 10048, and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such materials may be obtained from the Public Reference Section of the
Commission, Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, and its public reference facilities in New York, New York and Chicago,
Illinois upon payment of the prescribed fees. Electronic registration statements
filed through the Electronic Data Gathering, Analysis, and Retrieval System are
publicly available through the Commission's Website (http://www.sec.gov). At the
date hereof, the Company was not a reporting company under the Exchange Act.
THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS
CONTAINING AUDITED FINANCIAL STATEMENTS AND TO MAKE AVAILABLE QUARTERLY REPORTS
FOR THE FIRST THREE QUARTERS OF EACH FISCAL YEAR CONTAINING UNAUDITED INTERIM
FINANCIAL STATEMENTS.
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<PAGE> 39
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Bylaws of the Company provide that the Company shall indemnify to the
fullest extent permitted by Canadian law directors and officers (and former
officers and directors) of the Company. Such indemnification includes all costs
and expenses and charges reasonably incurred in connection with the defense of
any civil, criminal or administrative action or proceeding to which such person
is made a party by reason of being or having been an officer or director of the
Company if such person was substantially successful on the merits in his or her
defense of the action and he or she acted honestly and in good faith with a view
to the best interests of the Company, and if a criminal or administrative action
that is enforced by a monetary penalty, such person had reasonable grounds to
believe his or her conduct was lawful.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
this Offering, including liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
and the Underwriters pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses,
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person or by the Underwriters in connection
with the securities being registered, the Company will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST FOREIGN PERSONS
The Company and its officers, directors and auditors are residents of
Canada and consequently all of the assets of the Company are or may be located
outside the United States. As a result, service of process may be effected upon
the Company through the offices of Gersten, Savage, Kaplowitz & Fredericks, LLP
in New York, but it may be difficult for investors to effect service of process
within the United States upon non-resident officers and directors, or to enforce
against them judgments obtained in the United States courts predicated upon the
civil liability provision of the Securities Act or state securities laws. The
Company believes that a judgment of a United States court predicated solely upon
civil liability under the Securities Act would probably be enforceable in Canada
if the United States court in which the judgment was obtained had a basis for
jurisdiction in the matter that was recognized by a Canadian court for such
purposes. However, there is substantial doubt whether an action could be brought
in Canada in the first instance on the basis of liability predicated solely upon
such laws. If investors have questions with regard to these issues, they should
seek the advice of their individual counsel. The Company has also been informed
by its Canadian legal counsel Grubner, Krauss that, pursuant to the Currency Act
(Canada), a judgment by a court in any Province of Canada may only be awarded in
Canadian currency. Pursuant to the provision of the Courts of Justice Act
(Ontario), however, a court in the Province of Ontario shall give effect to the
manner of conversion to Canadian currency of an amount in a foreign currency,
where such manner of conversion is provided for in an obligation enforceable in
Ontario.
38
<PAGE> 40
CURTIS INTERNATIONAL LTD.
FINANCIAL STATEMENTS
AS OF MAY 31, 1998 AND 1997
TOGETHER WITH AUDITORS' REPORT
TABLE OF CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Balance Sheets.............................................. F-3
Statements of Income........................................ F-4
Statements of Cash Flows.................................... F-5
Statements of Stockholders' Equity.......................... F-6
Notes to Financial Statements............................... F-7 to F-11
</TABLE>
F-1
<PAGE> 41
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Curtis International Ltd.
We have audited the accompanying balance sheets of Curtis International
Ltd. (incorporated in Canada) as of May 31, 1998, and 1997 and the related
statements of income, cash flows and changes in stockholders' equity for the
years ended May 31, 1998, and 1997. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Curtis International Ltd. as
of May 31, 1998, and 1997 and the results of its operations and its cash flows
for the years ended May 31, 1998, and 1997, in conformity with generally
accepted accounting principles in the United States of America.
Toronto, Ontario /s/ Schwartz Levitsky Feldman
July 24, 1998 Chartered Accountants
F-2
<PAGE> 42
CURTIS INTERNATIONAL LTD.
BALANCE SHEETS
AS AT MAY 31
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
1998 1997
$ $
---------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash...................................................... 3,401,181 1,251,542
Accounts receivable (note 3).............................. 4,084,729 1,813,898
Inventory (note 4)........................................ 5,853,118 1,340,874
Prepaid expenses and sundry assets........................ 8,737 8,699
Current portion of mortgage receivable (note 5)........... 75,553 852
Income taxes recoverable.................................. -- 11,690
---------- ---------
13,423,318 4,427,555
DEFERRED ISSUE COSTS........................................ 89,845 --
MORTGAGE RECEIVABLE (note 5)................................ -- 75,552
PROPERTY, PLANT AND EQUIPMENT (note 6)...................... 172,209 176,573
---------- ---------
13,685,372 4,679,680
========== =========
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (note 7)................................ 8,729,357 1,545,656
Accounts payable (note 8)................................. 2,259,681 1,621,346
Income taxes payable...................................... 534,323 --
Current portion of advances from affiliated parties (note
9)..................................................... 483,535 --
---------- ---------
12,006,896 3,167,002
ADVANCES FROM AFFILIATED PARTIES (note 9)................... 241,768 861,425
---------- ---------
12,248,664 4,028,427
---------- ---------
SHAREHOLDERS' EQUITY
CAPITAL STOCK (note 10)..................................... 80 81
CUMULATIVE TRANSLATION ADJUSTMENT........................... (94,664) (15,215)
RETAINED EARNINGS........................................... 1,531,292 666,387
---------- ---------
1,436,708 651,253
---------- ---------
13,685,372 4,679,680
========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 43
CURTIS INTERNATIONAL LTD.
STATEMENTS OF INCOME
FOR THE YEARS ENDED MAY 31
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
1998 1997 1996
$ $ $
---------- ---------- ----------
<S> <C> <C> <C>
SALES (note 16)............................................ 27,471,613 14,914,142 14,627,378
Cost of sales............................................ 22,349,967 12,173,748 11,912,927
---------- ---------- ----------
GROSS PROFIT............................................... 5,121,646 2,740,394 2,714,451
---------- ---------- ----------
EXPENSES
Administrative........................................... 1,758,313 1,730,592 1,313,977
Selling.................................................. 1,265,906 654,978 901,220
Financial................................................ 474,154 231,445 365,577
Lease cancellation fee................................... 155,926 -- --
---------- ---------- ----------
3,654,299 2,617,015 2,580,774
---------- ---------- ----------
INCOME BEFORE INCOME TAXES................................. 1,467,347 123,379 133,677
Income taxes (note 11)................................... 602,442 30,378 33,330
---------- ---------- ----------
NET INCOME................................................. 864,905 93,001 100,347
========== ========== ==========
NET INCOME PER WEIGHTED AVERAGE SHARE...................... 0.22 0.02 0.02
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (note
10 and note 17).......................................... 4,000,000 4,000,000 4,000,000
========== ========== ==========
NET INCOME PER FULLY DILUTED SHARE......................... 0.22 0.02 0.02
========== ========== ==========
FULLY DILUTED NUMBER OF COMMON SHARES OUTSTANDING (note 10
and note 17)............................................. 4,000,000 4,000,000 4,000,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 44
CURTIS INTERNATIONAL LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
1998 1997 1996
$ $ $
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... 864,905 93,001 100,347
---------- ---------- ----------
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Amortization.......................................... 17,172 17,346 20,225
Decrease (increase) in accounts receivable............ (2,446,164) 113,840 392,022
Decrease (increase) in inventory...................... (4,734,388) 10,675 105,463
Decrease (increase) in income taxes recoverable....... 11,419 (7,113) (4,577)
Decrease (increase) in prepaid expenses and sundry
assets.............................................. (524) (2,182) 1,481
Increase (decrease) in accounts payable and accrued
expenses............................................ 749,617 826,231 (53,397)
Increase (decrease) in income taxes payable........... 551,772 -- 4,843
---------- ---------- ----------
Net cash generated by operating activities............... (4,986,191) 1,051,798 556,721
---------- ---------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment............... (35,730) -- (2,162)
Payment of mortgage receivable........................... (3,389) 872 615
---------- ---------- ----------
Net cash used in investing activities.................... (39,119) 872 (1,547)
---------- ---------- ----------
Cash flows from financing activities:
Increase (decrease) in bank indebtedness................. 7,504,507 (463,749) 7,353
Increase (decrease) in advances from affiliated
parties............................................... (92,517) 16,271 89,113
Deferred issuance costs.................................. (92,779) -- --
Redemption of Class B share.............................. (1) -- --
---------- ---------- ----------
Net cash from financing activities....................... 7,319,210 (447,478) 96,466
---------- ---------- ----------
Effect of foreign currency exchange rate changes........... (144,261) 1,260 (6,550)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents....... 2,149,639 606,452 645,090
Cash and cash equivalents
--Beginning of year...................................... 1,251,542 645,090 --
---------- ---------- ----------
--End of year............................................ 3,401,181 1,251,542 645,090
========== ========== ==========
Interest paid............................................ 408,649 142,792 202,080
========== ========== ==========
Income taxes paid........................................ 50,670 44,221 42,284
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 45
CURTIS INTERNATIONAL LTD.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31
(AMOUNTS EXPRESSED IN US DOLLARS)
<TABLE>
<CAPTION>
COMMON CUMULATIVE
STOCK RETAINED TRANSLATION
NUMBER OF AMOUNTS EARNINGS ADJUSTMENTS
SHARES $ $ $
----------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Balance as of May 31, 1995......................... 100 80 473,039 (9,923)
Foreign currency translation....................... -- -- -- (6,551)
Net income for the year............................ -- -- 100,347 --
----------- --- ----------- -------
Balance as of May 31, 1996......................... 100 80 573,386 (16,474)
Foreign currency translation....................... -- -- -- 1,259
Net income for the year............................ -- -- 93,001 --
----------- --- ----------- -------
Balance as of May 31, 1997......................... 100 80 666,387 (15,215)
Amalgamation on January 26, 1998................... 4,799,900 -- -- --
Foreign currency translation....................... -- -- -- (79,449)
Amalgamation on January 31, 1998................... (800,000) -- -- --
Net income for the year............................ -- -- 864,905 --
----------- --- ----------- -------
Balance as of May 31, 1998......................... 4,000,000 80 1,531,292 (94,664)
=========== === =========== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 46
CURTIS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998, 1997 AND 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
1. BASIS OF PRESENTATION
On January 26, 1998 Curtis International Ltd. amalgamated with Unique
Investments Ltd. and AEG Trading Ltd. to form Curtis International Ltd.
On May 31, 1998, the company amalgamated with Worldwide Holdings Ltd. to
form Curtis International Ltd.
At the time of the amalgamations the only assets of the holding companies
were shares of Curtis International Ltd. These financial statements reflect the
operations of Curtis International Ltd. for the years ended May 31, 1998, 1997
and 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
I) PRINCIPAL ACTIVITIES
The company was incorporated in Canada on December 12, 1990. The company is
principally engaged in the distribution and sales of electronics, audio visual
products and computer accessories in Canada and the United States of America.
II) 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.
III) OTHER FINANCIAL INSTRUMENTS
The carrying amount of the company's other financial instruments
approximate fair value because of the short maturity of these instruments or the
current nature of interest rates borne by these instruments.
IV) 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.
V) INVENTORY
Inventory is valued at the lower of cost and net realizable value. Cost is
determined on the average cost basis.
VI) 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.
VII) SALES
Sales represent the invoiced value of goods supplied to customers. Sales
are recognized upon delivery of goods and passage of title to customers.
F-7
<PAGE> 47
CURTIS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998, 1997 AND 1996
(AMOUNTS EXPRESSED IN US DOLLARS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
VIII) FOREIGN CURRENCY TRANSLATION
The translation of the 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.
IX) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principals in the United States of America 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 financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
3. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
1998 1997
$ $
--------- ---------
<S> <C> <C>
Accounts receivable......................................... 4,514,714 2,748,696
Less: Allowance for doubtful accounts....................... 429,985 934,798
--------- ---------
Accounts receivable, net.................................... 4,084,729 1,813,898
========= =========
</TABLE>
4. INVENTORY
Inventory is comprised entirely of finished goods.
5. MORTGAGE RECEIVABLE
The company sold land and a building owned by it on February 10, 1994. The
Company agreed to finance a portion of the purchase price and, as a result, took
back a mortgage. The details of this transaction are described below:
<TABLE>
<CAPTION>
1998 1997
$ $
------ ------
<S> <C> <C>
First mortgage, secured by land and building, due in 9
remaining monthly instalments of $577 including interest
at the rate of 8% per annum plus a final payment of
$74,945 due on February 10, 1999.......................... 75,553 76,404
Current portion............................................. 75,553 852
------ ------
Long-term portion........................................... -- 75,552
====== ======
</TABLE>
F-8
<PAGE> 48
6. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1998
-------------------------------- 1997
ACCUMULATED -------
COST AMORTIZATION NET NET
$ $ $ $
------- ------------ ------- -------
<S> <C> <C> <C> <C>
Land............................................... 29,920 -- 29,920 34,253
Condominium........................................ 119,682 29,389 90,293 108,808
Furniture and equipment............................ 56,946 41,108 15,838 22,666
Automobile......................................... 34,368 30,931 3,437 5,621
Computer equipment................................. 56,612 24,834 31,778 3,873
Leasehold improvements............................. 8,170 7,227 943 1,352
------- ------- ------- -------
305,698 133,489 172,209 176,573
======= ======= ======= =======
</TABLE>
Amortization for the year amounted to $17,172 ($17,346 in 1997 and $20,225
in 1996).
7. 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, with guarantees by the directors and
affiliated companies. An affiliated company has provided a postponement of its
loan to the company. The company's line of credit extends to $8,250,000 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.
8. ACCOUNTS PAYABLE
<TABLE>
<CAPTION>
1998 1997
$ $
--------- ---------
<S> <C> <C>
Trade payables.............................................. 322,327 700,098
Accrued expenses............................................ 1,937,354 921,248
--------- ---------
2,259,681 1,621,346
========= =========
</TABLE>
9. 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 commencing 90 days from the effective date of the
registration statement on Form SB-2. Had the advances been valued at the current
value of cash flows at the company's current rate of borrowing the advances
would have been valued at $725,303 in 1998 and $832,295 in 1997. Interest of
$50,603 would have been imputed for 1998 and interest of $54,448 would have been
imputed for 1997.
10. CAPITAL STOCK
AUTHORIZED
15,000,000 Common Shares.
ISSUED
<TABLE>
<CAPTION>
1998 1997
$ $
---- ----
<S> <C> <C>
100 Common shares (old)..................................... -- 80
1 Class B share (old)....................................... -- 1
4,000,000 Common shares..................................... 80 --
-- --
80 81
== ==
</TABLE>
F-9
<PAGE> 49
On January 26, 1998 Curtis International Ltd. amalgamated with Unique
Investments Ltd. and AEG Trading Ltd. to form Curtis International Ltd. The
common shares previously outstanding were cancelled and 4,800,000 common shares
(new) were issued. On May 31, 1998, the company amalgamated with Worldwide
Holdings Limited to form Curtis International Limited. As part of this
amalgamation, the common shares previously issued were cancelled and 4,000,000
common shares (new) were issued. The above transactions were accounted for using
the purchase method.
Subsequent to May 31, 1998, the company redeemed 300,000 common shares at
no consideration. As a result 3,700,000 common shares (new) are outstanding. The
net income per weighted average common share is $0.23 in 1998 and $0.03 in 1997
based on a weighted average number of common shares outstanding of 3,700,000.
The Board of Directors have adopted a stock option plan pursuant to which
400,000 shares of common stock are provided for issuance.
11. INCOMES TAXES
<TABLE>
<CAPTION>
1998 1997 1996
$ $ $
------- ------- -------
<S> <C> <C> <C>
a) Current.............................................. 602,442 30,378 33,330
======= ======= =======
b) Current income taxes consist of:
Amount calculated at basic Federal and Provincial
rates................................................ 611,490 28,179 30,532
Permanent and other differences...................... -- 2,199 2,798
Timing differences................................... (9,048) -- --
------- ------- -------
602,442 30,378 33,330
======= ======= =======
</TABLE>
12. LEASE COMMITMENT
Minimum payments under the company's operating leases for premises,
exclusive of certain operating costs for which the company is responsible for
1999 is $51,958. The lease expires November 30, 1998.
13. TRANSACTION WITH AFFILIATED COMPANIES
<TABLE>
<CAPTION>
1998 1997 1996
$ $ $
------- ------- -------
<S> <C> <C> <C>
Management fees......................................... 354,384 427,925 106,440
Rent expense............................................ 66,154 102,587 102,767
Occupancy costs......................................... 51,114 71,132 78,203
</TABLE>
14. CONTINGENT LIABILITIES
The company's products are purchased overseas. The payment arrangement is
done through letters of credit. Once the product leaves the country of origin,
the liability is recognized by the company and results in an accepted letter of
credit. The company was contingently liable to the bank for unaccepted letters
of credit of approximately $2,997,000 as at May 31, 1998.
15. COMPARATIVE FIGURES
Certain figures in the 1997 financial statements have been reclassified to
conform with the basis of presentation used in 1998.
F-10
<PAGE> 50
16. SEGMENTED INFORMATION
A) SALES TO MAJOR CUSTOMERS
<TABLE>
<CAPTION>
1998 1997 1996
$ $ $
---------- ---------- ----------
<S> <C> <C> <C>
Company A........................................ 8,769,276 4,216,435 3,698,720
Company B........................................ 3,421,958 2,848,573 2,610,476
Company C*....................................... -- 1,467,330 1,973,312
---------- ---------- ----------
12,191,234 8,532,338 8,282,508
========== ========== ==========
Percentage of total sales........................ 44% 57% 57%
Accounts receivable due from major customers..... $2,814,165 $1,448,283 $1,354,947
Percentage of total accounts receivable.......... 69% 80% 70%
</TABLE>
Ongoing credit evaluations of each customer's financial condition are
performed and, generally, no collateral is required. The company maintains
reserves for potential credit losses and such losses, in the aggregate, have not
exceeded management's expectations.
* In 1998, sales to such customer were less than 10% of the Company's
revenues.
B) SALES BY GEOGRAPHIC AREA
<TABLE>
<CAPTION>
1998 1997 1996
$ $ $
---------- ---------- ----------
<S> <C> <C> <C>
Canada........................................... 15,754,678 12,697,084 13,371,272
United States of America......................... 11,716,935 2,217,058 1,256,106
---------- ---------- ----------
27,471,613 14,914,142 14,627,378
========== ========== ==========
</TABLE>
C) NET INCOME BY GEOGRAPHIC AREA
The company's accounting records do not readily provide information on net
income by geographic area. Management is of the opinion that the proportion of
net income based principally on sales, presented below, would fairly present the
results of operations by geographic area.
<TABLE>
<CAPTION>
1998 1997 1996
$ $ $
------- ------ -------
<S> <C> <C> <C>
Canada................................................... 495,782 80,860 91,730
United States of America................................. 369,123 12,141 8,617
------- ------ -------
864,905 93,001 100,347
======= ====== =======
</TABLE>
D) IDENTIFIABLE ASSETS BY GEOGRAPHIC AREA
All identifiable assets were located in Canada for 1998, 1997 and 1996.
E) PURCHASES FROM MAJOR SUPPLIERS
<TABLE>
<CAPTION>
1998 1997 1996
$ $ $
---------- ---------- ----------
<S> <C> <C> <C>
Purchases from major suppliers................... 3,754,794 2,093,884 2,275,563
Percentage of total purchases.................... 17% 17% 19%
Accounts payable due to major suppliers.......... 368,141 288,629 128,809
Percentage of total accounts payable............. 16% 18% 16%
</TABLE>
17. SUBSEQUENT EVENTS
Subsequent to year end, the Company redeemed 300,000 common shares at no
consideration. See note 10 for details.
F-11
<PAGE> 51
[PICTURE OF COMPANY'S PRODUCTS]
<PAGE> 52
No underwriter, dealer,
salesman or other person has been
authorized to give any information
or to make any representations other
than those contained in this
Prospectus, and, if given or made,
such information or representation
must not be relied upon as having
been authorized by the Company. This
Prospectus does not constitute an
offer or solicitation to any person
in any jurisdiction where such offer
or solicitation would be unlawful.
Neither delivery of this Prospectus
nor any Common Stock sale hereunder
shall, under any circumstances,
create any implication that there
has been no change in the affairs of
the Company since the date hereof.
- --------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
The Offering........................... 6
Summary Combined Financial
Information.......................... 7
Risk Factors........................... 8
Dilution............................... 14
Capitalization......................... 15
Use of Proceeds........................ 16
Dividend Policy........................ 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 17
Business............................... 20
Management............................. 27
Principal and Selling Stockholder...... 30
Certain Transactions................... 30
Description of Securities.............. 31
Shares Eligible for Future Sale........ 32
Certain United States Federal Income
Tax Considerations................... 32
Investment Canada Act.................. 34
Underwriting........................... 35
Legal Matters.......................... 37
Experts................................ 37
Additional Information................. 37
Indemnification for Securities Act
Liabilities.......................... 38
Enforceability of Civil Liabilities
Against Foreign Persons.............. 38
Financial Statements................... F-1
- -----------------------------------------------
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE
DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN
THE COMPANY'S SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS
OR SUBSCRIPTIONS.
LOGO
CURTIS INTERNATIONAL LTD.
1,650,000 SHARES OF COMMON STOCK
----------------------------------------------------------------
PROSPECTUS
----------------------------------------------------------------
BARBER & BRONSON
INCORPORATED
CARDINAL CAPITAL MANAGEMENT, INC.
, 1998
<PAGE> 53
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Bylaws of the Company provide that the Company shall indemnify
directors and officers of the Company. The pertinent section of Canadian law is
set forth below in full. In addition, upon effectiveness of this registration
statement, management intends to obtain officers and directors liability
insurance.
See the second and third paragraphs of Item 28 below for information
regarding the position of the Securities and Exchange Commission (the
"Commission") with respect to the effect of any indemnification for liabilities
arising under the Securities Act of 1933, as amended (the "Securities Act").
Section 136 of the Ontario Business Corporation Act provides as follows:
(1) INDEMNIFICATION OF DIRECTORS--A corporation may indemnify a
director or officer of the corporation, a former director or officer of the
corporation or a person who acts or acted at the corporation's request as a
director or officer of a body corporate of which the corporation is or was
a stockholder or creditor, and his or her heirs and legal representatives,
against all costs, charges and expenses, including an amount paid to settle
an action or satisfy a judgment, reasonably incurred by him or her in
respect of any civil, criminal or administrative action or proceeding to
which he or she is a party by reason of being or having been a director or
officer of such corporation or body corporate, if,
(a) he or she acted honestly and in good faith with a view to the
best interests of the corporation; and
(b) in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, he or she has
reasonable grounds for believing that his or her conduct was lawful.
(2) INDEMNIFICATION--A corporation may, with the approval of the
court, indemnify a person referred to in subsection (1) in respect of an
action by or behalf of the corporation or body corporate to procure a
judgment in its favor, to which the person is made a party by reason of
being or having been a director or an officer of the corporation or body
corporate, against all costs, charges and expenses reasonably incurred by
the person in connection with such action if he or she fulfills the
conditions set out in clauses (1)(a) and (b).
(3) INDEMNIFICATION--Despite anything in this section, a person
referred to in subsection (1) is entitled to indemnity from the corporation
in respect of all costs, charges and expenses reasonably incurred by him in
connection with the defense of any civil, criminal or administrative action
or proceeding to which he or she is made a party by reason of being or
having been a director or officer of the corporation or body corporate, if
the person seeking indemnity;
(a) was substantially successful on the merits in his or her
defense of the action or proceeding; and
(b) fulfills the conditions set out in clauses (1)(a) and (b).
(4) LIABILITY INSURANCE--A corporation may purchase and maintain
insurance for the benefit of any person referred to in subsection (1)
against any liability incurred by the person,
(a) in his or her capacity as a director or officer of the
corporation, except where the liability relates to the person's failure
to act honestly and in good faith with a view to the best interests of
the corporation; or
(b) in his or her capacity as a director or officer of another body
corporate where the person acts or acted in that capacity at the
corporation's request, except where the liability relates to the
person's failure to act honestly and in good faith with a view to the
best interests of the body corporate.
II-1
<PAGE> 54
(5) APPLICATION TO COURT--A Corporation or a person referred to in
subsection 91 may apply to the court for an order approving an indemnity
under this section and the court may so order and make any further order it
thinks fit.
(6) INDEMNIFICATION--Upon application under subsection (5), the court
may order notice to be given to any interested person and such person is
entitled to appear and be heard in person or by counsel.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of the estimated expenses to be paid by the
Company in connection with the issuance and distribution of the securities being
registered:
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 3,200.88
NASD Filing Fee............................................. 1,325.00
Nasdaq Listing Fees*........................................ 15,000.00
Printing Engraving Expenses*................................ 75,000.00
Legal Fees and Expenses*.................................... 85,000.00
Accounting Fees and Expenses*............................... 70,000.00
Blue Sky Fees and Expenses*................................. 17,500.00
Transfer Agent and Registrar Fees and Expenses*............. 3,500.00
Miscellaneous*.............................................. 29,474.12
-----------
Total.................................................. $300,000.00
</TABLE>
- ------------------------------
* estimate
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In the past three years the Company has not sold any of its securities.
ITEM 27. INDEX TO EXHIBITS
<TABLE>
<C> <S>
***1.1 Form of Underwriting Agreement
***3.1 Bylaws of Registrant
***3.2 Articles of Amalgamation dated January 23, 1998
***3.3 Articles of Amalgamation dated May 29, 1998
***4.1 Form of Underwriters' Warrant
**4.3 Specimen Common Stock Certificate
*5.1 Opinion of Gersten, Savage, Kaplowitz & Fredericks, LLP
***10.1 Form of Financial Consulting Agreement
*10.2 1998 Stock Option Plan
Lease of Company's Facility at 7 Kodiak Crescent, Downsview,
***10.3 Ontario
Lease of Company's Facility at 300 Steeprock Drive, Toronto,
*10.3.1 Ontario
*10.4 Employment Agreement with Aaron Herzog
*10.5 Employment Agreement with Jacob Herzog
*10.6 Credit Facility with Canadian Imperial Bank of Commerce
*10.7 Promissory note dated July 15, 1998
*10.8 Promissory notes dated June 1, 1998
*23.1 Consent of Schwartz Levitsky Feldman, independent auditors
Consent of Gersten, Savage, Kaplowitz & Fredericks, LLP
*23.2 (incorporated into Exhibit 5.1)
*23.3 Consent of Nominee to Board of Directors
</TABLE>
- ------------------------------
*Filed herewith.
**To be filed by amendment.
***Previously filed.
II-2
<PAGE> 55
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to any charter provision, by-law, contract arrangements,
statute, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the small business issuer in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the small business issuer
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) To include any
Prospectus required by section 10(a)(3) of the Act; (ii) To reflect in the
Prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental
change in the information set forth in the registration statement; (iii) To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the Offering of
such securities at that time shall be deemed to be the initial bona fide
Offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
(4) For determining any liability under the Act, treat the information
omitted from the form of Prospectus filed as part of this registration
Statement in reliance upon Rule 430A and contained in a form of Prospectus
filed by the small business issuer under Rule 424(b)(1), or (4) or 497(h),
under the Act as part of this registration statement as of the time the
Commission declared it effective.
(5) For determining any liability under the Act, treat each
post-effective amendment that contains a form of Prospectus as a new
registration statement at that time as the initial bona fide Offering of
those securities.
II-3
<PAGE> 56
SIGNATURES
Pursuant to the requirements of the Act, the Registrant certifies that it
has reasonable grounds to believe that it meets all of the requirement for
filing on Form SB-2 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Province of
Ontario, Canada on August 14, 1998.
CURTIS INTERNATIONAL LTD.
By: /s/ AARON
HERZOG
AARON HERZOG
President and Chief Executive
Officer
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ AARON HERZOG President, Chief Executive August 14,
- ----------------------------------------------------- Officer and Director 1998
Aaron Herzog
/s/ JACOB HERZOG Chairman, Treasurer, Secretary, August 14,
- ----------------------------------------------------- Principal Accounting Officer and 1998
Jacob Herzog Director
/s/ LOUIS DRAZIN Director August 14,
- ----------------------------------------------------- 1998
Louis Drazin
/s/ DAVID BEN DAVID Director August 14,
- ----------------------------------------------------- 1998
David Ben David
</TABLE>
II-4
<PAGE> 57
INDEX TO EXHIBITS
<TABLE>
<C> <S>
***1.1 Form of Underwriting Agreement
***3.1 Bylaws of Registrant
***3.2 Articles of Amalgamation dated January 23, 1998
***3.3 Articles of Amalgamation dated May 29, 1998
***4.1 Form of Underwriters' Warrant
**4.3 Specimen Common Stock Certificate
*5.1 Opinion of Gersten, Savage, Kaplowitz & Fredericks, LLP
***10.1 Form of Financial Consulting Agreement
*10.2 1998 Stock Option Plan
Lease of Company's Facility at 7 Kodiak Crescent, Downsview,
***10.3 Ontario
Lease of Company's Facility at 300 Steeprock Drive, Toronto,
*10.3.1 Ontario
*10.4 Employment Agreement with Aaron Herzog
*10.5 Employment Agreement with Jacob Herzog
*10.6 Credit Facility with Canadian Imperial Bank of Commerce
*10.7 Promissory note dated July 15, 1998
*10.8 Promissory notes dated June 1, 1998
*23.1 Consent of Schwartz Levitsky Feldman, independent auditors
Consent of Gersten, Savage, Kaplowitz & Fredericks, LLP
*23.2 (incorporated into Exhibit 5.1)
*23.3 Consent of Nominee to Board of Directors
</TABLE>
- ------------------------------
*Filed herewith.
**To be filed by amendment.
***Previously filed.
II-5
<PAGE> 1
EXHIBIT 5.1
AUGUST 14, 1998
CURTIS INTERNATIONAL LTD.
7 KODIAK CRESCENT DR.
DOWNSVIEW, ONTARIO M3J 3E5
CANADA
Gentlemen:
We have acted as counsel to Curtis International Ltd. (the "Company") in
connection with its filing of a registration statement on Form SB-2
(Registration No. 333-56661, the "Registration Statement") covering (i)
1,897,500 shares of common stock, no par value (the "Common Stock"), including
152,000 shares of Common Stock to be sold by the selling stockholder ("Selling
Stockholder") and 247,500 shares subject to an over-allotment option, and (ii)
warrants to be issued to the underwriter (the "Underwriters' Warrants") to
purchase up to 165,000 additional shares of Common Stock, all as more
particularly described in the Registration Statement.
In our capacity as counsel to the Company, we have examined the Company's
Certificate of Incorporation and By-laws, as amended to date, and the minutes
and other corporate proceedings of the Company.
With respect to factual matters, we have relied upon statements and
certificates of officers of the Company. We have also reviewed such other
matters of law and examined and relied upon such other documents, records and
certificates as we have deemed relevant hereto. In all such examinations we have
assumed conformity with the original documents of all documents submitted to us
as conformed or photostatic copies, the authenticity of all documents submitted
to us as originals and the genuineness of all signature on all documents
submitted to us.
On basis of the foregoing, we are of the opinion that:
the shares of Common Stock covered by the Registration Statement and
the Common Stock issuable upon exercise of the Underwriters' Warrants have
been validly authorized and will, when sold as contemplated by the
Registration Statement, be legally issued, fully paid and non-assessable;
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference made to us under the caption "Legal
Matters" in the prospectus constituting part of the Registration Statement.
Very truly yours,
/s/ GSKF
GERSTEN, SAVAGE, KAPLOWITZ &
FREDERICKS, LLP
<PAGE> 1
EXHIBIT 10.2
CURTIS INTERNATIONAL LTD.
1998 STOCK OPTION PLAN
ARTICLE ONE
PURPOSE AND INTERPRETATION
SECTION 1.01 PURPOSE. The purpose of the Plan is to advance the interests
of the Corporation by encouraging equity participation in the Corporation
through the acquisition of Common Shares of the Corporation by directors,
officers and employees of, and certain other persons who provide services to,
the Corporation.
SECTION 1.02 DEFINITIONS. In the Plan, the following capitalized words
and terms shall have the following meanings:
(a) "ACT" means the ONTARIO BUSINESS CORPORATIONS ACT or its successor, as
amended from time to time.
(b) "AFFILIATE" shall have the meaning ascribed thereto in the Securities
Act.
(c) "ASSOCIATE" shall have the meaning ascribed thereto in the Securities
Act.
(d) "BOARD OF DIRECTORS" means the board of directors of the Corporation
as constituted from time to time and any committee of the board of
directors which shall be comprised of at least two non-employee
directors.
(e) "COMMON SHARES" means the common shares of the Corporation as
constituted on the date hereof.
(f) "COMPETITOR" means any person engaged in a business that the Board of
Directors determines competes or intends to compete with the business
carried on by the Corporation and its Affiliates from time to time.
(g) "CORPORATION" means Curtis International Ltd., a corporation
incorporated under the Act, and its successors from time to time.
(h) "DESIGNATED AFFILIATE" means the Affiliates of the Corporation
designated by the Board of Directors for purposes of the Plan from
time to time.
(i) "EXCHANGE" means, at any time, any stock exchange on which the Common
Shares are listed, posted and called for trading.
(j) "HOLDING COMPANY" shall have the meaning specified in Section 2.02
hereof.
(k) "INSIDER" shall have the meaning ascribed thereto in the Securities
Act, other than a person who is an Insider solely by virtue of being a
director of senior officer of a subsidiary of the Corporation and any
Associate of an Insider.
(l) "KEY CONTRIBUTORS" means a person who is a director, officer,
employee or consultant engaged by the Corporation to assist the
Corporation in the conduct and growth of its business.
(m) "ISSUER BID" shall have the meaning ascribed thereto in the Securities
Act.
(n) "OPTION PERIOD" means the period of time an option may be exercised as
specified in Subsection 2.07(a) hereof.
(o) "PARTICIPANT" means a participant under the Plan.
(p) "PLAN" means the share option plan provided for herein.
(q) "RRSP" shall have the meaning specified in Section 2.02 hereof.
(r) "SECURITIES LAWS" means, collectively, the applicable securities laws,
regulations, schedules, prescribed forms, policy statements, notices,
blanket rulings and other similar instruments of each
<PAGE> 2
of the jurisdictions in which the Corporation is or becomes a reporting
issuer or equivalent and also includes, as the context so requires, the
by-laws, rules, regulations and policies of any Exchange.
(s) "SHARE COMPENSATION ARRANGEMENT" means a stock option, stock option
plan, employee stock purchase plan or any other compensation or
incentive mechanism involving the issuance or potential issuance of
securities of the Corporation to one or more of the following persons:
(i) an employee or insider of the Corporation or of any of its
subsidiaries; and (ii) any other person or company engaged to provide
ongoing management or consulting services for the listed company or
for any entity controlled by the listed company, including a share
purchase from treasury which is financially assisted by the
Corporation by way of a loan, guarantee or otherwise.
(t) "TAKE-OVER BID" shall have the meaning ascribed thereto in the
Securities Act.
ARTICLE TWO
SHARE OPTION PLAN
SECTION 2.01 THE PLAN. The Plan is hereby established for Key
Contributors of the Corporation and Designated Affiliates.
SECTION 2.02 PARTICIPANTS. Participants in the Plan shall be Key
Contributors of the Corporation or any of its Designated Affiliates (including
officers thereof, whether or not directors) who, by the nature of their
positions are, in the opinion of the Board of Directors, upon the recommendation
of the President of the Corporation, in a position to contribute to the success
of the Corporation. At the request of any Participant, options granted to such
Participant may be issued to and registered in the name of a personal holding
company wholly-owned by such Participant ("Holding Company") or to a registered
retirement savings plan established by such Participant ("RRSP") and, in such
event, the provisions of this Plan shall apply to such options mutatis mutadis
as though they were issued to and registered in the name of the Participant.
SECTION 2.03 AMOUNT OF OPTIONS. The determination regarding the aggregate
number of Common Shares subject to options in favour of any Participant will
take into consideration the Participant's present and potential contribution to
the success of the Corporation and shall be determined from time to time by the
Board of Directors. The aggregate number of Common Shares issuable upon the
exercise of options pursuant to this Plan and any other Share Compensation
Arrangements, subject to adjustment or increase of such number pursuant to
Section 2.10 hereof, shall be 400,000 Common Shares. The maximum number of
Common Shares reserved for issuance to any one Participant upon the exercise of
options shall not exceed 5% of the total number of Common Shares outstanding
immediately prior to such issuance.
SECTION 2.04 LIMITS WITH RESPECT TO INSIDERS.
(a) The number of Common Shares issuable to Insiders pursuant to options
granted under the Plan, together with Common Shares issuable to
Insiders under any other Share Compensation Arrangement of the
Corporation, shall not:
(i) exceed 10% of the number of Common Shares outstanding immediately
prior to the grant of any such option; or
(ii) result in the issuance to Insiders, within a one year period, of
in excess of 10% of the number of Common Shares outstanding
immediately prior to the grant of any such option.
(b) The number of Common Shares issuable to any Insider and such Insider's
Associates pursuant to options granted under the Plan, together with
Common Shares issuable to such Insider or such Insider's Associates
under any other Share Compensation Arrangement of the Corporation
shall not, within a one year period, exceed 5% of the number of Common
Shares outstanding immediately prior to the grant of any such option.
(c) Any Common Shares issuable pursuant to an option granted to a
Participant prior to the Participant becoming an Insider shall be
excluded for the purposes of the limits set out in Subsections 2.04(a)
and 2.04(b) hereof.
<PAGE> 3
(d) The Company's President, Aaron Herzog and Chairman of the Board, Jacob
Herzog shall not be permitted to receive any more than an aggregate of
100,000 options under this Plan.
SECTION 2.05 PRICE. The exercise price per Common Share shall be
determined by the Board of Directors at the time the option is granted, but such
price shall not be less than such price as is required or permitted as the
minimum exercise price under the Securities Laws, including the requirements of
any Exchange on which the Common Shares are listed. The exercise price of all
options granted hereunder shall be at least 100% of the fair market value of the
Common Shares on the date of grant of the options as determined by the Board of
Directors.
SECTION 2.06 LAPSE OPTIONS. In the event that options granted under the
Plan are surrendered, terminate or expire without being exercised in whole or in
part, the Common Shares reserved for issuance but not purchased under such
lapsed options shall be available for subsequent options to be granted under the
Plan.
SECTION 2.07 CONSIDERATION, OPTION PERIOD AND PAYMENT.
(a) The period during which options may be exercised shall be determined
by the Board of Directors, in its discretion, to a maximum of ten
years from the date the option is granted (the "Option Period"),
except as the same may be reduced with respect to any option as
provided in Sections 2.08 and 2.09 hereof respecting termination of
employment or death of the Participant and provided that the options
shall have at least a two-year vesting period.
(b) Subject to any other provision of this Plan, an option may be
exercised from time to time during the Option Period by delivery to
the Corporation at its registered office of a written notice of
exercise addressed to the Secretary of the Corporation specifying the
number of Common Shares with respect to which the option is being
exercised and accompanied by payment in full of the exercise price
therefor. Certificates for such Common Shares shall be issued and
delivered to the Participant as soon as practicable following receipt
of such notice and payment. [The Corporation may, at its discretion,
as determined by the Board of Directors or its nominee administering
the Plan, accept in lieu of cash payment of the exercise price, the
tender of Common Shares having a fair market value equal to the
exercise price, a personal recourse note secured by a pledge against
the Common Shares so issuable, an assignment to the Corporation of
sufficient proceeds from the sale of Common Shares acquired on the
exercise of the option consented to and acknowledged by a duly
qualified investment dealer and accompanied by an irrevocable
direction of the Participant exercising such option to such investment
dealer to cause such payment to be made to the direction of the
Corporation, or any combination of the foregoing.]
(c) Except as set forth in Sections 2.08 and 2.09 hereof, no option may be
exercised unless the Participant is, at the time of such exercise, a
Key Contributor of or in the employ of the Corporation or any of its
Designated Affiliates and shall have been continuously a Key
Contributor since the grant of his or her option. Absence on leave
with the approval of the Corporation or a Designated Affiliate shall
not be considered an interruption of employment for purposes of the
Plan.
(d) The exercise of any option will be contingent upon receipt by the
Corporation of cash payment of the full exercise price of the Common
Shares which are the subject of the exercised option or such other
arrangements for payment as are approved by the Board of Directors or
its nominee under (b) above. No Participant or his or her legal
representatives, legatees or distributees will be, or will be deemed
to be, a holder of any Common Shares with respect to which he or she
was granted an option under the Plan, unless and until certificates
for such Common Shares are issued to him or her under the terms of the
Plan.
(e) Notwithstanding any other provision of this Plan or in any option
granted to a Participant, the Corporation's obligation to issue Common
Shares to a Participant pursuant to the exercise of an option shall be
subject to:
<PAGE> 4
(i) completion of such registration or other qualification of such
Common Shares or obtaining approval of such regulatory authorities
as the Corporation shall determine to be necessary or advisable in
connection with the authorization, issuance or sale thereof;
(ii) the listing of such Common Shares on any Exchange, on which the
Common Shares are listed and posted for trading; and
(iii) the receipt from the Participant of such representations,
warranties, agreements and undertakings, including as to future
dealings in such Common Shares, as the Corporation or its counsel
determines to be necessary or advisable in order to ensure
compliance with all applicable securities laws.
(f) If there is a Take-over Bid or Issuer Bid made for all or any of the
issued and outstanding Common Shares, then the Board of Directors may,
by resolution, permit all options outstanding under the Plan to become
immediately exercisable in order to permit Common Shares issuable
under such options to be tendered to such bid.
SECTION 2.08 TERMINATION OF EMPLOYMENT. If a Participant shall:
(a) cease to be a Key Contributor of the Corporation or any of its
Designated Affiliates as determined by the Board of Directors; or
(b) cease to be employed or engaged by the Corporation or any of its
Designated Affiliates (and is not or does not continue to be a
director or senior office thereof) for any reason (other than death,
disability or retirement at or after age 70) or shall receive notice
from the Corporation or any of its Designated Affiliates of the
termination of his or her employment or engagement;
(collectively, "Termination") he or she or it may, but only within three months
next succeeding such Termination, exercise his or her or its options to the
extent that he or she or it was entitled to exercise such options at the date of
such Termination; provided that in no event shall such right extend beyond the
Option Period. This section is subject to any agreement with any director or
senior officer of the Corporation or any of its Designated Affiliates with
respect to the rights of such director or senior office upon Termination or
change in control of the Corporation. Notwithstanding the foregoing, if the
Termination is for cause from the acceptance by the Participant of an officer of
employment with a Competitor, or if such Participant accepts employment with a
Competitor following such Termination and prior to the date that the options
held by such Participant expire under this Section 2.08, then unless otherwise
determined by the Board of Directors, the entitlement of the Participant to
options previously granted under this Plan that remain unexercised, whether or
not previously granted under this Plan that remain unexercised, whether or not
previously vested, shall immediately terminate. For purposes of this Plan,
employment with a competitor shall include acting on behalf of a Competitor in
any capacity, whether as a shareholder, director, officer, employee, advisor,
consultant, partner, lender or in any other capacity. Competitor shall not
include a professional acting in a professional capacity for a competitor. In
addition to the foregoing, notwithstanding any other provision of this Plan, all
Common Shares issued to Participants on their exercise of options granted under
the Plan shall remain subject to the right of the Corporation to repurchase such
Common Shares for cancellation following any Termination of the employment of
such Participant if such Participant accepts employment with a Competitor during
the period of 12 months following the effective date of such Termination. Such
right of repurchase may be exercised by the Corporation upon refunding the
option exercise price therefore paid by the Participant, such payment to be made
by the Corporation to the Participant or any subsequent holder of such Common
Shares as of the date such right is exercised by the Corporation. The
Corporation shall cause notice of such right of repurchase to be set forth on
the certificates evidencing any Common Shares issued to a Participant upon any
exercise of options granted from time to time under the Plan.
SECTION 2.09 DEATH, DISABILITY OR RETIREMENT OF PARTICIPANT. In the event
of the death, permanent disability or retirement at or after age 70 of a
Participant who is a Key Contributor of the Corporation or any of its Designated
Affiliates or who is an employee having been continuously in the employ of the
Corporation or any of its Designated Affiliates for one year from and after the
date of the granting of his or her option, the option therefore granted to him
or her shall be exercisable within the twelve
<PAGE> 5
months next succeeding such death, disability or retirement (including the
rights under Subsection 2.07(f) and then, in the event of death, only:
(a) by the person or persons to whom the Participant's rights under the
option shall pass by the Participant's will or the laws of descent and
distribution; and
(b) to the extent that he or she was entitled to exercise the option at
the date of his or her death, provided that in no event shall such
right extend beyond the Option Period.
SECTION 2.10 ADJUSTMENT IN SHARES SUBJECT TO THE PLAN. In the event that:
(a) there is any change in the Common Shares of the Corporation through
subdivisions or consolidation of the share capital of the Corporation,
or otherwise;
(b) the Corporation declares a dividend on Common Shares payable in Common
Shares or securities convertible into or exchangeable for Common
Shares; or
(c) the Corporation issues Common Shares, or securities convertible into
or exchangeable for Common Shares, in respect of, in lieu of, or in
exchange for, existing Common Shares,
the number of Common Shares available for option, the Common Shares subject to
any option, and the option price thereof, shall be adjusted appropriately by the
Board of Directors in its sole discretion and such adjustment shall be effective
and binding for all purposes of the Plan.
SECTION 2.11 EFFECTING GRANTS. Subject to Section 3.04, the grant of
options under the Plan shall be affected by the execution and delivery of a
stock option agreement in such form which is consistent with the provisions of
the Plan as may be approved by the Board of Directors from time to time.
SECTION 2.12 RECORD KEEPING. The Corporation shall maintain a register in
which shall be recorded:
(a) the name and address of each Participant in the Plan; and
(b) the number of options granted to a Participant and the number of
options outstanding.
ARTICLE THREE
GENERAL
SECTION 3.01 TRANSFERABILITY. The benefits, rights and options accruing
to any Participant in accordance with the terms and conditions of the Plan shall
not be transferable by the Participant except (i) from the Participant to his or
her Holding Company or RRSP or from a Holding Company or RRSP to the Participant
and, in either such event, the provisions of this Plan shall apply mutatis
mutandis as though they were originally issued to and registered in the name of
the Participant, or (ii) as otherwise specifically provided herein. During the
lifetime of a Participant, all benefits, rights and options shall only be
exercised by the Participant or by his or her guardian or legal representative.
SECTION 3.02 EMPLOYMENT. Nothing contained in the Plan shall confer upon
any Participant any right with respect to employment or continuance of
employment with the Corporation or any Affiliate, or interfere in any way with
the right of the Corporation or any Affiliate to terminate the Participant's
employment at any time. Participation in the Plan by a Participant shall be
voluntary.
SECTION 3.03 DELEGATION TO COMPENSATION COMMITTEE. All of the powers
exercisable by the Board of Directors under the Plan may, to the extent
permitted by applicable law and authorized by resolution of the Board of
Directors of the Corporation, be exercised by a Compensation Committee of not
less than three (3) directors. A majority of the members of any such
Compensation Committee shall not be employees of the Corporation. In addition,
if determined appropriate by the Board of Directors of the Corporation, the
Board of Directors may delegate any or all of the powers of the Board of
Directors of the Corporation under the Plan to an independent consultant.
SECTION 3.04 ADMINISTRATION OF THE PLAN. The Plan shall be administered
by the Board of Directors of the Corporation. The Board of Directors shall be
authorized to interpret and construe the Plan and may, from time to time,
establish, amend or rescind rules and regulations required for carrying out
<PAGE> 6
the purposes, provisions and administration of the Plan and determine the
Participants to be granted options, the number of Common Shares covered thereby,
the exercise price therefor and the time or times when they may be exercised.
Any such interpretation or construction of the Plan shall be final and
conclusive. All administrative costs of the Plan shall be paid by the
Corporation. The senior officers of the Corporation are hereby authorized and
directed to do all things and execute and deliver all instruments, undertakings
and applications and writings as they, in their absolute discretion, consider
necessary for the implementation of the Plan and of the rules and regulations
established for administering the Plan.
SECTION 3.05 AMENDMENT, MODIFICATION OR TERMINATION OF THE PLAN. Subject
to Section 3.03, the Board of Directors reserves the right to amend, modify or
terminate the Plan at any time if and when it is advisable in the absolute
discretion of the Board of Directors provided that no amendment shall be
permitted which authorizes the issuance of more than an aggregate of 100,000
options to Messrs Aaron and Jacob Herzog. However, any amendment of the Plan
which would:
(a) materially increase the benefits under the Plan;
(b) increase the number of Common Shares which may be issued under the
Plan; or
(c) materially modify the requirements as to the eligibility for
participation in the Plan;
shall be effective only upon the approval of the shareholders of the
Corporation. Any material amendment to any provision of the Plan shall be
subject to any necessary approvals by the Exchange, other quotation system or
any stock exchange or regulatory body having jurisdiction over the securities of
the Corporation. Notwithstanding the foregoing, the Plan will terminate 10 years
from the date hereof.
SECTION 3.06 APPLICATION FOR RULING UNDER THE SECURITIES ACT. The
Corporation is not a "private company" (as defined in the Securities Act) and,
accordingly, is not entitled to the exemptions for such companies from the
registration and prospectus requirements of the Securities Act where they are
not offered for sale to the public. In order to ensure compliance with the
Securities Act, the grant of options under the Plan to Key Contributors other
than officers and employees of the Corporation and its Affiliates shall be
subject to receipt of such rulings or other relief as may be required under the
Securities Act that the granting and exercise of such options shall not be
subject to the prospectus and registration requirements of the Securities Act,
subject to such terms and conditions as the Board of Directors may in its
absolute discretion approval.
SECTION 3.07 CONSOLIDATION, MERGER, ETC. If there is a change in control,
which is defined as a consolidation, merger or statutory amalgamation or
arrangement of the Corporation with or into another corporation, a separation of
the business of the Corporation into two or more entities, a transfer of all or
substantially all of the assets of the Corporation to another entity, or the
change in the majority of the board of directors other than by election by the
shareholders pursuant to board solicitation or by vacancies filled by the board
caused by death or resignation of such person, upon the exercise of an option
under the Plan, the holder thereof shall be entitled to receive the securities,
property or cash which the holder would have received upon such consolidation,
merger, amalgamation, arrangement, separation or transfer if the holder had
exercised the option immediately prior to such event, unless the directors of
the Corporation otherwise determine the basis upon which such option shall be
exercisable.
SECTION 3.08 NO REPRESENTATION OR WARRANTY. The Corporation makes no
representation or warranty as to the future market value of any Common Shares
issued in accordance with the provisions of the Plan.
SECTION 3.09 INTERPRETATION. This Plan shall be governed by and construed
in accordance with the laws of the Province of Ontario.
SECTION 3.10 APPROVAL AND EFFECTIVE DATE. This Plan shall be effective as
of the date it is approved by the Board of Directors and any securities
regulatory body or stock exchange in Canada having jurisdiction over the
securities of the Corporation.
Dated: August 13, 1998
<PAGE> 1
EXHIBIT 10.3.1
OFFER TO LEASE
TO: U-Buy Discount Foods Ltd. (Sub-Lessor)
CURTIS INTERNATIONAL LTD. (the Sub-Lessee) having inspected the premises or
plans hereby offers to lease part of the premises known municipally as 300
Steeprock Drive in the City of Toronto, comprising:
(a) 20,000 square feet, more or less, as outlined in red on Schedule
"B" attached hereto for a term of August 8, 1998 to April 30, 1999; and
both at a rental as set out in Schedule "A" attached hereto, payable in advance
on the first day of each month during the said term.
A cheque in the amount of $17,401.89, as a deposit, payable to Messrs.
Worldwide Food Distribution for the Sub-Lessor, shall be submitted upon
acceptance to be held pending completion or other termination of this agreement,
and is to be credited on account of first and last month's gross rental plus
GST. The lease shall be drawn by the Sub-Lessor and executed by the Sub-Lessee
and the Sub-Lessor forthwith, and in any event prior to August 8, 1998.
It is understood and agreed that:
1. The Sub-Lessor shall, on or before August 1, 1998, construct a
partition wall made of dry wall fence for the sub-leased premises to be
made available as of August 7, 1998. The Sub-Lessor and Sub-Lessee agree
that the cost of all partitioning shall be shared equally between them. The
actual area of the sub-leased premises shall be determined by the
Sub-Lessor's architect or engineer, such area to be calculated in the same
manner as determined in the Head-Lease (as defined in Schedule "A"), and
the rent payable by the Sub-Lessee shall be adjusted at the rate set out in
Schedule "A" in accordance with the actual area.
2. The Sub-Lessee covenants to install a security system, to the
reasonable satisfaction of the Sub-Lessor, at its sole cost and expense,
prior to August 7, 1998.
3. Schedules "A", "B" and "C", all attached hereto form part of
this Offer to Sublease.
4. It is further understood that all representations by the
Sub-Lessor or any of its representatives are set out in this agreement.
<PAGE> 2
IN WITNESS WHEREOF, we have hereunto set our hand and our seal.
DATED at Toronto, this 31st day of July, 1998
CURTIS INTERNATIONAL LTD.
By: /s/ AARON HERZOG
------------------------------------
THE UNDERSIGNED HEREBY ACCEPTS THE ABOVE OFFER
DATED at Toronto, this 31st day of July, 1998.
U-BUY DISCOUNT FOODS LIMITED
By: /s/ JOEL USHER
------------------------------------
<PAGE> 3
Attached to and forming part of an Offer to Sub-Lease between Prodale Paper
Corp. as Sub-Lessee and U-Buy Discount Foods Limited as Sub-Lessor
SCHEDULE "A"
1. RENTAL SCHEDULE
<TABLE>
<S> <C> <C>
August 1998 -- April 30,
1998
Based on 20,000 square feet 9,166.67 gross per month 2.00 net per square foot
$82,500.88 per annum plus GST 3.50 expense and taxes 5.50
gross per sq./ft. includes
all taxes and utilities
</TABLE>
Proposed August 8 -- August 31 (9,166.67 / 31 days X 24 days) = 7,096.77
plus GST
2. NET SUB-LEASE
3. ADDITIONAL RENT
4. RIGHT TO ASSIGN OR SUBLET
The Sub-Lessee shall have the right to assign or sub-lease the Sub-Lease,
in whole or in part, at any time during the sub-lease term, provided it has
obtained both the Sub-Lessor's and Landlords prior written consent, such consent
not to be unreasonably withheld. The provisions of Article XIII of the Head
Lease shall apply to any request to assign or sub-lease the premises.
5. USE
The Sub-Lessee shall occupy the sub-leased premises throughout the term.
The Sub-Lessee's business shall consist of warehousing of electronic products.
6. SUB-LESSEE'S IMPROVEMENTS
The Sub-Lessee may make any necessary alterations and improvements to the
said premises, at its own expense, subject to both the Landlord and Sub-Lessor's
consent, in writing, such alterations and improvements and the subsequent
removal thereof to be in accordance with Articles VII and VIII of the Head
Lease, Save and accept as otherwise provided for in this Offer, the Sub-Lessee
agrees to take the premises and the building situate thereon on an "as is"
basis.
7. SUB-LESSEE'S IMPROVEMENTS
The Sub-Lessee may make any necessary alterations and improvements to the
said premises, at its own expense, subject to both the Landlord and Sub-Lessor's
consent, in writing, such alterations and improvements and the subsequent
removal thereof to be in accordance with Articles VII and VIII of the Head
Lease. Save and except as otherwise provided for in this Offer, the Sub-Lessee
agrees to take the premises and the building situate thereon on as "as is"
basis.
8. ACCEPTANCE BY TELEFAX
Acceptance of this Offer to Sub-Lease, or any counter-offer, may be made by
either party by telefax, or similar system reproducing the original, with the
necessary signatures and initials. Such acceptance shall be deemed to be made
when the telefax is received by the party, or his/her real estate agent or
lawyer. The person sending telefax immediately thereafter send, or deliver, the
original to the receiver of the telefax.
9. LEGAL ADVICE
The parties to this Offer to Sub-Lease acknowledge that Brixton Real Estate
Corporation has recommended that they obtain independent legal advice prior to
signing this Offer to Sub-Lease. The parties further acknowledge that no
information provided by Brixton Real Estate Corporation is to be construed as
expert legal, tax or environmental advice.
<PAGE> 4
10. HEAD LEASE
(a) Except as otherwise provided herein, the Sub-Lessee shall be entitled
to all benefits granted to the Sub-Lessor under or by virtue of the provisions
of the Head Lease. Nothing contained in the Sub-Lease shall be construed as a
guarantee by the Sub-Lessor of any of the obligations, covenants, warranties,
agreements or undertakings of the Landlord in the Head Lease, nor as an absolute
or unconditional undertaking by the Sub-Lessor on the same terms as are
contained in the Head Lease. If the Sub-Lessor becomes entitled, as tenant in
the Head Lease, to make or forebear making any election, give or receive any
notice, grant to withhold any approval, do any act, or otherwise enforce any
right or exercise any remedy under any of the provisions of the Head Lease, the
Sub-Lessor, in its sole and absolute discretion, may either take or forebear
taking such action as it deems appropriate for the protection of its interest as
tenant and those of the Sub-Lessee, or may assign to the Sub-Lessee, without
recourse on or liability of any kind to the Sub-Lessor, such rights as the
Sub-Lessor may have in the matter under the Head Lease;
(b) The Sub-Lease to be executed and all of the rights and interests of the
Sub-Lessee therein are and shall at all times expressly subordinate and subject
to all of the terms and provisions of the Head Lease. Subject to the obligations
of the Sub-Lessees set out in paragraph (c), the Sub-Landlord will pay the rent
reserved by and perform and observe and perform the covenants on its part
contained in the Head Lease with respect to the premises, as far as they are not
required by the Sub-Lease to be entered into to be performed by the Sub-Lessee;
(c) The Sub-Lessee shall assume and agree to be bound by and keep and
perform each and every one of the covenants, agreements and obligations with
respect to the premises to be performed by the Sub-Lessor, as Tenant in the Head
Lease (save and except for the obligation to pay the Sub-Lessor's rent to the
Landlord), and covenants to save harmless and keep the Sub-Lessor and its
successors and assigns indemnified from and against all proceedings, damages,
costs, claims and expenses arising from or incurred by reason of the
Sub-Lessee's failure to perform promptly any of such covenants, agreements and
obligations.
11. SUB-LEASE
The Sub-Lease shall be prepared by the Sub-Lessor and shall incorporate all
the terms and conditions of this offering. To the extent not specifically
provided in this offer, the provisions of the Head Lease shall be expressly
incorporated into the Sub-Lease mutatis mutandis. The Sub-Lease shall be
prepared by the Sub-Lessor's solicitor, subject to such reasonable amendments as
may be requested by the Sub-Lessee. The Sub-Lessee shall not be entitled to
occupancy of the premises until the Sub-Lease has been executed; and
12. SUB-LESSOR'S CONDITION
(a) This Offer to Lease is conditional upon the Landlord granting its
consent to the Sub-Lease in accordance with the provisions of Article XIII of
the Head Lease. The Sub-Lessee covenants to forthwith provide such documentation
as the Landlord may require.
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT MADE AS OF THE 1ST DAY OF JUNE, 1998, BY AND BETWEEN
CURTIS INTERNATIONAL LTD., AN ONTARIO CORPORATION, HAVING AN OFFICE AT 7 KODIAK
CRESCENT, TORONTO, ONTARIO (HEREINAFTER REFERRED TO AS "EMPLOYER") AND AARON
HERZOG, AN INDIVIDUAL RESIDING AT 40 KELVIN AVENUE, MONTREAL, QUEBEC
(HEREINAFTER REFERRED TO AS "EMPLOYEE");
W I T N E S S E T H :
WHEREAS Employer employs and desires to continue to employ Employee as
President and Chief Executive Officer;
AND WHEREAS Employee is willing to continue to be employed as President and
Chief Executive Officer in the manner provided for herein, and to perform the
duties of President and Chief Executive Officer of Employer upon the terms and
conditions herein set forth;
NOW THEREFORE in consideration of the promises and mutual covenants herein
set forth it is agreed as follows:
1. EMPLOYMENT
Employer hereby employs Employee as President and Chief Executive Officer
of Employer.
2. TERM
Subject to Section 10 below, the term of this Agreement shall commence on
June 1, 1998 (the "Commencement Date") and expire two (2) years from such date.
Each twelve (12) month period from the Commencement Date forward during the term
hereof shall be referred to as an "Annual Period". During the term hereof,
Employee shall devote substantially all of his business time and efforts to
Employer and its subsidiaries and affiliates.
3. DUTIES
The Employee shall perform those functions generally performed by persons
of such title and position, shall attend all meetings of the stockholders and
the Board, shall perform any and all related duties and shall have nay and all
powers as may be prescribed by resolution of the Board, and shall be available
to confer and consult with and advise the officers and directors of Employer at
such times that may be required by Employer at such times that may be required
by Employer. Employee shall report directly and solely to the Board.
4. COMPENSATION
(a) (i) Employee shall be paid $175,000.00 U.S. for each Annual Period,
payable not less than monthly;
(ii) Employee is eligible for an annual bonus of $25,000.00 U.S.
payable upon achievement by Employer of its projected gross sales
as set out on Schedule "A" attached hereto.
(b) (i) In the event of a "Change of Control" whereby:
(A) a person (other than a person who is an office or a Director of
Employer on the effect date hereof), including a "group" as
defined in Section 13(d)(3) of the Securities Exchange Act of
1934, becomes, or obtains the right to become, the beneficial
owner of Employer securities having 30% or more of the combined
voting power of then outstanding securities of the Employer
that may be cast for the election of directors of the Employer;
(B) at any time, the Board nominated slate of candidates for the
Board is not elected;
(C) Employer consummates a merger in which it is not the surviving
entity;
(D) substantially all of Employer's assets are sold; or
(E) Employer's stockholders approve the dissolution or liquidation
of Employer; then
<PAGE> 2
(ii) (A) Employee shall be eligible to receive a one time bonus, equal
on an after-tax basis to one and one-half (1 1/2) times his
then current annual base salary. To effectuate this provision,
the bonus shall be "grossed-up" to include the amount
necessary to reimburse Employee for his federal, state,
provincial and local income tax liability on the bonus and on
the "gross-up" at the respective effective marginal tax rates.
In no event shall this bonus exceed three times Employee's
then current base salary. Said bonus shall be paid within
thirty (30) days of the Change of Control.
(B) All stock options, warrants and stock appreciation rights
("rights") granted by Employer to Employee under any plan or
otherwise prior to the effective date of the Change of
Control, shall become vested, accelerate and become
immediately exercisable.
(c) Employer shall include Employee in its health insurance program
available to Employer's executive officers and shall pay 100% of the
premiums for such program;
(d) Employee shall have the right to participate in any other employee
benefit plans established by Employer;
(e) Employee shall be entitled to a car provided to him by the Company and
the Company will pay all insurance and maintenance and expenses in
connection therewith in an amount of at least $1,000.00 U.S. monthly;
(f) In the event that this Agreement is not renewed between Employer and
Employee following a Change of Control on terms mutually satisfactory
to Employer and Employee, then the foregoing provisions of Section
4(b)(ii)(A) and (B) shall apply.
5. BOARD OF DIRECTORS
Employer agrees that so long as this Agreement is in effect, Employee will
be nominated to the Board as part of management's slate of Directors.
6. EXPENSES
Employee shall be reimbursed for all of his actual out of pocket expenses
incurred in the performance of his duties hereunder, provided such expenses are
acceptable to Employer, which approval shall not be unreasonably withheld, for
business related travel and entertainment expense, and that Employee shall
submit to Employer reasonably detailed receipts with respect thereto.
7. VACATION
Employee shall be entitled to receive 4 weeks paid vacation time after each
year of employment upon dates agreed upon by Employer. Upon separation of
employment, for any reason, vacation time accrued and not used shall be paid at
the salary rate of Employee in effect at the time of employment separation, to a
maximum accrued amount equivalent to four (4) weeks paid vacation.
8. SECRECY
At no time shall Employee disclose to any unauthorized person any
confidential or secret information (not already constituting information
available to the public) concerning internal affairs or proprietary business
operations of Employer.
9. TERMINATION
(a) TERMINATION BY EMPLOYER
(i) Employer may terminate this Agreement upon written notice for
Cause. For purposes hereof, "Cause" shall mean (A) engaging by the
Employee in conduct that constitutes activity in direct
competition with Employer; and/or (B) any action or omission of
the Employee which constitutes a willful and material breach of
this Agreement which is not cured or as to which diligent attempts
to cure have not commenced within thirty (30) business days after
receipt by Employee of notice of same, and/or (C) fraud,
embezzlement or misappropriate as
<PAGE> 3
against the Employer, and/or (D) the conviction (from which no
appeal can be taken) of Employee for any criminal act which is a
felony, and/or (E) the habitual abuse of alcohol or controlled
substances. Notwithstanding anything to the contrary in this
Section 9(a)(I), Employer may not terminate Employee's employment
under this Agreement for Cause unless Employee shall have first
received notice from the Board advising Employee of the specific
acts or omissions alleged to constitute Cause, and such acts or
omissions continue after Employee shall have had a reasonable
opportunity (at least 10 days from the date Employee received the
notice from the Board) to correct the acts or omissions so
complained of.
(ii) Employer may terminate Employee's employment under this Agreement
if, as a result of any physical or mental disability, Employee
shall fail or be unable to perform his duties under this Agreement
for any consecutive period of 180 days during any twelve month
period. If Employee's employment is terminated under this Section
9(a)(ii): (A) Employee shall be paid twice his full compensation
under Section 4(a) of this Agreement for a period of two (2) years
from the date of termination; and (B) Employee shall continue to
be entitled, insofar as is permitted under applicable insurance
policies or plans, to such general medical and employee benefit
plans (including profit sharing or pension plans) as Employee had
been entitled to on the date of termination. Any amounts payable
by Employer to Employee under this paragraph shall be reduced by
the amount of any disability payments payable by or pursuant to
plans provided by Employer and actually paid to Employee.
(iii) this Agreement automatically shall terminate upon the death of
Employee, except that Employee's estate shall be entitled to
receive one and one half times the compensation payable under
Section 4(a) of this Agreement for a period of two (2) years from
the date of Employee's death and the pro rata amount payable under
Section 4(a)(ii) for the period prior to Employee's death and any
other amount to which Employee was entitled at the time of his
death.
(b) TERMINATION BY EMPLOYEE
Anything herein to the contrary notwithstanding, Employee may terminate
this Agreement upon 30 days written notice, in which event Employee shall
be entitled to only to his compensation pursuant to Section 4(a)(i) to
the date of termination and any stock option rights which have vested to
the date of termination.
(c) INSURANCE
Employer will have the right to place insurance on Employee's life and/or
disability insurance, at Employer's expense, to cover payments under
Sections 9(a)(ii) and (iii). Employer will use reasonable efforts to
obtain and maintain such insurance.
10. REMEDIES
Employer recognizes that because of Employee's special talents, stature and
opportunities in the wholesale electronics industry, and because of the special
creative nature of and compensation practices of said industry and the material
impact that individual projects can have on a wholesale electronics company's
results of operations, in the event of termination by Employer hereunder (except
under Section 9(a)(I)), the Employer acknowledges and agrees that the provisions
of this Agreement regarding further payments of base salary, bonuses and the
exercisability of rights constitute fair and reasonably provisions for the
consequences of such termination, do not constitute a penalty, and such payments
and benefits shall not be limited or reduced by amounts Employee might earn or
be able to earn from any other employment or ventures during the remainder of
the agreed term of this Agreement.
11. FULL TIME AND ATTENTION
During the term of this Agreement, Employee shall devote his full time and
personal attention to the business of Employer and shall not engage in any other
business or occupation without first having obtained the consent in writing of
Employer; provided that nothing herein shall be construed so as to prevent
Employee
<PAGE> 4
from making investments of a strictly passive nature so long as the undertaking
forming the subject matter of any such investment is not competitive with the
business or undertaking from time to time carried on by Employer. Further,
nothing shall restrict Employee from investing in any shares of any corporation
which competes with the business or undertaking of Employer and whose shares are
publicly traded, so long as Employee does not own, directly or indirectly, more
than five (5%) percent of the issued and outstanding shares of such corporation.
12. INDEMNIFICATION
To induce Employee to accept employment and continue as an officer and
director of Employer and its subsidiaries, Employer agrees to indemnify and hold
harmless Employee from any losses, expenses (including attorneys' fees),
judgments, fines, amounts paid in settlement actually and reasonably incurred by
him in any investigation, action, suit or proceeding, including any appeal
thereof, and any other costs in connection with any proceeding or claim made
against Employee involving him by reason of his being or having been an officer
and/or director of Employer and/or its subsidiaries, if he acted in good faith
and in a manner he reasonably believe to be in or not opposed to the best
interest of Employer and/or its subsidiaries, and with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. This indemnification provision is not to otherwise modify or limit in
any way the indemnification provided by the corporate law of the Province of
Ontario or that provided in Employer's Articles of Incorporation or By-laws, and
is to provide Employee with the fullest indemnification in accordance with the
law.
13. ARBITRATION
Any controversies between Employer and Employee involving the construction
or application of any of the terms, provisions or conditions of this Agreement
shall on the written request of either party served on the other be submitted to
arbitration. Such arbitration shall comply with and be governed by the
provisions of the Ontario Arbitrations Act. An arbitration demand must be made
within one (1) year of the date on which the party demanding arbitration first
had notice of the existence of the claim to be arbitrated, or the right to
arbitration along with such claim shall be considered to have been waived. An
arbitrator shall be selected according to the procedures of the Ontario
Arbitrations Act. The cost of arbitration shall be born by the losing party or
in such proportions as the arbitrator shall decide. The arbitrator shall have no
authority to add to, subtract from or otherwise modify the provisions of this
Agreement, or to award punitive damages to either party. Any submission to
arbitration shall be a condition precedent to the bringing of any court
proceeding in any jurisdiction.
14. ATTORNEY'S FEES AND COSTS
If any action at law or in equity is necessary to enforce or interpret the
terms of this Agreement, the prevailing party shall be entitled to reasonable
attorney's fees, costs and necessary disbursements in addition to any other
relief to which he may be entitled.
15. ENTIRE AGREEMENT; SURVIVAL
(a) This Agreement contains the entire agreement between the parties with
respect to the transactions contemplated herein and supersedes,
effective as of the date hereof any prior agreement or understanding
between Employer and Employee with respect to Employee's employment by
Employer. The unenforceability of any provision of this Agreement
shall not effect the enforceability of any other provision. This
Agreement may not be amended except by an agreement in writing signed
by the Employee and the Employer, or any waiver, change, discharge or
modification as sought. Waiver of or failure to exercise any rights
provided by this Agreement and in any respect shall not be deemed a
waiver of any further or future rights.
(b) The provisions of this Agreement shall survive the termination
thereof, where applicable.
16. ASSIGNMENT
This Agreement shall not be assigned to other parties.
<PAGE> 5
17. GOVERNING LAW
This Agreement and all the amendments thereof, and waivers and consents
with respect thereto shall be governed by the laws of the Province of Ontario,
without regard to the conflicts of laws principles thereof. The forum for any
arbitration or proceedings shall be within the Province of Ontario.
18. NOTICES
All notices, responses, demands or other communications under this
Agreement shall be in writing and shall be deemed to have been given when
(a) delivered by hand;
(b) send by telex or telefax, (with receipt confirmed), provided that a
copy is mailed by registered or certified mail, return receipt
requested; or
(c) received by the addressee as sent be express delivery service (receipt
requested) in each case to the appropriate addresses, telex numbers
and telefax numbers as the party may designate to itself by notice to
the other parties:
(i) if to the Employer:
Curtis International Ltd.
7 Kodiak Crescent
Toronto, Ontario
M3J 3E5
Telephone: (416) 636-5553
Telefax: (416) 636-1736
with a copy to:
Grubner, Krauss
Barristers & Solicitors
5140 Yonge Street
Suite 1540
North York, Ontario
M2N 6L7
Attention: Aaron S. Grubner
Telephone: (416) 222-4446
Telefax: (416) 222-9788
(ii) if to the Employee:
40 Kelvin Avenue
Outermount, Quebec
H2V 1T3
Any party may change an address, telex number or telefax number by notice
in writing.
19. SEVERABILITY OF AGREEMENT
Should any part of this Agreement for any reason be declared invalid by a
court of competent jurisdiction, such decision shall not affect the validity of
any remaining portion, which remaining provisions shall remain in full force and
effect as if this Agreement had been executed with the invalid portion thereof
eliminated, and it is hereby declared the intention of the parties that they
would have executed the remaining portions of this Agreement without including
any such part, parts or portions which may, for any reason be hereafter declared
invalid.
<PAGE> 6
IN WITNESS WHEREOF, the undersigned have executed this agreement as of the
day and year first above written.
CURTIS INTERNATIONAL LTD.
Per: /s/ JACOB HERZOG
------------------------------------
Jacob Herzog
/s/ AARON HERZOG
------------------------------------
Aaron Herzog
<PAGE> 7
SCHEDULE "A"
SECTION 4(A)(II) -- PROJECTED GROSS REVENUE AND NET INCOME FOR ENTITLEMENT OF
BONUS
For fiscal year ending May 31, 1999 -- U.S. $32,430,000 gross revenues and U.S.
$1,657,000 net income
For fiscal year ending May 31, 2000 -- U.S. $45,120,000 gross revenues and U.S.
$2,354,000 net income
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT MADE AS OF THE 1ST DAY OF JUNE, 1998, BY AND BETWEEN
CURTIS INTERNATIONAL LTD., AN ONTARIO CORPORATION, HAVING AN OFFICE AT 7 KODIAK
CRESCENT, TORONTO, ONTARIO (HEREINAFTER REFERRED TO AS "EMPLOYER") AND JACOB
HERZOG, AN INDIVIDUAL RESIDING AT 91 HILLMOUNT AVENUE, TORONTO, ONTARIO
(HEREINAFTER REFERRED TO AS "EMPLOYEE");
W I T N E S S E T H :
WHEREAS Employer employs and desires to continue to employ Employee as
Chairman of the Board, Secretary-Treasurer and Principal Accounting Officer;
AND WHEREAS Employee is willing to continue to be employed as Chairman of
the Board, Secretary-Treasurer and Principal Accounting Officer in the manner
provided for herein, and to perform the duties of Chairman of the Board,
Secretary-Treasurer and Principal Accounting Officer of Employer upon the terms
and conditions herein set forth;
NOW THEREFORE in consideration of the promises and mutual covenants herein
set forth it is agreed as follows:
1. EMPLOYMENT
Employer hereby employs Employee as Chairman of the Board,
Secretary-Treasurer and Principal Accounting Officer of Employer.
2. TERM
Subject to Section 10 below, the term of this Agreement shall commence on
June 1, 1998 (the "Commencement Date") and expire two (2) years from such date.
Each twelve (12) month period from the Commencement Date forward during the term
hereof shall be referred to as an "Annual Period". During the term hereof,
Employee shall devote substantially all of his business time and efforts to
Employer and its subsidiaries and affiliates.
3. DUTIES
The Employee shall perform those functions generally performed by persons
of such title and position, shall attend all meetings of the stockholders and
the Board, shall perform any and all related duties and shall have nay and all
powers as may be prescribed by resolution of the Board, and shall be available
to confer and consult with and advise the officers and directors of Employer at
such times that may be required by Employer at such times that may be required
by Employer. Employee shall report directly and solely to the Board.
4. COMPENSATION
(a) (i) Employee shall be paid $175,000.00 U.S. for each Annual Period,
payable not less than monthly;
(ii) Employee is eligible for an annual bonus of $25,000.00 U.S.
payable upon achievement by Employer of its projected net income
as set out on Schedule "A" attached hereto.
(b) (i) In the event of a "Change of Control" whereby:
(A) a person (other than a person who is an office or a Director of
Employer on the effect date hereof), including a "group" as
defined in Section 13(d)(3) of the Securities Exchange Act of
1934, becomes, or obtains the right to become, the beneficial
owner of Employer securities having 30% or more of the combined
voting power of then outstanding securities of the Employer
that may be cast for the election of directors of the Employer;
(B) at any time, the Board nominated slate of candidates for the
Board is not elected;
(C) Employer consummates a merger in which it is not the surviving
entity;
(D) substantially all of Employer's assets are sold; or
<PAGE> 2
(E) Employer's stockholders approve the dissolution or liquidation
of Employer; then
(ii) (A) Employee shall be eligible to receive a one time bonus, equal
on an after-tax basis to one and one-half (1 1/2) times his
then current annual base salary. To effectuate this provision,
the bonus shall be "grossed-up" to include the amount
necessary to reimburse Employee for his federal, state,
provincial and local income tax liability on the bonus and on
the "gross-up" at the respective effective marginal tax rates.
In no event shall this bonus exceed three times Employee's
then current base salary. Said bonus shall be paid within
thirty (30) days of the Change of Control.
(B) All stock options, warrants and stock appreciation rights
("rights") granted by Employer to Employee under any plan or
otherwise prior to the effective date of the Change of
Control, shall become vested, accelerate and become
immediately exercisable.
(c) Employer shall include Employee in its health insurance program
available to Employer's executive officers and shall pay 100% of the
premiums for such program;
(d) Employee shall have the right to participate in any other employee
benefit plans established by Employer;
(e) Employee shall be entitled to a car provided to him by the Company and
the Company will pay all insurance and maintenance and expenses in
connection therewith in an amount of at least $1,000.00 U.S. monthly;
(f) In the event that this Agreement is not renewed between Employer and
Employee following a Change of Control on terms mutually satisfactory
to Employer and Employee, then the foregoing provisions of Section
4(b)(ii)(A) and (B) shall apply.
5. BOARD OF DIRECTORS
Employer agrees that so long as this Agreement is in effect, Employee will
be nominated to the Board as part of management's slate of Directors.
6. EXPENSES
Employee shall be reimbursed for all of his actual out of pocket expenses
incurred in the performance of his duties hereunder, provided such expenses are
acceptable to Employer, which approval shall not be unreasonably withheld, for
business related travel and entertainment expense, and that Employee shall
submit to Employer reasonably detailed receipts with respect thereto.
7. VACATION
Employee shall be entitled to receive 4 weeks paid vacation time after each
year of employment upon dates agreed upon by Employer. Upon separation of
employment, for any reason, vacation time accrued and not used shall be paid at
the salary rate of Employee in effect at the time of employment separation, to a
maximum accrued amount equivalent to four (4) weeks paid vacation.
8. SECRECY
At no time shall Employee disclose to any unauthorized person any
confidential or secret information (not already constituting information
available to the public) concerning internal affairs or proprietary business
operations of Employer.
9. TERMINATION
(a) TERMINATION BY EMPLOYER
(i) Employer may terminate this Agreement upon written notice for
Cause. For purposes hereof, "Cause" shall mean (A) engaging by the
Employee in conduct that constitutes activity in direct
competition with Employer; and/or (B) any action or omission of
the Employee which constitutes a willful and material breach of
this Agreement which is not cured or as to which
<PAGE> 3
diligent attempts to cure have not commenced within thirty (30)
business days after receipt by Employee of notice of same, and/or
(C) fraud, embezzlement or misappropriate as against the Employer,
and/or (D) the conviction (from which no appeal can be taken) of
Employee for any criminal act which is a felony, and/or (E) the
habitual abuse of alcohol or controlled substances. Notwithstanding
anything to the contrary in this Section 9(a)(I), Employer may not
terminate Employee's employment under this Agreement for Cause
unless Employee shall have first received notice from the Board
advising Employee of the specific acts or omissions alleged to
constitute Cause, and such acts or omissions continue after
Employee shall have had a reasonable opportunity (at least 10 days
from the date Employee received the notice from the Board) to
correct the acts or omissions so complained of.
(ii) Employer may terminate Employee's employment under this Agreement
if, as a result of any physical or mental disability, Employee
shall fail or be unable to perform his duties under this Agreement
for any consecutive period of 180 days during any twelve month
period. If Employee's employment is terminated under this Section
9(a)(ii): (A) Employee shall be paid twice his full compensation
under Section 4(a) of this Agreement for a period of two (2) years
from the date of termination; and (B) Employee shall continue to
be entitled, insofar as is permitted under applicable insurance
policies or plans, to such general medical and employee benefit
plans (including profit sharing or pension plans) as Employee had
been entitled to on the date of termination. Any amounts payable
by Employer to Employee under this paragraph shall be reduced by
the amount of any disability payments payable by or pursuant to
plans provided by Employer and actually paid to Employee.
(iii) this Agreement automatically shall terminate upon the death of
Employee, except that Employee's estate shall be entitled to
receive one and one half times the compensation payable under
Section 4(a) of this Agreement for a period of two (2) years from
the date of Employee's death and the pro rata amount payable under
Section 4(a)(ii) for the period prior to Employee's death and any
other amount to which Employee was entitled at the time of his
death.
(b) TERMINATION BY EMPLOYEE
Anything herein to the contrary notwithstanding, Employee may terminate
this Agreement upon 30 days written notice, in which event Employee shall
be entitled to only to his compensation pursuant to Section 4(a)(i) to
the date of termination and any stock option rights which have vested to
the date of termination.
(c) INSURANCE
Employer will have the right to place insurance on Employee's life and/or
disability insurance, at Employer's expense, to cover payments under
Sections 9(a)(ii) and (iii). Employer will use reasonable efforts to
obtain and maintain such insurance.
10. REMEDIES
Employer recognizes that because of Employee's special talents, stature and
opportunities in the wholesale electronics industry, and because of the special
creative nature of and compensation practices of said industry and the material
impact that individual projects can have on a wholesale electronics company's
results of operations, in the event of termination by Employer hereunder (except
under Section 9(a)(I)), the Employer acknowledges and agrees that the provisions
of this Agreement regarding further payments of base salary, bonuses and the
exercisability of rights constitute fair and reasonably provisions for the
consequences of such termination, do not constitute a penalty, and such payments
and benefits shall not be limited or reduced by amounts Employee might earn or
be able to earn from any other employment or ventures during the remainder of
the agreed term of this Agreement.
11. FULL TIME AND ATTENTION
During the term of this Agreement, Employee shall devote his full time and
personal attention to the
<PAGE> 4
business of Employer and shall not engage in any other business or occupation
without first having obtained the consent in writing of Employer; provided that
nothing herein shall be construed so as to prevent Employee from making
investments of a strictly passive nature so long as the undertaking forming the
subject matter of any such investment is not competitive with the business or
undertaking from time to time carried on by Employer. Further, nothing shall
restrict Employee from investing in any shares of any corporation which competes
with the business or undertaking of Employer and whose shares are publicly
traded, so long as Employee does not own, directly or indirectly, more than five
(5%) percent of the issued and outstanding shares of such corporation.
12. INDEMNIFICATION
To induce Employee to accept employment and continue as an officer and
director of Employer and its subsidiaries, Employer agrees to indemnify and hold
harmless Employee from any losses, expenses (including attorneys' fees),
judgments, fines, amounts paid in settlement actually and reasonably incurred by
him in any investigation, action, suit or proceeding, including any appeal
thereof, and any other costs in connection with any proceeding or claim made
against Employee involving him by reason of his being or having been an officer
and/or director of Employer and/or its subsidiaries, if he acted in good faith
and in a manner he reasonably believe to be in or not opposed to the best
interest of Employer and/or its subsidiaries, and with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. This indemnification provision is not to otherwise modify or limit in
any way the indemnification provided by the corporate law of the Province of
Ontario or that provided in Employer's Articles of Incorporation or By-laws, and
is to provide Employee with the fullest indemnification in accordance with the
law.
13. ARBITRATION
Any controversies between Employer and Employee involving the construction
or application of any of the terms, provisions or conditions of this Agreement
shall on the written request of either party served on the other be submitted to
arbitration. Such arbitration shall comply with and be governed by the
provisions of the Ontario Arbitrations Act. An arbitration demand must be made
within one (1) year of the date on which the party demanding arbitration first
had notice of the existence of the claim to be arbitrated, or the right to
arbitration along with such claim shall be considered to have been waived. An
arbitrator shall be selected according to the procedures of the Ontario
Arbitrations Act. The cost of arbitration shall be born by the losing party or
in such proportions as the arbitrator shall decide. The arbitrator shall have no
authority to add to, subtract from or otherwise modify the provisions of this
Agreement, or to award punitive damages to either party. Any submission to
arbitration shall be a condition precedent to the bringing of any court
proceeding in any jurisdiction.
14. ATTORNEY'S FEES AND COSTS
If any action at law or in equity is necessary to enforce or interpret the
terms of this Agreement, the prevailing party shall be entitled to reasonable
attorney's fees, costs and necessary disbursements in addition to any other
relief to which he may be entitled.
15. ENTIRE AGREEMENT; SURVIVAL
(a) This Agreement contains the entire agreement between the parties with
respect to the transactions contemplated herein and supersedes,
effective as of the date hereof any prior agreement or understanding
between Employer and Employee with respect to Employee's employment by
Employer. The unenforceability of any provision of this Agreement
shall not effect the enforceability of any other provision. This
Agreement may not be amended except by an agreement in writing signed
by the Employee and the Employer, or any waiver, change, discharge or
modification as sought. Waiver of or failure to exercise any rights
provided by this Agreement and in any respect shall not be deemed a
waiver of any further or future rights.
(b) The provisions of this Agreement shall survive the termination
thereof, where applicable.
<PAGE> 5
16. ASSIGNMENT
This Agreement shall not be assigned to other parties.
17. GOVERNING LAW
This Agreement and all the amendments thereof, and waivers and consents
with respect thereto shall be governed by the laws of the Province of Ontario,
without regard to the conflicts of laws principles thereof. The forum for any
arbitration or proceedings shall be within the Province of Ontario.
18. NOTICES
All notices, responses, demands or other communications under this
Agreement shall be in writing and shall be deemed to have been given when
(a) delivered by hand;
(b) send by telex or telefax, (with receipt confirmed), provided that a
copy is mailed by registered or certified mail, return receipt
requested; or
(c) received by the addressee as sent be express delivery service (receipt
requested) in each case to the appropriate addresses, telex numbers
and telefax numbers as the party may designate to itself by notice to
the other parties:
(i) if to the Employer:
Curtis International Ltd.
7 Kodiak Crescent
Toronto, Ontario
M3J 3E5
Telephone: (416) 636-5553
Telefax: (416) 636-1736
with a copy to:
Grubner, Krauss
Barristers & Solicitors
5140 Yonge Street
Suite 1540
North York, Ontario
M2N 6L7
Attention: Aaron S. Grubner
Telephone: (416) 222-4446
Telefax: (416) 222-9788
(ii) if to the Employee:
91 Hillmount Avenue
Toronto, Ontario
Any party may change an address, telex number or telefax number by notice
in writing.
19. SEVERABILITY OF AGREEMENT
Should any part of this Agreement for any reason be declared invalid by a
court of competent jurisdiction, such decision shall not affect the validity of
any remaining portion, which remaining provisions shall remain in full force and
effect as if this Agreement had been executed with the invalid portion thereof
eliminated, and it is hereby declared the intention of the parties that they
would have executed the remaining portions of this Agreement without including
any such part, parts or portions which may, for any reason be hereafter declared
invalid.
<PAGE> 6
IN WITNESS WHEREOF, the undersigned have executed this agreement as of the
day and year first above written.
CURTIS INTERNATIONAL LTD.
Per: /s/ AARON HERZOG
------------------------------------
Aaron Herzog
/s/ JACOB HERZOG
------------------------------------
Jacob Herzog
<PAGE> 7
SCHEDULE "A"
SECTION 4(A)(II) -- PROJECTED GROSS REVENUE AND NET INCOME FOR ENTITLEMENT OF
BONUS
For fiscal year ending May 31, 1999 -- U.S. $32,430,000 gross revenue and U.S.
$1,657,000 net income
For fiscal year ending May 31, 2000 -- U.S. $45,120,000 gross revenue and U.S.
$2,354,000 net income
<PAGE> 1
EXHIBIT 10.6
CIBC
COMMERCIAL BANKING CENTRE
1 CITY CENTRE DRIVE SUITE 200
MISSISSAUGA, ONTARIO
L5B 1M2
May 14, 1998
Curtis International Ltd.
7 Kodiak Crescent
Downsview, Ontario
M3J 3E5
Attention: Mr. Jacob Herzog
Dear Mr. Herzog:
We, Canadian Imperial Bank of Commerce ("CIBC"), are pleased to establish
the following Credits for you, our customer.
OVERALL CREDIT LIMIT
Overall Credit Limit:...... The Total use of Credits:
Operating Line
Letters of Credits/Guarantees
Corporate VISA
Cheque Credit
is not at any time to exceed $12,020,000.
CREDIT A: OPERATING LINE
- 75% of the Receivable Value, plus 85% of insured
Receivable Value, plus 85% of Major Receivable
Value*, plus
- 33% of the Inventory Value at cost, except this
amount cannot exceed $1,000,000 ,** minus
- all Priority Claims
*Major Accounts Include: The Bay, The Brick
Warehouse Ltd., Price Costco Canada Inc., Le Groupe
Jean Coutu, London Drugs Limited, Sears Canada
Inc., Toys R Us (Canada) Ltd., Future Shop Limited,
Woolworth U.S.A., The Bargain Shop, Rich's U.S.A.
and Zellers Limited.
** The inclusion of inventory is for the period
January 1 to June 30 annually. For the period July
1 to December 31 inventory will be excluded from
the margin calculation.
Description and Rate:...... A revolving demand credit, for general business
purposes, having the following parts:
(1) Canadian dollar loans and overdrafts and L/C
Acceptances. The Interest Rate is as follows:
Prime Rate plus .50% per year.
(2) U.S. dollar loans and overdrafts and L/C
Acceptances. Loans and overdrafts under this
part of Credit A may not at any time exceed
the Canadian equivalent of US$7,000,000. The
Interest Rate is as follows: U.S. Base Rate
plus .50% per year.
If we sign an L/C Acceptance, the available
Credit Limit will be reduced by the amount of
the L/C Acceptance.
<PAGE> 2
CLASS B: LETTERS OF CREDIT
Credit Limit:
$8,000,000 by way of:
Canadian dollar or foreign currency L/Cs. L/Cs may
not have terms to expiry of more than 12 months.
Our standard L/C documentation is also required.
The fees are as follows:
If there is a drawing under any L/C, we will pay it
by drawing on your Operating Account, unless you
have made other arrangements with us.
CREDIT C: CORPORATE VISA.
Credit Limit:.............. $10,000.
Documentation:............. Our standard VISA documentation.
CREDIT D: CHEQUE CREDIT
Credit Limit:.............. $10,000.
Description:............... You may negotiate cheques at our Keele & Sheppard,
Downsview, Ontario Branch(es) in a total face
amount each day up to Credit Limit of this Credit.
SECURITY
Security:.................. The following security is required:
Security Agreement
(GSA):..................... All personal property of the business now owned
(which includes among other things inventory,
equipment and receivables), and all personal
property acquired in the future.
All real property now owned, and all real property
owned in the future.
Bank Act security:......... Security under section 427 of the Bank Act.
Guarantee.................. Guarantee from Aaron Herzog in an amount that is
unlimited secured by acknowledged assignment of
life insurance in the amount of $1,000,000.
Guarantee from Jacob Herzog in an amount that is
unlimited secured by acknowledged assignment of
life insurance in the amount of $1,000,000.
Guarantee from AEG Trading Limited, in favor of
Curtis International Ltd., in an amount that is
unlimited.
Guarantee from Worldwide Holdings Limited in an
amount that is unlimited, secured by a $3,500,000
demand debenture providing a first floating charge
over all the company's assets.
Assignment and Postponement
of Claim:................ Assignment and postponement of claim from Worldwide
Holdings Limited in an amount that is unlimited.
Assignment and postponement of claim from AEG
Trading Limited in an amount that is unlimited.
Insurance:................. Acknowledged assignment of fire and other perils
insurance on the business assets, with loss payable
to CIBC firstly.
COVENANTS
Covenants:................. You will ensure that:
Current Ratio: Your Current Ratio is not at any
time less than 1.35:1.
Debt to Effective Equity Ratio: Your Debt to
Effective Equity Ratio does not at any time exceed
2.25.
<PAGE> 3
Minimum Shareholders' Equity: The Minimum
Shareholders' Equity is not at any time less than
$3,700,000.
Capital Expenditures: There will be no capital
expenditures for fixed or capital assets in the
current fiscal year without CIBC's prior consent
(This amount includes expenditures made by all
subsidiaries.)
Dividends and Withdrawals: There will be no
dividends, shareholder loan repayments and other
capital withdrawals without our prior consent.
CONDITIONS PRECEDENT
The shareholders will make a cash injection of a
minimum of $500,000 prior to any additional funds
being advanced.
All security is to be in properly executed and
registered under the PPSA prior to any additional
funds being advanced.
The documentation required by CIBC Trade Finance in
respect to the Letter of Credit facility, is to be
properly executed and in form satisfactory to CIBC
by no later than June 30, 1998.
The CIBC Overnight Money Market Trader account is
to be discontinued unless there are surplus funds
and all terms, covenants and conditions herein are
in compliance.
REPORTING REQUIREMENTS
Reporting Requirements:.... (1) Within 30 days of each calendar month-end, a
summary of Receivable Value and a summary of
Inventory Value, together with an aged list of
receivables and aged list of accounts payable
and a Monthly Statement of Available Credit
Limit, as of that month-end.
(2) Within 30 days of the end of each fiscal
quarter, financial statements for that fiscal
quarter on an in-house basis.
(3) Within 90 days of each fiscal year-end,
financial statements for that fiscal year on
an audited basis.
(4) Within 90 days of each fiscal year-end, a
business plan/forecast for the next fiscal
year, including month-by-month projected
balance sheets, income statements and cash
flow projections.
(5) Within 90 days of each fiscal year-end
financial statements form guarantor(s).
(6) A quarterly cash flow forecast covering the
short term requirements is to be provided.
FEES
Loan Administration:....... $175 per month
Set-Up:.................... A one time only fee of $10,000.00 (payable on
acceptance of this offer)
Review:.................... A fee of 1/8 of 1% of the Overall credit Limit,
with a maximum of $10,000.
Amendment:................. If you require an amendment to this Agreement,
there will be a fee to be agreed between CIBC and
the Borrower at the time of the request.
Late Reporting:............ $250, per occurrence.
<PAGE> 4
OTHER PROVISIONS
Default Interest Rate:..... Prime rate plus 5% per year. If the Credit Limit of
a Credit, or the Credit Limit of part of a Credit,
or the Overall Credit Limit, is exceeded at any
time, interest at the Default Rate is calculated on
that excess amounts. In connection with any amount
in foreign currency, see "Foreign Currency
Conversion" in the Attached Schedule.
Next Scheduled Review
Date:...................... September 30, 1998.
Standard Credit Terms:..... The attached Schedule -- Standard Credit Terms
forms part of this Agreement.
Please indicate your acceptance of these terms by returning a signed copy
of this Agreement. If we do not receive a signed copy by May 15, 1998, then this
offer will expire.
Upon acceptance, this Agreement replaces the existing credit agreement
dated July 26, 1996, between you and CIBC. Outstanding amounts (and security)
under that Agreement will be covered by this Agreement.
Yours truly,
CANADIAN IMPERIAL BANK OF COMMERCE
By: /s/ ANNE JEMISON
------------------------------------
Anne Jemison
Director
Phone No.: (905) 566-7796
Fax No.: (905) 279-9284
By: /s/ HUGH STEVENSON
------------------------------------
Hugh Stevenson
Commercial Lending Specialist
Phone No.: (905) 566-3702
Fax No.: (905) 279-9284
Acknowledgment:............ The undersigned certifies that all information
provided to CIBC is true, and acknowledges receipt
of a copy of this agreement (including any
schedules referred to above).
<PAGE> 1
EXHIBIT 10.7
DEMAND PROMISSORY NOTE
DATE: JULY 15, 1998 PRINCIPAL AMOUNT: $900,000.00 U.S.
FOR VALUE RECEIVED, Curtis International Limited, of 7 Kodiak, North York,
Ontario, M3J 3E5, (the "Debtor") promises to pay on demand or, if demand has not
earlier been made, on October 01, 1998, to Mr. Benedict, of 10 rue Crenpin,
Geneva, Switzerland, 1260, (the "Lender") the principal sum of $900,000.00 in
lawful money of the United States of America with interest payable October 1,
1998, both before and after default, at a rate per annum of 7.50%.
The Debtor further promises to and agrees with the Lender that all payments
in regard to principal or interest to be made by the Debtor hereunder shall be
made without set off or counterclaim.
The principal amount, accrued interest, and other amounts outstanding under
this note may be declared to be due and payable at any time, and the Debtor
waives demand and presentment for payment, protest, notice of protest, or other
notice of any kind.
CURTIS INTERNATIONAL LIMITED
Per: /s/ JACOB HERZOG
Jacob Herzog
Chairman of the Board
<PAGE> 1
EXHIBIT 10.8
PROMISSORY NOTE
TO: 1243722 ONTARIO INC. (THE "PAYEE")
$253,368.00 CDN (THE "PRINCIPAL SUM")
WHEREAS, the Payee has advanced the Principal Sum to Curtis International Ltd.
(the "Payor") which is currently outstanding and the Payor and the Payee have
agreed upon the repayment terms of the Principal Sum.
NOW, THEREFORE, this Promissory Note witnesses as follows:
FOR VALUE RECEIVED, the Payor hereby agrees to pay to the Payee at Toronto,
Ontario, Canada, the Principal Sum, with interest thereon at the rate of eight
(8%) percent per annum commencing as and from June 1, 1998 as follows:
The Principal Sum shall be repaid in six (6) equal quarter yearly
installments on the last day of the month in which each quarter-year occurs, the
first payment commencing 90 days from the effective date of the Registration
Statement on Form SB-2, with interest thereon at the rate of eight (8%) percent
per annum payable quarter-yearly on the dates that the portions of the Principal
Sum are payable. Interest from June 1, 1998 shall be payable quarterly and shall
be accrued and shall be payable with the first payment. Quarterly payments shall
be made only if the Company is profitable on a post-tax basis for such quarter.
In the event that the Payor has not completed its initial public offering
by October 31, 1998, then the amounts represented by this Note shall be payable
on demand.
The Payor shall have the right, at any time or times, without notice or
bonus, to prepay any part or parts of the Principal Sum and accrued interest
thereon.
DATED as of 1st day of June, 1998.
CURTIS INTERNATIONAL LTD.
Per: /s/ AARON HERZOG
------------------------------------
Aaron Herzog
President
<PAGE> 2
PROMISSORY NOTE
TO: ARTUS INTERNATIONAL LTD. (THE "PAYEE")
$550,032.00 CDN (THE "PRINCIPAL SUM")
WHEREAS, the Payee has advanced the Principal Sum to Curtis International
Ltd. (the "Payor") which is currently outstanding and the Payor and the Payee
have agreed upon the repayment terms of the Principal Sum.
NOW, THEREFORE, this Promissory Note witnesses as follows:
FOR VALUE RECEIVED, the Payor hereby agrees to pay to the Payee at Toronto,
Ontario, Canada, the Principal Sum, with interest thereon at the rate of eight
(8%) percent per annum commencing as and from June 1, 1998 as follows:
The Principal Sum shall be repaid in six (6) equal quarter yearly
installments on the last day of the month in which each quarter-year occurs, the
first payment commencing 90 days from the effective date of the Registration
Statement on Form SB-2, with interest thereon at the rate of eight (8%) percent
per annum payable quarter-yearly on the dates that the portions of the Principal
Sum are payable. Interest from June 1, 1998 shall be payable quarterly and shall
be accrued and shall be payable with the first payment. Quarterly payments shall
be made only if the Company is profitable on a post-tax basis for such quarter.
In the event that the Payor has not completed its initial public offering
by October 31, 1998, then the amounts represented by this Note shall be payable
on demand.
The Payor shall have the right, at any time or times, without notice or
bonus, to prepay any part or parts of the Principal Sum and accrued interest
thereon.
DATED as of 1st day of June, 1998.
CURTIS INTERNATIONAL LTD.
Per: /s/ AARON HERZOG
------------------------------------
Aaron Herzog
President
<PAGE> 3
PROMISSORY NOTE
TO: 1279594 ONTARIO INC. (THE "PAYEE")
$253,368.00 CDN (THE "PRINCIPAL SUM")
WHEREAS, the Payee has advanced the Principal Sum to Curtis International
Ltd. (the "Payor") which is currently outstanding and the Payor and the Payee
have agreed upon the repayment terms of the Principal Sum.
NOW, THEREFORE, this Promissory Note witnesses as follows:
FOR VALUE RECEIVED, the Payor hereby agrees to pay to the Payee at Toronto,
Ontario, Canada, the Principal Sum, with interest thereon at the rate of eight
(8%) percent per annum commencing as and from June 1, 1998 as follows:
The Principal Sum shall be repaid in six (6) equal quarter yearly
installments on the last day of the month in which each quarter-year occurs, the
first payment commencing 90 days from the effective date of the Registration
Statement on Form SB-2, with interest thereon at the rate of eight (8%) percent
per annum payable quarter-yearly on the dates that the portions of the Principal
Sum are payable. Interest from June 1, 1998 shall be payable quarterly and shall
be accrued and shall be payable with the first payment. Quarterly payments shall
be made only if the Company is profitable on a post-tax basis for such quarter.
In the event that the Payor has not completed its initial public offering
by October 31, 1998, then the amounts represented by this Note shall be payable
on demand.
The Payor shall have the right, at any time or times, without notice or
bonus, to prepay any part or parts of the Principal Sum and accrued interest
thereon.
DATED as of 1st day of June, 1998.
CURTIS INTERNATIONAL LTD.
Per: /s/ AARON HERZOG
------------------------------------
Aaron Herzog
President
<PAGE> 1
EXHIBIT 23.1
CONSENT OF SCHWARTZ LEVITSKY FELDMAN
The Undersigned, Schwartz Levitsky Feldman, Chartered Accountants hereby
consents to the use of our name and the use of our opinion dated July 24, 1998
for Curtis International Ltd. (the "Company") as filed with its Registration
Statement on Form SB-2 being filed by the Company.
Date: August 14, 1998
SCHWARTZ LEVITSKY FELDMAN,
Chartered Accountants
/s/ Schwartz Levitsky Feldman
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EXHIBIT 23.3
NOMINEE'S CONSENT
The undersigned hereby consents to be named as a nominee to the Board of
Directors of Curtis International Ltd., as stated in the Registration Statement
filed on Form SB-2 registration number 333-56661, as filed with the Securities
and Exchange Commission on June 12, 1998, and all amendments thereto.
/s/ JAMES S. CASSEL
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James S. Cassel, Nominee
Date: August 14, 1998
