SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For The Quarter Ended February 28, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For The Transition Period from _______to______
Commission File Number 0-24847
CURTIS INTERNATIONAL LTD.
-------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ONTARIO, CANADA N/A
- --------------- ---
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7 KODIAK CRESCENT, DOWNSVIEW, ONTARIO M3J 3E5
- ------------------------------------- -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 416-636-5553
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: April 12, 1999, 5,373,145
Shares of Common Stock outstanding.
Transitional Small Business Disclosure (check One):
Yes [ ] No [ X ]
<PAGE>
CURTIS INTERNATIONAL LTD.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1- FINANCIAL STATEMENTS
Interim Balance Sheet - February 28, 1999............................ 3
Interim Statements of Operations - For the three months and nine
months ended February 28, 1999 and February 28, 1998................ 4
Interim Statements of Cash Flows - For the nine months
ended February 28, 1999 and February 28, 1998....................... 5
Interim Statements of Stockholders Equity For the nine months
ended February 28, 1999.............................................. 6
Notes to Financial Statements......................................7-10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...............................11-12
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS....................................................
ITEM 2 - CHANGES IN SECURITIES................................................13
ITEM 3 - DEFAULTS UPON SENION SECURITIES......................................
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................
ITEM 5 - OTHER INFORMATION....................................................
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.....................................
SIGNATURES....................................................................14
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CURTIS INTERNATIONAL LTD.
Interim Balance Sheets As of February 28, 1999 and May 31, 1998 (Amounts
expressed in US dollars) (Unaudited)
<TABLE>
<CAPTION>
February 28, May 31,
1999 1998
$ $
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash 5,190,037 3,401,181
Accounts receivable 6,236,631 4,084,729
Inventory 3,168,378 5,853,118
Prepaid expenses and sundry assets 96,192 8,737
Mortgage receivable (note 2) - 75,553
---------- ----------
14,691,238 13,423,318
DEFERRED ISSUE COSTS - 89,845
PROPERTY, PLANT AND EQUIPMENT 218,033 172,209
---------- ----------
14,909,271 13,685,372
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (note 3) 427,157 8,729,357
Accounts payable 3,053,296 2,259,681
Income taxes payable 939,876 534,323
Current portion of advances from
affiliated parties (note 4) 982,723 483,535
---------- ----------
5,403,052 12,006,896
ADVANCES FROM AFFILIATED PARTIES - 241,768
---------- ----------
5,403,052 12,248,664
SHAREHOLDERS' EQUITY
CAPITAL STOCK (note 5) 7,127,248 80
CUMULATIVE TRANSLATION ADJUSTMENT (339,125) (93,990)
RETAINED EARNINGS 2,718,096 1,530,618
---------- ----------
9,506,219 1,436,708
---------- ----------
14,909,271 13,685,372
---------- ----------
</TABLE>
3
<PAGE>
CURTIS INTERNATIONAL LTD.
Interim Statements of Operations
For the three and nine months ended February 28, 1999 and 1998 (Amounts
expressed in US dollars) (Unaudited)
<TABLE>
<CAPTION>
For the period ended February 28,
three months nine months
1999 1998 1999 1998
$ $ $ $
<S> <C> <C> <C> <C>
SALES 7,886,132 6,821,660 33,297,447 22,341,958
Cost of sales 6,460,808 5,714,937 27,467,029 18,342,628
GROSS PROFIT 1,425,324 1,106,723 5,830,418 3,999,330
---------- --------- --------- ---------
EXPENSES
Administrative 524,169 441,791 1,536,694 1,253,191
Selling 412,686 301,532 1,755,844 1,143,609
Financial 160,044 127,851 588,742 356,758
--------- --------- --------- ---------
1,096,899 871,174 3,851,280 2,753,558
--------- --------- --------- ---------
INCOME BEFORE
INCOME TAXES 328,425 235,549 1,979,138 1,245,772
Income taxes 131,375 97,458 791,661 500,408
-------- ------- --------- ---------
NET INCOME 197,050 138,091 1,187,477 745,364
------- ------- --------- ---------
NET INCOME PER
COMMON SHARE
(note 6) 0.04 0.04 0.27 0.20
------- ------- -------- -------
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING
(note 6) 5,343,833 3,700,000 4,331,166 3,700,000
--------- --------- --------- ---------
</TABLE>
4
<PAGE>
CURTIS INTERNATIONAL LTD.
Interim Statements of Cash Flows For the nine months ended February 28, 1999 and
1998 (Amounts expressed in US dollars) (Unaudited)
<TABLE>
<CAPTION>
February 28, February 28,
1999 1998
Cash flows from operating activities:
<S> <C> <C>
Net income 1,187,477 745,364
Adjustments to reconcile net income to
net cash used in operating activities:
Amortization 30,144 9,629
Increase in accounts receivable (2,275,787) (3,796,535)
(Increase)Decrease in inventory 2,380,770 (641,721)
Decrease (Increase) in prepaid expenses
and sundry assets (87,223) 8,537
Increase in accounts payable
and accrued expenses 1,194,149 1,416,996
Increase in income taxes payable 471,014 11,473
Net cash provided by (used in)
operating activities 2,900,544 (2,426,257)
---------- ----------
Cash flows from investing activities:
Purchases of and equipment (54,219) (5,637)
Payment of mortgage receivable 72,570 451
---------- ----------
Net cash provided by
investing activities 18,351 5,186
---------- ----------
Cash flows from financing activity:
Proceeds from public offering 7,127,248 --
(Increase) decrease in
bank indebtedness (7,960,054) 3,518,480
Decrease in advances
from affiliated parties (49,454) (508,782)
Net cash provided by (used in)
financing activities (882,260) 3,009,698
Effect of foreign currency exchange
rate changes (247,779) (4,295)
---------- ----------
Net increase in cash/cash equivalents 1,788,856 764,332
Cash and cash equivalents
- -- Beginning of period 3,401,181 1,251,542
---------- ----------
- -- End of period 5,190,037 2,015,874
---------- ----------
Interest paid (received), net 324,094 201,241
---------- ----------
Income taxes paid 121,063 30,919
---------- ----------
</TABLE>
5
<PAGE>
CURTIS INTERNATIONAL LTD.
Interim Statements of Stockholders' Equity
For the nine months ended February 28, 1999
(Amounts expressed in US dollars)
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Common Retained Translation
Stock Earnings Adjustments Total
$ $ $ $
Balance as of
<S> <C> <C> <C> <C>
May 31, 1998 80 1,530,618 (93,990) 1,436,708
Foreign currency
translation -- -- (19,492) (19,492)
Net income for
the quarter -- 340,079 -- 340,079
---------- ---------- ---------- ----------
Balance as of
August 31, 1998 80 1,870,697 (113,482) 1,757,295
Net proceeds from
public offering 5,934,554 -- -- 5,934,554
Foreign currency
Translation -- -- (5,438) (5,438)
Net income for
the quarter -- 650,349 -- 650,349
---------- ---------- ---------- ----------
Balance as of
November 30,1998 5,934,634 2,521,046 (118,920) 8,336,760
Proceeds from
public offering
and exercise of
"over-allotment
option" 1,192,614 -- -- 1,192,614
Foreign currency
translation -- -- (220,205) (220,205)
Net income for
the quarter -- 197,050 -- 197,050
---------- ---------- ---------- ----------
Balance as of
February 28,1999 7,127,248 2,718,096 (339,125) 9,506,219
========== ========== ========== ========== 6
6
</TABLE>
<PAGE>
CURTIS INTERNATIONAL LTD.
Notes to Interim Financial Statements February 28, 1999
(Amounts expressed in US dollars) (Unaudited)
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a)Basis of Presentation
These interim Interim Financial Statements have been prepared in accordance with
Form 10-QSB specifications and, therefore, do not include all information and
footnotes normally shown in full annual Interim Financial Statements.
b)Principal Activities
The company was incorporated in Canada on December 12, 1990. The company is
principally engaged in the distribution and sales of consumer electronics,
audio, telecommunication products and computer accessories in Canada and the
United States of America.
c)Cash and Bank indebtedness
Cash and bank indebtedness includes cash in bank, amounts due to banks, and any
other highly liquid investments purchased with a maturity of three months or
less. The carrying amount approximates fair value because of the short maturity
of those instruments.
d)Other Financial Instruments
The carrying amount of the company's accounts receivable and approximate fair
value because of the short maturity of these instruments.
e)Long-term Financial Instruments
The fair value of each of the company's long-term financial assets and debt
instruments is based on the amount of future cash flows associated with each
instrument discounted using an estimate of what the company's current borrowing
rate for similar instruments of comparable maturity would be.
f)Inventory
Inventory is valued at the lower of cost and net realizable value. Cost is
determined on the average cost basis.
7
<PAGE>
g)Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are depreciated on the
declining balance basis over their estimated useful lives.
Leasehold improvements are amortized on the straight-line basis over the term of
the lease.
h)Sales
Sales represent the invoiced value of goods supplied to customers. Sales are
recognized upon delivery of goods and passage of title to customers. Sales are
translated to US dollars for reporting purposes only.
i)Foreign Currency Translation
The companies maintained their books and records in Canadian Dollars. Foreign
currency transactions are translated using the temporal method. Under this
method, all monetary items are translated at historical rates. Income and
expenses are translated at the rate in effect of the transaction dates.
Transaction gains and losses are included in the determination of earnings for
the period.
The translation of the Interim Financial Statements from Canadian dollars ("CDN
$") into United States dollars is performed for the convenience of the reader.
Balance sheet accounts are translated using closing exchange rates in effect at
the balance sheet date and income and expense accounts are translated using an
average exchange rate prevailing during each reporting period. No representation
is made that the Canadian dollar amounts could have been, or could be, converted
into United States dollars at the rates on the respective dates and or at any
other certain rates. Adjustments resulting from the translation are included in
the cumulative translation adjustments in stockholders' equity.
The following table sets forth, for the end of periods indicated, the exchange
rate and average rate for the periods translating balance sheet, revenue and
expense items:
Period Ending
February 28, May 31,
1999 1998
Closing exchange rate at balance
sheet date 0.6632 0.6863
Average exchange rate for the period 0.6592 0.6920
j)Use of Estimates
The preparation of Interim Financial Statements requires management to make
estimates and assumptions that affect certain reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the Interim Financial Statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
8
<PAGE>
2.MORTGAGE RECEIVABLE
The company sold land and a building owned by it on February 10, 1994 and took
back a first mortgage, secured by land and a building. Repaid in full during the
period.
3.BANK INDEBTEDNESS
The bank indebtedness bears interest at the bank's prime lending rate plus 0.50%
per annum. As security, the company has provided a general assignment of
accounts receivable, a general security agreement and an assignment of fire
insurance on the business assets. The company's line of credit extends to
$7,825,000 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.
4.ADVANCES FROM AFFILIATED PARTIES
The advances from affiliated parties bear interest at 8% per annum commencing
June 1, 1998. The principal sums shall be repaid in six equal quarter yearly
installments on the last day of the month in which each quarter-year occurs, the
first payment due November 30, 1998 and the last payment is due and payable on
February 28,2000.
9
<PAGE>
5.CAPITAL STOCK
a)Authorized
1,000,000 preferred shares
15,000,000 shares of common stock
Issued
February 28, May 31,
1999 1998
$ $
Common shares(5,373,145) 7,127,248 80
b)Stock Option Plan
The Board of Directors have adopted a stock option plan pursuant to which
400,000 shares of common stock are provided for issuance. As at February 28,
1999, 50,000 stock options were granted.
None of these options have been exercised to date.
6. NET INCOME PER COMMON SHARE
Net income per common share is computed by dividing net income by the weighted
average number of common shares outstanding.
Fully diluted net income per share was the same as basic net income per common
share.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ALANYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The statements contained in this filing that are not historical are forward
looking statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act, including statements regarding the Company's
expectations, liquidity, anticipated cash needs and availability and anticipated
expense levels. All forward looking statements included in this report are based
on information available to the Company on the date hereof, and the Company
assumes no obligation to update any such forward looking statement. It is
important to note that the Company's actual results could differ materially from
those in such forward looking statements.
Results of Operations
Three and Nine Months Ended February 28, 1999 Compared to the Three and Nine
Months Ended February 28, 1998.
Revenues for the three months ended February 28, 1998 were $7.9 million , a 16%
increase over the third quarter of 1998 revenues of $6.8 million . Year to date
revenue for the period ended February 28, 1999 increased by 49% over the same
period in 1998. This increase reflected the expansion of the customer base in
the United States. Actual sales growth in Canadian dollars, net of foreign
exchange differentials, was significantly higher at 61%, (based on year to date
actual revenues of $50.6 million CDN).
Gross profit for the third quarter of 1999 was $1.4 million which is an increase
of $300,000 (29%) over the third quarter of 1998. The year to date gross profit
increased in 1999 by $831,000 (46%) over the same period in 1998.
This was attributed to the increase in sales volume.
Selling expenses of $1,755,844 for the nine months ended February 28, 1999 and
selling expenses of $412,686 for the third quarter were in line with the same
periods for 1998 taking into account the increased sales volume.
Administrative expenses of $1,536,694 for the nine months ended February 28,
1999 were 25% higher than the nine months ended February 28, 1998 due to
increased staffing requirements to keep pace with increased sales.
The increase in financial expenses for the nine months ended February 28, 1999
was due to financing working capital requirements prior to the receipt of the
proceeds from the company's initial public offering. Income from operations
(before income taxes) increased by $92,876 over the same period in the prior
year to $328,425 for the three months ended February 28, 1999. Year to date
income increased by $734,000 over 1998. This improvement reflected continued
sales growth year to date through expanded penetration in the United States and
a broadening of product selection.
As a result of the above factors, net income for the third quarter of 1999
increased by 43%, to $197,050(59% and $442,113 year to date over 1998).
Liquidity and Capital Resources
The company had a favorable change in the use of cash for operations of
$2,900,544 for the nine months ended February 28, 1999 over February 28, 1998.
The principal use of cash was traced to an increase in accounts receivable
attributable to increased sales volume. This was partially offset by an increase
in accounts payable and income taxes.
The Company received net proceeds from its initial public offering in the amount
of $7,127,248 . The Company believes that the proceeds of the initial public
offering, coupled with income from operations will fulfill the Company's working
capital needs for the next 2 years. It is the Company's intention to utilize a
significant portion of the proceeds to aggressively seek synergistic
acquisitions. The company also intends to support its business through increased
marketing, advertising and distribution throughout North America. As the Company
continues to grow, bank borrowings, other debt placements and equity offerings
may be considered, in part, or in combination, as the situation warrants.
11
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not party to any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company completed an initial public offering of its Common Stock,
no par value ("Common Stock") pursuant to a registration statement declared
effective by the Securities and Exchange Commission on November 12, 1998, File
No. 333-56661 ("Registration Statement").
The following are the Company's expenses incurred in connection with
the issuance and distribution of the Securities in the offering from the
effective date of the Registration Statement to the ending date of the reporting
period of this 10-QSB.
<TABLE>
<CAPTION>
EXPENSE AMOUNT
------- ------
<S> <C>
Underwriter's Discounts and Commission $ 749,000
Financial Advisory Fee $ 82,500
Expenses Paid To or For Underwriters $ 35,950
Other Expenses(1) $ 524,700
Total Expenses $ 1,392,150
<FN>
- --------------
(1) Estimate (includes $224,700 non-accountable expense allowance).
</FN>
</TABLE>
None of the foregoing expenses were paid, directly or indirectly, to any
director or officer of the Company or their associates, to any person who owns
10 percent or more of any class or equity of securities of the Company, or to
any affiliate of the Company.
The net offering proceeds to the Company after deducting for the foregoing
expenses were approximately $6,133,800.
On December 14, 1998, the Underwriter exercised a portion of the
over-allotment option resulting in net proceeds of $754,171 to the Company.
The Company did not utilize any of the net proceeds from the sale of the
Securities in the offering from the effective date of the Registration Statement
to the ending date of the reporting period of this 10-QSB.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during
the period covered by this report through the solicitation of proxies or
otherwise.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits (Numbered in Accordance with Item 601 of Regulation S-B).
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
27 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the quarter
for which this report is filed.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CURTIS INTERNATIONAL LTD.
April 13, 1999 By: /s/ JACOB HERZOG
----------------------------
Jacob Herzog
Chairman, Treasurer,
Secretary/Principal
Accounting Officer
By: /S/ AARON HERZOG
----------------------------
Aaron Herzog
President/Chief Executive
Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001063251
<NAME> CURTIS INTERNATIONAL LTD.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 5,190,037
<SECURITIES> 0
<RECEIVABLES> 6,236,631
<ALLOWANCES> 0
<INVENTORY> 3,168,378
<CURRENT-ASSETS> 14,691,238
<PP&E> 218,033
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,909,281
<CURRENT-LIABILITIES> 5,403,052
<BONDS> 0
<COMMON> 7,127,248
0
0
<OTHER-SE> 2,718,096
<TOTAL-LIABILITY-AND-EQUITY> 14,909,271
<SALES> 33,297,447
<TOTAL-REVENUES> 33,297,447
<CGS> 27,467,029
<TOTAL-COSTS> 27,467,029
<OTHER-EXPENSES> 3,851,280
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 588,742
<INCOME-PRETAX> 1,979,138
<INCOME-TAX> 791,661
<INCOME-CONTINUING> 1,187,477
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,187,477
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
