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 November 30, 1998 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: 514-737-2332
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: January 13, 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
Balance Sheet - November 30, 1998................................... 3
Statements of Operations - For the three months and six months
ended November 30, 1998 and November 30, 1997...................... 4
Consolidated Statements of Cash Flows - For the six months
ended November 30, 1998 and November 30, 1997.................... 5
Statements of Stockholders Equity For the six months
ended November 30, 1998.............................................. 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 2 - CHANGES IN SECURITIES................................................13
SIGNATURES....................................................................14
2
<PAGE>
CURTIS INTERNATIONAL LTD.
Interim Balance Sheets
As of November 30, 1998 and May 31, 1998
(Amounts expressed in US dollars) (Unaudited)
<TABLE>
<CAPTION>
November 30, May 31,
1998 1998
$ $
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash 4,016,698 3,401,181
Accounts receivable 9,650,447 4,084,729
Inventory 4,855,530 5,853,118
Prepaid expenses and sundry assets 60,602 8,737
Mortgage receivable (note 2) 67,836 75,553
----------- -----------
18,651,113 13,423,318
DEFERRED ISSUE COSTS -- 89,845
PROPERTY, PLANT AND EQUIPMENT 193,308 172,209
----------- -----------
18,844,421 13,685,372
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (note 3) 5,615,030 8,729,357
Accounts payable 2,669,413 2,259,681
Income taxes payable 1,045,238 534,323
Current portion of advances from
affiliated parties (note 4) 1,177,980 483,535
----------- -----------
10,507,661 12,006,896
ADVANCES FROM AFFILIATED PARTIES -- 241,768
----------- -----------
10,507,661 12,248,664
SHAREHOLDERS= EQUITY
CAPITAL STOCK (note 5) 5,934,634 80
CUMULATIVE TRANSLATION ADJUSTMENT (118,920) (93,990)
RETAINED EARNINGS 2,521,046 1,530,618
----------- -----------
8,336,760 1,436,708
----------- -----------
18,844,421 13,685,372
----------- -----------
</TABLE>
3
<PAGE>
CURTIS INTERNATIONAL LTD.
Interim Statements of Operations
For the three and six months ended November 30, 1998 and 1997
(Amounts expressed in US dollars) (Unaudited)
<TABLE>
<CAPTION>
For the period ended November 30,
three months six months
1998 1997 1998 1997
$ $ $ $
<S> <C> <C> <C> <C>
SALES 16,718,102 11,225,616 25,411,315 15,520,298
Cost of sales 13,966,851 9,270,480 21,006,221 12,627,691
---------- ---------- ---------- ----------
GROSS PROFIT 2,751,251 1,955,136 4,405,095 2,892,607
---------- ---------- ---------- ----------
EXPENSES
Administrative 615,171 470,601 1,012,525 811,400
Selling 797,308 573,271 1,343,158 842,076
Financial 254,856 180,195 398,698 228,907
---------- ---------- ---------- ----------
1,667,335 1,224,067 2,754,381 1,882,383
---------- ---------- ---------- ----------
INCOME BEFORE
INCOME TAXES 1,083,916 731,069 1,650,714 1,010,223
Income taxes 433,567 309,899 660,286 402,950
---------- ---------- ---------- ----------
NET INCOME 650,349 421,170 990,428 607,273
---------- ---------- ---------- ----------
NET INCOME PER WEIGHTED
AVERAGE COMMON SHARE 0.16 0.11 0.26 0.16
---------- ---------- ---------- ----------
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING (note 5) 3,949,667 3,700,000 3,824,833 3,700,000
---------- ---------- ---------- ----------
</TABLE>
4
<PAGE>
CURTIS INTERNATIONAL LTD.
Interim Statements of Cash Flows
For the six months ended November 30, 1998 and 1997
(Amounts expressed in US dollars)
(Unaudited)
<TABLE>
<CAPTION>
November 30, November 30,
1998 1997
Cash flows from operating activities:
<S> <C> <C>
Net income 990,428 607,273
Adjustments to reconcile net income to
net cash used in operating activities:
Amortization 20,096 6,466
Increase in accounts receivable (5,834,889) (5,820,546)
Decrease in inventory 715,191 685,471
Increase in prepaid expenses
and sundry assets (52,901) (3,331)
Increase in accounts payable
and accrued expenses 856,647 653,746
Increase in income taxes payable 543,625 381,811
---------- ----------
Net cash used in
operating activities (2,761,803) (3,489,110)
---------- ----------
Cash flows from investing activities:
Purchases of and equipment (50,084) (4,407)
Payment of mortgage receivable 4,013 8,087
---------- ----------
Net cash provided by (used in)
investing activities (46,071) 3,680
---------- ----------
Cash flows from financing activity:
Proceeds from public offering 6,020,922 --
Increase (decrease) in bank
indebtedness (2,711,886) 4,528,944
Increase (decrease) in advances
from affiliated parties 164,415 (252,355)
---------- ----------
Net cash provided by
financing activities 3,473,451 4,276,589
---------- ----------
Effect of foreign currency exchange
rate changes (50,060) 35,099
---------- ----------
Net increase in cash/cash equivalents 615,517 826,258
Cash and cash equivalents
- -- Beginning of period 3,401,181 1,251,542
---------- ----------
- -- End of period 4,016,698 2,077,800
---------- ----------
Interest paid (received), net 353,757 104,388
---------- ----------
Income taxes paid 18,257 21,382
---------- ----------
</TABLE>
5
<PAGE>
CURTIS INTERNATIONAL LTD.
Interim Statements of Stockholders' Equity
For the six months ended November 30, 1998
(Amounts expressed in US dollars)
(Unaudited)
Cumulative
Common Retained Translation
Stock Earnings Adjustments Total
Balance as of
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
---------- ---------- ---------- ----------
6
<PAGE>
CURTIS INTERNATIONAL LTD.
Notes to Interim Financial Statements
November 30, 1998
(Amounts expressed in US dollars)
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
These 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.
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.
7
<PAGE>
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 company maintains its 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
November 30, May 31,
1998 1998
Closing exchange rate at balance
sheet date 0.6523 0.6863
Average exchange rate for the period 0.6598 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, due in 3 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.
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
cash instruments 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 was due August 31, 1998 and the last payment is due and payable on
November 30, 1999.
5. CAPITAL STOCK
a) Authorized
15,000,000 shares of Common Stock
Issued
November 30, May 31,
1998 1998
Common shares (5,198,000) 5,934,634 80
1,000,000 shares of preferred stock, none of which have been issued.
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 November 30,
1998, 50,000 stock options were issued and outstanding.
c) Earnings Per Share
Net income per common share is computed by dividing net income for the period by
the weighted number of common shares outstanding during the period.
9
<PAGE>
Fully diluted net income per share was the same as the basic net income per
common share.
6. SUBSEQUENT EVENT
On December 14, 1998, the underwriters exercised a portion of their
"Over-Allotment Option" and purchased 175,145 shares resulting in additional net
proceeds to the company of $754,171.
10
<PAGE>
ITEM 2. Management's Discussion and Analysis 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 Six Months Ended November 30, 1998 Compared to the Three and Six
Months Ended November 30, 1997.
Revenues for the three months ended November 30, 1998 were $16.7 million , a 49%
increase over the second quarter of 1997 revenues of $11.2 million . Year to
date revenue for the period ended November 30, 1998 increased by 69% over the
same period in 1997. 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 79%, (based on year to date
actual revenues of $38.6 million CDN).
Gross profit for the second quarter of 1998 was $2.75 million which is an
increase of $800,000 (41%) over the second quarter of 1997. The year to date
gross profit increased in 1998 by $1,513,000 (52%) over the same period in 1997.
This was attributed to the increase in volume.
Selling expenses of $1,343,158 for the six months ended November 30, 1998 and
selling expenses of $797,308 for the second quarter were in line with the same
periods for 1997 taking into account the increased sales volume.
Administrative expenses of $1,012,525 for the six months ended November 30, 1998
were 25% higher than the six months ended November 30, 1997 due to increased
staffing requirements to keep pace with increased sales.
The increase in financial expenses for the six months ended November 30, 1998
was due to financing working capital requirements prior to the receipt of the
proceeds from the public offering.
11
<PAGE>
Income before income taxes increased by $352,847 over the prior year to
$1,083,916 for the three months ended November 30, 1998. Year to date income
before income taxes increased by $640,000 over 1997. 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 second quarter of 1998
has increased by 54%, to $650,349 and for the six-month period have increased
by 63% to $990,428.
Liquidity and Capital Resources
The company had a favorable change in the use of cash for operations of
$2,761,803 for the three months ended November 30, 1998 over November 30, 1997.
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 of a public offering effective November 12,
1998 in the amount of $5,934,554. 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.
12
<PAGE>
PART II OTHER INFORMATION
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.
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.
13
<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.
January 14, 1999 By: /s/ JACOB HERZOG
----------------------------
Jacob Herzog
Chairman, Treasurer,
Secretary/Principal
Accounting Officer
By: /S/ AARON HERZOG
----------------------------
Aaron Herzog
President/Chief Executive
Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001063251
<NAME> CURTIS INTERNATIONAL LTD.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> NOV-30-1998
<CASH> 4,016,698
<SECURITIES> 0
<RECEIVABLES> 9,650,447
<ALLOWANCES> 0
<INVENTORY> 4,855,530
<CURRENT-ASSETS> 18,651,113
<PP&E> 193,308
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,844,421
<CURRENT-LIABILITIES> 10,507,661
<BONDS> 0
<COMMON> 5,934,634
0
0
<OTHER-SE> 2,521,046
<TOTAL-LIABILITY-AND-EQUITY> 18,844,421
<SALES> 25,411,315
<TOTAL-REVENUES> 25,411,315
<CGS> 21,006,221
<TOTAL-COSTS> 21,006,221
<OTHER-EXPENSES> 2,754,381
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,650,714
<INCOME-TAX> 660,286
<INCOME-CONTINUING> 990,428
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 990,428
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
