SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For The Quarter Ended February 29, 2000 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.)
315 Atwell Drive, Toronto, ONTARIO M9W5C1
- ---------------------------------- -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 416-674-2123
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 14, 2000, 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 29, 2000 and May 31, 1999......... 2
Interim Statements of Income - For the three and nine months
ended February 29, 2000 and February 28, 1999...................... 3
Interim Statements of Cash Flows - For the nine months
ended February 29, 2000 and February 28, 1999...................... 4
Interim Statements of Stockholders Equity For the nine months
ended February 29, 2000............................................ 5
Notes to Interim Financial Statements..............................6-8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...............................9-10
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES...............................................11
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K....................................11
SIGNATURES...................................................................12
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
CURTIS INTERNATIONAL LIMITED
INTERIM BALANCE SHEETS As of February 29, 2000 and May 31, 1999 (Amounts
expressed in US dollars) (Unaudited)
FEBRUARY 29, MAY 31,
2000 1999
---- ----
$ $
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash 4,125,511 4,613,209
Accounts receivable 6,699,791 4,108,487
Inventory 3,023,199 4,997,296
Prepaid expenses and sundry assets 139,531 58,752
------------------------------------
13,988,032 13,777,744
PROPERTY, PLANT AND EQUIPMENT 523,815 310,530
DEFERRED INCOME TAXES 496,823 575,672
------------------------------------
15,008,670 14,663,946
====================================
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness - 1,685,323
Accounts payable 2,622,008 1,042,253
Income taxes payable 135,348 1,110,132
Advances from affiliated parties 431,790 656,762
------------------------------------
3,189,145 4,494,470
------------------------------------
SHAREHOLDERS' EQUITY
CAPITAL STOCK 7,342,163 7,342,163
CUMULATIVE TRANSLATION ADJUSTMENT 128,685 (47,062)
RETAINED EARNINGS 4,348,676 2,874,375
------------------------------------
11,819,525 10,169,476
------------------------------------
15,008,670 14,663,946
====================================
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CURTIS INTERNATIONAL LIMITED
INTERIM STATEMENTS OF INCOME
For the three and nine months ended
(Amounts expressed in US dollars)
(Unaudited)
For the period ended February 29,
three months nine months
2000 1999 2000 1999
$ $ $ $
<S> <C> <C> <C> <C>
SALES 7,175,725 7,886,132 36,213,846 33,297,447
Cost of sales 5,884,869 6,460,808 30,001,929 27,467,029
--------------------------------------------------
GROSS PROFIT 1,290,856 1,425,324 6,211,917 5,830,418
--------------------------------------------------
EXPENSES
Adminstrative 581,272 524,169 1,458,681 1,536,694
Selling 404,860 412,686 1,703,701 1,755,844
Financial (60,687) 160,044 374,090 558,742
--------------------------------------------------
925,445 1,096,899 3,536,472 3,851,280
--------------------------------------------------
INCOME BEFORE INCOME TAXES 365,411 328,425 2,675,445 1,979,138
Income taxes 152,827 131,375 1,201,144 791,661
--------------------------------------------------
NET INCOME 212,584 197,050 1,474,301 1,187,477
--------------------------------------------------
NET INCOME PER WEIGHTED
AVERAGE COMMON SHARE 0.04 0.04 0.27 0.27
--------------------------------------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 5,373,145 5,343,833 5,373,145 4,331,166
--------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CURTIS INTERNATIONAL LIMITED
INTERIM STATEMENTS OF CASH FLOWS
For the nine months ended
(Amounts expressed in US dollars)
(Unaudited)
February 29, February 28,
2000 1999
$ $
Cash flows from operating activities:
<S> <C> <C>
Net income 1,474,301 1,187,477
---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 65,674 30,144
Deferred Income taxes 86,510 0
Increase in accounts receivable (2,494,735) (2,275,787)
Decrease in inventory 2,023,465 2,380,770
Increase in prepaid expenses and sundry assets (78,816) (87,223)
Increase in accounts payable and accrued expenses 1,609,065 1,194,149
Increase/(decrease) in income taxes payable (978,628) 471,014
---------- ----------
Total Adjustments 232,535 1,713,067
---------- ----------
Net cash provided by operating activities 1,706,836 2,900,544
---------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment (271,429) (54,219)
Payment of mortgage receivable 0 72,570
---------- ----------
Net cash provided by (used in) investing activities (271,429) 18,351
---------- ----------
Cash flows from financing activities:
Proceeds from initial public offering 0 7,127,248
Decrease in bank indebtedness (1,711,070) (7,960,054)
Decrease in advances from affiliated parties (99,977) (49,454)
---------- ----------
Net cash used in financing activities (1,811,047) (882,260)
---------- ----------
---------- ----------
Effect of foreign currency exchange rate changes (112,058) (247,779)
---------- ----------
Net increase/(decrease) in cash/cash equivalents (487,698) 1,788,856
Cash and cash equivalents
-Beginning of period 4,613,209 3,401,181
---------- ----------
-End of period 4,125,511 5,190,037
========== ==========
---------- ----------
Interest paid (received), net 1,149 324,094
========== ==========
---------- ----------
Income taxes paid 1,816,156 121,063
========== ==========
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CURTIS INTERNATIONAL LIMITED
INTERIM STATEMENT OF STOCKHOLDERS' EQUITY
For the nine months ended February 29, 2000
(Amounts expressed in US dollars)
(Unaudited)
Common
Stock Cumulative
Number of Retained Translation
Shares Amounts Earnings Adjustments Total
$ $ $ $
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance as of May 31, 1999 5,373,145 7,342,163 2,874,375 (47,062) 10,169,476
Foreign currency translation (131,939) (131,939)
Net income for the quarter 442,899 442,899
---------------------------------------------------------------
Balance as of August 31, 1999 5,373,145 7,342,163 3,317,274 (179,001) 10,480,436
Foreign currency translation 130,028 130,028
Net income for the quarter 818,818 818,818
---------------------------------------------------------------
Balance as of November 30, 1999 5,373,145 7,342,163 4,136,092 (48,973) 11,429,282
Foreign currency translation 177,658 177,658
Net income for the quarter 212,584 212,584
---------------------------------------------------------------
Balance as of February 29, 2000 5,373,145 7,342,163 4,348,676 128,685 11,819,525
===============================================================
</TABLE>
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<PAGE>
CURTIS INTERNATIONAL LIMITED.
Notes to Interim Financial Statements
February 29, 2000
(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, 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.
d) Other Financial Instruments
The carrying amount of the company's accounts receivable and other financial
instruments 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.
Leasehold improvements are amortized on the straight-line basis over the term of
the lease.
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<PAGE>
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 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 29, February 28,
2000 1999
Closing exchange rate at balance
sheet date 0.6888 0.6632
Average exchange rate for the period 0.6861 0.6592
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.
2. BANK INDEBTEDNESS
The bank indebtedness bears interest at the bank's prime lending rate relative
to the currency in which the debt is incurred 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 $13,776,000 and is limited based on a
formula which relates to accounts receivable, and inventory held by the company.
The company has met all covenants imposed by the bank. As of February 29, 2000
the company was not indebted to the bank.
-7-
<PAGE>
3. CAPITAL STOCK
a) Authorized
15,000,000 shares of Common Stock
1,000,000 shares of Preferred Stock
Issued
February 29, May 31,
2000 1999
Common shares (5,373,145) 7,342,163 7,342,163
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 29,
2000, 120,000 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.
Fully diluted net income per share was the same as the basic net income per
common share.
-8-
<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.
General
Curtis, develops, markets and distributes a broad range of consumer
audio and telecommunication products. Its recent entry into the U.S. market has
been highly successful. The Company's customers include mass merchandisers such
as Bradlees, Dollar General, Bi- Way Stores and Family Dollar; drug store chains
such as Rite-Aid, London Drugs, Thrifty Payless, Jean Coutu and Kerr Drugs;
specialty marketers such as QVC, The Home Shopping Network, Shop at Home;
consumer electronic retailers such as Future Shop Fry's and ABC Warehouse; and
appliance and department stores such as Boscov. The Company sells its products
in both the United States and Canada.
Curtis International Ltd. was incorporated in the Province of Ontario
on December 12, 1990. The Company's principal executive offices are located at
315 Attwell Drive, Toronto, Ontario M9W 5C1.
Results of Operations
Three and Nine Months Ended February 29, 2000 compared to the Three and Nine
Months Ended February 28, 1999.
Sales for the three months ended February 29, 2000 were $7,176,000, a 9.1%
decrease over the third quarter of 1999 sales of $7,886,000. Year to date
revenue for the period ended February 29, 2000 increased by 8.8% over the same
period in 1999. This increase reflected the expansion of the customer base in
the United States.
Gross profit for the third quarter of 2000 was $1,291,000, which is a decrease
of $134,000 (9.4%) over the third quarter of 1999. The year to date gross profit
increased in fiscal 2000 by $381,000 (6.5%) over the same period in 1999. This
was attributed to the increase in sales volume.
Administrative expenses of $1,459,000 for the nine months ended February 29,
2000 were 5.1% lower than the nine months ended February 28, 1999 due to lower
occupancy costs associated with the consolidation of facilities that took place
in January 1999.
Selling expenses of $1,704,000 for the nine months ended February 29, 2000 are
in line with the same period for 1999.
Financial expenses for the nine months ended February 29, 2000 were lower due to
less financing of working capital requirements.
Income before income taxes increased by $37,000 over the prior year to $365,000
for the three months ended February 29, 2000. Year to date income before income
taxes increased by $696,000 over same period 1999. 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 fiscal
2000 has increased by 7.9%, to $213,000 and for the nine-month period have
increased by 24.2% to $1,474,000.
-9-
<PAGE>
Liquidity and Capital Resources
The company had an unfavorable change in the use of cash of $488,000 for the
nine months ended February 29, 2000. The principal uses of cash were traced an
increase in accounts receivable attributable to the seasonal fluctuation in
sales, and repayment of the company's line of credit. This was partially offset
by a decrease in inventory, and an increase in accounts payable.
The Company received net proceeds from a public offering effective November 12,
1998 in the amount of $7,342,163. 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 following 2 years. It is the Company's
intention to utilize a significant portion of the proceeds to aggressively seek
synergistic acquisitions, although we have no understandings or agreements to
acquire any companies at this time. 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.
-10-
<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-Q.
EXPENSE AMOUNT
------- ------
Underwriter's Discounts and Commission $ 836,573
Financial Advisory Fee $ 82,500
Expenses Paid To or For Underwriters $ 35,950
Other Expenses(1) $ 644,291
Total Expenses $ 1,599,314
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.
On December 14, 1998, the Underwriter exercised a portion of the
over-allotment option resulting in additional net proceeds of $754,171 to the
Company.
The net offering proceeds to the Company after deducting the foregoing
expenses were approximately $6,766,411.
To date the Company has utilized the net proceeds from its initial
public offering as follows: repayment of loan $900,000, upgrading of M.I.S
$80,000, relocation to new facilities $100,000, sales and marketing $50,000. The
balance of approximately $5,636,411 has been used to temporarily reduce the
outstanding balance on the Company's line of credit with CIBC and for working
capital and general corporate purposes. The Company's temporary reduction of its
line of credit reduces the interest expense payable by the Company, while
keeping open such line of credit for immediate use by the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 Financial Data Schedule.
(b) There were no reports on Form 8-K filed during the quarter for
which this report is filed.
-11-
<PAGE>
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CURTIS INTERNATIONAL LTD.
April 14, 2000 By: /s/ JACOB HERZOG
----------------------------
Jacob Herzog
Chairman, Treasurer,
Secretary/Principal
Accounting Officer
April 14, 2000 By: /s/ AARON HERZOG
----------------------------
Aaron Herzog
President/Chief Executive
Officer
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> MAY-31-2000 MAY-31-2000
<PERIOD-START> DEC-01-1999 JUN-01-1999
<PERIOD-END> FEB-29-2000 FEB-29-2000
<CASH> 4,125,511 0
<SECURITIES> 0 0
<RECEIVABLES> 6,699,791 6,699,791
<ALLOWANCES> 0 0
<INVENTORY> 3,023,199 3,023,199
<CURRENT-ASSETS> 13,988,032 13,988,032
<PP&E> 523,815 523,815
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 15,008,670 15,008,670
<CURRENT-LIABILITIES> 3,189,145 3,189,145
<BONDS> 0 0
0 0
0 0
<COMMON> 7,342,163 7,342,163
<OTHER-SE> 4,477,361 4,477,361
<TOTAL-LIABILITY-AND-EQUITY> 15,008,670 15,008,670
<SALES> 7,175,725 36,123,846
<TOTAL-REVENUES> 7,175,725 36,123,846
<CGS> 5,884,869 30,001,929
<TOTAL-COSTS> 6,810,314 33,538,401
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 365,411 2,675,445
<INCOME-TAX> 152,827 1,201,144
<INCOME-CONTINUING> 212,584 1,474,301
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 212,584 1,474,301
<EPS-BASIC> .04 .27
<EPS-DILUTED> .04 .27
</TABLE>
