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 November 30, 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.)
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: January 12, 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 - November 30, 1999 and May 31, 1999......... 2
Interim Statements of Income - For the three and six months
ended November 30, 1999 and November 30, 1998...................... 3
Interim Statements of Cash Flows - For the six months
ended November 30, 1999 and November 30, 1998...................... 4
Interim Statements of Stockholders Equity For the six months
ended November 30, 1999............................................ 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>
CURTIS INTERNATIONAL LIMITED
INTERIM BALANCE SHEETS
As of November 30, 1999 and May 31, 1999
(Amounts expressed in US dollars)
(Unaudited)
<TABLE>
<CAPTION>
November 30, May 31,
1999 1999
$ $
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash -- 4,613,209
Accounts receivable 13,295,354 4,108,487
Inventory 3,830,065 4,997,296
Prepaid expenses and sundry assets 103,781 58,752
----------- -----------
17,229,200 13,777,744
PROPERTY, PLANT AND EQUIPMENT 428,579 310,530
DEFERRED INCOME TAXES 518,028 575,672
----------- -----------
TOTAL ASSETS 18,175,807 14,663,946
=========== ===========
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 2,759,410 1,685,323
Accounts payable 3,148,687 1,042,253
Income taxes payable 281,542 1,110,132
Advances from affiliated parties 556,886 656,762
----------- -----------
TOTAL LIABILITIES 6,746,525 4,494,470
----------- -----------
SHAREHOLDERS' EQUITY
CAPITAL STOCK 7,342,163 7,342,163
CUMULATIVE TRANSLATION ADJUSTMENT (48,973) (47,062)
RETAINED EARNINGS 4,136,092 2,874,375
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 11,429,282 10,169,476
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 18,175,807 14,663,946
=========== ===========
</TABLE>
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<PAGE>
CURTIS INTERNATIONAL LIMITED
INTERIM STATEMENTS OF INCOME
For the three and six months ended November 30, 1999 and 1998
(Amounts expressed in US dollars)
(Unaudited)
<TABLE>
<CAPTION>
For the period ended November 30,
three months six months
1999 1998 1999 1998
$ $ $ $
<S> <C> <C> <C> <C>
SALES 18,624,623 16,718,102 29,038,121 25,411,315
Cost of sales 15,614,389 13,966,851 24,117,060 21,006,221
--------------------------------------------------
GROSS PROFIT 3,010,234 2,751,251 4,921,061 4,405,094
--------------------------------------------------
EXPENSES
Adminstrative 398,290 466,675 877,409 1,012,525
Selling 930,659 945,804 1,298,841 1,343,158
Financial 108,599 254,856 434,777 398,698
--------------------------------------------------
1,437,548 1,667,335 2,611,027 2,754,381
--------------------------------------------------
INCOME BEFORE INCOME TAXES 1,572,686 1,083,916 2,310,034 1,650,713
Income taxes 753,868 433,567 1,048,317 660,286
--------------------------------------------------
NET INCOME 818,818 650,349 1,261,717 990,427
--------------------------------------------------
NET INCOME PER WEIGHTED
AVERAGE COMMON SHARE 0.15 0.16 0.23 0.26
--------------------------------------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 5,373,145 3,949,667 5,373,145 3,824,833
--------------------------------------------------
</TABLE>
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<PAGE>
CURTIS INTERNATIONAL LIMITED
INTERIM STATEMENTS OF CASH FLOWS
For the six months ended November 30, 1999 and 1998
(Amounts expressed in US
dollars) (Unaudited)
<TABLE>
<CAPTION>
November 30, November 30,
1999 1998
$ $
Cash flows from operating activities:
<S> <C> <C>
Net income 1,261,717 990,427
--------------------------
Adjustments to reconcile net income to
net cash used in operating activities:
Amortization 31,471 20,096
Deferred Income taxes 57,577 --
Increase in accounts receivable (9,190,454) (5,834,889)
Decrease in inventory 1,166,872 715,191
Increase in prepaid expenses and sundry assets (45,053) (52,901)
Increase in accounts payable and accrued expenses 2,117,448 856,647
Increase/(decrease) in income taxes payable (838,873) 543,625
Total Adjustments (6,701,012) (3,752,231)
--------------------------
Net cash used in operating activities (5,439,295) (2,761,804)
--------------------------
Cash flows from investing activities:
Purchases of property, plant and equipment (149,605) (50,084)
Payment of mortgage receivable -- 4,013
--------------------------
Net cash used in investing activities (149,605) (46,071)
--------------------------
Cash flows from financing activities:
Proceeds from public offering -- 6,020,922
Increase (decrease) in bank indebtedness 1,074,582 (2,711,886)
Increase (decrease) in advances from
affiliated parties (99,811) 164,415
--------------------------
Net cash provided by financing activities 974,771 3,473,451
--------------------------
--------------------------
Effect of foreign currency exchange rate changes 920 (50,060)
--------------------------
Net increase/(decrease) in cash/cash equivalents (4,613,209) 615,516
Cash and cash equivalents
- -- Beginning of period 4,613,209 3,401,181
--------------------------
- -- End of period 0 4,016,697
==========================
--------------------------
Interest paid (received), net 1,147 353,757
==========================
--------------------------
Income taxes paid 1,816,156 18,257
==========================
</TABLE>
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<PAGE>
CURTIS INTERNATIONAL LIMITED
INTERIM STATEMENT OF STOCKHOLDERS' EQUITY
For the six months ended November 30, 1999
(Amounts expressed in US dollars)
(Unaudited)
<TABLE>
<CAPTION>
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
===========================================================================
</TABLE>
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<PAGE>
CURTIS INTERNATIONAL LIMITED.
Notes to Interim Financial Statements November 30, 1999 (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
November 30, November 30,
1999 1998
Closing exchange rate at balance
sheet date 0.6783 0.6523
Average exchange rate for the period 0.6785 0.6598
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 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
$13,566,000 and is limited based on a formula which relates to receivables cash
instruments, and inventory held by the company. The company has met all
covenants imposed by the bank.
-7-
<PAGE>
3. 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 fiscal quarter
installments on the last day of fiscal quarter. The first payment was due August
31, 1998 and the last payment is due and payable on November 30, 1999.
4. CAPITAL STOCK
a) Authorized
15,000,000 shares of Common Stock
1,000,000 shares of Preferred Stock
Issued
November 30, May 31,
1999 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 November 30,
1999, 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 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, 1999 Compared to the Three and Six
Months Ended November 30, 1998.
Sales for the three months ended November 30, 1999 were $18,624,623, a 11.4%
increase over the second quarter of 1998 revenues of $16,718,102. Year to date
revenue for the period ended November 30, 1999 increased by 14.3% over the same
period in 1998. This increase reflected the expansion of the customer base in
the United States.
Gross profit for the second quarter of 1999 was $3,010,234 which is an
increase of $258,983 (9.4%) over the second quarter of 1998. The year to date
gross profit increased in 1999 by $516,000 (11.7%) over the same period in 1998.
This was attributed to the increase in volume.
Selling expenses of $1,298,841 for the six months ended November 30, 1999 are in
line with the same periods for 1998.
Administrative expenses of $877,409 for the six months ended November 30, 1999
were 13.3% lower than the six months ended November 30, 1998 due to lower
occupancy costs associated with the consolidation of facilities that took place
in January 1999.
Financial expenses for the six months ended November 30, 1999 were lower due to
less financing of working capital requirements.
Income before income taxes increased by $488,769 over the prior year to
$1,572,685 for the three months ended November 30, 1999. Year to date income
before income taxes increased by $271,000 over same period 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 second quarter of 1999 has
increased by 25.9%, to $818,818 and for the six-month period have increased by
27.4% to $1,261,717.
-9-
<PAGE>
Liquidity and Capital Resources
The company had an unfavorable change in the use of cash of $4,613,209 for the
six months ended November 30, 1999. The principal use of cash was traced to an
increase in accounts receivable attributable to increased sales volume, and the
seasonal fluctuation in sales. 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.
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<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.
January 13, 2000 By: /s/ JACOB HERZOG
----------------------------
Jacob Herzog
Chairman, Treasurer,
Secretary/Principal
Accounting Officer
January 13, 2000 By: /S/ AARON HERZOG
----------------------------
Aaron Herzog
President/Chief Executive
Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> MAY-31-2000 MAY-31-2000
<PERIOD-START> SEP-01-1999 JUN-01-1999
<PERIOD-END> NOV-30-1999 NOV-30-1999
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 13,295,354 13,295,354
<ALLOWANCES> 0 0
<INVENTORY> 3,830,065 3,830,065
<CURRENT-ASSETS> 17,229,200 17,229,200
<PP&E> 428,579 428,579
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 18,175,807 18,175,807
<CURRENT-LIABILITIES> 6,746,525 6,746,525
<BONDS> 0 0
0 0
0 0
<COMMON> 7,342,163 7,342,163
<OTHER-SE> 3,138,273 3,138,273
<TOTAL-LIABILITY-AND-EQUITY> 18,175,807 18,175,807
<SALES> 18,624,623 29,038,121
<TOTAL-REVENUES> 18,624,623 29,038,121
<CGS> 15,614,389 15,614,389
<TOTAL-COSTS> 17,051,937 26,728,087
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 1,572,686 2,310,034
<INCOME-TAX> 753,868 1,048,317
<INCOME-CONTINUING> 818,818 1,261,717
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 818,818 818,818
<EPS-BASIC> .15 .23
<EPS-DILUTED> .15 .23
</TABLE>
