UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 000-23851
CENTENARY INTERNATIONAL CORP.
(formerly, R&R Resources, Inc.)
(Exact name of registrant as specified in its charter)
Nevada 86-0874841
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
692 Madison Avenue, Third Floor, New York, NY 10021
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 644-2113
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 of 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 [ ]
As of May 6, 1999, there were outstanding 18,963,500 shares of the
registrant's $.001 par value Common Stock.
<PAGE>
Table of Contents
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II
OTHER INFORMATION
Item 3. Default upon Debt.
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
The information required hereunder is included in the Company's
Consolidated Financial Statements and the Notes thereto as set forth beginning
on page F-1.
<TABLE>
<CAPTION>
CENTENARY INTERNATIONAL CORP.
-----------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Stated in US Dollars)
(UNAUDITED)
March 31, December 31,
1999 1998
---------------- --------------
<S> <C> <C>
ASSETS
- -------------------------------------------------------
CURRENT ASSETS
- -------------------------------------------------------
Cash $ 97,948 $ 37,336
Accounts receivable, net of allowance for doubtful
accounts of 319,493 and 291,868 in 1999 and 1998
respectively 5,924,997 8,731,673
Other receivables (note 4) 6,154,360 5,580,157
Deferred tax asset (note 9) 107,223 102,153
Notes receivable - related party (note 5) 2,000,000 -
---------------- --------------
Total current assets 14,284,528 14,451,319
---------------- --------------
Notes receivable - related party (note 5) 2,000,000 -
Property, plant and equipment 10,646,698 10,687,036
Goodwill (note 3) 1,040,751 -
---------------- --------------
13,687,449 10,687,036
---------------- --------------
Total assets $ 27,971,977 $ 25,138,355
================ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------
CURRENT LIABILITIES
- -------------------------------------------------------
Accounts payable $ 1,674.136 $ 2,025,242
Short term debt (note 6) 3,988,069 826,876
Long term debt - current portion (note 6) 2,005,122 1,723,201
Accrued payroll and related expenses 83,367 129,895
Taxes payable 585,440 432,201
Customers advances 380,666 360,050
Other liabilities 206,406 143,906
---------------- --------------
Total current liabilities 8,923,206 5,641,371
---------------- --------------
Accounts payable long term 70,502 77,306
Long term debt (note 6) 11,770,592 12,235,708
Taxes payable 12,356 26,216
Minority interest 71,732 71,578
---------------- --------------
Total non-current liabilities 11,925,182 12,410,808
---------------- --------------
Total liabilities 20,848,388 18,052,179
---------------- --------------
SHAREHOLDERS' EQUITY
- -------------------------------------------------------
Common stock, $.001 par value, 50,000,000 shares
authorized; 18,963,500 and 3,910,000 shares issued and
outstanding in 1999 and 1998 respectively 18,963 18,963
Paid in capital 7,981,037 7,981,037
Retained earnings (deficit) (700,411) (737,824)
Receivable from sale of stock (176,000) (176,000)
---------------- --------------
Total shareholders' equity 7,123,589 7,086,176
---------------- --------------
Total liabilities and shareholders' equity $ 27,971,977 $ 25,138,355
================ ==============
</TABLE>
The accompanying notes are an integral part of these statements.
----------------------------------------------------------------
F - 1
<PAGE>
<TABLE>
<CAPTION>
CENTENARY INTERNATIONAL CORP.
-----------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
FOR THE PERIODS OF THREE MONTHS ENDED MARCH 31, 1999 AND 1998
-------------------------------------------------------------
(Stated in US Dollars)
(UNAUDITED)
1999 1998
--------------- ----------------
<S> <C> <C>
Net sales $ 18,791,612 $ 19,625,617
Cost of goods sold 14,894,233 15,782,325
--------------- ----------------
Gross profit 3,897,379 3,843,292
Selling expenses 2,773,162 3,589,985
Administrative expenses 687,258 914,662
--------------- ----------------
Operating income (loss) 436,959 (661,355)
Other income and loss, net 9,969 442
Interest expense 358,163 265,981
--------------- ----------------
Income (loss) before income taxes and
minority interest 68,827 (926,894)
Income taxes (benefit) (note 9) 31,260 (82,493)
Minority interest in subsidiary 154 -
--------------- ----------------
Net income (loss) $ 37,413 $ (844,401)
=============== ================
Earnings (loss) per share, basic and diluted $ .001 (.05)
=============== ================
</TABLE>
The accompanying notes are an integral part of these statements.
----------------------------------------------------------------
F - 2
<PAGE>
<TABLE>
<CAPTION>
CENTENARY INTERNATIONAL CORP.
-----------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE PERIODS OF THREE MONTHS ENDED MARCH 31, 1999 AND 1998
-------------------------------------------------------------
(Stated in US Dollars)
(UNAUDITED)
1999 1998
---------------- -----------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
- -------------------------------------------------
Net income (loss) $ 37,413 $ (844,401)
---------------- -----------------
Adjustments to reconcile net income to net cash:
Amortization of intangible assets - 105,533
Depreciation of fixed assets 60,597 43,595
Depreciation of goodwill 8,746 -
Changes in assets and liabilities:
Accounts receivable 2,806,676 766,131
Other receivables (574,203) 1,661,297
Deferred tax asset (5,070) (32,446)
Inventories - 23,540
Notes receivable - related party (2,000,000) -
Accounts payable (357,910) 556,303
Accrued payroll and related expenses (46,528) (50,452)
Taxes payable 139,379 295,584
Advances of customers 20,616 22,417
Other liabilities 62,500 62,500
Minority interest 154 -
---------------- -----------------
114,957 3,454,002
---------------- -----------------
INVESTING ACTIVITIES
- -------------------------------------------------
Notes receivable - related party (2,000,000) -
Purchase of Platafreight (1,049,497) -
Purchase of fixed assets (90,134) (1,074,664)
Proceeds of sale of fixed assets 69,875 1,100,901
Purchase of intangible assets - (1.171)
---------------- -----------------
(3,069,756) 25,066
---------------- -----------------
FINANCING ACTIVITIES
- -------------------------------------------------
Net borrowings (repayments) of short term debt 3,161,193 (3,486,955)
Borrowings-long term debt 339,888 798,797
Repayments - long term debt (523,083) (133,382)
Issuance of common stock - 400,000
---------------- -----------------
Net cash provided (used in) financing activities 2,977,998 (2,421,540)
---------------- -----------------
NET INCREASE (DECREASE) IN CASH 60,612 213,127
- -------------------------------------------------
CASH AT THE BEGINNING OF THE PERIOD 37,336 1,168,099
- -------------------------------------------------
---------------- -----------------
CASH AT THE END OF THE YEAR $ 97,948 $ 1,381,226
- -------------------------------------------------
================ =================
Supplemental cash flow information:
Cash paid for incomes taxes $ 2,507 $ 43,118
Cash paid for interest 242,826 387,170
---------------- -----------------
$ 245,333 $ 430,288
================ =================
</TABLE>
The accompanying notes are an integral part of these statements.
----------------------------------------------------------------
F - 3
<PAGE>
CENTENARY INTERNATIONAL CORP.
-----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
FOR THE PERIOD OF THREE MONTHS ENDED MARCH 31, 1999 AND 1998
------------------------------------------------------------
(stated in US Dollars)
(UNAUDITED)
1. Basis of presentation
-----------------------
The accompanying unaudited consolidated financial statements of CENTENARY
INTERNATIONAL CORP. and its majority owned subsidiary have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The unaudited consolidated financial statements have been prepared
on the same basis as the audited condensed financial statements and, in the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 1999 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1999. For
further information refer to the financial statements and footnotes included in
the company's annual report on Form 10-KSB for the year ended December 31, 1998.
The consolidated financial statements include the accounts of CENTENARY
INTERNATIONAL CORP. and its majority owned subsidiary, CENTENARY ARGENTINA S.A.
and, PLATAFREIGHT S.A. since February 1, 1999.
2. Earnings per share
Basic earnings per share is computed by dividing net income by the 18,963,500
shares outstanding.
Diluted earnings per share is equivalent to basic earnings per share because
there are no potentially dilutive equivalents.
3. Acquisition of Platafreight S.A.
-----------------------------------
On February 1, 1999 the Company purchased Platafreight S.A., a private company
in Uruguay in the sea freight business. The purchase price was $ 1,268,000 for
all the issued and outstanding Platafreight stock.
The cost in excess of the fair value of the net assets (goodwill) is $1,049,497.
The transaction is accounted for as a purchase and the net assets and earnings
of Platafreight S.A. are consolidated with Centenary since February 1, 1999.
Goodwill resulting from the transaction will be amortized over 20 years.
F - 4
<PAGE>
CENTENARY INTERNATIONAL CORP.
-----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
FOR THE PERIOD OF THREE MONTHS ENDED MARCH 31, 1999 AND 1998
------------------------------------------------------------
(stated in US Dollars)
(UNAUDITED)
4. Other receivables
------------------
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Related party (note 7) $ 2,381,133 $ 1,790,859
Receivables from sale of trademark 1,530,000 1,530,000
Refundable tax credits 1,372,173 1,251,148
Other receivables 537,554 279,375
Receivable, Sale of Marigold Plant 271,000 271,000
Advances to directors 62,500 142,233
Receivable, Platafreight, S.A. - 291,986
Notes receivable - 23,556
------------- -------------
$ 6.154,360 $ 5,580,157
============= =============
</TABLE>
5. Note receivable - related party
-----------------------------------
The Company has a receivable in the amount of $ 4 million from a company under
common control.
The note receivable bears interest at 12% and is payable in 2 annual
installments of $ 2,000,000 due March 31, 2000 and 2001. The note is
collateralized by 2,000,000 shares of stock in the Company.
6. Debt
----
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Short term debt
Bank loans $ 3,166,200 $ 511,199
Bank overdraft 821,869 315,677
------------- -------------
$ 3,988,069 $ 826,876
============= =============
</TABLE>
The Company has a bank loan of $ 704,238 for the financing of exports which is
due April, 1999. The interest rate is LIBOR (London Interbank Offered Rate)
(5.17% at March 31, 1999) plus 3%.
F - 5
<PAGE>
------
CENTENARY INTERNATIONAL CORP.
-----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
FOR THE PERIOD OF THREE MONTHS ENDED MARCH 31, 1999 AND 1998
------------------------------------------------------------
(stated in US Dollars)
(UNAUDITED)
The Company has a bank loan of $ 2,461,961 for prefinancing of exports. The loan
is collateralized by the ranch. Repayment of this loan is due in 3 monthly
payments of $ 807,640 beginning September 1999. The interest rate was LIBOR
(London Interbank Offered Rate) (5.17% at March 31, 1999) plus 2%.
<TABLE>
<CAPTION>
March, 31 December 31,
1999 1998
--------------- ----------------
<S> <C> <C>
Long term debt:
Bank loans $ 7,562,676 $ 7,513,014
Vendor loans 5,853,210 5,909,432
Office purchase loan 359,828 536,463
Less current maturities, included
in long term debt-current portion (2,005,122) (1,723,201)
--------------- ----------------
$ 11,770,592 $ 12,235,708
=============== ================
</TABLE>
The Company has bank loans of $5,167,903 for the prefinancing of exports. The
loans are collateralized by the ranch. One loan requires repayment of $3,187,833
and is due in 44 monthly payments of $68,182 beginning February 22, 1999 plus
interest at 14% per annum. The amount of the first 8 monthly payments was
renegotiated with the bank. These payments are due in 3 monthly installments of
$181,818, plus interest at 14% per annum, beginning September 1999. The other
loan requires repayment of $1,980,070 and is due at the Company's option at six
month intervals until August, 2002 and the interest rate is LIBOR (London
Interbank Offered Rate) (5.17% at March 31, 1999) plus 2%.
The Company also has a bank loan of $2,394,774 for financing the development of
the olive grove. The loan is collateralized by the ranch. The interest rate is
LIBOR (London Interbank Offered Rate) (5.17% at March 31, 1999) plus 4.5%.
Repayment of this loan is due in 5 annual payments of $ 600,000 beginning
August, 2000.
The Company has a vendor loan of $5,853,210 for commodities purchases. The loan
is collateralized by the ranch. The interest rate is 12%. Repayment of this loan
is due in 1 payment of $105,000, 4 semi-annual payments of $500,000 beginning
March, 1999, of which $223,774 was paid and 6 semi-annual payments of $850,000
beginning February, 2001. The remaining $276,226 of the March payment has been
renegotiated and is due in June 30, 1999.
The Company has an office purchase loan of $549,240 for the purchase of the
administrative office. The loan is collateralized by the office. The interest
rate is 10%. Repayment of this loan is due in 1 payment of $189,412 and 4 annual
payments of $87,375 beginning January, 2000.
F - 6
<PAGE>
CENTENARY INTERNATIONAL CORP.
-----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
FOR THE PERIOD OF THREE MONTHS ENDED MARCH 31, 1999 AND 1998
------------------------------------------------------------
(stated in US Dollars)
(UNAUDITED)
Maturities of long-term debt for the next five years at March 31, 1999, are as
follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 2,005,122
2001 2,238,115
2002 2,703,238
2003 4,419,211
2004 2,049,702
Thereafter 360,326
--------------
$ 13,775,714
==============
</TABLE>
7. Related party transactions
----------------------------
Other receivables include amounts due from affiliated companies of $2,381,133
and $8,124,067 in 1999 and 1998 respectively.
The Company purchased $ 2,123,139 and $3,276,524 of products and $773,406 and
$3,352,076 of services from affiliated companies, during 1999 and 1998. In
addition, the Company provides certain administrative services and pays certain
expenses for an affiliated company. The affiliated company reimbursed the
Company for these costs totaling $33,868 during 1999 and none during 1998.
8. Restricted retained earnings
------------------------------
According to the Argentine laws, 5% of the net earnings of CENTENARY S.A.,
calculated in accordance with generally accepted accounting principles in
Argentina, for the year should be appropriated to increase the legal reserve up
to 20% of common stock. At December 31, 1998 the legal reserve amounted
to $47,681.
In previous years the shareholders designated $95,057 of retained earnings as a
general reserve.
Retained earnings related to the legal and general reserves are not available
for dividends.
F - 7
<PAGE>
CENTENARY INTERNATIONAL CORP.
-----------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
FOR THE PERIOD OF THREE MONTHS ENDED MARCH 31, 1999 AND 1998
------------------------------------------------------------
(stated in US Dollars)
(UNAUDITED)
9. Income taxes
-------------
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1999 1998
-------------- -------------
<S> <C> <C>
Current
Federal $ 36,330 $ -
State and local - -
-------------- -------------
Total income taxes current 36,330 -
Deferred tax benefit (5,070) (82,493)
-------------- -------------
Income taxes (benefit) $ 31,260 $ (82,493)
============== =============
</TABLE>
The income tax provision reconciled to the tax computed at the statutory Federal
rate is:
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1999 1998
-------- -----------
<S> <C> <C>
Tax at statutory rate 35% 35 %
Property held for sale 10.4% -
Non deductible board remuneration - (17.4)%
Tax deferred due to losses - (8.8)%
-------- -----------
45.4% 8.8 %
======== ===========
</TABLE>
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
March 31, December, 31,
1999 1998
----------- --------------
<S> <C> <C>
Deferred tax assets due to:
Allowance for doubtful accounts $ 102,153 $ 102,153
Provision for severance payments 5,070 -
----------- --------------
107,223 $ 102,153
=========== ==============
</TABLE>
F - 8
<PAGE>
CENTENARY INTERNATIONAL CORP.
-------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
FOR THE PERIOD OF THREE MONTHS ENDED MARCH 31, 1999 AND 1998
------------------------------------------------------------
(stated in US Dollars)
(UNAUDITED)
10. Geographical Information
-------------------------
The Company's operations involve, basically, a single industry segment, trading
commodities and agriproducts internationally. In the future when the olive grove
has been developed there will be an additional segment. The geographic areas in
which the Company operates are Pacific, Europe, Mercosur, Russia and ex -
Soviet, China and Far East, Africa, Middle East and Caribbean. Net sales by
geographical area were as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
---------------------------------
1999 1998
--------------- ----------------
<S> <C> <C>
Middle East $ 9,647,848 $ -
South American Pacific 8,788,988 14,165,367
Mercosur 260,883 81,233
Caribbean 60,293 3.570,106
Africa 33,600 1,775,124
China and Far East - 27,300
Europe - 6,487
--------------- ----------------
$ 18,791,612 $ 19,625,617
=============== ================
</TABLE>
The Company has no identificable assets in other countries than Argentina.
F - 9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following Management Discussion and Analysis of Financial Condition and
Results of Operations is qualified by reference to and should be read in
conjunction with, the Company's Consolidated Financial Statements and the Notes
thereto as set forth beginning on page F-1.
INFORMATION REGARDING AND FACTORS AFFECTING FORWARD LOOKING STATEMENTS
The Company is including the following cautionary statement in this Report
on Form 10-Q to make applicable and take advantage of the safe harbor provision
of the Private Securities Litigation Reform Act of 1995 for any forward-looking
statements made by, or on behalf of the Company. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance and underlying assumptions and other statements which are
other than statements of historical facts. Certain statements contained in this
Report on Form 10-Q are forward-looking statements and the matters discussed in
these forward-looking statements are subject to risks and uncertainties which
could cause actual results or outcomes to differ materially from those expressed
in the forward-looking statements. The Company's forward-looking statements are
expressed in good faith and are believed by the Company to have a reasonable
basis based on management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that any matter discussed in a forward-looking
statement will ultimately be achieved, or if achieved, will have the same impact
on the Company as discussed in the forward-looking statement. In addition to
those factors already mentioned, other factors which could effect
forward-looking statements are the ability of the Company to obtain financing on
favorable terms, the success of the Company's olive oil, animal feed, cattle
feeding and meat processing operations, demand and supply factors, competitive
factors, weather conditions, crop yield and failures, crop oversupply,
geopolitical changes, import restrictions in countries of customers, the effect
of inflation and government regulation. The Company has no obligation to update
or revise any forward-looking statements to reflect future events.
1
<PAGE>
RESULTS OF OPERATIONS
General. The following table sets forth, for the periods presented, the
percentage of net sales represented by certain items in the Company's
Consolidated Statements of Operations:
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1999 1998
<S> <C> <C>
Net sales 100% 100%
Cost of goods sold 79.3 80.4
----- -----
Gross profit 20.7 19.6
Selling expenses 14.7 18.3
Administrative expenses 3.7 4.7
----- -----
Operating income (loss) 2.3 (3.4)
Interest expense 1.9 1.3
----- -----
Income (loss)before income taxes and
minority interests .4 (4.7)
Income taxes(benefit) .2 (.4)
Minority interest in subsidiary -0- -0-
----- -----
Net income (loss) .2 (4.3)
</TABLE>
2
<PAGE>
The following table sets forth sales revenues by region for the three
months ended March 31, 1999, and 1998:
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1999 1998
(stated in US Dollars)
<S> <C> <C>
Geographical Information
- ----------------------
Middle East $ 9,647,848 $ -
South American Pacific $ 8,788,988 $14,165,367
Mercosur $ 260,883 $ 81,233
Caribbean $ 60,293 $ 3,570,106
Africa $ 33,600 $ 1,775,124
China and Far East $ -- $ 27,300
Europe $ -- $ 6,487
----------- -----------
$18,791,612 $19,625,617
=========== ===========
</TABLE>
THE THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 1998
Revenues. Net revenues decreased 4% from $19.6 million in the three months
ended March 31, 1998 to $18.8 million in the three months ended March 31, 1999.
During the three months ended March 31, 1999, the Company shipped 125,386 metric
tons of food commodities compared to 70,716 metric tons in the three months
ended March 31, 1998. The 4% decrease in sales was attributable primarily to
lower commodity prices, partially offset by an increase in metric tons shipped.
Sales to Middle Eastern countries were $ 9.6 million in the three months
ended March 31, 1999, as a result of the Company's strategy to develop this
market.
3
<PAGE>
Sales to the South American Pacific region decreased by $ 5.4 million in
the three months ended March 31, 1999 compared to the three months ended March
31, 1998. The sales in the period ending March 1998 were higher than 1999 due
to increased demand in 1998 as a result of the negative impact on local food
production because of the El Nino weather system.
Sales to Mercosur countries increased $ 0.2 million in the three months
ended March 31, 1999 compared to the three months ended March 31, 1998 due to
increased sales to Brazil.
Sales to Caribbean countries decreased $3.5 million for the three months
ended March 31, 1999 in comparison to the same period in 1998 due to a reduction
in sales to Venezuela and the elimination of sales to Cuba in the last quarter
of 1998.
Sales to African countries decreased $1.7 million in the three months
ended March 31, 1999 in comparison to the three months ended March 31, 1998 due
to the inability of African countries to obtain credit from banks in 1999.
Sales in China, the Far East, and Europe occur when the Company is able to
identify a unique marketing opportunity, rather than as a result of ongoing
business relationships. Therefore, sales to these geographic areas are not as
predictable as sales to other geographic regions. Sales to China, the Far East
and Europe decreased $34,000 in the three months ended March 31, 1999 compared
to the three months ended March 31, 1998.
Cost of sales. The cost of sales decreased from $15.8 million in the three
months ended March 31, 1998 to $14.9 million in the three months ended March 31,
1999 due to the decrease in sales. The cost of sales as a percentage of
revenues remained relatively stable in 1999 in comparison to 1998. For the
three months ended March 31, 1999 and 1998 the cost of sales was 79.3% and 80.4%
respectively.
Selling expenses. Selling expenses decreased from $3.6 million in the three
months ended March 31, 1998 to $2.8 million in the three months ended March 31,
1999. As a percent of revenues, selling expenses decreased from 18.3% in the
three months ended March 31, 1998 to 14.7% in the three months ended March 31,
1999. Selling expenses include freight charges, importation fees, bank charges
and sales commissions. Selling expenses in the three months ended March 31, 1999
decreased primarily because of a decrease of $800,000 in freight charges.
Freight charges declined due to a global decrease in freight charges.
Administrative expenses. Administrative expenses decreased $227,000 in the
three months ended March 31, 1999 compared to the three months ended March 31,
1998. As a per cent of sales, administrative expenses decreased from 4.7% in
the three months ended March 31, 1998 to 3.7% in three months ended March 31,
1999 primarily because of a decrease in the amortization of the trademark which
was sold during 1998 and other non-recurring expenses.
Interest expense. Interest expense increased $92,000 in the three months
ended March 31, 1999 compared to the three months ended March 31, 1998. The
increase in interest expense was attributable to the $3.1 million increase in
debt and additional interest incurred in discounts on extensions of letters of
credit to banks in connection with sales to customers in Middle Eastern
countries.
4
<PAGE>
Income taxes. Income taxes increased in the three months ended March 31,
1999 compared to the same period in 1998 due primarily to an increase in 1999
income.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided $115,000 in the three months ended March 31,
1999 in comparison to $3.5 million in the three months ended March 31, 1998.
The increase in cash used in the three months ended March 31, 1999 was primarily
attributable to an increase in the current portion of a related party receivable
of $2 million, an increase in other receivables of $574,000 and a decrease in
accounts payable of $357,000 offset by a $2.8 million decrease in accounts
receivable.
Investing activities utilized $3 million in the three months ended March 31,
1999 and provided $25,000 in the three months ended March 31, 1998. During the
three months ended March 31, 1999, the Company used $2 million for a note
receivable from a related party. The Company expended $1 million for the
purchase of Platafreight S.A., a sea freight company.
Financing activities provided $3 million in the three months ended March
31, 1999 and utilized $2.4 million in the three months ended March 31, 1998. In
the three months ended March 31, 1999, cash was provided by an additional $3.2
million in short term debt, and $340,000 of long term debt. The Company used
$523,000 for repayment of long term debt. During the three months ended March
31, 1998, the Company repaid $3.5 million of short-term debt.
The Company renegotiated its bank loan of $3,187,833 for the
prefinancing of exports. The first eight monthly payments of $68,182 beginning
February 1999 are now due in three monthly installments of $181,818 beginning
September 1999.
The Company contemplates raising capital through a private or public
placement of equity or debt. If such an offering is successful, the Company
anticipates that the primary uses of this capital would be to expand the food
commodities trading business first, and then to develop the olive grove and
olive oil production facility. The Company's growth, expansion, and liquidity
and capital resources will be significantly affected by its ability to raise
additional capital.
The Company does not currently have material commitments for capital
expenditures and does not anticipate entering into any such commitments during
the next twelve months unless it is able to raise additional capital.
5
<PAGE>
INFLATION
The Company operates in certain countries that have experienced high rates
of inflation and hyper-inflation in the past. However, all transactions are
denominated in U.S. dollars. Therefore, inflation has not had a material impact
on the Company's results of operations during the periods presented herein.
Further, the Company does not expect inflation to have a material impact on the
Company in the future. However, the future impact of inflation on the Company
is unknown.
IMPACT OF YEAR 2000
The Company does not believe that year 2000 issues will materially affect
the Company. The Company believes that its systems are year 2000 compliant. The
Company has communicated with its banks, suppliers and customers and believes
that the systems of its banks, suppliers and customers are year 2000 compliant.
No additional costs related to year 2000 compliance are anticipated by the
Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk exposure related to changes in
interest rates on its debt facilities. These instruments carry interest at a
pre-agreed upon percentage point spread from the LIBOR interest rate. These
debt facilities are in U.S. dollars. At March 31, 1999, the Company had $7.6
million outstanding under these facilities. Based on this balance, an immediate
change of one percent in the interest rate would cause a change in interest
expense of approximately $76,000 on an annual basis.
The Company is subject to market risk related to fluctuations in the value
of the U.S. dollar compared to certain foreign currencies. The Company has
subsidiaries which operate worldwide. However, the functional currency used by
these operating units is the U.S. dollar. Substantial portions of these
operating units' invoicing, customer receivables, and many operating cost
factors are denominated in dollars.
A hypothetical 10% fluctuation of the U.S. dollar relative to the foreign
currencies of the markets in which the Company operates would not materially
adversely affect the Company's expected 1999 earnings or cash flows regardless
of the direction of the change in relation to the U.S. dollar. The Company's
sensitivity analysis of the effects of changes in foreign currency exchange
rates does not factor in a potential change in sales levels.
6
<PAGE>
PART II
ITEM 3. DEFAULT UPON DEBT
The Company has a bank loan in the principal amount of $3,187,833 which was
to be repaid beginning February 1999 in monthly installments of $68,182 at an
interest rate of 14% per annum. The Company has renegotiated the repayment
terms for the first eight monthly installments (repayments for February 1999
through September 1999). These payments are now due in three monthly
installments of $181,818, plus interest at 14% per annum, begining September
1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit No.
------------
27.1 Financial Data Schedule for the quarter ended March 31, 1999.
(b) Reports on Form 8-K
The Company filed the following reports on Form 8-K during the quarter
ended March 31, 1999.
(i) On January 13, 1999, the Company filed a Current Report on Form 8-K
dated January 7, 1999, reporting a change in independent auditors.
(ii) On January 28, 1999, the Company filed a Current Report on Form 8-K
Amendment No. 1 dated November 12, 1998 reporting the financial
statements in connection with the acquisition of assets reported in
the earlier Form 8-K.
(v) On February 16, 1999, the Company filed a Current Report on Form 8-K
dated February 1, 1999, reporting other events.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CENTENARY INTERNATIONAL CORP.
May 19, 1999 By: /s/ Hector A. Patron Costas
Hector A. Patron Costas
Director, Chairman, Secretary, and Chief Financial Officer
May 19, 1999 By: /s/ John Tonelli
John Tonelli
Chief Executive Officer and President
8
<PAGE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS UNAUDITED CONSOLIDATED BALANCE SHEET AS OF MAR 31, 1999 AND
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE 3 MONTHS THEN ENDED AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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