U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: May 31, 2000
Commission file number: 0-26186
CHESHIRE DISTRIBUTORS, INC
(Exact name of registrant as specified in its charter)
Delaware 84-1209978
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1599 Post Road East, Westport, CT 06880
(Address of principal executive offices)
(203) 255-4116
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed all reports required to be filed by Section 13 or 15(d) of the
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 July 26, 2000, 10,365,456 shares of common stock, par value $0.001 per
share, were outstanding.
<PAGE>
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet, May 31, 2000 (Unaudited) and
December 31, 1999 ................................... 3
Statement of Operations (Unaudited) for the
three months ended May 31, 2000 ..................... 4
Statement of Stockholders' Deficit (Unaudited) ...... 5
Statement of Cash Flows (Unaudited) for the
three months ended May 31, 2000 ..................... 6
Notes to unaudited financial statements ............. 7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ....... 11-13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk ......................................... 14
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds ........... 15
Item 6. Exhibits and Reports on Form 8-K .................... 15
Signature ............................................................... 16
The accompanying notes are an integral part of the consolidated financial
statements
2
<PAGE>
CHESHIRE DISTRIBUTORS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
May 31, December 31,
2000 1999
(unaudited)
----------- ------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents ................................. $ 2,190,472 $ ---
Trade accounts receivable, net ............................ 3,179,780 ---
Inventories ............................................... 3,256,831 ---
Prepaid expenses .......................................... 3,845 ---
Receivable from affiliates ................................ 71,681 ---
Note receivable from selling shareholders ................. 153,943 ---
------------ ------------
Total Current Assets ...................................... 8,856,552 ---
------------ ------------
Property and equipment, net ............................... 916,033 ---
Goodwill, net ............................................. 7,371,747 ---
Deferred loan costs and other, net ....................... 733,994 ---
------------ ------------
Total Assets .............................................. $ 17,878,326 ---
============ ============
Liabilities and Stockholders' Deficit
Current Liabilities
Bank overdraft ............................................ $ 344,138 $ ---
Accounts payable .......................................... 3,197,189 440
Accounts payable - related party .......................... --- 500
Accrued expenses .......................................... 359,944 ---
Short term notes payable .................................. 3,974,786 ---
Notes payable to selling shareholders ..................... 9,000,000 ---
------------ ------------
Total Current Liabilities ................................. 16,876,057 940
------------ ------------
Other Liabilities
Long term notes payable ................................... 1,860,500 ---
------------ ------------
Total Liabilities ......................................... 18,736,557 940
------------ ------------
Stockholders' Deficit
Common Stock, $0.001 par value: authorized: 100,000,000
shares; Issued and outstanding: 10,365,456 and 137,283
shares, respectively ...................................... 10,365 6,863
Additional paid in capital ................................ 1,081,377 15,884
Accumulated deficit ....................................... (1,792,357) (23,687)
Accumulated other comprehensive loss ...................... (157,616) ---
------------ ------------
Total Stockholders' Deficit ............................... (858,231) (940)
------------ ------------
Total Liabilities & Stockholders' Deficit ................. $ 17,878,326 ---
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements
3
<PAGE>
CHESHIRE DISTRIBUTORS, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three Months
ended May 31, 2000
--------------------
<S> <C>
Sales ..................................................... $ 17,463,460
Cost of Sales ............................................. 16,819,825
------------
Gross Profit .............................................. 643,635
Selling, general and administrative expenses .............. 574,788
Depreciation and amortization ............................. 124,671
------------
Total Expenses ............................................ 699,460
------------
Loss from operations ...................................... (55,825)
Other income (expense)
Interest expense .......................................... (124,400)
Interest income ........................................... 38,894
Non-cash financing charges ................................ (265,379)
Foreign currency exchange loss ............................ (236,307)
Other financing costs ..................................... (105,671)
------------
Total other expense ....................................... (692,863)
------------
Loss before taxes ......................................... (748,688)
Taxes - foreign ........................................... 63,759
------------
Net loss .................................................. $ (812,447)
============
Net loss per share, basic and diluted ..................... $ (.08)
Weighted average number of common shares outstanding
Basic and diluted ......................................... 10,365,030
============
</TABLE>
Since Cheshire commenced operations during August 1999,
no comparable statements of operations for the period
ended May 31, 1999 are presented.
The accompanying notes are an integral part of the consolidated financial
statements
4
<PAGE>
CHESHIRE DISTRIBUTORS, INC.
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDER'S DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
------------
Common Stock
------------
Accumulated
Additional other
Number of paid-in Accumulated comprehensive
shares Amount capital deficit loss Total
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance March 1, 2000 10,365,000 $10,365 $229,371 ($979,910) --- ($740,174)
Shares issued May 2000 456 $4,070 $4,070
Valuation of non-cash conversion
feature and warrants on debt
instruments $847,936 $847,936
Comprehensive Loss:
Net loss for the period ($812,447) ($812,447)
Foreign currency translation
adjustment ($157,616) ($157,616)
----------------------------------------------------------------------------------------------------------------------------
Total comprehensive loss: (970,063)
----------------------------------------------------------------------------------------
Balance May 31, 2000 10,365,456 $10,365 $1,081,377 ($1,792,357) ($157,616) ($858,231)
========================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
5
<PAGE>
CHESHIRE DISTRIBUTORS, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the three Months
ended May 31, 2000
--------------------
<S> <C>
Cash Flows from Operating Activities
Net loss ............................................................ $ (812,447)
Adjustments to reconcile net loss to net cash flows from operations:
Depreciation and amortization ..................................... 124,671
Non-cash financing charges ........................................ 265,379
Foreign currency exchange loss .................................... 236,307
Changes in assets and liabilities, net of the affects of acquisition:
(Increase) decrease in:
Accounts receivable ............................................... 526,555
Prepaid expenses and other ........................................ (3,499)
Loans to affiliates ............................................... (251,643)
Inventories ....................................................... 1,038,801
Increase (decrease) in:
Accounts payable .................................................. (1,408,051)
Accrued expenses .................................................. 90,624
-----------
Net cash used in operating activities ............................... (193,303)
-----------
Cash flows from investing activities
Purchase of property and equipment .................................. (13,814)
Business acquisition, net of cash acquired .......................... 1,656,440
-----------
Net cash provided by investing activities ........................... 1,642,626
-----------
Cash flows from financing activities
Proceeds from debt .................................................. 2,127,248
Repayment of debt ................................................... (1,048,101)
Deferred loan costs ................................................. (190,799)
Issuance of common stock ............................................ 4,070
-----------
-----------
Net cash provided by financing activities ........................... 892,418
-----------
Effect of exchange rate changes on cash and cash equivalents ........ (157,616)
Net decrease in cash and cash equivalents ........................... 2,184,125
Cash and cash equivalents, beginning of period ...................... 6,347
-----------
-----------
Cash and cash equivalents, end of period ............................ $ 2,190,472
===========
</TABLE>
Since Cheshire commenced operations during August 1999,
no comparable statements of cash flows for the period
ended May 31, 1999 are presented.
The accompanying notes are an integral part of the consolidated
financial statements
6
<PAGE>
CHESHIRE DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1 MANAGEMENT'S REPRESENTATION OF INTERIM FINANCIAL INFORMATION
Cheshire Distributors, Inc. ("Cheshire" or "the Company") has prepared the
accompanying consolidated condensed financial statements without audit
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted as allowed by such
rules and regulations, and management believes that the disclosures are
adequate to make the information presented not misleading. These
consolidated condensed financial statements include all of the adjustments,
which, in the opinion of management, are necessary to a fair presentation
of financial position and results of operations.
During June 2000 the Company changed its fiscal year to end on the last day
of February to conform to the fiscal year of Cardoso, its subsidiary,
which represents substantially all of the operating revenues of the
Company. These statements contain the operating results of the Company for
the three months ending May 31, 2000 consolidated with the operating
results of Cardoso for the period, from the purchase date, April 8, 2000
through May 31, 2000.
Since Cheshire commenced operations during August 1999, no comparable
statements of operations or cash flows for the period ended May 31, 1999
are presented.
2 MERGER
On February 18, 2000, the Company's predecessor issuer, Pacific Development
Corporation ("Pacific"), a Colorado corporation, issued 10,000,000 shares
in consideration of the merger of Cheshire Distributors, Inc., a Delaware
Corporation into Cheshire Holdings, Inc., a wholly owned subsidiary of
Pacific. Cheshire Holdings, Inc. is considered the acquirer for accounting
purposes because the former shareholders of Cheshire Distributors, Inc.
became the controlling shareholders of Pacific. Immediately after the
closing, there were 10,365,000 Pacific shares outstanding.
On March 24, 2000, Pacific and Cheshire Holdings, Inc. were merged into a
single corporation existing under the laws of the state of Delaware, with
Cheshire Holdings, Inc. being the surviving corporation. The name of the
surviving corporation was changed to Cheshire Distributors, Inc. Each share
of Pacific Development Corporation's issued and outstanding common stock
was automatically converted into shares of Cheshire Distributors, Inc.'s
common stock. Pacific was formed for the purpose of acquiring an operating
business and at the time of the merger, had no significant assets or
liabilities. The transaction has been accounted for as a recapitalization
of Cheshire Distributors, Inc., which is the acquirer of Pacific for
accounting purposes.
All share and per share amounts have been restated to reflect share
adjustment terms contained in the governing agreements. The February 18,
2000 merger of the Company with Pacific described above resulted in an
exchange ratio of 4,957.858 to 1 shares of Pacific common stock for each
Cheshire share previously outstanding.
7
<PAGE>
CHESHIRE DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3 NOTES PAYABLE
The Company has the following notes outstanding at May 31, 2000:
$350,000 face amount 7% unsecured promissory note,
convertible into shares of stock at a rate of $3.50
per share until maturity, which is November 18, 2000. $350,000
$150,000 face amount 6% unsecured promissory note,
convertible into shares of common stock at 75% of
the fair value of each share of the Company's common
stock until maturity, which is December 21, 2001. $150,000
$40,000 term loan payable to a bank, with interest at
9%, secured by a pledge of bank accounts
belonging to shareholders of the Company, due June 26,
2000. This note has been extended, under the same
terms, with interest at 9.5%, and is due September
26,2000. $40,000
$1,400,000 face amount 6% unsecured promissory note,
convertible into shares of common stock at 80%
of the market value of each share of the Company's
common stock until maturity, which is March 22, 2003.
$400,000 of this debt has been repaid leaving a current
outstanding balance of $1,000,000. $1,000,000
$320,000 face amount 6% unsecured promissory note
convertible into shares of common stock at 72% of
the market value of each share of the Company's common
stock until maturity, which is May 17, 2003. $320,000
$205,000 face amount 6% unsecured promissory note
convertible into shares of common stock at 72% of
the market value of each share of the Company's common
stock until maturity, which is May 17, 2003. $205,000
$175,000 face amount 6% unsecured promissory note
convertible into shares of common stock at 72% of
the market value of each share of the Company's common
stock until maturity, which is May 17, 2003. $175,000
$200,000 face amount 14% ($80,000 received as of May 31
and $120,000 received on June 3) unsecured
promissory note convertible into shares of common stock
at a fixed price of $3.50 per each share of the
Company's common stock until maturity, which is May 31,
2001. $80,000
$9,000,000 face amount promissory note, secured by the
shares of Cardoso, for the purchase of the
shares of Cardoso. Maturity is October 7, 2000. (see
Note 4) $9,000,000
$3,397,992 face amount 8% unsecured promissory note.
This note, payable by Cardoso, is payable in US
dollars. No maturity date has been set for this note.
(see note 5) $3,397,992
$100,000 face amount 10% unsecured promissory demand
note payable to a principal shareholder. No maturity
date has been set for this note. $100,000
$17,294 of other notes, including capital leases of
$10,500, payable over various terms, from one to
three years. $17,294
Total notes outstanding ($12,974,786 current,
$1860,500 long term) $14,835,286
===========
8
<PAGE>
CHESHIRE DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
In addition to conversion privileges contained in certain of the above
outstanding debt instruments, the Company has granted the following
outstanding warrants to purchase common shares:
Three year warrant to purchase approximately 116,708 shares of the
Company's common stock for total proceeds of $400,000 if exercised
before October 1, 2000, for total proceeds of $500,000 if exercised
between October 1, 2000 and October 1, 2001, and for total proceeds of
$600,000 if exercised between October 1, 2001 and October 1, 2002.
Two year warrant to purchase common shares at an amount equal to the
number of common shares into which the above $150,000 face amount note
is converted. Warrant exercise price will be equal to 75% of the fair
market value of the Company's common stock at the date of exercise.
For the quarter ended May 31, 2000, the Company recorded a total of
$848,000 in non-cash financing costs related to the conversion privileges
and warrants contained in the certain of the above outstanding debt
instruments, based on the approximate fair value of these conversion
privileges and warrants.
4 ACQUISITION
On April 7, 2000, the Company closed the first installment of $1,000,000 of
the purchase of the outstanding shares of common stock of Cardoso Cigarette
Depot (Pty.) Limited, pursuant to the Stock Purchase Agreement originally
dated September 23, 1999, between the Company and Eduardo P.V. Cardoso and
Alberteina Cardoso ("Sellers") and Cardoso, as amended by the Amended Stock
Purchase Agreement dated April 7, 2000 (collectively, the "Purchase
Agreement"). All of the shares of the Sellers have been placed in escrow,
pending full payment for their shares in Cardoso. Additionally, the Sellers
have given the Company their proxy to manage and run Cardoso until October
7, 2000.
The purchase agreement provided that the total purchase price of
$10,000,000 is payable in cash in installments of $1,000,000 at closing, a
second installment of $2,000,000 on or before the twenty-first day after
the closing, and a final installment of $7,000,000 on or before the date
which is six months after the closing date. The $1,000.000 April 7
installment was paid with funds raised through the issuance of additional
debt securities. An amendment to the Purchase Agreement in May 2000
provides for the balance of $9,000,000 to be repaid on or before October 7,
2000. Interest, at the annual rate of 14% is charged on the $2,000,000 if
not paid by the 21st day after the closing date and interest income is
earned at the annual rate of 14% on the remaining balance of $7,000,000 for
the period from the payment date to October 7, 2000.
Assuming the Cardoso acquisition had occurred at the beginning of the
respective periods below, pro forma results would be:
For the three months ended May 31, 2000
---------------------------------------
Net sales ....................................... $30,171,646
Net loss ........................................ ($1,340,897)
Net loss per share (basic and diluted) .......... ($0.13)
9
<PAGE>
CHESHIRE DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
For the year ended February 29, 2000
------------------------------------
Net sales ....................................... $136,195,528
Net loss ........................................ ($1,529,215)
Net loss per share (basic and diluted) .......... ($0.15)
The pro forma results for three month period ended May 31, 2000, have been
charged with approximately $40,000 in amortization of goodwill, $420,000 of
interest expense for the loan to finance the acquisition and $172,000
foreign currency loss for the increased cost in Rand to repay the US dollar
denominated loan. The selling shareholder has agreed to guaranty the
Company against any currency loss incurred for this debt after February 29,
2000.
The pro forma results for the year ended February 29, 2000 have been
charged with approximately $379,000 in amortization of goodwill and
$1,680,000 of interest expense for the loan to finance the acquisition.
5 FOREIGN EXCHANGE LOSS AND GUARANTY
A US $ denominated loan, with a balance of $3,397,992 on May 31, 2000 is a
debt of Cardoso repayable in US dollars. As the South African Rand has
declined in value against the US dollar, a foreign exchange loss has been
incurred. For the period from April 7 to May 31, 2000 this amounted to
$236,307.
6 SUBSEQUENT EVENT
In June 2000 the Company entered into an agreement with H.D. Brous & Co.
("Brous") retaining Brous as its exclusive placement agent to arrange on a
"best efforts" basis, the private placement of $12,000,000 of 14% secured
subordinated convertible notes due in five years.
The proceeds of this placement, after the payment of fees and expenses, are
to be used to pay the balance due to the Sellers of Cardoso, repay the
balance of another note with the balance going to the operating capital of
the Company.
While management believes that this agreement will permit the acquisition
to be completed on or about October 7, 2000, the agreement is subject to
due diligence procedures and the best efforts of Brous.
10
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report, including the Management's Discussion and Analysis
and other sections, contains forward looking statements that are subject to
risks and uncertainties and which reflect management's current beliefs and
estimates of future economic circumstances, industry conditions, company
performance and financial results. Forward looking statements include
information concerning the possible or assumed future results of operations
of the Company and those statements preceded by, followed by or include the
words "future," "position," "anticipate(s)," "expect," "believe(s)," "see,"
"plan," "further improve," "outlook," "should" or similar expressions. For
these statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995. You should understand that the following important
factors, in addition to those discussed elsewhere in this document, could
affect the future results of the Company and could cause those results to
differ materially from those expressed in our forward looking statements.
RESULTS OF OPERATIONS
On February 18, 2000, Cheshire reverse-merged into Pacific, a fully
reporting over the counter, bulletin board ("OTC BB") Company, with
Cheshire Distributors Inc., the surviving entity.
On April 7, 2000 Cheshire purchased the outstanding shares of Cardoso
Cigarette Depot (Pty.) Limited ("Cardoso"), a major tobacco, confectionery
and cosmetic distributor, and one of the largest privately held companies
in South Africa.
Financial statements of Cardoso and pro forma information related to the
acquisition were included in Form 8 K/A filed June 28, 2000.
Cheshire plans to raise sufficient capital to enable it to repay the note
for remainder of the purchase price of Cardoso before the end of the
company's third fiscal quarter. After the full purchase price has been
repaid, management believes that significant operational improvements can
be put into place to improve the Company's performance. This is planned to
include tightened cost controls, updated and integrated information
systems, expanded product lines as well as territorial expansion. In
addition, management has been approached by and expects to be able to
acquire other distributors in South Africa in order to enhance its market
position and provide expanded growth and profitability.
11
<PAGE>
Sales for the three-month period ended May 31, 2000 were $17,463,460 all of
which were derived from the Company's Cardoso subsidiary from the
acquisition date of April 7, 2000. While preacquisition comparative figures
are not available for the same period of the prior year, sales are in line
with management's expectations for this period. Cardoso's sales generally
do not vary on a seasonal basis. An exception is that the first quarter
generally has lower sales and the fourth quarter higher sales due to
customer's purchasing somewhat greater quantities in the fourth quarter in
anticipation of annual tax increases which traditionally have occurred in
March of each year.
Gross profit of $643,635 was earned by the Company's subsidiary Cardoso at
the rate of 3.7% of sales. While preacquisition comparative figures are not
available for the same period of the prior year, these results are somewhat
lower that management's expectations, but within the range caused by normal
market price fluctuations. For the fiscal year ended February 29, 2000,
Cardoso's gross margin was 3.9% on sales of $136,192,528.
Total operating expenses, which includes selling, general and
administrative expenses and depreciation and amortization was $699,460 or
4.0% of sales; 2.27% represents costs of the Cardoso subsidiary and 1.43%
of Cheshire. While preacquisition comparative figures are not available for
the same period of the prior year, these results are in line with
management's expectation for this period. For the fiscal year ended
February 29, 2000, Cardoso's costs were 2.13% of sales.
As a result of the above, the loss from operations for the first quarter
ended May 31, 2000 was $55,825. For the fiscal year ended February 29,
2000, Cardoso's income from operations was $2,396,742 or 1.76% of sales.
Other income and expense for the three month period ending May 31, 2000
amounts to $692,863 or 4.0% of sales, all of which relate to financing
activities of the Company.
Interest expense amounted to $124,400 or .71% of sales.
Interest income amounted to $38,894 or .22% of sales.
Non-cash financing costs, arising out of options and warrants granted in
the negotiation of debt transactions in Cheshire during the quarter
amounted to $265,379 or 1.51% of sales.
Other financing costs were $105,671 or .61% of sales which relate to
finder's and other related expenditure incurred in the debt transactions
completed during the period.
Foreign currency exchange loss of $236,307 or 1.35% of sales arises out
the exchange rate loss caused by Cardoso's foreign denominated debt.
As a result of the above items, a loss before taxes for the three months
ended May 31, 2000 amounted to $748,688. South African taxes on Cardoso's
profit was $63,759, resulting in a net loss for the Company of $812,447.
12
<PAGE>
Liquidity and Capital Resources
The following is a summary of the Company's cash flows from operating,
investing, and financing activities, as well as the effect of exchange rate
changes on cash:
Three months
ended
May 31, 2000
------------
Operating activities ............................... ($ 193,303)
Investing activities ............................... $1,642,626
Financing activities ............................... $ 892,418
Effect of exchange rate changes on cash ............ ($ 157,616)
----------
Net effect on cash ................................. $2,184,125
==========
During the three months ended May 31, 2000, the Company utilized cash flow in
operating activities primarily to reduce accounts payable as well as increase
prepayments and loans to affiliates. Cash was provided by operating activities
though decreases in accounts receivable, inventories and increases in accrued
expenses. During the three months ended May 31, 2000, the Company utilized cash
flow in investing activities acquire property and equipment. Cash was provided
by investing activities through the acquisition of Cardoso which had cash on
hand in excess of the cash paid out. During the three months ended May 31, 2000,
the Company utilized cash flow from financing activities primarily to fund the
repayment of debt and related deferred loan costs. Cash was primarily provided
from new debt issued and the issuance of common stock. During the three months
ended May 31, 2000, exchange rate changes of the Rand and US Dollar reduced cash
and cash equivalents.
The Company had negative working capital of $8,019,505 as of May 31, 2000. This
is primarily due to the $9,000,000 note to complete the purchase of Cardoso,
which the Company intends to refinance. Additionally, the $3,397,992 note
payable by Cardoso has no fixed maturity date and is in the process of being
renegotiated. Cardoso's operations, which include working capital lines of
credit from local financial institutions, is sufficient to cover its operations
and repayment of debt.
13
<PAGE>
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk includes exchange rate variability. The
Company does not utilize financial instruments for trading purposes and
holds no derivative financial instruments which could expose the Company to
significant market risk. The Company's exposure to market risk relates
primarily to its investment in the common stock of Cardoso.
Cardoso does substantially all of its business in South African Rand and
all of its assets are located in South Africa. At this time, all products
purchased by Cardoso are produced domestically and paid for in South
African Rand. Cardoso does have an outstanding debt of $3,397,992 payable
in US dollars. As the two currencies fluctuate in price, relative to each
other, this obligation can become more or less costly to Cardoso in terms
of repayment in Rand. Over the last few years the Rand has declined in
relationship to the US dollar which has caused an unrealized loss for
Cardoso.
In addition, the agreement to purchase Cardoso calls for all payments to be
made in US dollars. The debt to be incurred, in order to pay for this
purchase, is also planned to be in US dollars. The cash flow to repay this
debt will come from Cardoso. As such, the repayment obligation will
likewise be subject to the same exchange rate variability. To reduce the
Company's risk of such fluctuations in exchange rates, Cheshire may in the
future purchase foreign exchange contracts in amounts and with expiration
dates in line with its repayment obligations of principal and interest.
14
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
In accord with the Company's Omnibus Stock Incentive Plan, a
consultant who made a significant contribution towards the
raising of capital for the acquisition of Cardoso was granted an
option to purchase 407,000 common shares at $ 0.10 per share.
During this quarter, the option was exercised and the 407,000
shares were subsequently purchased. Simultaneously, the
consultant, returned 406,544 of founder's common shares to the
Company. The net effect of this transaction was to increase the
outstanding common shares of the Company by 456 shares.
Item 6. Exhibits and Report on Form 8-K
(a) Exhibit 27 - Financial Data Schedule, filed herewith
electronically
(b) Reports on Form 8-K
a. January 24, 2000, 8K by Pacific Development Corp.,
predecessor issuer to Cheshire Distributors, Inc. reporting
under Item 5, a 1 for 50 reverse split of its outstanding
common shares.
b. March 7, 2000, 8K by Pacific Development Corp. reporting a
change in control of the registrant.
c. April 12, 2000, 8K/A by Cheshire Distributors, Inc.
reporting change of domicile to Delaware and the merger of
Cheshire with Pacific.
d. April 24, 2000, 8K by Pacific Development Corp. reporting a
change of control.
e. April 24, 2000, 8K by Pacific Development Corp. reporting
the completion of the first phase of the acquisition of
Cardoso Cigarette Depot (Pty.) Limited.
f. June 5, 2000, 8K by Cheshire Distributors, Inc. reporting a
change in the Company's fiscal year to February 28.
g. June 28, 2000, 8K/A by Cheshire Distributors, Inc. reporting
pro-forma results of the Cardoso acquisition and financial
statements of Cardoso.
15
<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.
CHESHIRE DISTRIBUTORS, INC.
By: /s/ Jerry M. Kleinberg
----------------------------
Chief Financial Officer
Date: August 15, 2000
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