Headline: CARIBBEAN CIGAR CO (NASDAQ:CIGR) files SEC Form 10QSB
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MANAGEMENT'S DISCUSSION AND ANALYSIS
SIX MONTHS ENDED SEPTEMBER 30,1997 AND 1996
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
The results of operations for the three months ended September 30, 1997 are not
comparable with the results of operations for the three months ended September
30, 1996. Although the Company had begun the production of its own brand of
cigars in January 1996, it had not fully expanded its retail and wholesale
distribution operation until after the completion of its initial public offering
in August 1996.
The Company's sales for the three months ended September 30, 1997 were
approximately $1,990,900, representing an increase of 15.1% from the Company's
sales for the three months ended September 30, 1996 which were approximately
$1,729,200. This increase is primarily due to the opening of an additional five
retail stores and a manufacturing facility in the Dominican Republic, and an
increase in the wholesale distribution of its own and other tobacco and related
products.
Cost of goods sold increased to approximately $1,543,800 as compared to
approximately $1,180,300 for the three months ended September 30, 1996. This
represented an increase of approximately 30.8% and was primarily a result of the
increase in the volume of sales.
Gross profit decreased to approximately $447,100 or 22.5% of sales for the
three months ended September 30, 1997 as compared to a gross profit of
approximately $548,900 or 31.7% of sales for the three months ended September
30, 1996. The increase in gross profit reflects improved margins from the
manufacture of the Company's cigars in its Dominican Republic facility, the
opening of five additional retail facilities, and increased wholesale
distribution of cigars and related products.
Selling expenses increased to approximately $776,400 for the three months ended
September 30, 1997 as compared to approximately $352,200 for the comparable
period of 1996. This represents an increase of 120.4%. The increase in selling
expenses reflects the increase in marketing and advertising expenses associated
with the building of brand awareness for the Company's premium cigars, and an
increase in its sales force.
General and administrative expenses increased to approximately $953,500 as
compared to approximately $353,200 for the three months ended September 30,
1996. This represents an increase of 170.0% and is attributable to the increase
in the volume of the Company's operations.
Page 6 of 10
The Company incurred interest expense in the period ended September 30, 1997
as compared to interest expense of $1,074 in the three months ended September
30, 1996. During the period ended September 30, 1997 the Company earned
approximately $11,300 in interest income as a result of investing funds from its
initial public offering in August 1996.
SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
The results of operations for the three months ended September 30, 1997 are not
comparable with the results of operations for the three months ended September
30, 1996. Although the Company had begun the production of its own brand of
cigars in January 1996, it had not fully expanded its retail and wholesale
distribution operation until after the completion of its initial public offering
in August 1996.
The Company's sales for the three months ended September 30, 1997 were
approximately $3,031,700, representing an increase of 138.3% from the Company's
sales for the three months ended September 30, 1996 which were approximately
$1,272,300. This increase is primarily due to the opening of an additional five
retail stores and a manufacturing facility in the Dominican Republic, and an
increase in the wholesale distribution of its own and other tobacco and related
products, The combined sales of the retail stores for the three months ended
September 30, 1997 were approximately $574,600 as compared to approximately
$345,000 for the three months ended September 30, 1996. The remaining sales of
approximately $2,457,100 or 81.0% of sales were attributable to wholesale sales.
Cost of goods sold increased to approximately $1,733,400 as compared to
approximately $885,700 for the three months ended September 30, 1996. This
represented an increase of approximately 91.6% and was primarily a result of the
increase in the volume of sales.
Gross profit increased to approximately $1,298,300 or 42.8% of sales for the
three months ended September 30, 1997 as compared to a gross profit of
approximately $386,600 or 30.4% of sales for the three months ended September
30, 1996. The increase in gross profit reflects improved margins from the
manufacture of the Company's cigars in its Dominican Republic facility, the
opening of five additional retail facilities, and increased wholesale
distribution of cigars and related products.
Selling expenses increased to approximately $976,000 for the three months ended
September 30, 1997 as compared to approximately $338,100 for the comparable
period of 1996. This represents an increase of 188.7%. The increase in selling
expenses reflects the increase in marketing and advertising expenses associated
with the building of brand awareness for the Company's premium cigars, and an
increase in its sales force. Selling expenses for the three months ended
September 30, 1997 consisted primarily of salaries of approximately $140,000,
rents of approximately $54,600, advertising and promotional costs of
approximately $409,000, shipping costs of approximately $140,000 and other costs
of approximately $232,200.
General and administrative expenses increased to approximately $1,140,200 as
compared to approximately $324,500 for the three months ended September 30,
1996. This represents an increase of 251.4% and is attributable to the increase
in the volume of the Company's operations and includes salaries and related
costs of approximately $300,000, professional fees of approximately $260,900,
insurance costs of approximately $47,000, travel costs of approximately $86,800,
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The Company incurred net interest expense in the period ended September 30, 1997
as compared to interest income of $63,600 in the six months ended September
30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997 the Company had working capital of $4,893,757. The
Company's current ratio as of September 30, 1997 was approximately 2.2 to 1 as
compared to approximately 6.1 to 1 at March 31, 1997. The decrease in the
Company's current ratio is primarily attributable to the $2,800,000 decrease in
cash and cash equivalents. The Company has expended approximately $2,500,000 to
finance its tobacco-growing program in the Dominican Republic and to build raw
tobacco inventory levels for its production facility. At September 30, 1997, the
Company had cash of $80,000. In order to meet its immediate cash requirements,
on September 20, 1997, the Company borrowed $250,000 from five of its directors.
The notes were repaid with proceeds from the Finova Credit Facility (which is
described below).
As of July 1997, the Company ceased production of cigars in its Miami facility
and transferred the entire production of its products to its facilities in the
Dominican Republic and Indonesia. This will result in a substantial reduction in
the cost of manufacturing of its premium cigars as well as increased
productivity. The Company moved into a new 32,000 square foot distribution
facility in Miami in September 1997 and committed approximately $400,000 towards
the costs of this facility.
On August 28, 1997, the Company entered into a credit facility with Finova
Capital Corporation. Under the terms of the Finova Credit Facility, the Company
can borrow up to a maximum of $3,000,000, subject to limitations based upon
eligible accounts receivable and inventory. The Finova Credit Facility expires
in two years and bears interest at prime plus 2.5% per annum. As of September
30, 1997, the Company had borrowed approximately $1,700,000 under the facility.
Due to the limitations on the amount the Company can borrow under the Finova
Credit Facility and the need for additional funding, the Company is pursuing
additional funding to help cover the costs of completing some of its projects
and providing additional working capital. The failure to obtain such funding
could have a material adverse effect upon the Company's liquidity.
Statements in this Form 10QSB that are not descriptions of historical facts may
be forward looking statements that are subject to risks and uncertainties.
Actual results could differ materially from those currently anticipated due to a
number of factors.
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