-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GAXLd4HPn+t3ZjPrGrcOhKbSxUmfasYrlg/JTIGB0gzWX7HzrqGL859cRI3iC2kh WiqPW4VZOeqTp8A3aVu7UQ== 0000950147-00-000275.txt : 20000221 0000950147-00-000275.hdr.sgml : 20000221 ACCESSION NUMBER: 0000950147-00-000275 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 20000218 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PREMIUM CIGARS INTERNATIONAL LTD CENTRAL INDEX KEY: 0001041479 STANDARD INDUSTRIAL CLASSIFICATION: TOBACCO PRODUCTS [2100] IRS NUMBER: 860846405 STATE OF INCORPORATION: AZ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-13273 FILM NUMBER: 549694 BUSINESS ADDRESS: STREET 1: 15849 NORTH 77TH STREET CITY: SCOTTSDALE STATE: AZ ZIP: 85260 BUSINESS PHONE: 4809228887 MAIL ADDRESS: STREET 1: 15849 NORTH 77TH STREET CITY: SCOTTSDALE STATE: AZ ZIP: 85260 10QSB 1 QUARTERLY REPORT FOR QTR ENDING 9-30-99 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM 10-QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended Commission File Number --------------------- ---------------------- September 30, 1999 0-29414 PREMIUM CIGARS INTERNATIONAL, LTD. ----------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Arizona 86-0846405 - ------------------------------- --------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 15849 North 77th Street Scottsdale, Arizona 85260 ------------------------------------------------- (Address of principal office, including Zip code) Registrant's telephone number, including area code: (480) 922-8887 Securities registered pursuant to Section 12(b) of the Act: No par value common stock Securities registered pursuant to Section 12(g) of the Act: No par value common stock 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 and Exchange Act of 1934 during the preceding 12 months (or for such shorter periods 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 September 30, 1999, there were 3,939,092 shares of Premium Cigars International, Ltd. common stock, no par value outstanding. INDEX PART I - FINANCIAL INFORMATION Item 1 - Financial Statements...................................... 3 Condensed Consolidated Balance Sheet (Unaudited) as of September 30, 1999................................................. 3 Condensed Consolidated Statement of Operations (Unaudited) for the three and nine months ended September 30, 1999 and 1998 ........... 4 Condensed Consolidated Statement of Cash Flows (Unaudited) for the three and nine months ended June 30, 1999 and 1998 ................ 5 Notes to Condensed Consolidated Financial Statements............... 6 Special Note Regarding Forward-Looking Statements.................. 9 Item 2 - Management's Discussion and Analysis or Plan of Operation................................................. 10 PART II - OTHER INFORMATION Item 1 - Legal Proceedings......................................... 13 Item 2 - Changes in Securities and Use of Proceeds................. 14 Item 3 - Defaults Upon Senior Securities........................... 14 Item 4 - Submission of Matters to a Vote of Security Holders....... 14 Item 5 - Other Information......................................... 14 Item 6 - Exhibits and Reports on Form 8-K.......................... 15 SIGNATURES.................................................................. 16 2 PREMIUM CIGARS INTERNATIONAL, LTD. CONDENSED BALANCE SHEET September 30, 1999 ------------ (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 8,936 Available for sale securities 16,000 Accounts receivable - trade, net 74,160 Inventory, net 61,075 Other current assets (Note 4) 91,653 ----------- Total Current Assets 251,824 ----------- Property and Equipment, net 407,023 ----------- Other Assets: Other assets 49,698 ----------- 49,698 ----------- $ 708,545 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses 908,706 ----------- Total current liabilities 908,706 ----------- Commitments and Contingencies (Note 9) -- ----------- Stockholders' Equity: Common stock - no par value, 10,000,000 shares authorized, 3,939,092 shares issued and outstanding 8,992,796 Unrealized Gain (Loss) on Available for Sale Securities (9,000) Accumulated deficit (9,183,957) ----------- Total Stockholders' Equity (200,161) ----------- $ 708,545 =========== The accompanying notes are an integral part of the condensed financial statements 3 PREMIUM CIGARS INTERNATIONAL, LTD. CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended September 30, September 30, -------------------------- -------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Net Sales $ 1,029,571 $ 2,000,622 $ 3,595,857 $ 5,264,226 Cost of Sales 691,114 1,452,290 2,584,386 3,997,059 ----------- ----------- ----------- ----------- Gross Profit 338,457 548,332 1,011,471 1,267,167 Selling, General and Administrative 535,621 1,256,315 2,662,524 3,766,479 Loss on sale of subsidiary (Note 7) 1,200,638 Writedown of cigar humidor program (Note 8) 1,017,524 Severance Packages (Note 3) 395,173 ----------- ----------- ----------- ----------- Loss from Operations (197,164) (707,983) (3,869,215) (2,894,485) Other Income (Expense) (14,162) 33,883 (30,841) 128,796 ----------- ----------- ----------- ----------- Net Loss $ (211,326) $ (674,100) $(3,900,056) $(2,765,689) =========== =========== =========== =========== Basic Loss per Share $ (0.05) $ (0.19) $ (1.02) $ (0.80) =========== =========== =========== =========== Weighted Average Number of Shares Outstanding 3,939,092 3,469,092 3,832,279 3,469,092 =========== =========== =========== ===========
The accompanying notes are an integral part of the condensed financial statements 4 PREMIUM CIGARS INTERNATIONAL, LTD. CONDENSED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, --------------------------- 1999 1998 ----------- ----------- (Unaudited) (Unaudited) Cash flows from operating activities: Net loss $(3,900,056) $(2,765,689) Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Depreciation and amortization 511,656 548,911 Loss on sale of subsidiary 1,200,638 -- Writedown of cigar humidor program 1,017,524 -- Stock issued for services 18,497 -- Net change in other assets and liabilities 541,697 (963,292) ----------- ----------- Net cash provided by (used for) operating activities (610,044) (3,180,070) ----------- ----------- Cash flows from investing activities: Purchase of humidors (64,283) (718,158) Purchase of equipment (7,877) (486,691) Proceeds from sale of subsidiary 375,000 -- Proceeds from sale of equipment 11,924 -- Proceeds from sale of available for sale securities -- 3,339,734 ----------- ----------- Net cash provided by (used for) investing activities 314,764 2,134,885 ----------- ----------- Cash flows from financing activities: Net proceeds from issuance of common stock 136,000 -- ----------- ----------- Net cash provided by financing activities 136,000 -- ----------- ----------- Effect of exchange rate changes on cash and cash equivalents -- (21,968) ----------- ----------- Net increase (decrease) in cash and cash equivalents (159,280) (1,067,153) Cash and cash equivalents, beginning of period 168,216 1,264,365 ----------- ----------- Cash and cash equivalents, end of period $ 8,936 $ 197,212 =========== =========== The accompanying notes are an integral part of the condensed financial statements 5 PREMIUM CIGARS INTERNATIONAL, LTD. NOTES TO CONDENSED FINANCIAL STATEMENTS 1. PRESENTATION OF INTERIM INFORMATION In the opinion of the management of Premium Cigars International, LTD. (the "Company"), the accompanying condensed financial statements include all normal adjustments considered necessary to present fairly the financial position as of September 30, 1999, and the results of operations for the three months and nine months ended September 30, 1999 and 1998, and cash flows for the nine months ended September 30, 1999 and 1998. Interim results are not necessarily indicative of results for a full year. The condensed financial statements and notes are presented as permitted by the instructions to Form 10-QSB, and therefore do not contain certain information included in the Company's audited consolidated financial statements and notes for the year ended December 31, 1998. 2. FINANCIAL STATEMENTS The condensed statements of operations and cash flows include the accounts of the Company and its wholly-owned subsidiary through the date of sale of the subsidiary (see Note 7). All significant intercompany accounts and transactions have been eliminated. Subsequent to the date of sale, the condensed financial statements include the accounts of the Company only. 3. SEVERANCE PACKAGES There were no severance packages paid to employees or officers of the Company in 1999. 4. RELATED PARTY TRANSACTIONS The company has notes receivable from two former directors and shareholders of the Company in the aggregate amount of $86,225. The notes, which bear interest at 6%, were originally due on March 31,1999. The independent members of the Company's board of directors approved an extension for the repayment of these notes to September 30, 1999. As consideration for this extension, the interest rate was increased from 6% to 10% during the extension period. The Company's board of directors granted an additional extension of time to September 30, 2000 in consideration for deferred board fees. Accrued interest as of September 30, 1999 is $19,832. The total of the notes receivable plus accrued interest is included in other current assets in the Company's condensed balance sheet. 5. ISSUANCE OF STOCK During the first quarter of 1999, the Company issued 370,000 restricted shares of its common stock for a total of $136,000. As more fully discussed in the notes to the Company's 1998 audited financial statements included in its 6 1998 Form 10-KSB, the proceeds include the sale of 100,000 shares of stock for an initial price per share of $.01 to its financial public relations provider. The sale was subject to certain performance criteria being met; if the criteria were met the provider had the option to pay between $.99 and $1.49 per share as additional consideration in exchange for the removal of a restrictive legend. If the performance criteria were not met, the Company could elect to repurchase the shares at their original issue price. In September of 1999, the Company agreed to issue the full 100,000 shares of stock to the provider in lieu of payment for services rendered by the provider to the Company. The Company issued an additional 100,000 restricted shares in connection with the sale of its wholly-owned subsidiary (see Note 8). The Company has issued an additional 660,000 shares of restricted stock for cash since October 1, 1999. In addition, the Company has reached agreements with certain suppliers of goods and services to issue stock in lieu of payment for services rendered or goods delivered. 6. NASDAQ DELISTING On May 11, 1999 the Company was notified by the NASDAQ Listing Qualifications Panel that its shares would be delisted as of the close of trading that day. The securities of the Company are now trading on the OTC Bulletin Board. 7. SALE OF CAN-AM On or about June 2, 1999, the Company finalized the sale of all of its shares in its wholly owned subsidiary, Can-Am International Investments, Corp. ("Can-Am"), to Ultimate Cigars, Corp. ("ULTC"), a publicly traded company, for $375,000. In connection with the sale of Can-Am, the Company and ULTC exchanged 100,000 shares of each other's common stock. Additionally, the Company has entered into an option agreement with ULTC (the "Option") pursuant to which ULTC has the option to acquire additional shares for a total of up to 50% of the Company's issued and outstanding stock for a payment of $2,500,000 and all outstanding shares of ULTC's common stock not owned by the Company. The Option is subject to the approval of the shareholders for both the Company and ULTC. The option expired on September 24, 1999. In connection with the sale, the Company has also been granted a purchase discount of up to $125,000 on a product currently in development by ULTC, which would be sold by the Company. 8. WRITEDOWN OF CIGAR HUMIDOR PROGRAM Due to declining demand for its humidified cigar program, the Company has discontinued the program in virtually all of the stores in which it had placed humidors. The cost to write-off the abandoned humidors and discontinued or unsalable product was charged against operations during the three months ended June 30, 1999. 7 9. CONTINGENCIES One of the conditions of the Purchase Agreement for the sale of Can-Am specified that the buyer would not be responsible for past provincial tobacco taxes that were subsequently assessed against Can-Am based on a different method of calculation than had been historically used by Can-Am. On July 30, 1999 Can-Am was notified by the Alberta Treasury that it was being assessed back taxes in the amount of CAN $247,500 (approximately US $165,000) for the period April 1997 through April 1999. At the same time, the Alberta Treasury has submitted a claim in the amount of CAN $60,000 (approximately US $40,000) against the Tobacco Tax Bond. The Company is the indemnitor on this bond. In December of 1999, the issuer of the bond notified the Company that it had paid the bond despite the protests of the Company that the assessment was not valid. On January 11, 2000 the bond issuer made a formal demand to the Company for repayment of the bond in the amount of $40,926. The company does not agree with the assessment and intends to vigorously contest it. No provision for the repayment has been made in the accompanying financial statements. In January of 2000, the Company was informed that Can-Am had defaulted on its lease agreement for office and warehouse space in Vancouver, BC and that the landlord was looking to the Company to make good on the lease as the executor of the lease. As part of the contract for the purchase of Can-Am, ULTC assumed all liabilities for the lease. The Company disagrees with the landlord's interpretation and intends to contest it. No provision for possible payments under the lease have been made in the accompanying financial statements. In January 2000, the Company was notified that it was in default of its lease obligations for its copiers due to non-payment and the entire balance owing under the lease was due and payable. The Company is withholding payment due to quality issue and service agreements, and it expects to be able to negotiate a satisfactory settlement with the leasing company. 10. SUBSEQUENT EVENT In December 1999, the Company was notified that it was being terminated as a supplier of PrimeTime(TM) effective January 1, 2000. In addition, the Company received a request from legal counsel representing the Brown and Williamson Tobacco to cease selling Prime Time cigars under the Prime Time name because they felt that it infringed upon a registered product of theirs called "Prime." 8 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Some of the statements contained in this report discuss future expectations, contain projections of results of operations or financial condition or state other "forward-looking" information. Those statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated by the statements. The forward-looking information is based on various factors and was derived using numerous assumptions. Important factors that may cause actual results to differ from forward-looking statements and projections include, for example: * our ability to secure new fulfillment customers; * our ability to maintain an adequate capital position and a sufficient cash flow as we add new fulfillment customers; * our ability to obtain funding to enable us to maintain sufficient working capital for operating activities and capital acquisitions; * the possibility of retroactive assessment of taxes by Canadian authorities based on new methodologies for which we have agreed to indemnify the buyer of our former Canadian subsidiary; * our ability to negotiate and maintain favorable distribution arrangements with our shippers; * the effect of changing economic conditions; * the risk of any significant uninsured loss from settlement dealing with Proposition 65; and * other risks which may be described in our future filings with the SEC. We do not promise to update forward-looking information to reflect actual results or changes in assumptions or other factors that could affect those statements. 9 ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You must read the following discussion on the financial condition and results of operations of Premium Cigars International, LTD. ("PCI") in conjunction with PCI's condensed financial statements, including the notes elsewhere in this Form 10-QSB filing. Historical results are not necessarily an indicator of trends in operating results for any future period. As a direct distributor of cigar products, PCI has built an infrastructure that provides high speed fulfillment of products to retailers and other consumers. The Company has modified it's business plan to include providing fulfillment services to other companies. In particular, it feels that there is a significant opportunity in offering the Company's services to e-commerce based businesses as solutions to their customer and delivery problems. In order to develop this new business activity, the Company has started doing business as "Product Express.com." As a result of recognizing the value of the core competency of fulfillment, the Company has also been developing an additional business opportunity in the creation of a delivery system outside the main facility which is designed to provide retail grocers on National level online order system for pickup or home delivery. It is anticipated that this will be expanded upon in the first quarter of 2000. The Company operates primarily in one business segment and has a December 31 fiscal year. RESULTS OF OPERATIONS COMPARISON OF THE THIRD QUARTER OF 1999 WITH THE THIRD QUARTER OF 1998 Net sales for the quarter ended September 30, 1999 decreased by $971,000 versus the same period last year, a 49% decrease. Virtually all of the decrease ($988M) is due to the sale of our Canadian subsidiary in June of 1999. Although U.S. sales were flat versus last year, the mix has shifted almost entirely to PrimeTime and away from cigars. Gross profit margin was 33% for the quarter ended September 30, 1999 versus 27% for the quarter ended September 30, 1998. The improvement is due to the sale of our Canadian subsidiary, whose margins were historically lower than our U.S. operations. Margins in the United States held steady despite the heavy introductory efforts in launching PrimeTime. Selling, general and administrative expenses for the quarter ended September 30, 1999 decreased $721,000 or 57% from the same period one year ago. In addition to the sale of its Canadian subsidiary which accounted for $308M of the decrease, SG&A has declined due to staff cuts that were implemented during the first three quarters of 1999 (in recognition of the declining importance of the Company's in-store humidor program), as well as an overall decrease in infrastructure spending that was ongoing during 1998. 10 Other income for the quarter ended September 30, 1999 declined from the previous year because the prior year amount consisted mainly of interest income from short-term investments which were purchased with a portion of the net proceeds from the Company's initial public offering. The current year expense also reflects interest expense from the factoring of the Company's accounts receivable. COMPARISON OF THE FIRST NINE MONTHS OF 1999 WITH THE FIRST NINE MONTHS OF 1998 Net sales for the nine months ended September 30, 1999 decreased by $1,668,000 versus the same period one year ago, a 32% decrease. Most of the decrease is attributable to declining sales at our former Canadian subsidiary which was sold in June 1999; also, year ago results included nine months of Canadian operations versus five months for the current year. Sales in the United States were down 6% versus one year ago; however, revenue has steadily increased during the current year as the company continued rolling out its new flavored cigar PrimeTime. This was offset by a steep decline in sales via the company's now mostly discontinued in-store humidor program. Gross profit margin was 28% for the nine months ended September 30, 1999 versus 24% for the nine months ended September 30, 1998. The margin improvement is attributable to a much lower margin in the United States during the first quarter of 1998 due to nonrecurring expenditures for consolidating warehouse space and inspecting inventory for possible damage, as well as the continuing trend towards more efficient warehousing and shipping operations throughout 1998 and into 1999. The sale of our lower-margin Canadian subsidiary also contributed to the margin improvement. Selling, general and administrative expenses for the nine months ended September 30, 1999 decreased $1,104,000 or 29% from the same period one year ago. Excluding the cost of the introductory PrimeTime marketing spending that was charged off as account acquisition costs during the second quarter of 1999, SG&A decreased $1,305,000, or 35% from the comparable period one year ago. In addition to the sale of our Canadian subsidiary in June of 1999, SG&A has declined due to staff cuts that were implemented during the first quarter of 1999 (in recognition of the declining importance of the Company's in-store humidor program), as well as an overall decrease in infrastructure spending that was ongoing during 1998. As discussed in our previous 10-KSB filings, we took a one-time charge in the first quarter of 1998 to reflect the cost of severance packages for previous management. Other income for the nine months ended September 30, 1999 declined from the previous year because the prior year amount consisted mainly of interest income from short-term investments which were purchased with a portion of the net proceeds from the Company's initial public offering. The current year expense also reflects interest expense from the factoring of the Company's accounts receivable. 11 LIQUIDITY AND CAPITAL RESOURCES The Company used $610,000 for operating activities for the first nine months of 1999. The net loss of $3,900,000 was reduced by non-cash expenses for depreciation and amortization of $512,000, $1,200,000 for the loss on the sale of its Canadian subsidiary and $1,000,000 for the write-down of its humidors and cigars. As part of Management's efforts to restructure the Company, unprofitable investments in our Canadian subsidiary and the in-store cigar humidor program were either divested or severely curtailed. Canadian operations were hampered by a difficult operating environment due to increasing legislative pressure that affected cigar packaging and humidor placement within retail outlets. Combined with a downward trend in cigar consumption and the likely inability to be able to place its PrimeTime countertop control units on the front counters, Management determined that the best course of action was to eliminate any future cash drain resulting from the Canadian operations. In early June, the Company finalized the sale of its Canadian subsidiary for $375,000 in cash, plus an exchange of 100,000 shares of stock with the buyer. The downward trend in cigar sales plus a surplus of inventory led Management to conclude that no further investment was justified in the in-store humidor program. Efforts to dispose of our discontinued inventory met with limited success; only through substantial markdowns were we able to move some of this inventory. Although most of the stores have now dropped the in-store humidor program, we were able to place PrimeTime in the majority of these stores. The cost to write off the investment in the humidors and write-down the discontinued cigar inventory and packaging materials was shown as a charge against current operations for the three months ended June 30, 1999. Management has determined that there is a tremendous opportunity and value in our core competencies as a high-speed order and fulfillment center. Our unique distribution system that we have developed for the convenience store industry is very efficient and valuable. Therefore, we hired an individual with a expertise in logistics to develop a full set of fulfillment services. In addition, we entered into a number of strategic alliances with people and companies involved in e-commerce for the purpose of becoming authorized agents. These agents direct clients to the Company who are in need of fulfillment solutions. As we begin to provide product fulfillment for others, we do not anticipate any significant capital expenditures beyond a modest investment to enhance our existing systems. Should the volume of business exceed our current capacity, we will need to lease additional warehouse space and invest in additional equipment such as forklifts and racking. In December of 1999, the Company was notified that it was being terminated as a supplier of Prime Time effective January 1, 2000. Prime Time has been the Company's dominant source of revenue for the past year. The Company has been working for several months developing new revenue sources through fulfillment services; however, to date the amount of revenue derived from fulfillment services has been minimal. Management believes it is close to completing fulfillment contracts that will replace the revenue from Prime Time. However, we cannot assure you that we will be able to replace the revenue in time to allow us to continue to operate without raising additional capital to fund current operations. 12 We invested nearly $600,000 in capital additions during 1998 as we developed our infrastructure and moved into our new facility. We do not anticipate any significant capital expenditures for the foreseeable future beyond those discussed above. The Company has incurred substantial operating losses since inception. As of December 31, 1998 the Net Operating Loss carryforward was approximately $5,300,000. We expect to incur another substantial operating loss for the current year. The Net Operating Loss carryforward may be attractive to another company wishing to offset its own tax liability. Due to the loss of our primary revenue source from the sale of Prime Time and the time it takes to replace the revenue stream, we cannot assure you that that we can generate sufficient revenues to provide the cash flow necessary to meet our ongoing working capital needs or to repay prior existing trade indebtedness. We raised $136,000 during the first quarter of 1999 through the issuance of additional shares of the Company's shares. The Board of Directors has authorized the issuance of additional shares and warrants for up to an additional $925,000 at a price of $0.25 per share. During the fourth quarter of 1999 and January 2000, we have raised an additional $165,000 through sale of the Company's stock. We raised an additional $375,000 from the sale of our Canadian subsidiary. It is anticipated that there will be a need to raise additional capital in the first quarter of 2000. The Company has received a number of indications of interest from accredited individuals. YEAR 2000 READINESS The Company has not experienced any significant problems during January 2000 due to Y2K issues. It was determined in early January that our voice mail system was not Y2K compliant and the system is currently being upgraded. We do not believe there has been a significant impact to our business stemming from the problems with our voice mail. At this time we do not anticipate any further significant issues relating to Y2K, although there can be no assurances that this will be the case. PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS PROP 65. PCI and Southland have received a notice of violations of Proposition 65, a California regulation which requires warning labels on certain cancer causing products, from a California attorney, Morse Mehrban. PCI believes it is currently in compliance with Proposition 65. A new notice was submitted to PCI following the dismissal of the prior civil suit brought by Mr. Merhban, which was dismissed without prejudice for improper notice. It is expected that Mr. Mehrban will re-file a lawsuit against PCI. With respect to the lawsuit filed against Southland, the complaint indicates that the lawsuit covers a vast quantity of products other than PCI's products. Accordingly, PCI has determined not to retain California counsel to defend these claims on behalf of Southland. If Mr. Mehrban files suit against PCI, PCI will retain California counsel to defend the claims brought against it. OTHER. PCI has received service of two lawsuits filed against it by creditors of the Company in the aggregate amount of approximately $15,000. PCI has filed responses disputing the amounts of these claims. 13 ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS (a) None. (b) None. (c) Sale of Unregistered Securities. The Company sold a total of 100,000 shares of unregistered common stock during the first quarter of 1999 to Ultimate Cigar Corp. as more fully described in Item 5 of our June 30, 1999 Form 10-QSB filing. (d) Use of Proceeds. All proceeds from the Company's initial public offering have been expended as set forth in the Company's Form 10-KSB for the year ended December 31, 1998. ITEM 3 - DEFAULTS UPON SENIOR SECURITIES None ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5 - OTHER INFORMATION CHANGES IN OFFICERS AND DIRECTORS. As previously disclosed in the Company's Form 8-K dated September 27, 1999, Colin Jones resigned as Director and Gary J. Sherman was appointed as Chairman of the Company's Board of Directors. As previously disclosed in the Company's Form 8-K filing dated November 9, 1999, Scott I. Lambrecht resigned as President and CEO. On November 9, 1999, Greg P. Lambrecht resigned as a Director of the Company. On December 3, 1999, Brendan McGuinness resigned as Vice President of Sales and Chief Operating Officer. On January 24, 2000, Steven A. Lambrecht was appointed as interim Chief Financial Officer.and Gary J. Sherman as interim Chief Executive Officer. TERMINATION OF SUPPLIER AGREEMENT. As previously disclosed in the Company's Form 8-K dated September 27, 1999, the Company entered into a new agreement for the sale and distribution of Prime Time. In December of 1999, the Company was notified that the agreement was being terminated as of January 1, 2000 and the Company would no longer be a distributor of Prime Time. 14 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit Number Exhibit Name Method of Filing ------ ------------ ---------------- 3.1 Articles of Incorporation * 3.2 Amended and Restated Bylaws, Adopted May 8, 1998 ** 4.1 Specimen Common Stock Certificate *** 4.2 Description of Rights of Security Holders **** 27.1 Financial Data Schedule Exhibit filed herewith 99.1 "Underwriting" section of Registration Statement on Form SB-2 **** ---------- * Incorporated by reference to Exhibit 3.1 of Registration Statement on Form SB-2 (file no. 333-29985) declared effective on August 21, 1997. ** Incorporated by reference to Exhibit 3.2 of the Form 10-QSB filed by the Registrant for the quarter ending June 30, 1998. *** Incorporated by reference to Exhibit 4.2 of Registration Statement on Form SB-2 (file no. 333-29985) declared effective on August 21, 1997. **** Incorporated by reference to pages 56-57 of Registration Statement on Form SB-2 (file no. 333-29985) declared effective on August 21, 1997. (b) Reports on Form 8-K Form 8-K filed by the Company on September 27, 1999 disclosing Boston Stock Exchange delisting, Board of Director appointments and resignations and new distributor agreement for Prime Time. Form 8-K filed by the Company on November 9, 1999 disclosing the resignation of the President and CEO. 15 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. PREMIUM CIGARS INTERNATIONAL, LTD. (Registrant) /s/ Gary Sherman Date: February 18, 2000 - -------------------------------------- Gary Sherman Chairman and President /s/ Steven A. Lambrecht Date: February 18, 2000 - -------------------------------------- Steven A. Lambrecht Chief Executive Officer and Secretary Member of Board 16 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 8,936 16,000 74,160 18,742 61,075 251,824 407,023 235,474 708,545 908,706 0 0 0 8,992,796 0 708,545 3,595,857 0 2,584,386 4,880,686 30,841 38,578 28,168 (3,900,056) 0 0 0 0 0 (3,900,056) (1.02) 0
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