U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
Commission file number 0-32137
Alec Bradley Cigar Corporation
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(Name of Small Business Issuer in its Charter)
Florida 65-0701352
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1750 N.W. 65th Avenue, Plantation, Florida 33313
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(Address of Principal Executive Offices) (Zip Code)
(954)321-5991
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(Issuer's Telephone Number)
Securities registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
None
Securities registered under Section 12(g) of the Exchange Act:
Class A Common Stock, $.0001 par value
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $1,620,485.00.
State the aggregate market value of the voting stock held by non-affiliates
(1,104,777) computed by reference to the price at which the stock was sold, or
the average bid and asked prices of such stock, as of a specified date within
the past 60 days ($.03 on April 11, 2003). $33,143.30.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: April 14, 2003: 4,899,777 Shares of
Common Stock.
Transitional Small Business Disclosure Format (Check One):
Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE
- None -
TABLE OF CONTENTS
PART I
Item 1 Description of Business............................................................ 3
Item 2 Description of Property............................................................ 8
Item 3 Legal Proceedings.................................................................. 8
Item 4 Submissions of Matters to a Vote of Security Holders............................... 8
PART II
Item 5 Market for Common Equity and Related Stockholder Matters........................... 9
Item 6 Management's Discussion and Analysis or Plan of Operation.......................... 10
Item 7 Financial Statements............................................................... 12
Item 8 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................................................ 12
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.................................. 13
Item 10 Executive Compensation............................................................. 14
Item 11 Security Ownership of Certain Beneficial Owners and Management..................... 15
Item 12 Certain Relationships and Related Transactions..................................... 15
Item 13 Exhibits, Lists and Reports on Form 8-K............................................ 15
Item 14 Controls and Procedures............................................................ 16
2
PART I
Item 1. Description of Business.
General
Alec Bradley Cigars was organized under the laws of the State of
Florida on July 15, 1996. The Company is an importer and distributor of cigars.
The Company's executive offices are located at 1750 N.W. 65th Avenue,
Plantation, Florida and its telephone number is (954) 321-5991.
Description of Operations
The Company is a cigar importer and distributor. The Company initially
imported and distributed a line of cigars to golf pro shops and country clubs
nationwide under the name "Bogey's Stogies." The Company currently imports and
distributes several cigar lines.
The Company primarily sells to two types of customers:
1. Distributors, including wine and liquor wholesalers; and
2. Retailers, which includes tobacco shops, convenience stores, bars,
restaurants and country clubs.
Background of the Industry
In 1993 the cigar industry began to experience a dramatic increase in
demand from consumers. This created a sizable increase in the number of both
cigar manufacturers and retail tobacconists and distributors. Through the end of
1997, many of the cigar manufacturers were able to sell their entire production.
However, by early 1998, the supply of cigars from the larger manufacturers
exceeded demand from the retail tobacconists and distributors thereby causing
the market to be flooded with cigars. This had an adverse effect on
manufacturers, retailers and distributors. However, Bureau of Alcohol, Tobacco
and Firearms Monthly Statistical Releases show that the industry remains strong.
Recent statistical releases now indicated that cigars are being imported from
foreign manufacturers at increasing levels. These releases can be found at
www.atf.treas.gov.
Company Cigars
The Company distributes the following cigars:
Bogey's Stogies
Originally marketed towards the golfing industry, Bogey's Stogies are
now sold to both distributors and retailers. Blended to be full bodied, yet
mild, Bogey's Stogies are sold nationwide in tobacco shops, bars and
restaurants, as well as golf courses.
Bogey's Stogies is a premium long-filler, handmade cigar manufactured
in the Honduras from a reserve of aged Cuban-seed Dominican Piloto with Mexican
and Nicaraguan ligero leaf.
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The cigars are made with a Sumatran binder and the cigar is finished with a gold
Ecuadorean Connecticut-shade wrapper.
Bogey's Stogies are available in Spanish Cedar hinge-top boxes in the
following sizes: Robusto (50x5), Corona (44x6-1/4), Double Corona (50x6),
Churchill (49x7), and Pyramid (36/54x7).
Floribbean
Floribbean Cigar is a premium, long-filler, handmade cigar made in
Miami. Rolled from a private stock of aged Cuban-seed Piloto Cubano and
Nicaraguan Havano, this cigar is bound with a Pennsylvania broad-leaf binder and
finished with a Sumatran wrapper.
Floribbean combines high quality tobaccos from the Caribbean and the
expert Cuban craftsmanship of the Miami cigar rollers providing a traditional
style cigar. Floribbean is available in the following sizes: Robusto (50x5),
Corona (44x6-1/4), Double Corona (50x6), Churchill (49x7), and Pyramid
(36/54x6). Floribbean is packaged in a Spanish cedar hinge-top boxes.
Spirit of Cuba
Spirit of Cuba is a premium, long-filler, handmade cigar imported from
Honduras. Made from a reserve of aged Cuban-seed Piloto Cubano and Nicaraguan
Havano, this cigar is bound with a Pennsylvania broad-leaf binder and finished
with an Indonesian wrapper. Spirit of Cuba is available in the following sizes:
Robusto (50x5), Corona (44x6-1/4), Double Corona (50x6), Churchill (49x7), and
Pyramid (36/54x6).
Concept 2000
Concept 2000 is a premium, long-filler, handmade cigar imported from
Honduras. It is manufactured from a private reserve of aged Cuban-seed Dominican
Piloto with Mexican and Nicaraguan ligero leaf ensuring its smoothness. The
cigar uses a Sumatran binder with a sweet finish, and the cigar is finished with
a gold Ecuadorean Connecticut-shade wrapper. Concept 2000 provides a mild yet
full-bodied taste.
Concept 2000 is available in the following sizes: Robusto (50x5),
Corona (44x6-1/4), Double Corona (50x6), Churchill (49x7), and Pyramid
(35/54x6).
Occidental Reserve
Occidental Reserve is a ultra premium cigar rolled by Hendrik Kelner in
the Dominican Republic. Mr. Kelner produces over 20 million cigars annually and
is considered one of the top producers of premium cigars in the world. The
average price of a cigar produced by Mr. Kelner is over $10.00 and many of the
cigars produced under his supervision are known world-wide.
Occidental Reserve is produced with filler and binder from Tabadom, the
Dominican tobacco supply arm of some of the world's most famous cigars, and is
finished with a U.S. Connecticut shade wrapper.
4
This cigar directly competes in quality with cigars that are priced
higher than the retail cost of the Occidental Reserve. Occidental Reserve is
produced in sizes, a corona, robusto, toro, churchill, and torpedo and is sold
in bundles of 25.
Occidental Havana Sun Grown
Occidental Havana Sun Grown is an ultra premium cigar rolled by Hendrik
Kelner in the Dominican Republic. The Occidental Havana Sun Grown is a medium to
full-bodied cigar with heavy flavor profiles. Occidental Havana Sun Grown is
produced with filler and binder from Tabadom, the Dominican tobacco supply arm
of some of the world's most famous cigars, and is finished with a U.S.
Connecticut shade wrapper.
This cigar directly competes in quality with cigars that are priced
higher than the retail cost of the Occidental Havana Sun Grown. Occidental
Havana Sun Grown is produced in sizes, a corona, robusto, corona extra,
churchill, and torpedo and is sold in boxes of 20.
Gourmet Dessert Cigars
Management of the Company believes a trend in today's cigar market is
flavored cigars. Alec Bradley distributes a line of gourmet dessert cigars,
which contain high-end, sandwich filler product, enhanced with natural and
artificial FDA approved flavorings. The flavoring is processed into the tobacco
before it is hand rolled.
Flavors include chocolate, vanilla, rum, cherry, pina colada, amaretto,
and cappuccino. Marketing efforts focus on the newer generation of cigar
smokers, which includes female cigar enthusiasts.
Purchasing and Distribution
The Company purchases and imports the majority of its cigars from cigar
manufacturing plants in Honduras and the Dominican Republic. Occidental Cigar
Corporation, the Company's supplier from the Dominican Republic, is a leading
manufacturer of premium cigars. They produce the Company's Occidental Reserve
and Havana Sun Grown cigar lines. Located in Santiago, Dominican Republic,
Occidental Cigar Corporation occupies a 20,000 square foot building and produces
15,000,000 cigars annually. Occidental Cigar Corporation stocks over 3 years of
raw material that includes wrapper, filler and binder. This stock of raw
material assures consistent quality and production for several years.
La Perla Hondurena, located in Danli, Honduras, is the Company's
supplier of gourmet cigars.
The Company does not have any agreements with cigar manufacturers.
Purchases are made on a per order basis. The Company pays all shipping costs.
Customers
The Company has approximately 400 customers. The Company's biggest
customer is Thompsons Cigar Company, located in Tampa, Florida. Over the past
5
two years, Thompsons accounts for approximately 25% of the Company's sales and
is the only company which the Company depends on for a large portion of its
revenues. The Company has no contractual relationship with Thompsons Cigar
Company.
Other Projects
As the Company continues to expand and improve on its current wholesale
and retail programs, it maintains its focus on creating ways of supplying cigars
to the public. These include:
Mail Order Companies
Alec Bradley has established a relationship with Thompsons Cigar
Company, a mail order catalog company in the United States. Alec Bradley
presently supplies Thompsons Cigar Company with two of its cigar lines.
Thompsons mails over 17,000,000 catalogues a year.
The Company's intent is to focus on dealing with catalog companies with
large sources of distribution. To date, the Company has not had any material
negotiations and has not entered into any definitive agreements. Mail order
companies generally sell to the final consumers which should help bring public
awareness to the Company's product lines. Payment received when selling to a
catalog company has not been significantly less than payments received from
traditional customers.
Alec Bradley Direct
The Company has created a direct sales approach which includes
bi-monthly marketing via fax and daily in-house telemarketing. By removing all
additional layers of distribution such as brokers, agents and outside sales
representatives, the Company is able to keep prices below the industry average
for high quality cigars. This is why Alec Bradley has chosen to deal directly
with tobacconists on its new Occidental Reserve line. By marketing via broadcast
fax and an in-house telemarketing staff the Company has been able to create and
nurture relationships directly with the sales venue.
Personalized and Customized Cigar Band Program
Alec Bradley, in conjunction with an outside consultant, has developed
a computer system for creating high quality, metallic ink cigar label bands.
This technology allows the Company to produce small run (25 to 3,000) high
quality personalized and customized private labeled cigars for a corporation,
bar, restaurant or event. The Company receives revenues from this technology by
selling personalized and customized bands to corporations, bars, restaurants and
special events on a per order basis.
The Company has also recently developed a program for the retail
tobacconists. The Company is able to create house brands utilizing the
Occidental Reserve cigar and attaching customized private label cigar rings. The
Company, on a per order basis, can provide a customer with a personally labeled
cigar. Customers are under no contractual obligations, as they purchase
personalized cigars on an order per order basis. These retail tobacconists who
normally cannot order large enough quantities to entice a manufacturer to make a
personalized product, can benefit by being able to order small quantities from
the Company as needed from this program. The Company will gain additional
6
revenues by selling small quantities of personalized and custom cigars at
slightly higher profit margins. No contracts are required for this program.
The Company has produced custom bands for the Gulfstream Race Track,
the Carquest Bowl, Tyson Foods, and many restaurants.
Competition
The Company experiences competition with respect to its cigar
distribution. The cigar distribution industry is highly competitive. The Company
believes that as a distributor of premium cigars, it competes with a smaller
number of domestic and foreign companies that specialize in premium cigars, and
certain larger companies that maintain premium cigar lines, including
Consolidated Cigar Corporation, Culbro Corporation and General Cigar Company.
The Company competes within this industry by simply purchasing high quality
cigars and distributing them at an affordable price to its customers. The
Company believes that it can grow by following this simple principle. The
Company is continually seeking manufacturers that can provide the highest
quality cigars at the lowest possible price.
Government Regulation
The Company as an importer of cigars is required to have an importer
permit from the Department of the Treasury, Bureau of Alcohol, Tobacco and
Firearms. The Company applied for and has been granted Permit Number FL-TI-127.
The Company believes any future regulations including affixing warning labels on
products, regulations on tobacco advertising, and limits on public smoking areas
will be met with full compliance and will not affect the Company's ability for
continued growth. The material costs to comply with governmental regulation will
be negligible. The Company believes that there are no additional existing or
probable governmental regulation that effects its business. The Company does not
incur any material costs to comply with environmental laws.
Research and Development
Currently, the Company is not involved in any research and development
projects. Over the past two years, the Company has not spent any capital on
research and development. The Company does not plan on any future research and
development.
Employees
The Company currently employs approximately 3 full-time and 2 part-time
employees and has 4 independent sales representatives. Of its employees, 2 are
engaged in sales and marketing and 2 in executive and administrative roles. None
of the Company's employees are covered by any labor union. The Company believes
its relationships with its employees are generally good. The Company does not
have an employment contract or agreement with any of its employees.
7
Trademarks
The Company has trademarked the name Bogey's Stogies. The Company has
applied for other trademarks for the cigars it distributes, but these
applications are pending.
Item 2. Description of Property.
Commencing May 1, 1998, the Company entered into a lease agreement for
approximately 2,500 feet of office, administrative and warehouse facilities
located at 1750 N.W. 65th Avenue, Plantation, Florida 33313, at a monthly rate
of $1,400. The Company received rent abatements during 1999 and 2000. The lease
has expired. The landlord has orally extended the lease on a month to month
basis. The Company currently pays $1,000 per month.
Item 3. Legal Proceedings.
As of the date of this report, the Company is not a party to any
pending legal proceeding and is not aware of any threatened legal proceeding.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
8
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Market for Common Equity
From 1999 through February 2002 the Company's Common Stock traded on
the Pink Sheets. The Company's Common Stock currently trades on the OTC Bulletin
Board under the symbol ABDC. The stock is thinly traded and transactions (if
any) in the stock are sporadic and infrequent. On April 11, 2003, the Closing
bid and asked price of our Common Stock was $.03. The following table sets forth
the high and low bid quotations for the Common Stock for the periods indicated.
These quotations, as reported by Bloomberg, reflect prices between dealers, do
not include retail mark-ups, markdowns, commissions and may not necessarily
represent actual transactions.
Period High Low
------ ---- ---
1st quarter 2001 $0.20 $0.12
2nd quarter 2001 $0.15 $0.12
3rd quarter 2001 $0.15 $0.05
4th quarter 2001 $0.05 $0.03
1st quarter 2002 $0.22 $0.03
2nd quarter 2002 $0.45 $0.06
3rd quarter 2002 $0.40 $0.13
4th quarter 2002 $0.13 $0.04
As of the date of this report, there were approximately 50 holders of
record of the Company's Common Stock.
The Company has never paid a cash dividend on its Common Stock nor does
the Company anticipate paying cash dividends on its Common Stock in the near
future. It is the present policy of the Company not to pay cash dividends on the
Common Stock but to retain earnings, if any, to fund growth and expansion. Any
payment of cash dividends on the Common Stock in the future will be dependent
upon the Company's financial condition, results of operations, current and
anticipated cash requirements, plan for expansion, as well as other factors the
Board of Directors deems relevant.
Recent Sales of Unregistered Securities
In June 2002 the Company issued an aggregate of 415,000 shares of its
common stock to an aggregate of 7 employees, consultants and other service
providers as payment for services performed. The shares were issued pursuant to
the exemption from registration provided by Section 4(2) of the Securities Act.
The shares issued contain a legend restricting their transferability without
registration or an applicable exemption. The shareholders had access to
information concerning the Company and had the opportunity to ask questions to
the Company.
9
Item 6. Management's Discussion and Analysis or Plan of Operation.
Introduction
The following discussion is based upon, and should be read in
conjunction with, the audited consolidated financial statements of the Company
as of and for the years ended December 31, 2002 and 2001, together with the
notes to the financial statements.
Year ended December 31, 2002 as compared to year ended December 31, 2001
Revenues
Revenues for 2002 were approximately $1,620,485, an increase of
approximately $724,200, or 80.8%, from $896,295 for 2001. This was attributable
to an increase in sales (number of units) resulting from the Company's
successful introduction of new cigar lines during 2002 (Trilogy, Criollo and
Figurado) and 2001 (Havana Sun Grown Cigars). The Company's gross profit was
$629,160, an increase of approximately $276,400, or 78.3% from $352,842, due to
the increase in sales. The increase in gross profit is directly attributable to
the increase in sales.
Selling Expenses
Selling expenses for 2002 were $183,808, an increase of approximately
$141,700 or 336.6% from $42,118 in 2001. Selling expenses include all
compensation and related benefits for the sales personnel and advertising and
promotional costs. The increase in selling expenses was attributable to the
increase in sales commissions of $103,000, freight expense of $30,000 and trade
show costs and advertising costs of $8,700 in 2002. Selling expenses represented
11.3% of revenues in 2002, compared to 4.7% in 2001.
General and administrative expenses
General and administrative expenses for 2002 were $400,260, an increase
of $121,400, or 43.5%, from 278,750 in 2001. General and administrative expenses
primarily include salaries, supplies, and general operating expenses. The
increase in general and administrative expenses is attributable to the increases
of $50,600 in payroll and related taxes, $20,500 in professional fees, and
entertainment of $12,600. The majority of payroll and tax increase was due to an
increase in employee salaries and bonuses paid during 2002. General and
administrative expenses represented 24.7% of revenues in 2002, compared to 31.1%
in 2001.
Liquidity and Capital Resources
The Company's cash balance as of December 31, 2002 increased by $7,500
from December 31, 2001 to $46,000. During 2002, cash provided by operations was
approximately $11,600 and primarily resulted from the increase in accounts
payable of approximately $252,000 and income from operations plus the effect of
net of non-cash items (depreciation expense). The cash provided was utilized to
fund the increases in accounts receivable of $52,100 and prepaid expenses of
$15,800.
10
The Company's working capital was approximately $127,900 at December
31, 2002, compared to approximately $65,100 at December 31, 2001. The increase
in working capital was primarily attributable to the Company profits of
approximately $35,900, inventory of $308,450 and the effect of net of non-cash
items (depreciation expense) of $9,300.
The Company has negotiated with major suppliers and extended credit
terms for new products being developed through these suppliers. In addition, The
Company has established a line of credit to provide for additional cash flow
needs.
Management believes that the cash generated from the Company's
operations and new credit terms and credit facility will be adequate to support
its short-term cash requirements for capital expenditures and maintenance of
working capital.
Accounting Pronouncements
Basis of Accounting
The financial statements are prepared using the accrual basis of
accounting where revenues are recognized upon shipment of merchandise to the
customer and expenses are recognized in the period in which they are incurred.
This basis of accounting conforms to accounting principles generally accepted in
the United States of America.
Income Taxes
For tax purposes, the Company was an S corporation prior to January 1,
2001. Accordingly, net losses and related timing differences for periods prior
to January 1, 2001 were offset taxable income of the Company in subsequent
periods. Effective January 1, 2001, the Company terminated its S corporation
election, and, as a result, adopted Statement of Financial Accounting Standards
("SFAS") No. 109, Accounting for Income Taxes. SFAS No. 109 requires that
deferred income tax balances be recognized based on the differences between the
financial statement and income tax bases of assets and liabilities using enacted
tax rates.
Inventory
Inventory consists primarily of cigars, humidors, displays, boxes and
labels and is stated at the lower of cost (first-in, first-out) or market.
Furniture and Equipment
Furniture and equipment are recorded at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets
ranging from five to seven years.
Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from those
estimates.
11
Comprehensive Income or Loss
The Company has no components of other comprehensive income or loss.
Accordingly, net income or loss equals comprehensive income or loss for all
periods presented.
Item 7. Financial Statements.
The information required by Item 310 (a) of Regulation S-B is included
herein elsewhere in this report.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Effective March 17, 2003, the Company dismissed Jaffe, Kaufman &
Sarbey, LLC ("JKS") to audit Company's financial statements. The reports of JKS
on the financial statements of the Company for the past fiscal year contained no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principle. The decision to dismiss JKS
was recommended by management and approved by the Company's Board of Directors
(the Company currently has no formal audit committee).
In connection with its audit for the most recent fiscal year and
including the interim period up to and including the date of dismissal, there
have been no disagreements with JKS on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of JKS would have caused them
to make reference thereto in their report on the financial statements for such
years.
Effective March 17, 2003, the Company engaged the accounting firm of
Jewett, Schwartz & Associates as the Company's new independent accountants to
audit the Company's financial statements for the fiscal year ending December 31,
2002.
On March 11, 2002, the Board of Directors of the Company approved the
engagement of Jaffe, Kaufman, & Sarbey, LLC as independent auditors of the
Company for the fiscal year ended December 31, 2001, to replace the firm of
Spear, Safer, Harmon & Co., P.A., who were dismissed as the Company's auditors,
effective March 11, 2002.
The reports of Spear, Safer, Harmon & Co. on the Company's financial
statements for the fiscal year ended December 31, 1999 and fiscal year ended
December 31, 2000, did not contain an adverse opinion or disclaimer of opinion,
and were not qualified as to uncertainty, audit scope, or accounting principles.
In connection with the audits of the Company's financial statements for
the fiscal year ended December 31, 1999, fiscal year ended December 31, 2000,
and in the subsequent unaudited interim period through March 11, 2002 (date of
dismissal), there were no disagreements with Spear, Safer, Harmon & Co. on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope and procedures which, if not resolved to the satisfaction of
Spear, Safer, Harmon & Co., would have caused Spear, Safer, Harmon & Co. to make
reference to the subject matter in their report.
12
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
The Directors and Executive Officers of the Company are as follows:
Name Age Positions Held
---- --- --------------
Alan V. Rubin 41 Director, Chief Executive Officer,
President and Principal Financial Officer
Alan Rubin has served as a director and officer of the Company since
its inception. Alan Rubin served as vice president of All Point Screw Bolt &
Speciality Co., a distributor and direct importer of fasteners and building
products from 1984 to 1996. Mr. Rubin attended the University of Florida.
The Company's directors are elected at the annual meeting of
stockholders and hold office for one year and until their successors are elected
and qualified. The Company's officers are appointed by the Board of Directors
and serve at the pleasure of the Board. The Directors do not currently receive
fees for their services as directors.
Committees
To date, the Company has not established a compensation or audit
committee. The board of directors, solely consisting of Alan Rubin, reviews the
professional services provided by the Company's independent auditors, the
independence of the Company's auditors from its management, the Company's annual
financial statements and its system of internal accounting controls. Alan Rubin
is not considered a "financial expert."
Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of its outstanding common stock to file with the SEC initial reports of
ownership and reports of changes in ownership of common stock. These persons are
required by SEC regulation to furnish the Company with copies of these reports
they file.
To the Company's knowledge, based solely on a review of the copies of
reports furnished to it, Section 16(a) filing requirements applicable to the
Company's officers, directors and greater than ten percent beneficial owners
were not complied with on a timely basis for the period which this report
relates.
Indemnification
The Company's Articles of Incorporation, as amended, provide that the
Company must, to the fullest extent permitted by the Florida Business
Corporation Act, indemnify all persons whom it has the power to indemnify from
and against all expenses, liabilities or other matters. The Company's By-laws
13
further provide that the Company shall indemnify its directors, officers,
employees and agents to the fullest extent permitted by Florida law. The
indemnification provided in the By-laws is expressly deemed to not be exclusive
of any other rights to which a person seeking indemnification may otherwise be
entitled. The Company's indemnification obligation applies where the party to be
indemnified acted in good faith and in a manner such party reasonably believed
to be in, or not opposed to, the best interests of the Company.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
Item 10. Executive Compensation
Executive Compensation
Commencing January 2001, Mr. Rubin has been paid a weekly salary of
$2,000 as economic conditions permit the Company to do so. When the payment of
his salary is not feasible, no accrual will be made on the Company's financial
records, rather the expense will be accrued as a capital contribution.
The following table sets forth compensation awarded to, earned by or
paid to our sole officer and director for the past 3 years. We have not granted
any stock options, restricted stock awards or stock appreciation rights or make
any long term incentive plan payments.
Summary Compensation Table
--------------------------
Other Annual
Name Year Salary($) Bonus($) Compensation(1)
---- ---- --------- -------- ------------
Alan Rubin 2002 $104,000 $10,000 $23,550(3)
2001 $109,000 -0- $12,300
2000 -0-(2) $23,000 $19,900
(1) Mr. Rubin has received approximately $525 per month for automobile
lease expenses and approximately $500 per month for automobile expense
reimbursement. In addition, the Company has paid Mr. Rubin's health
insurance.
(2) While salary has not been paid to Mr. Rubin, the audited financial
statements for the year ended December 31, 2000 include a compensation
expense of $100,000 as well as a capital contribution of $100,000, to
reflect the value of services provided by Mr. Rubin.
(3) Includes 250,000 shares of common stock issued in June 2002 valued at
$11,250.
Stock Options and SARs
Since inception, the Company has issued no stock options nor SARs.
14
Item 11. Security Ownership of Certain Beneficial Owners and Management.
As of the date of this report, there were 4,899,777 shares of the
Company's Common Stock issued and outstanding. The following table sets forth
information with respect to the beneficial ownership of each class of voting
securities of the Company by: (1) each person known by the Company to be the
owner of more than 5% of the outstanding shares of any class of voting
securities; (2) each officer and director; and (3) all officers and directors as
a group.
Beneficial Ownership
--------------------
Name and Address Shares % of Shares
---------------- ------ -----------
Alan V. Rubin
1750 N.W. 65th Avenue
Plantation, FL 33313 2,895,000 59.1%
Bruce A. Ginsberg
2523 Monterey Court
Weston, FL 33327 500,000 10.2%
Peter Troiano
7 Bayview Place
Massapequa, N.Y. 11758 400,000 8.1%
All Executive Officers
and Directors as a Group (1 person) 2,895,000 59.1%
Item 12. Certain Relationships and Related Transactions
None.
Item 13. Exhibits, Lists and Reports on Form 8-K.
(A) Exhibits
Exhibit
Number Description
------ -----------
3.0 Articles of Incorporation(1)
3.1 Amendment to Articles of Incorporation(1)
3.2 Bylaws(1)
16.1 Letter from Former Independent Auditor(2)
16.2 Letter from Former Independent Auditor(3)
21 Subsidiaries of the registrant(1)
99.1 Certification
(1) Previously filed on Form 10-SB Registration Statement dated December 19,
2000.
15
(2) Previously filed on Form 8-K Current Report dated March 11, 2002.
(3) Previously filed on Form 8-K Current Report dated March 27, 2003.
(B) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
Subsequent to the last quarter of the period covered by this report, on
March 27, 2003, the Company filed a current report on Form 8-K to disclose the
following:
Effective March 17, 2003, the Company dismissed Jaffe, Kaufman &
Sarbey, LLC ("JKS") to audit Company's financial statements. The reports of JKS
on the financial statements of the Company for the past fiscal year contained no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principle. The decision to dismiss JKS
was recommended by management and approved by the Company's Board of Directors
(the Company currently has no formal audit committee).
In connection with its audit for the most recent fiscal year and
including the interim period up to and including the date of dismissal, there
have been no disagreements with JKS on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of JKS would have caused them
to make reference thereto in their report on the financial statements for such
years.
Effective March 17, 2003, the Company engaged the accounting firm of
Jewett, Schwartz & Associates as the Company's new independent accountants to
audit the Company's financial statements for the fiscal year ending December 31,
2002.
Item 14. Controls and Procedures.
Evaluation of disclosure controls and procedures
Within the 90 days prior to filing date of this report, the Company
carried out an evaluation of the effectiveness of the design and operation of
its disclosure controls and procedures pursuant to Exchange Act Rule 13a-14.
This evaluation was done under the supervision and with the participation of the
Company's Principal Executive Officer and Principal Financial Officer. Based
upon that evaluation, the Principal Executive Officer and Principal Financial
Officer concluded that the Company's disclosure controls and procedures are
effective in gathering, analyzing and disclosing information needed to satisfy
the Company's disclosure obligations under the Exchange Act.
Changes in internal controls
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect those controls since the most
recent evaluation of such controls.
16
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ALEC BRADLEY CIGAR CORPORATION
Date: April 14, 2003 By: /s/ Alan Rubin
---------------------------------------
Alan Rubin, Principal Executive
Officer and Principal Financial Officer
17
Certifications
I, ALAN RUBIN, certify that:
1. I have reviewed this annual report on Form 10-KSB of ALEC BRADLEY
CIGAR CORPORATION.
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report.
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
exchange act rules 13a-14 and 15d-14) for the registrant and have:
A) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
B) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "evaluation date");
and
C) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the evaluation date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
A) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
B) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls.
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: APRIL 15, 2003
/S/ALAN RUBIN
-------------
ALAN RUBIN
Chief Executive Officer (or equivalent)
I, ALAN RUBIN, certify that:
1. I have reviewed this annual report on Form 10-KSB of ALEC BRADLEY
CIGAR CORPORATION.
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report.
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
exchange act rules 13a-14 and 15d-14) for the registrant and have:
A) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
B) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "evaluation date");
and
C) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the evaluation date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
A) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
B) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls.
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: APRIL 15, 2003
/S/ALAN RUBIN
-------------
ALAN RUBIN
Chief Financial Officer (or equivalent)
ALEC BRADLEY CIGAR CORP.
FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
ALEC BRADLEY CIGAR CORP.
YEARS ENDED DECEMBER 31, 2002 AND 2001
CONTENTS
Page
----------
Independent auditors' report F-1-2
Financial statements:
Balance sheets F-3
Statements of operations F-4
Statements of shareholders' equity F-5
Statements of cash flows F-6
Notes to financial statements F-7-10
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders
Alec Bradley Cigar Corp.
Plantation, Florida
We have audited the accompanying balance sheet of Alec Bradley Cigar Corp. as of
December 31, 2002 and the related statements of operations, shareholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit. The financial
statements of Alec Bradley Cigar Corp. as of December 31, 2001 and for the year
then ended, were audited by other auditors whose report dated April 10, 2002,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Alec Bradley Cigar Corp. as of
December 31, 2002, and 2001 and the results of its operations and its cash flows
for the year then ended in conformity with accounting principles generally
accepted in the United States of America.
Jewett Schwartz & Associates
Hollywood, Florida
April 12, 2003
F-1
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders
Alec Bradley Cigar Corp.
Plantation, Florida
We have audited the accompanying balance sheet of Alec Bradley Cigar Corp. as of
December 31, 2001 and the related statements of operations, shareholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit. The financial
statements of Alec Bradley Cigar Corp. as of December 31, 2000, were audited by
other auditors whose report, dated April 5, 2001, expressed an unqualified
opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 2001 financial statements referred to above present fairly,
in all material respects, the financial position of Alec Bradley Cigar Corp. as
of December 31, 2001, and the results of its operations and its cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States of America.
Jaffe, Kaufman & Sarbey, LLC
Fort Lauderdale, Florida
April 10, 2002
F-2
ALEC BRADLEY CIGAR CORP.
Balance Sheets
December 31, 2002 and 2001
A S S E T S
2002 2001
--------- ---------
Current Assets:
Cash and cash equivalents $ 46,012 $ 38,508
Accounts receivable, net of allowance for doubtful
accounts of $5,749 in 2002 and $1,793 in 2001 103,624 51,493
Inventory 308,450 76,988
Prepaid expenses 20,212 4,399
--------- ---------
Total Current Assets 478,298 171,388
Furniture and Equipment, net 4,183 8,205
Other Assets 4,077 5,252
--------- ---------
$ 486,558 $ 184,845
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 350,369 $ 98,413
Income taxes payable 48 7,903
--------- ---------
Total Current Liabilities 350,417 106,316
--------- ---------
Shareholders' Equity:
Common stock, $.0001 par value, 30,000,000 shares authorized,
4,899,777 and 4,484,777, shares issued and outstanding as
of December 31, 2002 and 2001, respectively 490 448
Paid-in capital 479,055 459,597
Accumulated deficit (343,404) (381,516)
--------- ---------
Total Shareholders' Equity 136,141 78,529
--------- ---------
$ 486,558 $ 184,845
========= =========
See notes to financial statements.
F-3
ALEC BRADLEY CIGAR CORP.
Statements of Operations
Years Ended December 31, 2002 and 2001
2002 2001
---------------- ----------------
Sales, net $ 1,620,485 $ 896,295
Cost of Sales 991,325 543,453
---------------- ----------------
Gross Profit 629,160 352,842
---------------- ----------------
Operating Expenses:
Selling 183,808 42,118
General and administrative 400,262 278,752
---------------- ----------------
584,070 320,870
---------------- ----------------
Net Income before income taxes 45,090 31,972
Income tax expense 6,978 7,903
---------------- ----------------
Net Income $ 38,112 $ 24,069
================ ================
Basic and diluted Earnings per Share $ 0.01 $ 0.01
================ ================
Weighted Average Common Shares
Outstanding - Basic 4,899,777 4,484,777
================ ================
See notes to financial statements.
F-4
ALEC BRADLEY CIGAR CORP.
Statements of Shareholders' Equity
Years Ended December 31, 2002 and 2001
Total
Number of Common Additional Accumulated Stockholders'
Shares Stock Paid-in Capital Deficit Equity
------ ----- --------------- ------- ------
Balance at December 31, 2000 4,484,777 $ 448 $ 459,597 $(405,585) $ 54,460
Net Income -- -- -- 24,069 24,069
Balance at December 31, 2001 4,484,777 448 459,597 (381,516) 78,529
--------- --------- --------- --------- ---------
Shares issued for services rendered 415,000 42 19,458 -- 19,500
Net Income -- -- -- 38,112 38,112
--------- --------- --------- --------- ---------
Balance at December 31, 2002 4,899,777 $ 490 $ 479,055 $(343,404) $ 136,141
========= ========= ========= ========= =========
See notes to financial statements.
F-5
ALEC BRADLEY CIGAR CORP.
Statements of Cash Flows
Years Ended December 31, 2002 and 2001
2002 2001
--------- ---------
Cash Flows from Operating Activities:
Net income $ 38,112 $ 24,069
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 9,339 10,710
Issuance of stock for services rendered 19,500 --
Changes in assets and liabilities:
Accounts receivable (52,131) (25,993)
Inventory (231,462) (14,265)
Prepaid expenses (15,813) 7,181
Accounts payable and accrued expenses 251,956 (14,428)
Taxes payable (7,855) 7,903
--------- ---------
Net Cash Provided by (Used in) Operating Activities 11,646 (4,823)
--------- ---------
Cash Flows from Investing Activities:
Purchase of property and equipment (4,142) (2,231)
--------- ---------
Net Increase (Decrease) in Cash and
Cash Equivalents 7,504 (7,054)
--------- ---------
Cash and Cash Equivalents - Beginning of Period 38,508 45,562
--------- ---------
Cash and Cash Equivalents - End of Period $ 46,012 $ 38,508
========= =========
See notes to financial statements.
F-6
ALEC BRADLEY CIGAR CORP.
Notes to Financial Statements
Years Ended December 31, 2002 and 2001
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Alec Bradley Cigar Corp. (the "Company"), a Florida
corporation, was organized in July 1996. The Company imports and
distributes cigars domestically, with offices located in Plantation,
Florida.
Basis of Accounting - The financial statements are prepared using the
accrual basis of accounting where revenues are recognized upon shipment
of merchandise to the customer and expenses are recognized in the
period in which they are incurred. This basis of accounting conforms to
accounting principles generally accepted in the United States of
America.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with an original maturity of three months or less to be
cash equivalents.
Credit Risk - Financial instruments, which potentially subject the
Company to concentration of credit risk, consist principally of cash
and trade accounts receivable. The Company places its cash with high
credit financial institutions. However, the Company occasionally
maintains cash balances in excess of the F.D.I.C. insurance limits,
thereby failing to limit the amount of credit exposure to any one
financial institution. Concentrations of credit risk with respect to
trade accounts receivable are reduced due to the Company's large number
of customers. The Company conducts ongoing credit evaluations of its
customers and generally does not require collateral or other security
from these customers.
The Company's revenues included sales to one customer, which accounted
for approximately 17% and 23% of total revenues in 2002 and 2001,
respectively.
The Company purchases and imports the majority of its cigars from cigar
manufacturing plants in Honduras and the Dominican Republic. The
Company does not have any agreements with cigar manufacturers.
Purchases are made on a per order basis. Although the Company believes
there are alternative sources for its products, a change in suppliers
could cause delays in the Company's operations, which could adversely
affect its operating results.
F-7
ALEC BRADLEY CIGAR CORP.
Notes to Financial Statements (Continued)
December 31, 2002 and 2001
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Income Taxes -For tax purposes, the Company was an S corporation prior
to January 1, 2001. Accordingly, net losses and related timing
differences for periods prior to January 1, 2001 were included in the
individual tax returns of the S corporation shareholders and are not
available to offset taxable income of the Company in subsequent
periods. Effective January 1, 2001, the Company terminated its S
corporation election, and, as a result, adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes.
SFAS No. 109 requires that deferred income tax balances be recognized
based on the differences between the financial statement and income tax
bases of assets and liabilities using enacted tax rates.
Inventory - Inventory consists primarily of cigars, humidors, displays,
boxes and labels and is stated at the lower of cost (first-in,
first-out) or market.
Furniture and Equipment - Furniture and equipment are recorded at cost.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets ranging from five to seven years.
Advertising Costs - Advertising costs are charged to expense during the
period in which they are incurred. Advertising expenses for the years
ended December 31, 2002 and 2001 approximated $15,600 and $13,900,
respectively.
Earnings per Share - Basic and diluted earnings per common share are
based on the weighted average number of shares outstanding of 4,484,777
for the years ended December 31, 2002 and 2001. There are no common
stock equivalents or other dilutive items in the aforementioned periods
presented.
Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
Comprehensive Income or Loss - The Company has no components of other
comprehensive income or loss. Accordingly, net income or loss equals
comprehensive income or loss for all periods presented.
F-8
ALEC BRADLEY CIGAR CORP.
Notes to Financial Statements (Continued)
December 31, 2002 and 2001
NOTE 2 - FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following as of December 31,:
2002 2001
------- -------
Computer and office equipment $ 7,123 $26,170
Furniture and fixtures 11,107 19,913
------- -------
18,230 46,083
Less accumulated depreciation 14,047 37,878
------- -------
$ 4,183 $ 8,205
======= =======
Depreciation expense for the years ended December 31, 2002 and 2001
approximated $7,800 and $9,200, respectively.
NOTE 3 - INCOME TAXES
The components of income tax expense for the year ended December 31,
2002 and 2001 are as follows:
2002 2001
------ ------
Federal tax provision $4,882 $6,567
State tax provision 2,096 1,336
------ ------
$6,978 $7,903
====== ======
As of December 31, 2001, the Company had no deferred income tax
balances.
F-9
ALEC BRADLEY CIGAR CORP.
Notes to Financial Statements (Continued)
December 31, 2002 and 2001
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Line of credit - The Company has established a credit facility with a
financial institution that permits the Company to borrow up to $50,000.
The credit facility was approved on May 7, 2002 and expires on May 7,
2003. The facility's interest rate is 2% above Citibank's Prime Rate,
not to be less than 7.50%. The Company is required to have at least a
30-day clean up period once a year. As of December 31, 2002 the Company
had not utilized the facility.
Lease - The Company currently operates out of leased premises pursuant
to a month-to-month rental agreement. Rent expense for the years ended
December 31, 2002 and 2001 approximated $12,000 and $7,200,
respectively. Subsequent to December 31, 2001, the Company's lease
payments for the premises have increased to $1,000 per month.
NOTE 5 - STOCKHOLDERS' EQUITY
In June 2002, the Company issued an aggregate of 415,000 shares of its
common stock to certain employees and consultants in exchange for
services provided to the Company. The Company valued these common
shares at the fair market value on their issuance date of $19,500.
F-10