SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[ ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the quarterly period ended September 30, 2002
--------------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from _______________ to _______________
Commission file number 0-27415
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The Topaz Group, Inc.
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(Exact Name of Registrant as Specified in Its Charter)
Nevada 91-1762285
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
126/1 Krungthonburi Road
Banglampoo Lang, Klongsarn
Bangkok 10600 Thailand
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including area code (011) 662-439-4621
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- N/A -
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Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
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 Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----
PART I. FINANCIAL INFORMATION Page
ITEM 1. Financial Statements
Consolidated Balance Sheets as of December 31, 2001 and
September 30, 2002 (Unaudited) 3
Consolidated Statements of Earnings for the Three Months and
Nine Months Ended September 30, 2001 and 2002 (Unaudited) 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2001 and 2002 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
ITEM 2. Management Discussion and Analysis of Financial Condition
and Results of Operations 7
ITEM 3. Quantitative and Qualitative Disclosures About Market Risks 11
ITEM 4. Controls and Procedures 13
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 14
ITEM 2. Changes in Securities and 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 14
The Topaz Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
ASSETS 2001 2002
CURRENT ASSETS ------------ -----------
(Unaudited)
Cash and cash equivalents $ 351,565 $ 353,779
Accounts receivable, net of allowance of
$788,369 and $823,066 5,891,767 4,122,328
Inventories 19,004,800 24,921,342
Prepaid expenses and deposits 372,285 507,343
------------ -----------
Total current assets 25,620,417 29,904,792
PROPERTY AND EQUIPMENT - NET 2,308,017 2,469,240
OTHER ASSETS 36,928 56,552
------------ -----------
Total assets $ 27,965,362 $32,430,584
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Lines of credit $ 2,054,698 $ 3,964,491
Accounts payable 2,559,005 4,734,895
Accrued liabilities 1,171,030 1,393,018
Payables to related party 546,061 1,465,205
------------ -----------
Total current liabilities 6,330,794 11,557,609
REDEEMABLE ORDINARY SHARES 4,736,115 4,818,550
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Class A preferred stock, liquidation preference of
$8,130,570 and $7,724,617 3,555,511 3,555,511
Class B preferred stock, liquidation preference of
$2,811,193 and $2,670,833 1,007 1,007
Common stock 2,135 2,135
Additional paid in capital 1,673,330 1,673,330
Retained earnings 11,666,470 10,822,442
------------ -----------
16,898,453 16,054,425
------------ -----------
Total liabilities and stockholders' equity $ 27,965,362 $32,430,584
============ ===========
The accompanying notes are an integral part of these statements.
3
The Topaz Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
2001 2002 2001 2002
----------- ----------- ------------ ------------
Sales $5,525,989 $6,778,121 $15,012,234 $17,309,616
Cost of goods sold 3,902,092 6,191,576 10,569,007 15,070,429
----------- ----------- ------------ ------------
Gross profit 1,623,897 586,545 4,443,227 2,239,187
Selling, general and administrative expenses 918,036 945,452 2,795,133 2,973,140
----------- ----------- ------------ ------------
Earnings (loss) from operations 705,861 (358,907) 1,648,094 (733,953)
Other income (expense)
Exchange rate gain (loss) (17,906) 3,596 (35,633) 6,173
Interest expense (26,969) (139,929) (54,817) (198,525)
Gain (loss) on remeasurement 28,619 281,027 1,319,063 (14,208)
Other, net 17,013 27,550 47,472 96,485
----------- ----------- ------------ ------------
757 172,244 1,276,085 (110,075)
----------- ----------- ------------ ------------
NET EARNINGS (LOSS) $ 706,618 $ (186,663) $ 2,924,179 $ (844,028)
=========== =========== ============ ============
NET EARNINGS (LOSS) PER SHARE:
Basic $ 0.49 $ (0.09) $ 2.41 $ (0.40)
=========== =========== ============ ============
Diluted $ 0.12 $ (0.09) $ 0.48 $ (0.40)
=========== =========== ============ ============
The accompanying notes are an integral part of these statements.
4
The Topaz Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Nine months ended September 30, 2001 2002
------------ ------------
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities
Net earnings (loss) $ 2,924,179 $ (844,028)
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities
Depreciation and amortization 111,014 132,241
Remeasurement of redeemable ordinary shares (123,369) 82,435
Changes in assets and liabilities:
Receivables 832,264 1,769,439
Inventories (3,602,511) (5,916,542)
Prepaid expenses and deposits/other assets (742,460) (154,682)
Payables (1,833,718) 1,738,089
Accrued liabilities 1,894,675 1,578,933
Net cash used in operating activities (539,926) (1,614,115)
Cash flows from investing activities
Purchases of property and equipment (189,605) (293,464)
Net cash used in investing activities (189,605) (293,464)
------------- -----------
Cash flows from financing activities
Borrowings on line of credit, net 692,294 1,909,793
------------- -----------
Net cash provided by financing activities 692,294 1,909,793
------------- -----------
Net increase (decrease) in cash and cash equivalents (37,237) 2,214
Cash and cash equivalents at the beginning of period 321,734 351,565
------------- ------------
Cash and cash equivalents at the end of period $ 284,497 $ 353,779
============= ============
Supplemental disclosure of cash flow information:
Cash paid during the period
Interest $ 54,817 $ 186,355
============= ============
The accompanying notes are an integral part of these statements.
5
The Topaz Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
NOTE A - FINANCIAL STATEMENTS
The unaudited consolidated financial statements of the Company and its
subsidiaries have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles of the United
States of America (GAAP) have been condensed or omitted pursuant to such
rules and regulations. The results of operations for interim periods are
not necessarily indicative of the results to be expected for the entire
fiscal year ending December 31, 2002. This form 10-Q should be read in
conjunction with the form 10-K that includes audited consolidated financial
statements for the years ended December 31, 2000 and 2001, and the related
consolidated statements of earnings, stockholders' equity and cash flows
for the three years in the period ended December 31, 2001.
NOTE B - BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned Thailand subsidiaries, Creative Gems &
Jewelry Limited (Creative), Advance Gems & Jewelry Limited (Advance) and
Advance Gems Manufacturing Co., Ltd (Advance Manufacturing) (collectively,
the Subsidiaries). All significant intercompany accounts and transactions
have been eliminated. Except as otherwise disclosed all amounts are in U.S.
dollars.
NOTE C - NEW ACCOUNTING PRONOUNCEMENTS
The FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections," on
April 30, 2002. Statement No. 145 rescinds Statement No.4, which required
all gains and losses from extinguishments of debt to be aggregated and, if
material, classified as an extraordinary item, net of related income tax
effect. Upon adoption of Statement No. 145, companies will be required to
apply the criteria in APB Opinion No. 30, "Reporting the Results of
Operations - reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" in determining the classification of gains and losses
resulting from the extinguishments of debt. Statement No. 145 is effective
for fiscal years beginning after May 15, 2002. The adoption of this
pronouncement is not expected to affect the Company's results of operations
and financial position.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This standard requires
companies to recognize costs associated with exit or disposal activities
when they are incurred rather than at the date of a commitment to an exit
or disposal plan. Examples of costs covered by the standard include lease
termination costs and certain employee severance costs that are associated
with a restructuring,
6
discontinued operation, plant closing, or other exit or disposal activity.
SFAS No. 146 is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. The adoption of this pronouncement is
not expected to affect the Company's results of operations and financial
position.
NOTE D - INVENTORIES
Inventories consist of the following:
December 31, September 30,
2001 2002
------------- -------------
Raw materials $ 981,139 $ 3,975,104
Finished stones 17,200,314 19,029,700
Finished jewelry 823,347 1,916,538
------------- -------------
$ 19,004,800 $ 24,921,342
============= =============
NOTE E - EARNINGS (LOSS) PER COMMON SHARE
The components of basic and diluted earnings (loss) per share were as follows:
Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
2001 2002 2001 2002
---------- ----------- ---------- -----------
BASIC
Net earnings (loss) $ 706,618 $ (186,663) $2,924,179 $ (844,028)
========== =========== ========== ===========
Weighted average outstanding
shares of common stock 1,433,677 2,134,886 1,213,489 2,134,886
Net earnings (loss) per share $ 0.49 $ (0.09) $ 2.41 $ (0.40)
========== =========== ========== ===========
DILUTED
Net earnings (loss) available to
common shareholders $ 706,618 $ (186,663) $2,924,179 $ (844,028)
========== =========== ========== ===========
Weighted average outstanding
shares of common stock 1,433,677 2,134,886 1,213,489 2,134,886
Dilutive effect of preferred shares (1) 4,618,772 - (2) 4,838,960 - (2)
---------- ----------- ---------- -----------
Common stock and potentially issuable
common stock 6,052,449 2,134,886 6,052,449 2,134,886
Net earnings (loss) per share $ 0.12 $ (0.09) $ 0.48 $ (0.40)
========== =========== ========== ===========
(1) The dilutive effect of warrants outstanding during each of the presented
periods was immaterial to these computations.
(2) Excluded from computation due to their anti-dilutive effect.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and related notes thereto. The following discussion contains certain
forward-looking statements that involve risk and uncertainties. Our actual
results could differ materially from those discussed herein. Factors that could
cause or contribute to such differences include, but are not limited to, risks
and uncertainties related to the need for additional funds, the rapid growth of
the operations and our ability to operate profitably after the initial growth
period is completed.
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
Sales. Total sales for nine months ended September 30, 2002 were
$17,309,616 compared to $15,012,234 for the nine months ended September 30,
2001, an increase of 15.3%. This increase is due to our perception of improved
consumer confidence in the US economy. Revenues for the three months ended
September 30, 2002 were $6,778,121, which represents a 22.7% increase from
$5,525,989 during the comparable quarter of the year ended December 31, 2001.
Sales increased for the third quarter ended September 30, 2002 compared to the
same period of the previous year as a result of increased orders from a limited
number of existing large retail customers. The retail market in the US has
represented approximately 80% of the Company's annual sales for the first nine
months of fiscal 2002.
Cost of Goods Sold. Cost of goods sold for the nine months ended September
30, 2002 was $15,070,429 representing 87.1% of sales, compared to $10,569,007
for the nine months ended September 30, 2001, which represented 70.4% of sales.
Cost of goods sold for the three months ended September 30, 2002 was $6,191,576
or 91.3% of sales as compared to $3,902,092 or 70.6% of sales during the three
months ended September 30, 2001. The increase in cost of goods sold was due to a
combination of the following factors: significant decrease in the yield of the
topaz stone production, write off of diamond inventory residual, delayed
recovery in the demand for jewelry products for most of the Company's customers
causing weakness in the profit margin, and shift in product mix to lower margin
jewelry products.
Decrease in the yield of topaz stone production: Approximately 60% of the
Company's sales are represented in Topaz stone production. As such, the Company
purchases rough white topaz, cuts the stone, colors and polishes the finished
product. This stone is sold as a finished product and is also manufactured into
a variety of jewelry products. The yield on this product is represented by the
weight loss that occurs between the rough purchase and production of the
finished product. During 2001 the yield on the stone averaged approximately 17%
and for the nine months ended September 30, 2002 the yield averaged 12%. The net
effect is a decrease in margins for our two revenue segments as follows: margin
for stone manufacturing decreased by approximately 14% and margins for jewelry
production decreased by 5%. The yield loss is attributed to quality issues in
the rough stone and production systems pertaining to the sorting and grading of
the stone prior to the first cut.
Write off of diamond inventory residual: The Company purchases rough
diamonds in the open market. During the second and third quarters of 2002, the
Company purchased lower grade diamonds for specific lower margin orders. The
quality of the diamonds represented poor cutting accuracy and resulted in a
8
significant waste factor in the stones. This waste factor caused the average
cost per carat of the diamonds to increase. In addition, the Company wrote off
roughly $250,000 in diamond waste that had accumulated from the current and
prior periods.
Jewelry Cost per Unit Increase: The Company maintains two specific revenue
centers: stone production and jewelry manufacturing. Jewelry represents
approximately 60% of total sales and stones represent approximately 40% of
sales. Under the stone component, the overhead costs (primarily labor) are
piecework; therefore, direct labor per piece remains constant per unit of
production. Under the jewelry component, the Company uses salaried skilled
labor. Therefore, significant shifts in demand to smaller stones and lower price
point products cause actual gross margins to decrease relative to the jewelry
component. To a lesser degree, manufacturing costs for smaller stones are higher
per carat.
Selling, General and Administrative Expenses. Operating costs were
$2,973,140 or 17.2%, and $945,452, or 14.1% of sales, respectively, for the nine
and three months ended September 30, 2002, as compared to $2,795,133, or 18.6%
and $918,036, or 16.6%, respectively, for the nine and three months ended
September 30, 2001. The increase is primarily attributed to an increase in
general and administrative salaries and legal and accounting professional fees.
Earnings (Loss) from Operations. Net loss from operations for the nine and
three months ended September 30, 2002, was ($733,953) and ($358,907),
respectively, compared to a net earnings from operations of $1,648,094 and
$705,861, respectively, for the nine and three months ended September 30, 2001.
The losses are due, primarily, to an increase in cost of sales and selling,
general and administrative expenses.
Other Income (Expenses). Other income (expense) was ($110,075) and
$172,244, respectively, for the nine and three months ended September 30, 2002,
as compared to $1,276,085 and $757, respectively, for the nine and three months
ended September 30, 2001, or a net change of ($282,319) and $1,275,328. The
change is primarily due to gains (losses) resulting from currency fluctuations.
The remeasurement gain (loss) was ($14,208) and $281,027, respectively, for the
nine and three months ended September 30, 2002, compared to $1,319,063 and
$28,619, respectively, for the nine and three months ended September 30, 2001.
The reduced effect of currency fluctuations was principally due to the Company
now using US Dollars for the majority of its sales transactions.
Net Earnings (Loss). Net loss for the nine and three months ended September
30, 2002 was ($844,028) and ($186,663), respectively, compared to earnings of
$2,924,179 and $706,618, respectively, for the nine and three months ended
September 30, 2001. The difference is largely attributed to an increase in cost
of sales and effects of foreign currency fluctuations.
LIQUIDITY AND CAPITAL RESOURCES
Our principal source of working capital is income from operations,
borrowings under our revolving credit facilities and short-term loans from a
company affiliate. As of September 30, 2002, we had a cash and cash equivalent
balance of $353,779 and working capital of $18,347,183.
Our operating activities used cash of $1,614,115 during the nine months
ended September 30, 2002 as compared to $539,926 used during the nine months
ended September 30, 2001. The increase in cash used in operating activities
9
resulted primarily from increases in inventories, and net operating losses.
Inventory values increased primarily due to a recutting vendor return. The
stones were returned because of the vendor's inability to recut stone inventory
volumes and qualities specific to the Company's standards. Net losses increased
because of increased cost of sales and other operating expenses.
The net cash provided by financing activities for the nine months ended
September 30, 2002 was $1,909,793 compared to $692,294 for the nine months ended
September 30, 2001. This net increase is due to new borrowings on our lines of
credit.
We have line-of-credit arrangements with two Thai financial institutions
and a line of credit arrangement with a U.S. financial institution entered into
in October 1999, April 2000 and October 2001, respectively. The Thai lines are
renewable automatically on a yearly basis and the U.S. line expires in November
2002; the lines are also subject to the banks' periodic reviews resulting in
adjustment of our credit limit. The Thai lines bear interest at a rate equal to
LIBOR plus two percent (7.5%-8% as of September 30, 2002); the U.S. line bears
interest at prime plus 1.25% (6% as of September 30, 2002). The 1999 line is
personally guaranteed by two of our directors and collateralized by various real
estate properties belonging to us and one of our directors. The 2000 line is
also guaranteed by two of our directors and secured by a deed on a real estate
property owned by a related party. The U.S. line is secured personally by one of
our directors, our U.S. receivables and inventory and by a lien on various Thai
real estate properties and fixed assets of a related party. As of September 30,
2002, approximately $2,398,202 was available for commercial draft borrowing
under both the 1999 and 2000 lines. As of September 30, 2002, the outstanding
balance under the Thai lines of credit and the US line of credit were $2,192,205
and $1,772,286, respectively.
The effects on liquidity of carrying large values of inventory can be
referenced by days of sales in inventory. On average, for the twelve months
ended September 30, 2002 and 2001, inventory would remain on the books for 467
and 408 days, respectively, until sold. The inventory is classified as a current
asset on the balance sheet but restricts the use of working capital until the
inventory is sold. The increase in inventory days was caused by the build up of
inventories to support the replenishment of inventories with wholesalers and
retailers.
Inventory is valued by applying a moving average method for valuation.
Under this method of valuation, generally, the finished stone inventory does not
progressively devalue with age and the prices per carat remain relatively
stable. The average cost includes the raw cost of the product plus any
additional costs to bring it to its current condition including processing,
transportation, insurance and holding costs. Variances in valuation under the
moving average cost method occur when stone prices, overhead cost and other
related costs, which make up the value of the inventory, vary significantly up
or down within the fiscal period. As such, material variances in the inventory
costs are identified and valued separately to reflect true value.
Our business can be classified into two major groups including sale of
finished jewelry and finished stones, to a lesser degree. Most of our finished
jewelry is made to order and is shipped when completed. Inventory valuations
include the lesser of manufactured cost or market valuation per unit times the
quantities on hand. Lower of cost or market is referenced by recent sale prices
of the finished stones compared to the cost to produce or acquire such stones.
If recent sales of an existing stone are not available, current market price
samples in the selling market will dictate the lower of cost or market for
valuation purposes.
10
Management believes we have the ability to meet our current and anticipated
financing needs for the next twelve months with the facilities in place and
funds from operations. However, given our growth prospects, we may need to seek
increases in our credit facilities during the upcoming year to sustain further
revenue growth.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK CURRENCY
FLUCTUATIONS
1. FORWARD-LOOKING STATEMENTS
From time to time, we may make certain statements that contain
"forward-looking" information. Words such as "anticipate", "estimate",
"project", "believe" and similar expressions are intended to identify such
forward-looking statements. Forward-looking statements may be made by management
orally or in writing, including, but not limited to, in press releases, and as
part of the Financial Information or Management's Discussion and Analysis or
Plan of Operations.
Such forward-looking statements are subject to certain risks, uncertainties
and assumptions, including without limiting those identified below. Should one
or more of these risks or uncertainties materialize, or should any of the
underlying assumptions prove incorrect, actual results of current and future
operations may vary materially from those anticipated, estimated or projected.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their respective dates.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
--------------------
Revenue is recognized when goods are shipped to customers.
Inventories
-----------
Inventories are stated at the lower of cost or market. Cost is determined using
a moving average method.
Functional Currency and Remeasurement.
----------------------------------------
The Company's Thai subsidiaries maintain their books and records in Thai Baht.
However, their functional currency is the US dollar. Monetary assets and
liabilities and related income and expense items are remeasured using current
rates. Certain nonmonetary assets (notably property and equipment) are
remeasured at historical rates. Other nonmonetary balance sheet items and
related revenues, expenses, gains and losses are remeasured using average
exchange rates. Gains or losses on remeasurement to U.S. dollars from Thai Baht
are included in the consolidated statements of earnings.
11
3. EXCHANGE RATE INFORMATION
Our Consolidated Financial Statements are prepared in U.S. dollars. The
financial statements of our foreign subsidiaries are remeasured into U.S.
dollars in accordance with Statement of Financial Accounting Standards No. 52.
Fluctuations in the value of foreign currencies cause U.S. dollar amounts to
change in comparison with previous periods and, accordingly, we cannot quantify
in any meaningful way, the effect of such fluctuations upon future income. This
is due to the constantly changing exposure in the Thai Baht for our Thai
subsidiaries.
As of September 30, 2002, the average daily interbank exchange rate for the
Baht was trading at 43.35 Baht to one US dollar. The exchange rate in Thailand
has shown signs of recovery in early 2002 and we anticipate this to stabilize
through the latter part of 2002. Weakening in the Baht may come from the gap
between the U.S. and Thai interest rates giving a further boost to exports.
Regions of Thailand continue to promote exports to strengthen their economies.
We are unable to predict whether the trends noted above would have a material
effect on our future financial condition or the results of operations and, if
so, whether such an effect will be positive or negative.
4. EXCHANGE RATE FLUCTUATION
THAI BAHT
-----------------------------------------------
FIRST QTR SECOND QTR THIRD QTR FOURTH QTR
2002
----
High 44.57 43.82 44.03
Average 43.80 42.85 42.14
Low 43.00 41.26 40.04
2001
----
High 45.00 45.85 45.87 45.07
Average 43.29 45.45 44.98 44.40
Low 42.19 44.68 43.92 43.37
2000
----
High 38.30 39.45 42.77 44.49
Average 37.96 38.67 40.97 43.44
Low 36.71 37.72 39.10 41.88
Future volatility in the Baht may come from the continued strength in Thai
exports. Other Asian countries are showing overall weakness in exports and large
technology industries, with the exception of Japan. Japan's problems are
primarily domestic. Asian countries overall will weaken with some support
domestically by China and India. We do not anticipate Thailand to be effected by
Japan's economic downturn and that of surrounding Asian region's, however; there
can be no assurance of this.
We anticipate the cost of raw materials, which includes precious and
non-precious metals, to show moderate cost decreases in the short-term.
12
5. FOREIGN CURRENCY RISK
As of September 30, 2001, we had no open forward-contracts. Our Thai
subsidiaries keep their books in the Thai Baht currency. As such, the Thai
balances are exposed to currency gains and losses depending upon the currency
rate fluctuations when compared to the US dollar for the respective periods. The
currency and remeasurement gains and (losses) for nine and three months ended
September 30, 2002 and 2001, were ($14,208), $281,027, $1,319,063, and $28,619,
respectively.
6. INTEREST RATE FLUCTUATIONS
Our interest expenses and income are sensitive to changes in interest
rates. As of September 30, 2002, we had $3,964,491 in interest bearing
obligations at various rates, and any fluctuation in the interest rate will have
a direct impact on our interest expenses, cash flow and results of operations.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures:
Disclosure controls and procedures are designed to ensure that information
required to be disclosed in the reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported, within the time period
specified in the SEC's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in the reports filed under the Exchange Act
is accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. Within the 90 days prior to the filing of this
report, the Company carried out an evaluation, under the supervision and with
the participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
upon and as of the date of that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed in
the reports the Company files and submits under the Exchange Act is recorded,
processed, summarized and reported as and when required.
(b) Changes in Internal Controls:
There were no changes in the Company's internal controls or in other
factors that could have significantly affected those controls subsequent to the
date of the Company's most recent evaluation.
13
PART II
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OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits:
99 Certifications of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
None.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 13, 2002 THE TOPAZ GROUP, INC.
By: /S/ Dr. Apichart Fufuangvanich
-----------------------------------
Name: Dr. Apichart Fufuangvanich
Title: Chief Executive Officer
(Principal Executive Officer)
Dated: November 13, 2002 By: /S/ Terrance C. Cuff
--------------------------------
Name: Terrance C. Cuff
Title: Chief Financial Officer
(Principal Accounting Officer)
15
CERTIFICATIONS
I, Dr. Apichart Fufuangvanich, certify that:
1. I have reviewed this quarterly report of Form 10-Q of The Topaz Group,
Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 we 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
quarterly 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 quarterly report (the "Evaluation Date");
c) Presented in this quarterly 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 function):
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; and
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6. The registrant's other certifying officers and I have indicated in
this quarterly 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: November 13, 2002 By:/s/ Dr. Apichart Fufuangvanich
---------------------------------
Name: Dr. Apichart Fufuangvanich
Title: Chairman and Chief Executive Officer
17
CERTIFICATIONS
I, Terrance C. Cuff, certify that:
1. I have reviewed this quarterly report of Form 10-Q of The Topaz Group,
Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 we 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 quarterly
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 quarterly report (the "Evaluation Date");
c) Presented in this quarterly 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 function):
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; and
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6. The registrant's other certifying officers and I have indicated in this
quarterly 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: November 13, 2002 By: /s/ Terrance C. Cuff
-----------------------
Name: Terrance C. Cuff
Title: Chief Financial Officer
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EXHIBIT 99
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Dr. Apichart Fufuangvanich and Terrance C. Cuff, hereby
jointly certify as follows:
a) They are the Chief Executive Officer and the Chief Financial Officer,
respectively, of The Topaz Group, Inc. (the "Company");
b) To the best of their knowledge, the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 2002 (the "Report") complies in all
material respects with the requirements of Section 13(a) of the Securities
Exchange Act of 1934, as amended; and
c) To the best of their knowledge, based upon a review of the Report, the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company for the period
certified.
By: /s/ Dr. Apichart Fufuangvanich
---------------------------------
Name: Dr. Apichart Fufuangvanich
Title: Chief Executive Officer
Date: November 13, 2002
By: /s/ Terrance C. Cuff
-----------------------
Name: Terrance C. Cuff
Title: Chief Financial Officer
Date: November 13, 2002
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