FORM 10-QSB
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended March 31, 1996
Commission File No. 0-26682
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
Delaware 11-3199437
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(State or other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
10 Edison Street, East Amityville, New York 11701
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(Address of Principal Executive Offices)
516-842-7600
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(Issuer's Telephone Number, Including Area Code)
Check whether the registrant (1) has 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
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The number of outstanding shares of the registrant's only class of common stock
as of March 31, 1996: 11,756,968
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TECHNOLOGY FLAVORS & FRAGRANCES, INC.
INDEX TO FORM 10-QSB
MARCH 31, 1996
PAGE
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PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements (Unaudited) 3
Consolidated Balance Sheets - March 31, 1996
and Dec. 31, 1995 4
Consolidated Statements of Operations
For The Three Months Ended March 31, 1996
and March 31, 1995 5
Consolidated Statements of Cash Flows
For The Three Months Ended March 31, 1996
and March 31, 1995 6
Notes to Consolidated Financial Statements 7
Item 2. - Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
Results of Operations 8
Liquidity and Capital Resources 8
PART II - OTHER INFORMATION 10
SIGNATURES 11
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<PAGE>
Part I
Item 1. Financial Statements
The financial statements of Technology Flavors &
Fragrances, Inc. ("TFF" or the "Company") begin on page 4.
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<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
CONSOLIDATED BALANCE SHEETS
March, 31, Dec 31,
1996
(unaudited) 1995
----------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 266,119 $ 467,134
Receivables 3,886,680 2,653,731
Inventories 3,199,059 3,420,254
Prepaid Expenses and Other Current
Assets 404,673 195,287
------------- ---------
Total current assets 7,756,531 6,736,406
Fixed assets, net 1,420,247 1,480,101
Intangible assets, net 6,673,194 6,812,137
Other assets 92,879 387,787
Notes Receivable from related parties 305,881 316,774
------------- ---------
Total assets $16,248,732 $15,733,205
=========== ===========
LIABILITIES
Current Liabilities:
Notes Payables $ 1,100,000 $ 1,100,000
Current portion of long-term debt 177,604 52,000
Accounts Payable 2,960,752 2,318,968
Accrued expenses 306,979 288,245
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4,545,335 3,759,213
Long-term debt 4,210,415 4,388,019
Deferred rent payable 14,861 12,479
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Total Liabilities $ 8,770,611 $ 8,159,711
----------- -----------
STOCKHOLDERS' EQUITY
Common stock 121,667 121,667
Paid-in capital 9,457,251 9,457,251
(Accumulated deficit) retained
earnings (1,405,903) (1,290,277)
Less:
Unearned Compensation arising from
stock awards (378,053) (398,306)
Treasury stock at cost- 409,739
shares of common stock (316,841) (316,841)
------------- ----------
Total stockholders' equity $ 7,478,121 $ 7,573,494
------------- ----------
Total liabilities and
stockholders' equity $ 16,248,732 $15,733,205
============ ===========
See notes to consolidated financial statements.
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<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended March 31,
1996 1995
---- ----
Net Sales $5,262,419 $3,907,632
Cost of sales 3,278,061 2,306,610
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Gross profit 1,984,358 1,601,022
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Operating expenses:
Selling 708,243 672,167
General and administrative 684,505 448,579
Research and development 398,872 299,808
Amortization of intangible
assets 176,037 110,391
----------- ----------
Total operating expenses 1,967,657 1,530,945
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Income from operations 16,701 70,077
Other expense 129,692 14,205
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(Loss) income before provision for
income taxes (112,991) 55,872
Provision for income taxes 2,635
-----------
Net (Loss) Income $ (115,626) $ 55,872
============ ==========
Net (Loss) income per share $ (.01) $ (.00)
============= ============
Shares outstanding (weighted
average) 11,756,968 11,316,706
=========== ==========
See notes to consolidated financial statements.
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<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31,
1996 1995
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Cash flows from operating activities:
Net (loss) income $(115,626) $ 55,872
Adjustments to reconcile net income
to net cash provided
by operating activities:
Depreciation and amortization 255,066 171,898
Unearned compensation 20,253
Deferred rent 2,382 (3,416)
Changes in assets and liabilities:
Accounts receivable (1,232,949) (648,101)
Inventories 221,195 (36,621)
Prepaid expenses and other
assets (221,886) 6,976
Other Assets 6,755
Accounts payable 641,784 273,898
Accrued expenses 18,734 57,173
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Net cash used
in operating activities: (404,292) (122,321)
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Cash flows from investing activities:
Capital expenditures (19,175) (12,919)
Notes receivable 10,893 (39,976)
Decrease (Increase) in cash
surrender
value of life insurance policy 288,153 (15,413)
Acquisition of Seafla, Inc.
(24,594)
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Net cash provided by (used
in) investing activities 255,277 (68,308)
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Cash flows from financing activities:
Repayment of long-term debt (52,000) (60,000)
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Net cash used in financing
activities (52,000) (60,000)
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Decrease in cash (201,015) (250,629)
Cash, beginning of period 467,134 505,692
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Cash, end of period $ 266,119 $ 255,063
=============== =============
See notes to consolidated financial statements.
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<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting principally of normal
recurring adjustments) necessary to present fairly the financial position of the
Company as of March 31, 1996 and the consolidated results of operations for the
three months ended March 31, 1996 and 1995 and the statements of cash flows for
the three months ended. The accompanying consolidated financial statements and
related notes should be read in conjunction with the Company's annual report on
Form 10-KSB for the fiscal year ended December 31, 1995. The results of
operations for the three months ended March 31, 1996 and 1995 are not
necessarily indicative of the operating results to be expected for the full
year.
2. Components of inventories are summarized as follows:
March 31, 1996 December 31, 1995
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Raw Material $2,381,153 $2,333,653
Finished Goods 817,906 1,086,601
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$3,199,059 $3,420,254
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3. Net income per share is based on the weighted average number of common
shares and equivalents outstanding for each period. The effect of stock options
was less than 3.0% of the weighted average shares outstanding in 1996 and 1995,
and accordingly was excluded from earnings per share.
4. For the three month period ended March 31, 1996, the Company has provided
approximately $3,000 for state income taxes. At March 31 1996, the Company's
net operating loss carryforward, for federal income tax purposes, was
approximately $1,055,000, which, if not utilized, will expire at various dates
through 2010.
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<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial
Condition And Results of Operations
Results of Operations
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Three Months Ended March 31, 1996 and Three Months Ended March 31, 1995
Net sales increased by $1,354,000 or 35.0% to $5,262,000 for the three
months ended March 31, 1996 from $3,908,000 during the comparable period in
1995. This increase was attributable in part to an increase of $902,000 related
to the December 1995 acquisition of substantially all of the assets of Seafla,
Inc. ("Seafla"), an increase of $105,000 in flavor sales by the Company's
Canadian subsidiary, and an increase of $347,000 due primarily to increased
domestic flavor sales.
Gross profit increased by $383,000 or 24.0% to $1,984,000 for the three
months ended March 31, 1996 from $1,601,000 during the comparable period in 1995
primarily as a result of increased net sales. Gross profit as a percentage of
sales decreased 3.0% due to production costs related to less profitable items
when compared to the prior period ended March 31, 1995.
Operating expenses increased $437,000, of which Seafla accounted for
approximately $371,000, and the amortization of intangible assets increased
$66,000. Operating expenses as a percentage of net sales decreased
approximately 2.0% due to increased net sales. Other expenses, primarily
interest expense, increased $115,000 due to the financing of the Seafla
acquisition in December 1995.
Net loss for the three months ended March 31, 1996 was $116,000, or $.01
per share, compared to net income of $56,000, or $.00 per share, during the
comparable period in 1995.
Liquidity and Capital Resources
- - -------------------------------
The Company's primary source of liquidity normally is cash generated
from operations. However, during the first quarter of 1996, TFF realized
$288,000 from the cash surrender of officer life insurance policies. The
proceeds were applied to reduce accounts payable and accrued expenses and to
increase cash and cash equivalents.
On December 6, 1995, TFF purchased for $3,888,019 substantially all of the
assets of Seafla, a Milford, Ohio producer of savory and dairy flavors.
$3,000,000 of the purchase price was paid in cash, the balance through
issuance of a $888,019 promissory note, payable $177,604 on January 1st in each
of the five years beginning 1997, together with interest at 12% per annum. TFF
also assumed Seafla's trade payables and certain of its other liabilities.
On December 6, 1995, TFF borrowed $3,500,000 from a bank, at one and one-
half percent above the bank's prime rate, repayable in 1998, to fund the cash
portion and the expenses of the Seafla acquisition and to provide working
capital for the Seafla business.
-8-
<PAGE>
Liquidity and Capital Resources (cont'd)
- - ----------------------------------------
No significant acquisitions of capital assets have been made since then.
TFF management believes that the combination of those assets and the machinery
and equipment theretofore owned by TFF are, in general, sufficient to operate
the TFF business at the level of operations that are now foreseeable.
During 1996, TFF entered into a $2,000,000 line of credit with a bank
Bank at one-half percent above the bank's prime rate, that expires June 3, 1996.
Borrowings are collateralized by TFF accounts receivable and inventory. TFF now
owes $1,250,000 under the line of credit as of May 15, 1996.
At March 31, 1996, the Company's working capital of $3,389,000 was $746,000
above its working capital at March 31, 1995 of $2,643,000 and $412,000 higher
than at December 31, 1995, up $2,977,000. As between March 31, 1996 and 1995,
the principal changes in the components of the Company's working capital were
increases in cash of $11,000, receivables of $1,224,000, inventory of $356,000,
other assets of $147,000 and accounts payable of accrued expenses of $1,052,000,
and a decrease of current portions of long term debt of $60,000. As between
December 31, 1995 and March 31, 1996, the principal changes have been a decrease
of cash of $201,000, inventory of $221,000 and current portion of long term debt
of $52,000, and an increase in receivables of $1,233,000, other current assets
of $209,000 and accounts payable and accrued expenses of $661,000.
-9-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
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-KSB
a) Exhibits:
Exhibit 27 (Appendix A to Item 601(c) of Regulation S-B)
b) Reports on Form 8-KSB
No Reports on Form 8-KSB were filed during the
quarter ended March 31, 1996.
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<PAGE>
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 on the 15th day of May, 1996.
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
By: /s/ Paul E. Hoffmann
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Paul E. Hoffmann, Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 266,119
<SECURITIES> 0
<RECEIVABLES> 4,026,089
<ALLOWANCES> (139,409)
<INVENTORY> 3,199,059
<CURRENT-ASSETS> 7,756,531
<PP&E> 2,653,344
<DEPRECIATION> (1,233,097)
<TOTAL-ASSETS> 16,248,732
<CURRENT-LIABILITIES> 4,367,731
<BONDS> 4,388,019
0
0
<COMMON> 121,667
<OTHER-SE> 7,356,454
<TOTAL-LIABILITY-AND-EQUITY> 16,248,732
<SALES> 5,262,419
<TOTAL-REVENUES> 5,269,241
<CGS> 3,278,061
<TOTAL-COSTS> 1,967,657
<OTHER-EXPENSES> 129,692
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 128,392
<INCOME-PRETAX> (112,991)
<INCOME-TAX> 2,635
<INCOME-CONTINUING> (115,626)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (115,626)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
