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Previous: CFC INTERNATIONAL INC, 10-Q, 1996-08-07 |
Next: SMITH BARNEY CONCERT SERIES INC, 485BPOS, 1996-08-07 |
FORM 10-QSB
=============================================
U.S. SECURITIES AND EXCHANGE COMMISSION
=============================================
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 1996
Commission File No. 0-26682
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
<TABLE>
<S> <C>
Delaware 11-3199437
- -------------------------------------------- -----------------------------------
(State or other Jurisdiction of Incorporation or (IRS Employer Identification No.)
Organization)
</TABLE>
10 Edison Street, East, Amityville, New York 11701
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices)
516-842-7600
- -------------------------------------------------------------------------------
(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
--- ---
The number of outstanding shares of the registrant's only class of common stock
as of June 30, 1996: 11,756,968
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
INDEX TO FORM 10-QSB
JUNE 30, 1996
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements (Unaudited) 3
Consolidated Balance Sheets - June 30, 1996
and Dec. 31, 1995 4
Consolidated Statements of Operations
For The Six Months Ended June 30, 1996
and June 30, 1995 5
Consolidated Statements of Operations
For The Three Months Ended June 30, 1996
and June 30, 1995 6
Consolidated Statements of Cash Flows
For The Six Months Ended June 30, 1996
and June 30, 1995 7
Notes to Consolidated Financial Statements 8
Item 2. - Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
Results of Operations 9
Liquidity and Capital Resources 9
PART II - OTHER INFORMATION 11
SIGNATURES 12
-2-
<PAGE>
Part I
Item 1. Financial Statements
The financial statements of Technology Flavors & Fragrances,
Inc. ("TFF" or the "Company") begin on page 4.
-3-
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE><CAPTION>
June 30, Dec 31,
1996
(unaudited) 1995
----------- -------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 271,894 $ 467,134
Receivables 4,521,793 2,653,731
Inventories 3,587,541 3,420,254
Prepaid Expenses and Other Current Assets 323,822 195,287
------------ ------------
Total current assets 8,704,960 6,736,406
Fixed assets, net 1,382,169 1,480,101
Intangible assets, net 6,509,658 6,812,137
Other assets 183,227 387,787
Notes Receivable from related parties 267,032 316,774
--------- ---------
Total assets $17,047,046 $15,733,205
=========== ===========
LIABILITIES
Current Liabilities:
Notes Payable $ 1,250,000 $ 1,100,000
Current portion of long-term debt 177,604 52,000
Accounts Payable 3,194,110 2,318,968
Accrued expenses 507,883 288,245
------------ -----------
5,129,597 3,759,213
Long-term debt 4,210,415 4,388,019
Deferred rent payable 17,243 12,479
------------ -----------
Total Liabilities $ 9,357,255 $ 8,159,711
------------ -----------
STOCKHOLDERS' EQUITY
Common stock 121,667 121,667
Paid-in capital 9,457,251 9,457,251
(Accumulated deficit) retained earnings (1,220,985) (1,290,277)
Less:
Unearned Compensation arising from stock awards (351,301) (398,306)
Treasury stock at cost- 409,738 shares of common stock (316,841) (316,841)
------------ -----------
Total stockholders' equity $ 7,689,791 $ 7,573,494
------------ -----------
Total liabilities and stockholders' equity $ 17,047,046 $15,733,205
============ ===========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE><CAPTION>
Six months ended June 30,
1996 1995
---- ----
<S> <C> <C>
Net Sales $10,890,235 $7,884,189
Cost of sales 6,581,652 4,673,183
--------- ---------
Gross profit 4,308,583 3,211,006
--------- ---------
Operating expenses:
Selling 1,456,718 1,295,137
General and administrative 1,364,480 943,857
Research and development 780,958 572,101
Amortization of intangible assets 357,074 220,782
--------- ---------
Total operating expenses 3,959,230 3,031,877
--------- ---------
Income from operations 349,353 179,129
Other expense 278,706 35,264
--------- ---------
Income before provision for income taxes 70,647 143,865
Provision for income taxes 1,355
--------- ---------
Net Income $ 69,292 $ 143,865
========== ===========
Net Income per share $ .01 $ .01
========== ===========
Shares outstanding (weighted average) 11,756,968 11,260,923
========== ==========
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE><CAPTION>
Three months ended June 30,
1996 1995
---- ----
<S> <C> <C>
Net Sales $5,627,816 $3,976,557
Cost of sales 3,303,591 2,366,573
--------- ---------
Gross profit 2,324,225 1,609,984
--------- ---------
Operating expenses:
Selling 748,475 622,970
General and administrative 679,975 495,278
Research and development 382,086 272,293
Amortization of intangible assets 181,037 110,391
--------- ---------
Total operating expenses 1,991,573 1,500,932
--------- ---------
Income from operations 332,652 109,052
Other expense 149,014 21,059
--------- ---------
Income before provision for income taxes 183,638 87,993
Provision for income taxes (1,280)
--------- ---------
Net Income $ 184,918 $ 87,993
========== ==========
Net Income per share $ .02 $ .01
========== ==========
Shares outstanding (weighted average) 11,756,968 11,205,139
========== ==========
</TABLE>
See notes to consolidated financial statements.
-6-
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE><CAPTION>
Six months ended June 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 69,292 $ 143,865
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 514,999 342,294
Unearned compensation 47,005
Deferred rent 4,764 (6,202)
Changes in assets and liabilities:
Accounts receivable (1,868,062) (858,477)
Inventories (167,197) (281,531)
Prepaid expenses and other assets (128,535) (68,621)
Other Assets (83,593) 140,151
Accounts payable 875,142 432,247
Accrued expenses 219,638 217,598
----------- --------
Net cash provided by (used in) operating activities: (516,547) 61,324
--------- --------
Cash flows from investing activities:
Capital expenditures (59,993) (12,775)
Notes receivable 49,742 (69,476)
Decrease (Increase) in cash surrender
value of life insurance policy 288,153 (30,827)
Acquisition of Seafla, Inc. (54,595)
--------- --------
Net cash provided by (used in) investing activities: 223,307 (113,078)
--------- --------
Cash flows from financing activities:
Net change in demand loan - bank 150,000
Purchase of treasury stock (162,935)
Repayment of long-term debt (52,000) (63,000)
--------- --------
Net cash provided by (used in) financing activities: 98,000 (225,935)
--------- --------
Decrease in cash (195,240) (277,689)
Cash, beginning of period 467,134 505,692
--------- --------
Cash, end of period $ 271,894 $ 228,003
=========== ==========
</TABLE>
See notes to consolidated financial statements.
-7-
<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 June 30, 1996 and the consolidated results of operations for
the six months ended June 30, 1996 and 1995 and for the three months ended March
31, 1996 and 1995 and the statements of cash flows for the six months ended
June 30, 1996. 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 six months ended June 30, 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:
June 30, 1996 December 31, 1995
------------- -----------------
Raw Material $2,775,657 $2,333,653
Finished Goods 811,794 1,086,601
---------- ----------
$3,587,451 $3,420,254
========== ==========
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 six month period ended June 30, 1996, the Company has provided
approximately $1,400 for state income taxes. At June 30, 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.
-8-
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial
Condition And Results of Operations
Results of Operations
- ---------------------
Six Months Ended June 30, 1996 and Six Months Ended June 30, 1995
Net sales increased by $3,006,000 or 38.1% to $10,890,000 for the six
months ended June 30, 1996 from $7,884,000 during the comparable period in 1995.
This increase was attributable in part to an increase of $2,129,000 related to
the December 1995 acquisition of substantially all of the assets of Seafla, Inc.
("Seafla"), an increase of $608,000 due primarily to increased domestic flavor
sales, and an increase of $269,000 in flavor sales by the Company's Canadian
subsidiary.
Gross profit increased by $1,098,000 or 34.2% to $4,309,000 for the six
months ended June 30, 1996 from $3,211,000 during the comparable period in 1995
primarily as a result of increased net sales. Gross profit as a percentage of
sales decreased 1.1% due to production costs related to less profitable items
when compared to the prior period ended June 30, 1995.
Operating expenses increased $927,000, of which Seafla accounted for
approximately $771,000, and the amortization of intangible assets increased
$136,000. Operating expenses as a percentage of net sales decreased
approximately 2.1% due to increased net sales. Other expenses, primarily
interest expense, increased $243,000 due to the financing of the Seafla
acquisition in December 1995.
Net income for the six months ended June 30, 1996 was $69,000, or $.01
per share, compared to net income of $144,000, or $.01 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 six months of 1996, TFF realized $288,000
from the cash surrender of officer life insurance policies, $150,000 was drawn
from the revolving credit line and $50,000 was received from repayment of
officer loans. 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.
-9-
<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 at
one percent above the bank's prime rate, that expires June 1, 1997. Borrowings
are collateralized by TFF accounts receivable and inventory. TFF now owes
$1,250,000 under the line of credit as of August 6, 1996.
At June 30, 1996, the Company's working capital of $3,575,000 was
$887,000 above its working capital at June 30, 1995 of $2,688,000 and $598,000
higher than at December 31, 1995 of $2,977,000. As between June 30, 1996 and
1995, the principal changes in the components of the Company's working capital
were increases in cash of $44,000, receivables of $1,648,000, inventory of
$499,000, other assets of $134,000, accounts payable and accrued expenses of
$1,167,000, current portions of long term debt of $121,000, and $150,000 of bank
notes payable. As between December 31, 1995 and June 30, 1996, the principal
changes have been a decrease of cash of $195,000, and an increase in receivables
of $1,868,000, inventory of $167,000, other current assets of $129,000 and
accounts payable and accrued expenses of $1,095,000, current portion of long
term debt of $126,000 and notes payable of $150,000.
-10-
<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-K
a) Exhibits:
Exhibit 27 (Appendix A to Item 601(c) of Regulation S-B)
b) Reports on Form 8-K
Form 8-K was filed on June 12, 1996.
-11-
<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 6th day of August, 1996.
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
By: /s/ Paul E. Hoffmann
---------------------------------
Paul E. Hoffmann, Treasurer
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 271,894
<SECURITIES> 0
<RECEIVABLES> 4,928,234
<ALLOWANCES> (139,409)
<INVENTORY> 3,587,451
<CURRENT-ASSETS> 8,704,960
<PP&E> 2,694,162
<DEPRECIATION> (1,311,993)
<TOTAL-ASSETS> 17,047,046
<CURRENT-LIABILITIES> 4,951,993
<BONDS> 4,388,019
0
0
<COMMON> 121,667
<OTHER-SE> 7,568,124
<TOTAL-LIABILITY-AND-EQUITY> 17,047,046
<SALES> 10,890,235
<TOTAL-REVENUES> 10,906,725
<CGS> 6,581,652
<TOTAL-COSTS> 3,959,230
<OTHER-EXPENSES> 278,706
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 278,301
<INCOME-PRETAX> 70,647
<INCOME-TAX> 1,355
<INCOME-CONTINUING> 69,292
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,292
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
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