U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
Commission File No. 0-26682
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
-------------------------------------
(Name of Small Business Issuer in its Charter)
Delaware 11-3199437
------------------------------- ---------------------------------
(State or other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
10 Edison Street East, Amityville, New York 11701
-------------------------------------------------
(Address of Principal Executive Offices)
(631) 842-7600
---------------------------------
(Issuer's Telephone Number, Including Area Code)
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 |_|
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of outstanding shares of the issuer's common stock, par value $.01
per share, as of April 20, 2000, was 12,524,223.
Transitional Small Business Disclosure Format (check one):
YES |_| NO |X|
<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
INDEX TO FORM 10-QSB
March 31, 2000
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. - Financial Statements (Unaudited)
Consolidated Balance Sheets at March 31, 2000
and December 31, 1999................................ 1
Consolidated Statements of Operations
for the Three Months Ended March 31, 2000
and March 31, 1999................................... 2
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2000
and March 31, 1999................................... 3
Notes to Consolidated Financial Statements........... 4
Item 2. - Management's Discussion and Analysis or
Plan of Operation.................................... 5
PART II - OTHER INFORMATION............................................... 8
SIGNATURES................................................................ 9
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<PAGE>
PART I
ITEM 1. - FINANCIAL STATEMENTS
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
CONSOLIDATED BALANCE SHEETS
(in U.S. Dollars)
<TABLE>
<CAPTION>
AT AT
MARCH 31, DECEMBER 31,
2000 1999
(Unaudited) (Note)
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 104,151 $ 154,535
Receivables, net 3,929,274 3,270,571
Inventories 2,949,391 2,634,997
Prepaid expenses and other current assets 84,709 54,995
------------ ------------
Total current assets 7,067,525 6,115,098
Fixed assets, net 583,306 577,482
Intangible assets, net 905,365 945,903
Other assets 424,532 382,708
Notes receivable from related parties 257,185 292,101
------------ ------------
Total assets $ 9,237,913 $ 8,313,292
============ ============
LIABILITIES
Current liabilities:
Accounts payable $ 2,338,339 $ 1,565,575
Accrued expenses 252,604 301,775
Revolving credit facility 1,532,756 1,544,607
Current portion of long-term debt 32,442 39,354
------------ ------------
Total current liabilities 4,156,141 3,451,311
Long-term debt 31,761 35,359
Deferred credits 337,177 334,087
------------ ------------
4,525,079 3,820,757
STOCKHOLDERS' EQUITY
Common stock:
$.01 par value, issued 12,524,223 shares
and 12,549,223 shares, respectively 125,242 125,492
Paid-in capital 10,182,543 10,222,544
Accumulated deficit (5,594,951) (5,855,501)
------------ ------------
Total stockholders' equity 4,712,834 4,492,535
------------ ------------
Total liabilities and stockholders' equity $ 9,237,913 $ 8,313,292
============ ============
</TABLE>
Note: The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
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<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in U.S. Dollars) (Unaudited)
<TABLE>
<CAPTION>
For the three months ended March 31,
------------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net sales $ 4,216,215 $ 3,642,388
Cost of sales 2,462,940 2,064,308
------------ ------------
Gross profit 1,753,275 1,578,080
------------ ------------
Operating expenses:
Selling 611,936 572,230
General and administrative 442,685 406,818
Research and development 337,016 311,579
Amortization 48,714 40,539
------------ ------------
Total operating expenses 1,440,351 1,331,166
------------ ------------
Income from operations 312,924 246,914
Interest expense, net (42,019) (39,304)
------------ ------------
Income before provision for income taxes 270,905 207,610
Provision for income taxes (10,355) (3,936)
------------ ------------
Net income $ 260,550 $ 203,674
============ ============
Net income per common share - basic and diluted $ .02 $ .02
============ ============
Weighted average shares outstanding 12,549,787 12,622,878
============ ============
</TABLE>
See accompanying notes.
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<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in U.S. Dollars) (Unaudited)
<TABLE>
<CAPTION>
For the three months ended March 31,
------------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 260,550 $ 203,674
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 90,252 77,066
Deferred rent 3,090 3,090
Accrued interest on notes receivable (5,335) (5,355)
Changes in assets and liabilities:
Accounts receivable (658,703) (760,779)
Inventories (314,394) 110,053
Prepaid expenses and other current assets (29,714) (3,539)
Other assets (50,000) (33,708)
Accounts payable 772,764 (71,904)
Accrued expenses (49,171) (68,129)
----------- -----------
Net cash provided by (used in) operating activities 19,339 (549,531)
----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (47,362) (17,476)
----------- -----------
Net cash used in investing activities (47,362) (17,476)
----------- -----------
Cash flows from financing activities:
Proceeds from revolving credit facility 3,485,000 675,000
Repayment of revolving credit facility (3,496,851) (300,000)
Repayment of capital leases (10,510) (8,188)
Proceeds from exercise of stock options 25,833 --
Purchase and retirement of treasury stock (25,833) --
----------- -----------
Net cash (used in) provided by financing activities (22,361) 366,812
----------- -----------
Decrease in cash (50,384) (200,195)
Cash - beginning of period 154,535 317,034
----------- -----------
Cash - end of period $ 104,151 $ 116,839
=========== ===========
</TABLE>
See accompanying notes.
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<PAGE>
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(Unaudited)
1. BASIS OF PRESENTATION
Technology Flavors & Fragrances, Inc. (the "company," "us," "we" or "our")
develops and manufactures flavor and fragrance products used to provide or
enhance flavors or fragrances in a wide variety of consumer and industrial
products.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of our management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the full year ending December
31, 2000. These unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and footnotes thereto
included in our Annual Report on Form 10-KSB for the year ended December 31,
1999.
2. INVENTORIES
Components of inventories are summarized as follows:
March 31, 2000 December 31, 1999
-------------- -----------------
Raw Materials $1,806,608 $1,427,698
Finished Goods 1,142,783 1,207,299
---------- ----------
$2,949,391 $2,634,997
========== ==========
3. EARNINGS PER SHARE
Basic net income per share is calculated using the weighted average number
of shares of our common stock outstanding during the period. Diluted net income
per share for the three month periods ended March 31, 2000 and 1999 was
calculated using the weighted average common and common equivalent shares that
were outstanding during the period. The effect of common stock equivalents for
the three month periods ended March 31, 2000 and 1999 was not material and,
thus, diluted net income per share was not presented.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
First Quarter 2000 Overview
During 1999, we expanded our research and development and sales and
marketing activities to bolster our sales for 2000. While total operating
expenses increased by $109,000, or 8%, during the first quarter of 2000 over
last year's comparable quarter, growth in net sales during the first quarter of
2000 contributed to net income growth of $57,000, or 28% over last year's first
quarter.
Results of Operations
The following information for the three month periods ended March 31, 2000
and March 31, 1999 has been derived from our unaudited consolidated financial
statements and should be read in conjunction with our Annual Report on Form
10-KSB for the year ended December 31, 1999.
Three months ended March 31,
-----------------------------------
2000 1999
---------------- -----------------
(dollar amounts in thousands)
Net sales $4,216 100.0% $3,642 100.0%
Gross profit 1,753 41.6 1,578 43.3
Operating expenses:
Selling 612 14.5 572 15.7
General and administrative 442 10.5 407 11.2
Research and development 337 8.0 312 8.5
Amortization 49 1.2 40 1.1
Income from operations 313 7.4 247 6.8
Interest expense, net 42 1.0 39 1.1
Provision for income taxes 10 .2 4 .1
Net income 261 6.2 204 5.6
Net sales. Net sales increased by $574,000, or 16%, to $4,216,000 for the
three months ended March 31, 2000 from $3,642,000 for the same period last year.
The increase was due principally to the introduction and sale of new beverage
flavor products.
Gross profit. Gross profit, as a percentage of sales, decreased 1.7% to
41.6% on net sales of $4,216,000 for the first quarter of 2000 from 43.3% on net
sales of $3,642,000 for the first quarter of 1999. Included in gross profit for
the three month period ended March 31, 1999 was the recovery of $94,000 of
product costs previously deemed to be unrecoverable. Without giving effect to
this recovery, gross profit, as a percentage of sales, was 40.7% for the three
month period ended March 31, 1999 which was 0.9% lower than the three month
period ended March 31, 2000.
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<PAGE>
Operating expenses:
Selling expenses. Selling expenses increased by $40,000, or 7%, to
$612,000 for the first quarter of 2000 from $572,000 for the comparable 1999
period due principally to the hiring of an additional sales person during the
latter part of 1999 to support the growth in sales.
General and administrative expenses. General and administrative expenses
increased by $35,000, or 9%, to $442,000 for the first quarter of 2000 from
$407,000 for the first quarter of 1999 due principally to wage increases and an
increase in public relations expenses.
Research and development expenses. Research and development expenses
increased by $25,000, or 8%, to $337,000 for the first quarter of 2000 from
$312,000 for the first quarter of 1999 due principally to the hiring of a food
technologist and general wage increases.
Amortization expense. Amortization expense increased by $9,000, or 23%, to
$49,000 for the first quarter of 2000 from $40,000 for the first quarter of
1999. The increase was due principally to the increase in deferred financing
costs associated with our new revolving credit facility entered into in June
1999.
Total operating expenses. Total operating expenses increased by $109,000,
or 8%, to $1,440,000 for the first quarter of 2000 from $1,331,000 for the first
quarter of 1999 as a result of the factors described above.
Interest expense, net. Interest expense increased by $3,000, or 8%, to
$42,000 for the first quarter of 2000 from $39,000 for the comparable 1999
quarter. The increase was primarily due to higher interest rates on outstanding
borrowings under our new revolving credit facility entered into in June 1999.
Provision for income taxes. Provision for income taxes represents state
franchise taxes and federal alternative minimum tax. There were no federal
income tax provisions for 2000 and 1999 since we had available net operating
loss carryforwards.
Net income. Net income for the first quarter of 2000 was $261,000 as
compared to net income of $204,000 for the first quarter of 1999, an increase of
28%.
Liquidity and Capital Resources
Historically, our financing needs have been met through issuances of
equity and debt securities and commercial bank loans. On June 29, 1999, we
entered into a Loan and Security Agreement with a lender which provided for a
three year $3,000,000 revolving credit facility. We call this revolving credit
facility the 1999 Credit Facility. Outstanding borrowings under the 1999 Credit
Facility initially bore interest at a rate of three quarters of one percent
(0.75%) in excess of a prime lending rate, and is subject to certain adjustments
based upon our financial performance. Effective January 1, 2000, the interest
rate was reduced to one quarter of one percent (0.25%) in excess of a prime
lending rate. Borrowings under the 1999 Credit Facility are subject to certain
eligibility requirements relating to our receivables and inventories and the
discretion of the lender. Outstanding borrowings are secured by substantially
all of our assets, including our product formulations. We must comply
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<PAGE>
with certain financial and other covenants contained in the Loan and Security
Agreement. Our subsidiaries have guaranteed our obligations under the 1999
Credit Facility. Borrowings under the 1999 Credit Facility at March 31, 2000 and
at December 31, 1999 were $1,533,000 and $1,545,000, respectively. At March 31,
2000, $1,467,000 was available for additional borrowings in accordance with the
terms of the 1999 Credit Facility. The outstanding borrowings under the 1999
Credit Facility were classified as a current liability. At March 31, 2000,
outstanding borrowings bore interest at 9.25% per annum.
At March 31, 2000, working capital increased by $247,000, or 9%, to
$2,911,000 from $2,664,000 at December 31, 1999.
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<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
On January 10, 2000, a former investor relations consultant to our company
exercised options to purchase 25,833 shares of our common stock at an
exercise price of $1.00 per share. The sale of these shares to the
investor relations consultant was made pursuant to an exemption from the
registration provisions of the Securities Act of 1933, as amended, set
forth in Section 4(2) thereof as a transaction by an issuer not involving
any public offering.
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 27.1 Financial Data Schedule
b) Reports on Form 8-K
None
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<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: April 20, 2000
TECHNOLOGY FLAVORS & FRAGRANCES, INC.
By /s/ Joseph A. Gemmo
-------------------------------------------------
Joseph A. Gemmo
Vice President and Chief Financial Officer
(Principal Financial Officer and Officer Duly
Authorized to Sign on Behalf of Registrant)
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 104,151
<SECURITIES> 0
<RECEIVABLES> 4,044,274
<ALLOWANCES> 115,000
<INVENTORY> 2,949,391
<CURRENT-ASSETS> 7,067,525
<PP&E> 2,399,086
<DEPRECIATION> 1,815,780
<TOTAL-ASSETS> 9,237,913
<CURRENT-LIABILITIES> 4,156,141
<BONDS> 64,203
0
0
<COMMON> 125,242
<OTHER-SE> 4,587,592
<TOTAL-LIABILITY-AND-EQUITY> 9,237,913
<SALES> 4,216,215
<TOTAL-REVENUES> 4,216,215
<CGS> 2,462,940
<TOTAL-COSTS> 1,440,351
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,019
<INCOME-PRETAX> 270,905
<INCOME-TAX> 10,355
<INCOME-CONTINUING> 260,550
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 260,550
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
