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Previous: CREATIVE BAKERIES INC, 8-K/A, 1997-11-17 |
Next: ECHOSTAR COMMUNICATIONS CORP, 424B3, 1997-11-17 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 333-15127
AZUREL LTD. AND SUBSIDIARIES
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3842844
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
590 Madison Avenue, New York, NY 10022
(Address of principal executive office) (Zip Code)
(212) 317- 0712
(Registrant's telephone number including area code)
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
The number of shares of registrant's Common Stock, $.001 par value, outstanding
as of November 14, 1997 was 5,302,079 shares.
<PAGE>
<TABLE>
<CAPTION>
AZUREL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1997 1996
------------------ ------------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 694,697 $ -
Restricted cash 284,366 268,731
Accounts receivable, net of allowance for
doubtful accounts of $50,000 1,999,589 1,515,407
Note receivable affiliate 255,679 255,679
Inventories 1,091,213 1,241,509
Prepaid expenses 495,293 50,641
Due from stockholders and related parties 13,915 184,480
Other current assets 35,497 106,891
------------------ ------------------
TOTAL CURRENT ASSETS 4,870,249 3,623,338
MACHINERY AND EQUIPMENT, net 1,435,115 571,507
DEFERRED FINANCING COSTS - 32,797
DEFERRED REGISTRATION COSTS - 175,514
FORMULAE AND CUSTOMER LISTS, net 3,023,277 3,175,107
GOODWILL, net 4,912 5,107
OTHER ASSETS 50,470 60,470
------------------ ------------------
$ 9,384,023 $ 7,643,840
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash overdraft $ - $ 10,635
Accounts payable 789,195 1,058,163
Accrued expenses 260,038 944,430
Accrued payroll taxes and penalties 70,669 519,323
Customer advances 57,760 57,760
Current portion of long-term debt 2,332,865 1,551,816
Current portion of capital lease obligations 6,098 19,770
------------------ ------------------
TOTAL CURRENT LIABILITIES 3,516,625 4,161,897
------------------ ------------------
LONG-TERM DEBT 1,250,984 3,189,054
CAPITAL LEASE OBLIGATIONS - 20,322
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, authorized 1,000,000, none
issued or outstanding - -
Common stock, $.001 par value, authorized 24,000,000 shares,
issued and outstanding 5,302,079 and 3,878,747 shares 5,390 3,879
Additional paid-in-capital 7,376,283 2,382,190
Accumulated deficit (2,763,084) (2,111,327)
------------------ ------------------
4,618,589 274,742
Less stock subscriptions receivable (2,175) (2,175)
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY 4,616,414 272,567
------------------ ------------------
$ 9,384,023 $ 7,643,840
================== ==================
- -
See notes to financial statements.
-1-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AZUREL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months ended Sept. 30, Nine Months Ended Sept. 30,
-------------------------------------------------------------------------------
1997 1996 1997 1996
----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
NET SALES $ 3,060,483 $ 968,050 $ 9,091,951 $ 968,050
COST OF GOODS SOLD 2,204,093 764,759 7,301,895 764,759
----------------- ----------------- ------------------ ----------------
GROSS PROFIT 856,390 203,291 1,790,056 203,291
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 644,316 317,641 2,130,579 733,292
----------------- ----------------- ----------------- ----------------
INCOME (LOSS) FROM OPERATIONS 212,074 (114,350) (340,523) (530,001)
INTEREST INCOME 15,635 - 15,635 -
INTEREST EXPENSE 91,138 147,538 326,869 465,122
------------------------------------- -------------------------------------
NET INCOME (LOSS) $ 136,571 $ (261,888) $ (651,757) $ (995,123)
================= ================= ================= ================
NET INCOME ( LOSS) PER COMMON SHARE $ 0.03 $ (0.10) $ (0.14) (0.37)
================= ================= ================= ================
WEIGHTED AVERAGE COMMON SHARES
USED 4,827,635 2,685,000 4,626,015 2,659,583
================= ================= ================= ================
See notes to financial statements.
-2-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AZUREL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
------------------------------------------
1997 1996
<S> <C> <C>
------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (651,757)$ (995,123)
------------------- --------------------
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation 147,046 16,629
Amortization 152,025 12,913
Amortization of discount - 217,169
Amortization of deferred costs - -
Stock options issued for services - 37,500
Stock issued for penalty - 50,000
Interest converted into stock - 29,994
Stock issued for services - 120,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (484,182) (20,823)
(Increase) decrease in note receivable affiliate - -
(Increase) decrease in inventories 150,296 69,601
(Increase) decrease in prepaid expenses (444,652) 273
(Increase) decrease in other current assets 71,394 -
(Increase) decrease in other assets 10,000 -
Increase (decrease) in accounts payable (268,968) (30,298)
Increase (decrease) in accrued expenses (684,392) 66,722
Increase (decrease) in payroll taxes and penalties (448,654) -
Increase (decrease) in advances - -
------------------- --------------------
TOTAL ADJUSTMENTS (1,800,087) 569,680
------------------- --------------------
NET CASH USED IN OPERATING ACTIVITIES (2,451,844) (425,443)
------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of machinery and equipment (118,160) (28,954)
Cash paid in acquisition of Private Label Group - (215,059)
Increase in other assets - (41,311)
------------------- --------------------
NET CASH USED IN INVESTING ACTIVITIES (118,160) (285,324)
CASH FLOW FROM FINANCING ACTIVITIES:
Increase (decrease) in cash overdraft (10,635) (40,776)
(Increase) decrease in restricted cash (15,635) (84,461)
(Increase) decrease in due from stockholders 170,565 (86,110)
(Increase) decrease in due from the Private Label Group - (650,000)
(Increase) decrease in deferred financing costs 32,797 36,848
(Increase) decrease in deferred registration costs 175,514 (11,000)
Payment of capital lease obligations (33,994) (1,585)
Proceeds from long-term debt - 848,492
Payment of long-term debt (1,157,021) (563,767)
Costs incurred in connection with stock issuance (1,434,890) (240,455)
Issuance of common stock 5,538,000 1,500,000
------------------- --------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,264,701 707,186
NET INCREASE IN CASH 694,697 (3,581)
CASH, beginning of period - 3,581
------------------- --------------------
CASH, end of period $ 694,697 $ -
=================== ====================
See notes to financial statements.
-3-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AZUREL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
------------------------------------------
1997 1996
------------------- --------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ 326,869 $ 22,879
=================== ====================
Taxes $ 5,644 $ -
=================== ====================
Non cash activities:
Issuance of common stock through long-term debt $ - $ 163,095
=================== ====================
Issuance of common stock in connection with acquisition of Private Label $ 892,496 $ 21,250
=================== ====================
Conversion of debt to common stock $ - $ 457,494
=================== ====================
Purchase of equipment through capital lease obligations $ - $ 11,304
=================== ====================
Assumption of debt in connection with acquisition of Private Label $ - $ 1,805,813
=================== ====================
Intangible assets with acquisition of Private Label $ - $ 1,056,958
=================== ====================
Stock issued for services $ 112,500 $ 120,000
=================== ====================
Stock options issued for services $ - $ 37,500
=================== ====================
Stock issued for penalty $ - $ 50,000
=================== ====================
See notes to financial statements
-4-
</TABLE>
<PAGE>
AZUREL LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED September 30, 1997
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements as of September 30,
1997 and for the nine and three months ended September 30, 1997 and
1996 have not been audited by independent auditors, but in the opinion
of management, such unaudited statements include all adjustments
consisting of normal recurring accruals necessary for a fair
presentation of the financial position, the results of operations and
cash flows for the nine months ended September 30, 1997.
The consolidated financial statements should be read in conjunction
with the financial statements and related notes concerning the
Company's accounting policies and other matters contained in the
Company's annual report on Form 10-KSB. The results for the nine months
ended September 30, 1997 are not necessarily indicative of the results
expected for the full year ending December 31, 1997. Certain prior year
amounts have been reclassified to conform with the current year's
presentation.
2. INCOME (LOSS) PER SHARE
Per share information is computed based on the weighted average
number of common shares and dilutive common share equivalents
outstanding during the respective periods
3. ACQUISITIONS
a. On August 22, 1996, the Company purchased all of the issued
and outstanding capital stock of the Private Label Group for a
purchase price of $3,067,284 of which $1,758,750 was paid by
the delivery of the Company's promissory notes and the
remainder in cash and common stock.
-5-
<PAGE>
The acquisition of the Private Label Group has been accounted
for as a purchase and accordingly, the assets acquired and
liabilities assumed have been recorded at their estimated fair
values. The following table summarizes this acquisition:
Purchase Price, including acquisition costs $ 3,067,284
Liabilities assumed 4,754,844
Assets Acquired:
Inventories (1,490,774)
Accounts receivable, net (1,523,020)
Fixed assets, net (1,411,366)
Other assets (154,762)
Formulae and customer lists (3,237,000)
Goodwill $ 5,206
====================
Included in assets acquired are certain intangibles consisting
principally of formulae and customer lists valued at
$2,285,000 and $952,000, respectively. The allocation of the
purchase price of these assets was based on an independent
appraisal.
Amortization periods for formulae and customer lists are 15
and 19 years, respectively. Goodwill is being amortized over
20 years.
The results of operations for the Private Label Group for the
quarter and nine months ended September 30, 1997 are included
in the accompanying consolidated financial statements.
The following schedule combines the unaudited proforma results
of operations of the Company for the quarter and nine months
ended September 30, 1996 and the Private Label Group for the
quarter and nine months ended September 30, 1996 as if the
acquisition had occurred on January 1, 1996 and includes such
adjustments which are directly attributable to the
acquisition. It should not be considered indicative of the
results that would have been achieved had the acquisitions not
occurred or the results that would have been obtained had the
acquisition actually occurred on January 1, 1996.
-6-
<PAGE>
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, 1996 September 30,
<S> <C> <C>
1996
---------------------------- -------------------------
Net sales $ 2,711,637 $ 7,675,748
Net loss (241,682) (1,120,795)
Net loss per share (0.06) (0.37)
Shares used in computation 3,878,747 3,065,971
</TABLE>
b. In October 1996, the Company acquired all of the assets of
Scent Overnight, a company of which the Company's Chief
Executive Officer and Chairman of the Board, is a majority
stockholder for (i) a $225,000 promissory note bearing
interest at the rate of 9% per annum and (ii) the assumption
of a promissory note of $210,000 plus accrued interest of
$15,400 which was assumed by the Company in September 1995.
The acquisition was accounted for under the purchase method of
accounting with the basis used to record the assets of Scent
Overnight as zero which is the transferor's historical cost
basis. The assets of Scent Overnight consisted of only
intangible assets which is primarily Scent Overnight's name.
Scent had no operations during the year ended December 31,
1996 and for the nine months ended September 30, 1997.
4. INITIAL PUBLIC OFFERING
On July 30, 1997 the Company successfully completed its
initial public offering. The Company raised gross proceeds of
$ 5,538,000 before offering expenses and underwriters
discounts pursuant to the sale of the Company's common stock
and redeemable warrants.
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS AND THREE MONTHS ENDED September 30, 1997 AND 1996
Azurel, through its wholly-owned subsidiaries, manufactures, markets,
and sells private label cosmetics, fragrances and skincare products.
Prior to the completion of the acquisitions of the subsidiaries, Azurel
focused its operations on negotiating and consumating such acquisitions
and developing and implementing marketing strategies for its Branded
Products.
In August 1996, Azurel acquired the stock of Private Label Group (PLC),
and in October 1996, Azurel acquired the stock of Scent Overnight
(currently Scent 1-2-3).
Results of Operations.
Total revenues for the nine months and three months ended September 30,
1997 were $9,091,951 and $3,060,483 respectively, compared to revenues
of $968,050 for the comparable periods of the prior year. These
increases are attributable to the fact that the acquisition of PLC
occured in August of 1996 and cumulative complete period sales figures
for nine and three months were not reported because the acquisition of
PLC occurred in August of 1996. The nine months and three months ended
September 30, 1997 includes revenues of $83,908 and $26,915 for Azurel
International sales respectively.
Cost of sales was $7,301,895 and $2,204,093 for the nine months and
three months ended September 30, 1997. Cost of sales for the same
periods of 1996 was $764,759 because the acquisition of PLC occurred in
August of 1996. Gross profit as a percentage of revenue was 20% for the
nine months ended September 30, 1997 and 28% for the three months ended
September 30, 1997. The improvement in gross profit percentage in the
quarter ended September 30, 1997 was due to, among other things a more
profitable product mix, operating efficiencies and improved cost
controls.
Selling, general and administrative expenses for the nine months and
three months ended September 30, 1997 were $2,130,579 and $644,316 as
compared to $733,292 and $317, 641 for the nine and three months ended
September 30, 1996. The increase in selling, general and administrative
expenses was due primarily to the acquisition of PLC and the expenses
related to its operations for complete nine and three month periods in
1997. Selling, general and administrative expenses for PLC in 1996
occurred after the acquisition in August of 1996.
For the nine months and three months ended September 30, 1997, the
Company's net income included non-cash expenses of $299,071 and
$75,066, respectively. Such expense was incurred principally as a
result of depreciation and amortization of assets acquired with the
acquisition of PLC.
-8-
<PAGE>
Interest expense was $326,869 for the nine months ended September 30,
1997 and $91,138 for the three months ended September 30, 1997,
compared to $465,122 for the nine months and $147,538 for the three
months ended September 30, 1996, reflecting interest paid on bridge
loans utilized to provide interim financing pending the initial public
offering, which was successfully completed on July 30, 1997 as well as
interest expense incurred for normal PLC operations.
Liquidity and Capital Resources
The Company's primary source of liquidity is accounts receivable of
$1,999,589, notes receivable of $255,679 and inventory of $1,091,213.
In July 1997, the Company successfully completed an initial public
offering. The Company raised gross proceeds of $5,538,000 before
offering expenses and underwriter discounts and repayments of certain
bridge loans, pursuant to the sale of the Company's common stock and
redeemable warrants.
-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
-10-
<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.
AZUREL LTD. AND SUBSIDIARIES
/s/ Gerard Semhon
Gerard Semhon
Chief Executive Officer
/s/ Frank Desimone
Frank Desimone
Chief Financial Officer
Dated : November 14, 1997
-11-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001000897
<NAME> Azurel LTD. and Subsidaries
<MULTIPLIER> 1
<CURRENCY> u.s.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 694,697
<SECURITIES> 0
<RECEIVABLES> 2,049,589
<ALLOWANCES> 50,000
<INVENTORY> 1,091,213
<CURRENT-ASSETS> 4,870,249
<PP&E> 1,582,161
<DEPRECIATION> 147,046
<TOTAL-ASSETS> 9,384,023
<CURRENT-LIABILITIES> 3,516,625
<BONDS> 0
0
0
<COMMON> 5,390
<OTHER-SE> 7,376,283
<TOTAL-LIABILITY-AND-EQUITY> 4,616,414
<SALES> 3,060,483
<TOTAL-REVENUES> 3,060,483
<CGS> 2,204,093
<TOTAL-COSTS> 2,204,093
<OTHER-EXPENSES> 644,316
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91,138
<INCOME-PRETAX> 136,571
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 136,571
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0
</TABLE>
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