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 June 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 September 15, 1997 was 5,258,747 shares.
<PAGE>
AZUREL LTD. AND SUBSIDIARIES
INDEX
Page
Number
----------
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets 1
Consolidated Statements of Operations 2
Consolidated Statements of Cash Flows 3
Notes to Financial Statements 4
Item 2 - Management's Discussion and Analysis or
Plan of Operation 6
PART II - OTHER INFORMATION 8
SIGNATURE 9
<PAGE>
AZUREL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------------ ------------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Restricted cash $ 268,731 $ 268,731
Accounts receivable, net of allowance for
doubtful accounts of $50,000 1,902,923 1,515,407
Note receivable affiliate 290,279 255,679
Inventories 1,160,153 1,241,509
Prepaid expenses 47,651 50,641
Due from stockholders and related parties - 184,480
Other current assets 72,643 106,891
------------------ ------------------
TOTAL CURRENT ASSETS 3,742,380 3,623,338
MACHINERY AND EQUIPMENT, net 498,768 571,507
DEFERRED FINANCING COSTS 38,545 32,797
DEFERRED REGISTRATION COSTS 186,630 175,514
FORMULAE AND CUSTOMER LISTS, net 3,073,887 3,175,107
GOODWILL, net 4,977 5,107
OTHER ASSETS 60,470 60,470
------------------ ------------------
$ 7,605,657 $ 7,643,840
================== ==================
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Cash overdraft $ 15,309 $ 10,635
Accounts payable 1,277,993 1,058,163
Accrued expenses 1,065,206 944,430
Accrued payroll taxes and penalties 612,723 519,323
Customer advances 57,760 57,760
Current portion of long-term debt 3,767,839 1,551,816
Current portion of capital lease obligations 17,310 19,770
------------------- ------------------
TOTAL CURRENT LIABILITIES 6,814,140 4,161,897
------------------- ------------------
LONG-TERM DEBT 1,267,327 3,189,054
CAPITAL LEASE OBLIGATIONS 14,129 20,322
STOCKHOLDERS' (DEFICIT) 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 3,878,747 shares 3,879 3,879
Additional paid-in-capital 2,382,190 2,382,190
Accumulated deficit (2,873,833) (2,111,327)
------------------- ------------------
(487,764) 274,742
Less stock subscriptions receivable (2,175) (2,175)
------------------- ------------------
TOTAL STOCKHOLDERS' (DEFICIT) EQUITY (489,939) 272,567
------------------- ------------------
$ 7,605,657 $ 7,643,840
================== ==================
</TABLE>
See notes to financial statements.
-1-
<PAGE>
AZUREL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended June 30, Six Months Ended June 30,
-------------------------------------------------------------------------------
1997 1996 1997 1996
----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
NET SALES $ 3,298,286 $ - $ 6,031,468 $ -
COST OF GOODS SOLD 2,562,942 - 4,670,452 -
----------------- ----------------- ----------------- ----------------
GROSS PROFIT 735,344 - 1,361,016 -
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 918,015 154,420 1,887,791 415,651
----------------- ----------------- ----------------- ----------------
LOSS FROM OPERATIONS (182,671) (154,420) (526,775) (415,651)
INTEREST EXPENSE 104,542 45,064 235,731 317,584
-------------------------------------- -------------------------------------
NET LOSS $ (287,213) $ (199,484) $ (762,506) $ (733,235)
================= ================= ================= ================
NET LOSS PER COMMON SHARE $ (0.07) $ (0.07) $ (0.20) $ (0.28)
================= ================= ================= ================
WEIGHTED AVERAGE COMMON SHARES
USED 3,878,747 2,685,000 3,878,747 2,659,583
================= ================= ================= ================
</TABLE>
See notes to financial statements.
-2-
<PAGE>
AZUREL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------------------
1997 1996
------------------- --------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (762,506)$ (733,235)
------------------- --------------------
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation 87,534 198
Amortization 101,350 -
Amortization of discount - 163,162
Amortization of deferred costs 35,121 -
Stock options issued for services - 37,500
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (387,516) -
(Increase) decrease in note receivable affiliate (34,600) -
(Increase) decrease in inventories 81,356 -
(Increase) decrease in prepaid expenses 2,990 (15,909)
(Increase) decrease in other current assets 34,248 -
(Increase) decrease in other assets - (37,225)
Increase (decrease) in accounts payable 219,830 -
Increase (decrease) in accrued expenses 234,829 146,269
Increase (decrease) in payroll taxes and penalties 93,400 -
Increase (decrease) in advances - -
------------------- --------------------
TOTAL ADJUSTMENTS 468,542 293,995
------------------- --------------------
NET CASH USED IN OPERATING ACTIVITIES (293,964) (439,240)
------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of machinery and equipment (14,795) (20,476)
------------------- --------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Increase (decrease) in cash overdraft 4,674 -
(Increase) decrease in restricted cash - -
(Increase) decrease in due from stockholders - (92,100)
(Increase) decrease in due from the Private Label Group - (500,000)
(Increase) decrease in deferred financing costs (40,869) 28,958
(Increase) decrease in deferred registration costs (11,116) (81,047)
Payment of capital lease obligations (8,653) -
Proceeds from long-term debt 571,500 460,000
Payment of long-term debt (206,777) (310,000)
Issuance of common stock - 1,267,450
------------------- --------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 308,759 773,261
NET INCREASE IN CASH - 313,545
CASH, beginning of period - 3,581
------------------- --------------------
CASH, end of period $ - $ 317,126
=================== ====================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ 2,128 $ 6,520
=================== ====================
Taxes $ - $ -
=================== ====================
Non cash activities:
Issuance of common stock through long-term debt $ - $ 163,095
=================== ====================
Purchase of equipment through capital lease obligations $ - $ 11,304
=================== ====================
See notes to financial statements.
-3-
</TABLE>
<PAGE>
AZUREL LTD. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1997
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements as of June 30, 1997
and for the six and three months ended June 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 six months
ended June 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 six months
ended June 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. 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 $2,174,790 of which $1,758,750 was paid by
the delivery of the Company's promissory notes and the
remainder in cash.
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:
-4-
<PAGE>
Purchase Price, including acquisition costs $ 2,174,790
Liabilities assumed 4,754,844
Assets Acquired:
Inventories (1,490,774)
Accounts receivable, net (1,523,020)
Fixed assets, net (518,872)
Other assets (154,762)
Formulae and customer list (3,237,000)
--------------------
Goodwill $ 5,206
====================
Included in assets acquired are certain intangible 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 six months ended June 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 six months
ended June 30, 1996 and the Private Label Group for the
quarter and six months ended June 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.
Three months ended Six months ended
June 30, 1996 June 30, 1996
---------------------------- -------------------------
Net sales $ 2,417,285 $ 4,964,111
Net loss (359,535) (879,113)
Net loss per share (0.13) (0.33)
Shares used in computation 2,685,000 2,659,583
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 six months ended June 30, 1997.
4. SUBSEQUENT EVENT
On July 30, 1997 the Company successfully completed its
initial public offering. The Company raised gross proceeds of
$ 5,400,000 before offering expenses and underwriters
discounts pursuant to the sale of the Company's common stock
and redeemable warrants.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE SIX MONTHS AND THREE MONTHS ENDED JUNE 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 six months and three months ended June 30, 1997
were $6,031,468 and $3,298,286 respectively, compared to zero revenues
in the comparable period of the prior year, as Azurel had not yet
consumated the acquisition of PLC. The sales reported, resulted almost
entirely from the acquisition of PLC which was acquired in August 1996.
The six months and three months ended June 30, 1997 includes revenues
of $56,993 and $3,811 for Azurel International sales respectively.
-5-
<PAGE>
Cost of sales was $4,670,452 and $2,562,942 for the six months and
three months ended June 30, 1997, with no corresponding data from the
same periods of 1996 as Azurel had not yet consumated the acquisition
of PLC. Gross profit as a percentage of revenue was 23% for the six
months ended June 30, 1997 and 22% for the three months ended June 30,
1997. The cost of sales resulted almost entirely from the acquisition
of PLC in August 1996, and the results of PLC's operations for the six
months period.
Selling, general and administrative expenses for the six months and
three months ended June 30, 1997 were $1,887,791 and $918,015 as
compared to $415,651 and $154, 420 for the six and three months ended
June 30, 1996. The increase in selling, general and administrative
expenses was due to the acquisition of PLC and the expenses related to
its operations, compared to the minimal operating expenses associated
with a minimal revenue producing company.
For the six months and three months ended June 30, 1997, the Company's
net income included non-cash expenses of $224,005 and $98,483,
respectively. Such expense was incurred principally as a result of
depreciation and amortization of assets acquired with the acquisition
of PLC.
Interest expense was $235,731 for the six months ended June 30, 1997
and $104,542 for the three months ended June 30, 1997, compared to
$317,584 for the six months and $45,064 for the three months ended June
30, 1996, reflecting interest paid on bridge loans utilized to provide
interim financing pending an initial public offering, which was
successfully completed on July 30, 1997 as well as interest expense for
PLC operations.
As a result of all the above factors, net losses for the six months and
three months ended June 30, 1997 was $762,506 and $287,213, as compared
to a net loss of $733,235 for the six months ended June 30, 1996 and a
net loss of $199,484 for the three months ended June 30, 1996.
Liquidity and Capital Resources
The Company's primary source of liquidity is accounts receivable of
$1,902,923, notes receivable of $290,279 and inventory of $1,160,153.
In July 1997, the Company successfully completed an initial public
offering. The Company raised gross proceeds of $5,400,000 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.
To date, inflation has not had a material effect on the Company's
business.
-6-
<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
-7-
<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/ Constantine Bezas
Constantine Bezas
President and Director
Dated : October 1, 1997
-8-
<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> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 253,422
<SECURITIES> 0
<RECEIVABLES> 1,952,923
<ALLOWANCES> 50,000
<INVENTORY> 1,160,153
<CURRENT-ASSETS> 3,742,380
<PP&E> 2,995,583
<DEPRECIATION> 2,496,815
<TOTAL-ASSETS> 7,605,657
<CURRENT-LIABILITIES> 6,814,140
<BONDS> 0
0
0
<COMMON> 3,879
<OTHER-SE> (493,868)
<TOTAL-LIABILITY-AND-EQUITY> 7,605,657
<SALES> 3,298,286
<TOTAL-REVENUES> 3,298,286
<CGS> 2,562,942
<TOTAL-COSTS> 2,562,942
<OTHER-EXPENSES> 918,015
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 104,542
<INCOME-PRETAX> (287,213)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (287,213)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
