SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(X) Quarterly Report pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarterly period ended April 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: 0-28514
TREASURY INTERNATIONAL, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 98-0160284
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
7040 Tranmere Drive, Mississauga, Ontario L5S 1L9
(Address of Principal Executive Offices)
Issuer's Telephone Number, Including Area Code: 905-673-1700
N/A
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
15,647,566 shares of Common Stock, par value $.0001 per share
were outstanding as of April 30, 1997.
<PAGE>
INDEX
PAGE
Part I. FINANCIAL INFORMATION....................... 3
Item 1. Financial Statements..................... 3
Interim Consolidated Balance Sheet as of
April 30, 1997 and January 31, 1997.......... 3
Interim Consolidated Statement of Deficit as
of April 30, 1997 and April 30, 1996......... 5
Interim Consolidated Statement of Operations
as of April 30, 1997 and April 30, 1996...... 6
Interim Consolidated Statement of Changes in
Shareholders' Equity as at April 30, 1997.... 7
Interim Consolidated Statement of Cash Flows
as of April 30, 1997 and April 30, 1996...... 8
Notes to Interim Consolidated Financial
Statements................................... 10
Item 2. Management's Discussion and Analysis or
Plan of Operation........................ 13
Part II. OTHER INFORMATION.......................... 18
Item 2. Changes in Securities.................... 18
Item 6. Exhibits................................. 18
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
TREASURY INTERNATIONAL, INC.
INTERIM CONSOLIDATED BALANCE SHEET
ASSETS
April 30, January 31,
1997 1997
(Unaudited)
CURRENT
Cash and short-term deposits$ - $ -
Accounts receivable 2,487,021 812,357
Inventories (Notes 2 and 4) 2,561,123 385,915
Sundry assets 37,113 144,541
Income taxes receivable - 6,182
---------- ----------
5,085,257 1,348,995
GOODWILL 3,417,229 1,835,918
CAPITAL ASSETS (Notes 2 and 5) 911,835 723,299
---------- ----------
TOTAL ASSETS $ 9,414,321 $ 3,908,212
============ ===========
LIABILITIES
CURRENT
Bank indebtedness (Note 6) $ 1,839,980 $ 394,407
Accounts payable
and accrued liabilities 2,915,896 1,018,928
Current portion of long-
term debt 1,397,812 1,147,812
Income tax payable 267,712 -
--------- ---------
6,421,400 2,561,147
DEFERRED INCOME TAXES 118,699 54,161
LONG-TERM DEBT (Note 7) 2,869,543 1,304,461
--------- ---------
TOTAL LIABILITIES 9,409,642 3,919,769
--------- ---------
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<PAGE>
STOCKHOLDERS' EQUITY
SHARE CAPITAL
Authorized
30,000,000 common shares
at $.0001
Issued
15,647,566 common shares 1,565 1,494
Contributed surplus at
April 30, 1997 2,248,790 1,543,861
DEFICIT (2,245,676) (1,556,912)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 4,679 ( 11,557)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 9,414,321 $ 3,908,212
============ ===========
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<PAGE>
TREASURY INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENT OF DEFICIT
THREE MONTHS ENDED APRIL 30, 1997
(UNAUDITED)
April 30, April 30,
1997 1996
Balance, beginning of period $ ( 1,556,912) $ ( 524,828)
Net income (loss) for the period ( 688,764) 7,263
------------- --------------
Balance, end of period $ ( 2,245,676) $ ( 517,565)
============== ==============
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<PAGE>
TREASURY INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 1997
(UNAUDITED)
April 30, April 30,
1997 1996
REVENUE $ 1,849,916 $ 283,591
COST OF GOODS SOLD 1,512,780 164,199
------------- ------------
GROSS PROFIT 337,136 119,392
------------- ------------
EXPENSES
General and administrative 928,614 111,581
------------- ------------
INCOME (LOSS) FROM OPERATIONS
before undernoted items (591,478) 7,811
------------- ------------
Financial 55,677 -
Amortization 41,609 548
------------- ------------
Income before income taxes - 7,263
Income taxes - 1,380
------------- ------------
Income before undernoted item - 5,883
Income tax reduction arising
from loss carryforward - 1,380
------------- ------------
97,286 -
------------- ------------
NET INCOME (LOSS) $ (688,764) $ 7,263
============== ============
Loss per share $ (0.04) $ 0.0006
============== ============
Weighted average number of common
shares outstanding 15,345,899 12,223,690
============== ============
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<PAGE>
TREASURY INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AS AT APRIL 30, 1997
(UNAUDITED)
COMMON PAID-IN CONTRIBUTED
STOCK CAPITAL SURPLUS
Balance - January 31, 1997 14,942,566 $ 1,494 $ 1,543,861
Issued 555,000 common
shares for consulting and
public relations services 555,000 56 554,944
Issued 150,000 common
shares toward the purchase
price of Silver 925, Inc. 150,000 15 149,985
---------- ---------- ----------
Balance - April 30, 1997 15,647,566 $ 1,565 $2,248,790
========== ========= ==========
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<PAGE>
TREASURY INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED APRIL 30, 1997
(UNAUDITED)
April 30, April 30,
1997 1996
Cash flows from operating activities
Net loss (income) $( 688,764) $ 7,263
Adjustments to reconcile net
loss to net cash used in
operating activities:
Increase in deferred income taxes 64,538 -
Amortization 41,609 548
Increase in accounts receivable ( 1,674,664) ( 66,050)
Decrease in income taxes
receivable 6,182
-
Increase in inventories ( 2,175,208) ( 23,473)
Decrease (increase) in sundry
assets 107,428 ( 301)
Increase (decrease) in accounts
payable 1,896,968 ( 7,458)
Increase in income taxes payable 267,712 -
----------- -----------
Net cash used in operating activities ( 2,154,199) ( 89,471)
----------- -----------
Cash flows from financing activities
Long-term debt 1,815,082 -
Proceeds on issue of
common shares 705,000 -
----------- -----------
Cash provided by financing activities 2,520,082 -
----------- -----------
Cash flows from investing activities
Goodwill (1,581,311)
Purchase of capital assets (230,145) -
---------- -----------
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<PAGE>
Cash used for investing activities ( 1,811,456) -
----------- -----------
Decrease in cash and short-term
deposits (Bank indebtedness) ( 1,445,573) ( 89,471)
Cash and short-term deposits
(Bank indebtedness),
beginning of period ( 394,407) 292,611
----------- ----------
Cash and short-term deposits
(Bank indebtedness),
end of period $( 1,839,980) $ 203,140
============= ===========
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<PAGE>
TREASURY INTERNATIONAL, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS AT APRIL 30, 1997
(UNAUDITED)
The financial information for the three month periods ended
April 30, 1997 and 1996 presented in this Form 10-QSB has been
prepared from accounting records of Treasury International, Inc.
(the "Company") without audit. The information furnished
reflects all adjustments which are, in the opinion of management,
necessary for a fair statement of the results of interim
periods. The results of operations for the three months ended
April 30, 1997 are not necessarily indicative of the results to
be expected for a full year. The consolidated balance sheet as
of January 31, 1997 has been derived from audited financial
statements. This report should be read in conjunction with the
consolidated financial statements included in the Company's
January 31, 1997 Form 10-KSB as filed with the Securities and
Exchange Commission.
1. Nature of business
Treasury International, Inc. is a holding company which,
through its wholly-owned subsidiaries J.J.A.M.P Treasury
International Corp. ("J.J.A.M.P."), Megatran Investments
Ltd. ("Megatran"), Mega Blow Moulding Limited ("Mega Blow")
and Silver 925, Inc. ("Silver"), manufactures and
distributes a variety of consumer and industrial products.
The Company was incorporated on August 18, 1995 in the State
of Delaware.
2. Summary of significant accounting policies
(a) Basis of consolidation
These consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries J.J.A.M.P.,
Megatran, Mega Blow and Silver.
(b) Inventories
Raw materials are valued at the lower of cost (first-in,
first-out method) and net realizable value. Finished goods
are valued at the lower of cost and net realizable value
with cost being determined by the retail method.
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<PAGE>
(c) Capital assets
Capital assets are recorded at cost less accumulated
amortization. Amortization is provided as follows:
Leasehold improvements - straight line over term of lease
Machinery and equipment - 20% diminishing balance
Office equipment - 20% diminishing balance
(d) Revenue recognition
Revenue is generally recognized as customers are invoiced
for products shipped by the Company.
(e) Loss per share
Loss per share is calculated based on the weighted average
number of the Company's common stock, $0.0001 par value (the
"Common Stock") outstanding during the period of 15,345,899.
(f) General
These financial statements have been prepared in accordance
with United States generally accepted accounting principles
(GAAP), as they relate to these financial statements.
3. Business combination
On October 30, 1996, the Company acquired 100% of the issued
and outstanding common shares of Megatran, parent company of
Mega Blow. The purchase price of $2,863,182 consisted of
$1,361,302 cash and debentures of $1,501,880. In February
1997, the Company acquired 100% of the issued and
outstanding common shares of Silver. The purchase price of
$2,000,000 is payable in five annual installments of
$400,000, with each installment payable 90% in the Company's
Common Stock and 10% in cash.
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<PAGE>
4. Inventories
April 30, January 31,
Inventories consist of: 1997 1997
Raw materials $ 253,691 $ 151,241
Packaging 26,218 24,345
Finished goods 2,281,214 210,329
----------- ---------
$2,561,123 $ 385,915
=========== =========
5. Capital assets
April 30, January 31,
1997 1997
------------------------------------- -----------
Accumulated Net Net
Cost Amortization Book Value Book Value
----------- ------------ ---------- ----------
Leasehold improvements $ 102,350 $ 33,491 $ 68,859 $ 2,893
Machinery and equipment 2,451,793 1,805,059 646,734 668,585
Office equipment 441,707 245,465 196,242 51,821
----------- ------------ ---------- ----------
$2,995,850 $2,084,015 $ 911,835 $723,299
6. Bank indebtedness
The bank indebtedness includes four operating demand loans
in the amount of $1,727,028 which are secured by a
registered general assignment of book debts and general
security agreements of Mega Blow and Silver.
7. Long term debt
The long-term debt consists of term loans, three debentures
payable and the balance of the installment payments due on
the purchase of Silver. The term loans are secured by a
registered general security agreement having first lien over
all assets excluding real property of Mega Blow. The term
loans bear interest at rates varying from 6.47% to bank
prime plus 1.75%. One of the three debentures in the amount
of $500,000 is subject to 8% interest. The remaining two
are interest-free debentures. The term loans, debentures
and balance of the installment payments due on the purchase
of Silver are payable as follows:
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<PAGE>
Balance due on
purchase of
Term Loans Debentures Silver 925, Inc. Total
---------- ---------- ---------------- ----------
1998 $ 147,185 $1,000,627 $ 250,000 $1,397,812
1999 154,158 250,627 400,000 804,785
2000 161,594 250,626 400,000 812,220
2001 169,527 - 400,000 569,527
2002 177,989 - 400,000 577,989
2003 and
following 105,022 - - 105,022
-------- ----------- --------- ---------
915,475 1,501,880 1,850,000 4,267,355
Less current portion
147,185 1,000,627 250,000 1,397,812
-------- ----------- --------- ---------
$ 768,290 $ 501,253 $1,600,000 $2,869,543
========== =========== ========== ==========
8. Income taxes
As of April 30, 1997, the Company had a net operating loss
carryover of approximately $ 1,944,000 expiring in various
years through 2013.
9. General and administrative expenses
General and administrative expenses include fees paid by the
Company for consulting and public relations services in the
amount of $ 612,995.
ITEM 2. Management's Discussion and Analysis or Plan of Operation.
The information contained in this Item 2, Management's
Discussion and Analysis or Plan of Operation, contains "forward
looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended
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<PAGE>
(the "Exchange Act"). Actual results may materially differ from
those projected in the forward looking statements as a result of
certain risks and uncertainties set forth in this report.
Although management believes that the assumptions made and
expectations reflected in the forward looking statements are
reasonable, there is no assurance that the underlying assumptions
will, in fact, prove to be correct or that actual future results
will not be different from the expectations expressed in this
report.
The Company is an international manufacturing, distribution
and marketing company with subsidiaries producing over 3,000
consumer and industrial products primarily for North American
markets. Once solely an international distributor of 225
consumer products, the Company's acquisition of Mega Blow more
than doubled annual sales to over $2 million for the fiscal year
ended January 31, 1997. With the acquisition of Silver, on a pro
forma basis, the Company projects significantly higher revenues
for the fiscal year ending January 31, 1998.
Comparison of the Three Months Ended April 30, 1997
- ---------------------------------------------------
to the Three Months Ended April 30, 1996.
- -----------------------------------------
During the three months ended April 30, 1997 the Company's
net sales increased by 552% to $1,849,916 from $283,591 in the
three months ended April 30, 1996. The Company acquired all the
common shares of Silver in February 1997 and, accordingly, the
increase in net sales reflects the inclusion of Silver for the
two months ended April 30, 1997. The Company experienced a net
loss of $688,764 for the three months ended April 30, 1997
compared to net income of $7,263 for the three months ended April
30, 1996. The net loss is attributable to increased general and
administrative expenses which included $612,995 for consulting
and public relations services related to the Company's
acquisition of Silver. The cost of products sold by the Company
was 82% of sales during the three months ended April 30, 1997, up
from 58% of sales in the three months ended April 30, 1996. The
increase is attributable to higher raw material prices and
competitive customer pricing strategies. The Company believes
that raw material prices will remain relatively steady for the
next quarter and that, based upon price and quality, its
subsidiaries' products remain competitively priced. Operating,
general and administrative expenses increased in the three months
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<PAGE>
ended April 30, 1997 to $928,614 or 50% of sales, compared to
$111,581 or 39% of sales, in the three months ended April 30,
1996. The increase is attributable to expenses related to the
acquisitions of Silver in respect of consulting services and
marketing and promotion activities.
Liquidity and Capital Resources.
- --------------------------------
The primary sources of liquidity for the Company are funds
generated by operations and borrowings under the Company's loan
agreement. Additional information on the loan agreement is
described in notes 6 and 7 to the Company's Interim Consolidated
Financial Statements set forth in Part I hereto.
Current assets totaled $5,085,257 at April 30, 1997 compared
to $1,348,995 at January 31, 1997. The increase is attributable
to the inclusion of the current assets of Silver. At April 30,
1997 and January 31, 1997, the Company had no cash and short-term
deposits. Accounts receivable totaled $2,487,021 at April 30,
1997 compared to $812,357 at January 31, 1997, an increase
principally reflecting the growth in the Company's business
activities upon the acquisition of Silver.
As of April 30, 1997, current liabilities totaled $6,421,400
compared to $2,561,147 at January 31, 1997. The increase is
attributable to the inclusion of Silver's current liabilities and
higher levels of trade payables reflecting business growth as
well as current bank indebtedness incurred to finance the
acquisition of Silver and accounts receivable.
As of April 30, 1997, Mega Blow had outstanding $1,839,980
in current bank indebtedness compared with $394,407 at January
31, 1997, such increase reflecting borrowings to finance the
acquisition undertaken by the Company. The Company's $1,839,980
in bank debt is secured by a first priority lien on the assets of
Mega Blow and Silver in addition to the personal guarantee of the
Company's president. The Company also has outstanding $1,501,880
principal amount of debentures due as follows: $1,000,627 in
1998; $250,627 in 1999; and $250,626 in 2000. All debentures are
convertible into Common Stock of the Company at the option of the
holder. In the event holders convert these debentures, the
Company's obligation to repay the $1,501,880 of indebtedness
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<PAGE>
would be eliminated; however, there can be no assurance that the
holders of the debentures will so convert the debentures.
In August 1995, the Company issued 2,750,000 shares of Common
Stock to five private investors for an aggregate cash price of
$275,000 pursuant to a private placement offering. From August
through November 1995, the Company issued 1,449,878 shares of
Common Stock for an aggregate price of $724,794 pursuant to a
private placement offering. Each of the private placement offerings
was made pursuant to an exemption from registration provided by
Rule 504 of Regulation D promulgated under the Securities Act.
In July, 1996, the Company issued 1,000,000 shares of Common
Stock to two individuals for an aggregate cash price of $198,000.
The sales were exempt from registration pursuant to Regulation S of
the Securities Act promulgated by the Securities and Exchange
Commission thereunder ("Regulation S").
In October, 1996, the Company sold 0% Convertible Debentures
in the Aggregate principal amount of $1,000,000 due October 29,
1997 and October 30, 1999, respectively. In the same month, the
Company also sold an 8% Senior Subordinated Convertible Debenture
in the principal amount of $500,000, due October 29, 1997. As of
July 16, 1997, the holder of the 8% Debenture elected to convert
the outstanding amount of such Debenture into shares of the
Company's Common Stock. The sales of the Debentures were made
pursuant to an exemption from registration provided by Regulation
S.
The Company has a foreign exchange rate risk related to
international earnings and cash flows. Management anticipates
that, in future, the Company may enter into forward foreign
exchange contracts and purchase currency options tied to the
economic value of receivables, payables and expected cash flows
denominated in non-local foreign currencies should the need arise.
The Company believes it will generate sufficient positive
cash flow from operations to meet its operating requirements for
the next twelve months. However, there can be no assurance that
the Company will be able to repay those debentures which mature
in 1997 if they are not converted. If the funds available under
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<PAGE>
the Company's financing agreements, together with its current
cash and cash equivalents, are not sufficient to meet the
Company's cash needs, the Company may, from time to time, seek to
raise capital from additional sources including the extension of
its current lending facilities, project-specific financing and
additional public or private debt or equity financings.
-17-
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities.
In three transactions on February 20, March 15 and April 17,
1997, the Company issued an aggregate of 555,000 shares of Common
Stock to three individuals in consideration for consulting and
public relations services provided to the Company. On February
25 and April 1, 1997, the Company issued an aggregate of 150,000
shares of Common Stock to three individuals in partial payment of
the purchase price for the Company's acquisition of all of the
capital stock of Silver. The preceding sales of Common Stock
were made pursuant to an exemption from registration provided for
privately-negotiated transactions under Section 4(2) of the
Exchange Act.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K. During the three month period
ended April 30, 1997, the Company filed the following
report on Form 8-K:
On March 17, 1997, the Company filed a report on Form
8-K reporting on Item 2 that it had acquired all of the
outstanding stock of Silver 925, Inc.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TREASURY INTERNATIONAL, INC.
/s/ James Hal
Dated: August 1, 1997 By___________________________
James Hal, President
/s/ Howard Halpern
Dated: August 1, 1997 By___________________________
Howard Halpern, Principal
Financial Officer
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<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE 10-QSB AND IS QUALIFIED IN ITS WNTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> APR-30-1997
<EXCHANGE-RATE> 0
<CASH> 0
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<RECEIVABLES> 2,487,021
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<INVENTORY> 2,561,123
<CURRENT-ASSETS> 5,085,257
<PP&E> 4,329,064
<DEPRECIATION> 2,084,015
<TOTAL-ASSETS> 9,414,321
<CURRENT-LIABILITIES> 6,421,400
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<COMMON> 1,565
<OTHER-SE> 2,248,790
<TOTAL-LIABILITY-AND-EQUITY> 9,414,321
<SALES> 1,849,916
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<CGS> 1,512,780
<TOTAL-COSTS> 1,025,764
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<INTEREST-EXPENSE> 55,677
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