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, 1998
...... 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)
1183 Finch Avenue West, Suite 508, North York, Ontario M3J 2G2
(Address of Principal Executive Offices)
Issuer's Telephone Number, Including Area Code: 416-663-0668
7040 Tranmere Drive, Mississauga, Ontario L5S 1L9
(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: 40,536,927 shares of
Common Stock, par value $.0001 per share were outstanding as of June 26, 1998.
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statement
TREASURY INTERNATIONAL, INC.
INTERIM CONSOLIDATED BALANCE SHEET
AS AT APRIL 30, 1998
(UNAUDITED)
ASSETS
CURRENT APRIL 30, JANUARY 31,
1998 1998
Accounts Receivable $595,654 $608,659
Inventories (Notes 2 and 4) 454,989 345,783
Sundry assets 29,883 72,020
1,080,526 1,026,462
GOODWILL 1,835,918 1,835,918
CAPITAL ASSETS (Notes 2 and 5) 586,110 620,279
$3,502,554 $3,482,659
LIABILITIES
CURRENT
Bank indebtedness (Note 6) $595,613 $492,012
Accounts payable and accrued liabilities827,634 997,188
Current portion of long-term debt 969,953 1,007,676
2,393,200 2,496,876
DEFERRED INCOME TAXES 52,957 52,957
LONG-TERM DEBT (Note 7) 1,089,584 1,117,392
3,535,741 3,667,225
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SHAREHOLDERS' DEFICIENCY
SHARE CAPITAL
Authorized
50,000,000 common shares at $.0001
Issued
36,796,927 common shares 3,679 2,461
Contributed surplus (Note 12) 2,939,447 2,788,140
DEFICIT (2,976,313) (2,975,167)
(33,187) (184,566)
$3,502,554 $3,482,659
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TREASURY INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENT OF DEFICIT
THREE MONTHS ENDED APRIL 30, 1998
(UNAUDITED)
APRIL 30, APRIL 30,
1998 1997
Balance, beginning of period $(2,975,167) $(1,556,912)
Net loss for the period (1,146) (688,764)
Balance, end of period $(2,976,313) $(2,245,676)
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TREASURY INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 1998
(UNAUDITED)
APRIL 30, APRIL 30,
1998 1997
REVENUE $1,108,363 $1,849,916
COST OF GOODS SOLD 923,590 1,512,780
GROSS PROFIT 184,773 337,136
General and administrative 114,127 928,614
INCOME (LOSS) FROM OPERATIONS
Before undernoted items 70,646 (591,478)
Financial 36,131 55,677
Amortization 35,661 41,609
71,792 97,286
NET LOSS $(1,146) $(688,764)
Earnings per share $0.00 $0.04
Weighted average number of common
shares outstanding 34,594,427 15,345,899
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TREASURY INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENT OF
CHANGES IN SHAREHOLDERS' EQUITY
THREE MONTHS ENDED APRIL 30, 1998
(UNAUDITED)
COMMON PAID-IN CONTRIBUTED
SHARES CAPITAL SURPLUS
Balance - January 31, 1998 24,610,495 $2,461 $2,788,140
Issued 4,500,000 shares of 4,500,000 450 61,750
common stock for cash
consideration of $62,200
Issued 5,332,500 shares of 5,332,500 533 49,792
common stock for consulting and
public relations services
Issued 2,353,932 common shares 2,353,932 235 39,765
toward reduction of debentures
payable
------------ ------------ ------------
Balance - April 30, 1998 36,796,927 $3,679 $2,939,447
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TREASURY INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED APRIL 30, 1998
(UNAUDITED)
APRIL 30, APRIL 30,
1998 1997
Cash flows from operating activities
Net loss $(1,146) $(688,764)
Adjustments to reconcile net loss
to net cash used in operating activities
Increase in deferred income taxes - 64,538
Amortization 35,661 41,609
Increase (decrease) in accounts
receivable 13,005 (1,674,664)
Decrease in income taxes
receivable - 6,182
Increase (decrease)in inventories (109,206) (2,175,208)
Decrease (increase)in sundry
assets 42,137 107,428
Increase (decrease)in accounts
payable (169,554) 1,896,968
Increase in income taxes payable - 267,712
Net cash used for operating activities (189,103) (2,154,199)
Cash flows from financing activities
Long-term debt (65,531) 1,815,082
Proceeds on issue of common shares 152,525 705,000
Cash provided by financing activities 86,994 2,520,082
Cash flows from investing activities
Goodwill - (1,581,311)
Purchase of capital assets (1,492) (230,145)
(1,492) (1,811,456)
Increase in bank indebtedness (103,601) (1,445,573)
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Bank indebtedness,
beginning of period (492,012) (394,407)
Bank indebtedness,
end of period $(595,613) $(1,839,980)
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TREASURY INTERNATIONAL, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS AT APRIL 30, 1998
(UNAUDITED)
The financial information for the three month periods ended April 30,
1998 and 1997 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, 1998 are
not necessarily indicative of the results to be expected for a full year.
The consolidated balance sheet as of January 31, 1998 has been derived from
audited financial statements. This report should be read in conjunction with
the consolidated financial statements included in the Company's Form 10-KSB
for the Fiscal Year Ended January 31, 1998, 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, Megatran Investments Ltd. and Mega Blow
Moulding Limited, 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, Megatran
Investments Ltd. and Mega Blow Moulding Limited.
(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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TREASURY INTERNATIONAL, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS AT APRIL 30, 1998
(UNAUDITED)
(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) Earnings per share
Earnings per share is calculated based on the weighted average
number of shares outstanding during the period of 34,594,427.
(f) General
These financial statements have been prepared in accordance with
U.S. 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 Investments Ltd., parent company
of Mega Blow Moulding Limited.
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TREASURY INTERNATIONAL, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS AT APRIL 30, 1998
(UNAUDITED)
4. Inventories
April 30 January 31
Inventories consist of: 1998 1998
Raw materials $255,142 $144,183
Packaging 24,236 20,135
Finished goods 175,611 181,465
$454,989 $345,783
5. Capital assets
April 30 January 31
1998 1998
______________________________ __________
Accumulated Net Net
Cost amortization book value book value
____ ____________ __________ __________
Leasehold improvements $4,221 1,765 $2,456 $2,556
Machinery and equipment 2,473,153 1,931,071 542,082 575,488
Office equipment 104,806 63,234 41,572 42,235
$2,582,180 $1,996,070 $586,110 $620,279
6. Bank indebtedness
The bank indebtedness includes three operating demand loans in the
amount of $525,347 which are secured by a registered general assignment
of book debts and general security agreements of Mega Blow Moulding
Limited.
7. Long term debt
The long-term debt consists of two term loans, and three debentures
payable. The term loans are secured by a registered general security
agreement having first charge over all assets excluding real property
of Mega Blow Moulding Limited. 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.
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TREASURY INTERNATIONAL, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS AT APRIL 30, 1998
(UNAUDITED)
The term loans and debentures are payable as follows:
Term Loans Debentures Total
1999 $149,326 $820,627 $969,953
2000 159,817 250,627 410,444
2001 169,319 250,626 419,945
2002 179,113 - 179,113
2003 and following 80,082 - 80,082
737,657 1,321,880 2,059,537
149,326 820,627 969,953
$588,331 $501,253 $1,089,584
8. Income taxes
As of April 30, 1998 the company had a net operating loss carryover
of approximately $ 2,348,000 expiring in various years through 2014.
9. General and administrative expenses
General and administrative expenses for the three months ended April
30, 1998 include fees paid by the company for consulting and public
relations in the amount of $ 52,054.
10. Discontinued operations
On July 31, 1997, the company disposed of its subsidiary, Silver 925,
Inc.
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TREASURY INTERNATIONAL, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS AT APRIL 30, 1998
(UNAUDITED)
11. Contingent liabilities
The company has been named as a defendant in three lawsuits in respect
of disputed accounts payable. After reviewing the merits of these
lawsuits with counsel, it is management's opinion that the ultimate
cost of settlement will be no more than $67,000 and therefore will not
materially affect the company's financial position.
12. Contributed surplus
Contributed surplus represents the premium paid on the issuance of
common shares.
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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 (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 organization with a subsidiary producing about 1,000 plastic
products primarily for North American markets.
Comparison of the Three Months Ended April 30, 1998
to the Three Months Ended April 30, 1997
During the three months ended April 30, 1998 the Company's net sales
decreased by 40% to $1,108,363 from $1,849,916 in the three months ended
April 30, 1997. The Company disposed of its former subsidiary Silver 925 in
July 31, 1997 and, accordingly, the decrease in net sales is reflected
therein.
The Company experienced a net loss of $1,146 for the three months ended
April 30, 1998 compared to a net loss of $688,764 for the three months ended
April 30, 1997. The decrease in net loss is attributable to improved
controls in operating, general and administrative expenses.
The cost of products sold by the Company was 83% of sales during the
three months ended April 30, 1998, slightly up from 82% of sales in the three
months ended April 30, 1997. 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 subsidiary's products
will remain competitively priced.
Operating, general and administrative expenses decreased in the three
months ended April 30, 1998 to $114,127 or 10% of sales, compared to $928,614
or 50% of sales, in the three months ended April 30, 1997. The decrease is
attributable to better purchasing practices, tighter operation controls, and
no losses resulting from the disposition of Silver 925.
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.
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Current assets totaled $1,080,526 at April 30, 1998 compared to
$1,026,462 at January 31, 1998. The increase is attributable to higher
inventory levels. At April 30, 1998 and January 31, 1998, the Company had
no cash and short-term deposits. Accounts receivable totaled $595,654 at
April 30, 1998 compared to $608,659 at January 31, 1998, a decrease
principally reflecting better collection practices by the Company.
As of April 30, 1998, current liabilities totaled $2,393,200 compared
to $2,496,876 at January 31, 1998. The decrease is attributable to lower
levels of trade payables, and reduced levels on the current portion of
long-term debt.
As of April 30, 1998, the Company had outstanding $595,613 in current
bank indebtedness compared with $492,012 at January 31, 1998. The increase
reflects additional borrowings to finance growing business undertaken by the
Company. The Company's $595,613 in bank debt is secured by a first priority
lien on the assets of Mega Blow. The Company also has outstanding
$1,321,880 principal amount of debentures due as follows: $820,627 in 1999;
$250,627 in 2000; and $250,626 in 2001. All debentures are convertible into
Common Stock of the Company at the option of the holder. In the event the
holders convert these debentures, the Company's obligation to repay the
$1,321,880 of indebtedness 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 investors 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% Debentures
elected to convert the outstanding amount of such debentures 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.
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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 1999 if they are not converted. If
the funds available under 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.
Recent Developments
On June 30, 1998, the Company entered into a Debenture Conversion and
Support Agreement with certain prospective purchasers of the Company's 0%
Convertible Debentures and 8% Senior Subordinated Convertible Debentures.
Under the terms of the Debenture Conversion Agreement, upon the completion of
the purchase of the Debentures, the purchasers have agreed to convert the
debentures into 33,670,000 shares of the Company's Common Stock, thereby
retiring the debentures in their entirety.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K. None
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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: July 20, 1998 By___________________________
James Hal, President
/s/ Howard Halpern
Dated: July 20, 1998 By___________________________
Howard Halpern, Principal
Financial Officer
Page 17 of 17
