UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
------
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended September 30, 2000 Commission File Number 000-28876
CHEM INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2407475
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 Route 22
Hillside, New Jersey 07205
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (973) 926-0816
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 and 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 ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of October 27, 2000
Common Stock, Par Value 6,228,720
<PAGE>
CHEM INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
<S> <C>
Part I: Financial Information
Item 1: Consolidated Financial Statements
Consolidated Balance Sheet as of September 30, 2000 [Unaudited] ....................................... 1 - 2
Consolidated Statements of Operations for the three months
ended September 30, 2000 and 1999 [Unaudited] ......................................................... 3
Consolidated Statement of Stockholders' Equity for the three months
ended September 30, 2000 [Unaudited] .................................................................. 4
Consolidated Statements of Cash Flows for three months ended
September 30, 2000 and 1999 [Unaudited] ............................................................... 5-6
Notes to Consolidated Financial Statements [Unaudited] ................................................ 7-12
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................................................ 13-14
Part II: Other Information .................................................................................... 15
Signature ..................................................................................................... 16
</TABLE>
. . . . . . . .
<PAGE>
CHEM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2000
[UNAUDITED]
--------------------------------------------------------------------------------
Assets:
Current Assets:
Cash and Cash Equivalents $ 730,003
Accounts Receivable - Net 1,411,724
Deferred Income Taxes 320,000
Inventories 4,078,726
Prepaid Expenses and Other Current Assets 136,244
Refundable Federal Income Taxes 376,352
----------
Total Current Assets 7,053,049
----------
Property and Equipment - Net 2,574,313
----------
Other Assets:
Security Deposits and Other Assets 120,885
----------
Total Assets $9,748,247
==========
See accompanying notes to consolidated financial statements.
1
<PAGE>
CHEM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2000
[UNAUDITED]
--------------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ 1,061,762
Notes Payable 1,013,850
Accrued Expenses and Other Current Liabilities 165,252
Accrued Expenses - Related Party 135,000
Capital Lease Obligation 30,797
-----------
Total Current Liabilities 2,406,661
-----------
Non-Current Liabilities:
Notes Payable 11,497
Capital Lease Obligation 33,619
-----------
Total Non-Current Liabilities 45,116
-----------
Commitments and Contingencies [10] --
-----------
Stockholders' Equity:
Preferred Stock - Authorized 1,000,000 Shares,
$ .002 Par Value, No Shares Issued --
Common Stock - Authorized 25,000,000 Shares,
$ .002 Par Value, 6,228,720 Shares Issued and Outstanding 12,457
Additional Paid-in Capital 6,095,305
Retained Earnings 1,217,539
-----------
7,325,301
Less Treasury Stock at cost, 25,800 shares (28,831)
-----------
Total Stockholders' Equity 7,296,470
-----------
Total Liabilities and Stockholders' Equity $ 9,748,247
===========
See accompanying notes to consolidated financial statements.
2
<PAGE>
CHEM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
Three months ended
------------------
September 30,
-------------
2000 1999
---- ----
Sales $ 2,428,460 $ 3,432,123
Cost of Sales 2,225,651 3,016,468
----------- -----------
Gross Profit 202,809 415,655
Selling and Administrative Expenses 722,620 740,766
----------- -----------
Operating [Loss] (519,811) (325,111)
----------- -----------
Other Income [Expense]:
Interest Expense-Related Party -- (18,807)
Interest Expense (20,192) (17,300)
Interest and Investment Income 16,237 130
----------- -----------
Total Other [Expense] (3,955) (35,977)
----------- -----------
[Loss] Before Income Taxes (523,766) (361,088)
Federal and State Income Tax [Benefit] (196,880) (20,446)
----------- -----------
Net [Loss] $ (326,886) $ (340,642)
=========== ===========
Net [Loss] Per Common Share
Basic and Diluted $ (.06) $ (.07)
=========== ===========
Average Common Shares Outstanding 5,178,300 5,178,300
=========== ===========
See accompanying notes to consolidated financial statements.
3
<PAGE>
CHEM INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2000
[UNAUDITED]
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Total
Common Stock Preferred Paid-in Retained Treasury Stock Stockholders'
------------ --------- ------- -------- -------------- -------------
Shares Par Value Stock Capital Earnings Shares Cost Equity
------ --------- ----- ------- -------- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance-
July 1, 2000 5,178,300 $ 10,357 $ -- $ 4,847,405 $ 1,544,425 25,800 $ (28,831) $ 6.373,356
Common Stock
Issued for
Purchase of Land
and Building 1,050,420 2,100 -- 1,247,900 -- -- -- 1,250,000
Net [Loss]
for the three
months ended
September 30,2000 -- -- -- -- (326,886) -- -- (326,886)
----------- ----------- -------- ----------- ----------- -------- --------- -----------
Balance-
September 30, 2000 6,228,720 $ 12,457 $ -- $ 6,095,305 $ 1,217,539 25,800 $ (28,831) $ 7,296,470
=========== =========== ======== =========== =========== ======== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CHEM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended
------------------
September 30,
-------------
2000 1999
---- ----
<S> <C> <C>
Operating Activities:
Net [Loss] $ (326,886) $ (340,642)
----------- -----------
Adjustments to Reconcile Net [Loss] to Net Cash
[Used for] Operating Activities:
Depreciation and Amortization 75,069 78,995
Amortization of Discount on Note Payable -- 5,682
Deferred Income Taxes (40,000) (18,000)
Bad Debt Expense 9,000 6,000
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable 1,404 705,159
Inventories (842,048) 265,887
Refundable Federal Income Taxes (160,000) (6,321)
Prepaid Expenses and Other Current Assets (26,104) (63,153)
Security Deposits and Other Assets 3,310 (8,475)
[Decrease] Increase in:
Accounts Payable (294,872) (696,863)
Federal and State Income Taxes Payable -- --
Accrued Expenses and Other Liabilities 78,801 57,362
----------- -----------
Total Adjustments (1,195,440) 326,273
----------- -----------
Net Cash - Operating Activities (1,522,326) (14,369)
----------- -----------
Investing Activities:
Purchase of Property and Equipment (32,335) (9,292)
----------- -----------
Net Cash-Investing Activities (32,335) (9,292)
----------- -----------
Financing Activities:
Proceeds from Notes Payable 477,373 --
Repayment of Notes Payable (15,718) (20,067)
----------- -----------
Net Cash-Financing Activities 461,655 (20,067)
----------- -----------
Net Increase/[Decrease] in Cash and Cash Equivalents (1,093,006) (43,728)
Cash and Cash Equivalents - Beginning of Periods 1,823,009 299,030
----------- -----------
Cash and Cash Equivalents - End of Periods $ 730,003 $ 255,302
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CHEM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
Three months ended
------------------
September 30,
-------------
2000 1999
---- ----
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $16,180 $17,300
Income Taxes $ 2,080 $ 3,080
See accompanying notes to consolidated financial statements.
6
<PAGE>
CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
--------------------------------------------------------------------------------
[1] Business
Chem International, Inc. [the "Company"] is engaged primarily in the
manufacturing, marketing and sales of vitamins, nutritional supplements and
herbal products. Its manufacturing customers are located primarily throughout
the United States and Europe.
[2] Liquidity
The Company anticipates operating losses during the 2001 fiscal year. The
Company currently has purchases orders of approximately $2.2 million dollars on
hand for shipment in the second and third quarters of fiscal 2001. The Company
believes that anticipated sales coupled with the purchase orders and the
remaining balance available under the revolving line of credit will meet cash
needs for operations.
[3] Summary of Significant Accounting Policies
Principles of Consolidation - The accompanying consolidated financial statements
include the accounts of the Company and its subsidiaries, all of which are
wholly-owned. Intercompany transactions and balances have been eliminated in
consolidation.
Basis of Reporting - The accompanying unaudited interim financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB and
Item 310(b) of Regulation S-B. 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 management, such interim
statements include all adjustments, which are considered necessary in order to
make the interim financial statements not misleading. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes thereto, together with management's discussion and analysis of financial
condition and results of operations, contained in the Company's annual report to
stockholders incorporated by reference in the Company's annual report on Form
10-KSB for the fiscal year ended June 30, 2000. The results of operations for
the three months ended September 30, 2000 are not necessarily indicative of the
results for the entire fiscal year ending June 30, 2001.
Cash and Cash Equivalents - Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased.
Inventories - Inventory is valued by the first-in, first-out method, at the
lower of cost or market.
Depreciation - The Company follows the general policy of depreciating the cost
of property and equipment over the following estimated useful lives:
Leasehold Improvements 15 Years
Machinery and Equipment 7 Years
Machinery and Equipment Under Capital Leases 7 Years
Transportation Equipment 5 Years
Machinery and equipment are depreciated using accelerated methods while
leasehold improvements are amortized on a straight-line basis. Depreciation
expense was $75,069 and $78,995 for the three months ended September 30, 2000
and 1999, respectively. Amortization of equipment under capital leases is
included with the depreciation expense.
Estimates - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts or revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition - The Company generally recognizes revenue upon shipment of
the product.
Advertising - Costs incurred for producing and communicating advertising are
expensed when incurred. Advertising expense was $39,177 and $37,376 for the
three months ended September 30, 2000 and 1999 respectively.
7
<PAGE>
CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
[UNAUDITED]
--------------------------------------------------------------------------------
[4] Inventories
Inventories consist of the following at September 30, 2000:
Raw Materials $2,554,335
Work-in-Process 821,631
Finished Goods 702,760
----------
Total $4,078,726
==========
[5] Property and Equipment
Property and equipment comprise the following at September 30, 2000:
Land and Building $1,250,000
Leasehold Improvements 1,157,960
Machinery and Equipment 2,580,557
Machinery and Equipment Under Capital Leases 156,561
Transportation Equipment 60,569
----------
Total 5,205,647
Less: Accumulated Depreciation and Amortization 2,631,334
----------
Total $2,574,313
==========
[6] Notes Payable
Notes Payable:
Bio Merieux Vitek, Inc. (a) $ 29,717
Medallion Business Credit, LLC (b 558,215
Summit Business Capital Corp. (c) 437,415
----------
Totals 1,025,347
Less: Current Portion 1,013,850
----------
Non-current Portion $ 11,497
==========
(a) Five year 10% equipment note dated April 1, 1997 providing for monthly
payments of $1,698 for principal and interest. The note is collateralized
by laboratory equipment.
(b) Under the terms of a revolving credit note which expires on November 5,
2001, the Company may borrow up to $1,000,000 at 3% above the prime lending
rate. The loan is collateralized by the inventory, receivables and
equipment of Chem International, Inc., and Chem's two operating
subsidiaries, Manhattan Drug Company, Inc. and Vitamin Factory, Inc. The
note has been guaranteed by the Company's principal stockholder. At
September 30, 2000 the interest rate was 12.5%.
The loan agreement with Medallion Business Credit, LLC contains certain
financial covenants relating to the maintenance of specified liquidity, and
tangible net worth. At September 30, 2000 the Company was in compliance
with its tangible net worth and working capital covenants.
8
<PAGE>
CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
[UNAUDITED]
--------------------------------------------------------------------------------
[6] Notes Payable (Continued)
(c) Non-Interest bearing Promissory Note dated August 30, 2000 providing for
ten consecutive monthly installments for the purchase of inventory.
The following are maturities of long-term debt for each of the next five years:
September 30,
2001 $1,013,850
2002 11,497
2003 --
2004 --
2005 --
----------
Totals $1,025,347
==========
[7] Capital Lease
The Company acquired capsule, warehouse, and office equipment under the
provisions of three long-term leases. The leases expire in March 2001, March
2003, and July 2003, respectively. The equipment under the capital leases as of
September 30, 2000 had a cost of $156,561 accumulated depreciation of $71,405
with a net book value of $85,156.
The future minimum lease payments under capital leases and the net present value
of the future minimum lease payments at September 30, 2000 are as follows:
Total Minimum Lease Payments $ 151,916
Amount Representing Interest (87,500)
---------
Present Value of Net Minimum Lease Payment 64,416
Current Portion (30,797)
---------
Long-Term Capital Lease Obligation $ 33,619
=========
[8] Significant Risks and Uncertainties
[A] Concentrations of Credit Risk - Cash - The Company maintains balances at
several financial institutions. Accounts at each institution are insured by the
Federal Deposit Insurance Corporation up to $100,000. At September 30, 2000 the
Company's uninsured cash balances totaled approximately $725,000. The Company
does not require collateral in relation to cash credit risk.
[B] Concentrations of Credit Risk - Receivables - The Company routinely assesses
the financial strength of its customers and, based upon factors surrounding the
credit risk of its customers, establishes an allowance for uncollectible
accounts and, as a consequence, believes that its accounts receivable credit
risk exposure beyond such allowances is limited. The Company does not require
collateral in relation to its trade accounts receivable credit risk. The amount
of the allowance for uncollectible accounts at September 30, 2000 is $299,000.
9
<PAGE>
CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
[UNAUDITED]
--------------------------------------------------------------------------------
[9] Major Customer
For the three months ended September 30, 2000 and 1999, approximately 41% and
61% of revenues were derived from one customer. The loss of this customer would
have an adverse effect on the Company's operations. No other customers accounted
for more than 10% of consolidated sales for the three months ended September 30,
2000 and 1999. Accounts receivable from these customers comprised approximately
46% and 47% of total accounts receivable at September 30, 2000 and 1999,
respectively.
[10] Commitments and Contingencies
[A] Leases
Related Party Leases - Certain manufacturing and office facilities were leased
from Morristown Holding, Inc. (formerly Gerob Realty Partnership) whose owners
are stockholders of the Company. The lease, which expires on December 31, 2000,
provides for a minimum annual rental of $60,000 plus payment of all real estate
taxes. Rent and real estate tax expense for the three months ended September 30,
2000 and 1999 on this lease was approximately $20,000 and $41,000, respectively.
Unpaid rent of $135,000 due to Morristown Holding Company, Inc. September 30,
2000 has been separately disclosed as accrued expenses on the consolidated
balance sheet. On August 30, 2000 the Company acquired the manufacturing and
office facility. The Company issued 1,050,420 shares of its common stock in
exchange for the property.
Other warehouse and office facilities are leased from Vitamin Realty Associates,
L.L.C., a limited liability company, which is 90% owned by the Company's
Chairman of the Board and principal stockholder and certain family members and
10% owned by the Company's Chief Financial Officer. The lease was effective on
January 10, 1997 and provides for a minimum annual rental of $346,000 through
January 10, 2002 plus increases in real estate taxes and building operating
expenses. At its option, the Company has the right to renew the lease for an
additional five year period. On April 28, 2000 the lease was amended reducing
the square footage and extending the lease to May 31, 2015. Rent expense for the
three months ended September 30, 2000 and 1999 on this lease was approximately
$108,000 and $116,000 respectively.
Other Lease Commitments - The Company leases warehouse equipment for a five year
period providing for an annual rental of $15,847 and office equipment for a five
year period providing for an annual rental of $8,365.
The Company leases automobiles under non-cancelable operating lease agreements
which expire through 2003.
The minimum rental commitment for long-term non-cancelable leases is as follows:
Related
-------
Lease Party Lease
----- -----------
September 30, Commitment Commitment Total
------------- ---------- ----------- -----
2001 $ 70,015 $ 323,559 $ 393,574
2002 47,330 323,559 370,889
2003 19,541 323,559 343,100
2004 -- 323,559 323,559
2005 -- 323,559 323,559
Thereafter -- 3,100,775 3,100,775
---------- ---------- ----------
Total $ 136,886 $4,718,570 $4,855,456
========== ========== ==========
Total rent expense, including real estate taxes and maintenance charges, was
approximately $128,00 and $141,000 for the three months ended September 30, 2000
and 1999, respectively. Rent expense is stated net of sublease income of
approximately $1,050 and $1,300 for the three months ended September 30, 2000
and 1999, respectively.
10
<PAGE>
CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
[UNAUDITED]
--------------------------------------------------------------------------------
[10] Commitments and Contingencies (Continued)
[B] Employment Agreements - Effective July 1, 1999, the Company entered into
three year employment agreements with its four executive officers which provide
for aggregate annual salaries of $495,000 for the years ending June 30, 2001 and
2002, respectively. These agreements are subject to annual increases equal to at
least the increase in the consumer price index for the Northeastern area.
[C] Investment in and Royalties Receivable from Martin Health Care products,
Inc. - On February 10, 1998, the Company signed an exclusive manufacturer
agreement with Martin Health Care Products, Inc. to provide to Martin Health
Care certain products for a ten year period. In connection with the agreement,
the Company also agreed to forgive from Martin Health Care outstanding invoices
totaling $22,000. In return for the forgiveness, Martin agreed to pay to the
Company a royalty on sales of certain products and to issue to the Company
15,000 shares of common stock in Martin health Care Products, Inc. The Company
has recorded the cost for the common stock at $1,000 and has recorded the
royalties as a non-current asset in the amount of $21,000. No royalties have
been paid as of September 30, 2000.
[D] Litigation - The Company is unable to predict its ultimate financial
exposure with respect to its prior sale of certain products which may have
contained allegedly contaminated Tryptophan which is the subject numerous
lawsuits against unrelated manufacturers, distributors, suppliers, importers and
retailers of that product. However, management does not presently believe the
outcome of these actions will have a material adverse effect on the Company.
[E] Development and Supply Agreement - On April 9, 1998, the Company signed a
development and supply agreement with Herbalife International of America, Inc.
["Herbalife"] whereby the Company will develop, manufacture and supply certain
nutritional products to Herbalife through December 31, 2000.
[F] Manufacturing Agreement - On February 14, 1998, the Company signed a
manufacturing agreement with Pilon International, PLC, a company that supplies
Zepter International, a world-wide direct sales distributor of consumer
products. The Company will manufacture and develop dietary supplements through
the year 2001.
[G] Consulting Agreements- The Company entered into a consulting agreement with
a financial public relations firm to provide financial communications and
investor relations. The agreement is for a 12-month period and provides for a
yearly retainer of $54,000. In addition the Company has issued to the
consultants options to purchase 75,000 shares of its common stock at an exercise
price of $1.10 and 75,000 shares at an exercise price of $1.75.
[11] Related Party Transactions
During the year ended June 30, 1997, the Company entered into a consulting
agreement with the brother of the Company's chairman of the board on a month to
month basis for $1,100 per month. The total consulting expense recorded per this
verbal agreement for the three months ended September 30, 2000 and 1999, by the
Company was $6,600 and $6,600, respectively.
[12] Fair Value of Financial Instruments
Generally accepted accounting principles require disclosing the fair value of
financial instruments to the extent practicable for financial instruments which
are recognized or unrecognized in the balance sheet. The fair value of the
financial instruments disclosed herein is not necessarily representative of the
amount that could be realized or settled, nor does the fair value amount
consider the tax consequences of realization or settlement. In assessing the
fair value of financial instruments, the Company uses a variety of methods and
assumptions, which are based on estimates of market conditions and risks
existing at the time. For certain instruments, including cash and cash
equivalents, accounts receivable, notes receivable, accounts payable, and
accrued expenses, it was estimated that the carrying amount approximated fair
value because of the short maturities of these instruments. Short-term debt and
long-term debt including long-term debt to a related party is based on current
rates at which the Company could borrow funds with similar remaining maturities
and approximates fair value.
11
<PAGE>
CHEM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
[UNAUDITED]
[13] New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". Statement No. 133 establishes accounting
and reporting standards for derivative instruments and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities and measure them at fair value. Under certain circumstances, the
gains or losses from derivatives may be offset against those from the items the
derivatives hedge against. The Company will adopt SFAS No. 133 in the fiscal
year ending June 30, 2001. SFAS No. 133 is not expected to have a material
impact on the financial statements.
[14] Equity Transactions
[A] Purchase of Manufacturing Facility-On August 30, 2000 the Company issued to
Morristown Holding Company 1,050,420 shares of its common stock in exchange for
the manufacturing and office facility it had been renting [See Note 10A].
[B] Consultant Agreement/Stock Options-In connection with a consulting agreement
dated July 18, 2000 the Company has issued 75,000 options on its common stock
exercisable at $1.10 per share and 75,000 options exercisable at $1.75 per share
[ See Note 9G]. Should the Company not choose to renew the consulting agreement
the consultants have agreed to give back 50,000 of the $1.75 options. The
options are exercisable for five years from the date the agreement was signed.
[C] Incentive Stock Options-On July 1, 2000 the Company granted 200,000
incentive stock options for a term of ten years to its employees at the exercise
price of $1.00 per share.
12
<PAGE>
Item 2.
CHEM INTERNATIONAL, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
The following discussion should be read in conjunction with the historical
information of the Company and notes thereto.
Three months ended September 30, 2000 Compared to three months ended September
30, 1999
Results of Operations
The Company's net losses for the three months ended September 30, 2000 and 1999
were $(326,886) and $(340,642). This decrease in net loss of approximately
$14,000 is primarily the result of a $200,000 increase in operating loss
resulting from a corresponding decrease in gross profit of approximately
$200,000 and an approximate $186,000 increase in federal income tax benefits.
The decrease in gross profit is due to decreased sales.
Sales for the three months ended September 30, 2000 and 1999 were $2,428,460 and
$3,432,123, respectively, a decrease of approximately $1,000,000 or 29%. For the
three months ended September 30, 2000 the Company had sales to one customer, who
accounted for 41% of net sales in 2000 and 61% in 1999. The loss of this
customer would have an adverse affect on the Company's operations.
Retail and mail order sales for the three months ended September 30, 2000
totaled $136,868 as compared to $176,411 for the three months ended September
30, 2000, a decrease of 22%. The Company has been experiencing a decline in mail
order sales due to increased competition.
Sales under the Roche Vitamins, Inc. distribution agreement were $532,625 for
the three months ended September 30, 2000 as compared to $587,511 for the three
months ended September 30, 1999, a decrease of $54,886 or 9%.
On August 31, 2000, the Company began the distribution and sale of fine
chemicals through a new subsidiary, IHT Health Products, Inc. Sales for the
month ended September 30, 2000 totaled $457,398.
Cost of sales decreased to $2,225,651 for the three months ended September 30,
2000 as compared to $3,016,468 for the three months ended September 30, 1999.
Cost of sales increased as a percentage of sales to 92% for the three months
ended September 30, 2000 from 88% for the three months ended September 30, 1999.
The increase in cost of sales is due to manufacturing inefficiencies and lower
margin sales.
Selling and administrative expenses for the three months ended September 30,
2000 were $722,620 versus $740,766 for the same period a year ago. The decrease
of $18,146 was primarily attributable to a decrease in officers salaries of
$28,029, a decrease in consulting fees of $101,787, an increase in travel and
entertainment of $33,569 and an increase in office salaries of $35,493 due to
the commencement of the IHT Health Products, Inc. distribution business.
Other income [expense] was $(3,955) for the three months ended September 30,
2000 as compared to $(35,977) for the three months ended September 30, 1999. The
decrease of $32,022 is the result of a decrease in interest expense of $15,915
and an increase in interest and investment income of $16,107.
Liquidity and Capital Resources
At September 30, 2000 the Company's working capital was $4,646,388, a decrease
of $813,395 over working capital at June 30, 2000. Cash and cash equivalents
were $730,003 at September 30, 2000, a decrease of $1,093,006 from June 30,
2000. The Company utilized $1,522,326 and $14,369 for operations for the three
months ended September 30, 2000 and 1999, respectively.
13
<PAGE>
CHEM INTERNATIONAL, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Liquidity and Capital Resources - Continued
The primary reasons for the increase in cash utilized for operations for the
three months ended September 30, 2000 are an increase in inventories of
approximately $842,000 and an increase in accounts payable of approximately
$295,000. The Company currently has purchase orders of approximately $2.2
million dollars on hand for shipment in the second and third quarters of fiscal
2001. The Company believes that anticipated sales coupled with the purchase
orders and the remaining balance available under the revolving line of credit
will meet the cash needs for operations.
The Company utilized $29,025 and $12,119 in investing activities for the three
months ended September 30, 2000 and 1999, respectively. The Company generated
net cash of $461,655 and utilized $20,067 from debt financing activities for the
three months ended September 30, 2000 and 1999, respectively.
The Company has a $1,000,000 revolving line of credit agreement which bears
interest at 3.0% above the prime interest rate and expires on November 5, 2001.
At September 30, 2000 the balance due under the revolving line of credit was
$558,215.
The Company's total annual commitment at September 30, 2000 for the next five
years of $1,754,681 consists of obligations under operating leases for
facilities and lease agreements for the rental of warehouse equipment and
automobiles.
Effective July 1, 1999, the Company entered into three year employment
agreements with four executive officers which provide for aggregate annual
salaries of $495,000 for the year sending June 30, 2001 and 2002.
14
<PAGE>
Part II: Other Information
CHEM INTERNATIONAL, INC.
Item 1: Legal Proceeding
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
Item 6: Exhibits and Reports on Form 8K
None
15
<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.
CHEM INTERNATIONAL, INC.
Date: November 8, 2000 By:/s/ Seymour Flug
----------------------------------------
Seymour Flug,
President and Chief Executive Officer
Date: November 8, 2000 By:/s/ Eric Friedman
----------------------------------------
Eric Friedman,
Chief Financial Officer
16
