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FORM 10-KSB405
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
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Commission File Number 0-17264
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ALFA INTERNATIONAL CORP.
______________________________________________________
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2216835
_______________________________ _______________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
50 South Buckhout Street, Irvington, N.Y. 10533
_______________________________________________
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (914) 591-1994
_____________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $. O1 par value
_____________________________
(Title of Class)
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.
[x] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (229.405 of this chapter) is not contained
therein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form
10-KSB. [x]
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The aggregate market value of the 1,075,512 shares of voting stock held
by non-affiliates of the registrant (based upon the average of the high
and low bid prices) on April 9, 1998 was $1,478,829. (SEE: "Market for
Common Equity and Related Stockholder Matters").
The registrant's total revenue for the fiscal year ended December 31,
1997 were $ 30,769.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. [x] Yes [ ] No
As of March 15, 1998 the Company had outstanding 6,268,898 shares of
common stock, par value $. O1 per share ("Common Stock").
The Index to Exhibits appears on page 14.
DOCUMENTS INCORPORATED BY REFERENCE
Registration Statement on Form S-1, File No. 33-18591, and Annual Report
on Form 10-KSB for the Fiscal Year Ended December 31, 1996, Part III
- - -Exhibits.
BALANCE OF THIS PAGE INTENTIONALLY LEFT BIANK
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ALFA INTERNATIONAL CORP.
Table of Contents to Annual Report on Form 10-KSB
Year Ended December 31, 1997
Page
Part I
Item 1. Description of Business 4
Item 2. Description of Property 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote
of Security Holders 9
Part II
Item 5. Market for Common Equity and
Related Stockholder Matters 9
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 7. Financial Statements 15
Item 8. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 15
Part III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with
Section 16(a) of the Exchange Act 15
Item 10. Executive Compensation 16
Item 11. Security Ownership and Certain Beneficial
Owners and Management 19
Item 12. Certain Relationships and Related
Transactions 20
Item 13. Exhibits and Reports on Form 8-K 21
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PART I
Item 1. Description of Business
Introduction
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Alfa International Corp. ("Alfa" or the "Company") was formed in 1978 to
engage in the import-export business. The Company was inactive from April
1993 until January 1997. In 1986 it began the production and marketing of
promotional apparel made of Tyvek, a paper-like material produced and sold
by E.I. Du Pont de Nemours & Company ("Du Pont"). In 1988 Alfa began
importing and distributing a line of videocassette shells and videotapes
from Hong Kong. The Company incurred significant losses in its videocassette
business and subsequently discontinued that business segment. In December
1991 Alfa acquired Nieman Machine Company. The Company dissolved its Nieman
subsidiary in November 1992, after all Nieman's contracts were cancelled
when the U.S. Government terminated its Seawolf submarine contracts. In
December 1992, Alfa filed for bankruptcy protection in the U.S. Bankruptcy
Court for the District of Arizona ("Court") and in March 1993, with the
approval of the Court, sold substantially all its Tyvek apparel related
assets to Ty-Breakers (NY) Corp., ("TYNY") a private company controlled by
Alfa's president. On August 4, 1995 the Court issued an order confirming
the Company's Plan of Reorganization. On August 12, 1996 the Court issued
an order discharging the Company from bankruptcy proceedings and releasing
the Company from the supervision of the Court. (See: "Legal Proceedings")
On December 6, 1996 the Company, Frank J. Drohan and Auto-Pilot, Inc., a
Delaware corporation ("API"), entered into an investment banking agreement
("I.B. Agreement") with Old Dominion Growth Fund Limited, a British Virgin
Islands corporation ("Old Dominion"). The term of the I.B. Agreement expired
on March 24, 1997. The I.B. Agreement contemplated, among other things, (i)
the acquisition of TYNY and API by the Company, and (ii) an offering by the
Company of up to $1,500,000 of its securities ("Offering") with Old Dominion
acting as placement manager for such Offering. The Company intended to use
the proceeds from the Offering to execute its sales and marketing plan for
its TYNY subsidiary.
Pursuant to an Agreement and Plan of Merger (the "Merger Agreement") dated
January 9, 1997 among the Company, Alfa Acquisition Corp., a New York
corporation and wholly owned subsidiary of the Company ("AAC"), and TYNY,
on January 23, 1997, TYNY was merged with and into AAC (the "Merger").
Subsequent to the Merger, AAC changed its corporate name to Ty-Breakers
Corp. ("Ty-Breakers"). Ty-Breakers is now a wholly owned subsidiary of the
Company. Ty-Breakers is engaged in the business of manufacturing and
marketing apparel, mostly jackets, made from Tyvek and Kensel. Tyvek is a
registered trademark of the Du Pont Company. Kensel is a trademark of Ty-
Breakers used to identify Ty-Breakers' patented fabric material.
Old Dominion failed to conduct the Offering, leaving the Company in a
precarious financial position. The Company sought alternate sources for
its required equity financing and entered into a Settlement Agreement with
Old Dominion on November 26, 1997. In June 1997, the Company, Ty-Breakers
and API entered into an investment banking agreement (the ("Continental
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Agreement") with Continental International Trading Corp. ("Continental").
Between June and November of 1997, the Company successfully completed the
1.5 million-dollar private placement ("Private Placement") contemplated
under the Continental Agreement and is presently conducting a second
private placement offering. (SEE: " Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Exhibits").
The Company has used the proceeds from the Private Placement to begin
operations, to fund its wholly owned subsidiary and implement the
Ty-Breakers' sales and marketing plan for its Tyvek and Kensel jackets,
to pay offering expenses and to pay debt. Specifically the Company,
through its Ty-Breakers subsidiary, began in November 1997 the initial
marketing of jackets and other apparel made from Tyvek and from Ty-Breakers'
patented Kensel material to retail stores and to the premium and incentive
market. (See: "Management's Discussion and Analysis of Financial Condition and
Results of Operations").
The Company's executive offices are located at 50 South Buckhout Street,
Irvington-on-Hudson, New York 10533. Its telephone number is 914-591-1994.
Ty-Breakers - Tyvek and Kensel Apparel
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Manufacture and Distribution
Ty-Breakers markets Tyvek apparel as promotional products for major national
commercial enterprises, sporting events and athletic associations. The
apparel is used as promotional, advertising and marketing items by these
organizations. Ty-Breakers also markets Tyvek and Kensel apparel to retail
stores and catalog companies.
Tyvek, a synthetic material produced by Du Pont, is made of 100%
polyethylene and is exceptionally strong, water resistant, wind proof and
printable. From the Company's perspective, the most important
characteristic of Tyvek is its reproductive print quality. Kensel is the
trade name used to identify the patented fabric material, which is the
proprietary product of Ty-Breakers. Kensel is made by laminating a poly-
cotton material to Tyvek. Apparel products made from Kensel have a more
substantial "feel" than products made from Tyvek.
Du Pont presently produces all of the Tyvek material. Ty-Breakers purchases
all of its Tyvek requirements directly from Du Pont in the United States.
The inability or failure of Du Pont to deliver this material to Ty-Breakers
would have a material adverse effect upon the operations of Ty-Breakers. To
date, Ty-Breakers has not had any significant problems in obtaining Tyvek
from Du Pont for its manufacturing needs nor does it anticipate a shortage
in the near future. Ty-Breakers believes it maintains a good working
business relationship with Du Pont.
Ty-Breakers has its Tyvek and Kensel apparel products manufactured and
printed by unaffiliated third parties, mostly in the United States.
Ty-Breakers' Tyvek jacket has become its primary product for corporate
identity, advertising and promotion purposes (the "promotional business").
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Other Tyvek products are vests, hats, bags, aprons and banners. The Tyvek
products sold by Ty-Breakers are collectively referred to as Tyvek apparel
and the Kensel products are collectively referred to as Kensel apparel. In
November 1997, Ty-Breakers initiated a marketing effort whereby it is
attempting to market its Tyvek and Kensel apparel to retail stores and
catalog companies nationwide for ultimate purchase by consumers. Tyvek and
Kensel jackets are the primary products sold by Ty-Breakers to retail stores
and catalog companies. Customers who have purchased Tyvek and Kensel
apparel include brewers, food distributors, automotive companies and other
major corporations as well as sponsors of sporting and special events as
well as numerous retail stores and catalog companies. Additionally, Ty-
Breakers sells Tyvek and Kensel jackets directly to consumers through its
worldwide website on the Internet.
Although sales to date of Tyvek apparel have not been made through any long
term contracts, Ty-Breakers has received several repeat orders from its
customers based, it believes, on the high reproductive quality of its Tyvek
products. Although orders for Kensel jackets had been received in late 1998
and continue to be received, none of them have yet been shipped.
Specialized production equipment needed to make the Kensel material was not
installed until April 1998. This one time start-up delay which caused the
delays in the shipments of Kensel products has been resolved. All such
orders are now being manufactured for shipment and Ty-Breakers expects no
such delays in the future.
Tyvek and Kensel apparel products for Ty-Breakers' promotional business are
manufactured and sold pursuant to specific purchase orders and significant
inventories are not maintained for products associated with the promotional
business. Inventories are maintained for the retail business (i.e. retail
stores & catalog companies) and Ty-Breakers' investment in inventory is
expected to grow relative to its sales growth in this segment. The Ty-
Breakers marketing plan is directed at increasing sales in this segment.
Since the inception of its retail marketing campaign in November 1997, Ty-
Breakers has seen its backlog of unfilled orders steadily increasing.
Production
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The artwork and design for the Tyvek and Kensel apparel is done by Ty-
Breakers through independent artists. For the custom promotional business
the design of the products and client's logos and images are usually
coordinated with the client's advertising personnel. For the retail
business, Ty-Breakers either licenses a design or contracts with independent
artists to create the artwork for Ty-Breakers' proprietary concepts. All
copyrights to the artwork in the retail business (except for licensed
products) are the property of Ty-Breakers. (See: 'Patents, Copyrights and
Trademarks").
With the sole exception of the equipment that Ty-Breakers had designed,
built and installed to perform a portion of the production process for the
Kensel material, Ty-Breakers does not own or directly operate any
manufacturing or production facilities. Ty-Breakers contracts with
printers, laminators and cut & sew contractors in the U.S. to manufacture
its Tyvek and Kensel apparel products.
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Marketing
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Ty-Breakers markets its products through industry trade shows and direct
mail marketing. Ty-Breakers is one of only four companies recommended by
Du Pont, when potential customers call Du Pont seeking Tyvek (generally
promotional) apparel. In November 1997, Ty-Breakers mailed approximately
140,000 catalogs to retail stores and catalog companies in the U.S.
Additionally Ty-Breakers had an Internet website (www.ty-breakers.com)
designed and installed where consumers may view the full color catalog and
make purchases.
Two in house employees attend trade shows and do direct selling to retail
and promotional accounts. Additionally, a national sales manager calls
exclusively on the larger retail stores in person to solicit orders for
Kensel (and to some extent, Tyvek) jackets. [The National Sales Manager will
re-launch this process beginning in April 1998, after receiving sample
Kensel jackets that were delayed by the production equipment problem
mentioned above].
Ty-Breakers intends to utilize the proceeds from its ongoing private
placement(s) to systematically continue direct mail marketing to the 140,000
retailers which it began in November 1997, to purchase print advertising, to
attend trade shows and to hire additional outside salesmen to call on major
accounts.
Competition
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Although the Company is aware of only three other companies, which sell
Tyvek apparel, the Company believes that only two such companies sell Tyvek
apparel as their main business. The Company believes that its competitors
generally restrict themselves to the custom promotional business and avoid
the retail business and its associated inventory investments. Ty-Breakers
believes that no competitor is marketing proprietary designs on the scale of
that of Ty-Breakers. Moreover the company is certain that no competitor is
marketing Kensel apparel, for which Ty-Breakers holds the patent. (SEE:
Patents, Copyrights and Trademarks") . Ty-Breakers is also indirectly in
competition with consumer goods manufacturers and promotional and premium
companies, all of which are in highly competitive industries. Most of these
companies have substantially greater financial, managerial and personnel
resources than the Company.
Patents, Copyrights and Trademarks
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Other than for the licensed designs in its retail line, Ty-Breakers is not
dependent upon any patent, trademark or proprietary right of another with
respect to its Tyvek and/or Kensel apparel business. Licensed designs such
as the M.C. Escher designs, the Hammond world map and the Smoky Mountain
Cats design are, in the view of management, significant to the success of
Ty-Breakers' retail marketing program and the loss of any of these license
agreements could have a material adverse effect on Ty-Breakers. Ty-Breakers
intends to utilize a portion of the proceeds from its ongoing private
placement(s) to aggressively pursue additional license agreements, as it
believes its products are particularly suited for licensed apparel.
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Ty-Breakers is the owner (by assignment) of U.S. Patent number 5,150,660
which covers a "fabric material and clothing apparel and apparel accessories
made therefrom". This patent is for the material which Ty-Breakers has just
begun marketing under the name Kensel. The Kensel material is made by
laminating a poly-cotton material to Tyvek, thereby producing a leather-like
material with a good hand and substantial feel. It is the Company's view
that jackets made from Kensel retain all the advantages of Tyvek while
eliminating the only significant objection to Tyvek - its paper-like feel.
Ty-Breakers' exclusive right under the patent to manufacture and sell Kensel
products in the U.S. runs until the year 2009.
Ty-Breakers, under agreements with its outside artists, owns the copyrights
to all art produced for Ty-Breakers (exclusive of any licensed designs). The
Company intends to file for trademark protection on the brand name Kensel,
which it has researched and found to be available. The failure of any
trademark to issue, in the Company's opinion, will not materially or
adversely affect its operations.
Employees
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The Company presently has three employees, two of which are officers and
directors of the Company. The President and Secretary serve as the sole
officers and directors of the Company and of the Company's wholly owned
subsidiary Ty-Breakers Corp. The Company has employment agreements with all
three of its employees. (See "Executive Compensation" and "Directors and
Executive officers of the Registrant" and "Exhibits").
Item 2. Description of Property
The Company's and Ty-Breakers' corporate offices and Ty-Breakers' warehouse
facility are located at 50 South Buckhout Street, Irvington-on-Hudson, New
York 10533 where they occupy 8,000 square feet under a five year lease with
an unaffiliated party expiring in March 1999. The lease, which is between
the landlord and Ty-Breakers, is renewable at Ty-Breakers' option for an
additional five years.
Item 3. Legal Proceedings
On August 12, 1996 the 'Court issued its "Final Decree" discharging the
Company from bankruptcy proceedings and releasing the Company from the
supervision of the Court.
In accordance with the Plan of Reorganization (the 'Plan'), which was
confirmed by the Court, the Company, in 1996, issued shares of its Common
Stock to its former creditors, preferred stockholders and to the Company's
president, and reverse split the Company's pre-petition shares of common
stock (CUSIP # 015389-10-9) which were outstanding as of August 4, 1995
(the "Old Common Stock") at the rate of one share of Common Stock for each
twenty-five shares of Old Common Stock.
Other than the above the Company knows of no material legal proceedings,
pending or threatened, against it or any of its subsidiaries.
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Item 4. Submission of Matters to a Vote of Security Holders
None.
PART 11
Item 5. Market for Common Equity and Related Stockholder Matters.
Alfa's Common Stock trades in the over the counter market and is listed on
the OTC Electronic Bulletin Board under the symbol "TYBR".
In January 1997, concurrent with the effectiveness on the OTC Electronic
Bulletin Board of the Company's reverse split of the old Common Stock
pursuant to the Plan, the Company applied for a new trading symbol for its
Common Stock. The Company also issued shares of its Common Stock pursuant
to the Plan. (SEE: "Legal Proceedings").
On March 20, 1997 the Company's Common Stock was approved by the NASD for
listing on the OTC Electronic Bulletin Board under the symbol "TYBR".
Subsequently, the Old Common Stock (trading under the symbol ALFE) was
removed from the OTC Bulletin Board.
The following table sets forth the range of the high and low closing bid
prices for the Common Stock (TYBR) for the four quarters ended March 31,1998
and the range of the high and low closing bid prices for the Old Common
Stock (ALFE) for the four quarters ended March 31, 1997 as reported by
Prophet Information Services, Inc. of Palo Alto, CA. The quotations are
between dealers, do not include retail markups, markdowns or commissions and
may not necessarily represent actual transactions.
Old Common Stock (ALFE)
Quarter Ended High Low
- - ------------- ---- ---
6/30/96 - -
9/30/96 - -
12/31/96 0.01 0.01
3/31/97 0.08 0.08
Common Stock (TYBR)
Quarter Ended High Low
6/30/97 1 5/8 1 3/8
9/30/97 1/2 1/2
12/31/97 1 1/2 1 1/2
3/31/98 1 1/4 1
Pursuant to the I.B. Agreement the Company issued 1,250,000 shares of its
Common Stock to Old Dominion. In accordance with the Settlement Agreement,
as of November 26, 1997 Old Dominion returned to the Company for
cancellation 1,125,000 of the aforementioned 1,250,000 shares of Common
Stock. (SEE: "Description of Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations").
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Pursuant to the Merger, the Company issued 984,410 shares of its Common
Stock to the shareholders of TYNY in exchange for all of the outstanding
capital stock of TYNY.
Pursuant to a private placement of the Company's securities in accordance
with the Continental Agreement, the Company issued 3,000,000 shares of its
common stock and 1,500,000 warrants to two investors in 1997. As of the
date hereof, the Company has sold, in a second private placement offering,
an additional 10 Units of its securities (each Unit consisting of 25,000
shares of Common Stock and 12,500 warrants). (SEE: "Description of Business"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations").
At March 15, 1998 the Company had 6,268,898 shares of its Common Stock
issued and outstanding and there were approximately 1,900 holders of record
of such Common Stock. As of December 31, 1997 and as of the date hereof,
the Company had no shares of its preferred stock issued or outstanding.
The Company has never declared any dividends and it is anticipated that any
earnings will be retained for the Company's business in the foreseeable
future. Any declaration in the future of any cash or stock dividends will
be at the discretion of the Board of Directors and will depend upon, among
other things, earnings, the operating and financial condition of the
Company, capital requirements, and general business conditions.
The transfer agent for the Company's Common Stock is Continental Stock
Transfer and Trust Company, 2 Broadway, New York, New York 10004.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The financial statements at the end of fiscal years 1996 and 1997 have been
audited by the Company's independent certified public accountants.
During 1997 the Company took several actions to effect its previously
reported plan of (1) raising equity capital, and (2) consummating the
acquisition of Ty-Breakers. The Company's relationship with Old Dominion
failed to achieve the desired outcome and left the Company in a perilous
financial condition. The Company subsequently negotiated an agreement with
Continental International Trading Corp., a New York corporation
("Continental") in the latter half of 1997 whereby the Company was able to
successfully raise equity capital to begin executing its business plan. The
Company is continuing, with Continental's assistance, to seek additional
capital for marketing purposes through a private offering of Units of its
securities. The Company intends to build its Ty-Breakers Corp. subsidiary
into an imprinted sportswear and apparel company with Tyvek and Kensel
apparel as its core lines around which management intends to add (either
through acquisition or internal development) other sports apparel, licensed
apparel and imprinted sportswear lines. The Company intends to finance the
continuation of the roll out of the Ty-Breakers' marketing plan through the
sale of new equity in the ongoing private placement(s) and through
internally generated funds from operations. No assurances can be given,
however, that adequate financing can be obtained from the private
placement(s) or generated from ongoing operations.
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On November 13, 1996 Old Dominion loaned the Company $100,000. On December
6, 1996 the Company entered into an investment banking agreement ("I.B.
Agreement") with Old Dominion. The I.B. Agreement contemplated, among other
things, the acquisition of TYNY by the Company and an offering by the
Company of up to $1,500,000 of its securities ("Offering") with Old Dominion
acting as placement manager for such Offering. The acquisition of TYNY by
the Company was the only condition precedent to Old Dominion's obligation to
conduct the Offering. The Company acquired TYNY on January 23, 1997 (the
"Merger Date"). In accordance with the provisions of the I.B. Agreement,
Old Dominion was required to deliver a minimum of $500,000 in proceeds from
the Offering to the Company within sixty (60) days after the Merger Date.
Old Dominion failed to deliver such $500,000 to the Company resulting in the
Company being placed in a precarious financial position - unable to execute
its marketing plan and unable to repay the Note.
The Company continued to negotiate with Old Dominion but soon determined
that Old Dominion was unwilling or unable to conduct the Offering. In an
effort to finance its operations and carry out its marketing plan,
management sought alternate sources of financing. In April 1997, the
Company sold 150,000 shares of its Common Stock directly to a private
investor. In June of 1997, the Company entered into an agreement (the
("Continental Agreement") with Continental. The Continental Agreement
(which was never reduced to writing) contemplated a private placement
offering ("Private Placement") by the Company of up to $1,500,000 of its
securities in the form of units ('Units) consisting of Common Stock and
warrants, with Continental acting as the placement manager. The Company
agreed to pay Continental a placement fee equal to 50% of the gross proceeds
received from the sale of Units to investors introduced through Continental
and to issue Continental, or its designee, up to 450,000 shares of its
Common Stock if all 60 Units offered were sold to investors introduced to
the Company by Continental. As of December 31, 1997 all 60 Units in the
private placement have been sold to two investors introduced to the Company
by Continental. The Company has received net proceeds of $750,000 and paid
Continental $750,000 in placement fees and issued 450,000 shares of Common
Stock to Continental. The Company has begun a second private placement
offering of up to $1,000,000 of Units (the 'Second Private Placement") with
Continental acting as placement manager under similar conditions. The
Company intends to memorialize its present and past agreement with
Continental in a written document. As of the date hereof, ten Units have
been sold in the Second Private Placement to investors introduced by
Continental and the Company has received gross proceeds of $250,000 and paid
Continental $125,000 in placement fees on such Units. The Company intends,
subject to the successful conclusion of the Second Private Placement, to
conduct a third private placement offering of Units during 1998 to raise an
additional $2,000,000 to be used primarily for marketing purposes.
Net Proceeds (after placement fees) from sales of Units to date have been
used to purchase computer and production equipment, create artwork and film,
build inventory, print & distribute catalogs, retire accounts payable,
finance print & trade show advertising, and add an outside salesman, among
other things. Net proceeds from sales of Units subsequent to the date
hereof will be used almost exclusively for sales and marketing purposes.
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All of the Company's operations are conducted through its wholly owned
subsidiary, Ty-Breakers Corp., which the Company acquired on January 23, Ty-
Breakers is engaged in the business of manufacturing and marketing
apparel, mostly jackets, made from Tyvek and Kensel. Tyvek is a registered
trademark of the Du Pont Company. Kensel is a trademark of Ty-Breakers
used to identify Ty-Breakers' patented fabric material.
The Company began operations in July 1997 by using the proceeds from the
Private Placement to implement Ty-Breakers' sales and marketing plan for its
Tyvek and Kensel jackets. In October & November 1997, Ty-Breakers mailed
approximately 140,000 catalogs to retail stores and catalog companies across
the U.S. introducing 30 new designs made from Kensel and Tyvek
material. The marketing plan is targeted at retail stores and catalog
companies with the intention of selling them jackets made from Kensel (Ty-
Breakers' patented fabric material) and from Tyvek. Prior to November 1997,
Ty-Breakers marketed only its Tyvek products almost exclusively to the
premium and incentive market.
The catalogs were mailed at a time during the Christmas season when most
retailers had already purchased inventory. The mailing therefore must be
followed up with continuous mailings to the same list of stores every few
months during 1998. In this way Ty-Breakers will continue to develop
customers such as those customers it has developed from the initial catalog
mailing. These efforts will be supplemented by attendance at trade shows,
print advertising, a worldwide web presence (now operable) and additional
outside sales personnel. The Company recently upgraded its website (www.ty-
reakers.com) to take credit cards in a secure environment. The website has
information about the Company and Ty-Breakers' products as well as a way for
consumers to purchase jackets directly from Ty-Breakers.
The Company was unable to fill orders for its Kensel jackets, which it
received from the first catalog mailing. This was due to the delayed
installation of a specialized piece of custom production equipment, which
was necessary for the start-up of Kensel production. That equipment was
finally installed in April 1998 and is operating properly. This was a
start-up problem and the Company expects no further such production delays.
Although preliminary discussions with respect to its acquisition by Alfa
have been held with Auto-Pilot, Inc. ("API"), a Delaware corporation
involved in the development of microcomputer products, no assurance can be
given at this time that such an acquisition can or will be consummated. Any
such acquisition by the Company is contingent upon many factors, including
the provision of at least $500,000 of financing for the Company specifically
for the use by API in carrying out its business plan. API is controlled by
the Company's president and members of his family. Any potential business
combination with API is conditional upon, among other things, the successful
conclusion of the third private placement.
Results of Operations
Fiscal Year Ended December 31, 1997 Compared to
Fiscal Year Ended December 31, 1996
Net revenue was $30,769 during fiscal year 1997 compared to zero for fiscal
year 1996. The Company had no sales during 1996 since it had discontinued
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all operations effective March 31, 1993. The Company acquired Ty-Breakers
on January 23, 1997 and the results of Ty-Breakers' operations have been
included in the Company's consolidated financial statements for the
period ending December 31, 1997. These results include some minimal initial
sales results at the end of 1997 from the Ty-Breakers catalog mailing as
well as reflecting the effect of certain accounts payable settlements. (SEE:
"Notes to Financial Statements"). Management expects that sales will
increase sharply provided further follow-on mailings are made to the retail
stores and catalog companies it has targeted. Such mailings are dependent
upon available financing to conduct them.
Selling, general and administrative expenses increased by $444,402 to
$473,693 in 1997 compared to the same period in the prior year. This
resulted primarily from increases in the Company's sales and marketing
efforts associated with the start of operations at Ty-Breakers and the
preparation and mailing of the new Ty-Breakers catalog. A significant amount
was expended for artwork - both for the catalog preparation and for the film
necessary to print the Tyvek material used in the jacket manufacturing
process. These one time artwork expenses which have been fully written off
will reduce the amount of expense involved in future mailings and inventory
production. It is expected that advertising, trade show, travel, royalty,
and commission expenses will continue to increase incrementally with Ty-
Breakers' continued retail marketing effort and that such increases will
result in increased sales to retailers.
Capital expenditures increased by approximately $40,000 during the most
recent fiscal year, primarily associated with upgrading of computer systems,
software and specialized custom production equipment used in the manufacture
of the Kensel material.
The Company sustained a net loss before taxes of $452,325 in fiscal year
1997 compared to a loss of $29,291 in fiscal year 1996. This increase in net
loss from operations is entirely attributable to the start-up of operations
at Ty-Breakers. Management expects losses from operations to continue
through the next several quarters of 1998 until the effects of the marketing
plan flow through.
Inventories increased from zero in fiscal year 1996 to $96,045 at the end of
the 1997 fiscal year. This was due to the build up of inventories necessary
as a corollary of the marketing effort directed at retail stores and catalog
companies. Certain cost efficiencies in the printing of the Tyvek material
used in production were realized as a result of the larger than normal print
runs done for the rapid inventory build up. It is not unreasonable to expect
further increases in inventory, but this will be dependent upon sales
results as 1998 progresses.
Fiscal Year Ended December 31, 1996 Compared to
Fiscal Year Ended December 31, 1995
Net sales revenue was zero during fiscal year 1996 and fiscal year 1995. The
Company had no sales during 1995 and 1996 since
-13-
<PAGE>
it had discontinued all operations effective March 31, 1993. The Company was
in the process of being reorganized under the auspices of the Court during
this time. In August 1996, the Court issued an order discharging the Company
from bankruptcy proceedings and releasing the Company from the supervision
of the Court.
Beginning in August 1996 the Company was working with Old Dominion to effect
its previously reported plan of (1) raising equity capital, and (2)
consummating the acquisition of Ty-Breakers. On November 13, 1996 Old
Dominion loaned the Company $100,000. On December 6, 1996 the Company
entered into an investment banking agreement ("I.B. Agreement") with Old
Dominion. The I.B. Agreement contemplated, among other things, the
acquisition of TYNY by the Company and an offering by the Company of up to
$1,500,000 of its securities ("Offering") with Old Dominion acting as
placement manager for such Offering. The acquisition of TYNY by the Company
was the only condition precedent to Old Dominion's obligation to conduct the
Offering. The Company subsequently acquired TYNY. Old Dominion failed to
conduct the Offering resulting in the Company being placed in a precarious
financial position - unable to execute its marketing plan and unable to
repay the Note. The Company's relationship with Old Dominion failed to
achieve the desired outcome.
Up until mid 1997, the Company continued to negotiate with Old Dominion
ultimately determining that Old Dominion was unwilling or unable to conduct
the Offering. The Company sought alternate sources for its required equity
financing and entered into a Settlement Agreement with Old Dominion on
November 26, 1997.
Selling, general and administrative expenses increased by approximately
$28,000 to $29,291 in 1996 compared to the same period in the 1995 fiscal
year. This resulted primarily from increases in legal expenses associated
with the Company's reorganization.
The Company sustained a net loss before taxes of $29,201 in fiscal year 1996
compared to net income of $207,831 in fiscal year 1995. This net loss from
operations in 1996 is primarily attributable to the legal and administrative
expenses associated with finalizing the Company's reorganization under
Chapter 11 of the U.S. Bankruptcy Code in August 1996. The net income in
1995 is entirely attributable to the extraordinary gain realized by the
Company as a result of the forgiveness of debt associated with the Company's
Plan of Reorganization, which was confirmed by the Court in 1995.
The Company had no inventory or capital expenses in 1996. During 1996 the
Company used the proceeds of the $100,000 loan to retire certain accounts
payable and to finance the ongoing operations of Ty-Breakers (NY) Corp.
Liquidity and Capital Resources
If the Company is able to successfully conclude the Second Private
Placement, management believes that the Company will have sufficient cash to
meet its requirements for the next twelve months. If the Company is not
able to successfully conclude the Second Private Placement, management is
uncertain if the Company will have sufficient cash to meet its requirements
for the next twelve months or to continue as a going concern.
-14-
<PAGE>
The Company presently has three employees. Absent a successful conclusion
to the Second Private Placement, the Company does not intend to hire any
more employees.
Item 7. Financial Statements
The response to this item is submitted as a separate section to this report
commencing on Page F-1.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The present Directors and Executive Officers of the Company are as follows:
Name Age Position
- - ---- --- --------
Frank J. Drohan 53 Chairman of the Board of
Directors, President, Chief
Executive & Financial Officer
Charles P. Kuczynski 44 Vice-President, Secretary and
Director
In December 1997, the Company issued 2,900,000 shares of Common Stock to
Mr. Robert F. Peacock as a result of his investment in the Company pursuant
to the Private Placement.
Frank J. Drohan has served as a Director, Chairman of the Board and Chief
Executive Officer of the Company for the past five years and as Secretary
and sole director of the Company from October 30, 1993 until February 15,
1996. Mr. Drohan is also President of Auto-Pilot, Inc., ("API") a privately
held Delaware corporation involved in the development of micro computer
products. Until January 23, 1997 (the Merger Date), Mr. Drohan was also
Chairman of the Board and President of Ty-Breakers (NY) Corp. ("TYNY"), a
privately held New York company. TYNY (now Ty-Breakers) was acquired by the
Company on January 23, 1997 and is engaged in the business of manufacturing
and marketing apparel, mostly jackets, made from Tyvek and Kensel. Mr.
Drohan also serves as President of the Company's wholly owned subsidiary Ty-
Breakers Corp.
Charles P. Kuczynski has served as a Director and Secretary of the Company
since February 1996. Between 1988 and March 1993, Mr. Kuczynski was an
employee of the Company. He was the Secretary and a Director of the Company
from April 1989 until March 1993. Since April 1993 Mr. Kuczynski has served
as Vice-President of Sales for TYNY (now Ty-Breakers where he continues as
VP Sales). He served as the Secretary and a Director of TYNY since November
-15-
<PAGE>
1993 and since the Merger Date serves as the Secretary and a Director of Ty-
Breakers. Mr. Kuczynski is the inventor of KENSEL and a patent for KENSEL
was issued in his name in September 1992, which patent subsequently was
assigned to Ty-Breakers on the Merger Date.
At December 31, 1997 the Board of Directors of Alfa consisted of Frank J.
Drohan and Charles P. Kuczynski. Messrs. Drohan and Kuczynski continue to
serve as the Company's only officers and directors.
Directors are elected to serve for one-year terms or until their successors
are duly elected and qualified. Officers serve at the discretion of the
Board of Directors. Directors receive no fees for acting as such and are
entitled to reimbursement for reasonable out-of-pocket expenses incurred in
attending meetings.
On December 5, 1997 Robert F. Peacock filed a report on Schedule 13D (the
"13D Filing") with the Securities and Exchange Commission ("SEC") covering
all transactions through December 5, 1997 by him in the Common Stock,
including those transactions resulting from his investment in the Private
Placement which resulted in his becoming a control person. The 13D Filing
is incorporated herein by reference. (SEE: "Exhibits")
Item 10. Executive Compensation
The following table sets forth information relating to the aggregate cash
compensation received by the then current Executive Officers of Alfa for
services in all capacities during the calendar year ended December 31, 1997
for (i) the Chief Executive Officer, (ii) each then current Executive
Officer whose total cash compensation exceeded $100,000 and (iii) all then
current Executive Officers of Alfa as a group.
Name of individual Capacities in Cash
or number in group which served Compensation
Frank J Drohan Chairman of Board $ 71,775
of Directors, President,
Chief Executive
All Executive Officers
as a group (2 persons) $129,072
- - --------------------------------------------------------------------------
(1) After reasonable inquiry, the Company has concluded that the aggregate
amount of personal benefits cannot be specifically or precisely ascertained,
but does not in any event exceed 10% of the cash compensation reported in
the foregoing table as to any person specifically named in such table or, in
the case of the group, 10% of the groups' compensation, and has concluded
that the information set forth in the table is not rendered materially
misleading by virtue of the omission of the value of such personal benefits.
-16-
<PAGE>
EMPLOYMENT AGREEMENTS
The Company presently has employment agreements with three employees.
Frank J. Drohan and Charles P. Kuczynski are each parties to 5 year
employment agreements with the Company dated August 1, 1997. These
agreements are identical to and supersede and replace the previously
reported agreements dated January 2, 1997 which each of Mr. Drohan and Mr.
Kuczynski had with the Company's wholly owned subsidiary Ty-Breakers Corp.
Additionally the Company has assumed all obligations under a one year
employment agreement dated November 1997 between Ty-Breakers and Mr. Gerald
Blumberg.
Mr. Drohan's employment agreement provides for an annual salary of $100,000,
a bonus based on net profits of the Company, options on 50,000 shares of
Common Stock @ $1.00 per share during each year of the 5 years of the
employment term and payment by the Company of certain life insurance
premiums on Mr. Drohan's life. A copy of the employment agreement is
attached hereto as an exhibit.
Mr. Kuczynski's employment agreement provides for an annual salary of
$45,000, a bonus based on gross sales of Ty-Breakers and options on 25,000
shares of Common Stock @ $1.00 per share during each year of the 5 years of
the employment term. A copy of the employment agreement is attached hereto as
an exhibit.
Mr. Blumberg's employment agreement provides for an annual salary of 25,000,
a bonus based on gross sales of Ty-Breakers to certain "target accounts'
(all the larger U.S. retailers) and an option on 10,000 shares of Common
Stock @ $1.00 per share during the year of the employment term. A copy of the
employment agreement is attached hereto as an exhibit. (SEE:"Exhibits")
EMPLOYMENT BENEFITS
The Company provides and pays for group medical insurance for all employees
choosing to participate in its plan. Directors received no remuneration
during the fiscal year ended December 31, 1997 and the Company does not
intend to compensate any Directors for serving as members of its Board
during the fiscal year ending December 31, 1998.
Stock Options
On December 28, 1987, Alfa adopted the Stock Option Plan. The purpose of
the Stock Option Plan is to attract and retain qualified managers, employees
and consultants, and to encourage such managers, employees and consultants
to enhance operations and increase the profitability of the Company. The
Stock Option Plan provides for the granting of options to purchase up to
750,000 shares of the Company's Common Stock, some or all of which options
may be incentive stock options within the meaning the Internal Revenue Code
of 1986, as amended (the "Code"). The Stock Option Plan and authority to
grant options thereunder terminated on December 27, 1997.
The Stock Option Plan provides that it may be administered by the Board of
Directors or a committee appointed by the Board of Directors (the "Stock
Option Committee"). Subject to the provisions of the Stock Option Plan, the
-17-
<PAGE>
Board of Directors or the Stock Option Committee determines when and to whom
options are granted, the number of shares of Common Stock subject to each
option, whether or not (subject to the provisions of the Code) options shall
be incentive stock options or non-qualified stock options, the exercise
price of such options and the period during which such options may be
exercised. The Board of Directors or the Stock Option Committee shall
interpret the Stock Option Plan and may accept the exchange of any such
options for the granting of new options.
Key employees of the Company, including officers and directors, whom the
Board of Directors or Stock Option Committee determines are responsible, in
some significant way, for the success of the Company, and that perform
special services for the Company, are eligible to receive incentive stock
options. In addition to employees of the Company, a director, consultant,
attorney, advisor or other person who is not an employee, but performs
services of special importance with respect to the management, operations
and development of the Company, is eligible to receive non-qualified stock
options under the Stock Option Plan.
Under the Stock Option Plan, each incentive stock option shall have a term
of five years and an exercise price of not less than 100% of the fair market
value of the Common Stock on the date of grant, except for 10% or greater
shareholders whose exercise price must be at least 110% of the fair market
value of the Common Stock on the date of grant, and may be exercised on a
cumulative basis to the extent of 20% of the amount of stock covered by the
option at the end of each of the first, second, third, fourth and fifth
years after the option is granted. Generally, the holder of an incentive
stock option will not be entitled to exercise any option, or portion
thereof, unless he is an employee at the time of exercise.
Under the Stock Option Plan, non-qualified stock options may also be granted
for a term of up to five (5) years at an exercise price not less than one
hundred percent (100%) of the fair market value of the Common Stock on the
date of grant. The holder of a non-qualified stock option shall have the
right to exercise the option on such terms and conditions as the Board of
Directors or the Stock Option Committee may determine at the time of grant,
including the requirement that the holder remain employed by the Company for
a period of one (1) year from the date of grant.
During the life of a person granted stock options under the Stock Option
Plan (an "Optionee"), such options are only exercisable by the Optionee and
no assignment or transfer of such options is permitted. Upon the death of
an Optionee, the unexpired stock options previously granted to the deceased
Optionee by the Company may be transferred by will or through the laws of
descent and distribution.
If the employment or services of an Optionee are terminated for any reason
other than retirement or death, such Optionee shall have the right to
exercise any options fully vested and exercisable on the day immediately
preceding such termination at any time within 3 months, or for options
granted after April 27, 1990, within 60 days, after such termination.
However, such options may be cancelled within the 60 day period if the
Optionee engages in employment or activities which, in the judgement of the
-18-
<PAGE>
Board of Directors or the Stock Option Committee are contrary to the
Company's best interests. If the employment or services of an Optionee are
terminated by reason of retirement, the Optionee shall have the right to
exercise any options fully vested and exercisable on the day immediately
preceding such termination at any time within 90 days after such
termination. Upon the death of an Optionee, all unexpired stock options
granted to such Optionee become fully vested and such options may be
exercised in full by the Optionee's representative or heirs at any time
within 6 months of such Optionee's death.
The Stock Option Plan also contains certain "anti-dilution" provisions which
serve to protect each Optionee's respective percentage ownership and
economic interest in the Common Stock issued in the event of a stock split,
stock dividend, recapitalization, merger or consolidation or certain other
specified events.
The Board of Directors or the Stock Option committee may amend or terminate
the Stock Option Plan at any time, subject to the rights of the Optionees
who then hold unexpired stock options. Shareholder approval is required,
however to (i) adopt any amendment to or terminate the Stock Option Plan in
a manner which would affect any stock option previously granted, (ii) alter
the total number of shares of Common Stock available under the Stock Option
Plan, (iii) change the minimum exercise prices set forth in such Plan, or
(iv) change the classes of persons eligible to receive stock options
thereunder.
The Board of Directors and the Stock Option Committee are indemnified by the
Company under the Stock Option Plan against all costs and expenses
reasonably incurred by them in connection with any action, suit or
proceeding to which they become a party by reason of any action or omission
to act under or in connection with the Stock Option Plan, and all amounts
paid in settlement of, or to satisfy any judgement arising from, any such
action, suit or proceeding, except a judgement based upon a finding of bad
faith.
As of December 31, 1997 there were no incentive stock options outstanding
under the Stock Option Plan and there were 385,000 non-qualified options
issued and outstanding to the following:
Name No. of options Option Price Date of Grant
Frank J. Drohan 250,000 $1.00 8/l/97
Charles P. Kuczynski 125,000 $1.00 8/l/97
Gerald Blumberg 10,000 $1.00 11/4/97
The Stock Option Plan and authority to grant options thereunder terminated
on December 27, 1997.
Item 11. Security Ownership and Certain Beneficial Owners and
Management.
The following table sets forth, as of March 15, 1998, the number of shares
of the Company's Common Stock beneficially owned by (a) owners of more than
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<PAGE>
five percent of the Company's outstanding Common Stock who are known to the
Company and (b) the Directors of the Company, individually, and the officers
and Directors of the Company as a group, and (ii) the percentage of
ownership of the outstanding Common Stock represented by such shares.
Beneficial Percent
Name and Address Ownership(6)
Frank J. Drohan (1)(5) 1,593,386 25.4%
Charles P. Kuczynski(l)(5) 82,163 1.3%
Robert F. Peacock (2)(4) 2,900,000 46.2%
Continental Int'l. Trading Corp.(3) 400,000 6.3%
All officers and Directors as a 1,675,549 26.7%
Group of 2 Persons
- - -----------------------------------------------------------------------
(1) The address for each of these individuals is c/o the Company and each
is an officer and director of the Company.
(2) The address for Mr. Peacock is c/o the Company.
(3) The address for Cont'l. Int'l. Trading Corp. is 128 sand Lane, Staten
Island, New York 10305.
(4) Does not include warrants covering 1,450,000 shares exercisable at
$1.00 per share.
(5) Does not include Mr. Drohan's 250,000 stock options or Mr. Kuczynski's
125,000 stock options granted under their respective employment
agreements. All such options are exercisable at $1.00 per share.
(6) None of these shares are subject to rights to acquire beneficial
ownership, as specified in Rule 13d-3 (d) (1) under the Securities
Exchange Act of 1934, as amended, and the beneficial owner has sole
voting and investment power, subject to community property laws where
applicable.
Item 12. Certain Relationships and Related Transactions
Ty-Breakers (NY) Corp.
Ty-Breakers (NY) Corp. [formerly Rif International Corp.) ("TYNY") was a
privately held company whose majority shareholder was Frank J. Drohan, the
Company's president.
Pursuant to the Merger of TYNY with and into Alfa Acquisition Corp. which
was consummated on January 23, 1997, Mr. Drohan exchanged his 2,970,000
shares of TYNY common stock, constituting approximately 75.4% of the then
-20-
<PAGE>
outstanding shares of TYNY common stock on a fully diluted basis, for
742,500 shares of Alfa's Common Stock.
Mr. Drohan is an executive officer, one of the two members of the Board of
Directors and a shareholder of the Company. He was also the principal
shareholder, a director and an executive officer of TYNY. Mr. Kuczynski is
an executive officer, one of the two members of the Board of Directors and a
shareholder of the Company. He was also a shareholder, a director and an
executive officer of TYNY.
Item 13. Exhibits and Reports on Form 8-K
(a) (3). Exhibits (numbered in accordance with Item 601 of Regulation S-B).
Exhibit Page
Numbers Description Number
2.1 Plan Of Reorganization & Order
Confirming the Plan **
2.2 The Merger Agreement ***
3.1 Articles of Incorporation, as amended *
3.2 By-Laws *
10.2 The Investment Banking Agreement ****
10.3 The Promissory Note ****
10.4 The Escrow Agreement ****
10.5 The Redemption Agreement #
10.6 Drohan Employment Agreement E-01
10.7 Kuczynski Employment Agreement E-04
21.1 Subsidiaries ***
* Previously filed as exhibits to the Company's Registration Statement on
Form S-1 (File No. 33-18591) filed with the Securities and Exchange
Commission and incorporated herein by reference thereto.
** Previously filed with the Securities and Exchange Commission as
exhibits to the Company's Report on Form 8-K dated August 9, 1995.
*** Previously filed with the Securities and Exchange Commission as an
exhibit to the Company's Report on Form 8-K dated January 27, 1997.
**** Previously filed with the Securities and Exchange Commission as
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<PAGE>
exhibits to Frank J. Drohan's Report on Schedule 13D dated March 7,
1997.
# Previously filed with the Securities and Exchange Commission as an
exhibit to the Company's Report on Form 10-KSB for the fiscal year
ended December 31, 1996.
(b) Reports on Form 8-K
Amended Report dated April 13, 1998
-22-
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15 (d) 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.
Alfa International Corp.
By: /s/ Frank J. Drohan
____________________
FRANK J. DROHAN, Chairman
of the Board of Directors,
President and Chief
Executive & Financial Officer
By: /s/ Charles P. Kuczynski
__________________________
CHARLES P. KUCZYNSKI,
Secretary and Director
Dated: April 15, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following person who is the
Principal Executive Officer and the Principal Financial Officer and a
Director on behalf of the Registrant and in the capacity and on the date
indicated.
Name Title Date
- - ---- ----- ----
Chairman of the Board,
/s/ Frank J. Drohan President and Chief April 15, 1998
____________________ Executive & Financial Officer
FRANK J. DROHAN
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
See accompanying note to financial data table
</LEGEND>
<CIK> 0000820600
<NAME> ALFA INTERNATIONAL CORP.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 42,088
<SECURITIES> 0
<RECEIVABLES> 1,143
<ALLOWANCES> 0
<INVENTORY> 96,045
<CURRENT-ASSETS> 157,373
<PP&E> 61,179
<DEPRECIATION> (25,675)
<TOTAL-ASSETS> 266,227
<CURRENT-LIABILITIES> 144,920
<BONDS> 0
0
0
<COMMON> 60,189<F1>
<OTHER-SE> 108,404
<TOTAL-LIABILITY-AND-EQUITY> 266,227
<SALES> 11,650
<TOTAL-REVENUES> 30,769
<CGS> 5,665
<TOTAL-COSTS> 479,358
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 452,325
<INTEREST-EXPENSE> 3,736
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (452,325)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
<FN>
<F1>Common Stock - $.01 par value; Authorized 15,000,000 shares; issued and
outstanding 6,018,898 shares in 1997 and 2,559,488 in 1996.
</FN>
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Alfa International Corp.
We have audited the accompanying consolidated balance sheets of Alfa
International Corp. and subsidiary as of December 31, 1997 and 1996
and the related consolidated statements of operations, changes in
stockholders' equity (deficiency) and cash flows for the years then
ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards required that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Alfa International Corp. and subsidiary at
December 31, 1997 and 1996, and the results of their operations and
their cash flows for the years then ended in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 3 to the consolidated financial statements, the
Company's financial position at December 31, 1997 and results of
operations and cash flows to December 31, 1997 raise substantial
doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in
Note 3. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
WISS & COMPANY, LLP
Livingston, New Jersey
March 5, 1998
F-1
<PAGE>
<TABLE>
ALFA INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
ASSETS 1997 1996
---------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 42,088 $ 57
Accounts receivable 1,143 -
Inventories:
Raw materials 93,992 -
Finished goods 2,053 -
Prepaid insurance 3,397 -
Prepaid royalties 14,700 -
---------- -----------
Total Current Assets 157,373 57
PROPERTY AND EQUIPMENT:
Office and computer equipment 35,296 -
General plant 15,803 -
Furniture and fixtures 4,156 -
Leasehold improvements 5,924 -
---------- -----------
61,179 -
Less: Accumulated depreciation and amortization (25,675) -
---------- -----------
35,504 -
OTHER ASSETS:
Goodwill, less accumulated amortization of $17,238 68,952 -
Other assets 4,398 -
Due from affiliate - 49,511
Deferred offering costs - 12,500
---------- -----------
73,350 62,011
---------- -----------
$ 266,227 $ 62,068
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Notes payable $ - $ 100,000
Accounts payable 119,080 4,286
Royalties payable 24,000 -
Accrued expenses and other current liabilities 1,840 -
---------- -----------
Total Current Liabilities 144,920 104,286
---------- -----------
OTHER LIABILITIES 12,903 -
---------- -----------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock - $.01 par value: authorized 15,000,000
shares; issued and outstanding 6,018,898 shares
in 1997 and 2,559,488 shares in 1996 60,189 25,595
Capital in excess of par value 3,886,677 3,053,721
Retained earnings (deficit) (3,838,462) (3,121,534)
----------- -----------
Total Stockholders' Equity (Deficiency) 108,404 (42,218)
---------- -----------
$ 266,227 $ 62,068
<FN>
See accompanying notes to consolidated financial statements.
</FN>
F-2
</TABLE>
<PAGE>
ALFA INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
1997 1996
----------- -----------
REVENUES:
Net sales $ 11,650 $ -
Gain on settlement of trade payables 14,790 -
Other income 4,329 -
----------- -----------
30,769 -
COSTS AND EXPENSES:
Cost of sales 5,665 -
Selling, general and administrative 473,693 29,291
Interest expense 3,736 -
----------- -----------
483,094 29,291
----------- -----------
NET LOSS $ (452,325) $ (29,291)
BASIC AND DILUTED LOSS PER SHARE $ (.10) $ (.02)
----------- -----------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 4,527,759 1,186,203
[FN]
See accompanying notes to consolidated financial statements.
</FN>
F-3
<PAGE>
<TABLE>
ALFA INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
<CAPTION>
Common Stock Capital in Retained
Par Excess of Earnings
Shares Value Par Value (Deficit)
----------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1995 1,085,313 $ 10,853 $ 3,053,721 $ (3,092,243)
YEAR ENDED DECEMBER 31, 1996:
Issuance of common stock for
investment banking services 1,250,000 12,500 - -
Issuance of common stock for
Compensation 224,175 2,242 - -
Net loss - - - (29,291)
----------- ---------- ----------- -------------
BALANCE AT DECEMBER 31, 1996 2,559,488 25,595 3,053,721 (3,121,534)
YEAR ENDED DECEMBER 31, 1997:
Issuance of common stock for cash,
less related costs 3,150,000 31,500 738,706 -
Issuance of common stock for investment
banking services 450,000 4,500 (4,500) -
Cancellation of common stock issued
for investment banking services (1,125,000) (11,250) 48,750 -
Issuance of stock options in exchange
for debt - - 50,000 -
Issuance of common stock upon
merger with entity under common control,
including carryover of controlling
interest equity deficiency 984,410 9,844 - (264,603)
Net loss - - - (452,325)
----------- ---------- ------------ ------------
BALANCES AT DECEMBER 31, 1997 6,018,898 $ 60,189 $ 3,886,677 $ 3,838,462)
<FN>
See the accompanying notes to the financial statements.
</FN>
F-4
</TABLE>
<PAGE>
<TABLE>
ALFA INTERNATIONAL CORPORATION AND SUBSIDIARY
C0NSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1997 1996
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (452,325) $ (29,291)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation and amortization 25,758 -
Changes in operating assets and liabilities:
Accounts receivable 180 -
Inventories (84,152) -
Other current assets (14,936) -
Accounts payable (98,221) (23,382)
Royalties payable 24,000 -
Other assets (319) -
Accrued expenses (50,674) -
----------- -----------
Net cash flows from operating activities (650,689) (52,673)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received in acquisition 874 -
Acquisition of property and equipment (33,360) -
---------- ------------
Net cash flows from investing activities (32,486) -
CASH FLOWS FROM FINANCING ACTIVITIES:
Collecton of subscriptions receivable 25,000 -
Proceeds of note payable - 100,000
Payment of notes payable (70,000) -
Issuance of common stock 770,206 2,242
Advance to affiliate - (49,512)
---------- ------------
Net cash flows from financing activities 725,206 52,730
NET CHANGE IN CASH AND EQUIVALENTS 42,031 57
CASH AND EQUIVALENTS, BEGINNING OF YEAR 57 -
---------- ------------
CASH AND EQUIVALENTS, END OF YEAR $ 42,088 $ 57
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 3,736 $ -
----------- -----------
Noncash investing and financing activities:
Conversion of notes payable to equity $ 50,000 $ -
----------- -----------
Issuance (cancellation) of common stock for
investment banking services $ (11,250) $ 12,500
----------- -----------
Business acquired:
Fair value of assets acquired $ 143,186 $ -
Liabilities assumed charge against stockholders' equity (397,943) -
----------- -----------
$ 254,757 $ -
<FN>
See accompanying notes to consolidated financial statements.
</FN>
F-5
</TABLE>
<PAGE>
ALFA INTERNATIONAL CORPORATION AND SUBSIDIARY
SUPPLEMENTARY INFORMATION
CONSOLIDATED COST OF SALES
Year ended December 31,
1997 1996
---------- ----------
INVENTORIES, BEGINNING OF YEAR $ - $ -
MATERIALS PURCHASED 99,089 -
Supplies 932 -
Art work and design 1,000 -
Freight, other taxes 703 -
---------- ----------
2,635 -
INVENTORIES, END OF YEAR 99,089 -
---------- ----------
$ 2,635 $ -
F-6
<PAGE>
ALFA INTERNATIONAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: Nature of the Business and Summary of Significant Accounting
Policies:
Principles of Consolidation - The consolidated financial statements
include the accounts of Alfa International Corp. ("Alfa") and its wholly-
owned subsidiary, Ty-Breakers Corp. ("Ty-Breakers") collectively referred
to as the "Company". All intercompany transactions have been eliminated in
consolidation.
Nature of the Business - Alfa is a holding company which operates
through its Ty-Breakers subsidiary. Ty-Breakers is a manufacturer and
distributor of Tyvek apparel products, for sale primarily in the United
States. All of the Ty-Breakers Tyvek is purchased from one unrelated
supplier who is the sole producer of Tyvek.
Financial Instruments - Financial instruments include cash, accounts
receivable, accounts payable and accrued expenses. The amounts reported
for financial instruments are considered to be reasonable approximations
of their fair values, based on market information available to management.
Estimates and Uncertainties - 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 of revenues and expenses during the reporting period. Actual
results, as determined at a later date, could differ from those estimates.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Property and Equipment - Property and equipment are stated at cost.
Depreciation has been computed using an accelerated method over an
estimated life of 5 years for furniture and equipment and the lease term
for leasehold improvements.
Income Taxes - The Company is subject to income taxes at both the
Federal and state level. Separate state income tax returns are filed
with each state in which the Company conducts business.
Deferred tax assets and liabilities are recognized based on differences
between the book and tax bases of assets and liabilities using presently
enacted income tax rates. The provision for income taxes is determined by
applying the provisions of the applicable enacted tax laws to taxable income
for that period and the net change during the period in the Company's
deferred tax assets and liabilities. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be
realized.
F-7
<PAGE>
ALFA INTERNATIONAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Based Compensation - Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation," ("FAS
123") encourages, but does not require companies to record
compensation cost at fair value for stock-based employee compensation
plans. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. Accordingly, compensation cost
for options granted by the Company is measured as the excess, if any, of
the quoted market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock. Since the
exercise price equaled or exceeded the estimated fair value of the
underlying shares at the date of grant, no compensation was recognized in
1997 and 1996.
Had compensation cost been based upon the fair value of the option on the
date of grant, as prescribed by FAS 123, the Company's proforma net loss
and net loss per share would have been approximately $(837,000) ($.19 per
share) in 1997. There were no options outstanding in 1996. The fair value
of the options were estimated at the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions,
respectively: risk-free interest rates of 5.0%, dividend yield of 0.0%
volatility factor equal to 433.3% and an expected life equaling the options
exercise periods.
Net Loss Per Common Share - As of December 31, 1997, the Company
adopted Statement of Financial Accounting Standards No. 128 "Earnings Per
share" which had no effect on loss per share as previously reported. Basic
loss per share is based upon the weighted average number of outstanding
common shares. The shares issuable upon the exercise of outstanding
warrants and options have been excluded since the effect would be
antidilutive, due to net losses for all periods presented; accordingly,
diluted loss per share is the same as basic loss per share for all periods
reported.
Goodwill - Goodwill consists of the excess of cost over fair market
value of the net assets of the acquired business. Goodwill is being
amortized using the straight-line method over five years. The carrying
value of goodwill is periodically reviewed by the Company based on expected
future undiscounted operating cash flows. Based upon its most recent
analysis, the Company believes that no material impairment exists at
December 31, 1997.
Impairment of Long-lived Assets - In 1996, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-lived Assets to be Disposed of." SFAS No. 121
prescribes that an impairment loss is recognized in the event that facts
and circumstances indicate that the carrying amount of an asset may not be
recoverable.
F-8
<PAGE>
ALFA INTERNATIONAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: Bankruptcy:
On December 9, 1992, Alfa filed a petition for reorganization ("Petition")
under Chapter 11 of the Federal Bankruptcy Code in the United States
Bankruptcy Court ("Court") for the District of Arizona. Under Chapter 11,
certain claims against Alfa in existence prior to the filing of the Petition
were stayed while Alfa continued business operations as a debtor-in-
possession.
In accordance with the Plan which was confirmed on August 4, 1995, the
Company took the following actions:
1. The Company issued 303,672 shares of its common stock to its pre-
petition creditors who had filed a proof of claim with the Court to
discharge a total of $522,757 in liabilities.
2. The Company issued 21,600 shares of common stock to its preferred
stockholders in exchange for their preferred shares.
3. The Company issued 498,241 shares of common stock to its President,
Frank J. Drohan in satisfaction of his post-petition claim of $4,982.
On August 12, 1996 the Court issued a Final Decree approving the consummation
of the Plan, releasing the Company from the supervision of the Court and
discharging the Company from bankruptcy proceedings.
NOTE 3: Management's Plans:
The Company has incurred significant operating losses raising substantial
doubt about its ability to continue as a going concern. The continued
existence of the Company is dependent upon the forbearance of its creditors,
its ability to raise additional financing and eventually upon obtaining
profitable operations. There can be no assurance that such financing will
be available to the Company upon acceptable terms. In an effort to obtain
profitable operations, the Company will attempt to increase sales by attending
trade shows and updating and redistributing their existing merchandise
catalog. Should the Company be unsuccessful in its attempt to raise capital
and/or increase sales, the Company may not be able to continue operations.
NOTE 4: Merger:
On January 23, 1997, Alfa acquired 100% of the outstanding stock of Ty-
Breakers (NY) Corp. ("Ty-Breakers") in exchange for 984,410 shares of Alfa
common stock, by merging it into its wholly-owned subsidiary Alfa Acquisition
Corp. Ty-Breakers is a manufacturer of apparel made from Tyvek(R) and
Kensel(tm).
Since the Company's President and majority shareholder owned 74.43% of Ty-
Breakers, the merger is being accounted for as a combination of entities
F-9
<PAGE>
ALFA INTERNATIONAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
under common control. Under this method of accounting, the results of
operations of the acquired entity are included in Alfa's historical
consolidated financial statements from its acquisition date in a manner
similar to that of the purchase method of accounting. The shares issued
to the 24.57% interest (minority stockholders) are valued at fair value and
the excess of fair value over the pro rata share of stockholders' equity
(deficiency) is allocated to the identifiable tangible and intangible net
assets based upon fair values and the difference to goodwill. The shares
applicable to the majority shareholder are carried over at their historical
cost basis and there is no change to book values nor recording of goodwill.
Goodwill for the minority interest was computed based on the quoted market
value of Alfa's common stock, less a discount for restrictions on sale.
The accumulated deficit recorded upon merger reflects the elimination of
the minority stockholders' (24.57%) interest in Ty-Breakers' equity
deficiency of $340,947.
NOTE 5: Common Stock, Preferred Stock and Stock Option Plan:
Common Stock - On December 6, 1996 Alfa's board of directors approved
a stock grant to two officers (also members of the board of directors) of
224,175 shares of common stock at $.01 per share, the fair market value per
share, as compensation for past services.
Preferred Stock - Alfa has 978,400 shares of undesignated preferred
stock which may be issued with such rights and preferences as the Board of
Directors may determine. Therefore, the undesignated preferred stock may be
issued with liquidation, dividend, voting and other rights superior to those
of existing common shareholders, including the right to elect a controlling
number of directors as a class.
Stock Option Plan - Alfa's Stock Option Plan provides for the granting
of Incentive Stock Options and Non-qualified Stock Options to all employees
and others who perform key services to purchase up to 750,000 shares of
common stock at an exercise price equal to at least the fair market value of
a share of common stock at the date of grant (exercise prices for incentive
options for holders of more than 10% of the outstanding common stock must be
at least 110% of the fair market value on the date of grant). Incentive stock
options are exercisable in 20% increments commencing one year after the date
of grant and generally expire five years after the date of grant. The Stock
Option Plan expired on December 27, 1997.
In connection with their employment agreements, the Company issued a total of
385,000 stock options to its President, Vice President and National Accounts
Manager during 1997. The options are exercisable at a price of $1.00 per share
and expire five years from the date of grant.
At December 31, 1997, there were 385,000 stock options outstanding under the
Stock Option Plan, of which 85,000 were exercisable. The remaining options
vest at a rate of 75,000 shares per annum through 2001. There were no stock
options outstanding at December 31, 1996.
In connection with the settlement of an outstanding obligation with a
creditor, the Company paid $9,647 in cash and granted the creditor the option
F-10
<PAGE>
ALFA INTERNATIONAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to purchase 125,000 shares of the Company's Common Stock, exercisable at
$.10 per share through November 5, 2007.
Pursuant to the terms of an Investment Banking Agreement and a Stock
Redemption Agreement, each dated December 6, 1996, the Company issued
1,250,000 shares of its common stock to an investment banker who attempted
to raise capital for the Company. An amount equal to the fair market
value of the common stock ($12,500) was recorded as a deferred asset at
December 31, 1996. The investment banker also lent the Company $100,000
under a note payable.
In accordance with the provisions of the Stock Redemption Agreement, the
investment banker was required to return these shares to the Company since
it did not raise the minimum capital required by March 24, 1997. In order
to settle its outstanding obligation, the Company paid a total of $50,000
to the investment banker and allowed the investment banker to keep 125,000
shares of Alfa's common stock previously issued to it in settlement of the
note payable.
Warrants - Alfa issued 8,075 common stock purchase warrants in
connection with the merger. The warrants give the holder the right to
receive one share of Alfa common stock for $4 per share. These warrants
expire in January 1999.
Alfa issued 1,500,000 common stock purchase warrants in connection with
the sale of common stock during 1997. The warrants give the holder the
right to purchase one share of common stock for $1.00 per share. These
warrants expire in July and October 1999.
NOTE 6: Commitments:
Lease - The Company leases its premises under a noncancellable
operating lease expiring March 31, 1999. Rent expense for operating
leases in 1997 and 1996 was $39,977 and $38,698, respectively. The
following is a schedule of future minimum rental payments required for
all noncancellable operating leases that have initial or remaining lease
terms in excess of one year at December 31, 1997.
Year Ending December 31,
------------------------
1998 $ 38,500
1999 9,625
----------
$ 48,125
Employment Agreement - The Company is obligated through December 2001
to pay its president/chief executive officer an annual base salary of
$100,000 plus an additional amount based on gross revenue. The company is
also obligated through December 2001 to pay its vice-president of sales and
F-11
<PAGE>
ALFA INTERNATIONAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
secretary an annual base salary of $45,000, plus an additional amount based
on net sales.
NOTE 7: Provision for Income Taxes:
Deferred tax asset is comprised of the following:
December 31,
----------------------------
1997 1996
------------ ------------
Federal net operating loss
Carryforwards $1,600,000 $1,150,000
State net operating loss
carryforwards net of federal
tax benefit 150,000 100,000
------------ ------------
1,750,000 1,250,000
Less: Valuation allowance 1,750,000 1,250,000
------------ ------------
$ - $ -
The Company's effective tax rate differs from the expected federal income
tax rate due to changes in the valuation allowance at December 31, 1997
and 1996.
Management has determined, based on the Company's current condition, that
a full valuation allowance is appropriate at December 31, 1997.
At December 31, 1997, the Company had Federal net operating loss
carryforwards of approximately $3,800,000 which expire beginning in 2004.
The Company's issuance of shares during fiscal 1995 and subsequent thereto
results in a "Change of Ownership" as defined by the Internal Revenue Code
of 1986, which limits the Company's use of these net operating loss
carryforwards.
F-12
