FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: September 30, 1999
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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 (I.R.S. Employer
of incorporation or organization) Identification Number)
107 Industrial Drive, Jersey City, New Jersey 07305
(Address of principal executive offices)
(201) 332-2200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [x] Yes [] No
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 November 19, 1999, the registrant had outstanding 7,641,398 shares of
Common Stock, par value $.01 per share.
<PAGE>
ALFA INTERNATIONAL CORP.
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
BALANCE SHEETS
DECEMBER 31, 1998
SEPTEMBER 30, 1999
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998
THREE MONTHS ENDED SEPTEMBER 30, 1999
NINE MONTHS ENDED SEPTEMBER 30, 1998
NINE MONTHS ENDED SEPTEMBER 30, 1999
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1999
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998
NINE MONTHS ENDED SEPTEMBER 30, 1999
NOTES TO FINANCIAL STATEMENTS
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 5: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
<PAGE>
ALFA INTERNATIONAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
(Unaudited) Note 1
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents $ 224,677 $ 9,897
Accounts receivable 6,785 7,173
Inventory 60,847 59,664
Prepaid expenses and other
current assets 17,535 19,073
Total Current Assets 309,844 95,807
PROPERTY AND EQUIPMENT:
Office & Computer Equipment 36,903 35,872
Furniture & Fixtures 27,605 33,528
--------- ---------
64,508 69,400
Less: Accumulated depreciation (44,251) (42,879)
--------- ---------
20,257 26,521
Other Assets 430 4,747
--------- ---------
Total Assets $ 330,531 $ 127,075
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 50,802 $ 105,519
Loan From Officer 18,000 -
Customer Deposits 2,503 -
Accrued expenses and other current
liabilities - 4,675
--------- ---------
Total Current Liabilities 71,305 110,194
STOCKHOLDERS EQUITY:
Common Stock - $ .01 par value
Authorized - 15,000,000 shares
Issued - 7,341,398 shares at 9/30/99
and 6,441,398 at 12/31/98 73,414 64,414
Capital in excess of par value 4,984,703 4,168,703
Retained earnings (deficit) (4,798,891) (4,216,236)
--------- ---------
Total Stockholders' Equity 259,226 16,881
--------- ---------
Total Liabilities & Equity $ 330,531 $ 127,075
</TABLE>
<PAGE>
ALFA INTERNATIONAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
---------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
September 30 September 30
-------------------- ----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 86,280 $ 6,750 $ 106,555 $ 48,807
Interest Income 568 613 659 1,398
Other income 3,000 4,101 12,090 25,060
--------- ------ --------- ---------
89,848 11,464 119,304 75,265
COST AND EXPENSES:
Cost of sales 55,934 1,195 64,574 18,321
Selling, general and administrative 55,705 63,698 637,385 247,527
Interest expense 0 0 0 0
-------- ------ -------- --------
111,639 64,893 701,959 265,848
-------- ------ -------- --------
NET LOSS $ (21,791) $(53,429) $(582,655) $(190,583)
WEIGHTED AVG. NUMBER
OF SHARES OUTSTANDING 6,441,398 6,441,398 6,441,398 6,441,398
NET LOSS PER SHARE $ ( - ) $ ( .01 ) $ (.09) $ ( .03 )
</TABLE>
<PAGE>
ALFA INTERNATIONAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Capital in Retained
Par Excess of Earnings
Shares Value Par Value (Deficit
<S> <C> <C> <C> <C>
Balances At
December 31,
1998 6,441,398 $ 64,414 $ 4,168,703 $ (4,216,236)
Issuance of Stock Options
Pursuant to Consulting
Agreement (Note 2) 500,000
Issuance of Common
Stock 900,000 $ 9,000 $ 316,000
Net (loss) for
the Nine
Months ended
September 30, 1999 $ (582,655)
Balances At
Sept. 30, 1999 7,341,398 $ 73,414 $ 4,984,703 $ ( 4,798,891)
________ _______ __________ __________
</TABLE>
ALFA INTERNATIONAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION> Nine Months Ended
September 30
---------------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (582,655) $ (190,583)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation and amortization 7,000 19,152
Issuance of Stock Options (Note 2) 500,000 -
Changes in operating assets and liabilities:
Accounts receivable 388 (1,831)
Inventories (1,183) (3,712)
Other current assets 1,538 (14,356)
Accounts payable (54,717) (14,424)
Royalties Payable - (24,000)
Customer Deposits 2,503 -
Other assets 4,317 (300)
Other Liabilities - (12,903)
Accrued expenses (4,675) (1,840)
---------- ---------
Net cash flows from operating activities (127,484) (244,797)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment (239) (8,190)
Disposition of Leasehold Improvements (497) -
---------- --------
Net cash flows from investing activities (736) (8,190)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Common Stock 325,000 286,250
Loan from Officer 18,000 -
-------- --------
Net cash flows from financing activities 343,000 286,250
NET CHANGE IN CASH AND EQUIVALENTS 214,780 33,263
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 9,897 42,088
CASH AND EQUIVALENTS, END OF PERIOD $ 224,677 $ 75,351
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid (refunded) 0 0
Interest paid $ 0 $ 0
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION:
The balance sheet for Alfa International Corp. ("Alfa" or the "Company") at the
end of the preceding fiscal year has been derived from the audited balance
sheet and notes thereto contained in the Company's annual report on Form 10-KSB
for the fiscal year ended December 31, 1998 and is presented herein for
comparative purposes. All other financial statements are unaudited. In the
opinion of management all adjustments which include only normal recurring
adjustments necessary to present fairly the financial position, results of
operations and changes in financial position for all periods presented have
been made. The results of operations for interim periods are not necessarily
indicative of operating results for the full year. Alfa presently has one
wholly owned subsidiary through which it conducts all operations. All inter-
company transactions have been eliminated in its consolidation with Alfa.
Footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted in
accordance with the published rules and regulations of the Securities and
Exchange Commission. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
annual report on Form 10-KSB for the fiscal year ended December 31, 1998.
NOTE 2 - STOCK BASED COMPENSATION - CONSULTING AGREEMENT:
Under a consulting agreement dated January 20, 1999, the Company granted a
total of 2,000,000 stock options ("Options"), 500,000 each at exercise prices
of $.25; $.50; $.75 and $1.00. The Options expire at the earlier of January 20,
2002 or the date of termination of the consulting agreement. Using the Black-
Scholes option valuation model to compute the fair value of the Options on the
date of grant, the Company booked a $500,000 non-cash charge to earnings in
January 1999 to reflect this stock based compensation to the consultants.
NOTE 3 - COMMON STOCK
During the third quarter of 1999, the Company issued 900,000 shares of its
Common Stock and received proceeds totaling $325,000 as a result of the
exercise of Options held by a consultant to the Company. Subsequent to
September 30, 1999, the Company issued an additional 300,000 shares of its
Common Stock and received proceeds totaling $200,000 as a result of the
exercise of Options held by a consultant. The Options were issued to the
consultants pursuant to a consulting agreement dated January 20, 1999 as
described in the Company's Report on Form 10-QSB for the period ended March 31,
1999.
<PAGE>
ALFA INTERNATIONAL CORP. AND SUBSIDIARY
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
The balance sheet for the Company at the end of fiscal year 1998 contained
herein has been derived from the balance sheet audited by the Company's
independent certified public accountants which is contained in the
Company's annual report on Form 10-KSB for the fiscal year ended December 31,
1998. All other financial statements are unaudited.
All of the Company's operations are conducted through its wholly owned
subsidiary, Ty-Breakers Corp. "Ty-Breakers"). Ty-Breakers is engaged in the
business of manufacturing and marketing imprinted apparel, mostly jackets, made
from Tyvek and Kensel. Ty-Breakers maintains a website at www.ty-breakers.com
. 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. Ty-Breakers has filed an application to register the trademark
"Kensel" with the U.S Office of Trademarks.
Ty-Breakers markets custom imprinted Tyvek and Kensel 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 its own line of Tyvek and Kensel apparel to retail stores, catalog
companies and fashion designers.
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 haracteristic 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 or
from DuPont's Asian agent. 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 or its agent 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 in the United States and Asia.
Ty-Breakers' Tyvek jacket has become its primary product for corporate
identity, advertising and promotion purposes (the "Custom Business"). Other
Tyvek products are vests, hats, bags, aprons and banners. Ty-Breakers has
initiated marketing efforts to sell its Tyvek and Kensel apparel to retail
stores and catalog companies nationwide for ultimate purchase by consumers. Ty-
Breakers also sells its Tyvek and Kensel apparel to consumers via its Internet
website www.ty-breakers.com. Tyvek and Kensel jackets are the primary products
<PAGE>
sold to retail stores and catalog companies. T-Breakers has also sold jackets,
shirts, bags and dresses made from Tyvek to various fashion designers.
Customers who have purchased Tyvek and Kensel apparel include brewers, food
distributors, automotive companies, hotels & resorts and other major
corporations as well as sponsors of sporting and special events and numerous
retail stores, catalog companies and fashion designers.
Marketing efforts aimed at selling Tyvek and Kensel apparel to retail stores
and catalog companies were postponed and are now planned to commence early in
fiscal year 2000. Ty-Breakers has concentrated its efforts during 1999 on the
sale of Tyvek and Kensel products in the Custom Business which, because of the
terms of sale in the Custom Business, generally require smaller cash outlays.
This concentration is reflected in the fluctuations in customer deposits and
inventory work-in-process during the nine months ended September 30,1999.
The Company and two consultants ("Consultants") entered into a consulting
agreement dated January 20, 1999 under which the Consultants, among other
things, agreed to provide the Company and Ty-Breakers with management
consulting services, international marketing services and corporate finance
advice and the Company agreed to compensate the Consultants by granting them
four stock options covering a total of two million shares of the Company's
Common Stock. Discussions with and between the consultants have, among
other things, led to initial marketing attempts by Ty-Breakers to sell its
products in overseas markets, the end of Alfa's involvement with Auto Pilot,
Inc., and the pursuit by Alfa of an investment and/or acquisition in an
internet related business. As of November 15, 1999 the Consultants have
exercised options for 1,200,000 shares of Common Stock and the Company has
received proceeds of $525,000. Based upon conversations with the Consultants,
the Company expects them to exercise the remaining 800,000 Options from which
the Company would receive proceeds of $775,000 but no assurance can be given at
this time that such remaining Options will actually be exercised or, if
exercised, when such exercise would take place. During the first quarter of
1999, the Company incurred a one-time non-cash charge of $500,000 (with an
offsetting $500,000 credit to paid in capital) to account for the fair
valuation of the Options at the time of grant.
The Company's lease on its Irvington, New York facility expired on June 30,
1999. Effective July 1, 1999 the Company moved its and Ty-Breakers operations
to their present location in Jersey City, New Jersey. During the second quarter
of 1999 Ty-Breakers wrote off the remaining negligible balance of its un-
ammortized leasehold improvements on its Irvington facility. The Company
expects that annualized savings of approximately $40,000 will be realized as a
result of the move to its new facilities. As Alfa's and Ty-Breakers' business
plans unfold, and depending upon future events, the Company may move Alfa
and/or Ty-Breakers to different locations.
During 1999, Ty-Breakers continued development of its "ExtremeTease" line of
gift items and tee shirts bearing proprietary art commissioned by Ty-Breakers.
The copyrights for all the art commissioned for the ExtremeTease line is owned
by Ty-Breakers and Ty-Breakers has filed an application to register the
trademark "ExtremeTease" with the U.S Office of Trademarks. Ty-Breakers has
also reserved the Internet address www.extremetease.com for future use in
marketing this new line. Ty-Breakers intends to recruit a nationwide
independent sales representative force to sell its ExtremeTease line and later
its Tyvek and Kensel apparel to retail stores and catalog companies. The
<PAGE>
ExtremeTease line is scheduled for introduction at trade shows during January
2000.
Alfa intends to build its Ty-Breakers subsidiary around its core products of
Tyvek and Kensel apparel by acquiring and/or developing new lines (such as the
ExtremeTease gift line) and Alfa plans to continue the preliminary discussions
it is conducting to pursue an acquisition and/or investment in an internet
related business.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED SEPTEMBER 30,1999 vs.
THREE MONTHS ENDED SEPTEMBER 30,1998
The Company experienced an increase in net revenue of $78,384 (68.4%) in the
third quarter of 1999 as compared to the same period in the previous year. This
revenue increase resulted entirely from an increase in Ty-Breakers' sales of
$79,530 (117.8%) attributable to Ty-Breakers' concentration on custom sales
during the second and third quarters of 1999 (i.e. sales for which customers
have contracted with Ty-Breakers). Ty-Breakers has postponed further marketing
directed at retail stores and catalog companies until early in fiscal 2000.
During the third quarter of 1999 Ty-Breakers recorded sales and liquidated
customer deposits and inventory associated with Custom orders received in prior
periods. Fluctuations in customer deposits and inventory reflect Ty-Breakers'
concentration on custom sales. The cost of sales percentage for the third
quarter of 1999 was 64.8% and the gross profit percentage was 35.2%. Custom
sales generally have a lower gross profit margin than sales to retailers.
Selling, general and administrative expenses decreased by $7,993 (12.5%) during
the third quarter of 1999 compared to the same period in the previous year.
This decrease is attributable to the Company's cost containment measures,
including reductions in expenses relating to its leased facilities. The
Company's move to its new location in July 1999 will result in approximately
$40,000 in annualized expense savings.
The Company experienced a net loss of $21,791 for the third quarter of 1999 as
compared to a net loss of $53,429 during the same period in the previous fiscal
year. This decrease in the Company's loss of $31,638 (59.2%) is primarily
attributable to the increase in custom sales during the quarter and the
decreases in selling, general and administrative expenses mentioned above. The
continued losses for the Company are attributable to Ty-Breakers' failure to
attain a sufficient level of sales as a result of postponing its marketing
efforts directed at retail stores as well as the lower gross profit margins
generated by custom sales (as opposed to sales to retailers). The Company has
sharply reduced its operating expenses in 1999 and increased its efforts in the
area of custom sales but will need to further increase sales of its Ty-Breakers
subsidiary in order to attain profitability - a goal which is expected to be
met in fiscal year 2000, but not before.
Management believes that a profitable level of sales will be attained after Ty-
Breakers re-starts its marketing efforts directed at retail stores, recruits
its independent sales representatives and introduces its new gift line. The
<PAGE>
proceeds which the Company has received from the exercise of Options during the
third quarter of 1999 together with sales revenue generated from Custom sales
will assist the Company in pursuing these objectives.
No significant increases in capital expenditures occurred during the third
quarter of 1999.
NINE MONTHS ENDED JUNE 30,1999 vs.
NINE MONTHS ENDED JUNE 30,1998
The Company experienced an increase in net revenue of $44,039 (58.5%) for the
first nine months of 1999 as compared to the same period in the previous year.
This revenue increase resulted from an increase in Ty-Breakers' sales of
$57,748 (118.3%) attributable to Ty-Breakers' concentration on custom sales
during the second and third quarters of 1999 net of a $13,709 decrease in other
components of revenue. The decrease in other revenue is attributable to a non-
recurring increase in miscellaneous income during the first nine months of the
previous fiscal year. Ty-Breakers has postponed further marketing directed at
retail stores and catalog companies until early in fiscal 2000. Fluctuations in
customer deposits and inventory during the first nine months of 1999 reflect
Ty-Breakers' concentration on custom sales. Increases are experienced in
deposits and inventory as custom orders are received . When the orders are
shipped, sales are recorded and the associated deposit and inventory accounts
are liquidated. The cost of sales percentage for the first nine months of 1999
was 60.6 % and the gross profit percentage was 39.4%. Custom sales generally
have a lower gross profit margin than sales to retailers.
Selling, general and administrative expenses increased by $389,858 (157.5%)
during the first nine months of 1999 compared to the same period in the
previous year. This increase is entirely attributable to the non-recurring
$500,000 non-cash compensation expense incurred by the Company during the first
quarter of 1999 to account for the fair market value of options granted to
consultants. Excluding this non-cash charge, SG&A actually decreased by
$110,142 (44.5%) during the first nine months of 1999 as compared to the
same period in the previous year. This decrease is attributable to the
Company's cost containment measures, including reductions in employees salaries
and expenses relating to its leased facilities. The Company's move to its new
location in July 1999 will result in approximately $40,000 in annualized cost
savings.
The Company experienced a net loss of $582,655 for the first nine months of
1999 as compared to a net loss of $190,583 during the same period in the
previous fiscal year. This increase of $392,072 (205.7%) is entirely
attributable to the non-recurring $500,000 non-cash compensation expense
referred to above. Excluding this non-cash charge, the Company's loss for the
first nine months of 1999 actually decreased by $107,928 (56.6%) as compared to
the same period in the previous year. The continued losses for the Company are
attributable to Ty-Breakers' failure to attain a sufficient level of sales as a
result of postponing its marketing efforts directed at retail stores as well as
lower gross margins on custom sales. The Company has sharply reduced its
operating expenses in 1999 and increased its efforts in the area of custom
sales but will need to further increase sales of its Ty-Breakers subsidiary in
order to attain profitability a goal which is expected to be met in fiscal year
2000, but not before. Management believes that a profitable level of sales will
<PAGE>
be attained after Ty-Breakers re-starts its marketing efforts directed at
retail stores, recruits its independent sales representatives and introduces
its new gift line. Projected sales revenue from increased custom sales as well
as the proceeds which the Company has received from the exercise of Options
during the third quarter of 1999 will assist the Company in pursuing these
objectives.
Management plans (1) to introduce Ty-Breakers' new ExtremeTease line of gift
and apparel items at trade shows in early 2000, (2) during the first and second
quarter of 2000 to recruit a nationwide independent sales representative force
to sell the ExtremeTease line to retailers including: gift shops, catalog
companies, department stores and mass merchants, and (3) sometime thereafter
utilize this sales rep force to sell Tyvek and Kensel apparel to the same
retailers.
No significant increases in capital expenditures occurred during the first nine
months of 1999 and the Company wrote off its negligible remaining amount of un-
ammortized leasehold improvements on its Irvington, N.Y. facility during the
period..
Liquidity And Capital Resources:
The Company experienced negative cash flow from operations during the first
nine months of 1999 primarily due to its operating loss during the period.
Decreases in accounts payable and accrued expenses during the period also
contributed to the negative cash flow. The Company's operating loss during the
first nine months of 1999, however, includes non-cash charges totaling $507,000
which, although material, do not negatively impact cash flow. During the third
quarter of 1999, the Company paid down its accounts payable by $56,612 as
compared to its accounts payable balance at June 30, 1999. Compared to December
31, 1998, the Company has reduced accounts payable by 54,717 (51.9%).
At September 30, 1999 the Company had working capital of $238,539 as compared
to negative working capital of $(14,387) at December 31, 1998 and negative
working capital of $(67,560) at June 30, 1999. Seventy percent of the Company's
negative working capital at June 30, 1999 was directly attributable to
increases in customer deposits and inventory - both of which were related to
custom orders received by Ty-Breakers. Fluctuations in customer deposits and
inventory - and hence in working capital - during the first nine months of 1999
reflect Ty-Breakers' concentration on custom sales during the period. Increases
are experienced in deposits and inventory as custom orders are received . When
the orders are shipped, sales are recorded and the associated deposit and
inventory accounts are liquidated. To the extent that Ty-Breakers concentrates
on custom sales, one may expect to see such fluctuations in the Company's
working capital accounts.
Customer deposits decrease Ty-Breakers' working capital calculation because
they are accounted for as a current liability on the balance sheet although
they provide the financing mechanism for custom orders which become sales in
future periods. Such deposits (normally 50% of an order) are not returned to
the customer, are used to finance the raw material and work-in-process
associated with the particular custom order, and the balance sheet liability
they represent is eliminated when the order is shipped and the sale is
recorded. Moreover, because of their unique nature, the terms of sale for
<PAGE>
custom orders generally require payment in full before shipment by Ty-Breakers.
Custom sales, therefore, are essentially self-financing. Ty-Breakers believes
that the market for custom sales is neither as large nor as profitable as the
market for sales to retailers. Sales to retailers typically carry a 45% to 60%
gross profit margin. While Ty-Breakers intends to maintain and expand its
custom business, it's business plan calls for an expansion of sales to
retailers. Expenditures (some of which have already been incurred) for print &
internet advertising, marketing, trade shows, brochures, R&D, product
development, sales personnel and inventory will be required in order for
Ty-Breakers to dramatically increase such sales to retailers. Ty-Breakers
intends to incur these expenditures as funding permits.
The Company's President extended short term loans of $18,000 to the Company
during the first nine months of 1999. At September 30, 1999, approximately 20%
of current assets were invested in inventory, 73% was held in cash and the
balance invested in accounts receivable (2%) and pre-paid expenses (5%).
Receipt by the Company of $325,000 during the third quarter of 1999 and
$200,000 subsequent to the third quarter of 1999 from the exercise of Options
has positively affected the Company's working capital position.
Ty-Breakers plans to market its new ExtremeTease line of gift and apparel items
as well as its Tyvek and Kensel apparel to retailers in an effort to increase
sales revenue and attain higher gross profit margins than it has historically
attained in its Custom Business.
The Company believes it has positioned Ty-Breakers to begin aggressively
marketing its products in the first quarter of fiscal 2000. While no assurances
can be given at this time, management believes that such marketing efforts will
successfully increase Ty-Breakers' sales and will turn Ty-Breakers profitable
in fiscal year 2000. Projected revenue for fiscal 1999 is expected to exceed
revenue in fiscal 1998 but still remain insufficient to attain profitability in
1999. Exclusive of one-time non-cash charges in fiscal 1998 and 1999, projected
expenses are expected to be significantly lower in fiscal 1999 than in fiscal
1998. Revenues (and associated sales expenses) are projected to increase
significantly in fiscal 2000. It is necessary for Ty-Breakers to increase its
levels of sales in order to allow continued operations.
During the third quarter of 1999, the Company issued 900,000 shares of its
Common Stock and received proceeds totaling $325,000 as a result of the
exercise of Options held by a consultant to the Company. Subsequent to
September 30, 1999, the Company issued an additional 300,000 shares of its
Common Stock and received proceeds totaling $200,000 as a result of the
exercise of Options held by a consultant.
Forward Looking Statements
Certain statements made in this report on Form 10-QSB are "forward looking"
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements involve known and unknown risks, uncertainties and
other factors that may cause actual results, performance or achievements of the
Company to be materially different from any future results implied by such
forward looking statements. Although the Company believes that the expectations
reflected in such forward looking statements are based upon reasonable
assumptions, the Company's actual results could differ materially from those
set forth in the forward looking statements. Certain factors that might cause
such a difference might include: the acceptance in the marketplace of Ty-
Breakers's planned ExtremeTease product line, the growth of the market for the
Ty-Breakers's products, the ability of Ty-Breakers to continue to secure
custom orders, the renewal by Congress of China's most-favored-nation trade
status, the ultimate decision by Alfa whether or not to invest in an internet
related business or the success of Ty-Breakers's various domestic and
international marketing initiatives.
Year 2000 Compliance
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any computer program
that has date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or mis-
calculations causing disruptions of operations, including, among other things,
a temporary inability to process transactions, send invoices or engage in
similar normal business activities.
Based on assessments made in fiscal years 1997 and 1998, the Company has
updated all versions of operating and financial & accounting software to be
Year 2000 compliant so that all of its systems recognize and utilize dates
beyond December 31, 1999 properly. The Company believes that the modifications
and conversions it has completed will allow it to mitigate any problems
associated with the Year 2000 issue.
The Company has also received formal communications from its bank, transfer
agent, and major suppliers that their systems are also Year 2000 compliant.
Based on the foregoing and the Company's own research, the Company does not
believe that it is vulnerable to any third parties' failure to remediate their
own Year 2000 issues. The financial impact on the Company of bringing its
equipment and systems into Year 2000 compliance is not anticipated to be
material to the Company's financial position or results of operations.
<PAGE>
PART II - OTHER INFORMATION
ITEM 5: Other Information:
Under a consulting agreement dated January 20, 1999, the Company granted a
total of 2,000,000 stock options to consultants to the Company ("Options"),
500,000 each at exercise prices of $.25; $.50; $.75 and $1.00. The Options
expire at the earlier of January 20, 2002 or the date of termination of the
consulting agreement. During the third quarter of 1999, the Company issued
900,000 shares of its Common Stock and received proceeds totaling $325,000 as a
result of the exercise of Options held by a consultant. Subsequent to
September 30, 1999, the Company issued an additional 300,000 shares of its
Common Stock and received proceeds totaling $200,000 as a result of the
exercise of Options. A total of 800,000 Options remain unexercised and
outstanding as of the date hereof. The Options were issued to the consultants
pursuant to a consulting agreement dated January 20, 1999 as described in the
Company's Report on Form 10-QSB for the period ended March 31, 1999.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits numbered in accordance with Item 601(a) of Regulation S-B.
Exhibit Page
Numbers Description Number
- ------- ----------- ------
3.1 Articles of Incorporation, as amended *
3.2 By-laws *
27 Financial Data Schedule E-01
_________________
* 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.
(b) Reports on Form 8-K
None
<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.
DATED: November 22, 1999 ALFA INTERNATIONAL CORP.
(Registrant)
By: /s/ Frank J. Drohan
----------------------
Frank J. Drohan
Chief Executive Officer
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S AUDITED FINANCIAL STATEMENTS DATED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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