FORM 10-KSB/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMMENDED ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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Commission File Number 0-17264
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ALFA INTERNATIONAL CORP.
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(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2216835
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
107 Industrial Drive, Jersey City, NJ 07305
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(Address of Principal Executive Offices)
50 South Buckhout Street, Irvington, N.Y. 10533
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(Former Address If Changed Since Last Report)
Registrant's telephone number, including area code: (201) 332-2200
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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
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(Title of Class)
Check whether the Registrant (1) 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
<PAGE>
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will 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]
The registrant's total revenue for the fiscal year ended December 31, 1998
was $ 101,389.
The aggregate market value of the 2,315,849 shares of voting stock held by
non-affiliates of the registrant (based upon the average of the high and
low bid prices) on September 30, 1999 was $2,894,811. SEE: "Market for Common
Equity and Related Stockholder Matters").
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. [x] Yes [ ] No
As of September 30, 1999 the Company had outstanding 7,441,398 shares of
common stock, par value $. 01 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, 1997, Part III -Exhibits.
BALANCE OF THIS PAGE INTENTIONALLY LEFT BIANK
<PAGE>
ALFA INTERNATIONAL CORP.
Table of Contents to Annual Report on Form 10-KSB
Year Ended December 31, 1998
Page
Part I
Item 1. Description of Business 4
Item 2. Description of Property 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote
of Security Holders 8
Part II
Item 5. Market for Common Equity and
Related Stockholder Matters 8
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 7. Financial Statements 14
Item 8. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 14
Part III
Item 9. Directors, Executive Officers and
Control Persons; Compliance with
Section 16(a) of the Exchange Act 14
Item 10. Executive Compensation 15
Item 11. Security Ownership of Certain Beneficial
Owners and Management 17
Item 12. Certain Relationships and Related
Transactions 18
Item 13. Exhibits and Reports on Form 8-K 19
<PAGE>
PART I
Item 1. Description of Business
Introduction
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Alfa International Corp. ("Alfa" or the "Company") is a holding
company, which conducts substantially all of its operations through its
wholly owned subsidiary Ty-Breakers Corp. Alfa was formed in 1978. In
December 1992, Alfa filed for bankruptcy protection. Subsequent to its Plan
of Re-Organization being confirmed by the bankruptcy court, the Company was
re-organized and on August 12, 1996 was discharged from bankruptcy
proceedings and released from the supervision of the Court. (See: "Legal
Proceedings"). Other than for matters relating to its reorganization and
financing efforts, the Company was inactive in 1996. In January 1997 the
Company acquired Ty-Breakers Corp, a New York corporation ("Ty-Breakers").
Ty-Breakers is engaged in the business of manufacturing and marketing
apparel products, mostly jackets, and accessories made from Tyvek and
Kensel. Tyvek is a paper-like material produced and sold by E.I. Du Pont de
Nemours & Company ("Du Pont"). Tyvek is a registered trademark of Du Pont.
Kensel is a trademark of Ty-Breakers used to identify Ty-Breakers' patented
fabric material. During 1997 and 1998, the Company received net proceeds of
$905,000 from the sale of its securities in private placements to investors
introduced to the Company by Continental International Trading & Consulting
Corp. ("Continental"). Additionally, during 1998, the Company received $150,000
pursuant to the exercise of Warrants by an investor. The Company used the
proceeds from its private placements to fund operations, pay debt and offering
expenses and to implement the sales and marketing plan for its Ty-Breakers
subsidiary. Ty-Breakers had been marketing its products primarily in the
premium and incentive market which operations continue to date. In late 1997 Ty-
Breakers began marketing jackets and other apparel made from Tyvek and from
its patented Kensel material to retail stores, catalog companies and at its
website www.ty-breakers.com. These operations also continue to date. Ty-
Breakers is also developing a branded line of tee shirts and gift items
bearing its proprietary art images and is considering investing in an
Internet related business. (See: "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Certain Relationships
and Related Transactions").
The Company's executive offices and warehouse are located at 107
Industrial Drive, Jersey City, NJ 07305 and its telephone number is
201-332-2200.
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, catalog companies and fashion designers.
<PAGE>
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 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 "promotional business").
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 began to
market 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 sold
by Ty-Breakers 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.
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.
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.
In this regard, a reserve for obsolescent and/or slow moving inventory has
been established. The Ty-Breakers marketing plan is particularly directed at
increasing sales to retail outlets and Ty-Breakers is developing and plans
to introduce a new product line of gift items to complement its Tyvek and
Kensel products.
<PAGE>
Production
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 ndependent
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 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. and Asia to manufacture its Tyvek and
Kensel apparel products.
Marketing
Ty-Breakers markets its products through industry trade shows and direct
mail marketing. Ty-Breakers is one of only three companies recommended by
Du Pont, when potential customers call Du Pont seeking Tyvek apparel. In
November 1997, Ty-Breakers mailed approximately 140,000 catalogs to retail
stores and catalog companies in the U.S. Additionally Ty-Breakers has
designed and launched an Internet website (www.ty-breakers.com) where
consumers may view the full color catalog and make secure credit card
purchases.
Two in house employees attend trade shows and do direct selling to
retail and promotional accounts. Ty-Breakers intends to continue its direct
mail marketing to the 140,000 retailers which it began in November 1997, to
purchase print advertising, to attend trade shows and to engage the
services of additional outside sales representatives to call on accounts.
Competition
Several U.S. companies sell Tyvek garments made from a disposable type of
Tyvek for use in the chemical, medical, disposal and painting industries.
These companies are not competitors, as Ty-Breakers does not compete in
these markets. The Company is aware of only two other competitor companies
in the U.S, which sell imprinted Tyvek apparel and at least two other non-
U.S. companies. The Company believes that its competitors generally
restrict themselves to the custom promotional business and avoid the retail
business and its associated inventory and marketing 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
U.S. competitor is marketing Kensel apparel, for which Ty-Breakers holds
the U.S. 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.
<PAGE>
Patents, Copyrights and Trademarks
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 pursue additional license agreements, as
it believes its products are particularly suited for licensed apparel.
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 that Ty-
Breakers markets 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
(exclusive of any licensed designs) produced for Ty-Breakers. Ty-Breakers
has filed applications to register the trademarks "Kensel" and
"ExtremeTease" with the U.S. Office of Trademarks. The failure of any
trademark to issue, in the Company's opinion, will not materially or
adversely affect its operations.
Governmental Regulation
The Company does not require any governmental approval of its products
nor does the Company anticipate any negative effects on its business from
any existing or probable governmental regulations. The Company has no
expenses or costs associated with compliance with any local, state or
federal environmental laws.
Employees
The Company presently has two employees both of whom 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 its
two employees. Ty-Breakers plans to recruit a nationwide sales
representative force to sell its products to retail stores. (See "Executive
Compensation" and "Directors and Executive officers of the Registrant").
Item 2. Description of Property
As of December 31, 1998 the Company's and Ty-Breakers' corporate
offices were located at 50 South Buckhout Street, Irvington, New York 10533
and were leased by Ty-Breakers from an unafiliated third party under a
lease which expired on June 30, 1999. The Company and Ty-Breakers moved their
corporate offices to 107 Industrial Drive, Jersey City, N.J. 07305 on July 1,
1999.
<PAGE>
Item 3. Legal Proceedings
On August 12, 1996 the United States Bankruptcy Court for the District
of Arizona 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, 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, on a one for twenty-five basis, the Company's shares of
common stock which were outstanding as of August 4, 1995.
Other than the above the Company knows of no material legal
proceedings, pending or threatened, against it or any of its subsidiaries.
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".
The following table sets forth the range of the high and low closing
bid prices for the Common Stock for the eight quarters within the last two
fiscal years as reported by NASDAQ Trading & Market Services, Washington, DC
20006-1500. The quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
Common Stock
Quarter Ended High Low
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3/30/97 0.08 0.08
6/30/97 1.625 1.375
9/30/97 0.50 0.50
12/31/97 1.50 1.50
3/31/98 1.25 1.00
6/30/98 0.75 0.125
9/30/98 0.50 0.125
12/31/98 0.5625 0.25
<PAGE>
At December 31, 1998 the Company had 6,441,398 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, 1998 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 1997 and 1998 have
been audited by the Company's independent certified public accountants.
During 1998 the Company planned follow on mailings to capitalize on
the momentum it had generated from its November 1997 catalog mailing to
140,000 retailers. Due to financial constraints the Company was unable to
undertake these follow on mailings and now plans to do them beginning in
January 2000. In addition to its core Tyvek and Kensel apparel business,
Ty-Breakers intends to launch a line of gift items bearing proprietary art
that was commissioned by Ty-Breakers in 1998/1999. Ty-Breakers intends to
recruit a nationwide sales representative force to sell these gift items,
and its Tyvek and Kensel apparel, to retail stores. 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) a gift and novelty line, other imprinted sports apparel and
licensed apparel lines. The Company intends to complete product development
of its new tee shirt and gift item line for introduction in the beginning
of fiscal year 2000.
In early 1998, the Company began the $1,000,000 Second Private
Placement offering of up to 40 Units of its securities with the intent of
using the proceeds to finance Ty-Breakers' continuing marketing efforts -
capitalizing on the momentum started by the November 1997 direct mail
campaign to 140,000 retail stores. Only 10.9 Units in the Second Private
Placement were sold during fiscal year 1998 and the offering was
subsequently terminated. The Company received gross proceeds of $272,500
and paid Continental $136,250 in placement fees on such Units. Net proceeds
from the sales of Units were insufficient to pursue the Company's
aggressive marketing and sales strategy directed at retail stores during
1998 and the Company essentially relied on the results from its November
1997 mailing to generate revenue. The Company plans to introduce new
products and re-start its retail marketing efforts in 2000 and expects that
its fiscal year 1999 results will, while improved, remain unprofitable.
Although no assurances can be given at this time that adequate revenue can
be generated from ongoing operations to make the Company's operations
profitable, management believes that fiscal 2000 results will be sharply
<PAGE>
improved as a result of sales and marketing efforts and new product
introductions.
All of the Company's operations are conducted through its wholly owned
subsidiary, Ty-Breakers Corp., which the Company acquired on January 23,
1997. 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.
In late 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 mailing was 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. The Company continues to benefit from this mailing. Prior to
November 1997, Ty-Breakers marketed only its Tyvek products almost
exclusively to the premium and incentive market.
Financial constraints prevented the Company from following up, as
planned, with continuous mailings to the same list of stores every few
months during 1998. The Company now plans to do this beginning in January
2000 while at the same time begin recruiting a nationwide sales
representative force to sell its products to these stores. In this way Ty-
Breakers will continue to develop customers such as those developed from
the initial catalog mailing. Attendance at trade shows, print advertising
and a worldwide web presence will supplement these efforts. The Company's
website (www.ty-breakers.com) is able 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.
Discussions were held with Auto-Pilot, Inc. ("API"), a corporation involved
in the development of microcomputer products, regarding its acquisition by
Alfa but all such discussions have been terminated. The Company is however
interested in pursuing an acquisition and/or investment in an Internet
related business with which it has held very preliminary discussions and
will pursue this matter as funding allows.
Results of Operations
Fiscal Year Ended December 31, 1998 Compared to
Fiscal Year Ended December 31, 1997
Total revenue was $101,989 during fiscal year 1998 compared to $30,769
for fiscal year 1997. This increase of $71,220 (231%) was principally due
to an increase in Tyvek and Kensel sales to retailers of approximately
$59,931 and other income of approximately $30,000. Because it lacked
sufficient resources to fund its marketing budget (additional financing was
expected but never materialized in 1998), the Company was unable to
capitalize on the momentum of its initial direct mail campaign with follow
on marketing efforts. The sales results were therefore disappointing. The
Company spent a great deal of time, to little avail, in capital raising
efforts during 1998 and sales suffered as a result. (SEE: "Notes to
Financial Statements"). During 1998 the Company also began product
development efforts on a line of tee shirts and gift items it
intends to market under a brand name it has developed. These efforts
<PAGE>
continued into 1999 and launch of the line under the brand name
"ExtremeTease" is planned for January 2000. Management expects that sales
will increase modestly for fiscal year 1999 but should increase sharply in
2000 when a renewed marketing effort begins and the new line is introduced.
Further follow-on mailings to the retail stores and catalog companies
targeted by the Company are dependent upon available financing to conduct
them. Cost of sales in 1998, which included a charge of $30,000 to
establish an inventory obsolescence reserve, increased $66,803 to $72,468.
Compared to 1997, selling, general and administrative expenses
decreased $66,398 (14%) to $407,295 in 1998. This decrease, which includes
a write off of over $50,000 of the Ty-Breakers good-will, resulted primarily
from a curtailment of marketing and sales expenses associated with the catalog
mailing from the same period in the previous year. General and administrative
expenses are expected to be further reduced in 1999, while the Company moves to
contain overhead and finalize development of its new product line.
The Company sustained a net loss before taxes in 1998 of $377,774
compared to a net loss before taxes of $452,325 in 1997. This 1998 loss of
$377,774 included one-time charges of $68,951 to write off the Ty-Breakers'
goodwill and $ 30,000 to establish the inventory reserve. Excluding these one-
time charges, the remaining loss of $278,823 represents a reduction of $173,502
(38.4%) in the loss from 1997. This reduction is attributable to the
Company's increased sales and reduced operating expenses. The Company will
need to further increase sales while controlling costs in order to attain
profitability - a goal which is expected to be met in fiscal year 2000 but
not before.
No significant capital expenditures were incurred in 1998.
Inventories decreased approximately $36,381 in 1998 compared to the
same period in 1997. The 1997 inventory was created almost entirely in the
last quarter of 1997 to support Ty-Breakers' marketing effort to retail
stores. This decrease in 1998 inventory levels is a result of the
establishment in 1998 of a $30,000 inventory reserve account and a $6,381
inventory reduction net of purchases associated with sales to retail
stores. Sales to such stores in 1998 were lower than expected as a result
of curtailed marketing efforts during 1998. The Company also made use
of offshore manufacturers in China & Hong Kong for some of its inventory
requirements. The majority of inventory at December 1998 represents raw
material & printed Tyvek sheets which the Company intends to convert,
through the use of its Hong Kong sewing contractor, into competitively
priced finished goods during 1999/2000. The Company also plans additional
inventory commitments for its newly developed ExtremeTease line of gift
items, but expects such inventory commitments to closely track sales of the
new line.
Results of Operations
Fiscal Year Ended December 31, 1997 Compared to
Fiscal Year Ended December 31, 1996
Total 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 all operations effective March 31, 1993. The Company acquired
Ty-Breakers on January 23, 1997 and the results of Ty-Breakers' operations
<PAGE>
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 $33,000 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 1998 and 1999 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.
Liquidity and Capital Resources
- -------------------------------
The Company has experienced negative cash flows from operating
activities during the past two fiscal years primarily due to operating
losses. As of December 31, 1998 the Company had negative working capital of
($14,387) as compared to working capital of $12,453 as of December 31,
1997. The Company has, to a great extent, relied on the net proceeds from
private placements of its common stock to fund its operations during the
last two years. As a result the Company has significantly paid down debt,
invested in inventory and spent heavily on catalogs, sales and marketing
expenses. As of the date hereof, the Company has no debt but management
<PAGE>
believes that further investments in marketing expenses such as trade
shows, advertising, product development, sales representative commissions
and salesmen salaries are required to turn the Company profitable. A
planned private placement during 1998 failed to occur thus forcing the
Company to defer certain of these expenditures. The Company's cost
containment moves, increased activity in custom Tyvek sales, exercise of
stock options during late 1999 by consultants to the Company and new
product developments have all combined to position the Company to
begin marketing in earnest in 2000. While no assurances can be given at
this time, management believes that such marketing efforts will be
successful in turning the Company profitable in 2000. Projected revenues in
1999 are expected to be greater than 1998 but still insufficient to attain
profitability. Revenues are projected to be significantly greater in 2000
when the Company expects to turn profitable. These projected 2000 sales
levels can only be obtained, however, if the Company successfully deploys
its assets in its planned marketing and new product introduction
efforts. Projected operating expenses are projected to be significantly
lower in 1998.
Impact of Inflation
- -------------------
The general level of inflation has been relatively low during the last
several fiscal years and has not had a significant impact on the Company.
Import Operations
- -----------------
During the past fiscal year the Company has increased its reliance on
its Hong Kong and China sub-contractor for the production requirements for
its Ty-Breakers apparel. This has had a generally beneficial effect since
the Company has noticed decreased production costs, consistent quality and
a greater competitiveness for its products.
Forward Looking Statements
- --------------------------
Certain statements made in this report on Form 10-KSB 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 the Company's planned
ExtremeTease product line, the growth of the market for the Company's
products, the renewal by Congress of China's most-favored-nation trade
status, the ultimate decision by the Company whether or not to invest in an
internet related business or the success of the Company's various 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
<PAGE>
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.
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 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 54 Chairman of the Board of
Directors, President, Chief
Executive & Financial Officer
Charles P. Kuczynski 45 Vice-President, Secretary and
Director
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. 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 Corp.)
<PAGE>
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 Corp. where
he continues as VP Sales). He served as the Secretary and a Director
of TYNY since November 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, 1998 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.
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,
1998 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 $ 79,434
of Directors, President,
Chief Executive
All Executive Officers
as a group (2 persons) $118,285
- --------------------------------------------------------------------------
(1) After reasonable inquiry, the Company has concluded that the aggregate
amount of personal benefits cannot be specifically or precisely scertained,
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
<PAGE>
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.
EMPLOYMENT AGREEMENTS
The Company presently has employment agreements with two employees.
Frank J. Drohan and Charles P. Kuczynski are each parties to 5-year
employment agreements dated August 1, 1997 with the Company. A one-year
employment agreement dated November 1997 between Ty-Breakers and Mr. Gerald
Blumberg has expired.
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 and
disability insurance premiums on Mr. Drohan's behalf.
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.
Both Mr. Drohan and Mr. Kuczynski have agreed to waive any right they
otherwise may have had to unpaid cash compensation due to them through December
31, 1998 under their employment agreements.
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, 1998 and the Company
does not intend to compensate any Directors for serving as members of its
Board during the fiscal year ending December 31, 1999.
Stock Options
On December 28, 1987, Alfa adopted the Stock Option Plan. The purpose
of the Stock Option Plan was 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 provided 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.
As of December 31, 1998 there were no incentive stock options
outstanding under the Stock Option Plan and there were 375,000 non-
qualified options issued and outstanding to the following:
<PAGE>
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
Item 11. Security Ownership and Certain Beneficial Owners and
Management.
The following table sets forth, as of December 31, 1998, the number of
shares of the Company's Common Stock beneficially owned by (a) owners of
more than 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 (5)
Frank J. Drohan (1)(4) 1,593,386 24.7%
Charles P. Kuczynski(l)(4) 82,163 1.3%
Robert F. Peacock (2) 3,050,000 47.3%
Continental Int'l. Trading Corp.(3) 400,000 6.2%
All officers and Directors as a 1,675,549 26.0%
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 Continental International Trading & Consulting
Corp. is 128 Sand Lane, Staten Island, New York 10305.
(4) 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.
(5) 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
<PAGE>
Ty-Breakers (NY) Corp.
- ----------------------
Ty-Breakers (NY) 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 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.
Proposed Transaction
- --------------------
The Company has held very preliminary discussions with an early stage
development Internet based corporation (the "Target") controlled by Frank
J. Drohan, President of the Company, regarding a possible investment in the
Target by Alfa and/or the acquisition by Alfa of the Target. The
discussions are extremely early stage and may be discontinued by either
party without action. No assurances at all may be given at this time
regarding the outcome of such discussions - or even that there will be any
outcome. Any acquisition of the Target by Alfa, which acquisition is not
presently planned, would be subject to the approval of the shareholders of
Alfa with Mr. Drohan abstaining in such shareholder vote.
Item 13. Exhibits and Reports on Form 8-K
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 *
10.1 Drohan Employment Agreement **
10.2 Kuczynski Employment Agreement **
21.1 Subsidiaries ***
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.
<PAGE>
** Previously filed with the Securities and Exchange Commission as
exhibits to the Company's Annual Report on Form 10-KSB for the Fiscal
Year Ended December 31, 1997.
*** Previously filed with the Securities and Exchange Commission as an
exhibit to the Company's Report on Form 8-K dated January 27, 1997.
(b) Reports on Form 8-K
None
<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: November 17, 1999
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 November 17, 1999
- ------------------- Executive & Financial Officer
FRANK J. DROHAN
<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, 1998 and 1997 and the
related consolidated statements of operations, stockholders' equity 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 stimates
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, 1998 and 1997, 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 2 to
the consolidated financial statements, the Company's financial position at
December 31, 1998 and results of operations and cash flows to December 31, 1998
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
September 21, 1999
<PAGE>
<TABLE>
ALFA INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
ASSETS 1998 1997
---------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 9,987 $ 42,088
Accounts receivable 7,173 1,143
Inventories:
Raw materials 47,869 93,992
Finished goods 11,795 2,053
Prepaid insurance 606 3,397
Other prepaid expenses 18,467 14,700
---------- -----------
Total Current Assets 95,807 157,373
PROPERTY AND EQUIPMENT:
Office and computer equipment 35,872 35,296
General plant 22,598 15,803
Furniture and fixtures 5,006 4,156
Leasehold improvements 5,924 5,924
---------- -----------
69,400 61,179
Less: Accumulated depreciation and amortization (42,879) (25,675)
---------- -----------
26,521 35,504
OTHER ASSETS:
Goodwill, less accumulated amortization of $17,238 in 1997 - 68,952
Other assets 4,747 4,398
---------- -----------
4,747 73,350
---------- -----------
$ 127,075 $ 266,227
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 105,519 $ 143,080
Accrued expenses and other current liabilities 4,675 1,840
---------- -----------
Total Current Liabilities 110,194 144,920
---------- -----------
OTHER LIABILITIES - 12,903
---------- -----------
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value: authorized 15,000,000
shares; issued and outstanding 6,441,398 shares
in 1998 and 6,018,898 shares in 1997 64,414 60,189
Capital in excess of par value 4,168,703 3,886,677
Retained earnings (deficit) (4,216,236) (3,838,462)
----------- -----------
Total Stockholders' Equity 16,881 108,404
---------- -----------
$ 127,075 $ 266,227
<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,
1998 1997
----------- -----------
REVENUES:
Net sales $ 71,581 $ 11,650
Gain on settlement of trade payables 12,000 14,790
Other income 18,408 4,329
----------- -----------
101.989 30,769
COSTS AND EXPENSES:
Cost of sales 72,468 5,665
Selling, general and administrative 407,295 473,693
Interest expense - 3,736
----------- -----------
479,763 483,094
----------- -----------
NET LOSS $ (377,774) $ (452,325)
BASIC AND DILUTED LOSS PER SHARE $ (.06) $ (.10)
----------- -----------
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 6,308,967 4,527,759
[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
<CAPTION>
Common Stock Capital in Retained
Par Excess of Earnings
Shares Value Par Value (Deficit)
----------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCES 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)
Issuance of common stock for cash,
less related costs 272,500 2,725 133,526 -
Issuance of common stock for warrants 150,000 1,500 148,500 -
Net loss - - - (377,774)
----------- ---------- ------------ ------------
BALANCES AT DECEMBER 31, 1998 6,441,398 $ 64,414 $ 4,168,703 $(4,216,236)
<FN>
See accompanying notes to the consolidated financial statements.
</FN>
F-4
</TABLE>
<PAGE>
<TABLE>
ALFA INTERNATIONAL CORPORATION AND SUBSIDIARY
C0NSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1998 1997
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (377,774) $ (452,325)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation and amortization 34,442 25,758
Changes in operating assets and liabilities:
Accounts receivable (6,030) 180
Inventories 36,381 (84,152)
Other current assets (976) (14,936)
Accounts payable (37,561) (98,221)
Royalties payable - 24,000
Other assets (349) (319)
Accrued expenses (10,068) (50,674)
----------- -----------
Net cash flows from operating activities (310,222) (650,689)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received in acquisition - 874
Acquisition of property and equipment (8,220) (33,360)
---------- ------------
Net cash flows from investing activities (8,220) (32,486)
CASH FLOWS FROM FINANCING ACTIVITIES:
Collecton of subscriptions receivable - 25,000
Payment of notes payable - (70,000)
Issuance of common stock 286,251 770,206
---------- ------------
Net cash flows from financing activities 286,251 725,206
NET CHANGE IN CASH AND EQUIVALENTS (32,191) 42,031
CASH AND EQUIVALENTS, BEGINNING OF YEAR 42,088 57
---------- ------------
CASH AND EQUIVALENTS, END OF YEAR $ 9,897 $ 42,088
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)
----------- -----------
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 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-6
<PAGE>
ALFA INTERNATIONAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Based Compensation - The Company accounts for stock option grants
using the intrinsic value based method prescribed by APB Opinion No. 25. 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 1998
and 1997 for stock option grants.
Had compensation cost been based upon fair value of the option on the date
of grants, as prescribed by SFAS 123, the Company's proforma net loss and net
loss per share would have been $(837,000) and ($.19) in 1997 using the Black-
Scholes option pricing model.
The fair value of options granted in 1997 were estimated at the date of
grant using a 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 factors of the expected market price of the Company's
Common Stock of 433.3% and a weighted-average expected life equaling the
options exercise periods.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of normal publicly traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employees stock options.
Net Loss Per Share - Basic and diluted loss per share are based upon the
weighted average number of common shares outstanding during the period. The
computation of diluted earnings per share does not assume the conversion,
exercise or contingent issuance of securities that would have a dilutive effect
on loss per share.
Goodwill - Goodwill consists of the excess of cost over fair market value
of the net assets of the acquired business. Goodwill is 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 a material impairment existed at December 31, 1998. As such,
goodwill was written off in its entirety.
F-7
<PAGE>
ALFA INTERNATIONAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - 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, 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 introducing a new product line, recruiting sales
representatives, attending trade shows and updating and redistributing their
existing merchandise catalog. Should the Company be unsuccessful in its
attempts to raise capital and/or increase sales, the Company may not be able to
continue operations.
NOTE 3 - 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 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.
NOTE 4 - COMMITMENTS:
Lease - The Company leased its premises under a noncancellable operating
lease which expired June 30, 1999, at which time the Company moved to a new
location in Jersey City, New Jersey. The new lease operates on a month-to-
month basis. Rent expense for operating leases in 1998 and 1997 was $40,549
and $39,977, respectively.
Employment Agreements - 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
secretary an annual base salary of $45,000, plus an additional amount based on
net sales.
F-8
<PAGE>
ALFA INTERNATIONAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 375,000 stock options to its president and vice-president in August 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, 1998, there were 375,000 stock options outstanding, of
which 150,000 were exercisable. The remaining options vest at a rate of 75,000
shares per annum through 2001.
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
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.
F-9
<PAGE>
ALFA INTERNATIONAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. These warrants gave the holders the right to receive one
share of Alfa common stock for $4.00 per share. These warrants expired in
January 1999.
Alfa issued 1,500,000 common stock purchase warrants in connection with
the sale of common stock during 1997. These warrants gave the holders the
right to purchase one share of common stock for $1.00 per share. A total of
150,000 were exercised in August 1998 and the Company received proceeds of
$150,000. The remaining 1,350,000 warrants expired in July and August 1999.
Alfa issued 136,250 common stock purchase warrants in connection with the
sale of common stock during 1998. The warrants give the holder the right to
purchase one share of common stock for $2.00 per share. These warrants expire
at various times in 2000.
NOTE 6 - PROVISION FOR INCOME TAXES:
Deferred tax asset is comprised of the following:
December 31,
--------------------------------
1998 1997
---------- -----------
Federal net operating loss carryforwards $1,720,000 $1,600,000
State net operating loss carryforwards net
of federal tax benefit 165,000 150,000
---------- ----------
1,885,000 1,750,000
Less: Valuation allowance 1,885,000 1,750,000
---------- ----------
$ - $ -
The Company's effective tax rate differs from the expected federal income
tax rate due to changes in the valuation allowance at December 31, 1998 and
1997.
Management has determined, based on the Company's current condition, that
a full valuation allowance is appropriate at December 31, 1998.
At December 31, 1998, the Company had Federal net operating loss
carryforwards of approximately $4,700,000 which expire beginning in 2004. The
Company's issuance of shares during fiscal 1995 and subsequent thereto results
F-10
<PAGE>
ALFA INTERNATIONAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
in a "Change of Ownership" as defined by the Internal Revenue Code of 1986,
which may limit the Company's use of these net operating loss carryforwards.
NOTE 7 - SUBSEQUENT EVENTS:
Under a consulting agreement dated January 20, 1999, the Company granted a
total of 2,000,000 stock 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 August and
September 1999, a total of 900,000 options were exercised, 500,000 at $.25 and
400,000 at $.50. The Company received proceeds totaling $325,000.
F-11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1998 AUDITED FINANCIAL STATEMENTS OF THE ISSUER AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 9,897
<SECURITIES> 0
<RECEIVABLES> 7,173
<ALLOWANCES> 0
<INVENTORY> 59,664
<CURRENT-ASSETS> 95,807
<PP&E> 69,400
<DEPRECIATION> (42,879)
<TOTAL-ASSETS> 127,075
<CURRENT-LIABILITIES> 110,194
<BONDS> 0
0
0
<COMMON> 64,414<F1>
<OTHER-SE> 16,881
<TOTAL-LIABILITY-AND-EQUITY> 127,075
<SALES> 71,581
<TOTAL-REVENUES> 101,989
<CGS> 72,468
<TOTAL-COSTS> 479,763
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (377,774)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (377,774)
<INCOME-TAX> 0
<INCOME-CONTINUING> (377,774)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (377,774)
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
<FN>
<F1>6,441,398 SHARES OF $.01 PAR VALUE COMMON STOCK
</FN>
</TABLE>
