FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
-----------------------
Commission File Number 0-17264
----------
ALFA INTERNATIONAL CORP.
------------------------------------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2216835
- ----------------- ---------------
State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification
Number)
107 Industrial Drive, Jersey City, New Jersey 07305
---------------------------------------------------------------
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (201) 332-2200
------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $. O1 par value
--------------------------------------
(Title of Class)
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, 1999 was
$185,581
The aggregate market value of the 2,610,049 shares of voting stock held by non-
affiliates of the registrant (based upon the average of the high and low bid
prices) on March 20, 2000 was $4,037,746. (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 March 20, 2000 the Company had outstanding 7,641,398 shares of common
stock, par value $.01 per share ("Common Stock")
The Index to Exhibits appears on page 21.
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, 1998, Part III -Exhibits.
<PAGE>
ALFA INTERNATIONAL CORP.
Table of Contents to Annual Report on Form 10-KSB
Year Ended December 31, 1999
Page
Part I
Item 1. Description of Business 4
Item 2 Description of Property 8
Item 3 Legal Proceedings 8
Item 4. Submission of Matters to a Vote
of Security Holders 8
Part II
Item 5 Market for Common Equity and
Related Stockholder Matters 9
Item 6 Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 7 Financial Statements 16
Item 8 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 16
Part III
Item 9 Directors, Executive Officers and
Control Persons; Compliance with
Section 16(a) of the Exchange Act 16
Item 10 Executive Compensation 17
Item 11 Security Ownership of Certain Beneficial
Owners and Management 19
Item 12 Certain Relationships and Related
Transactions 20
Item 13 Exhibits and Reports on Form 8-K 20
<PAGE>
PART I
Item 1. Description of Business
Introduction
- --------------
Alfa International Corp. ("Alfa") is a holding company, which conducts
substantially all of its operations through its wholly owned subsidiary
Ty-Breakers Corp., a New York corporation ("Ty-Breakers"). Alfa was
incorporated in New Jersey in 1978. Alfa and Ty-Breakers are collectively
refferred to herein as the "Company". In December 1992, Alfa filed for
bankruptcy protection and subsequently was re-organized and discharged from
bankruptcy proceedings in August 1996. Other than for matters relating to its
reorganization and financing efforts, Alfa was inactive in 1996. In January
1997 Alfa acquired Ty-Breakers which 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") and $150,000 pursuant to the exercise of
Warrants by an investor. During 1999 the Company received proceeds of $525,000
from the exercise of options held by consultants to the Company. The Company
used the proceeds from the foregoing to fund operations, pay debt and to
implement the sales and marketing plan for Ty-Breakers. 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 has developed a line of T-shirts
and gift items bearing its proprietary art images which it has begun marketing
under the brand name "Extreme Tease". Alfa is considering an investment 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, New Jersey 07305 and its telephone number is 201-332-2200.
Ty-Breakers - Tyvek and Kensel Apparel
- --------------- -------------------------------
Manufacture and Distribution
Ty-Breakers markets Tyvek apparel as promotional products(the "Custom Business")
for major national commercial enterprises, sporting events and athletic
associations. The custom printed apparel is used as promotional, advertising and
marketing items by these organizations. Ty-Breakers also markets Tyvek and
Kensel apparel bearing Ty-Breakers' proprietary or licensed images to retail
stores, catalog companies and fashion designers, and markets its new Extreme
Tease product line of gift items to retail stores.
<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 or other 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 or its Asian agent 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 and
DuPont are presently negotiating a license agreement covering the patent on
Kensel.
Ty-Breakers has its Tyvek and Kensel apparel products manufactured and printed
by unaffiliated third parties in the United States and Asia.
In the Custom Business, Ty-Breakers' Tyvek jacket has become its primary product
for corporate identity, advertising and promotion purposes. 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 addition to the
Custom Business, Ty-Breakers markets 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. Ty-Breakers
has also sold jackets, shirts, bags, dresses and other apparel products made
from Tyvek and Kensel 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.
Sales of Tyvek and Kensel apparel are not 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 Custom Business
are manufactured and sold pursuant to specific purchase orders and significant
inventories are not maintained for products associated with the Custom 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 slow
moving inventory has been established. The Ty-Breakers marketing plan is
particularly directed at increasing sales to retail outlets and Ty-Breakers has
developed and introduced a new product line of gift items marketed to retailers
under the brand name Extreme Tease to complement its marketing efforts for Tyvek
and Kensel products.
<PAGE>
Production
The artwork and design for the Tyvek and Kensel apparel and for the Extreme
Tease apparel and gift items is done by Ty-Breakers through independent artists.
For the custom promotional business the design of the products and client's
logos and images are usually coordinated with the client's advertising
personnel. For the retail business, Ty-Breakers either licenses a design or
contracts with independent artists to create the artwork for Ty-Breakers'
proprietary concepts. All copyrights to all artwork in the retail business
(except for licensed designs) 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 and its Extreme Tease apparel and gift items.
Marketing
Ty-Breakers markets its products through industry trade shows, its website 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.
In March 2000 Ty-Breaker leased permenent showroom space for its Extreme Tease
line at the Atlanta Gift Mart, one of the largest gift markets in the U.S. As a
result, the Extreme Tease product line will be exhibited at the four annual gift
shows held at the Atlanta Mart and will be sold by the Ty-Breakers' sales
representative in Atlanta. Ty-Breakers is continuing its ongoing efforts to
secure additional sales representatives throughout the U.S.
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 received its catalog, 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 grade of Tyvek
for use in the chemical, medical, disposal and painting industries. These
companies are not competitors as Ty-Breakers does not compete in the disposable
market. 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.
Many companies compete with the Extreme Tease line of T-shirts and gift items
but no such competitor has the Extreme Tease proprietary artwork. The Company
believes that its Tyvek apparel competitors generally restrict themselves to
the promotional Custom Business and avoid the retail business and its associated
inventory and marketing investments. Ty-Breakers believes that no competitor is
marketing Tyvek apparel with 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, nor is
any competitor marketing T-shirts or gift items bearing the Extreme Tease
images, on which Ty-Breakers owns the copyrights. (SEE: "Patents, Copyrights and
Trademarks"). Ty-Breakers is also directly and indirectly in competition with
other consumer goods manufacturers and promotional and premium companies, all of
which are in highly competitive industries. Most of these companies have
substantially greater financial, managerial and personnel resources than
the Company.
Patents, Copyrights and Trademarks
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. Ty-Breakers, under
agreements with its outside artists, owns the copyrights to all art exclusive of
any licensed designs) produced for Ty-Breakers. While 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, the loss of any of these license
agreements would not have a material adverse effect on Ty-Breakers. Ty-Breakers
intends to pursue additional license agreements, as it believes its products are
well suited for licensed apparel. Ty-Breakers owns the copyrights on all designs
incorporated into its Extreme Tease line of T-shirts and gift items.
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 or other
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 - i.e.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 has filed applications to register the trademarks
"Kensel" and "Extreme Tease" 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 the Company's operations.
Ty-Breakers is presently negotiating a non-exclusive license agreement with
DuPont whereby DuPont will (1) license from Ty-Breakers the rights under the
patent to manufacture and market Kensel material and (2) pay Ty-Breakers
royalties on such fabric material that DuPont consumes in its own operations or
sells to others.
<PAGE>
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
Extreme Tease products to retail stores. (See "Executive Compensation" and
"Directors and Executive officers of the Registrant").
Item 2. Description of Property
Until June 1999, 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 unaffiliated 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. The Jersey City
premises are leased by Ty-Breakers on a month to month basis from an
unaffiliated third party.
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
and preferred stockholders and to the Company's president, and reverse split
the Company's shares of common stock which were outstanding as of August 4,1995.
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
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
3/31/99 0.25 0.25
6/30/99 0.60 0.125
9/30/99 1.2188 0.125
12/31/99 1.75 1.20
At December 31, 1999 the Company had 7,641,398 shares of its Common Stock issued
and outstanding and there were approximately 1,900 holders of record of such
Common Stock. At December 31, 1999 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 1998 and 1999 have been
audited by the Company's independent certified public accountants.
Financial constraints during most of 1999 prevented the Company from
aggressively marketing its products during the year. Marketing efforts aimed at
selling Tyvek and Kensel apparel to retail stores and catalog companies were
postponed until fiscal year 2000. Ty-Breakers 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 fiscal year ended December
31,1999. In addition to its core Tyvek and Kensel apparel business, Ty-Breakers
developed a line of gift items bearing proprietary art that was launched in
March 2000.
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 sets of stock
options covering a total of two million shares ("Options") 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 March 29, 2000 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 $725,000, 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 fiscal year 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 value 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. 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 completed development of its "Extreme Tease" line of
gift items and T-shirts bearing proprietary art commissioned by Ty-Breakers. The
copyrights for all the art commissioned for the Extreme Tease line is owned by
Ty-Breakers and Ty-Breakers has filed an application to register the trademark
"Extreme Tease" 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. During the first quarter of Fiscal 2000, the Company contracted for
permenent showroom space at the Atlanta Gift Mart and engaged the services, on a
commission basis, of an Atlanta sales representative who will be staffing the
Extreme Tease showroom. Ty-Breakers intends to recruit additional independent
sales representatives and assemble a national force to sell its Extreme Tease
line and later its Tyvek and Kensel apparel to retail stores and catalog
companies. The ExtremeTease line was introduced at trade shows in Dallas and
Chicago during January and February 2000.
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 and marketing T-shirts and gift items
under the Extreme Tease brand name. 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. Extreme Tease is a trademark of
Ty-Breakers.
Ty-Breakers plans to develop new customers such as those developed from its 1997
catalog mailing to 140,000 retail stores and catalog companies. The Company
ontinues to benefit from this mailing. Attendance at trade shows, print
advertising, additional sales representatives and a worldwide web presence for
both Ty-Breakers and Extreme Tease will supplement the Company's marketing
efforts. The Company's website (www.ty-breakers.com) has information about the
Company and Ty-Breakers' products as well as a way for consumers to purchase
jackets directly from Ty-Breakers via a secure credit card transaction.Alfa
intends to build its Ty-Breakers subsidiary around its core products of Tyvek
and Kensel apparel and Extreme Tease gift items by acquiring and/or developing
new lines. Alfa plans to make an investment in an Internet related business
which it has identified.(See: "Certain Relationships and Related Transactions").
Results of Operations:
- --------------------------
Fiscal Year Ended December 31, 1999 Compared to
Fiscal Year Ended December 31, 1998
Total revenue was $185,581 during fiscal year 1999 compared to $101,989 for
fiscal year 1998. This increase of $83,592 (82 %) was principally due to an
increase in Tyvek and Kensel product sales of approximately $59,151 and in other
income of approximately $24,000. During 1999 sales suffered as the Company
focussed on reducing expenses, conserving cash and moving its offices. In July
1999 the Company moved its operations to their present location resulting in
annual leasehold savings of approximately $40,000. Because it lacked sufficient
resources to fund its marketing budget the Company focussed almost exclusively
on the Custom Business during 1999. The sales results - which were mainly from
the Custom Business - were disappointing. During 1999 the Company completed
product development efforts on a line of T-shirts and gift items it intends to
market under the brand name "Extreme Tease".The Extreme Tease line was
introduced at industry trade shows in January and February 2000. Management
expects that sales will increase for fiscal year 2000 after its marketing
efforts are renewed and as the new Extreme Tease line is introduced and sales
reps are secured. The Company is considering further follow-on mailings to the
140,000 retail stores and catalog companies targeted by Ty-Breakers n 1997. Cost
of sales in 1999, which included a $35,853 addition to the inventory
obsolescence reserve, increased $43,404 to $115,872. Sales in the Custom
Business generally have a lower gross profit margin than sales to retailers.
Selling, general and administrative expenses increased by $355,336 (87%) during
fiscal year 1999 compared to the previous fiscal 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 $144,664 (36%) in fiscal 1999 as compared to the
previous fiscal 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 sustained a net loss in 1999 of $692,922 compared to a net loss of
$377,774 in 1998. This increase of $315,148 (83%) is entirely attributable to
the non-recurring $500,000 non-cash compensation expense and the $35,853
inventory reserve addition referred to above. Excluding these charges, the
Company's remaining loss of $157,069 for fiscal 1999 actually represents a
reduction of $220,705 (58%) in the loss from 1998. This reduction is
attributable to the Company's increased revenue and reduced operating expenses.
The continued losses for the Company are attributable, however, 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
sales in its Custom Business. The Company sharply reduced its operating expenses
in 1999 and increased its efforts in the Custom Business but still needs to
further increase sales of its Ty-Breakers subsidiary in order to attain
profitability. Management believes that a profitable level of sales will be
attained after Ty-Breakers re-starts its marketing efforts directed at retail
stores and recruits its independent sales representatives to sell its Extreme
Tease gift line. Sales revenue from increased custom sales as well as the
proceeds received from the exercise of Options during 1999 and 2000 will assist
the Company in pursuing these objectives.
Ty-Breakers introduced its new Extreme Tease line at trade shows in early 2000
and during the fiscal year 2000 plans to recruit a nationwide independent sales
representative force to sell the Extreme Tease line to retailers including: gift
shops, catalog companies, department stores and mass merchants. Sometime
thereafter, Ty-Breakers plans to utilize this sales rep force to sell Tyvek and
Kensel apparel to the same retailers.
Approximately $1,850 was expended in 1999 for computer hardware and software. No
other significant capital expenditures were incurred and the Company wrote off
its negligible remaining amount of un-ammortized leasehold improvements on its
former facility.
Inventories decreased $18,367 in 1999 compared to the same period in 1998. This
decrease is a result of the addition of $35,853 to the inventory reserve account
net of purchases associated with sales in the Custom Business. The Company also
made use of offshore manufacturers in China & Hong Kong for some of its
inventory requirements. The majority of inventory at December 1999 represents
raw material & printed Tyvek sheets which the Company intends to convert during
2000, through the use of its Hong Kong sewing contractor, into competitively
priced finished goods. As of the date hereof the Company has purchased
additional finished goods inventory for its ExtremeTease line of gift items.
Inventory commitments for the Extreme Tease line will closely track sales of the
new line.
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 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 T-shirts and gift items it intends to market
under a brand name it has developed. These efforts 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
approximately $50,000 of the Ty-Breakers goodwill, 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 in 1998 of $377,774 compared to a net loss of
$452,325 in 1997. This 1998 loss of $377,774 included charges of $68,951 to
write off the Ty-Breakers' good-will 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.
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. The Company's
operating loss during 1999, however, includes non-cash charges totaling $548,472
(covering consulting fees, inventory writeoff and depreciation) which, although
material, do not negatively impact cash flow. Significant decreases in accounts
payable during 1999 also contributed to the negative cash flow for fiscal 1999.
Compared to December 31, 1998, the Company has reduced its accounts payable at
December 31, 1999 by $105,000 (99.5%).
At December 31, 1999 the Company had working capital of $333,505 as compared to
negative working capital of ($14,387) at December 31, 1998. The Company has to
a great extent relied on the net proceeds from the exercise of Options and from
private placements of its common stock to fund its operations during the last
two years. As of the date hereof the Company has no debt. The Company's cost
containment moves, increased activity in custom Tyvek sales, exercise of stock
options by consultants to the Company and new product developments have all
combined to position the Company to begin marketing in earnest during fiscal
year 2000.
Ty-Breakers plans to market its new Extreme Tease line 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.
While no assurances can be given at this time, we believe that such marketing
efforts will successfully increase Ty-Breakers' sales and turn the Company
profitable in 2000. Revenues in 1999 were greater than 1998 but still
insufficient to attain profitability. In order to achieve increased sales
levels, the Company must succeeed in recruiting a nationwide sales
representative force for its Extreme Tease product line and must implement its
planned marketing efforts.
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 and some of its Extreme Tease gift items. 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
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 success
of Alfa's planned investment 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 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 completed allowed it to mitigate any potential problems associated with the
Year 2000 issue.
The Company also received formal communications from its bank, transfer agent,
and major suppliers that their systems were also Year 2000 compliant. Based on
the foregoing and the Company's own research, the Company did not believe that
it was 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 was not material to the Company's financial
position or results of operations.
The Company has experienced no Year 2000 computer problems.
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 46 Vice-President, Secretary and
Director
Frank J. Drohan has served as a Director, Chairman of the Board and Chief
Executive Officer of the Company since 1991 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.) 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, 1999 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, 1999 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 $ 58,929
of Directors, President,
Chief Executive
All Executive Officers
as a group (2 persons) $ 92,946
================================================================================
(1) After reasonable inquiry, the Company has concluded that the aggregate
amount of personal benefits cannot be specifically or precisely ascertained,
but does not in any event exceed 10% of the cash compensation reported in
the foregoing table as to any person specifically named in such table or, in
the case of the group, 10% of the groups' compensation, and has concluded
that the information set forth in the table is not rendered materially
misleading by virtue of the omission of the value of such personal benefits.
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.
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 at $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 at $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, 1999
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, 1999 and the Company does not intend to
compensate any Directors for serving as members of its Board during the fiscal
year ending December 31, 2000.
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, 1999 there were no incentive stock options outstanding under
the Stock Option Plan and there were 375,000 non-qualified options issued and
outstanding as follows:
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, 1999, 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) 1,529,186 20.0%
Charles P. Kuczynski(l)(4) 82,163 1.1%
Robert F. Peacock (2) 3,050,000 39.9%
Continental Int'l. Trading Corp.(3) 400,000 5.2%
All officers and Directors as a
Group of 2 Persons 1,611,349 21.1%
================================================================================
(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.
<PAGE>
Item 12. Certain Relationships and Related Transactions
Proposed Transaction
The Company has held discussions with an early stage development Internet based
corporation (the "Target") controlled by Frank J. Drohan, President of the
Company, regarding a possible minority investment in the Target by Alfa. Any
future 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
(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 *
10.1 Drohan Employment Agreement **
10.2 Kuczynski Employment Agreement **
21.1 Subsidiaries ***
23 Consent of Wiss & Co. E-01
27 Financial Data Schedule E-02
* Previously filed as exhibits to the Company's Registration Statement on Form
S-1 (File No.33-18591) filed with the Securities and Exchange Commission and
incorporated herein by reference thereto.
** Previously filed with the Securities and Exchange Commission as exhibits to
the Company's 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
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: March 29, 2000
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 March 29, 2000
- -------------------- 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, 1999
and 1998 and the related consolidated statements of operations,
changes in 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 estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Alfa International Corp. and
subsidiary at December 31, 1999 and 1998, 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,
1999 and results of operations and cash flows to December 31,
1999 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 2. The consolidated
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
WISS & COMPANY, LLP
Livingston, New Jersey
January 14, 2000
<PAGE>
<TABLE>
ALFA INTERNATIONAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31,
ASSETS 1999 1998
-------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 284,912 $ 9,897
Accounts receivable 8,664 7,173
Inventories:
Raw materials 23,190 47,869
Work-in-process 18,107 -
Finished goods - 11,795
Prepaid expenses 4,452 19,073
-------- --------
Total Current Assets 339,325 95,807
PROPERTY AND EQUIPMENT:
Office and computer equipment 37,720 35,872
General plant 22,598 22,598
Furniture and fixtures 5,006 5,006
Leasehold improvements - 5,924
-------- --------
65,324 69,400
Less:Accumulated depreciation and amortization 49,870 42,879
-------- --------
15,454 26,521
OTHER ASSETS - 4,747
-------- --------
$ 354,779 $ 127,075
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 519 $ 105,519
Accrued expenses and other current liabilities 5,301 4,675
-------- --------
Total Current Liabilities 5,820 110,194
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value: authorized
15,000,000 shares; issued and outstanding
7,641,398 shares in 1999 and 6,441,398
shares in 1998 76,414 64,414
Capital in excess of par value 5,181,703 4,168,703
Retained earnings (deficit) (4,909,158) (4,216,236)
--------- ---------
Total Stockholders' Equity 348,959 16,881
--------- ---------
$ 354,779 $ 127,075
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
F-2
<PAGE>
<TABLE>
ALFA INTERNATIONAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998
----------- -----------
<S> <C> <C>
REVENUES:
Net Sales $ 130,732 $ 71,581
Gain on settlement of trade payables 47,852 12,000
Other income 6,997 18,408
---------- ----------
185,581 101,989
COSTS AND EXPENSES:
Cost of sales 115,872 72,468
Selling, general and administrative 762,631 407,295
---------- ----------
878,503 479,763
NET LOSS $ (692,922) $ (377,774)
BASIC AND DILUTED LOSS PER SHARE $ (.10) $ (.06)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 6,783,590 6,308,967
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
F-3
<PAGE>
<TABLE>
ALFA INTERNATIONAL CORP. 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, 1997 6,018,898 $ 60,189 $ 3,886,677 $ (3,838,462)
YEAR ENDED DECEMBER 31, 1998:
Issuance of common stock for
cash, less related costs 422,500 4,225 282,026 -
Net loss - - - (377,774)
--------- --------- ---------- -----------
BALANCES AT DECEMBER 31, 1998 6,441,398 64,414 4,168,703 (4,216,236)
YEAR ENDED DECEMBER 31, 1999:
Issuance of stock options for
consulting services - - 500,000 -
Issuance of common stock upon
exercise of stock options 1,200,000 12,000 513,000 -
Net loss - - - (692,922)
--------- --------- ---------- ------------
7,641,398 76,414 $5,181,703 $ (4,909,158)
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
F-4
<PAGE>
<TABLE>
ALFA INTERNATIONAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31,
-----------------------
1999 1998
-----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (692,922) $ (377,774)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation and amortization 12,619 34,442
Gain on sale of property (499) -
Loss on write-off of goodwill - 51,713
Stock options issued for consulting services 500,000 -
Changes in operating assets and liabilities:
Accounts receivable (1,491) (6,030)
Inventories 18,367 36,381
Prepaid expenses 14,621 (976)
Accounts payable (105,000) (37,561)
Other assets 4,747 (349)
Accrued expenses 626 (10,068)
---------- -----------
Net cash flows from operating activities (248,932) (310,222)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (1,848) (8,220)
Proceeds from sale of property 795 -
---------- -----------
Net cash flows from investing activities (1,053) (8,220)
CASH FLOWS FROM FINANCING ACTIVITIES-
Proceeds from issuance of common stock 525,000 286,251
---------- ----------
NET CHANGE IN CASH AND EQUIVALENTS 275,015 (32,191)
CASH AND EQUIVALENTS, BEGINNING OF YEAR 9,897 42,088
---------- ----------
CASH AND EQUIVALENTS, END OF YEAR $ 284,912 $ 9,897
SUPPLEMENTAL CASH FLOW INFORMATION:
Noncash investing and financing activities:
Issuance of common stock options for
consulting services $ 500,000 $ -
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
F-5
<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 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. At December 31, 1999
and 1998, inventories were reduced by $35,853 and $30,000,
respectively, for quantities on hand in excess of normal usage.
Management believes that the resulting reserves of $65,853 and
$30,000 at December 31, 1999 and 1998, respectively, are
adequate.
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-
based compensation using the intrinsic value method prescribed
by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", and related Interpretations.
Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price at the date of
grant over the amount an employee must pay to acquire the stock.
Because the Company grants options at a price equal to the
market price of the stock on the dates of grant, no compensation
expense is recorded.
The Company did not grant any stock options to employees during
1998 or 1999.
Had compensation cost been based upon fair value of the option
on the date of grant, as prescribed by SFAS 123, the Company's
proforma net loss and net loss per share would have been
unchanged in 1999 and 1998 using the Black-Scholes option
valuation model.
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 an 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.
Reclassification - Certain amounts previously reported have
been reclassified to conform to current year presentation.
NOTE 2 - GOING CONCERN AND LIQUIDITY:
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 its 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 - COMMITMENTS:
Lease - The Company leased its premises under a
noncancellable operating lease which expired on June 30, 1999,
when the Company moved to its new location in Jersey City, New
Jersey. The new premises are leased on a month-to-month basis.
Rent expense for 1999 and 1998 was $26,737 and $40,549,
respectively.
F-7
<PAGE>
ALFA INTERNATIONAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 an
annual base salary of $45,000, plus an additional amount based
on net sales.
NOTE 4 - STOCKHOLDERS' EQUITY:
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 on 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, 1999, there were 375,000 stock options
outstanding under the Stock Option Plan, of which 225,000 were
exercisable. The remaining options vest at a rate of 75,000
shares per annum
through 2001.
During 1997, 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.
On January 20, 1999, the Company entered into a consulting
agreement whereby four sets of stock options were granted - each
set consisted of 500,000 shares with the exercise price of each
set $.25, $.50 $.75 and $1.00 per share, respectively. The fair
value of the options were estimated on the date of grant using
the Black-Scholes option - pricing model with the following
assumptions: expected life of 3 years; expected volatility of
311%; expected dividend yield of 0% and a risk free interest
rate of 6.0 percent and have been recorded as a consulting fee
based upon total estimated fair value of $500,000. Options to
purchase 1,200,000 shares for $525,000 were exercised in 1999.
At December 31, 1999, options to purchase 800,000 shares were
exercisable, consisting of 300,000 options at $.75 per share and
500,000 at $1.00 per share.
F-8
<PAGE>
ALFA INTERNATIONAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Warrants - Alfa issued 8,075 common stock purchase warrants
in connection with the acquisition of Ty-Breakers in 1997. The
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 5 - INCOME TAXES:
Deferred tax asset is comprised of the following:
December 31,
----------------------
1999 1998
---------- ----------
Federal net operating loss
carryforwards $1,934,000 $1,588,000
State net operating loss
carryforwards, net of
federal tax benefit 274,000 227,000
---------- ----------
2,208,000 1,815,000
Less: Valuation allowance 2,208,000 1,815,000
---------- ----------
$ - $ -
The Company's effective tax rate differs from the expected
federal income tax rate due to changes in the valuation
allowance at December 31, 1999 and 1998.
Management has determined, based on the Company's current
condition, that a full valuation allowance is appropriate at
December 31, 1999.
At December 31, 1999, the Company had Federal net operating
loss carryforwards of approximately $5,700,000 which expire
beginning in 2004. The Company's issuance of shares during
fiscal 1995 and subsequent thereto results in a "Change of
Ownership" as defined by the Internal Revenue Code of 1986,
which may limit the Company's use of these net operating loss
carryforwards.
F-9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1999 AUDITED FINANCIAL STATEMENTS OF THE ISSUER AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 284,912
<SECURITIES> 0
<RECEIVABLES> 8,664
<ALLOWANCES> 0
<INVENTORY> 41,297
<CURRENT-ASSETS> 339,325
<PP&E> 65,324
<DEPRECIATION> (49,870)
<TOTAL-ASSETS> 354,779
<CURRENT-LIABILITIES> 5,820
<BONDS> 0
0
0
<COMMON> 76,414
<OTHER-SE> 348,959
<TOTAL-LIABILITY-AND-EQUITY> 354,779
<SALES> 130,732
<TOTAL-REVENUES> 185,581
<CGS> 115,872
<TOTAL-COSTS> 878,503
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (692,922)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (692,922)
<INCOME-TAX> 0
<INCOME-CONTINUING> (692,922)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (692,922)
<EPS-BASIC> (.10)
<EPS-DILUTED> (.10)
</TABLE>
Alfa International Corp.
107 Industrial Drive
Jersey City, New Jersey
07305
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 filed with the Commission on February 19,1999 of our
Report dated January 14, 2000 appearing on page F-1 of Alfa International
Corp.'s Annual report on Form 10-KSB for the year ended December 31, 1999.
WISS & COMPANY, LLP
Livingston, New Jersey
March 27, 2000
