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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q/A
NO. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: JUNE 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 0-17458
MBf USA, INC.
(Exact name of registrant as specified in its charter)
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Oklahoma 73-1326131
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Park Boulevard, Suite 1260
Itasca, IL 60143
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(Address of principal executive offices) (Zip Code)
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REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (708) 285-9191
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Applicable Only to Corporate Issuers
At August 15, 1995 there were 10,947,427 shares of Common Stock, par value
$0.01 per share, and 12,525,374 shares of Series A Common Stock, par value
$0.01 per share, outstanding.
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MBF USA, INC.
PART I - FINANCIAL INFORMATION
ITEM 1.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995 and 1994
Footnote 6 is amended and restated in its entirety to read as follows:
6. Subsequent Events:
On August 16, 1995, MBf International, Ltd., the parent of the Company
and a wholly owned subsidiary of MBf Holdings, announced that it had executed
an agreement with Perusahaam Intan Emas Sdn Bhd ("PIE") for the sale of its
subsidiary, MBf Health for MR$3,000,000 or approximately US$1,250,000 to be
paid in three equal yearly installments, subject to MBf Holdings' option to
repurchase the issued shares. In connection with the sale, an agreement has
been executed between MBf Health and AHPC calling for the purchase of product
by AHPC according to a predetermined formula. The Company purchases the
majority of its powdered latex examination gloves from the MBf Health factory.
MBf International and its parent, MBf Holdings, have indicated that they expect
a new, modern latex glove plant located in Indonesia to be operational by the
fourth quarter of 1995. The Company intends to continue to purchase its
powdered latex examination gloves from MBf Health and to purchase non-powdered
gloves from other sources. The Company does not expect the sale of MBf Health
to have any impact on its operations.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
This section is amended and restated in its entirety to read as follows:
Total revenues for the quarter ended June 30, 1995 were $9,962,019
compared to $9,029,089 for the same period in 1994, an increase of 10.3%.
Total revenues for the six months ended June 30, 1995 were $19,930,977 compared
to $16,482,383 for the same period in 1994, an increase of 20.9%.
For the three months ended June 30, 1995, revenues consisted of
$9,217,437 from the Company's latex glove product line sold by AHPC and
$736,737 from the Playboy condom product line. Sales of gloves and Playboy
condoms for the comparable period in 1994 were $8,941,587 and $25,946,
respectively.
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The increased sales volume on a comparable basis at AHPC is
attributable to more developed customer relationships and larger than normal
orders placed by major customers in anticipation of an industry wide price
increase due to the rising price of latex raw materials. Improvement plans
were made in the second quarter of 1995 to increase utilization of AHPC's cash
flow for inventory purchases. Additionally, on May 19, 1995, the Company
signed an agreement with an unaffiliated supplier to supply powder-free
examination gloves.
The prices charged by MBf Health, the Company's principal glove
supplier, to AHPC during the first and second quarter of 1995 which were
approximately 19% higher than the effective net prices charged to AHPC during
the comparable periods in 1994 which were caused by the rising price of latex
raw materials which nearly doubled over the prior year. This has caused an
erosion of gross profit margin on glove sales due to the slow time lag in
passing the price increase on to customers.
The Company is continuing to increase inventory levels to enable the
Company to meet its customer requirements, reduce the pricing from MBf Health
as the price of latex subsides, and pass on price increases to customers.
During the first six months of 1995, two of AHPC's customers accounted for 48%
of gloves sales. The loss of either of such customers of AHPC would have a
materially adverse effect on the Company.
The increase in sales of Playboy condoms on a comparable period basis
is attributable to the expansion of the Playboy Condom distribution channels.
Currently, the Company has signed distribution agreement in 18 countries
compared to two agreements at the same time in 1994. The Company anticipates
that large opening orders will be shipped to markets in Eastern Europe in the
third quarter of 1995.
The Company is currently in negotiation to establish Playboy condom
distribution channels in other countries in Asia, Latin America, and Africa,
however, there can be no assurance as to the opening or timing of these
markets.
Cost of goods sold as a percentage of sales for the three and six
month periods ended June 30, 1995 were 89.8% and 88.3%, respectively, compared
to 82.6% and 82.2% respectively, in the comparable period in 1994. The
significant increase in cost of sales as a percentage of sales is attributable
to the 19% price increase charged by MBf Health to AHPC coupled with the
inability of AHPC to pass on all of this price increase to its customers due to
competitive market conditions.
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Selling, general and administrative expense increased from $2,026,353
for the six months ended June 30, 1994 to $4,083,796 for the same period in
1995. The increase is attributable to higher selling costs associated with the
introduction and launch of Playboy condoms in new and established countries,
the hiring of additional sales and marketing employees, an increase in selling
expenses at AHPC commensurate with its growth, and expenses associated with the
Company's start up of nutritional product and vitamin lines in 1995.
In June 1995, the Company announced a restructuring plan which
included the resignation of the Chairman/CEO, President/COO, and CFO. The
Board of Directors filled the vacancies of its executive management team by
electing Mr. Loi Heng Sewn from MBf Holdings as its Chairman. Mr. Loi was
formerly the President of MBf Holdings manufacturing facilities. Mr. Edward J.
Marteka was named President of the Company while retaining his responsibilities
as President of AHPC, which he co-founded since its inception. The Board of
Directors directed the Company to focus on its core businesses and to exit the
nutritional products business, where sales were negligible, and the entry costs
were very high and contributed to significant losses. Furthermore, the use of
AHPC cash flow for the nutritional products start up was limiting AHPC's
ability to purchase glove inventory.
Key components of the restructure charge were costs related to the
exit of the nutritional product business, executive management changes, and the
closing of the executive office in New Jersey. The charge includes provisions
for personnel severance and work force reductions, relocation and related
costs, the write down of intangible and other assets, costs associated with the
removal of the nutritional vitamin product lines, and other costs associated
with the execution of the restructure. The restructuring resulted in a
one-time charge of $1,954,591 in the second quarter of 1995 of which
approximately $775,000 is included in accrued liabilities at June 30, 1995, and
is expected to be paid over the next twelve months.
Interest expense increased from $146,099 for the six months ended June
30, 1994 to $351,305 for the same period in 1995. The increase is attributable
to (i) higher levels of borrowing in 1995 compared to 1994, in large part to
fund expenses associated with now discontinued operations, and (ii) to a lesser
extent, increases in the prime rate.
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LIQUIDITY AND CAPITAL RESOURCES
This section is amended and restated in its entirety to read as follows:
At June 30, 1995, the Company had a working capital deficit of
$2,192,743 compared to a $1,894,333 surplus at December 31, 1994. The decrease
in working capital is primarily attributable to the restructure charge incurred
in the second quarter 1995, the decrease in inventory levels, and increased
bank borrowings.
On March 29, 1995, Bank Bumiputra Malaysia Berhad ("BBMB") modified
and extended AHPC's credit lines until October 31, 1997. The credit facility
of $13,000,000 is comprised of a revolving line of credit of $6,000,000, a
letter of credit facility for $2,000,000, and a $5,000,000 term loan. This
term loan availability expired in the second quarter 1995 as it was limited to
use in connection with the acquisition of the MBf Health manufacturing
facility.
The line of credit bears interest at three percent (3%) over prime.
The entire facility, which is guaranteed by MBf Holdings, the principal
shareholder of the Company, is secured by accounts receivable and inventory and
is governed by specific financial covenants and ratios. At December 31, 1994,
$3,175,000 of the credit line and $1,201,315 of the letter of credit facility
had been utilized. At June 30, 1995, $4,825,000 of the credit line and
$120,900 of the letter of credit facility had been utilized.
Due to losses incurred at AHPC for the period ended March 31,1995, the
Company was in violation of its minimum net worth covenant of its BBMB loan for
its AHPC subsidiary at March 31,1995.
At June 30, 1995, AHPC was in violation of additional BBMB financial
covenants including its minimum net worth, interest coverage ratio, leverage
ratio, and fixed charge leverage ratio. Due to these financial covenant
violations, BBMB suspended additional borrowing and letter of credit financing
with AHPC during June 1995.
Subsequent to June 30, 1995, AHPC amended its credit facility loan
agreement with BBMB which allowed for AHPC to begin utilization of an amended
BBMB credit facility. The amended credit facility waives certain of the
financial covenant requirements until December 31, 1996. The Company has
guaranteed the BBMB credit facility and has pledged its assets in connection
therewith. The amended BBMB agreement (i) decreases the revolving line of
credit from $6,000,000 to $1,600,000, (ii) decreases the letter of credit
commitment from $1,800,000 to $1,400,000, (iii) decreases the standby letter of
credit commitment from $200,000 to $100,000 and deletes the term loan
commitment. It transfers $4,825,000 of the outstanding revolving line of
credit balance into a new non-revolving Converted R.C. Commitment, which along
with the amounts
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described above, are evidenced by a single credit note in the aggregate amount
of $7,925,000. The Converted R.C. Commitment portion of the amended credit
note requires quarterly principal payments totalling $482,500 in 1996 and
$723,750 in 1997. AHPC may increase the revolving line of credit up to
$2,000,000 as principal payments are made on the Converted R.C. Commitment.
The Company is obligated to make a capital contribution to AHPC in an amount
sufficient to cause its net worth to be $3,000,000.
In June 1995, AHPC entered into a letter of credit banking facility
agreement with MBf Bank, Tonga in the amount of Tonga dollars T$1,000,000 or
approximately US$800,000 at June 30, 1995. This facility is guaranteed by MBf
Holdings, the principal shareholder of the Company. Subsequent to June 30,
1995, the Company incurred contingent liabilities to MBf Bank, Tonga in the
amount of US$759,000 for issued and outstanding letter of credit commitments.
In October 1994, pursuant to two debenture and warrant purchase
agreements between the Company and two trusts established by George S. Mennen,
the Company issued, and each trust purchased, a convertible subordinated
debenture in the amount of $1,000,000 payable in seven years with interest at
one and one-half percent (1.5%) over the prime rate. Each debenture is
convertible into Common Stock of the Company at a conversion price of $2.50 per
share. In addition, each trust received a warrant exercisable over 5 years to
purchase 75,000 shares of the Common Stock of the Company at an exercise price
of $2.25 per share.
Proceeds from these debentures were used to fund the Playboy condom
inventory, nutritional products inventory and start-up expenses associated with
both products. For the period ended June 30, 1995 the Company incurred
interest expense of $103,995 on this indebtedness.
In December 1994, the Company loaned to an affiliate, MACC Trading
Limited, on a short term basis the principal amount of $1,500,000. This loan
was secured by the Company's obligation to MACC Trading Limited under the
party's December 30, 1993 purchase agreement for the acquisition by the Company
of the Playboy condom license rights from MACC Trading Limited. This loan
bore interest at the rate of four percent (4%) over prime. On May 5, 1995, the
Company and MBf Holdings (the parent company of MACC Trading) entered into an
agreement allowing the Company's subsidiary AHPC to offset the MACC Trading
receivable along with the accrued interest thereon ($1,572,688) against the
trade payable balance owed by AHPC to MBf Health. Therefore the $1,500,000
receivable from MACC Trading was considered as effectively paid on May 5, 1995.
The Company is seeking to identify sources of funding to provide
capital in the event its credit facilities do not provide sufficient liquidity
to fund the Company's ongoing operations.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amended report to be signed on its behalf
by the undersigned thereunto duly authorized.
MBf USA, INC.
an Oklahoma Corporation
Date: August 23, 1995 By: s/Robert C. Carter
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Robert C. Carter
Principal Financial Officer
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