<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1996
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)
Maryland 73-1326131
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Park Boulevard, Suite 1260
Itasca, IL 60143
(Address of principal executive office)
(630) 285-9191
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of the issuer's Common Stock, par value $.01 per
share, and issuer's Series A Convertible Common Stock, par value $.01 per
share, outstanding as of August 13, 1996, was 2,516,044 and 1,252,537,
respectively.
<PAGE> 2
MBf USA, Inc.
INDEX
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1.
Consolidated Balance Sheets
June 30, 1996 (unaudited) and December 31, 1995............................... pg. 1
Consolidated Statements of Operations (unaudited)
for the Three Months Ended June 30, 1996 and 1995............................. pg. 3
Consolidated Statement of Operations (unaudited)
for the Six Months Ended June 30, 1996 and 1995............................... pg. 4
Consolidated Statements of Cash Flows (unaudited)
for the Six Months Ended June 30, 1996 and 1995............................... pg. 5
Notes to the Interim Consolidated
Financial Statements (unaudited).............................................. pg. 6
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................... pg. 9
PART II - OTHER INFORMATION
Item 6.
Exhibits and Reports on Form 8-K.............................................. pg. 12
</TABLE>
<PAGE> 3
PART I
MBf USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
-------------- -----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 81,383 $ 706,309
Accounts receivable - trade, net of allowance for
doubtful accounts of $74,091 in 1996 and
$56,091 in 1995 4,534,401 4,657,616
Inventories 8,707,742 10,119,642
Prepaid expenses 514,034 486,420
Other current assets 1,536 81,730
-------------- -------------
Total current assets 13,839,096 16,051,717
-------------- -------------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 705,612 698,657
Construction in progress 3,724,134 4,242,199
Vehicles 88,419 41,487
Building improvements 21,744 21,744
Equipment, furniture and fixtures 5,116,540 672,637
-------------- -------------
Total property, plant and equipment 9,656,449 5,676,724
Less - Accumulated depreciation (359,271) (229,402)
-------------- -------------
Property, plant and equipment, net 9,297,178 5,447,322
-------------- -------------
INVESTMENT IN LSAI 1,059,367 1,059,367
-------------- -------------
OTHER ASSETS:
Goodwill, net of accumulated amortization of $335,417
in 1996 and $306,527 in 1995 1,414,583 1,443,473
Trademarks and license rights, net of accumulated
amortization of $60,110 in 1996 and $47,688 in 1995 292,551 304,973
Due from affiliates 1,826,835 1,791,616
Other assets 545,663 274,736
-------------- -------------
Total other assets 4,079,632 3,814,798
-------------- -------------
$ 28,275,273 $ 26,373,204
============== =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
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<PAGE> 4
MBf USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
-------------- -----------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable - trade $ 611,403 $ 2,494,527
Notes payable and current portion of
long-term obligations 1,719,289 2,224,166
Trade notes payable to banks 6,273,000 6,243,917
Due to affiliates 1,157,436 1,215,479
Accrued expenses 1,417,053 958,130
-------------- ------------
Total current liabilities 11,178,181 13,136,219
-------------- ------------
LONG-TERM DEBT OBLIGATIONS 12,508,713 10,342,500
-------------- ------------
OTHER LONG-TERM LIABILITIES:
Due to affiliate 1,100,000 1,100,000
Other long-term liabilities 338,743 330,266
-------------- ------------
Total other long-term liabilities 1,438,743 1,430,266
-------------- ------------
MINORITY INTEREST IN SUBSIDIARY 180,253 144,558
-------------- ------------
SHAREHOLDERS' EQUITY:
Series A common stock, $.01 par value, 1,252,537 shares
authorized, 1,252,537 shares issued and outstanding 12,525 12,525
Common stock, $.01 par value, 4,000,000 shares
authorized, 2,516,044 and 1,730,795 shares
issued and outstanding in 1996 and 1995, respectively 25,160 17,308
Additional paid-in capital 9,882,898 7,487,944
Retained Earnings (Deficit) (5,578,214) (4,848,224)
Foreign currency translation adjustment (49,950) (26,856)
Less - Common stock in treasury, at cost,
130,000 shares in 1996 and 1995 (1,323,036) (1,323,036)
-------------- ------------
Total shareholders' equity 2,969,383 1,319,661
-------------- ------------
$ 28,275,273 $ 26,373,204
============== ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
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<PAGE> 5
MBf USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months
Ended June 30,
-----------------------------------------
1996 1995
------------ -------------
(Unaudited)
<S> <C> <C>
REVENUES:
Product sales, net $ 11,375,091 $ 9,954,172
Interest 9,604 7,847
Other 5,208 -
------------ -------------
Total revenues 11,389,903 9,962,019
------------ -------------
COSTS AND EXPENSES:
Cost of product sales 9,248,803 8,640,241
Selling, general and administrative 2,269,826 2,845,652
Restructure charge - 1,808,757
Interest 332,029 196,379
------------ -------------
Total costs and expenses 11,850,658 13,491,029
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Loss from continuing operations before income
from investment, minority interest in subsidiary
and provision for income taxes (460,755) (3,529,010)
LOSS FROM MINORITY INTEREST IN SUBSIDIARY (28,282) -
------------ -------------
Loss from continuing operations before provision
for income taxes (489,037) (3,529,010)
PROVISION FOR INCOME TAXES - -
------------ -------------
Loss from continuing operations (489,037) (3,529,010)
DISCONTINUED OPERATIONS OF SUBSIDIARY - (79,782)
------------ -------------
Net Loss $ (489,037) $ (3,608,792)
============ =============
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON
STOCK AND COMMON STOCK EQUIVALENTS OUTSTANDING 2,913,736 2,347,280
============ =============
NET LOSS PER COMMON STOCK
AND COMMON STOCK EQUIVALENT $ (0.17) $ (1.54)
============ =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
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<PAGE> 6
MBf USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-----------------------------------------
1996 1995
------------- -------------
(Unaudited)
<S> <C> <C>
REVENUES:
Product sales, net $ 23,309,224 $ 19,799,680
Interest 16,003 64,729
Other 5,208 66,568
------------- -------------
Total revenues 23,330,435 19,930,977
------------- -------------
COSTS AND EXPENSES:
Cost of product sales 18,986,697 17,098,594
Selling, general and administrative 4,452,487 4,879,710
Restructure charge - 1,808,757
Interest 591,039 351,305
------------- -------------
Total costs and expenses 24,030,223 24,138,366
------------- -------------
Loss from continuing operations before income
from investment, minority interest in subsidiary
and provision for income taxes (699,788) (4,207,389)
LOSS FROM MINORITY INTEREST IN SUBSIDIARY (30,202) -
------------- -------------
Loss from continuing operations before provision
for income taxes (729,990) (4,207,389)
PROVISION FOR INCOME TAXES - -
------------- -------------
Loss from continuing operations (729,990) (4,207,389)
DISCONTINUED OPERATIONS OF SUBSIDIARY - (88,219)
------------- -------------
Net Loss $ (729,990) $ (4,295,608)
============= =============
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON
STOCK AND COMMON STOCK EQUIVALENTS OUTSTANDING 2,913,736 2,347,280
============= =============
NET LOSS PER COMMON STOCK
AND COMMON STOCK EQUIVALENT $ (0.25) $ (1.83)
============= =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
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<PAGE> 7
MBf USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-------------------------------------------
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (729,990) $(4,295,608)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 129,869 46,853
Amortization 41,312 70,167
Provision for doubtful accounts 18,000 34,500
(Income) loss from discontinued operations of subsidiary - 88,219
Loss on disposal of fixed assets - (5,519)
Changes in certain assets and liabilities:
Accounts receivable - trade 105,215 (698,556)
Inventories 1,411,900 1,526,282
Prepaid expenses (27,614) (63,924)
Other current assets 80,194 (190,000)
Accounts payable - trade (1,883,124) 473,499
Accrued expenses 458,923 771,838
---------- -----------
Net cash used in operating activities (395,315) (2,242,249)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,979,725) (169,686)
Expenditures for other assets (270,927) 440,975
Advances from discontinued subsidiary - 56,119
Minority interest in subsidiary 35,695 -
---------- -----------
Net cash provided by (used in) investing activities (4,214,957) 327,408
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 2,402,806 -
Amounts due (from) to affiliates (93,262) 1,326,099
Net borrowings (payments) on trade notes payable to banks 29,083 (1,080,415)
Proceeds from notes payable 2,538,002 1,875,000
Net proceeds from stock option exercises - 2,951
Payments on notes payable (876,666) (275,000)
Proceeds from minority interest shareholder advances 8,477 -
---------- -----------
Net cash provided by financing activities 4,008,440 1,848,635
---------- -----------
IMPACT OF EXCHANGE RATES ON CASH (23,094) -
---------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (624,926) (66,206)
CASH AND CASH EQUIVALENTS, beginning of period 706,309 96,096
---------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 81,383 $ 29,890
========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
-5-
<PAGE> 8
MBf USA, Inc.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1995
1. Basis of Presentation:
On February 27, 1992 the shareholders of American Drug Screens, Inc. (a
Maryland corporation which changed its name on May 21, 1993 to MBf USA, Inc.,
"the Company") approved a transaction (the "Share Exchange") whereby the
shareholder of American Health Products Corporation (a Texas corporation,
"AHPC") acquired control of the Company through a series of integrated
transactions, including (a) the increase in authorization of the Company's
Common Stock, par value $.01 per share ("Common Stock") from 2,000,000 to
4,000,000, and the authorization of 1,252,537 shares of a new Series A
Convertible Common Stock, par value $0.01 per share ("Series A Common Stock"),
(b) the acquisition by a wholly owned subsidiary of the Company of all the
issued and outstanding shares of common stock of AHPC from MBf International,
Ltd., a Hong Kong corporation and the majority shareholder of the Company ("MBf
International"), in exchange for 1,252,537 shares of Series A Common Stock; and
(c) the restructuring of the Board of Directors by creating two classes of
directors. Accordingly, the transaction was accounted for as a purchase. MBf
International is a subsidiary of MBf Holdings Berhad ("MBf Holdings"), a
Malaysian publicly traded company and the ultimate parent of the Company.
The unaudited consolidated financial statements have been prepared for
interim periods only and do not include all of the information and note
disclosures required by generally accepted accounting principles. These
consolidated statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1995. The accompanying
consolidated financial statements have not been examined by independent
accountants in accordance with generally accepted accounting standards, but in
the opinion of management, such consolidated financial statements include all
adjustments necessary to fairly present the Company's financial position,
results of operations and cash flows. The results of operations for the six
month period ended June 30, 1996 may not be indicative of the results that may
be expected for the year ended December 31, 1996.
2. Description of Business:
MBf USA, Inc. and subsidiaries manufacture and market medical examination
gloves in the United States and distribute Playboy brand condoms
internationally. The Company owns a majority interest in an Indonesian glove
manufacturing plant which began production in April, 1996 and manufactures
latex medical examination gloves. The plant began shipping product in May,
1996.
3. Principles of Consolidation:
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries, American Health Products
Corporation ("AHPC"), MBf America, Inc.
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<PAGE> 9
(a non-active holding company), Premier Latex, Inc., which is currently
inactive, and Disposable Garmets, Inc. ("DGI"), a discontinued operation which
is currently inactive. Effective October 31, 1995, the Company acquired a 70%
interest in an Indonesian glove manufacturing factory, PT MBf Buana
Multicorpora ("PT Buana"). Accordingly, PT Buana's assets, liabilities, equity
and minority interest is included in the consolidated financial statements of
the Company. All significant intercompany transactions have been eliminated.
4. Other Items:
The investment in Laboratory Specialist of America, Inc. ("LSAI") on the
balance sheet at March 31, 1996 is comprised of a note receivable from LSAI of
$353,123 and a common stock investment in LSAI, at cost, of $706,244. The
Company has agreed not to sell its 239,405 shares of LSAI common stock prior to
July 8, 1996 without the prior consent of LSAI and its officers and directors.
Thereafter, such shares of common stock will be eligible for sale under Rule
144.
The Company's investment in the publicly traded stock of LSAI is accounted
for as "available for sale" securities in compliance with the provisions of the
Statement of Financial Accounting Standards No. 115 (SFAS 115). On June 30,
1996, the Company's common stock investment in LSAI had a market value of
$748,140. The change in the investment has not been recorded as of June 30,
1996 due to the restriction on the sale of the stock and the immaterial
difference between cost and market value.
5. Acquisition of PT Buana:
The Company entered into a Stock Acquisition Agreement with MBf
International dated October 31, 1995, whereby MBf International exchanged its
beneficial interest in 1,365 shares of common stock of PT Buana, representing
70% of the outstanding common stock of PT Buana, and a non-interest-bearing
demand note in the principal amount of $737,769, for 255,072 shares of the
Company's Common Stock having an aggregate value of $1,219,563. Because the
Company and PT Buana are under common control, the assets and liabilities
acquired were recorded at PT Buana's historical cost. The demand note is
guaranteed by MBf Holdings Berhad ("MBf Holdings"), the ultimate holding
company of MBf International. PT Buana is a latex examination glove factory,
located in Indonesia, which will supply production for the Company's
subsidiary, AHPC.
The factory began production in April, 1996. Prior to this date, the
factory was in the start-up phase of operation. Accordingly, the factory had
capitalized certain start-up costs incurred and will amortize these costs over
a one-year period. As of June 30, 1996, the Company has recorded a minority
interest in the PT Buana subsidiary of $180,253 as reflected in the
consolidated balance sheets, representing the non-owned 30% equity interest in
the factory. The minority interest of PT Buana is owned by two Indonesian
corporations.
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<PAGE> 10
6. Accounting for Income Taxes:
The Company records income taxes in accordance with Statement of Financial
Accounting Standards No. 109 ("SFAS 109"). SFAS 109 utilizes the liability
method and deferred taxes are determined based on the estimated future tax
effects of differences between the financial statement and tax basis of assets
and liabilities given the provisions of enacted tax laws. Deferred income tax
provisions and benefits are based on the changes in the deferred tax asset or
tax liability from period to period.
The effective income tax rates differ from the statutory federal income
tax rate of 34% at June 30, 1996 and 1995. The sources and tax effects of the
differences are as follows:
<TABLE>
<CAPTION>
1996 1995
--------------- ------------------
<S> <C> <C>
Tax expense at statutory rate of 34% $ (248,197) $ (1,460,507)
Goodwill amortization 28,890 33,257
Increase in deferred tax asset valuation allowance $219,307 $ 1,427,250
--------------- ------------------
Provision for income taxes $ - $ -
=============== =================
</TABLE>
The Company had net operating loss carry forwards ("NOLs") at December 31,
1995 of approximately $4,900,000 which were available to reduce Federal taxable
income in future periods and will begin expiring in 2003. In accordance with
Federal tax regulations, usage of NOLs is subject to limitations in future
years if certain ownership changes occur. Such ownership changes occurred with
the transactions described in Note 1. Because of these factors, the
utilization of the NOLs generated prior to December 31, 1995 may be
significantly limited.
7. Contingencies:
Over the last several years, numerous product liability lawsuits have been
filed against suppliers and manufacturers of powdered latex gloves alleging,
among other things, adverse allergic reactions. AHPC is one of numerous
defendants that have been named in such lawsuits and to date is named and
served in six (6) actions. While the damages claimed are substantial, the
Company believes its exposure in these lawsuits is mitigated by (i) the fact
that it does not manufacture any of the products that are the subject of the
lawsuits; and (ii) warnings which accompany such products. In any event,
because the Company carries product liability insurance with $2,000,000 of
coverage for the payment of any indemnity or judgments, the Company believes
that its risk of exposure is limited but could have a materially adverse effect
on the Company. However, it is not feasible to predict the ultimate outcome of
litigation.
8. Reclassifications:
Certain reclassifications have been made to the December 31, 1995
consolidated balance sheet and the consolidated statements of operations for
the three and six months ended June 30, 1995. These reclassifications have
been made for comparison purposes only and have no effect on the net loss for
those periods.
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<PAGE> 11
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The Company is engaged in the international marketing and distribution of
Playboy(R) brand latex condoms after acquiring the Playboy license rights on
December 30, 1993. The sales of condoms is a small portion of total product
sales due to the short period the Company has been in this business, which
commenced in 1994. The Company's subsidiary, AHPC, is engaged in the marketing
and distribution of medical examination gloves in the United States. AHPC's
gloves sales make up the vast majority of product sales and AHPC has been in
business since its incorporation in January, 1989. The Company's Indonesian
subsidiary, PT Buana is engaged in the manufacturing of latex examination
gloves which sells its production to AHPC.
PT Buana was incorporated in Indonesia on October 17, 1994, and began
operations in April, 1996. Since the Company acquired a 70% interest in PT
Buana on October 31, 1995, and due to the start-up nature of the factory,
certain start-up costs have been capitalized and will be amortized over a one
year period through April, 1997. PT Buana began shipping product to AHPC in
May, 1996. PT Buana sales to AHPC are eliminated in consolidation.
Total revenues for the quarter ended June 30, 1996 were $11,389,903
compared to $9,962,019 for the same period in 1995, an increase of 14.3%.
Total revenues for the six months ended June 30, 1996 were $23,330,435 compared
to $19,930,977 for the same period in 1995, an increase of over 17%. For the
three months ended June 30, 1996, total revenues include product sales of
$11,079,661 from the Company's exam glove product line sold by AHPC and
$265,833 from the Playboy condom product line. Sales of glove and Playboy
condoms for the comparable period in 1995 were $9,217,435 and $736,737,
respectively.
The increased sales volume at AHPC in both the three and six month periods
is attributable to AHPC's more developed customer relationships, and the
ability to fulfill customers' quantity requirements. The Company has
maintained its glove inventory levels to enable glove sales to increase by over
20.2% in the second quarter of 1996 as compared to the same period in 1995.
During the first six months of 1996, two of AHPC's customers accounted for
approximately 57% of glove sales. The loss of either of such customers of AHPC
would have an adverse material effect on the Company.
During the six months ended June 30, 1996, the Playboy condom sales were
$1,023,973 compared to $1,036,959 during the same period in 1995. Condom sales
in the three months ended June 30, 1996 were $265,833 versus $736,737 in the
comparable period in 1995. The decrease in the condom sales is attributable to
the slow down in orders from international distributors. The Playboy License
Agreement requires the Company to meet certain minimum net sales per country,
and failing to do so, Playboy Enterprises, Inc. ("PEI") may revoke the right to
sell in such country or grant additional licenses to other licensees to sell in
such country. The Company's international distributors are currently not
meeting their sales requirements, thus creating a shortfall in sales goals and
in minimum sales required under the Playboy contract. The Company is working
toward improving sales to meet its target as required, and is carefully
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<PAGE> 12
evaluating its commitment to the condom business.
Cost of goods sold as a percentage of sales for the three and six month
periods ended June 30, 1996 were 81.3% and 81.5%, respectively, compared to
86.8% and 86.4%, respectively, for the comparable periods in 1995. This
decrease in cost of sales as a percentage of sales is attributed to 1) more
favorable glove purchase prices obtained in 1996 due to a lower raw material
latex price; 2) AHPC's increased glove sales prices in the second half of 1995;
and 3) continued efforts to change the glove product mix toward higher profit
margin gloves.
Selling, general and administrative expenses decreased from $2,845,652 for
the three months ended June 30, 1995 to $2,269,826 for the same period in 1996.
The decrease is attributable to reduced costs associated with the
introduction, launch and advertising of Playboy condoms in new and established
countries.
During the second quarter of 1995, the Company incurred a restructuring
charge which included the resignation of and severance payments to the
Chairman/CEO, President/COO, and CFO. The Board of Directors directed the
Company to focus on its core businesses and to exit the nutritional product
business, where sales were negligible, and the entry costs were very high,
which contributed to significant losses.
Key components of the 1995 restructure charge were costs related to the
exit of the nutritional product business, executive management personnel
severance, and the closing of the executive office in New Jersey. The charge
includes provisions for work force reductions, 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 charge resulted in a one-time charge of
$1,808,757 in the second quarter of 1995.
Interest expense increased from $196,379 for the quarter ended June 30,
1995 to $332,029 for the same period in 1996. The increase is attributable to
the inclusion of PT Buana's debt facility which was not included in the first
six months of 1995, and to higher levels of borrowing and debt to fund the
growth and expansion of the Company.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had a working capital surplus of $2,660,915
compared to $2,915,498 surplus at December 31, 1995. The decrease in working
capital is primarily attributable to a reduction in cash and inventory, offset
by a net loss of $489,037.
On August 16, 1995, the Company amended its credit facility loan agreement
with Bank Bumiputra Malaysia Berhad ("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 amended BBMB agreement (i) decreased the revolving line of credit from
$6,000,000 to $1,600,000, (ii) decreased the letter of credit commitment from
$1,800,000 to $1,400,000, and (iii) decreased the standby letter of credit
commitment from $200,000 to $100,000. It transferred $4,825,000 of the
outstanding revolving line of credit balance into a new non-revolving Converted
Loan Commitment, which along with
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<PAGE> 13
the amounts described above, are evidenced by a single credit note in the
aggregate amount of $7,925,000. The Company is obligated to and maintain
AHPC's net worth to be a minimum of $3.0 million.
The Converted Loan Commitment portion of the amended credit note requires
quarterly principal payments totaling $482,500 in 1996 and $723,750 in 1997 and
has interest at three percent (3%) over prime. The Company may increase the
revolving line of credit or letter of credit facility by up to $2,000,000 as
principal payments are made on the Converted Loan Commitment. In the first
half of 1996, AHPC paid down the Converted Loan Commitment by $500,000 which
increased the letter of credit availability by the same amount. At June 30,
1996 and December 31, 1995, $4,325,000 and $4,825,000, respectively, was
outstanding on the Converted Loan Commitment.
The BBMB revolving line of credit bears interest at three percent (3%)
over prime. The entire BBMB facility, which is guaranteed by MBf Holdings, is
secured by accounts receivable and inventory and is governed by specific
financial covenants and ratios. At December 31, 1995, $1,500,000 of this
credit line and $993,500 of the BBMB letter of credit facility had been
utilized. At June 30, 1996, $1,265,000 of the credit line and $1,967,476 of
the BBMB letter of credit facility had been utilized.
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. On August 24, 1995, the MBf Bank of
Tonga approved an additional T$2 million letter of credit facility bringing the
total facility to T$3 million or approximately US$2.4 million. This unsecured
facility is guaranteed by MBf Holdings. At June 30, 1996, $1,774,278 of this
letter of credit facility was utilized compared to $1,307,135 at December 31,
1995.
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 $25.00 per share. In
addition, each trust received a warrant exercisable over five years to purchase
7,500 shares of the Common Stock of the Company at an exercise price of $22.50
per share. At June 30, 1996 and December 31, 1995, long-term debt of $2
million is recorded from this transaction. For the six months ended June 30,
1996, the Company incurred interest expense of approximately $98,000 on
this indebtedness.
PT Buana has debt consisting of a syndicated loan facility with three
Indonesian banks amounting to a total credit facility of $6.5 million. As of
June 30, 1996 and December 31, 1995, $6.5 million and $4.0 million,
respectively, had been borrowed against the facility which was used for the
purchase of assets, and the construction and start-up operations of the
Indonesian factory. This credit facility is secured by the assets and equity of
PT Buana and is guaranteed by MBf Holdings. The facility bears interest
ranging from 8.5% to 13.6875% and is payable in eight semi-annual installments,
and due in November 2000.
- 11 -
<PAGE> 14
During June 1996, the Company sold 296,296 shares of Common Stock to a
Malaysian glove manufacturer. The $1.0 million in proceeds from this sale were
used to reduce AHPC's liability owed to the same manufacturer. This issuance
provides the manufacturer with an 8% interest in the Company.
During June, 1996, the Company received approximately $1.4 million from
MBf International in exchange for 488,953 shares of Common Stock of the
Company. The proceeds were used for the funding of PT Buana's acquisition of
manufacturing equipment which will be used to expand PT Buana's production
capacity. This investment maintains MBf International's ownership in the
Company at 62%.
The Company is continuing to seek and identify additional sources of
funding to provide capital in the event its credit facilities do not provide
sufficient liquidity to fund the Company's ongoing operations.
PART II
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
-12-
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MBf USA, Inc.
(Registrant)
Date: Aug. 19, 1996 By: /s/ Stephen Tan
------------------- -------------------------------
Name: Stephen Tan
Title: Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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