<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: March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
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Commission File Number: 0-17458
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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
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(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 May 8, 1997 was 3,058,333 and 1,252,538, respectively.
<PAGE> 2
MBf USA, Inc.
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INDEX
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PART I - FINANCIAL INFORMATION
------------------------------
Item 1.
Consolidated Balance Sheets
March 31, 1997 (unaudited) and December 31, 1996 (audited).........pg. 1
Consolidated Statements of Operations (unaudited) for the
Three Months Ended March 31, 1997 and 1996.........................pg. 3
Consolidated Statements of Cash Flows (unaudited) for the
Three Months Ended March 31, 1997 and 1996.........................pg. 4
Notes to the Interim Consolidated Financial Statements (unaudited).pg. 5
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................pg. 8
PART II - OTHER INFORMATION
---------------------------
Item 6.
Exhibits and Reports on Form 8-K....................................pg. 12
<PAGE> 3
MBf USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 119,484 $ 321,038
Accounts receivable - trade, net of allowance for
doubtful accounts of $86,474 in 1997 and
$73,000 in 1996 4,223,476 4,677,490
Inventories 8,792,547 8,094,649
Prepaid expenses 591,785 999,704
Other current assets 57,967 58,893
Current assets of discontinued operations 189,799 264,520
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Total current assets 13,975,058 14,416,294
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PROPERTY, PLANT AND EQUIPMENT:
Land rights and land improvements 683,352 694,272
Construction in progress 1,433,151 1,074,092
Equipment, furniture and fixtures 7,120,633 7,183,071
Building improvements 1,264,348 1,262,248
Vehicles 87,484 105,023
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Total property, plant and equipment 10,588,968 10,318,706
Less - Accumulated depreciation (903,827) (736,858)
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Property, plant and equipment, net 9,685,141 9,581,848
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INVESTMENT IN LSAI 846,784 1,015,117
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OTHER ASSETS:
Goodwill, net of accumulated amortization of $374,569
in 1997 and $364,305 in 1996 1,375,431 1,385,695
Due from affiliates 550,026 550,210
Other assets 191,608 297,209
Assets of discontinued operations 133,626 267,251
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Total other assets 2,250,691 2,500,365
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$26,757,674 $27,513,624
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
1
<PAGE> 4
MBf USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable - trade $ 3,121,130 $ 3,291,506
Trade notes payable to banks 6,910,059 7,010,453
Notes payable and current portion of
long-term obligations 4,009,914 3,914,914
Due to affiliates 420,367 382,358
Accrued expenses 1,068,601 1,219,914
Current liabilities of discontinued operations 378,234 302,416
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Total current liabilities 15,908,305 16,121,561
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LONG-TERM OBLIGATIONS 7,094,827 7,098,132
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OTHER LONG-TERM LIABILITIES:
Deferred income taxes 197,135 200,286
Other liabilities 335,891 341,047
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Total other long-term liabilites 533,026 541,333
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COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN SUBSIDIARY 157,235 221,174
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SHAREHOLDERS' EQUITY:
Series A common stock, $.01 par value, 1,252,538 shares
authorized; 1,252,538 shares issued and outstanding 12,525 12,525
Common stock, $.01 par value, 10,000,000 shares
authorized; 3,188,333 shares issued and outstanding 31,883 31,883
Additional paid-in capital 10,875,897 10,875,897
Accumulated deficit (6,317,196) (6,012,811)
Cumulative foreign currency translation adjustment (62,209) (53,034)
Net unrealized loss on marketable equity securities (153,583) -
Less - Common stock in treasury, at cost,
130,000 shares in 1997 and 1996 (1,323,036) (1,323,036)
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Total shareholders' equity 3,064,281 3,531,424
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$ 26,757,674 $ 27,513,624
============ =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
2
<PAGE> 5
MBf USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-----------------------------
1997 1996
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(Unaudited)
<S> <C> <C>
REVENUES:
Product sales, net $ 11,915,726 $ 11,172,257
Interest income 6,547 6,399
Rental income 38,126 34,747
Other income 17,141 -
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Total revenues 11,977,540 11,213,403
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COSTS AND EXPENSES:
Cost of product sales 9,312,633 9,301,206
Selling, general and administrative 2,572,543 1,690,558
Interest 232,297 209,302
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Total costs and expenses 12,117,473 11,201,066
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Income (loss) from continuing operations before
minority interest in subsidiary, and provision
for income taxes (139,933) 12,337
INCOME (LOSS) FROM MINORITY INTEREST IN SUBSIDIARY 49,784 (1,920)
------------ ------------
Income (loss) from continuing operations before
provision for income taxes (90,149) 10,417
PROVISION FOR INCOME TAXES - -
------------ ------------
Income (loss) from continuing operations (90,149) 10,417
LOSS FROM DISCONTINUED OPERATIONS (214,236) (251,370)
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Net loss $ (304,385) $ (240,953)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARE AND
COMMON SHARE EQUIVALENTS OUTSTANDING 4,310,871 2,853,332
============ ============
NET INCOME (LOSS) PER COMMON SHARE AND
COMMON SHARE EQUIVALENTS:
Continuing operations $ (0.02) $ 0.00
Discontinued operations (0.05) (0.08)
------------ ------------
$ (0.07) $ (0.08)
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
3
<PAGE> 6
MBf USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
----------------------------
1997 1996
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(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (304,385) $ (240,953)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation 182,864 28,559
Amortization 10,264 14,445
Provision for doubtful accounts 13,474 9,000
Loss from discontinued operations 214,236 251,370
Loss on disposal of property, plant and equipment 7,584 -
Gain on sale of LSAI common stock (37) -
Changes in certain assets and liabilities:
Accounts receivable - trade 440,540 (562,741)
Inventories (697,898) 1,296,868
Prepaid expenses 407,919 (22,104)
Other assets 106,527 (304,612)
Accounts payable - trade (170,376) (301,750)
Accrued expenses (156,469) 298,697
Deferred income taxes (3,151) -
Amounts due (from) to affiliates 38,193 169,100
Net assets of condom discontinued operation 69,928 (227,576)
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Net cash provided by operating activites 159,213 408,303
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (293,741) (2,036,347)
Proceeds on sale of LSAI common stock 14,787 -
Minority interest in subsidiary (63,939) 6,297
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Net cash used in investing activities (342,893) (2,030,050)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on trade notes payable to banks (100,394) (509,783)
Net borrowings (payments) from notes payable 95,000 2,039,656
Payments on notes payable (3,305) (301,667)
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Net cash provided by (used in) financing activities (8,699) 1,228,206
------------ ------------
IMPACT OF EXCHANGE RATES ON CASH (9,175) (10,889)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (201,554) (404,430)
CASH AND CASH EQUIVALENTS, beginning of period 321,038 706,309
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 119,484 $ 301,879
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
4
<PAGE> 7
MBf USA, Inc.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
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 shares, and the authorization of 1,252,538 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 1,252,538 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.
In connection with the acquisition, MBf International acquired from the
Company a class of securities conferring upon MBf International control of the
Company. MBf International is a subsidiary of MBf Holdings Berhad ("MBf
Holdings"), a Malaysian publicly traded company and the ultimate parent of the
Company.
On December 5, 1996, the shareholders approved an increase in the
authorized Common Stock from 4,000,000 to 10,000,000 shares to allow the
Company to have sufficient shares for issuance in connection with employees
stock options, business acquisitions, the conversion of Series A Common Stock
for Common Stock, public offerings, as well as other purposes.
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, 1996. The accompanying
consolidated financial statements have not been audited by independent
accountants in accordance with generally accepted accounting standards, but in
the opinion of management, such consolidated financial statements include all
adjustments (consisting solely of normal recurring adjustments) necessary to
fairly present the Company's financial position, results of operations and cash
flows. The results of operations for the three month period ended March 31,
1997 may not be indicative of the results that may be expected for the year
ended December 31, 1997.
2. Description of Business:
MBf USA, Inc. and subsidiaries market medical examination gloves in the
United States. In November 1996, the Company adopted a plan to discontinue the
business of distributing Playboy(R) condoms and has reflected it as such in the
accompanying consolidated financial
5
<PAGE> 8
statements. In accordance with the plan, the Company will continue to
distribute Playboy(R) condoms through June 30, 1997. The Company's 70% owned
subsidiary in Indonesia, which manufactures medical examination gloves, was in
the start-up phase of operations as of March 31, 1996, began production in
April 1996 and began shipping product in May 1996.
3. Condom Discontinued Operations:
Effective on November 12, 1996, the Company adopted a plan to discontinue
its Playboy(R) condom business. The Company reached an amicable settlement with
Playboy Enterprises, Inc. to terminate their license agreement under which the
Company distributed Playboy(R) brand condoms in 15 countries. Under the
negotiated agreement, the Company will, until June 30, 1997, continue to sell
Playboy(R) condoms in the countries where it has launched the product.
Subsequent to June 30, 1997, the Company will be entitled to receive royalty
revenues on sale of Playboy(R) condoms in these 15 countries and Japan through
June 30, 2000 and June 30, 1998, respectively. Amounts under the royalty
agreement will be recognized when received.
The loss from discontinued operations of the condom business amounted to
$214,236 and $251,370 for the three months ended March 31, 1997 and 1996,
respectively. These losses include revenues from Playboy(R) condom sales which
were $174,488 and $761,876 for the three months ended March 31, 1997 and 1996,
respectively. The loss from discontinued operations for the quarter ended March
31, 1997 is the result of a change in Management's estimate of the expected
condom business operation results through June 30, 1997.
4. Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, American Health Products
Corporation ("AHPC"), and MBf America, Inc. (a nonactive company) as well as
its 70% owned Indonesian glove manufacturing subsidiary, 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 in
consolidation.
5. Foreign Exchange:
Due to the Company's business and operating facility in Indonesia, the
Company may experience transaction and translation gains and losses because of
currency fluctuations.
The financial statements and transactions of the Company's Indonesian
subsidiary, PT Buana, are maintained in their functional currency (Indonesian
Rupiah dollars) and translated into U.S. dollars in accordance with Statement
of Financial Accounting Standards No. 52. Assets and liabilities are
translated at the current exchange rate in effect at the balance sheet date and
shareholders' equity is translated at historical exchange rates. Revenues and
expenses are translated at the average exchange rate for each period.
Translation adjustments, which result from the process of translating
Indonesian Rupiah dollars into U.S. dollars, are accumulated in a separate
component of shareholders' equity in accordance with Statement No. 52. Such
adjustments are unrealized. The Company incurred a loss of $131,964 on foreign
currency exchange transactions in the first quarter of 1997.
6
<PAGE> 9
6. Investment in LSAI:
At March 31, 1997, the Company's investment in Laboratory Specialists of
America, Inc. ("LSAI") includes LSAI common stock, valued at $493,661 (cost of
$647,244), and a note receivable from LSAI of $353,123 for a total of $846,784.
The Company adopted Statement of Financial Accounting Standards No. 115
("SFAS 115"), "Accounting for Certain Investments in Debt and Equity
Securities" which requires that equity securities that have readily
determinable fair values shall be classified as "available for sale" if not
held for the objective of generating profits on short-term differences in
price. Accordingly, the Company's common stock investment in LSAI is
classified and treated as available for sale.
SFAS 115 further requires that unrealized holding gains and losses related
to available-for-sale securities shall be excluded from earnings and reported
as a net amount in a separate component of shareholders' equity until realized.
At March 31, 1997, a net unrealized loss of $153,583 on the common stock
investment in LSAI has been recorded to shareholders equity, which represents
the reduction of the investment value below cost.
7. Acquisition of PT Buana:
The Company entered into a Stock Acquisition Agreement with MBf
International dated October 31, 1995, whereby MBf International exchanged its
70% beneficial interest in the outstanding common stock of PT Buana and a
non-interest-bearing demand note in the principal amount of $737,769 ("Note"),
for 255,072 shares of the Company's Common Stock having an aggregate value of
$1,219,563. Because the Company and PT Buana were under common control, the
assets and liabilities acquired were recorded at PT Buana's historical cost.
The Note is guaranteed by MBf Holdings, the parent company of MBf
International.
The factory had not begun production as of March 31, 1996, and was in the
start-up phase of operation at that time. Accordingly, the factory had
capitalized certain start-up costs incurred and began amortizing these costs
over a one-year period upon commencement of operations in April 1996.
At March 31, 1997, the Company has recorded a minority interest liability
in the PT Buana subsidiary of $157,235 representing the non-owned 30% interest
in the subsidiary. The minority interest of PT Buana is owned by two
Indonesian corporations.
8. 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.
7
<PAGE> 10
The Company had net operating loss carry forwards ("NOLs") at December 31,
1996 of approximately $5,300,000 which were available to reduce Federal taxable
income in future periods and will begin expiring in 2004. 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, 1996 may be
significantly limited.
9. Contingencies:
Over the last several years, numerous product liability lawsuits have been
filed against suppliers and manufacturers of latex gloves alleging, among other
things, adverse allergic reactions. The Company is one of numerous defendants
that have been named in such lawsuits and, to date, has been named and served
in twenty-two actions, one of which was settled in January 1996 for a nominal
amount and two cases which have been dismissed. Management believes all such
matters are adequately provided for, and if not provided for are without merit,
or involve such amounts that would not materially adversely affect the
Company's results of operations or financial condition.
10. Reclassifications:
Certain reclassifications have been made to the consolidated statement of
operations and cash flows for the three months ended March 31, 1996. These
reclassifications have been made for comparison purposes only and have no
effect on the net loss for that period.
11. Supplemental Cash Flow Information:
Other noncash investing activities for the three months ended March 31,
1997 include $153,583 of unrealized loss on the common stock investment in
LSAI.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.(1)
The Company's subsidiary, AHPC, is engaged in the marketing and
distribution of medical examination gloves in the United States and has been in
the glove business since its incorporation in January 1989. The Company
recorded record glove sales in the first quarter of 1997.
- ----------------
(1) Forward looking statements in this Item 2, Management's Discussion and
Analysis of Financial Condition and Results of Operations, including statements
regarding new products and markets, gross margins, selling, general and
administrative expenses, liquidity and cash needs, and the Company's plans and
strategies, are all based on current expectations and the Company assumes no
obligation to update this information. Numerous factors could cause actual
results to differ from those described in the forward looking statements. The
Company cautions investors that its business is subject to significant risks
and uncertainties. See the risk factors as disclosed in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 under the heading
"Risks Affecting Forward Looking Statements and Stock Prices."
8
<PAGE> 11
PT Buana was incorporated in Indonesia on October 17, 1994, and commenced
operations in April 1996. PT Buana began shipping powdered latex examination
gloves to AHPC in May 1996 and sold 100% of its production, amounting to
$1,801,795, to AHPC in the first quarter of 1997. All significant intercompany
transactions have been eliminated in consolidation. At present, PT Buana does
not have the technology or equipment necessary to produce powder free gloves.
The results of operations for the three months ended March 31, 1997 and
1996 exclude the revenues and expenses from the discontinued operations of the
Playboy(R) condom business. Accordingly, all condom business activity is
reflected in the loss from discontinued operations as a separate line item in
the consolidated statements of operations.
Total revenues are comprised primarily of glove sales from AHPC's
examination glove product line. Glove product sales totaled $11,915,726 and
$11,172,257 for the three months ended March 31, 1997 and 1996, respectively.
This increase represents a 6.7% increase in glove sales in the first quarter of
1997 over the comparable period in 1996. This increase is attributable to
AHPC's more developed customer relationships, sales price increases and an
increase in the sales mix to higher priced products, particularly latex powder
free examination gloves. The Company is continuing to strive to increase
powder free glove sales as the exam glove market moves towards these products
and away from powdered gloves. During the first three months of 1997, two of
AHPC customers accounted for approximately 67.4% of glove sales. The loss of
either customer would have a materially adverse effect on the Company.
Revenues from the Playboy(R) condom business were $174,488 and $761,878
for the three months ended March 31,1997 and 1996, respectively. These
revenues are included in the loss from discontinued operations in the
consolidated statements of operations and declined due to the Company's exit of
the condom business pursuant to the agreement with Playboy in November 1996.
Under the exit plan, the Company will continue to sell Playboy(R) condoms until
June 30, 1997 and will receive royalty income for up to three years after that
date from sales in 15 countries in which the Company has launched the
Playboy(R) condoms. The Company will also receive royalty revenues on
Playboy(R) condom sales in Japan through June 30, 1998. There can be no
assurance that any royalty revenues will be earned by the Company in any or all
of the 15 countries or Japan.
Cost of goods sold for the three month period ended March 31, 1997 as a
percentage of product sales was 78.2% compared to 83.3% for the comparable
period in 1996. This reduction in the cost of sales and improvement in gross
margin is attributed to: (i) increased glove sale prices in 1997 over 1996;
(ii) an increase in sales of higher profit margin glove products, particularly
powder free examination gloves; (iii) reduced ocean freight import rates; (iv)
the U.S. government lowering the duty importation fees associated with
examination gloves, effective January 1, 1997; (v) the duty free status of
importing Indonesian manufactured glove products into the U.S.; and (vi) the
inclusion of PT Buana's manufacturing gross margins in 1997, which increased
the overall margin from internally manufactured gloves versus third party
manufactured gloves. The Company currently expects its gross margins to
continue to be affected by changes in product mix, competition and other
factors.
9
<PAGE> 12
Selling, general and administrative ("SG&A") expenses increased from
$1,690,558 in 1996 to $2,572,543 in 1997, a 52.2% increase. The increase is
attributable to: (i) an increase in selling expenses at AHPC commensurate with
its sales growth; (ii) the increase in SG&A expenses from PT Buana's
operations, which began in May 1996; (iii) the expansion of the Company's sales
and support forces; (iv) an increase in September 1996 in rebates provided to
customers; and (v) the inclusion in 1997 of a realized foreign currency
exchange loss of $131,964. As a percentage of net product sales, SG&A expenses
increased to 21.6% for the three months ended March 31, 1997, compared with
15.1% in the comparable period in 1996. The Company currently expects to make
additional investments in sales and marketing personnel to further develop
established markets and to introduce new products to the marketplace.
Accordingly, the Company currently expects that its SG&A expense will continue
to increase in absolute dollars but may decline as a percentage of net revenues
in the future.
Interest expense increased from $209,302 for the quarter ended March 31,
1996 to $232,297 for the same period in 1997. This increase is attributable to
the inclusion of PT Buana's debt facility interest expense in the first quarter
of 1997 which was not included in the first quarter of 1996 due to its start up
nature at that time.
The Company continued to have a loss from discontinued operations of
the condom business of $214,236 and $251,370 in the first quarters ended March
31, 1997 and 1996, respectively. These losses were the result of very high
SG&A expenses from the introduction, launch, and advertising costs associated
with running the condom business in numerous foreign countries in the first
quarter of 1996. The loss from discontinued operations for the quarter ended
March 31, 1997 is the result of a change in Management's estimate of the
expected condom business operation results through June 30, 1997.
Income (loss) from continuing operations for the quarters ended March 31,
1997 and 1996 was $(90,149) and $10,417, respectively. The small profit
recorded in 1996 versus the loss in 1997 is primarily attributable to the
Company's increased sales salaries in 1997, as part of the Company's conversion
from manufacturer sales representatives to an expanded in-house sales force,
and the foreign exchange loss of $131,964 incurred in the first quarter ended
March 31, 1997, which did not occur in the same period in 1996.
For the three months ended March 31, 1997 and 1996, the Company recorded a
net loss of $304,385 and $240,953, respectively. The overall loss per share
was $.07 and $.08 for the first quarters of 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had a working capital deficit of $1,933,247
compared to a deficit of $1,705,267 at December 31, 1996. The decrease in
working capital is primarily attributable to a reduction in cash, accounts
receivable and prepaid expenses, offset by a net loss of $304,385.
10
<PAGE> 13
Cash and cash equivalents at March 31, 1997 was $119,484 and decreased
$201,554 from $321,038 at December 31, 1996. The Company experienced a decline
in cash flows in the first three months of 1997 primarily from investing
activities for the funding of capital expenditures on additional PT Buana
manufacturing equipment.
The Company experienced positive cash flow from operations of $159,213
during the first quarter of 1997 as a result of a reduction in trade
receivables and prepaid expenses, offset by an increase in inventories. The
Company used $342,893 for investing in the first quarter of 1997 in the
purchase of fixed assets for operations of the manufacturing facility in
Indonesia. The Company experienced negative cash flow of $8,699 from financing
activities during the three months ended March 31, 1997 from net payments of
$100,394 on letter of credit debt, offset by additional bank line of credit
borrowings of $95,000.
At March 31, 1997, the Company's principal sources of liquidity included:
$119,484 of cash and cash equivalents; $7,900,000 available under a secured
bank line of credit and letter of credit facility, expiring in October 1997;
$4,600,000 available under a bank unsecured letter of credit facility; and
$6,500,000 available under a secured Indonesian bank loan facility with a
banking syndicate. At March 31,1997, approximately $6,000,000 was outstanding
under the $7,900,000 facility, approximately $3,420,000 was outstanding under
the $4,600,000 letter of credit facility, and all $6,500,000 was outstanding
under the Indonesian bank facility.
Inventories at March 31,1997 increased to approximately $8,800,000
compared with approximately $8,100,000 at December 31, 1996. This increase was
primarily due to managed inventory levels in anticipation of future increased
sales volume.
Net trade accounts receivable at March 31, 1997 decreased to approximately
$4,225,000 from approximately $4,675,000 at December 31, 1996. The reduction
in trade receivables is due to heightened collection efforts.
In October 1994, pursuant to two debenture and warrant purchase agreements
between the Company and two affiliated trusts, 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 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 Common Stock of the
Company at an exercise price of $22.50 per share. At March 31, 1997 and
December 31,1996, long-term debt of $2,000,000 was outstanding as a result of
this transaction.
Proceeds from these debentures were primarily used to fund the Playboy(R)
condom business. For the three months ended March 31, 1997 and 1996, the
Company incurred interest expense of approximately $50,000 on this
indebtedness. This expense has been included in the loss from discontinued
operations in the first quarters of 1997 and 1996.
The Company currently expects to have cash needs during 1997 in addition
to its expected growth in the glove business. These cash needs may arise in
connection with various events such as for: (i) the expansion into new glove
products; (ii) the continued conversion to a full time sales force versus the
utilization of independent manufacturer sales representatives; (iii) the hiring
of
11
<PAGE> 14
additional support staff; (iv) the continuing completion of the manufacturing
facility in Indonesia and possible upgrading to produce powder free gloves; and
(v) for other operating expenses.
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.
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: May 14, 1997 By: /s/ Stephen Tan
---------------------------------
Name: Stephen Tan
Title: Chief Financial Officer
13
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