U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20649
FORM 10-QSB
QUARTERLY REPORT SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31,1997
COMMISSION FILE NO. 0-17981
ALCHEMY HOLDINGS, INC.
F/K/A HAWK MARINE POWER, INC.
A Florida Corporation 59-1886450
3025 N.E. 188 Street, Miami, Florida 33180
Issuers telephone number: (305) 932-9230
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
State the number of shares outstanding of each of the registrant's classes of
common equity as of the latest practicable date. 2,237,377 shares of the
registrant's common stock are issued and outstanding as of May 20, 1997.
Total number of pages contained in this document [11].
<PAGE>
ALCHEMY HOLDINGS, INC.
INDEX
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENT (UNAUDITED)
Condensed Balance Sheets as of March 31, 1997 and September 30, 1996.
Condensed Statements of Operations for the Six months ended March 31, 1997 and
1996.
Condensed Statements of Cash Flows for the Six months ended March 31, 1997 and
1996.
Notes to Condensed Financial Statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
PART II. OTHER INFORMATION
ITEM 1. - 5.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
2
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PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
ALCHEMY HOLDINGS, INC.
BALANCE SHEETS
MARCH 31, 1997 SEPTEMBER 30, 1996
-------------- ------------------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 7,625 $ 85,737
ACCOUNTS Receivable, Net 4,243 8,321
Inventory 187,333 247,610
Other Current Assets 3,463 2,968
-------- --------
TOTAL CURRENT ASSETS 202,664 344,636
PROPERTY AND EQUIPMENT
Furniture & Equipment 234,740 234,740
Less: Accumulated Depreciation 212,820 211,866
-------- --------
PROPERTY AND EQUIPMENT - NET 21,920 22,874
-------- --------
TOTAL ASSETS $224,584 $367,510
======== ========
See Notes to Financial Statements
3
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ALCHEMY HOLDINGS, INC.
BALANCE SHEETS (Cont.)
MARCH 31, 1997 SEPTEMBER 30, 1996
-------------- ------------------
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 64,152 $ 83,169
Accrued Expenses 25,347 26,989
Customer Deposits 45,700 121,700
Notes Payable 101,173 101,173
------------ ------------
CURRENT LIABILITIES 236,372 333,031
------------ ------------
TOTAL LIABILITIES 236,372 333,031
------------ ------------
SHAREHOLDERS' EQUITY
Common Stock - $.001 par
value authorized - 50,000,000
shares; issued and outstanding
2,990,198 shares 2,990 2,990
Additional Paid in Capital 1,604,045 1,604,045
Accumulated Deficit (1,618,823) (1,572,556)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY (11,788) 34,479
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 224,584 $ 367,510
============ ============
See Notes to Financial Statements
4
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ALCHEMY HOLDINGS, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31 MARCH 31 MARCH 31 MARCH 31
1997 1996 1997 1996
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net Sales $ 172,412 $ 242,696 $ 455,295 $ 427,034
Cost of Sales 146,034 202,498 384,724 357,342
----------- ----------- ----------- ------------
Gross Margin 26,378 40,198 70,571 69,692
Selling, General
and Administrative
Expenses 53,997 78,804 117,006 154,669
----------- ----------- ----------- ------------
Operating (Loss) (27,619) (38,606) (46,435) (84,977)
Interest - Net 45 75 168 223
----------- ----------- ----------- ------------
Net (LOSS) $ (27,574) $ (38,531) $ (46,267) (84,754)
=========== =========== =========== ===========
(Loss) Per
Common Share $ (.01) $ (.01) $ (.02) $ (.03)
=========== =========== =========== ===========
Weighted Shares
Outstanding 2,990,198 2,990,198 2,990,198 2,990,198
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
5
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ALCHEMY HOLDINGS, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
MARCH 31,
1997 1996
-------- --------
OPERATING ACTIVITIES
Net (Loss) $(46,267) $(84,754)
Adjustments to Reconcile Net
Loss to Net Cash Provided
by Operating Activities:
Depreciation & Amortization 954 3,757
(Increase) Decrease in:
Accounts Receivable - Net 4,078 31,986
Inventory 60,277 (73,257)
Other Current Assets (495) (984)
Increase (Decrease) in:
Accounts Payable (19,017) 38,108
Accrued Expenses (1,642) 3,456
Customer Deposits (76,000) 18,292
-------- --------
Net Cash (Used) Provided
by Operating Activities (78,112) (63,396)
CASH FLOWS FROM INVESTING
ACTIVITES:
Equipment Purchases -- (281)
-------- --------
Net Increase (Decrease) in Cash (78,112) (63,677)
CASH AT BEGINNING OF PERIOD 85,737 89,013
-------- --------
CASH AT END OF PERIOD $ 7,625 25,336
======== ========
SEE NOTES TO FINANCIAL STATEMENTS
6
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ALCHEMY HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31,1997
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying financial statements of Alchemy Holdings, Inc. have been
prepared in accordance with generally accepted accounting principles for interim
financial information, and with the instructions to Form 10-QSB and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of the Company's management, all adjustments (consisting of
normal recurring accruals) considered to be necessary for a fair presentation
have been included. Operating results for the six months ended March 31, 1997
are not necessarily indicative of the expected results for the year ending
September 30, 1997. For further information, refer to the financial statements
and footnotes included in the Company's annual report on Form 10-KSB for the
year ended September 30, 1996,
NOTE B - GOING CONCERN CONSIDERATION
The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company reported cumulative
losses since inception of $1,618,823. In addition, the Company's $405,000 11%
notes payable (principal balance of 101,173 at Match 31, 1997) were due November
1, 1991. The Company has reached agreement with certain noteholders to retire
the notes payable for the sum of $50,000.
The Company's ability to continue operations is dependent upon reducing costs
and increasing its current level of business.
7
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NOTE C - FAS 109
Deferred income taxes are provided on the tax effect of changes in temporary
differences. Deferred tax assets are subject to a valuation allowance if their
realization is not reasonably assured. Deferred tax assets are comprised of the
following at March 3l, 1997:
Net Operating Loss Carry Forward $ 506,925
Valuation Allowance (506,925)
-------------
Net Deferred Tax Asset $ 0
=============
NOTE D - MAJOR CUSTOMER
For the years ended September 30, 1996 and 1995, approximately 24% and 33% of
the company's sales were with the Cigarette Racing Team, Inc. A principal
shareholder and chief executive officer of the company is also an officer and
employee of Cigarette. During the quarter ended March 31, 1997, no sales were
generated by Cigarette. The loss of this customer, or a substantial decrease in
engine orders would have a material adverse affect on the Company's operations.
NOTE E - LITIGATION
The Company is a defendant in a lawsuit filed on March 20, 1995 in the Circuit
Court of Dade County, Florida styled as PETROCELLI ELECTRONIC COMPANY, INC. ET
AL VS. HAWK MARINE POWER, INC. (Case No. 95-5279 CA01-01). The Plaintiffs are
holders of Promissory Notes which the Company executed on November 10, 1988 and
which were the subject of various settlement agreements executed on April 16,
1992 which were fulfilled in part by the Company. There are seven Plaintiffs
represented in this litigation who are seeking damages of in excess of $40,000
together with interest and cost of collection. The Company has filed a Motion to
Dismiss the Plaintiff s complaint and is awaiting a ruling by the court. The
Company has reached agreement with certain noteholders to retire the notes
payable for the sum of $50,000.
8
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
For the quarter ended March 31, 1997 the Company reported a net loss of $27,574
compared to a net loss of $38,531 for the quarter ended March 31, 1996. Net
revenues of $172,412 during the current quarter decreased 29% from $242,696
during the same period in fiscal 1996.
Selling, general and administrative expenses for the quarter ended March 31,
1997 were $53,997, a 31% decrease from the same period in fiscal 1996. The
change resulted from decreased overhead costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash on hand in the amount of $7,625 at March 31, 1997 compared
to $85,737 at September 30, 1996. Working capital decreased from $11,605 at
September 30, 1996 to a deficit of $33,708 at the end of the current quarter.
The decrease was related to a loss from operations during the first six months
of fiscal 1997.
The Company was obligated to retire at November 1, 1991, $405,000 principal
amount of its 11% secured promissory notes issued to a group of private
investors in October 1988. On April 16, 1992, the Company agreed to enter into
settlement with the noteholders pursuant to which the participants who accepted
the terms of the settlement agreement would receive a cash payment equal to 86%
of their entire investment. The Company has reached a subsequent agreement to
retire said notes for the sum of $50,000.
PART II. OTHER INFORMATION
Items 1 - 5
On May 12, 1997, the Company held a special meeting of the Board of Directors
and decided that in the best interests of the Company's shareholders that they
would attempt to engage in the business of licensing, designing and marketing of
merchandise and apparel as opposed to its current activities of high performance
engine manufacturing, in order to provide the Company's current shareholders
with the potential of future liquidity in their stock ownership and the
possibility of future gain. As such, the Company has sought and located
management to assist in such project, and said management will undertake to
raise capital through debt or equity instruments to fund its future operations.
The Board of Directors acknowledge that such a transaction will be a high risk
venture
9
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and the opportunity for success may be remote. However, inasmuch as the Company
is not currently operating profitably and has no other prospects of generating
operating income or shareholder value, the Directors believe it is in the best
interests of the Company and its shareholders to proceed with such an
undertaking.
In connection therewith, at the Directors meeting, a unanimous consent of the
Board of Directors and a majority of the outstanding stockholders represented at
the meeting approved that the Company adopt a recapitalization pursuant to which
the issued and outstanding shares of the Company's common stock are reverse
split, or consolidated, on a 1-for-80 basis so that the shareholders receive one
share of the Company's common stock for every 80 shares held; no fractional
shares are to be issued and any fractional interests are to be rounded to the
nearest whole number.
Furthermore, the following individuals were elected as officers and directors of
the Company to serve until their successors are elected or appointed: Craig N.
Barrie, President / Director; Berton J. Lorow, Vice-President / Director; Adam
C. Schild, Secretary / Director; John H. Burmeister, Director; and Kevin A.
Lichtman, Director.
Additionally, the Company adopted a proposal to amend the Articles of
Incorporation of the Company and change the name of the Company from Hawk Marine
Power, Inc. to Alchemy Holdings, Inc. Subsequent to the change of the Company's
name from Hawk Marine Power, Inc. to Alchemy Holdings, Inc., the Company intends
to form a new corporation under the laws of the State of Delaware, a wholly
owned subsidiary of the Company to be known as "Hawk Marine Power, Inc." to
operate its high performance engine manufacturing business.
Subsequent to the change of the Company's name from Hawk Marine Power, Inc. to
Alchemy Holdings, Inc., and subsequent to the formation of the wholly owned
subsidiary to be known as "Hawk Marine Power, Inc.", the Company will sell all
of its assets and liabilities of its high performance engine building operation
to the Company's wholly owned subsidiary Hawk Marine Power, Inc. in exchange for
100 shares of Hawk Marine Power, Inc., the new wholly owned subsidiary. The 100
shares exchanged represents 100% of the issued and outstanding shares of Hawk
Marine Power, Inc.
The Company is issuing 2,000,000 post-split restricted shares of the Company's
common stock to Offshore Racing, Inc., in exchange for the Company's exclusive
world-wide right and license to use the trademarks, and service marks of
"Cigarette Racing Team, Inc.", for all goods and services other than the use of
the trademarks and service marks on any form of watercraft. In conjunction with
the purchasing of the licensing agreement, the Company has formed a corporation
under the laws of the State of Delaware, to be organized as a wholly owned
subsidiary of the Company to be known as "Cigarette Licensing, Inc." to operate
the Company's licensing business.
Lastly, the Company will be issuing 200,000 post-split shares of the Company's
common stock to the professionals responsible for the professional services
related to and for
10
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negotiating, arranging and brokering the licensing and other related
transactions described herein on behalf of the Company.
As a result, on May 20, 1997, the split will become effective and the Company
will begin trading under its new symbol "ALCH" on the NASD Electronic Bulletin
Board.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
SIGNATURES
In accordance with requirements of the Exchange Act, the Issuer caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 20,1997 ALCHEMY HOLDINGS, INC
BY: /s/ CRAIG N. BARRIE
-------------------
CRAIG N. BARRIE
President and Chief
Executive Officer
11
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EXHIBIT INDEX
EXHIBIT PAGE
- ------- ----
27 FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,625
<SECURITIES> 0
<RECEIVABLES> 4,243
<ALLOWANCES> 0
<INVENTORY> 187,333
<CURRENT-ASSETS> 202,664
<PP&E> 234,740
<DEPRECIATION> 212,820
<TOTAL-ASSETS> 224,584
<CURRENT-LIABILITIES> 236,372
<BONDS> 0
0
0
<COMMON> 2,990
<OTHER-SE> (14,778)
<TOTAL-LIABILITY-AND-EQUITY> 224,584
<SALES> 172,412
<TOTAL-REVENUES> 172,412
<CGS> 146,034
<TOTAL-COSTS> 53,997
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (27,574)
<INCOME-TAX> 0
<INCOME-CONTINUING> (27,574)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,574)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
