U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
Quarterly Report Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarter ended June 30, 1999
Commission File No. 0-17981
ALCHEMY HOLDINGS, 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: 2,702,394 shares of the
registrant's common stock are issued and outstanding as of June 30, 1999. Total
number of pages contained in this document 11.
ALCHEMY HOLDINGS, INC.
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets as of June 30, 1999 and September 30, 1998.
Condensed Statements of Operations for the Three and Nine Months Ended June 30,
1998 and 1999.
<PAGE>
Condensed Statements of Cash Flows for the Nine Months Ended June 30, 1998 and
1999.
Notes to Condensed Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
PART II. OTHER INFORMATION
Items 1-5. None
Item 6. Exhibits and Reports on Form 8-K.
None
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
<PAGE>
ALCHEMY HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND
SEPTEMBER 30, 1998
ASSETS
June
(Unaudited) September
----------- -----------
CURRENT ASSETS:
Cash $ 82,699 $ 66,186
Inventory 186,890 178,655
Prepaid Expenses 50,000 --
----------- -----------
Total Current Assets $ 319,589 $ 244,841
PROPERTY AND EQUIPMENT 19,378 20,060
OTHER ASSETS:
Licensing Agreement, Net of
Accumulated Amortization 173,250 189,750
----------- -----------
TOTAL ASSETS $ 512,217 $ 454,651
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 2,800 $ 10,148
Accrued Expenses 2,940 7,476
Customer Deposits 119,200 90,500
Stockholder Loans 59,796 56,494
Notes Payable, Including
Accrued Interest 80,026 75,286
----------- -----------
Total Current Liabilities $ 264,762 $ 239,904
TOTAL LIABILITIES 264,762 239,904
STOCKHOLDERS' EQUITY:
Common Stock, $.001 per value,
20,000,000 shares authorized,
2,702,394 and 2, 437,394 shares,
respectively, issued and outstanding 2,702 2,437
Additional Paid-In Capital 2,534,443 2,224,598
Accumulated Deficit (2,289,690) (2,012,288)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 247,455 214,747
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 512,217 $ 454,651
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ALCHEMY HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 122,118 $ 172,359 $ 441,198 $ 501,919
Cost of Sales 92,810 133,171 326,648 387,498
----------- ----------- ----------- -----------
GROSS MARGIN $ 29,308 $ 39,188 $ 114,550 $ 114,421
Selling, General and
Administrative Exp 36,714 39,744 125,983 91,693
----------- ----------- ----------- -----------
OPERATING
INCOME (LOSS) (7,406) (556) (11,433) 22,728
Interest - Net 2,680 -- 8,041 --
Provision for Loan Loss -- -- 257,928 --
-----------
NET PROFIT (LOSS) (10,086) (556) (277,402) 22,728
=========== =========== =========== ===========
BASIC LOSS PER SHARE AMOUNTS:
Net Loss $ (.004) $ 0.00 $ (.104) $ 0.01
=========== =========== =========== ===========
Weighted average number
Common share outstanding 2,658,227 2,252,046 2,658,227 2,252,046
=========== =========== =========== ===========
</TABLE>
The equation for computing basic income (loss) per common share is: Income
(Loss) available to common shareholders/ Weighted-average shares.
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ALCHEMY HOLDINGS, INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $(277,402) $ 22,728
Adjustments to Reconcile Net Income (Loss) to Net
Cash Used by Operating Activities:
Depreciation and Amortization 17,182 1,431
Increase in Prepaid Expenses (50,000) 0
Increase in Accounts Receivable 0 (92,699)
Increase in Inventory (8,235) (131,912)
Decrease in other current assets 0 1,240
Decrease in Accounts Payable (7,348) (40,266)
Increase (Decrease) in Accrued Expenses (4,536) (2,103)
Increase (in Customer Deposits 28,700 117,415
--------- ---------
Net Cash Used by Operating Activities (301,639) (124,166)
========= =========
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Stockholder Loans 3,302 --
Increase in Notes Payable 4,740 1,875
Proceeds from Stock Issuances 310,110 400,000
--------- ---------
Net Cash Provided by Financing Activities 310,110 401,875
========= =========
NET INCREASE IN CASH 16,513 277,709
CASH AT BEGINNING OF PERIOD 66,186 44,753
--------- ---------
CASH AT END OF PERIOD $ 82,699 $ 322,462
========= =========
Supplemental Cash Flow Information:
Interest Paid During the Year -- --
Income Taxes Paid During the Year -- --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ALCHEMY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying consolidated 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 nine months ended June 30, 1999
are not necessarily indicative of the expected results for the year ending
September 30, 1999. For further information, refer to the consolidated financial
statements and footnotes included in the Company's annual report on Form 10-KSB
for the year ended September 30, 1998.
NOTE B - GOING CONCERN CONSIDERATION
The Company's consolidated financial statements have been presented on the basis
of a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
incurred net losses of $319,288 and $92,762 for the years ended September 30,
1998 and 1997, respectively, and has cumulative losses since inception of
$2,289,690.
As a result of such losses the Company's financial position has been
significantly impaired. The Company's ability to continue as a going concern is
dependent upon its ability to attain a satisfactory level of profitability and
to obtain suitable, adequate financing or the restructuring of existing
obligations. During the year ended September 30, 1998, the Company satisfied its
obligations to certain note holders with the proceeds of short-term financing
from Masada I, LP, a control shareholder of Cigarette Racing Team, Inc. (This
extinguishment of debt resulted in an extraordinary gain of $130,203.) The
Company has sought to implement cost-saving measures, reduce other operating
costs, and utilize deposits from customers in connection with firm purchase
orders to help finance operating costs. Management has also sought to convert
some of
<PAGE>
its debt to equity in connection with a proposed merger with one of its
principal customers, Cigarette Racing Team, Inc.. There is no assurance that the
Company will be successful in these endeavors. The accompanying financial
statements do not include any adjustments that might result if the Company is
unable to continue as a going concern.
NOTE C - DEFERRED TAXES
Deferred income taxes are the result of the tax effect of changes in temporary
differences between the tax basis and the book basis of an asset or liability.
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 June 30, 1999:
Net Operating Loss Carry Forward Benefit $ 915,876
Investment Credit 7,712
Valuation Allowance (923,588)
---------
Net Deferred Tax Asset $ 0
=========
NOTE 3 - MAJOR CUSTOMER
Of the Company's total sales for the nine months ended June 30, 1999, $165,568
or 37 % were with one customer, Cigarette Racing Team, Inc.
During the nine months ended June 30, 1999, the Company transferred $257,928 in
funds to Cigarette Racing Team, Inc. This advance is unsecured, bears interest
at the rate of 11% and is payable upon demand. As Cigarette Racing Team, Inc.
does not currently have the financial capability to satisfy this obligation the
Company has recorded a provision for loan loss for the entire amount of the loan
and interest income has not been accrued.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
For the nine months ended June 30, 1999, the Company reported net sales of
$441,198. This compared to net sales of $501,919 for the same period in the 1998
fiscal year. The cost of sales for the first nine months of fiscal year 1999 was
$326,648 as compared to $387,498 for the same period in fiscal year 1998. The
gross margin for the nine-month period ended June 30, 1999 was $114,550, as
compared to $114,421 for the same period in the 1998 fiscal year. Selling,
general
<PAGE>
and administrative expenses for the first nine months of fiscal year 1999 was
$125,983 as compared to selling, general and administrative expenses of $91,693
for the same time period in fiscal year 1998. Net interest expense of $8,041 and
the provision for loan loss of $257,928 resulted in a net loss of $277,402 for
the nine-month period ended June 30, 1999 as compared to a net income of $22,728
for the same time period in fiscal year 1998.
The results of operations for the nine months ended June 30, 1999 reflect a
provision for loan loss in the amount of $257,928. This loss relates to a loan
extended to Cigarette Racing Team, Inc. during fiscal 1999, which bears interest
at the rate of 11% and is payable upon demand.
Results of Operations - Comparison of Quarters Ended June 30, 1999 and June 30,
1998
For the three months ended June 30, 1999 the Company reported a net loss of
$10,086 compared to a net loss of $556 for the three months ended June 30, 1998.
Net revenues of $122,118 during the current quarter decreased 29% from $172,359
during the same period in fiscal 1998. The decrease in gross margin for the
three months reflects a decline in cost of sales.
Gross margins were $29,308 (24%) and $39,188 (22.7%) for the periods ended June
30, 1999 and 1998, respectively. The decrease was due primarily to a decrease in
product sales.
Selling, general and administrative expenses for the three months ended June 30,
1999 were $36,714 compared to $39,744 from the same period in fiscal 1998. The
decrease of $3,030 in expenses reflects the slightly lower sales volume, as well
as management's efforts to contain operating costs.
Net interest expense for the three month period ended June 30, 1999 was $2,680
compared to $0 for the same period in fiscal 1998.
The results of operations for the three month period ended June 30, 1999 was a
net loss of $10,086 compared to a net loss of $556 for the same period in fiscal
1998.
Liquidity and Capital Resources
The Company had cash on hand in the amount of $82,699 at June 30, 1999 compared
to $66,186 at September 30, 1998. Working capital increased from $4,937 at
September 30, 1998 to $54,827 at the end of the current period. The working
capital increase was related principally to increases in prepaid expenses and
inventory.
Alchemy Holdings, Inc. and its subsidiaries have accumulated a net deficit of
over $2,000,000, giving rise to questions regarding the ability of the company
to continue as a going concern.
The current nine month loss was $19,474 exclusive of the recognition of the loan
loss provision
<PAGE>
Management is currently exploring cost reductions, changes in cash flows
policies, and the potential for increases in current capacity levels to improve
profitability.
The Company's ability to continue as a going concern is dependent upon its
ability to attain a satisfactory level of profitability and to obtain suitable
and adequate financing. During the last fiscal year ended September 30, 1998,
the Company satisfied its obligations to certain note holders with the proceeds
of short-term financing from Masada I, LP, a control shareholder in Cigarette
Racing Team. The Company has sought to implement cost-saving measures, reduce
other operating costs, utilize deposits from customers in connection with firm
purchase orders to help finance operating costs and to convert some of its debt
to equity in connection with a proposed merger with one of its principal
customers, Cigarette Racing Team. There is no assurance that the Company will be
successful in these endeavors. The accompanying financial statements do not
include any adjustments that might result if the Company is unable to continue
as a going concern.
During the first quarter of the current fiscal year the Company filed a
registration statement on Form S-8 to register 265,000 shares of common stock at
$2.00 per share. In connection with its proposed merger with Cigarette Racing
Team, the Company filed a registration statement on Form S-4 with the Securities
and Exchange Commission on May 6, 1998 (the "Registration Statement") and
Amendment No. 1 to the Registration Statement on November 12, 1998. Amendment
No. 2 was filed on May 10, 1999, Amendment No. 3 was filed on August 13, 1999,
and Amendment No. 4 was filed on August 16, 1999. The Company expects that the
proposed merger between the Company and Cigarette Racing Team, Inc. will be
consummated as soon as practical after shareholder approval, providing the
Company with the opportunity to raise additional equity capital.
Year 2000 Compliance
The year 2000 issue arises as the result of computer programs having been
written, and systems having been designed, using two digits rather than four to
define the applicable year. Consequently, such software has the potential to
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
The Company does not expect to be affected by the year 2000 issue as it does not
rely on data- sensitive software or affected hardware. Its software has been
protected and Alchemy does not utilize machines to produce its products which
are computerized. The Company manufactures products which employ computer chips
as part of their ability to perform as designed. The Company's primary supplier,
Mercury Motors, Inc. ("Mercury"), has indicated to the Company that Mercury is
year 2000 compliant in all of its operations. The Company has not yet contacted
other companies on whose services the Company depends to determine whether such
companies' systems are Year 2000 compliant. If the system of Alchemy or other
companies on whose services Alchemy depends, including Alchemy's customers, are
not Year 2000 compliant, there could be a
<PAGE>
material adverse effect on the Company's financial condition or results of
operations. Although the Company does not anticipate any Year 2000 problems, it
is unable to determine its most likely Year 2000 worst case scenario. Further,
in the event that the Company suffers a material adverse effect due to the Year
2000 problem, it has no contingency plans at this time and does not expect to
have any implemented by December 31, 1999. Notwithstanding the above, the
Company does not expect to have to replace any machinery due to inherent year
2000 problems.
PART II. OTHER INFORMATION
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: August 23, 1999
ALCHEMY HOLDINGS, INC
BY: /s/ Adam Schild
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> APR-1-1998
<PERIOD-END> JUN-30-1999
<CASH> 82,699
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 186,890
<CURRENT-ASSETS> 319,589
<PP&E> 236,740
<DEPRECIATION> 217,362
<TOTAL-ASSETS> 512,217
<CURRENT-LIABILITIES> 264,762
<BONDS> 0
0
0
<COMMON> 2,702
<OTHER-SE> 244,753
<TOTAL-LIABILITY-AND-EQUITY> 512,217
<SALES> 122,118
<TOTAL-REVENUES> 122,118
<CGS> 92,810
<TOTAL-COSTS> 92,810
<OTHER-EXPENSES> 36,714
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,680
<INCOME-PRETAX> (7,406)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,406)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,406)
<EPS-BASIC> (.004)
<EPS-DILUTED> 0
</TABLE>
