U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 No. 0-23170
AFGL INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 75-2134871
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
850 Third Avenue, New York, New York 10022
(Address of principal executive offices)
(212) 508-3500
(Issuers telephone number)
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the issuer
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:
State the number of shares outstanding of each of the issuers
classes of common equity, as of the latest practicable date:
4,597,358 shares of common stock.
<PAGE>
FORM 10-QSB
AFGL INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
Page
PART I. Financial Information
Item 1. Financial Statements
Unaudited Consolidated Balance Sheet
March 31, 1996 3
Unaudited Consolidated Statements of Operations
Three Months Ended March 31, 1996 AND 1995 5
Unaudited Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 AND 1995 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10
PART II. Other Information 13
Signatures 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AFGL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1996
(UNAUDITED)
ASSETS
<TABLE>
CURRENT ASSETS:
<S> <C> <C>
Cash and Cash Equivalents $ 510,410
Accounts Receivable-Trade 3,978,513
Due from Employees 406,574
Deferred Income Taxes 168,540
Prepaid Expenses and Other Current Assets
232,393
____________
TOTAL CURRENT ASSETS $
5,296,430
PROPERTY AND EQUIPMENT - NET 1,400,604
OTHER ASSETS:
Cash, Pledged $ 85,248
Cash Surrender Value of Officers Life
Insurance 121,151
Due from Related Parties 406,413
Due from Employees 67,837
Goodwill (Net of Accumulated
Amortization of $111,495) 1,672,426
Investment - at cost 2,368,000
Deferred Income Taxes 596,881
Security Deposits and Other Assets 765,056
____________
TOTAL OTHER ASSETS
6,083,012
____________
TOTAL ASSETS
$12,780,046
____________
____________
</TABLE>
<PAGE>
AFGL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1996
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 701,381
Capital Lease Obligations - Current Portion 74,822
Notes and Loans Payable - Current Portion
494,701
Deferred Income Taxes - Current Portion 58,621
Accrued Payroll 1,627,531
Income Taxes Payable 567,350
Value Added Taxes Payable 134,404
___________
TOTAL CURRENT LIABILITIES $
3,658,810
LONG TERM LIABILITIES:
Notes and Loans Payable-Less Current Portion 1,792,892
Capital Lease Obligations-Less Current Portion
179,277
Deferred Income Taxes-Less Current Portion 9,822
Deferred Rent 1,171,636
____________
TOTAL LONG TERM LIABILITIES 3,153,627
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY
82,291
COMMITMENTS AND CONTINGENCIES
- - -
STOCKHOLDERS' EQUITY:
Preferred Stock-$.001 Par Value, 4,983,142
Shares Authorized, None Issued or
Outstanding $ - -
Series A, 8% Convertible Preferred Stock
$.001 Par Value,.10,000 Shares Authorized,
2,800 Issued and Outstanding (Aggregate
Liquidation Value $700,000) 700,000
Series B, Convertible Preferred Stock - $.001
Par Value, 6,858 Shares Authorized, 6,858
Issued and Outstanding (Aggregate
Liquidation Value $2,400,300) 2,400,300
Common Stock - $.01 Par Value, 20,000,000
Shares Authorized, 4,597,358 Shares
Issued and Outstanding 45,974
Additional Paid-in Capital 2,592,330
Cumulative Translation Adjustments 81,582
Accumulated Earnings 65,132
____________
TOTAL STOCKHOLDERS' EQUITY
5,885,318
____________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$12,780,046
____________
____________
</TABLE>
<PAGE>
<TABLE>
AFGL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended.
March 31,
1 9 9 6 1 9 9 5
<S> <C> <C>
REVENUE FROM HUMAN RESOURCE MANAGEMENT $ 4,663,318 $
3,157,646
REVENUE FROM ADVISORY SERVICES 836,817
1,341,777
___________ ___________
TOTAL REVENUE 5,500,135 4,499,423
___________ ___________
OPERATING EXPENSES 3,806,524 3,254,543
RENT 376,685 276,678
DEPRECIATION AND AMORTIZATION 85,196
49,729
___________ ___________
TOTAL OPERATING EXPENSES 4,268,405
3,580,950
___________ ___________
OPERATING INCOME 1,231,730 918,473
___________ ___________
OTHER EXPENSES (INCOME):
Interest Expense 84,858 4,808
Interest Income (5,696)
(18,859)
___________ ___________
OTHER EXPENSES (INCOME)-NET 79,162
(14,051)
___________ ___________
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAX EXPENSE 1,152,568
932,524
___________ ___________
INCOME TAX EXPENSE
Current 548,679 423,787
Deferred (12,770)
(9,407)
___________ ___________
TOTAL INCOME TAX EXPENSE 535,909 414,380
INCOME FROM CONTINUING OPERATIONS 616,659
518,144
DISCONTINUED OPERATIONS:
Loss from Operations of Discontinued
Segment [Net of Income Tax Benefit
of $244,751] - -
(287,316)
___________ ___________
INCOME BEFORE MINORITY INTEREST
Forward $ 616,659 $ 230,828
</TABLE>
<PAGE>
<TABLE>
AFGL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
1 9 9 6 1 9 9 5
<S> <C> <C>
INCOME BEFORE MINORITY INTEREST
Forwarded $ 616,659 $ 230,828
___________ ___________
MINORITY INTEREST IN (EARNINGS)
OF CONSOLIDATED SUBSIDIARY (10,183)
(20,671)
___________ ___________
NET INCOME 606,476 210,157
PREFERRED DIVIDEND REQUIREMENTS 14,000
14,000
___________ ___________
NET INCOME AVAILABLE FOR
COMMON STOCKHOLDERS $ 592,476 $
196,157
___________ ___________
___________ ___________
PRIMARY EARNINGS PER COMMON SHARE
Continuing Operations $ .10 $
.09
___________ ___________
___________ ___________
Net Income $ .10 $ .04
___________ ___________
___________ ___________
FULLY DILUTED EARNINGS PER COMMON SHARE
Continuing Operations $ .08 $
.07
___________ ___________
___________ ___________
Net Income $ .08 $ .03
___________ ___________
___________ ___________
</TABLE>
<PAGE>
<TABLE>
AFGL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
1 9 9 6 1 9 9 5
<S> <C> <C>
OPERATING ACTIVITIES:
Income from Continuing Operations $ 606,476 $
497,473
___________ ___________
Adjustments to Reconcile Income from
Continuing Operations to Net Cash
[Used for] Operating Activities:
Minority Interest in Earnings of
Consolidated Subsidiary 10,183
20,671
Depreciation and Amortization 85,196
49,729
Deferred Income Taxes (12,770)
(9,407)
Change in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable (1,615,305)
(1,312,832)
Prepaid Expenses and Other Current Assets 772,507
(117,189)
Security Deposits and Other Assets (535,282)
(48,751)
Increase (Decrease) in:
Value Added Taxes Payable 9,992
31,655
Accounts Payable and Accrued Expenses (354,193)
546,170
Accrued Payroll 203,684
(1,312,567)
Income Taxes Payable - Current 428,731
(74,375)
Deferred Rent 41,998 -
- -
___________ ___________
Total Adjustments (965,259)
(2,226,896)
___________ ___________
NET CASH - CONTINUING OPERATIONS (358,783)
(1,729,423)
___________ ___________
[Loss] from Discontinued Operations - -
(287,316)
Adjustments to Reconcile [Loss] from
Discontinued Operations to Net Cash
provided by Operating Activities
Depreciation and Amortization - -
82,455
Net Change in Assets and Liabilities - -
781,603
___________ ___________
Net Cash - Discontinued Operations - -
576,742
NET CASH - OPERATING ACTIVITIES - Forward $ (358,783)
$(1,152,681)
</TABLE>
<PAGE>
<TABLE>
AFGL INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three Months Ended
March 31,
1 9 9 6 1 9 9 5
<S> <C> <C>
NET CASH - OPERATING ACTIVITIES - Forwarded $ (358,783)
$(1,152,681)
___________ ___________
INVESTING ACTIVITIES:
Expenditures for Property and Equipment (60,006)
(325,127)
Repayment for Employees 56,106 -
- -
Advances to Employees (102,928) -
- -
Due from Related Parties 4,316
16,377
Cash Acquired Through Acquisition of FCI - -
311,019
Cash Surrender Value of Officers
Life Insurance (16,283) (15,000)
___________ ___________
NET CASH - INVESTING ACTIVITIES (118,795)
(12,731)
___________ ___________
FINANCING ACTIVITIES:
Net Change in Revolving Credit Lines 37,872
593,035
Proceeds from Officers Life
Insurance Loan 213,132 - -
Repayment of Notes (302,429)
(42,711)
Payment of Capital Lease Obligation (15,284) -
- -
___________ ___________
NET CASH - FINANCING ACTIVITIES (66,709)
550,324
___________ ___________
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS (8,737)
70,283
___________ ___________
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (553,024)
(544,805)
CASH AND CASH EQUIVALENTS - BEGINNING
OF PERIODS 1,063,434 1,390,619
___________ ___________
CASH AND CASH EQUIVALENTS - END OF PERIODS $ 510,410 $
845,814
___________ ___________
___________ ___________
</TABLE>
<PAGE>
AFGL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
These financial statements are presented on a consolidated
basis and include the results of operations of the parent
corporation, AFGL International, Inc., and its wholly-owned
subsidiaries AFGL Inc. ("AFGL"), Whitney Partners Inc. and its
76.58% owned United Kingdom subsidiary ("WPI") and Furash &
Company, Inc. ("FCI"), (collectively referred to as the
"Company"), as of and for the three months ended March 31, 1996
and 1995. Effective January 1, 1996, the Company closed the sale
of substantially all of the operating assets and assumption of
liabilities of AFGL to Citigate Communications Group Limited
("Citigate") for an 18.3% interest in Citigate valued at
$2,368,000.
In the opinion of management, the accompanying unaudited
financial statements included in this Form 10-QSB reflect all
adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the results of operations
for the periods presented. The results of operations for the
periods presented are not necessarily indicative of the results
to be expected for the full year.
For further information, refer to the financial statements
and footnotes included in the Company's Form 10-KSB for the year
ended December 31, 1995, filed on April 15, 1996.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Earnings Per Share - Primary earnings per share of common
stock is based on the weighted average number of common shares
outstanding for each period presented. Common stock equivalents
are included if dilutive. Fully diluted earnings per share of
common stock amounts are based on an increased number of shares
that would be outstanding assuming conversion of the convertible
preferred stock at the highest potential conversion rate. Net
income has been adjusted for the dividend requirements on the
convertible preferred stock. The number of shares used in the
computation of primary earnings per share was 5,646,222 and
5,507,203 for the three months ended March 31, 1996 and 1995, re
spectively. The number of shares used in the computation of
<PAGE> fully diluted earnings per share was 7,136,751 and
6,839,618 for the three months ended March 31, 1996 and 1995,
respectively.<PAGE>
Reclassifications - Certain reclassifications of 1995
balances have been made to conform to the 1996 presentation.
(3) SUBSEQUENT EVENT
On April 10, 1996, the Company entered into a definitive
agreement to acquire the common stock of IRENE COHEN TEMPS, INC.,
CORPORATE STAFFING ALTERNATIVES, INC., and CERTIFIED TECHNICAL
STAFFING, INC. At the same time, the Company entered into an
agreement to acquire certain assets of IRENE COHEN PERSONNEL,
INC. at a purchase price subject to future performance. The
purchase of these companies is subject to obtaining financing.
The Company proposes to finance the acquisition through debt and
equity funding. The Company obtained a portion of such funding
through a private sale of 8% convertible preferred stock, which
is convertible into approximately 660,000 shares of common stock,
subject to adjustment in certain circumstances.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Overview
The strong performance by the financial services industry
and the increase in the hiring activity of the Company's client
base has contributed to the favorable performance by the Company
in the first quarter of 1996. The Company expects this trend to
continue through the next three to six months as long as there is
no drastic change in the economy or the financial services
industry. The executive search segment performed better than
anticipated with growth in net income of 84%.
The Company's marketing communications segment business sold
to Citigate at the end of 1995 represents a discontinued
operation, and losses from this operation will not recur in 1996.
Consolidated
Consolidated revenue increased $1,000,712 or 22% to
$5,500,135 for the three months ended March 31, 1996, from <PAGE>
$4,499,423 for the same period in 1995. This increase is
comprised of higher revenues in human resource management of
$1,505,672, offset by a decrease in advisory services revenues of
$504,960. This increase in revenue is due primarily to the
increasing demand for the Company's executive search
services.<PAGE>
Consolidated net income increased $396,319 or 189% to
$606,476 for the three months ended March 31, 1996, from $210,157
for the same period in 1995. The net income in 1995 includes a
net loss of $287,316 from discontinued operations. Income from
continuing operations increased $98,515 or 19% to $616,659 during
the first quarter of 1996 from $518,144 for the same period in
1995.
Human Resource Management Segment
WPI's revenue increased $1,505,672 or 48% to $4,663,318 for
the three months ended March 31, 1996, compared to $3,157,646 for
the same period in 1995. The strong performance of the financial
services industry has resulted in an increase in demand for
executive search services. This trend is expected to continue
over the next three to six months as the financial services
industry continues to fill its staffing requirements.
WPI's total operating expenses increased $812,582 or 35% to
$3,115,622 for the three months ended March 31, 1996, from
$2,303,040 for the same period in 1995. This increase is
primarily attributable to a higher compensation accrual directly
related to the increased revenue. In addition, there were
general increases in other operating expenses due to the high
volume of searches.
Whitney's Tokyo office has also shown a significant
improvement in operating results. For the periods ended March
31, 1996 and March 31, 1995, Tokyo had revenues of $401,262 and
$204,404 and operating expenses of $175,666 and $217,598,
respectively. Net income for the three months ended March 31,
1996 was $225,596 compared to a net loss of $13,157 for the same
period in 1995. The financial services industry in Japan
continues to improve and this positive trend is expected to
continue through the second quarter of 1996.
WPI's overseas operations in Europe/Hong Kong did not
contribute significantly to Whitney's net income for the three
months ended March 31, 1996, however, revenues increased $99,869
or 12% to $924,413 in 1996 from $824,544 in 1995.
WPI's net income increased $378,326 or 84% to $826,700 for
the three months ended March 31, 1996, from net income of
$448,374 for the same period in 1995. The increase is due to
<PAGE> higher revenues offset by an increase in revenue related
compensation accruals and income tax expenses.
Advisory Services Segment
Revenues from the advisory services offered by Furash
decreased $504,960 to $836,817 for the three months ended March
31, 1996, compared to $1,341,777 for the same period in 1995.
The loss of a major client accounted for approximately $364,000
of the decreased revenues. In addition, there was a decline in
billable hours for certain key consultants involved in the
development of new business lines.
FCI's total operating expenses decreased $138,970 to
$1,116,641 for the three months ended March 31, 1996, from
$1,255,611 for the same period in 1995. This decrease is
primarily attributable to a reduction in outside consultant
expenses and rent savings due to the renegotiation of lease
terms.
FCI had a net loss of $171,254 for the three months ended
March 31, 1996 as compared to net income of $61,099 for the same
period in 1995. This decrease is primarily related to the
reduction in revenues. The second quarter is not expected to
improve significantly, however, management is in the process of
developing a plan to improve profit performance.
Liquidity and Capital Resources
Cash used in continuing operations during the three months
ended March 31, 1996 totaled $358,783, as compared to cash used
in continuing operations of $1,729,423 during the same period in
1995. The cash used in continuing operations in the current
quarter is attributable to an increase in accounts receivable
offset by increases in current liabilities. Cash used in the
first quarter of 1996 for payment of the 1995 bonus accrual was
offset by an increase in the bonus accrual as a result of the
increased revenue for the three months ended March 31, 1996. The
cash used by continuing operations during the first quarter of
1995 was primarily attributable to the payment of the 1994 bonus
accrual.
The Company's working capital surplus improved to $1,637,620
at March 31, 1996, from a surplus of $1,493,696 at December 31,
1995. Management expects that the Company's working capital
<PAGE> position will continue to improve based on continued
positive operating results and will be sufficient to handle all
of the Company's working capital needs for the remainder of the
year.
For the three months ended March 31, 1996, the Company used
$118,795 for investing activities, compared to cash used in
investing activities of $12,731 for the same period in the prior
year. The cash used for investing activities in the first three
months of 1996 related primarily to expenditures for property and
equipment.
Total net cash used for financing activities was $66,709 for
the three months ended March 31, 1996, compared to net cash
generated from financing activities of $550,324 for the same
period in 1995. The cash generated in 1995 primarily related to
an increase in WPI's line of credit used to pay its accrued bonus
obligation.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS: None.
REPORTS ON FORM 8-K: None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AFGL INTERNATIONAL, INC.
Date: May 17, 1996 Barry S. Roseman (Signature)
Chief Operating Officer
(Duly Authorized and Principal
Financial Officer)
