UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2001
OR
[X] 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: 0-22809
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AZUREL LTD.
(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 13-3842844
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
1275 BLOOMFIELD AVENUE, FAIRFIELD, NJ 07004
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(Address of principal executive office) (Zip Code)
(973) 575-9500
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(Issuer's telephone number including area code)
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
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The number of shares of registrant's Common Stock, $.001 par value, outstanding
as of November 9, 2001 was 6,911,796 shares.
Transitional Small Business Disclosure Format (check one)
Yes No X
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AZUREL LTD. AND SUBSIDIARIES
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INDEX
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PAGE
NUMBER
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet 1
Consolidated Statements of Operations 2
Consolidated Statements of Cash Flows 3
Notes to Financial Statements 4-5
Item 2 - Management's Discussion and Analysis or
Plan of Operation 5-7
PART II - OTHER INFORMATION
Item 5 - Other Information 8
SIGNATURE 9
ITEM 1. FINANCIAL STATEMENTS
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AZUREL LTD. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEET
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SEPTEMBER 30, 2001 (UNAUDITED)
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ASSETS
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CURRENT ASSETS:
Cash $67,162
Accounts receivable, net of allowance for
doubtful accounts of $5,562 138,731
Inventory 213,573
Due from related parties 18,098
Prepaid expenses and other current assets 4,803
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TOTAL CURRENT ASSETS 442,367
FURNITURE AND EQUIPMENT 133,325
LONG-TERM NOTE RECEIVABLE 1,800,000
OTHER ASSETS 8,704
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$ 2,384,396
LIABILITIES AND STOCKHOLDERS' DEFICIT
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CURRENT LIABILITIES:
Accounts payable $2,061,801
Notes payable 3,154,533
Accrued expenses and other liabilities 1,737,187
Current portion of long-term debt 1,577,741
Capital lease obligation - current portion 200,000
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TOTAL CURRENT LIABILITIES 8,731,262
STOCKHOLDERS' DEFICIT:
Preferred stock, $.001 par value,
authorized 4,000,000 shares;
issued and outstanding 1,001,500 shares 2,237,587
Common stock, $.001 par value,
authorized 24,000,000 shares,
issued and outstanding 6,911,797 shares 6,912
Additional paid-in capital 8,998,983
Accumulated deficit (17,590,348)
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TOTAL STOCKHOLDERS' DEFICIT (6,346,866)
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$ 2,384,396
See notes to consolidated financial statements.
-1-
AZUREL. LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months ended Nine Months ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
NET SALES $ 47,275 421,590 $ 423,771 $ 1,296,470
COST OF GOODS SOLD 104,936 290,162 87,443 746,267
----------- ----------- ----------- -----------
GROSS PROFIT (LOSS) (57,661) 131,429 336,328 550,203
SELLING, GENERAL,
AND ADMINISTRATIVE EXPENSES 107,427 792,338 669,819 3,091,121
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (165,088) (660,909) (333,491) (2,540,917)
INTEREST EXPENSE -- (133,098) (49,837) (505,400)
OTHER INCOME (EXPENSE) 1,301 20,655 (81,222) 283,961
NET LOSS FROM CONTINUING
OPERATIONS $ (163,787) $ (773,352) $ (464,550) $(2,762,356)
DISCONTINUED OPERATIONS:
INCOME FROM OPERATIONS OF PLC -- -- -- 197,260
----------- ----------- ----------- -----------
NET INCOME FROM DISCONTINUED
OPERATIONS 0 0 0 197,260
----------- ----------- ----------- -----------
NET LOSS $ (163,787) $ (773,352) $ (464,550) $(2,565,096)
=========== =========== =========== ===========
BASIC (LOSS) EARNINGS
PER COMMON SHARE:
CONTINUING OPERATIONS $ (0.02) $ (0.12) $ (0.07) $ (0.40)
DISCONTINUED OPERATIONS 0.00 0.00 0.00 0.03
----------- ----------- ----------- -----------
BASIC LOSS PER COMMON SHARE $ (0.02) $ (0.12) $ (0.07) $ (0.37)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 6,911,796 6,522,908 6,911,796 6,911,797
=========== =========== =========== ===========
See notes to consolidated financial statements.
-2-
AZUREL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
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2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(464,550) $(2,565,096)
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Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 22,054 40,286
Amortization 135,197 5,967
(Gain) loss on disposal of fixed assets (8,818) 3,305
Provision for discontinued operations -- 132,000
Decrease in minority interest (357) --
Changes in assets and liabilities:
Decrease in accounts receivable 478,826 1,401,315
Decrease in inventories 490,530 611,750
Decrease (increase) in prepaid expenses
and other current assets 13,247 (359)
Decrease in other assets (6,585) (569)
Decrease in accounts payable
and accrued expenses (633,735) (290,277)
Decrease in net assets of discontinued operations -- (73,024)
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 25,810 (734,702)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment -- (5,951)
Disposal of property and equipment 39,212 879
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 39,212 (5,072)
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CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from repayment of short-term note receivable -- 153,791
Decrease in revolving line of credit -- (1,168,950)
(Decrease) increase in bank loans (13,656) 21,415
Proceeds from borrowing on notes -- 677,533
Payment of long term debt -- (27,538)
Proceeds from sale of PLC -- 1,061,418
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NET CASH (USED IN) PROVIDED
BY FINANCING ACTIVITIES (13,656) 717,669
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Effect of exchange rate -- 12,305
NET INCREASE IN CASH 51,366 (9,800)
CASH, beginning of period 15,796 15,237
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CASH, end of period $ 67,162 $ 5,437
========= ===========
See notes to consolidated financial statements.
-3-
AZUREL LTD. AND SUBSIDIARIES
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NOTES TO FINANCIAL STATEMENTS
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NINE MONTHS ENDED SEPTEMBER 30, 2001
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(Unaudited)
1. BASIS OF PRESENTATION
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The accompanying consolidated financial statements as of September 30,
2001 have not been audited by independent auditors, but in the opinion of
management, such unaudited statements include all adjustments consisting
of normal recurring accruals necessary for a fair presentation of the
financial position, the results of operations and cash flows for the nine
months ended September 30, 2001.
The consolidated financial statements should be read in conjunction with
the financial statements and related notes concerning the Company's
accounting policies and other matters contained in the Company's annual
report on Form 10-KSB. The results for the nine months ended September 30,
2001 is not necessarily indicative of the results expected for the full
year ending December 31, 2001. Certain prior year amounts have been
reclassified to conform to the current year's presentation.
2. BANKRUPTCY FILING
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The Company's sustained losses of approximately $464,550 for the nine
months ended September 30, 2001 and had a working capital deficiency of
approximately $8,290,000 as of that date. Furthermore, the Company has not
remitted 1999 and fourth quarter federal and state payroll taxes of
approximately $315,000.
In February 2001, the Company filed for protection under the federal
bankruptcy laws (chapter 11). Management plans to restructure the Company
and develop a viable business plan for its creditors, allowing Azurel to
emerge from bankruptcy and operate as a solvent business. The accompanying
financial statements include all adjustments required based on the
bankruptcy filing.
3. NOTES PAYABLE AND LONG TERM DEBT
--------------------------------
As of September 30, 2001, the Company has approximately $3,155,000 of
short-term payable, with interest rates ranging from 8% to 15%, all of
which are in default. Additionally, the Company holds a two-year note
amounting to approximately $1,528,167, originally tendered in 1999, and
due in May 2001. The issuing creditor has filed a lien against the
Company's $1,800,000 long term receivable, obtained as part of the sale of
its Private Label Group, due in May 2002 (see Note 4). The creditor is
currently in possession of this note.
4
4. NOTE RECEIVABLE
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The note receivable from Private label Cosmetics, Inc. in the amount of
$1,800,000 is collateralized against a note payable in the amount of
$1,528,167. Furthermore, the note is in the hand of the lender's attorney,
who also issued a default letter to the Company relative to non-payment of
interest (See Note 3).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS
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FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS
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This Quarterly Report on Form 10-QSB contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. The Company's actual results could differ
materially from those set forth in the forward-looking statements.
The following discussion should be read in conjunction with the attached
consolidated financial statements and notes thereto and with the Company's
financial statements and notes thereto for the fiscal year ended December 31,
2000.
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
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Azurel, Ltd., hereinafter "Azurel" or "the Company", through its wholly-owned
subsidiaries, markets and sells private label cosmetics and fragrances.
In August 1996, Azurel acquired the stock of Private Label Group. In March 2000,
Azurel entered into an agreement to sell PLC and completed this sale in May
2000. In October 1996, Azurel acquired the stock of Scent Overnight. In October
1997, Azurel acquired the stock of Cambridge Business Services Corporation.
In July 1998, Azurel's wholly owned subsidiary, Azurel Sales & Distribution,
acquired the assets of Ben Rickert, Inc.
5
RESULTS OF OPERATIONS
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Total revenues for the nine and three months ended September 30, 2 001 were
$423,771 and $47,275, respectively, compared to $1,296,470 and $421,590 for the
nine and three months ended September 30, 2000. This decrease is largely
attributable to the impact of filing for protection under the federal bankruptcy
laws in the 2001 period.
Cost of goods sold was $87,443 and $104,936 for the nine and three months ended
September 30, 2001 and $746,267 and $290,162 for the respective periods ended
September 30, 2000. Cost of goods for the 2001 period reflects inventory
adjustments of approximately $141,000. The gross profit as a percentage of
revenue was 79.4% and (122.0%) for the nine and three months ended September 30,
2001 as compared was 42.4% and 31.2% for the corresponding periods ended
September 30, 2000. During the period ended September 30, 2001, the company
wrote down inventory values by approximately $86,000 in order to reflect the
current market value of some of its inventories.
Selling, general and administrative (S,G&A) expenses for the nine and three
months ended September 30, 2001 were $669,819 and $107,427 compared to
$3,091,121 and $792,338 for the nine and three months ended September 30, 2000.
The significant reduction in expense is attributable to the downsizing of the
Company since its filing of chapter 11 in February 2001.
Interest expense was $49,837 for the nine months ended September 30, 2001 and $0
for the three months ended September 30, 2001 compared to $505,400 for the nine
months ended September 30, 2000 and $133,098 for the three months ended
September 30, 2000. The decrease is a reflection of freezing interest
obligations at the time of the bankruptcy filing in February 2001. Additionally,
the Company was paying interest on its revolving line of credit in the 2000
period. This line ceased with the sale of its Private Label Group in May 2000.
LIQUIDITY AND CAPITAL RESOURCES
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The Company's primary sources of liquidity are cash of $67,162, accounts
receivable of $138,731 and inventory of $213,573.
In April 1999 and May 1999, the Company sold an aggregate of 716,667 shares of
its Common Stock at a price of $1.50 per share, for an aggregate sale price of
$1,075,000 to several investors, pursuant to an exemption from the registration
requirements.
In May 1999, the Company obtained approximately $1,000,000 and converted a
$500,000 short-term note. The aggregate note of approximately $1,500,000 is
secured by a majority of PLC common stock. On April 10, 2000, it was agreed to
exchange this security for the $1,800,000 promissory note that would be issued
in connection with the sale of PLC.
6
In June 1999, the Company entered into a web-site design and consulting
agreement with Tadeo E-Commerce Corp. In connection with the agreement, Tadeo
paid the Company a $500,000 non-refundable fee for the right to develop the
website and for the Company's consulting services pertaining to the cosmetic
industry. The Company believes it has substantially fulfilled all of its
requirements under the contract prior to June 30, 1999. In connection with the
agreement, Tadeo is entitled to receive a 5% royalty on gross revenues generated
from the website until it receives an aggregate of $500,000 in royalties, at
which time its royalty shall be reduced to 3% of gross revenues generated from
the website.
In September 1999, the Company sold $800,000 of its Series C Convertible
Preferred Stock.
During the year 2000, Azurel borrowed an aggregate of $497,553 in unsecured
notes, at an interest rate of 8%.
Cash provided by operating activities for the nine months ended September 30,
2001 was $25,810 as compared to $734,702 used in operating activities for the
corresponding 2000 period. Net losses of $464,550 for the nine months ended
September 30, 2001, were funded essentially by a $490,530 decrease in inventory
and a $478,826 decrease in accounts receivable, partially offset by a $633,735
decrease in accounts payable and accrued expenses.
Cash provided by investing activities amounted to $39,212 in the 2001 period as
compared to $5,072 used in the 2000 period. In 2001, the Company disposed of
many of its fixed assets as part of the downsizing of its operations.
Cash used by financing activities amounted to $13,656 in the 2001 period as
compared to the providing of $717,669 during the 2000 period. In the year 2000,
the company paid off its revolving line of credit totaling $1,168,950 offset by
an increase in borrowings of $677,533 and from proceeds from sale of PLC of
$1,061,418.
7
PART II - OTHER INFORMATION
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Item 5. OTHER INFORMATION
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In February 2001, the Company filed for protection under the federal bankruptcy
laws (Chapter 11).
Item 3. Item 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a.) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30, 2001.
8
SIGNATURES
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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.
AZUREL, LTD.
/S/ EDWARD ADAMCIK
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Edward Adamcik
Vice-President Operations
Dated: November 12, 2001