UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For Quarter Ended June 30, 1998
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 number: 333-15127
AZUREL LTD.
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(Exact Name of Registrant 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.)
509 MADISON AVENUE, NEW YORK, NY 10022
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(Address of principal
executive office) (Zip Code)
(212) 317- 0712
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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
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The number of shares of registrant's Common Stock, $.001 par value, outstanding
as of July 31, 1998 was 5,318,745 shares.
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 Sheets 1
Consolidated Statements of Operations 2
Consolidated Statements of Cash Flows 3-4
Notes to Financial Statements 5
Item 2 - Management's Discussion and Analysis or
Plan of Operation 6-8
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 9
Item 5 - Other Information 9
Item 6 - Exhibits and reports on Form 8-K 10
SIGNATURE 11
AZUREL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1998 1997
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(Unaudited)
ASSETS
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CURRENT ASSETS:
Cash $ 39,656 $ 414,731
Restricted cash -- 290,521
Accounts receivable, net of allowance for
doubtful accounts of $60,000 1,901,287 1,985,232
Inventories 2,255,919 1,882,807
Prepaid expenses and other current assets 206,856 262,886
Due from stockholders and related parties 155,167 232,921
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TOTAL CURRENT ASSETS 4,558,885 5,069,098
FURNITURE AND EQUIPMENT 1,657,842 1,462,580
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INTANGIBLES 3,029,890 3,137,248
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OTHER ASSETS
Due from related party 135,000 135,000
Deferred financing costs 35,700 35,700
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170,700 170,700
$ 9,417,317 $ 9,839,626
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit $ 1,303,130 $ 1,133,393
Notes payable 349,457
Accounts payable 1,186,287 819,514
Accrued expenses and other liabilities 200,811 436,899
Customer advances 57,760 104,145
Current portion of long-term debt 703,203 634,294
Due to related parties 119,933 269,916
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TOTAL CURRENT LIABILITIES 3,920,581 3,398,161
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LONG-TERM DEBT 1,351,091 1,623,757
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STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, authorized 1,000,000, none
issued or outstanding -- --
Common stock, $.001 par value, authorized 24,000,000 shares,
issued and outstanding 5,293,745 shares 5,294 5,294
Additional paid-in-capital 7,438,001 7,438,001
Accumulated deficit (3,281,893) (2,609,830)
Cumulative translation adjustment (13,582) (13,582)
Stock subscription receivable (2,175) (2,175)
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TOTAL STOCKHOLDERS' EQUITY 4,145,645 4,817,708
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$ 9,417,317 $ 9,839,626
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See notes to financial statements.
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AZUREL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months ended June 30, Six Months ended June 30,
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1998 1997 1998 1997
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NET SALES $ 3,302,062 $ 3,298,286 $ 6,291,351 $ 6,031,468
COST OF GOODS SOLD 2,190,540 2,562,942 4,323,899 4,670,452
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GROSS PROFIT 1,111,522 735,344 1,967,452 1,361,016
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,283,163 918,015 2,462,605 1,887,791
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (171,641) (182,671) (495,153) (526,775)
INTEREST EXPENSE 78,045 104,542 176,910 235,731
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NET LOSS $ (249,686) $ (287,213) $ (672,063) $ (762,506)
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE,
BASIC AND ASSUMING DILUTION $ (0.05) $ (0.07) $ (0.13) $ (0.20)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES 5,293,745 3,878,747 5,293,745 3,878,747
=========== =========== =========== ===========
See notes to financial statements.
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AZUREL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(672,063) $(762,506)
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Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 111,556 87,534
Amortization 107,358 101,350
Amortization of deferred financing costs -- 35,121
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 83,945 (387,516)
(Increase) decrease in inventories (373,112) 81,356
Decrease in prepaid expenses and other 56,030 2,990
Decrease (increase) in other assets 77,754 (352)
Increase in accounts payable and accrued expenses 130,685 548,059
(Decrease) in customer advances (46,385) --
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NET CASH USED IN OPERATING ACTIVITIES (524,232) (293,964)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (306,818) (14,795)
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NET CASH USED IN INVESTING ACTIVITIES (306,818) (14,795)
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CASH FLOW FROM FINANCING ACTIVITIES:
Increase in cash overdraft -- 4,674
Increase in revolving line of credit 169,737 --
Increase in notes payable 418,366 --
Decrease in restricted cash 290,521 --
(Decrease) in related party loans (149,983)
(Increase) in deferred financing costs -- (40,869)
(Increase) in deferred registration costs -- (11,116)
Increase in long term debt -- 571,500
(Decrease) in capital lease obligation -- (8,653)
Payment of long term debt (272,666) (206,777)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 455,975 308,759
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NET (DECREASE) IN CASH (375,075) 0
CASH, beginning of period 414,731 --
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CASH, end of period $ 39,656 $ 0
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See notes to financial statements.
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AZUREL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months Ended June 30,
1998 1997
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for Interest $188,868 $ 157,269
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Cash paid for Taxes $ -- $ --
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SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Additional stock issued to shareholder as compensation for acquisition $ 0 $ 0
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Note issued for the acquisition of Cambridge Business Services $ 0 $ 0
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Issuance of common stock through conversion of long-term debt $ 0 $ 0
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Issuance of common stock in connection with acquisition of PLC Group $ 0 $ 0
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Conversion of debt to common stock $ 0 $ 0
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Distribution through assumption of long-term debt $ 0 $ 0
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Purchase of equipment through capital lease $ 0 $ 0
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Assumption of debt in connection with acquisition of PLC Group $ 0 $ 0
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Stock issued for services $ 0 $ 0
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See notes to financial statements.
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AZUREL LTD. AND SUBSIDIARIES
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NOTES TO FINANCIAL STATEMENTS
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SIX MONTHS ENDED JUNE 30, 1998
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(UNAUDITED)
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1. BASIS OF PRESENTATION
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The accompanying consolidated financial statements as of June 30, 1998
and for the six and three months ended June 30, 1998 and 1997 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 six months
ended June 30, 1998.
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 six months
ended June 30, 1998 are not necessarily indicative of the results
expected for the full year ending December 31, 1998. Certain prior year
amounts have been reclassified to conform with the current year's
presentation.
2. REVOLVING CREDIT FACILITY
On February 6, 1998, the Company refinanced their borrowing arrangement
with Finova Capital Corporation. The line of credit was increased to
$3,500,000 and bears interest at 2.5% per annum above the existing
prime rate. Borrowings are secured by trade receivables, inventories
and a second lien on machinery and equipment. The agreement expires in
February, 2000.
3. EQUIPMENT FINANCING
On March 17, 1998, the Company entered into an agreement with The CIT
Group for financing of machinery and equipment purchases. The total
financing will be $260,000 at approximately 10.5% over a 60 month
period.
4. BEN RICKERT, INC. ACQUISITION
On July 31, 1998, the Company acquired the assets of Ben Rickert, Inc.,
a manufacturer and distributor of cosmetics, fragrances and gift items,
for $1.5 million. The acquisition was financed by $150,000 in cash,
obtained after June 30, and a $1,350,000 note.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS
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 audited financial statements and notes thereto for the
fiscal year ended December 31, 1997.
FOR THE SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 1998 AND 1997
Azurel, Ltd., hereinafter "Azurel", through its wholly-owned
subsidiaries, manufactures, markets, and sells private label cosmetics,
fragrances and skincare products. Prior to the completion of the
acquisitions of the subsidiaries, Azurel focused its operations on
negotiating and consummating such acquisitions and developing and
implementing marketing strategies for its Branded Products.
In August 1996, Azurel acquired the stock of Private Label Group (PLC),
and in October 1996, Azurel acquired the stock of Scent Overnight
(currently Scent 1-2-3).
On July 31, 1998, a wholly owned subsidiary of Azurel acquired the
assets of Ben Rickert, Inc. ("Ben Rickert"), a 23-year old cosmetic
company, for $1.5 million. The acquisition of Ben Rickert, with 1997
sales of $13 million, is expected to help Azurel more than double its
core business. Azurel expects to enjoy numerous advantages, such as
transferring some of Ben Rickert's out source manufacturing to PLC, as
well as reducing overhead by combining several departments.
Additionally, the acquisition allows Azurel to enter the soap
manufacturing business and affords the company more clout with `key
accounts' retailers for other Azurel product lines.
RESULTS OF OPERATIONS.
Total revenues for the six and three months ended June 30, 1998 were
$6,291,351 and $3,302,062, respectively, compared to $6,031,468 and
$3,298,286 for the six and three months ended June 30, 1997. This
increase is attributable to an increase in sales at the company's
Azurel Marketing division.
Cost of sales was $4,323,899 and $2,190,540 for the six and three
months ended June 30, 1998 and $4,670,452 and $2,562,942 for the
respective periods ended June 30, 1997. Gross profit as a
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percentage of revenue was 33.7% and 31.3% for the six and three months
ended June 30, 1998 and 22.6% and 22.3% for the corresponding periods
ended June 30, 1997. The improvement in gross profit percentage in 1998
was due to a more profitable product mix, operating efficiencies and
improved cost controls.
Selling, general and administrative expenses for the six months and
three months ended June 30, 1998 were $2,462,605 and $1,283,163 as
compared to $1,887,791 and $918,015 for the six months and three months
ended June 30, 1997. The increase in selling, general and
administrative expenses was primarily attributable to expenses
associated with the Azurel division, including salaries, product
development, marketing costs and administrative costs associated with
a public company.
For the six months and three months ended June 30, 1998, the Company's
net income included non-cash expenses of $218,914 and $84,941,
respectively. For the same periods in 1997, the Company's net income
included non-cash expenses of $224,005 and $125,522. Such expense was
incurred principally as a result of depreciation and amortization of
assets acquired with the acquisition of PLC.
Interest expense was $176,910 for the six months ended June 30, 1998
and $78,045 for the three months ended June 30, 1998, compared to
$235,731 for the six months and $104,542 for the three months ended
June 30, 1997. This represents interest expense incurred for normal PLC
operations. The decrease is attributable to debt reductions resulting
from funds obtained from the initial public offering in August 1997.
LIQUIDITY AND CAPITAL RESOURCES
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The company's primary source of liquidity is accounts receivable of
$1,901,287 and inventory of $2,255,919.
The Company has funded its operations to date primarily through a
combination of debt and equity financing. In August 1997, Azurel
completed its initial public offering of 1,200,000 shares of common
stock and 1,200,000 common stock purchase warrants which resulted in
net proceeds of approximately $4,800,000 to the Company.
In December 1997, the company secured a four year term loan of $800,000
at 11.3% with GE Capital. This loan is secured by the Company's
machinery and equipment.
In February 1998, the Company secured a revolving line of credit in the
amount of $3,500,000 with Finova Capital Corporation until February
2000. This line of credit bears an interest rate of 2.5% above the
prime rate and is secured by the Company's receivables, inventory and a
second lien on machinery and equipment.
In March 1998, the Company obtained a 5-year term loan of $260,000,
secured by new equipment
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and machinery, at a rate of approximately 10.5%, with The CIT Group.
Cash used in operations for the first six months of 1998 was $524,232
as compared to $293,964 for the first six months of 1997. Cash was used
in 1998 to fund losses before depreciation and amortization of $453,149
and a significant increase in inventory component purchases, partially
offset by a reduction in accounts receivable and other assets.
For the six months ended June 30, 1998, the Company used cash provided
by the CIT loan to purchase machinery and equipment in the amount of
$272,112.
Cash provided through financing activities for the first six months of
1998 was $455,975 as compared to $308,759 for the first six months of
1997. The increase was primarily attributable to the release of
restricted funds held by Finova Capital Corporation as security against
the revolving line of credit and the financing of equipment purchases,
partially offset by paying down the note to the previous PLC owners.
Cash availability as of June 30, 1998, against the Finova revolving
line of credit was approximately $170,000. Management believes that the
current lines of credit with Finova Capital Corporation, GE Capital and
The CIT Group are sufficient to support the working capital needs of
the company.
The July 31, 1998 acquisition of Ben Rickert, Inc. was consummated
through Summit Bank for a combination of $1.5 million, comprised of
$150,000 in cash and $1,350,000 in short term notes.
-8-
PART II - OTHER INFORMATION
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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on May 28, 1998.
The purpose of the meeting was to vote for the election of six
directors and to ratify the appointment of Feldman Sherb Ehrlich & Co.,
P.C. as the Company's independent certified public accountants. The
following six persons were elected to serve as directors of the
corporation for the ensuing year: Gerard Semhon, Constantine Bezas,
Joseph Truitt Bell, Frank DeSimone, Kay Shortway and Norman Grief.
There were 3,021,269 votes cast in favor, 2,272,476 votes withheld and
0 votes against each of the above-named directors. The appointment of
Feldman Sherb Ehrlich & Co., P.C. as the Company's independent
certified public accountants was approved by the following vote:
3,021,269 in favor, 0 against and 2,272,476 abstentions.
Item 5. OTHER INFORMATION
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On July 31, 1998, the Company completed the acquisition of the assets
of Ben Rickert, Inc. ("Rickert"), a New Jersey corporation. The
acquisition was completed and the assets were acquired by Ben Rickert
Corp., a wholly-owned subsidiary of the Company, from Summit Bank.
Summit Bank, a secured creditor, took possession of the assets through
foreclosure proceedings as a result of various defaults by Rickert. As
consideration for the assets, the Company paid Summit Bank $150,000 at
the closing and gave Summit Bank a promissory note for $1,350,000 due
October 30, 1998. The note is secured by all of the assets of Ben
Rickert Corp.
The financial statements required to be filed pursuant to Item 7 of
Form 8-K are not in this report on Form 10-QSB. The Company shall
provide such financial statements by amendment within 60 days from the
date that this Form 10-QSB is filed with the Securities and Exchange
Commission.
On August 12, 1998, the Company sold 1,500 shares of its Series A
Convertible Preferred Stock for an aggregate purchase price of
$1,500,000. The Series A Convertible Preferred Stock is convertible
into shares of the Company's Common Stock at the lesser of: (i) $2.00
per share, or (ii) 75% of the closing bid price of a share of the
Company's Common Stock, defined as taking the average of the three
lowest closing bid prices for the twenty consecutive days prior to the
conversion. The purchasers were also issued warrants to purchase
562,500 shares of the Company's Common Stock at an exercise price of
$1.96. The Series A Convertible Preferred Stock purchasers were granted
the right, between February 12, 1999 and August 12, 2000, to purchase
an additional 3,000 shares of Series A Convertible Preferred Stock and
1,125,000 warrants to purchase shares of the Company's Common Stock on
the same terms and conditions as set forth above.
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) EXHIBIT DESCRIPTION
27 Financial Data Schedule
99.1 Agreement of Sale dated July 31, 1998 by and between
Azurel Ltd., Ben Rickert Corp. and Summit Bank, et al.
99.2 Promissory Note dated July 31, 1998.
99.3 Security Agreement dated July 31, 1998.
99.5 Form of Securities Purchase Agreement dated
August 12, 1998.
99.6 Certificate of Designation of Series A Convertible
Preferred Stock
(b.) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
June 30, 1998.
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SIGNATURES
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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.
AZUREL LTD. AND SUBSIDIARIES
/S/ Gerard Semhon
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Gerard Semhon
Chief Executive Officer
/S/ Frank DeSimone
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Frank Desimone
Chief Financial Officer
Dated : August 14, 1998
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