THIS DOCUMENT IS A COPY OF THE
FORM 10-QSB FILED ON SEPTEMBER 15, 1998 PURSUANT TO A RULE 201
TEMPORARY HARDSHIP EXEMPTION.
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 July 31, 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: 0-28514
TREASURY INTERNATIONAL, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 98-0160284
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
1183 Finch Avenue West, Suite 508, North York, Ontario M3J 2G2
(Address of Principal Executive Offices)
Issuer's Telephone Number, Including Area Code: 416-663-0668
___________________________________________________
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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 issuer's classes of common
equity, as of the latest practicable date: 74,296,927 shares of Common Stock,
par value $.0001 per share were outstanding as of September 11, 1998.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statement
TREASURY INTERNATIONAL, INC.
INTERIM CONSOLIDATED BALANCE SHEET
AS AT JULY 31, 1998
(UNAUDITED)
ASSETS
CURRENT JULY 31, JANUARY 31,
1998 1998
Accounts Receivable $440,017 $608,659
Inventories (Notes 2 and 4) 361,584 345,783
Sundry assets 23,465 72,020
------ ------
825,066 1,026,462
GOODWILL 1,835,918 1,835,918
CAPITAL ASSETS (Notes 2 and 5) 561,644 620,279
------- -------
$3,222,628 $3,482,659
LIABILITIES
CURRENT
Bank indebtedness (Note 6) $546,779 $492,012
Accounts payable and
accrued liabilities 819,315 997,188
Current portion of
long-term debt 152,119 1,007,676
--------- ---------
1,518,213 2,496,876
DEFERRED INCOME TAXES 52,957 52,957
LONG-TERM DEBT (Note 7) 531,474 1,117,392
------- ---------
2,102,644 3,667,225
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SHAREHOLDERS' DEFICIENCY
SHARE CAPITAL
Authorized
100,000,000 common shares at $.0001
Issued
74,296,927 common shares 7,429 2,461
Contributed surplus (Note 12) 4,277,317 2,788,140
DEFICIT (3,164,762) (2,975,167)
--------- ---------
(1,119,984) (184,566)
--------- -------
$3,222,628 $3,482,659
========== ==========
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TREASURY INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENT OF DEFICIT
SIX MONTHS ENDED JULY 31, 1998
(UNAUDITED)
JULY 31, JULY 31,
1998 1997
Balance, beginning of period $(2,975,167) $(1,556,912)
Net loss for the period (189,595) (3,131,734)
-------- ----------
Balance, end of period $(3,164,762) $(4,688,260)
============ ============
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TREASURY INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JULY 31, 1998
(UNAUDITED)
JULY 31, JULY 31,
1998 1997
REVENUE $920,459 $1,732,035
COST OF GOODS SOLD 909,459 1,503,933
------- ---------
GROSS PROFIT 10,915 228,102
------ -------
General and administrative
(Note 9) 151,526 306,214
------- -------
LOSS FROM OPERATIONS
Before undernoted items (140,611) (78,112)
------- -------
Financial 15,018 31,333
Amortization 32,820 36,935
------ ------
47,838 68,268
------ ------
NET LOSS FROM CONTINUED
OPERATIONS (188,449) (146,380)
NET LOSS FROM DISCONTINUED
OPERATIONS - (200,562)
NET LOSS ON DISPOSAL OF DISCONTINUED
OPERATIONS - (2,095,642)
---------- ----------
NET LOSS $(188,449) $(2,442,584)
======= =========
LOSS PER SHARE
Continued operations $(0.004) $(0.009)
Discontinued operations - (0.139)
------ --------
$(0.004) $(0.148)
======= =======
Weighted average number of
common shares outstanding 48,716,510 16,466,771
========== ==========
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TREASURY INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JULY 31, 1998
(UNAUDITED)
JULY 31, JULY 31,
1998 1997
REVENUE $2,028,737 $3,393,115
COST OF GOODS SOLD 1,833,049 2,844,529
--------- ---------
GROSS PROFIT 195,688 508,586
------- -------
General and administrative
(Note 9) 265,653 1,122,835
------- ---------
LOSS FROM OPERATIONS
Before undernoted items (69,965) (614,249)
------- ---------
Financial 51,149 64,784
Amortization 68,481 74,413
------ ------
119,630 139,197
------- -------
NET LOSS FROM CONTINUED
OPERATIONS (189,595) (753,446)
NET LOSS FROM DISCONTINUED
OPERATIONS - (282,260)
NET LOSS ON DISPOSAL OF DISCONTINUED
OPERATIONS - (2,095,642)
---------- ----------
NET LOSS $(189,595) $(3,131,348)
======= =========
LOSS PER SHARE
Continued operations $(0.004) $(0.046)
Discontinued operations - (0.144)
------- --------
$(0.004) $(0.190)
======= ========
Weighted average number of
common shares outstanding 48,716,510 16,466,771
========== ==========
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TREASURY INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENT OF
CHANGES IN SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JULY 31, 1998
(UNAUDITED)
COMMON PAID-IN CONTRIBUTED
SHARES CAPITAL SURPLUS
------ ------- -----------
Balance - January 31, 1998 24,610,495 $2,461 $2,788,140
Issued 4,500,000 shares of 4,500,000 450 61,750
common stock for cash
consideration of $62,200
Issued 5,332,500 common 5,332,500 533 49,792
shares for consulting and
public relations services
Issued 2,353,932 common 2,353,932 235 39,765
shares toward reduction
of debentures payable
------------ ------------ ------------
Balance - April 30, 1998 36,796,927 $3,679 $2,939,447
========== ===== =========
Issued 33,760,000 common 33,760,000 3,376 1,318,504
shares toward reduction of
debentures payable
Issued 3,740,000 common 3,740,000 374 19,366
shares for consulting and
public relations services
Balance - July 31, 1998 74,296,927 7,429 4,277,317
========== ===== =========
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TREASURY INTERNATIONAL, INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JULY 31, 1998
(UNAUDITED)
JULY 31, JULY 31,
1998 1997
Cash flows from operating activities
Net loss $(189,595) $(3,131,348)
Adjustments to reconcile
net loss to net cash used
in operating activities
Increase in deferred income
taxes - (393)
Amortization 68,481 74,413
Decrease in accounts
receivable 168,642 123,337
Decrease in income taxes
receivable - 6,182
Increase in inventories (15,801) (71,822)
Decrease in sundry assets 48,555 98,260
Decrease in accounts payable(177,873) (39,976)
------- -------
Net cash used for operating
activities (97,591) (2,941,347)
------- ---------
Cash flows from financing activities
Long-term debt (1,441,475) (126,398)
Proceeds on issue of
common shares 1,494,145 1,091,246
--------- ---------
Cash provided by financing
activities 52,670 964,848
------ -------
Cash flows from investing activities
Purchase of capital assets (9,846) (13,116)
------ -------
Discontinued operations - (1,977,738)
------ -----------
Cash provided by financing
activities (9,846) 1,964,622
------- ---------
Decrease in short-term deposits
(Bank indebtedness) (54,767) (11,877)
Cash and short-term deposits
(Bank indebtedness),
beginning of period (492,012) (394,407)
------- -------
end of period $(546,779) $(406,284)
======= =======
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TREASURY INTERNATIONAL, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS AT JULY 31, 1998
(UNAUDITED)
The financial information for the six-month periods ended July 31, 1998
and 1997 presented in this Form 10-QSB has been prepared from accounting records
of Treasury International, Inc. (the "Company") without audit. The information
furnished reflects all adjustments which are, in the opinion of management,
necessary for a fair statement of the results of interim periods.
The results of operations for the six months ended July 31, 1998 are not
necessarily indicative of the results to be expected for a full year. The
consolidated balance sheet as of January 31, 1998 has been derived from audited
financial statements. This report should be read in conjunction with the
consolidated financial statements included in the Company's Form 10-KSB for the
Fiscal Year Ended January 31, 1998, as filed with the Securities and Exchange
Commission.
1. Nature of business
Treasury International, Inc. is a holding company which
through its wholly-owned subsidiaries, Megatran Investments
Ltd. and Mega Blow Moulding Limited, distributes a variety
of consumer and industrial products. The company was
incorporated on August 18, 1995 in the State of Delaware.
2. Summary of significant accounting policies
(a) Basis of consolidation
These consolidated financial statements include the
accounts of the company and its wholly-owned
subsidiaries, Megatran Investments Ltd. and Mega Blow
Moulding Limited.
(b) Inventories
Raw materials are valued at the lower of cost (first-in, first-out
method) and net realizable value. Finished goods are valued at the
lower of cost and net realizable value with cost being determined by
the retail method.
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(c) Capital assets
Capital assets are recorded at cost less accumulated amortization.
Amortization is provided as follows:
Leasehold improvements - straight line over term of lease
Machinery and equipment - 20% diminishing balance Office
equipment - 20% diminishing balance
(d) Revenue recognition
Revenue is recognized when customers are invoiced for products
shipped by the company.
(e) Loss per share
Loss per share is calculated based on the weighted average number of
shares outstanding during the period of 48,716,510.
(f) General
These financial statements have been prepared in accordance with
United States generally accepted accounting principles (GAAP), as
they relate to these financial statements.
3. Business combination
On October 30, 1996, the company acquired 100% of the issued and
outstanding common shares of Megatran Investments Ltd., parent company of
Mega Blow Moulding Limited. The purchase price of $2,863,182 consisted of
$1,361,302 cash and debentures of $1,501,880.
4. Inventories
July 31 January 31
Inventories consist of: 1998 1998
--------- ----------
Raw materials $142,265 $144,183
Packaging 21,420 20,135
Finished goods 197,899 181,465
--------- ---------
$ 361,584 $ 345,783
======== ========
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TREASURY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS AT JULY 31, 1998
(UNAUDITED)
5. Capital assets
July 31 January 31
1998 1998
______ ___________ ______ __________
Accumulated Net Net
Cost Amortization book value book value
---- ------------ ---------- ----------
Leasehold improvements $ 4,221 $ 1,862 $ 2,359 $ 2,556
Machinery and equipment 2,474,422 1,960,530 513,892 575,488
Office equipment 111,891 66,498 45,393 42,235
--------- --------- -------- ---------
$2,590,534 $2,028,890 $ 561,644 $620,279
========== ========== ========= ========
6. Bank indebtedness
The bank indebtedness includes three operating demand loans in the amount
of $484,000 which are secured by a registered general assignment of book
debts and general security agreements of Mega Blow Moulding Limited.
7. Long term debt
The long-term debt consists of two term loans. The term loans are secured
by a registered general security agreement having first charge over all
assets excluding real property of Mega Blow Moulding Limited. The term
loans bear interest at rates varying from 6.47% to bank prime plus 1.75%.
The term loans are payable as follows:
1999 $ 152,119
2000 162,347
2001 172,615
2002 182,964
2003 and following 13,548
--------
683,593
Less current
portion 152,119
-------
$ 531,474
=========
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TREASURY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS AT JULY 31, 1998
(UNAUDITED)
8. Income taxes
As of July 31, 1998 the company had a net operating loss
carryover of approximately $2,431,000 expiring in various years
through 2014.
9. General and administrative expenses
General and administrative expenses for the six months ended July 31, 1998
include fees paid by the company for consulting and public relations
services in the amount of $72,144.
10. Discontinued operations
On July 31, 1997, the company disposed of its subsidiary, Silver 925, Inc.
11. Contributed surplus
Contributed surplus represents the premium paid on the issuance of common
shares.
12. Subsequent events
Subsequent to July 31, 1998, the company entered into an agreement to sell
all of the common shares of its wholly-owned subsidiaries, Megatran
Investments Ltd. and Mega Blow Moulding Limited, for cash consideration of
$5,100,000.
-12-
ITEM 2. Management's Discussion and Analysis or Plan of Operation.
The information contained in this Item 2, Management's Discussion and
Analysis or Plan of Operation, contains "forward looking statements" within the
meaning of Section 27A of the Securities Act 1933, as amended (the "Securities
Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Actual results may materially differ from those projected in
the forward looking statements as a result of certain risks and uncertainties
set forth in this report. Although management believes that the assumptions made
and expectations reflected in the forward looking statements are reasonable,
there is no assurance that the underlying assumptions will, in fact, prove to be
correct or that actual future results will not be different from the
expectations expressed in this report.
The Company is an international manufacturing, distribution and marketing
organization with subsidiaries producing over 500 consumer and industrial
products primarily for North American markets.
(1) INTERIM PERIODS:
Results of Operations
For the six months ended July 31, 1998
During the six months ended July 31, 1998 the Company's sales decreased by
40% to $2,028,737 from $3,393,115 in the six months ended July 31, 1997. The
Company experienced a net loss of $189,595 in the six months ended July 31, 1998
compared to a net loss of $3,131,348 in the six months ended July 31, 1997. The
cost of products sold by the Company was 90% of sales during the six months
ended July 31, 1998, down from 85% of sales in the six months ended July 31,
1997. The decrease in the cost of products sold is attributable to relatively
lower demand for goods. General and administrative expenses decreased in the six
months ended July 31, 1998 to $265,653 or 13% of sales, compared to $1,122,835
or 33% of sales in the six months ended July 31, 1997.
Results of Operations
For the three months ended July 31, 1997
During the three months ended July 31, 1998 the Company's net sales
decreased by 47% to $920,374 from $1,732,035 in the three months ended July 31,
1997. The Company experienced a net loss of $188,449 in the three months ended
July 31, 1998 compared to a net loss of $2,442,584 in the three months ended
July 31, 1997. The cost of products sold by the Company was 99% of sales during
the three months ended July 31, 1998, up from 87% of sales in the three months
ended July 31,1997. The increase is attributable to higher raw material prices
and competitive customer pricing strategies. General and administrative expenses
decreased in the three months ended July 31,1998 to $151,526 or 16.5% of sales,
compared to $306,214 or 18% of sales, in the three months ended July 31, 1997.
The decrease is attributable to better operating controls.
-13-
Liquidity and Capital Resources
The primary sources of liquidity for the Company are funds generated by
the operations and borrowing under the Company's loan agreement. Additional
information on the loan agreement is described in notes 6 and 7 to the Company's
interim Consolidated Financial Statements set forth in part I hereto.
Current assets totalled $3,222,628 at July 31, 1998 compared to $3,482,659
at January 31, 1998. The decrease is attributable to lower accounts receivable.
At July 31, 1998, the Company had nil cash and short-term deposits, and current
net bank indebtedness of $546,779. Accounts receivable totalled $440,017 at July
31, 1998 compared to $608,659 at January 31, 1998 and is primarily related to
lower product demand.
As of July 31, 1998, current liabilities totalled $1,518,213 compared to
$2,496,876 at January 31, 1998. The decrease is attributable to the recent
Debenture Conversion and Support Agreement which the company entered into on
June 30, 1998. At July 31, 1998, the Company also had term loans specifically
incurred to finance the Company's acquisition of Mega Blow.
The Company's bank indebtedness of $546,779 is secured by a first priority
lien on the assets of Mega Blow. The Company also has outstanding $683,593
principal amount due as follows: $152,119 in 1999; $162,347 in 2000; $172,615 in
2001; $182,964 in 2002 and $13,548 in 2003.
The Company believes it will generate sufficient positive cash flow from
operations to meet its operating requirements for the next twelve months. If the
funds available under the Company's financing agreements, together with its
current cash and cash equivalents, are not sufficient to meet the Company's cash
needs, the Company may, from time to time, seek to raise capital from additional
sources including the extension of its current lending facilities,
project-specific financing and additional public or private debt or equity
financing.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K. None
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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.
TREASURY INTERNATIONAL, INC.
/s/ James Hal
Dated: September 8, 1998 By___________________________
James Hal, President
/s/ Howard Halpern
Dated: September 8, 1998 By___________________________
Howard Halpern, Principal
Financial Officer
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