** **

**U.S. SECURITIES AND EXCHANGE COMMISSION**

###### **Washington, D.C.20549**

 

##### **FORM 10-QSB**

 

**(Mark One)**

** **

**ý****               ****QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

** **

**FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001**

** **

**o****               ****TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934**

** **

**FOR THE TRANSITION PERIOD FROM___________ TO ___________**

** **

**CommissionFile No. 0-26682**

 

 

**TECHNOLOGY FLAVORS &FRAGRANCES, INC.**

(ExactName of Small Business Issuer as Specified in its Charter)

 

| **Delaware**                                                      | **11-3199437**                     |
|-------------------------------------------------------------------|------------------------------------|
| (State  or other Jurisdiction of Incorporation

or  Organization) | (IRS  Employer Identification No.) |

 

###### **10 Edison Street East, Amityville, New York 11701**

(Addressof Principal Executive Offices)

 

**(631) 842-7600**

(Issuer’sTelephone Number, Including Area Code)

 

Check whether the issuer (1) filed allreports required to be filed by Section 13 or 15(d) of the Exchange Act duringthe past 12 months (or for such shorter period that the registrant was requiredto file such reports), and (2) has been subject to such filing requirements forthe past 90 days.

 

YES  ý                  NO  o

 

APPLICABLEONLY TO CORPORATE ISSUERS

 

The number of outstanding shares of theissuer's common stock, par value $.01 per share, as of November 5, 2001,was  13,004,473.

 

Transitional Small Business DisclosureFormat (check one):

 

YES  o                  NO  ý

 

 

** TECHNOLOGY FLAVORS& FRAGRANCES, INC.**

 

**INDEX TO FORM 10-QSB**

 

**September30, 2001**

 

 

 

PART I — FINANCIAL INFORMATION

 

                Item 1 — FinancialStatements (Unaudited)

 

Consolidated Balance Sheetsat September 30, 2001 and December 31, 2000

 

ConsolidatedStatements of Operations for the Three Months and Nine Months Ended September30, 2001 and September 30, 2000

 

ConsolidatedStatements of Cash Flows for the Nine Months Ended September 30, 2001 andSeptember 30, 2000

 

Notes toConsolidated Financial Statements

 

                Item2 — Management’s Discussion and Analysis of Financial Condition and Results ofOperations

 

 

PART II — OTHER INFORMATION

 

 

SIGNATURES

 

**PART I**

 

**ITEM1. - FINANCIAL STATEMENTS**

 

**TECHNOLOGY FLAVORS & FRAGRANCES, INC.**

**CONSOLIDATED BALANCE SHEETS**

**(In U.S. Dollars)**

 
|                                                                                    | **At  September 30,  2001  (Unaudited)** |       | **At  December 31,  2000  (Note)** |       |
|-----------------------------------------------------------------------------------------|------------------------------------------|------------|------------------------------------|------------|
| **ASSETS**                                                                              |                                     | ** ** |                               | ** ** |
|                                                                                    |                                     | ** ** |                               | ** ** |
| Current assets:                                                                         |                                     |       |                               |       |
| Cash and cash  equivalents                                                              | $                                        | 113,612    |                               | $          | 195,387 |   |
| Receivables, net                                                                        | 3,424,405                                |       | 2,953,620                          |       |
| Inventories                                                                             | 2,822,835                                |       | 2,829,974                          |       |
| Prepaid expenses and  other current assets                                              | 155,400                                  |       | 92,750                             |       |
|                                                                                    |                                     |       |                               |       |
| Total current assets                                                                    | 6,516,252                                |       | 6,071,731                          |       |
|                                                                                    |                                     |       |                               |       |
| Fixed assets, net                                                                       | 722,587                                  |       | 547,441                            |       |
| Intangible assets, net                                                                  | 648,619                                  |       | 770,235                            |       |
| Other assets                                                                            | 137,140                                  |       | 145,346                            |       |
| Notes receivable from  related parties                                                  | 103,635                                  |       | 125,035                            |       |
|                                                                                    |                                     |       |                               |       |
| Total assets                                                                            | $                                        | 8,128,233  |                               | $          | 7,659,788 |   |
|                                                                                    |                                     |       |                               |       |
| **LIABILITIES**                                                                         |                                     |       |                               |       |
|                                                                                    |                                     |       |                               |       |
| Current liabilities:                                                                    |                                     |       |                               |       |
| Accounts payable                                                                        | $                                        | 1,147,706  |                               | $          | 1,180,905 |   |
| Accrued expenses                                                                        | 169,240                                  |       | 77,053                             |       |
| Revolving credit  facility                                                              | 1,379,438                                |       | 1,340,499                          |       |
| Current portion of  capital lease obligations                                           | 76,125                                   |       | 22,066                             |       |
|                                                                                    |                                     |       |                               |       |
| Total current  liabilities                                                              | 2,772,509                                |       | 2,620,523                          |       |
|                                                                                    |                                     |       |                               |       |
| Capital lease  obligations                                                              | 211,725                                  |       | 58,107                             |       |
| Deferred credits                                                                        | 69,267                                   |       | 71,447                             |       |
|                                                                                    | 3,045,501                                |       | 2,750,077                          |       |
| **STOCKHOLDERS'  EQUITY**                                                               |                                     |       |                               |       |
|                                                                                    |                                     |       |                               |       |
| Common stock:                                                                           |                                     |       |                               |       |
| $ .01 par value, issued  and outstanding 13,004,473 and 13,019,348 shares, respectively | 130,045                                  |       | 130,193                            |       |
| Paid-in capital                                                                         | 10,352,772                               |       | 10,363,542                         |       |
| Accumulated deficit                                                                     | (5,400,085                               | )          | (5,584,024                         | )          |
|                                                                                    |                                     |       |                               |       |
| Total stockholders'  equity                                                             | 5,082,732                                |       | 4,909,711                          |       |
|                                                                                    |                                     |       |                               |       |
| Total liabilities and  stockholders' equity                                             | $                                        | 8,128,233  |                               | $          | 7,659,788 |   |

 
| Note: | The balance sheet at  December 31, 2000 has been derived from the audited financial statements at  that date but does not include all of the information and footnotes required  by generally accepted accounting principles for complete financial  statements. |
|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**TECHNOLOGY FLAVORS &FRAGRANCES, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(in U.S. Dollars)(Unaudited)**

** **

** **
|                                             |   | **For the three months  ended**

**September 30,** |            | **For the nine months ended**

**September 30,** |   |
|--------------------------------------------------|--------|----------------------------------------------------|-----------------|--------------------------------------------------|--------|
|                                             |   | **2001**                                           |            | **2000**                                         |   | **2001** |   | **2000** |   |
|                                             |   |                                               |            |                                             |   |   |   |   |   |
| Net sales                                        |   | $                                                  |  3,579,662 |                                             | $      |  4,011,680 |   | $ |  11,893,095 |   | $ |  12,699,635 |   |
| Cost of sales                                    |   | 2,096,083                                          |            | 2,418,323                                        |   | 6,875,832 |   | 7,373,299 |   |
|                                             |   |                                               |            |                                             |   |   |   |   |   |
| Gross profit                                     |   | 1,483,579                                          |            | 1,593,357                                        |   | 5,017,263 |   | 5,326,336 |   |
|                                             |   |                                               |            |                                             |   |   |   |   |   |
| Operating expenses:                              |   |                                               |            |                                             |   |   |   |   |   |
| Selling                                          |   | 666,841                                            |            | 618,207                                          |   | 2,046,932 |   | 1,861,818 |   |
| General and  administrative                      |   | 479,031                                            |            | 488,270                                          |   | 1,460,323 |   | 1,397,778 |   |
| Research and development                         |   | 336,969                                            |            | 342,417                                          |   | 1,046,769 |   | 1,040,102 |   |
| Amortization                                     |   | 49,322                                             |            | 49,322                                           |   | 147,967 |   | 146,750 |   |
| Total operating expenses                         |   | 1,532,163                                          |            | 1,498,216                                        |   | 4,701,991 |   | 4,446,448 |   |
|                                             |   |                                               |            |                                             |   |   |   |   |   |
| (Loss) income from  operations                   |   | (48,584                                            | )          | 95,141                                           |   | 315,272 |   | 879,888 |   |
| Interest expense, net                            |   | 45,242                                             |            | 48,484                                           |   | 113,919 |   | 136,711 |   |
|                                             |   |                                               |            |                                             |   |   |   |   |   |
| (Loss) income before  provision for income taxes |   | (93,826                                            | )          | 46,657                                           |   | 201,353 |   | 743,177 |   |
| Provision for income  taxes                      |   | -                                                  |            | 13,000                                           |   | 17,414 |   | 36,355 |   |
|                                             |   |                                               |            |                                             |   |   |   |   |   |
| (Loss) income from  continuing operations        |   | (93,826                                            | )          | 33,657                                           |   | 183,939 |   | 706,822 |   |
|                                             |   |                                               |            |                                             |   |   |   |   |   |
| Gain on disposal of  discontinued operations     |   | -                                                  |            | 249,259                                          |   | - |   | 249,259 |   |
|                                             |   |                                               |            |                                             |   |   |   |   |   |
| Net (loss) income                                |   | $                                                  |  (93,826   | )                                                | $      |  282,916 |   | $ |  183,939 |   | $ |  956,081 |   |
|                                             |   |                                               |            |                                             |   |   |   |   |   |
| Net (loss) income per  common share:             |   |                                               |            |                                             |   |   |   |   |   |
| Continuing operations:                           |   |                                               |            |                                             |   |   |   |   |   |
| Basic                                            |   | $                                                  |  (.01      | )                                                | $      |  .00 |   | $ |  .01 |   | $ |  .06 |   |
| Diluted                                          |   | (.01                                               | )               | .00                                              |   | .01 |   | .05 |   |
| Discontinued operations  - basic and diluted     |   | -                                                  |            | .02                                              |   | - |   | .02 |   |
|                                             |   |                                               |            |                                             |   |   |   |   |   |
| Net (loss) income per  common share:             |   |                                               |            |                                             |   |   |   |   |   |
| Basic                                            |   | $                                                  |  (.01      | )                                                | $      |  .02 |   | $ |  .01 |   | $ |  .08 |   |
| Diluted                                          |   | $                                                  |  (.01      | )                                                | $      |  .02 |   | $ |  .01 |   | $ |  .07 |   |
|                                             |   |                                               |            |                                             |   |   |   |   |   |
| Weighted average common  shares outstanding:     |   |                                               |            |                                             |   |   |   |   |   |
| Basic                                            |   | 13,004,473                                         |            | 12,531,491                                       |   | 13,014,445 |   | 12,524,056 |   |
| Diluted                                          |   | 13,004,473                                         |            | 13,398,520                                       |   | 13,133,019 |   | 13,373,466 |   |

 

 

See accompanying notes.

 

**TECHNOLOGY FLAVORS & FRAGRANCES, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(In U.S. Dollars) (Unaudited)**

 
|                                                                                         | **For the Nine Months Ended  September 30,** |    |
|----------------------------------------------------------------------------------------------|----------------------------------------------|---------|
|                                                                                         | **2001**                                     |    | **2000** |   |
| Cash flows from  operating activities:                                                       |                                         |    |   |   |
| Net income                                                                                   | $                                            | 183,939 |   | $ | 956,081 |   |
| Adjustments to reconcile  net income to net cash (used in) provided by operating activities: |                                         |    |   |   |
| Gain on disposal of  discontinued operations                                                 | -                                            |    | (249,259 | ) |
| Stock option grants for  outside services                                                    | 7,500                                        |    | 13,500 |   |
| Depreciation and  amortization                                                               | 283,193                                      |    | 278,752 |   |
| Deferred rent                                                                                | (2,180                                       | )       | 9,270 |   |
| Changes in assets and  liabilities:                                                          |                                         |    |   |   |
| Receivables                                                                                  | (470,785                                     | )       | (592,368 | ) |
| Inventories                                                                                  | 7,139                                        |    | (166,711 | ) |
| Prepaid expenses and  other current assets                                                   | (62,650                                      | )       | (61,039 | ) |
| Other assets                                                                                 | (18,146                                      | )       | 194,885 |   |
| Accounts payable                                                                             | (33,199                                      | )       | 154,910 |   |
| Accrued expenses                                                                             | 92,187                                       |    | (4,786 | ) |
|                                                                                         |                                         |    |   |   |
| Net cash (used in)  provided by  operating activities                                   | (13,003                                      | )       | 533,235 |   |
|                                                                                         |                                         |    |   |   |
| Cash flows from  investing activities:                                                       |                                         |    |   |   |
| Purchase of fixed assets                                                                     | (79,859                                      | )       | (86,574 | ) |
| Notes receivable                                                                             | -                                            |    | (33,769 | ) |
|                                                                                         |                                         |    |   |   |
| Net cash used in  investing activities                                                       | (79,859                                      | )       | (120,343 | ) |
|                                                                                         |                                         |    |   |   |
| Cash flows from  financing activities:                                                       |                                         |    |   |   |
| Proceeds from revolving  credit facility                                                     | 11,075,000                                   |    | 11,540,000 |   |
| Repayment of revolving  credit facility                                                      | (11,036,061                                  | )       | (11,951,890 | ) |
| Issuance of common stock                                                                     | 2,982                                        |    | 60,083 |   |
| Payment of capital lease  obligations                                                        | (30,835                                      | )       | (32,954 | ) |
|                                                                                         |                                         |    |   |   |
| Net cash provided by  (used in) financing activities                                         | 11,086                                       |    | (384,761 | ) |
|                                                                                         |                                         |    |   |   |
| (Decrease) increase in  cash and cash equivalents                                            | (81,775                                      | )       | 28,131 |   |
|                                                                                         |                                         |    |   |   |
| Cash and cash  equivalents - beginning of period                                             | 195,387                                      |    | 154,535 |   |
|                                                                                         |                                         |    |   |   |
| Cash and cash equivalents  - end of period                                                   | $                                            | 113,612 |   | $ | 182,666 |   |

 

 

See accompanying notes.

 

**TECHNOLOGY FLAVORS &FRAGRANCES, INC.**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**September 30, 2001**

**(Unaudited)**

 

1.  BASIS OF PRESENTATION

 

                Technology Flavors& Fragrances, Inc. (the "company," "us," "we"or "our") creates, develops, manufactures, and markets flavor andfragrance products used to provide or enhance flavors or fragrances in a widevariety of consumer and industrial products.

 

                The accompanyingunaudited consolidated financial statements have been prepared in accordancewith generally accepted accounting principles for interim financial informationand the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotesrequired by generally accepted accounting principles for complete financialstatements. In the opinion of our management, all adjustments (consisting ofnormal recurring accruals) considered necessary for a fair presentation havebeen included.  Operating results forthe three-month and nine-month periods ended September 30, 2001 are notnecessarily indicative of the results that may be expected for the full yearending December 31, 2001.  Theseunaudited consolidated financial statements should be read in conjunction withour Annual Report on Form 10-KSB for the year ended December 31, 2000 and ourconsolidated audited financial statements and footnotes contained therein.

 

2.  INVENTORIES

 

Componentsof inventories are summarized as follows:

 
|            |   | **September  30, 2001** |      | **December  31, 2000** |   |
|-----------------|--------|-------------------------|-----------|-----------------------------|--------|
|            |   |                    |      |                        |   |
| Raw  materials  |   | $                       | 1,761,477 |                        | $      | 1,582,272 |   |
| Finished  goods |   | 1,061,358               |      | 1,247,702                   |   |
|            |   | $                       | 2,822,835 |                        | $      | 2,829,974 |   |

 

 

3.  EARNINGS PER SHARE

 

Basic net (loss) income per share is calculated usingthe weighted average number of shares of our common stock outstanding duringthe period.   Diluted net income pershare for the three-month and nine-month periods ended September 30, 2001 and2000 was calculated using the weighted average common and common equivalentshares that were outstanding during the periods.

 

 

4.  GAIN ON DISPOSAL OF DISCONTINUEDOPERATIONS

 

                At the closing ofthe sale of our Seasoning Division in August 1998, $275,000 of the sellingprice was escrowed and, pending conclusion of certain contingencies, notrecognized as part of the gain on sale. In August 2000, $249,259 of suchescrowed funds were released to us from escrow and was recorded as a gain ondisposal of discontinued operations for the third quarter of year 2000.

 

**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**Resultsof Operations**

 

Thefollowing information for the three and nine-month periods ended September 30,2001 and 2000 has been derived from our unaudited consolidated financialstatements and should be read in conjunction with our Annual Report on Form10-KSB for the year ended December 31, 2000 and the consolidated auditedfinancial statements included therein.

 
|                                         |                               | **Three Months Ended September 30,** |   | **Nine Months Ended September 30,** |   |
|----------------------------------------------|------------------------------------|--------------------------------------|--------|-------------------------------------|--------|
|                                         |                               | **2001**                             |   | **2000**                            |   | **2001** |   | **2000** |   |
|                                         | **(dollar amounts in  thousands)** |                                 |
|                                         |                               |                                 |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net  sales                                   |                               | $                                    | 3,580  |                                | 100.0  | % | $ | 4,012 |   | 100.0 | % | $ | 11,893 |   | 100.0 | % | $ | 12,700 |   | 100.0 | % |
| Gross  profit                                |                               | 1,484                                |   | 41.5                                |   | 1,593 |   | 39.7 |   | 5,017 |   | 42.2 |   | 5,326 |   | 41.9 |   |
| Operating  expenses                          |                               |                                 |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling                                      |                               | 667                                  |   | 18.7                                |   | 618 |   | 15.4 |   | 2,047 |   | 17.2 |   | 1,862 |   | 14.7 |   |
| General  and administrative                  |                               | 479                                  |   | 13.4                                |   | 488 |   | 12.2 |   | 1,460 |   | 12.3 |   | 1,397 |   | 11.0 |   |
| Research  and development                    |                               | 337                                  |   | 9.4                                 |   | 343 |   | 8.6 |   | 1,047 |   | 8.8 |   | 1,040 |   | 8.2 |   |
| Amortization                                 |                               | 49                                   |   | 1.4                                 |   | 49 |   | 1.2 |   | 148 |   | 1.2 |   | 147 |   | 1.1 |   |
| (Loss)  income from operations               |                               | (49                                  | )      | (1.4                                | )      | 95 |   | 2.3 |   | 315 |   | 2.7 |   | 880 |   | 6.9 |   |
| Interest  expense, net                       |                               | 45                                   |   | 1.2                                 |   | 48 |   | 1.2 |   | 114 |   | 1.0 |   | 137 |   | 1.1 |   |
| Provision  for income taxes                  |                               | -                                    |   | -                                   |   | 13 |   | 0.3 |   | 17 |   | 0.1 |   | 36 |   | 0.2 |   |
| (Loss)  income from continuing               |                               |                                 |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| operations                                   |                               | (94                                  | )      | (2.6                                | )      | 34 |   | 0.8 |   | 184 |   | 1.6 |   | 707 |   | 5.6 |   |
| Gain  on disposal of discontinued operations |                               | -                                    |   | -                                   |   | 249 |   | 6.2 |   | - |   | - |   | 249 |   | 1.9 |   |
| Net  (loss) income                           |                               | (94                                  | )      | (2.6                                | )      | 283 |   | 7.0 |   | 184 |   | 1.6 |   | 956 |   | 7.5 |   |
|                                              |                                    |                                      |        |                                     |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

*                Net sales*.  Net sales decreased by $432,000, or 10.8%,to $3,580,000 for the three months ended September 30, 2001 from $4,012,000 forthe same period last year and decreased by $807,000, or 6.4%, to $11,893,000for the nine months ended September 30, 2001 from $12,700,000 for thecomparable nine-month period of 2000. The decline in net sales for the three-month and nine-month periodsended September 30, 2001 were due principally to the continued weakness in theflavor and fragrance industries and the general economy and, to a lesserextent, a fire at the Company’s New York facility during the latter part ofSeptember 2001 which interrupted customer shipments for a four-day period.

 

                *Gross profit*.  Gross profit, as a percentage of sales,increased to 41.5% for the three months ended September 30, 2001 as compared to39.7% for the same period last year and increased to 42.2% for the nine monthsended September 30, 2001 as compared to 41.9% for the comparable nine-monthperiod of 2000.  The increases in grossprofit for the 2001 periods were due principally to higher gross margins on newflavor products sold in 2001 and favorable differences in product mixattributable to a lower concentration of export sales where gross margins aregenerally lower.

*Operating expenses:*

 

                *Selling expenses.*  Selling expenses increased by $49,000, or7.9%, to $667,000 for the three months ended September 30, 2001 from $618,000for the same period last year and increased by $185,000, or 9.9%,  to $2,047,000 for the nine months endedSeptember 30, 2001 from $1,862,000 for the comparable nine-month period of2001.  The increases were dueprincipally to increases in travel expenses, marketing and media advertising expensesand shipping costs.  In connection withour recently implemented restructuring and cost reduction program, sellingexpenses are expected to decrease commencing the fourth quarter of 2001.

 

                *General and administrative expenses.*  General and administrative expenses for thethree months ended September 30, 2001 were $479,000 as compared to expenses of$488,000 for the comparable 2000 period. For the nine-month period ended September 30, 2001, general andadministrative expenses increased by $63,000, or 4.5%, to $1,460,000 from$1,397,000 for the comparable nine-month period of 2000 due principally to thehiring of our new president, and to a lesser extent, increases in professionalfees.  In connection with our recentlyimplemented restructuring and cost reduction program, general and administrativeexpenses are expected to decrease commencing the fourth quarter of 2001.

 

                *Research and development expenses*.  Research and development expenses for thethree months ended September 30, 2001 of $337,000 were generally consistentwith such expenses for the comparable period in 2000 of $343,000.  For the nine months ended September 30,2001, research and development expenses of $1,047,000 were generally consistentwith the comparable 2000 period of $1,040,000.

* *

*                Amortizationexpense.*  Amortizationexpense for the three months and nine months ended September 30, 2001 of$49,000 and $148,000, respectively, were consistent with the comparable 2000periods of $49,000 and $147,000, respectively.

 

                Total operatingexpenses.  Total operating expensesincreased by $34,000, or 2.3%,  to$1,532,000 for the three months ended September 30, 2001 from $1,498,000 forthe comparable period in 2000 and increased by $256,000, or 5.8%,  to $4,702,000 for the nine months endedSeptember 30, 2001 from $4,446,000 for the comparable nine-month period of2000.

 

*Interest expense, net.*  Interest expense decreased by $3,000, or6.3%, to $45,000 for the three months ended September 30, 2001 from $48,000 forthe comparable 2000 period and decreased by $23,000, or 16.8%, to $114,000 forthe nine months ended September 30, 2001 from $137,000 for the comparablenine-month period of 2000.  Thedecreases were principally attributable to lower levels of borrowings under ourcredit facility and lower interest rates for the three-month and nine-monthperiods ended September 30, 2001.

 

*Provision for income taxes.*  Provision for income taxes represents stateand franchise taxes and federal alternative minimum tax. There were no federalincome tax provisions for 2001 and 2000 since we had available net operatingloss carryforwards.

 

*(Loss)income from continuing operations*.  (Loss) income from continuing operations was $(94,000) and$184,000 for the three-month and nine-month periods ended September 30, 2001 ascompared to $34,000 and $707,000 for the comparable 2000 periods, respectively.

 

*Gain ondisposal of discontinued operations*.  For the three months ended September 30,2000, we recorded a one-time, non-recurring gain of $249,000 in connection withcash received in August 2000 from escrowed funds arising out of the sale of ourSeasoning Division in August 1998. There were no such gains recorded in 2001.

 

*Net(loss) income.*  Net(loss) income was $(94,000) and $184,000 for the three-month and nine-monthperiods ended September 30, 2001 as compared to net income for the comparable2000 periods of $283,000 and $956,000, respectively.

 

 

**Liquidityand Capital Resources**

 

                Historically, ourfinancing needs have been met through the issuance of equity and debtsecurities and commercial bank loans. In June 1999, we entered into a Loan andSecurity Agreement with a lender which provides for a three year $3,000,000revolving credit facility. We call this revolving credit facility the “1999Credit Facility.”  Outstandingborrowings under the 1999 Credit Facility bear interest at a rate of onequarter of one percent (0.25%) in excess of a prime lending rate. Borrowingsunder the 1999 Credit Facility are subject to (i) certain eligibilityrequirements relating to our receivables and inventories, and (ii) thediscretion of the lender. Outstanding borrowings are secured by substantiallyall of our assets, including our product formulations. We must comply withcertain financial and other covenants contained in the Loan and SecurityAgreement, including maintaining tangible net worth of at least $1,750,000,achieving not less than 75% of our projected pre-tax income each year, andincurring expenditures for capital assets of not more than $450,000 for eachyear.  Our subsidiaries have guaranteedour obligations under the 1999 Credit Facility.  Borrowings under the 1999 Credit Facility at September 30, 2001was $1,379,000 and $1,621,000 was available for additional borrowings inaccordance with the terms of the 1999 Credit Facility. The outstandingborrowings under the 1999 Credit Facility are classified as a current liabilitydue to the terms of the Agreement.  AtSeptember 30, 2001, the outstanding borrowings bore interest at 5.75% perannum.

 

                At September 30,2001, our working capital increased by $293,000, or 8.5%, to $3,744,000 from$3,451,000 at December 31, 2000 due principally to the higher level of accountsreceivable. We are committed under non-cancelable operating and capital leasesfor the upcoming year of approximately $320,000.

 

 

**PART II- OTHER INFORMATION**

 

 
| Item  1. |   | Legal  Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|----------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |   | None                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Item 2.  |   | Changes in Securities and Use of Proceeds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|     |   | On October 5, 2001, we granted non-qualified stock options to  purchase 100,000 shares of our common stock at an exercise price of $.80 per  share (the market price of the common stock on the date of the grant) to an  investor relations firm under our 1999 Stock Option Plan.  Such options begin vesting one-month after  the grant date in twenty equal monthly installments of 5,000 shares.  This option grant was made in reliance  upon an exemption from the registration provisions of the Securities Act of  1933, as amended, as transactions by an issuer not involving any public  offering. |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Item  3. |   | Defaults  Upon Senior Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|     |   | None                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Item  4. |   | Submission  of Matters to a Vote of Security Holders                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|     |   | None                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Item 5.  |   | Other Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|     |   | None                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Item 6.  |   | Exhibits and Reports  on Form 8-K                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|     |   | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Exhibits |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | None |
|     |   | b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Reports on Form 8-K: |
|     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | None |

 

**SIGNATURES**

 

 

                In accordance withthe requirements of the Exchange Act, the registrant has caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.

 

Dated:  November 12, 2001

 
|   | TECHNOLOGY FLAVORS & FRAGRANCES, INC. |
|--------|-------------------------------------------|
|   |                                      |   |
|   |                                      |   |
|   | By                                        | /s/ Joseph A. Gemmo |
|   |                                      | Joseph A. Gemmo |
|   |                                      | Vice President and Chief Financial Officer |
|   |                                      | (Principal Financial Officer and Officer Duly |
|   |                                      | Authorized to Sign on Behalf of Registrant) |