<PAGE>
UNITED STATES
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 quarterly period ended September 30, 1996
/ / 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: 33-98282
APPLEWOODS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-3859709
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
274 Riverside Avenue, Westport, CT 06881
(Address of principal executive offices) (Zip Code)
(203) 227-4912
(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 and Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Class Outstanding at November 12, 1996
----- --------------------------------
Common Stock 8,472,000
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APPLEWOODS, INC.
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INDEX
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PART 1: FINANCIAL INFORMATION Page:
Item 1. Financial Statements:
Balance Sheet as of September 30, 1996 and June 30, 1996 2
Statements of Operations for the three months ended
September 30, 1996 and 1995 3
Statement of Stockholders Equity for the three months
ended September 30, 1996 4
Statements of Cash Flows for the three months ended
September 30, 1996 and 1995 5
Notes to Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of the
Financial Condition and Results of Operations 8 - 10
PART II: OTHER INFORMATION:
Item 6. Exhibits & Reports on Form 8-K 11
Signatures 12
Page 1
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APPLEWOODS, INC.
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CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
September 30 June 30
----------------------------------------
1996 1996
---- ----
<S> <C> <C>
Assets: (Unaudited)
Current Assets:
Cash $ 2,485,045 $ 3,958,168
Trade Accounts Receivable, net of allowance 698,646 673,689
for doubtful accounts of $99,614 and $97,538
respectively
Other Receivables 134,062 108,118
Inventory 2,937,022 1,742,066
Prepaid Consultancy Fees 993,000 993,000
Other Current Assets 128,336 65,177
------------------ ------------------
Total Current Assets 7,376,111 7,540,218
------------------ ------------------
------------------ ------------------
Property, Plant and Equipment - Net 688,333 424,222
------------------ ------------------
Other Assets
Trademarks - Net 90,706 80,794
Prepaid Consultancy Fees 44,750 293,000
------------------ ------------------
Total Other Assets 135,456 373,794
------------------ ------------------
================== ==================
Total Assets $ 8,199,900 $ 8,338,234
================== ==================
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ 1,331,518 $ 905,889
Accrued Expenses 123,571 100,384
Accrued Taxes 38,063 34,685
Other Current Liabilities 39,747 57,311
Other Current Liabilities - Related Parties 44,000 49,883
------------------ ------------------
Total Current Liabilities 1,576,899 1,148,152
------------------ ------------------
Commitments And Contingencies
Stockholders' Equity:
Series A Preferred Stock - $.0001 Par Value,
500,000 Shares Authorized, 249,911 Shares Issued 25 25
Common Stock, $.0001 Par Value,
30,000,000 Shares Authorized, 8,472,000 Shares Issued 847 847
Additional Paid-In Capital 12,040,017 12,040,017
Accumulated Deficit (5,502,085) (4,919,790)
Cumulative Foreign Currency Translation Adjustment 84,197 68,983
------------------ ------------------
Total Stockholders' Equity 6,623,001 7,190,082
================== ==================
Total Liabilities and Stockholders' Equity $ 8,199,900 $ 8,338,234
================== ==================
</TABLE>
See accompanying notes to the consolidated financial statements
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APPLEWOODS, INC.
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CONSOLIDATED STATEMENT OF OPERATIONS
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(Unaudited)
Three Months Ended
September 30
---------------------------------------
1996 1995
---- ----
Revenues:
Product Sales $ 900,582 $ 617,978
Shopfitting Revenue 116,368 411,581
----------------- -----------------
Total Revenues 1,016,950 1,029,559
----------------- -----------------
Cost of Sales:
Product Sales 611,012 418,953
Shopfitting Revenue 32,272 203,516
----------------- -----------------
Total Cost of Sales: 643,284 622,469
----------------- -----------------
Gross Profit 373,666 407,090
Selling, General and Admin. Expenses 756,996 375,098
Consultancy Fees 248,250 -
----------------- -----------------
(Loss) Income from Operations: (631,580) 31,992
----------------- -----------------
Other Income (Expense):
Gain on Sale of Equipment - 3,495
Foreign Exchange (Loss)/Gain 12,461 -
Interest Income 36,824 -
Interest Expense - (76,009)
----------------- -----------------
Total Other Income (Expenses) 49,285 (72,514)
----------------- -----------------
(Loss) before Income Taxes (582,295) (40,522)
Provision for Income Taxes - -
----------------- -----------------
Net (Loss) $ (582,295) $ (40,522)
================= =================
Net (Loss) per share $ (0.07) $ (0.01)
================= =================
Weighted average number of shares 8,524,364 5,136,000
================= =================
See accompanying notes to the consolidated financial statements
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APPLEWOODS, INC.
- ---------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Cumulative
Foreign
Common Stock Series A Preferred Additional Currency Total
------------ ------------------ Paid-In Accumulated Translation Stockholders'
Shares Amount Shares Amount Capital Deficit Adjustments Equity
------ ------ ------ ------ ------- ------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - June 30 1996 8,472,000 $847 249,911 $25 $12,040,017 $(4,919,790) $68,983 $8,977,957
Foreign Currency Translation
Adjustment - - - - - - 15,214 15,214
Net Loss - - - - - (582,295) - (582,295)
------------------------------------------------------------------------------------------
Balance - Sepember 30 1996 8,472,000 $847 249,911 $25 $12,040,017 $(5,502,085) $84,197 $8,410,876
===========================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements
<PAGE>
APPLEWOODS, INC.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30
---------------------------------------
1996 1995
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss $ (582,295) $ (40,522)
Adjustment to Reconcile Net Loss to Net
Cash Used for Operating Activities
Depreciation 43,672 20,757
Amortization of Trademarks 7,519 5,373
(Gain) on Sale of Equipment - (3,495)
Imputed Interest - 17,809
Non-Cash Consulting Fees 240,000 -
Changes in Assets and Liabilities
Trade Accounts Receivable (24,957) (300,727)
Other Receivables (25,944) (26,324)
Inventory (1,194,956) 99,002
Other Current Assets (63,159) 20,085
Other Assets 8,250 -
Accounts Payable 425,629 (361,617)
Accrued Expenses 23,187 42,180
Accrued Taxes 3,378 (10,589)
Other Current Liabilities (17,564) 145,167
Other Current Liabilities - Related Parties (5,883) (10,136)
----------------- -----------------
Net Cash - Operating Activities (1,163,123) (403,037)
----------------- -----------------
Investing Activities
Proceeds from Sale of Equipment - 27,437
Purchase of Property and Equipment (304,362) (16,464)
Investment in Trademarks (16,660) -
----------------- -----------------
Net Cash - Investing Activities (321,022) 10,973
----------------- -----------------
Financing Activities
Payment of Lease Obligations - (19,329)
(Repayment of)/Proceeds from Cash Overdraft - 218
(Repayment of)/Proceeds from Short-Term Loans - 374,743
(Repayment of)/Proceeds from Related Party Loans - 33,426
----------------- -----------------
Net Cash - Financing Activities - 389,058
----------------- -----------------
----------------- -----------------
Effect of Exchange Rate Changes On Cash 11,022 3,006
----------------- -----------------
Net Decrease In Cash (1,473,123) -
Cash - Beginning of Period 3,958,168 -
----------------- -----------------
Cash - End of Period $ 2,485,045 $ -
================= =================
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest $ - $ 12,484
Income Taxes $ - $ -
</TABLE>
See accompanying notes to the consolidated financial statements
Page 5
APPLEWOODS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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(1) Significant Accounting Policies
Significant Accounting Policies of Applewoods Inc, (the "Company") are
set forth in the Company's Form 10-KSB as filed with the Securities and Exchange
Commission on October 15th, 1996.
(2) Basis of Reporting
The balance sheet as of September 30, 1996, the statements of
operations for the three months ended September 30, 1996 and 1995, the statement
of stockholders' equity for the three months ended September 30, 1996, and the
statements of cash flows for the three months ended September 30, 1996 and 1995
have been prepared by the Company without audit, The accompanying unaudited
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Regulation S-B. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company such
statements shall include all adjustments (consisting only of normal recurring
items) which are considered necessary for a fair presentation of the financial
position of the Company at September 30, 1996, and the results of its operations
and cash flows for the three months then ended. It is suggested that these
financial statements be read in conjunction with Form 10-KSB filed with the
Securities and Exchange Commission on October 15, 1996.
(3) Property, Plant & Equipment
Property, Plant & Equipment is comprised of the following:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------- --------
<S> <C> <C>
Plant & Machinery $ 670,280 $ 441,798
Office Equipment & Fittings 220,912 140,496
Motor Vehicles 37,126 36,900
----------- -----------
928,318 619,194
Less: Accumulated depreciation 239,985 194,972
------- --------
$688,333 $424,222
======== ========
<CAPTION>
(4) Trademarks
Trademarks is comprised of the following:
September 30, June 30,
1996 1996
------------- --------
<S> <C> <C>
Cost $ 167,589 $ 149,949
Less: Accumulated amortization 76,883 69,155
------ ------
$90,706 $80,794
======= =======
</TABLE>
Page 6
APPLEWOODS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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<TABLE>
<CAPTION>
(5) Inventory
Inventory is comprised of the following:
September 30, June 30,
1996 1996
------------- --------
<S> <C> <C>
Raw Materials $1,319,081 $ 856,893
Work in Progress 38,905 24,886
Finished Goods 1,579,036 860,287
-------------- ------------
$2,937,022 $1,742,066
========== ==========
</TABLE>
Page 7
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APPLEWOODS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Applewoods, Inc., a Delaware corporation, ("AI"), was formed in September
1995 to acquire all of the outstanding stock of Applewoods International Limited
("AIL"), a company registered in Great Britain. The acquisition was recorded as
a recapitalization of AIL, with AI as the acquirer. AI and AIL are collectively
referred to as the "the Company."
The business of the Company is the establishment of licensed retail
stores to sell "natural" soaps, toiletries and related gift products. The
Company manufactures both the products and the associated shopfittings at its
premises in Devon, England. During the past three years, the Company has pursued
an active policy of developing original product lines in-house and sourcing
accessory products from around the world. This is essential to provide a
sufficient range and variety of products to make the stores successful. It is
anticipated that this range development will continue for the forseeable future.
The Company has recently exhibited at major trade shows in the USA,
Canada, Europe and South America where management met with its existing and
potential licensees in order to secure new operators of Applewoods retail
stores.
The year ended June 1996 was dominated by the activity surrounding the
public offering. This was declared effective on April 10, 1996. The funds raised
give the Company the ability to develop its products and bring them to market as
rapidly as it is able. Historically the performance of the Company has been
greatly hampered by the lack of financial resources. The Company believes that
it now has the products and resources to become successful in the retail
cosmetics market.
Page 8
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APPLEWOODS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three months ended September 30, 1996 compared to three months ended September
30, 1995
The Company's revenues are generated from the initial fee charged to its
retail store licensees for the design and fixturing of the retail space and from
the sale of products to these licensees. For the three months ended September
30, 1996, total revenues decreased by 1.2%. Within this, product sales increased
by 45.7% over the previous year, essentially due to the increased number of
shops. At September 1996, the Company had 52 shops operating compared with 34 at
September 1995. Shopfitting revenue, however, decreased by 71.7%. This was
partly due to time needed to bring shop projects to realisation following the
standstill in activity in the period leading upto the public offering and partly
to the inclusion in the 1995 quarter of a particularly large package of three
stores for the same customer.
The gross profit percentage for the three months ended September 30,
1996 declined from 39% to 37%. This was a result of the lack of activity in
shopfitting where the margin percentage is higher than that generated by product
sales; product sales gross margin remained consistent at 32%.
Selling, general and administrative expenses increased to some $757,000
this year from some $375,000 in the previous year.. The major element within
this was the increase in sales promotion, travel and product development, which
all relate to the increased efforts by the Company to develop the worldwide
market for its products.
The Company also recognized $240,000 of noncash consulting expense
related to two new consulting agreements which commenced in October 1995.
Interest income at some $37,000 this year replaced Interest expense of
$76,000 last year. This was due to the effect of the public offering in April
1996 which replaced the bank borrowings and other loans with a cash surplus.
It should be noted that there remains a further $960,000 of noncash
consulting fee expense which will be recognized over the next four quarters.
Page 9
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APPLEWOODS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
At September 30, 1996, the Company had working capital of $5,800,000
including cash and cash equivalents of $2,485,000.
During the quarter, the Company used cash of approximately $1,163,000 to
fund operations. Contributing to this use of cash was a net loss for the period,
before noncash consulting items of some $294,000, and an increase in inventory
of $1,195,000. Net cash used in investing activities increased to $321,000 due
to the purchase in the period of new machinery to automate the production
process.
Currently, the Company does not expect to spend significant further sums
on capital expenditure in 1996/97. The Company believes that existing bank
balances and cash flow from operations will be sufficient to meet its funding
requirements for the forseeable future.
Impact of Inflation
Inflation has not been a major factor in the Company's business since
inception. There can be no assurances that this will continue.
Seasonality
The Company experiences considerable seasonal fluctuation in its
quarterly results due to the pre-Christmas retail sales period. In the last two
years, an average of 39% of annual product sales were generated in the October
to December quarter. Quarterly results should therefore be viewed in the context
of the above.
Page 10
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PART II - OTHER INFORMATION
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Item 6. Exhibits and reports on Form 8-K
(a) Exhibits as required by Item 601 of Regulation S-K:
None Required.
(b) Reports on Form 8-K
None filed during the quarter for which this form is submitted.
Page 11
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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.
APPLEWOODS, INC.
Date: November 13, 1996
By: /s/ Roger Buoy
------------------------------------
Roger Buoy,
Chairman and Chief Executive Officer
Page 12
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<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
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0
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