<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 December 31, 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 Identification Number)
incorporation or organization)
274 Riverside Avenue
Westport, Connecticut
(Address of principal executive offices)
06880
(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 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 February 12, 1997
------------ --------------------------------
Common Stock 8,472,000
<PAGE>
APPLEWOODS, INC.
- -------------------------------------------------------------------------------
INDEX
- -------------------------------------------------------------------------------
PART 1: FINANCIAL INFORMATION Page:
Item 1. Financial Statements:
Balance Sheet as of December 31, 1996 and June 30, 1996 2
Statements of Operations for the three months and six months
ended December 31, 1996 and 1995 3
Statement of Stockholders Equity for the six months ended
December 31, 1996 4
Statements of Cash Flows for the six months ended
December 31, 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 4. Submission of matters to a vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits & Reports on Form 8-K 11
Signatures 12
Page 1
<PAGE>
APPLEWOODS, INC.
- -------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
December 31 June 30
--------------------------------------------
1996 1996
(Unaudited)
<S> <C> <C>
Assets:
Current Assets:
Cash $ 1,756,585 $ 3,958,168
Trade Accounts Receivable, net of allowance 1,399,679 673,689
for doubtful accounts of $ 112,338 and $97,538 respectively
Other Receivables 83,766 108,118
Inventory 3,089,515 1,742,066
Prepaid Consultancy Fees 753,000 993,000
Other Current Assets 180,783 65,177
------------------ --------------
Total Current Assets 7,263,328 7,540,218
------------------ --------------
------------------ --------------
Property, Plant and Equipment - Net 748,091 424,222
------------------ --------------
Other Assets
Trademarks - Net 103,945 80,794
Prepaid Consultancy Fees 36,500 293,000
------------------ --------------
Total Other Assets 140,445 373,794
------------------ --------------
------------------ --------------
Total Assets $ 8,151,864 $ 8,338,234
================== ==============
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ 1,301,985 $ 905,889
Accrued Expenses 202,441 100,384
Accrued Taxes 42,544 34,685
Other Current Liabilities 149,558 57,311
Other Current Liabilities - Related Parties 41,353 49,883
------------------ --------------
Total Current Liabilities 1,737,881 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 (5,938,030) (4,919,790)
Cumulative Foreign Currency Translation Adjustment 311,124 68,983
------------------ --------------
Total Stockholders' Equity 6,413,983 7,190,082
------------------ --------------
Total Liabilities and Stockholders' Equity $ 8,151,864 $ 8,338,234
================== ==============
</TABLE>
See accompanying notes to the consolidated financial statements
Page 2
<PAGE>
APPLEWOODS, INC.
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
------------------------------------------ -------------------------------------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Product Sales $ 1,590,118 $ 1,173,217 $ 2,490,700 $ 1,791,195
Shopfitting Revenue 385,944 165,016 502,312 576,597
------------ ------------ ------------------ --------------
Total Revenues 1,976,062 1,338,233 2,993,012 2,367,792
------------ ------------ ------------------ --------------
Cost of Sales:
Product Sales 1,179,026 725,526 1,790,038 1,144,479
Shopfitting Revenue 318,071 142,149 350,343 345,665
------------ ------------ ------------------ --------------
Total Cost of Sales: 1,497,097 867,675 2,140,381 1,490,144
------------ ------------ ------------------ --------------
Gross Profit 478,965 470,558 852,631 877,648
Selling, General and Admin.
Expenses 825,250 671,441 1,582,246 1,046,539
Consultancy Fees 248,250 - 496,500 -
------------ ------------ ------------------ --------------
(Loss) from Operations: (594,535) (200,883) (1,226,115) (168,891)
------------ ------------ ------------------ --------------
Other Income (Expense):
Gain on Sale of Equipment 0 1,593 0 5,088
Foreign Exchange Gain 136,433 - 148,894 -
Interest Income 22,157 - 58,981 -
Interest Expense 0 (85,601) 0 (161,610)
------------ ------------ ------------------ --------------
Total Other Income
(Expense) 158,590 (84,008) 207,875 (156,522)
------------ ------------ ------------------ --------------
(Loss) before Income Taxes (435,945) (284,891) (1,018,240) (325,413)
Provision for Income Taxes - - - -
------------ ------------ ------------------ --------------
Net (Loss) $ (435,945) $ (284,891) $ (1,018,240) $ (325,413)
============ ============ ================== ==============
Net (Loss) per share $ (0.05) $ (0.07) $ (0.12) $ (0.13)
============ ============ ================== ==============
Weighted average number of
shares 8,524,364 3,852,000 8,524,364 2,568,000
============ ============ ================== ==============
</TABLE>
See accompanying notes to the consolidated financial statements
Page 3
<PAGE>
APPLEWOODS, INC.
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Foreign
Additional Currency Total
Common Stock Series A Preferred 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 $7,190,082
Foreign Currency
Translation Adjustment - - - - - - 242,141 242,141
Net Loss - - - - - (1,018,240) - (1,018,240)
---------------------------------------------------------------------------------------------------
Balance - December 31, 1996 8,472,000 $847 249,911 $25 $12,040,017 $(5,938,030) $311,124 $6,413,983
===================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements
Page 4
<PAGE>
APPLEWOODS, INC.
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31
--------------------------------------------
1996 1995
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss $ (1,018,240) $ (325,413)
Adjustment to Reconcile Net Loss to Net
Cash Used for Operating Activities
Depreciation 132,005 41,991
Amortization of Trademarks 15,420 10,827
(Gain) on Sale of Equipment - (5,088)
Imputed Interest - 35,444
Non-Cash Consulting Fees 480,000 240,000
Changes in Assets and Liabilities
Trade Accounts Receivable (725,990) (648,904)
Other Receivables 24,352 (43,045)
Inventory (1,347,449) (11,232)
Other Current Assets (107,356) (32,158)
Other Assets 8,250 -
Accounts Payable 396,096 (86,207)
Accrued Expenses 102,057 157,711
Accrued Taxes 7,859 24,138
Other Current Liabilities 92,247 180,925
Other Current Liabilities - Related Parties (8,530) (45,002)
-------------- ------------
Net Cash - Operating Activities (1,949,279) (506,013)
-------------- ------------
Investing Activities
Proceeds from Sale of Equipment - 21,433
Purchase of Property and Equipment (394,286) (44,314)
Investment in Trademarks (25,678) (7,225)
-------------- ------------
Net Cash - Investing Activities (419,964) (30,106)
-------------- ------------
Financing Activities
Payment of Lease Obligations - (43,838)
(Repayment of)/Proceeds from Cash Overdraft - 13,763
(Repayment of)/Proceeds from Short-Term Loans - 500,000
(Repayment of)/Proceeds from Related Party Loans - 75,083
-------------- ------------
Net Cash - Financing Activities - 545,008
-------------- ------------
-------------- ------------
Effect of Exchange Rate Changes On Cash 167,660 (8,889)
-------------- ------------
Net Decrease In Cash (2,201,583) -
Cash - Beginning of Period 3,958,168 -
-------------- ------------
Cash - End of Period $ 1,756,585 $ -
============== ============
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest $ - $ 26,903
Income Taxes $ - $ -
</TABLE>
See accompanying notes to the consolidated financial statements
Page 5
<PAGE>
APPLEWOODS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- ---------------------------------------------------------------------
(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 15, 1996.
(2) Basis of Reporting
The balance sheet as of December 31, 1996, the statements of operations
for the three months and six months ended December 31, 1996 and 1995, the
statement of stockholders' equity for the six months ended December 31, 1996,
and the statements of cash flows for the six months ended December 31, 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 December 31, 1996, and the results of its operations
and cash flows for the six 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:
December 31, June 30,
1996 1996
------------ ---------
Plant & Machinery $701,195 $ 441,798
Office Equipment & Fittings 362,348 140,496
Motor Vehicles 40,642 36,900
--------- ---------
1,104,185 619,194
Less: Accumulated depreciation 356,094 194,972
--------- ---------
$748,091 $424,222
========= =========
(4) Trademarks
Trademarks is comprised of the following:
December 31, June 30,
1996 1996
------------ ---------
Cost $ 192,654 $ 149,949
Less: Accumulated amortisation 88,709 69,155
--------- ---------
$103,945 $80,794
========= =========
Page 6
<PAGE>
APPLEWOODS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- ---------------------------------------------------------------------
(5) Inventory
Inventory is comprised of the following:
December 31, June 30,
1996 1996
------------ ---------
Raw Materials $1,429,603 $ 856,893
Work in Progress 7,735 24,886
Finished Goods 1,652,177 860,287
--------- ---------
$3,089,515 $1,742,066
========== ==========
Page 7
<PAGE>
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 acquiror. AI and AIL are collectively
referred to as 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 foreseeable
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 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.
This Form 10Q contains forward looking information that is subject to
certain risks, trends and uncertainties that could cause actual results to
differ materially from those projected.
Three months ended December 31, 1996 compared to three months ended
December 31, 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 December 31,
1996, total revenues increased by 47.7%. Within this, product sales increased by
35.5% over the previous year, essentially due to the increased number of shops.
At December 1996, the Company had 61 shops operating compared with 34 at
December 1995. Shopfitting revenue increased by 133.9%.
The gross profit percentage for the three months ended December 31, 1996
declined from 35% to 24%. This was largely a result of the promotion cost of new
products, in particular the Florilegium gift range, into the market. Selling,
general and administrative expenses increased to approximately $825,000 this
year from approximately $671,000 in the previous year. The major element within
this was again 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 approximately $22,000 this year replaced interest expense of
$86,000 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. A
foreign exchange gain has been recognized as a result of the strength of the
Pound Sterling at the quarter end; at December 31, 1996 the Pound Sterling
exchanged for 1.711 U.S. Dollars, while at September 30, 1996 the rate
was 1.563.
It should be noted that there remains a further $720,000 of noncash
consulting fee expense to be expensed as at December 31, 1996.
Page 8
<PAGE>
APPLEWOODS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six months ended December 31, 1996 compared to six months ended
December 31, 1995
For the six months ended December 31, 1996, total revenues increased by
26.4%. Within this, product sales increased by 39.1% over the previous year,
essentially due to the increased number of shops. At December 1996, the Company
had 61 shops operating compared with 44 at December 1995. Shopfitting revenue
decreased by 12.9% compared to the previous year partly because of the
standstill in activity in the first quarter following the public offering and
partly because of the inclusion in the 1995 first fiscal quarter of a
particularly large package of three stores for the same customer.
The gross profit percentage for the six months ended December 31, 1996
declined from 37% to 28%. This was largely a result of the promotion cost of new
products into the market in the second quarter, and the low activity in
shopfitting in the first quarter. Selling, general and administrative expenses
increased to approximately $1,582,000 this year from approximately $1,046,000 in
the previous year. The major element within this was again 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 $480,000 of noncash consulting expense
related to two new consulting agreements which commenced in October 1995.
Interest income at approximately $59,000 this year replaced interest expense of
$162,000 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. A
foreign exchange gain has been recognized as a result of the strength of the
Pound Sterling at the quarter end; at December 31, 1996 the Pound Sterling
exchanged for 1.711 U.S. Dollars, while at June 30, 1996 the rate was 1.554.
It should be noted that there remains a further $720,000 of noncash
consulting fee to be expensed as at December 31, 1996.
Liquidity and Capital Resources
At December 31, 1996, the Company had working capital of $5,526,000
including cash and cash equivalents of $1,757,000. The 10% variation in the
Pound Sterling/U.S. Dollar exchange rate is relevant in comparing Net Asset
values, which mainly originate in Pounds Sterling, at the Balance Sheet dates.
During the six months to December 31, 1996, the Company used cash of
approximately $1,949,000 to fund operations. Contributing to this use of cash
was a net loss for the period, before noncash items of some $391,000, an
increase in inventory of $1,347,000 and an increase in the Company's accounts
receivable of approximately $726,000. Net cash used in investing activities was
$420,000; this was mainly spent in the first fiscal quarter on 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 foreseeable future.
Page 9
<PAGE>
APPLEWOODS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a vote of Security Holders
On November 5, 1996, the Company held its Annual Meeting of Stockholders where
the stockholders of the Company elected the Board of Directors as follows:
Nominee Votes for Votes against
Roger M. Buoy 4,537,871 37,600
Tony E. Swash 4,537,871 37,600
Josh Gaspero 4,537,871 37,600
Sherman A. Drusin 4,537,871 37,600
The stockholders also ratified the appointment of Price Waterhouse LLP as the
Company's independent certified public accountants (4,529,971 votes in favour,
36,400 votes against and 9,100 votes abstaining).
Item 5. Other Information (Subsequent Event)
On February 3, 1997, the Company, through its subsidiary, Applewoods
International Limited, entered into an agreement with QVC Inc., the direct
response television organisation based in the United States pursuant to which
the Company granted QVC (i) the exclusive right to promote the Company's
products by direct response television in the USA, (ii) the non-exclusive right
to promote the Company's products by direct mail and retail distribution in the
retail stores of QVC or its affiliates, and (iii) the right of first refusal to
promote the Company's products by direct response television outside of the USA
(other than in areas where existing franchisees have rights prohibiting such
promotion). The initial term of the Agreement is for two (2) years, renewable
for successive two (2) year periods.
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
<PAGE>
SIGNATURES
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 authorised.
APPLEWOODS, INC.
Date: February 12, 1997
By: /s/ Roger Buoy
-----------------------------------
Roger Buoy,
Chairman and Chief Executive Officer
Page 12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,756,585
<SECURITIES> 0
<RECEIVABLES> 1,512,017
<ALLOWANCES> 112,338
<INVENTORY> 3,089,515
<CURRENT-ASSETS> 7,263,328
<PP&E> 1,104,185
<DEPRECIATION> 356,094
<TOTAL-ASSETS> 8,151,864
<CURRENT-LIABILITIES> 1,737,881
<BONDS> 0
0
25
<COMMON> 847
<OTHER-SE> 6,413,111
<TOTAL-LIABILITY-AND-EQUITY> 8,151,864
<SALES> 2,993,012
<TOTAL-REVENUES> 2,993,012
<CGS> 2,140,381
<TOTAL-COSTS> 4,219,127
<OTHER-EXPENSES> 207,875
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,018,240)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,018,240)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,018,240)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> 0
</TABLE>
