<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 the period ended September 30, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number : 0 - 27850
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 October 20, 1997
- ------------------- -------------------------------
Common Stock 8,472,000
<PAGE>
APPLEWOODS, INC.
- -------------------------------------------------------------------------------
INDEX
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PART 1: FINANCIAL INFORMATION Page:
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet as of September 30, 1997 and June 30, 1997 2
Condensed Consolidated Statements of Operations for the three months ended
September 30, 1997 and 1996 3
Condensed Consolidated Statement of Stockholders' Equity for the three months ended
September 30, 1997 4
Condensed Consolidated Statements of Cash Flows for the three months ended
September 30, 1997 and 1996 5
Notes to Condensed Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8 - 9
PART II: OTHER INFORMATION:
Item 6. Exhibits & Reports on Form 8-K 10
Signatures 11
</TABLE>
Page 1
<PAGE>
APPLEWOODS, INC.
- -------------------------------------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
September 30 June 30
--------------------------------
1997 1997
------------ ------------
(Unaudited) *
<S> <C> <C>
Assets:
Current Assets:
Cash $ 646,175 $ 787,367
Trade Accounts Receivable, net of allowance 1,894,610 1,101,706
for doubtful accounts of $ 40,989 and $39,519, respectively
Other Receivables 73,895 96,301
Inventory 2,829,710 2,721,295
Other Current Assets 60,196 56,110
------------ ------------
Total Current Assets 5,504,586 4,762,779
------------ ------------
------------ ------------
Property, Plant and Equipment-Net 627,384 671,865
------------ ------------
Other Assets
------------ ------------
Trademarks - Net 93,920 104,560
------------ ------------
============ ============
Total Assets $ 6,225,890 $ 5,539,204
============ ============
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable $ 1,538,893 $ 941,747
Accrued Expenses 681,426 426,384
Accrued Taxes 58,675 62,911
Other Current Liabilities 32,517 24,928
Other Current Liabilities - Related Parties 39,004 40,214
------------ ------------
Total Current Liabilities 2,350,515 1,496,184
------------ ------------
Stockholders' Equity:
Series A Preferred Stock - $.0001 Par Value,
500,000 Shares Authorized, 243,911 and 249,911 Shares Issued and
and Outstanding, respectively 24 25
Common Stock, $.0001 Par Value,
30,000,000 Shares Authorized, 8,472,000 Shares Issued and Outstanding 847 847
Additional Paid-In Capital 12,010,018 12,040,017
Accumulated Deficit (8,332,615) (8,232,366)
Cumulative Foreign Currency Translation Adjustment 197,101 234,497
------------ ------------
Total Stockholders' Equity 3,875,375 4,043,020
============ ============
Total Liabilities and Stockholders' Equity $ 6,225,890 $ 5,539,204
============ ============
</TABLE>
* The Balance Sheet at June 30, 1997 is derived from the audited financial
statements at that date, but does not include all the information required by
generally accepted accounting principles for complete financial statements.
See accompanying notes to the consolidated financial statements
Page 2
<PAGE>
APPLEWOODS, INC.
- -------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30
------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Product Sales $ 1,919,232 $ 900,582
Storefitting and License Revenue 741,307 116,368
----------- -----------
Total Revenues 2,660,539 1,016,950
----------- -----------
Cost of Sales:
Product Sales 1,129,039 611,012
Storefitting and License Revenue 587,719 32,272
----------- -----------
Total Cost of Sales: 1,716,758 643,284
----------- -----------
Gross Profit 943,781 373,666
Selling, General and Admin. Expenses 974,218 756,996
Consultancy Fees -- 248,250
----------- -----------
Loss from Operations: (30,437) (631,580)
----------- -----------
Other Income (Expense):
Foreign Exchange (Loss) Gain (71,225) 12,461
Interest Income 1,413 36,824
----------- -----------
Total Other (Expense) Income (69,812) 49,285
----------- -----------
Loss before Income Taxes (100,249) (582,295)
Provision for Income Taxes -- --
----------- -----------
=========== ===========
Net Loss $ (100,249) $ (582,295)
=========== ===========
Net Loss per share $ (0.01) $ (0.07)
=========== ===========
Weighted average number of shares 8,472,000 8,524,364
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements
Page 3
<PAGE>
APPLEWOODS, INC.
- -------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Series A Preferred
------------------------------- --------------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance - June 30, 1997 8,472,000 $ 847 249,911 $ 25
Foreign Currency Translation Adjustment -- -- -- --
Repurchase of stock -- -- (6,000) (1)
Net Loss -- -- -- --
----------------------------------------------------------------------
Balance - September 30, 1997 8,472,000 $ 847 243,911 $ 24
======================================================================
<CAPTION>
Foreign
Additional Currency Total
Paid-In Accumulated Translation Stockholders'
Capital Deficit Adjustments Equity
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance - June 30, 1997 $ 12,040,017 $ (8,232,366) $ 234,497 $ 4,043,020
Foreign Currency Translation Adjustment -- -- (37,396) (37,396)
Repurchase of stock (29,999) -- -- (30,000)
Net Loss -- (100,249) -- (100,249)
------------------------------------------------------------------------
Balance - September 30, 1997 $ 12,010,018 $ (8,332,615) $ 197,101 $ 3,875,375
========================================================================
</TABLE>
See accompanying notes to the consolidated financial statements
Page 4
<PAGE>
APPLEWOODS, INC.
- -------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30
------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss $ (100,249) $ (582,295)
Adjustment to Reconcile Net Loss to Net
Cash Used for Operating Activities
Depreciation 72,163 43,672
Amortization of Trademarks 11,081 7,519
Non-Cash Consulting Fees -- 240,000
Changes in Assets and Liabilities
Trade Accounts Receivable (792,904) (24,957)
Other Receivables 22,406 (25,944)
Inventory (108,415) (1,194,956)
Other Current Assets (4,086) (63,159)
Other Assets -- 8,250
Accounts Payable 597,146 425,629
Accrued Expenses 255,043 23,187
Accrued Taxes (4,236) 3,378
Other Current Liabilities 7,589 (17,564)
Other Current Liabilities - Related Parties (1,210) (5,883)
----------- -----------
Net Cash - Operating Activities (45,672) (1,163,123)
----------- -----------
Investing Activities
Purchase of Property and Equipment (47,746) (304,362)
Investment in Trademarks (4,726) (16,660)
----------- -----------
Net Cash - Investing Activities (52,472) (321,022)
----------- -----------
Financing Activities
----------- -----------
Preferred Stock Repurchase (30,000) --
----------- -----------
----------- -----------
Effect of Exchange Rate Changes On Cash (13,048) 11,022
----------- -----------
Net Decrease In Cash (141,192) (1,473,123)
Cash - Beginning of Period 787,367 3,958,168
=========== ===========
Cash - End of Period $ 646,175 $ 2,485,045
=========== ===========
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest $ -- $ --
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 Annual Report on Form 10-KSB for the year ended June
30, 1997 ( the "Company's Form 10-KSB") as filed with the Securities and
Exchange Commission on October 14, 1997.
(2) Basis of Preparing Unaudited Condensed Financial Statements
The Company incurred net losses of $3,312,576 and $2,315,074 and net
cash outflows from operations of $2,718,693 and $1,888,676 in the years ended
June 30, 1997 and 1996, respectively. For the three months ended September 30,
1997 and 1996, the Company incurred net losses of $100,249 and $582,295 and net
cash outflows of $141,192 and $1,473,123, respectively. Management has prepared
projected cash flow information for the period ending September 30, 1998. On the
basis of these projections, management considers that the Company may be able to
continue to operate through that date without the need for credit facilities.
However, these projections are estimates of future performance over which no
assurances can be given by the Company. While no credit facilities are currently
in place, the Company has investigated the availability of additional funds and
believes that it will be able to obtain sufficient financing should the need
arise. Accordingly, the financial statements have been prepared on a going
concern basis and do not include any adjustments that might result from the
outcome of this uncertainty.
(3) Basis of Reporting
The accompanying unaudited condensed 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 management, all adjustments (consisting only
of normal recurring items) which are considered necessary for a fair
presentation have been included. These financial statements must be read in
conjunction with the Company's Form 10-KSB. The operating results for the three
months ended September 30, 1997 are not necessarily indicative of the results
that may be expected for the year ending June 30, 1998.
(4) Property, Plant & Equipment
Property, Plant & Equipment is comprised of the following:
September 30, June 30,
1997 1997
---------- ----------
Plant & Machinery $ 689,841 $ 695,058
Office Equipment & Fittings 475,727 457,786
Motor Vehicles 38,334 39,524
---------- ----------
1,203,902 1,192,368
Less: Accumulated depreciation 576,518 520,503
---------- ----------
$ 627,384 $ 671,865
========== ==========
Page 6
<PAGE>
APPLEWOODS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- -------------------------------------------------------------------------------
(5) Trademarks
Trademarks is comprised of the following:
September 30, June 30,
1997 1997
-------- --------
Cost $212,821 $214,587
Less: Accumulated amortization 118,901 110,027
-------- --------
$ 93,920 $104,560
======== ========
(6) Inventory
Inventory is comprised of the following:
September 30, June 30,
1997 1997
---------- ----------
Raw Materials $1,279,057 $1,046,084
Work in Progress 108,132 134,878
Finished Goods 1,442,521 1,540,333
---------- ----------
$2,829,710 $2,721,295
========== ==========
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 acquirer.
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 storefittings 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.
This Form 10-QSB contains forward looking information that is subject to
certain risks, trends and uncertainties that could cause actual results to
differ materially from those projected.
Results of Operations
Three months ended September 30, 1997 compared to three months ended
September 30, 1996
The Company's revenues are generated from the sale of products to
licensees and distributors, and an initial license fee charged for all necessary
construction items and services that include the design and fixturing of the
retail space. Total revenues for the three months increased by 162% over the
previous year. Within this, product sales increased by 113% over the previous
year, essentially due to the increased number and quality of retail stores. At
September 30, 1997, the Company had 74 licensed shops operating compared with 52
at September 30, 1996. Storefitting and license revenue increased by 537%. This
increase in storefitting and license revenue is enhanced by the Company's policy
of recognizing part of the total revenue arising from the opening of a store,
upon the receipt of a deposit. In the three months to September 30, 1997, the
Company received significantly more deposits for new stores, compared with the
three months to September 30, 1996.
The gross profit percentage for the three months to September 30, 1997
declined from 37% to 35%. Product margin increased from 32% to 41% in 1997. The
margin generated by storefitting and license revenue decreased to 21%. This is
because profit is only recognized upon the installation of a store, and revenue
for the three months to September 30, 1997 includes, as discussed above, more
deposits for new store openings than in 1996. The proportional increase in the
number of deposits, upon which no profit is reported, to installations in 1997,
has had the effect of diluting the total storefitting margin as a percentage of
storefitting revenue.
Selling, general and administrative expenses increased by 29% to
approximately $974,000 this year from approximately $757,000 in the previous
year. The major element of this was the increase in sales promotion, travel and
product development, which all relates to the increased efforts by the Company
to develop the worldwide market for its products.
The Company suffered from a foreign exchange loss of $71,225 compared
with a gain in 1996 of $12,461. This was a result of the pound sterling
weakening against the US dollar through the quarter. Interest income of $1,413
has declined from $36,824 in 1996, because the Company is holding a lower level
of cash.
Page 8
<PAGE>
APPLEWOODS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
At September 30, 1997, the Company had working capital of approximately
$3,154,000, including cash of approximately $646,000.
During the three months to September 30, 1997, the Company used cash of
approximately $46,000 to fund operations. Contributing to this use of cash was a
loss from operations of approximately $17,000, an increase in inventory of
approximately $108,000, and an increase in the Company's accounts receivable of
approximately $793,000. Accounts payable and accrued expenses increased by
approximately $852,000. Net cash used in investing activities increased to
$52,000 mainly due to the establishment of a Company seconds outlet store. The
Company did not have any significant capital commitments at September 30, 1997.
The Company's financial statements have been prepared on a going concern
basis because management believes, based on cash flow projections through
September 30, 1998 the Company may be able to continue through that date without
the need for credit facilities.
The Company is presently investigating various sources of credit should
they be needed to meet cash flow requirements caused by the continuing growth of
the Company and seasonal fluctuations in sales revenue. It believes that
existing bank balances, cash flow from operations and borrowing facilities,
which are currently under negotiation, will be sufficient to meet its
requirements for the foreseeable 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 34% of annual product sales were generated in the October
to December quarter. Quarterly results should therefore be viewed in this
context.
Page 9
<PAGE>
PART II - OTHER INFORMATION
- -------------------------------------------------------------------------------
Item 1. Legal Proceedings
The Company has been named in an action Mott v. Sterling Foster & Co., et al.,
(United States District Court, District of South Carolina) along with various
other defendants. The complaint against the Company contains allegations of
violations of state and federal securities laws and common law fraud and
negligence arising out of the Aril 1996 initial public offering of 2,760,000
shares of Company common stock. According to the complaint, the underwriter of
the offering, Sterling Foster & Co., Inc. employed improper sales tactics and
manipulated secondary market trading in shares of the Company's common stock
following the offering . The complaint seeks unspecified damages. The Company
and its officers and directors deny the allegations in the complaint and are
vigorously defending this action.
A motion for summary judgement was granted dismissing the complaint against the
Company in October 1997.
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 10
<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 authorized.
APPLEWOODS, INC.
Date: October 20, 1997
By: /s/ Roger M. Buoy
------------------------------------
Roger M. Buoy,
Chairman and Chief Executive Officer
Page 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL QUARTER TO SEPTEMBER
30, 1997 AS PRESENTED IN THE COMPANY'S FORM 10-Q FOR SUCH PERIOD AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 646,175
<SECURITIES> 0
<RECEIVABLES> 1,935,599
<ALLOWANCES> 40,989
<INVENTORY> 2,829,710
<CURRENT-ASSETS> 5,504,586
<PP&E> 1,203,902
<DEPRECIATION> 576,518
<TOTAL-ASSETS> 6,225,890
<CURRENT-LIABILITIES> 2,350,515
<BONDS> 0
0
24
<COMMON> 847
<OTHER-SE> 3,874,504
<TOTAL-LIABILITY-AND-EQUITY> 6,225,890
<SALES> 2,660,539
<TOTAL-REVENUES> 2,660,539
<CGS> 1,716,758
<TOTAL-COSTS> 2,690,976
<OTHER-EXPENSES> 69,812
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (100,249)
<INCOME-TAX> 0
<INCOME-CONTINUING> (100,249)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (100,249)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0
</TABLE>
