SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.20549
FORM 1O-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended: September 30, 2000
Commission File No. 000-27237
HAND BRAND DISTRIBUTION, INC.
(Exact name of small business issuer in its charter)
Florida 66-0622463
(State of Incorporation) (IRS Employer Identification No.)
9845 N.E. 2nd Avenue
Miami Shores, FL 33138
(Address of principal executive offices)
(305) 759-8710
Issuer's Telephone No.
Check 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 past 12
months (or such shorter period that the Registrant was required to file such
reports); and, (2) has been subject to such filing requirements for the past
90 days.
Yes X No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 2,538,600 shares of common
stock, as of November 14, 2000.
Transitional Small Business Disclosure Format: No
PART I- FINANCIAL INFORMATION
Item 1. Financial Statements
Registrant's Financial Statements are filed herewith following the signature
page.
Item 2. Management's Discussion and Analysis or Plan of Operation - filed
following the financial statements
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
1. Exhibits
Exhibit 27. Financial Data Schedule
2. Exhibits
<PAGE>
HAND BRAND DISTRIBUTION, INC.
FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
Page No.
Balance Sheets - September 30, 2000 (Unaudited) and
December 31, 1999 (Audited) 2
Statements of Income - For the Three Months and
Nine Months Ended September 30, 2000 and 1999 (Unaudited) 4
Statement of Changes in Stockholders' Equity -
For the Nine Months Ended September 30, 2000 (Unaudited) 5
Statements of Cash Flows - For the Nine Months
Ended September 30, 2000 and 1999 (Unaudited) 6
Notes to Financial Statements 8
<PAGE>
HAND BRAND DISTRIBUTION, INC.
BALANCE SHEETS
SEPTEMBER 30, 2000 (Unaudited) AND DECEMBER 31, 1999 (Audited)
September 30, December 31,
2000 1999
(Unaudited) (Audited)
Current assets
Cash $1,663 $24,070
Accounts receivable (net of allowance for
doubtful accounts of $643 and $ 2,282 ) 16,387 11,974
Inventory 152,689 161,127
Employee advances -
Other current assets 6,346 5,600
------- -------
Total current assets 177,085 202,771
Fixed assets (net of accumulated depreciation
of $ 74,236 and $ 58,823) 120,586 135,999
Other assets
Deposits 2,025 2,025
Goodwill and trademarks (net of accumulated
amortization $ 53,635 and $43,283) 153,404 163,756
Deferred tax asset 6,711 6,711
Other assets 1,960 1,960
------- -------
164,100 174,452
------- -------
$461,771 $513,222
======= =======
<PAGE>
HAND BRAND DISTRIBUTION, INC.
BALANCE SHEETS
SEPTEMBER 30, 2000 (Unaudited) AND DECEMBER 31, 1999 (Audited)
September 30, December 31,
2000 1999
(Unaudited) (Audited)
Current liabilities
Accounts payable $48,895 $14,408
Sales tax payable 17 498
Accrued interest payable 8,600
Note payable, current portion 19,761 19,419
------- -------
Total current liabilities 77,273 34,325
Long term liabilities
Notes payable, less current portion of $19,761 237,401 212,472
Shareholders' equity
Common stock $.002 par value, authorized
12,500,000 shares; issued and outstanding:
2,536,600 and 2,524,100 shares 5,073 5,048
Additional paid in capital 787,877 738,202
Retained deficit (645,853) (476,825)
------- -------
147,097 266,425
------- -------
$461,771 $513,222
======= =======
<PAGE>
HAND BRAND DISTRIBUTION, INC.
STATEMENTS OF INCOME
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
For the period ended September 30
Three months Nine months
2000 1999 2000 1999
Income
Sales net of returns $46,234 $55,902 $188,338 $221,812
Cost of sales 23,612 30,779 68,673 103,343
------ ------ ------- -------
Gross profit 22,622 25,123 119,665 118,469
Expenses
General and administrative expenses 31,191 70,990 235,348 218,433
Printing and publications 4,862 - 14,567 2,047
Interest expense 8,777 13,013
Gain on transfer of assets (69,248) (69,248)
Depreciation and amortization 8,780 8,661 25,765 25,608
------ ------ ------- -------
53,610 10,403 288,693 176,840
------ ------ ------- -------
Net income (loss) for continuing
operations (30,987) 14,720 (169,028) (58,371)
Extraordinary items
Gain on debt restructure 63,186 63,186
------ ------ ------- -------
Net income (loss) $(30,987) $77,906 $(169,028) $4,815
------ ------ ------- -------
Earning per share
Net income (loss) per common share $(0.01) $0.01 $(0.07) $0.002
------ ------ ------- -------
<PAGE>
HAND BRAND DISTRIBUTION, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Unaudited)
For the nine months
ended September 30,
2000 1999
Cash flows from operating activities:
Net income (loss) $(169,028) $4,815
------- ------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 25,765 25,608
Gain on transfer of asset (54,146)
Gain on debt restructure (63,186)
(Increase) decrease in accounts receivable (4,413) (5,390)
(Increase) decrease in inventories 8,438 2,799
(Increase) in other assets (746)
Increase (decrease) in accounts payable
and accrued liabilities 34,006 (10,506)
Increase in accrued interest payable 8,600 -
------- ------
Total adjustments 71,650 (104,821)
------- ------
Net cash used by operating activities (97,378) (100,006)
------- ------
Cash flows from investing activities:
Cash payments for the purchase of property (3,461)
------- ------
Net cash used by investing activities - (3,461)
------- ------
Cash flows from financing activities:
Proceeds from issuance of common stock 49,700 371,750
Proceeds from issuance of callable debenture 20,000
Proceeds from issuance of long term debt 5,271 (95,671)
------- ------
Net cash provided by financing activities 74,971 276,079
------- ------
Net increase (decrease) in cash and cash equivalents (22,407) 172,612
Cash and cash equivalents, beginning of year 24,070 2,649
------- ------
Cash and cash equivalents, end of year $1,663 $175,261
======= ======
<PAGE>
HAND BRAND DISTRIBUTION, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Unaudited)
For the nine months
ended September 30,
2000 1999
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest expense $4,411 $14,024
<PAGE>
HAND BRAND DISTRIBUTION, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Unaudited)
Common Stock Paid in Accumulated
Shares Amount Capital Deficit TOTAL
Balance December 31, 1998 1,815,100 $3,630 $367,870 $(221,157) $150,343
Issuance of common stock
($.002 per share) 709,000 1,418 370,332 371,750
Net loss December 31, 1999 (255,668) (255,668)
--------------------------------------------------
Balance December 31, 1999
(Audited) 2,524,100 5,048 738,202 (476,825) 266,425
Private offering on
January 27, 2000 9,300 19 46,481 46,500
Issuance of shares of
common stock to Steven
M Polisar at $ 1. per
share on June 5, 2000 3,200 6 3,194 3,200
Net loss nine months ended
September 30, 2000 (169,028) (169,028)
--------------------------------------------------
Balance September 30, 2000
(Unaudited) 2,536,600 $5,073 $787,877 $(645,853) $147,097
==================================================
<PAGE>
HAND BRAND DISTRIBUTION, INC.
NOTES TO FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 2000
NOTE 1 UNAUDITED FINANCIAL STATEMENTS
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-Q and Rule 310(b) of
Regulation SB. Accordingly, they do not include all of the information and
footnote disclosures normally included in complete financial statements
prepared in accordance with generally accepted accounting principles. For
further information, such as significant accounting policies followed by the
Company, refer to the notes to the Company's audited financial statements.
In the opinion of management, the unaudited financial statements include all
necessary adjustments (consisting of normal, recurring accruals) for a fair
presentation of the financial position, results of operations and cash flow
for the interim periods presented. Preparing financial statements requires
management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenue and expenses. Actual results may differ from
these estimates. Interim results are not necessarily indicative of results
for a full year.
NOTE 2 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Hand Brand Distribution, Inc. ("the Company") was incorporated in
November 1995, under the laws of the State of Florida for the purpose of
developing and marketing nutritional supplements, cleaning and hygiene
products. It also publishes a news catalog to market its products.
Basis of Accounting
The Company presents its financial statements on the accrual basis of
accounting in compliance with generally accepted accounting principles.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, which requires a liability approach to
calculating deferred income taxes.
<PAGE>
HAND BRAND DISTRIBUTION, INC.
NOTES TO FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 2000
NOTE 2 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- continued
Use of Estimates in Preparation of Financial Statements
The preparation of the accompanying financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that directly affect the results of reported assets
and liabilities and disclosure of contingent assets and liabilities as of the
balance sheet date, and the reported amounts of revenues and expenses for the
period presented. Actual results could differ from these estimates.
Cash and Cash Equivalents
The Company considers all cash and cash equivalents highly liquid investments
with an original maturity of three months or less to be cash equivalents.
Inventory
The inventory of the Company is recorded at average cost and includes
nutritional supplements, cleaning and hygiene products and raw materials from
the acquisition of The Rockland Corporation, doing business as Lifetime
Water.
Revenue Recognition
The Company's products are manufactured to specific customer orders, and
revenues are recognized when the products are shipped. Revenue is reduced for
estimated customer returns and allowances.
The Company publishes a catalog of its products for mail order marketing,
which includes articles on the health benefits of its products. Subscriptions
are for two-year periods, and revenue is recognized when the subscription
order is received. Unearned subscription revenue is amortized using the
straight-line method over the term of the subscription. The amount of the
subscription revenue was not material in any year.
Accounts Receivable
The Company performs credit evaluations of its customers' financial condition
and generally does not require collateral for accounts receivables arising
from the normal course of business. The Company maintains allowances for
potential credit losses which, when realized, have been within the range of
management's expectations.
<PAGE>
HAND BRAND DISTRIBUTION, INC.
NOTES TO FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 2000
NOTE 2 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- continued
Property and Equipment and Depreciation
Property and equipment are stated at cost. Depreciation is computed by using
the straight-line method based over the assets estimated useful lives as
follows:
Furniture and fixtures 5- 10 years
Intangible Assets
The Company continually evaluates the carrying value of goodwill and other
intangible assets to determine whether there are any impairment losses. If
indicators of impairment are present in intangible assets used in operations,
and future cash flows are not expected to be sufficient to recover the assets'
carrying amount, an impairment loss would be charged to expense in the period
identified.
No reduction for impairment of intangible assets was necessary at September
30, 2000.
Amortization
Amortization of trademarks and goodwill is determined utilizing the
straight-line method based generally on the estimated useful lives of the
intangibles as follows:
Trademarks 15 years
Goodwill 15 years
Credit Risk
Financial instruments that potentially subject the Company to credit risk
include cash on deposit with two financial institutions amounting to $1,663 at
September 30, 2000, which was insured for up to $200,000 by the U.S. Federal
Deposit Insurance Corporation (FDIC).
Advertising
Advertising costs are charged to operations when incurred. Advertising costs
during the nine months ended September 30, 2000 amounted to $0.
<PAGE>
HAND BRAND DISTRIBUTION, INC.
NOTES TO FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 2000
NOTE 2 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- continued
Basic Loss per Share and Diluted Loss per Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share (SFAS No. 128),
which specifies the computation, presentation and disclosure requirements for
earnings per share. SFAS No. 128 supercedes Accounting Principle Board
Opinion No. 15 entitled Earnings Per Share. Basic earnings per share are
computed by dividing income available to common stockholders (the numerator)
by the weighted-average number of common shares (the denominator) for the
period. The computation of diluted earnings per share is similar to basic
earnings per share, except that the denominator is increased to include the
number of additional common shares that would have been outstanding if the
potentially dilutive common shares had been issued.
The numerator in calculating basic earnings per share is reported net loss.
The denominator is based on the following weighted-average number of common
shares:
Basic 2,533,666
NOTE 3 COMMON STOCK AND PREFERRED STOCK
The Company authorized 12,500,000 shares of common stock, and 2,536,600 shares
of common stock issued and outstanding at September 30, 2000.
On January 27, 2000, the Company issued 9,300 shares of common stock at a
price of $5. per share in connection with a private placement for a total
amount of $46,500 in cash.
On June 5, 2000 the Company issued 3,200 shares of common stock at a price of
$1.00 per share for a total of $3,200 in cash.
<PAGE>
HAND BRAND DISTRIBUTION, INC.
NOTES TO FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 2000
NOTE 4 LONG-TERM NOTE PAYABLE
7% note payable guaranteed jointly by the
Company and John M. Taggart; due in
monthly installments of $2,902.73, including
interest; beginning January 1st,
1999 for 10 years. $ 227,162
6% note payable for a 24 month period, callable
at borrower option and convertible into 40,000
shares of common stock due on April 5th, 2002. 20,000
6% note payable for a 24-month period, callable
at borrower option and convertible into 20,000
shares of common stock due on August 23rd, 2002. 10,000
--------
257,162
Less: current portion (19,761)
Total long-term note payable $ 237,401
========
Interest expense for the nine months ended September 30, 2000 was $12,580.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto that appear elsewhere herein.
We generate revenues from two sources: Subscription revenue from the
publication Family Health News comprises 1.4% of our revenue and the sale of
products comprise 98.6% of our revenue. All products other than our water
filter line are purchased from other manufacturers. We seek distributor
pricing from our vendors that is typically 42% of the manufacturers suggested
retail price. This enables us to have sufficient margin after selling costs to
make a profit.
Sales for the quarter ended September 30, 2000 were $46,234 an 18.3%
decrease from sales for the quarter ender September 30, 1999. For the nine
months ended 2000 versus 1999; $188,338 to $221,812. Decrease was due to a
reduced level of sales activity. This trend is expected to reverse as Hand
Brand implements its direct sales organization during the last quarter of
2000.
Cost of goods sold as a percentage of sales was 51% for the quarter
ended September 30, 2000 as compared to 55% for the quarter ended September
30, 1999 reflecting a greater proportion of sales being from private label
products which carry a greater margin. For the nine month periods 36.4% and
46.5% respectively reflecting the same trend of sales toward in house
products.
Selling, general and administrative expenses were $31,191 for the
quarter ended September 30, 2000. This was 67.4% of sales compared to 126.9%
of sales for the quarter ended September 30, 1999. This decrease was due
primarily to decreased marketing expenses during the quarter. For the nine
months periods of 2000 and 1999 Selling, general and administrative expenses
were $235,348 and 218,443 respectively. This represents 124.9% of sales for
the nine month period in year 2000 versus 98.4% for 1999. This increase
reflects aggressive marketing efforts in the first half of 2000.
Liquidity and Capital Resources
For the nine months ending September 30, 2000 the Company's operations
have been financed principally from operations and convertible debt financing
totaling $30,000. Accounts receivable increased by $4,713 during the period
while payables increased by $42,948.
Management feels that while the majority of its' start up costs have been
incurred further sources of capital will be important in order to pay down
current obligations and implement the direct selling program that it has been
developing for the past 36 months. Failure to do so could adversely affect
the continuity of operations. The Company believes that since, to a large
extent, the Company's activities are being funded from current operations and
selling and administrative expenses as a percentage of sales have improved
dramatically that a relatively small amount of outside funding will be
required.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
HAND BRAND DISTRIBUTION, INC.
November 14, 2000 By: s/John Taggert
John Taggert
President and Principal Financial Officer
