<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(X) QUARTERY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998
OR
(_) 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 000-24007
Balance Bar Company
-------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 77-0306617
- - - - - ------------------------------- ---------------------------
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1015 Mark Avenue
Carpinteria, California 93013
- - - - - --------------------------------------- ----------------------------
(Address of Principal Executive Office) (Zip Code)
(805) 566-0234
--------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether 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 (or for 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 (_)
At October 22, 1998, the registrant had 11,339,084 shares of its common stock
outstanding.
<PAGE>
Balance Bar Company
Index To Form 10-Q
Quarter Ended September 30, 1998
<TABLE>
<CAPTION>
Index Page
- - - - - -------- ----
<S> <C>
PART I. -- FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets 3
Income Statements 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. -- OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
2
<PAGE>
Balance Bar Company
Balance Sheets
(amounts in 000's, except par value)
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
(unaudited) (audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,650 $ 89
Marketable securities 3,304 ---
Accounts receivable, net 7,717 3,444
Income taxes receivable --- 374
Inventories 6,536 3,806
Prepaid and other 1,822 1,381
Deferred taxes 554 344
------- -------
Total current assets 21,583 9,438
------- -------
Property and equipment, net 1,180 1,011
Other assets 31 347
------- -------
Total assets $22,794 $10,796
======= =======
Current liabilities:
Current portion of long-term debt $ 3 $ 85
Short-term borrowings --- 1,100
Accounts payable 3,280 4,201
Accrued liabilities 1,390 1,078
Income taxes payable 35 ---
------- -------
Total current liabilities 4,708 6,464
------- -------
Long-term debt, net 8 228
------- -------
Stockholders' equity:
Common stock, $0.01 par value
Authorized 24,000 shares
Issued and outstanding- 11,339 in 1998 and
9,345 in 1997 113 93
Additional paid-in capital 12,501 2,424
Retained earnings 5,464 1,587
------- -------
Total stockholders' equity 18,078 4,104
------- -------
Total liabilities and equity $22,794 $10,796
======= =======
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
<PAGE>
Balance Bar Company
Income Statements
(amounts in 000's, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $21,498 $10,134 $59,511 $27,365
Cost of sales 11,242 5,180 30,747 13,649
------- ------- ------- -------
Gross profit 10,256 4,954 28,764 13,716
------- ------- ------- -------
Expenses:
Advertising 2,565 2,650 6,759 5,126
Selling and marketing 4,306 2,052 11,895 5,088
General and administrative 1,115 596 3,530 1,567
Interest (income) expense (86) (17) 12 (31)
------- ------- ------- -------
Total expenses 7,900 5,281 22,196 11,750
------- ------- ------- -------
Income (loss) before income taxes 2,356 (327) 6,568 1,966
Income taxes 965 (138) 2,691 831
------- ------- ------- -------
Net income (loss) $ 1,391 $ (189) $ 3,877 $ 1,135
======= ======= ======= =======
Earnings (loss) per share:
Basic $ 0.12 $ (0.02) $ 0.37 $ 0.12
======= ======= ======= =======
Diluted $ 0.11 $ (0.02) $ 0.32 $ 0.11
======= ======= ======= =======
Weighted shares outstanding:
Basic 11,283 9,306 10,397 9,290
======= ======= ======= =======
Diluted 12,979 9,306 12,298 10,800
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
Balance Bar Company
Statements of Cash Flows
(amounts in 000's)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,877 $ 1,135
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 447 86
Compensation expense in connection
with common stock and stock options 162 210
Changes in operating assets and liabilities:
Accounts receivable (4,273) (1,532)
Inventories (2,730) (1,851)
Prepaid and other (505) (518)
Accounts payable (921) 3,327
Accrued liabilities 468 346
Income taxes 481 (1,293)
------- -------
Net cash used in operating activities (2,994) (90)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (616) (376)
Purchases of investments (3,885) ---
Maturities of investments 646 ---
------- -------
Net cash used in investing activities (3,855) (376)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering 9,798 ---
Initial public offering costs, net of reimbursement (161) (15)
Increase (decrease) in short term and other borrowings (1,402) 250
Proceeds from exercise of stock options 175 13
------- -------
Net cash provided by financing activities 8,410 248
------- -------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 1,561 (218)
CASH AND CASH EQUIVALENTS, beginning of period 89 1,119
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 1,650 $ 901
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
Balance Bar Company
Notes to Financial Statements
September 30, 1998
Note 1. Accounting Policies
Basis of Presentation
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and note disclosures required by generally
accepted accounting principles for complete financial statements. All
adjustments (which include only normal recurring adjustments) considered
necessary for a fair presentation have been included. These unaudited financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Registration Statement on Form S-1 dated June
1, 1998. The results of operations for these interim periods are not
necessarily indicative of the operating results for a full year.
Marketable Securities
Marketable securities consist of commercial paper with maturities extending
through January 1999. The Company classifies marketable securities as available
for sale and records them at fair value. Unrealized holding gains and losses,
which were not significant at September 30, 1998, net of the related tax effect
are excluded from earnings. Realized gains and losses on disposition are
determined on the specific identification basis. Dividend and interest income
is recognized when earned. A decline in the value of available for sale
securities below cost, that is deemed to be other than temporary, results in a
reduction in carrying amount to fair value. The impairment is charged to
earnings and a new cost basis is established.
Inventories
Inventories consist of the following at September 30, 1998 and December 31, 1997
(in 000's):
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Balance bars $4,809 $2,074
Powdered drink mix 724 473
Packaging material and other 1,003 1,259
------ ------
$6,536 $3,806
====== ======
</TABLE>
Earnings Per Share
Earnings per share are based on the weighted average number of shares
outstanding for the period plus the dilutive effect of stock options. The
weighted average number of shares outstanding for the three months ended
September 30, 1998 and 1997 was 11,283,000 and 9,306,000, respectively, and for
the nine months ended September 30, 1998 and 1997 was 10,397,000 and 9,290,000,
respectively. The dilutive effect of stock options for the three months ended
September 30, 1998 was 1,696,000, and for the nine months ended September 30,
1998 and 1997 was 1,901,000 and 1,510,000, respectively. Due to the loss in the
three months ended September 30, 1997, the dilutive effect of stock options was
not included.
6
<PAGE>
New Authoritative Pronouncements
The Financial Accounting Standards Board recently issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits" and
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".
These new accounting standards will not have any effect on the Company's
financial statements or financial reporting.
Note 2. Contingencies
Certain advertising claims made by the Company have been challenged by two of
the Company's competitors. The Company has agreed not to make certain
advertising claims in the future. In April 1998, one competitor sued the
Company seeking damages as a result of allegedly false and misleading
advertising. The competitor also alleged that the Company, with one of the
Company's sales executives who previously worked for the competitor,
misappropriated trade secrets. The Company has general (including advertising
injury), director and officer, and excess liability insurance. The Company was
notified by one of its two insurers that the insurer accepted defense of the
claim. The Company has been informally notified that the other insurer has
declined to defend the claim. The Company is vigorously defending this lawsuit.
However, no assurance can be given that this lawsuit will not be determined
adversely to the Company. No provision has been made in the accompanying
financial statements for any future litigation costs or loss that might result
from this lawsuit, if any, because the outcome is uncertain and no estimate can
be made at this time.
In August 1998, the Company sued the competitor, alleging the competitor made
false and misleading advertising about the competitor's products and the
Company's products.
Note 3. Initial Public Offering
In June 1998, the Company completed an initial public offering of common stock.
The Company sold 1,003,372 shares of common stock and realized net proceeds of
$9,478,000, net of $320,000 in costs and expenses.
Note 4. Stockholders' Equity
In April 1998, the Company's stockholders ratified a six-for-one stock split of
the Company's common and preferred stock. The Company's financial statements
have been retroactively adjusted, for all periods presented, to reflect the
effect of the stock split. The Company's stockholders also ratified an increase
of 309,000 in the number of stock options the Company is authorized to issue
under an existing stock option plan and ratified the adoption of a new stock
option plan, under which the Company is authorized to issue 1,800,000 shares of
common stock upon the exercise of stock options.
The Company had 3,806,910 shares of convertible preferred stock, $0.01 par
value, outstanding prior to the initial public offering of common stock. In
connection with the completion of the initial public offering, all of the
convertible preferred stock was converted to common stock. The Company's
financial statements have been retroactively adjusted, for all periods
presented, to reflect the effect of the conversion of the preferred stock into
common stock. No preferred stock is currently authorized or outstanding.
During the nine months ended September 30, 1998, 990,754 shares of common stock
were issued in connection with the exercise of stock options. Additional paid-
in capital also increased by $282,000 reflecting the tax benefit realized on the
exercise of certain stock options.
Note 5. Significant Customers
During the nine months ended September 30, 1998, the Company had sales to three
customers that represented approximately 16%, 15% and 13%, respectively, of
sales. During the nine months ended September 30, 1997, the Company had sales to
three customers that represented approximately 25%, 15% and 10%, respectively,
of sales.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company has made and will continue to make forward-looking statements.
Certain forward-looking statements are contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations", including the
expected adequacy of available funds to meet foreseeable needs, and other
sections of this report. Except for the historical information contained
herein, the following discussion and analysis contains certain forward-looking
statements that involve risks and uncertainties, such as statements of the
Company's plans, objectives, expectations and intentions. These statements can
be identified by the use of forward-looking terminology such as "believes,"
"expects," "intends," "plans," "may," "will," "should," or "anticipation" or the
negative thereof or other variations thereon or comparable terminology. These
risks include maintaining acceptance in distribution channels, volatility in
sales and earnings, anticipating changes in dietary trends, no adverse
publicity, successful development and sale of new products, maintaining sales to
significant customers, competition and other risk factors. The Company's actual
results could differ materially from those discussed here. Factors that could
cause or contribute to such differences include those discussed in "Risk
Factors" in the Company's prospectus dated June 1, 1998, as well as those
discussed herein.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain income
statement data expressed as a percentage of sales:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 52.3 51.1 51.7 49.9
----- ----- ----- ----
Gross profit 47.7 48.9 48.3 50.1
----- ----- ----- ----
Expenses:
Advertising 11.9 26.2 11.4 18.7
Selling and marketing 20.0 20.2 20.0 18.6
General and administrative 5.2 5.9 5.9 5.7
Interest (income) expense (.4) (.2) --- (.1)
----- ----- ----- ----
Total expenses 36.7 52.1 37.3 42.9
----- ----- ----- ----
Income (loss) before income taxes 11.0 (3.2) 11.0 7.2
Income taxes 4.5 (1.3) 4.5 3.1
----- ----- ----- ----
Net income (loss) 6.5% (1.9)% 6.5% 4.1%
===== ===== ===== ====
</TABLE>
Sales increased 112% to $21.5 million in the three months ended September 30,
1998 from $10.1 million in the same period of 1997. Sales increased 117% to
$59.5 million in the nine months ended September 30, 1998 from $27.4 million in
the same period of 1997. The increase was primarily attributable to increased
sales at mass merchandise, club and grocery stores. Sales also increased at
natural foods stores. Several significant customers ran special sales promotions
in the three and nine months ended September 30, 1998 and approximately $1.6
million and $6.1 million, respectively, of the increase was due to increased
sales to those customers. Unusually high sales to two natural foods customers
near the end of the three months ended June 30, 1997 negatively impacted sales
for the three months ended September 30, 1997. Reduced sales to these two
customers in the third quarter of 1997 were partially offset by increased sales
to one mass merchandise customer. The addition of three new Balance bar flavors
in December 1997 favorably
8
<PAGE>
impacted sales in the three and nine months ended September 30, 1998, and the
introduction of a powdered drink mix in April 1997 also favorably impacted sales
during the nine months ended September 30, 1998.
Sales to customers in the natural foods channel were 41% of sales in the three
months ended September 30, 1998, compared to 52% and 59% in the three months
ended June 30, and March 31, 1998, respectively. Sales to the Company's six
largest 1998 customers were 63% of sales in the three months ended September 30,
1998, compared to 66% and 70% in the three months ended June 30, and March 31,
1998, respectively. Sales to McLane Distribution, Costco Wholesale and Trader
Joe's exceeded 10% of sales for the three months ended September 30, 1998 at
17%, 15% and 14%, respectively, of sales. Sales to Trader Joe's, Costco
Wholesale and McLane Distribution exceeded 10% of sales for the nine months
ended September 30, 1998 at 16%, 15% and 13%, respectively, of sales. Sales to
customers in the United States were 98% of sales in the three months ended
September 30, 1998, compared to 99% of sales for the three months ended June 30,
and March 31, 1998. Sales of the Balance bar product line were 95% of sales in
the three months ended September 30, 1998, compared to 97% and 90% in the three
months ended June 30, and March 31, 1998, respectively.
The Company announced the release of three new nutraceutical-enhanced Balance
Bars in September 1998 under the Balance+/TM/ brand. The Company expects to
begin shipping these new bars in November 1998. The Company also began shipping
a larger version of the popular Honey Peanut Balance Bar flavor, called the Big
Bar, in September 1998.
Gross profit dollars increased to $10.3 million in the three months ended
September 30, 1998 from $5.0 million in the same period of 1997. Gross profit
dollars increased to $28.8 million in the nine months ended September 30, 1998
from $13.7 million in the same period of 1997. The gross profit margin declined
to 47.7% in the three months ended September 30, 1998 from 48.9% in the same
period of 1997. The gross profit margin declined to 48.3% in the nine months
ended September 30, 1998 from 50.1% in the same period of 1997. The decline in
gross profit margin was due to a change in product and channel mix and
additional packaging costs. In the three months ended September 30, 1998, the
gross profit margin was also negatively impacted by a $105,000 provision for
packaging changes to the bar product line, the repositioning of the single
serving envelope powdered drink mix products and higher product transportation
costs as a result of increased coast-to-coast shipment of certain bar flavors.
These flavors are currently produced by the Company's West Coast manufacturer
and by year-end are expected to be produced by both manufacturers.
Advertising expenses decreased to $2.6 million in the three months ended
September 30, 1998 from $2.7 million in the same period of 1997. Advertising
expenses increased to $6.8 million in the nine months ended September 30, 1998
from $5.1 million in the same period of 1997. Advertising expenses as a
percentage of sales were unusually high in the three months ended September 30,
1997. The increase in the nine months ended September 30, 1998 compared to the
same period in 1997 was due to the Company's strategic decision to build brand
awareness and increase sales through substantial increases in radio and print
advertising and the addition of television advertising. The Company expects to
continue to increase advertising expenses in the fourth quarter of 1998 compared
to the same period in 1997.
Selling and marketing expenses increased to $4.3 million in the three months
ended September 30, 1998 from $2.1 million in the same period of 1997. Selling
and marketing expenses increased to $11.9 million in the nine months ended
September 30, 1998 from $5.1 million in the same period of 1997. The increase
was due to higher personnel-related costs as the Company built its sales and
marketing organization and higher broker commission expense and retailer
marketing support expense related to the increase in sales. The increase was
also due to increases in special events and product sampling to build customer
awareness of the Company's products and costs to launch three new Balance+/TM/
flavors. Selling and marketing expenses as a percentage of sales were about the
same at 20.0% of sales in the three months ended September 30, 1998 compared to
20.2% in the same period of 1997, and increased to 20.0% of sales in the nine
months ended September 30, 1998 from 18.6% in the same period of 1997.
General and administrative expenses increased to $1.1 million in the three
months ended September 30, 1998 from $596,000 in the same period of 1997.
General and administrative expenses increased to $3.5
9
<PAGE>
million in the nine months ended September 30, 1998 from $1.6 million in the
same period of 1997. The increase was due to higher payroll and facility rentals
to support the Company's increased sales and increased new product development
costs. In addition, higher legal and insurance expenses were incurred in the
three and nine months ended September 30, 1998. General and administrative
expenses as a percentage of sales declined to 5.2% of sales in the three months
ended September 30, 1998 from 5.9% in the same period of 1997, and increased to
5.9% of sales in the nine months ended September 30, 1998 from 5.7% in the same
period of 1997.
Interest (income) expense was $86,000 of interest income in the three months
ended September 30, 1998 compared to $17,000 of interest income in the same
period of 1997. Interest (income) expense was $12,000 of interest expense in
the nine months ended September 30, 1998 compared to $31,000 of interest income
in the same period of 1997. The interest expense in 1998 was due to borrowings
under the Company's line of credit and term loan agreements. Interest income in
1998 was due to the investment, in June 1998, of a portion of the initial public
offering proceeds in marketable securities.
The effective tax rate in the three and nine months ended September 30, 1998 was
41.0% and the effective tax rate in the three and nine months ended September
30, 1997 was 42.2%. The decline in the effective tax rate was due to lower non-
deductible expenses projected for 1998.
Weighted shares outstanding increased in the three and nine months ended
September 30, 1998 over the comparable periods in 1997 due primarily to the
initial public offering of common stock and the three months ended September 30,
1998 did not include the dilutive effect of stock options due to the loss in the
period.
LIQUIDITY AND CAPITAL RESOURCES
The primary source of cash flows for all periods has been from Balance bar
product line sales. For the nine months ended September 30, 1998 and 1997, cash
generated from operations was not sufficient to fund increases in accounts
receivable and inventory, prepaid advertising expenses and purchase property and
equipment. The Company entered into credit agreements that were used to finance
the shortfall. In June 1998, the Company sold 1,003,372 shares of common stock
and raised $9,478,000 net of $320,000 of offering costs and the proceeds were
used, in part, to repay outstanding short and long-term debt.
The increase in accounts receivable, inventory and prepaid advertising expenses
of $7.3 million in the nine months ended September 30, 1998 was magnified by a
reduction in accounts payable of $921,000. The increase in accounts receivable,
inventory and prepaid advertising expenses of $3.7 million and the increase in
taxes receivable of $1.3 million in the nine months ended September 30, 1997 was
offset by increased accounts payable of $3.3 million. Cash flow used in
operating activities was $3.0 million and $90,000 in the nine months ended
September 30, 1998 and 1997, respectively.
Cash used in investing activities was for the purchase of property and equipment
and marketable securities. Purchases of property and equipment in the nine
months ended September 30, 1998 and 1997 were $616,000 and $376,000,
respectively. The higher level of expenditures in 1998 reflects the Company's
facility and personnel expansion to support higher sales volume. The 1998
capital investments were for computer hardware and software, office furniture
and equipment, leasehold improvements and packaging design plates and drums.
The Company expects to lease additional office space in the fourth quarter of
1998 to accommodate anticipated growth in personnel. In connection with the new
office lease, additional capital investments are anticipated. The Company also
expects to spend approximately $300,000 in the fourth quarter of 1998 for other
capital investments. A portion of the initial public offering proceeds was used
to purchase $3.9 million of marketable securities and $646,000 of the marketable
securities matured in the nine months ended September 30, 1998. Cash used in
investing activities was $3.9 million and $376,000 in the nine months ended
September 30, 1998 and 1997, respectively.
Cash provided by financing activities was from the net proceeds of the initial
public offering and short term borrowings, net of repayments and the proceeds
from the exercise of stock options. In June 1998, the Company sold 1,003,372
shares of common stock and realized proceeds of $9.8 million. In connection
10
<PAGE>
with the initial public offering of common stock, the Company incurred offering
costs of $320,000 and the selling shareholders reimbursed the Company for
offering costs paid in the third and fourth quarters of 1997. In the nine
months ended September 30, 1998, the Company borrowed $2.4 million under a
revolving line of credit, and $3.8 million of the proceeds from the initial
public offering were used to repay short and long-term debt. During the nine
months ended September 30, 1997, the Company borrowed $250,000 under a revolving
line of credit. During the nine months ended September 30, 1998, 990,754 shares
of common stock were issued in connection with the exercise of stock options.
Cash provided by financing activities was $8.4 million and $248,000 in the nine
months ended September 30, 1998 and 1997, respectively.
At September 30, 1998, the Company had a $9 million revolving line of credit of
which $5.9 million was available (based upon 75 percent of the Company's
eligible accounts receivable), none of which was outstanding. The line of credit
is secured by all of the Company's assets. The line of credit bears interest at
the bank's prime rate (8.25% at September 30, 1998) plus 3/4%, and expires in
April 2000.
To date, the Company has not had significant discussions about the acquisition
of companies. In the future, the Company may consider making an investment in
or acquiring companies or product lines that complement the Company's existing
product lines. The Company is not able to predict when a prospective
acquisition candidate might become available, the terms of the financing, or
when any transaction might be closed or the effect of any acquisition on the
Company's business, results of operations or financial condition.
The Company expects to use the net proceeds from the initial public offering,
over the next one to two quarters, to fund increases in accounts receivable,
inventory, prepaid advertising expenses and purchase property and equipment.
When the net proceeds are expended, the Company expects to fund increases in
accounts receivable, inventory, prepaid advertising expenses and purchase
property and equipment from borrowings under the revolving line of credit. The
Company believes that it has adequate capital resources and liquidity to meet
anticipated cash needs for working capital and capital expenditures for at least
the next 12 months.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits" and
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
These new accounting standards will not have any effect on the Company's
financial statements or financial reporting.
SEASONALITY OF SALES
The Company has not observed seasonality in sales in 1997 and 1998 due to the
significant expansion of distribution and resulting sales increases for the
periods. The Company believes that there may be some seasonally reduced sales
in the fourth quarter due to retailers' emphasis on holiday merchandise in that
quarter.
YEAR 2000 COMPLIANCE
The Company has installed a new sales, inventory and accounting system that the
vendor has represented to be Year 2000 compliant. The Company does not
anticipate any significant additional expenses with Year 2000 compliance
problems. The Company's two contract manufacturers have informed the Company
that they are each Year 2000 compliant. The Company has not yet obtained
information from its major distributors and retailers about Year 2000 compliance
issues, if any, they are facing.
11
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On April 8, 1998, the day the Company filed the initial registration statement
relating to its initial public offering, PowerBar, Inc. ("PowerBar") filed a
complaint against the Company and its Senior Vice President of Sales in U.S.
District Court for the Northern District of California. The complaint alleges,
in general, that the Company engaged in false advertising, unfair competition,
and, with its Senior Vice President of Sales who previously worked for PowerBar,
misappropriated trade secrets. PowerBar also alleges that the sales executive
tortuously interfered with PowerBar's business relationships by inducing
distributors, brokers, athletes, and sponsors to terminate their business
relationships with PowerBar. The factual allegations against the Company's
advertising are similar to those already reviewed by the National Advertising
Division of the Better Business Bureaus, Inc. at PowerBar's request.
PowerBar seeks, among other things, injunctive relief prohibiting the allegedly
false advertising, corrective advertising in various print media, compensatory
damages in an unspecified amount, disgorgement of the Company's profits, treble
and punitive damages as to certain claims, attorneys' fees, and restitution of
revenues obtained from the sale of Balance bars. The Company intends to
vigorously contest PowerBar's claims. On April 30, 1998, the Company and the
sales executive answered the allegations in PowerBar's complaint. In addition,
upon the Company's motion, the court dismissed PowerBar's claim for relief under
California's common law of unfair competition, on the ground that PowerBar had
failed as a matter of law to make out such a claim. However, the Company cannot
predict the ultimate outcome of this litigation, and no assurance can be given
that this lawsuit will not be determined adversely to the Company. An outcome
adverse to the Company, costs associated with defending the lawsuit, payment of
damages and costs associated with the indemnification of its sales executive,
the significant diversion of management's time and resources to defend the
lawsuit, a substantial settlement or award of damages, to the extent in excess
of any insurance coverage, or negative publicity resulting from the lawsuit
could have a material adverse effect on the Company's business, results of
operations, and financial condition.
On August 18, 1998, the Company filed a complaint against PowerBar in U.S.
District Court for the Northern District of California. The complaint alleges
that PowerBar engaged in false advertising about its own products and those of
the Company's and in unfair competition. The Company seeks, among other things,
injunctive relief prohibiting the allegedly false advertising, corrective
advertising in various print media, compensatory damages in an unspecified
amount, disgorgement of the Company's profits, and treble and punitive damages
as to certain claims and attorneys' fees.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule September 30, 1998
(b) There were no reports on Form 8-K for the three months ended
September 30, 1998.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Balance Bar Company
-------------------
(Registrant)
Date: October 22, 1998 By /s/ Thomas J. Flahie
-----------------------------------------
Thomas J. Flahie
Senior Vice President of Finance and
Administration (Principal Financial and
Accounting Officer)
13
<PAGE>
Exhibit Index
Exhibit No. Description
27.1 Financial Data Schedule
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,650
<SECURITIES> 3,304
<RECEIVABLES> 7,747
<ALLOWANCES> 30
<INVENTORY> 6,536
<CURRENT-ASSETS> 21,583
<PP&E> 1,858
<DEPRECIATION> 678
<TOTAL-ASSETS> 22,794
<CURRENT-LIABILITIES> 4,708
<BONDS> 11
0
0
<COMMON> 113
<OTHER-SE> 17,965
<TOTAL-LIABILITY-AND-EQUITY> 22,794
<SALES> 21,498
<TOTAL-REVENUES> 21,588
<CGS> 11,242
<TOTAL-COSTS> 11,242
<OTHER-EXPENSES> 7,900
<LOSS-PROVISION> 10
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> 2,356
<INCOME-TAX> 965
<INCOME-CONTINUING> 1,391
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,391
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.11
</TABLE>
