<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
------------------------
Form 10-QSB
------------------------
[X]QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended June 30, 2000
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from .......... to ..........
Commission file number 0-28045
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HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC.
---------------------------------------------
(Name of Small Business Issuer in its charter)
Hawaii 99-0306492
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1050 Bishop Street, Ste. 162
Honolulu, Hawaii 96813
----------------------------------------- ----------
(Address of principal executive offices) (zip code)
Issuer's telephone number: (808) 735-8494
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at July 31, 2000
----------------------------- --------------------------------
Common Stock, $.001 par value 9,472,392
Transitional Small Business Format (Check one): Yes [ ] No [ X ]
============================================================================
Part I. Financial Information
Item 1. Financial Statements
<PAGE> 2
HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(Unaudited) (Audited)
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 15,557 $ 42,606
Marketable securities - 30,000
Accounts receivable - net of allowance for
doubtful accounts $62,801 in 2000
and $56,927 in 1999 51,110 253,555
Inventory 231,507 233,042
Other current assets 57,517 32,156
----------- -----------
TOTAL CURRENT ASSETS 355,691 591,359
----------- -----------
PROPERTY AND EQUIPMENT - Net of accumulated
depreciation and amortization 231,574 222,946
----------- -----------
OTHER ASSETS
Capitalized planting cost 305,053 281,012
----------- -----------
TOTAL OTHER ASSETS 305,053 281,012
----------- -----------
TOTAL $ 892,318 $ 1,094,867
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 219,057 $ 191,170
Other payable 843 -
Accrued expenses 213,498 221,793
Short term loan, secured 73,084 109,793
Notes Payable 75,000 75,000
Obligation under capital lease - current portion 6,333 12,141
----------- -----------
TOTAL CURRENT LIABILITIES 587,814 609,897
LONG TERM LIABILITIES
Obligation under capital lease - net of current portion 38,587 38,587
----------- -----------
TOTAL LOAN TERM LIABILITIES 38,587 38,587
----------- -----------
TOTAL LIABILITIES 626,401 648,484
SHAREHOLDERS' EQUITY
Common stock, $.001 par value;
Shares authorized - 20,000,000;
Shares issued and outstanding -
8,659,558 in 1999 and 9,183,342 in 2000 9,185 8,661
Additional paid-in capital 3,533,836 3,145,981
Due from shareholder (442,490) (442,258)
Accumulated deficit (2,823,811) (2,272,407)
Other comprehensive income -- 9,364
----------- -----------
276,720 449,341
Less: cost of shares of common stock in treasury
(2,000 shares in 1999 and 2,700 shares in 2000) (10,803) (2,958)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 265,917 446,383
----------- -----------
TOTAL $ 892,318 $ 1,094,867
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements
<PAGE> 3
<TABLE>
<CAPTION>
HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC.
STATEMENT OF OPERATIONS
Three Months Ended
-----------------------------
June 30, June 30,
2000 1999
(Unaudited) (Unaudited)
------------ ------------
<S> <C> <C>
Sales - net $ 103,592 $ 69,397
Cost of sales 62,056 33,818
----------- -----------
Gross Profit 41,535 35,579
----------- -----------
Operating expenses
Sales and marketing 105,528 80,455
Product development - 4,262
General and administrative 202,403 198,652
Depreciation 10,568 4,114
----------- -----------
Total operating expenses 318,499 287,483
----------- -----------
Loss before other income (276,963) (251,903)
Other income (expense)
Interest income 180 2,436
Interest expense (6,877) (247)
Gain on sale of marketable securities - --
----------- -----------
Total other income (6,697) 2,188
----------- -----------
Net loss $ (283,660) $ (249,715)
=========== ===========
Weighted average shares outstanding 8,809,428 8,073,265
=========== ===========
Basic and diluted net loss per share $ (0.03) $ (0.03)
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements
<PAGE> 4
<TABLE>
<CAPTION>
HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC.
STATEMENT OF OPERATIONS
Six Months Ended
-----------------------------
June 30, June 30,
2000 1999
(Unaudited) (Unaudited)
------------ ------------
<S> <C> <C>
Sales - net $ 203,466 $ 108,948
Cost of sales 114,071 53,091
----------- -----------
Gross Profit 89,395 55,856
----------- -----------
Operating expenses
Sales and marketing 195,711 123,478
Product development 3,251 4,502
General and administrative 437,911 315,533
Depreciation 21,137 8,228
----------- -----------
Total operating expenses 658,010 451,741
----------- -----------
Loss before other income (568,615) (395,885)
Other income (expense)
Interest income 22,521 19,991
Interest expense (16,899) (314)
Gain on sale of marketable securities 11,588 --
----------- -----------
Total other income 17,211 19,667
----------- -----------
Net loss $ (551,404) $ (376,208)
=========== ===========
Weighted average shares outstanding 8,750,995 8,883,740
=========== ===========
Basic and diluted net loss per share $ (0.03) $ (0.06)
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements
<PAGE> 5
<TABLE>
<CAPTION>
HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Six Months Ended June 30, 2000
(Unaudited)
COMMON STOCK ADDITIONAL OTHER TOTAL
------------------ PAID-IN DUE FROM ACCUMULATED COMPREHENSIVE TREASURY SHAREHOLDERS
SHARES AMOUNT CAPITAL SHAREHOLDER DEFICIT INCOME STOCK EQUITY
--------- -------- --------- ----------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 8,659,558 $8,661 $3,145,981 $(442,258) $(2,272,407) $9,364 $(2,958) $ 446,383
Issuance of shares for cash 360,300 360 280,841 281,201
Shares issued for service
and/or promotion 96,937 97 59,387 59,484
Shares issued for debt
settlements 66,547 67 47,628 47,695
Loan to shareholder (232) (232)
Unrealized gain on investment (9,364) (9,364)
Aquisition of shares (7,845) (7,845)
Net loss in 1st 6 Months 2000 (551,404) (551,404)
--------- ------- ---------- ---------- ----------- ---------- -------- ---------
Balance at June 30,2000 9,183,342 $9,185 $3,533,837 $(442,490) $(2,823,811) $ -- $(10,803) $ 265,917
========= ======= ========== ========== =========== ========== ======== =========
</TABLE>
See accompanying Notes to Financial Statements
<PAGE> 6
HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION> Six Months Ended
-----------------------------
June 30, June 30,
2000 1999
(Unaudited) (Unaudited)
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (551,404) $ (376,208)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 21,136 8,228
Gain on marketable securities (9,364) -
Shares issued for services and/or promotion 59,484 31,341
Allowance for doubtful accounts 5,874 6,000
Changes in Assets and Liabilities:
Accounts receivable 196,571 (31,096)
Inventory 1,535 (84,352)
Other current assets (25,361) (734)
Accounts payable -trade 27,887 (624)
Accrued interest payable 3,324 -
Taxes payable 334 19,762
Other payables (11,111) 485
----------- -----------
NET CASH FROM OPERATING ACTIVITIES (281,094) (427,198)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipments & other properties (30,217) (50,748)
Investment in nursery/field planting (24,041) (72,978)
Other assets - (153)
Treasury stock purchases (7,844) -
Proceeds from sale of marketable securities 29,999 -
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (32,103) (123,879)
CASH FLOWS FROM FINANCING ACTIVITIES
Private sales of common stocks 281,201 946,313
Short term loan on receivables (36,709) -
Obligation under capital lease (5,808) -
Shares issued to convert debt to equity 47,695 45,505
Loan to shareholder (232) (47,927)
----------- -----------
NET CASH PROVIDED FINANCING ACTIVITIES 286,147 943,891
NET DECREASE IN CASH AND CASH EQUIVALENT (57,049) 392,815
CASH AND CASH EQUIVALENT AT BEGINNING OF THE PERIOD 42,606 (7,731)
----------- -----------
CASH AND CASH EQUIVALENT AT THE END OF THE PERIOD $ 15,557 $ 385,084
=========== ===========
OTHER CASH INFORMATION
Interest paid $ 6,877 $ 66
=========== ===========
NON CASH TRANSACTION
Shares issued for other than cash $ 107,179 $ 60,005
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
------------------------------------------------------------------------------
Basis of Presentation
The annual financial statements as of December 31, 1999 were audited by the
Company's independent auditors. The interim financial statements presented
have been prepared by the Company's management without audit.
In the opinion of management, the accompanying balance sheets and related
interim statements of income, cash flows, and stockholders' equity include all
adjustments (consisting only of normal recurring items) necessary for their
fair presentation in conformity with generally accepted accounting principles.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue,
and expenses. Examples include provisions for returns and bad debts and the
length of product life cycles and buildings' lives. Actual results may differ
from these estimates. Interim results are not necessarily indicative of
results for a full year. The information included in this Form 10-QSB should
be read in conjunction with Management's Discussion and Analysis and Financial
Statements and Notes thereto included in the Hawaiian Vintage Chocolate
Company, Inc. 1999 Form 10-KSB.
Shareholders' Equity
During first six months of 2000, the Company sold 360,300 shares of common
stocks. Of which 200,000 shares were sold to one of its directors, and 160,300
shares were sold to other private investors at various prices. The Company
issued 63,500 shares of common stock for services and promotion in the 2nd
quarter 2000. With the 33,437 shares issued in the 1st quarter, stocks
issued for services and promotion for the first six months of 2000 amounted to
96,937 shares. The Company also issued 66,547 shares of common stock to
convert debt to equity during the six month period.
From July 1 to August 10, 2000, additional 281,429 shares were sold to private
investors. In the meantime, additional 5,028 shares were issued for promotions
and additional 16,721 shares were issued and/or to be issued to convert debt
to equity.
Leases
As of June 30, 2000, the Company has committed non-cancelable operating and
capital leases ranging from two years to four years with optional terms to
extend. The total non-cancelable lease payment and penalty in the next five
years are as follows:
Fiscal Year Non-Cancelable
Lease Liability
----------- ---------------
2000 $88,105
2001 $96,631
2002 $72,205
2003 $ 8,226
2004 $ -
<PAGE> 8
The store lease at 1505 N. Veterans Parkway, Unit B, Bloomington, Mclean
County, Illinois was terminated.
Income Tax
The Company has accrued $78,317 for delinquent payroll withholding tax on
its Balance Sheet.
Inventory
The Company's inventory as of June 30, 2000 was as follows:
Bulk primary products $13,312
Packaging materials 75,414
Shipping materials 29,238
Work in process 18,536
Retail packed primary products 83,495
Finished chocolate products 7,276
Secondary chocolate products 1,237
Non-chocolate products 2,998
--------
Total inventory $231,507
========
Segment Information
The Company operates in one industry segment, that being the
development, manufacture and marketing of chocolate products. The Company's
reportable segments are strategic business segments due largely to where and
how the sales were made.
The Company has two principal reportable business segments: its
corporate wholesale/retail operation and its store retail operation. The
corporate operation's sales were made by corporate office through its sales
force on U.S. mainland and Hawaii or through its Web site. The store retail
operation's sales were made at its chocolate store's floor spaces located
outside of Company's corporate office.
Segment Information for the 2nd quarter 2000 are as follows:
Corporate Store Consolidated
Operation Operation
---------------- ---------------- ----------------
Net sales $75,481 $28,111 $103,592
Loss from Operation ($253,324) ($19,948) ($273,272)
Assets $447,109 $124,599 $571,708
<PAGE> 9
Reconciliation from the segment information to the consolidated balances
for loss from operations and assets is set forth below:
Segment loss from operation ($273,272)
Depreciation and amortization (10,568)
Other income 180
-----------
Consolidated net loss ($283,660)
===========
Segment assets $571,708
Cash and cash equivalent 15,557
Capitalized planting cost 305,053
-----------
Consolidated total assets $892,318
===========
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations ---
Three Months Ended June 30, 2000 Compared to
Three Months Ended June 30, 1999
"Net Sales." Net sales increased by 49% to $103,592 from $69,397 in same
period of 1999. The increase was primarily attributable to the expansion of
the Company's wholesale and especially retail sales on the U.S. mainland as
well as the Company's direct retail sales on the Internet.
"Cost of Sales" Cost of sales as percentage of sales in the 2nd quarter 2000
increased to 60% from 49% in the 2nd quarter of 1999. This increase is
partially attributable to the costs of the new products developed by the
Company as well as the cost of expanded distribution, and partially because
of decreased margins of its ingredient business and discounts necessary for
securing retail distribution.
"Gross Profit Margin" The Company's gross profit margin in the 2nd quarter
2000 decreased 11% from the same period of 1999 due to the increase in cost
of sales as a percentage of sales.
"Selling and Marketing Expenses." Selling and marketing expenses in the
three-months ended June 30, 2000 increased 31% to $105,528 from $80,455 in
1999 and as a percentage of net sales it decreased to 102% from 116% in 1999.
The increase in selling and marketing expenses was primarily due to an
increase in advertising expenses, distributor support programs, and retail
test market introductions. This increase was partially offset by the
increase in sales.
"General and Administrative Expenses." General and administrative expenses
for the 2nd quarter 2000 increased by 2% to $202,403 from $198,652 in 1999
<PAGE> 10
and decreased as a percentage of sales to 195% from 286%. The primary reason
for the increase of the general and administrative expenses is the increased
staffing by the Company as part of its conversion from a development company
to an operating company and to support its expansion program.
"Operating Income or Loss" Operating loss for the 2nd quarter 2000 increased
10% to $276,963 from $251,903 in 1999 and the loss decreased as a percentage
of sales to 267% from 363% in 1999. The increase in the dollar amount of the
operating loss was due to the additional staffing by the Company and the
increased selling and marketing expenses incurred by the Company as part of
its conversion into an operating company and to support its expansion
program.
"Interest Expense." Interest expense for the 2nd quarter 2000 increased to
$6,877 from $247 in 1999 primarily due to debenture interest, accounts
receivable financing and the equipment leasing for Champaign store.
"Net Income." Net losses for the 2nd quarter 2000 increased 14% to $283,660
from $249,715 in 1999 and the loss decreased as percentage of sales to 274%
from 360%. This increase is due to the additional staffing by the Company and
the increased selling and marketing expenses incurred by the Company as part
of its conversion into an operating company and to support its expansion
program.
Six Months Ended June 30, 2000 Compared to
Six Months Ended June 30, 1999
"Net Sales." Net sales increased by 87% to $203,466 from $108,948 in same
period of 1999. The increase was primarily attributable to the expansion of
the Company's wholesale and especially retail sales on the U.S. mainland as
well as the Company's direct retail sales on the Internet.
"Cost of Sales" Cost of sales as percentage of sales in the first six months
2000 increased to 56% from 49% in same period of 1999. This increase is
partially attributable to the costs of the new products developed by the
Company as well as the cost of expanded distribution, and partially because
of decreased margins of its ingredient business and discounts necessary for
securing retail distribution.
"Gross Profit Margin" The Company's gross profit margin in the first six
months 2000 decreased 7% from the same period of 1999 due to the increase in
cost of sales as a percentage of sales.
"Selling and Marketing Expenses." Selling and marketing expenses in the six
months ended June 30, 2000 increased 59% to $195,711 from $123,478 in 1999
and as a percentage of net sales it decreased to 96% from 113% in 1999. The
increase in selling and marketing expenses was primarily due to an increase
in advertising expenses, distributor support programs, and retail test market
introductions. This increase was partially offset by the increase in sales.
"General and Administrative Expenses." General and administrative expenses
for the six months ended June 30, 2000 increased by 39% to $437,911 from
$315,533 in 1999 and decreased as a percentage of sales to 215% from 290%.
The primary reason for the increase of the general and administrative
expenses is the increased staffing by the Company as part of its conversion
from a development company to an operating company and to support its
expansion program.
"Operating Income or Loss" Operating loss for the first six months of 2000
increased 44% to $598,615 from $395,885 in 1999 and the loss decreased as a
<PAGE> 11
percentage of sales to 279% from 363% in 1999. The increase in the dollar
amount of the operating loss was due to the additional staffing by the
Company and the increased selling and marketing expenses incurred by the
Company as part of its conversion into an operating company and to support
its expansion program.
"Interest Expense." Interest expense for the first six months of 2000
increased to $16,899 from $314 in 1999 primarily due to debentures interest,
accounts receivables financing and the equipment leasing for Champaign store.
"Net Income." Net losses for the 2nd quarter 2000 increased 47% to $551,404
from $376,208 in 1999 and the loss decreased as percentage of sales to 271%
from 345%. This increase is due to the additional staffing by the Company and
the increased selling and marketing expenses incurred by the Company as part
of its conversion into an operating company and to support its expansion
program.
Seasonality and Stores Openings
The Company's business is seasonal and its quarterly results of
operations reflect seasonal trends resulting from increased demand for the
Company's chocolate products during the Christmas and Valentine's Day
seasons.
The Company has experienced quarterly fluctuations in sales volume
and operating results when compared to previous years due to a number of
factors, including the timing of trade promotions, advertising and consumer
promotional expenditures. The Company, as is common in the chocolate
industry, offers trade promotions for limited time periods on specific items
in order to provide incentives for the purchase and promotion of products.
The impact on chocolate sales from period to period due to the timing and
extent of such trade promotions can be significant. In addition, the Company
believes that quarterly results will be affected by the timing of new store
openings; therefore results for any quarter are not necessarily indicative of
results that may be achieved in other quarters or for a full fiscal year.
Liquidity and Capital Resources
During 2nd quarter of 2000, the Company raised $131,200 through
private equity financing and secured $61,000 in debt financing in order to
meet its working capital requirements. The Company converted $47,695 of debt
into equity during the 2nd quarter. From July 1 to August 10, 2000, the
Company raised $246,550 in private equity sales and converted $17,656 of debt
into equity. As a result, Company's total liability was reduced by $22,000.
The operations of the Company historically have been funded with a
combination of internally generated funds and external private sales of
equity. Purchases of inventory, marketing expenditures and support of account
receivable have been, and are expected to remain, the Company's principal
recurring uses of funds for the foreseeable future. The Company's other
principal use of funds in the future will be the development of new products,
the possible acquisition of brands, product lines or other business
activities, the development of corporate stores and increased staffing costs.
The Company has incurred significant operating loss from its operations
through June 30, 2000. The Company's working capital requirements have been
<PAGE> 12
and will continue to be significant. The Company expects its primary sources
of financing for its future business activities will be funds from operations
and the additional sale of common stock. The Company believes that funds from
operations and the possible sale of equity are likely to be sufficient to
meet operating and capital requirements unless a significant acquisition or
store expansion is made during fiscal 2000 beyond the projected new store
expansion described in this report. The Company cautions, however, that there
is no assurances that these assumptions will prove to be accurate.
Part II. Other Information
Item 2. Changes in Securities
(c) Following securities were sold for cash to private investors during the
reporting period and from July 1 to August 10, 2000 pursuant to Section 4(2)
of the Securities Act of 1933.
Date Class of Number of Offering
Security Shares sold Price
--------- -------- ----------- ---------
5/22/2000 Common 15,000 $10,620.00
6/07/2000 Common 15,000 $12,847.50
6/09/2000 Common 35,000 $29,977.50
6/13/2000 Common 30,000 $21,240.00
6/13/2000 Common 30,000 $25,695.00
6/15/2000 Common 12,000 $10,200.00
6/26/2000 Common 30,000 $25,695.00
6/28/2000 Common 12,000 $10,620.00
7/03/2000 Common 30,000 $26,550.00
7/05/2000 Common 91,429 $80,000.00
7/18/2000 Common 160,000 $140,000.00
The following are the date, title and amount of securities issued or to be
issued for services provided or for promotional purposes and the consideration
received by the Company during reporting period and from July 1 to August 10,
2000 pursuant to Section 4(2) of the Securities Act of 1933.
Date Class of Number of Consideration Dollar
Security Shares Issued Value
& to be issued
--------- -------- ------------- ------------- ------
5/31/2000 Common 5,000 Incentive $2,500
5/31/2000 Common 1,000 Incentive $ 500
5/31/2000 Common 27,500 Promotion $13,750
5/31/2000 Common 5,000 Director Fee $2,500
5/31/2000 Common 5,000 Director Fee $2,500
5/31/2000 Common 5,000 Director Fee $2,500
5/31/2000 Common 5,000 Director Fee $2,500
6/20/2000 Common 14,618 Legal Service $11,100
6/20/2000 Common 20,000 Marketing $12,000
6/30/2000 Common 31,929 Inventory $24,575
7/25/2000 Common 5,028 Promotion $2,514
7/25/2000 Common 2,593 Architect $2,853
8/1/2000 Common 8,535 Marketing $9,602
8/10/2000 Common 5,593 Renovation $5,201
<PAGE> 13
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits - None
(B) Reports on Form 8-K - None
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Hawaiian Vintage Chocolate Company, Inc.
Date: Aug. 14, 2000 By: /s/ JAMES P. WALSH
---------------------------------
James P. Walsh, Chairman and
Chief Executive Officer
