U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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Form 10-QSB
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[X]QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended September 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
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(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 September 30, 2000
----------------------------- --------------------------------
Common Stock, $.001 par value 9,546,520
Transitional Small Business Format (Check one): Yes [ ] No [ X ]
<PAGE>
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Part I. Financial Information
Item 1. Financial Statements
HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC.
BALANCE SHEETS
September 30, December 31,
2000 1999
(Unaudited) (Audited)
------------ -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,174 $ 42,606
Marketable securities - 30,000
Accounts receivable - net of allowance for
doubtful accounts $65,801 in 2000
and $56,927 in 1999 38,516 253,555
Inventory 214,504 233,042
Other current assets 66,039 32,156
----------- -----------
TOTAL CURRENT ASSETS 324,233 591,359
----------- -----------
PROPERTY AND EQUIPMENT - Net of accumulated
depreciation and amortization 216,634 222,496
----------- -----------
OTHER ASSETS
Capitalized planting cost 311,423 281,012
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TOTAL OTHER ASSETS 311,423 281,012
----------- -----------
TOTAL $ 852,290 $ 1,094,867
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 190,020 $ 191,170
Accrued expenses 184,564 221,793
Short term loan, secured 49,014 109,793
Notes Payable 75,000 75,000
Obligation under capital lease -
current portion 12,676 12,141
----------- -----------
TOTAL CURRENT LIABILITIES 511,274 609,897
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<PAGE>
LONG TERM LIABILITIES
Obligation under capital lease
- net of current portion 32,243 38,587
----------- -----------
TOTAL LOAN TERM LIABILITIES 32,243 38,587
----------- -----------
TOTAL LIABILITIES 543,517 648,484
SHAREHOLDERS' EQUITY
Common stock, $.001 par value;
Shares authorized - 20,000,000;
Shares issued and outstanding -
8,659,558 in 1999 and 9,546,520 in 2000 9,548 8,661
Additional paid-in capital 3,848,404 3,145,981
Due from shareholder (491,969) (442,258)
Accumulated deficit (3,040,100) (2,272,407)
Other comprehensive income -- 9,364
----------- -----------
325,883 449,341
Less: cost of shares of common stock in treasury
(2,000 shares in 1999 and 7,700 shares in 2000) (17,110) (2,958)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 308,773 446,383
----------- -----------
TOTAL $ 852,290 $ 1,094,867
=========== ===========
See accompanying Notes to Financial Statements
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<PAGE>
<TABLE>
<CAPTION>
HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC.
STATEMENT OF OPERATIONS
Nine Months Ended Three Months Ended
------------------------------ -----------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Sales - net $ 252,265 $ 280,013 $ 48,800 $ 153,477
Cost of sales 157,524 115,554 44,908 104,328
------------- ------------- ----------- -----------
Gross Profit 94,741 164,459 3,892 49,149
------------- ------------- ----------- -----------
Operating expenses
Sales and marketing 233,275 235,256 32,050 153,935
Product development 3,251 13,408 501 10,682
General and administrative 611,487 456,454 188,353 205,189
Depreciation 31,705 9,021 10,568 9,021
------------- ------------- ----------- -----------
Total operating expenses 879,718 714,139 231,472 378,827
------------- ------------- ----------- -----------
Loss before other income (784,977) (549,680) (227,580) (329,678)
Other income (expense)
Other income 250 936 4,856
Interest income 23,458 24,697 (863) (10,589)
Interest expense (17,762) (10,870) (848) --
Gain on sale of marketable securities 11,588 -- (775) (5,733)
Total other income 17,284 14,077 -- --
------------- ------------- ------------- -------------
Net loss $ (767,693) $ (535,603) $ (228,355) $ (335,411)
============= ============= ============ ===========
Weighted average shares outstanding 9,509,456 8,050,749 9,364,931 8,050,749
============= ============= ============ ===========
Basic and diluted net loss per share $ (0.08) $ (0.07) $ (0.02) $ (0.04)
============= ============= ============ ===========
</TABLE>
See accompanying Notes to Financial Statements
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<PAGE>
<TABLE>
<CAPTION>
HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Nine Months Ended September 30, 2000
(Unaudited)
COMMON STOCK ADDITIONAL OTHER
------------------ PAID-IN DUE FROM ACCUMULATED COMPREHENSIVE TREASURY
SHARES AMOUNT CAPITAL SHAREHOLDER DEFICIT INCOME STOCK
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <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)
Issuance of shares for cash 671,729 671 551,980
Shares issued for service
and/or promotion 101,965 102 61,896
Shares issued for debt
reduction 113,268 114 88,547
Loan to shareholder (49,711)
Unrealized gain on investment (9,364)
Acquisition of shares (7,845)
Net loss in 1st 9 Months 2000 (767,693)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at Sept. 30,2000 9,546,520 $ 9,548 $ 3,848,404 $ (491,969) $(3,040,100) $ -- $ (17,110)
=========== =========== =========== =========== =========== =========== ===========
TOTAL
SHAREHOLDERS
EQUITY
-----------
Balance at January 1, 2000 $ 446,383
Issuance of shares for cash 552,651
Shares issued for service
and/or promotion 61,998
Shares issued for debt
reduction 88,661
Loan to shareholder (49,711)
Unrealized gain on investment (9,364)
Acquisition of shares (7,845)
Net loss in 1st 9 Months 2000 (767,693)
-----------
Balance at Sept. 30,2000 $ 308,773
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</TABLE>
See accompanying Notes to Financial Statements
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<PAGE>
HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC.
STATEMENT OF CASH FLOWS
Nine Months Ended
------------------------
Sept. 30, Sept. 30,
2000 1999
(Unaudited) (Unaudited)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (767,693) $ (334,168)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 31,705 12,342
Gain on marketable securities (9,364) --
Shares issued for services and/or promotion 61,998 22,723
Allowance for doubtful accounts 8,874 --
Changes in Assets and Liabilities:
Accounts receivable 206,165 68,599
Inventory 18,538 --
Other current assets (33,885) 3,725
Bank overdraft 21,410
Accounts payable -trade (1,149) 50,182
Accrued expenses (40,499) 30,424
Accrued interest payable 7,983 --
Taxes payable -- --
Other payables 44,356 (599)
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NET CASH FROM OPERATING ACTIVITIES (472,971) (125,362)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipments & other properties (25,843) (25,564)
Investment in nursery/field planting (30,411) (42,690)
Advances to officer (49,767) (45,216)
Other assets -- --
Treasury stock purchases (14,151) --
Proceeds from sale of marketable securities 30,000 --
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (90,172) (113,470)
CASH FLOWS FROM FINANCING ACTIVITIES
Private sales of common stocks 552,652 228,365
Short term loan on receivables (109,793) --
Obligation under capital lease (5,808) --
Shares issued to convert debt to equity 88,660 --
----------- -----------
NET CASH PROVIDED FINANCING ACTIVITIES 525,711 228,365
NET DECREASE IN CASH AND CASH EQUIVALENT (37,432) (10,467)
CASH AND CASH EQUIVALENT AT BEGINNING OF THE PERIOD 42,606 (10,467)
----------- -----------
CASH AND CASH EQUIVALENT AT THE END OF THE PERIOD $ 5,174 $ --
=========== ===========
OTHER CASH INFORMATION
Interest paid $ 9,779 $ 14,600
=========== ===========
NON CASH TRANSACTION
Shares issued for other than cash $ 43,480 $ 78,398
=========== ===========
See accompanying Notes to Financial Statements
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<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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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 nine months of 2000, the Company sold 671,729 shares of common
stocks. Of which 200,000 shares were sold to one of its directors, and 471,729
shares were sold to other private investors at various prices. The Company
issued 5,028 shares of common stock for promotion in the 3rd quarter 2000. With
the 96,937 shares issued in the 1st six months, stocks issued for services and
promotion for the nine months of 2000 amounted to 101,965 shares. The Company
also issued 113,268 shares of common stock to convert debt to equity during the
nine month period.
Leases
As of September 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 $ -
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<PAGE>
Income Tax
The Company has accrued $86,100 for delinquent payroll withholding tax on its
Balance Sheet.
Inventory
The Company's inventory as of September 30, 2000 was as follows:
Bulk primary products $ 4,749
Packaging materials 64,506
Shipping materials 26,409
Work in process 18,756
Retail packed primary products 88,077
Finished chocolate products 7,698
Secondary chocolate products 1,187
Non-chocolate products 3,122
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Total inventory $214,504
========
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.
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<PAGE>
Segment Information for the 3rd quarter 2000 are as follows:
Corporate Store Consolidated
Operation Operation
---------------- ---------------- ----------------
Net sales $32,593 $16,207 $ 48,800
Loss from Operation ($209,418) ($18,162) ($227,580)
Assets $426,154 $109,539 $535,693
Reconciliation from the segment information to the consolidated balances for
loss from operations and assets is set forth below:
Segment loss from operation ($227,580)
Other expenses (1,711)
Other income 936
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Consolidated net loss ($228,355)
==========
Segment assets $ 535,693
Cash and cash equivalent 5,174
Capitalized planting cost 311,423
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Consolidated total assets $ 852,290
==========
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations ---
Three Months Ended September 30, 2000 Compared to
Three Months Ended September 30, 1999
"Net Sales." Net sales decreased to $48,800 from $153,477 in same period of
1999. The decrease was primarily attributable to the discontinuing of the
Company's unprofitable private labeling business.
"Cost of Sales" Cost of sales as percentage of sales in the third quarter 2000
increased to 92% from 67% in the third quarter of 1999. This percentage increase
is attributable to the decrease in net sales.
"Gross Profit Margin" The Company's gross profit margin in the third quarter
2000 decreased 15% 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 September 30, 2000 decreased 480% to $32,050 from $153,935 in
1999 and as a percentage of net sales it decreased to 65% from 100% in 1999. The
decrease in selling and marketing expenses was primarily due to an the Company
discontinuing unprofitable sales programs.
"General and Administrative Expenses." General and administrative expenses for
the third quarter 2000 decreased by 9% to $188,353 from $205,189 in 1999, and
increased as a percentage of sales to 259% from 133%. The primary reason for the
decrease of the general and administrative expenses is the reduced cost of
staffing by the Company.
"Operating Income or Loss" Operating loss for the third quarter 2000 decreased
31% to $227,580 from $329,678 in 1999 and the loss increased as a percentage of
sales to 466% from 214% in 1999. The decrease in the dollar amount of the
operating loss was due to reduced cost of staffing by the Company and the
decreased selling and marketing expenses incurred by the Company.
"Interest Expense." Interest expense for the third quarter 2000 decreased to
$863 from $10,859 in 1999 primarily due to the reduction of debt by the Company.
"Net Income." Net losses for the third quarter 2000 decreased 32% to $228,355
from $335,411 in 1999 and the loss increased as percentage of sales to 467% from
218%. This decrease is due to the reduced staffing by the Company and the
decreased selling and marketing expenses incurred by the Company.
Nine Months Ended September 30, 2000 Compared to
Nine Months Ended September 30, 1999
"Net Sales." Net sales decreased by 10% to $252,265 from $280,013 in same period
of 1999. The decrease was primarily attributable to the discontinuing of the
Company's unprofitable private labeling business.
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<PAGE>
"Cost of Sales" Cost of sales as percentage of sales in the first nine months
2000 increased to 62% from 41% in same period of 1999. This percentage increase
is attributable to the decrease in net sales.
"Gross Profit Margin" The Company's gross profit margin in the first six months
of 2000 decreased 21% 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 nine
months ended September 30, 2000 decreased to $233,275 from $235,256 in 1999 and
as a percentage of net sales it increased to 92% from 84% in 1999. The decrease
in selling and marketing expenses was primarily due to an the Company
discontinuing unprofitable sales programs.
"General and Administrative Expenses." General and administrative expenses for
the nine months ended September 30, 2000 increased to $611,487 from $456,454 in
1999 and increased as a percentage of sales to 242% from 163%. This was due to
the increased staffing cost of the first six months.
"Operating Income or Loss" Operating loss for the first nine months of 2000
increased to $784,977 from $549,680 in 1999 and the loss increased as a
percentage of sales to 311% from 196% in 1999. The increase of the operating
loss was due to the increased cost of the first six months.
"Interest Expense." Interest expense for the first nine months of 2000 increased
to $17,762 from $10,870 in 1999 primarily due increased borrowing costs in the
first six months.
"Net Income." Net losses for the first nine months of 2000 increased to $767,693
from $535,603 in 1999 and the loss increased as percentage of sales to 304% from
191%. This increase was due to the increased administrative costs of the first
six months.
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.
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<PAGE>
Liquidity and Capital Resources
During third quarter of 2000, the Company raised $271,450 through
private equity financing and secured $61,000 in debt financing in order to meet
its working capital requirements. The Company converted $43,479.94 of debt into
equity during the third quarter. As a result, Company's total liability was
reduced by $104,967.
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 September 30, 2000. The Company's
working capital requirements have been 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 are 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 pursuant to Section 4(2) of the Securities Act of 1933.
Date Sold To Class of Number of Offering Cost
Security Shares sold Price
--------- -------------- -------- ----------- -------- ----
7/03/2000 Masako Hanai Common 30,000 .885 $0
7/18/2000 Hiroshi Sumino Common 91,249 .875 $0
7/15/2000 Koichi Sumino Common 160,000 .875 $0
8/11/2000 Robert Ferrier Common 30,000 .830 $0
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<PAGE>
The following are the date, title and amount of securities issued for services
provided by the Company's affiliates and the consideration received by the
Company pursuant to Section 4(2) of the Securities Act of 1933.
Date Issued To Class of Number of Consideration Dollar
Security Shares Issued Value
--------- ----------- -------- ------------- ------------- ----------
8/25/2000 Wao Capital Common 30,000 Commission $23,310
8/25/2000 Master Bld Common 5,593 Services $ 5,201.49
7/25/2000 L. Janus Common 5,028 Commission $ 2,514
7/25/2000 Gary Olsen Common 10,000 Services $ 7,500
8/1/2000 S.Dmentriko Common 8,535 Consulting $9,602.15
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: November 14, 2000 By: /s/ JAMES P. WALSH
---------------------------------
James P. Walsh, Chairman and
Chief Executive Officer
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