<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Period Ended March 31, 1997
Commission File No. 0-18200
ARMANINO FOODS OF DISTINCTION, INC.
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(Exact name of registrant as specified in its charter)
Colorado 84-1041418
- ------------------------------ ----------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
30588 San Antonio Street, Hayward, California 94544
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(Address of Principal Executive Offices including zip code)
(510) 441-9300
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(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such report(s), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [ X ] No [ ]
There were 11,594,099 shares of the Registrant's Common Stock outstanding as
of March 31, 1997.
<PAGE>
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
ASSETS
March 31, December 31,
1997 1996
----------- -----------
Current Assets:
Cash and cash equivalents $ 526,129 $ 742,856
Treasury bills, held to maturity 3,940,001 3,990,912
Accounts receivable 836,715 1,698,339
Inventory 1,056,145 1,066,904
Prepaid expenses 142,864 108,106
Current deferred tax asset 648,377 656,000
----------- -----------
Total Current Assets 7,150,231 8,263,117
Property and Equipment, Net 2,515,093 2,599,936
Other Assets:
Deposits 1,615,520 477,610
Goodwill, net 574,938 585,438
----------- -----------
Total Other Assets 2,190,458 1,063,048
----------- -----------
Total Assets $11,855,782 $11,926,101
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 688,538 $ 999,476
Notes payable 16,236 32,073
Current portion of long-term debt 26,369 25,749
Line of credit payable 300,000 -
Net liabilities of discontinued operations - 75,145
----------- -----------
Total Current Liabilities 1,031,143 1,132,443
Deferred tax liability 126,000 126,000
Long-term debt 39,103 45,850
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Total Liabilities 1,196,246 1,304,293
Stockholders' Equity:
Common stock 11,538,989 11,529,739
Additional paid in capital 22,311 22,311
Accumulated deficit (901,764) ( 930,242)
----------- -----------
Total Stockholders' Equity 10,659,536 10,621,808
Total Liabilities and Stockholders' Equity $11,855,782 $11,926,101
The accompanying notes are an integral part of these condensed financial
statements. The balances for December 31, 1996 were taken from the audited
financial statements at that date and condensed.
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<PAGE>
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Condensed Consolidated Statements of Operations
For the Quarter Ended March 31, 1997 and 1996
(Unaudited)
March 31 March 31
1997 1996
---------- ----------
Net Sales $3,339,613 $3,385,199
Cost of Goods Sold 2,349,861 2,194,002
Gross Profit 989,752 1,191,197
Operating Expenses:
General and administrative 362,741 254,204
Salaries and wages 335,511 298,773
Commissions 109,344 104,844
Advertising, demonstrations, promotions,
and slotting allowances 188,248 181,136
Total Operating Expenses 995,844 838,957
Income (Loss) From Operations (6,092) 352,240
Other Income 55,193 48,282
Income From Continuing Operations Before
Income Taxes 49,101 400,522
Current Tax Expense 13,000 -
Deferred Tax Expense 7,623 160,209
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Net Income $ 28,478 $ 240,313
----------- -----------
Primary Earnings Per Share $ .00 $ .02
----------- -----------
Weighted Average Common Shares 11,826,072 11,147,689
Outstanding ----------- -----------
The accompanying notes are an integral part of these condensed financial
statements.
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<PAGE>
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Condensed Consolidated Statements of Cash Flows
For the Quarter Ended March 31, 1997 and 1996
(Unaudited)
March 31 March 31
1997 1996
----------- -----------
Cash Flows From Operating Activities:
Net income $ 28,478 $ 240,313
Adjustment to reconcile net income to net
cash (used for) provided by operations:
Depreciation and amortization 104,146 74,049
Changes in assets and liabilities:
Decrease in accounts receivable 861,624 306,288
Decrease in inventories 10,759 86,423
(Increase) Decrease in prepaid expenses ( 34,758) 25,254
(Increase) in other assests - 3,914
Decrease in deferred tax assets 7,623 160,209
(Decrease) in accounts payable and
accrued expenses (310,938) (336,050)
Increase (decrease) in net liabilities
of discontinued operations ( 75,145) -
----------- -----------
Total Adjustments 563,311 320,087
Net Cash Provided By Operating Activities 591,789 560,400
Cash Flows To Investing Activities:
Increase in deposits on future equipment
purchase (1,137,910) -
Capital expenditures ( 8,803) (254,827)
Reduction (increase) in U.S. treasury
bills, net 50,911 (607,462)
Net Cash (Used For)
Investing Activities (1,095,802) ( 862,289)
----------- -----------
Cash Flows From Financing Activities:
Issuance of common stock 9,250 2,648,825
Payments on capital lease obligations ( 6,127) ( 5,682)
Increase in borrowings 300,000 -
Payments on notes payable (15,837) -
----------- -----------
Net Cash Provided By Financing Activities: 287,286 2,643,143
Net Increase (Decrease) In Cash and
Cash Equivalents ( 216,727) 2,341,254
----------- -----------
Cash and Cash Equivalents Beginning of Period 742,856 746,250
----------- -----------
Cash and Cash Equivalents End of Period $ 526,129 $ 3,087,504
----------- -----------
The accompanying notes are an integral part of these condensed financial
statements.
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<PAGE>
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 1997
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting of normal recurring accruals, considered necessary for
a fair presentation have been included. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the December 31, 1996 audited
financial statements for Armanino Foods of Distinction, Inc. The results of
operations for the periods ended March 31, 1997 and 1996 are not necessarily
indicative of the operating results for the full year.
The condensed consolidated financial statements include the accounts of
Armanino Foods of Distinction, Inc. ("Parent") and it's wholly-owned
subsidiaries AFDI, Inc, (dba "Focaccia di Genova") and Alborough, Inc. (dba
"Emilia Romagna").
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments (Treasury Bills) purchased with a maturity of
three months or less to be cash equivalents.
The calculation of primary earnings per share is based on the weighted
average number of outstanding common shares during the period plus, when their
effect is dilutive, additional shares assuming the exercise of certain vested
and non-vested stock options and warrants reduced by the number of shares
which could be repurchased with proceeds. Fully dilutive earnings per share
are not presented as their effect for the quarter ended March 31, 1997 and
March 31, 1996 was anti-dilutive.
The Company acquired a subsidiary (Alborough, Inc.) during May, 1996.
The Company recorded goodwill in the amount of $609,938 as part of the
purchase. The Company is amortizing the goodwill over 15 years, on a straight
line basis.
NOTE 2 - INVENTORY
Inventory is carried at the lower of cost or market with cost being
determined on the first-in, first-out method and consisted of the following at
March 31, 1997 and December 31, 1996:
March 31, December 31,
1997 1996
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Raw materials & supplies $ 385,433 $ 275,472
Finished goods 670,712 791,432
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$1,056,145 $ 1,066,904
<PAGE>
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PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 1997
(Unaudited)
NOTE 3 - RELATED PARTY TRANSACTIONS
The Company incurred $10,256 and $10,500 respectively, for the three
months ended March 31, 1997 and 1996, in accounting and consulting fees to
Polly, Scatena, Gekakis & Co., an accounting firm, the managing partner of
which is also a stockholder and director of the Company. Services provided by
the accounting firm are an extension of the internal accounting functions of
the Company, as well as management, business and systems consulting.
NOTE 4 - INCENTIVE COMPENSATION
The Company has accrued $24,272 and $76,725 for the three months ended
March 31, 1997 and March 31, 1996 respectively, for its management and
employee incentive compensation plans. These amounts are based on achieving a
predetermined level of sales, net income and personal goals and objectives.
For the current year this amount is eligible for distribution only when the
(1) predetermined level of sales and net income and/or (2) personal goals and
objectives are achieved.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
March 31, December 31,
1997 1996
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Furniture & Office Equipment $ 227,362 $ 224,968
Plant Machinery & Equipment 2,101,257 2,096,048
Leasehold Improvements 1,390,424 1,389,223
3,719,043 3,710,239
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Accumulated Depreciation 1,203,950 1,110,303
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$2,515,093 $2,599,936
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As of March 31, 1997 the Company had made deposits in the amount of
$1,600,000 for equipment and leasehold improvements to be placed in service
during the second quarter of 1997 at its Hayward, California facility.
On May 20, 1996, the Company acquired Alborough, Inc., (dba Emilia
Romagna). The Company recorded property and equipment acquired at the fair
market value of these assets on May 20, 1996. Above amounts include the
property and equipment acquired through the purchase of Alborough, Inc.
NOTE 6 - LINES OF CREDIT
In September of 1994, the Company obtained two lines of credit totalling
$1,250,000 with Wells Fargo Bank in San Francisco, California. These two
lines consisted of a $500,000 business loan line of credit and a $750,000
equipment loan line of credit.
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<PAGE>
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 1997
(Unaudited)
The $500,000 business loan provides for interest at prime plus .75% with
a maturity date of September 10, 1997. At March 31, 1997, there was a balance
of $300,000 due on this line. This line of credit is secured by the Company's
inventory, accounts receivable and equipment.
The $750,000 equipment loan line of credit provided for interest at
prime plus .75% with a conversion date of September 15, 1997 to an installment
equipment loan. At March 31, 1997, there were no amounts borrowed against
this line. This line of credit is secured by the Company's inventory,
accounts receivable and equipment.
NOTE 7 - NOTES PAYABLE
At March 31, 1997, the Company's subsidiary, Alborough, Inc., was
obligated to pay a note in the amount of $16,236. The note provides for
monthly payments of principal and interest at an annual rate of 10%. The
final payment is due June 30, 1997.
NOTE 8 - INCOME TAXES
Effective January 1, 1993 the Company adopted FASB Statement 109,
"Accounting for Income Taxes."
As of March 31, 1997 and December 31, 1996 the net deferred tax assets
and liabilities consisted of the following:
March 31 December 31
1997 1996
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Current deferred tax asset $ 648,377 $ 656,000
Deferred Tax Liability (126,000) (126,000)
Management estimates that the Company will generate adequate net profits
to offset net operating loss carryforwards prior to the expiration of the net
operating loss carryforwards. Consequently, a deferred tax asset valuation
allowance has not been accrued.
NOTE 9 - COMMON STOCK ISSUANCES
The Company received $9,250 from the issuance of 10,000 shares at $.925
in connection with options exercised, under the 1993 Stock Option Plan.
NOTE 10 - ACQUISITION OF SUBSIDIARY
On May 20, 1996, the Company acquired all of the outstanding common
stock of Alborough, Inc., (dba Emilia Romagna), in a business combination
accounted for as a purchase. Alborough, Inc. is primarily engaged in the
manufacturing of gourmet Italian foods. The results of operations of
Alborough, Inc. is included in the accompanying financial statements since the
date of acquisition. The total cost of the acquisition was $738,779, which
exceeded the fair market value of the net assets of Alborough, Inc. by
$609,938. The excess is recorded as goodwill and is being amortized over 15
years. The purchase price could increase
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<PAGE>
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 1997
(Unaudited)
NOTE 10 - ACQUISITION OF SUBSIDIARY (Continued)
significantly depending upon Alborough, Inc. meeting certain earnings
performance criteria over the next 3 years. The agreement between the parties
provides that additional payments may be earned by Alborough, Inc's previous
shareholders based on a percentage of gross margin attributable to sales made
to specified customers. The sales must be made during a specified period of
time and subject to certain minimum sales levels being achieved. As of March
31, 1997, no additional payments have been made to Alborough Inc.'s former
shareholders as minimum sales to the specified customers had not been
achieved.
NOTE 11 - DISCONTINUED OPERATIONS
During the first quarter of 1997 the Company closed its quick service
Italian restaurant locations and discontinued the operations of AFDI, Inc.
The Company completed the disposition of the business during the second
quarter of 1997. AFDI, Inc. is reported as a discontinued operation for the
year ended December 31, 1996. During the three months March 31, 1997, the net
liability from discontinued operations has been reduced to $0.
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM II: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1997 V. QUARTER ENDED MARCH 31, 1996
Net sales for the quarter ended March 31, 1997 were $3,339,613 as
compared to $3,385,199 for the quarter ended March 31, 1996. The decrease in
sales is primarily attributable to lower pasta sales. This decrease is due to
the decision of a club store customer in August 1996 to buy its pasta products
from a different manufacturer. The Company's pesto product line showed a 10%
increase during the quarter ended March 31, 1997 compared to the quarter ended
March 31, 1996. Sales of the pesto product line continue to be strong in the
foodservice area. Meatball sales for the first quarter were weaker, primarily
due to strong sales in December of 1996 which increased inventories with our
customers and decreased sales during the first quarter of 1997.
Cost of goods sold as a percentage of net sales increased from 64.8% for
the quarter ended March 31, 1996 to 70.4% for the quarter ended March 31,
1997. This increase was primarily due to a change in the product mix. The
change in the product mix was the result of purchasing a new subsidiary
(Alborough, Inc.). The new products of the subsidiary currently have lower
margins than some of the Company's other products. Additionally, lower pasta
sales contributed to a higher percentage for cost of goods sold, due to fixed
costs being incurred but not absorbed by sales.
Operating expenses as a percentage of net sales were approximately 29.8%
for the quarter ended March 31, 1997 as compared to 24.8% for the quarter
ended March 31, 1996. The increase for the quarter is primarily due to
increases in general and administrative expenses and salaries expense.
General and administrative expenses increased due to the inclusion of
Alborough, Inc. in the consolidated financial statements and the hiring of a
public relations firm. Additionally, the revision of the packaging design and
merchandising materials for the Company's product lines added to this expense.
Salaries increased due to additional personnel at the Company.
Net income was $28,478 for the quarter ended March 31, 1997, as compared
to $240,313 for the quarter ended March 31, 1996. The decrease in the net
income for the first quarter of 1997 compared to the first quarter of 1996 is
attributed to lower sales, lower gross margins due to the change in the
product mix and an increase in operating expenses.
QUARTER ENDED MARCH 31, 1997 V. QUARTER ENDED MARCH 31, 1996
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had working capital of $6,119,088, a
decrease of $1,011,586 from December 31, 1996. The decrease was primarily due
to deposits being made on pasta equipment purchases. Current assets included
$5,302,845 in cash and cash equivalents, U.S. treasury bills, and accounts
receivable. Management believes that this level of working capital is
adequate to meet anticipated needs for liquidity.
During the three months ended March 31, 1997, cash provided by operating
activities of the Company amounted to $591,789. This was primarily a result
of the decrease in accounts receivable.
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM II: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
In September 1994, the Company obtained two lines of credit totaling
$1,250,000 with Wells Fargo Bank in San Francisco, California. These two
lines consisted of a $500,000 business loan line of credit and a $750,000
equipment loan line of credit. The $500,000 business loan provides for
interest at prime plus .75% with a maturity date of September 10, 1997. The
$750,000 equipment loan line of credit provides for interest at prime plus
.75% with a conversion date of September 15, 1997, to an installment equipment
loan. At March 31, 1997, there was a $300,000 balance due on the business
loan line. The purpose for obtaining both lines of credit was to afford the
Company greater cash liquidity.
The Company has made deposits on manufacturing equipment and leasehold
improvements in the amount of $1,600,000 as of March 31, 1997. The Company
anticipates incurring an additional $500,000 during the second quarter for
equipment and leasehold improvements. The equipment and leasehold
improvements are expected to be placed in service during the second quarter of
1997 at the Hayward, California facility.
On May 20, 1996, the Company purchased all of the outstanding stock of
Alborough, Inc. (dba Emilia Romagna). The total cost of the acquisition was
$738,779 including professional fees paid in relation to the acquisition.
Additionally, the terms of the agreement include an "earn-out" formula which
provides for payments to Alborough shareholders over a three year period based
on certain performance criteria established. The purchase price could
increase significantly depending upon Alborough, Inc. meeting certain earnings
performance criteria over the next 3 years. The agreement between the parties
provides that additional payments may be earned by Alborough, Inc.
shareholders based on a percentage of gross margin attributable to sales made
to specified customers. The sales must be made during a specified period of
time and subject to certain minimum sales levels being achieved. As of March
31, 1997, the Company has not incurred any additional cost due to this
provision.
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<PAGE>
PART II
OTHER INFORMATION
II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes In Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission Of Matters To A Vote Of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits And Reports On Form 8-K
A. Exhibits
27 - Financial Data Schedule Filed herewith
electronically
B. Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf of the
undersigned thereunto duly authorized.
ARMANINO FOODS OF DISTINCTION, INC.
Dated May 6, 1997 By /s/ William J. Armanino
---------------------------------------
William J. Armanino
President
Chief Executive Officer
Chief Financial Officer
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheets and statements of operations found on page 2 and 4 of the
Company's Form 10-Q for the year to date, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 526129
<SECURITIES> 3940001
<RECEIVABLES> 836715
<ALLOWANCES> 0
<INVENTORY> 1056145
<CURRENT-ASSETS> 7150231
<PP&E> 2515093
<DEPRECIATION> 0
<TOTAL-ASSETS> 11855782
<CURRENT-LIABILITIES> 1031143
<BONDS> 0
<COMMON> 11538989
0
0
<OTHER-SE> (879453)
<TOTAL-LIABILITY-AND-EQUITY> 11855782
<SALES> 3339613
<TOTAL-REVENUES> 3339613
<CGS> 2349861
<TOTAL-COSTS> 2349861
<OTHER-EXPENSES> 995844
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 49101
<INCOME-TAX> 20623
<INCOME-CONTINUING> 28478
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28478
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
