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1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year ended: December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to ________
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
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(State or Other Jurisdiction of (I.R.S. Employer Identi-
Incorporation or Organization) fication Number)
30588 San Antonio Street, Hayward, California 94544
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(Address of Principal Executive Offices, Including Zip Code)
Registrant's telephone number, including area code: (510) 441-9300
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: No Par Value
Common Stock
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 reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
As of March 22, 2000, 1,794,081 Shares of the Registrant's Common Stock were
outstanding. The aggregate market value of voting stock of the Registrant
held by non-affiliates was approximately $6,987,000.
Documents incorporated by reference: Part III is incorporated by reference to
the Registrant's Proxy Statement relating to the Annual Meeting of
Shareholders to be held May 18, 2000.
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 228,495 of this chapter) is not contained in this
and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ ]
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PART I
ITEM 1. BUSINESS.
THE COMPANY
Armanino Foods of Distinction, Inc. (the "Company") is engaged in the
production and marketing of upscale and innovative frozen food products,
including primarily pesto and other Italian-style sauces, stuffed and flat
pasta products, focaccia, meatballs and entree products.
The Company's business began in 1978 as Armanino Frozen Foods, a division
of Armanino Marketing Corp., which started producing frozen pesto sauce and
eventually developed most of the Company's present line of products. In
January 1987, substantially all of the business conducted by Armanino Frozen
Foods division was transferred to Armanino Foods of Distinction, Inc., a
Delaware corporation ("Armanino-Delaware"). In February 1988, Armanino-
Delaware was acquired by the Company in a stock exchange transaction in which
Armanino-Delaware became a wholly-owned subsidiary of the Company. In
December 1990, Armanino-Delaware was merged into the Company.
In May 1995, the Company formed AFDI, Inc., a California corporation, as
a wholly-owned subsidiary for the purpose of operating the Company's new
Italian quick service restaurants. In February 1997, the Company determined
that this concept was not meeting the Company's performance criteria and that
it would be more beneficial to concentrate management's time and effort to the
Company's ongoing business. The Company determined to discontinue operations
of Focaccia Di Genova on February 17, 1997. As a result, AFDI, Inc. has
become a dormant subsidiary of the Company.
In May 1996, the Company acquired all of the issued and outstanding
shares of Alborough, Inc., dba Emilia Romagna, for the purpose of expanding
its product line to include highly specialized upscale frozen pasta products
for the foodservice and industrial markets. As of December 31, 1997,
Alborough, Inc. was merged into the Company.
The Company is a Colorado corporation incorporated in October 1986, under
the name "Falcon Fund, Inc." for the purpose of creating a corporate vehicle
to seek and acquire a business opportunity. Following the acquisition of its
present business, the Company changed its name to "Armanino Foods of
Distinction, Inc." in November 1988.
In April 1990, the Company effected a one for six reverse split of the
shares of the Company's Common Stock outstanding; in April 1991, the Company
effected a one for fifteen reverse split of the shares of the Company's Common
Stock outstanding; in June 1998, the Company effected a one for 300 reverse
split immediately followed by a 300 for one forward split of the shares of the
Company's Common Stock outstanding; and in January 1999, the Company effected
a one for five reverse split of the shares of the Company's Common Stock
outstanding. All financial and share data in this Report gives retroactive
effect to the reverse splits.
The Company's offices are presently located at 30588 San Antonio Street,
Hayward, California 94544, and its telephone number is (510)441-9300.
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PRODUCTS
The Company's line of frozen products presently includes pesto sauces,
stuffed pastas and pasta sheets as well as value-added specialty Italian
pastas, focaccia, meatballs and entree products. These products are marketed
through a network of food brokers and sold to retail and foodservice
distributors, club type stores and industrial accounts. Several of these
products are sold under a separate label, namely the Italian Holiday label,
which services government type institutional customers. The products and the
labels they bear are identified as such in each product's category described
below.
The Company presently markets a line of pesto sauces which are available
in five varieties, Basil, Cilantro, Dried Tomato-Garlic, Roasted Red Bell
Pepper and Dried Tomato Feta based sauces under the Armanino label. Basil,
Dried Tomato Garlic and Roasted Red Bell Pepper pesto sauces are available to
the Company's retail, foodservice and industrial customers, and the Cilantro
and Dried Tomato Feta pesto is available to foodservice customers only.
The Company markets several lines of frozen pastas, namely stuffed pastas
and pasta sheets, cooked and uncooked.
The Company's line of frozen stuffed pastas, both cooked and uncooked,
includes meat, chicken and cheese ravioli; cheese raviolini; meat and cheese
tortellini and tri-color tortellini/capelleti style, manicotti and stuffed
shells. The meat, chicken and cheese ravioli and meat and cheese tortellini
are available to the Company's retail and foodservice customers. The
remaining pastas sold by the Company are available to its foodservice
customers only, as follows:
(a) all other stuffed pastas named above;
(b) gnocchi -- Potato;
(c) pasta sheets (used for lasagna).
(d) lasagna with meat sauce and vegetable lasagna.
All of these products are sold under the Armanino brand label. Additionally,
the Company developed a value added formulated version of its meat and cheese
ravioli and lasagna entree products. These value-added products are sold to
government type institutional customers only under the Italian Holiday label.
Previously, the Company marketed six of its existing 10 pound frozen
stuffed pasta products (meat and cheese ravioli, meat and cheese tortellini,
manicotti and stuffed shells) under the Italian Holiday Brand label in order
to satisfy a specific sector of the Company's foodservice customers. The
Company additionally marketed four of its existing 10 pound frozen stuffed
pastas, namely raviolis and tortellini (meat and cheese varieties of each)
under the Pasta Regina Brand label in order to satisfy certain customer needs.
The Company's frozen meatballs presently include two varieties -- beef
meatballs and turkey, beef, pesto meatballs. These products are available to
its retail and foodservice customers under the Armanino label.
The Company presently markets plain and olive frozen foccacia. The
focaccia is available in 1/4 sheets (1/4 sheet is approximately eight inches
by twelve inches), precooked frozen and sold to foodservice customers.
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NEW PRODUCTS
During the first quarter of 2000, the Company introduced a Dried Tomato,
Feta pesto sauce which is available to its foodservice customers only.
Additionally, the Company plans to introduce a Southwestern Chipolte sauce
during the second quarter of 2000.
The Company continues to research potential Italian entree line
opportunities. The Company plans to introduce a number of new Italian entree
products to its foodservice and in-store deli customers during 2000. With
respect to the Company's foodservice line, the Company is currently
researching the addition of new sauces, stuffed pastas and entree products to
its line during 2000.
MANUFACTURING OPERATIONS
Beginning in January, 1991, the Company manufactured frozen pesto sauce
at its facilities in South San Francisco, California. In August 1994, the
operation was transferred to the Company's new facilities in Hayward,
California. Prior to 1991, an independent company manufactured and packaged
this product for the Company. The Company made the decision to begin its own
manufacturing operations based on its need to gain control of its production
costs, production quality and its production schedule in order to better meet
the needs of its customers.
Shortly following completion of its move to the Hayward location, the
Company began in-house production of its ravioli line of products. In Fall of
1997, the Company moved its then subsidiary's (Emilia Romagna) operations to
the Company's facilities consolidating its manufacturing operations under one
roof. Several tortellini products that were previously manufactured by Emilia
Romagna will continue to be manufactured by the Company.
Also during the third quarter of 1997, the Company completed expansion of
its manufacturing operations to include multi-purpose manufacturing and
assembly equipment for entree line items including lasagna, cannelloni,
manicotti; pasta sheets and specialty pastas such as tortellini and
tortelloni, as well as other entree line items. To complement this line
further, kettles were also purchased to manufacture sauces for this line as
well as a refrigeration system for quick cooling of product and new packaging
equipment.
In 1999, the Company purchased a new oil storage tank and packaging
equipment to compliment the pesto production operation, thereby increasing
production efficiencies and improving manufacturing costs. The Company also
purchased a second tortellini machine and additional ravioli dies in order to
meet customer demands. The oil storage tank was placed into service during
the first quarter of 2000, and the new pasta equipment items will be placed
into service during the second quarter of 2000.
In the first quarter of 2000, the Company determined that it would be
more feasible to discontinue the in-house production of the specialty type
pasta line of products and concentrate its efforts on the manufacture of its
ravioli and tortellini line of products due to the increased demands for these
products by its customers. The Company will continue to market the specialty
pasta products, however, they will be manufactured for the Company by an
outside source under a co-pack arrangement.
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In 1998, the Company streamlined the pasta special product line (such as
tortellini and raviolini) by moving the production of these products from the
entree line to the ravioli line. The move increased manufacturing capacity
and efficiency of both lines.
The annual production rate of products varies as does the capacity of the
equipment, depending on the type of product being produced. The Company
believes that its equipment has sufficient capacity to meet its production
needs for at least the next twelve months.
The Company's line of frozen meatballs is manufactured by Pan Ready
(formerly Spun Steak) of South San Francisco, California. The Company has an
agreement with Pan Ready pursuant to which that company manufactures these
products based on the Company's proprietary formulas at a set price, as well
as Pan Ready's products on a "private label" basis at a set price. Pan Ready
has agreed to keep the Company's proprietary recipes confidential.
Certain stuffed pasta products are manufactured for the Company by the
San Francisco Pasta Company ("S.F. Pasta") of Hayward, California. The
Company has an agreement with S.F. Pasta pursuant to which that company
manufactures and packages these products based on the Company's proprietary
formulas at a set price. S.F. Pasta has agreed to keep the Company's recipes
confidential.
The Company's focaccia products are manufactured for the Company by
Maggiora Bakery ("Maggiora") in Richmond, California. The Company entered
into an agreement with Maggiora pursuant to which that Company will
manufacture and package these products based on the Company's proprietary
formulas at a set price. Maggiora has agreed to keep the Company's recipes
confidential.
All products manufactured by outside sources are produced on a "co-pack"
or "completed-cost" basis, except for the cost of branded packaging and
labeling which are borne by the Company. The manufacturer makes all
arrangements to purchase and inspect raw materials, schedule actual
production, and initiate movement of all finished goods to a warehouse
designated by the Company.
Quality assurance is monitored continually by the manufacturer during
processing for temperature, color, flavor, consistency, net weight and
integrity of packaging. Periodic inspections are made by the Company in
processing and sanitation compliance.
With regard to the production of frozen pesto sauces, pasta and Italian
line of entree products at the Company's own facilities, the Company is
responsible for the supervision of the above-mentioned quality assurance
measures and has employed its own in-house quality control personnel to assure
that the Company's processing and sanitation compliances are met. The Company
also performs process analysis as well as microbiological and nutritional
analysis of all its in-house production, and uses a Modesto, California
laboratory firm to assist in this testing. The Company completed its Hazard
Analysis and Critical Control Points program, required by USDA regulations.
The Company implemented this program subsequent to receiving approval of the
program by the U.S.D.A. in January 1999.
All raw materials are purchased from approved suppliers by manufacturers
on contract where specific requirements on quality, size, and packing medium
must be met, or on a spot market basis where prior specifications have been
met or qualified by testing.
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DISTRIBUTION AND MARKETING
The Company's products are marketed through a network of food brokers and
sold to retail, foodservice, club-type stores, and industrial accounts.
During the third quarter of 1998, the Company appointed DOT Foods to
distribute the Company's line of products to new and existing customers on a
non-exclusive national basis. DOT Foods is a master distributor servicing
both regional and national distributors. Approximately 30% of the Company's
sales are currently handled by DOT Foods.
For the year ended December 31, 1999, three independent brokers, namely,
Herspring, Acosta (formerly Kelley-Clarke) and Progresive Marketing accounted
for approximately 18%, 15% and 13%, respectively, of the sales of the Company.
For the year ended December 31, 1998, three independent brokers,
Progressive Marketing, Herspring and Kelley-Clarke, Inc. accounted for
approximately 18%, 16% and 14%, respectively, of the sales of the Company.
For the year ended December 31, 1997, one independent broker, Kelley-
Clarke, Inc., accounted for approximately 13% of the sales of the Company.
The loss of brokers or distributors who represent a significant amount of
sales could have a materially adverse effect on the business of the Company.
However, the Company believes that once brokers or distributors have
established accounts with customers such as supermarket chains, the
termination of a broker or distributor will not generally affect sales to such
customers when another broker or distributor serving the area is available, or
the Company is able to take over marketing responsibilities.
QUICK SERVICE RESTAURANTS
In 1995, the Company developed a concept for quick service Italian
restaurants. In June 1996, the Company opened its first restaurant in
Burlingame, California under the name Focaccia di Genova which specialized in
manufacturing and selling focaccia bread as a specialty item. The restaurant
also served Italian style salads, sandwiches and soups. In addition, LaVazza
brand coffee and coffee-related items were merchandised pursuant to a
strategic alliance with Lavazza Premium Coffees Corporation, an international
coffee company. It was the Company's original intention to open restaurants
both in Burlingame, California and Mountain View, California on a test basis.
After operating the Burlingame restaurant for several months, and analyzing
the investment required to open an additional restaurant and fund its ongoing
operations, the Company decided to abandon the Mountain View location and
focus on determining whether the Burlingame location would meet the Company's
performance criteria.
In February 1997, after analyzing the restaurant's performance, and the
allocation of management's time and efforts into other areas of the Company's
business which management determined to be more beneficial for the Company,
the Company decided to abandon the restaurant concept. As a result, AFDI,
Inc. is a dormant subsidiary of the Company.
ACQUISITION OF EMILIA ROMAGNA FOODS
In May 1996, the Company acquired all of the issued and outstanding
shares of Alborough, Inc. which conducted business under the trade name
"Emilia Romagna Foods". Emilia Romagna Foods manufactured highly specialized
upscale pasta products for the industrial and foodservice markets which
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utilizes state-of-the-art manufacturing equipment and techniques. The total
cost of the acquisition was $738,779 including professional fees paid in
relation to the acquisition. Additionally, the terms of the agreement
included an "earn-out" formula which provided for payments to the former
Alborough shareholders over a three year period based on certain performance
criteria established. The purchase price could have increased significantly
depending upon the attainment of earnings performance criteria over the three
year period. However, this criteria was not met and the Company is not
obligated to make any additional purchase price payments.
Emilia Romagna's product line consisted of the three categories, they
being frozen filled pastas (e.g. seafood ravioli, lobster ravioli, tri-color
cappelletti, smoked chicken ravioli) frozen flat pastas and gnocchi.
Approximately 300 different products had been produced over the years at
Emilia Romagna. Capacities of the equipment varied depending on the items
produced (per orders) on a given day.
RAW MATERIALS
The Company primarily uses basil, vegetables, vegetable oil, eggs, dairy
products, cooked meat, bread crumbs, flour, garlic, tomato puree and sauce
(concentrated), herbs and spices in packaging its products. There are ample
supplies of these raw materials and the Company anticipates no raw material
supply shortages in the foreseeable future.
COMPETITION
The Company faces substantial competition in its business. Because many
of the Company's products are sold frozen, they have a relatively shorter
shelf life and are more expensive than many competing dried products and
products packed in cans or jars. Although these types of competing products
are marketed by some companies which have significantly greater financial and
other resources than those of the Company, including advertising budgets, the
Company markets its products on the basis of quality and natural ingredients
rather than price.
With respect to other frozen food manufacturers, the Company believes
that its products are highly competitive with other frozen products in pricing
and quality. However, the Company faces stiff competition in the area of on-
going promotional support, and the Company has found it difficult to convince
new accounts to change their established suppliers. The Company may also face
competition from future entrants into the industry.
There is no assurance that the Company's products will meet with public
acceptance in new markets. The Company believes that the Company has achieved
name recognition nationally with emphasis in the West Coast Region.
EMPLOYEES
As of March 10, 2000, the Company employed 38 persons on a full-time
basis and two on a part-time basis. The Company also presently uses two to
four persons on a full-time basis, as needed, from a temporary employment
service.
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PATENTS AND TRADEMARKS
Although the Company's formulas and recipes are not subject to patent
protection, the Company treats these as proprietary and uses confidentiality
agreements as appropriate in an attempt to protect such formulas and recipes.
To date, the Company has not encountered any difficulties in keeping its
formulas and recipes confidential, and has not been required to enforce its
confidentiality agreements.
The Company uses the name "Armanino" as trademark for its products.
However, no trademark application has been filed for Armanino. In November
1995, the Company received a trademark registration for the mark Italian
Holiday from the U.S. Patent and Trademark office. This trademark was used by
the Company on certain of its frozen stuffed pasta products and meatball
products, and currently uses this trademark on its value-added line of
products only.
In August 1998, the Company received a trademark registration for the
mark Pasta Regina from the U.S. Patent & Trademark Office. The Company
previously used this mark on certain of its flat and filled pastas, including
ravioli and tortellini sold to foodservice, industrial and retail accounts,
and will be retained for future use.
As a result of its acquisition of Emilia Romagna, the Company held the
"Emilia Romagna" trademark registered with the State of California. This
trademark was used by the Company on certain frozen pasta and pasta products.
GOVERNMENT REGULATION
The Company's current manufacturing operations are regulated by the
United States Department of Agriculture ("USDA") as well as state and local
authorities. The Company is subject to various regulations with respect to
cleanliness, maintenance of food production equipment, food handling and
storage, and is subject to on-site inspections. The Company, as a distributor
of food items, is also subject to regulation by government agencies,
including, specifically, the USDA. Under various statues and regulations, the
regulatory agencies prescribe requirements and establish standards for
quality, purity and labeling. The finding of a failure to comply with one or
more regulatory requirements can result in a variety of sanctions, including
stopping production, monetary fines and/or the compulsory withdrawal of
products from the supermarket shelves. However, the Company believes that in
the event any such violations were found to exist, the Company could seek
compensation from the manufacturer of the cited product on products not
manufactured by the Company since the manufacturer is responsible for
processing, manufacturing, packaging and labeling such products. Neverthe
less, there can be no assurance that the Company would be successful in
recovering such compensation.
ITEM 2. PROPERTIES.
The Company leases approximately 24,375 square feet of office, production
and warehouse space located at 30588 San Antonio Street, Hayward, California,
94544. The base rent is $7,720 per month through July 31, 2000. The monthly
rental will increase effective on August 1, 2000 and August 1, 2002 based upon
the increase in the Consumer Price Index on those dates with a minimum of 3.5%
cumulative annual increase and a maximum of a 7% cumulative annual increase.
The lease expires on August 9, 2003 with an option to extend the term for two
periods of five years each. In addition to the base rent the Company is
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required to pay all utilities, expenses, maintain insurance on the property
and pay any increases in real estate taxes on the property.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's shareholders during
the fourth quarter of the year ended December 31, 1999.
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PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
PRINCIPAL MARKET OR MARKETS. The Company's Common Stock is traded in the
over-the-counter market and, since April 27, 1990, has been traded on the
Nasdaq Small-Cap Market under the symbol "ARMF".
The following table sets forth the closing high and low trading prices of
the Common Stock for the periods indicated, as reported by The Nasdaq Stock
Market. The prices shown give retroactive effect to a 1 for 5 reverse stock
split which became effective at the close of business on January 29, 1999.
QUARTER ENDED HIGH LOW
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March 31, 1998 $6.09 $4.69
June 30, 1998 $6.09 $3.75
September 30, 1998 $5.00 $2.34
December 31, 1998 $5.00 $2.50
March 31, 1999 $3.25 $2.44
June 30, 1999 $3.03 $2.31
September 30, 1999 $5.31 $2.59
December 31, 1999 $4.62 $3.50
APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK. The number of holders of
record of the Company's no par value common stock at March 10, 2000, was 441.
DIVIDENDS. Holders of common stock are entitled to receive such
dividends as may be declared by the Company's Board of Directors. No
dividends have been paid with respect to the Company's common stock and no
dividends are anticipated to be paid in the foreseeable future.
PRIVATE SALES OF SECURITIES. During the quarter ended December 31, 1999,
the Company did not sell any securities which were not registered under the
Securities Act of 1933, as amended.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth certain selected financial data with
respect to the Company, and is qualified in its entirety by reference to the
financial statements and notes thereto filed herewith:
BALANCE SHEET DATA:
At December 31,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------
Total Assets $11,292,908 $11,042,613 $12,935,625 $11,926,101 $9,054,289
Long-Term Debt 94,668 142,291 203,384 45,850 71,599
Cash Dividends
Per Share -0- -0- -0- -0- -0-
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STATEMENT OF OPERATIONS DATA:
For the Years Ended December 31,
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
Net Sales $12,155,719 $13,512,172 $15,347,165 $15,305,029 $13,504,429
Net Income
From Con-
tinuing
Operations 509,872 337,921 717,287 1,055,122 1,092,740
Net Income
From Con-
tinuing
Operations
Per Common
Share $.26 $.15 $.31 $.43 $.50
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 VS. YEAR ENDED DECEMBER 31, 1998
Net sales for the year ended December 31, 1999 were $12,155,719 compared
to $13,512,172 for the year ended December 31, 1998. The decrease in sales
for the year ended December 31, 1999 is attributed to lower sales of the
Company's meatball product line to the club store customer and high co-pack
sales of entree products to a co-pack customer in 1998. Increased sales of
the pesto product line offset some of the decreases in the other product
lines. The increases in pesto sales were the results of the Company's
continuing focus on expansion of the customer base for this product line. The
Company utilized various promotional programs to accomplish some of the sales
increases.
Cost of goods sold as a percentage of net sales decreased from 70.2% for
the year ended December 31, 1998 to 62.1% for the year ended December 31,
1999. The decrease in this percentage is due to the shift in the product mix
favoring the higher margin pesto product line.
Operating expenses as a percentage of net sales increased to 31.6% for
the year ended December 31, 1999, compared to 26.8% for the year ended
December 31, 1998. The increase in the percentage is partially due to the
decrease in net sales. Additionally, the increase in the percentage and the
dollar amount of these expenses for 1999 was due to increases in salary and
promotional expenses. The increase in salary expense was due to filling
vacant positions and employee bonuses paid in 1999. The increase in
promotions expense was due to the Company implementing various programs during
the year to drive some of the sales increases.
Interest and other income decreased for the year ended December 31, 1999,
compared to year ended December 31, 1998. This decrease was due to lower cash
reserves due to the repurchase of Company stock at the end of 1998.
Income from continuing operations was $509,872 for the year ended
December 31, 1999, compared to $337,921 for the year ended December 31, 1998.
The increase in net income is primarily attributed to higher pesto sales
contributing a more favorable margin.
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Net income was $509,872 for the year ended December 31, 1999 compared to
$218,461 for the year ended December 31, 1998. The net income in 1998 was
impacted by higher manufacturing costs due to a co-pack arrangement and an
extraordinary charge of $119,460 net of tax effect, as a result of a
settlement of a lawsuit involving the termination of a sales representation
contract with the Company's former club store broker.
YEAR ENDED DECEMBER 31, 1998 VS. YEAR ENDED DECEMBER 31, 1997
Net sales for the year ended December 31, 1998 were $13,512,172 compared
to $15,347,165 for the year ended December 31, 1997. The decrease in sales
for the year ended December 31, 1998 is attributable to lower sales of the
Company's meatball product line to a club-store customer. The lower meatball
sales were partially offset by five months of entree product sales to a co-
pack customer. Additionally, the pesto product line experienced increased
sales during the year and helped offset some of the meatball sales decreases.
The increases in pesto sales were the result of the Company's continuing focus
on expansion of the customer base for this product line. During the year
ended December 31, 1998, the Company had not obtained significant sales of the
entree product that were anticipated, other than to its co-pack customer
during the five months ended May 31, 1998.
Cost of goods sold as a percentage of net sales decreased from 70.7% for
the year ended December 31, 1997 to 70.2% for the year ended December 31,
1998. The decrease in this percentage is due to the shift in the product mix
due to the lower meatball product line sales, which carried lower margins than
both the pesto and pasta product lines. The decrease in this percentage due
to the product mix was partially offset by higher entree production costs for
a co-pack customer.
Operating expenses as a percentage of net sales increased to 26.8% for
the year ended December 31, 1998 compared to 24.8% for the year ended December
31, 1997. The increase in the percentage is due to the decrease in net sales.
Total dollar amount of these expenses decreased by approximately $195,000 for
the year ended December 31, 1998, as compared to the year ended December 31,
1997. The decreases were primarily in salary expense due to vacancies in some
management positions for a portion of the year. Additionally, advertising,
demonstrations and promotions showed a decrease for the year, primarily due to
lower demonstrations at club-stores due to lower club-store meatball sales.
Interest and other income decreased for the year ended December 31, 1998
compared to year ended December 31, 1997. This decrease was due to the
combination of lower cash reserves and lower interest rates on Treasury Bills
during 1998 as compared to 1997.
Income from continuing operations was $337,921 for the year ended
December 31, 1998 compared to $717,287 for the year ended December 31, 1997.
The decrease in net income is primarily attributed to lower sales and higher
costs attributable to the manufacture of the entree products for a co-pack
customer. Tax expense in 1997 was lower compared to 1998 due to manufacturing
credits gained on machinery purchases which were taken in 1997.
Net income was $218,461 for the year ended December 31, 1998, compared to
$717,287 for the year ended December 31, 1997. The net income in 1998 was
impacted by lower sales, higher manufacturing costs and a return to normal tax
levels. Additionally, 1998 net income was impacted by an extraordinary charge
of $119,460 net of tax effect, as a result of a settlement of a lawsuit
involving the termination of a sales representation contract with the
Company's former club-store broker.
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LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had working capital of $5,545,057 an
increase of $562,395 from December 31, 1998. The increase is primarily
attributable to the net income for the year ended December 31, 1999. Current
assets included $4,797,358 in cash, 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 year ended December 31, 1999, cash provided by operating
activities of the Company amounted to $1,459,263. This was primarily a result
of the net income from operations, non-cash depreciation and amortization
expense and decrease in inventory. For the year ended December 31, 1998, cash
provided by operating activities of the Company amounted to $1,287,557. This
was primarily a result of non-cash depreciation and amortization expense,
decrease in accounts receivable and decrease in inventory. For the year ended
December 31, 1997, the Company's operating activities generated $855,635.
This was primarily a result of net income from continuing operations
experienced during the year. During 1997 and 1996, the Company expended
approximately $2,300,000 on equipment and leasehold improvements for a new
sauced entree line. The Company placed this equipment and leasehold
improvements in service in September of 1997. All of the expenditures for
this line were made from the Company's cash reserves. As of December 31,
1999, the Company has invested $3,094,060 in U.S. treasury bills which are
included as cash equivalents.
As of September 10, 1999, the Company decided not to renew its business
loan line of credit due to adequate cash reserves. The Company had renewed
its $500,000 business loan line of credit with Wells Fargo Bank in San
Francisco, California in September 1998. This loan provided for interest at
prime plus .75% with a maturity date of September 10, 1999. At December 31,
1998, the Company had $0 outstanding under this line.
During 1999, the Company's board of directors approved a buy-back plan to
purchase Company stock totaling $500,000. Subsequent to year-end the board
increased this amount to a total of $800,000. During 1998, the Company's
board of directors approved two stock buy-back plans to purchase Company stock
totaling $1,250,000. As of December 31, 1999, the Company purchased stock
amounting to $299,205 for the 1999 stock buy-back plan and $1,250,000 for the
1998 stock buy-back plan. The Company paid an additional $374,359 subsequent
to December 31, 1999, to purchase common stock on the open market.
The Company presently has no material commitments for capital
expenditures.
YEAR 2000 COMPLIANCE
In 1998, the Company began assessing the various issues relating to the
year 2000. During 1998 the Company has upgraded its accounting application
software which has been certified by the manufacturer to be year 2000
compliant. The accounting software includes sales order, inventory, accounts
receivable, accounts payable, general ledger as well as other modules.
The Company utilized an outside firm to evaluate its information
technology systems. This outside firm performed the initial evaluation and
testing of the Company's internal network of LAN's, the payroll processing
system and production related processing equipment. This firm provided a
written report indicating that the Company's systems were year 2000 compliant.
13
<PAGE>
The Company incurred approximately $2,000 on upgrading software.
Approximately $4,000 was spent on evaluating and testing current systems
during the fourth quarter of 1998. During 1999, the Company incurred
approximately $8,000 to upgrade its hardware systems.
The Company reviewed its external relationships in order to determine the
impact which may arise from its dealings with customers, suppliers and service
providers.
The Company sells to approximately 250 customers. One customer accounts
for approximately 30% of total sales. At the present time this customer is
the only trading partner with E.D.I. transactions. Contact is ongoing with
this customer to ensure that they are year 2000 compliant. Surveys were sent
to the remaining customers by May 31, 1999 to attempt to determine the extent
of their compliance with the year 2000 issues. The Company does not expect a
material adverse affect from any single customer in this group.
At the present time, the Company has not experienced any year 2000
related issues. However, there can be no assurance that third parties the
Company deals with have resolved their year 2000 issues completely and timely.
Failure to complete the year 2000 project on time could have a material
adverse affect on future operating results and financial condition of the
Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS.
The financial statements and financial statement schedules are set forth
on pages F-1 through F-21 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
DISCLOSURE.
Not applicable.
PART III
ITEMS 10, 11, 12 AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by these Items is incorporated herein by
reference to the Company's definitive Proxy Statement relating to the Annual
Meeting of Shareholders to be held May 18, 2000.
14
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. The following financial statements are filed as part of this
Report:
PAGE
----
Independent Auditors' Report .................................. F-1
Consolidated Balance Sheets, December 31, 1999 and 1998 ....... F-2
Consolidated Statements of Operations, for the years ended
December 31, 1999, 1998 and 1997 .............................. F-4
Consolidated Statement of Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997 .................. F-6
Consolidated Statements of Cash Flows, for the years ended
December 31, 1999, 1998 and 1997 .............................. F-8
Notes to Consolidated Financial Statements .................... F-10
(b) 2. All schedules have been omitted, as the required information is
inapplicable or the information is presented in the financial statements or
the notes thereto.
(c) 3. Exhibits.
Exhibit
Number Description Location
- ------- ------------------------- ------------------------------------
3 Articles of Incorporation Incorporated by reference to Exhibit
and Bylaws No. 3 to Registrant's Form S-18 Reg-
istration Statement (No. 33-14130-D)
3.1 Articles of Amendment Incorporated by reference to Exhibit
to the Articles of Incor- No. 3.1 to Registrant's Form S-18
poration Registration Statement
(No. 33-14130-D)
3.2 Articles of Amendment Incorporated by reference to
to the Articles of Incor- Exhibit No. 3.3 to Registrant's
poration filed on April Form S-1 Registration State-
16, 1991 ment (No. 33-40098)
10.1 1993 Stock Option Plan Incorporated by reference to
Exhibit No. 1 to Registrant's
Report on Form 10-K for the year
ended December 31, 1992
10.2 Amended and Restated Incorporated by reference to
Lease for 30588 San Exhibit No. 10.5 to Registrant's
Antonio Street, Hayward Report on Form 10-K for the fiscal
California year ended December 31, 1993
15
<PAGE>
10.3 Manufacturing and Pack- Incorporated by reference to
aging Agreement with San Exhibit 10.12 to the Registrant's
Francisco Pasta Company Report on Form 10-K for the fiscal
year ended December 31, 1994
10.4 Manufacturing and Pack- Incorporated by reference to
ing Agreement with Pan Exhibit 10.17 to the Registrant's
Ready Foods, Inc. Form S-1 Registration Statement
(File No. 33-40098)
10.5 Manufacturing and Packag- Incorporated by reference to
ing Agreement with San Exhibit 10.16 to the Registrant's
Francisco Pasta, Inc. Annual Report on Form 10-K for the
(Second Agreement) year ended December 1, 1995
10.6 Employment Agreement dated Incorporated by reference to
January 1, 1996, with Exhibit 10.18 to the Registrant's
William J. Armanino Form 10-K for the year ended
December 31, 1995
10.7 Employment Agreement with Incorporated by reference to
Robert H. Anderson Exhibit 10.15 to the Registrant's
Form 10-K for the year ended
December 31, 1996
10.8 Employment Agreement with Incorporated by reference to
Robert P. Kraemer Exhibit 10.12 to the Registrant's
Form 10-K for the year ended
December 31, 1997
10.9 Consulting Agreement with Incorporated by reference to
Robert H. Anderson Exhibit 10.13 to the Registrant's
Form 10-K for the year ended
December 31, 1997
10.10 Consulting Agreement with Incorporated by reference to
Robert P. Kraemer Exhibit 10.13 to the Registrant's
Form 10-K for the year ended
December 31, 1998
21 Subsidiaries of the Incorporated by reference to
Registrant Exhibit 21 to the Registrant's
Form 10-K for the year ended
December 31, 1998
23 Consent of Pritchett, Filed herewith electronically
Siler & Hardy, P.C.
27 Financial Data Schedule Filed herewith electronically
(b) The Company filed no Reports on Form 8-K during the last
quarter of the period covered by this Report.
16
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
ARMANINO FOODS OF DISTINCTION, INC. AND SUBSIDIARY
Hayward, California
We have audited the accompanying consolidated balance sheets of Armanino Foods
of Distinction, Inc. and Subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended December 31, 1999, 1998 and 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements audited by us present
fairly, in all material respects, the financial position of Armanino Foods of
Distinction, Inc. and Subsidiary as of December 31, 1999 and 1998 and the
results of their operations and their cash flows for the years ended December
31, 1999, 1998 and 1997, in conformity with generally accepted accounting
principles.
/s/ PRITCHETT, SILER & HARDY, P.C.
January 25, 2000, except for Note 13
as to which the date is March 13, 2000
Salt Lake City, Utah
F-1
<PAGE>
ARMANINO FOODS OF DISTINCTION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
---------------------------
1999 1998
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 3,142,068 $ 633,580
Treasury bills, held to maturity - 1,768,283
Accounts receivable, net 1,655,290 1,271,740
Inventory 900,956 1,183,370
Prepaid expenses 223,285 197,523
Current deferred tax asset 425,000 606,000
----------- -----------
Total Current Assets 6,346,599 5,660,496
----------- -----------
PROPERTY AND EQUIPMENT, net 4,473,871 4,867,679
----------- -----------
OTHER ASSETS:
Deposits 13,000 13,000
Goodwill, net 459,438 501,438
----------- -----------
Total Other Assets 472,438 514,438
----------- -----------
$11,292,908 $11,042,613
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
ARMANINO FOODS OF DISTINCTION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
---------------------------
1999 1998
----------- -----------
CURRENT LIABILITIES:
Accounts payable $ 490,458 $ 539,905
Accrued expenses 263,461 76,837
Current portion capital lease obligation 47,623 61,092
----------- -----------
Total Current Liabilities 801,542 677,834
DEFERRED TAX LIABILITY 398,000 321,000
CAPITAL LEASE OBLIGATION, less current
portion 94,668 142,291
----------- -----------
Total Liabilities 1,294,210 1,141,125
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock; no par value, 10,000,000
shares authorized, no shares issued and
outstanding - -
Common stock; no par value, 40,000,000
shares authorized, 1,873,581 and
1,982,381 shares issued and outstanding
at December 31,1999 and 1998,
respectively 9,461,009 9,873,671
Additional paid-in-capital 22,311 22,311
Retained earnings 515,378 5,506
----------- -----------
Total Stockholders' Equity 9,998,698 9,901,488
----------- -----------
$11,292,908 $11,042,613
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ARMANINO FOODS OF DISTINCTION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
December 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
SALES, net of returns and discounts $12,155,719 $13,512,172 $15,347,165
COST OF GOODS SOLD 7,552,869 9,485,636 10,855,162
----------- ----------- -----------
GROSS PROFIT 4,602,850 4,026,536 4,492,003
----------- ----------- -----------
OPERATING EXPENSES:
General and administrative 1,322,945 1,417,252 1,425,013
Salaries, wages and related
payroll taxes 1,230,939 1,059,305 1,197,928
Commissions 315,496 384,613 333,516
Advertising, demonstrations,
promotions and trade allowances 977,879 755,521 854,908
----------- ----------- -----------
Total Operating Expenses 3,847,259 3,616,691 3,811,365
----------- ----------- -----------
INCOME FROM OPERATIONS 755,591 409,845 680,638
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (2,296) (11,630) (23,834)
Interest and other income 142,177 158,596 200,933
Loss on sale of fixed assets (5,064) (542) (15,634)
----------- ----------- -----------
Total Other Income 134,817 146,424 161,465
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 890,408 556,269 842,103
CURRENT TAX EXPENSE 122,536 25,808 10,816
DEFERRED TAX EXPENSE 258,000 192,540 114,000
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEMS AND
DISCONTINUED OPERATIONS 509,872 337,921 717,287
EXTRAORDINARY ITEM:
Loss on settlement of lawsuit
(net of income taxes of $61,540
at December 31, 1998) - (119,460) -
----------- ----------- -----------
NET INCOME $ 509,872 $ 218,461 $ 717,287
----------- ----------- -----------
[Continued]
F-4
<PAGE>
ARMANINO FOODS OF DISTINCTION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
[Continued]
For the Years Ended
December 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
EARNINGS PER COMMON AND EQUIVALENT
SHARES:
BASIC EARNINGS PER SHARE:
Income from continuing
operations $ .26 $ .15 $ .32
Extraordinary Item - (.05) -
----------- ----------- -----------
BASIC EARNINGS PER SHARE $ .26 $ .10 $ .32
----------- ----------- -----------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 1,942,676 2,185,423 2,248,375
----------- ----------- -----------
DILUTED EARNINGS PER SHARE:
Income from continuing
operations $ .26 $ .15 $ .31
Extraordinary Item - (.05) -
----------- ----------- -----------
DILUTED EARNINGS PER SHARE $ .26 $ .10 $ .31
----------- ----------- -----------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - ASSUMING DILUTION 1,950,834 2,191,883 2,299,242
----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ARMANINO FOODS OF DISTINCTION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
Common Stock Additional Retained
------------------------ Paid-in Earnings
Shares Amount Capital (Deficit)
---------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 2,316,819 $11,529,739 $22,311 $(930,242)
Shares of restricted common
stock issued for services
rendered at $4.11 per
share, January, 1997 1,000 4,106 - -
Shares of common stock issued
for options exercised at
$4.63 per share, February, 1997 2,000 9,250 - -
Shares of common stock repur-
chased and canceled at $5.45 -
$5.80 per share, May to August,
1997 (70,540) (407,053) - -
Net income for the year ended
December 31, 1997 - - - 717,287
--------- ----------- ------- ----------
BALANCE, December 31, 1997 2,249,279 11,136,042 22,311 (212,955)
Shares of restricted common
stock issued for services
rendered at $4.30 per share,
October, 1998 600 2,578 - -
Shares of common stock
repurchased and canceled in
connection with the 1 for 300
reverse stock split and 300
for 1 forward stock split at
$4.75 per share July, 1998 (26,851) (127,669) - -
Shares of common stock repur-
chased and canceled at $3.00
- $5.00 per share, September
to December, 1998 (240,855) (1,137,280) - -
Net income for the year ended
December 31, 1998 - - - 218,461
Fractional share adjustment in
connection With 1 for 5
reverse stock split 208 - - -
--------- ----------- ------- ----------
[Continued]
F-6
<PAGE>
ARMANINO FOODS OF DISTINCTION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
[CONTINUED]
Common Stock Additional Retained
------------------------ Paid-in Earnings
Shares Amount Capital (Deficit)
---------- ----------- ---------- ---------
BALANCE, December 31, 1998 1,982,381 9,873,671 22,311 5,506
Shares of common stock repur-
chased and canceled at $2.95
to 4.25 per share, January
to December 31, 1999 (108,800) (412,662) - -
Net income for the year ended
December 31, 1999 - - - 509,872
--------- ----------- ------- ----------
BALANCE, December 31, 1999 1,873,581 $ 9,461,009 $22,311 $ 515,378
========= =========== ======= ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-7
<PAGE>
ARMANINO FOODS OF DISTINCTION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
For the Years Ended
December 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
Cash Flows from Operating Activities:
Net income $ 509,872 $ 218,461 $ 717,287
----------- ----------- -----------
Adjustments to reconcile net
income to net cash used by
operations:
Depreciation and amortization 676,048 666,260 489,688
Non-cash expenses 5,064 3,120 40,539
Change in deferred tax asset
/ liability 258,000 131,000 114,000
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable (383,550) 448,943 (22,344)
(Increase) decrease in inventory 282,414 391,488 (507,954)
(Increase) decrease in prepaid
expenses (17,762) 40,150 (129,567)
Increase (decrease) in accounts
payable and accrued expenses 129,177 (611,865) 229,131
Increase (decrease) in net
liabilities of discontinued
operations - - (75,145)
----------- ----------- -----------
Total Adjustments 949,391 1,069,096 138,348
----------- ----------- -----------
Net Cash Provided by Operating
Activities 1,459,263 1,287,557 855,635
----------- ----------- -----------
Cash Flows from Investing Activities:
Purchases of property and equipment (246,804) (421,924) (2,281,583)
Proceeds from sale of property and
equipment 1,500 - 17,104
(Increase) decrease in deposits - - 4,916
(Purchase) redemption of US
treasury bills, net 1,768,716 1,206,687 1,015,509
----------- ----------- -----------
Net Cash Provided (Used)
by Investing Activities 1,523,412 784,763 (1,244,054)
----------- ----------- -----------
Cash Flows from Financing Activities:
Proceeds from borrowing on line
of credit - - 287,439
Payments on line of credit - (287,439) -
Payments on note payable - - (32,073)
Payments on capital lease obligations (61,092) (67,798) (35,093)
Proceeds from common stock Issuances - - 13,356
Purchase of treasury stock (412,662) (1,264,949) (407,053)
----------- ----------- -----------
Net Cash Provided (Used) by
Financing Activities (473,754) (1,620,186) (173,424)
----------- ----------- -----------
[Continued]
F-8
<PAGE>
ARMANINO FOODS OF DISTINCTION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
[Continued]
For the Years Ended
December 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
Net Increase (Decrease) in Cash
and Cash Equivalents 2,508,921 452,134 (561,843)
Cash and Cash Equivalents at
Beginning of Period 633,147 181,013 742,856
----------- ----------- -----------
Cash and Cash Equivalents at
End of Period $ 3,142,068 $ 633,147 $ 181,013
----------- ----------- -----------
Supplemental Disclosures of
Cash Flow Information:
Cash paid during the period for:
Interest $ 2,296 $ 11,630 $ 23,834
Income taxes $ 18,000 $ - $ 105,859
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
For the year ended December 31, 1999:
None
For the year ended December 31, 1998:
The Company issued a total of 600 shares of stock in exchange for
services rendered valued at $2,578.
For the year ended December 31, 1997:
The Company entered into a capital lease for equipment valued
at $234,675.
The Company issued a total of 1,000 shares of restricted common
stock in exchange for services rendered of $4,106.
The Company applied deposits of $459,694 against equipment
purchases.
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
ARMANINO FOODS OF DISTINCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION - The consolidated financial statements
include the accounts of Armanino Foods of Distinction, Inc. [Parent], which is
engaged in the production and marketing of upscale and innovative food
products, including primarily frozen pesto sauces, frozen pasta products,
frozen meatballs and other frozen Italian entrees, and it's wholly-owned
dormant subsidiary AFDI, Inc. [Subsidiary] incorporated in May 1995.
CONSOLIDATION - All significant intercompany transactions between Parent and
Subsidiary have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS - For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents [See Note 2]. The Company had
$0 and $167,554 in excess of federally insured amounts in its bank accounts at
December 31, 1999 and 1998, respectively.
TREASURY BILLS - The Company accounts for investments in debt and equity
securities in accordance with Statement of Financial Accounting Standard
(SFAS) 115, "Accounting for Certain Investments in Debt and Equity
Securities". Under SFAS 115 the Company's treasury bills (debt securities)
have been classified as held-to-maturity and are recorded at amortized cost.
Held-to-maturity securities represent those securities that the Company has
both the positive intent and ability to hold until maturity.
ACCOUNTS RECEIVABLE - Accounts receivable consist of trade receivables arising
in the normal course of business. At December 31, 1999 and 1998 the Company
has established an allowance for doubtful accounts of $5,000 and $10,000,
respectively. Amounts written off for the years presented are insignificant
for disclosure.
INVENTORY - Inventory is carried at the lower of cost or market, as determined
on the first-in, first-out method.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Expenditures for major renewals and betterments that extend the useful lives
of property and equipment are capitalized, upon being placed in service.
Expenditures for maintenance and repairs are charged to expense as incurred.
Depreciation is computed for financial statement purposes on a straight-line
basis over the estimated useful lives of the assets which range from three to
twenty years. For federal income tax purposes, depreciation is computed under
the modified accelerated cost recovery system.
F-10
<PAGE>
ARMANINO FOODS OF DISTINCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
EARNINGS PER SHARE - The Company calculates earnings per share in accordance
with the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings Per Share." The computation of
basic earnings per share is based on the weighted average number of shares
outstanding during the periods presented. The computation of diluted earnings
per share is based on the weighted average number of outstanding common shares
during the year 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 purchased from the
proceeds.
GOODWILL - Goodwill represents the excess of the cost of purchasing Alborough,
Inc. over the fair market value of the assets at the date of acquisition, and
is being amortized on the straight-line method over 15 years. Amortization
expense charged to operations for 1999 and 1998 was $42,000 and $42,000.
INCOME TAXES - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." This statement requires an asset and liability approach for
accounting for income taxes.
ACCOUNTING ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosures of contingent assets and liabilities at the date
of the financial statements and the reported amount of revenues and expenses
during the reporting period. Actual results could differ from those
estimated.
RESEARCH AND DEVELOPMENT COST - The Company expenses the cost of developing
new products as incurred as research and product development costs. Included
in general and administrative expense at December 31, 1999, 1998 and 1997 are
$48,815, $70,734 and $45,363, respectively, of research and development costs
associated with the development of new products.
RECENTLY ENACTED ACCOUNTING STANDARDS - Statement of Financial Accounting
Standards (SFAS) No. 132, "Employer's Disclosure about Pensions and Other
Postretirement Benefits", SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities", SFAS No. 134, "Accounting for Mortgage-Backed
Securities " and SFAS No. 135, "Rescission of FASB Statement No. 75 and
Technical Corrections" were recently issued. SFAS No. 132, 133, 134 and 135
have no current applicability to the Company or their effect on the financial
statements would not have been significant.
NOTE 2 - RELATED PARTY TRANSACTIONS
Fees paid to related parties - Amounts paid to related parties are as follows:
For the Years Ended December 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
Accounting fees paid to a company
controlled by a shareholder and
a director $ 17,342 $ 32,495 $ 26,450
F-11
<PAGE>
ARMANINO FOODS OF DISTINCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - CASH EQUIVALENTS
At December 31, 1999, cash equivalents consisted of US treasury bills, which
are carried at their amortized costs, as follows and presented as cash
equivalents in the accompanying financial statements:
Amortized Market Maturity
Date Acquired Maturity Date Cost Value Value
- ------------- ------------- ---------- ---------- ----------
10/21/99 1/20/00 $ 598,394 $ 597,750 $ 600,000
12/2/99 1/13/00 2,495,666 2,493,750 2,500,000
---------- ---------- ----------
3,094,060 3,091,500 3,100,000
Cash 48,008 48,008 48,008
---------- ---------- ----------
$3,142,068 $3,139,508 $3,148,008
---------- ---------- ----------
NOTE 4 - INVENTORY
Inventory consists of the following at December 31, 1999 and 1998:
1999 1998
----------- -----------
Raw materials and supplies $ 419,909 $ 481,226
Finished goods 481,047 702,144
----------- -----------
$ 900,956 $ 1,183,370
----------- -----------
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment (including capitalized leases) consists of the
following at December 31, 1999 and 1998:
1999 1998
----------- -----------
Office equipment $ 310,025 $ 299,822
Machinery and equipment 4,886,780 4,814,842
Leasehold improvements 1,890,087 1,906,876
----------- -----------
7,086,892 7,021,540
Less: Accumulated depreciation
and amortization (2,613,021) (2,153,861)
----------- -----------
$ 4,473,871 $ 4,867,679
----------- -----------
F-12
<PAGE>
ARMANINO FOODS OF DISTINCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - PROPERTY AND EQUIPMENT [Continued]
Depreciation expense amounted to $634,048, $624,260 and $447,688 for the years
ended December 31, 1999, 1998 and 1997, respectively.
NOTE 6 - LEASES
CAPITAL LEASES - The Company is the lessee of equipment under a capital lease
expiring in 2002. The assets and liabilities under the capital lease were
recorded at the lower of the present value of the minimum lease payments or the
fair value of the assets at the time of purchase. The asset is amortized over
its related lease term. Amortization expense of $50,000 and $75,000 for the
assets under the capital lease and have been included in depreciation expense
for 1999 and 1998.
Equipment at December 31, 1999 and 1998 under capital lease obligations is as
follows:
1999 1998
----------- -----------
Equipment $ 234,675 $ 375,000
Less: Accumulated amortization (111,734) (170,067)
----------- -----------
$ 122,941 $ 204,933
----------- -----------
Total future minimum lease payments, executory costs and current portion of
capital lease obligations are as follows:
Future minimum lease payments for the years ended December 31,
Year ending December 31, Lease Payments
------------------------ --------------
2000 $ 58,800
2001 58,800
2002 44,100
--------
Total future minimum lease payments $161,700
Less: amounts representing interest
and executory costs (19,409)
--------
Present value of the future minimum
lease payments 142,291
Less: Lease current portion (47,623)
--------
Capital lease obligations - long term $ 94,668
--------
F-13
<PAGE>
ARMANINO FOODS OF DISTINCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - LEASES [Continued]
OPERATING LEASES - The Company leases its office and production facility under
an operating lease expiring in August 2003, with options to extend through
August 2013 at fair market rates. The Company also leases equipment under an
operating lease expiring upon 90 days written notice.
The future minimum lease payments for non-cancelable operating leases having
remaining terms in excess of one year as of December 31, 1998 are as follows:
Year ending December 31, Lease Payments
------------------------ --------------
2000 99,329
2001 95,882
2002 97,280
2003 57,888
Thereafter -
--------
Total Minimum Lease Payments $350,379
--------
Lease expense charged to operations was $97,977, $89,046 and $128,865 for the
years ended December 31, 1999, 1998 and 1997.
NOTE 7 - AGREEMENTS AND COMMITMENTS
MANUFACTURING - Certain of the Company's products are manufactured and
packaged on a "co-pack" or "toll-pack" basis by third parties at agreed upon
prices. The agreements with the co-packers have terms of one year and allow
for periodic price adjustments. These agreements generally allow for either
party to give a two months cancellation notice.
401(K) PROFIT SHARING PLAN - The Company has a 401(K) profit sharing plan and
trust that covers all employees. Any employees who have completed 1,000 hours
of service within twelve consecutive months and have reached age 21 are
eligible to participate in the plan. The plan became effective January 1,
1993 and has a plan year of January 1 through December 31. During 1999, 1998
and 1997 contributions to the plan charged to operations were $7,380, $10,678,
and $8,515, respectively.
F-14
<PAGE>
ARMANINO FOODS OF DISTINCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - AGREEMENTS AND COMMITMENTS [Continued]
INCENTIVE COMPENSATION PLANS - For 1998 and 1997, the Board of Directors
established a combined incentive compensation plan for management and
employees, funded based on the individual achieving specific personal
objectives and upon the Company meeting predetermined sales revenues and
pretax income from operations. For 1998 and 1997 the plan was not funded as
the individual's objectives and predetermined sales and earnings levels were
not achieved.
NOTE 8 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 Accounting for Income Taxes [SFAS No.
109]. SFAS No. 109 requires the Company to provide a net deferred tax asset
or liability equal to the expected future tax benefit or expense of temporary
reporting differences between book and tax accounting and any available
operating loss or tax credit carryforwards. At December 31, 1999 and 1998,
the total of all deferred tax assets was $425,000 and $606,000 and the total
of the deferred tax liabilities was $398,000 and $321,000. The amount of and
ultimate realization of the benefits from the deferred tax assets for income
tax purposes is dependent, in part, upon the tax laws in effect, the Company's
future earnings, and other future events, the effects of which cannot be
determined.
The components of income tax expense from continuing operations for the years
ended December 31, 1999, 1998 and 1997 consist of the following:
1999 1998 1997
----------- ----------- -----------
Current income tax expense:
Federal $ 122,536 $ 4,561 $ -
State - 21,247 10,816
----------- ----------- -----------
Current tax expense 122,536 25,808 10,816
----------- ----------- -----------
Deferred tax expense (benefit)
arising from:
Excess of tax over financial
accounting depreciation $ 77,000 $ 118,000 $ 77,000
Carryforward of excess
contributions (21,266) - -
Use of federal NOL carry-
forwards 236,691 103,679 203,799
Use of state NOL carryforwards - 1,941 (1,941)
Federal alternative minimum
tax credit (89,918) (4,561) -
State alternative minimum
tax credit - (21,247) (10,816)
Inventory 263A adjustment 2,946 2,297 (8,112)
State investment tax credits 52,547 (7,569) (145,930)
----------- ----------- -----------
Net deferred tax expense $ 258,000 $ 192,540 $ 114,000
----------- ----------- -----------
F-15
<PAGE>
ARMANINO FOODS OF DISTINCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES [Continued]
Deferred income tax expense results primarily from the reversal of temporary
timing differences between tax and financial statement income.
A reconciliation of income tax expense at the federal statutory rate to income
tax expense at the company's effective rate is as follows:
1999 1998 1997
----------- ----------- -----------
Computed tax at the expected
statutory rate $ 302,739 $ 189,607 $ 286,315
----------- ----------- -----------
State and local income taxes,
net of federal benefit 54,752 34,230 51,688
Non-deductible expenses 10,098 12,509 18,923
Goodwill amortization 16,855 16,855 16,855
State tax credits 10,337 (7,569) (145,930)
Effect of alternative minimum taxes - - 7,139
Other Items (14,245) (27,284) (110,174)
----------- ----------- -----------
Income tax expense $ 380,536 $ 218,348 $ 124,816
----------- ----------- -----------
As of December 31, 1999 the Company has net tax operating loss (NOL)
carryforwards available to offset its future income tax liability. The NOL
carryforwards have been used to offset deferred taxes for financial reporting
purposes. The Company has federal NOL carryforwards of $696,000 that expire
in 2006 and 2012.
The temporary differences and carryforwards gave rise to the following
deferred tax asset (liability) at December 31, 1999 and 1998:
1999 1998
----------- -----------
Excess of tax over book accounting
depreciation $ (398,000) $ (321,000)
Inventory 263A adjustment 10,367 13,313
State alternative minimum tax credits 103,584 103,584
Federal alternative minimum tax credits 188,381 98,464
State Investment Tax Credits 100,952 153,499
Federal NOL carryforwards - 237,140
Federal contribution carryforwards 21,716 -
The alternative minimum tax credits have no date of expiration and are
available to offset the Company's future income tax liability. The state
investment tax credits are from the purchase of manufacturing equipment and
expire in March 2008.
F-16
<PAGE>
ARMANINO FOODS OF DISTINCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES [Continued]
As of December 31, 1999 and 1998 the deferred tax asset (liability) consisted
of the following:
1999 1998
----------- -----------
Current deferred tax assets $ 425,000 $ 606,000
Deferred tax assets (liabilities) (398,000) (321,000)
----------- -----------
$ 27,000 $ 285,000
----------- -----------
Management estimates that the Company will generate adequate net profits to
use alternative minimum tax carryforwards and state investment tax credits,
consequently, a deferred tax asset valuation allowance has not been accrued.
NOTE 9 - EARNINGS PER SHARE
The following data shows the amounts used in computing earnings per share and
the effect on income and the weighted average number of shares of potential
dilutive common stock for the years ended December 31, 1999, 1998 and 1997:
For the years ended December 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
Income from continuing operations
available to common stockholders $ 509,872 $ 337,921 $ 717,287
----------- ----------- -----------
Weighted average number of common
shares outstanding used in basic
earnings per share 1,942,676 2,185,423 2,248,375
Effect of dilutive securities:
Stock options 8,158 6,460 50,867
Stock warrants - - -
Weighted number of common shares
and potential dilutive common
shares outstanding used in dilutive
earnings per share 1,950,834 2,191,883 2,299,242
----------- ----------- -----------
The Company had at December 31, 1999, 1998 and 1997 options to purchase
352,740, 357,190 and 203,999 shares of common stock , respectively, at prices
ranging from $4.29 to $5.70 per share, that were not included in the
computation of diluted earnings per share because their effect was
anti-dilutive (the options exercise price was greater than the average market
price of the common shares).
Subsequent to the year ending December 31, 1999, the Company repurchased
shares of the Company's common stock [See Note 13].
F-17
<PAGE>
ARMANINO FOODS OF DISTINCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - STOCKHOLDERS' EQUITY
COMMON STOCK - During 1999 and 1998 the Company purchased 108,800 and 267,706
shares of common stock for $ 412,663 and $1,264,949, respectively, on the open
market. Subsequent to the year ending December 31, 1999, the Company
repurchased shares of the Company's common stock [See Note 13].
STOCK SPLITS - During May 1998, the Company's shareholders approved a 1 for
300 reverse stock split followed by the 300 for 1 forward stock split of all
its previously issued outstanding common shares with 26,851 shares being
repurchased for approximately $127,669. During January 1999, the Company
approved a 1 for 5 reverse stock split of all its previously issued
outstanding common stock. The split was effective January 29, 1999, with 208
fractional shares being issued. The effect of these common stock splits have
been reflected in these financials statements.
COMMON STOCK ISSUANCES - During 1998 and 1997, the company issued 600 and
1,000 shares of restricted common stock valued at $2,578 and $4,106,
respectively, in exchange for services rendered. The Company issued during
1997, 2,000 shares of stock in connection with options exercised, under the
1993 stock option plan.
The restricted stock issued during the years ended December 31, 1998 and 1997
for non-cash consideration were valued at the mean between the closing bid
less 25%-35% attributable to the transferability restrictions of the stock.
PREFERRED STOCK - The Company is authorized to issue 10,000,000 shares of no
par value preferred stock with such rights and preferences and in such series
as determined by the Board of Directors at the time of issuance. No shares
are issued or outstanding as of December 31, 1999, 1998 and 1997.
STOCK WARRANTS - During July 1999, the Company issued a warrant in connection
with a manufacturing arrangement. The warrant issued entitles the holder to
purchase up to 100,000 shares of the Company's common stock at $3.00 for a
period of one year expiring July 6, 2000. As of December 31, 1999 no shares
have been issued.
F-18
<PAGE>
ARMANINO FOODS OF DISTINCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - STOCKHOLDERS' EQUITY [Continued]
STOCK OPTIONS - During the periods presented in the accompanying financial
statements the Company has granted options under the 1993 Stock Options Plan
(the Plan) and executive and other employment agreements. The Corporation has
adopted the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation." Accordingly, no
compensation cost has been recognized for the stock option plans or other
agreements. Had compensation cost for the Company's stock option plan and
agreements been determined based on the fair value at the grant date for
awards in 1999, 1998 and 1997 consistent with the provisions of SFAS No. 123,
the Company's net earnings and earnings per share would have been reduced to
the pro forma amounts indicated below:
1999 1998 1997
----------- ----------- -----------
Net Income As reported $ 509,872 $ 218,461 $ 717,287
Proforma $ 509,229 $ 196,126 $ 714,407
Basic earnings per As reported $ .26 $ .10 $ .32
share Proforma $ .26 $ .09 $ .32
Diluted earnings As reported $ .26 $ .10 $ .31
per share Proforma $ .26 $ .09 $ .31
The fair value of each option granted is estimated on the date granted using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants during the period ended December 31, 1999, 1998
and 1997 risk-free interest rates of 4.9%, 5.5% and 6.3% expected dividend
yields of zero, expected life of 10, 7.5 and 5.6 years, and expected
volatility 56%, 46% and 45%.
1993 STOCK OPTION PLAN - During 1993 and later amended in 1995 and 1996, the
Board of Directors adopted a Stock Option Plan (the Plan). Under the terms and
conditions of the Plan, the board is empowered to grant stock options to
employees, officers, directors and consultants of the Company. Additionally,
the Board will determine at the time of granting the vesting provisions and
whether the options will qualify as Incentive Stock Options under Section 422
of the Internal Revenue Code (Section 422 provides certain tax advantages to
the employee recipients). The Plan was approved by the shareholders of the
Company at its 1993 annual shareholder meeting. The total number of shares of
common stock available under the Plan may not exceed 650,000. At December 31,
1999 and 1998, total options available to be granted under the Plan amounted
to 255,760 and 269,510, respectively.
F-19
<PAGE>
ARMANINO FOODS OF DISTINCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - STOCKHOLDERS' EQUITY [Continued]
A summary of the status of the options granted under the Company's stock
option plan and other agreements at December 31, 1999, 1998 and 1997, and
changes during the years then ended is presented below:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 December 31, 1997
------------------ ------------------ -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- -------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period 358,790 $4.94 366,299 $6.40 408,299 $6.78
Granted 20,000 3.09 316,070 $5.07 34,400 $6.20
Exercised - - - - (2,000) $4.65
Forfeited (6,250) 4.97 (263,579) $7.21 (60,400) $8.90
Expired - - (60,000) $6.43 (14,000) $6.35
------- ----- -------- ----- ------- -----
Outstanding at end of Period 372,540 $4.84 358,790 $4.94 366,299 $6.40
------- ----- -------- ----- ------- -----
Weighted average fair value
of options granted during
the year 20,000 $ .12 291,070 $ .12 34,400 $ .15
------- ----- -------- ----- ------- -----
</TABLE>
A summary of the status of the options outstanding under the Company's stock
option plans and employment agreements at December 31, 1999 is presented
below:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------- --------------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life Price Exercisable Price
- ------------ ----------- ---------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$3.09 20,000 9.1 years $3.09 5,557 $3.09
$4.30-$5.70 25,240 8.1 years $5.06 14,531 $5.08
$4.63 112,300 5.0 years $4.63 112,300 $4.63
$5.08-$5.48 31,000 3.4 years $5.15 31,000 $5.15
$5.08 184,000 5.0 years $5.08 184,000 $5.08
------- -------
372,540 347,388
</TABLE>
F-20
<PAGE>
ARMANINO FOODS OF DISTINCTION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - SIGNIFICANT CUSTOMERS
The Company sells its products through a network of independent food brokers
who are paid commissions ranging from 3% to 5% of sales depending on products
sold and selling price. A significant percentage of the Company's total sales
is sold through 2 or fewer brokers. The following table lists the total sales
from continuing operations through brokers that accounted for 10% or more of
total sales:
December 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
Broker A $1,904,384 $1,940,339 $1,940,461
Broker B 1,710,345 2,424,687 -
Broker C 2,199,994 2,169,182 -
NOTE 12 - EXTRAORDINARY LOSS FROM LITIGATION
On June 11, 1997, Mass Marketing Services filed a lawsuit in Superior Court of
San Diego County, California against the Company seeking damages for breach of
contract, open book account and reasonable value of services rendered. The
lawsuit arose after the Company terminated its sales representation agreement
with Mass Marketing. Mass Marketing asserted that it was entitled to, an
additional ten months of commissions (approximately $100,000) and attorneys
fees under the agreement. The parties agreed to arbitrate the dispute and the
case was submitted to arbitration in July 1998. The arbitrator awarded Mass
Marketing damages in the total amount of $167,342. Pending the Company's
action to overturn the award, which it considered erroneous. The parties
settled the claim for $145,000. The Company expended approximately $36,000
defending their position.
NOTE 13 - SUBSEQUENT EVENTS
Subsequent to the year ending December 31, 1999, the Company repurchased
79,500 shares of the Company's common stock for approximately $374,359.
During January 2000, the Company issued to members of the Board of Directors a
total of 60,000 options to purchase common stock at $5.08 per share, expiring
in April 2005.
During March 2000, the Company issued 3,000 shares of restricted stock valued
at $12,585 for consulting services rendered. The stock was valued at the
mean between the closing bid and asked prices for the Company's stock less 25%
attributable to the transferability restrictions on the stock.
During March 2000, the Company issued stock options to purchase 10,000 shares
of common stock to a consultant. The shares are exercisable at $5.72 per
share and expire in February 2010.
F-21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Ex
change Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ARMANINO FOODS OF DISTINCTION, INC.
Dated: March 28, 2000 By:/s/ William J. Armanino
William J. Armanino, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
Signature Capacity Date
/s/ William J. Armanino President, Chief Executive March 28, 2000
William J. Armanino Officer and Chairman of
the Board
/s/ Edmond J. Pera Treasurer, Chief Financial March 28, 2000
Edmond J. Pera Officer and Secretary
/s/ John J. Micek, III Director March 28, 2000
John J. Micek, III
/s/ David Scatena Director March 28, 2000
David Scatena
/s/ Tino Barzie Director March 28, 2000
Tino Barzie
____________________________ Director
J. Bryan King
/s/ Joseph F. Barletta Director March 28, 2000
Joseph F. Barletta
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
- ------- -----------------------------
23. CONSENT OF INDEPENDENT PUBLIC Filed herewith electronically
ACCOUNTANTS
27. FINANCIAL DATA SCHEDULE Filed herewith electronically
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation of our report dated January 25, 2000,
except for Note 13 as to which the date is March 13, 2000, appearing in the
Annual Report on Form 10-K of Armanino Foods of Distinction, Inc. for the year
ended December 31, 1999, in the Company's Registration Statement on Form S-8,
SEC File No. 33-94196.
/s/ Pritchett, Siler & Hardy, P.C.
PRITCHETT, SILER & HARDY, P.C.
Salt Lake City, Utah
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of operations
found on pages F-2 through F-5 of the Company's Form 10-K for the fiscal
year ended December 31, 1999, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,142,068
<SECURITIES> 0
<RECEIVABLES> 1,660,290
<ALLOWANCES> 5,000
<INVENTORY> 900,956
<CURRENT-ASSETS> 6,346,599
<PP&E> 7,086,892
<DEPRECIATION> 2,613,021
<TOTAL-ASSETS> 11,292,908
<CURRENT-LIABILITIES> 801,542
<BONDS> 0
0
0
<COMMON> 9,461,009
<OTHER-SE> 537,689
<TOTAL-LIABILITY-AND-EQUITY> 11,292,908
<SALES> 12,155,719
<TOTAL-REVENUES> 12,155,719
<CGS> 7,552,869
<TOTAL-COSTS> 7,552,869
<OTHER-EXPENSES> 3,847,259
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,296
<INCOME-PRETAX> 890,408
<INCOME-TAX> 380,536
<INCOME-CONTINUING> 509,872
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 509,872
<EPS-BASIC> .26
<EPS-DILUTED> .26
</TABLE>
