U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2000
Commission File No. 0-18200
ARMANINO FOODS OF DISTINCTION, INC.
(Exact name of small business issuer as specified in its charter)
COLORADO 84-1041418
(State or other jurisdiction (I.R.S. Employer Identification
incorporation or organization) Number)
30588 San Antonio St., Hayward, CA 94544
(Address of principal executive office)(Zip Code)
Issuer's telephone number, including area code: (510) 441-9300
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 __
There were 1,564,804 shares of the Issuer's Common Stock outstanding as of
September 30, 2000.
Transitional Small Business disclosure Format. Yes _____ No _X__
<PAGE>
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
ASSETS
September 30, December 31,
2000 1999
------------- ------------
Current Assets:
Cash and cash equivalents $ 1,314,766 $ 3,142,068
Treasury bills held to maturity 691,050 -
Accounts receivable 1,660,751 1,655,290
Inventory 1,268,133 900,956
Prepaid expenses 133,574 223,285
Current deferred tax asset 242,860 425,000
----------- -----------
Total Current Assets 5,311,134 6,346,599
Property and Equipment, Net 4,319,300 4,473,871
Other Assets:
Deposits 13,000 13,000
Goodwill, net 427,938 459,438
----------- -----------
Total Other Assets 440,938 472,438
----------- -----------
Total Assets $10,071,372 $11,292,908
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable & accrued expenses $ 962,535 $ 753,919
Income Taxes Payable 121,327 -
Dividends payable 78,240 -
Current portion of capital leases 47,071 47,623
----------- -----------
Total Current Liabilities 1,209,173 801,542
Deferred tax liability 398,000 398,000
Capital lease obligations 59,917 94,668
----------- -----------
Total Liabilities 1,667,090 1,294,210
Stockholders' Equity:
Common stock 7,692,373 9,461,009
Additional paid in capital 22,311 22,311
Retained earnings 689,598 515,378
----------- -----------
Total Stockholders' Equity 8,404,282 9,998,698
----------- -----------
Total Liabilities & Stockholders'
Equity $10,071,372 $11,292,908
=========== ===========
The accompanying notes are an integral part of these condensed financial
statements. The balances for December 31, 1999 were taken from the audited
financial statements at that date and condensed.
2
<PAGE>
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Condensed Consolidated Statements of Operations
For the Quarter Ended September 30, 2000 and 1999
(Unaudited)
September 30, September 30,
2000 1999
----------- -----------
Net Sales $ 3,353,563 $ 3,163,441
Cost of Goods Sold 2,033,414 1,892,579
----------- -----------
Gross Profit 1,320,149 1,270,862
Operating Expenses:
General and administrative 300,069 333,169
Salaries and wages 348,341 300,551
Commissions 109,411 69,936
Advertising, demonstrations, promotions,
and slotting allowances 223,527 278,449
----------- -----------
Total Operating Expenses 981,348 982,105
Income From Operations 338,801 288,757
Other Income 29,622 27,923
----------- -----------
Income From Continuing Operations Before
Income Taxes 368,423 316,680
Current Tax Expense 98,300 -
Deferred Tax Expense 49,069 126,672
----------- -----------
Net Income $ 221,054 $ 190,008
=========== ===========
Basic Earnings Per Share $ .14 $ .10
=========== ===========
Weighted Average Common Shares Outstanding 1,564,804 1,945,081
=========== ===========
Diluted Earnings Per Share $ .14 $ .10
=========== ===========
Weighted Average Common Shares Outstanding
Assuming Dilution 1,598,022 1,947,110
=========== ===========
The accompanying notes are an integral part of these condensed financial
statements.
3
<PAGE>
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Condensed Consolidated Statements of Operations
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
September 30, September 30,
2000 1999
----------- -----------
Net Sales $10,341,697 $ 8,666,770
Cost of Goods Sold 6,233,678 5,339,683
----------- -----------
Gross Profit 4,108,019 3,327,087
Operating Expenses:
General and administrative 1,110,341 1,059,652
Salaries and wages 1,035,577 813,731
Commissions 324,536 242,395
Advertising, demonstrations, promotions,
and slotting allowances 681,539 738,139
----------- -----------
Total Operating Expenses 3,151,993 2,853,917
----------- -----------
Income From Operations 956,026 473,170
Other Income 118,325 97,061
----------- -----------
Income From Continuing Operations Before
Income Taxes 1,074,351 570,231
Current Tax Expense 247,600 -
Deferred Tax Expense 182,140 228,092
----------- -----------
Net Income $ 644,611 $ 342,139
=========== ===========
Basic Earnings Per Share $ .38 $ .18
=========== ===========
Weighted Average Common Shares Outstanding 1,688,418 1,949,428
=========== ===========
Diluted Earnings Per Share $ .37 $ .18
=========== ===========
Weighted Average Common Shares Outstanding
Assuming Dilution 1,747,890 1,950,001
=========== ===========
The accompanying notes are an integral part of these condensed financial
statements.
4
<PAGE>
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
September 30, September 30,
2000 1999
----------- -----------
Cash Flows From Operating Activities:
Net income $ 644,611 $ 342,139
Adjustment to reconcile net income to net
cash provided by operations:
Depreciation and amortization 512,930 544,341
Non-cash expense 12,585 -
Changes in assets and liabilities:
(Increase)/Decrease in accounts receivable (5,461) 14,801
(Increase)/Decrease in inventories (367,177) 173,651
(Increase)/Decrease in prepaid expenses 89,711
(40,557)
Decrease in deferred tax assets 182,140 228,092
Increase/(Decrease)in accounts payable and
accrued expenses 208,616 (92,388)
Increase in income taxes payable 121,327 -
----------- -----------
Total Adjustments 754,671 827,940
----------- -----------
Net Cash Provided By Operating Activities 1,399,282 1,170,079
Cash Flows From Investing Activities:
Capital expenditures (326,859) (141,133)
Purchase/Reduction of U.S. Treasury Bills, net (691,050) 1,768,283
----------- -----------
Net Cash Provided By (Used For) Investing
Activities (1,017,909) 1,627,150
----------- -----------
Cash Flows From Financing Activities:
Dividends paid (392,151) -
Purchased and cancelled common stock (1,803,569) (113,457)
Payment for exercise of Stock Options 22,348 -
Payments on capital lease obligations (35,303) (49,856)
----------- -----------
Net Cash (Used For) Financing Activities: (2,208,675) (163,313)
Net Increase/(Decrease) In Cash and Cash
Equivalents (1,827,302) 2,633,916
Cash and Cash Equivalents Beginning of Period 3,142,068 633,580
----------- -----------
Cash and Cash Equivalents End of Period $ 1,314,766 $ 3,267,496
=========== ===========
Non-cash expense:
The Company issued 3000 shares of common stock valued at $12,585 to
a consultant for services rendered.
The accompanying notes are an integral part of these condensed financial
statements.
5
<PAGE>
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2000
(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
December 31, 1999 audited financial statements and notes thereto for Armanino
Foods of Distinction, Inc. The results of operations for the periods ended
September 30, 2000 and 1999 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 dormant
subsidiary AFDI, Inc.
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 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.
Earnings Per Share The Company calculates earnings per share in
accordance with Statement of Financial Accounting Standards (SFAS) No. 128
"Earnings Per Share," which requires the Company to present basic and diluted
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.
The weighted average common shares and common equivalent shares
outstanding for purposes of calculating earnings per share was as follows:
September 30, September 30,
2000 1999
----------- -----------
Weighted average common shares outstanding
used in basic earnings per share for the
nine months ending 1,688,418 1,949,428
Effect of dilutive stock options 59,472 573
----------- -----------
Weighted average common shares and potential
dilutive common equivalent shares outstanding
used in dilutive earnings per share 1,747,890 1,950,001
=========== ===========
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<PAGE>
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to CondenseSd Consolidated Financial Statements
September 30, 2000
(Unaudited)
Note 1 - Continued
For the nine months ended September 30, 2000 the Company had 95,260 stock
options that could potentially dilute earnings per share in the future that
were not included in the diluted computation because to do so would have been
antidilutive for the periods presented.
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
September 30, 2000 and December 31, 1999:
September 30, December 31,
2000 1999
----------- -----------
Raw materials & supplies 551,858 419,909
Finished goods 716,275 481,047
----------- -----------
$ 1,268,133 $ 900,956
=========== ===========
Note 3 - Related Party Transactions
The Company incurred $10,206 and $22,342 respectively, for the nine months
ended September 30, 2000 and 1999, 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 - Property and Equipment
Property and equipment consists of the following:
September 30, December 31,
2000 1999
----------- -----------
Furniture & Office Equipment $ 360,477 $ 310,025
Plant Machinery & Equipment 5,161,617 4,886,780
Leasehold Improvements 1,891,656 1,890,087
----------- -----------
7,413,750 7,086,892
Accumulated Depreciation (3,094,450) (2,613,021)
----------- -----------
$ 4,319,300 $ 4,473,871
=========== ===========
7
<PAGE>
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to CondenseSd Consolidated Financial Statements
September 30, 2000
(Unaudited)
Note 5 - Income Taxes
The Company accounts for income taxes in accordance with FASB Statement
109, "Accounting for Income Taxes."
As of September 30, 2000 and December 31, 1999 the net deferred tax
assets and liabilities consisted of the following:
September 30, December 31,
2000 1999
----------- -----------
Current deferred tax asset $ 242,860 $ 425,000
Deferred Tax Liability (398,000) (398,000)
Note 6 - Stockholders' Equity
Stock Options:
As of September 30, 2000, the Company had 499,700 outstanding stock
options to purchase the Company's stock at prices ranging from $4.30 to $5.72
per share to current and former employees, current and former directors and
former consultants, expiring in March 2001 through February 2010.
During January 2000, the Company issued to certain 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 stock options to purchase 10,000
shares of common stock to a former consultant, who is presently an employee
and director of the Company. The shares are exercisable at $5.72 per share
and expire in February 2010.
During August 2000, the Company issued a total of 79,260 options to
employees and a director, who is also an employee, to purchase common stock at
$5.38 per share expiring in August 2008 and August 2010.
Stock Issuances/Repurchases:
During the nine months ended September 30, 2000 the Company purchased
99,000 shares of its common stock on the open market for $483,569.
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 May 2000, the Company purchased 220,000 shares at $6.00 per share
in a private transaction from an affiliate of a former director.
Additionally, a former employee exercised 7,223 of incentive stock options for
$3.09 per share.
8
<PAGE>
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to CondenseSd Consolidated Financial Statements
September 30, 2000
(Unaudited)
Note 5 - Income Taxes (Continued)
Dividends:
On May 18, 2000, the Company declared a special cash dividend of $.25 per
share payable to shareholders of record on June 20, 2000. The cash dividend
was paid on July 20, 2000.
During September 2000, the Company declared a cash dividend of $.05 per
share payable to shareholders of record on September 30, 2000. The dividend
was paid on October 27, 2000.
9
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM II: MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
Quarter and Nine Months Ended September 30, 2000 v. Quarter and Nine Months
Ended September 30, 1999
Net sales for the quarter ended September 30, 2000 were $3,353,563
compared to $3,163,441 for the quarter ended September 30, 1999. For the nine
months ended September 30, 2000 net sales were $10,341,697 as compared to
$8,666,770 for the nine months ended September 30, 1999. Increased sales were
experienced across all of the Company's product lines. The pesto product line
showed the strongest increase in terms of total dollar sales. The increases
in the pesto product line sales were the result of programs implemented by the
Company offering incentives to brokers and distributors for achieving
specified increases over prior year sales. Additionally, new uses for pesto
sauces added foodservice accounts during the first nine months. The pasta
product line showed a strong increase primarily due to a co-pack customer.
Sales of meatballs increased in the retail marketplace. The Company continues
to focus its efforts on expanding its customer base for all of its products
through promotional programs and an expanded sales force.
Cost of goods sold as a percentage of net sales increased slightly from
59.8% for the quarter ended September 30, 1999 to 60.6% for the quarter ended
September 30, 2000. Cost of goods sold as a percentage of net sales decreased
from 61.6% for the nine months ended September 30, 1999 to 60.3% for the nine
months ended September 30, 2000. The decrease in this percentage for the nine
months is due to a shift in the product mix between the product lines and
between the retail and foodservice market segments. The product mix shifted
from the meatball product line to the more profitable pasta product line.
Additionally, within the pesto product line, there was a shift in the mix from
the retail items to the more profitable foodservice items.
Operating expenses as a percentage of net sales were 29.3% for the
quarter ended September 30, 2000 as compared to 31% for the quarter ended
September 30, 1999. Operating expenses for the first nine months of 2000 were
30.5% as compared to 33% for the first nine months of 1999. The decrease in
this percentage for the quarter and nine months is primarily due to the
increase in sales. Salary expense increased due to the hiring of personnel to
fill vacant positions and new sales positions created.
Net income from continuing operations for the quarter ended September 30,
2000 was $221,054 compared to a net income of $190,008 for the quarter ended
September 30, 1999. Net income for the nine months ended September 30, 2000
was $644,611 compared to $342,139 for the nine months ended September 30,
1999. The increase in net income for both the quarter and the nine months was
primarily due to increased pesto sauce sales.
Liquidity and Capital Resources
At September 30, 2000, the Company had working capital of $4,101,961, a
decrease of $1,443,096 from December 31, 1999. The decrease in working
capital is primarily due to the purchase of common stock, totalling
$1,320,000, from an affiliate of a former director. Additionally, payment of
a special dividend of $392,151 and the accrual of a quarterly dividend of
$78,240 contributed to the decrease in working capital. Current assets
included $3,666,567 in cash, cash equivalents and accounts receivable.
Management believes that this level of working capital is adequate to meet
anticipated needs for liquidity.
During the nine months ended September 30, 2000, cash provided by
operating activities of the Company amounted to $1,399,282.
10
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM II: MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
During 1999 the Company's board of directors approved a stock buy-back
plan to purchase the Company's common stock totalling $800,000. As of
September 30, 2000, the Company had paid approximately $782,774 for common
stock purchased on the open market.
During May 2000, the Company purchased 220,000 shares at $6.00 per share
in a private transaction from an affiliate of a former director.
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.
The Company has 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 is reviewing 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 380 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.
11
<PAGE>
<PAGE>
PART II
OTHER INFORMATION
II. Other Information
Item 1. Legal proceedings
None
Item 2. Changes In Securities and Use of Proceeds
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. Exhibit
27 Financial Data Schedule Filed herewith electronically
B. Reports on Form 8-K - None
12
<PAGE>
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: November 2, 2000 By:/s/ William J. Armanino
William J. Armanino, President,
Chief Executive Officer
Dated: November 2, 2000 By:/s/ Edmond J. Pera
Edmond J. Pera, Treasurer,
Chief Financial Officer
13
<PAGE>
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
27. Financial Data Schedule Filed herewith electronically
