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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _________________
Commission File Number 33-55254-10
GOURMET GROUP, INC.
(formerly, Seair Group, Inc.)
Nevada 87-0438825
--------------------------------- -----------------------------
State of Incorporation IRS Identification No.
1 CHISHOLM TRAIL
BUDA, TEXAS 78610
(512) 295-4600
The Company 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 and has
been subject to such filing requirements for the past 90 days.
The number of outstanding shares of the Registrant's common stock, $.001 par
value, as of November 13, 2000 is 27,977,470.
<PAGE>
GOURMET GROUP, INC., AND SUBSIDIARY
TABLE OF CONTENTS
PAGE
PART I
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June
30, 2000, and September 30, 2000 2
Condensed Consolidated Statements of Operations
for the Three Months Ended September 30, 1999
and 2000 3
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended September 30, 1999
and 2000 4
Notes to Condensed Consolidated Financial
Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 8
PART II
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES
<PAGE>
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GOURMET GROUP, INC., AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
2000 2000
----------- -----------
(Audited) (Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 73,629 $ 101,620
Trade accounts receivable, net 777,494 1,018,197
Inventories, net 546,788 528,781
Prepaid expenses and other current assets 153,093 205,943
----------- -----------
Total current assets 1,551,004 1,854,541
PROPERTY AND EQUIPMENT, net 1,801,481 1,766,822
GOODWILL, net 2,798,800 2,759,755
OTHER ASSETS, net 457,816 449,410
----------- -----------
Total assets $ 6,609,101 $ 6,830,528
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 353,904 $ 489,854
Accrued expenses 303,412 362,897
Current portion of long-term debt 139,033 139,033
----------- -----------
Total current liabilities 796,349 991,784
LONG-TERM DEBT, less current portion 3,624,433 3,745,625
OTHER LONG-TERM LIABILITIES 164,549 144,340
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock; $.001 par value; 50,000,000 shares authorized;
24,012,420 and 27,977,469 shares issued and outstanding, respectively 24,012 27,977
Additional paid-in capital 3,348,563 3,441,603
Accumulated deficit (1,348,805) (1,520,801)
----------- -----------
Total stockholders' equity 2,023,770 1,948,779
----------- -----------
Total liabilities and stockholders' equity $ 6,609,101 $ 6,830,528
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE>
GOURMET GROUP, INC., AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30
------------------------------------
1999 2000
------------ ------------
<S> <C> <C>
NET SALES $ 1,808,412 $ 2,002,716
COST OF SALES 1,210,877 1,356,632
------------ ------------
GROSS PROFIT 597,535 646,084
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 679,456 695,170
------------ ------------
LOSS FROM OPERATIONS (81,921) (49,086)
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (113,789) (130,219)
Accretion of value of put warrants (1,790) (3,627)
Other, net 3,786 10,936
------------ ------------
(111,793) (122,910)
------------ ------------
NET LOSS $ (193,714) $ (171,996)
============ ============
LOSS PER SHARE - BASIC $ (0.01) $ (0.01)
============ ============
AVERAGE SHARES OUTSTANDING - BASIC 16,593,812 24,431,041
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-3-
<PAGE>
GOURMET GROUP, INC., AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30
----------------------------
1999 2000
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(193,714) $(171,996)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation and amortization 69,611 73,704
Accretion of value of put warrants 1,790 3,627
Changes in operating assets and liabilities-
Accounts receivable, net 113,406 (240,703)
Inventories, net (39,927) 18,007
Prepaid expenses and other assets 100,422 (19,444)
Accounts payable 84,988 135,880
Accrued expenses and other (168,657) (24,875)
--------- ---------
Net cash used in operating activities (32,081) (225,800)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,894) -
--------- ---------
Net cash used in investing activities (2,894) -
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under debt agreements 115,500 144,451
Principal payments under debt agreements (39,749) (51,095)
Proceeds from issuance of stock - 32,003
Capital contribution by majority stockholder - 128,432
--------- ---------
Net cash provided by financing activities 75,751 253,791
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 40,776 27,991
CASH AND CASH EQUIVALENTS, beginning of period 13,612 73,629
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 54,388 $ 101,620
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 114,088 $ 132,746
Issuance of stock for stock of another corporation 350,000 -
Conversion of note payable to stock 100,000 -
Noncash acquisition of Seair Group, Inc. - (63,432)
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-4-
<PAGE>
GOURMET GROUP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements include
the accounts of Gourmet Group, Inc., and its wholly owned subsidiary
(collectively referred to as the Company). All significant intercompany balances
and transactions have been eliminated in consolidation. The unaudited condensed
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by accounting principles generally accepted in the United States
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. Operating results for the three-month period
ended September 30, 2000, are not necessarily indicative of the results that may
be expected for the year ending June 30, 2001. For further information, refer to
the financial statements and notes thereto of the Company's predecessor (see
Note 2 below) included in the Company's report on Form 8-K, dated September 28,
2000, filed in connection with the acquisition by Seair Group, Inc. (Seair) of
Our Food Products Group, Inc., (Our Food).
2. ACQUISITION:
On September 28, 2000, Seair, a publicly traded shell corporation, acquired all
of the outstanding stock of Our Food in exchange for 3.142424 shares of Seair
common stock for each share of Our Food's common stock. (Immediately prior to
this acquisition, each outstanding share of Our Food's preferred stock was
automatically converted to approximately 1.45 shares of Our Food's common
stock.) In addition, outstanding options to purchase common stock of Our Food
were exchanged for options to purchase Seair common stock based on the exchange
ratio discussed above. Concurrent with the acquisition, Seair's name was changed
to Gourmet Group, Inc.
The acquisition was accounted for as a recapitalization of Our Food for
financial reporting and accounting purposes. As such, Our Food is considered the
predecessor company, and the condensed consolidated balance sheet at June 30,
2000, is that of Our Food and does not include the accounts of Seair. The
capital accounts of Our Food for all periods presented have been reflected on an
equivalent share basis to give effect to the exchange ratio discussed above. The
condensed consolidated statement of operations for the three months ended
September 30, 1999, is that of Our Food and does not include the results of
operations of Seair. In addition, the condensed consolidated statement of
operations for the three months ended September 30, 2000, includes the results
of operations of Seair from the effective date of the acquisition (September 28,
2000) through the end of the period. Seair did not have significant operations
prior to the acquisition, therefore, pro forma presentation of combined results
of operations for the periods presented is not considered meaningful and has
been omitted.
In connection with the acquisition, Gourmet Group, Inc. adopted the June 30
fiscal year end of Our Food.
3. INVENTORIES:
Inventories at June 30, 2000, and September 30, 2000, are as follows:
<TABLE>
<CAPTION>
June 30, September 30,
2000 2000
--------- ---------
<S> <C> <C>
Raw materials and packaging $ 323,016 $ 336,043
Finished goods 236,706 210,353
Less-Inventory Reserve (12,934) (17,615)
--------- ---------
Inventories, net $ 546,788 $ 528,781
========= =========
</TABLE>
-5-
<PAGE>
4. LOSS PER SHARE:
Loss per share has been calculated in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share." The
basic loss per share is computed by dividing net loss by the weighted average
number of common shares outstanding during the year. Due to the Company's net
loss, diluted loss per share has not been presented since the effect of
considering outstanding common share equivalents would be antidilutive. Options
to purchase 501,217 and 3,241,410 shares of common stock were outstanding at
September 30, 1999 and 2000, respectively, but these options were not included
in the computation of loss per share as their effect would be antidilutive.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results of
operations should be read in conjunction with the Company's condensed
consolidated financial statements and related notes thereto included elsewhere
in this quarterly report. References to years are to fiscal years ended June 30,
1999 and 2000. Results for interim period are not necessarily indicative of
results for the year.
OVERVIEW
The Company manufactures and markets a broad selection of high quality specialty
food products to a wide range of customers throughout the United States and in a
number of foreign countries.
The Company's products are comprised of the Company-owned brands D.L. Jardine,
Jardine 7J Ranch, W.B. Williams, Shotgun Willie's, Buckaroo, Dixie Dan's and
Sontava, as well as private label brands manufactured for national and regional
premium grocery store chains, gourmet catalog and specialty retailers, national
department stores and the largest amusement park in the United States. The
Company celebrated the 21st birthday of the D.L. Jardine brand this year.
The Company generates all of its revenues from retail and wholesale sales of its
specialty food product offerings. The Company-owned brands are sold and
distributed through a network of brokers, distributors, representatives,
retailers, direct mail catalogs and the internet (www.jardinefoods.com). The
Company owns a retail outlet located at its manufacturing facility and corporate
headquarters, which is located in Buda, Texas.
RESULTS OF OPERATIONS
The numbers and percentages contained in this Item 2 are approximate. Dollar
amounts are stated in thousands.
NET SALES
Net sales for the quarter ended September 30, 2000, were $2,003 compared to
$1,808 for the quarter ended September 30, 1999.
The Company sells to and tracks sales in five channels: "Distributor," "Gourmet
Gift," "Contract Packaging," "International" and "Mail Order/Internet."
Distributor sales primarily represent products sold to grocery store
distributors; Gourmet Gift sales represent sales made directly to retail gourmet
and gift stores; Contract Packaging sales represent sales of private label
products; foreign sales are reflected in the International channel; and Mail
Order/Internet sales reflect sales to individuals via catalog or the Internet.
-6-
<PAGE>
The Company's Distributor sales increased $56 from the quarter ended September
30, 1999 to the quarter ended September 30, 2000. The increase in sales for this
channel was primarily due to growth in the salsa and salad dressing categories
which was driven by efficient promotional activity and new customer
distribution.
The Company's Gourmet Gift sales increased $119 from the quarter ended September
30, 1999, to the quarter ended September 30, 2000. The increase in this channel
was attributable to growth in the Gourmet Gift customer base, strengthened
current customer relations and an expansion of the product line sold to this
channel.
COST OF SALES
Cost of sales consists of material, freight, labor, depreciation and overhead.
Cost of sales increased from $1,211 in the quarter ended September 30, 1999, to
$1,357 in the quarter ended September 30, 2000. The increase resulted primarily
from higher net sales in the first quarter of 2000 compared to the first quarter
of 1999. As a percentage of net sales, cost of sales increased an insignificant
amount from 67.0 percent in the quarter ended September 30, 1999, to 67.7
percent in the quarter ended September 30, 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense includes marketing, research and
development and general and administrative expenses along with respective
personnel salaries. Selling, general and administrative expense as a percentage
of sales decreased from 37.6 percent in the quarter ended September 30, 1999, to
34.7 percent in the quarter ended September 30, 2000. The decrease is primarily
the result of increased cost controls in the quarter ended September 30, 2000.
For the quarter ended September 30, 2000, selling, general and administrative
expenses include approximately $120 of expenses related to the merger between
Our Food and Seair on September 28, 2000, which is described in the notes to the
condensed consolidated financial statements included elsewhere in this quarterly
report.
OTHER (INCOME) EXPENSE
Other (income) expense was $112 in the quarter ended September 30, 1999, and
$123 in the quarter ended September 30, 2000. The increase relates primarily to
interest expense on the Company's long-term debt.
INCOME TAXES
For the first quarter of fiscal 1999 and 2000, the Company did not record an
income tax benefit related to the Company's losses due to uncertainties
regarding the use of those losses in future periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $755 at June 30, 2000 and $863 at September
30, 2000. The increase in working capital is due principally to the increase in
the Company's accounts receivable balance as of September 30, 2000, compared to
June 30, 2000. Cash and cash equivalents were $74 at June 30, 2000 and $102 at
September 30, 2000.
Cash used in operating activities was $32 in the three months ended September
30, 1999, and $226 in the three months ended September 30, 2000. The increase is
primarily a result of an increase in accounts receivable due to increased sales
in the quarter.
-7-
<PAGE>
Cash used in investing activities was $3 in the three months ended September 30,
1999, and $0 in the three months ended September 30, 2000.
Cash provided by financing activities was $76 in the three months ended
September 30, 1999, and $254 in the three months ended September 30, 2000. Cash
provided for the three months ended September 30, 2000, primarily reflects
capital contributions by the Company's majority stockholder and net borrowings
on the Company's credit agreement. The Company has a revolving loan with a
commercial lender. The loan is based on a borrowing base formula of up to 80
percent of eligible receivables, plus 50 percent of eligible inventory. As a
result of the borrowing base formula, the credit available to the Company of
approximately $230 as of September 30, 2000, could be adversely restricted in
the event of declines in the Company's sales.
The Company's ongoing cash requirements will be for capital expenditures and
working capital. Management believes that cash provided by operations and the
credit agreement will be sufficient to meet the Company's cash requirements for
at least the next 12 months. In addition, the Company's majority stockholder is
committed under an agreement with the Company's primary lender to make payments
to the Company equal to the net loss (as defined) generated by the Company for
any month. The payments can be made by purchasing subordinated notes from the
Comapny or by purchasing common stock. The majority stockholder must continue
to make such payments until the Company has achieved net income (as defined) for
six consecutive months.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this document that are not historical facts are
"forward-looking statements," as that term is defined in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
that involve a number of risks and uncertainties. Such forward-looking
statements may concern growth and future operating results, potential
acquisitions and joint ventures, new manufacturing facilities, capital
expenditures, economic climate, new products and product enhancements, the
future importance of photomask technology, the demand for products, competitive
factors, research and development activities and expenditures, strategic
relationships with third parties, liquidity and the Company's strategy. Such
forward-looking statements are generally accompanied by words such as "plan,"
"estimate," "expect," "believe," "should," "would," "could," "anticipate" or
other words that convey uncertainty of future events or outcomes. Such
forward-looking statements are based upon management's current plans,
expectations, estimates and assumptions and are subject to a number of risks and
uncertainties that could significantly affect current plans, anticipated
actions, the timing of such actions and the Company's business, financial
position and results of operations. As a consequence, actual results may differ
materially from expectations, estimates or assumptions expressed in or implied
by any forward-looking statements made by or on behalf of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
-8-
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently involved in any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES
(c) On September 28, 2000, the Company entered into an Agreement and
Plan of Share Exchange (the "Agreement") with Our Food and all of the
shareholders (the "Our Food Shareholders") of Our Food (seven shareholders in
all). Pursuant to the Agreement, the Company acquired 7,984,194 shares of Our
Food Class B Common Stock, which constitute all of the outstanding capital stock
of Our Food, in exchange for issuing pro rata to the Our Food Shareholders a
total of 25,089,723 restricted shares of the Company's common stock, $.001 par
value ("Common Stock") (the "Share Exchange").
Immediately prior to the Share Exchange, the Company accrued the obligation to
issue 100,000 shares of Common Stock to an advisory firm for services relating
to the introduction of the parties to the Share Exchange. Prior to the Share
Exchange, the Company had outstanding 2,887,747 shares of Common Stock
(inclusive of such 100,000 shares) and, immediately after the Share Exchange,
the Company had outstanding 27,977,470 shares of Common Stock. Also, in
connection with the Share Exchange, the Company's Board of Directors adopted an
incentive plan and granted options to purchase an aggregate of 3,239,952 shares
of Common Stock at exercise prices ranging from $.00318 to $.23885 per share to
replace fully-vested options which had been outstanding under Our Food's
incentive plan but which were canceled in connection with the Share Exchange.
All of the securities issued by the Company in connection with the Share
Exchange were exempt under Section 4(2) under the Securities Act of 1933, as
amended (the "Act"), and Rule 506 under the Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of September 30, 2000, the Company was in default of certain financial
covenants made to the Company's lenders but has obtained waivers for such
noncompliance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
As of September 18, 2000, twenty-five shareholders of the Company
holding approximately 1,806,281 shares of the Common Stock (or approximately
64.8% of the Common Stock then outstanding) approved by written consent without
a meeting the following actions to be taken by the Company: (i) entering into
the Agreement and taking all actions relating to the Share Exchange including
the issuance of shares and options to the Our Food Shareholders; (ii) adopting
the Company's 2000 Stock Option Plan and the reservation of 5,000,000 shares of
Common Stock to be issued under such Plan; (iii) changing its name from Seair
Group, Inc. to Gourmet Group, Inc., (iv) increasing its authorized Common Stock
from 25,000,000 shares of Common Stock to 50,000,000 shares, and (v) electing
not to be governed by Nevada Revised Statutes Sections 78.378 to 78.3793,
inclusive, relating to the acquisition of a controlling interest and Nevada
Revised Statutes Sections 78.411 to 78.444, inclusive, relating to combinations
with interested stockholders.
-9-
<PAGE>
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
(27) Financial Data Schedule
(B) Reports on Form 8-K
None.
-10-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOURMET GROUP, INC.
(Registrant)
Date: November 20, 2000 By: /s/ Fredrick Schulman
-----------------------------------------
Fredrick Schulman
President and Chief Executive
Officer (Principal Executive Officer)
Date: November 20, 2000 By: /s/ Kimberly H. Eckert
-----------------------------------------
Kimberly H. Eckert
Vice President - Finance and Chief
Financial Officer (Principal Financial and
Accounting Officer)
