SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 2, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM TO
Commission file number 0-23020
THE APPLETREE COMPANIES, INC.
(Exact name of small business
issuer as specified in its charter)
Delaware 65-0205933
(State or other jurisdiction of incorporation (I.R.S. Employer
incorporation or organization) Identification No.)
2255 Glades Road Suite 200E
Boca Raton, Florida 33341
(Address of principal executive offices) (Zip Code)
(407) 995-0605
(Issuer's telephone number)
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
------- --------
Applicable Only To Corporate Issuers
The number of shares of the Common Stock of the issuer outstanding as of June 2,
1996 was 79,076,723.
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THE APPLETREE COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
June 2, 1996 and September 3, 1995
(rounded to thousands except share data)
PART 1. FINANCIAL INFORMATION
Item 1. - Financial Statements
<S> <C>June 2, <C> September
1996 3 , 1995
Unaudited
---------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 126,000 $ -
Accounts receivable (net of allowance for doubtful
accounts of $409,000 and $654,000, respectively) 2,143,000 2,490,000
Inventories 1,764,000 1,868,000
Prepaid expenses and other current assets 220,000 119,000
------------ ------------
Total current assets 4,253,000 4,477,000
Property and equipment, net 5,115,000 4,857,000
Intangible assets, net 1,307,000 795,000
Deposits and other assets 396,000 657,000
------------ ------------
Total assets $11,071,000 $10,786,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current portion of capitalized lease obligations $ 186,000 $ 170,000
Current portion of long-term debt 366,000 166,000
Accounts payable 3,286,000 3,456,000
Accrued expenses 1,840,000 1,777,000
Reclassification of long-term debt 3,253,000 3,150,000
------------ -----------
Total current liabilities 8,931,000 8,719,000
Capitalized lease obligations, net of current portion 221,000 1,140,000
Long-term debt, net of current portion 1,010,000 348,000
Convertible debentures - 2,925,000
------------ ----------
Total liabilities 10,162,000 13,132,000
------------ -----------
Stockholders' equity (deficiency):
Preferred stock - par value $.001 per share, 10,000,000 shares
authorized, 93,389 shares issued and outstanding as of June 2,
1996 (liquidation preference of $3,624,605); 109,114 shares issued
and outstanding as of September 3, 1995 (liquidation preference of $1,091,140)
Common stock - par value $.001 per share, 120,000,000 shares
authorized, 79,085,488 shares issued as of June 2, 1996;
19,867,122 shares as of September 3, 1995 79,000 20,000
Additional paid-in capital (36,867,000) (27,241,000)
Accumulated deficit (34,498,000) (27,958,000)
Less: Subscription receivable ( 1,380,000) ( 1,490,000)
Treasury stock (8,765 shares, at cost) ( 159,000) ( 159,000)
------------ ------------
Total stockholders' equity (deficiency) 909,000 ( 2,346,000)
------------ ------------
Total liabilities and stockholders' equity
(deficiency) $11,071,000 $10,786,000
============= ============
See accompanying notes to consolidated financial statement.
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<TABLE>
THE APPLETREE COMPANIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three-month and nine-month periods ended June 2, 1996 and May 28, 1995
(rounded to thousands except per share data)
(Unaudited)
<S> <C>Three-month period ended <C>Nine-month period ended
<S> <C> June 2, <C>May 28, <C> June 2, <C> May 28,
1996 1995 1996 1995
-------------- ------------ -------------- -----------
Net sales $ 7,280,000 $ 7,348,000 $ 22,540,000 $ 17,749,000
Cost of goods sold 4,887,000 4,798,000 14,643,000 11,287,000
-------------- ------------ ------------- -----------
Gross profit 2,383,000 2,550,000 7,897,000 6,462,000
-------------- ------------ -------------- -----------
Operating expenses:
Selling, general and
administrative 4,593,000 3,775,000 13,320,000 9,529,000
Professional fees 172,000 445,000 361,000 1,224,000
------------- ------------ ---------- ----------
Total operating expenses 4,765,000 4,220,000 13,681,000 10,753,000
-------------- ------------ ----------- -----------
Loss from operations (2,372,000) (1,670,000) (5,784,000) (4,291,000)
-------------- ------------ ----------- -----------
Other expense:
Interest expense 128,000 145,000 663,000 316,000
Other expense 49,000 - 93,000 -
-------------- ------------ ----------- -----------
Total other expense 177,000 145,000 756,000 316,000
-------------- ------------ ---------- -----------
Loss from continuing operations (2,549,000) (1,815,000) (6,540,000) (4,607,000)
-------------- ------------ ---------- -----------
Loss from discontinued operations:
Loss from discontinued operations - (100,000) - ( 589,000)
Loss on disposal - - -
-------------- ------------ ---------- -----------
Loss from discontinued operations - (100,000) - ( 589,000)
-------------- ------------ ---------- -----------
Net loss $ (2,549,000) $(1,915,000) $(6,540,000) $(5,196,000)
============== ============= ============ =============
Net loss per common share:
Net loss applicable to common
stockholders $ (2,630,000) $(1,917,000) $(6,640,000) $(5,203,000)
============== ============ ============ =============
Weighted average number of common
shares outstanding 67,670,000 15,409,000 43,379,000 9,089,000
============== ============ ============ =============
Loss from continuing operations $ (0.04) $ (0.11) $ (0.15) $ (0.51)
Loss from discontinued operations 0.00 (0.01) 0.00 (0.06)
-------------- ------------ ------------ -------------
Net loss per common share $ (0.04) $ (0.12) $ (0.15) $ (0.57)
============== ============ ============ =============
See accompanying notes to consolidated financial statements.
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<TABLE>
THE APPLETREE COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine-month periods ended June 2, 1996 and May 28, 1996
(rounded to thousands)
(Unaudited)
<S> <C> 1996 <C> 1995
------------ ----------
Cash flows from operating activities:
Net loss $ (6,540,000) $(5,196,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 639,000 816,000
Amortization 31,000 -
Bad debt expense (2,000) 314,000
Common stock issued as payment of interest - 131,000
Minority interest - (86,000)
Loss (gain) sale of fixed assets 6,000 (9,000)
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable 411,000 (92,000)
Inventories 166,000 (308,000)
Prepaid expenses and other current assets (101,000) (307,000)
Other assets (93,000) 62,000
Accounts payable and accrued expenses (242,000) (172,000)
----------- -----------
Net cash used in operating activities (5,725,000) (4,847,000)
----------- -----------
Cash flows from investing activities:
Payments for acquisitions, net of cash acquired of $171,000 in 1995 (55,000) (2,489,000)
Capital expenditures (270,000) (396,000)
Proceeds from sale of property and equipment 23,000 30,000
---------- -----------
Net cash used in investing activities (302,000) (2,855,000)
----------- -----------
Cash flows from financing activities:
Increase in accounts payable and accrued liabilities - 134,000
Proceeds from issuance of convertible debentures 1,705,000 2,965,000
Proceeds from issuance of notes payable 603,000 2,437,000
Payments on notes payable, long-term debt, and capitalized
lease obligations (318,000) (1,656,000)
Deferred financing costs (34,000) (545,000)
Proceeds from exercise of stock options - 808,000
Proceeds from issuance of preferred and common stock 4,197,000 3,587,000
Retirement of preferred stock - (120,000)
----------- ---------
Net cash provided by financing activities 6,153,000 7,610,000
----------- ---------
Net increase (decrease) in cash and cash equivalents 126,000 (92,000)
Cash and cash equivalents at beginning of year - 92,000
---------- --------
Cash and cash equivalents at end of period $ 126,000 $ -
=========== =========
See accompanying notes to consolidated financial statements.
</TABLE>
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THE APPLETREE COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 2, 1996
(Unaudited)
Note 1 - BASIS OF PRESENTATION
In the opinion of management of the Company, the accompanying condensed
consolidated financial statements contain all adjustments, which consist only of
of normal and recurring adjustments, necessary for a fair presentation of
results for the periods indicated. The results of any interim period are not
necessarily indicative of results for the full year. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes thereto
for the year ended September 3, 1995. The September 3, 1995 condensed
consolidated balance sheet was derived from audited financial statements, but
does not include all disclosures required by generally accepted accounting
principles.
As of the fourth quarter of fiscal 1995, the Company discontinued its J.R.
Bassett Optical Incorporated ("JRBO") optical operations, and is presenting
those operating results as discontinued operations. The Company's prior year's
operating results have been reclassified to conform to the current year's
presentation.
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Note 2 - INVENTORIES
Inventories consist of the following:
<S> <C> June 2, <C>September
1996 3, 1995
(Unaudited)
Raw materials and supplies $ 582,000 $ 659,000
Finished goods 1,182,000 1,209,000
----------- ---------
$1,764,000 $1,868,000
=========== ==========
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Note 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<S> <C>June 2, <C> September
1996 3, 1995
(Unaudited)
Land $ 462,000 $ 462,000
Buildings and improvements 1,477,000 1,467,000
Furniture, fixtures and equipment 1,018,000 565,000
Machinery and equipment 2,522,000 2,297,000
Transportation and delivery
equipment 1,365,000 1,172,000
--------- ---------
6,844,000 5,963,000
Accumulated depreciation and
amortization (1,729,000) (1,106,000)
----------- -----------
$ 5,115,000 $4,857,000
============= ===========
</TABLE>
Note 4 - NOTES PAYABLE
In its financial statements to accompany its Form 10-QSB for the period ending
December 3, 1995, the Company reported the payment of a note in the amount of
$500,000 plus interest. However, at the request of the Company, the owner of
that note agreed that it would extend the payment date for a fee of $50,000 and
accordingly cancelled that payment. Subsequently, the owner converted that
note, the interest accrued to date and the fee into 539 shares of the Company's
new "COPS" (described in Note 6). Further, the sum of $3,253,000 set forth on
the Consolidated Balance Sheet reflects the reclassification of a debt to
Strategica Capital Corporation as a current liability.
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Note 5 - CONVERTIBLE DEBENTURES
The Company had $2,925,000 of convertible debentures outstanding as of September
3, 1995. Of these debentures, $725,000 plus accrued interest of approximately
$81,000 were converted into 4,974,345 shares of the Company =s common stock
based upon a price equal to 50% of the closing bid price of the stock at the
date of conversion. The remaining $2,200,000 of debentures plus accrued
interest of approximately $39,000 were converted into 2,036 shares of COPS
(described in Note 6).
During the nine-months ended June 2, 1996, the Company issued $1,750,000 of
convertible debentures as follows:
<S> <C>Amount <C>Interest Rate <C>Date Issued
$250,000 10% 09/14/95
250,000 10% 10/02/95
250,000 10% 11/08/95
300,000 Prime + 1% 10/30/95
600,000 Prime + 1% 12/22/95
100,000 10% 01/22/96
All of the above debentures were converted into 16,987,755 shares of the
Company's common stock based upon a price equal to 50% of the closing bid price
of the stock at the date of conversion.
If the above conversions had occurred at the beginning of the year, net loss per
share for the nine-month period ended June 2, 1996 would have been $.13 per
share based upon an adjusted weighted average number of 49,419,000 shares.
In June and July 1996, the company issued unsecured convertible debentures
totaling $500,000 due two years from the date of issuance with interest at 10%
per annum.
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Note 6 - PREFERRED STOCK TRANSACTIONS
The Company issued a new series of its previously authorized preferred stock.
This new series is the subject of a Certificate of Designation, as amended (the
"Certificate") and is the 11% Convertible Preferred Stock (referred to as
"COPS"). Each share of COPS is issued for $1,100; has a dividend or payment in
lieu thereof, payable quarterly starting June 30, 1996; and is convertible into
common stock at the option of the holder at the rate of $.18 per share or by
the Company as provided in the Certificate. The Company issued 2,575 shares of
the COPS in exchange for the conversion of a $2,200,000 debenture plus accrued
interest (See Note 5) and in exchange for cancellation of a $500,000 note plus
fees and accrued interest. (See Note 4)
Note 7 - COMMON STOCK TRANSACTIONS
Pursuant to exemptions from registration under Regulation S and Regulation D of
the Securities Act of 1933, as amended, the Company issued 37,256,266 shares of
its common stock during the first nine months of fiscal 1996. The aggregate
consideration for these security sales was $4,197,000. As discussed in Note 5,
convertible debentures totaling $2,475,000 plus accrued interest were converted
into 21,962,100 shares of the Company's common stock.
Note 8 - RECLASSIFICATION
Certain amounts in the financial statements for the nine-month period ended May
28, 1995 have been reclassified to conform with the June 2, 1996 presentation.
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Note 9 - BUSINESS COMBINATIONS
In October 1995, the Company acquired the assets and assumed certain liabilities
of Sandwich Maker of Arizona, Inc. and Sandwich Makers of California, Inc.
(collectively referred to as "Sandwich Makers"). As part of that transaction
the Company obtained a covenant not to compete from the former stockholders. The
Company's principal operating subsidiary, Americas Foods, Inc. ("AFI") operates
the business of Sandwich Makers. The purchase price of Sandwich Makers
aggregated approximately $350,000, which consisted of $55,000 cash and non-
interest-bearing seller financed notes of $295,000, net of interest imputed
at 12.5%. The notes were due in monthly installments of $10,000 through 1997.
In January 1996, the payment terms were changed. Pursuant to that amendment,
the Company issued common stock valued at $190,000 to the sellers in March 1996,
with the balance due in five monthly installments of $15,500 commencing in
January 1996. The Company accounted for this transaction using the purchase
method of accounting. Historical sales of Sandwich Makers approximated $3
million annually and pro forma information is not considered significant.
As previously reported, in November 1994 the Company, through AFI, acquired and
operates Royal American Foods, Inc. ("Royal"), which was merged into AFI in
1996.
The unaudited pro forma consolidated results of operations for the nine-month
period ended May 28, 1995, listed below reflect purchase accounting adjustments,
including depreciation and amortization of the assets acquired based on their
fair values assuming the Royal acquisition had occurred on September 1, 1994.
<S> Net sales <C>$ 21,699,000
Loss from continuing operations (4,498,000)
Net loss (5,087,000)
Net loss per share ($.56)
Weighted average number of
common shares outstanding 9,089,000
The pro forma results presented above are for comparative purposes only. They
are not necessarily indicative of the operating results that would have occurred
if the transactions had been in effect for the entire periods presented, or of
results which may be obtained in the future.
</TABLE>
<TABLE>
Note 10 - CASH FLOW DISCLOSURES
Non cash financing activities:
During the nine-month period ended June 2, 1996, holders of convertible
debentures converted $2,475,000 of debentures plus accrued interest of
approximately $113,000 into 21,962,100 shares of common stock. See Notes 4, 5
and 6 for a discussion of the issuance of 2,575 shares of the Company's COPS.
In connection with its acquisition of Sandwich Makers in October 1995 and Royal
in November 1994, the Company acquired assets and assumed liabilities as
follows:
<S> <C> 1996 <C> 1995
Fair value of assets acquired $969,000 $4,660,000
Cash acquired - (171,000)
Liabilities assumed (613,000) (713,000)
Issuance of note to seller (295,000) (1,300,000)
--------- ----------
61,000 2,476,000
Amount paid in fiscal 1994 for
Royal Acquisition - (200,000)
--------- ----------
Net consideration paid 61,000 2,276,000
Net other purchase price adjustments
and amounts to be paid after
June 2, 1996 or to be refunded
after May 28, 1995 (6,000) 213,000
--------- ----------
Cash paid for acquisition $ 55,000 $2,489,000
========= ==========
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Note 11 - LITIGATION
In addition to certain individuals, the Company has been named as a defendant in
several lawsuits alleging violations of various federal and state securities
laws. The suits were consolidated but were not certified as class actions.
The Company, and the individuals have agreed with the plaintiffs' attorneys on a
settlement to resolve the claims against the Company and its directors
(excluding Messrs. Salit and Lobel) arising out of these lawsuits. The
settlement contemplates issuance of warrants to purchase 228,280 shares of
common stock at 75% of the market price at the date of settlement and the
issuance of 228,280 shares of common stock. The settlement is currently
before the court for approval.
On April 26, 1994, the Securities and Exchange Commission issued an order for a
private investigation of the Company and certain of its officers and directors
to determine whether violations of the securities laws may have occurred and so
as to enable the SEC to issue subpoenas and obtain documents. The ultimate
effect of the resolution of this matter cannot presently be determined. The
accompanying financial statements do not include any adjustments that might
result from the outcome of this matter.
The Company is a party to certain other proceedings arising in the normal course
of business which it believes will not have a material adverse impact on its
financial condition or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OPERATIONS
During the fiscal year ended September 3, 1995, the Company expanded its
operations through the acquisition of Royal which included a plant in Salt Lake
City, Utah with 52 direct store delivery routes and additional annual revenues
of approximately $14.5 million. In October 1995, through its acquisition of the
assets of Sandwich Makers, the Company added two commissaries and 16 related
routes, as well as operations in Phoenix, Arizona and San Diego, California.
Annual historical sales for these operations approximated $3 million.
During the year ended September 3, 1995, the Company ratified a plan adopted by
its majority owned subsidiary JRBO to discontinue its optical business
operations. Comparisons which follow are based on fiscal 1995 amounts as
reclassified for the discontinued JRBO operations.
NINE-MONTH PERIOD ENDED JUNE 2, 1996 COMPARED TO NINE-MONTH
PERIOD ENDED MAY 28, 1995
Net sales increased $4,791,000 (27%) from $17,749,000 for the nine-month period
ended May 28, 1995 to $22,540,000 for the nine-month period ended June 2,
1996. The Company completed its acquisition of Royal American Foods Corporation
in November 1994 and its other acquisitions in October 1995. These acquisitions
contributed to the increase in the Company's net sales revenue.
Cost of goods sold as a percentage of net sales for the nine-month period ended
June 2, 1996 was approximately 65% compared to approximately 64% for the nine-
month period ended May 28, 1995. The increase in the cost of goods sold
percentage is attributable to reduced production in the 1996 fiscal period
caused by plant shutdowns between Christmas and New Year's Day and severe
weather in early 1996 and the introduction of fresh sandwiches into its product
line.
Operating expenses totaled $13,681,000 (61% of net sales) for the nine-month
period ended June 2, 1996 compared to $10,753,000 (61% of net sales) for the
comparable period in 1995. The dollar increase in operating expenses of
$2,928,000 (27%) resulted principally from operating expenses of $3,250,000
attributable to the Company's Royal acquisition and the Sandwich Maker
acquisition, offset by a reduction of professional fees of $863,000.
Other expenses increased to $756,000 for the nine-month period ended June 2,
1996 from $316,000 in the comparable period in 1995. The principal factor in
this increase was additional interest expense in fiscal 1996, caused by the
issuance of convertible debentures and additional debt.
The Company has reflected the results of JRBO's operations (discontinued August
1995) for the nine-month periods ended June 2, 1996 and May 28, 1995 as
discontinued operations in the accompanying consolidated financial statements.
Net sales of JRBO were $1,600,000 for the nine-month period ended May 1995.
Operating costs and expenses of JRBO were $2,398,000 for the nine-month period
ended May 28, 1995.
The Company's net loss per common share decreased from $.57 in 1995 to $.15 in
1996. The cause for the decrease was the number of shares issued during the
year ended September 3, 1995 and subsequent thereto through conversions of
convertible debentures and sales of additional shares of common stock.
THREE-MONTH PERIOD ENDED JUNE 2, 1996 COMPARED TO THREE-MONTH
PERIOD ENDED MAY 28, 1995
Net sales decreased $68,000 (1%) from $7,348,000 for the three-month period
ended May 28, 1995 to $7,280,000 for the three-month period ended June 2, 1996.
The net sales increases from Company's acquisitions in October 1995 were offset
by reductions caused by the closure of the Company's beef patty manufacturing
and beef processing operations at the end of February 1996 and product shortages
precipitated by the Company's current cash flow situation.
Cost of goods sold as a percentage of net sales for the three-month period ended
June 2, 1996 was approximately 67% compared to approximately 65% for the three-
month period ended May 28, 1995. The increase in the cost of goods sold
percentage is due to the reduced production in the 1996 fiscal period and the
introduction of fresh sandwiches into its product line.
Operating expenses totaled $4,765,000 (65.5% of net sales) for the three-month
period ended June 2, 1996 compared to $4,220,000 (57% of net sales) for the
comparable period in 1995. As a percent of sales, operating expenses increased
approximately 8% as a result of (1) the decreased sales base in 1996 with
increased operating expenses caused in part by the Company's fiscal 1996
acquisitions. The dollar increase in operating of approximately $545,000
resulted principally from operating expenses of approximately $516,000
attributable to the Company's acquisitions in October 1995, offset by a
reduction of professional fees of $273,000 and other cost reductions.
Other expenses increased to $177,000 for the three-month period ended June 2,
1996 from $145,000 in the comparable period in 1995. The principal factor in
this increase was the increase in the Strategica Capital Corporation loan amount
in November 1995.
The Company has reflected the results of JRBO's operations for the three-month
periods ended June 2, 1996 and May 28, 1995 as discontinued operations in the
accompanying consolidated financial statements. Net sales of JRBO were $589,000
for the three-month period ended May 28, 1995. Operating costs and expenses of
JRBO were $721,000 for the three-month period ended May 28, 1995.
The Company's net loss per common share decreased from $.12 in 1995 to $.04 in
1996. The principal cause for the decrease was the number of shares issued
during the year ended September 3, 1995 and subsequent thereto through
conversions of convertible debentures and sales of additional shares of common
stock.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced significant losses from operations and has had
numerous demands for capital funds through the nine-month period ended June 2,
1996. Net cash used in operating activities was $5,725,000 for the nine-month
period ended June 2, 1996 compared to $4,847,000 for the nine-month period ended
May 28, 1995. The increase reflects the usage of a portion of the proceeds from
a private placement of the of the Company's common and preferred stock to repay
certain accounts payable in February 1996. Management anticipates that negative
cash flows from operating activities will continue until the Company has (1)
substantially increased the Company's revenues; (2) completed the reduction of
administrative and other related expenses; and (3) completed the consolidation
of certain food service activities to eliminate duplicative expenses.
In its efforts to reduce duplicative expenses, the Company: (1) closed the
manufacturing portions of its facilities in Phoenix and San Diego acquired as
part of Sandwich Makers in the third quarter of fiscal 1996 which were
consolidated into its Salt Lake City plant; however, the Company expects to
continue to operate those facilities as sales centers; (2) ceased its pattie
manufacturing operations in its Norfolk plant because management believes that a
consistent quality source of supply can be obtained at prices comparable to or
more favorable than its standard production costs, and (3) closed eight
unprofitable routes to reduce operating costs and improve the overall operating
level of its fleet of delivery vehicles to reduce vehicle repairs.
In an effort to improve revenues, effective in the first quarter of fiscal 1996
and again in April 1996, the Company increased sales prices for some of its
products. In addition, the Company reduced inventory levels to improve its
liquidity. The Company's viability as a going concern is in part dependent upon
the successful implementation of these plans as well as obtaining additional
working capital, the proceeds of which can continue to reduce trade payables.
Net cash used in investing activities was $302,000 for the nine-month period
ended June 2, 1996 compared to $2,855,000 for the comparable period in 1995. Of
the 1995 amount, $2,489,000 was used to acquire Royal. Capital expenditures
were $270,000 and $396,000 during the nine-month periods ended June 2, 1996 and
May 28, 1995, respectively. Management has evaluated the Company's current
facilities and equipment and anticipates that additional capital expenditures
will be necessary in the near future. The Company expects to enhance a portion
of its fleet of delivery vehicles and its computer systems, and refurbish a
portion of one of its plants in the near future. The Company expects to use
lease financing and will require additional financing or new capital to fund
these other expenditures. No material contractual commitments for capital
expenditures existed as of June 2, 1996. There is no assurance that new
financing or equity capital will be available on terms acceptable to the
Company.
During the fiscal year ended September 3, 1995 and continuing into the fiscal
year 1996, the Company financed its investments and operating deficits through
funds obtained by the issuance of common stock, convertible debentures, and a
loan arrangement as previously reported. On May 22, 1995, the Company entered
into a loan agreement for $2.65 million, and on November 22, 1995, the loan was
increased by an additional $603,000. The loan bears interest at 12.5% per
annum, payable monthly, and, although the principal sum is due November 22,
1997, the loan has been classified as currently payable on the balance sheet.
The Company received $4,197,000 during fiscal 1996 from the issuance of common
stock. The Company also received $1,705,000 from the issuance of convertible
debentures in the nine-month period ended June 2, 1996. During the nine-month
period ended June 2, 1996, $2,475,000 of debentures plus accrued interest of
approximately $113,000 were converted into 21,962,100 shares of common stock.
Also $2,200,000 of debentures and $500,000 in notes payable, accrued interest of
approximately $83,000, and a $50,000 waiver fee were converted into 2,575 shares
of the Company's new series of 11% Convertible Preferred Stock.
As a result of its severe liquidity problems, the Company frequently has been
unable to make timely payments to its trade and other creditors. As of July 12,
1996, the Company had past due accounts payable (greater than 30 days) totaling
approximately $2.1 million. Certain vendors have suspended deliveries to the
Company and have agreed to make deliveries only on a cash basis. As a result,
the Company was not always able to make product shipments on a timely basis, and
lack of product has had an adverse effect on sales. Should the Company
experience a significant number of suspended vendor deliveries resulting in
reduced sales volume, the Company's ability to maintain its current level of
operations would be jeopardized.
Since the fourth quarter of fiscal 1995, the Company has considered a number of
alternatives to improve its liquidity and cash positions. The Company is
closely monitoring its liquidity position to ensure that existing cash is
employed in a way management believes will be most effective. In order to
conserve cash, management has postponed certain capital expenditures for plant
and facility improvements, reduced inventory levels, and instituted other cost-
saving measures, some of which may adversely impact the Company's future
operating results.
The Company recognizes that additional funds will be required to pay trade
payables, purchase products and make payments for materials. Accordingly,
management continues to seek additional capital to maintain the needed growth in
revenues. The Company acknowledges there can be no assurance that the Company
will be able to obtain additional capital or other financing when it is needed,
or that such financing will be available on acceptable terms. In the event the
Company is unable to generate the necessary revenues to support ongoing
operations, or raise additional capital, there could be a serious adverse impact
on the Company's future operations and further impact on the Company's status as
a "going concern."
PART II.--OTHER INFORMATION
ITEM 1 - LEGAL MATTERS
Please refer to the Company's Form 10-QSB filed for the three month period ended
December 3, 1995 for a discussion of legal matters. No material changes
occurred during the three month period ended June 2, 1996.
ITEM 2 - CHANGES IN SECURITIES
The Company authorized 9,000 shares of its 11% Convertible Preferred Stock
(referred to herein as "COPS") pursuant to a Certificate of Designation and
Amendment thereto. The Company issued 2,575 shares of its COPS. The holders of
COPS are entitled to a preference in the event of any liquidation of the Company
to the extent of $1,100 per share of the COPS plus accrued interest, if any. The
holders of COPS are entitled to nominate and elect two of the seven members of
the Company's Board of Directors, and pursuant to the Certificate, as amended,
the Company's Board of Directors may be increased from five to seven members at
the request of holders of a majority of the COPS.
ITEM 6- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. (Note)
3.1 Certificate of Incorporation, as amended(7)
3.2 Bylaws of the Company, as amended(2)
3.3 Certificate of Amendment of Certificate of Incorporation dated
September 28, 1995(11)
3.4 Certificate of Correction of Certificate of Incorporation
dated January 25, 1996(11)
3.5 Certificate of Amendment of Certificate of Incorporation dated
February 23, 1996(11)
3.6 Certificate of Designation for 11% Convertible Preferred
Stock(11)
3.7 Amended Certificate of Designation for 11% Convertible
Preferred Stock(11)
4.1 Form of Common Stock Certificate(1)
4.2 Loan Agreement and Warrant Agreement dated May 22, 1995,
between the Company and Strategica Capital Corp.(9)
4.3 Promissory Note dated May 22, 1995, issued by the Company to
Strategica Capital Corp.(9)
4.4 Amendment to Loan Agreement and Warrant Agreement dated
November 22, 1995, between the Company and Strategica Capital
Corp.(10)
4.5 Promissory Note dated November 22, 1995, issued by the Company
to Strategica Capital Corp.(10)
4.6 Letter Agreement from Strategica Capital Corporation
dated December 1, 1995 modifying Loan Agreement(11)
10.1 Lease dated August 21, 1992 between Glades Road Associates
and the Company(2)
10.2 Order Approving Sale of Assets to Modami Stewart Foods, Inc.,
dated December 12, l993(3)
10.3 Exercise of Conversion Rights Agreement, dated
November 30, l993, between Optical Express, Inc.
and the Company(4)
10.4 Stock Exchange Agreement, dated January 31, l994, between
the Company and certain officers of Optical Express, Inc.(5)
10.5 Stock Exchange Agreement, dated February 9, l994,
between Modami Stewart Foods Inc., the Company, and
Robert W. Lackey(5)
10.6 Share Purchase Agreement, dated as of November 22,
l994, between Americas Foods, Inc. and Pepperidge
Farm, Incorporated.(6)
10.7 1993 Stock Option Plan(7)
10.8 1995 Key Employees Stock Option Plan(8)
10.9 1995 Executive Stock Option Plan(8)
10.10 1995 Directors Stock Option Plan(8)
10.12 Employment Agreement dated June 20, 1995 between the Company
and Paul Kravitz(8)
10.13 Employment Agreement dated June 20, 1995 between the Company
and Justin A. DiMacchia(8)
10.14 Consulting and Financial Advisory Services Agreement dated
May 22, 1995 between the Company and Strategica Capital
Corp.(9)
10.15 Asset Purchase Agreement between the Company and Sandwich
Makers of Arizona, Inc. and Sandwich Makers of California,
Inc.(10)
10.16 Amendment to Asset Purchase Agreement between the Company and
Sandwich Makers of California, Inc. dated January 23, 1996(11)
21.1 Subsidiaries of the Company(8)
(1) Incorporated by reference to the Company's Registration
Statement on Form S-18, File No. 33-44902-A
(2) Incorporated by reference to the Company's Form 10-K for the
year ended August 31, 1992
(3) Incorporated by reference to the Company's Form 8K, dated on
December 30, 1993
(4) Incorporated by reference to the Company's Form 10-QSB for the
quarterly period ended November 30, 1993
(5) Incorporated by reference to the Company's Form 10-QSB for the
quarterly period ended May 28, l994
(6) Incorporated by reference to the Company's Form 8-K, dated
November 22, l994
(7) Incorporated by reference to the Company's Form 10-KSB for the
year ended August 31, 1994
(8) Incorporated by reference to the Company's Form 10-QSB for the
quarterly period ended May 28, 1995
(9) Incorporated by reference to the Company's proxy statement dated
July 7, 1995
(10) Incorporated by reference to the Company's Form 10-KSB for the
year ended September 3, 1995
(11) Incorporated by reference to the Company's Form 10-QSB for the
quarterly period ended March 3, 1996.
(b) Reports on Form 8-K During the Quarter
None.
SIGNATURES
Pursuant to the requirement of the Securities and Exchange Act of 1934, the
registrant has duly caused this report be signed on its behalf by the
undersigned thereunto duly authorized.
THE APPLETREE COMPANIES, INC.
/s/ Paul B. Kravitz
- ----------------------------------
Paul B. Kravitz
President/Chairman
Dated: July 16, 1996
/s/ Justin A. DiMacchia
- ---------------------------------
Justin A. DiMacchia
Vice President/CFO/Treasurer
Dated: July 16, 1996
