UNITED STATES 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 quarter ended September 30, 1995
------------------
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from ____________ to ____________
Commission file number: 33-93982-LA
ANNIE'S HOMEGROWN, INC.
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(Exact name of Small Business Issuer as specified in its charter)
DELAWARE 06-1258214
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 SECOND STREET, SUITE 202, CHELSEA, MA 02150
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(Address of principal executive offices) (Zip Code)
617-889-2822
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(Issuer's telephone number, including area code)
NONE
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 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 No X
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Number of shares of Common Stock, $.001 par value, outstanding as of September
30, 1995:
4,003,984 shares
----------------
Transitional Small Business Disclosure Format (check one): Yes No X
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ANNIE'S HOMEGROWN, INC.
Index
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Page No.
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Part I. Financial Information
Item 1. Financial Statements
Balance Sheet as of September 30, 1995 (unaudited) 3
Statements of Operations for the Three Months and
Nine Months Ended September 30, 1995 and 1994 (unaudited) 4
Statements of Cash Flows for the Nine Months Ended
September 30, 1995 and 1994 (unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation 6-8
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 9
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Statement of Fair Presentation
The financial information included herein is unaudited. In addition, the
financial information does not include all disclosures required under generally
accepted accounting principles because certain note information included in the
Company's annual report to shareholders has been omitted and such information
should be read in conjunction with the prior year's annual report. However, the
financial information reflects all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary to a fair
statement of results for the interim periods. The Company considers the
disclosures adequate to make the information presented not misleading.
-2-
ANNIE'S HOMEGROWN, INC.
Balance Sheet
Unaudited
September 30, 1995
------------------
Assets
Current assets
Cash and cash equivalents $ 171
Accounts receivable
Trade 238,071
Related parties 31,249
Inventory 74,549
Other current assets 500
---------
Total current assets 344,540
Office equipment 49,436
Accumulated depreciation (20,825)
----------
Office equipment, net 28,611
Due from officer 75,000
Other assets 24,587
---------
Total assets $ 472,738
=========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Notes payable $ 167,500
Accounts payable, trade 446,744
Accrued expenses 174,032
Due to employees 28,177
---------
Total current liabilities 816,453
Commitments
Stockholders' equity (deficit)
Common stock, $.001 par value
Authorized 10,000,000 shares
issued 4,115,890 shares 4,116
Additional paid in capital 300,730
Accumulated deficit (556,811)
Note receivable stockholder (1,750)
Treasury stock, 111,906 common shares at cost (90,000)
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Total stockholders equity (deficit) (343,715)
Total liabilities and stockholders' equity $ 472,738
=========
-3-
ANNIE'S HOMEGROWN, INC.
Statements of Operations
Unaudited
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------- ---------------------
1994 1995 1994 1995
----------- ----------- --------- -------
<S> <C> <C> <C> <C>
Net sales $ 661,349 $ 1,328,834 $ 2,045,662 $ 3,519,146
Cost of sales 404,252 787,841 1,193,739 2,068,784
----------- ----------- ----------- -----------
Gross profit 257,097 540,993 851,923 1,450,362
Operating expenses:
Selling 170,566 367,165 474,685 966,615
General and administrative 118,026 204,457 313,007 518,748
Slotting fees 11,854 113,095 23,722 278,266
----------- ----------- ----------- -----------
Total operating expenses 300,446 684,717 811,414 1,763,629
----------- ----------- ----------- -----------
Operating income (loss) (43,349) (143,724) 40,509 (313,267)
Other income (loss)
Interest expense and other charges (8,190) (8,277) (24,106) (20,945)
Interest and other income 26,703 24 28,111 19,394
----------- ----------- ----------- -----------
Income (loss) before income tax (24,836) (151,977) 44,514 (314,818)
Income tax expense 0 166 2,275 2,129
----------- ----------- ----------- -----------
Net income (loss) $ (24,836) $ (152,143) $ 42,239 $ (316,947)
=========== =========== =========== ===========
Weighted average common
shares outstanding 3,846,789 4,000,308 4,667,304 3,966,546
Net income (loss) per share (.01) (.04) .01 (.08)
</TABLE>
-4-
ANNIE'S HOMEGROWN, INC.
Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------
1994 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 42,239 $(316,947)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization -- 6,200
Changes in:
Accounts receivable - trade (45,622) (16,261)
Affiliate accounts, net (119,115) 265,877
Inventory 91,162 130,831
Other assets (1,041) (16,744)
Accounts payable - trade (76,120) 128,003
Accrued expenses 78,718 58,934
Due to employees (27,260) (3,771)
--------- ---------
Net cash (used in) provided by
operating activities (57,039) 236,122
Cash flows from investing activities:
Purchases of office equipment (19,415) (11,601)
--------- ---------
Net cash (used in) investing activities (19,415) (11,601)
Cash flows from financing activities:
Repayment of notes payable (2,600) (91,750)
Net proceeds from notes payable 75,171 41,092
Issuance of common stock and exercise
of stock options, net 3,600 (176,134)
--------- ---------
Net cash (used in) provided by
financing activities 76,171 (226,792)
Net (decrease) increase in cash and cash equivalents (283) (2,271)
Cash and cash equivalents, beginning of period 4,722 2,442
--------- ---------
Cash and cash equivalents, end of period $ 4,439 $ 171
========= =========
Supplemental disclosure of cash flow information
Cash paid for interest $ 24,106 $ 20,605
========= =========
Cash paid for income taxes $ 2,275 $ 2,128
========= =========
</TABLE>
-5-
ANNIE'S HOMEGROWN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
The Company's net sales are generated by sales to supermarkets and natural and
specialty food stores. Net sales are net of product returns and allowances. The
Company sells most of its product to its customers on a credit basis with 2% 10
day, net 15 day terms. The Company has developed four premium macaroni and
cheese dinners: Annie's Shells and Cheddar, Annie's Alfredo, Annie's Whole Wheat
Shells and Cheddar, and Annie's Mild Mexican(TM) . The Company also has an
agreement with a specialty retailer to provide a private label house brand using
the Company's premium all natural white cheddar cheese formulae together with
elbow macaroni.
The Company's cost of sales consists of purchasing cheese from a cheese supplier
as well as finished product from pasta manufacturers. The products are
manufactured according to the specifications provided by the Company, which
include the recipe, ingredients, graphics and packaging for the product. The
Company products are shipped directly from the manufacturer via common carrier
to either of two public warehouses located in Massachusetts and California. The
Company generally distributes its products by either shipping directly to the
supermarket chains' central warehouses or to a wholesale grocery distributor.
Selling expenses include the costs of product marketing, sales commissions, cost
of product distribution and account management. The Company retains brokers who
present the Company's products to supermarket chains and distributors. The
brokers work on a commission basis, generally 5% of net cash received. The
Company negotiates, through the broker, the cost of acquiring shelf space
(introductory slotting) as well as the continuing support needed for the
product. Introductory slotting fees can take the form of cash payments and/or
free product allowances.
The Company's strategy is to continue to expand its supermarket and natural food
distribution nationally as well as to develop new and unique all natural food
products for sale to its existing customer base.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1994
NET SALES. Net sales increased by $1,473,484 or 72.03% from $2,045,662 in 1994
to $3,519,146 in 1995. The net sales increase was primarily a result of our
growth in the slotting of new accounts in 1995. The Company believes that it has
penetrated all major supermarket chains in the New England states, and sells in
several major supermarket chains in New York and California. The Company has
expanded its supermarket business into the Mid-Atlantic states as well as the
Rocky Mountain region. Additionally, the Company continues to produce for a
specialty retailer their private label brand macaroni and cheese dinner using
the Company's white cheddar cheese formula.
GROSS PROFIT. As a percentage of net sales, gross profit decreased from 41.65%
in 1994 to 41.21% in 1995. This small decrease was primarily a result of a
different mix in the Company's products including shipping the private label
house brand which has a lower margin than the Company's regular products in
combination with the Company switching to a lower price supplier in 1995 from
1994.
-6-
ANNIE'S HOMEGROWN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
SELLING EXPENSES. Selling expenses increased by $491,930 or 103.63% from
$474,685 in 1994 to $966,615 in 1995 and increased as a percentage of net sales
from 23.20% in 1994 to 27.46% in 1995. The increase in selling expenses as a
percentage of net sales primarily reflected an increase in spending in three
primary areas: (i) the hiring of additional personnel to sell and support the
Company's products and customer base, (ii) increase in freight costs due to a
customer base expanding further away from the Company's warehouses in
Massachusetts and California, (iii) marketing costs, including price reductions
and trade show appearances, associated with the continued roll-out of the
Company's products in 1995.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $205,741 or 65.73% from $313,007 in 1994 to $518,748 in 1995 and
decreased as a percentage of net sales from 15.30% in 1994 to 14.74% in 1995.
The increase in costs relates to hiring more personnel to handle the increase in
volume as well as the initial public offering.
SLOTTING FEES. Slotting expenses increased by $254,544 or 1073.03% from $23,722
in 1994 to $278,266 in 1995, and increased as a percentage of net sales from
1.16% in 1994 to 7.91% in 1995. The increase was due to the Company's decision
to proceed in anticipation of the initial public offering with the expansion by
purchasing additional shelf space which requires paying introductory slotting
fees for the acquisition of shelf space at supermarkets. These slotting fees are
required by most supermarkets and are expensed at the time of product
introduction.
THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1994
NET SALES. Net sales increased by $667,485 or 100.93% from $661,349 in 1994 to
$1,328,834 in 1995. The net sales increase was primarily a result of our growth
in the slotting of new accounts in 1995. The Company believes that it has
penetrated all major supermarket chains in the New England states, and sells in
several major supermarket chains in New York and California. The Company has
expanded its supermarket business into the Mid-Atlantic states as well as the
Rocky Mountain region.
GROSS PROFIT. As a percentage of net sales, gross profit increased from 38.87%
in 1994 to 40.71% in 1995. This increase was primarily a result of the Company
switching to a lower price supplier in 1995 from 1994.
SELLING EXPENSES. Selling expenses increased by $196,599 or 115.26% from
$170,566 in 1994 to $367,165 in 1995 and increased as a percentage of net sales
from 25.79% in 1994 to 27.63% in 1995. The increase in selling expenses as a
percentage of net sales primarily reflected an increase in spending in marketing
costs, including advertising and price reductions.
-7-
ANNIE'S HOMEGROWN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $86,431 or 73.23% from $118,026 in 1994 to $204,457 in 1995 and
decreased as a percentage of net sales from 17.85% in 1994 to 15.39% in 1995.
The increase in costs relates to hiring more personnel to handle the increase in
volume as well as the initial public offering.
SLOTTING FEES. Slotting expenses increased by $101,241 or 854.07% from $11,854
in 1994 to $113,095 in 1995, and increased as a percentage of net sales from
1.79% in 1994 to 8.51% in 1995. The increase was due to the Company's decision
to proceed in anticipation of the initial public offering with the expansion by
purchasing additional shelf space which requires paying introductory slotting
fees for the acquisition of shelf space at supermarkets. These slotting fees are
required by most supermarkets and are expensed at the time of product
introduction.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date through a private sale of equity
and convertible debt securities, a line of credit from a financial institution
and cash generated from operations. At September 30, 1995, the Company had a
working capital deficit of $471,913. The working capital deficit was primarily
generated by the Company's decision to proceed in anticipation of the initial
public offering with the expansion by purchasing additional shelf space which
requires paying introductory slotting fees for the acquisition of shelf space at
supermarkets.
The Company has a revolving line of credit with a financial institution in the
amount of $150,000 which bears interest at the prevailing prime rate plus 3%. In
addition, each borrowing incurs a service fee which varies from 0.5% to 8% (up
to 90 days) depending on the number of days the borrowing is outstanding. The
line of credit is secured by the Company's accounts receivable and inventory and
guaranteed by an officer and certain directors of the Company. The Company also
has a $10,000 unsecured line of credit with a bank which bears interest at the
prime rate plus 8.9%. At September 30,1995 the Company had $160,000 in
outstanding borrowings under the lines of credit.
The Company's primary capital needs are for expansion into national supermarket
distribution and to develop new products. The Company intends to expand its
supermarket distribution throughout the United States by acquiring shelf space
or new "slots" (one product in one store equals one slot). The Company's planned
expenditures for slotting fees for the balance of 1995 are to be funded with a
portion of the net proceeds of the initial public offering. The Company believes
that the net proceeds from the public offering, together with the Company's
increased line of credit and funds that may be generated from operations, will
be sufficient to fund the Company's currently anticipated working capital
requirement and expenditure for at least the next twelve months.
SUBSEQUENT EVENTS
In June 1996, the Company renegotiated its line of credit with the financial
institution. The Company increased its line of credit from $150,000 to $300,000.
In addition, the service fees charged were reduced from 0.5% to 8% (up to 90
days) to 0.4% to 6.4% (up to 90 days).
On July 31, 1996, the Company closed its initial public offering of Common
Stock. In total, 256,490 shares were sold resulting in gross proceeds of
approximately $1,500,000. Expenses from the inception of the offering totaled
approximately $325,000.
-8-
ANNIE'S HOMEGROWN, INC.
PART II - OTHER INFORMATION
EXHIBITS LIST AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit Number
--------------
27.1 Financial Data Schedule
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the Company's fiscal
quarter ended September 30, 1995.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ANNIE'S HOMEGROWN, INC.
-----------------------
Date: December 16, 1996 /s/ Paul B. Nardone
----------------- ---------------------------------
Paul B. Nardone
President
Date: December 16, 1996 /s/ Neil Raiff
----------------- ----------------------------
Neil Raiff
Chief Financial Officer & Treasurer
-9-
<TABLE> <S> <C>
<CAPTION>
<S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 171
<SECURITIES> 0
<RECEIVABLES> 269,320
<ALLOWANCES> 0
<INVENTORY> 74,549
<CURRENT-ASSETS> 500
<PP&E> 49,436
<DEPRECIATION> 20,825
<TOTAL-ASSETS> 472,738
<CURRENT-LIABILITIES> 816,453
<BONDS> 0
0
0
<COMMON> 4,116
<OTHER-SE> (347,831)
<TOTAL-LIABILITY-AND-EQUITY> 472,738
<SALES> 3,519,146
<TOTAL-REVENUES> 3,519,146
<CGS> 2,068,784
<TOTAL-COSTS> 1,763,629
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,945
<INCOME-PRETAX> (314,818)
<INCOME-TAX> 2,129
<INCOME-CONTINUING> (316,947)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (316,947)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
