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 March 31, 1996
--------------
[ ] 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.
- --------------------------------------------------------------------------------
(Exact name of Small Business Issuer as specified in its charter)
DELAWARE 06-1258214
- ---------------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 SECOND STREET, SUITE 202, CHELSEA, MA 02150
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
617-889-2822
- --------------------------------------------------------------------------------
(Issuer's telephone number, including area code)
NONE
- --------------------------------------------------------------------------------
(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
------ -----
Number of shares of Common Stock, $.001 par value, outstanding as of March 31,
1996:
4,100,476 shares
----------------
Transitional Small Business Disclosure Format (check one): Yes No X
---- -----
ANNIE'S HOMEGROWN, INC.
Index
-----
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Balance Sheet as of March 31, 1996 (unaudited) 3
Statements of Operations for the Three Months Ended
March 31, 1996 and 1995 (unaudited) 4
Statements of Cash Flows for the Three Months Ended
March 31, 1996 and 1995 (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
- ------------------------------------------------------------------------------
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
March 31, 1996
--------------
Assets
Current assets
Cash and cash equivalents $ 67,433
Accounts receivable
Trade 354,375
Related parties 27,376
Inventory 233,076
Other current assets 25,481
---------
Total current assets 707,741
Office equipment 58,513
Accumulated depreciation (27,291)
---------
Office equipment, net 31,222
Due from officer 75,000
Other assets 20,166
---------
Total assets $ 834,129
=========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Notes payable $ 135,070
Accounts payable, trade 502,746
Accrued expenses 170,375
Due to employees 49,714
---------
Total current liabilities 857,905
Commitments
Stockholders' equity (deficit)
Common stock, $.001 par value
Authorized 10,000,000 shares
issued 4,212,382 shares 4,212
Additional paid in capital 912,108
Accumulated deficit (842,346)
Note receivable stockholder (1,750)
Deferred compensation (6,000)
Treasury stock, 111,906 common shares at cost (90,000)
---------
Total stockholders equity (deficit) (23,776)
Total liabilities and stockholders' equity $ 834,129
=========
-3-
ANNIE'S HOMEGROWN, INC.
Statements of Operations
Unaudited
Three months ended
March 31,
---------
1995 1996
---- ----
Net sales $ 1,224,820 $ 1,408,483
Cost of sales 710,861 888,505
----------- -----------
Gross profit 513,959 519,978
Operating expenses:
Selling 373,142 405,350
General and administrative 119,334 187,058
Slotting fees 109,980 57,727
Compensation of outside directors -- 9,000
----------- -----------
Total operating expenses 602,456 659,135
----------- -----------
Operating income (loss) (88,497) (139,157)
Other income (loss)
Interest expense and other charges (11,425) (10,789)
Interest and other income 9,718 521
----------- -----------
Income (loss) before income tax (90,204) (149,425)
Income tax expense 1,962 2,050
----------- -----------
Net income (loss) $ (92,166) $ (151,475)
=========== ===========
Weighted average common
shares outstanding 3,949,980 4,090,700
Net income (loss) per share (.02) (.04)
-4-
ANNIE'S HOMEGROWN, INC.
Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------------
1995 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (92,166) $(151,475)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization 2,000 3,000
Outside directors compensation -- 9,000
Changes in:
Accounts receivable - trade (66,724) (149,682)
Affiliate accounts, net 190,349 (6,623)
Inventory 53,709 172,688
Other assets (16,773) (25,994)
Accounts payable - trade (33,576) (88,913)
Accrued expenses 107,483 (9,205)
Due to employees (3,135) --
--------- --------
Net cash (used in) provided by
operating activities 141,167 (247,204)
Cash flows from investing activities:
Purchases of office equipment (4,125) (1,891)
--------- ---------
Net cash (used in) investing activities (4,125) (1,891)
Cash flows from financing activities:
Repayment of notes payable (118,906) --
Net proceeds from notes payable -- 95,441
Issuance of common stock and exercise
of stock options, net 280 185,624
--------- ---------
Net cash (used in) provided by
financing activities (118,626) 281,065
Net (decrease) increase in cash and cash equivalents 18,416 31,970
Cash and cash equivalents, beginning of period 2,442 35,463
--------- ---------
Cash and cash equivalents, end of period $ 20,858 $ 67,433
========= =========
Supplemental disclosure of cash flow information
Cash paid for interest $ 11,425 $ 10,789
========= =========
Cash paid for income taxes $ 1,962 $ 2,050
========= =========
</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
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
NET SALES. Net sales increased by $183,663 or 15.00% from $1,224,820 in 1995 to
$1,408,483 in 1996. The net sales increase was primarily a result of our growth
in the slotting of new accounts in 1996 and 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. The Company believes it has penetrated many of the major
natural food market stores across the country. 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 41.96%
in 1995 to 36.92% in 1996. This decrease was primarily a result from two areas:
(I) a higher production cost as raw materials increased in price and (ii)
shipping more private label house brand which has a lower gross profit than the
Company's regular products.
-6-
ANNIE'S HOMEGROWN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
SELLING EXPENSES. Selling expenses increased by $32,208 or 8.63% from $373,142
in 1995 to $405,350 in 1996 and decreased as a percentage of net sales from
30.47% in 1995 to 28.78% in 1996. The increase in costs in selling expenses
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 1996.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $67,724 or 56.75% from $119,334 in 1995 to $187,058 in 1996 and
increased as a percentage of net sales from 9.74% in 1995 to 13.28% in 1996. 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 decreased by $52,253 or 47.51% from $109,980 in
1995 to $57,727 in 1996, and decreased as a percentage of net sales from 8.98%
in 1995 to 4.10% in 1996. The decrease was due to the Company's decision, based
on the initial public offering, to slow down the expansion of 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.
COMPENSATION OF OUTSIDE DIRECTORS. In 1996, $8,000 in compensation for stock
options granted was recorded for the four outside directors of the Company. In
1995, the Company had $45,000 paid to the four outside directors in the fourth
quarter. No compensation was paid to its directors who also were employees of
the Company.
-7-
ANNIE'S HOMEGROWN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date through the initial public
offering of Common Stock, private sale of equity and convertible debt
securities, a line of credit from a financial institution and cash generated
from operations. At March 31, 1996, the Company had a working capital deficit of
$150,164. The decrease in working capital deficit was primarily generated by the
Company's decision to proceed 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 March 31, 1996 the Company had $127,570 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 1996 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. Some of the proceeds were used to fund operating losses
during the first three months of fiscal 1996 amounting to approximately
$151,000, which included slotting fees of approximately $57,000.
-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 March 31, 1996.
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-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 67,433
<SECURITIES> 0
<RECEIVABLES> 381,751
<ALLOWANCES> 0
<INVENTORY> 233,076
<CURRENT-ASSETS> 25,481
<PP&E> 58,513
<DEPRECIATION> 27,291
<TOTAL-ASSETS> 834,129
<CURRENT-LIABILITIES> 857,905
<BONDS> 0
0
0
<COMMON> 4,212
<OTHER-SE> (27,988)
<TOTAL-LIABILITY-AND-EQUITY> 834,129
<SALES> 1,408,483
<TOTAL-REVENUES> 1,408,483
<CGS> 888,505
<TOTAL-COSTS> 659,135
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,789
<INCOME-PRETAX> (149,425)
<INCOME-TAX> 2,050
<INCOME-CONTINUING> (151,475)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (151,475)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
