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, 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.
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(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
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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__
Number of shares of Common Stock, $.001 par value, outstanding as of September
30, 1996:
4,256,985 shares
Transitional Small Business Disclosure Format (check one): Yes ___ No _X_
ANNIE'S HOMEGROWN, INC.
Index
Page No.
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Part I Financial Information
Item 1. Financial Statements
Balance Sheet as of September 30, 1996 (unaudited) 3
Statements of Operations for the Nine Months Ended
September 30, 1996 and 1995 (unaudited) 4
Statements of Cash Flows for the Nine Months Ended
September 30, 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
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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.
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ANNIE'S HOMEGROWN, INC.
Balance Sheet
Unaudited
September 30, 1996
------------------
Assets
Current assets
Cash and cash equivalents $ 421,996
Accounts receivable
Trade 237,863
Related parties 53,517
Inventory 433,294
Other current assets 2,221
Total current assets 1,148,542
Office equipment 59,111
Accumulated depreciation (33,291)
Office equipment, net 25,820
Due from officer 75,000
Other assets 31,532
------------
Total assets $1,281,243
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Notes payable $ 7,500
Accounts payable, trade 537,219
Accrued expenses 103,394
Due to employees 47,614
------------
Total current liabilities 695,727
Commitments
Stockholders' equity (deficit) Common stock, $.001 par value.
Authorized 10,000,000 shares
issued 4,368,891 shares 4,369
Additional paid in capital 1,782,808
Accumulated deficit (1,109,911)
Note receivable stockholder
(1,750)
Treasury stock, 111,906 common shares at cost (90,000)
Total stockholders equity (deficit) 585,516
Total liabilities and stockholders' equity $1,281,243
-3-
<TABLE>
<CAPTION>
ANNIE'S HOMEGROWN, INC.
Statements of Operations
Unaudited
Three months ended Nine months ended
September 30, September 30,
---------------------- ---------------------
1995 1996 1995 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 1,328,834 $ 1,111,025 $ 3,519,146 $ 3,421,973
Cost of sales 787,841 643,628 2,068,784 2,077,951
------------ -------------- ------------- --------------
Gross profit 540,993 467,397 1,450,362 1,344,022
Operating expenses:
Selling 367,165 259,332 966,615 1,023,758
General and administrative 204,457 158,048 518,748 487,063
Slotting fees 113,095 11,685 278,266 215,698
Compensation of outside directors - - - 15,000
------------ --------------- ------------- -------------
Total operating expenses 684,717 429,065 1,763,629 1,741,519
------------ --------------- ------------- -------------
Operating income (loss) (143,724) 38,332 (313,267) (397,497)
Other income (loss)
Interest expense and other charges (8,277) (6,634) (20,945) (32,272)
Interest and other income 24 2,000 19,394 13,005
------------- --------------- ------------- --------------
Income (loss) before income tax (151,977) 33,698 (314,818) (416,764)
Income tax expense 166 223 2,129 2,273
------------- --------------- ------------- --------------
Net income (loss) $ (152,143) $ 33,475 $(316,947) $(419,037)
============= =============== ============= ==============
Weighted average common
shares outstanding 4,000,308 4,990,222 3,966,546 4,155,550
Net income (loss) per share (.04) .01 (.08) (.10)
</TABLE>
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ANNIE'S HOMEGROWN, INC.
Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------
1995 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (316,947) $ (419,037)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization 6,200 9,000
Outside directors compensation - 15,000
Changes in
Accounts receivable - trade (16,261) (33,170)
Affiliate accounts, net 265,877 (32,764)
Inventory 130,831 (27,530)
Other assets (16,744) (14,100)
Accounts payable - trade 128,003 (54,440)
Accrued expenses 58,934 (76,189)
Due to employees (3,771) (2,100)
---------- ----------
Net cash (used in) provided by
operating activities 236,122 (635,330)
Cash flows from investing activities:
Purchases of office equipment (11,601) (2,489)
---------- ----------
Net cash (used in) investing activities (11,601) (2,489)
Cash flows from financing activities:
Repayment of notes payable (91,750) (32,129)
Net proceeds from notes payable 41,092 -
Issuance of common stock and exercise
of stock options, net (176,134) 1,056,481
----------- -----------
Net cash (used in) provided by
financing activities (226,792) 1,024,352
Net (decrease) increase in cash and cash equivalents (2,271) 386,533
Cash and cash equivalents, beginning of period 2,442 35,463
----------- -----------
Cash and cash equivalents, end of period $ 171 $ 421,996
=========== ============
Supplemental disclosure of cash flow information
Cash paid for interest $ 20,605 $ 28,293
=========== ============
Cash paid for income taxes $ 2,128 $ 2,273
=========== ============
Supplemental disclosure of noncash financing activities are as follows:
During 1996, $15,000 in compensation expense was recorded
for stock options granted to four outside directors.
</TABLE>
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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 cheese supplier
as well as finished product from a pasta manufacturer. 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, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
NET SALES. Net sales decreased by $97,173 or 2.76% from $3,519,146 in 1995 to
$3,421,973 in 1996. The net sales decrease 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. 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 41.21%
in 1995 to 39.26% in 1996. This decrease was primarily a result of the Company
expanding its business into supermarkets using distributors instead of going
direct through their supermarket warehouse. The sale to the distributors carry a
lower margin.
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ANNIE'S HOMEGROWN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
SELLING EXPENSES. Selling expenses increased by $57,143 or 5.9% from $966,615 in
1995 to $1,023,758 in 1996 and increased as a percentage of net sales from
27.46% in 1995 to 29.95% in 1996. 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 1996.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased by $33,476 or 6.45% from $518,748 in 1995 to $485,272 in 1996 and
decreased as a percentage of net sales from 14.74% in 1995 to 14.20% in 1996.
This decrease was due primarily to controlling expenditures related to personnel
cost. The administrative staff was reduced as the need to handle the
administration of the Company's initial public offering decreased and the staff
increased their volume of normal work.
SLOTTING FEES. Slotting expenses decreased by $62,568 or 22.48% from $278,266 in
1995 to $215,698 in 1996, and decreased as a percentage of net sales from 7.91%
in 1995 to 6.31% in 1996. The decrease was due to the Company's decision to
scale back 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, $15,000 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.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
NET SALES. Net sales decreased by $217,809 or 16.39% from $1,328,834 in 1995 to
$1,111,025 in 1996. The net sales decrease 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. The Company believes it has penetrated all of the major
natural food market stores across the country.
GROSS PROFIT. As a percentage of net sales, gross profit increased from 40.71%
in 1995 to 42.07% in 1996. This increase was primarily a result of the Company
switching to a lower price supplier in 1996 from 1995. Also, contributing to the
increase was lower sales in less profitable items. These items carry a lower
gross profit than our standard macaroni and cheese items.
SELLING EXPENSES. Selling expenses decreased by $107,833 or 29.37% from $367,165
in 1995 to $259,332 in 1996 and decreased as a percentage of net sales from
27.63% in 1995 to 23.34% in 1996. The decrease in selling expenses as a
percentage of net sales primarily reflected a decrease 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
decreased by $46,409 or 22.70% from $204,457 in 1995 to $158,048 in 1996 and
decreased as a percentage of net sales from 15.39% in 1995 to 14.23% in 1996.
This decrease was due primarily to controlling expenditures related to personnel
cost. The administrative staff was reduced as the need to handle the
administration of the Company's initial public offering decreased and the staff
increased their volume of normal work.
SLOTTING FEES. Slotting expenses decreased by $101,410 or 89.67% from $113,095
in 1995 to $11,685 in 1996, and decreased as a percentage of net sales from
8.51% in 1995 to 1.05% in 1996. The decrease was due to the Company's decision
to scale back 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.
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 September 30, 1996, the Company had working capital of
$452,815. The increase in working capital was primarily generated by the initial
public offering of the Company.
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. 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). 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
30,1996 the Company had no outstanding borrowings under the lines of credit.
On July 31, 1996, the Company closed its offering. 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 nine months of fiscal 1996
amounting to approximately $419,000, which included slotting fees of
approximately $215,000. The Company expects profitable operations over the
balance of the year.
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.
-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, 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: November 27, 1996 /s/ Paul B. Nardone
----------------- ---------------------------------
Paul B. Nardone
President
Date: November 27, 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> SEP-30-1996
<CASH> 421,996
<SECURITIES> 0
<RECEIVABLES> 291,380
<ALLOWANCES> 0
<INVENTORY> 433,294
<CURRENT-ASSETS> 2,221
<PP&E> 59,111
<DEPRECIATION> 33,291
<TOTAL-ASSETS> 1,281,243
<CURRENT-LIABILITIES> 695,727
<BONDS> 0
0
0
<COMMON> 4,369
<OTHER-SE> 581,147
<TOTAL-LIABILITY-AND-EQUITY> 1,281,243
<SALES> 3,421,973
<TOTAL-REVENUES> 3,421,973
<CGS> 2,077,951
<TOTAL-COSTS> 1,741,519
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,272
<INCOME-PRETAX> (416,764)
<INCOME-TAX> 2,273
<INCOME-CONTINUING> (419,037)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (419,037)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
