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 June 30, 1997
-------------
[ ] 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 X No
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Number of shares of Common Stock, $.001 par value, outstanding as of July 31,
1997:
4,316,895 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 June 30, 1997 (unaudited) 3
Statements of Operations for the Three Months
Ended June 30, 1997 and 1996 (unaudited) 4
Statements of Cash Flows for the Three Months Ended
June 30, 1997 and 1996 (unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation 6-9
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 footnote 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
June 30, 1997
Assets
Current assets
Cash and cash equivalents $ 240,837
Accounts receivable
Trade 55,787
Related parties 35,674
Inventory 1,044,201
Other current assets 16,753
-----------
Total current assets 1,393,252
Office equipment 91,068
Accumulated depreciation (44,464)
Office equipment, net 46,604
Due from officer 75,000
Other assets 30,230
-----------
Total assets $ 1,545,086
===========
Liabilities and Stockholders' Equity
Current liabilities
Notes payable $ -
Accounts payable, trade 549,942
Accrued expenses 46,045
Deferred revenue from distributor 350,688
Due to employees 43,939
-----------
Total current liabilities 990,614
Commitments
Stockholders' equity Common stock, $.001 par value.
Authorized 10,000,000 shares
issued 4,368,801 shares 4,369
Additional paid in capital 1,761,932
Accumulated deficit (1,120,079)
Note receivable stockholder (1,750)
Treasury stock, 111,906 common shares at cost (90,000)
-----------
Total stockholders equity 554,472
Total liabilities and stockholders' equity $ 1,545,086
===========
-3-
ANNIE'S HOMEGROWN, INC.
Statements of Operations
Unaudited
Three months ended
June 30,
--------------------------
1996 1997
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Net sales $ 902,465 $ 1,102,185
Cost of sales 545,819 699,497
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Gross profit 356,646 402,688
Operating expenses:
Selling 335,803 309,342
General and administrative 165,273 211,635
Slotting fees 146,286 40,092
Compensation of outside directors 6,000 -
------------ ------------
Total operating expenses 653,362 561,069
------------ ------------
Operating income (loss) (296,716) (158,381)
Other income (loss)
Interest expense and other charges (10,369) (13,287)
Interest and other income 6,048 1,909
------------ ------------
Income (loss) before income tax (301,037) (169,759)
Income tax expense - 250
------------ ------------
Net income (loss) $ (301,037) $(170,009)
============ ==========
Weighted average common
shares outstanding 4,118,961 4,256,895
Net income (loss) per share (.07) (.04)
-4-
ANNIE'S HOMEGROWN, INC.
Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
Three months ended
June 30,
--------------------------
1996 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (301,037) $ (170,009)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization 3,000 4,500
Outside directors compensation 6,000 -
Changes in:
Accounts receivable - trade 266,039 (19,209)
Affiliate accounts, net (4,932) 6,399
Inventory (17,208) 118,190
Other assets 20,677 19,398
Accounts payable - trade (50,988) (44,878)
Accrued expenses (28,866) (41,448)
Deferred revenue from distributor - (73,536)
Due to employees (2,100) (2,233)
------------ ------------
Net cash (used in) provided by
operating activities (109,415) (237,156)
Cash flows from investing activities:
Purchases of equipment ( 232) (5,427)
------------ ------------
Net cash (used in) investing activities ( 232) (5,427)
Cash flows from financing activities:
Repayment of notes payable ( 70,907) -
Issuance of common stock and exercise
of stock options, net 132,760 -
------------ ------------
Net cash (used in) provided by
financing activities 61,853 -
Net (decrease) increase in cash and cash equivalents (47,794) (242,583)
Cash and cash equivalents, beginning of period 67,433 483,420
------------ ------------
Cash and cash equivalents, end of period $ 19,639 $ 240,837
============ ============
Supplemental disclosure of cash flow information
Cash paid for interest $ 10,369 $ 13,287
============ ============
Cash paid for income taxes $ - $ 250
============ ============
</TABLE>
-5-
ANNIE'S HOMEGROWN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
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). In addition, the Company introduced in AprIL 1997 two
additional premium macaroni and cheese dinners: Pizza Pasta and Mild Cheddar.
The Mild Cheddar product is being promoted in conjunction with the Free Willy
Keiko Foundation with a portion of sales going to the foundation. In January
1997, the Company introduced a new line of all natural pasta dinners called
Annie's One-Step. The dinners combine different pasta shapes with five sauce
recipes which provide the convenience of one-step, one-pot cooking as follows:
Annie's One-Step Rotini with Four Cheese Sauce, Annie's One-Step Penne Pasta
with Alfredo Sauce, Annie's One-Step Radiatore Pasta with Sundried Tomato and
Basil Sauce, Annie's One-Step Corkscrew Pasta with Savory Herb and Garlic Sauce
and Annie's One-Step Curly Fettuccine with White Cheddar and Broccoli Sauce. 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
formula together with elbow macaroni.
In October 1996, the Company signed a master distribution agreement with Liberty
Richter, Inc. ("Liberty"). The agreement calls for Liberty to distribute all of
the Company's products except for the private label and mail order lines in the
continental United States. The Company sells the products to Liberty who in turn
resells the products to its two main classes of trade; supermarket chains and
natural and specialty food stores. Liberty has two warehouses, one located in
New Jersey and the other located in California.
Liberty distributes and sells Annie's products within the territory utilizing
its own sales force and sub distributors that they maintain. In addition,
Liberty provides other services such as order processing, invoicing, record
management, sales coverage, broker management, promotion execution, management
of sales allowances and food show participation. All promotions and slotting
presentations as well as sub distributors and brokers are subject to Annie's
approval.
Under the Liberty Agreement, Liberty must distribute all new products that
Annie's chooses to distribute through Liberty's channels unless Liberty has a
preexisting non compete provision with another vendor. The initial contract
expires December 31, 1997, with automatic renewals scheduled on a year to year
basis.
The Company's cost of sales consists of the cost of finished product shipped
from a co-packer. The raw materials are purchased by the Company according to
the specifications provided by the Company, which include the recipe,
ingredients, graphics and packaging for the product and shipped to the
co-packer. The co-packer packages the raw materials into the appropriate boxes
and cases according to orders specified by the Company. The products are shipped
directly from the co-packer via common carrier to either of Liberty's two
warehouses. The Company distributes its products through Liberty's distribution
system to either 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. Liberty retains brokers at the
approval of the Company 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 as indicated. Introductory slotting fees can take the form of cash
payments and/or free product allowances.
-6-
ANNIE'S HOMEGROWN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
The Company's strategy is to continue to expand its supermarket distribution
nationally, to develop new and unique all natural food products to sell to its
existing customer base and to purchase existing all natural food brands to sell
to its existing customer base. The Company believes it will benefit from greater
trade relations due to Liberty's favorable position in the supermarket and
natural food trade. Management believes its consolidated distribution with
Liberty's other products will provide the Company greater access to key accounts
in expansion markets as well as facilitate new product introductions into its
existing customers.
FORWARD LOOKING STATEMENTS
From time to time, information provided by the Company, statements made by its
employees or information included in its filings with the Securities and
Exchange Commission (including this Form 10-QSB) may contain statements which
are not historical facts, so called "forward looking statements", which involve
risks and uncertainties. Forward looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
When used in this form 10-QSB, the terms "anticipates", "expects", "estimates",
"believes" and other similar terms as they relate to the Company or its
management are intended to identify such forward looking statements. In
particular, statements made in Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations relating to the sufficiency of
funds for the Company's working capital requirements during 1997 and the
Company's expectation that future cash flow will continue to be provided from
operations may be forward looking statements. The Company's actual future
results may differ significantly from those stated in any forward looking
statements. Factors that may cause such differences include but are not limited
to: (i) competitive factors in the market place; (ii) reliance on the Liberty
agreement; (iii) fluctuation in quarterly and annual operating results; and (iv)
dependence on key personnel, among others. Each of these factors, and others,
are discussed from time to time in the Company's filings with the Securities and
Exchange Commission including the Company's annual report on Form 10-KSB for the
year ended December 31, 1996.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
NET SALES. Net sales increased by $199,720 or 22.13% from $902,465 in 1996 to
$1,102,185 in 1997. The net sales increase was primarily the of the introduction
of the Pizza Pasta and Mild Cheddar products and the introduction of the
One-Step dinners.
GROSS PROFIT. As a percentage of net sales, gross profit decreased from 39.52%
in 1996 to 36.54% in 1997. This decrease was primarily the result of increased
costs of raw materials. The Company purchases all its raw materials directly
from suppliers and has the co-packer produce the product using these raw
materials.
SELLING EXPENSES. Selling expenses decreased by $26,461 or 7.88% from $335,803
in 1996 to $309,342 in 1997 and decreased as a percentage of net sales from
37.21% in 1996 to 28.07% in 1997. The decrease in selling expenses was primarily
a result of a decrease in distribution costs due to the consolidation of
distribution through Liberty's channels.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $46,362 or 28.05% from $165,273 in 1996 to $211,635 in 1997 and
increased as a percentage of net sales from 18.31% in 1996 to 19.20% in 1997.
The increase in general and administrative expenses is a result of increased
legal fees relating to reporting requirement of the Securities and Exchange
Commission as well as an increase in printing costs and research and development
costs relating to new products.
-7-
ANNIE'S HOMEGROWN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
SLOTTING FEES. Slotting expenses decreased by $106,194 or 72.59% from $146,286
in 1996 to $40,092 in 1997, and decreased as a percentage of net sales from
16.21% in 1996 to 3.64% in 1997. The decrease was due to the Company's decision
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, $6,000 in compensation for stock
options granted was recorded for the four outside directors of the Company.
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 June 30, 1997, the Company had a working capital surplus of
$402,638. The increase in working capital was primarily generated by the amount
of working capital received through the Company's initial public offering.
Most of the Company's sales are made to Liberty under contract terms allowing
certain rights of return on unsold product held by Liberty. The contract calls
for Liberty to pay the Company based on terms relating to the receipt of the
Company's products by Liberty. The Company defers recognition of such sales
until the product is sold by Liberty to its two main classes of trade;
supermarket chains and natural and specialty food stores.
Net cash used in operating activities for the three months ended June 30, 1997
was $237,156, consisting primarily of payments for operations.
Net cash used in investing activities consisted of capital expenditures totaling
$5,427 which related principally to the purchase of plates and dies for the new
products.
The Company has a $10,000 unsecured line of credit with a bank which bears
interest at the prime rate plus 8.9%. At June 30, 1997 the Company had no
outstanding borrowings under the line 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 believes
that the net proceeds from the public offering, together with the funds that may
be generated from operations, will be sufficient to fund the Company's currently
anticipated working capital requirement and expenditure requirements for at
least the next twelve months.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share (FASB No. 128). FASB
No. 128 supersedes APB No. 15 and specifies the computation, presentation, and
disclosure requirements and earnings per share. FASB No. 128 is effective for
financial statements for both interim and annual periods ending after December
15, 1997 and early application is not permitted. Accordingly, the Company will
apply FASB No. 128 for the quarter ended December 31, 1997 and restate prior
period information as required under the statement. The Company has determined
that if the FASB No. 128 had been applied for the first quarter ending June 30,
1997, the impact on earnings per share as currently stated would be immaterial.
-8-
In June 1997, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 130, Reporting Comprehensive Income and No. 131,
Disclosure about Segments of an Enterprise and Related Information, which are
effective for fiscal years beginning after December 15, 1997. The Company is
currently evaluating the effects of these new standards.
ANNIE'S HOMEGROWN, INC.
PART II - OTHER INFORMATION
EXHIBITS LIST AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit Number
--------------
11 Statement Re: Computation of Per Share Earnings
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 June 30, 1997.
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: August 14, 1997 /s/ Paul B. Nardone
---------------- ---------------------------------
Paul B. Nardone
President
Date: August 14, 1997 /s/ Neil Raiff
---------------- ----------------------------
Neil Raiff
Chief Financial Officer & Treasurer
-9-
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
ANNIE'S HOMEGROWN, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN 000S EXCEPT FOR PER SHARE DATA)
THREE MONTHS ENDED JUNE 30, 1996
Primary Computation
Net loss per statement of operations $(301)
======
Weighted average number of common
shares outstanding 4,119
Weighted average number of common
stock equivalents -
------
Weighted average number of common
shares as adjusted 4,119
Primary loss per common share $ (.07)
=======
Fully Diluted Computation
Net loss per statement of operations $(301)
======
Weighted average number of common
shares outstanding 4,119
Weighted average number of common
stock equivalents 733
------
Weighted average number of common
shares as adjusted 4,852
------
Fully diluted loss per common share $ (.06) (A)
=======
(A) This computation is submitted as an exhibit to the Company's Form 10-QSB in
accordance with Regulation S-K Item 601(b)(11), although presenting the
computation is not in accordance with paragraph 40 of APB Opinion 15 because the
computation produces an anti-dilutive result.
ANNIE'S HOMEGROWN, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE (CONTINUED)
(IN 000S EXCEPT FOR PER SHARE DATA)
THREE MONTHS ENDED JUNE 30, 1997
Primary Computation
Net loss per statement of operations $ (170)
=======
Weighted average number of common
shares outstanding 4,257
Weighted average number of common
stock equivalents -
-------
Weighted average number of common
shares as adjusted 4,257
-------
Primary loss per common share $ (.04)
=======
Fully Diluted Computation
Net loss per statement of operations $ (170)
=======
Weighted average number of common
shares outstanding 4,257
Weighted average number of common
stock equivalents 733
-------
Weighted average number of common
shares as adjusted 4,990
-------
Fully diluted loss per common share $ (.03) (A)
=======
(A) This computation is submitted as an exhibit to the Company's Form 10-QSB in
accordance with Regulation S-K Item 601(b)(11), although presenting the
computation is not in accordance with paragraph 40 of APB Opinion 15 because the
computation produces an anti-dilutive result.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 240,837
<SECURITIES> 0
<RECEIVABLES> 91,461
<ALLOWANCES> 0
<INVENTORY> 1,044,201
<CURRENT-ASSETS> 16,753
<PP&E> 91,068
<DEPRECIATION> 44,464
<TOTAL-ASSETS> 1,545,086
<CURRENT-LIABILITIES> 990,614
<BONDS> 0
0
0
<COMMON> 4,369
<OTHER-SE> 550,103
<TOTAL-LIABILITY-AND-EQUITY> 1,545,086
<SALES> 1,102,185
<TOTAL-REVENUES> 1,102,185
<CGS> 699,497
<TOTAL-COSTS> 561,069
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,287
<INCOME-PRETAX> (169,759)
<INCOME-TAX> 250
<INCOME-CONTINUING> (170,009)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (170,009)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
