UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ ] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarter ended ___________________
[X] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the transition period from January 1, 1997 to March 31, 1997
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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)
December 31
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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
--- ---
Number of shares of Common Stock, $.001 par value, outstanding as of March 31,
1997:
4,256,895 shares
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Transitional Small Business Disclosure Format (check one): Yes No X
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ANNIE'S HOMEGROWN, INC.
Index
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<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements
Balance Sheet as of March 31, 1997 (unaudited) 3
Statements of Operations for the Three Months Ended
March 31, 1997 and 1996 (unaudited) 4
Statements of Cash Flows for the Three Months Ended
March 31, 1997 and 1996 (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 8
Signatures 9
</TABLE>
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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
<TABLE>
<CAPTION>
March 31,1997
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Assets
Current assets
<S> <C>
Cash and cash equivalents $ 483,420
Accounts receivable
Trade 36,578
Related parties 42,073
Inventory 1,162,391
Other current assets 776
-----------
Total current assets 1,725,238
Office equipment, plates and dies 85,641
Accumulated depreciation (39,964)
-----------
Office equipment, plates and dies, net 45,677
Due from officer 75,000
Other assets 26,809
-----------
Total assets $ 1,872,724
===========
Liabilities and Stockholders' Equity
Current liabilities
Notes payable $ -
Accounts payable, trade 594,820
Accrued expenses 87,493
Deferred revenue from distributor 424,224
Due to employees 41,706
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Total current liabilities 1,148,243
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 (950,070)
Note receivable stockholder (1,750)
Treasury stock, 111,906 common shares at cost (90,000)
-----------
Total stockholders equity 724,481
Total liabilities and stockholders' equity $ 1,872,724
===========
</TABLE>
-3-
ANNIE'S HOMEGROWN, INC.
Statements of Operations
Unaudited
<TABLE>
<CAPTION>
Three months ended
March 31,____
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1996 1997
---- ----
<S> <C> <C>
Net sales $ 1,408,483 $ 1,948,272
Cost of sales 888,505 1,193,518
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Gross profit 519,978 754,754
Operating expenses:
Selling 405,350 479,429
General and administrative 187,058 226,394
Slotting fees 57,727 12,842
Compensation of outside directors 9,000 -
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Total operating expenses 659,135 718,665
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Operating income (loss) (139,157) 36,089
Other income (loss)
Interest expense and other charges (10,789) (18,582)
Interest and other income 521 3,705
----------- -----------
Income (loss) before income tax (149,425) 21,212
Income tax expense 2,050 1,050
----------- ----------
Net income (loss) $ (151,475) $ 20,162
=========== ==========
Weighted average common
shares outstanding 4,090,700 4,990,127
Net income (loss) per share $ (.04) $ .00
</TABLE>
-4-
ANNIE'S HOMEGROWN, INC.
Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------------
1996 1997
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Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ (151,475) $ 20,162
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 9,000 -
Changes in:
Accounts receivable - trade (149,682) 49,518
Affiliate accounts, net (6,623) 55,617
Inventory 172,688 71,719
Other assets (25,994) 4,060
Accounts payable - trade (88,913) (422,810)
Accrued expenses (9,205) (17,560)
Deferred revenue from distributor - (110,844)
Due to employees - (2,955)
------------ -----------
Net cash (used in) provided by
operating activities (247,204) (348,593)
Cash flows from investing activities:
Purchases of equipment (1,891) (10,975)
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Net cash (used in) investing activities (1,891) (10,975)
Cash flows from financing activities:
Repayment of notes payable - (17,514)
Net proceeds from notes payable 95,441 -
Issuance of common stock and exercise
of stock options, net 185,624 -
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Net cash (used in) provided by
financing activities 281,065 (17,514)
Net (decrease) increase in cash and cash equivalents 31,970 (377,082)
Cash and cash equivalents, beginning of period 35,463 860,502
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Cash and cash equivalents, end of period $ 67,433 $ 483,420
========= ===========
Supplemental disclosure of cash flow information
Cash paid for interest $ 10,789 $ 18,582
========== ============
Cash paid for income taxes $ 2,050 $ 1,050
=========== ============
</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 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
sells 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.
The Company's strategy is to continue to expand its supermarket distribution
nationally in addition to developing new and unique all-natural food products 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.
-6-
ANNIE'S HOMEGROWN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
NET SALES. Net sales increased by $539,789 or 38.32% from $1,408,483 in 1996 to
$1,948,272 in 1997. The net sales increase was primarily a result in two areas:
(1) expansion of the current market base including an increase in sales of Whole
Wheat and Mild Mexican(TM) products, and (2) the introduction of the One-Step
meals.
GROSS PROFIT. As a percentage of net sales, gross profit increased from 36.92%
in 1996 to 38.73% in 1997. This increase was primarily the result of the
Company's decision to purchase all its raw materials directly from suppliers and
having the co-packers produce the product using these raw materials. This
enabled the Company to achieve better pricing than purchasing the finished
product from the co-packer where the co-packer provided the raw materials.
SELLING EXPENSES. Selling expenses increased by $74,079 or 18.27% from $405,350
in 1996 to $479,429 in 1997 and decreased as a percentage of net sales from
28.78% in 1996 to 24.61% in 1997. The increase in selling expenses was
primarily a result of an increase in marketing costs, including price reductions
and trade show appearances, associated with the continued roll-out of the
Company's new products in 1997 and the increase in sales in the first quarter of
1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $39,336 or 21.03% from $187,058 in 1996 to $226,394 in 1997 and
decreased as a percentage of net sales from 13.28% in 1996 to 11.62% 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 relating to new products.
SLOTTING FEES. Slotting expenses decreased by $44,885 or 77.75% from $57,727 in
1996 to $12,842 in 1997, and decreased as a percentage of net sales from 4.10%
in 1996 to 0.66% 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, $9,000 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 March 31, 1997, the Company had working capital surplus of
$576,995. 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.
-7-
ANNIE'S HOMEGROWN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS - CONTINUED
Net cash used in operating activities for the three months ended March 31, 1997
was $348,593, consisting primarily of payments made against accounts payable.
Net cash used in investing activities consisted of capital expenditures totaling
$10,975 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 March 31, 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 March 31,
1997, the impact on earnings per share as currently stated would be immaterial.
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
The company filed a current report on Form 8-K dated March 27, 1997 reporting a
change in the Company's fiscal year end from December 31 to March 31.
-8-
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: May 14, 1997 /s/ Paul B. Nardone
------------ ----------------------------
Paul B. Nardone
President
Date: May 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 MARCH 31, 1996
<TABLE>
<CAPTION>
Primary Computation
- -------------------
<S> <C>
Net loss per statement of operations $(151)
======
Weighted average number of common
shares outstanding 4,091
Weighted average number of common
stock equivalents -
----
Weighted average number of common
shares as adjusted 4,091
Primary loss per common share $ (.04)
=======
Fully Diluted Computation
- -------------------------
Net loss per statement of operations $(151)
======
Weighted average number of common
shares outstanding 4,091
Weighted average number of common
stock equivalents 733
---
Weighted average number of common
shares as adjusted 4,824
Fully diluted loss per common share $ (.03) (A)
=======
</TABLE>
(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.
-10-
ANNIE'S HOMEGROWN, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE (CONTINUED)
(IN 000S EXCEPT FOR PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Primary Computation
<S> <C>
Net income per statement of operations $ 20
=====
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
-----
Primary loss per common share $ .00
======
Fully Diluted Computation
Net income per statement of operations $ 20
=====
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 $ .00
======
</TABLE>
-11-
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Mar-31-1997
<CASH> 483,420
<SECURITIES> 0
<RECEIVABLES> 78,651
<ALLOWANCES> 0
<INVENTORY> 1,162,391
<CURRENT-ASSETS> 776
<PP&E> 85,641
<DEPRECIATION> 39,964
<TOTAL-ASSETS> 1,872,724
<CURRENT-LIABILITIES> 1,148,243
<BONDS> 0
0
0
<COMMON> 4,369
<OTHER-SE> 720,112
<TOTAL-LIABILITY-AND-EQUITY> 1,872,724
<SALES> 1,948,272
<TOTAL-REVENUES> 1,948,272
<CGS> 1,193,518
<TOTAL-COSTS> 718,665
<OTHER-EXPENSES> (3,705)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,582
<INCOME-PRETAX> 21,212
<INCOME-TAX> 1,050
<INCOME-CONTINUING> 20,162
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,162
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
