<PAGE>
U. S. 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 quarterly period ended June 30, 1998
[ ] 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.)
395 Main Street
Wakefield, MA 01880
-------------------
(Address of Principal Executive Offices)
781-224-1172
------------
(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 Exchange Act 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
---
As of July 31, 1998, there were issued and outstanding 4,548,168 shares of the
issuer's Common Stock, $.001 par value.
Transitional Small Business Disclosure Format (check one): Yes No X
----- -----
<PAGE>
ANNIE'S HOMEGROWN, INC.
INDEX
Page No.
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Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet as of
June 30, 1998 (unaudited) 3
Consolidated Statements of Operations for the Three
Months Ended June 30, 1998 and 1997 (unaudited) 4
Consolidated Statements of Cash Flows for the
Three Months Ended June 30, 1998 and 1997 (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 10
Signatures 10
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ANNIE'S HOMEGROWN, INC.
Consolidated Balance Sheet
Unaudited
June 30, 1998
-------------
<TABLE>
Assets
<S> <C>
Current assets
Cash and cash equivalents $ 114,327
Accounts receivable
Trade 58,327
Related parties 25,524
Inventory 852,769
Other current assets 23,070
----------
Total current assets 1,074,017
Office equipment 142,934
Accumulated depreciation (63,480)
----------
Office equipment, net 79,454
Due from officer 75,000
Goodwill, net of amortization 381,847
Other assets 110,176
----------
Total assets $1,720,494
==========
Liabilities and Stockholders' Equity
Current liabilities
Notes payable $ 123,107
Accounts payable, trade 530,846
Advances from distributor 179,183
Accrued expenses 9,254
Due to employees 30,917
----------
Total current liabilities 873,307
Commitments
Stockholders' equity
Common stock, $.001 par value.
Authorized 10,000,000 shares
issued 4,660,074 shares 4,660
Additional paid in capital 2,306,659
Accumulated deficit (1,187,364)
Notes receivable stockholders (186,768)
Treasury stock, 111,906 common shares at cost (90,000)
----------
Total stockholders equity 847,187
Total liabilities and stockholders' equity $1,720,494
==========
</TABLE>
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<PAGE>
ANNIE'S HOMEGROWN, INC.
Consolidated Statements of Operations
Unaudited
<TABLE>
<CAPTION>
Three months ended
June 30,
--------------------------
1997 1998
---------- ----------
<S> <C> <C>
Net sales $1,102,185 $1,220,165
Cost of sales 699,497 708,569
---------- ----------
Gross profit 402,688 511,596
Operating expenses:
Selling 309,342 355,231
General and administrative 211,633 324,967
Slotting fees 40,092 40,222
---------- ----------
Total operating expenses 561,067 720,420
---------- ----------
Operating income (loss) (158,379) (208,824)
Other income (loss)
Interest expense and other charges (13,287) (33,607)
Interest and other income 1,909 2,288
---------- ----------
Income (loss) before income tax (169,757) (240,143)
Income tax expense 250 1,119
---------- ----------
Net income (loss) $ (170,007) $ (241,262)
========== ==========
Weighted average common
shares outstanding (in 000's):
Basic 4,257 4,485
Diluted 4,257 4,485
Net income (loss) per share:
Basic (.04) (.05)
Diluted (.04) (.05)
</TABLE>
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<PAGE>
ANNIE'S HOMEGROWN, INC.
Consolidated Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
Three months ended
June 30,
-------------------------
1997 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(170,007) $(241,262)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization 4,500 10,701
Changes in
Accounts receivable, trade 12,114 8,847
Affiliate accounts, net 4,649 (4,983)
Inventory 118,190 (31,914)
Other assets (20,174) 63,106
Accounts payable, trade (71,123) 99,304
Accrued expenses (33,951) (38,551)
Advances from distributor (73,536) 172,707
Due to employees (1,095) (3,201)
--------- ---------
Net cash (used in) provided by
operating activities (230,433) 34,754
Cash flows from investing activities:
Purchases of equipment (5,426) (13,805)
--------- ---------
Net cash (used in) investing activities (5,426) (13,805)
Cash flows from financing activities:
Repayment of notes payable (7,500) (156,291)
--------- ---------
Net cash (used in) financing
activities (7,500) (156,291)
Net (decrease) in cash and cash equivalents (243,359) (135,342)
Cash and cash equivalents, beginning of period 484,196 249,669
--------- ---------
Cash and cash equivalents, end of period $ 240,837 $ 114,327
========= =========
Supplemental disclosure of cash flow information
Cash paid for interest $ 13,287 $ 33,607
========= =========
Cash paid for income taxes $ 250 $ 1,119
========= =========
</TABLE>
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<PAGE>
ANNIE'S HOMEGROWN, INC. NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1--BASIS OF PRESENTATION:
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (which include only normal recurring
adjustments) necessary to present fairly the Company's financial position at
June 30, 1998, its results of operations for the three month periods ended June
30, 1998 and 1997, and its cash flows for the three month periods ended June 30,
1998 and 1997. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted from the accompanying consolidated
financial statements. For further information, reference should be made to the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1998, on file
with the Securities and Exchange Commission.
NOTE 2--EARNINGS PER SHARE RECONCILIATION
The reconciliation of the numerators and denominators of the basic and diluted
income/(loss) per common share of the Company's reported net income/(loss) is as
follows (in thousands except per share data):
<TABLE>
<CAPTION>
Three Months Ended Net Weighted Average Per Share
June 30, 1997 Loss Shares Data
- ------------------
<S> <C> <C> <C>
Basic loss per common share $(170) 4,257 $(.04)
Stock options --- --- ---
Diluted loss per common share $(170) 4,257* $(.04)
</TABLE>
*For the quarter ended June 30, 1997, stock options for shares of common stock
totaling 733 thousand were outstanding but were not included in the calculation
of diluted loss per common share because the effect was anti-dilutive.
<TABLE>
<CAPTION>
Three Months Ended Net Weighted Average Per Share
June 30, 1998 Loss Shares Data
- ------------------
<S> <C> <C> <C>
Basic loss per common share $(241) 4,485 $(.05)
Stock options --- --- ---
Diluted loss per common share $(241) 4,485* $(.05)
</TABLE>
*For the quarter ended June 30, 1998, stock options for shares of common stock
totaling 249 thousand were outstanding but were not included in the calculation
of diluted loss per common share because the effect was anti-dilutive.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
OVERVIEW
Annie's Homegrown, Inc. sells premium totally natural pasta products to the
natural food, specialty food and supermarket trades. The pasta products include
eight macaroni and cheese dinners under the Annie's brand name, two canned pasta
meals under the brand names Bernio's and All-Stars and five Annie's One-Step
pasta dinners which combine different pasta shapes with five sauce recipes and
provide the convenience of one-step, one-pot cooking. 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.
Most of the Company's products are distributed in the continental United States
by Liberty Richter, Inc. ("Liberty"). Pursuant to a master distribution
agreement, the Company sells its products to Liberty who in turn resells the
products to the natural and specialty food stores and supermarket chains via
distributors or directly to the supermarkets.
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<PAGE>
On July 31, 1997, the Company acquired Raw Materials Food Company ("RMFC"). The
consolidated financial statements reflect the results of operations and cash
flows of RMFC from the date of acquisition. All intercompany balances and
transactions have been eliminated.
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 1998 and the
Company's expectation that future cash flow will continue to be provided from
operations are 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 master distributor
agreement with Liberty and relative mix of sales through distributors and direct
to supermarkets; (iii) fluctuation in quarterly and annual operating results due
to seasonality (macaroni and cheese are consumed mostly during colder months of
the year and based on the Company's promotional schedule); (iv) dependence on
key personnel; (v) availability and cost of capital; (vi) consumers tastes and
preferences on current products as well as acceptance of new product
introductions; and (vii) general economic conditions, among others. 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 March 31, 1998.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
NET SALES. Net sales increased by $117,980 or 10.70% from $1,102,185 in 1997 to
$1,220,165 in 1998. The net sales increase was the result of new product sales
and RMFC sales netted against continuing product sales which decreased due to
running a spring promotion in the previous quarter. The increase (decrease) in
sales is as follows: same product sales are (10.25)%; new products are 13.10%
and RMFC is 7.85%.
GROSS PROFIT. As a percentage of net sales, gross profit increased from 36.54%
in 1997 to 41.93% in 1998. This increase was a result of selling more products
with a higher gross profit as well as lower raw material costs than last year.
SELLING EXPENSES. Selling expenses increased by $45,889 or 14.83% from $309,342
in 1997 to $355,231 in 1998 and increased as a percentage of net sales from
28.07% in 1997 to 29.11% in 1998. The increase in selling expenses as a
percentage of net sales reflected promotions on new product introductions as
well promotions on the RMFC line of products.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $113,334 or 53.55% from $211,633 in 1997 to $324,967 in 1998 and
increased as a percentage of net sales from 19.20% in 1997 to 26.63% in 1998.
The increase in general and administrative expenses is primarily a result of
increased spending in three areas: (i) increase in expenses from RMFC that are
new this year; (ii) increased payroll costs and related benefits; and (iii)
charges attributable to previously deferred organizational and offering expenses
incurred by the Company in connection with a planned secondary offering of the
Company's Common Stock. The Company changed its plans for a secondary offering
of Common Stock on advice from counsel because it could not obtain assurances
from a stock exchange with whom the Company previously filed an application for
listing that its Common Stock would be approved for listing upon issuance.
-7-
<PAGE>
SLOTTING FEES. Slotting expenses remained relatively flat amounting to $40,092
in 1997 and $40,222 in 1998, and decreased as a percentage of net sales from
3.64% in 1997 to 3.30% in 1998. In order to conserve working capital, the
Company's decision was not to increase 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.
INTEREST EXPENSE AND OTHER CHARGES. Interest expense and other charges increased
by $20,320 from $13,287 in 1997 to $33,607 in 1998 and increased as a percentage
of sales from 1.21% in 1997 to 2.75% in 1998. The increase in interest expense
and other charges is the result of borrowings under the Line of Credit from a
financial institution that the Company entered into during February 1998 (the
"Line of Credit").
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date through a 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, 1998, the Company had working capital of $200,710, which is a decrease of
$243,086 from a balance of $443,796 at March 31, 1998. The net decrease in
working capital was primarily attributable to funding operating losses for the
current period.
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 distributors or supermarket chains. As a
result, if Liberty pays the Company before Liberty sells the products to a third
party, the Company has an advance from Liberty. If Liberty sells the products to
a third party before it pays the Company, the Company has a receivable from
Liberty.
Net cash provided by operating activities for the three months ended June 30,
1998 was $34,754, consisting primarily of an increase in accounts payable and a
substantial increase in advances from distributor which offset operating losses
for the period.
Net cash used in investing activities consisted of capital expenditures totaling
$13,805 which related principally to the purchase of plates and dies for the new
products as well as office equipment.
The Company negotiated a line of credit with a financial institution for
$600,000, which closed on February 3, 1998 ("Line of Credit"). The Line of
Credit is for a term of two years and is secured by all of the assets of the
Company and guaranteed by the two largest stockholders of the Company. The
Company has ongoing discussions with other parties with a view to raising
additional capital and exploring other liquidity options.
The Company's primary capital needs are for promoting newly developed products
to sell to its existing consumer base, purchase existing all natural brands, or
expansion into national supermarket distribution. The Company is negotiating
with the financial institution for a $300,000 increase in the Line of Credit and
an additional term loan of $300,000 due in February 2000. The proceeds from the
term loan are expected to be used for an acquisition by the Company of
substantially all the assets of an unaffiliated company pursuant to an asset
purchase agreement dated July 13, 1998. The target company produces and markets
a line of heat and serve entree products. The acquisition is expected to be
completed in August 1998.
The Company anticipates that the funds available from the Line of Credit,
together with funds generated from operations, will be sufficient to meet its
liquidity needs for the next twelve months. However, the Company needs
additional capital in the future to fully implement its business strategy as set
forth herein. If such capital is unavailable either because of general market
conditions or the results of the Company's operations, the Company will have to
continue to scale back either its investments in new products, or its national
supermarket expansion, or both.
-8-
<PAGE>
Management is aware of the potential software anomalies associated with the year
2000 date change. The Company has been evaluating the potential issues that need
to be addressed in connection with its operations. A review of the Company's
computer systems and software is largely complete and the Company is not aware
at this time of any significant year 2000 issues in its own systems that will
not be resolved prior to the year 2000. Formal communications have begun with
Liberty, the Company's master distributor, to ensure that Liberty has
appropriate plans in place to properly address the year 2000 issue. Based on
preliminary information, costs of addressing the issue are not expected to have
a material effect upon the Company's financial position, results of operations,
or cash flows in future periods. The Company believes it has adequate plans in
place to address the year 2000 issue. However, there can be no assurance that
the systems of other companies, on which the Company's systems and operations
rely, will be converted on a timely basis and will not have a material effect on
the Company.
In June 1997, the FASB 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 adopted the required presentation of SFAS No. 130
for the fiscal year beginning April 1, 1998. The Company has no other components
of comprehensive income other than its net loss.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Computer
Software Developed and Obtained for Internal Use". The statement is effective
for fiscal years beginning after December 15, 1998. Earlier application is
encouraged in fiscal years for which annual financial statements have not been
issued. The statement defines which costs of computer software developed or
obtained for internal use are capitalized and which costs are expensed. The
Company adopted SOP 98-1 effective April 1, 1998. The adoption of SOP 98-1 has
no impact on the consolidated financial statements.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-Up
Activities". The statement is effective for fiscal years beginning after
December 15, 1998. The statement requires costs of start-up activities and
organization costs to be expensed as incurred. The Company will adopt SOP 98-5
for the fiscal year beginning April 1, 1999. The adoption of SOP 98-5 will not
materially affect the consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). The
statement requires companies to recognize all derivatives as either assets or
liabilities with the instruments measured at fair value. The accounting for
changes in fair value gains and losses depends on the intended use of the
derivative and its resulting designation. The statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. The Company will
adopt SFAS 133 by April 1, 2000. Adoption of SFAS 133 is not expected to have a
material impact on the consolidated financial statements.
-9-
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit Number
--------------
11 Statement re: computation of per share earnings
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the quarter
for which this report is being filed.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ANNIE'S HOMEGROWN, INC.
-----------------------
(Registrant)
Date: August 13, 1998 /s/ Paul B. Nardone
-----------------------------------------
Paul B. Nardone
President and Chief Operating Officer
Date: August 13, 1998 /s/ Neil Raiff
------------------------------------------
Neil Raiff
Chief Financial Officer & Treasurer
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<PAGE>
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, 1997
<TABLE>
<S> <C>
Basic Computation
- -----------------
Net loss per statement of operations $ (170)
======
Weighted average number of common shares outstanding 4,257
======
Basic loss per common share $ (.04)
======
Diluted Computation
- -------------------
Net loss statement of operations $(170)
======
Weighted average number of common shares outstanding 4,257
Stock options 733
Weighted average number of common shares as adjusted 4,990
======
Diluted loss per common share $ (.03)
======
</TABLE>
<PAGE>
ANNIE'S HOMEGROWN, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE (CONTINUED)
(IN 000S EXCEPT FOR PER SHARE DATA)
THREE MONTHS ENDED JUNE 30, 1998
<TABLE>
<S> <C>
Basic Computation
- -----------------
Net loss per statement of operations $ (241)
======
Weighted average number of common shares outstanding 4,485
======
Basic loss per common share $ (.05)
======
Diluted Computation
- -------------------
Net loss statement of operations $(241)
======
Weighted average number of common shares outstanding 4,485
Stock options 249
Weighted average number of common shares as adjusted 4,734
======
Diluted loss per common share $ (.05)
======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1998
<CASH> 114,327
<SECURITIES> 0
<RECEIVABLES> 83,851
<ALLOWANCES> 0
<INVENTORY> 852,769
<CURRENT-ASSETS> 23,070
<PP&E> 142,934
<DEPRECIATION> 63,480
<TOTAL-ASSETS> 1,720,494
<CURRENT-LIABILITIES> 873,307
<BONDS> 0
0
0
<COMMON> 4,660
<OTHER-SE> 842,527
<TOTAL-LIABILITY-AND-EQUITY> 1,720,494
<SALES> 1,220,165
<TOTAL-REVENUES> 1,220,165
<CGS> 708,569
<TOTAL-COSTS> 720,420
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,607
<INCOME-PRETAX> (240,143)
<INCOME-TAX> 1,119
<INCOME-CONTINUING> (241,262)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (241,262)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
