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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 September 30, 1999
[ ] 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.)
395 Main Street
Wakefield, MA 01880
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(Address of Principal Executive Offices)
781-224-1172
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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 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 September 30, 1999, there were outstanding 4,709,768 shares of the
issuer's Common Stock, $.001 par value.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
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<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
September 30, 1999 (unaudited) 3
Consolidated Statements of Operations for the Three and
Six Months Ended September 30, 1999 and 1998 (unaudited) 4
Consolidated Statements of Cash Flows for the
Six Months Ended September 30, 1999 and 1998 (unaudited) 5
Notes to Consolidated Financial Statements 6-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION 8-12
Part II Other Information
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
Signatures 12
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ANNIE'S HOMEGROWN, INC.
Consolidated Balance Sheet
Unaudited
September 30, 1999
------------------
Assets
Current assets
Cash and cash equivalents $ 69,480
Accounts receivable
Trade 223,083
Related parties 24,759
Inventory 1,277,310
Other current assets 44,920
----------
Total current assets 1,639,552
Office equipment 190,072
Accumulated depreciation (99,464)
----------
Office equipment, net 90,608
Goodwill, net of amortization 281,558
Note receivable, net of deferred gain ---
Other assets 111,769
----------
Total assets $2,123,487
==========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Notes payable $ 482,316
Current maturities of long term debt 120,000
Accounts payable, trade 1,345,415
Advances from distributor 218,970
Accrued expenses 168,005
----------
Total current liabilities 2,334,706
Commitments
Stockholders' equity (deficit) Common stock, $.001 par value.
Authorized 10,000,000 shares
issued 4,881,674 shares 4,882
Additional paid in capital 2,534,120
Accumulated deficit (2,107,771)
Notes receivable stockholders (367,450)
Note receivable from officer (75,000)
Treasury stock, 171,906 common shares at cost (200,000)
----------
Total stockholders' equity (deficit) (211,219)
----------
Total liabilities and stockholders' equity (deficit) $2,123,487
==========
3
<PAGE>
ANNIE'S HOMEGROWN, INC.
Consolidated Statements of Operations
Unaudited
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
-------------------------- --------------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 1,976,958 $ 2,850,256 $ 3,197,124 $ 4,913,135
Cost of sales 1,130,956 1,539,837 1,839,525 2,726,490
----------- ----------- ----------- -----------
Gross profit 846,002 1,310,419 1,357,599 2,186,645
Operating expenses:
Selling 649,303 828,340 1,004,534 1,410,041
General and administrative 357,423 322,289 682,388 670,582
Compensation for outside directors -- 10,000 -- 10,000
Slotting fees 23,094 19,228 63,316 55,941
----------- ----------- ----------- -----------
Total operating expenses 1,029,820 1,179,857 1,750,238 2,146,564
----------- ----------- ----------- -----------
Operating income (loss) (183,818) 130,562 (392,639) 40,081
Other income (loss)
Interest expense and other charges (34,225) (57,036) (67,833) (110,497)
Gain on sale of Raw Materials Food Co. -- -- -- 62,121
Interest and other income 2,000 3,728 4,287 6,367
----------- ----------- ----------- -----------
Income (loss) before income tax (216,043) 77,254 (456,185) (1,928)
Income tax expense -- -- 1,119 --
----------- ----------- ----------- -----------
Net income (loss) $ (216,043) $ 77,254 $ (457,304) $ (1,928)
=========== =========== =========== ===========
Weighted average common shares outstanding (in 000's):
Basic 4,548 4,708 4,548 4,721
Diluted 4,548 4,828 4,548 4,721
Net income (loss) per share:
Basic (.05) .02 (.10) 0.0
Diluted (.05) .02 (.10) 0.0
</TABLE>
4
<PAGE>
ANNIE'S HOMEGROWN, INC.
Consolidated Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
Six months ended
September 30,
------------------------
1998 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(457,304) $ (1,928)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization 21,002 24,500
Compensation for outside directors -- 10,000
Gain on sale of Raw Materials Food Co. -- (62,121)
Changes in
Accounts receivable, trade (21,394) (157,802)
Affiliate accounts, net (9,274) --
Inventory (160,585) 251,506
Other assets (25,343) 37,616
Accounts payable, trade 473,916 613,315
Accrued expenses (6,453) 81,662
Advances from distributor 34,364 (509,425)
Due to employees (8,811) (5,110)
--------- ---------
Net cash (used in) provided by
operating activities (159,882) 282,213
Cash flows from investing activities:
Acquisition of Tamarind Tree brand (209,712) (12,040)
Purchases of equipment (48,948) (11,365)
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Net cash (used in) investing activities (258,660) (23,405)
Cash flows from financing activities:
Net payments on line of credit (46,513) (145,953)
Borrowing on term loan 300,000 --
---------
Payments on term loan -- (90,000)
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Net cash (used in) provided by
financing activities 253,487 (235,953)
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Net (decrease) increase in cash and cash equivalents (165,055) 22,855
Cash and cash equivalents, beginning of period 249,669 46,625
--------- ---------
Cash and cash equivalents, end of period $ 84,614 $ 69,480
========= =========
Supplemental disclosure of cash flow information
Cash paid for interest $ 67,833 $ 109,356
========= =========
Cash paid for income taxes $ 1,119 $ --
========= =========
</TABLE>
Supplemental disclosure of noncash activities - See Note 2
5
<PAGE>
ANNIE'S HOMEGROWN, INC. NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
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
September 30, 1999, its results of operations for the three and six month
periods ended September 30, 1998 and 1999, and its cash flows for the six month
periods ended September 30, 1998 and 1999. 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-KSB for the
fiscal year ended March 31, 1999, on file with the Securities and Exchange
Commission.
NOTE 2-- Supplemental disclosure of noncash activities are as follows:
As of June 30, 1999, the Company consummated an agreement with one of the
founders of Raw Materials Food Company ("RMFC") to sell back to that founder all
of the common stock of RMFC. In payment for the common stock, the founder
returned to the Company 30,000 shares of the Company's Common Stock issued to
him as consideration for the original acquisition of RMFC and a note in the
amount of $77,000. The note bears interest at 5.79% per annum and the repayment
terms are tied to the cash flows of Raw Materials Food Company.
The Company has recognized a gain of $62,121 on the sale of the common stock of
RMFC, which represents the amount by which the fair value of the 30,000 shares
of Annie's Homegrown, Inc. exceeds the net assets sold. The Company deferred any
gain recognition relating to the $77,000 note receivable from RMFC until such
time as cash flows from RMFC's operating activities are sufficient to fund the
repayment of the note. For the six months ended September 30, 1999, the Company
recognized $3,923 in other income relating to cash repayments on the note
receivable.
NOTE 3 - 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 Sept. 30, 1998 Net Loss Weighted Average Shares Per Share Data
- --------------------------------- -------- ----------------------- --------------
<S> <C> <C> <C>
Basic loss per common share $(216) 4,548 $(.05)
Stock options --- --- ---
Diluted loss per common share $(216) 4,548* $(.05)
</TABLE>
*For the quarter ended September 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.
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, 1999 Net Income Weighted Average Shares Per Share Data
- --------------------------------- ---------- ----------------------- --------------
<S> <C> <C> <C>
Basic income per common share $ 77 4,708 $ .02
Stock options --- 120 ---
Diluted income per common share $ 77 4,828 $ .02
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Sept. 30, 1998 Net Loss Weighted Average Shares Per Share Data
- ------------------------------- -------- ----------------------- --------------
<S> <C> <C> <C>
Basic loss per common share $(457) 4,548 $(.10)
Stock options --- --- ---
Diluted loss per common share $(457) 4,548* $(.10)
</TABLE>
*For the six months ended September 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.
<TABLE>
<CAPTION>
Six Months Ended Sept 30, 1999 Net Loss Weighted Average Shares Per Share Data
- ------------------------------ -------- ----------------------- --------------
<S> <C> <C> <C>
Basic loss per common share $ (2) 4,721 $(0.0)
Stock options --- --- ---
Diluted loss per common share $ (2) 4,721* $(0.0)
</TABLE>
*For the six months ended September 30, 1999, stock options for shares of common
stock totaling 120 thousand were outstanding but were not included in the
calculation of diluted loss per common share because the effect was
anti-dilutive.
NOTE 4 - TAMARIND TREE ACQUISITION
On August 27, 1998, the Company acquired certain assets of The Tamarind Tree
Ltd. ("Tamarind Tree"). Tamarind Tree produced and marketed an ethnic line of
heat and serve vegetarian food entrees. The assets acquired consisted of the
Tamarind Tree brand, including the registered trademark, "The Taste of India,"
intellectual property relating to the brand and other tangible and intangible
assets that were used in Tamarind Tree's business.
The purchase price was comprised of cash in the amount of $200,000, an advance
against royalties in the amount of $75,000, future royalties and overrides and
paid acquisition costs. The royalties are payable by the Company to Tamarind
Tree for five years at the rate of 6% annually on "adjusted net sales."
Additionally, overrides are payable by the Company to Tamarind Tree for five
years at the rate of 2% of all sales of certain products and sales in excess of
a certain minimum amount of other products. The royalty payments will be
accounted for as additional consideration for the purchase of the assets and
will be recorded as additional goodwill as the future royalties are earned.
The Company financed the acquisition of Tamarind Tree by entering into a
$300,000 term loan with Fremont Financial Corporation. The interest rate on the
loan is prime rate plus 3% (11.25% at September 30, 1999) and calls for 20
monthly principal payments of $15,000 commencing October 1, 1998. The loan is
secured by all of the assets of the Company including a security interest in the
Tamarind Tree Brand as well as guaranteed by the two largest stockholders of the
Company.
The operating results of Tamarind Tree have been included in the consolidated
statements of operations from the date of acquisition. Proforma combined results
of operations of the Company and Tamarind Tree on the basis that the acquisition
had taken place on April 1, 1997 are not presented since the effects are not
material.
NOTE 5 - LINE OF CREDIT
On August 27, 1998, the Company signed an amendment to its Line of Credit
agreement with Fremont Financial Corporation increasing its line of credit from
$600,000 to $900,000. Amounts available under this agreement are either 75% or
90% of certain categories of the Company's accounts receivable and 50% of a
certain category of inventory. The note is secured by all the assets of the
Company as well as guaranteed by the two largest stockholders of the Company.
7
<PAGE>
NOTE 6 - COST REDUCTION
In July 1999, the Company's Board of Directors approved a cost reduction plan,
which is expected to eliminate approximately $300,000 in expenses for the fiscal
year ended March 31, 2000. The plan called for a reduction in personnel, some of
which took place in the quarter ending June 30, 1999 with the balance completed
in July 1999. Severance payments associated with the personnel cuts totaled
$61,682. The plan also called for a consolidation of the Company's operations
into its Wakefield, Massachusetts office that was completed in June 1999. In
July 1999, the Company and Liberty modified the agreement to permit the Company
to sell the products directly to the supermarket chains that do not buy through
distributors in the New England and West Coast regions
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
OVERVIEW
Annie's Homegrown, Inc. sells premium totally natural products to the natural
food, specialty food and supermarket trades. The pasta products include ten
macaroni and cheese dinners under the Annie's brand name, two canned pasta meals
under the brand names BerniOs and All Stars and five Annie's Pasta Meals which
combine different pasta shapes with five sauce recipes. The Company, from its
Tamarind Tree acquisition, sells eight different heat and serve vegetarian food
entrees in the Indian cuisine tradition. The Company also has an agreement with
a specialty retailer to provide a private label house brand using the Company's
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 natural and specialty food stores and supermarket chains via
distributors. In July 1999, the Company and Liberty modified the agreement to
permit the Company to sell the products directly to the supermarket chains that
do not buy through distributors in the New England and West Coast regions.
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,
relating to the sufficiency of funds for the Company's working capital
requirements during 1999 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 Company's 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 (e.g. macaroni and
cheese is 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, 1999.
8
<PAGE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO SIX MONTHS ENDED
SEPTEMBER 30, 1998
NET SALES. Net sales increased by $1,716,011 or 53.67% from $3,197,124 in 1998
to $4,913,135 in 1999. The net sales increase was the result of increases in
continuing product sales (25.44%), Tamarind Tree sales (18.25%) and new products
(9.98%).
GROSS PROFIT. As a percentage of net sales, gross profit increased from 42.46%
in 1998 to 44.51% in 1999. This increase was a result of the product mix as well
as lower raw material costs.
SELLING EXPENSES. Selling expenses increased by $405,507 or 40.37% from
$1,004,534 in 1998 to $1,410,041 in 1999 but decreased as a percentage of net
sales from 31.42% in 1998 to 28.70% in 1999. The decrease in selling expenses as
a percentage of net sales reflected fewer promotions on continuing product sales
and fewer new product introductions.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased by $11,806 or 1.73% from $682,388 in 1998 to $670,582 in 1999 and
decreased as a percentage of net sales from 21.34% in 1998 to 13.65% in 1999.
The decrease in general and administrative expenses is a result of the cost
reductions approved by the Board of Directors offset by severance payments
($61,682) and professional fees relating to hiring an investment banker and
additional legal expenses related to the restructuring activities of the
Company.
SLOTTING FEES. Slotting expenses decreased by $7,375 or 11.65% from $63,316 in
1998 to $55,941 in 1999, and decreased as a percentage of net sales from 1.98%
in 1998 to 1.14% in 1999. According to the Company's plan, a modest amount of
slotting fees was spent to expand the Company's distribution into new markets.
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 $42,664 from $67,833 in 1998 to $110,497 in 1999 and increased as a
percentage of sales from 2.12% in 1998 to 2.25% in 1999. The increase in
interest expense and other charges is the result of higher borrowings under the
Line of Credit from a financial institution as well as borrowings from the term
loan entered into during August 1998.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
NET SALES. Net sales increased by $873,298 or 44.17% from $1,976,958 in 1998 to
$2,850,256 in 1999. The net sales increase was the result of increases in
continuing product sales (34.67%), Tamarind Tree sales (7.04%) and new products
(5.78%) offset by the loss of RMFC sales (3.32%).
GROSS PROFIT. As a percentage of net sales, gross profit increased from 42.79%
in 1998 to 45.97% in 1999. This increase was a result of the product mix as well
as lower raw material costs.
SELLING EXPENSES. Selling expenses increased by $179,037 or 27.57% from $649,303
in 1998 to $828,340 in 1999 and decreased as a percentage of net sales from
32.84% in 1998 to 29.06% in 1999. The decrease in selling expenses as a
percentage of net sales reflected fewer promotions on continuing product sales
and fewer new product introductions.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased by $35,134 or 9.83% from $357,423 in 1998 to $322,289 in 1999 and
decreased as a percentage of net sales from 18.08% in 1998 to 11.31% in 1999.
The decrease in general and administrative expenses is a result of the cost
reductions approved by the Board of Directors offset by severance payments
($53,464) in relation to the reduction of personnel in the cost reduction plan.
9
<PAGE>
SLOTTING FEES. Slotting expenses decreased by $3,866 or 16.74% from $23,094 in
1998 to $19,228 in 1999, and decreased as a percentage of net sales from 1.17%
in 1998 to 0.67% in 1999. According to the Company's plan, a modest amount of
slotting fees was spent to expand the Company's distribution into new markets.
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 $22,811 from $34,225 in 1998 to $57,036 in 1999 and increased as a percentage
of sales from 1.73% in 1998 to 2.00% in 1999. The increase in interest expense
and other charges is the result of higher borrowings under the Line of Credit
from a financial institution as well as borrowings from the term loan entered
into during August 1998.
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 and term loan from a financial institution and cash generated from
operations. At September 30, 1999, the Company had a working capital deficit of
$695,154, which is an increase of $89,584 from a working capital deficit of
$605,570 at March 31, 1999. The working capital deficit was reduced by $90,621
from the working capital deficit at June 30, 1999. The increase in the working
capital deficit was primarily attributable to the modification of the Liberty
contract resulting in an increase in accounts receivable and a decrease in the
advances from distributor. Payments on the line of credit also decreased the
working capital deficit that was offset by a reduction of inventory due to
better inventory turns and an increase in accounts payable and accrued expenses
due to timing of payments at the end of the quarter.
Most of the Company's sales are made to Liberty under contract terms allowing
certain rights of return on unsold product held by Liberty. That 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. As a result, if Liberty
pays the Company before Liberty sells the products to a third party, the Company
accounts for such amount as an advance from Liberty. If Liberty sells the
products to a third party before it pays the Company, the Company accounts for
such amount as a receivable from Liberty.
Net cash provided by operating activities for the six months ended September 30,
1999 was $282,213 resulting primarily from a decrease in inventory and an
increase in accounts payable and accrued expenses offset by an increase in
accounts receivable and a decrease in advances from distributor.
Net cash used in investing activities consisted of capital expenditures totaling
$23,405 which related to additional purchase price in the form of the ongoing
royalty in connection with the purchase of the Tamarind Tree brand and the
purchase of plates and dies for the new products and the purchase of 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. In August
1998, the Company increased the Line of Credit to $900,000 and signed a Term
Loan for an additional $300,000 to purchase the Tamarind Tree brand. At
September 30, 1999, the Company reduced the line of credit by $145,953 in
payments and reduced the term loan by $90,000 in monthly installments.
The Company's strategy is to continue to expand its supermarket distribution
nationally in addition to developing new and unique all natural and organic food
products to sell to its existing customer base.
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 aforementioned business
strategy. 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.
10
<PAGE>
In September 1998, the Company hired an investment banker to explore strategic
opportunities to maximize stockholder value. In March 1999, the Company's
contract with the investment banker expired. The investment banker as well as
the Company's Board of Directors continue to look for investment capital for the
Company's primary capital needs. On September 2, 1999, the Special Committee of
the Board of Directors, consisting solely of outside and disinterested
directors, authorized the Company to sign a non-binding term sheet for a
proposed investment in the Company by Homegrown Holdings Corp., a Delaware
corporation that is presently unaffiliated with Annie's. A definite agreement
between Annie's and Homegrown Holdings Corp. has not yet been signed.
As of June 30, 1999, the Company consummated an agreement with one of the
founders of Raw Materials Food Company ("RMFC") to sell back to that founder all
of the common stock of RMFC. In payment for the common stock, the founder
returned to the Company 30,000 shares of the Company's common stock issued to
him as consideration for the original acquisition of RMFC and a note in the
amount of $77,000.
The Company has recognized a gain of $62,121 on the sale of the common stock
that represents the amount by which the fair value of the 30,000 shares of
Annie's Homegrown, Inc. exceeds the net assets sold. The Company has deferred
any gain recognition relating to the $77,000 note receivable from RMFC until
such time as cash flows from RMFC's operating activities are sufficient to fund
the repayment of the note. For the six months ended September 30, 1999, the
Company recognized $3,923 in other income relating to cash repayments on the
note receivable.
In July 1999, the Company's Board of Directors approved a cost reduction plan,
which is expected to eliminate approximately $300,000 in expenses for the fiscal
year ended March 31, 2000. The plan called for a reduction in personnel, some of
which took place in the quarter ending June 30, 1999 with balance completed in
July 1999. Severance payments associated with the personnel cuts totaled
$61,682. The plan also called for a consolidation of the Company's operations
into its Wakefield, Massachusetts office that was completed in June 1999. In
July 1999, the Company and Liberty modified the agreement to permit the Company
to sell the products directly to the supermarket chains that do not buy through
distributors in the New England and West Coast regions.
YEAR 2000 COMPLIANCE
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. An inventory of the Company's
computer systems and software has been made and assessment and testing of the
systems and software is completed. The Company is not aware at this time of any
significant year 2000 issues in its own systems. The Company contacted Liberty,
the Company's master distributor, to ensure that Liberty has appropriate plans
in place to properly address the year 2000 issue. Liberty has informed the
Company that its systems are year 2000 compliant. The Company has also contacted
its principal suppliers to assess their year 2000 compliance. Based on the
results of these communications, the Company has decided not to seek alternative
suppliers. Costs of addressing the year 2000 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, nor can there be an assurance that the Company will not encounter a
material disruption as a result of the year 2000 problem.
OTHER MATTERS
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 adopted SOP 98-5
effective April 1, 1999. The adoption of SOP 98-5 had no impact on the
consolidated financial statements.
11
<PAGE>
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, 2000. The Company will
adopt SFAS 133 by April 1, 2001. Adoption of SFAS 133 is not expected to have a
material impact on the consolidated financial statements. .
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: November 15, 1999 /s/ Paul B. Nardone
---------------------------------
Paul B. Nardone
President and Chief Operating Officer
Date: November 15, 1999 /s/ Neil Raiff
----------------------------
Neil Raiff
Chief Financial Officer & Treasurer
12
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 SEPTEMBER 30, 1998
Basic Computation
- -----------------
Net loss per statement of operations $ (216)
=======
Weighted average number of common
shares outstanding 4,548
Basic loss per common share $ (.05)
=======
Diluted Computation
- -------------------
Net loss per statement of operations $ (216)
=======
Weighted average number of common
shares outstanding 4,548
Stock options 249
Weighted average number of common
shares as adjusted 4,797
Diluted loss per common share $ (.05)
=======
<PAGE>
ANNIE'S HOMEGROWN, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE (CONTINUED)
(IN 000S EXCEPT FOR PER SHARE DATA)
THREE MONTHS ENDED SEPTEMBER 30, 1999
Basic Computation
- -----------------
Net income per statement of operations $ 77
=======
Weighted average number of common
shares outstanding 4,708
Basic income per common share $ .02
=======
Diluted Computation
- -------------------
Net income per statement of operations $ 77
=======
Weighted average number of common
shares outstanding 4,708
Stock options 120
Weighted average number of common
shares as adjusted 4,828
Diluted income per common share $ .02
=======
<PAGE>
ANNIE'S HOMEGROWN, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN 000S EXCEPT FOR PER SHARE DATA)
SIX MONTHS ENDED SEPTEMBER 30, 1998
Basic Computation
- -----------------
Net loss per statement of operations $ (457)
=======
Weighted average number of common
shares outstanding 4,548
Basic loss per common share $ (.10)
=======
Diluted Computation
- -------------------
Net loss per statement of operations $ (457)
=======
Weighted average number of common
shares outstanding 4,548
Stock options 249
Weighted average number of common
shares as adjusted 4,797
Diluted loss per common share $ (.10)
=======
<PAGE>
ANNIE'S HOMEGROWN, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE (CONTINUED)
(IN 000S EXCEPT FOR PER SHARE DATA)
SIX MONTHS ENDED SEPTEMBER 30, 1999
Basic Computation
- -----------------
Net loss per statement of operation $ (2)
=======
Weighted average number of common
shares outstanding 4,721
Basic loss per common share $ (0.0)
=======
Diluted Computation
- -------------------
Net loss per statement of operations $ (2)
=======
Weighted average number of common
shares outstanding 4,721
Stock options 120
Weighted average number of common
shares as adjusted 4,841
Diluted loss per common share $ (0.0)
=======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANYS
FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> SEP-30-1999
<CASH> 69,480
<SECURITIES> 0
<RECEIVABLES> 247,842
<ALLOWANCES> 0
<INVENTORY> 1,277,310
<CURRENT-ASSETS> 1,639,552
<PP&E> 190,072
<DEPRECIATION> 99,464
<TOTAL-ASSETS> 2,123,487
<CURRENT-LIABILITIES> 2,334,706
<BONDS> 0
<COMMON> 4,882
0
0
<OTHER-SE> (216,101)
<TOTAL-LIABILITY-AND-EQUITY> 2,123,487
<SALES> 4,913,135
<TOTAL-REVENUES> 4,913,135
<CGS> 2,726,490
<TOTAL-COSTS> 2,146,564
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110,497
<INCOME-PRETAX> (1,928)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,928)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,928)
<EPS-BASIC> (0.0)
<EPS-DILUTED> (0.0)
</TABLE>
