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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 June 30, 2000
[ ] 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
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As of July 31, 2000, there were 1,000,000 shares of the Issuer's Series A
Convertible Preferred Stock, $2.00 par value and 4,709,768 shares of the
issuer's Common Stock, $.001 par value, issued and outstanding.
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
June 30, 2000 (unaudited) 3
Consolidated Statements of Operations for the Three
Months Ended June 30, 1999 and 2000 (unaudited) 4
Consolidated Statements of Cash Flows for the
Three Months Ended June 30, 1999 and 2000 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 10
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ANNIE'S HOMEGROWN INC.
Consolidated Balance Sheet
Unaudited
June 30, 2000
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Assets
Current assets
Cash and cash equivalents $ 98,765
Accounts receivable 699,532
Inventory 1,122,458
Other current assets 500
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Total current assets 1,921,255
Office equipment 231,973
Accumulated depreciation (127,964)
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Office equipment, net 104,009
Goodwill, net of amortization 295,001
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Other assets 153,721
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Total assets $2,473,986
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Liabilities and Stockholders' Equity
Current liabilities
Notes payable $ 8,600
Accounts payable, trade 636,149
Accrued expenses 76,734
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Total current liabilities 721,483
Commitments
Stockholders' equity
Series A convertible preferred stock, $2.00 par value 2,000,000
Authorized 1,000,000 shares
issued and outstanding 1,000,000 shares
Common stock, $.001 par value 4,882
Authorized 10,000,000 shares
issued 4,881,674 shares
Additional paid in capital 2,712,272
Accumulated deficit (2,093,417)
Notes receivable stockholders (440,292)
Treasury stock, 171,906 common shares at cost (200,000)
Deferred compensation (230,942)
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Total stockholders' equity 1,752,503
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Total liabilities and stockholders' equity $2,473,986
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ANNIE'S HOMEGROWN INC.
Consolidated Statements of Operations
Unaudited
<TABLE><CAPTION>
Three months ended
June 30,
--------
1999 2000
----------- -----------
<S> <C> <C>
Net sales $ 2,062,879 $ 2,079,752
Cost of sales 1,186,653 1,131,239
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Gross profit 876,226 948,513
Operating expenses:
Selling 581,699 754,966
General and administrative 348,295 373,136
Slotting fees 36,713 95,834
Stock compensation to employees -- 15,396
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Total operating expenses 966,707 1,239,332
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Operating income (loss) (90,481) (290,819)
Other income (expense):
Interest expense and other charges (53,461) (5,305)
Interest and other income 2,639 20,961
Gain on sale of Raw Material Food Company 62,121 --
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Other income (expense) 11,299 15,656
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Income (loss) before income tax expense (79,182) (275,163)
Income tax expense -- --
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Net income (loss) $ (79,182) $ (275,163)
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Weighted average common shares outstanding (in 000's):
Basic 4,705 4,710
Diluted 4,705 4,710
Net income (loss) per share:
Basic (.02) (.06)
Diluted (.02) (.06)
</TABLE>
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ANNIE'S HOMEGROWN INC.
Consolidated Statements of Cash Flows
Unaudited
<TABLE><CAPTION>
Three months ended
June 30,
-----------
1999 2000
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (79,182) $(275,163)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization 12,000 18,000
Gain on sale of Raw Materials Food Company (62,121) --
Stock compensation to employees -- 15,396
Changes in
Accounts receivable, trade (7,565) (141,609)
Inventory 340,538 222,230
Other assets 18,230 5,836
Note receivable, stockholders -- 18,121
Accounts payable, trade 11,974 (63,116)
Accrued expenses (34,503) (128,653)
Advances from distributor 5,171 --
Due to employees (1,566) --
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Net cash (used in) provided by operating activities 202,976 (328,958)
Cash flows from investing activities:
Acquisition of Tamarind Tree brand (5,217) (6,157)
Purchases of equipment (6,169) (27,623)
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Net cash (used in) investing activities (11,386) (33,780)
Cash flows from financing activities:
Net borrowings (payments) on line of credit (152,697) 8,600
Payments on term loan (45,000) --
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Net cash (used in) provided by financing activities (197,697) 8,600
Net (decrease) increase in cash and cash equivalents (6,107) (354,138)
Cash and cash equivalents, beginning of period 46,625 452,903
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Cash and cash equivalents, end of period $ 40,518 $ 98,765
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Supplemental disclosure of cash flow information
Cash paid for interest $ 57,139 $ 130
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Cash paid for income taxes $ -- $ --
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</TABLE>
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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, 2000, its results of operations for the three month periods ended June
30, 1999 and 2000, and its cash flows for the three month periods ended June 30,
1999 and 2000. 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, 2000, on file
with the Securities and Exchange Commission.
NOTE 2-- SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
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 recognized a gain of $62,121 on the aforementioned 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. At June 30, 2000, the balance of
the note receivable is $55,970.
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 June 30, 1999 Net Loss Weighted Average Shares Per Share Data
--------------------------------
<S> <C> <C> <C>
Basic loss per common share $(79) 4,705 $(.02)
Stock options --- --- ---
Diluted loss per common share $(79) 4,705* $(.02)
</TABLE>
*For the quarter ended June 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.
<TABLE>
<CAPTION>
Three Months Ended June 30, 2000 Net Loss Weighted Average Shares Per Share Data
--------------------------------
<S> <C> <C> <C>
Basic loss per common share $(275) 4,710 $(.06)
Conversion of Preferred Stock --- --- ---
Stock options --- --- ---
Diluted loss per common share $(275) 4,710* $(.06)
</TABLE>
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*For the quarter ended June 30, 2000, stock options for shares of common stock
totaling 71 thousand were outstanding and 1 million shares of convertible
preferred stock were not included in the calculation of diluted income per
common share because the effect was anti-dilutive.
NOTE 5 - LINE OF CREDIT
On May 4, 2000, the Company entered into a $250,000 line of credit with a bank
that is secured by all of the assets of the Company. The line provides for
interest at prime plus 1%. The balance borrowed on the line at June 30, 2000 is
$8,600 leaving $241,400 remaining open on the line of credit.
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, four canned pasta
meals, and five Annie's Pasta Meals that 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 agreements with specialty retailers to provide
private label house brands.
The Company's products are sold to natural and specialty food stores and
supermarket chains either via distributors or directly to supermarket chains in
the New England and West coast regions. The Company maintains public warehouses
to fulfill orders.
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 2000 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)
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, 2000.
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<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000
NET SALES. Net sales increased by $16,873 or 0.82% from $2,062,879 in 1999 to
$2,079,752 in 2000. The net sales increase was the result of an increase in
organic macaroni and cheese sales and organic private label sales offset by a
decline in Tamarind Tree sales and sales from Raw Materials Food Company in 1999
but not 2000.
GROSS PROFIT. As a percentage of net sales, gross profit increased from 42.48%
in 1999 to 45.61% in 2000. This increase was a result of the product mix as well
as lower raw material costs offset by Raw Materials Food Company gross profit
contribution in 1999 but not 2000.
SELLING EXPENSES. Selling expenses increased by $173,267 or 29.79% from $581,699
in 1999 to $754,966 in 2000 and increased as a percentage of net sales from
28.20% in 1999 to 36.30% in 2000. The selling expense increase was the result of
the termination fee for terminating the Liberty Richter distribution agreement
as of May 31, 2000 and higher freight costs due to increased freight rates and
changes of location of our public warehouses.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $24,841 or 7.13% from $348,295 in 1999 to $373,136 in 2000 and
increased as a percentage of net sales from 16.88% in 1999 to 17.94% in 2000.
The increase in general and administrative expenses is a result of the
termination fee for terminating the Liberty Richter distribution agreement as of
May 31, 2000 offset by lower payroll and related costs and a reduction in
professional fees relating to having an investment banker in 1999 but not in
2000.
SLOTTING FEES. Slotting expenses increased by $59,121 or 161.04% from $36,713 in
1999 to $95,834 in 2000, and increased as a percentage of net sales from 1.78%
in 1999 to 4.61% in 2000. According to the Company's plan, slotting fees were
spent to expand the Company's product lines into existing markets as well as
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 decreased
by $48,156 from $53,461 in 1999 to $5,305 in 2000 and decreased as a percentage
of sales from 2.59% in 1999 to 0.26% in 2000. The decrease in interest expense
and other charges is the result of lower borrowings under the Line of Credit.
INTEREST AND OTHER INCOME. Interest and other income increased by $18,322 from
$2,639 in 1999 to $20,961 in 2000 and increased as a percentage of sales from
0.13% in 1999 to 1.01% in 2000. The increase was a result of recognizing
interest income on notes receivable from stockholders and recognizing income
relating to cash repayments on the RMFC note receivable.
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 June 30, 2000, the Company had a working capital surplus of
$1,199,772, which is a decrease of $260,665 from a working capital surplus of
$1,460,437 at March 31, 2000. The decrease in the working capital was
attributable to funding the losses for the quarter.
The Company and Liberty Richter mutually agreed to terminate the distribution
agreement as of May 31, 2000. According to the agreement, Liberty ceased
representing the Company at that time and the Company reimbursed Liberty for all
salable inventories that were remaining at Liberty's warehouse. The Company will
also pay to Liberty the balance of Liberty's approximate earnings from the
distribution agreement as if it continued through December 2000.
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<PAGE>
Net cash used by operating activities for the three months ended June 30, 2000
was $328,958 resulting primarily from a net loss and a decrease in inventory
offset by an increase in accounts receivable, a decrease in accounts payable and
a decrease in accrued expenses.
Net cash used in investing activities consisted of capital expenditures totaling
$33,780, 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 office equipment.
On December 2, 1999, Homegrown Holdings Corp., now know as Homegrown Natural
Foods, Inc., a corporation that was previously unaffiliated with the Company
("Homegrown Natural"), purchased one million shares of Series A Convertible
Preferred Stock for $2 million. The Series A Convertible Preferred Stock, in the
aggregate, has voting rights equivalent to one million shares of Common Stock.
The Series A Convertible Preferred Stock carries the rights to be converted into
an equal number of shares of Common Stock and participates in dividends at the
same rate as the Common Stock.
In connection with the transaction, the Company also executed a $1 million
five-year promissory note in favor of Homegrown Natural, with interest at the
rate of 9% per annum, and provided a five-year warrant to purchase 1,500,000
shares of the Company's Common Stock with an exercise price ranging from $2.00
per share to $4.00 per share, varying over time. The promissory note will be
subordinated to any bank debt or institutional lenders that may now or hereafter
exist. The warrant was independently valued at $372,000. Total costs incurred by
the Company for this transaction were approximately $197,000. The costs were
allocated between the debt and equity based on their respective fair values. The
promissory note and the warrant are currently being held in escrow pursuant to
an Escrow Agreement pending the Company's receipt of the loan proceeds from
Homegrown Natural. The note is expected to be funded by the end of August 2000
though we can give no assurance that this will be the case.
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 sale of Preferred
Stock, the Term Loan from Homegrown Natural. together with funds generated from
operations, will be sufficient to meet its liquidity needs for the next twelve
months. However, the Company could need additional capital in the future and a
new line of credit 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.
YEAR 2000 COMPLIANCE
We have not experienced any significant year 2000 problems with our internal
systems or equipment, nor have we detected any year 2000 problems affecting our
customers or suppliers. We do not expect that any year 2000 problems will arise
after this date. Costs of addressing the year 2000 issue have not had a material
effect upon our financial position, results of operations, or cash flows.
OTHER MATTERS
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. We 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.
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
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December 15, 1998. The statement requires costs of start-up activities and
organization costs to be expensed as incurred. We adopted SOP 98-5 for the
fiscal year beginning April 1, 1999. The adoption of SOP 98-5 had no impact on
the consolidated financial statements.
In March 2000, Financial Accounting Standards Board Interpretation No. 44,
Accounting for Certain Transactions Involving Stock Compensation, was issued.
The interpretation clarifies, among other things, the application of APB Opinion
No. 25 for certain issues, including: (i) the definition of an employee; (ii)
the criteria for determining whether a plan qualifies as a non-compensatory
plan; (iii) the accounting consequence of various modifications to the terms of
a previously fixed stock option or award; and (iv) the accounting for an
exchange of stock compensation awards in a business combination. This
interpretation generally is effective July 1, 2000, but certain conclusions in
the interpretation were effective for specific events that occurred after either
December 15, 1998, or January 12, 2000. We do not expect this interpretation to
have a material impact on its financial condition or its results of operations.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit Number
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27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports were filed on Form 8-k 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.
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(Registrant)
Date: August 11, 2000 /s/Paul B. Nardone
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Paul B. Nardone
President and Chief Executive Officer
Date: August 11, 2000 /s/Neil Raiff
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Neil Raiff
Chief Financial Officer & Treasurer
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