<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File Number:
May 1, 1996 0-21486
HARRY'S FARMERS MARKET, INC.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-2037452
- - ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1180 Upper Hembree Road, Roswell, Georgia 30076
- - -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 667-8878
--------------------
N/A
------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
------- --------
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Class A Common 4,097,273
- - --------------------------------- ------------------------------------
Class Outstanding at June 1, 1996
Class B Common 2,071,301
- - --------------------------------- ------------------------------------
Class Outstanding at June 1, 1996
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Amounts in thousands (Unaudited)
May 1, January 31,
1996 1996
----------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 106 $ 1,042
Accounts receivable, net of allowance 119 132
Inventories 8,381 7,894
Other receivables 226 174
Prepaid expenses 628 829
-------- --------
Total current assets 9,460 10,071
PROPERTY AND EQUIPMENT
Buildings 34,387 34,329
Equipment 23,037 22,561
Vehicles 560 560
Construction in progress - 24
-------- --------
57,984 57,474
Accumulated depreciation (17,731) (16,615)
-------- --------
40,253 40,859
Land 8,030 8,521
-------- --------
48,283 49,380
OTHER ASSETS
Property held for sale 6,200 6,198
Deposits on equipment 446 454
Loan costs 337 326
Other 292 331
-------- --------
7,275 7,309
-------- --------
Total assets $ 65,018 $ 66,760
======== ========
</TABLE>
-2-
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Amounts in thousands (Unaudited)
May 1, January 31,
1996 1996
---------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of notes payable $ 3,752 $ 3,792
Accounts payable - trade 4,703 4,701
Accrued insurance 112 156
Accrued payroll and payroll taxes payable 588 612
Sales taxes payable 321 238
Other accrued liabilities 669 682
--------- ---------
Total current liabilities 10,145 10,181
NOTES PAYABLE, net of current maturities 27,340 28,789
REDEEMABLE PREFERRED STOCK 10,181 10,124
STOCKHOLDERS' EQUITY
Common Stock - Class A 34,583 34,578
Common Stock - Class B 3,976 3,976
Additional Paid-in Capital 315 372
Accumulated deficit (21,522) (21,260)
--------- ---------
Total stockholders' equity 17,352 17,666
--------- ---------
Total liabilities and stockholders equity $ 65,018 $ 66,760
========= =========
</TABLE>
-3-
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Amounts in thousands, except per share data
<TABLE>
<CAPTION>
For the Thirteen Weeks Ended,
----------------------------------------------
May 1, 1996 May 3, 1995
----------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 33,514 100.0% $ 34,916 100.0%
Cost of goods sold 24,567 73.3% 26,266 75.2%
---------------- ------------------
Gross profit 8,947 26.7% 8,650 24.8%
Operating expenses
Direct store expenses 5,374 16.0% 5,232 15.0%
Selling, general & administrative 2,717 8.1% 2,855 8.2%
Depreciation and amortization 825 2.5% 900 2.6%
---------------- ------------------
Total operating expenses 8,916 26.6% 8,987 25.7%
Operating gain (loss) 31 0.1% (337) -1.0%
Interest expense 724 2.2% 689 2.0%
Other income (431) -1.3% (247) -0.7%
---------------- ------------------
Pretax (loss) (262) -0.8% (779) -2.2%
Income taxes - 0.0% - 0.0%
---------------- ------------------
Net loss (262) -0.8% (779) -2.2%
Provision for accretion of warrant (57) -0.2% (57) -0.2%
Loss applicable to common shareholders $ (319) -1.0% $ (836) -2.4%
---------------- ------------------
Loss per common share $ (0.05) $ (0.14)
================ =================
Average common shares outstanding 6,168 6,164
================ =================
</TABLE>
-4-
<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands For the Thirteen Weeks Ended,
-------------------------------
May 1, 1996 May 3, 1995
<S> <C> <C>
Changes in Cash
Cash flows from operating activities:
Net loss $ (262) $ (779)
Adjustments to reconcile net loss
to cash provided by operations:
Depreciation and amortization 1,188 1,287
Gain on sale of equipment (194) (10)
Decrease in accounts receivable 13 40
Decrease (increase) in other receivables (50) 9
Increase in pre-opening expenses - (262)
Increase in inventories (487) (371)
Decrease in prepaid and deferred 201 353
Increase in other assets (15) (1)
Increase in accounts payable 2 1,071
Increase (decrease) in accrued liabilities 2 (193)
------ ------
Net Cash provided by operating activities 398 1,144
Cash flows from investing activities:
Capital expenditures, including capitalized
interest (705) (3,076)
Proceeds from sale of property and equipment 857 -
Decrease (increase) in notes receivable (2) (1)
------ ------
Net Cash provided (used) by investing
activities 150 (3,077)
Cash flows from financing activities:
Proceeds from long-term debt, net of costs - 89
Line of credit (540) -
Principal payments on long-term obligations (949) (94)
Proceeds from employee stock purchase 5 -
Net Cash used by financing activities (1,484) (5)
------ ------
Net decrease in cash (936) (1,938)
Cash at beginning of period 1,042 2,297
------ ------
Cash at end of period $ 106 $ 359
====== ======
</TABLE>
-5-
<PAGE>
HARRY'S FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
MAY 1, 1996
NOTE A - BASIS OF PRESENTATION:
- - -------------------------------
The interim financial statements included herein have been prepared by the
Company without audit. These statements reflect all adjustments which are, in
the opinion of management, necessary to present fairly the financial position as
of May 1, 1996 and the results of operations and cash flows for the thirteen
weeks then ended. All such adjustments are of a normal recurring nature.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these financial statements
be read in conjunction with the Financial Statements and notes for the year
ended January 31, 1996 included in the Annual Report on Form 10-K, as amended,
filed by the Company.
NOTE B - INVENTORIES:
- - --------------------
Inventories consist primarily of grocery items and are stated at the lower of
cost or market. Cost is determined under the first-in, first-out (FIFO)
valuation method.
NOTE C - EARNINGS PER SHARE:
- - ----------------------------
Earnings per share for the periods presented are based on an average of
6,168,000 shares outstanding during the fiscal 1997 first quarter and 6,164,000
shares outstanding during the fiscal 1996 first quarter.
NOTE D - RECLASSIFICATION:
- - --------------------------
Certain items have been reclassified in the presentation of the thirteen weeks
of fiscal 1996 to conform with the presentation in the current period.
NOTE E - LOAN AGREEMENTS:
- - -------------------------
Subsequent to the end of the quarter ended May 1, 1996 the Company restructured
its senior credit facility. The restructuring eliminated certain financial and
other loan covenant violations of the senior credit facility at year end. In
addition, the restructuring extended until maturity, or extension thereof, the
lenders agreement to forebear the declaration of a cross default as a result of
the breach of the covenant under the Mortgage Loan. The restructuring of the
senior credit facility will also, once the sale of the Nashville Property takes
place, allow the Company to borrow an additional $1.0 million for general
corporate purposes, including the repayment of indebtedness.
In connection with the foregoing restructuring, the Company has amended certain
warrants held by the lenders by lowering the exercise price from $10.00 per
share to $3.00 per share on 240,000 outstanding warrants. The Company also
issued the lenders additional warrants to purchase 120,000 shares of Class A
common stock at an exercise price of $6.00 per share.
-6-
<PAGE>
HARRY'S FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - CONTINUED
MAY 1, 1996
NOTE F - STOCK OPTIONS
- - ----------------------
During the quarter ended May 1, 1996, the following changes occurred in
outstanding stock options:
<TABLE>
<CAPTION>
Stock Exercise
Options Price
--------- ------------
<S> <C> <C>
Options outstanding, January 31, 1996 170,500 $9.75-$27.00
Options granted 352,900 $ 6.00
Options cancelled (171,100) $6.00-$27.00
Options exercised -0- -0-
-------- ------------
Options outstanding, May 1, 1996 352,300 $6.00
======== ============
</TABLE>
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
- - ---------------------
Thirteen Weeks Ended May 1, 1996 compared to Thirteen Weeks Ended May 3, 1995.
Net sales for the thirteen weeks ended May 1, 1996, (the "1997 Quarter") were
$33.5 million, compared to $34.9 million for the thirteen weeks ended May 3,
1995, (the "1996 Quarter"). Comparable store sales declined 3.9% for the
period. This decline can be attributed to the extreme weather conditions early
in the 1997 Quarter as well as growing competition in the Atlanta metropolitan
area.
Gross profit as a percentage of net sales in the 1997 Quarter increased to
$8.9 million or 26.7% of net sales compared to $8.7 million or 24.8% of net
sales in the 1996 Quarter. The increase in gross profit as a percentage of net
sales reflects the Company's on-going improvements in operations at all levels
including new merchandising initiatives combined with better operational
performance at store level, higher employee morale and a more cohesive
management team.
Direct store expenses increased to $5.4 million or 16.0% of net sales in the
1997 Quarter compared to $5.2 million or 15.0% of net sales in the 1996 Quarter.
The increase is attributable to wage increases which the Company implemented
for its employees in order to stay competitive in the market, as well as
additional labor added to improve service. Selling, general and administrative
expenses decreased to $2.7 million or 8.1% of net sales in the 1997 Quarter from
$2.9 million or 8.2% of net sales in the 1996 Quarter. The decrease is
primarily attributable to management restructuring at the Company's corporate
headquarters.
Depreciation and amortization, which includes depreciation and amortization
for the stores and the corporate facilities, but excludes the manufacturing
facilities (which are included in cost of goods sold), declined to $0.8 million
or 2.5% of net sales in the 1997 Quarter from $0.9 million or 2.6% of net sales
in the 1996 Quarter. This decline resulted from certain assets becoming fully
depreciated prior to or during the 1997 Quarter.
During the 1997 Quarter the Company had an operating gain of $31,000 or 0.1%
of net sales as compared to an operating loss in the 1996 Quarter of $337,000 or
(1.0)% of net sales.
-8-
<PAGE>
Interest expense remained virtually unchanged at $0.7 million or 2.2% of net
sales in the 1997 Quarter compared to $0.7 million or 2.0% of net sales in the
1996 Quarter.
Other income increased to $0.4 million or 1.3% of net sales during the 1997
Quarter, from $0.2 million or 0.7% of net sales in the 1996 Quarter. This
increase is primarily due to a gain on the sale of an outparcel at the Gwinnett
megastore.
As a result of the above, the Company's operations incurred a net loss for the
1997 Quarter of $319,000 or ($.05) per common share, compared with a net loss of
$836,000 or ($.14) per common share during the 1996 Quarter.
LIQUIDITY AND CAPITAL RESOURCES
During the 1997 Quarter, the Company's operating activities provided $0.4
million in cash and the Company invested $0.7 million in capital expenditures
which was offset by $0.9 million in gross proceeds from the sale of nonproducing
property and equipment. The Company paid $0.5 million on its line of credit and
$1.0 million on its long term obligations. As a result, net cash during the
1997 Period decreased by $0.9 million resulting in a quarter-end cash balance of
$0.1 million. The Company had available at quarter end $0.5 million in
additional borrowing capacity under its credit facilities.
Cash provided by investing activities in the 1997 Quarter was approximately
$0.2 million. Investing activities consisted mainly of capital expenditures for
property and equipment relating to stores and manufacturing facilities. During
the 1997 Quarter, the Company used $0.3 million to remodel a portion of the
Gwinnett megastore to include an ethnic food department, $0.1 million for
additional packaging equipment in the Company's USDA manufacturing facilities,
and $0.3 million at the other stores. Total capital expenditures were $0.7
million. Proceeds from the sale of property and equipment consisted primarily
from the sale of an outparcel at the Gwinnett megastore of $0.7 million in gross
proceeds and $0.2 million from the sale of other nonproducing assets. Total cash
provided by investing activities was $0.2 million.
Cash used by financing activities in the 1997 Quarter was approximately $1.5
million. Financing activities consisted mainly of repayments under the
Company's long-term debt for real estate sold as well as payments on the line of
credit and capital leases. At the end of 1997 Quarter the Company had $0.5
million left on the credit facilities and a $0.1 million cash balance.
-9-
<PAGE>
The Company's working capital position in 1997 Quarter was ($0.7) million.
The decrease in working capital is due largely to a mortgage note (the "Mortgage
Loan") on the Company's distribution center and baking facility maturing in June
1996. The note at the end of the 1997 Quarter had a balance of $3.2 million and
is classified as a current liability in the Company's financial statements.
During the third quarter of fiscal 1996 the Company was in violation of a
covenant under the Mortgage Loan. The covenant was met for the fourth quarter
of fiscal 1996 and the 1997 Quarter. Subsequent to the 1997 Quarter, the
Company has found what it believes to be a viable resolution for obtaining
refinancing/repayment of the Mortgage Loan. The Company expects to finalize this
activity during the second quarter of fiscal 1997.
To increase liquidity and to concentrate on the existing stores in Atlanta,
the Company decided in 1995 to sell a 17 acre tract of land in Nashville,
Tennessee (the "Nashville Property"). The Nashville Property was originally
purchased in October 1993 to construct a store. The Company has entered into an
agreement for the sale of the Nashville Property subject to various zoning
changes, which recently were approved. Management believes that the sale will
close in the second quarter of fiscal 1997. The contract for the Nashville
Property provides for net proceeds to the Company to be approximately equal to
book value. In addition, several out-parcels at the Gwinnett megastore location
are being negotiated. One sale closed in the 1997 Quarter and the second is
expected to close in the second quarter of fiscal 1997. Such sales are expected
to impact profits positively by reducing the costs associated with the carrying
of such assets and by using the proceeds from the sales to reduce the Company's
indebtedness and, therefore, the related interest expenses.
Subsequent to the end of the 1997 Quarter, the Company restructured its senior
credit facility. The restructuring eliminated certain financial and other loan
covenant violations of the senior credit facility. In addition, the
restructuring extended until maturity, or extension thereof, the lenders
agreement to forebear the declaration of a cross default as a result of the
breach of the covenant under the Mortgage Loan for the third quarter of fiscal
1996, which has yet to be waived by the lender. The restructuring of the senior
credit facility will also, once the sale of the Nashville Property occurs,
permit the Company to borrow an additional $1.0 million for general corporate
purposes, including the repayment of indebtedness.
In connection with the foregoing restructuring, the Company has amended
certain warrants held by the lenders by lowering the exercise price from $10.00
per share to $3.00 per share on 240,000 outstanding warrants. The Company also
issued the lenders additional warrants to purchase 120,000 shares of Class A
common stock at an exercise price of $6.00 per share.
-10-
<PAGE>
The Company's ability to fund its working capital and capital expenditure
requirements, make interest payments and meet its other cash requirements
depends, among other things, on internally generated funds and the continued
availability of and compliance with its credit facilities. Management believes
that internally generated funds and its available credit facilities, as
restructured, will provide the Company with sufficient sources of funds to
satisfy its anticipated cash requirements in fiscal 1997. However, if there is
a significant reduction of internally generated funds, the Company may require
funds from outside financing sources. In such event, there can be no assurance
that the Company would be able to obtain such funding as and when required or on
acceptable terms.
-11-
<PAGE>
PART II - OTHER INFORMATION
-12-
<PAGE>
Item 1. Legal Proceedings
From time to time the Company is involved in lawsuits in the ordinary course
of business. Such lawsuits have not resulted in any material losses to date,
and the Company does not believe that the outcome of any existing lawsuits will
have a material adverse effect on its business or financial condition.
Item 2. Changes in Securities
There have been no material modification in the instruments defining the
rights of shareholders. None of the rights evidenced by the shares of the
Company's common stock have been materially limited or qualified by the issuance
or modification of any other class of securities.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A. No exhibits are filed with this report.
B. No reports on Form 8-K were filed during the quarter for which this
report is filed.
-13-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this quarterly report on Form 10-Q to be signed on its
behalf by the undersigned thereunto duly authorized.
HARRY'S FARMERS MARKET, INC.
Dated: June 11, 1996 By: /s/ Harry A. Blazer
----------------------- ----------------------------
HARRY A. BLAZER
Chairman, President and Chief
Executive Officer
(principal executive officer)
Dated: June 11, 1996 By: /s/ Harold C. Weissman
------------------ ---------------------------
HAROLD C. WEISSMAN
Chief Financial Officer
(principal financial and
accounting officer)
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1996
<PERIOD-END> MAY-01-1996
<CASH> 106,000
<SECURITIES> 0
<RECEIVABLES> 152,000
<ALLOWANCES> 33,000
<INVENTORY> 8,381,00
<CURRENT-ASSETS> 9,460,000
<PP&E> 48,283,000
<DEPRECIATION> 1,188,000<F3>
<TOTAL-ASSETS> 65,018,000
<CURRENT-LIABILITIES> 10,145,000
<BONDS> 27,340,000<F4>
10,131,000
0
<COMMON> 38,559,000
<OTHER-SE> (21,207,000)
<TOTAL-LIABILITY-AND-EQUITY> 65,018,000
<SALES> 33,514,000
<TOTAL-REVENUES> 33,514,000
<CGS> 24,567,000
<TOTAL-COSTS> 8,916,000
<OTHER-EXPENSES> 293,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 724,000<F1>
<INCOME-PRETAX> (319,000)<F2>
<INCOME-TAX> 0
<INCOME-CONTINUING> (319,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (319,000)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
<FN>
<F1>Included in Other Expense
<F2>Loss including accretion of warrants
<F3>Includes Amortization
<F4>Short term portion included in current Liabilities.
</FN>
</TABLE>
