<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 3, 2000 0-21486
HARRY'S FARMERS MARKET, INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-2037452
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1180 Upper Hembree Road, Roswell, Georgia 30076
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 667-8878
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N/A
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(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 _________
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class A Common 4,139,375
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Class Outstanding at June 16, 2000
Class B Common 2,050,701
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Class Outstanding at June 16, 2000
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
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<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Amounts in thousands (Unaudited)
May 3, February 2,
2000 2000
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash (Note F) $ 71 $ 432
Accounts receivable, net of allowance 135 121
Inventories 9,804 10,987
Prepaid expenses 745 652
Assets held for sale - 4,500
Other current assets 57 81
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Total current assets 10,812 16,773
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PROPERTY AND EQUIPMENT
Buildings 31,779 31,724
Equipment 31,256 31,159
Vehicles 185 185
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63,220 63,068
Accumulated depreciation (33,584) (32,503)
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29,636 30,565
Land 7,224 7,224
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Total property and equipment 36,860 37,789
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OTHER ASSETS
Deposits on equipment 299 247
Loan costs 896 1,143
Other 219 299
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1,414 1,689
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Total assets $ 49,086 $ 56,251
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</TABLE>
See accompanying notes to financial statements
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<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Amounts in thousands (Unaudited)
May 3, February 2,
2000 2000
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations $ 1,638 $ 4,162
Accounts payable - trade 5,656 7,273
Workers' compensation and general liability 256
insurance 293 649
Accrued payroll and payroll taxes payable 695 34
Sales taxes payable 95 761
Other accrued liabilities 473 250
Income taxes payable -
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Total current liabilities 8,850 13,385
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LONG-TERM OBLIGATIONS, NET OF CURRENT
MATURITIES 20,292 21,783
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OTHER NON-CURRENT LIABILITIES 499 477
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STOCKHOLDERS' EQUITY
Common Stock - Class A 34,681 34,681
Common Stock - Class B 3,936 3,936
Additional Paid-in Capital 1,257 1,257
Accumulated deficit (20,429) (19,268)
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Total stockholders' equity 19,445 20,606
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Total liabilities and stockholders' equity $ 49,086 $ 56,251
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</TABLE>
See accompanying notes to financial statements
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<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands, except per share date For the Thirteen Weeks Ended,
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May 3, 2000 May 5, 1999
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<S> <C> <C> <C> <C>
Net sales $ 34,912 100.0% $ 33,674 100.0%
Cost of goods sold 24,932 71.4% 24,339 72.3%
--------- --------- --------- ---------
Gross profit 9,980 28.6% 9,335 27.7%
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Operating expenses
Direct store expenses 5,819 16.7% 5,847 17.4%
Selling, general & administrative expenses 3,297 9.5% 3,146 9.3%
Depreciation and other amortization 1,058 3.0% 1,033 3.1%
--------- --------- --------- ---------
Total operating expenses 10,174 29.2% 10,026 29.8%
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Operating income (loss) (194) (0.6)% (691) (2.1)%
Interest expense 992 2.8% 503 1.5%
Other income (313) (0.9)% (1,011) (3.0)%
--------- --------- --------- ---------
Loss before provision for accretion of
warrants, income taxes and extraordinary loss (873) (2.5)% (183) (0.6)%
Provision for accretion of warrants - -% (37) (0.1)%
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Loss applicable to common shareholders before
income taxes and extraordinary loss (873) (2.5)% (220) (0.7)%
Income tax expense - -% - -%
--------- --------- --------- ---------
Loss applicable to common shareholders before
extraordinary loss (873) (2.5)% (220) (0.7)%
Extraordinary loss (288) (0.8)% - -%
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Net loss applicable to common shareholders $ (1,161) (3.3)% $ (220) (0.7)%
========= ========= ========= =========
Net loss per common share - basic and diluted:
Loss applicable to common shareholders
before extraordinary loss $ (0.14) $ (0.04)
Extraordinary loss (0.05) -
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Net loss applicable to common shareholders $ (0.19) $ (0.04)
========= =========
</TABLE>
See accompanying notes to financial statements
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<PAGE>
Harry's Farmers Market, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands, except per share data For the Thirteen Weeks Ended,
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May 3, 2000 May 5, 1999
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<S> <C> <C>
Changes in Cash
Cash flows from operating activities:
Net loss $ (1,161) $ (183)
Adjustments to reconcile net earnings
to cash provided by operations:
Depreciation and amortization 1,186 1,153
Gain on sale of assets - (100)
Decrease (increase) in accounts receivables (14) 409
Decrease in other receivable 24 -
Decrease in inventories 1,183 321
Increase in prepaid expenses (93) (23)
Increase in deposits (66) -
Decrease (increase) in other current assets (52) 7
Decrease in accounts payable (1,618) (1,925)
Increase in accrued liabilities 174 124
Decrease in deferred revenue (134) -
Extraordinary loss 288 -
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Net cash used in operating activities (283) (217)
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Cash flows from investing activities:
Capital expenditures (151) (296)
Proceeds from sale of property and equipment - 100
Proceeds from sale of other assets 4,500 262
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Net cash provided by investing activities 4,349 66
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Cash flows from financing activities:
Net payments on revolving credit facility (1,553) (846)
Principal payments on long-term obligations (2,874) (359)
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Net cash used in financing activities (4,427) (1,205)
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Net decrease in cash (361) (1,356)
Cash at beginning of period 432 1,697
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Cash at end of period $ 71 $ 341
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Supplemental Schedule of Noncash Investing and
Financing Activities:
Capital leases $ -- $ --
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</TABLE>
See accompanying notes to financial statements
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<PAGE>
NOTES TO FINANCIAL STATEMENTS
MAY 3, 2000
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 3, 2000, 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 fiscal year ended
February 2, 2000, included in the Company's Annual Report on Form 10-K filed by
the Company.
Due to the seasonal nature of the Company's business, the results for the
quarter ended May 3, 2000, are not necessarily indicative of the results for the
entire 2001 fiscal year.
NOTE B - INVENTORIES
Inventories consist primarily of grocery items, which 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
Basic net earnings per common share are based upon the weighted average number
of common shares outstanding during the period. Diluted net earnings per common
share are based upon the weighted average number of common shares outstanding
plus dilutive potential common shares, including options and warrants
outstanding during the period. All comparative earnings per share data for
prior periods presented have been restated. The following table sets forth the
computation of basic and diluted income (loss) per share.
<TABLE>
<CAPTION>
May 3, 2000 May 5, 1999
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<S> <C> <C>
Numerator for basic and diluted net loss per common share -
Loss applicable to common shareholders before
extraordinary loss $ (873) $ (220)
Extraordinary loss (288) -
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Net loss applicable to common shareholders after
extraordinary loss $ (1,161) $ (220)
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Denominator for basic and diluted net loss per common share -
Weighted average shares outstanding 6,190 6,183
Effect of assumed conversion of debt and preferred
stock - -
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Weighted average shares outstanding 6,190 6,183
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</TABLE>
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<PAGE>
NOTE D - CLAIMS AND LITIGATION
The Company is involved in various claims and litigation, which arise in the
ordinary course of business. In the opinion of management, the amount of
ultimate liability with respect to these actions will not materially affect the
financial position of the Company.
NOTE E - EXTRAORDINARY LOSS
On March 16, 2000, the Company closed the sale of its distribution facility and
repaid the remaining $2,458,237 outstanding on the facility's mortgage. The
Company incurred an extraordinary loss of $287,850 on the early repayment of the
note relating to prepayment fees and the write-off of deferred financing costs.
NOTE F - LINE OF CREDIT AVAILABILITY
In addition to the cash shown on the balance sheet, the Company had
approximately $2.2 million available on its line of credit at May 3, 2000.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
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Thirteen Weeks Ended May 3, 2000 (the "First Quarter of Fiscal 2001") compared
to Thirteen Weeks Ended May 5, 1999 (the "First Quarter of Fiscal 2000").
Net sales for the First Quarter of Fiscal 2001 were approximately
$34.9 million, compared to approximately $33.7 million for the First Quarter of
Fiscal 2000. The sales increase of $1.2 million or approximately 3.6%, was due
to comparable store sales increases of 3.9% partially offset by a decrease in
wholesale revenues. Management believes that the increase in comparative store
sales is largely due to the Company's sales initiatives during the first quarter
and the annualization of the opening of two new Harry's In A Hurry stores, which
during fiscal 2000 diverted customers away from the mega stores.
Gross profits in the First Quarter of Fiscal 2001 increased to
approximately $10.0 million or 28.6% of net sales, compared to approximately
$9.3 million or 27.7% of net sales in the First Quarter of Fiscal 2000. The
increase in gross profit dollars was largely due to higher same store sales and
initiatives by management to increase the gross profit percentage.
Direct store expenses decreased slightly as a percent of sales to
approximately $5.8 million or 16.7% of net sales in the First Quarter of Fiscal
2001 compared to approximately $5.8 million or 17.4% of net sales in the First
Quarter of Fiscal 2000. Direct store expenses decreased due to lower workers'
compensation insurance, equipment & building rents, and utilities. The lower
direct store expenses were partially offset by higher wages.
Selling, general and administrative expenses increased to
approximately $3.3 million or 9.5% of net sales in the First Quarter of Fiscal
2001 compared to approximately $3.1 million or 9.3% of net sales in the First
Quarter of Fiscal 2000. Selling, general and administrative expenses increased
due to higher wages, advertising expense, bank charges and travel expense
partially offset by decreases in bad debt expense, employee hiring costs, legal
expenses, general taxes and lease expenses.
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) did not
change significantly from the same quarter last year. The increase in
depreciation due to new assets added since the First Quarter of Fiscal 2000 was
largely offset by certain assets becoming fully depreciated since the First
Quarter of Fiscal 2000.
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<PAGE>
For the reasons set forth above, the Company had an operating loss of
approximately $(0.2) million or (0.6)% of net sales during the First Quarter of
Fiscal 2001 compared to an operating loss of approximately $(0.7) million or
(2.1)% of net sales in the First Quarter of Fiscal 2000.
Interest expense increased to approximately $1.0 million or 2.8% of net
sales in the First Quarter of Fiscal 2001, compared to approximately $0.5
million or 1.5% of net sales in the First Quarter of Fiscal 2000. This increase
was primarily attributable to a higher average interest rate.
Other income decreased to approximately $0.3 million or 0.9% of net sales
during the First Quarter of Fiscal 2001, from approximately $1.0 million or 3.0%
of net sales in the First Quarter of Fiscal 2000. The decrease was primarily due
to the Company receiving approximately $500,000 in fiscal 2000 from the sale of
certain property rights related to the use of a billboard on one of the
Company's properties.
For the First Quarters of Fiscal 2001 and 2000, the Company did not record
an income tax benefit due to uncertainty of the benefits being recognized. The
Company has unrecognized net operating loss carry forwards for financial
purposes of approximately $24.0 million that may be applied against future
earnings.
On March 16, 2000, the Company closed the sale of its distribution facility
and repaid the remaining $2,458,237 outstanding on the facility's mortgage. The
Company incurred an extraordinary loss of $0.3 million on the early repayment of
the note relating to prepayment fees and the write-off of deferred financing
costs.
As a result of the above, the Company had a net loss applicable to common
shareholders for the First Quarter of Fiscal 2001 of approximately $(1.2)
million or $(0.19) per common share - basic and diluted, compared to a loss
applicable to common shareholders of approximately $(0.2) million or $(0.04) per
common share - basic and diluted, during the First Quarter of Fiscal 2000.
Liquidity and Capital Resources
The Company's cash requirements are based upon its seasonal working capital
needs and capital requirements for capitalized additions and improvements and
expansions.
As of May 3, 2000, the Company had current assets of approximately $10.8
million and current liabilities of approximately $8.9 million, resulting in a
net working capital position of $1.9 million. The Company had available
approximately $2.2 million as of May 3, 2000 under its revolving credit
facility.
Net cash used in operating activities for the First Quarter of Fiscal 2001
was approximately $0.4 million. The use of cash for the First Quarter of Fiscal
2001 is mainly attributable to a decrease in the Company's trade accounts
payable of approximately $1.7 million. EBITDA, which is defined as earnings
(excluding one time nonrecurring charges or income) before interest, taxes,
depreciation and amortization, increased from approximately $1.0 million in the
First Quarter of Fiscal 2000 to approximately $1.3 million in First Quarter of
Fiscal 2001, which was an increase in EBITDA of approximately 30% over the same
quarter in the prior year. Management believes that the improvement in EBITDA
is largely due to an improvement in the Company's operations. Management
believes that EBITDA is a measurement commonly used by analysts and investors.
Accordingly, this information has been presented to permit a more complete
analysis; however, EBITDA as reported may not be comparable to similarly titled
measures used by other companies. EBITDA should not be considered a substitute
for net income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of profitability or liquidity.
Based on the terms of the Company's credit facility, management currently
believes principal and interest payments in fiscal 2001 will be approximately
$3.7 million. In addition, the Company currently plans to spend approximately
$2.5 million on capital improvements.
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<PAGE>
Management believes that with the Company's working capital surplus and
availability under its line of credit and if the Company generates EBITDA in
fiscal 2001 roughly equal to or more than the approximately $6.0 million of
EBITDA it generated in fiscal 2000, then the Company should meet its cash
requirements for operations and projected capital expenditures through fiscal
2001.
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 the availability of 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 will provide the Company with sufficient sources of funds to satisfy
its anticipated cash requirements in fiscal 2001. However, such forward-looking
statements are subject to risks, uncertainties and other factors which could
cause actual results to differ materially from results expressed or implied by
such forward looking statements. Potential risks and uncertainties include, but
are not limited to: economic conditions, changes in consumer spending, weather,
competition, changes in the rate of inflation, potential sales by the Company of
certain out-parcels and other assets, the inability to develop new stores as
planned and other uncertainties that may occur from time to time. In the event
of any 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.
Cautionary Statement for Purposes of "Safe Harbor Provisions" of the Private
Securities Litigation Reform Act of 1995.
Certain statements contained in this filing are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, such as statements relating to financial results, business strategy,
plans for future business development activities, capital spending or financing
sources, capital structure and the effects of regulation and competition, and
are thus prospective. Such forward-looking statements are subject to risks,
uncertainties and other factors, which could cause actual results to differ
materially from future results expressed or implied by such forward-looking
statements. Potential risks and uncertainties include, but are not limited to:
economic conditions, changes in consumer spending, weather, competition, changes
in the rate of inflation, changes in state or federal legislation or regulation,
inability to develop new stores as planned, acceptance of new stores, stability
and availability of product costs, unavailability of anticipated financings,
interest rates, the impact of certain litigation and other uncertainties
detailed from time to time in the Company's Securities and Exchange Commission
filings.
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk.
Not Applicable.
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<PAGE>
PART II - OTHER INFORMATION
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<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 has been no material modification in the instruments defining the
rights of shareholders during the First Quarter of Fiscal 2001. 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 reports on Form 8-K were filed during the quarter for which
this report is filed.
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<PAGE>
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARRY'S FARMERS MARKET, INC.
Dated: June 16, 2000 By: /s/ Harry A. Blazer
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HARRY A. BLAZER
Chairman, President and Chief
Executive Officer
(principal executive officer)
Dated: June 16, 2000 By: /s/ John D. Branch
-----------------------------------
JOHN D. BRANCH
Chief Financial Officer
(principal financial and accounting
officer)
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