<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB - QUARTERLY OR TRANSITIONAL REPORT
(Added by Rel. No. 34-30968, eff. 8/13/92, as amended)
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended October 31, 1997
----------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period From to
------------ -------------
Commission file number 0-22556
----------------
Uncle B's Bakery, Inc.
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(Exact name of small business issuer as specified in its charter)
Iowa 42-1267239
- ------------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
441 Dubuque Street, Ellsworth, Iowa 50075
------------------------------------------
(Address of principal executive offices)
(515) 836-4000
--------------
(Issuer's telephone number)
- -------------------------------------------------------------------------------
(Former name, former address & 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
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Sections 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by the court. Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date:
3,656,258 shares as of November 28, 1997.
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Page 1 of 10
<PAGE>
INDEX
UNCLE B'S BAKERY, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets - October 31, 1997 and July 31, 1997
Condensed Statements of Operations - Three months ended October 31, 1997
and 1996
Condensed Statements of Cash Flows - Three months ended October 31, 1997
and 1996
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Page 2 of 10
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
- ------------------------------
UNCLE B'S BAKERY, INC.
Condensed Balance Sheets
<TABLE>
<CAPTION>
October 31 July 31
1997 1997
------------ ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ - $ 6,441
Accounts receivable 1,056,722 1,023,606
Inventories-Note 2 481,513 552,420
Prepaid expenses 107,026 137,873
----------- -----------
Total current assets 1,645,261 1,720,340
Property, plant and equipment 18,496,737 18,246,658
Less accumulated depreciation 4,123,504 3,874,816
----------- -----------
Net property, plant and equipment 14,373,233 14,371,842
Intangible assets and deferred costs, net 473,597 461,858
----------- -----------
Total assets $16,492,091 $16,554,040
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,951,602 $ 2,000,631
Accrued expenses 864,534 1,077,274
Long-term debt due within one year-Note 3 12,253,111 12,065,759
----------- -----------
Total current liabilities 15,069,247 15,143,664
Long-term debt due after one year 669,187 760,187
Stockholders' equity
Common stock, $.01 par value: 40,000,000
shares authorized, 3,656,258 shares
issued and outstanding 36,563 36,563
Stock purchase warrants-Note 3 609,900 -
Additional paid-in capital 7,987,701 7,987,701
Deficit (7,880,507) (7,374,075)
----------- -----------
Total stockholders' equity 753,657 650,189
----------- -----------
Total liabilities and stockholders' equity $16,492,091 $16,554,040
=========== ===========
</TABLE>
Note: The balance sheet at July 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed financial statements
Page 3 of 10
<PAGE>
UNCLE B'S BAKERY, INC.
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended October 31
-------------------------------
1997 1996
--------------- --------------
<S> <C> <C>
Net sales $3,851,599 $6,381,279
Cost of goods sold 2,483,731 3,935,819
---------- ----------
Gross profit 1,367,868 2,445,460
Distribution expense 326,576 561,590
Selling, general and administrative
expenses 1,218,385 1,490,484
---------- ----------
1,544,961 2,052,074
---------- ----------
Income (loss) from operations (177,093) 393,386
Other income (expense):
Interest expense (327,209) (123,638)
Other (2,130) (1,754)
---------- ----------
(329,339) (125,392)
---------- ----------
Income (loss) before income taxes (506,432) 267,994
Income taxes - -
---------- ----------
Net income (loss) $ (506,432) $ 267,994
========== ==========
Net income (loss) per share $(0.14) $0.08
Weighted average number of common
and common equivalent shares outstanding $3,656,258 $3,545,147
========== ==========
</TABLE>
See notes to condensed financial statements.
Page 4 of 10
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UNCLE B'S BAKERY, INC.
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended October 31
-------------------------------
1997 1996
--------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(506,432) $ 267,994
Depreciation and amortization 277,727 271,654
Loss on sale of equipment - 12,100
Change in operating assets and liabilities (193,131) 392,902
--------- ---------
Net cash provided (used) by
operating activities (421,836) 944,650
INVESTING ACTIVITIES
Net additions of property, plant
and equipment (250,080) (570,678)
Proceeds from sale of equipment - 18,040
Payments for other assets (28,525) -
--------- ---------
Net cash used by investing activities (278,605) (552,638)
FINANCING ACTIVITIES
Proceeds from revolving note payable - 50,000
Proceeds from long-term debt and warrants 750,000 -
Decrease in construction fund balance - 231,870
Payments of long-term debt (56,000) (15,518)
--------- ---------
Net cash provided by
financing activities 694,000 266,352
--------- ---------
Net increase (decrease) in cash
and cash equivalents (6,441) 658,364
Cash and cash equivalents at beginning
of period 6,441 65,565
--------- ---------
Cash and cash equivalents at end
of period $ - $ 723,929
========= =========
</TABLE>
See notes to condensed financial statements
Page 5 of 10
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UNCLE B'S BAKERY, INC.
Notes to Condensed Financial Statements
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310 of Regulation
S-B. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended October 31, 1997
are not necessarily indicative of the results that may be expected for the year
ending July 31, 1998. For further information, refer to the financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-KSB for the year ended July 31, 1997.
NOTE 2 - INVENTORIES
Inventories consist of the following:
October 31 July 31
1997 1997
-------- --------
Raw ingredients and packaging $401,833 $414,266
Finished goods 79,680 138,154
-------- --------
Total inventories $481,513 $552,420
======== ========
NOTE 3 - LONG - TERM DEBT AND WARRANTS
In August 1997, the Company obtained an additional term loan with cash proceeds
of $750,000. The new term loan bears interest at 3% payable in-kind and is due
in August 2002. In connection with this transaction, the Company also issued
warrants and repriced certain existing warrants held by the lender. The total
cash proceeds received were allocated based on fair value to the new term loan
and the related warrants, resulting in a warrant value and equivalent debt
discount of $609,900. The related debt discount will be amortized over the loan
term.
Page 6 of 10
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UNCLE B'S BAKERY, INC.
ITEM 2. Management's Discussion and Analysis:
- ------------------------------------------------
RESULTS OF OPERATIONS
Net sales decreased 39.6% in the first quarter ended October 31, 1997 to
$3,851,599, a decrease of $2,529,680 over the same period of the prior year. Of
this net sales decrease, 79.9% was attributed to the mutual cancellation of a
food service contract in the third quarter of the prior fiscal year and the
balance is mainly due to lower Uncle B's branded product sales. The sales
impact on the Company's branded bagels reflects the growing competition in the
market place and the results of the Company's selective advertising promotion
program which focuses on supporting primarily the more profitable customers.
Gross profit in the first quarter decreased to $1,367,868 from $2,445,460 for
the same period of the prior year. The decrease in gross profit for the first
quarter reflects lower sales volume and increased manufacturing costs. The
manufacturing cost increase was primarily related to higher labor and
depreciation costs per case shipped. Gross profit as a percent of net sales in
the first quarter was 35.5% versus 38.3% in the same period of the prior year.
Distribution expenses at $326,576 were 8.5% of net sales in the first quarter as
compared to 8.8% of net sales in the same period of the prior year.
Selling, general and administrative expenses in the first quarter of 1998 were
$1,218,385, a decrease of $272,099 or 18.3%. The decrease reflects reduced
salary, advertising, trade allowances, promotion and slotting expenses. The
lower salary expense is attributed to the reduction of executive and management
salaries and management personnel. Advertising, trade allowances, promotion and
slotting expenses decreased 13.5% to $705,762 from $816,310 for the same period
of the prior year while net branded sales decreased 14.6% in the current
quarter. These expenses as a percent of net branded sales in the first quarter
were 18.3% versus 18.1% in the same period of the prior year. Selling, general
and administrative expenses as a percentage of net sales were 31.6% versus 23.4%
for the same period of the prior year. The primary reason for the increase in
this percentage is the mutual cancellation of a food service contract as
mentioned above. The revenue generated from this contract had minimal selling,
general and administrative expenses compared to the Company's branded products.
Interest expense in the first quarter ended October 31, 1997 increased $203,571
from $123,638 for the same period of the prior year. The principal reason for
the increase is due to the fact that there was no interest capitalized for the
three months ended October 31, 1997, whereas, in the prior year interest was
capitalized due to the plant expansion projects.
As a result of the factors described above, the loss for the first quarter ended
October 31, 1997 was $506,432 compared to an income of $267,994 for the same
period of the prior year.
Page 7 of 10
<PAGE>
LIQUIDITY AND SOURCES OF CAPITAL
Cash used by operations was $421,836 for the three months ended October 31,
1997, compared to cash provided by operations of $944,650 for the same period of
the prior year. The net loss and impact of an increase in working capital
accounts for this change.
Cash used by investing activities was $278,605 for the three months ended
October 31, 1997, a decrease of $274,033 over the same period of the prior year.
The primary uses of investment funds were paying for previously ordered
equipment related to the plant expansion program which began in the first
quarter of fiscal year 1996.
Cash provided by financing activities was $694,000 for the three months ended
October 31, 1997, primarily due to the proceeds from long term debt and
warrants.
During the first quarter of fiscal 1998, the Company was in violation of
certain financial covenants in its loan agreements with the lender, and in
November and December 1997 the Company did not make scheduled monthly interest
payments to the lender. The Company has experienced losses and resulting cash
flow difficulties as a result of the factors described under "Management's
Discussion and Analysis - Results of Operations," including the reduction in
sales as a result of the mutual cancellation of a substantial food service
contract during the third quarter of fiscal 1997.
In December 1997, the Company entered into agreements with its principal
lender pursuant to which (a) the lender waived all existing defaults under the
credit agreements, (b) the financial covenants were amended by removing
existing covenants and substituting a covenant requiring the Company to
maintain certain monthly levels of cash flow, and (c) the lender established a
new credit facility pursuant to which the Company may borrow up to an
additional $1,300,000. Each advance under the new facility is subject to the
lender's prior approval. All advances will bear interest at 12%, of which 3%
will be payable monthly in arrears and 9% may either be paid monthly or, if
not paid, capitalized and paid (with interest on the deferred amount) at
maturity. All principal and unpaid interest is due on December 17, 1999.
In order to manage its working capital, the Company has routinely extended
payment of certain trade creditors and trade payables beyond standard terms.
To date, this practice has not adversely affected the delivery of goods from
suppliers. The Company expects to continue extending payment of payables over
the near term.
The Company has implemented a number of steps to maintain adequate cash flow
as reported in Form 10-KSB for the year ended July 31, 1997. However, during
the first quarter these steps did not generate sufficient cash flows to meet
the Company's payment obligations. Consequently, the Company has engaged a
management consulting firm to review and recommend ways to improve performance
and cash flow. As a result, the Company is currently implementing additional
steps which include improving manufacturing and direct labor efficiencies
along with further reduction in selling expenses, salaried personnel and
salaries of corporate officers. The Company has also retained the services of
investment banking firms to advise on and explore possible additional
approaches to improving the Company's financial situation including possible
mergers and acquisitions.
The Company intends to request advances under the new credit facility to meet
its working capital needs while it is implementing the recommendations of its
management consultant and investment bankers. However, there can be no
assurance as to the outcome of the current constraint on the Company's cash
flow. Assuming the lender agrees to disburse the proceeds of the new credit
facility for this purpose, the Company believes that these proceeds, together
with expected cash flow from operations, should be sufficient to meet the
Company's liquidity needs for the remainder of fiscal 1998.
Page 8 of 10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
- --------------------------
None
ITEM 2. CHANGES IN SECURITIES:
- ------------------------------
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
- ----------------------------------------
(a) As described under Management's Discussion and Analysis -
"Liquidity and Sources of Capital," in November and December 1997
the Company did not make scheduled monthly interest payments to
its lender. The amount of the November interest payment was
$76,703, and the total arrearage at the date of this report is
$150,933. The lender has waived all defaults under the credit
agreements, and the Company intends to pay the November and
December interest payments.
(b) 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) The following exhibits are included herein:
11 Statement re: computation of earnings per share
27 Financial Data Schedule (included in electronic filing only)
(b) The Company did not file any reports on Form 8-K during the three
months ended October 31, 1997.
Page 9 of 10
<PAGE>
SIGNATURES
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.
Uncle B's Bakery, Inc.
-----------------------------------------
(Registrant)
Date December 17, 1997 /s/ Wm. Howard McClennan, Jr.
--------------------------- -----------------------------------------
Wm. Howard McClennan, Jr.
Chief Financial Officer
Date December 17, 1997 /s/ William T. Rose, Jr.
----------------------------- ------------------------------------
William T. Rose, Jr.
Chairman and CEO
Page 10 of 10
<PAGE>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
Three Months Ended
October 31
1997 1996
---------- ----------
Primary:
Average shares outstanding 3,656,258 3,545,147
Net effect of dilutive common stock
equivalents - based on treasury
stock method --- ---
---------- ----------
Total weighted average number of common
and common equivalent shares outstanding 3,656,258 3,545,147
========== ==========
Net income (loss) $ (506,432) $ 267,994
========== ==========
Per share amount $ (0.14) $ 0.08
========== ==========
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FIRST
QUARTER 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,056,722
<ALLOWANCES> 0
<INVENTORY> 481,513
<CURRENT-ASSETS> 1,645,261
<PP&E> 18,496,737
<DEPRECIATION> 4,123,504
<TOTAL-ASSETS> 16,492,091
<CURRENT-LIABILITIES> 15,069,247
<BONDS> 669,187
0
0
<COMMON> 36,563
<OTHER-SE> 717,094
<TOTAL-LIABILITY-AND-EQUITY> 16,492,091
<SALES> 3,851,599
<TOTAL-REVENUES> 3,851,599
<CGS> 2,483,731
<TOTAL-COSTS> 2,483,731
<OTHER-EXPENSES> 326,576
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 327,209
<INCOME-PRETAX> (506,432)
<INCOME-TAX> 0
<INCOME-CONTINUING> (506,432)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (506,432)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
