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:
July 29, 1998 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 registrant's classes of
common stock, as of the latest practicable date:
Class A Common 4,132,257
----------------------------- ----------------------
Class Outstanding at September 11, 1998
Class B Common 2,050,701
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Class Outstanding at September 11, 1998
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-1-
HARRY'S FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Amounts in thousands (Unaudited)
July 29, January 28,
1998 1998
----------------- -----------------
ASSETS
CURRENT ASSETS
Cash $ 1,074 $ 1,479
Accounts receivable, net of allowance 6 109
Inventories 9,293 8,568
Prepaid expenses 822 698
Other current assets 510 643
----------------- -----------------
Total current assets 11,705 11,497
PROPERTY AND EQUIPMENT
Buildings 29,111 28,562
Equipment 29,570 25,510
Vehicles 198 190
----------------- -----------------
58,879 54,262
Accumulated depreciation (25,714) (23,440)
----------------- -----------------
33,165 30,822
Land 7,224 7,224
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40,389 38,046
OTHER ASSETS
Other Property and Equipment 7,032 7,080
Deposits on equipment 358 303
Loan costs 116 121
Other 225 200
----------------- -----------------
7,731 7,704
----------------- -----------------
Total assets $ 59,825 $ 57,247
================= =================
See accompanying notes to financial statements
-2-
HARRY'S FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Amounts in thousands (Unaudited)
July 29, 1998 January 28, 1998
----------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations $ 1,772 $ 459
Accounts payable - trade 5,454 5,849
Workers' compensation and general liability
insurance 418 636
Accrued payroll and payroll taxes payable 605 640
Sales taxes payable 133 77
Other accrued liabilities 1,131 733
----------------- ----------------
Total current liabilities 9,513 8,394
LONG-TERM OBLIGATIONS, NET OF CURRENT MATURITIES 13,499 13,359
CONVERTIBLE DEBT 15,101 13,043
OTHER NON-CURRENT LIABILITIES 500 489
REDEEMABLE PREFERRED STOCK 10,508 10,434
STOCKHOLDERS' EQUITY
Common Stock - Class A 34,674 34,674
Common Stock - Class B 3,936 3,936
Additional Paid-in Capital 1,454 1,527
Accumulated deficit (29,360) (28,609)
----------------- ----------------
Total stockholders' equity 10,704 11,528
----------------- ----------------
Total liabilities and stockholders' equity $ 59,825 $ 57,247
================= ================
See accompanying notes to financial statements
-3-
HARRY'S FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Amounts in thousands, except per share data For the Thirteen Weeks Ended,
------------------------------------------------
July 29, 1998 July 30, 1997
---------------------- ----------------------
Net sales $34,404 100.0% $35,722 100.0%
Cost of goods sold 25,030 72.8% 27,313 76.5%
------- ----- ------- -----
Gross profit 9,374 27.2% 8,409 23.5%
Operating expenses
Direct store expenses 5,490 16.0% 5,877 16.2%
Selling, general & administrative expenses 3,548 10.3% 3,219 9.0%
Depreciation and other amortization 889 2.6% 813 2.3%
------- ----- ------- -----
Total operating expenses 9,927 28.9% 9,909 27.7%
Operating loss (553) -1.6% (1,500) -4.2%
Interest expense (600) -1.7% (519) -1.5%
Other income 342 1.0% 301 0.8%
------- ----- ------- -----
Pretax loss (811) -2.4% (1,718) -4.8%
Income taxes - 22 0.1%
------- ----- ------- -----
Net loss (811) -2.4% (1,696) -4.8%
Provision for accretion of warrants (37) -0.1% (37) -0.1%
------- ----- ------- -----
Loss applicable to common shareholders $ (848) -2.5% $(1,733) -4.9%
======= ===== ======= =====
Net loss per common share
Basic $ (0.14) $ (0.28)
======= =======
Diluted $ (0.14) $ (0.28)
======= =======
See accompanying notes to financial statements
-4-
HARRY'S FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Amounts in thousands, except per share data For the Twenty-six Weeks Ended,
----------------------------------------------------
July 29, 1998 July 30, 1997
---------------------- ---------------------
Net sales $67,463 100.0% $69,726 100.0%
Cost of goods sold 48,349 71.7% 52,383 75.1%
------- ----- ------- -----
Gross profit 19,114 28.3% 17,343 24.9%
Operating expenses
Direct store expenses 10,800 16.0% 11,368 16.2%
Selling, general &
administrative expenses 6,618 9.8% 6,048 8.7%
Depreciation and other
amortization 1,927 2.9% 1,597 2.3%
------- ----- ------- -----
Total operating expenses 19,345 28.7% 19,013 27.3%
Operating loss (231) -0.3% (1,670) -2.4%
Interest expense (1,197) -1.8% (1,182) -1.7%
Other income 677 1.0% 1,986 2.8%
------- ----- ------- -----
Pretax loss (751) -1.1% (866) -1.2%
Income taxes - - - -
------- ----- ------- -----
Net loss (751) -1.1% (866) -1.2%
Provision for accretion
of warrants (74) -0.1% (74) -0.1%
------- ----- ------- -----
Loss applicable to
common shareholders $ (825) -1.2% $ (940) -1.3%
======= ===== ======= =====
Net loss per common share
Basic $ (0.13) $ (0.15)
======= =======
Diluted $ (0.13) $ (0.15)
======= =======
See accompanying notes to financial statements
-5-
HARRY'S FARMERS MARKET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Amounts in thousands, except per share data For the Twenty-six Weeks Ended,
-------------------------------------------
July 29, 1998 July 30, 1997
-------------------------------------------
Changes in Cash
Cash flows from operating activities:
Net loss $ (751) $ (866)
Adjustments to reconcile net loss
to cash provided by operations:
Depreciation and amortization 2,263 2,285
Gain on sale of intellectual property - (1,422)
Decrease in accounts receivables 103 112
(Increase) decrease in inventories (725) 385
Increase in prepaid and deferred expenses (124) (299)
Increase in other current assets (18) (421)
Decrease in accounts payable (395) (986)
Increase in accrued liabilities 427 954
Increase (decrease) in deferred revenue (72) 500
----------------- ----------------
Net cash provided by operating activities 708 242
Cash flows from investing activities:
Capital expenditures, including capitalized
interest (2,334) (1,148)
Proceeds from sale of property and equipment 37 -
Proceeds from sale of intellectual property,
net of costs - 1,422
(Increase) decrease in notes receivable 50 (925)
----------------- ----------------
Net cash used in investing activities (2,247) (651)
Cash flows from financing activities:
Proceeds from long-term debt, net of costs - 11,560
Line of credit 172 (482)
Principal payments on long-term obligations (1,038) (12,367)
Proceeds from issuance of convertible debt 2,000 -
Proceeds from warrants - 994
----------------- ----------------
Net cash provided by (used in) financing
activities 1,134 (295)
----------------- ----------------
Net decrease in cash (405) (704)
Cash at beginning of period 1,479 1,326
----------------- ----------------
Cash at end of period $ 1,074 $ 622
================= ================
Supplemental Schedule of Noncash Investing and
Financing
Activities: $ 2,385 -
Capital leases
See accompanying notes to financial statements
-6-
HARRY'S FARMERS MARKET, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JULY 29, 1998
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 July 29, 1998 and the results of operations and cash flows for the twenty-six
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 January 28, 1998 included in the 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 July 29, 1998 are not necessarily indicative of the results for
the entire 1999 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.
7
NOTE C - EARNINGS PER SHARE:
- ----------------------------
The Company has adopted Statement of Financial Accounting Standards No. 128
(SFAS 128), Earnings Per Share. Basic net earnings per common share is 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 has
been restated. The following table sets forth the computation of basic and
diluted loss per share.
FOR THE THIRTEEN WEEKS ENDED: July 29, 1998 July 30, 1997
------------- -------------
Numerator for basic net loss per common share
- loss attributable to common stockholders $ (848) $ (1,733)
============= =============
Denominator for basic net loss per common share
- weighted average shares outstanding 6,183 6,178
Effect of dilutive options and warrants - -
------------- -------------
Denominator for diluted net loss per common share
- adjusted weighted shares outstanding 6,183 6,178
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Basic net loss per share $ (0.14) $ (0.28)
============= =============
Diluted net loss per share $ (0.14) $ (0.28)
============= =============
FOR THE TWENTY-SIX WEEKS ENDED: July 29, 1998 July 30, 1997
------------- -------------
Numerator for basic net loss per common share
- loss attributable to common stockholders $ (825) $ (940)
============= ============
Denominator for basic net loss per common share
- weighted average shares outstanding 6,183 6,173
Effect of dilutive options and warrants - -
------------- ------------
Denominator for diluted net loss per common share
adjusted weighted shares outstanding 6,183 6,173
------------- ------------
Basic net loss per share $ (0.13) $ (0.15)
------------- -------------
Diluted net loss per share $ (0.13) $ (0.15)
============= =============
8
NOTE D - RECLASSIFICATION:
- -------------------------
Certain items have been reclassified in the presentation of the first twenty-six
weeks of fiscal 1998 to conform with the presentation in the current period.
NOTE E - STOCK OPTIONS:
- ----------------------
During the quarter ended July 29, 1998, the following changes occurred in
outstanding stock options:
Shares Exercised Price
------- ---------------
Options outstanding, April 29, 1998 512,635 $2.50-6.00
Options granted 60,000 $2.50
Options cancelled (48,679) $3.00-6.00
Options exercised - -
------- ----------
Options outstanding, July 29, 1998 523,956 $2.50-6.00
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NOTE F - NEW ACCOUNTING PRONOUNCEMENT
- -------------------------------------
The Financial Accounting Standards Board (FASB) has issued the following
Statement of Financial Accounting Standards (SFAS):
SFAS 131, Disclosures about Segments of an Enterprise and Related Information,
is effective for financial statements for periods beginning after December 15,
1997. SFAS 131 requires companies to report information about an entity's
different types of business activities and the different economic environments
in which it operates, referred to as operating segments.
Additionally, the AICPA Accounting Standards Executive Committee has issued
Statement of Position (SOP) 98-1, Costs of Software for Internal Use and Related
Reengineering Costs, which is effective after December 15, 1998. SOP 98-1
segments an internal use software project into stages and the accounting is
based on the stage in which the cost is incurred.
Management does not expect the adoption of the Statement of Financial Accounting
Standard and SOP 98-1, referred to above, to have a material impact on the
Company's results of operations or financial condition.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Thirteen Weeks Ended July 29, 1998 compared to Thirteen Weeks Ended July 30,
1997.
Net sales for the thirteen weeks ended July 29, 1998 (the "1999 Second
Quarter") were approximately $34.4 million, compared to approximately $35.7
million for the thirteen weeks ended July 30, 1997 (the "1998 Second Quarter").
Comparable store sales decreased 6.9% for the 1999 Second Quarter as compared to
the 1998 Second Quarter. This decrease is primarily the result of the unusual
weather conditions from the ocean warming phenomenon known as "El Nino," which
has adversely affected the availability, quality and cost of many produce items
that make up a significant portion of the Company's sales volume. In addition,
the Company's sales have been adversely affected by growing competition in the
Atlanta area, combined with low price inflation and soft retail sales throughout
the grocery industry.
Gross profit for the 1999 Second Quarter increased to approximately $9.4
million or 27.2% of net sales, compared to approximately $8.4 million or 23.5%
of net sales for the 1998 Second Quarter. This increase is primarily the result
of the Company's continuing efforts to implement necessary technology in its
stores in order to provide timely and accurate information to management. Gross
margin has increased despite the negative impact El Nino has had on produce
margins in general and the fact that labor costs in the Company's manufacturing
and distribution areas were higher. Furthermore, gross margin was positively
impacted by approximately 0.2% of net sales as a result of the Company no longer
depreciating the bakery facility, which is being held for sale. The Company
currently intends to move the bakery to the Alpharetta megastore during the 1999
Fourth Quarter. In addition, the 1998 Second Quarter gross profit was
negatively impacted by the Company's efforts to reduce slow moving non-
perishable inventory with markdowns and closeout pricing.
Direct store expenses decreased to approximately $5.5 million, or 16.0% of net
sales, during the 1999 Second Quarter compared to approximately $5.9 million, or
16.2% of net sales, during the 1998 Second Quarter. This decrease is primarily
due to a decrease in labor and labor related expenses in an effort by the
Company to improve operating efficiencies. In addition, the reduction in direct
store expenses is directly related to a decrease in lease expenses resulting
from the Company's purchase and refinancing of certain operating equipment
pursuant to a capital lease structure, which equipment had previously been
subject to operating leases. These expense reductions were partially offset by
an increase in building rents, utilities and supplies related to the new and
projected Harry's In A Hurry stores, including the fourth Harry's In A Hurry
store, which opened in January 1998 in the Cobb County area of Atlanta.
Selling, general and administrative expenses increased to approximately $3.6
million or 10.3% of net sales in the 1999 Second Quarter compared to
approximately $3.2 million or 9.0% of net sales in the 1998 Second
10
Quarter. This increase in the 1999 Second Quarter is primarily a result of
opening the third Harry's In A Hurry store, which opened in January 1998, and
the three new Harry's In A Hurry stores scheduled to open through April 1999.
Such increases include (1) higher labor and labor related expenses, (2) higher
advertising costs and (3) higher general insurance expenses and taxes, all
related to the projected new store openings. In addition, bank charges were
higher due to the increase in customer usage of credit cards. These expenses
were partially offset with lower (1) repairs and maintenance costs, (2) utility
costs, (3) consultant's fees, (4) hiring costs and (5)legal and accounting fees,
due to the Company's recent cost reduction efforts. Finally, reserves against
receivables decreased as a result of a decrease in the Company's receivables
during the 1999 Second Quarter.
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), increased to
approximately $0.9 million, or 2.6% of net sales, in the 1999 Second Quarter up
from approximately $0.8 million, or 2.3% of net sales, in the 1998 Second
Quarter. This increase resulted primarily from depreciation on new assets
purchased during fiscal 1998 and fiscal 1999, including those items acquired for
use at the third Harry's In A Hurry store. In addition, the Company has
reclassified certain existing assets, which had previously been classified as
operating leases, as a result of the Company's purchase and refinance, in
accordance with a capital lease structure, of the residual values of such
assets.
Due to the reasons set forth above, during the 1999 Second Quarter, the
Company's operations resulted in an operating loss of approximately $0.6 million
or (1.6)% of net sales, as compared to an operating loss in the 1998 Second
Quarter of approximately $1.5 million or (4.2)% of net sales.
Interest expense increased to approximately $0.6 million or 1.7% of net sales
in the 1999 Second Quarter compared to approximately $0.5 million or 1.5% of net
sales in the 1998 Second Quarter. This increase is primarily the result of
interest on an additional $2.0 million in convertible debt received May 5, 1998
from Progressive Food Concepts, Inc. ("PFCI"), a wholly owned subsidiary of
Boston Chicken, Inc., in accordance with a prior agreement between the parties.
In addition, interest on long term obligations resulting from the purchase and
refinance, in accordance with a capital lease structure, of the residual value
of certain assets previously recorded as operating leases contributed to the
increase in interest expense.
Other income slightly increased to approximately $0.34 million or 1.0% of net
sales during the 1999 Second Quarter, from approximately $0.30 million or 0.8%
of net sales in the 1998 Second Quarter. The increase is primarily due to
approximately $0.05 million in income received from leasing a portion of the
Company's distribution facility.
For the 1999 Second Quarter, no income tax provision was necessary. During
the quarter ended April 30, 1997, the Company established an income tax
provision of approximately $0.02 million which, as a result of the
11
net loss incurred during the 1998 Second Quarter, has been reversed for the 1998
Second Quarter. The Company has net operating loss carry forwards of
approximately $24.0 million which may be applied against future earnings. Should
the Company experience a change in ownership in accordance with Section 382 of
the Internal Revenue Code of 1986, as amended, the extent that the Company may
apply such loss carry forwards may be limited.
Primarily as a result of the expenses associated with the Harry's In A Hurry
expansion program described above, the Company's operations incurred a net loss
for the 1999 Second Quarter of approximately $0.9 million or $(.14) per common
share, compared with a net loss of approximately $1.7 million or $(.28) per
common share during the 1998 Second Quarter.
Twenty-Six Weeks Ended July 29, 1998 compared to Twenty-Six Weeks Ended July 30,
1997.
Net sales for the twenty-six weeks ended July 29, 1998 (the "1999 Period")
decreased to approximately $67.5 million from approximately $69.7 million for
the twenty-six weeks ended July 30, 1997 (the "1998 Period"). On a comparable
store basis, sales decreased 6.7%. This decrease is primarily the result of the
unusual weather conditions from the ocean warming phenomenon known as "El Nino,"
which has adversely affected the availability, quality and cost of many produce
items that make up a significant portion of the company's sales volume. In
addition, the Company's sales have been adversely affected by growing
competition in the Atlanta area combined with low price inflation and soft
retail sales throughout the grocery industry.
Gross profit for the 1999 Period increased to approximately $19.1 million or
28.3% from approximately $17.3 million or 24.9% in the 1998 Period. This
increase is primarily the result of the Company's continuing efforts to
implement necessary technology in its stores in order to provide timely and
accurate information to management. Gross margin increased despite the negative
impact El Nino has had on produce margins in general and the fact that labor
costs in manufacturing and distribution were higher. Furthermore, gross margin
was positively impacted by approximately 0.2% of net sales as a result of the
Company no longer depreciating the bakery facility, which is being held for
sale. The Company currently intends to move the bakery to the Alpharetta
megastore during the 1999 Fourth Quarter. In addition, the 1998 Period gross
profit was negatively impacted by the Company's efforts to reduce slow moving
non-perishable inventory with markdowns and closeout pricing.
Direct store expenses for the 1999 Period decreased to approximately $10.8
million, or 16.0% of net sales, from approximately $11.4 million, or 16.2% of
net sales, for the 1998 Period. During the 1999 Period direct store expenses
were lower as a result of lower labor and labor related expenses due to better
labor controls, and lower lease expenses resulting from the Company's purchase
and refinancing of certain equipment pursuant to a capital lease structure,
which had previously been subject to operating leases. The expenses were
partially offset by an increase in building rents, utility costs, and supplies
primarily related to the new, and projected, Harry's In A Hurry stores.
12
Selling, general and administrative expenses for the 1999 Period increased to
approximately $6.6 million, or 9.8% of net sales, from approximately $6.0
million, or 8.7% of net sales, in the 1998 Period. The increase in the 1999
Period is primarily attributable to (1) higher labor and labor related expenses,
(2) higher advertising costs, and (3) higher general insurance expenses and
taxes. Each of the aforementioned increased expenses were incurred directly as
a result of opening the third Harry's In A Hurry store in January 1998 and the
three new Harry's In A Hurry stores scheduled through April 1999. In addition,
bank charges were higher due to an increase in customer usage of credit cards.
These expenses were offset with lower (1) repairs and maintenance expenses, (2)
utility costs, (3) consultant's fees, (4) hiring costs, and (5) legal and
accounting fees, all as a result of the Company's recent cost reduction efforts.
In addition, reserves against receivables decreased during the 1999 Period.
Depreciation and amortization increased to approximately $1.9 million or 2.9%
of net sales in the 1999 Period from approximately $1.6 million or 2.3% of net
sales in the 1998 Period. This increase resulted primarily from depreciation on
new assets purchased during fiscal 1998 and fiscal 1999, including those items
acquired for use at the third Harry's In A Hurry store, which opened in January
1998. In addition, the Company has reclassified certain existing assets, which
had previously been classified as operating leases, as a result of the Company's
purchase and refinance, in accordance with a capital lease structure, of the
residual values of such assets.
Due to the reasons set forth above, the Company's operations during the 1999
Period resulted in an operating loss of $0.2 million or (0.3)% of net sales as
compared to an operating loss in the 1998 Period of $1.7 million or (2.4)%.
Interest expense increased slightly to approximately $1.20 million, or 1.8% of
net sales, in the 1999 Period from approximately $1.18 million, or 1.7% of net
sales, in the 1998 Period. This increase is primarily attributable to interest
on an additional $2.0 million of convertible debt received May 5, 1998 from
PFCI, as well as additional interest on long term obligations resulting from the
purchase and refinance, in accordance with a capital lease structure, of the
residual value of certain assets previously recorded as operating leases.
Other income in the 1999 Period decreased to approximately $0.7 million or
1.0% of net sales compared to approximately $2.0 million or 2.8% of net sales in
1998 Period. The 1998 Period included the recognition of the sale of certain of
the Company's intellectual property, net of expenses, in the amount of
approximately $1.4 million to PFCI. The 1999 Period includes approximately $0.1
million from leasing a portion of the Company's distribution facility.
As a result of the above, the Company's operations for the 1999 Period
incurred a net loss of approximately $0.8 million or ($.13) per common share,
compared with a net loss of approximately $0.9 million or ($.15) per common
share, for the 1998 Period. For the 1999 Period, this loss is primarily a
result of costs
13
associated with the Harry's In A Hurry expansion program. In addition, partially
offsetting the net loss in the 1998 Period was a one-time recognition of
approximately $1.4 million from the sale of certain of the Company's
intellectual property, net of expenses, to PFCI.
LIQUIDITY AND CAPITAL RESOURCES
During the 1999 Period, the Company's operating activities provided
approximately $0.7 million in cash. The Company invested approximately $2.3
million in capital expenditures during the 1999 Period. Additionally, the
Company borrowed approximately $0.2 million on its line of credit and paid
approximately $1.0 million on its long term obligations. The Company also
received approximately $2.0 million in additional convertible debt proceeds. As
a result, net cash during the 1999 Period decreased by approximately $0.4
million resulting in a cash balance at the end of the 1999 Period of
approximately $1.1 million. At the end of the 1999 Period, the Company had
available approximately $1.6 million in additional borrowing capacity under its
bank line of credit facility and $2.0 million, due to the Company in November
1998, under the development loan facility with PFCI (the "Development Loan").
Cash used by investing activities in the 1999 Period was approximately $2.3
million. Investing activities consisted primarily of capital expenditures for
property and equipment relating to stores, manufacturing facilities and general
corporate infrastructure. During the 1999 Period, the Company used
approximately $0.2 million on computer hardware to improve current information
systems, approximately $0.4 million on computer software to improve the
Company's codification of its manufacturing processes, as well as financial
management information systems, and approximately $1.7 million for floor
equipment, building improvements and leasehold improvements for use at the
stores and manufacturing facilities. Of the $1.7 million, leasehold
improvements and equipment totaling $1.1 million have been utilized towards the
Harry's In A Hurry store that opened in January 1998 and the newest Harry's In
A Hurry store scheduled to open in September 1998 in Dunwoody, Georgia. Total
capital expenditures were approximately $2.3 million. Total cash used by
investing activities was approximately $2.3 million.
Cash provided by financing activities in the 1999 Period was approximately
$1.1 million. Financing activities consisted of approximately $2.0 million in
proceeds from convertible debt, approximately $1.0 million in principal payments
on long term obligations and approximately $0.2 million in borrowings on the
Company's line of credit. At the end of the 1999 Period, the Company had
approximately $1.6 million left on the bank line of credit facility and $2.0
million, due to the Company in November 1998, under the Development Loan
facility. Cash at the end of the 1999 Period was approximately $1.1 million.
To increase liquidity, the Company continues to seek purchaser(s)/leasee(s)
for the unused portion of the distribution facility, as well as the remaining
outparcel at the Gwinnett County megastore property.
14
The Company's working capital position in the 1999 Period was approximately
$2.2 million as compared to approximately $3.1 million at the end of the fiscal
year ended January 29, 1998. The decrease in working capital is primarily a
result of the Company's purchase and refinance, to a capital lease structure, of
the residual values under certain operating leases, which has caused an increase
in current maturities on long term debt of approximately $1.3 million.
Additionally, inventory increased by approximately $0.7 million while accounts
payable decreased by approximately $0.4 million. The Company has a line of
credit and term loan agreement with Creditanstalt Corporate Finance, Inc.,
formerly known as Creditanstalt-Bankverein, ("Creditanstalt") that allows
borrowing up to $12.0 million bearing interest at Libor plus 3.5% or prime plus
1.5% which matures on January 29, 2000. The average outstanding borrowings
during the 1999 Period was approximately $9.4 million. The weighted average
interest rate during the 1999 Period was approximately 9.61%. The maximum
borrowings outstanding at any month end during the 1999 Period totaled
approximately $10.4 million. The line of credit and term loan is
collaterallized by substantially all assets of the Company. The total amount
drawn at July 29, 1998 was approximately $10.4 million. The total amount
available at July 29, 1999 was approximately $1.6 million.
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, as restructured, will provide the Company with sufficient sources of
funds to satisfy its anticipated cash requirements in fiscal 1999. 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.
YEAR 2000
The Company has performed an analysis and is modifying its computer hardware
and software to address year 2000 issues. The Company is also contacting its
banks and major suppliers to determine the extent to which the Company may be
vulnerable to third party year 2000 issues. Based on current information,
management believes that all hardware and software modifications necessary to
operate and effectively manage the Company will be performed by the year 2000
and that related costs will not have a material impact on the results of
operations, cash flow or financial condition of future periods, with the
exception of approximately $1.1 million for certain front-end register systems.
15
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, stability of product costs,
unavailability of anticipated financings and other uncertainties detailed from
time to time in the Company's Securities and Exchange Commission filings.
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PART II - OTHER INFORMATION
17
Item 4. Submission of Matters to a Vote of Security Holders.
On June 17, 1998, the Company held its Annual Meeting of Shareholders (the
"Meeting"). At the Meeting, the shareholders of the Company voted on the
following matter:
Election of the following individuals, which constitute the entire Board of
Directors, as directors of the Company for a term of one year, with votes cast
as set forth below:
Nominee Votes For: Votes Against:
- -------------------- ---------- --------------
Harry A. Blazer 24,031,421 100,446
John D. Branch 24,040,477 91,390
Robert C. Glustrom 24,040,696 91,171
William J. Horvath 24,041,327 90,540
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 ended July 29,
1998.
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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.
HARRY'S FARMERS MARKET, INC.
Dated: September 10, 1998 By: /s/Harry A. Blazer
------------------ ------------------
HARRY A. BLAZER
Chairman, President and Chief Executive Officer
(principal executive officer)
Dated: September 10, 1998 By: /s/Harold C. Weissman
------------------- ----------------------
HAROLD C. WEISSMAN
Treasurer and Chief Financial Officer
(principal financial and accounting officer)
19