U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2000
Commission File No. 0-18200
ARMANINO FOODS OF DISTINCTION, INC.
(Exact name of small business issuer as specified in its charter)
COLORADO 84-1041418
(State or other jurisdiction (I.R.S. Employer Identification
incorporation or organization) Number)
30588 San Antonio St., Hayward, CA 94544
(Address of principal executive office)(Zip Code)
Issuer's telephone number, including area code: (510) 441-9300
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 [ ]
There were 1,797,081 shares of the Issuer's Common Stock outstanding as of
March 31, 2000.
Transitional Small Business disclosure Format. Yes _____ No _X__
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
ASSETS
March 31, December 31,
2000 1999
----------- -----------
Current Assets:
Cash and cash equivalents $ 3,111,263 $ 3,142,068
Accounts receivable 1,325,440 1,655,290
Inventory 958,591 900,956
Prepaid expenses 198,114 223,285
----------- -----------
Current deferred tax asset 407,161 425,000
Total Current Assets 6,000,569 6,346,599
Property and Equipment, Net 4,553,488 4,473,871
Other Assets:
Deposits 13,000 13,000
Goodwill, net 448,938 459,438
----------- -----------
Total Other Assets 461,938 472,438
----------- -----------
Total Assets $11,015,995 $11,292,908
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable & accrued expenses $ 756,456 $ 753,919
Current portion of capital leases 48,733 47,623
----------- -----------
Total Current Liabilities 805,189 801,542
Deferred tax liability 398,000 398,000
Capital lease obligations 82,060 94,668
----------- -----------
Total Liabilities 1,285,249 1,294,210
Stockholders' Equity:
Common stock 9,086,649 9,461,009
Additional paid in capital 22,311 22,311
Retained earnings 621,786 515,378
----------- -----------
Total Stockholders' Equity 9,730,746 9,998,698
----------- -----------
Total Liabilities & Stockholders' Equity $11,015,995 $11,292,908
=========== ===========
The accompanying notes are an integral part of these condensed financial
statements. The balances for December 31, 1999 were taken from the audited
financial statements at that date and condensed.
2
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Condensed Consolidated Statements of Operations
For the Quarter Ended March 31, 2000 and 1999
(Unaudited)
March 31, March 31,
2000 1999
----------- -----------
Net Sales $ 3,089,179 $ 2,540,873
Cost of Goods Sold 1,951,985 1,685,363
----------- -----------
Gross Profit 1,137,194 855,510
Operating Expenses:
General and administrative 390,035 335,822
Salaries and wages 294,382 244,861
Commissions 99,183 89,362
Advertising, demonstrations, promotions,
and slotting allowances 224,417 255,384
----------- -----------
Total Operating Expenses 1,008,017 925,429
----------- -----------
Income/ (Loss) From Operations 129,177 (69,919)
Other Income 48,170 28,734
----------- -----------
Income/(Loss) From Continuing Operations Before
Income Taxes 177,347 (41,185)
Current Tax Expense 53,100 -
Deferred Tax Expense/(Benefit) 17,839 (16,474)
----------- -----------
Net Income/(Loss) $ 106,408 $ (24,711)
=========== ===========
Basic Earnings/(Loss) Per Share $ .06 $ (.01)
=========== ===========
Weighted Average Common Shares Outstanding 1,828,905 1,958,266
=========== ===========
Diluted Earnings/(Loss) Per Share $ .06 $ (.01)
=========== ===========
Weighted Average Common Shares Outstanding
Assuming Dilution 1,884,832 1,958,266
=========== ===========
The accompanying notes are an integral part of these condensed financial
statements.
3
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Condensed Consolidated Statements of Cash Flows
For the three Months Ended March 31, 2000 and 1999
(Unaudited)
March 31, March 31,
2000 1999
----------- -----------
Cash Flows From Operating Activities:
Net income/(loss) $ 106,408 $ (24,711)
Adjustment to reconcile net income to net
cash provided by operations:
Depreciation and amortization 170,977 170,241
Changes in assets and liabilities:
Decrease in accounts receivable 329,850 231,450
(Increase)/Decrease in inventories (57,635) 179,122
Decrease in prepaid expenses 25,171 11,775
(Increase)/Decrease in deferred tax assets 70,939 (16,474)
(Decrease)in accounts payable and
accrued expenses (50,563) (226,178)
----------- -----------
Total Adjustments 488,739 349,936
----------- -----------
Net Cash Provided By Operating Activities 595,147 325,225
Cash Flows From Investing Activities:
Capital expenditures (240,094) (15,009)
Purchase/Reduction of U.S. Treasury Bills, net - 816,405
----------- -----------
Net Cash Provided By (Used For)
Investing Activities (240,094) 801,396
----------- -----------
Cash Flows From Financing Activities:
Purchase of Treasury stock (374,360) (113,457)
Payments on capital lease obligations (11,498) (17,940)
----------- -----------
Net Cash (Used For) Financing Activities: (385,858) (131,397)
----------- -----------
Net Increase In Cash and Cash Equivalents (30,805) 995,224
Cash and Cash Equivalents Beginning of Period 3,142,068 633,580
----------- -----------
Cash and Cash Equivalents End of Period $ 3,111,263 $ 1,628,804
=========== ===========
The accompanying notes are an integral part of these condensed financial
statements.
4
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information. 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. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
December 31, 1999 audited financial statements and notes thereto for Armanino
Foods of Distinction, Inc. The results of operations for the periods ended
March 31, 2000 and 1999 are not necessarily indicative of the operating
results for the full year.
The condensed consolidated financial statements include the accounts of
Armanino Foods of Distinction, Inc. ("Parent") and it's wholly-owned dormant
subsidiary AFDI, Inc.
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments (Treasury Bills) purchased with a maturity of
three months or less to be cash equivalents.
The Company acquired a subsidiary (Alborough, Inc.) during May, 1996.
The Company recorded goodwill in the amount of $609,938 as part of the
purchase. The Company is amortizing the goodwill over 15 years, on a straight
line basis.
Earnings/(Loss) Per Share The Company calculates earnings per share in
accordance with Statement of Financial Accounting Standards (SFAS) No. 128
"Earnings Per Share," which requires the Company to present basic and diluted
earnings per share. The computation of basic earnings per share is based on
the weighted average number of shares outstanding during the periods
presented. The computation of diluted earnings per share is based on the
weighted average number of outstanding common shares during the year plus,
when their effect is dilutive, additional shares assuming the exercise of
certain vested and non-vested stock options and warrants, reduced by the
number of shares which could be purchased from the proceeds.
The weighted average common shares and common equivalent shares
outstanding for purposes of calculating earnings (loss) per share was as
follows:
March 31, March 31,
2000 1999
----------- -----------
Weighted average common shares outstanding
used in basic earnings per share for the
three months ending 1,828,905 1,958,266
Effect of dilutive stock options 55,927 -
----------- -----------
Weighted average common shares and potential
dilutive common equivalent shares outstanding
used in dilutive earning per share 1,884,832 1,958,266
=========== ===========
5
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(Unaudited)
NOTE 1 - CONTINUED
For the three months ended March 31, 2000 the Company had 298,640 stock
options that could potentially dilute earnings per share in the future that
were not included in the diluted computation because to do so would have been
antidilutive for the periods presented.
NOTE 2 - INVENTORY
Inventory is carried at the lower of cost or market with cost being
determined on the first-in, first-out method and consisted of the following at
March 31, 2000 and December 31, 1999:
March 31, December 31,
2000 1999
----------- -----------
Raw materials & supplies 394,014 419,909
Finished goods 564,577 481,047
----------- -----------
$ 958,591 $ 900,956
=========== ===========
NOTE 3 - RELATED PARTY TRANSACTIONS
The Company incurred $8,631 and $9,465 respectively, for the three months
ended March 31, 2000 and 1999, in accounting and consulting fees to Polly,
Scatena, Gekakis & Co., an accounting firm, the managing partner of which is
also a stockholder and director of the Company. Services provided by the
accounting firm are an extension of the internal accounting functions of the
Company, as well as management, business and systems consulting.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
March 31, December 31,
2000 1999
----------- -----------
Furniture & Office Equipment $ 322,848 $ 310,025
Plant Machinery & Equipment 5,112,181 4,886,780
Leasehold Improvements 1,891,956 1,890,087
----------- -----------
7,326,985 7,086,892
Accumulated Depreciation (2,773,497) (2,613,021)
----------- -----------
$ 4,553,488 $ 4,473,871
=========== ===========
6
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(Unaudited)
NOTE 5 - INCOME TAXES
The Company accounts for income taxes in accordance with FASB Statement
109, "Accounting for Income Taxes."
As of March 31, 2000 and December 31, 1999 the net deferred tax assets
and liabilities consisted of the following:
March 31, December 31,
2000 1999
----------- -----------
Current deferred tax asset $ 407,161 $ 425,000
Deferred Tax Liability (398,000) (398,000)
NOTE 6 - STOCKHOLDERS' EQUITY
As of March 31, 2000, the Company had 429,207 outstanding stock options
to purchase the Company's stock at prices ranging from $3.09 to $5.72 per
share to employees, directors and a consultant, expiring in March 2001 through
February 2010.
During the three months ended March 31, 2000 the Company purchased 79,500
shares of its common stock on the open market for $374,359.
During January 2000, the Company issued to members of the Board of
Directors a total of 60,000 options to purchase common stock at $5.08 per
share, expiring in April 2005.
During March 2000, the Company issued 3,000 shares of restricted stock
valued at $12,585 for consulting services rendered. The stock was valued at
the mean between the closing bid and asked prices for the Company's stock less
25% attributable to the transferability restrictions on the stock.
During March 2000, the Company issued stock options to purchase 10,000
shares of common stock to a consultant. The shares are exercisable at $5.72
per share and expire in February 2010.
7
PART I - FINANCIAL INFORMATION
ITEM II: MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
QUARTER ENDED MARCH 31, 2000 V. QUARTER ENDED MARCH 31, 1999
Net sales for the quarter ended March 31, 2000 were $3,089,179 compared
to $2,540,873 for the quarter ended March 31, 1999. Increased sales were
experienced across all of the Company's product lines. Pesto showed the
strongest increase in terms of total dollar sales. The increases in the pesto
product line sales were the result of programs implemented by the Company
offering incentives to brokers and distributors for achieving specified
increases over prior year sales. The pasta product line showed a strong
increase primarily due to a co-pack customer. Sales of meatballs were strong
in the retail marketplace. The Company continues to focus its efforts on
expanding its customer base for all of its products through promotional
programs and an expanded sales force.
Cost of goods sold as a percentage of net sales decreased from 66.3% for
the quarter ended March 31, 1999 to 63.2% for the quarter ended March 31,
2000. The decrease in this percentage for the current quarter and three
months is due to a shift in the product mix between the product lines and
between retail and foodservice divisions. The product mix shifted from the
meatball product line to the more profitable pasta product line.
Additionally, within the pesto product line, there was a shift in mix from
the retail items to the more profitable foodservice items.
Operating expenses as a percentage of net sales were 32.6% for the
quarter ended March 31, 2000 as compared to 36.4% for the quarter ended March
31, 1999. The decrease in this percentage for the quarter is primarily due to
the increase in sales. Salary expense increased due to the hiring of
personnel to fill vacant positions. Additionally, the Company accrued a
portion of the estimated bonus pool for 2000 compared to no bonus being
accrued in 1999. Advertising and promotional expenses for the quarter
decreased due to different distributor and retail programs being utilized by
the sales department in the current year.
Net income from continuing operations for the quarter ended March 31,
2000 was $106,408 compared to a net loss of $24,711 for the quarter ended
March 31, 1999. The increase in net income was primarily due to increased
pesto sauce sales.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had working capital of $5,195,380, a
decrease of $349,677 from December 31, 1999. Current assets included
$4,436,703 in cash, cash equivalents and accounts receivable. Management
believes that this level of working capital is adequate to meet anticipated
needs for liquidity.
During the three months ended March 31, 2000, cash provided by operating
activities of the Company amounted to $595,147.
During 1999 the Company's board of directors approved a stock buy-back
plan to purchase the Company's common stock totalling $800,000. As of March
31, 2000, the Company had paid approximately $673,564 for common stock
purchased on the open market.
The Company presently has no material commitments for capital
expenditures.
8
PART I - FINANCIAL INFORMATION
ITEM II: MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
YEAR 2000 COMPLIANCE
In 1998, the Company began assessing the various issues relating to the
year 2000. During 1998 the Company has upgraded its accounting application
software which has been certified by the manufacturer to be year 2000
compliant. The accounting software includes sales order, inventory, accounts
receivable, accounts payable, general ledger as well as other modules.
The Company utilized an outside firm to evaluate its information
technology systems. This outside firm performed the initial evaluation and
testing of the Company's internal network of LAN's, the payroll processing
system and production related processing equipment. This firm provided a
written report indicating that the Company's systems were year 2000 compliant.
The Company has incurred approximately $2,000 on upgrading software.
Approximately $4,000 was spent on evaluating and testing current systems
during the fourth quarter of 1998. During 1999, the Company incurred
approximately $8,000 to upgrade its hardware systems.
The Company is reviewing its external relationships in order to determine
the impact which may arise from its dealings with customers, suppliers and
service providers.
The Company sells to approximately 250 customers. One customer accounts
for approximately 30% of total sales. At the present time this customer is
the only trading partner with E.D.I. transactions. Contact is ongoing with
this customer to ensure that they are year 2000 compliant. Surveys were sent
to the remaining customers by May 31, 1999 to attempt to determine the extent
of their compliance with the year 2000 issues. The Company does not expect a
material adverse affect from any single customer in this group.
At the present time, the Company has not experienced any year 2000
related issues. However, there can be no assurance that third parties the
Company deals with have resolved their year 2000 issues completely and timely.
Failure to complete the year 2000 project on time could have a material
adverse affect on future operating results and financial condition of the
Company.
9
PART II
OTHER INFORMATION
II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
During the quarter ended March 31, 2000, the Company issued 3,000
shares of its Common Stock which were not registered under the Security Act of
1933, as amended, to Edmond J. Pera, who was then a consultant to the Company
and is now Treasurer and Chief Financial Officer of the Company, in exchange
for services valued at $12,585. In connection with this issuance, the
Company relied on Section 4 (2) of the Securities Act of 1933, as amended.
The shares were offered for investment only to a sophisticated investor and
not for the purpose of resale or distribution, and the transfer thereof was
appropriately restricted by the Company.
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) Exhibits.
27 Financial Data Schedule Filed herewith electronically
(b) Reports on Form 8-K.
None
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf of the
undersigned thereunto duly authorized.
ARMANINO FOODS OF DISTINCTION, INC.
Date: May 2, 2000 By:/s/ William J. Armanino
William J. Armanino
President
Chief Executive Officer
By:/s/Edmond J. Pera
Edmond J. Pera
Treasurer
Chief Financial Officer
11
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
27. Financial Data Schedule Filed herewith electronically