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 June 30, 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 1,564,804 shares of the Issuer's Common Stock outstanding as of
June 30, 2000.
Transitional Small Business disclosure Format. Yes _____ No _X__
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
ASSETS
June 30, December 31,
2000 1999
----------- -----------
Current Assets:
Cash and cash equivalents $ 1,603,768 $ 3,142,068
Treasury bills held to maturity 484,905 -
Accounts receivable 1,576,395 1,655,290
Inventory 1,063,994 900,956
Prepaid expenses 123,814 223,285
Current deferred tax asset 291,929 425,000
----------- -----------
Total Current Assets 5,144,805 6,346,599
Property and Equipment, Net 4,444,380 4,473,871
Other Assets:
Deposits 13,000 13,000
Goodwill, net 438,438 459,438
----------- -----------
Total Other Assets 451,438 472,438
----------- -----------
Total Assets $10,040,623 $11,292,908
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable & accrued expenses $ 869,976 $ 753,919
Dividends payable 392,151 -
Current portion of capital leases 49,869 47,623
----------- -----------
Total Current Liabilities 1,311,996 801,542
Deferred tax liability 398,000 398,000
Capital lease obligations 69,159 94,668
----------- -----------
Total Liabilities 1,779,155 1,294,210
Stockholders' Equity:
Common stock 7,692,373 9,461,009
Additional paid in capital 22,311 22,311
Retained earnings 546,784 515,378
----------- -----------
Total Stockholders' Equity 8,261,468 9,998,698
----------- -----------
Total Liabilities & Stockholders'
Equity $10,040,623 $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 June 30, 2000 and 1999
(Unaudited)
June 30, 2000 June 30, 1999
------------- -------------
Net Sales $ 3,898,955 $ 2,962,456
Cost of Goods Sold 2,248,279 1,761,741
----------- -----------
Gross Profit 1,650,676 1,200,715
Operating Expenses:
General and administrative 420,237 390,661
Salaries and wages 392,854 268,319
Commissions 115,942 83,097
Advertising, demonstrations, promotions,
and slotting allowances 233,595 204,306
----------- -----------
Total Operating Expenses 1,162,628 946,383
----------- -----------
Income From Operations 488,048 254,332
Other Income 40,533 40,404
----------- -----------
Income From Continuing Operations Before
Income Taxes 528,581 294,736
Current Tax Expense 96,200 30,000
Deferred Tax Expense 115,232 87,894
----------- -----------
Net Income $ 317,149 $ 176,842
=========== ===========
Basic Earnings Per Share $ .19 $ .09
=========== ===========
Weighted Average Common Shares Outstanding 1,672,902 1,945,081
=========== ===========
Diluted Earnings Per Share $ .18 $ . 09
=========== ===========
Weighted Average Common Shares Outstanding
Assuming Dilution 1,748,102 1,945,081
=========== ===========
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 Operations
For the Six Months Ended June 30, 2000 and 1999
(Unaudited)
June 30, 2000 June 30, 1999
------------- -------------
Net Sales $ 6,988,134 $ 5,503,329
Cost of Goods Sold 4,200,264 3,447,104
----------- -----------
Gross Profit 2,787,870 2,056,225
Operating Expenses:
General and administrative 810,272 726,483
Salaries and wages 687,236 513,180
Commissions 215,125 172,459
Advertising, demonstrations, promotions,
and slotting allowances 458,012 459,690
----------- -----------
Total Operating Expenses 2,170,645 1,871,812
----------- -----------
Income From Operations 617,225 184,413
Other Income 88,703 69,138
----------- -----------
Income From Continuing Operations Before
Income Taxes 705,928 253,551
Current Tax Expense 149,300 32,000
Deferred Tax Expense 133,071 69,420
----------- -----------
Net Income $ 423,557 $ 152,131
=========== ===========
Basic Earnings Per Share
$ .24 $ .08
=========== ===========
Weighted Average Common Shares Outstanding 1,750,904 1,951,638
=========== ===========
Diluted Earnings Per Share $ .23 $ .08
=========== ===========
Weighted Average Common Shares Outstanding
Assuming Dilution 1,811,709 1,951,638
=========== ===========
The accompanying notes are an integral part of these condensed financial
statements.
4
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2000 and 1999
(Unaudited)
June 30, 2000 June 30, 1999
------------- -------------
Cash Flows From Operating Activities:
Net income $ 423,557 $ 152,131
----------- -----------
Adjustment to reconcile net income to
net cash provided by operations:
Depreciation and amortization 341,953 339,448
Non-cash expense 12,585 -
Changes in assets and liabilities:
Decrease in accounts receivable 78,895 97,175
(Increase)/Decrease in inventories (163,038) 73,606
Decrease in prepaid expenses 99,471 56,883
Decrease in deferred tax assets 133,071 101,420
Increase/(Decrease)in accounts payable
and accrued expenses 116,057 (140,833)
----------- -----------
Total Adjustments 618,994 527,699
----------- -----------
Net Cash Provided By Operating
Activities 1,042,551 679,830
Cash Flows From Investing Activities:
Capital expenditures (291,462) (60,113)
Purchase/Reduction of U.S. Treasury
Bills, net (484,905) 1,570,336
----------- -----------
Net Cash Provided By (Used For)
Investing Activities (776,367) 1,510,223
----------- -----------
Cash Flows From Financing Activities:
Purchased and cancelled common stock (1,758,902) 113,457
Payment for exercise of Stock Options (22,319) -
Payments on capital lease obligations (23,263) (36,269)
----------- -----------
Net Cash (Used For) Financing
Activities: (1,804,484) (149,726)
----------- -----------
Net Increase/(Decrease) In Cash and Cash
Equivalents (1,538,300) 2,040,327
Cash and Cash Equivalents Beginning of Period 3,142,068 633,580
----------- -----------
Cash and Cash Equivalents End of Period $ 1,603,768 $ 2,673,907
=========== ===========
Non-cash expense:
The Company issued 3000 shares of common stock valued at $12,585 to a
consultant for services rendered.
The accompanying notes are an integral part of these condensed financial
statements.
5
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 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
June 30, 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 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 per share was as follows:
June 30, 2000 June 30, 1999
------------- -------------
Weighted average common shares outstanding
used in basic earnings per share for the
six months ending 1,750,904 1,951,638
Effect of dilutive stock options 60,805 0
--------- ---------
Weighted average common shares and potential
dilutive common equivalent shares outstanding
used in dilutive earnings per share 1,811,709 1,951,638
========= =========
6
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2000
(Unaudited)
Note 1 - Continued
For the six months ended June 30, 2000 the Company had 27,000 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
June 30, 2000 and December 31, 1999:
June 30, 2000 December 31, 1999
------------- -----------------
Raw materials & supplies $ 383,638 $419,909
Finished goods 680,356 481,047
---------- --------
$1,063,994 $900,956
========== ========
Note 3 - Related Party Transactions
The Company incurred $10,856 and $15,229 respectively, for the six months
ended June 30, 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:
June 30, 2000 December 31, 1999
------------- -----------------
Furniture & Office Equipment $ 345,081 $ 310,025
Plant Machinery & Equipment 5,141,617 4,886,780
Leasehold Improvements 1,891,656 1,890,087
---------- ----------
7,378,354 7,086,892
Accumulated Depreciation (2,933,974) (2,613,021)
---------- ----------
$4,444,380 $4,473,871
========== ==========
7
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2000
(Unaudited)
Note 5 - Income Taxes
The Company accounts for income taxes in accordance with FASB Statement
109, "Accounting for Income Taxes."
As of June 30, 2000 and December 31, 1999 the net deferred tax assets and
liabilities consisted of the following:
June 30, 2000 December 31, 1999
------------- -----------------
Current deferred tax asset $291,929 $ 425,000
Deferred Tax Liability (398,000) (398,000)
Note 6 - Stockholders' Equity
As of June 30, 2000, the Company had 422,540 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 six months ended June 30, 2000 the Company purchased 99,000
shares of its common stock on the open market for $483,569.
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.
During May 2000, the Company purchased 220,000 shares at $6.00 per share
in a private transaction from an affiliate of a former director.
Additionally, a former employee exercised 7,223 of incentive stock options for
$3.09 per share.
On May 18, 2000, the Company declared a cash dividend of $.25 per share
payable to shareholders of record on June 20, 2000. The Company accrued
$392,151 as of June 30, 2000. The cash dividend was paid on July 20, 2000.
8
PART I - FINANCIAL INFORMATION
ITEM II: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
QUARTER AND SIX MONTHS ENDED JUNE 30, 2000 V. QUARTER AND SIX MONTHS ENDED
JUNE 30, 1999
Net sales for the quarter ended June 30, 2000 were $3,898,955 compared to
$2,962,456 for the quarter ended June 30, 1999. For the six months ended June
30, 2000 net sales were $6,988,134 as compared to $5,503,329 for the six
months ended June 30, 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.
Additionally, new uses for pesto sauces added foodservice accounts during the
first six months. 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 59.5% for
the quarter ended June 30, 1999 to 57.7% for the quarter ended June 30, 2000.
Cost of goods sold as a percentage of net sales decreased from 62.6% for the
six months ended June 30, 1999 to 60.1% for the six months ended June 30,
2000. The decrease in this percentage for the current quarter and six months
is due to a shift in the product mix between the product lines and between the
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 the mix from the retail items to
the more profitable foodservice items.
Operating expenses as a percentage of net sales were 29.8% for the
quarter ended June 30, 2000 as compared to 31.9% for the quarter ended June
30, 1999. Operating expenses for the first six months of 2000 were 31.1% as
compared to 34.0% for the first six months of 1999. The decrease in this
percentage for the quarter and six months 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.
Net income from continuing operations for the quarter ended June 30, 2000
was $317,149 compared to a net income of $176,842 for the quarter ended June
30, 1999. Net income for the six months ended June 30, 2000 was $423,557
compared to $152,131 for the six months ended June 30, 1999. The increase in
net income was primarily due to increased pesto sauce sales.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had working capital of $3,832,809, a
decrease of $1,712,248 from December 31, 1999. The decrease in working
capital is primarily due to the purchase of common stock, totaling $1,320,000,
from an affiliate of a former director. Additionally, accrual of a special
dividend of $392,151 contributed to the decrease in working capital. Current
assets included $3,665,068 in cash, cash equivalents and accounts receivable.
Management believes that this level of working capital is adequate to meet
anticipated needs for liquidity.
9
PART I - FINANCIAL INFORMATION
ITEM II: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
During the six months ended June 30, 2000, cash provided by operating
activities of the Company amounted to $1,042,551.
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 June
30, 2000, the Company had paid approximately $782,774 for common stock
purchased on the open market.
During May 2000, the Company purchased 220,000 shares at $6.00 per share
in a private transaction from an affiliate of a former director.
The Company presently has no material commitments for capital
expenditures.
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.
10
PART II - OTHER INFORMATION
II. Other Information
Item 1. Legal proceedings.
None
Item 2. Changes In Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission Of Matters To A Vote Of Security Holders.
On May 18, 2000 the Company held an Annual Meeting of Shareholders at
which William J. Armanino, John J. Micek, III, David Scatena, Tino Barzie and
Joseph F. Barletta were each reelected to the Board of Directors. In
addition, the Company's shareholders ratified the appointment of Pritchett,
Siler & Hardy, P.C. as the Company's auditors. The following sets forth the
votes cast for, against or withheld, as well as the number of abstentions and
broker non-votes, as to each of the matters presented at the meeting:
ELECTION OF DIRECTORS
Nominees For Withheld
-------- --- --------
William J. Armanino 1,346,003 Shares 12,484 Shares
John J. Micek, III 1,322,395 Shares 36,092 Shares
David Scatena 1,345,928 Shares 12,559 Shares
Tino Barzie 1,345,928 Shares 12,559 Shares
J. Bryan King 1,346,031 Shares 12,456 Shares
Joseph F. Barletta 1,346,031 Shares 12,456 Shares
APPOINTMENT OF PRITCHETT, SILER & HARDY, P.C.
For Against Abstentions
--- ------- -----------
1,356,121 Shares 864 Shares 1,502 Shares
Item 5. Other Information.
None
Item 6. Exhibits and Reports On Form 8-K.
A. Exhibit
27 Financial Data Schedule Filed herewith electronically
B. Reports on Form 8-K - None
11
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.
By:/s/ William J. Armanino
William J. Armanino
Dated: August 4, 2000 President
Chief Executive Officer
By:/s/Edmond J. Pera
Edmond J. Pera
Treasurer
Chief Financial Officer
12
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
27. Financial Data Schedule Filed herewith electronically