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, 2001
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 of (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 3,166,208 shares of the Issuer's Common Stock outstanding as of
June 30, 2001.
Transitional Small Business disclosure Format. Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
ASSETS
December 31,
June 30, 2001 2000
------------- ------------
Current Assets:
Cash and cash equivalents $ 2,755,611 $ 2,400,392
Treasury bills held to maturity - 197,882
Accounts receivable 1,311,471 1,177,575
Inventory 1,349,422 1,311,617
Prepaid expenses 312,418 185,252
Current deferred tax asset 90,785 150,000
----------- -----------
Total Current Assets 5,819,707 5,422,718
Property and Equipment, Net 3,940,645 4,181,102
Other Assets:
Deposits 13,000 13,000
Goodwill, net 396,438 417,438
----------- -----------
Total Other Assets 409,438 430,438
----------- -----------
Total Assets $10,169,790 $10,034,258
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable & accrued expenses $ 1,032,962 $ 1,011,095
Income Taxes Payable - -
Dividends payable 80,489 79,681
Current portion of capital leases 54,683 52,220
----------- -----------
Total Current Liabilities 1,168,134 1,142,996
Deferred tax liability 398,000 398,000
Capital lease obligations 14,476 42,447
----------- -----------
Total Liabilities 1,580,610 1,583,443
Stockholders' Equity:
Common stock 7,776,386 7,700,998
Additional paid in capital 22,311 22,311
Retained earnings 790,483 727,506
----------- -----------
Total Stockholders' Equity 8,589,180 8,450,815
----------- -----------
Total Liabilities & Stockholders'
Equity $10,169,790 $10,034,258
=========== ===========
The accompanying notes are an integral part of these condensed financial
statements. The balances for December 31, 2000 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, 2001 and 2000
(Unaudited)
June 30, 2001 June 30, 2000
------------- -------------
Net Sales $ 3,559,299 $ 3,898,955
Cost of Goods Sold 2,095,845 2,248,279
----------- -----------
Gross Profit 1,463,454 1,650,676
Operating Expenses:
General and administrative 402,824 420,237
Salaries and wages 383,499 392,854
Commissions 138,737 115,942
Advertising, demonstrations, promotions,
and slotting allowances 314,183 233,595
----------- -----------
Total Operating Expenses 1,239,243 1,162,628
Income From Operations 224,211 488,048
Other Income 32,927 40,533
----------- -----------
Income From Continuing Operations Before
Income Taxes 257,138 528,581
Current Tax Expense 64,400 96,200
Deferred Tax Expense 48,741 115,232
----------- -----------
Net Income $ 143,997 $ 317,149
=========== ===========
Basic Earnings Per Share $ .05 $ .09
=========== ===========
Weighted Average Common Shares Outstanding 3,138,982 3,345,804
=========== ===========
Diluted Earnings Per Share $ .05 $ . 09
=========== ===========
Weighted Average Common Shares Outstanding
Assuming Dilution 3,172,927 3,496,204
=========== ===========
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, 2001 and 2000
(Unaudited)
June 30, 2001 June 30, 2000
------------- -------------
Net Sales $ 6,693,676 $ 6,988,134
Cost of Goods Sold 4,038,359 4,200,264
----------- -----------
Gross Profit 2,655,317 2,787,870
Operating Expenses:
General and administrative 777,781 810,272
Salaries and wages 752,890 687,236
Commissions 242,683 215,125
Advertising, demonstrations, promotions,
and slotting allowances 555,628 458,012
----------- -----------
Total Operating Expenses 2,328,982 2,170,645
----------- -----------
Income From Operations 326,335 617,225
Other Income 71,881 88,703
----------- -----------
Income From Continuing Operations Before
Income Taxes 398,216 705,928
Current Tax Expense 116,000 149,300
Deferred Tax Expense 59,215 133,071
----------- -----------
Net Income $ 223,001 $ 423,557
=========== ===========
Basic Earnings Per Share $ .07 $ .12
=========== ===========
Weighted Average Common Shares Outstanding 3,136,266 3,501,808
=========== ===========
Diluted Earnings Per Share $ .07 $ .12
=========== ===========
Weighted Average Common Shares Outstanding
Assuming Dilution 3,153,316 3,623,418
=========== ===========
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, 2001 and 2000
(Unaudited)
June 30, 2001 June 30, 2000
------------- -------------
Cash Flows From Operating Activities:
Net income $ 223,001 $ 423,557
Adjustment to reconcile net income to
net cash provided by operations:
Depreciation and amortization 361,000 341,953
Non-cash expense - 12,585
Provision for deferred taxes 59,215 133,071
Changes in assets and liabilities:
(Increase)/Decrease in accounts
receivable (133,896) 78,895
(Increase) in inventories (37,805) (163,038)
(Increase)/Decrease in prepaid expenses (127,166) 99,471
Increase/(Decrease) in accounts
payable and accrued expenses 21,867 116,057
----------- -----------
Total Adjustments 143,215 618,994
----------- -----------
Net Cash Provided By (Used For)
Operating Activities 366,216 1,042,551
Cash Flows From Investing Activities:
Capital expenditures (99,543) (291,462)
(Purchase)/Reduction of U.S. Treasury
Bills, net 197,882 (484,905)
----------- -----------
Net Cash Provided By (Used For)
Investing Activities 98,339 (776,367)
----------- -----------
Cash Flows From Financing Activities:
Dividends paid (159,216) -
Payment for exercise of stock options 75,388 (22,319)
Purchased and cancelled common stock - (1,758,902)
Payments on capital lease obligations (25,508) (23,263)
----------- -----------
Net Cash (Used For) Financing
Activities: (109,336) (1,804,484)
Net (Decrease) In Cash and Cash Equivalents 355,219 (1,538,300)
Cash and Cash Equivalents Beginning of
Period 2,400,392 3,142,068
----------- -----------
Cash and Cash Equivalents End of Period $ 2,755,611 $ 1,603,768
=========== ===========
Non-cash expense:
During March of 2000 the Company issued 3,000 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, 2001
(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, 2000 audited financial statements and notes thereto for Armanino
Foods of Distinction, Inc. The results of operations for the periods ended
June 30, 2001 and 2000 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.
The Company accounts for income taxes in accordance with FASB Statement
109, "Accounting for Income Taxes."
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, 2001 June 30, 2000
------------- -------------
Weighted average common shares outstand-
ing used in basic earnings per share for
the six months ending 3,136,266 3,501,808
Effect of dilutive stock options 17,050 121,610
----------- -----------
Weighted average common shares and poten-
tial dilutive common equivalent shares
outstanding used in dilutive earnings
per share 3,153,316 3,623,418
6
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2001
(Unaudited)
Note 1 - Continued
For the three months ended June 30, 2001 the Company had 189,920 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. For the six months ended June 30,
2001 the Company had 191,360 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, 2001 and December 31, 2000:
December 31,
June 30, 2001 2000
------------- -----------
Raw materials & supplies $ 432,776 $ 357,784
Finished goods 916,646 953,833
----------- -----------
$ 1,349,422 $ 1,311,617
=========== ===========
Note 3 - Related Party Transactions
The Company incurred $8,628 and $10,856 respectively, for the six months
ended June 30, 2001 and 2000, in accounting and consulting fees to Polly,
Scatena, Vasheresse & May (formerly 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:
December 31,
June 30, 2001 2000
------------- -----------
Furniture & Office Equipment $ 378,328 $ 363,495
Plant Machinery & Equipment 5,250,179 5,191,811
Leasehold Improvements 1,917,998 1,891,656
----------- -----------
7,546,505 7,446,962
Accumulated Depreciation (3,605,860) (3,265,860)
----------- -----------
$ 3,940,645 $ 4,181,102
=========== ===========
7
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2001
(Unaudited)
Note 5 - Stockholders' Equity
Stock Options:
As of June 30, 2001, the Company had 925,000 outstanding stock options to
purchase the Company's stock at prices ranging from $2.15 to $2.85 per share
to current and former employees, directors and former consultants, expiring in
May 2002 through February 2010.
During the quarter ended June 30, 2001, the Company received $75,388 from
the issuance of 32,600 shares at $2.3125 in connection with options exercised,
under the 1993 Stock Option Plan.
Dividends:
On June 30, 2001, the Company declared a cash dividend of $.025 per share
payable to shareholders of record on July 6, 2001. The cash dividend
including fees in the amount of $80,489 will be paid on August 3, 2001.
The Company has declared cash dividends in the amount of $160,024 during
the current year.
Note 6 - Subsequent Event
The Company has reached an agreement in principle to acquire the meatball
and breaded chicken production line equipment of Pan Ready Foods, Inc. of
South San Francisco, CA. The purchase and installation of equipment is
scheduled to take place between August 16 and October 1, 2001.
The Company has entered into a strategic alliance with Swiss American
Sausage Co. of Lathrop, CA, a subsidiary of Provena Foods, Inc. Swiss
American is a manufacturer of processed meat products. The strategic alliance
provides for the Company to furnish Swiss American with the production line
purchased from Pan Ready Foods and for Swiss American to manufacture meatballs
and various breaded chicken and meat products based on the Company's
proprietary formulas.
8
PART I - FINANCIAL INFORMATION
ITEM II: MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
Quarter and Six Months Ended June 30, 2001 v. Quarter and Six Months Ended
June 30, 2000
Net sales for the quarter ended June 30, 2001 were $3,559,299 compared
to $3,898,955 for the quarter ended June 30, 2000. For the six months ended
June 30, 2001 net sales were $6,693,676 as compared to $6,988,134 for the six
months ended June 30, 2000. Decreased sales were experienced in the pasta and
meatball product lines. This decrease was partially offset by an increase in
the pesto product line sales. The increases in the pesto product line sales
were the result of promotional programs implemented in the last several
quarters. The decreases in the meatball product line were primarily due to
decreases in the retail segment of the business. The pasta line decreases
were the result of the loss of a co-pack customer. 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 increased from 57.7% for
the quarter ended June 30, 2000 to 58.9% for the quarter ended June 30, 2001.
Cost of goods sold as a percentage of net sales increased slightly from 60.1%
for the six months ended June 30, 2000 to 60.3% for the six months ended June
30, 2001. The increase in this percentage during the quarter can be
attributed primarily to a shift in the product mix favoring lower margin
products. For the six months ended June 30, 2001 this percentage was
virtually unchanged.
Operating expenses as a percentage of net sales were 34.8% for the
quarter ended June 30, 2001 as compared to 29.8% for the quarter ended June
30, 2000. The increase in this percentage for the quarter is primarily due to
an increase in promotional spending. Operating expenses as a percentage of
sales for the six months ended June 30, 2001 were 34.8% as compared to 31.1%
for the six months ended June 30, 2000. The increase in this percentage is
due to hiring of additional personnel to fill vacant positions and additional
promotional spending. Furthermore, the decrease in sales contributed to the
increase in this percentage.
Net income from continuing operations for the quarter ended June 30, 2001
was $143,997 compared to a net income of $317,149 for the quarter ended June
30, 2000. Net income from continuing operations for the six months ended
June 30, 2001 was $223,001 compared to $423,557 for the six months ended June
30, 2000. The decrease in net income was due to lower sales and higher
operating expenses.
Liquidity and Capital Resources
At June 30, 2001, the Company had working capital of $4,651,573, an
increase of $371,851 from December 31, 2000. The increase in working capital
is primarily due to the net income for the six months. Current assets
included $4,067,082 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 six months ended June 30, 2001, cash provided by operating
activities of the Company amounted to $366,216.
9
During the six months ended June 30, 2001 the Company paid $50,000 in
connection with the purchase of equipment from Pan Ready Foods, Inc. The
Company expects to pay a total of $550,000 to Pan Ready Foods, Inc. and Swiss
American Sausage Company in connection with the purchase and installation of
this equipment.
The Company presently has no other material commitments for capital
expenditures.
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 17, 2001 the Company held an Annual Meeting of Shareholders at
which William J. Armanino, John J. Micek, III, David Scatena, Tino Barzie,
Joseph F. Barletta and Edmond J. Pera 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 1,219,509 Shares 11,006 Shares
John J. Micek, III 1,219,885 Shares 10,630 Shares
David Scatena 1,217,071 Shares 13,444 Shares
Tino Barzie 1,216,982 Shares 13,533 Shares
Joseph F. Barletta 1,217,085 Shares 13,430 Shares
Edmond J. Pera 1,219,885 Shares 10,630 Shares
APPOINTMENT OF PRITCHETT, SILER & HARDY, P.C.:
For Against Abstentions
--- ------- -----------
1,216,841 Shares 7,239 Shares 6,435 Shares
Item 5. Other Information
None
Item 6. Exhibits and Reports On Form 8-K
(a) Exhibits. None
(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 7, 2001 President
Chief Executive Officer
By:/s/Edmond J. Pera
Edmond J. Pera
Treasurer
Chief Financial Officer
12