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 September 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 (I.R.S. Employer Identification
of 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
September 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
September 30, December 31,
2001 2000
------------- ------------
Current Assets:
Cash and cash equivalents $ 2,634,802 $ 2,400,392
Treasury bills held to maturity - 197,882
Accounts receivable 1,680,006 1,177,575
Net investment in direct financing lease 124,548 -
Inventory 1,365,887 1,311,617
Prepaid expenses 222,822 185,252
Current deferred tax asset 90,129 150,000
----------- -----------
Total Current Assets 6,118,194 5,422,718
Property and Equipment, Net 3,731,809 4,181,102
Net investment in direct financing lease 498,202 -
Other Assets:
Deposits 13,000 13,000
Goodwill, net 385,938 417,438
----------- -----------
Total Other Assets 398,938 430,438
----------- -----------
Total Assets $10,747,143 $10,034,258
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable & accrued expenses $ 1,351,245 $ 1,011,095
Income taxes payable 43,714 -
Dividends payable 80,484 79,681
Current portion of capital leases 55,957 52,220
----------- -----------
Total Current Liabilities 1,531,400 1,142,996
Deferred tax liability 398,000 398,000
Capital lease obligations - 42,447
Unearned revenue from investment in direct
financing lease 72,750 -
----------- -----------
Total Liabilities 2,002,150 1,583,443
Stockholders' Equity:
Common stock 7,776,386 7,700,998
Additional paid in capital 22,311 22,311
Retained earnings 946,296 727,506
----------- -----------
Total Stockholders' Equity 8,744,993 8,450,815
----------- -----------
Total Liabilities & Stockholders'
Equity $10,747,143 $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 September 30, 2001 and 2000
(Unaudited)
September 30, September 30,
2001 2000
------------- -------------
Net Sales $3,960,522 $3,353,563
Cost of Goods Sold 2,408,755 2,033,414
---------- ----------
Gross Profit 1,551,767 1,320,149
Operating Expenses:
General and administrative 321,077 300,069
Salaries and wages 405,337 348,341
Commissions 116,171 109,411
Advertising, demonstrations, promotions,
and slotting allowances 318,446 223,527
---------- ----------
Total Operating Expenses 1,161,031 981,348
Income From Operations 390,736 338,801
Other Income 31,210 29,622
---------- ----------
Income From Continuing Operations Before
Income Taxes 421,946 368,423
Current Tax Expense 185,000 98,300
Deferred Tax Expense 656 49,069
---------- ----------
Net Income $ 236,290 $ 221,054
========== ==========
Basic Earnings Per Share $ .08 $ .07
========== ==========
Weighted Average Common Shares Outstanding 3,166,208 3,129,608
========== ==========
Diluted Earnings Per Share $ .07 $ . 07
========== ==========
Weighted Average Common Shares Outstanding
Assuming Dilution 3,179,413 3,196,044
========== ==========
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 Nine Months Ended September 2001 and 2000
(Unaudited)
September 30, September 30,
2001 2000
------------- -------------
Net Sales $10,654,198 $10,341,697
Cost of Goods Sold 6,447,114 6,233,678
----------- -----------
Gross Profit 4,207,084 4,108,019
Operating Expenses:
General and administrative 1,009,785 1,110,341
Salaries and wages 1,158,227 1,035,577
Commissions 358,854 324,536
Advertising, demonstrations, promotions,
marketing and slotting allowances 963,147 681,539
----------- -----------
Total Operating Expenses 3,490,013 3,151,993
----------- -----------
Income From Operations 717,071 956,026
Other Income 103,091 118,325
----------- -----------
Income From Continuing Operations Before
Income Taxes 820,162 1,074,351
----------- -----------
Current Tax Expense 301,000 247,600
Deferred Tax Expense 59,871 182,140
----------- -----------
Net Income $ 459,291 $ 644,611
=========== ===========
Basic Earnings Per Share $ .15 $ .19
=========== ===========
Weighted Average Common Shares Outstanding 3,146,385 3,376,836
=========== ===========
Diluted Earnings Per Share $ .15 $ .18
=========== ===========
Weighted Average Common Shares Outstanding
Assuming Dilution 3,166,742 3,495,780
=========== ===========
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 Nine Months Ended September 30, 2001 and 2000
(Unaudited)
September 30, September 30,
2001 2000
------------- -------------
Cash Flows From Operating Activities:
Net income $ 459,291 $ 644,611
Adjustment to reconcile net income to
net cash provided by operations:
Depreciation and amortization 541,500 512,930
Non-cash expense - 12,585
Provision for deferred taxes 59,871 182,140
Changes in assets and liabilities:
(Increase) in accounts receivable (502,431) (5,461)
(Increase) in inventories (54,270) (367,177)
(Increase)/Decrease in prepaid expenses (37,570) 89,711
Increase in accounts payable and
accrued expenses 340,150 208,616
Increase in income taxes payable 43,714 121,327
------------ ------------
Total Adjustments 390,964 754,671
Net Cash Provided By Operating Activities 850,255 1,399,282
Cash Flows From Investing Activities:
Capital expenditures (60,707) (326,859)
Net investment in direct financing lease (550,000) -
Purchase/Reduction of U.S. Treasury
Bills, net 197,882 (691,050)
------------ ------------
Net Cash (Used For) Investing Activities (412,825) (1,017,909)
------------ ------------
Cash Flows From Financing Activities:
Dividends paid (239,698) (392,151)
Payment for exercise of stock options 75,388 22,348
Purchased and cancelled common stock - (1,803,569)
Payments on capital lease obligations (38,710) (35,303)
------------ ------------
Net Cash (Used For) Financing Activities: (203,020) (2,208,675)
Net Increase In Cash and Cash Equivalents 234,410 1,827,302
Cash and Cash Equivalents Beginning of
Period 2,400,392 3,142,068
------------ ------------
Cash and Cash Equivalents End of Period $ 2,634,802 $ 1,314,766
============ ============
Non-cash expense:
During March 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
September 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
September 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.
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:
September 30, September 30,
2001 2000
------------- -------------
Weighted average common shares outstanding
used in basic earnings per share for the
nine months ending 3,146,385 3,376,836
Effect of dilutive stock options 20,357 118,,944
Weighted average common shares and potential
dilutive common equivalent shares outstanding
used in dilutive earnings per share 3,166,742 3,495,780
6
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2001
(Unaudited)
NOTE 1 - CONTINUED
For the three months ended September 30, 2001 the Company had 731,800
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 nine months ended
September 30, 2001 the Company had 731,800 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
September 30, 2001 and December 31, 2000:
September 30, December 31,
2001 2000
------------- ------------
Raw materials & supplies $ 398,805 $ 357,784
Finished goods 967,082 953,833
---------- ----------
$1,365,887 $1,311,617
========== ==========
NOTE 3 - RELATED PARTY TRANSACTIONS
The Company incurred $10,391 and $10,206 respectively, for the nine months
ended September 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:
September 30, December 31,
2001 2000
------------- ------------
Furniture & Office Equipment $ 381,752 $ 363,495
Plant Machinery & Equipment 5,207,919 5,191,811
Leasehold Improvements 1,917,998 1,891,656
----------- -----------
7,507,669 7,446,962
Accumulated Depreciation (3,775,860) (3,265,860)
----------- -----------
$ 3,731,809 $ 4,181,102
=========== ===========
7
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2001
(Unaudited)
NOTE 5 - STOCKHOLDERS' EQUITY
Stock Options:
As of September 30, 2001, the Company had 915,000 outstanding stock
options to purchase the Company's stock at prices ranging from $2.15 to $2.86
per share to current and former employees, directors and former consultants,
expiring in May 2002 through August 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 September 21, 2001, the Company declared a cash dividend of $.025 per
share payable to shareholders of record on October 5, 2001. The cash
dividend including fees in the amount of $80,484 was paid on November 2,
2001.
The Company has declared cash dividends in the amount of $240,501 during
the current year.
NOTE 6 - INVESTMENT IN DIRECT FINANCING LEASE
During the quarter ended September 2001, the Company acquired a meatball
and breaded chicken production line from Pan Ready Foods, Inc. and entered
into a strategic alliance licensing agreement with Swiss America Sausage Co.
a subsidiary of Provena Foods, Inc. Swiss American is a manufacturer of
processed meat products. The strategic alliance provides for the Company to
license to Swiss America the meatball and breaded chicken production line and
related installation of said equipment. The Company also entered into a
manufacturing and packing agreement which calls for Swiss America to
manufacture and package meatballs and various breaded chicken and meat
products based on the Company's proprietary formulas. The agreements call for
the Company to receive a monthly licensing fee equal to the estimated $550,000
cost to purchase and install the equipment multiplied by the amount of product
purchased by the Company over the total product to be purchased by the Company
under the agreement. The manufacturing and packaging agreement expires
September 30, 2006 with an automatic one year extension unless either party
gives notice at least twelve months prior to the original expiration. This
licensing agreement has been accounted for as a direct financing lease.
Following is a summary of the components of the Company's net investment in
the direct financing lease at September 30, 2001:
2001
--------
Total minimum lease payments to be received $622,750
Less unearned revenue (72,750)
--------
Net investment in direct financing lease $550,000
========
8
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 2001
(Unaudited)
NOTE 6 - CONTINUED
Estimated minimum future rentals to be received each of the next five
years on the non-cancelable lease as of December 31, 2000 are as follows:
Year ending December 31, 2000
-----------------------------
2001 $ 31,138
2002 124,550
2003 124,550
2004 124,550
2005 124,550
2006 93,412
--------
$622,750
========
9
PART I - FINANCIAL INFORMATION
ITEM II: MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2001 V. QUARTER AND NINE MONTHS
ENDED SEPTEMBER 30, 2000
Net sales for the quarter ended September 30, 2001 were $3,960,522
compared to $3,353,563 for the quarter ended September 30, 2000. For the nine
months ended September 30, 2001 net sales were $10,654,198 as compared to
$10,341,697 for the nine months ended September 30, 2000. Increased sales
were primarily a result of the meatball and breaded chicken product line
purchased from Pan Ready Foods. Increases were also realized in the pesto
product line. These increases were the result of promotional programs
implemented in the last several quarters. The pasta line experienced
decreases as a 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 slightly from
60.6% for the quarter ended September 30, 2000 to 60.8% for the quarter ended
September 30, 2001. Cost of goods sold as a percentage of net sales increased
slightly from 60.3% for the nine months ended September 30, 2000 to 60.5% for
the nine months ended September 30, 2001. The small increase in this
percentage during the quarter and nine months can be attributed primarily to a
shift in the product mix favoring lower margin products.
Operating expenses as a percentage of net sales were 29.3% for the
quarter ended September 30, 2001 as compared to 29.3% for the quarter ended
September 30, 2000. The increase in the dollar amount for the quarter is
primarily due to an increase in promotional spending. Operating expenses as a
percentage of sales for the nine months ended September 30, 2001 were 32.8% as
compared to 30.5% for the nine months ended September 30, 2000. The increase
in this percentage and dollar amount is due to hiring of additional personnel
to fill vacant positions and additional promotional spending.
Net income for the quarter ended September 30, 2001 was $236,290 compared
to a net income of $221,054 for the quarter ended September 30, 2000. Net
income for the nine months ended September 30, 2001 was $459,291 compared to
$644,611 for the nine months ended September 30, 2000. The decrease in net
income was primarily due to higher promotional costs.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2001, the Company had working capital of $4,750,326, an
increase of $470,604 from December 31, 2000. The increase in working capital
is primarily due to the net income for the nine months. Current assets
included $4,314,808 in cash, cash equivalents and accounts receivable. The
increase experienced in accounts receivable was the result of increased sales.
Management believes that this level of working capital is adequate to meet
anticipated needs for liquidity.
During the nine months ended September 30, 2001, cash provided by
operating activities of the Company amounted to $850,255.
During the nine months ended September 30, 2001 the Company paid $212,839
in connection with the purchase of equipment from Pan Ready Foods, Inc. The
Company paid an additional $49,081 and recorded $288,080 in payables to Swiss
American for the transport and installation of this equipment. The purchase
and installation of this equipment is related to the Company's direct
financing lease with Swiss American.
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.
None
Item 5. Other Information
None
Item 6. Exhibits and Reports On Form 8-K
A. Exhibit. 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.
Dated: November 8, 2001 By: /s/ William J. Armanino
William J. Armanino
President
Chief Executive Officer
By: /s/Edmond J. Pera
Edmond J. Pera
Treasurer
Chief Financial Officer