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, 2002
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 Identifi-
incorporation or organization) cation 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 3,238,408 shares of the Issuer's Common Stock outstanding as of
March 31, 2002.
Transitional Small Business disclosure Format. Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
ASSETS
March 31,2002 December 31, 2001
------------- -----------------
Current Assets:
Cash and cash equivalents $ 1,954,633 $ 2,496,140
Accounts receivable, net 1,443,142 1,744,601
Inventory 1,739,248 1,473,530
Prepaid expenses 347,557 249,268
Current portion of direct financing
lease receivable 128,361 128,361
Current deferred tax asset 82,832 90,000
----------- -----------
Total Current Assets 5,695,773 6,181,900
Property and Equipment, net 3,600,400 3,669,287
Direct financing lease receivable, net 482,970 512,154
Other Assets:
Deposits 32,000 32,000
Goodwill, net 375,438 375,438
----------- -----------
Total Other Assets 396,938 407,438
----------- -----------
Total Assets $10,186,581 $10,770,779
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable & accrued expenses $ 1,066,737 $ 1,286,825
Income taxes payable 42,009 82,506
Dividends payable 163,272 555,181
Capital leases obligation 28,623 42,447
----------- -----------
Total Current Liabilities 1,300,641 1,966,959
Deferred tax liability 365,000 365,000
Deferred income on direct financing lease 70,329 73,687
----------- -----------
Total Liabilities 1,735,970 2,405,646
Stockholders' Equity:
Preferred stock; no par value,
10,000,000 shares authorized, no shares
issued and outstanding
Common stock; no par value, 40,000,000
shares authorized, 3,238,408 and
3,166,208 shares issued and outstanding
at March 31, 2002 and December 31, 2001,
respectively 7,957,838 1,776,385
Additional paid in capital 22,311 22,311
Retained earnings 470,462 566,437
----------- -----------
Total Stockholders' Equity 8,450,611 8,365,133
----------- -----------
Total Liabilities & Stockholders' Equity $10,186,581 $10,770,779
=========== ===========
The accompanying notes are an integral part of these condensed financial
statements. The balances for December 31, 2001 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, 2002 and 2001
(Unaudited)
March 31, 2002 March 31, 2001
-------------- --------------
Net Sales $3,649,903 $3,132,444
Cost of Goods Sold 2,303,726 1,942,514
---------- ----------
Gross Profit 1,346,177 1,189,930
Operating Expenses:
General and administrative 368,199 374,957
Salaries and wages 373,717 369,391
Commissions 133,391 103,946
Advertising, demonstrations and promotions 369,118 239,512
---------- ----------
Total Operating Expenses 1,244,425 1,087,806
Income From Operations 101,752 102,124
Other Income 16,313 38,954
---------- ----------
Income From Continuing Operations Before
Income Taxes 118,065 141,078
Current Tax Expense 43,600 51,600
Deferred Tax Expense 7,168 10,474
---------- ----------
Net Income $ 67,297 $ 79,004
========== ==========
Basic Earnings Per Share $ .02 $ .03
========== ==========
Weighted Average Common Shares Outstanding 3,187,419 3,133,608
========== ==========
Diluted Earnings Per Share $ .02 $ .03
========== ==========
Weighted Average Common Shares Outstanding
Assuming Dilution 3,480,581 3,133,608
========== ==========
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, 2002 and 2001
(Unaudited)
March 31, 2002 March 31, 2001
-------------- --------------
Cash Flows From Operating Activities:
Net income $ 67,297 $ 79,004
Adjustment to reconcile net income to net
cash provided by operations:
Depreciation and amortization 156,074 180,500
Provision for deferred taxes 7,168 10,474
Earned revenue from direct financing lease (3,358) -
Changes in assets and liabilities:
(Increase)/Decrease in accounts receivable 301,459 (173,620)
(Increase)/Decrease in inventories (265,718) 19,872
(Increase) in prepaid expenses (98,289) (5,051)
Decrease in accounts payable and
accrued expenses (220,088) (246,198)
Increase/(Decrease) in income taxes
payable (40,497) 51,600
---------- ----------
Total Adjustments (163,249) (162,423)
---------- ----------
Net Cash Used By Operating Activities (95,952) (83,419)
Cash Flows From Investing Activities:
Capital expenditures (87,187) (32,984)
Payments received from direct financing lease 29,184 -
Purchase/Reduction of U.S. Treasury Bills, net - 197,882
---------- ----------
Net Cash Provided By (Used For)
Investing Activities (58,003) 164,898
---------- ----------
Cash Flows From Financing Activities:
Dividends paid (555,181) (79,681)
Proceeds from exercise of stock options 181,453 -
Payments on capital lease obligations (13,824) (12,607)
---------- ----------
Net Cash (Used For) Financing Activities: (387,552) (92,288)
Net Decrease In Cash and Cash Equivalents (541,507) (10,809)
Cash and Cash Equivalents Beginning of Period 2,496,140 2,400,392
---------- ----------
Cash and Cash Equivalents End of Period $1,954,633 $2,389,583
========== ==========
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, 2002
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
of the United States of America for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles of the United States of America
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,
2001 audited financial statements and notes thereto for Armanino Foods of
Distinction, Inc. The results of operations for the periods ended March 31,
2002 and 2001 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.
Intangible Assets - 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. During the three months ended March 31, 2002 the
Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets". The Company has classified its goodwill as
indefinate-life intangible assets and accordingly has stopped recording
amortization. The Company has no other indefinite-life or definite-life
intangible assets. (See Note 6)
On December 31, 2001, the Company adopted Emerging Issue Task Force 00-25
"Vendor Income Statement Characterization of Consideration Paid to a Reseller
of the Vendor's Products", requiring the Company to reclassify slotting
expenses paid to resellers from Advertising, Demonstrations, Promotions and
Trade Allowances to net revenues. Prior year financial statements have been
reclassified to reflect the changes in accounting principle.
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.
5
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 2002
(Unaudited)
NOTE 1 - CONTINUED
The weighted average common shares and common equivalent shares
outstanding for purposes of calculating earnings per share was as follows:
March 31, 2002 March 31, 2001
-------------- --------------
Weighted average common shares outstanding
used in basic earnings per share for the
three months ending 3,187,419 3,133,608
Effect of dilutive stock options 293,162 -
--------- ---------
Weighted average common shares and potential
dilutive common equivalent shares outstanding
used in dilutive earnings per share 3,480,581 3,133,608
========= =========
For the three months ended March 31, 2002 the Company had no 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, 2002 and December 31, 2001:
March 31, 2002 December 31, 2001
-------------- -----------------
Raw materials & supplies $ 441,458 $ 360,187
Finished goods 1,297,790 1,113,343
---------- ----------
$1,739,248 $1,473,530
========== ==========
NOTE 3 - RELATED PARTY TRANSACTIONS
The Company incurred $1,770 and $5,145 respectively, for the three months
ended March 31, 2002 and 2001, 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.
The Company incurred $6,000 for the quarter ended March 31, 2002 in
consulting fees to First London Securities Corporation. A director of the
company is a 50% shareholder of DGN Securities which owns 100% of First London
Securities Corporation.
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PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 2002
(Unaudited)
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
March 31, 2002 December 31, 2001
-------------- -----------------
Furniture & Office Equipment $ 399,715 $ 391,999
Plant Machinery & Equipment 5,301,989 5,233,351
Leasehold Improvements 1,927,731 1,920,398
---------- ----------
7,629,435 7,545,748
Accumulated Depreciation (4,029,035) (3,876,461)
---------- ----------
$3,600,400 $3,669,287
========== ==========
NOTE 5 - STOCKHOLDERS' EQUITY
Stock Options:
As of March 31, 2002, the Company had 842,800 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 March 31, 2002, the Company received $181,453
from the issuance of 72,200 shares at prices ranging from $2.31 to $2.69 in
connection with options exercised under the 1993 Stock Option Plan.
Dividends
On March 14, 2002, the Company declared a cash dividend of $.05 per share
payable to shareholders of record on March 26, 2002. The cash dividend in
the amount of $163,272 including fees was paid on April 26, 2002.
NOTE 6 - INTANGIBLE ASSETS
At March 31, 2001, the Company has $375,438 in goodwill classified as an
indefinite-life intangible assets. During the three months ended March 31,
2002 and 2001, the Company expensed $0 and $10,500, respectively, as
amortization expense. In accordance with SFAS No. 142, the Company completed
its initial test of the Company's intangible assets for impairment during the
first quarter of the 2002 fiscal year. The Company used the quoted market
price of it stock to test its intangible assets for impairment and determined
that the Company's goodwill was not impaired.
Previous to full application of SFAS No. 142 on January 1, 2002, the
Company's goodwill was being amortized on a straight-line basis over the
estimated useful life of fifteen years, in accordance with Accounting
Principles Board Opinion No. 17, "Intangible Assets".
7
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 2002
(Unaudited)
NOTE 6 - CONTINUED
If SFAS No. 142 had been applied in all periods presented, it would have
the following effects:
For the Three Months Ended
March 31, 2002 March 31, 2001
-------------- --------------
Income from continuing operations $ 118,065 $ 141,078
Add amortization of assets no longer
being amortized - 10,500
--------- ---------
Adjusted income from continuing operations $ 118,065 $ 151,578
--------- ---------
Net income as reported $ 67,297 $ 79,004
Add amortization of assets no longer
being amortized - 10,500
--------- ---------
Adjusted net income $ 67,297 $ 89,504
--------- ---------
Net income as reported per common share $ .02 $ .03
Add amortization of assets no longer
being amortized per common share
--------- ---------
Adjusted net income per common share $ .02 $ .03
--------- ---------
Net income as reported per common
share assuming dilution $ .02 $ .03
Add amortization of assets no longer
being amortized per common share
--------- ---------
Adjusted net income per common share
assuming dilution $ .02 $ .03
========= =========
NOTE 7 - SUBSEQUENT EVENT
Subsequent to March 31, 2002 an employee and a former director exercised
options to purchase a total of 9,700 common shares at prices ranging from
$2.30 to $2.69 per share.
8
PART I - FINANCIAL INFORMATION
ITEM II: MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
QUARTER ENDED MARCH 31, 2002 AND QUARTER ENDED MARCH 31, 2001
Net sales for the quarter ended March 31, 2002 were $3,649,903 compared
to $3,134,377 for the quarter ended March 31, 2001. The sales increase is
primarily attributable to increases of the Company's meatball and chicken
product line in both the retail and foodservice areas. Additionally,
increased sales of the pasta product line in the retail segment of the
business contributed to increased sales in the first quarter of the year.
The Company is expanding into the retail segment of the business through
slotting and promotional programs. Furthermore, the Company continues to
focus its efforts on expanding its customer base for all of its products
through various promotional programs.
Cost of goods sold as a percentage of net sales increased from 62% for
the quarter ended March 31, 2001 to 63.1% for the quarter ended March 31,
2002. The increase in this percentage is due to the shift in the product mix
favoring the lower margin meat and pasta products.
Operating expenses as a percentage of net sales were 34.1% for the
quarter ended March 31, 2002 as compared to 34.7% for the quarter ended March
31, 2001. The decrease in the percentage is due to increased sales. The
increase in the dollar amount of operating expenses is primarily due to an
increase in promotional spending. The Company is promoting products in both
the retail and foodservice areas.
Net income for the quarter ended March 31, 2002 was $67,297 compared to
net income of $79,004 for the quarter ended March 31, 2001. The decrease in
net income was primarily due to higher promotional costs.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002, the Company had working capital of $4,395,132, an
increase of $180,191. The increase in working capital is primarily due to net
income and cash received from the exercise of stock options. Current assets
included $3,397,775 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, 2002, cash used by operating
activities of the Company amounted to $95,952.
The Company presently has no commitments for material capital
expenditures.
9
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
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.
Dated: May 10, 2002 By:/s/ William J. Armanino
William J. Armanino
President
Chief Executive Officer
Dated: May 10,2002 By:/s/ Edmond J. Pera
Edmond J. Pera
Secretary
Treasurer
Chief Financial Officer
11