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, 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 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 3,250,108 shares of the Issuer's Common Stock outstanding as of
June 30, 2002.
Transitional Small Business disclosure Format. Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
ASSETS
June 30,2002 December 31, 2001
------------ -----------------
Current Assets:
Cash and cash equivalents $ 1,454,267 $ 2,496,140
Accounts receivable, net 1,712,640 1,744,601
Inventory 1,767,304 1,473,530
Prepaid expenses 382,158 249,268
Current portion of direct financing
lease receivable 128,361 128,361
Current deferred tax asset 71,881 90,000
------------ ------------
Total Current Assets 5,516,611 6,181,900
Property and Equipment, net 3,636,120 3,669,287
Direct financing lease receivable, net 461,554 512,154
Other Assets:
Deposits 32,000 32,000
Goodwill, net 375,438 375,438
------------ ------------
Total Other Assets 407,438 407,438
------------ ------------
Total Assets $ 10,021,723 $ 10,770,779
============ ============
LIAILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable & accrued expenses $ 978,888 $ 1,286,825
Income taxes payable - 82,506
Dividends payable 163,742 555,181
Capital leases obligation 14,474 42,447
------------ ------------
Total Current Liabilities 1,157,104 1,966,959
Deferred tax liability 365,000 365,000
Deferred income on direct financing lease 67,866 73,687
------------ ------------
Total Liabilities 1,589,970 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,
3,250,108 and 3,166,208 shares issued
and outstanding at June 30, 2002 and
December 31,2001, respectively 7,987,522 7,776,385
Additional paid in capital 22,311 22,311
Retained earnings 421,920 566,437
------------ ------------
Total Stockholders' Equity 8,431,753 8,365,133
------------ ------------
Total Liabilities & Stockholders'
Equity $ 10,021,723 $ 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 June 30, 2002 and 2001
(Unaudited)
June 30, 2002 June 30, 2001
------------- -------------
Net Sales $ 4,054,310 $ 3,558,300
Cost of Goods Sold 2,372,411 2,095,845
------------ ------------
Gross Profit 1,681,899 1,462,455
Operating Expenses:
General and administrative 341,325 336,189
Salaries and wages 432,394 408,813
Commissions 127,373 138,737
Advertising, demonstrations and
promotions 609,630 354,505
------------ ------------
Total Operating Expenses 1,510,722 1,238,244
Income From Operations 171,177 224,211
Other Income 9,873 32,927
------------ ------------
Income From Continuing Operations Before
Income Taxes 181,050 257,138
Current Tax Expense 54,900 64,400
Deferred Tax Expense 10,951 48,741
------------ ------------
Net Income $ 115,199 $ 143,997
============ ============
Basic Earnings Per Share $ .04 $ .05
============ ============
Weighted Average Common Shares Outstanding 3,246,287 3,138,982
============ ============
Diluted Earnings Per Share $ .03 $ . 05
============ ============
Weighted Average Common Shares Outstanding
Assuming Dilution 3,476,145 3,172,927
============ ============
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, 2002 and 2001
(Unaudited)
June 30, 2002 June 30, 2001
------------- -------------
Net Sales $ 7,704,213 $ 6,690,744
Cost of Goods Sold 4,676,137 4,038,359
------------ ------------
Gross Profit 3,028,076 2,652,385
Operating Expenses:
General and administrative 675,049 635,536
Salaries and wages 840,586 812,679
Commissions 260,764 242,683
Advertising, demonstrations and
promotions 978,748 635,152
------------ ------------
Total Operating Expenses 2,755,147 2,326,050
------------ ------------
Income From Operations 272,929 326,335
Other Income 26,186 71,881
------------ ------------
Income From Continuing Operations
Before Income Taxes 299,115 398,216
Current Tax Expense 98,500 116,000
Deferred Tax Expense 18,119 59,215
------------ ------------
Net Income $ 182,496 $ 223,001
============ ============
Basic Earnings Per Share $ .06 $ .07
============ ============
Weighted Average Common Shares
Outstanding 3,217,016 3,136,266
============ ============
Diluted Earnings Per Share $ .05 $ .07
============ ============
Weighted Average Common Shares Outstanding
Assuming Dilution 3,478,526 3,153,316
============ ============
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, 2002 and 2001
(Unaudited)
June 30, 2002 June 30, 2001
------------- -------------
Cash Flows From Operating Activities:
Net income $ 182,496 $ 223,001
Adjustment to reconcile net income
to net cash provided by operations:
Depreciation and amortization 295,528 361,000
Provision for deferred taxes 18,119 59,215
Earned revenue from direct financing
lease (5,821) -
Non-cash expense 6,000 -
Changes in assets and liabilities:
(Increase)/Decrease in accounts receivable 31,961 (133,896)
Increase in inventories (293,774) (37,805)
Increase in prepaid expenses (132,890) (127,166)
Increase/(Decrease) in accounts payable
and accrued expenses (307,937) 21,867
Decrease in income taxes payable (82,506) -
------------ ------------
Total Adjustments (471,320) 143,215
------------ ------------
Net Cash Provided By/Used For
Operating Activities (288,824) 366,216
Cash Flows From Investing Activities:
Capital expenditures (262,361) (99,543)
Payments received from direct financing lease 50,600 -
Reduction of U.S. Treasury Bills, net - 197,882
------------ ------------
Net Cash Provided By (Used For)
Investing Activities (211,761) 98,339
------------ ------------
Cash Flows From Financing Activities:
Dividends paid (718,452) (159,216)
Proceeds from exercise of stock options 205,137 75,388
Payments on capital lease obligations (27,973) (25,508)
------------ ------------
Net Cash (Used For) Financing
Activities (541,288) (109,336)
Net Increase/(Decrease) In Cash and
Cash Equivalents (1,041,873) 355,219
Cash and Cash Equivalents Beginning of
Period 2,496,140 2,400,392
------------ ------------
Cash and Cash Equivalents End of Period $ 1,454,267 $ 2 ,755,611
============ ============
The accompanying notes are an integral part of these condensed financial
statements.
5
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2002 and 2001
(Unaudited)
June 30, 2002 June 30, 2001
------------- -------------
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest $ - $ -
Income taxes $ 204,230 $ 162,298
Supplemental Disclosures of Non-Cash
Items:
For the six months ended June 30, 2002:
The Company issued a total of 2,000 shares of restricted common stock
in exchange for services rendered of $6,000.
6
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 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 June 30,
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 six months ended June 30, 2002 the Company
adopted Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets". The Company has classified its goodwill as
indefinite-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.
7
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles in the United States
of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosures of contingent
assets and liabilities at the date of the financial statements and the
reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimated.
Reclassification - The financial statements for periods prior to June 30,
2002 have been reclassified to conform with the headings and classifications
used in the June 30, 2002 financial statements.
8
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 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:
June 30, 2002 June 30, 2001
------------- -------------
Weighted average common shares outstanding
used in basic earnings per share for the
six months ending 3,246,287 3,138,982
Effect of dilutive stock options 229,858 33,945
--------- ---------
Weighted average common shares and
potential dilutive common equivalent
shares outstanding used in dilutive
earnings per share 3,476,145 3,172,927
========= =========
For the six months ended June 30, 2002 the Company had no additional
stock options that could potentially dilute earnings per share in the future
that were not included in the diluted computation.
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, 2002 and December 31, 2001:
December 31,
June 30, 2002 2001
------------- ------------
Raw materials & supplies $ 365,640 $ 360,187
Finished goods 1,401,664 1,113,343
----------- -----------
$ 1,767,304 $ 1,473,530
=========== ===========
Note 3 - Related Party Transactions
The Company incurred $8,005 and $8,628 respectively, for the six months
ended June 30, 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 $12,000 for the six months ended June 30, 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.
9
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2002
(Unaudited)
Note 3 - Related Party Transactions (Continued)
The Company incurred $10,000 and $5,000 respectively, for the six months
ended June 30, 2002 and 2001 in consulting fees to Tino Barzie, a director of
the Company.
Note 4 - Property and Equipment
Property and equipment consists of the following:
December 31,
June 30, 2002 2001
------------- ------------
Furniture & Office Equipment $ 455,124 $ 391,999
Plant Machinery & Equipment 5,340,465 5,233,351
Leasehold Improvements 2,009,020 1,920,398
----------- -----------
7,804,609 7,545,748
Accumulated Depreciation (4,168,489) (3,876,461)
----------- -----------
$ 3,636,120 $ 3,669,287
=========== ===========
Note 5 - Stockholders' Equity
Stock Options:
As of June 30, 2002, the Company had 821,100 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
August 2003 through August 2010.
During the six months ended June 30, 2002, the Company received $205,137
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,
including fees, in the amount of $163,272 was paid on April 26, 2002.
On May 23,2002, the Company declared a cash dividend of $.05 per share
payable to shareholders of record on June 28, 2002. The cash dividend,
including fees, in the amount of $163,742 was paid on July 26, 2002.
10
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2002
(Unaudited)
Note 6 - Intangible Assets
At June 30, 2002, the Company has $375,438 in goodwill classified as an
indefinite-life intangible assets. During the six months ended June 30, 2002
and 2001, the Company expensed $0 and $21,000, 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. At March 31, 2002, the Company used the
quoted market price of its 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".
If SFAS No. 142 had been applied in all periods presented, it would have
the following effects:
For the Six Months Ended
June 30, 2002 June 30, 2001
------------- -------------
Income from continuing operations $ 299,115 $ 398,215
Add amortization of assets no longer
being amortized 21,000
--------- ---------
Adjusted income from continuing
operations $ 299,115 $ 419,215
--------- ---------
Net income as reported $ 182,496 $ 223,001
Add amortization of assets no longer
being amortized 21,000
--------- ---------
Adjusted net - income $ 182,496 $ 244,001
--------- ---------
Net income as reported per common share $ .06 $ .06
Add amortization of assets no longer
being amortized per common share .01
--------- ---------
Adjusted net income per common share $ .06 $ .07
--------- ---------
Net income as reported per common
share assuming dilution $ .05 $ .07
Add amortization of assets no longer
being amortized per common share .01
--------- ---------
Adjusted net income per common share
assuming dilution $ .05 $ .08
========= =========
11
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 2002
(Unaudited)
Note 7 - Subsequent Event
On May 23, 2002, the Company declared a cash dividend of $.05 per share
payable to shareholders of record on June 28, 2002. The cash dividend,
including fees, in the amount of $163,742 was paid on July 26, 2002.
12
PART I - FINANCIAL INFORMATION
ARMANINO FOODS OF DISTINCTION, INC.
ITEM II: MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
Quarter And Six Months Ended June 30, 2002 And Quarter And Six Months Ended
June 30, 2001
Net sales for the quarter ended June 30, 2002 were $4,054,310 compared to
$3,558,300 for the quarter ended June 30, 2001. For the six months ended June
30, 2002 net sales were $7,704,213 as compared to $6,690,744 for the six
months ended June 30, 2001. Increases were experienced in all of the
Company's product lines. The meatball and breaded chicken product lines
showed the biggest increase both for the quarter and six month periods. This
increase in sales was due to the acquisition of these product lines in the
second half of 2001. The retail area of the business showed a good increase
primarily due to the Company's emphasis on this area of the market in 2002
through heavy promotional spending. 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 slightly from
58.9% for the quarter ended June 30, 2001 to 58.5% for the quarter ended June
30, 2002. Cost of goods sold as a percentage of net sales increased slightly
from 60.4% for the six months ended June 30, 2001 to 60.7% for the six months
ended June 30, 2002. The small changes in these percentages were due to
shifts in product mix.
Operating expenses as a percentage of net sales were 37.3% for the
quarter ended June 30, 2002 compared to 34.8% for the quarter ended June 30,
2001. The increase in this percentage is due to the increase in retail
promotional spending. Operating expenses as a percentage of net sales for the
six months ended June 30, 2002 were 35.8% compared to 34.8% for the six months
ended June 30, 2001. The increase in this percentage was due to the increase
in promotional spending during the second quarter of 2002.
Net income from continuing operations for the quarter ended June 30, 2002
was $115,199 compared to a net income of $143,997 for the quarter ended June
30, 2001. Net income for the six months ended June 30, 2002 was $182,496
compared to $223,001 for the six months ended June 30, 2001. The decrease in
net income for the quarter and six months was due to an increase in retail
promotional spending.
Liquidity And Capital Resources
At June 30, 2002, the Company had working capital of $4,359,507 an
increase of $144,566 from December 31, 2001. The increase in working capital
is primarily due to net income and cash received from the exercise of stock
options. Current assets included $3,166,907 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, 2002, cash used by operating
activities of the Company amounted to $288,824.
13
During the six months ended June 30, 2002, cash used by financing
activities of the Company amounted to $541,288. This amount was impacted by
dividends declared and paid during the six months and dividends declared on
December 13, 2001 and paid on January 21, 2002. The December 13, 2001
dividend included a special dividend.
The Company presently has no commitments for material capital
expenditures.
14
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 23, 2002, the Company held an Annual Meeting of Shareholders
at which William J. Armanino, John J. Micek, III, Daivd Scatena, Tino Barzie,
Joseph F. Barletta, Edmond J. Pera and Douglas Nichols 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
shareholders also approved the Company's 2002 Stock Option Plan. 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 2,660,637 2,982
John J. Micek, III 2,614,077 49,542
Daivd Scatena 2,624,609 39,010
Tino Barzie 2,644,543 19,076
Joseph F. Barletta 2,624,385 39,234
Edmond J. Pera 2,654,921 8,698
Douglas Nichols 2,661,171 2,448
Appointment of Pritchett, Siler & Hardy, P.C.:
For Against Abstentions
---------------- ------------ ------------
2,657,494 Shares 4,995 Shares 1,130 Shares
Approval of 2002 Stock Option Plan:
For Against Abstentions
---------------- ------------- ------------
2,593,915 Shares 65,781 Shares 3,923 Shares
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
None
15
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: August 7, 2002 By: /s/ William J. Armanino
William J. Armanino
President,
Chief Executive Officer
Dated: August 7, 2002 By: /s/ Edmond J. Pera
Edmond J. Pera
Secretary
Treasurer
Chief Financial Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER OF
ARMANINO FOODS OF DISTINCTION, INC.
PURSUANT TO 18 U.S.C. SECTION 1350
We certify that, to the best of our knowledge and belief, the Quarterly
Report on form 10Q-SB of Armanino Foods of Distinction, Inc. for the period
ending June 30, 2002:
(1) complies with the requirement of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of Armanino Foods of Distinction, Inc.
By: /s/ William J. Armanino By: /s/ Edmond J. Pera
William J. Armanino Edmond J. Pera
Chief Executive Officer Chief Financial Officer
August 7, 2002 August 7, 2002
16