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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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Form 10-QSB
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[X]QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended March 31, 2000
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from .......... to ..........
Commission file number 0-28045
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HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC.
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(Name of Small Business Issuer in its charter)
Hawaii 99-0306492
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4614 Kilauea Ave., Ste. 435
Honolulu, HI 96816
- ----------------------------------------- ----------
(Address of principal executive offices) (zip code)
Issuer's telephone number: (808) 735-8494
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at April 30, 2000
- ----------------------------- --------------------------------
Common Stock, $.001 par value 8,892,995
Transitional Small Business Format (Check one): Yes [ ] No [ X ]
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Part I. Financial Information
Item 1. Financial Statements
HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC.
BALANCE SHEETS
March 31,2000 December 31,1999
(Unaudited) (Audited)
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 33,905 $ 42,606
Marketable securities - 30,000
Accounts receivable - net of allowance for
doubtful accounts $59,927 in 2000
and $56,927 in 1999 38,137 253,555
Inventory 263,087 233,042
Other current assets 54,046 32,156
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TOTAL CURRENT ASSETS 389,175 591,359
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PROPERTY AND EQUIPMENT (Net of accumulated
depreciation and amortization) 237,548 222,946
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OTHER ASSETS
Capitalized planting cost 293,172 281,012
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TOTAL OTHER ASSETS 293,172 281,012
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TOTAL $ 919,895 $ 1,094,867
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 136,794 $ 191,170
Other payable 43,097 -
Accrued expenses 209,949 221,793
Short term loan, secured 47,980 109,793
Notes Payable 75,000 75,000
Obligation under capital lease - current portion 12,676 12,141
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TOTAL CURRENT LIABILITIES 525,496 609,897
LONG TERM LIABILITIES
Obligation under capital lease - net of current portion 35,211 38,587
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TOTAL LOAN TERM LIABILITIES 35,211 38,587
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TOTAL LIABILITIES 560,707 648,484
SHAREHOLDERS' EQUITY
Common stock, $.001 par value;
Shares authorized - 20,000,000;
Shares issued and outstanding -
8,659,558 in 1999 and 8,892,995 in 2000 8,894 8,661
Additional paid-in capital 3,323,482 3,145,981
Due from shareholder (422,234) (442,258)
Accumulated deficit (2,540,151) (2,272,407)
Other comprehensive income -- 9,364
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369,991 449,341
Less: cost of shares of common stock in treasury
(2,000 shares in 1999 and 2,700 shares in 2000) (10,803) (2,958)
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TOTAL SHAREHOLDERS' EQUITY 359,188 446,383
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TOTAL $ 919,895 $ 1,094,867
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See accompanying Notes to Financial Statements
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HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC.
STATEMENT OF OPERATIONS
Three Months Ended
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March 31, March 31,
2000 1999
(Unaudited) (Unaudited)
------------ ------------
Sales - net $ 99,874 $ 39,550
Cost of sales 52,014 19,273
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Gross Profit 47,860 20,277
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Operating expenses
Sales and marketing 90,183 43,023
Product development 3,251 240
General and administrative 235,508 116,881
Depreciation 10,568 4,114
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Total operating expenses 339,511 164,258
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Loss before other income and
comprehensive income (291,651) (143,981)
Other income (expense)
Interest income 22,341 17,555
Interest expense (10,022) (66)
Gain on sale of marketable securities 11,588 --
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Total other income 23,908 17,489
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Net loss $ (267,744) $ (126,492)
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Weighted average shares outstanding 8,750,995 7,502,843
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Basic and diluted net loss per share $ (0.03) $ (0.02)
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See accompanying Notes to Financial Statements
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HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Three Months Ended March 31, 2000
(Unaudited)
COMMON STOCK ADDITIONAL OTHER TOTAL
------------------ PAID-IN DUE FROM ACCUMULATED COMPREHENSIVE TREASURY SHAREHOLDERS
SHARES AMOUNT CAPITAL SHAREHOLDER DEFICIT INCOME STOCK EQUITY
--------- -------- --------- ----------- ----------- ----------- -------- ----------
Balance at January 1, 2000 8,659,558 $8,796 $3,145,846 $(442,258) $(2,272,407) $9,364 $(2,958) $ 446,383
Issuance of shares for cash 200,000 200 149,800 150,000
Shares issued for services 33,437 33 27,701 27,734
Repayment from shareholder 20,024 20,024
Unrealized gain on investment (9,364) (9,364)
Aquisition of shares (7,845) (7,845)
Net loss in 1st quarter 2000 (267,744)
--------- ------- ---------- ---------- ----------- ---------- -------- ---------
Balance at March 31, 2000 8,892,995 $8,894 $3,323,482 $(422,234) $(2,540,151) $ -- $(10,803) $ 359,188
========= ======= ========== ========== =========== ========== ======== =========
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HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC.
STATEMENT OF CASH FLOWS
Three Months Ended
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March 31, March 31,
2000 1999
(Unaudited) (Unaudited)
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (267,744) $ (126,492)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 10,568 4,114
Gain on marketable securities (11,588) -
Shares issued for services 27,734 -
Shares issued for promotional - 14,500
Allowance for doubtful accounts 3,000 3,000
Changes in Assets and Liabilities:
Accounts receivable 212,418 (4,343)
Inventory (30,045) 2,249)
Other current assets (21,890) (381)
Accounts payable -trade (54,376) 3,783
Accrued interest payable (11,844) -
Taxes payable - 10,821
Other payables 43,097 1,214
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NET CASH FROM OPERATING ACTIVITIES (100,670) (91,535)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipments & other properties (25,620) (402)
Investment in nursery/field planting (12,160) (37,567)
Other assets - 17,380
Treasury stock purchases (7,844) -
Proceeds from sale of marketable securities 32,223 -
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NET CASH USED BY INVESTING ACTIVITIES (13,401) (20,589)
CASH FLOWS FROM FINANCING ACTIVITIES
Private sales of common stocks 150,000 62,500
Short term loan on receivables (61,813) -
Obligation under capital lease (2,841) -
Shares issued to convert debt to equity - 45,505
Repayment from shareholder 20,024 -
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NET CASH PROVIDED FINANCING ACTIVITIES 105,370 108,005
NET DECREASE IN CASH AND CASH EQUIVALENT (8,701) (4,119)
CASH AND CASH EQUIVALENT AT BEGINNING OF THE PERIOD 42,606 (7,731)
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CASH AND CASH EQUIVALENT AT THE END OF THE PERIOD $ 33,905 $ (11,850)
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OTHER CASH INFORMATION
Interest paid $ 10,022 $ 66
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NON CASH TRANSACTION
Shares issued for other than cash $ 27,734 $ 60,005
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See accompanying Notes to Financial Statements
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NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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Basis of Presentation
The annual financial statements as of December 31, 1999 were audited by the
Company's independent auditors. The interim financial statements presented
have been prepared by the Company's management without audit.
In the opinion of management, the accompanying balance sheets and related
interim statements of income, cash flows, and stockholders' equity include all
adjustments (consisting only of normal recurring items) necessary for their
fair presentation in conformity with generally accepted accounting principles.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue,
and expenses. Examples include provisions for returns and bad debts and the
length of product life cycles and buildings' lives. Actual results may differ
from these estimates. Interim results are not necessarily indicative of
results for a full year. The information included in this Form 10-QSB should
be read in conjunction with Management's Discussion and Analysis and Financial
Statements and Notes thereto included in the Hawaiian Vintage Chocolate
Company, Inc. 1999 Form 10-KSB.
Shareholders Equity
In March 2000, the Company sold 200,000 shares of common stock at $.75 per
share to one of its directors. During 1st quarter 2000, the Company issued
33,437 shares of common stock for services. These shares were valued at $.75
to $1.00 per share. The Board of Directors approved the extension of the
expiration date of Class B and Class C warrants to November 14, 2000.
Leases
On February 15, 2000, the Company leased its 2nd chocolate store space - a
2,000 square foot retail space at 1505 N. Veterans Parkway, Unit B,
Bloomington, McLean County, State of Illinois.
As of March 31, 2000, the Company has committed non-cancelable operating and
capital leases ranging from two years to four years with optional terms to
extend. The total non-cancelable lease payment and penalty in the next five
years are as follows:
Fiscal Year Non-Cancelable
Lease Liability
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2000 $88,105
2001 $96,631
2002 $72,205
2003 $ 8,226
2004 $ -
Segment Information
The Company operates in one industry segment,that being the development,
manufacture and marketing of chocolate products. The Company's reportable
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segments are strategic business segments due largely to where and how the
sales were made.
The Company has two principal reportable business segments: its
corporate wholesale/retail operation and its store retail operation. The
corporate operation's sales were made by corporate office through its sales
force on U.S. mainland and Hawaii or through its Web site. The store retail
operation's sales were made at its chocolate store's floor spaces located
outside of Company's corporate office.
Segment Information for the first quarter 2000 are as follows:
Corporate Store Consolidated
Operation Operation
---------------- ---------------- ----------------
Net sales $59,038 $40,836 $99,874
Loss from Operation ($257,215) ($23,869) ($281,084)
Assets $466,790 $126,028 $592,818
Reconciliation from the segment information to the consolidated balances
for loss from operations and assets is set forth below:
Segment loss from operation ($281,084)
Depreciation and amortization (10,568)
Other income 23,908
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Consolidated net loss ($267,744)
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Segment assets $592,818
Cash and cash equivalent 33,905
Capitalized planting cost 293,172
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Consolidated total assets $919,895
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations ---
Quarter ended March 31, 2000 compared to
Quarter ended March 31, 1999
"Net Sales." Net sales increased by 153% to $99,874 from $39,550 in same
period of 1999. The increase was primarily attributable to the expansion of
the Company's wholesale and especially retail sales on the U.S. mainland as
well as the Company's direct retail sales on the Internet.
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"Cost of Sales" Cost of sales as percentage of sales in the first quarter
2000 increased to 52% from 49% in the first quarter of 1999. This increase
is partially attributable to the costs of the new products developed by the
Company as well as the cost of expanded distribution, and partially because
of decreased margins of its ingredient business and discounts necessary for
securing retail distribution.
"Gross Profit Margin" The Company's gross profit margin in the first quarter
2000 decreased 3% from the same period of 1999 due to the increase in cost of
sales as a percentage of sales.
"Selling and Marketing Expenses." Selling and marketing expenses in first
three months of 2000 increased 110% to $90,183 from $43,023 in 1999 and as a
percentage of net sales it decreased to 90% from 109% in 1999. The increase
in selling and marketing expenses was primarily due to an increase in
advertising expenses, distributor support programs, and retail test market
introductions. This increase was partially offset by the increase in sales.
"General and Administrative Expenses." General and administrative expenses
for first quarter 2000 increased by 101% to $235,508 from $116,881 in 1999
and decreased as a percentage of sales to 236% from 296%. The primary reason
for the increase of the general and administrative expenses is the increased
staffing by the Company as part of its conversion from a development company
to an operating company and to support its expansion program.
"Other Income." In 2000, the Company sold its marketable securities and
realized a gain of $11,588.
"Operating Income or Loss" Operating loss for the first quarter 2000
increased 103% to $291,651 from $143,981 in 1999 and the loss decreased as a
percentage of sales to 292% from 364% in 1999. The increase in the dollar
amount of the operating loss was due to the additional staffing by the
Company and the increased selling and marketing expenses incurred by the
Company as part of its conversion into an operating company and to support
its expansion program.
"Interest Expense." Interest expense for the first quarter 2000 increased to
$10,022 from $66 in 1999 primarily due to accounts receivable factoring.
"Net Income." Net losses for the first quarter 2000 increased 112% to
$267,744 from $126,492 in 1999 and the loss decreased as percentage of sales
to 280% from 320%. This increase is due to the additional staffing by the
Company and the increased selling and marketing expenses incurred by the
Company as part of its conversion into an operating company and to support
its expansion program.
Seasonality and Stores Openings
The Company's business is seasonal and its quarterly results of
operations reflect seasonal trends resulting from increased demand for the
Company's chocolate products during the Christmas and Valentine's Day
seasons.
The Company has experienced quarterly fluctuations in sales volume
and operating results when compared to previous years due to a number of
factors, including the timing of trade promotions, advertising and consumer
promotional expenditures. The Company, as is common in the chocolate
industry, offers trade promotions for limited time periods on specific items
in order to provide incentives for the purchase and promotion of products.
The impact on chocolate sales from period to period due to the timing and
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extent of such trade promotions can be significant. In addition, the Company
believes that quarterly results will be affected by the timing of new store
openings; therefore results for any quarter are not necessarily indicative of
results that may be achieved in other quarters or for a full fiscal year.
Liquidity and Capital Resources
During 1st quarter of 2000, the Company raised $150,000 through equity
financing in order to meet its working capital requirements. In the three-
month period, management successfully collected over $178,000 of accounts
receivables from three major customers. As a result, short term loan was
reduced by $61,000, accounts payable and accrued expenses were reduced by
$23,000 compared to their balances at December 31, 1999. Management is
planning to convert approximately $100,000 worth of short term debt into
equity to improve its working capital position. Further, the Company has
been working on additional equity and debt financing through private sources
to meet its immediate working capital requirements.
The operations of the Company historically have been funded with a
combination of internally generated funds and external private sales of
equity. Purchases of inventory, marketing expenditures and support of account
receivable have been, and are expected to remain, the Company's principal
recurring uses of funds for the foreseeable future. The Company's other
principal use of funds in the future will be the development of new products,
the possible acquisition of brands, product lines or other business
activities, the development of corporate stores and increased staffing costs.
The Company has incurred significant operating loss from its operations
through March 31, 2000. The Company's working capital requirements have been
and will continue to be significant. The Company expects its primary sources
of financing for its future business activities will be funds from operations
and the additional sale of common stock. The Company believes that funds from
operations and the possible sale of equity are likely to be sufficient to
meet operating and capital requirements unless a significant acquisition or
store expansion is made during fiscal 2000 beyond the projected new store
expansion described in this report. The Company cautions, however, that there
is no assurances that these assumptions will prove to be accurate.
Part II. Other Information
Item 2. Changes in Securities
(c) Following securities were sold in the reporting period to a director of
the Company for cash pursuant to Section 4(2) of the Securities Act of 1933.
Date Sold To Class of Number of Offering Cost
Security Shares sold Price
- --------- -------------- -------- ----------- --------- ----
3/13/2000 Tyrie Jenkins Common 200,000 $150,000 $0
The following are the date, title and amount of securities issued for
services provided by the Company's affiliates and the consideration received
by the Company pursuant to Section 4(2) of the Securities Act of 1933.
Date Issued To Class of Number of Consideration Dollar
Security Shares Issued Value
- --------- ------------------- -------- ------------- ------------- ------
1/27/2000 Roth Financial Group Common 9,812 Commission $7,359
1/31/2000 Unicor, Inc. Common 5,000 Consulting $5,000
1/31/2000 Roth Financial Group Common 5,625 Marketing $5,625
3/21/2000 Unicor, Inc. Common 10,000 Consulting $7,500
3/21/2000 Vince DeBono Common 3,000 Consulting $2,250
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Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
10.8 Bloomington Store Lease Store space lease of Company's soly-
owned retail shop in Bloomington, Illinois with H.O.S. Partnership dated
January 24, 2000.
27 Financial Data Schedule
(B) Reports on Form 8-K - None
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Hawaiian Vintage Chocolate Company, Inc.
Date: May 22, 2000 By: /s/ JAMES P. WALSH
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James P. Walsh, Chairman and
Chief Executive Officer