Attached files
| file | filename |
|---|---|
| EX-32.1 - EXHIBIT 32.1 - Artisanal Brands, Inc. | ex32_1.htm |
| EX-31.2 - EXHIBIT 31.2 - Artisanal Brands, Inc. | ex31_2.htm |
| EX-32.2 - EXHIBIT 32.2 - Artisanal Brands, Inc. | ex32_2.htm |
| EX-31.1 - EXHIBIT 31.1 - Artisanal Brands, Inc. | ex31_1.htm |
| EX-10.21 - EXHIBIT 10.21 - Artisanal Brands, Inc. | ex10_21.htm |
| EX-10.22 - EXHIBIT 10.22 - Artisanal Brands, Inc. | ex10_22.htm |
| EX-10.19 - EXHIBIT 10.19 - Artisanal Brands, Inc. | ex10_19.htm |
| EX-10.23 - EXHIBIT 10.23 - Artisanal Brands, Inc. | ex10_23.htm |
| EX-10.20 - EXHIBIT 10.20 - Artisanal Brands, Inc. | ex10_20.htm |
| EX-10.24 - EXHIBIT 10.24 - Artisanal Brands, Inc. | ex10_24.htm |
FORM
10-Q
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED AUGUST 31,
2009
|
or
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE TRANSITION PERIOD FROM
|
TO .
AMERICAN
HOME FOOD PRODUCTS, INC.
(Exact
name of registrant as specified in its charter)
|
New York
|
0-26112
|
41-1759882
|
|
(State
of Jurisdiction)
|
(Commission
File Number)
|
(IRS
Employer I.D. No.)
|
|
500 West 37th Street
|
New York, New York
|
10018
|
|
(Address
of Principal Executive offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code 212-871-3150
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to filing requirements for the past 90
days. Yes x No
o.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12-2 of the Exchange Act.
|
Large
accelerated filer. o
|
Accelerated
filer. o
|
|
Non-accelerated
filer. o
|
Smaller
reporting company.
x
|
|
(Do
not check if smaller reporting company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes o No x
The
Company had 7,960,316 shares of its $.001 par value common stock and 6,592,100
shares of its $.001 par value preferred stock issued and outstanding on August
31, 2009.
DOCUMENTS INCORPORATED BY
REFERENCE
|
Location in Form
10-Q
|
Incorporated
Document
|
|
Item
5 – Other Information
|
Form
8-K filed July 22, 2009
|
|
Item
5 – Other Information
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Form
8-K filed September 15, 2009
|
AMERICAN
HOME FOOD PRODUCTS, INC.
Index
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Page No.
|
||
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Part
I Financial Information
|
||
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Item
1.
|
Financial
Statements (Unaudited)
|
|
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F-1
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||
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F-2
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||
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F-3
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||
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F-4
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||
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Item
2.
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1
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Item
3.
|
3
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|
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Item
4T.
|
4
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|
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Part
II Other Information
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||
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Item
1.
|
5
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|
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Item
2.
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5
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|
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Item
3.
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5
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Item
4.
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5
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Item
5.
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5
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Item
6.
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6
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PART
I
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Page No.
|
||
|
Item
1.
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Financial Information
(Unaudited)
|
|
|
Balance
Sheets at August 31, 2009 and May 31, 2009
|
F-1
|
|
|
Statements
of Operations for the three months ended August 31, 2009 and August 31,
2008
|
F-2
|
|
|
Statements
of Cash Flows for the three months ended August 31, 2009 and August 31,
2008
|
F-3
|
|
|
Notes
to Financial Statements
|
F-4
|
AMERICAN HOME FOOD PRODUCTS, INC.
CONSOLIDATED
BALANCE SHEETS
ASSETS
|
August
31, 2009
|
May
31, 2009
|
|||||||
|
(unaudited)
|
(audited)
|
|||||||
|
CURRENT
ASSETS:
|
||||||||
|
Cash
|
$ | - | $ | - | ||||
|
Accounts
receivable
|
415,776 | 456,688 | ||||||
|
Inventories
|
281,369 | 324,091 | ||||||
|
Prepaid
expenses and other current assets
|
145,224 | 105,956 | ||||||
|
Total
Current Assets
|
842,369 | 886,735 | ||||||
|
FIXED
ASSETS, net
|
683,716 | 722,118 | ||||||
|
OTHER
ASSETS
|
48,493 | 45,265 | ||||||
|
INTANGIBLES
- at cost, net
|
3,725,461 | 3,746,461 | ||||||
| $ | 5,300,039 | $ | 5,400,579 | |||||
|
LIABILITIES AND SHAREHOLDERS'
EQUITY
|
||||||||
|
CURRENT
LIABILITIES:
|
||||||||
|
Cash
Overdraft
|
$ | 7,283 | $ | 36,927 | ||||
|
Accounts
payable
|
1,218,817 | 822,761 | ||||||
|
Notes
payable
|
589,778 | 683,092 | ||||||
|
Bridge
Loan payable
|
151,923 | |||||||
|
Prepaid
Gift Certificates and Other Deferred Revenue
|
55,477 | 62,531 | ||||||
|
Accrued
expenses and other current liabilities
|
151,455 | 288,862 | ||||||
|
Accrued
payroll taxes
|
480,769 | 480,769 | ||||||
|
Total
Current Liabilities
|
2,655,502 | 2,374,942 | ||||||
|
LONG
TERM DEBT, net of current portion
|
583,133 | 74,390 | ||||||
| 583,133 | 74,390 | |||||||
|
COMMITMENTS
AND CONTINGENCY
|
- | |||||||
|
SHAREHOLDERS'
EQUITY:
|
||||||||
|
Preferred
stock - $0.001 par value, 10,000,000 shares authorized,6,592,100 and
6,599,717 shares issued and outstanding, respectively
|
6,592 | 6,600 | ||||||
|
Common
stock - $0.001 par value, 40,000,000 shares authorized 7,960,316 and
7,835,316shares issued and outstanding, respectively
|
7,960 | 7,835 | ||||||
|
Additional
paid-in capital
|
16,623,396 | 16,713,919 | ||||||
|
Accumulated
deficit
|
(14,576,544 | ) | (13,777,107 | ) | ||||
|
Total
shareholders' equity
|
2,061,404 | 2,951,247 | ||||||
| $ | 5,300,039 | $ | 5,400,579 | |||||
See notes
to unaudited financial statements.
AMERICAN HOME FOOD PRODUCTS, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
Three
Months
Ended
August
31,
2009
Unaudited
|
Three
Months
Ended
August
31,
2008
Unaudited
|
|||||||
|
SALES
|
$ | 908,514 | $ | 1,170,864 | ||||
|
COST
OF GOODS SOLD
|
857,019 | 870,342 | ||||||
|
GROSS
PROFIT
|
51,495 | 300,522 | ||||||
|
SELLING,
GENERAL AND ADMINISTRATIVE
|
656,576 | 678,571 | ||||||
|
DEPRECIATION
AND AMORTIZATION
|
60,045 | 61,614 | ||||||
|
GAIN
(LOSS) FROM OPERATIONS
|
||||||||
|
BEFORE
INCOME TAXES AND INTEREST
|
(665,126 | ) | (439,663 | ) | ||||
|
OTHER
INCOME( EXPENSES):
|
||||||||
|
Interest
income (expense)
|
(135,874 | ) | (4,405 | ) | ||||
|
GAIN
(LOSS) FROM OPERATIONS
|
||||||||
|
BEFORE
INCOME TAXES
|
(801,000 | ) | (444,068 | ) | ||||
|
INCOME
TAXES
|
- | - | ||||||
|
NET
INCOME (LOSS) -
|
$ | (801,000 | ) | $ | (444,068 | ) | ||
|
LESS
PREFERRED STOCK DIVIDEND
|
(107,276 | ) | (156,450 | ) | ||||
|
NET
INCOME (LOSS) APPLICABLE TO COMMON SHARES
|
$ | (908,276 | ) | $ | (600,518 | ) | ||
|
INCOME
(LOSS) PER COMMON SHARE:
|
||||||||
|
Basic
|
$ | (0.12 | ) | $ | (0.08 | ) | ||
|
Diluted
|
$ | (0.12 | ) | $ | (0.08 | ) | ||
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
|
||||||||
|
basic
|
7,784,066 | 7,784,066 | ||||||
|
diluted
|
7,784,066 | 7,784,066 | ||||||
See notes
to unaudited financial statements.
AMERICAN HOME FOOD PRODUCTS, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
Three
Months
Ended
August
31,
2009
|
Three
Months
Ended
August
31,
2008
|
|||||||
|
(Unaudited)
|
(Unaudited)
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net
income (loss)
|
$ | (801,000 | ) | $ | (444,068 | ) | ||
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating
activities:
|
||||||||
|
Depreciation
and impairment of equipment
|
39,045 | 31,613 | ||||||
|
Interest
on loans as preferred stock
|
85,000 | - | ||||||
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Amortization
of intangibles
|
21,000 | 30,000 | ||||||
|
Increase
of other assets
|
- | (17,500 | ) | |||||
|
Preferred
and common stock issued for services
|
- | 156 | ||||||
|
Changes
in assets and liabilities, net of the effect from
acquisition:
|
||||||||
|
Accounts
receivable
|
40,912 | (1,069 | ) | |||||
|
Inventory
|
42,722 | (20,824 | ) | |||||
|
Prepaid
expenses and other assets
|
(41,080 | ) | (10,450 | ) | ||||
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Accounts
payable
|
394,385 | (32,652 | ) | |||||
|
Accrued
expenses and other current liabilities
|
(184,875 | ) | (25,132 | ) | ||||
|
NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
(403,891 | ) | (489,926 | ) | ||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Purchase
of fixed assets
|
(642 | ) | (13,298 | ) | ||||
|
NET
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
(642 | ) | (13,298 | ) | ||||
|
CASH
FLOWS PROVIDED BY FINANCING ACTIVITIES:
|
||||||||
|
Increase
in notes payable
|
500,000 | - | ||||||
|
Payment
of shareholder note
|
- | (38,312 | ) | |||||
|
Sale
of preferred stock
|
- | - | ||||||
|
Payment
of note payable
|
(95,467 | ) | (40,159 | ) | ||||
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
404,533 | (78,471 | ) | |||||
|
NET
INCREASE IN CASH
|
- | (581,695 | ) | |||||
|
CASH
AT BEGINNING OF YEAR
|
- | 750,133 | ||||||
|
CASH
AT END OF PERIOD
|
$ | - | $ | 168,438 | ||||
|
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
||||||||
|
Cash
paid during the period for:
|
||||||||
|
Interest
|
$ | - | $ | - | ||||
|
Income
taxes
|
- | - | ||||||
|
Non-cash
financing activies:
|
||||||||
|
Common
shares issued for services
|
125,000 | 2,500 | ||||||
|
Preferred
shares issued for dividends
|
107,383 | 156,450 | ||||||
See notes
to unaudited financial statements.
AMERICAN HOME FOOD PRODUCTS, INC.
NOTES TO
FINANCIAL STATEMENTS
THREE
MONTHS ENDED AUGUST 31, 2009
(UNAUDITED)
|
1.
|
BASIS OF
PRESENTATION
|
The
accompanying unaudited consolidated financial statements of American Home Food
Products, Inc. (the “Company”) have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q. 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 considered necessary for a fair presentation
(consisting of normal recurring accruals) have been included. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates. Operating results expected for the three months ended
August 31, 2009 are not necessarily indicative of the results that may be
expected for the year ending May 31, 2010. For further information,
refer to the financial statements and footnotes thereto included in the
Company’s Annual Report on Form 10-K for the year ended May 31,
2009. Per share data for the periods are based upon the weighted
average number of shares of common stock outstanding during such periods, plus
net additional shares issued upon exercise of options and warrants.
|
2.
|
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
|
Principles of Consolidation
The
consolidated financial statements include the accounts of the Company and its
majority-owned subsidiaries. All material intercompany accounts and transactions
have been eliminated on consolidation.
Cash and Cash
Equivalents
The
Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. Cash equivalents include
investments in money market funds and are stated at cost, which approximates
market value. Cash at times may exceed FDIC insurable limits.
Trade Accounts Receivable
and Other Receivables, Net
The
Company's accounts receivable consist primarily of amounts due from customers
for the sale of its products. The Company records an allowance for doubtful
accounts based on management's estimate of collectability of such trade and
notes receivables outstanding. The allowance for doubtful accounts represents an
amount considered by management to be adequate to cover potential losses, if
any. The recorded allowance at August 31, 2009 and May 31, 2009, was $20,279 and
$38,598, respectively.
Revenue
Recognition
The
Company recognizes revenues associated with the sale of its products at the time
of delivery to customers.
Advertising
Costs
All
advertising costs are expensed as incurred. Advertising expenses charged to
operations for the three months ended August 31, 2009 were approximately
$500.
Reclassifications
Certain
reclassifications have been made to the prior quarter amounts presented to
conform to the current period presentations.
Use of
Estimates
The
preparation of financials statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Stock-based
Compensation
The
Company accounts for stock-based compensation in accordance with SFAS No. 123-R
Share-Based Payment ("SFAS No. 123-R"). The Company records compensation expense
using a fair-value-based measurement method for all awards granted. In computing
the impact, the fair value of each option is estimated on the date of grant
based on the Black-Scholes options-pricing model utilizing certain assumptions
for a risk free interest rate; volatility; and expected remaining lives of the
awards. The assumptions used in calculating the fair value of share-based
payment awards represent management’s best estimates, but these estimates
involve inherent uncertainties and the application of management judgment. As a
result, if factors change and the Company uses different assumptions, the
Company’s stock-based compensation expense could be materially different in the
future. In addition, the Company is required to estimate the expected forfeiture
rate and only recognize expense for those shares expected to vest. In estimating
the Company’s forfeiture rate, the Company analyzed its historical forfeiture
rate, the remaining lives of unvested options, and the amount of vested options
as a percentage of total options outstanding. If the Company’s actual forfeiture
rate is materially different from its estimate, or if the Company reevaluates
the forfeiture rate in the future, the stock-based compensation expense could be
significantly different from what we have recorded in the current
period. Equity-based compensation for the three months ended August
31, 2009 and August 31, 2008 was $24,469 and $27,938,
respectively.
Net Income/(Loss) Per
Share
In
accordance with SFAS No. 128, "Earnings Per Share", basic net income/(loss) per
share is computed using the weighted average number of common shares outstanding
during each period. For the three months ended August 31, 2009, diluted loss per
share is the same as basic loss per share since the inclusion of stock options
and warrants would be antidilutive. Options have been excluded in the
amount of 770,000 for the three months ended August 31, 2009.
Fair Value of Financial
Instruments
The
carrying amounts of financial instruments, including cash and cash equivalents,
marketable securities, accounts receivable, notes receivable, and accounts
payable, approximated fair value as of August 31, 2009, because of the
relatively short-term maturity of these instruments and their market interest
rates. Since a portion of long-term debt is in default, it is not possible to
estimate its value.
Recent Accounting
Pronouncements
Any new
accounting pronouncements issued but not yet effective have been deemed not to
be relevant to the operations of the Company, hence the effects of such
undisclosed new accounting pronouncements will have no effect on the
Company.
|
3.
|
ACCOUNTS
RECEIVABLE
|
Accounts
receivable consist of the following:
|
August
31,
2009
|
May
31,
2009
|
|||||||
|
Trade
accounts receivable
|
$ | 431,855 | $ | 491,215 | ||||
|
Employees
|
4,200 | 4,071 | ||||||
| 436,055 | 495,286 | |||||||
|
Less
allowance for doubtful accounts
|
(20,278 | ) | (38,598 | ) | ||||
| $ | 415,777 | $ | 456,688 | |||||
|
4.
|
INVENTORIES
|
Inventories
are valued on a first-in-first-out (FIFO) basis. Inventories
consisted of the following:
|
August
31,
2009
|
May
31,
2009
|
|||||||
|
Cheese
Inventory
|
$ | 183,792 | $ | 180,179 | ||||
|
Shipping/Packing
Material Inventory
|
60,482 | 68,661 | ||||||
|
Accessories
& Books Inventory
|
34,723 | 68,101 | ||||||
|
Beverage
|
2,372 | 7,150 | ||||||
| $ | 281,369 | $ | 324,091 | |||||
|
5.
|
PREPAID
EXPENSES
|
At August
31, 2009, the Company had prepaid expenses of $145,225, which consisted
primarily of; marketing materials including artwork of $34,661,
catalog development costs of $43,800; a loan commission of $15,000;
prepaid real estate taxes $9,331; other operating expense $16,370 and prepaid
insurance of $26,063. At May 31, 2009, the Company had prepaid expenses of
$105,956, which consisted primarily of marketing materials including artwork of
$18,575, catalog development costs of $57,013, and legal fees of $7,200, a loan
commission of $15,000 and prepaid insurance of $8,168.
|
6.
|
NOTES
PAYABLE
|
In
February 2009, the Company closed on a revolving line of credit in an amount
representing up to 85% of the company’s accounts receivable and 50% of its
inventories with a maximum loan amount of $750,000. The cost of this
facility is at Prime Rate plus 2%. The Prime Rate at February 28,
2009, was 3.25%. The line of credit is secured by the assets of the
Company and has various covenants for collateral management fees, change of
control provisions and a guarantee. As of June 1, 2009, two events of
default had occurred under the loan. Specifically, the advance
against acceptable inventory exceeded the bank’s formula by approximately
$20,000 and the Company had not yet paid its past due taxes in full or otherwise
subordinated the taxes to the bank in a manner acceptable to the
bank. On or about June 1, 2009, the parties executed a Forbearance
Agreement pursuant to which the bank agreed to forbear from exercising its
rights and remedies under the original loan document in exchange for the
Company’s agreement that, until it provides satisfactory evidence that it has
paid the past due taxes have been paid or otherwise subordinated to the bank and
until it has raised $1.7 million in cash equity, the interest rate shall be
increased to the Prime Rate plus 8%. The forbearance agreement
expired July 31, 2009. On or about August 13, 2009, the parties
executed a second forbearance agreement pursuant to which the bank agreed to
forbear until November 9, 2009, in exchange for a $10,000 forbearance fee, a
limitation on the loan against inventory to a maximum of $175,000, and interest
to continue at the rate of Prime Rate plus 8%. The balance due at
August 31, 2009 was $416,179.
In June
2009, the board approved the Company’s intentions to obtain an $850,000 term
loan and to raise an additional $2 million in equity. As of the date
of this filing, the company has secured from existing shareholders a $150,000
bridge loan at an annual interest rate of nine percent (9%) to mature on
September 8, 2009 and $700,000 of the term loan at an annual interest rate of
nine percent (9%) to mature on or about September 10, 2010. The
Company has defaulted on repayment of the bridge note by the maturity date,
however, the lender has agreed to forbear collection until such time as the
Company completes the equity raise. The Company is also negotiating
with several potential investors with respect to the equity
investment.
|
7.
|
ACCRUED EXPENSES AND
OTHER CURRENT LIABILITIES
|
As of
August 31, 2009, the Company had accrued expenses and other liabilities of
$151,455 which consisted primarily of $35,060 for professional fees, $11,075 for
commissions, $29,839 for prepaid cheese club, sales tax payable of $5,773,
inventory related items $44,985 and $24,723 for other various
items. As of May 31, 2009, the Company had accrued expenses and other
liabilities of $288,862 which consisted primarily of $109,683 for
inventory-related items, $27,760 for professional fees, $35,843 for goods sold,
$27,786 for payroll and commissions, $16,640 for prepaid cheese clubs and
another $5,369 for accrued payroll tax.
|
8.
|
ACCRUED PAYROLL
TAXES
|
The
Company prior to the acquisition of Artisanal remains in arrears with paying
payroll taxes of approximately $480,000. The Company is currently
negotiating a payment program with the relevant tax authorities.
|
9.
|
SHAREHOLDERS’
EQUITY
|
Preferred Stock
Issuances
During
the three months ended August 31, 2009, the Company issued to preferred
shareholders a total of 107,383 shares of preferred stock representing the
adjusted preferred stock dividends through August 31, 2009. The
dividends for the quarter were adjusted to take into consideration the
inadvertent compounding of the dividend for the three quarters ended November
30, 2008, February 28, 2009, and May 31, 2009, respectively.
The Company issued to
lenders a total of 85,000 shares of preferred stock in consideration of the
$150,000 bridge loan and the $550,000 term loan which they collectively made to
the Company during the quarter ended August 31, 2009. As
part of the term loan transaction, 200,000 shares of preferred stock were
returned to the Company by three preferred shareholders who rescinded
subscription agreements made in the previous quarter, electing instead to
participate in the term loan agreement also being offered by the
Company.
Common Stock
Issuances
In June
2009, the Company issued 125,000 shares of common stock to one of its employees
vesting over two years. The company recorded deferred compensation of
$36,250 in connection with these shares.
Stock
Option
No common
stock options were issued during the three month period ended August 31,
2009.
|
10.
|
RELATED PARTY
TRANSACTIONS
|
The wife
of Daniel W. Dowe, the Company’s Chief Executive Officer and Chief Financial
Officer, periodically provides legal and administrative services to the Company.
For the quarter ended August 31, 2009, Ms. Dowe received $15,000 for legal and
administrative work performed throughout the year for the Company. In
the three months ended August 31, 2008, Ms. Dowe received $15,000 for legal and
administrative work performed throughout the year.
With
respect to the foregoing transactions, the Company believes that the terms of
these transactions were as fair to the Company as could be obtained from an
unrelated third party. Future transactions with affiliates including
loans will be on terms no less favorable than could be obtained from
unaffiliated parties and will be approved by a majority of the independent
disinterested members of the board of directors.
|
11.
|
RESIGNATION OF
DIRECTOR
|
On July
17, 2009, Mr. Carl Wolf resigned as a director of the Company. Mr.
Wolf served on the Company’s Audit, Compensation and Business Development
Committees. The Company filed with the Commission a Form 8-K on July
23, 2009 in connection with his resignation.
|
12.
|
SUBSEQUENT
EVENTS
|
At a
board of directors meeting held on September 14, 2009, Mr. Alfred Lepore
resigned after a two-year term as a director of the Registrant. Mr.
Lepore served on Registrant’s Business Development Committee. The
Company filed with the Commission a Form 8-K on September 15, 2009 in connection
with his resignation.
|
Item 2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
The
following discussion and analysis should be read in conjunction with the
information contained in the Financial Statements and the Notes to the financial
statements appearing elsewhere in this Form 10-Q. The Financial Statements for
the three month period ending August 31, 2009, included in this Form 10-Q are
unaudited; however, this information reflects all adjustments (consisting solely
of normal recurring adjustments), which are, in the opinion of management,
necessary to present a fair statement of the results for the interim
period.
Results
of Operations
Three
Months ending August 31, 2009 v. August 31, 2008
In the
three month period ended August 31, 2009, the Company had sales of $908,514
versus $1,170,864 in the corresponding three month period in
2008. Cost of goods sold in this period was $857,019 which was 94%
versus 74% for the same period in 2008.
In this
three month period, the Company recorded a net loss from operations of $801,000
versus a net loss of $444,068 for the same period in 2008. The net
loss to common shareholders during this period 2009 was $908,276 versus a net
loss of $600,518 during the same period in 2008. Of the net loss,
$107,383 was attributable to non-cash stock dividends paid to preferred
shareholders during the first quarter in the form of new shares of
preferred. In 2009, the Company incurred $135,874 in interest
charges, which is attributable primarily to interest on the term loan and bridge
loan in the form of preferred shares, interest on its revolving line of credit,
and long-term debt owed to the former members of Artisanal Cheese LLC. The
Company also incurred $21,000 of amortization charges relating to the intangible
assets and $39,045 of depreciation on the fixed assets.
On August
31, 2009, the Company had $842,370 in current liquid assets, which consisted
primarily of inventory of $281,369, prepaid expenses of $145,225 and accounts
receivable of $415,776. The Company had leasehold improvements and equipment of
$683,716 and intangibles of $3,725,461 net of amortization.
Liquidity
and Financial Resources at August 31, 2009
As of
August 31, 2009, the Company had $2,655,502 in current liabilities, which
includes $173,599 in notes to the former shareholders of the Company,
as well as a $151,923 bridge note (including interest) The Company
had accounts payable of $1,218,817, a revolving line of credit of $ 416,179,
accrued taxes of $480,769, cash overdraft of 7,283 and accrued expenses and
other current liabilities totaling $151,455. The Company’s current
liabilities also include outstanding prepaid gift certificates and other
deferred revenue totaling $55,477.
In
February 2009, the Company closed on a revolving line of credit in an amount
representing up to 85% of the company’s accounts receivable and 50% of its
inventories with a maximum loan amount of $750,000. The cost of this
facility is at Prime Rate plus 2%. The Prime Rate at closing was
3.25%. The line of credit is secured by the assets of the Company and
has various covenants for collateral management fees, change of control
provisions and a guarantee. As of June 1, 2009, two events of default
had occurred under the loan. Specifically, the advance against
acceptable inventory exceeded the bank’s formula by approximately $20,000 and
the Company had not yet paid its past due taxes in full or otherwise
subordinated the taxes to the bank in a manner acceptable to the
bank. On or about June 1, 2009, the parties executed a Forbearance
Agreement pursuant to which the bank agreed to forbear from exercising its
rights and remedies under the original loan document in exchange for the
Company’s agreement that, until it provides satisfactory evidence that it has
paid the past due taxes have been paid or otherwise subordinated to the bank and
until it has raised $1.7 million in cash equity, the interest rate shall be
increased to Prime Rate plus 8%. The forbearance agreement expired
July 31, 2009. On or about August 13, 2009, the parties executed a second
forbearance agreement pursuant to which the bank agreed to forbear until
November 9, 2009, in exchange for a $10,000 forbearance fee, a limitation on the
loan against inventory to a maximum of $175,000, and interest to continue at the
rate of Prime Rate plus 8%.
In June
2009, the board approved the Company’s intentions to obtain an $850,000 term
loan and to raise an additional $2 million in equity. As of the date
of this filing, the company has secured a $150,000 bridge loan and $700,000 of
the term loan from existing shareholders and is negotiating with several
potential equity investors. The proceeds will be used to finance the
Company’s new packaging and retail displays and its expansion into big-box and
chain retailers, pay down tax liabilities and to provide a cash
reserve.
With the
expansion of sales into specialty, big-box and chain retail markets, the Company
believes its cash flow will be sufficient to meet its fixed monthly
expenses. The Company generates cash from the sales of its
product. Wholesale and retail customers purchasing on an open account
basis have 30-day payment terms. All others sales pertaining to
cheese and related items from our print catalog or website or sales relating to
classes at the cheese center are paid through credit card which generally settle
within three days of purchase.
For so
long as more than $1,500,000 of the Preferred stock is issued and outstanding,
the Company shall require the prior written consent of holders representing
two-thirds of the Preferred stock issued and outstanding to (a) sell, merge
with, acquire or consolidate with another business entity, (b) incur additional
leverage beyond the leverage contemplated by the Company and Holders as part of
the Company’s acquisition of Artisanal Cheese, LLC, or (c) issue any new shares
of common stock or securities convertible or exercisable into Common Stock in
excess of 2% of the shares of Common Stock issued and outstanding on a fully
diluted basis as of August 14, 2007, excluding the Management Stock Option
granted to Messrs. Dowe and Feeney (see below.) At no time shall such
securities be sold or granted at a price less than the thirty cents ($.30) per
share Conversion Price. If the Company cannot obtain the requisite
two-thirds approval, these restrictions may affect our liquidity and our ability
to execute our business plan.
All
long-term liabilities are payable to the previous owners of Artisanal Cheese LLC
and are being repaid in accordance with the terms of the governing
instruments.
The cost
to carry the preferred stock is a dividend of 12% payable in stock until August
2010. Thereafter the dividend is 12% if payable in cash or 15% if
payable in stock, at the Company’s election. Where the Company elects
to pay the dividend in shares, this will not present a drain on the company’s
capital resources.
Inflation
and Changing Prices
The
Company does not foresee any risks associated with inflation or substantial
price increases in the near future. In addition, the cheeses that are
selected by the Company in its affinage process are often available from various
sources. As such, while the Company has exposure to inflation, it
does not believe that inflation will have any materially significant impact on
its operations in the near future.
The
Company does not foresee any increase in costs that cannot be passed on to its
customer in the ordinary course of business. The company adjusts its
wholesale and online prices throughout the year to reflect increase costs
attributable to increases in energy prices. Under very limited
circumstances, the Company has entered into agreements with certain customers
for which the Company provides third-party drop-ship fulfillment with contracted
pricing for various cheese collections. The Company, in turn, usually
has a corresponding agreement with the cheese suppliers whose products are
incorporated into these collections for fixed prices to ensure that the company
achieves its anticipated gross margin.
Critical
Accounting Policies
The
discussion and analysis of our financial condition and results of operations are
based upon our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amount of assets and
liabilities, revenues and expenses, and related disclosure on contingent assets
and liabilities at the date of our financial statements. Actual
results may differ from these estimates under different assumptions and
conditions.
Critical
accounting policies are defined as those that are reflective of significant
judgments and uncertainties, and potentially result in materially different
results under different assumptions and conditions. The Company
believes that its critical accounting policies are limited to those described
below. For a detailed discussion on the application of these and
other accounting policies see Note 3 to our financial statements.
Long-Lived
Assets (including Tangible and Intangible Assets)
We
acquired businesses in recent years, which resulted in intangible assets being
recorded. The determination of the value of such intangible assets
requires management to make estimates and assumptions that affect our
consolidated financial statements. We assess potential impairment to
the intangible and tangible assets on a quarterly basis or when evidence of
events or changes in circumstances indicate that the carrying amount of an asset
may not be recovered. Our judgments regarding the existence of
impairment indicators, if any, and future cash flows related to these assets are
based on operational performance of our business, market conditions and other
factors.
Accounting
for Income Taxes
As part
of the process of preparing our financial statements we are required to estimate
our income taxes. Management judgment is required in determining our
provision of our deferred tax asset. We recorded a valuation for the
full deferred tax asset from our net operating losses carried forward due to the
Company not demonstrating any consistent profitable operations. In
the event that the actual results may differ from these estimates or we adjust
these estimates in future periods we may need to adjust such valuation
recorded.
Stock-Based
Compensation
The
computation of the expense associated with stock-based compensation requires the
use of a valuation model. SFAS 123(R) is a new and very complex
accounting standard, the application of which requires significant judgment and
the use of estimates, particularly surrounding Black-Scholes assumptions such as
stock price volatility, expected option lives, and expected option forfeiture
rates, to value equity-based compensation. The Company currently uses
a Black-Scholes option pricing model to calculate the fair value of its stock
options. The Company primarily uses historical data to determine the
assumptions to be used in the Black-Scholes model and has no reason to believe
that future data is likely to differ materially from historical data. However,
changes in the assumptions to reflect future stock price volatility and future
stock award exercise experience could result in a change in the assumptions used
to value awards in the future and may result in a material change to the fair
value calculation of stock-based awards. SFAS 123(R) requires the
recognition of the fair value of stock compensation in net
income. Although every effort is made to ensure the accuracy of our
estimates and assumptions, significant unanticipated changes in those estimates,
interpretations and assumptions may result in recording stock option expense
that may materially impact our financial statements for each respective
reporting period.
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
Omitted.
|
Item 4T.
|
Controls
and Procedures
|
|
(a)
|
Evaluation
of Disclosure Controls and
Procedures
|
The
Company’s management, with the participation of our president who is also the
chief financial officer, carried out an evaluation of the effectiveness of our
“disclosure controls and procedures” (as defined in the Securities Exchange Act
of 1934 (the “Exchange Act”) Rules 13a-15(e) and 15-d-15(e)) as of the end of
the period covered by this report (the “Evaluation Date”). Based upon
that evaluation, the president/chief financial officer concluded that as of the
Evaluation Date, the Company’s disclosure controls and procedures are effective
to ensure that information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act (i) is recorded,
processed, summarized and reported, within the time periods specified in the
SEC’s rules and forms and (ii) is accumulated and communicated to management,
including the president/chief financial officer, as appropriate to allow timely
decisions regarding required disclosure.
The
Company’s management, including the president/chief financial officer, does not
expect that the Company’s disclosure controls and procedures or its internal
controls will prevent all errors and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within American Home Food Products, Inc. can be prevented.
|
(b)
|
Management's Report on Internal
Control over Financial
Reporting
|
The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in Rule 13a-15(f) under
the Exchange Act). The Company’s management has assessed the effectiveness of
our internal control over financial reporting as of August 31,
2009. In making this assessment, our management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control-Integrated Framework. Our management has concluded
that, as of August 31, 2009, our internal control over financial reporting is
effective based on these criteria. This quarterly report does not
include an attestation report of our registered public accounting firm regarding
internal control over financial reporting. Management's report was
not subject to attestation by our registered public accounting firm pursuant to
temporary rules of the SEC that permit us to provide only management's report in
this quarterly report.
(c) Changes in Internal Control over
Financial Reporting
There
were no changes in our internal controls over financial reporting that occurred
during the period covered by this report that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
|
Part
II
|
Other
Information
|
|
Item 1.
|
Legal
Proceedings
|
None.
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds.
|
The
Company issued to lenders a total of 85,000 shares of preferred stock in
consideration of the $150,000 bridge loan and the $550,000 term loan which they
collectively made to the Company during the quarter ended August 31,
2009. As part of the term loan transaction, 200,000 shares of
preferred stock were returned to the Company by three preferred shareholders who
rescinded subscription agreements made in the previous quarter, electing instead
to participate in the term loan agreement also being offered by the
Company.
In June
2009, the Company issued 125,000 shares of common stock to an employee. The
company recorded a deferred expense of $32,250 in connection with these
shares.
|
Item
3.
|
Defaults Upon Senior
Securities.
|
None.
|
|
Item
4.
|
Submission of Matters to a Vote
of Security Holders.
|
None.
|
|
Item 5.
|
Other
Information.
|
On July
17, 2009, Mr. Carl Wolf resigned as a director of the Company. Mr.
Wolf served on the Company’s Audit, Compensation and Business Development
Committees. The Company filed with the Commission a Form 8-K on July
23, 2009 in connection with his resignation.
At a
board of directors meeting held on September 14, 2009, Mr. Alfred Lepore
resigned after a two-year term as a director of the Registrant. Mr.
Lepore served on Registrant’s Business Development Committee. The
Company filed with the Commission a Form 8-K on September 15, 2009 in connection
with his resignation.
|
Item
6.
|
Exhibits.
|
The
following exhibits are included with this
filing:
|
|
|
Forbearance
Agreement between Summit Financial Resources L.P. and Artisanal Cheese LLC
dated June 1, 2009.
|
|
|
Forbearance
Agreement between Summit Financial Resources L.P. and Artisanal Cheese LLC
dated August 13, 2009.
|
|
|
$150,000
Bridge Note dated July 10, 2009
|
|
|
Security
Agreement relating to Bridge Note dated July 10,
2009
|
|
|
$850,000
Promissory Note dated July 10, 2009
|
|
|
Security
Agreement relating to Term Loan dated July 10,
2009
|
|
|
Exhibit
13.9
|
Form
8-K filed July 22, 2009, re director
resignation
|
|
|
Exhibit
13.10
|
Form
8-K filed September 15, 2009, re director
resignation
|
|
|
Certification
of Principal Executive and Financial
Officer
|
|
|
Certification
of Principal Accounting Officer
|
|
|
Certification
of Principal Executive and Financial
Officer
|
|
|
Certification
of Principal Accounting Officer
|
|
*
|
Filed
herewith
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of
1934, American Home Food Products, Inc. has duly caused this report to be signed
on its behalf by the undersigned person who is duly authorized to sign on behalf
of the Company as its principal executive officer and principal financial
officer.
AMERICAN
HOME FOOD PRODUCTS, INC.
|
By:
|
/s/ Daniel W. Dowe
|
|
Daniel
W. Dowe
|
|
|
Chief
Executive Officer and Chief Financial
Officer
|
Date: October
15, 2009