SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ________________
Commission File No. 333-22997
ORGANIC FOOD PRODUCTS, INC.
---------------------------
(Exact name of small business issuer as specified in its Charter)
California 94-3076294
---------- ----------
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) Number)
550 Monterey Road, Suite B
Morgan Hill, California 95037
- ----------------------- -----
(Address of principal executive offices) (Zip Code)
(408) 782-1133
-------------------------
Issuer's telephone number
Check whether the registrant (1) has 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
[ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan conformed by court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: Common Stock, no par value, 6,810,113
shares as of September 30, 1997.
Transitional Small Business Disclosure Format: Yes [ ] No [ X ]
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
ORGANIC FOOD PRODUCTS, INC.
BALANCE SHEETS
ASSETS
(Unaudited)
September 30, June 30,
1997 1997
----------- -----------
Current Assets:
Cash $ 333,962 $ 62,925
Accounts receivable, net 1,758,197 1,343,891
Inventory 3,244,526 3,451,698
Prepaid expenses 33,409 35,447
Advances to shareholder 105,000 84,000
Income tax refund receivable 167,694 167,694
Deferred tax asset - current portion 86,000 86,000
----------- -----------
Total Current Assets 5,728,788 5,231,655
----------- -----------
Property and Equipment:
Computer software 93,223 71,008
Leasehold improvements 152,803 151,668
Machinery and equipment 991,156 884,240
Office equipment 61,256 61,256
Printing plates 12,997 12,997
Vehicles 13,314 13,314
----------- -----------
1,324,749 1,194,483
Less: accumulated depreciation (224,101) (182,057)
----------- -----------
1,100,648 1,012,426
----------- -----------
Other Assets:
Deposits and other 14,823 8,378
Deferred offering costs -- 421,338
Goodwill, net 2,253,566 2,277,288
----------- -----------
2,268,389 2,707,004
----------- -----------
Total Assets $ 9,097,825 $ 8,951,085
=========== ===========
The Accompanying Notes are an Integral Part
of the Financial Statements
1
<PAGE>
ORGANIC FOOD PRODUCTS, INC.
BALANCE SHEETS (Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
(Unaudited)
September 30, June 30,
1997 1997
------------ ------------
Current Liabilities:
Notes payable - current portion $ -- $ 1,824,938
Notes payable - related parties -
current portion 509,901 1,749,323
Capital lease obligations - current
portion 6,033 6,033
Accounts payable 739,698 2,074,506
Accrued wages and taxes 61,821 22,867
Accrued commissions 68,504 40,610
----------- -----------
Total Current Liabilities 1,385,957 5,718,277
----------- -----------
Long-Term Liabilities:
Notes payable - related parties
- long-term portion 376,449 497,237
Capital lease obligations - long-term
portion 14,973 17,094
Deferred income taxes payable 118,257 102,000
----------- -----------
509,679 616,331
----------- -----------
Commitments --
Shareholders' Equity: (Note 2)
Common stock 8,508,659 3,971,720
Accumulated deficit from S Corporation (1,410,410) (1,410,410)
Retained earnings 103,940 55,167
----------- -----------
7,202,189 2,616,477
----------- -----------
Total Liabilities and Shareholders' Equity $ 9,097,825 $ 8,951,085
=========== ===========
The Accompanying Notes are an Integral Part
of the Financial Statements
2
<PAGE>
ORGANIC FOOD PRODUCTS, INC.
STATEMENTS OF OPERATIONS
Three Months Ended
September 30, September 30,
1997 1996
------------- -------------
Revenues $ 2,833,884 $ 3,603,545
Cost of Goods Sold 1,869,692 2,755,598
----------- -----------
Gross Profit 964,192 847,947
----------- -----------
Sales and Marketing Expense 705,451 385,696
General and Administrative Expenses 177,721 264,146
----------- -----------
883,172 649,842
----------- -----------
Income from Operations 81,020 198,105
Interest Expense, Net (26,265) (42,714)
Other Income 10,275 2,885
----------- -----------
Income before Provision for Income Taxes 65,030 158,276
Provision for Deferred Income Tax Expense: 16,257 55,397
----------- -----------
Net Income $ 48,773 $ 102,879
=========== ===========
Earnings per Share $ .01 $ .02
=========== ===========
Weighted Average Number of Shares Outstanding 6,285,227 5,717,663
=========== ===========
The Accompanying Notes are an Integral Part
of the Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
ORGANIC FOOD PRODUCTS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated Total
Deficit Shareholders'
Common Stock From S Retained Equity
Shares Amount Corporation Earnings (Deficit)
------ ------ ----------- -------- ---------
Balance at June 30,
<S> <C> <C> <C> <C> <C>
1996 4,500,000 $ 2,317,400 $(1,410,410) $ -- $ 906,990
Proceeds from private
offering, net of
costs of $340,462 823,500 1,718,288 -- -- 1,718,288
Purchase and
retirement of
treasury stock (31,250) (78,125) -- -- (78,125)
Stock issued for
director expenses 5,663 14,157 -- -- 14,157
Net income for the
year ended June 30,
1997 -- -- -- 55,167 55,167
----------- ----------- ----------- ----------- -----------
Balance at June 30,
1997 5,297,913 3,971,720 (1,410,410) 55,167 2,616,477
Proceeds from initial
public offering,
net of costs of
$1,477,462 1,495,000 4,502,538 -- -- 4,536,939
Stock issued for
director expenses 17,200 34,401 -- -- --
Net income for the
period ended
September 30,
1997 -- -- -- 48,773 48,773
----------- ----------- ----------- ----------- -----------
6,810,113 $ 8,508,659 $(1,410,410) $ 103,940 $ 7,202,189
=========== =========== =========== =========== ===========
The Accompanying Notes are an Integral Part
of the Financial Statements
4
</TABLE>
<PAGE>
ORGANIC FOOD PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
Three Months Ended
September 30, September 30,
1997 1996
------------- -------------
Increase (Decrease) in Cash:
Net cash used by operating activities $(1,354,305) $ (876,307)
----------- -----------
Cash flows for investing activities:
Purchase of fixed assets (152,485) (129,913)
Advances to shareholder (21,000) --
Cash received from sale of fixed assets 27,819 --
----------- -----------
Net cash used by investing activities (145,666) (129,913)
----------- -----------
Cash flows from financing activities:
Repayment of capital lease (2,121) --
Repayment of notes payable (1,824,938) (215,770)
Repayment of notes payable - related parties (1,360,210) (615,805)
Proceeds from issuance of stock 4,958,277 1,654,321
Deferred offering costs -- 71,225
----------- -----------
Net cash provided by financing activities 1,771,008 893,971
----------- -----------
Net increase (decrease) in cash 271,037 (112,249)
Cash at beginning of period 62,925 191,073
----------- -----------
Cash at end of period $ 333,962 $ 78,824
=========== ===========
The Accompanying Notes are an Integral Part
of the Financial Statements
5
<PAGE>
ORGANIC FOOD PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Interim Financial Statements:
The unaudited interim financial statements include all adjustments
(consisting of normal recurring accruals) which, in the opinion of
management, are necessary in order to make the financial statements not
misleading. Operating results for the three month period ended September
30, 1997, are not necessarily indicative of the results that may be
expected for the entire year ending June 30, 1998. These financial
statements have been prepared in accordance with the instructions to
Form 10-QSB and do not contain certain information required by generally
accepted accounting principles. These statements should be read in
conjunction with financial statements and notes thereto included in the
Company's Form 10-KSB for the year ended June 30, 1997.
2. Initial Public Offering:
The Company completed its initial public offering of 1,495,000 shares of
its no par value common stock at a price of $4.00 per share sold under
its Registration Statement and Prospectus dated August 8, 1997. Gross
proceeds of approximately $6,000,000 were received by the Company.
The Company issued 130,000 warrants to an underwriter in connection with
its initial public offering. The warrants are exercisable at a price of
$4.80 per share, and expire in approximately two and one-half (2.5)
years from the date of the offering.
6
<PAGE>
Item 2: Management's Discussion and Analysis
- --------------------------------------------
Results of Operations for the Three Months Ended September 30, 1997
and September 30, 1996
- --------------------------------------------------------------------------------
Organic Food Products, Inc. (OFPI or the "Company") reported net income of
$48,773 for the quarter ended September 30, 1997, (the "reporting quarter")
compared to net income of $102,879 for the quarter ended September 30, 1996 (the
"comparable quarter"). The decrease was primarily due to increased sales and
marketing efforts in the reporting quarter.
The Company's revenues for the quarter ended September 30, 1997 were $2,833,884,
as compared to $3,603,545 in 1996, a decrease of $769,661. The decrease in
revenues in the reporting quarter was due to the phase out of the Company's
sales or organic raw fruit, which were $947,162 in the comparable quarter, the
elimination of duplicated product lines due to the merger, and the elimination
of other items that were either not profitable or did not fit into the market
focus of the Company's future.
The Company's organic branded business continues to enjoy strong growth.
Finished good sales were $2,833,844 in the reporting quarter versus $2,656,383
in the comparable quarter, excluding the aforementioned $947,162 of raw
ingredient sales, or a 6.7% growth.
The Company's cost of goods sold for the quarter ended September 30, 1997 was
$1,869,692, or 66.0% of sales, versus $2,755,598, or 76.5% of sales for the same
quarter of 1996. The reduction of $885,906 in the reporting quarter is partly
due to the decision to phase out the sales of raw fruit and promote sales of
products with higher profit margins, in addition to increased efficiency at the
manufacturing level, and an elimination of the use of co-packer relationships.
Costs were also reduced by the June, 1996 merger of Garden Valley Naturals, Inc.
and Organic Food Products, Inc., which resulted in economies of scale from
combined operations and greater leverage in negotiating purchase contracts and
pricing. As the Company continues to develop its state-of-the-art production
facility, the Company believes it will enjoy an even lower cost of goods, as
volume increases through the facility.
The Company's sales and marketing expense for the quarter ended September 30,
1997 was $705,451, or 24.9% of sales, versus $385,696, or 10.7%, for the same
quarter of 1996. The sales and marketing expenses for the reporting quarter were
increased in order to (i) develop new channels of distribution for existing
branded products, (ii) expand product development for new items in existing
lines, and also bringing to market new organic items (iii) pursuing additional
co-pack customers.
7
<PAGE>
Item 2: Management's Discussion and Analysis (Continued)
- --------------------------------------------------------
Results of Operations for the Three Months Ended September 30, 1997 and
September 30, 1996 (Continued)
- --------------------------------------------------------------------------------
The Company plans to increase its marketing efforts through specialty
distributors to take advantage of what the Company believes will be the greatest
opportunity for growth in the future, i.e. mass market, clubs, convenience
stores, etc.
The Company's general and administrative expenses for the quarter ended
September 30, 1997 were $177,721, or 6.3% of sales, versus $264,146, or 7.3% for
the same quarter of 1996. The Company reduced general and administrative
overhead in the reporting quarter through the elimination of duplicated staff,
office space, insurance and professional services which resulted from the
merger.
The Company's interest expense for the quarter ended September 30, 1997 was
$26,265, or 0.9% of sales, versus $42,714, or 1.2% for the same quarter of 1996.
The interest expense for the comparable quarter and the first 48 days of the
reporting quarter, included charges for a $2,000,000 line of credit, and for
interest charges for notes of $2,280,000 to investors and shareholders. A
portion of the proceeds of the IPO were used to pay off a substantial amount of
the outstanding balances of these notes, resulting in lower interest charges for
the reporting quarter.
Seasonality
- -----------
Historically, the Company has experienced little seasonal fluctuation in
revenues. In relation to product purchasing, the Company will seasonally
contract for certain products for the entire year at harvest time, or at
planting time, to secure raw materials throughout the year. These purchases take
place annually from early spring to mid-summer, and are effected to reduce the
risk of price swings due to demand fluctuations. These annual purchases can
create overages or shortages in inventory.
Liquidity and Capital Resources
- -------------------------------
As of September 30, 1997, the Company believes that existing cash resources and
available credit facilities will be sufficient to fund the Company's estimated
cash requirements for the year ending June 30, 1998. The Company has net worth
of $7,202,189 and working capital of $4,342,831. In addition, as of the date of
this report, the Company has available a line of credit in the amount of
$1,700,000.
8
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- ------- -----------------
The Company is not party to any litigation other than routine litigation
incidental to the business.
Item 2. Changes in Securities
- ------- ---------------------
None.
Item 3. Defaults Upon Senior Securities
- ------- -------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
None.
Item 5. Other Information
- ------- -----------------
Schedule A: Recent Sales of Unregistered Securities
Schedule B: Use of Proceeds from Registered Securities
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
None.
9
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
ORGANIC FOOD PRODUCTS
RECENT SALES OF UNREGISTERED SECURITIES
Date Title of # of Securities Underwriters Class Aggregate
Sold Securities sold Involved Sold to Offering Price
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nov-15-1995 No par 1,100,000 Spelman & Co. Accredited $2,200,000
Common Stock
June-21-1996 No par 823,500 Spelman & Co. Accredited $2,058,750
Common Stock
July-1-1997 N/A N/A Spelman & Co. Accredited N/A
Nature of Terms of
Aggregate Securities Sold Transaction Exemption Conversion
Underwriting for Other and Aggregate Rule Filed or
Commissions than Cash Amount Received Under Exercise
- ---------------------------------------------------------------------------------------------------------
$396,775 250,000 Repayment of a Regulation "D" 150,000 Purchase
Bridge Loan for Under 1933 Act Warrants for
$500,000 $2.00 per Share
Expiring 12/31/02
$205,875 None None Regulation "D" 200,000 Purchase
Under 1933 Act Warrants for
$2.50 per Share
Expiring 7/31/03
N/A N/A Company was N/A 200,666 Purchase
Advanced Warrants for
Approximately $3.00 per Share
$602,000 in Bridge Expiring 12/31/99
Loans and Issued
Warrants in Lieu
of Interest Expense
10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE B
ORGANIC FOOD PRODUCTS
DISCLOSURE REGULATIONS
INITIAL PUBLIC OFFERING
Effective Date Offering Date of Completion, Expenses
of Registration Offering Terminated #of Securities Sold Managing Incurred Payments
Statement Date Before Sold? at Date of Completion Underwriters (8/12/97-9/30/97) Made To
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aug-12-1997 Aug-12-1997 No Offering completed Sentra Securities $1,056,124 Managing
September 1997 with Corporation Underwriters
1,495,000 Securities $ 34,401
Sold Directors
Use of Were Proceeds
Net Offering Proceeds Used According
Proceeds and who To That Described
(8/12/97-9/30/97) Paid To In Prospectus?
- ------------------------------------------------------------------
$4,502,538 To pay off debt and Yes
trade payables;
paid to wells Fargo
Bank, Gilroy Canning,
Cantisano Foods and
Various other Vendors
11
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: November 12, 1997
ORGANIC FOODS PRODUCTS, INC.
By: /s/ FLOYD R. HILL
-----------------------------------
Floyd R. Hill
Chief Executive Officer
12
EXHIBIT 11
ORGANIC FOOD PRODUCTS, INC.
COMPUTATION OF EARNINGS PER SHARE
THREE MONTH PERIOD ENDED
SEPTEMBER 30,
------------------------
1997
------
PRIMARY EARNINGS PER SHARE:
COMMON STOCK EQUIVALENTS 975,666
OPTIONS AND WARRANTS GRANTED AND UNEXERCISED (580,749)
----------
394,917
TOTAL WEIGHTED AVERAGE SHARES ISSUED 5,890,310
----------
WEIGHTED AVERAGE SHARES OUTSTANDING 6,285,227
==========
FULLY DILUTED EARNINGS PER SHARE:
COMMON STOCK EQUIVALENTS
OPTIONS AND WARRANTS GRANTED AND UNEXERCISED 975,666
ASSUMED BUYBACK OF OPTIONS (1) (580,749)
----------
394,917
TOTAL WEIGHTED AVERAGE SHARES ISSUED 5,890,310
----------
WEIGHTED AVERAGE SHARES OUTSTANDING 6,285,227
==========
(1) BUYBACK OF OPTIONS UNDER THE TREASURY STOCK METHOD IS AT THE ASSUMED IPO
PRICE OF $4.00 PER SHARE
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 333,962
<SECURITIES> 0
<RECEIVABLES> 2,412,213
<ALLOWANCES> (549,016)
<INVENTORY> 3,244,526
<CURRENT-ASSETS> 5,728,788
<PP&E> 1,324,749
<DEPRECIATION> (224,101)
<TOTAL-ASSETS> 9,097,825
<CURRENT-LIABILITIES> 1,385,957
<BONDS> 0
0
0
<COMMON> 7,098,249
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,097,825
<SALES> 2,833,884
<TOTAL-REVENUES> 2,833,884
<CGS> 1,869,692
<TOTAL-COSTS> 883,172
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (26,265)
<INCOME-PRETAX> 65,030
<INCOME-TAX> (16,257)
<INCOME-CONTINUING> 81,020
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,773
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
