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 MARCH 31, 1998
[ ] 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, 7,235,113
shares as of March 31, 1998.
Transitional Small Business Disclosure Format: Yes [ ] No [ X ]
<PAGE>
ORGANIC FOOD PRODUCTS, INC.
BALANCE SHEETS
ASSETS
March 31, June 30,
1998 1997
------------ ------------
(Unaudited)
Current Assets:
Cash $ 201 $ 62,925
Accounts receivable, net 1,397,617 1,343,891
Inventory - Trade 4,076,849 3,451,698
Inventory - Other (Note 6) 508,031 --
Prepaid expenses 111,531 35,447
Advances to shareholder 147,000 84,000
Income tax refund receivable -- 167,694
Deferred tax asset 86,000 86,000
------------ ------------
Total Current Assets 6,327,229 5,231,655
------------ ------------
Property and Equipment:
Computer software 105,035 71,008
Leasehold improvements 162,392 151,668
Machinery and equipment 1,354,457 884,240
Office equipment 68,837 61,256
Printing plates 24,784 12,997
Vehicles 19,542 13,314
------------ ------------
1,735,047 1,194,483
Less: accumulated depreciation (333,294) (182,057)
------------ ------------
1,401,753 1,012,426
------------ ------------
Other Assets:
Deposits and other 268,600 8,378
Deferred offering costs -- 421,338
Goodwill, net 3,900,456 2,277,288
------------ ------------
4,169,056 2,707,004
------------ ------------
Total Assets $ 11,898,038 $ 8,951,085
============ ============
The Accompanying Notes are an Integral Part
of the Financial Statements
<PAGE>
ORGANIC FOOD PRODUCTS, INC.
BALANCE SHEETS (Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, June 30,
1998 1997
----------- ------------
(Unaudited)
Current Liabilities:
Notes payable - current portion $ 1,109,309 $ 1,824,938
Notes payable - related parties -
current portion 459,925 1,749,323
Capital lease obligations - current
portion 4,396 6,033
Accounts payable 1,851,017 2,074,506
Accrued wages and taxes 73,274 22,867
Accrued commissions 32,000 40,610
------------ ------------
Total Current Liabilities 3,529,921 5,718,277
------------ ------------
Long-Term Liabilities:
Notes payable - related parties
- long-term portion 230,669 497,237
Capital lease obligations - long-term
portion 14,401 17,094
Deferred income taxes payable -- 102,000
------------ ------------
245,070 616,331
------------ ------------
Shareholders' Equity: (Note 2)
Common stock 10,201,146 3,971,720
Accumulated deficit from S Corporation (1,410,410) (1,410,410)
Retained earnings (667,689) 55,167
------------ ------------
8,123,047 2,616,477
------------ ------------
Total Liabilities and
Shareholders' Equity $ 11,898,038 $ 8,951,085
============ ============
The Accompanying Notes are an Integral Part
of the Financial Statements
<PAGE>
<TABLE>
<CAPTION>
ORGANIC FOOD PRODUCTS, INC.
STATEMENTS OF OPERATIONS
Nine Months Ended Three Months Ended
--------------------------------- --------------------------------
March 31, March 31, March 31, March 31,
1998 1997 1998 1997
----------- ----------- ----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 8,207,704 $ 9,067,049 $ 2,568,043 $ 2,589,422
Cost of Goods Sold 6,054,441 6,085,139 1,972,338 1,602,822
----------- ----------- ----------- -----------
Gross Profit 2,153,263 2,981,910 595,705 986,600
----------- ----------- ----------- -----------
Sales and Marketing Expense 2,232,404 1,497,059 656,839 543,402
General and Administrative
Expenses 771,956 896,711 311,047 442,003
----------- ----------- ----------- -----------
3,004,360 2,393,770 967,886 985,405
----------- ----------- ----------- -----------
Income (Loss) from
Operations (851,097) 588,140 (372,181) 1,195
Interest Income
(Expense), Net (56,902) (151,338) (19,881) (60,853)
Other Income
(Expense), Net (55,805) 13,712 (24,839) 551
----------- ----------- ----------- -----------
Income (Loss) before
Provision for Income
Taxes (963,804) 450,514 (416,901) (59,107)
----------- ----------- ----------- -----------
Provision for Income Tax
Benefit (Expense):
(Note 1)
- current -- (125,092) -- (9,992)
- deferred 240,948 18,000 104,222 31,000
----------- ----------- ----------- -----------
240,948 (107,092) 104,222 21,008
----------- ----------- ----------- -----------
Net Income (Loss) $ (722,856) $ 343,422 $ (312,679) $ (38,099)
=========== =========== =========== ===========
Per share data:
Basic earnings (loss) $ (.12) $ .06 $ (.05) $ (.01)
per share (Note 3) ========== ========== ========== ==========
Basic weighted average
common stock shares
outstanding (Note 3) 6,196,064 5,297,913 6,692,913 5,297,913
=========== =========== =========== ===========
Earnings (loss) per common
share assuming dilution $ .06
(Note 3) ==========
Weighted average common
stock outstanding, 5,692,830
assuming dilution (Note 3) ===========
The Accompanying Notes are an Integral Part
of the Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ORGANIC FOOD PRODUCTS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
Accumulated Total
Common Stock Additional Deficit Retained Shareholders'
------------------------- Paid-in Form S Earnings Equity
Shares Amount Capital Corporation (Deficit) (Deficit)
------ ------ ------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 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 $1,084,975 1,495,000 4,495,025 -- -- -- 4,495,025
Stock issued for director
expenses 17,200 34,401 -- -- -- 34,401
Stock issued for
acquisition of
Sunny Farms, Inc. 425,000 1,700,000 -- -- -- 1,700,000
Net loss for the nine
month period ended
March 31, 1998
(unaudited) -- -- -- -- (722,856) (722,856)
----------- ------------ -------- ------------ ------------ ------------
Balance at March 31
1998 7,235,113 $ 10,201,146 $ -- $ (1,410,410) $ (667,689) $ 8,123,047
=========== ============ ======== ============ ============ ============
The Accompanying Notes are an Integral Part
of the Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ORGANIC FOOD PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
Nine Months Ended Three Months Ended
------------------ ------------------
March 31, March 31, March 31, March 31,
1998 1997 1998 1997
----------- ----------- ----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Increase (Decrease) in Cash:
Net cash provided (used) by operating
activities $(2,260,753) $(1,352,085) $ (856,415) $ 12,995
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (421,322) (294,457) (168,753) (134,034)
Advances to shareholders (63,000) (64,914) (21,000) (64,914)
----------- ----------- ----------- -----------
Net cash used by investing
activities (484,322) (359,371) (189,753) (198,948)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Repayment of capital lease (4,330) (3,986) (672) (1,229)
Repayment of notes payable (2,094,193) (2,290) (269,255) 38,405
Repayment of notes payable
- related parties (1,555,966) (321,832) (62,267) (29,202)
Proceeds from notes payable 1,378,563 419,583 1,378,563 419,583
Proceeds from issuance of stock 4,958,277 1,718,288 -- (36,023)
Purchase of treasury stock -- (78,125) -- --
Deferred offering costs -- (211,055) -- (211,055)
----------- ----------- ----------- -----------
Net cash provided (used) by financing
activities 2,682,351 1,520,583 1,046,369 180,479
----------- ----------- ----------- -----------
Net increase (decrease) in cash (62,724) (190,873) 201 (5,474)
Cash at beginning of period 62,925 191,073 -- 5,674
----------- ----------- ----------- -----------
Cash at end of period $ 201 $ 200 $ 201 $ 200
=========== =========== =========== ===========
The Accompanying Notes are an Integral Part
of the Financial Statements
</TABLE>
<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 nine month period ended March 31,
1998, 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.
3. Basic earnings per share are based upon the weighted average number of
shares outstanding for each of the respective periods. The following data
reflects the amount used in computing earnings per share for the periods
ended March 31, 1998 and March 31, 1997, and the effect on income and the
weighted average number of shares of dilutive potential of common stock.
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
------------------ ------------------
March 31, March 31, March 31, March 31,
1998 1997 1998 1997
----------- ------------ ----------- -----------
Net income available to common
<S> <C> <C> <C> <C>
stockholders used in basic EPS $ (722,856) $ 343,663 $ (312,679) $ (38,099)
Basic earnings (loss) per share:
Weighted average common shares 6,196,064 5,297,913 6,692,913 5,297,913
outstanding ----------- ----------- ----------- ----------
$ (.12) $ .06 $ (.05) (.01)
Basic earnings (loss) per share =========== =========== =========== ==========
Earnings per Share Assuming Dilution:
Common stock equivalents
Options and warrants granted 975,666
and unexercised
Assumed buyback of options (580,750)
-----------
394,917
Weighted average of common shares
outstanding 5,297,913
-----------
Weighted average common shares
outstanding assuming dilution 5,692,830
===========
Earnings (loss) per share assuming
dilution $ .06
===========
</TABLE>
Options and warrants on 975,666 shares of common stock were not included in
computing diluted EPS for the nine month and three month periods ended
March 31, 1998 and the three month period ended March 31, 1997
respectively, because their effects were antidilutive.
<PAGE>
4. On February 10, 1998 the Company purchased certain assets of Sunny Farms
Corporation, a producer of bottled water and natural juice products in
Richmond, California. The Company purchased Sunny Farms' Napa Valley
Springs bottled water product line, the Pacific Rim fruit flavored drinks
product line, the Sunny Farms packaged fruit juice product line, related
inventory, trademarks, recipes, customer lists, supplier information,
goodwill and certain juice processing equipment.
The base purchase price for the intangible assets was $1,700,000 plus
$737,367 for the inventory and $120,000 for the juice processing equipment.
The Company issued 425,000 shares of its common stock as payment for the
intangible assets and paid cash in the amount of $120,000 for the juice
processing equipment. Regarding the payment of inventory, (a) the Company
assumed Sunny Farms' debt obligations owing to Wells Fargo Bank in the
amount of $698,765.71, and (b) agreed to pay any remaining amounts owing
for the inventory from the proceeds received from sales of the inventory by
the Company after the Company has received proceeds equal to the amount of
the assumed debt.
5. New Accounting Pronouncements:
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128)issued by the Financial Accounting Standards board is effective
for fiscal years and interim periods ending after December 15, 1997. This
pronouncement provides a different method of calculating earnings per share
than is currently used in accordance with APB 15, "Earnings per Share."
SFAS 128 provides for the calculation of basic and diluted earnings per
share. Basic earnings per share includes no dilution and is computed by
dividing income available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution of securities that could share in the
earnings of an entity, similar to fully diluted earnings per share. The
Company has adopted this accounting standard for its earnings per share
computations.
6. Inventory - Other:
Due to a manufacturing problem (see details under Other Matters), the
Company was forced to withdraw certain products from its distribution
channels during the third quarter. A claim was filed with the Company's
insurance carrier seeking reimbursement for the economic loss. The
insurance carrier has cooperated with the Company, and the Company expects
that a high percentage of the total claim could be recovered; however, the
Company cannot say with certainty what the final settlement will be.
The Company has separated the inventory to be sold to the insurance carrier
on the balance sheet and listed it as "Inventory - Other". The cost of the
product is listed at $508,031. Revenue will be recorded on the sale of this
inventory as the insurance claim is paid by the insurance carrier.
7. Change in Estimate:
During the three month period ending March 31, 1998 the Company elected to
raise the allowance for manufacturers charge-backs to an amount equal to
100% of the accounts receivable subject to the charge-backs. In prior
periods, the allowance was approximately 60%.
<PAGE>
Item 2: Management's Discussion and Analysis
- --------------------------------------------
Results of Operations for the Nine and Three Months Ended March 31, 1998
and Nine and Three Months Ended March 31, 1997
- ------------------------------------------------------------------------
Organic Food Products, Inc. (OFPI or the "Company") reported a net loss for
the nine and three months ended March 31, 1998 of $722,856 and $312,679
respectively, compared to a net income of $343,422 and a net loss of
$38,099 for the same periods from the prior year. The losses can be
attributed to lower than estimated sales volumes, increased manufacturing
costs, the write-down of discontinued inventory items and increases in
reserves due to a change in estimates for uncollectible receivables related
to manufacturers charge-backs.
Revenues
--------
Revenues decreased $859,000 or 9.5% for the nine months but only $21,000 or
.8%for the three months ended March 31, 1998 compared to the same periods
from the prior fiscal year. Year-to-date revenues were down as a result of
the phase out of industrial sales of organic raw material ingredients.
Revenue for the quarter reflected the additional sales of Sunny Farms
products. These products represented net revenues of $490,000 for the
current quarter. However, sales for the quarter appeared flat when compared
to the same period from the prior fiscal year because of a product market
withdrawal that occurred during the quarter (see details under Other
Matters). The Company anticipates a settlement with the Company's insurance
carrier that will permit the Company to record product sales in the fourth
quarter that would have been recorded in the third quarter if the product
had not been returned by customers to the Company. The insurance carrier
has cooperated with the Company, but the Company cannot say with certainty
what the final settlement will be.
Cost of Goods Sold
------------------
The Company's cost of goods sold increased as a percentage of sales for the
nine and three months ended March 31, 1998 from 73.8% and 76.8%,
respectively, compared to 67.1% and 61.9% for the same periods from the
prior year. The year-to-date increase is a function of a cost of goods sold
that is equivalent to the prior fiscal period but is higher as a percentage
of sales due to a decrease in revenue of $859,000. The quarterly increase
is due to increased production costs and higher priced raw food ingredients
for Sunny Farms products.
Sales and Marketing
-------------------
Sales and marketing expenses increased as a percentage of sales for the
nine and three months ended March 31, 1998 from 27.2% and 25.6%,
respectively, compared to 16.5% and 21.0% for the same periods from the
prior year. The increase in sales and marketing expenses between these
comparative periods was due primarily to the additional reserves recorded
for manufacturer charge- backs due to a change in estimates.
General and Administrative
--------------------------
The Company's general and administrative expenses decreased as a percentage
of sales for the nine and three months ended March 31, 1998 from 9.4% and
12.1%, respectively, compared to 9.9% and 17.1% for the same periods from
the prior year. This decrease occurred even though sales revenue was down
or flat when compared to previous periods. The decrease represents a
stabilization and/or reduction in overall general and administrative
expenses.
<PAGE>
Seasonality
-----------
In relation to product purchasing, the Company will seasonally contract for
certain product 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. The Company's intention to sell
certain bulk raw materials to other manufacturers as necessary may assist
in reducing overages and should allow for more effective purchasing of the
required raw materials.
Liquidity and Capital Resources and Changes in Financial Condition
------------------------------------------------------------------
Due to expenses related to the manufacturing problem (see Other Matters
below), the Company has experienced certain periods of cash shortages
during the third quarter of fiscal 1998. As reported in the 10-QSB for the
period ending December 31, 1997, adequate cash flows should resume in the
fourth quarter. The company currently has a working line of credit of
$1,500,000 that will decrease to $1,300,000.
Other Matters
-------------
Due to a manufacturing problem, the Company was forced to withdraw certain
products from its distribution channels during the third quarter. After
consulting with scientific experts regarding the magnitude of the problem,
it was determined that the total economic cost was approximately $600,000.
This included product cost, overtime replacement labor and recall freight.
A claim was filed with the Company's insurance carrier which totaled
approximately $900,000 and included lost profits on the product. Thus far,
the Company has received advances on this claim totaling $300,000. The
insurance carrier has cooperated with the Company, and the Company expects
that a high percentage of the $900,000 could be recovered; however, the
Company cannot say with certainty what the final settlement will be.
The Company has separated the inventory to be sold to the insurance carrier
on the balance sheet and listed it as "Inventory - Other". The cost of the
product is listed at $508,031. Revenue will be recorded on the sale of this
inventory as the insurance claim is paid by the insurance carrier.
<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
- -------------------------
None.
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
None.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 201
<SECURITIES> 0
<RECEIVABLES> 1,659,861
<ALLOWANCES> (262,244)
<INVENTORY> 4,584,880
<CURRENT-ASSETS> 6,327,229
<PP&E> 1,735,047
<DEPRECIATION> (333,294)
<TOTAL-ASSETS> 11,898,038
<CURRENT-LIABILITIES> 3,529,921
<BONDS> 0
0
0
<COMMON> 10,201,146
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,898,038
<SALES> 8,207,704
<TOTAL-REVENUES> 8,207,704
<CGS> 6,054,441
<TOTAL-COSTS> 3,004,360
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (56,902)
<INCOME-PRETAX> (963,804)
<INCOME-TAX> 240,948
<INCOME-CONTINUING> (722,856)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (722,856)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
