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 DECEMBER 31, 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>
ORGANIC FOOD PRODUCTS, INC.
BALANCE SHEETS
ASSETS
December 31, June 30,
1997 1997
----------- -----------
(Unaudited)
Current Assets:
Cash $ -- $ 62,925
Accounts receivable, net 1,402,461 1,343,891
Inventory 3,359,653 3,451,698
Prepaid expenses 74,864 35,447
Advances to shareholder 126,000 84,000
Income tax refund receivable 167,694 167,694
Deferred tax asset 86,000 86,000
----------- -----------
Total Current Assets 5,216,672 5,231,655
----------- -----------
Property and Equipment:
Computer software 99,377 71,008
Leasehold improvements 154,443 151,668
Machinery and equipment 1,180,848 884,240
Office equipment 65,678 61,256
Printing plates 12,997 12,997
Vehicles 19,542 13,314
----------- -----------
1,532,885 1,194,483
Less: accumulated depreciation (275,892) (182,057)
----------- -----------
1,256,993 1,012,426
----------- -----------
Other Assets:
Deposits and other 53,938 8,378
Deferred offering costs -- 421,338
Goodwill, net 2,229,845 2,277,288
----------- -----------
2,283,783 2,707,004
----------- -----------
Total Assets $ 8,757,448 $ 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
December 31, June 30,
1997 1997
----------- -----------
(Unaudited)
Current Liabilities:
Notes payable - current portion $ -- $ 1,824,938
Notes payable - related parties -
current portion 483,538 1,749,323
Capital lease obligations - current
portion 4,296 6,033
Accounts payable 1,173,373 2,074,506
Accrued wages and taxes 43,398 22,867
Accrued commissions 32,256 40,610
----------- -----------
Total Current Liabilities 1,736,861 5,718,277
----------- -----------
Long-Term Liabilities:
Notes payable - related parties
- long-term portion 269,322 497,237
Capital lease obligations - long-term
portion 15,539 17,094
Deferred income taxes payable -- 102,000
----------- -----------
284,861 616,331
----------- -----------
Shareholders' Equity: (Note 2)
Common stock 8,501,146 3,971,720
Accumulated deficit from S Corporation (1,410,410) (1,410,410)
Retained earnings (355,010) 55,167
----------- -----------
6,735,726 2,616,477
----------- -----------
Total Liabilities and
Shareholders' Equity $ 8,757,448 $ 8,951,085
=========== ===========
The Accompanying Notes are an Integral Part
of the Financial Statements
<PAGE>
<TABLE>
<CAPTION>
ORGANIC FOOD PRODUCTS, INC.
STATEMENTS OF OPERATIONS
Six Months Ended Three Months Ended
December 31, December 31, December 31, December 31,
1997 1996 1997 1996
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 5,639,661 $ 6,477,627 $ 2,805,777 $ 2,874,082
Cost of Goods Sold 4,082,103 4,482,317 2,212,411 1,726,719
----------- ----------- ----------- -----------
Gross Profit 1,557,558 1,995,310 593,366 1,147,363
----------- ----------- ----------- -----------
Sales and Marketing Expense 1,575,565 953,657 870,114 567,961
General and Administrative
Expenses 460,909 454,708 283,188 190,562
----------- ----------- ----------- -----------
2,036,474 1,408,365 1,153,302 758,523
----------- ----------- ----------- -----------
Income (Loss) from
Operations (478,916) 586,945 (559,936) 388,840
Interest Income
(Expense), Net (37,021) (90,485) (10,756) (47,771)
Other Income
(Expense), Net (30,966) 13,161 (41,241) 10,276
----------- ----------- ----------- -----------
Income (Loss) before
Provision for Income
Taxes (546,903) 509,621 (611,933) 351,345
----------- ----------- ----------- -----------
Provision for Income Tax
Benefit (Expense):
(Note 1)
- current -- (115,100) -- --
- deferred 136,726 (13,000) 136,726 (72,703)
----------- ----------- ----------- -----------
136,726 (128,100) 136,726 (72,703)
----------- ----------- ----------- -----------
Net Income (Loss) $ (410,177) $ 381,521 $ (475,207) $ 278,642
=========== =========== =========== ===========
Per share data:
Basic earnings (loss) $ (.06) $ .07 $ (.07) $ .05
per share (Note 3) ========== ========== ========== ==========
Basic weighted average
common stock shares
outstanding (Note 3) 6,525,173 5,297,913 6,525,173 5,297,913
=========== =========== =========== ===========
Earnings (loss) per common
share assuming dilution $ (.06) $ .07 $ (.07) $ .05
(Note 3) =========== ========== =========== ==========
Weighted average common
stock outstanding, 6,525,173 5,360,035 6,525,173 5,360,035
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
Additional Deficit Retained Shareholders'
Common Stock Paid-in From 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
Net loss for the six
month period ended
December 31, 1997
(unaudited) -- -- -- -- (410,177) (410,177)
----------- ----------- ------ ----------- ----------- -----------
Balance at December 31,
1997 (unaudited) 6,810,113 $ 8,501,146 $ -- $(1,410,410) $ (355,010) $ 6,735,726
=========== =========== ====== =========== =========== ===========
The Accompanying Notes are an Integral Part
of the Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ORGANIC FOOD PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
Six Months Ended Three Months Ended
---------------- ------------------
December 31, December 31, December 31, December 31,
1997 1996 1997 1996
---- ---- ---- ----
(Unaudited) (Unaudited)
Increase (Decrease) in Cash:
Net cash provided (used) by operating
<S> <C> <C> <C> <C>
activities $(1,391,500) $(1,365,080) $ (37,195) $ (488,773)
----------- ----------- ----------- -----------
Cash flows from investing activities:
Sale of fixed assets 27,819 5,004 -- 5,004
Purchase of fixed assets (280,388) (165,427) (127,903) (35,514)
Advances to shareholders (42,000) -- (21,000) --
----------- ----------- ----------- -----------
Net cash used by investing
activities (294,569) (160,423) (148,903) (30,510)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Repayment of capital lease (3,609) (2,757) (1,488) (2,757)
Repayment of notes payable (1,824,938) (40,695) -- 175,075
Repayment of notes payable
- related parties (1,506,586) (292,630) (146,376) 323,175
Proceeds from issuance of stock 4,958,277 1,754,311 -- 99,990
Purchase of treasury stock -- (78,125) -- (78,125)
Deferred offering costs -- -- -- (71,225)
----------- ----------- ----------- -----------
Net cash provided (used) by financing
activities 1,623,144 1,340,104 (147,864) 446,133
----------- ----------- ----------- -----------
Net increase (decrease) in cash (62,925) (185,399) (333,962) (73,150)
Cash at beginning of period 62,925 191,073 333,962 78,824
----------- ----------- ----------- -----------
Cash at end of period $ -- $ 5,674 $ -- $ 5,674
=========== =========== =========== ===========
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 six month period ended December 31,
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.
<PAGE>
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 December 31, 1997 and December 31, 1996, and the effect on income and
the weighted average number of shares of dilutive potential of common
stock. Subsequent to December 31, 1997 the Company issued 425,000 shares of
common stock in relation to the acquisition of a fruit juice manufacturer.
If this transaction had taken place during the period ended December 31,
1997, it would have changed the number of shares used in the computations
of earnings per share.
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
---------------- ------------------
December 31, December 31, December 31, December 31,
1997 1996 1997 1996
---- ---- ---- ----
Net income available to common
<S> <C> <C> <C> <C>
stockholders used in basic EPS $ (410,177) $ 381,521 $ (475,207) $ 278,642
Basic earnings (loss) per share:
Weighted average common shares 6,525,173 5,297,913 6,525,173 5,297,913
outstanding ----------- ----------- ----------- -----------
$ (.06) $ .07 $ (.07) $ .05
Basic earnings (loss) per share =========== =========== =========== ===========
Earnings per Share Assuming Dilution:
Common stock equivalents
Options and warrants granted
and unexercised -- 433,000 -- 433,000
Assumed buyback of options -- 370,878 -- 370,878
----------- ----------- ----------- -----------
-- 62,122 -- 62,122
Weighted average of common shares
outstanding 6,525,173 5,297,913 6,525,173 5,297,913
----------- ----------- ----------- -----------
Weighted average common shares
outstanding assuming dilution 6,525,173 5,360,035 6,525,173 5,360,035
=========== =========== =========== ===========
Earnings (loss) per share assuming
dilution $ (.06) $ .07 $ (.07) $ .05
=========== =========== =========== ===========
</TABLE>
Options and warrants on 542,666 shares and 975,666 shares of common stock
were not included in computing diluted EPS for the six month and three
month periods ended December 31, 1997 and December 31, 1996 respectively,
because their effects were antidilutive.
4. 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.
<PAGE>
Item 2: Management's Discussion and Analysis
- --------------------------------------------
Results of Operations for the Six and Three Months Ended December 31, 1997 and
- --------------------------------------------------------------------------------
Six and Three Months Ended December 31, 1996
- --------------------------------------------
Organic Food Products, Inc. (OFPI or the "Company") reported a net loss for the
six and three months ended December 31, 1997 of $410,177 and $475,207,
respectively, compared to a net income of $381,521 and $278,642 for the same
periods from the prior year. The loss was primarily due to a write-down of
discontinued inventory items and an increase in reserves for receivables the
Company considers to be uncollectible.
Revenues
- --------
Revenues decreased 12.9% for the six months and 2.4% for the three months ended
December 31, 1997 compared to the same periods from the prior fiscal year. The
decrease was due to the continuing phase-out of the sales of organic raw
material ingredients. Since this business is highly speculative, the sales price
can vary greatly from period to period.
Since July of 1997, the Company has continued to focus its efforts on developing
branded business with an emphasis on its pasta sauce, kids meals and juice line.
Since July 1997, the Company has chosen to discontinue certain products that
produced top-line revenues but were unprofitable. The Company expects to see
significant sales growth in the third quarter of 1998.
Cost of Goods Sold
- ------------------
The Company's cost of goods sold increased as a percentage of sales for the six
and three months ended December 31, 1997 from 72.4% and 78.8%, respectively,
compared to 69.2% and 60.1% for the same periods from the prior year. The
additional cost was due in part to an inventory write-down of certain
discontinued items and the absorption of excess production capacity.
Sales and Marketing
- -------------------
Sales and marketing expenses increased as a percentage of sales for the six and
three months ended December 31, 1997 from 27.9% and 31.0%, respectively,
compared to 14.7% and 19.8% 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 required for manufacturer charge-backs.
General and Administrative
- --------------------------
The Company's general and administrative expenses increased as a percentage of
sales for the six and three months ended December 31, 1997 from 8.2% and 10.0%,
respectively, compared to 7.0% and 6.6% for the same periods from the prior
year. The increase was due to reorganization costs that caused higher than
normal payroll and severance expenses.
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 through 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 may assist in reducing overages and should
allow for more effective purchasing of the required raw materials.
<PAGE>
Liquidity and Capital Resources and Changes in Financial Condition
- ------------------------------------------------------------------
In connection with the previously announced acquisition of Sunny Farms
Corporation and the out-of-pocket expenses related to the production problem
(see Other Matters below), the Company could experience certain periods of cash
shortages during the third quarter of fiscal year 1998. Adequate cash flows
should be available during the fourth quarter. The company currently has a
working capital line of credit of $1,200,000 and anticipates increasing it to
$1,500,000.
Other Matters
- -------------
With a new sales force, the Company plans to intensify its marketing efforts in
natural food stores. The Company also plans to focus more strongly on expanding
sales in major grocery stores and clubs using specialty distributors.
Due to excess capacity in its production facility, the Company is aggressively
searching for co-packing business that would increase plant throughput and lower
the product break-even point.
As a result of a production problem, the Company was forced to withdraw certain
pasta sauce products subsequent to December 31, 1997 that may cause the Company
to incur costs up to $200,000. The Company has various insurance coverages in
place which are expected to absorb a large percentage of this outlay. Therefore,
no accrual was made at December 31, 1997 to recognize this potential loss.
<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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,412,715
<ALLOWANCES> (555,696)
<INVENTORY> 3,359,653
<CURRENT-ASSETS> 5,216,672
<PP&E> 1,532,885
<DEPRECIATION> (275,892)
<TOTAL-ASSETS> 8,757,448
<CURRENT-LIABILITIES> 1,736,861
<BONDS> 0
0
0
<COMMON> 7,090,736
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,757,448
<SALES> 5,639,661
<TOTAL-REVENUES> 5,639,661
<CGS> 4,082,103
<TOTAL-COSTS> 2,036,474
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,021
<INCOME-PRETAX> (546,903)
<INCOME-TAX> 136,726
<INCOME-CONTINUING> (410,177)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (410,177)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
