U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X Quarterly Report under Section 13 or 15 (d) of the
___________ Securities Exchange Act of 1934.
For the quarterly period ended March 31, 1997
___________ Transition Report under Section 13 or 15 (d) of the
Exchange Act.
For the transition period from ___________________ to ____________________.
Commission File Number 000-19318
SPARTA FOODS, INC.
(exact name of small business issuer as specified in its charter)
Minnesota 41-1618240
(state or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2570 Kasota Avenue, St. Paul, MN 55108
(Address of principal executive offices)
(612) 646-1888
(Issuer's telephone number)
Check whether the Issuer (1) 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 ____
State the number of shares outstanding of each of the Issuer's classes of common
equity, as of the latest practicable date:
6,685,049 shares of Common Stock at April 24, 1997.
Transitional Small Business Disclosure Format: Yes ___ No [X]
<PAGE>
SPARTA FOODS, INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 1997
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Consolidated Balance Sheets at March 31, 1997
and September 30, 1996 3
Consolidated Statements of Operations for the
three-month periods and the six-month periods
ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for
the six-month periods ended March 31, 1997
and 1996 5
Notes to Consolidated Financial Statements -
March 31, 1997 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
EXHIBIT INDEX 14
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPARTA FOODS, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31 September 30
1997 1996
-------------- ---------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash $ 104,182 $ 600
Accounts receivable, less allowances of $50,000
and $52,000, respectively 740,851 639,934
Inventories:
Finished goods 313,777 241,959
Raw materials and packaging 491,767 506,513
Prepaid expenses 175,357 63,915
- ----------------------------------------------------------------------------------------------------------------
Total current assets 1,825,934 1,452,921
- ----------------------------------------------------------------------------------------------------------------
Property and Equipment 5,897,282 5,850,489
Less accumulated depreciation 2,323,757 2,115,810
- ----------------------------------------------------------------------------------------------------------------
3,573,525 3,734,679
- ----------------------------------------------------------------------------------------------------------------
Other Assets
Goodwill, less accumulated amortization of $112,662
and $102,358, respectively 447,229 457,533
Covenants not-to-compete, less accumulated amortization
of $259,940 and $235,366, respectively 73,560 98,134
Rental property held for resale, less accumulated depreciation
of $27,972 and $15,984, respectively 917,178 924,016
Other 321,615 339,730
- ----------------------------------------------------------------------------------------------------------------
1,759,582 1,819,413
- ----------------------------------------------------------------------------------------------------------------
$ 7,159,041 $ 7,007,013
================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Note payable, bank $ 811,341 $ 294,811
Current maturities of long-term debt 450,135 567,905
Accounts payable 480,666 658,575
Accrued expenses 380,868 412,074
- ----------------------------------------------------------------------------------------------------------------
Total current liabilities 2,123,010 1,933,365
- ----------------------------------------------------------------------------------------------------------------
Long-Term Debt, less current maturities 1,842,125 2,063,613
- ----------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Preferred Stock, authorized 1,000,000 shares,
no designated par value; none issued ---- ----
Common Stock, authorized 15,000,000 shares, $.01 par value; issued
and outstanding 6,685,049 and 6,679,049 shares, respectively 66,850 66,790
Additional paid-in capital 4,913,459 4,911,070
Accumulated deficit (1,786,403) (1,967,825)
- ----------------------------------------------------------------------------------------------------------------
3,193,906 3,010,035
- ----------------------------------------------------------------------------------------------------------------
$ 7,159,041 $ 7,007,013
================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
SPARTA FOODS, INC.
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
For the three months For the six months
ended ended
March 31 March 31
------------------------------------ ------------------------------------
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 3,193,399 $ 2,995,452 $ 6,304,621 $ 5,916,077
Cost of sales 2,278,650 2,177,662 4,469,771 4,331,979
- ---------------------------------------------------------------------------------------------------------------------
Gross profit 914,749 817,790 1,834,850 1,584,098
Selling, general, and administrative expenses 781,150 757,706 1,538,435 1,459,020
- ---------------------------------------------------------------------------------------------------------------------
Operating income 133,599 60,084 296,415 125,078
Other income (expense),net 21,098 30,276 53,135 34,387
Interest expense (83,161) (109,682) (165,628) (251,183)
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 71,536 (19,322) 183,922 (91,718)
Provision for income tax 1,250 --- 2,500 ---
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 70,286 $ (19,322) $ 181,422 $ (91,718)
=====================================================================================================================
Net income (loss) per common share $ .01 $ --- $ .03 $ (.02)
Weighted average number of common
shares outstanding 6,685,049 5,718,183 6,682,379 4,885,968
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
SPARTA FOODS, INC.
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
For the six months
ended
March 31
-------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ 181,422 $ (91,718)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 282,068 262,437
Loss on sale-leaseback of equipment 15,940 ---
Changes in assets and liabilities:
Accounts receivable (100,919) (23,297)
Inventories (57,071) 57,779
Prepaid expenses (111,443) (40,732)
Other assets 7,472 (3,135)
Accounts payable and accrued expenses (209,115) (630,228)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 8,354 (468,894)
- ----------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities
Purchases of equipment (289,524) (50,457)
Proceeds from the sale-leaseback of equipment 205,030 ---
- ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (84,494) (50,457)
- ----------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Net borrowings (payments) on line of credit 516,530 (316,851)
Long-term borrowings (repayments), net (339,258) (294,604)
Issuance of Common Stock (excluding, in 1996, stock issued for
conversion of debt), net of cost 2,450 1,157,057
- ----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 179,722 545,602
- ----------------------------------------------------------------------------------------------------------
Net increase in cash 103,582 26,251
Cash Balance
Beginning of period 600 863
- ----------------------------------------------------------------------------------------------------------
End of period $ 104,182 $ 27,114
==========================================================================================================
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 166,124 $ 261,136
Income tax 2,500 ---
==========================================================================================================
Supplemental Schedule of Noncash Financing Activities
Conversion to Common Stock:
of bridge financing $ --- $ 350,000
of trade account payable --- 20,000
Reclassification of deferred private placement costs to equity
upon issuance of Common Stock --- 18,704
==========================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Sparta Foods, Inc.
Notes to Consolidated Financial Statements
March 31, 1997
(unaudited)
NOTE 1. GENERAL
The unaudited consolidated balance sheet at March 31, 1997, the
consolidated statements of operations for the three-month and six-month
periods ended March 31, 1997 and 1996, and the consolidated statements of
cash flows for the six-month periods ended March 31, 1997 and 1996, include
all adjustments which in the opinion of management are necessary in order
to make the financial statements not misleading and are not necessarily
indicative of results of operations to be expected for the entire fiscal
year ending September 30, 1997.
The unaudited financial statements should be read in conjunction with the
audited financial statements for the years ended September 30, 1996 and
1995, contained in Form 10-KSB and Form 10-KSB/A(No. 1), and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained herein.
NOTE 2. FINANCING AGREEMENT
The Company has a financing agreement with a bank which involves a line of
credit and term note. Under this agreement the Company is required to
maintain certain minimum net worth levels. In addition, a maximum debt to
net worth ratio is specified, and dividends and capital expenditures are
restricted. Advances are secured by the Company's accounts receivable,
inventories and equipment. Maximum borrowings under the line of credit are
determined by an accounts receivable and inventory borrowing base
calculation or $1,200,000, whichever is less. At March 31, 1997 such
borrowings bear interest at prime plus 1 percent (9.50 percent), and
$811,341 was outstanding on the line of credit. On December 20, 1996 this
agreement was amended to adjust various covenants, extend the maturity and
make available an additional $200,000 under the term note.
NOTE 3. INCOME TAX
The provision for income tax is based upon a minimum state tax. The
availability of tax benefits from prior years offsets any regular taxes.
NOTE 4. NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is calculated based on the net income
and net loss for the respective periods and the weighted average number of
common shares outstanding during the periods. Common Stock equivalents
(options and warrants) are not dilutive for the 1997 periods, and
anti-dilutive for the 1996 periods.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
La Canasta of Minnesota, Inc. ("La Canasta"), the predecessor of Sparta
Foods, Inc. (the "Company"), and now a wholly-owned subsidiary of the
Company, began producing limited volumes of hand stretched tortillas, corn
tortillas and corn tortilla chips shortly following its organization in
1981, primarily for sale to restaurants. The Company was organized under
the laws of the State of Minnesota in 1988, originally under the name of
"Sparta Corp." for the purposes of raising capital for the acquisition of,
or investment in, a business. In January 1991, the Company acquired all of
the outstanding capital stock of La Canasta. In 1991 and 1992, the Company
completed acquisitions which expanded its retail brands to include Cruz and
Chapala trademark products and its customer bases to include McDonald's
restaurants. In 1993, the Company acquired substantially all of the assets
of International Food Products, Inc. ("IFP") of Lakeville, Minnesota, which
was engaged in the manufacture and sale of tortillas and tortilla chips.
This acquisition provided the Company with additional manufacturing
capabilities, the established La Campana Paradiso and Mexitos brand names,
and the retail and food service distribution services of Bradley
Distributing, Inc. and Sysco Corporation, respectively. In 1995 the Company
relocated its Lakeville, Minnesota production operations to its St. Paul
manufacturing facility. The Company leased the Lakeville facility in 1996
for a period of 10 years with a purchase option.
Results of Operations
The Company's net sales of $6,304,621 increased $388,544 (6.6%) for the six
months ended March 31, 1997, as compared to the six months ended March 31,
1996. Net sales of $3,193,399 increased $197,947 (6.6%) for the three
months ended March 31, 1997, as compared to the three months ended March
31, 1996. These increases primarily resulted from expansion of the
Company's existing customer base in the food service industry as well as
expansion into new territories through its primary retail distributor,
Crystal Farms Refrigerated Distribution Company.
The Company has historically had higher sales in its third and fourth
fiscal quarters which end June 30 and September 30, respectively, than in
its first and second quarters. Management believes that this is a result of
seasonal consumption patterns with respect to the Company's food products,
such as consumption of higher volumes of tortilla chips, salsas, and
barbecue sauces, during the summer months. This seasonality may cause
quarterly results of operations to fluctuate.
Gross profit, as a percentage of net sales, for the six months ended March
31, 1997, was 29.1% compared to 26.8 % for the six months ended March 31,
1996. Gross profit, as a percentage of net sales, for the three months
ended March 31, 1997, was 28.6% compared to 27.3% for the three months
ended March 31, 1996. The higher percentages reflect significant cost
savings achieved by certain purchases of raw materials and packaging and
processing efficiencies, as well as the effect of periodic price increases
of the Company's products.
<PAGE>
Selling, general and administrative expenses increased $79,415 or 5% in the six
months ended March 31, 1997, as compared to the six months ended March 31, 1996.
These expenses increased $23,444 or 3% in the three months ended March 31, 1997,
as compared to the three months ended March 31, 1996. Both increases reflect the
results of the Company's cost control programs to limit growth of these expenses
to the percentage of growth in sales. Interest expense decreased $85,555 for the
six months ended March 31, 1997 compared to the six months ended March 31, 1996.
Interest expense decreased $26,521 for the three months ended March 31, 1997
compared to the three months ended March 31, 1996. Both are due primarily to
interest rate reductions and lower levels of bank borrowings.
Liquidity and Capital Resources
The Company financed its current activities primarily through short-term
borrowings, cash generated from its operations and the sale and leaseback
of equipment.
Cash provided by operating activities during the six months ended March 31,
1997 was $8,354 consisting principally of net income of $181,422 and
depreciation and amortization of $282,068 offset by increases in
inventories of $57,071, accounts receivable of $100,919 and prepaid
expenses of $111,443 and a decrease in accounts payable and accrued
expenses of $209,115. Cash used in investing activities was $84,494,
primarily the result of the sale and leaseback of a new freezer and the
purchase and installation of new production equipment. Cash provided by
financing activities was $179,722 due mainly to a net increase in
short-term borrowings under the Company's Line of Credit.
The Company estimates that as of March 31, 1997, there is an additional
$224,000 which could be drawn under its bank Line of Credit. The amount
available under this Line of Credit fluctuates daily based upon the
Company's eligible accounts receivable and inventory. The Line of Credit,
Bank Term Note and Bank Capital Note are subject to various financial
covenants, the violation of which could result in termination of the loan
agreements which would require the Company to repay the loans in full. It
is management's opinion that the Company will be able to meet the
requirements of these covenants in the future; however, there is no
assurance that the Company will not violate the financial covenants in the
future or that the bank would waive any such violations.
At March 31, 1997, the Company had cash of $104,182 and negative working
capital of $297,076.
The Company believes that its bank credit facilities and cash flow from
operations will be sufficient to meet its operating requirements through
fiscal 1997, assuming the following: (i) the Company's fiscal 1997 sales
equal or exceed fiscal 1996 sales; (ii) there are no significant increases
in operating expenses in fiscal 1997; and (iii) the Company is able to keep
its bank credit facilities operative.
Seasonality
The Company has historically had higher sales in its third and fourth
fiscal quarters which end June 30, and September 30, respectively, than in
its first and second quarters. Management believes that this is a result of
seasonal consumption patterns with respect to the Company's food products,
such as consumption of higher volumes of tortilla chips, salsa and barbecue
sauces, during the summer months. This seasonality may cause quarterly
results of operations to fluctuate.
<PAGE>
Raw Material Cost Fluctuations
The Company does not enter into futures contracts as defined by SFAS 80. It
does, however, enter into purchase orders for delayed delivery of raw
materials, generally 30 days for raw materials other than flour and corn.
The Company enters into purchase orders for delayed delivery of flour and
corn for a period of 2-18 months, depending on current pricing, to ensure
the availability of the type of flour and corn best suited for the
Company's products. These purchase orders are placed directly with the
suppliers.
Subsequent Event
On April 11, 1997 the Company signed a Letter of Intent with First
Industrial Realty Trust to move its corporate headquarters and
manufacturing facilities to a commercial property owned by First Industrial
Realty Trust in New Brighton, Minnesota. The Company intends to sign a
fifteen year lease on the property which comprises approximately 112,000
square feet of office, warehouse and production space. As part of the
transaction, First Industrial Realty Trust has agreed to sublease all of
the Company's St. Paul facility through the end of the lease on May 31,
2000.
Outlook
The Company's plan in fiscal 1997 is to increase revenues and improve
profitability by focusing on new markets and product brand positioning of
tortillas and tortilla chips in the retail and food service markets to take
advantage of strong industry growth patterns.
The foregoing statements contained in this Outlook section of Management's
Discussion and Analysis of Financial Condition and Results of Operations,
including those relating to the Company's (i) ability to meet its covenant
requirements under its Credit Agreement and (ii) operating requirements
through fiscal 1997 contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations, involve a number of risks
and uncertainties. Some of the factors that could cause actual results to
differ materially include but are not limited to seasonality of its sales
and raw materials cost fluctuations, which are discussed above, and the
following:
Reliance on Principal Customers. The Company has several customers who each
accounted for a significant percentage of the Company's sales in the six
month period ended March 31, 1997. During that period, sales to Crystal
Farms Refrigerated Distribution Company, Ken Davis Products, Inc., Catalina
Specialty Foods, Inc. and Bradley Distributing, Inc. accounted for
approximately 23%, 8%, 13% and 8% of the Company's sales, respectively.
While the Company has manufacturing agreements with all of the foregoing
customers except Bradley Distributing, Inc., the loss of any of these
customers could have a material and adverse effect on the Company's sales
and profitability.
<PAGE>
Competition. The Mexican-style food manufacturing and distribution industry
is highly competitive. The Company is in competition with a number of
manufacturers and distributors of Mexican-style food products and, to a
limited extent, manufacturers of "snack foods," many of which are better
capitalized than the Company. The Company will also be subject to future
competition from other manufacturers, distributors and retailers who enter
into the Mexican-style food and distribution industry. In the retail
market, many of these competitors engage in extensive local and national
advertising and marketing, and the brand names for products distributed by
those competitors are significantly more recognizable to the consumer than
the Company's brand names. In addition, competition for shelf space in
retail grocery stores is intense. In the food service market, the Company
is competing with a number of regional and national producers or
Mexican-style food products. Many of these competitors are better
capitalized than the Company and have established sales organizations. No
assurance can be given that the Company will be able to compete as it
expands its markets.
Sufficiency of Working Capital. As of March 31, 1997, the Company had a
cash balance of $104,182 and negative working capital of $297,076. As of
March 31, 1997, there was an estimated $224,000 which could have been drawn
under the Company's Line of Credit. The amount available fluctuates daily
based upon the Company's eligible accounts receivable and inventory. In
addition, the Company's ability to obtain additional equity capital is
severely restricted, and, if obtainable at all, would result in substantial
dilution. Therefore, the Company's ability to fund its working capital
requirements in fiscal 1997 will be almost entirely dependent on generating
sales which equal or exceed the Company's fiscal 1996 sales. In addition,
any unforeseen expense of a material nature would materially and adversely
affect the Company's ability to fund ongoing operations.
Government Regulation. The Company's business is subject to various
federal, state and local environmental and health regulations. If the
Company were found not to be in compliance with such regulations, sanctions
and penalties could be imposed which could materially and adversely affect
the Company's business.
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 27, 1997, Sparta Foods, Inc. (the "Registrant") held an annual
meeting of the shareholders, and the persons nominated by management as
listed in the Registrant's proxy statement dated January 23, 1997 (Larry P.
Arnold, Joel P. Bachul, Edward K. Jorgensen, Michael J. Kozlak, Richard H.
Leepart and R. Dean Nelson) were elected to the Registrant's Board of
Directors in a solicitation of proxies pursuant to Regulation 14A of the
Securities Exchange Act of 1934.
The following matters were also voted upon at the annual meeting and the
number of votes cast for, against or withheld, as well as abstentions and
broker non-votes, with respect to such matters, are set forth below:
<TABLE>
<CAPTION>
Votes Cast Number Number of
Votes Against or of Broker
Matter Cast For Withheld Abstentions Non-votes
<S> <C> <C> <C> <C>
To set the number of members 4,552,225 819,818 9,132 -0-
of the Board of Directors at
six (6)
To adopt the Sparta Foods, 3,314,775 143,957 804,349 1,118,094
Inc. Amended and Restated
Stock Option Plan, including
an increase from 950,000 to
1,300,000 in the number of
shares reserved for issuance
under the Plan
To approve the selection of 5,328,303 28,905 23,967 -0-
McGladrey & Pullen, LLP as
the Registrant's independent
public accountants for the year
ending September 30, 1997
</TABLE>
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
10.45 Distribution Agreement dated February 14, 1997 between the
Registrant and Marigold Foods, Inc.
11 Computation of Earnings Per Common Share
27 Financial Data Schedule (filed only in electronic format)
(b) Reports on Form 8-K
A report on Form 8-K was not filed during the quarter ended March 31, 1997.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SPARTA FOODS, INC.
(Registrant)
Dated: May 7,1997 By: /s/ Joel P. Bachul
Joel P. Bachul,
President and Chief Executive Officer
Dated: May 7, 1997 By: /s/ A. Merrill Ayers
A. Merrill Ayers
Treasurer, Secretary and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
SPARTA FOODS, INC.
Form 10-QSB for Quarter Ended March 31, 1997
Exhibit Number Description
10.45 Distribution Agreement dated February 14, 1997 between the
Registrant and Marigold Foods, Inc.
11 Computation of Earnings Per Common Share
27 Financial Data Schedule (filed only in electronic format)
Exhibit 10.45
DISTRIBUTION AGREEMENT
This Agreement is made this 14 day of February, 1997 between Marigold
Foods, Inc., a Delaware corporation, 2929 University Avenue, Minneapolis,
Minnesota 55414, (hereinafter referred to as "Distributor") and Sparta Foods,
Inc., a Minnesota corporation, 2570 Kasota Avenue, St. Paul, Minnesota 55108
(hereinafter referred to as "Sparta").
WHEREAS, Distributor is a wholesale distributor of refrigerated food
product, and
WHEREAS, Sparta is a manufacturer of tortillas, salsa and other Mexican
style food products (hereinafter referred to as the "Sparta Product Line"), and
WHEREAS, Sparta desires to retain the services of Distributor for purpose
of distributing its products in the territory hereinafter described.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. Products. The Products to be purchased in accordance with this Agreement
are listed on the attached Schedule A. Sparta will provide Distributor with a
list, from time to time, of the Products which will be available to Distributor.
As to the Products on the list, Sparta shall be the exclusive supplier to
Distributor of these Products. Sparta reserves the right to change the design of
the Products from time to time and may add or delete items from the Product mix.
Sparta shall give Distributor sixty (60) day advance notice prior to
implementing any change in the design of the products or before adding or
deleting items from the product mix.
2. Territory. The Territory used in this Agreement will be limited to the
states of Minnesota, Wisconsin, Iowa, North Dakota, South Dakota and Illinois.
If the parties wish to expand the Territory, they may do so by amendment to this
Agreement or by separate agreement. Within the Territory, Distributor will have
the exclusive right to market the Product referred to in Paragraph 1. Sparta
agrees that during the term of this Agreement, it will not sell the Products to
other distributors within the designated Territory.
3. Price. Sparta shall provide Distributor, from time to time, a current
price list which shall establish the Price for Products ordered during the
effective period of the price list. Sparta shall have the right, from time to
time, to establish Prices for its Products and the time period in which said
Prices shall be effective. Sparta shall give Distributor thirty (30) days notice
prior to the effective date of any Price change.
<PAGE>
4. Ordering Procedure. Distributor shall submit a purchase order to Sparta
which shall include a Product description code number, quantity and requested
pick up date for the Product. Sparta, upon receipt of the purchase order, shall
confirm receipt and delivery instructions, at which point the order shall be
noncancellable. Sparta shall prepare all orders for pick up at Sparta's dock at
2750 Kasota Avenue, St. Paul, Minnesota. Sparta shall have ten (10) days to
prepare the order for pick up by Distributor unless such time is shortened by
mutual agreement of the parties in writing.
5. Delivery. All purchase orders will be FOB Sparta's dock. Purchase orders
will be available for pick up within ten (10) days of the receipt of the
purchase order from Distributor unless delivery is delayed because of a
contingency beyond Sparta's reasonable control including, without limitation,
acts of any government or governmental agency, acts of God, strike, lock out,
war or national conflict. Title and risk of loss shall pass when the Product has
been loaded on Distributor's trucks.
6. Payment. All sales pursuant to this Agreement shall be made at such
prices and on such terms as Sparta shall establish from time to time. Payment
shall be made within thirty (30) days after the Product is loaded on
Distributor's trucks. Any Payment not received within forty-five (45) days after
delivery of the Product will be subject to a reasonable finance charge
established from time to time by Sparta.
7. Trademarks and Licensing Rights. Distributor shall be allowed to use,
and unless otherwise instructed by Sparta, shall use the trade name
LaCampana-Paradiso for the term of this Agreement. Sparta reserves the right to
approve all written advertising and promotional materials using the trade name
LaCampana-Paradiso but Distributor is authorized to use the name
LaCampana-Paradiso to indicate that it is an authorized distributor of the
Products. Distributor acknowledges that it has no right or interest in the
LaCampana-Paradiso name by virtue of this Agreement or of its distribution or
solicitation of sales of the Products hereunder. Distributor also agrees not to
use the trade name, trademarks, logos or other characteristics of
LaCampana-Paradiso Products except in connection with its activities under the
terms of this Agreement.
8. Reports. Distributor agrees to provide such Reports of its activities
with respect to the Product and Territory as Sparta may reasonably request.
9. Expenses. The parties agree that they each will be responsible for
Expenses related to their own performance under the terms of this Agreement
except that any Expenses associated with advertising and marketing to the trade
occurring post warehouse shall be divided equally between Sparta and Distributor
provided that said Expenses have been agreed to in advance by the parties.
10. Term. This Agreement shall continue in full force and effect unless
otherwise terminated as provided herein for a period of five (5) years from and
after the date set forth above. This Agreement shall automatically renew for
additional five (5) year terms unless either party notifies the other in writing
of its intent not to renew the Agreement not later than six (6) months prior to
the end of then-current term.
<PAGE>
11. Termination. This Agreement may be terminated prior to its expiration
if either party breaches any of its obligations hereunder and the other party
delivers written notice to the breaching party detailing the alleged breach. If
the alleged breach remains uncured for a period of twenty (20) days after
delivery of the written notice, the nonbreaching party may then terminate this
Agreement by delivery of thirty (30) days written notice of such termination to
the breaching party. Upon termination of this Agreement, Distributor shall cease
to be an authorized distributor of Sparta and all monies owed to Sparta shall
become immediately due and payable, all unshipped orders shall be cancelled with
neither party being liable to the other regarding the same and Sparta may
purchase from the Distributor any Products at a mutually agreed upon price but
not in excess of the costs to Distributor. Upon termination of this Agreement,
the Distributor agrees to immediately discontinue to use the names, trademarks,
advertising or anything else that might make it appear that Distributor is still
handling the Products of Sparta. Upon termination, Sparta shall have the right
to market its Products within the Territory, either directly, or through other
distributors to the customers previously served under this Agreement and
Distributor shall provide Sparta with a customer list of all customers of
Distributor to whom Sparta Products have been sold or delivered.
12. Assignment. Neither party may assign its rights or obligations under
this Agreement except upon the express written consent of the other party which
consent shall not be unreasonably withheld.
13. Competing Products. Distributor agrees that it shall not offer for sale
any product in the Sparta Product Line or any product competing directly or
indirectly with the Products referred to in Paragraph 1 unless they have first
requested said Product from Sparta and Sparta has declined to provide said
Product in accordance with the provisions of Paragraph 1.
14. Indemnification. Distributor agrees to indemnify and hold Sparta
harmless from and against any claims, liabilities, costs and expenses, including
reasonable attorneys' fees, which are incurred by Sparta due to any defect in a
Product caused by the negligence or deliberate act of Distributor, its
employees, agents or by any other breach by Distributor of its obligations under
this Agreement.
15. Sales Material and Training. Sparta shall, from time to time, provide
Distributor information regarding the Products and Product mix and shall make
available such sales information, promotional literature and training programs
as it deems appropriate to assist Distributor in training its sales staff.
16. Advertising. Sparta will cooperate with the Distributor and its dealers
in providing for advertising and promotion of the Product. Distributor agrees to
participate and actively promote and comply with the terms and conditions of
such advertising and merchandising programs. Distributor agrees that its
advertising must comply with the policies of Sparta and agrees to discontinue
any advertising which is not approved by Sparta.
<PAGE>
17. Disputes. If both parties specifically agree in writing, any
controversy or claim arising out of or relating to the breach of this Agreement
may be settled by arbitration.
18. Legal Relationship. Distributor, at all times, shall be considered an
independent contractor with respect to its undertakings hereunder and nothing in
this Agreement shall constitute the parties as partners, joint venturers,
employees or otherwise associated with one another except to the extent
specifically provided herein. Neither party is granted any right or authority to
act for, incur, assume or create any obligation, responsibility or liability,
express or implied, in the name of the other, and neither may bind the other in
any manner whatsoever.
19. Survival. The termination of this Agreement shall not release either
party from any liability, obligation or agreement which, pursuant to any
provision of this Agreement, is to survive or to be performed after any such
termination.
20. Entire Agreement. This Agreement constitutes the entire understanding
and agreement between the parties with respect to the subject matter herein and
there are no representations, warranties, covenants, agreements or collateral,
understandings, oral or written, expressed or implied that are not expressly set
forth herein. This Agreement supersedes any and all prior agreements, written or
oral, between the parties with respect to the subject matter herein.
21. Modification and Waiver. No amendment, modification or waiver of any
provision of this Agreement shall be binding unless set forth in a written
document signed by all parties (in the case of amendments or modifications) or
by the party. Any waiver shall be limited to the circumstance or events
specifically referenced in the written waiver document and shall not be deemed a
waiver of any other term of this Agreement or of the same circumstance or event
upon any reoccurrence thereof.
22. Severability. In the event that a provision of this Agreement is held
invalid by a court of competent jurisdiction, the remaining provisions shall
nonetheless be enforceable in accordance with their terms. Further, in the event
that any provision is held to be overbroad is written, such provision shall be
deemed amended to narrow its application to the extent necessary to make the
provision enforceable according to applicable law and shall be enforced as
amended.
23. Headings. Heading herein do not form a part of this Agreement but are
for convenience only.
<PAGE>
24. Applicable Law. This Agreement shall be deemed to have been executed in
the State of Minnesota and shall be interpreted and construed in accordance with
and governed by the laws of the State of Minnesota.
IN WITNESS WHEREOF, the undersigned have executed this Agreement the day
and year first above written.
MARIGOLD FOODS, INC.
BY: _________________________
ITS: _________________________
SPARTA FOODS, INC.
BY: _________________________
ITS: _________________________
Computation of Earnings Per Common Share
Net income (loss) per common share is calculated based on the net income
and net loss for the respective periods and the weighted average number of
common shares outstanding during the periods. Common Stock equivalents
(options and warrants) are not dilutive and anti-dilutive for the
respective periods of 1997 and 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS CONTAINED IN THE FORM 10-QSB FOR THE QUARTER
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 104,182
<SECURITIES> 0
<RECEIVABLES> 790,851
<ALLOWANCES> 50,000
<INVENTORY> 805,544
<CURRENT-ASSETS> 1,825,934
<PP&E> 5,897,282
<DEPRECIATION> 2,323,757
<TOTAL-ASSETS> 7,159,041
<CURRENT-LIABILITIES> 2,123,010
<BONDS> 0
0
0
<COMMON> 66,850
<OTHER-SE> 3,127,056
<TOTAL-LIABILITY-AND-EQUITY> 7,159,041
<SALES> 6,304,621
<TOTAL-REVENUES> 0
<CGS> 4,469,771
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,485,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 165,628
<INCOME-PRETAX> 183,922
<INCOME-TAX> 2,500
<INCOME-CONTINUING> 181,422
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 181,422
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
