SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(AMENDMENT NO.1)
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): October 13, 1999
Sparta Foods, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Minnesota
(State or Other Jurisdiction of Incorporation)
000-19318 41-1618240
(Commission File Number) (I.R.S. Employer Identification Number)
1565 First Avenue N.W.
New Brighton, Minnesota 55112
(Address of Principal Executive Offices) (Zip Code)
(651) 697-5500
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
This Current Report on Form 8-K/A amends the Current Report of Sparta
Foods, Inc. ("Sparta") on Form 8-K filed on October 13, 1999 to incorporate Item
7(a) and (b), the Financial Statements of the Business Acquired and Pro Forma
Financial Information.
On October 13, 1999, Sparta acquired all the assets and assumed certain
liabilities of Food Products Corporation including a facilities lease and
approximately $900,000 of debt which the Sparta paid off on the date of closing.
The purchase price consisted of $6.0 million in cash, subject to post-closing
adjustments, and a $3 million five-year subordinated promissory note bearing
interest at 8% per annum. Sparta funded the cash portion of the purchase price
through internally generated cash and bank financing from Norwest Bank
Minnesota, National Association. The bank financing consisted of a $3.3 million
five-year term loan bearing interest at prime plus 0.25% and a $2 million draw
on a $3 million revolving line of credit bearing interest at prime. Both the
term note and the line of credit are secured by all of Sparta's assets. The bank
financing replaced Sparta's then existing line of credit and $1 million term
loan.
The facilities lease is for approximately 57,000 square feet of
office/manufacturing space in Phoenix, Arizona. The lease expires on October 31,
2004, but Sparta has an option to extend the lease through October 31, 2009. The
lease calls for annual rental payments of $209,400 subject to increase based on
the Consumer Price Index.
The acquired assets were used by Food Products Corporation to
manufacture and distribute tortillas, tortilla chips and other snack products in
Arizona, California, Nevada, New Mexico, Colorado, Utah and Texas principally
under the Arizona Brand(R) and Spanish Bell(R) labels. Sparta intends to
continue such use.
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired:
Foods Products Corporation
Financial Report
October 9, 1999
CONTENTS
- -------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT 1
- -------------------------------------------------------------------------------
FINANCIAL STATEMENTS
Balance sheets 2 - 3
Statements of income and stockholders' equity 4
Statements of cash flows 5
Notes to financial statements 6 - 10
- -------------------------------------------------------------------------------
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Sparta Foods, Inc.
New Brighton, Minnesota
We have audited the accompanying balance sheets of Food Products Corporation
(the Company) as of October 9, 1999, and October 10, 1998, and the related
statements of income, stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Food Products Corporation as of
October 9, 1999, and October 10, 1998, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/ McGladrey & Pullen, L.L.P.
Minneapolis, Minnesota
December 3, 1999
<PAGE>
FOOD PRODUCTS CORPORATION
BALANCE SHEETS
October 9, 1999 and October 10, 1998
<TABLE>
<S> <C> <C>
ASSETS (Note 3) 1999 1998
- ---------------------------------------------------------------------------------------------
Current Assets
Cash $ 332,781 $ --
Accounts receivable, less allowances of $15,000 991,592 987,642
Inventories:
Finished goods 154,684 101,328
Raw materials 301,213 304,900
Prepaid expenses 70,146 44,098
---------- ----------
Total current assets 1,850,416 1,437,968
---------- ----------
Equipment and Leasehold Improvements, at cost (Notes 2 and 4) 2,570,564 2,237,042
Less accumulated depreciation 772,728 429,097
---------- ----------
1,797,836 1,807,945
---------- ----------
Other Assets
Goodwill, less accumulated amortization of $34,414 and
$18,479, respectively 215,586 231,521
Other 26,522 43,869
---------- ----------
242,108 275,390
---------- ----------
$3,890,360 $3,521,303
========== ==========
</TABLE>
See Notes to Financial Statements.
<PAGE>
<TABLE>
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
- --------------------------------------------------------------------------------------------------
Current Liabilities
Note payable to bank (Note 3) $ -- $ 303,200
Current maturities of long-term debt (Note 3) 1,471,912 406,275
Checks in excess of cash balance -- 79,701
Accounts payable 342,336 219,268
Accrued expenses:
Compensation 102,703 101,272
Other 43,466 55,414
---------- ----------
Total current liabilities 1,960,417 1,165,130
---------- ----------
Long-Term Debt, less current maturities (Note 3) 568,389 1,746,551
---------- ----------
Commitments (Notes 3, 4 and 6)
Stockholders' Equity
Common stock, authorized 1,000,000 shares, no par value:
Voting, 100,000 shares issued and outstanding 100,000 100,000
Nonvoting, 16,250 shares in 1999 and 7,500 shares in 1998
outstanding and to be issued (Note 6) 213,000 48,000
Retained earnings 1,048,554 461,622
---------- ----------
1,361,554 609,622
---------- ----------
$3,890,360 $3,521,303
========== ==========
</TABLE>
<PAGE>
FOOD PRODUCTS CORPORATION
STATEMENTS OF INCOME
Years Ended October 9, 1999 and October 10, 1998
<TABLE>
<S> <C> <C>
1999 1998
------------ ------------
Net sales (Note 5) $ 10,762,438 $ 9,314,606
Cost of sales 6,314,125 5,453,002
------------ ------------
Gross profit 4,448,313 3,861,604
Selling, general, and administrative expenses 3,446,216 3,106,273
------------ ------------
Operating income 1,002,097 755,331
Other income, net 14,571 21,177
Interest expense (Note 3) (249,736) (316,463)
------------ ------------
Net income $ 766,932 $ 460,045
============ ============
</TABLE>
FOOD PRODUCTS CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended October 9, 1999 and October 10, 1998
<TABLE>
<CAPTION>
Common Stock
---------------------------- Retained
Voting Nonvoting Earnings Total
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, September 30, 1997 $ 100,000 $ -- $ 51,577 $ 151,577
Stock issued as compensation -- 48,000 -- 48,000
Dividends -- -- (50,000) (50,000)
Net income -- -- 460,045 460,045
----------- ----------- ----------- -----------
Balance, October 10, 1998 100,000 48,000 461,622 609,622
Stock issued as compensation -- 165,000 -- 165,000
Dividends -- -- (180,000) (180,000)
Net income -- -- 766,932 766,932
----------- ----------- ----------- -----------
Balance, October 9, 1999 $ 100,000 $ 213,000 $ 1,048,554 $ 1,361,554
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
<PAGE>
FOOD PRODUCTS CORPORATION
STATEMENTS OF CASH FLOWS
Years Ended October 9, 1999 and October 10, 1998
<TABLE>
<S> <C> <C>
1999 1998
----------- -----------
Cash Flows From Operating Activities
Net income $ 766,932 $ 460,045
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 346,883 334,402
Amortization 31,882 50,543
(Gain) loss on disposal of equipment (14,408) 7,481
Stock compensation expense 165,000 48,000
Changes in assets and liabilities:
Accounts receivable (3,950) (200,885)
Inventories (49,669) (123,382)
Prepaid expenses (26,048) (32,745)
Accounts payable and accrued expenses 112,551 (92,149)
----------- -----------
Net cash provided by operating activities 1,329,173 451,310
----------- -----------
Cash Flows From Investing Activities
Purchases of equipment and leasehold improvements (340,366) (19,355)
Proceeds from the sale of equipment 18,000 --
Decrease in other assets 1,400 33,702
----------- -----------
Net cash provided by (used in) investing activities (320,966) 14,347
----------- -----------
Cash Flows From Financing Activities
Net borrowings (payments) on line of credit (303,200) (141,800)
Checks in excess of cash balance (79,701) 79,701
Long-term borrowings 300,000 --
Payments of long-term debt (412,525) (400,720)
Dividends (180,000) (50,000)
----------- -----------
Net cash used in financing activities (675,426) (512,819)
----------- -----------
Net change in cash 332,781 (47,162)
Cash
Beginning -- 47,162
----------- -----------
Ending $ 332,781 $ --
=========== ===========
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 255,867 $ 309,613
=========== ===========
Supplemental Schedule of Noncash Investing and Financing Activities
Equipment acquired under capital lease $ -- $ 752,131
=========== ===========
</TABLE>
See Notes to Financial Statements.
<PAGE>
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: Food Products Corporation (the Company) operates in one
business segment. The Company formulates, manufactures, and markets a broad line
of tortillas and tortilla products under its own brand names, including Arizona
Brand and Spanish Bell.
The Company's customers are principally retail food distributors in the
Southwest. The Company grants credit on an individual customer basis.
Fiscal year: The Company's fiscal year ends on the first Saturday in October
each year. The years ended October 9, 1999, and October 10, 1998, contained 52
and 53 weeks, respectively.
Management estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue recognition: Revenues are recognized at the time the product is shipped
to the customer.
Fair value of financial instruments: The financial statements include the
following financial instruments and the methods and assumptions used in
estimating their fair value: for cash, the carrying amount is fair value; for
accounts receivable and accounts payable, the carrying amounts approximate their
fair values due to the short-term nature of these instruments; and for the
fixed-rate notes payable, fair value has been estimated based on discounted cash
flows using interest rates being offered for similar borrowing. No separate
comparison of fair values versus carrying values is presented for the
aforementioned financial instruments since their fair values are not
significantly different from their balance sheet carrying amounts. In addition,
the aggregate fair values of the financial instruments would not represent the
underlying value of the Company.
Cash: The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any losses
in such accounts.
Inventories: Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.
Equipment and leasehold improvements: Equipment and leasehold improvements are
carried at cost and are being depreciated over their useful lives on a
straight-line basis. Leasehold improvements are being depreciated over the
shorter of the estimated useful life of the asset or the life of the lease.
Goodwill: Costs in excess of net assets acquired are being amortized over 15
years on a straight-line basis.
<PAGE>
FOOD PRODUCTS CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies (Continued)
Accounting for long-lived assets: The Company reviews its intangibles,
equipment, and leasehold improvements periodically to determine potential
impairment by comparing the carrying value of the assets with estimated future
cash flows expected to result from the use of the assets, including cash flows
from disposition. To date, management has determined that no impairment of
long-lived assets exists.
Advertising: Expenditures for advertising costs are expensed as incurred. Total
advertising expenses during the years ended October 9, 1999, and October 10,
1998, were approximately $152,000 and $115,000, respectively.
Income taxes: The stockholders of the Company have elected to be taxed for
federal and Arizona income tax purposes as an S Corporation under the provisions
of the respective income tax codes. Under these provisions, no income tax is
payable by the Company, and the stockholders report taxable income of the
Company on their individual income tax returns. The Company pays dividends in
amounts which would allow the stockholders to fund their personal income tax
liabilities associated with the taxable income of the Company.
Note 2. Equipment and Leasehold Improvements
Equipment and leasehold improvements consist of:
Estimated
Useful October 9, October 10,
Lives 1999 1998
- -------------------------------------------------------------------------
Factory equipment 7 years $ 2,063,396 $ 1,735,964
Office and other equipment 5 years 430,036 430,037
Leasehold improvements 5 years 77,132 71,041
---------------------------
$ 2,570,564 $ 2,237,042
----------------------------
Note 3. Financing Agreements
Note payable to bank: The Company had a line of credit with a bank, secured by
all assets and the personal guarantee of certain stockholders of the Company.
Maximum borrowings under the credit agreement were determined by a borrowing
base calculation or $500,000, whichever was less. Borrowings bore interest at
the prime rate plus 1 percent (9.25 percent at October 9, 1999). At October 9,
1999, there were no borrowings under the line of credit. In connection with the
sale of substantially all assets of the Company in October 1999, this agreement
was terminated (see Note 7).
<PAGE>
FOOD PRODUCTS CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 3. Financing Agreements (Continued)
Long-term debt: Long-term debt consists of the following:
<TABLE>
<CAPTION>
October 9, October 10,
1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Note payable to individual, unsecured, due in quarterly
principal payments of $66,667 plus interest at varying
rates through May 2000 (1) $ 200,000 $ 466,667
Term note payable to bank, secured by equipment, due in
monthly installments of $6,250, plus interest at the prime rate
plus 0.50% (8.75% at October 9, 1999), to July 30, 2003, when
the remaining balance is due (2) 293,750 --
Notes payable to stockholders, unsecured, interest payable
monthly at 12% until May 2000, when the principal is due (3) 1,036,575 1,036,575
Capitalized lease obligations, due in varying monthly
payments, including interest varying between 10.5% and
11.6% (Note 4) (2) 509,976 649,584
-----------------------------
2,040,301 2,152,826
Less current maturities 1,471,912 406,275
-----------------------------
$ 568,389 $1,746,551
-----------------------------
</TABLE>
(1) The balance of this note was paid in full subsequent to October 9,
1999.
(2) These liabilities were assumed by Sparta Foods, Inc. (Sparta), in
connection with their acquisition of the assets of the Company on
October 13, 1999, and subsequently paid in full (Note 7).
(3) Related-party interest expense for each of the years ended October 9,
1999, and October 10, 1998, was approximately $124,000.
Note 4. Lease Commitments and Rental Expense
Capitalized leases: The following is a summary of equipment under capitalized
leases:
October 9, October 10,
1999 1998
- ---------------------------------------------------------
Equipment $ 943,343 $ 942,878
Less accumulated depreciation 366,775 216,497
-----------------------
$ 576,568 $ 726,381
-----------------------
The capital leases in effect on October 9, 1999, were assumed and subsequently
paid off by Sparta (Note 7).
<PAGE>
FOOD PRODUCTS CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 4. Lease Commitments and Rental Expense (Continued)
Operating leases: The Company leases its office and factory building from a
related party under a noncancelable operating lease agreement, which expires on
October 31, 2004, and requires minimum monthly rentals of $17,450, plus the
payment of property taxes, normal maintenance, and insurance on the property.
The monthly rentals increase annually based on the change in the Consumer Price
Index. In addition, the Company leases from unrelated third parties various
items of factory and office equipment under noncancelable leases.
Total rent expenses for all facilities and equipment during the years ended
October 9, 1999, and October 10, 1998, were approximately $282,000 and $308,000,
respectively. Total rent paid to the related party during the years ended
October 9, 1999, and October 10, 1998, was approximately $256,000 and $270,000,
respectively.
Future minimum lease commitments are as follows:
2000 $ 245,000
2001 229,000
2002 209,000
2003 209,000
2004 209,000
----------
$1,101,000
----------
All operating leases in effect on October 9, 1999, were assumed by Sparta (Note
7).
Note 5. Revenue by Product Line
The Company's revenues by major product line for the years ended October 9,
1999, and October 10, 1998, are as follows:
1999 1998
- --------------------------------------------------------------------------------
Tortillas $ 5,201,461 $ 4,404,854
Tortilla chips 3,877,461 3,613,495
Other snack products 1,683,516 1,296,257
-------------------------
$10,762,438 $ 9,314,606
-------------------------
Note 6. Stock Bonus Agreement
The Company has a stock bonus agreement with two key employees. The agreement
allows each participant to earn up to 12,500 shares of nonvoting common stock.
These shares are earned and vest at the rate of 1,250 shares per fiscal quarter,
with an additional discretionary amount in 1999. For the years ended October 9,
1999, and October 10, 1998, the participants earned 8,750 and 7,500 shares of
nonvoting common stock, respectively, and the Company has recognized as
compensation expense $165,000 and $48,000, respectively, for the recognition of
the fair value of nonvoting shares earned. All remaining shares were granted
subsequent to October 9, 1999, upon the sale of the Company described in Note 7.
<PAGE>
FOOD PRODUCTS CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 7. Sale of Assets
On October 13, 1999, the Company sold substantially all of its assets to Sparta
for $6,000,000 in cash, $3,000,000 in 8 percent subordinated notes payable to
the Company, and Sparta's assumption of certain liabilities, amounting to
approximately $1,170,000. The notes are payable in 20 quarterly principal and
interest payments of $183,470, commencing January 10, 2000.
<PAGE>
(b) Pro Forma Financial Information:
PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements (the "Pro Forma Financial
Statements") are based on the historical Financial Statements of Food Products
Corporation and the historical Consolidated Financial Statements of Sparta
Foods, Inc. and Subsidiary. The unaudited Pro Forma Financial Statement of
Operations reflects the Company's acquisition of Food Products Corporation,
(whose audited financial statements are included elsewhere in this filing) using
the purchase method of accounting and assumed that such acquisition was
consummated as October 1, 1998. The unaudited Pro Forma Balance Sheet is derived
from the historical consolidated balance sheet of Sparta Foods, Inc. and
Subsidiary as of September 30, 1999 and the historical balance sheet of Food
Products Corporation (whose audited financial statements are included elsewhere
in this filing) as of October 9, 1999, and assumes that the acquisition was
consummated on September 30, 1999.
The Pro Forma Financial Statements do not purport to represent what the
Company's results of operations or financial condition would actually have been
if the transaction had occurred on the dates indicated or to project the
Company's results of operations or financial condition for or at any future
period or date. The Pro Forma Financial Statements are presented for comparative
purposes only. The pro forma adjustments, as described in the accompanying data,
are based on available information and certain assumptions that management
believes are reasonable.
<PAGE>
Pro Forma Balance Sheet
As of September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Food
Sparta Products Adjustments ProForma
Foods, Inc. Corporation For For
Assets Historical Historical Acquisition Acquisition
-------------------------------------------------------------------------------------
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 2,701,596 $ 332,781 $ (332,781)(1) $ 151,596
(2,550,000)(2)
Accounts receivable 1,263,531 991,592 2,255,123
Inventories 1,466,121 455,897 1,922,018
Prepaid expenses 239,043 70,146 (70,146)(1) 239,043
Deferred tax asset 43,000 -- 43,000
-------------------------------------------------------------------------------------
Total current assets 5,713,291 1,850,416 (2,952,927) 4,610,780
-------------------------------------------------------------------------------------
Property and equipment, net 5,930,854 1,797,836 932,164 (1) 8,660,854
-------------------------------------------------------------------------------------
Other assets:
Restricted cash 198,158 -- 198,158
Goodwill 415,128 215,586 (215,586)(1) 6,307,936
5,892,808 (1)
Covenants not-to-compete 53,916 -- 100,000 (1) 153,916
Deferred financing costs 109,765 -- -- 109,765
Deferred tax asset 227,000 -- 227,000
Other 172,721 26,522 (26,522)(1) 172,721
-------------------------------------------------------------------------------------
1,176,688 242,108 5,750,700 7,169,496
-------------------------------------------------------------------------------------
$ 12,820,833 $ 3,890,360 $ 3,729,937 $ 20,441,130
=====================================================================================
Liabilities and Stockholders' Equity --
Current liabilities: --
Note payable, bank $ -- $ -- $ 2,000,000 (2) $ 2,000,000
Current maturities of long-
term debt 398,282 435,336 (168,736)(1) 1,744,882
1,080,000 (2)
Accounts payable 663,513 342,336 (92,336)(1) 913,513
Accrued expenses 513,244 146,169 (60,861)(1) 598,552
Income taxes payable 7,254 -- 7,254
-------------------------------------------------------------------------------------
Total current liabilities 1,582,293 923,841 2,758,067 5,264,201
-------------------------------------------------------------------------------------
Deferred rent 96,515 -- -- 96,515
-------------------------------------------------------------------------------------
Long-term debt 2,267,719 1,604,965 (1,036,576)(1) 6,206,108
3,370,000 (2)
-------------------------------------------------------------------------------------
Stockholders' Equity
Preferred stock 2,500,000 -- 2,500,000
Common stock 101,914 313,000 (313,000)(1) 101,914
Additional paid-in capital 7,100,150 -- 7,100,150
Retained earnings (deficit) (827,758) 1,048,554 (1,048,554)(1) (827,758)
-------------------------------------------------------------------------------------
8,874,306 1,361,554 (1,361,554)(1) 8,874,306
-------------------------------------------------------------------------------------
$ 12,820,833 $ 3,890,360 $ 3,729,937 $ 20,441,130
=====================================================================================
</TABLE>
<PAGE>
(1)The Acquisition will be accounted for as a purchase,applying the
provisions of Accounting Principles Board Opinion 16. The purchase price
will be allocated to acquired assets and liabilities based on their
relative fair values as of the closing date, determined using valuations
and other studies which are not yet complete. The purchase price and
preliminary allocation of such costs for the Acquisition is as follows,
assuming the Acquisition occurred on September 30, 1999:
<TABLE>
<S> <C>
Purchase price (excluding assumed liabilities of approximately $1,170,000) 9,000,000
-------------------------------------------------------------------------------------------
Book value per historical financial statements 1,361,554 Add (Deduct):
Seller's Cash not purchased (332,781)
Seller's Goodwill not purchased (215,586)
Prepaid expenses not purchased (70,146)
Other Assets not purchased (26,522)
Seller's Long Term Debt not assumed:
Current 168,736
Long-term 1,036,576
Certain Accounts Payable not assumed 92,336
Certain Accrued Expenses not assumed 60,861
-------------------------------------------------------------------------------------------
Adjusted Book value per historical financial statements 2,075,028
Excess of purchase price over net book
value of assets acquired 6,924,972
===========================================================================================
Allocated to:
Property and equipment 932,164
Intangible assets:
Goodwill 5,892,808
Covenant not to Compete 100,000
-------------------------------------------------------------------------------------------
Total allocated 6,924,972
===========================================================================================
(2)Acquisition funding impact on the Pro Forma Balance Sheet:
Use of Cash 2,550,000
Note Payable, bank 2,000,000
Long Term Debt:
Current Maturities 1,080,000
Long-Term 3,370,000
-------------------------------------------------------------------------------------------
Total Funding 9,000,000
===========================================================================================
</TABLE>
<PAGE>
Pro Forma Statement of Operations
Year Ended September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Food
Sparta Products Adjustments ProForma
Foods, Inc. Corporation For For
Historical Historical Acquisition Acquisition
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations Statement Data:
Net sales $ 15,748,588 $ 10,762,438 $ -- $ 26,511,026
Cost of sales 11,082,118 6,314,125 133,000 (1) 17,529,243
-------------------------------------------------------------------------
Gross profit 4,666,470 4,448,313 (133,000) 8,981,783
Selling, general
and administrative
expenses 4,592,758 3,446,216 295,000 (2) 8,333,974
-------------------------------------------------------------------------
Operating income 73,712 1,002,097 (428,000) 647,809
Other income 144,182 14,571 (75,000)(3) 83,753
Interest expense (193,052) (249,736) 165,000 (4) (707,788)
(430,000)(5)
Income tax expense (15,000) -- -- (15,000)
-------------------------------------------------------------------------
Net income 9,842 766,932 (768,000) 8,774
Proforma income tax expense -- (307,000)(6) 303,000 (7) (4,000)
-------------------------------------------------------------------------
Proforma net income $ 9,842 $ 459,932 $ (465,000) $ 4,774
=========================================================================
Proforma net income $ 9,842 $ 459,932 $ (465,000) $ 4,774
Preferred dividends (125,000) -- -- (125,000)
-------------------------------------------------------------------------
Net income (loss) available
to common shareholders $ (115,158) $ 459,932 $ (465,000) $ (120,226)
=========================================================================
Weighted Average Shares
Outstanding
Basic 9,347,958 9,347,958
Diluted 9,433,403 9,433,403
Earnings (loss) per share
Basic $ (0.01) $ (0.01)
Diluted $ (0.01) $ (0.01)
</TABLE>
<PAGE>
(1) Additional depreciation expense on equipment related to purchase price
allocated to such assets in excess of historical cost basis of
approximately $932,000 using a life of 7 years.
(2) Increase in amortization expense related to an overall increase in
goodwill of approximately $5,893,000 and a covenant not to compete of
$100,000 resulting from acquisition using a 20 and 5 year life,
respectively.
(3) Reduction of interest income for the seller's use of cash of
approximately $2,550,000 for acquisition.
(4) Reduction of interest expense for the seller's debt of $1,205,000 not
assumed.
(5) Increase in interest expense related to acquisition debt of $6,450,000.
The annual effect on income of the interest rate ranging by 1/8% on
variable rate debt used in this calculation would be approximately
$4,000 before taxes.
(6) To adjust Food Products Corporation's historical operating statement
data to reflect a profoma tax provision, at an assumed effective rate
of 40%, as if it had been a C corporation.
(7) Decrease in income tax expense by applying an assumed 40% effective tax
rate to the aforementioned proforma adjustments to income before income
taxes.
<PAGE>
(c) Exhibits:
2.1* Asset Purchase Agreement dated as of September 27, 1999, by
and among Sparta Foods, Inc., Food Products Corporation,
Donald R. Charles, David J. Brennan, Kenneth E. Charbonneau
and Michael J. DePinto. Pursuant to Item 601(b)(2) of
Regulation S-K, and subject to claims of confidentiality
pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, upon the request of the Commission Sparta undertakes to
furnish supplementally to the Commission a copy of any
schedule or exhibit to the Asset Purchase Agreement described
as follows:
Exhibit 1.1(a) Equipment
Exhibit 1.1(b) Assumed Names
Exhibit 1.1(b)(ii) Trademarks
Exhibit 1.1(b)(iii) Technology
Exhibit 1.1(c) Accounts Receivable
Exhibit 1.1(f) Premises Lease
Exhibit 1.1(h) Personal Property Leases
Exhibit 1.1(i) Contracts
Exhibit 1.3(c) Miscellaneous Personal Property
Exhibit 1.4(a)(i) Inventory-Related Accounts Payable
Exhibit 1.4(a)(iii) Capital Leases with Bank of the West
Exhibit 3.1(a)(i) Earnest Money Escrow Agreement
Exhibit 3.1(b) Post Closing Escrow Agreement
Exhibit 3.1(c) Promissory Note
Exhibit 3.3 Allocation of Purchase Price
Exhibit 4.5 Subsidiaries
Exhibit 4.6(a) Financial Statements
Exhibit 4.7(a) Tax Reports and Returns
Exhibit 4.7(b) Tax Payments
Exhibit 4.8 Title to Assets
Exhibit 4.9 Location of Assets
Exhibit 4.10 Tangible Personal Property
Exhibit 4.11 Trademarks
Exhibit 4.12 Technology
Exhibit 4.15 Licenses and Permits
Exhibit 4.19(d) Employee Plans
Exhibit 4.19(e) Employee Benefits
Exhibit 4.19(f) Breach
Exhibit 4.20 Contracts with Related Parties
Exhibit 4.21(a) Employee List
Exhibit 4.21(d) Compliance with Employment Laws
Exhibit 4.22 Predominant Customers
Exhibit 4.23 Change in Customers
Exhibit 4.24 Product Liability Claims
Exhibit 4.25 Insurance
Exhibit 4.26(a) Threatened Litigation
Exhibit 4.26(b) Product Liability Actions
Exhibit 6.6 Litigation
Exhibit 6.8 Tax Reports, Returns and Payment
Exhibit 7.2 Restrictions
Exhibit 8.1(j) Employment Contracts
Exhibit 8.1(m) Non-Compete Agreements
<PAGE>
10.1* Secured Subordinated Promissory Note dated October 13, 1999,
by and between Sparta and Food Products Corporation.
10.2* Assignment of Lease dated October 13, 1999, by and between
Sparta and Food Products Corporation and related Lease
Agreement.
10.3* Term Loan and Credit Agreement dated October 13, 1999, by and
between Sparta Foods, Inc. and Norwest Bank Minnesota,
National Association.
10.4* Term Note dated October 13, 1999, issued by Sparta Foods, Inc.
to Norwest Bank Minnesota, National Association.
10.5* Security Agreement dated October 13, 1999, by and between
Sparta Foods, Inc. and Norwest Bank Minnesota, National
Association.
20.1* Press Release dated September 28, 1999.
20.2* Press Release dated October 13, 1999.
23 Consent of McGladrey & Pullen, L.L.P.
* Previously Filed as an Exhibit to Sparta's Current Report on Form 8-K for an
event dated October 13, 1999 and incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934,Sparta has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SPARTA FOODS, INC.
Date: December 20, 1999 By /s/ A. Merrill Ayers
A. Merrill Ayers, Chief Financial Officer
<PAGE>
EXHIBIT INDEX
to
October 13, 1999 Form 8-K
Sparta Foods, Inc.
Exhibit Number Exhibit Description
2.1* Asset Purchase Agreement dated as of September 27, 1999, by and among
Sparta Foods, Inc., Food Products Corporation, Donald R. Charles, David
J. Brennan, Kenneth E. Charbonneau and Michael J. DePinto. Pursuant to
Item 601(b)(2) of Regulation S-K, and subject to claims of
confidentiality pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, upon the request of the Commission Sparta undertakes to
furnish supplementally to the Commission a copy of any schedule or
exhibit to the Asset Purchase Agreement described as follows:
Exhibit 1.1(a) Equipment
Exhibit 1.1(b) Assumed Names
Exhibit 1.1(b)(ii) Trademarks
Exhibit 1.1(b)(iii) Technology
Exhibit 1.1(c) Accounts Receivable
Exhibit 1.1(f) Premises Lease
Exhibit 1.1(h) Personal Property Leases
Exhibit 1.1(i) Contracts
Exhibit 1.3(c) Miscellaneous Personal Property
Exhibit 1.4(a)(i) Inventory-Related Accounts Payable
Exhibit 1.4(a)(iii) Capital Leases with Bank of the West
Exhibit 3.1(a)(i) Earnest Money Escrow Agreement
Exhibit 3.1(b) Post Closing Escrow Agreement
Exhibit 3.1(c) Promissory Note
Exhibit 3.3 Allocation of Purchase Price
Exhibit 4.5 Subsidiaries
Exhibit 4.6(a) Financial Statements
Exhibit 4.7(a) Tax Reports and Returns
Exhibit 4.7(b) Tax Payments
Exhibit 4.8 Title to Assets
Exhibit 4.9 Location of Assets
Exhibit 4.10 Tangible Personal Property
Exhibit 4.11 Trademarks
Exhibit 4.12 Technology
Exhibit 4.15 Licenses and Permits
Exhibit 4.19(d) Employee Plans
Exhibit 4.19(e) Employee Benefits
Exhibit 4.19(f) Breach
Exhibit 4.20 Contracts with Related Parties
Exhibit 4.21(a) Employee List
Exhibit 4.21(d) Compliance with Employment Laws
Exhibit 4.22 Predominant Customers
Exhibit 4.23 Change in Customers
Exhibit 4.24 Product Liability Claims
Exhibit 4.25 Insurance
Exhibit 4.26(a) Threatened Litigation
Exhibit 4.26(b) Product Liability Actions
Exhibit 6.6 Litigation
Exhibit 6.8 Tax Reports, Returns and Payment
Exhibit 7.2 Restrictions
Exhibit 8.1(j) Employment Contracts
Exhibit 8.1(m) Non-Compete Agreements
<PAGE>
10.1* Secured Subordinated Promissory Note dated October 13, 1999, by and
between Sparta and Food Products Corporation.
10.2* Assignment of Lease dated October 13, 1999, by and between Sparta and
Food Products Corporation and related Lease Agreement.
10.3* Term Loan and Credit Agreement dated October 13, 1999, by and between
Sparta Foods, Inc. and Norwest Bank Minnesota, National Association.
10.4* Term Note dated October 13, 1999, issued by Sparta Foods, Inc. to
Norwest Bank Minnesota, National Association.
10.5* Security Agreement dated October 13, 1999, by and between Sparta Foods,
Inc. and Norwest Bank Minnesota, National Association.
20.1* Press Release dated September 28, 1999.
20.2* Press Release dated October 13, 1999.
23 Consent of McGladrey & Pullen, L.L.P.
* Previously Filed as an Exhibit to Sparta's Current Report on Form 8-K for an
event dated October 13, 1999 and incorporated herein by reference.
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the registration
statements (No. 333-02465 and No. 333-44243) on Form S-8 and in the registration
statement (No. 333-04559) on Form S-3 of Sparta Foods, Inc. of our report dated
December 3, 1999 relating to the financial statements of Food Products
Corporation which appears in the Current Report on Form 8-K/A of Sparta Foods,
Inc. dated December 27, 1999.
/s/ McGladrey & Pullen, LLP
Minneapolis, Minnesota
December 27, 1999
