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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission file number 0-20330
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GARDENBURGER, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-0886359
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1411 SW MORRISON STREET, SUITE 400, PORTLAND, OREGON 97205
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 503-205-1500
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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
---------- ----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK WITHOUT PAR VALUE 8,926,001
(Class) (Outstanding at May 5, 2000)
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<PAGE>
GARDENBURGER, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION Page
- ------------------------------ ----
Item 1. Financial Statements
Balance Sheets - March 31, 2000 and September 30, 1999 2
Statements of Operations - Three Month and Six Month
Periods Ended March 31, 2000 and 1999
3
Statements of Cash Flows - Six Months Ended March 31, 2000
and 1999 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
PART II - OTHER INFORMATION
- ---------------------------
Item 2. Changes in Securities and Use of Proceeds 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
GARDENBURGER, INC.
BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
------------------- -------------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,671 $ 7,033
Accounts receivable, net of allowances of
$264 and $301 4,568 6,133
Inventories, net 9,851 7,268
Prepaid expenses 1,814 2,207
Deferred income taxes 5,476 4,775
------------------- -------------------
Total Current Assets 23,380 27,416
Property, Plant and Equipment, net of accumulated
depreciation of $4,436 and $3,960 8,024 10,275
Deferred Income Taxes 12,691 12,691
Other Assets, net of accumulated amortization of
$1,005 and $804 2,145 2,320
------------------- -------------------
Total Assets $ 46,240 $ 52,702
=================== ===================
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
Short-term note payable $ 4,500 $ 5,000
Accounts payable 1,587 6,669
Payroll and related liabilities payable 1,987 941
Other current liabilities 1,921 3,065
------------------- -------------------
Total Current Liabilities 9,995 15,675
Other Long-Term Liabilities 180 199
Convertible Notes Payable 15,000 15,000
Convertible Redeemable Preferred Stock 34,329 32,147
Shareholders' Equity (Deficit):
Preferred Stock, no par value, 5,000,000 shares
authorized - -
Common Stock, no par value, 25,000,000 shares
authorized; shares issued and outstanding:
8,926,001 and 8,841,451 11,110 10,619
Additional paid-in capital 12,405 4,277
Retained deficit (36,779) (25,215)
------------------- -------------------
Total Shareholders' Deficit (13,264) (10,319)
------------------- -------------------
Total Liabilities and Shareholders' Equity (Deficit) $ 46,240 $ 52,702
=================== ===================
</TABLE>
The accompanying notes are an integral part of these balance sheets.
2
<PAGE>
GARDENBURGER, INC.
STATEMENT OF OPERATIONS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three months ended March 31, Six months ended March 31,
--------------------------------- ---------------------------------
2000 1999 2000 1999
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 14,361 $ 13,563 $ 33,111 $ 42,274
Cost of goods sold 7,709 7,353 16,490 21,160
-------------- --------------- --------------- --------------
Gross margin 6,652 6,210 16,621 21,114
Operating expenses:
Sales and marketing 7,002 11,072 13,887 23,363
General and administrative 1,662 1,916 3,675 3,495
Restructuring charge - 1,100 - 1,100
-------------- --------------- --------------- --------------
-------------- --------------- --------------- --------------
8,664 14,088 17,562 27,958
-------------- --------------- --------------- --------------
Operating loss (2,012) (7,878) (941) (6,844)
Other income (expense):
Interest income 25 15 80 35
Interest expense (499) (654) (903) (1,193)
Other, net (166) 10 (184) (3)
-------------- --------------- --------------- --------------
-------------- --------------- --------------- --------------
(640) (629) (1,007) (1,161)
-------------- --------------- --------------- --------------
Loss before benefit from income taxes (2,652) (8,507) (1,948) (8,005)
Benefit from income taxes 954 3,051 694 2,869
-------------- --------------- --------------- --------------
Loss before preferred dividends (1,698) (5,456) (1,254) (5,136)
Preferred dividends 1,093 - 10,309 -
-------------- --------------- --------------- --------------
-------------- --------------- --------------- --------------
Net loss available for common shareholders (2,791) (5,456) (11,563) (5,136)
============== =============== =============== ==============
Net loss per share - basic and diluted $ (0.32) $ (0.62) $ (1.31) $ (0.59)
============== =============== =============== ==============
Shares used in per share calculations 8,850,451 8,761,479 8,849,517 8,711,210
============== =============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
GARDENBURGER, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended March 31,
------------------------------------------
2000 1999
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Loss before preferred dividends $ (1,254) $ (5,136)
Effect of exchange rate on operating accounts (3) (11)
Adjustments to reconcile loss before preferred dividends to
net cash flows used in operating activities:
Deferred income taxes (701) (2,934)
Depreciation and amortization 1,128 1,061
Other non-cash (income) expense 400 285
(Gain) loss on sale of property and equipment 204 (10)
(Increase) decrease in:
Accounts receivable, net 1,565 6,271
Inventories, net (2,583) (8,875)
Prepaid expenses 393 18
Income taxes receivable - 400
Increase (decrease) in:
Accounts payable (5,082) 4,844
Payroll and related liabilities payable 1,046 1,022
Other current liabilities (1,144) (94)
------------------- -------------------
Net cash used in operating activities (6,031) (3,159)
Cash flows from investing activities:
Payments for purchase of property and equipment (371) (7,062)
Proceeds from sale of property and equipment 1,491 6,778
Other assets, net (26) (35)
------------------- -------------------
Net cash provided by (used in) investing activities 1,094 (319)
Cash flows from financing activities:
Proceeds from (payments on) line of credit (500) 1,705
Financing fees related to issuance of convertible notes payable - (121)
Proceeds from exercise of common stock options 72 518
Income tax benefit of non-qualified stock option exercises
and disqualifying dispositions 3 31
------------------- -------------------
Net cash provided by (used in) financing activities (425) 2,133
------------------- -------------------
Decrease in cash and cash equivalents (5,362) (1,345)
Cash and cash equivalents:
Beginning of period 7,033 3,029
------------------- -------------------
End of period $ 1,671 $ 1,684
=================== ===================
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
GARDENBURGER, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND AS OTHERWISE INDICATED)
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
- -----------------------------
The financial information included herein for the three and six-month periods
ended March 31, 2000 and 1999 and the financial information as of March 31, 2000
is unaudited. However, such information reflects all adjustments, consisting
only of normal recurring adjustments, which are, in the opinion of management,
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods. The financial information as
of September 30, 1999 is derived from Gardenburger, Inc.'s (the Company's) 1999
Annual Report on Form 10-K. The interim financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Company's 1999 Annual Report on Form 10-K. The results of operations for the
interim periods presented are not necessarily indicative of the results to be
expected for the full year.
NOTE 2. INVENTORIES
- -------------------
Inventories are valued at standard cost, which approximates the lower of cost
(using the first-in, first-out (FIFO) method) or market, and include materials,
labor and manufacturing overhead.
MARCH 31, SEPTEMBER 30,
2000 1999
------------------ ----------------
Raw materials $2,549 $2,672
Packaging and supplies 558 538
Finished goods 6,744 4,058
------------------ ----------------
$9,851 $7,268
================== ================
NOTE 3. SUPPLEMENTAL CASH FLOW INFORMATION
- ------------------------------------------
Supplemental disclosure of cash flow information is as follows:
SIX MONTHS ENDED MARCH 31,
--------------------------
2000 1999
---------- ----------
Cash paid during the period for income taxes $ 5 $ 6
Cash paid during the period for interest 197 529
Stock issued in exchange for interest expense 419 525
Non-cash preferred dividends 10,309 -
5
<PAGE>
NOTE 4. EARNINGS PER SHARE
- --------------------------
Basic earnings per share ("EPS") and diluted EPS are the same for all periods
presented since the Company was in a loss position in all periods.
Potentially dilutive securities that are not included in the diluted EPS
calculation because they would be antidilutive are as follows:
MARCH 31,
-----------------------------------------
2000 1999
---------------- ---------------
Stock options 3,285 3,192
Convertible notes 1,313 1,163
Convertible preferred stock 4,063 -
---------------- ---------------
Total 8,661 4,355
================ ===============
NOTE 5. LINE OF CREDIT
- -----------------------
In December 1999, the Company entered into a Loan and Security Agreement with
Banc of America Commercial Finance Corporation (the "Agreement"). The Agreement
provides for a line of credit of up to $25.0 million (assuming 30 percent
participation by another lender) and expires on December 23, 2002. The interest
rate on the line is prime plus 0.125%, 9.125% at March 31, 2000. The Company had
$4.5 million outstanding under this line at March 31, 2000. There is one
financial covenant under the Agreement as follows: the Company must not have a
cumulative cash loss in excess of $5.0 million from the origination date of the
Agreement through the expiration date of the Agreement. At March 31, 2000, the
Company was in compliance with this covenant.
NOTE 6. CONVERTIBLE REDEEMABLE PREFERRED STOCK
- -----------------------------------------------
The Company did not meet its performance targets for the twelve months ended
December 31, 1999 as specified in the terms of the Series B Convertible
Preferred Stock and therefore was required to reset the conversion price of the
Series B shares to $3.75 per share from $10.00 per share, effectively increasing
the number of shares of common stock into which the Series B shares are
convertible from 487 to 1,300. As a result, the Company recorded a non-cash
preferred dividend charge of $8.1 million in the first quarter of fiscal 2000.
This charge was credited to additional paid-in capital.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS
-------------
Results of Operations
- ---------------------
Net sales increased to $14.4 million in the three months ended March 31, 2000
(the "second quarter of fiscal 2000") from $13.6 million in the three months
ended March 31, 1999 (the "second quarter of fiscal 1999") and decreased to
$33.1 million for the six months ended March 31, 2000 compared to $42.3 million
for the six months ended March 31, 1999. The increase for the quarter ended
March 31, 2000 compared to the quarter ended March 31, 1999 is due to an
increase in units sold, despite the recent decrease in the Company's couponing
and other discretionary marketing spending. The decrease for the six months
ended March 31, 2000 compared to the same period last year is primarily related
to strong December 1998 sales as customers, especially in the grocery channel,
stocked up on product in anticipation of extensive January 1999 consumer
promotions. In addition, the entire category declined slightly beginning in the
summer of 1999 and continuing through the calendar fourth quarter of 1999. The
Company continues to hold the number one share position in all distribution
channels within which it does business. According to AC Nielsen data, for the
week ending April 8, 2000, the Company's market share was 41.0 percent in the
grocery channel.
Gross margin was $6.7 million and $16.6 million, respectively (46.3 percent and
50.2 percent of net sales, respectively), for the three and six month periods
ended March 31, 2000 compared to $6.2 million and $21.1 million, respectively
(45.8 percent and 49.9 percent of net sales, respectively), for the comparable
periods of fiscal 1999. The increase in the gross margin percentage is primarily
a result of the second production line at the Company's Clearfield plant being
fully on-line. Gross margins in the second quarter of fiscal 2000 were lower
than the first quarter of fiscal 2000 due to one-time start up costs related to
the Company's new Flame Grilled products, which began shipping to grocery
customers in April 2000.
Sales and marketing expense decreased to $7.0 million and $13.9 million,
respectively (48.8 percent and 41.9 percent of net sales, respectively), for the
three and six month periods ended March 31, 2000, compared to $11.1 million and
$23.4 million, respectively (81.6 percent and 55.3 percent of net sales,
respectively), for the three and six month periods ended March 31, 1999. The
Company has reduced its sales and marketing expenditures as it moves to a more
profit driven business model in fiscal 2000 from its more aggressive media
advertising model in fiscal 1999. The Company has significantly reduced its
discretionary marketing expenses and is focusing its marketing spending on areas
that it believes will more efficiently maintain its strong market position,
especially within the grocery channel. As discussed above, the Company has been
able to maintain its number one position within its distribution channels
despite the decrease in marketing spending.
General and administrative ("g&a") expense totaled $1.7 million and $3.7
million, respectively (11.6 percent and 11.1 percent of net sales,
respectively), for the three and six month periods ended March 31, 2000 compared
to $1.9 million and $3.5 million, respectively (14.1 percent and 8.3 percent of
net sales, respectively), for the three and six month periods ended March 31,
1999. The decrease in g&a for the quarter ended March 31, 2000 compared to the
quarter ended March 31, 1999 is primarily the result of lower salaries and
related costs as a result of an organizational downsizing which began in
September of 1999. The increase in the fiscal year to date amount is primarily a
7
<PAGE>
result of increased depreciation expense related to the Company's new
information system, certain one-time severance payments, and certain one-time
costs related to new strategic initiatives, partially offset by the decreased
costs related to having fewer employees.
The Company incurred a restructuring charge of $1.1 million in the first quarter
of 1999 related to the closure of its Portland, Oregon production facility.
Loss from operations was $2.0 million and $0.9 million, respectively, for the
three and six month periods ended March 31, 2000 compared to loss from
operations of $7.9 million and $6.8 million, respectively, for the comparable
periods of fiscal 1999. The decrease in operating loss was primarily a result of
increased gross margin percentages and decreased operating expenses as a
percentage of net sales as discussed above, offset in part by lower sales in the
first quarter of fiscal 2000.
Interest expense was $499,000 and $903,000 respectively, for the three and six
month periods ended March 31, 2000 compared to $654,000 and $1.2 million for the
comparable periods of fiscal 1999 as a result of decreased levels of debt
following the Company's issuance of $32.5 million of convertible preferred stock
in April 1999.
Income taxes are based on an estimated rate of 35.6 percent for the six months
ended March 31, 2000 compared to the 35.8 percent rate used for all of fiscal
1999.
Preferred dividends were $1.1 million and $10.3 million for the three and six
month periods ended March 31, 2000 compared to $0 in the comparable periods of
fiscal 1999. In April 1999, the Company issued $32.5 million of Series A and
Series B convertible preferred stock that is entitled to a 12% cumulative cash
annual dividend, resulting in a non-cash quarterly dividend charge of $975,000.
In addition, the $2.3 million of related issuance costs are being accreted over
five years, the life of the preferred stock, and total approximately $117,000
per quarter. Also, in the first quarter of fiscal 2000, due to an adjustment in
the Series B conversion price to $3.75 per share from $10.00 per share, the
Company recorded a non-cash charge of $8.1 million related to the implied value
of the beneficial conversion feature.
Net loss available for common shareholders was $2.8 million and $11.6 million,
respectively, for the three and six month periods ended March 31, 2000 compared
to $5.5 million and $5.1 million, respectively, for the comparable periods of
fiscal 1999. The $11.6 million loss available for common shareholders for the
six months ended March 31, 2000 includes the additional $8.1 million non-cash
preferred dividends charge in the first quarter of fiscal 2000 as discussed
above.
8
<PAGE>
Liquidity and Capital Resources
- -------------------------------
At March 31, 2000, working capital was $13.4 million. In the first half of
fiscal 2000, working capital increased by $1.6 million compared to September 30,
1999, and the current ratio increased to 2.3:1 from 1.7:1.
Cash and cash equivalents decreased $5.4 million from September 30, 1999,
primarily due to $6.0 million used in operations, $0.4 million used for the
purchase of property and equipment and $0.5 million used for payment on the
Company's line of credit, offset by $1.5 million in proceeds from the sale of
property.
Accounts receivable decreased $1.5 million to $4.6 million at March 31, 2000
from $6.1 million at September 30, 1999. Days sales outstanding decreased to 29
days at March 31, 2000 from 32 days at September 30, 1999.
Inventories increased $2.6 million to $9.9 million at March 31, 2000 from $7.3
million at September 30, 1999 in order to build finished goods of existing
products in anticipation of the start up of the new Flame Grilled product
production at the end of March 2000. Inventory turned 3 times on an annualized
basis in the second quarter of fiscal 2000 compared to 2 times on an annualized
basis in the second quarter of fiscal 1999.
The Company recorded a benefit from income taxes of $15.0 million related to
$41.2 million of net operating loss carryforwards ("NOLs") through September 30,
1999 and has recorded an additional tax benefit of $694,000 as a result of a
$1.9 million loss before income taxes for the six months ended March 31, 2000.
No valuation allowance has been recorded against the deferred tax asset for the
Company's net operating losses. Management has determined, based primarily on a
strategic shift in the fourth quarter of fiscal 1999 to a more profit driven
business model, that taxable income of the Company will more likely than not be
sufficient to utilize fully the NOLs prior to their ultimate expiration date.
The Company's basis for such assertion is its expectation that the high level of
discretionary expenses incurred in recent years will decline substantially as
the Company moves to a more profit driven business model. In addition, the
Company believes its recent workforce downsizing and production facility
consolidation will have a significant positive impact on future results of
operations.
Realization of the future tax benefits is dependent on the Company's ability to
generate taxable income within the carryforward period. Management anticipates
that increases in taxable income, as a result of the changes in operating
strategy outlined above, will be sufficient to utilize fully the NOLs prior to
their ultimate expiration dates in the years 2018 through 2019.
Future levels of operating income are dependent upon general economic
conditions, including continued growth of the meatless burger category,
competitive pressures on sales and gross margins and other factors beyond the
Company's control, and no assurance can be given that sufficient taxable income
will be generated for full utilization of the NOLs. Management has considered
the above factors in reaching its conclusion that it is likely that taxable
income will be sufficient to utilize fully the NOLs in the near term and prior
to their ultimate expiration date. However, the Company may be required to
record a valuation allowance against the deferred tax asset for net operating
losses in future periods if its revised business goals are not achieved.
9
<PAGE>
Accounts payable decreased $5.1 million to $1.6 million at March 31, 2000 from
$6.7 million at September 30, 1999, primarily as a result of production being
curtailed in March 2000 to install certain equipment and the timing of payments
made.
Payroll and related liabilities increased $1.1 million to $2.0 million from $0.9
million primarily as a result of accrued retention compensation agreements in
the first and second quarters of fiscal 2000 that did not occur in the first two
quarters of fiscal 1999.
Capital expenditures of $416,000 during the first half of fiscal 2000 primarily
resulted from expenditures for the Company's information systems. Capital
expenditures are estimated to total approximately $1.0 million for fiscal 2000,
primarily for information systems infrastructure and production equipment.
Additional paid-in capital increased $8.1 million to $12.4 million at March 31,
2000 from $4.3 million at September 30, 1999 as a result of the $8.1 million
related to the implied value of the beneficial conversion feature of the Series
B convertible preferred stock.
The Company has outstanding $15.0 million of 7 percent Convertible Senior
Subordinated Notes (the "Notes") held by Dresdner Kleinwort Benson Private
Equity Partners L.P. ("Dresdner"). The Notes are convertible into shares of the
Company's Common Stock at the option of the holder until maturity in 2003, at
which time they will be due in full if not previously converted. The Company may
also elect to redeem the Notes, if not previously converted, at any time after
March 27, 2000. The conversion price of the Notes at March 31, 2000 was $11.42
per share, as adjusted to reflect the issuance of convertible preferred stock
and the adjustment of the conversion price of the Company's Series B convertible
preferred stock, as well as other stock issuances and stock option grants.
Under the terms of the Note Purchase Agreement, as amended, relating to the
Notes, the Company must comply with one financial covenant as follows: the
Company must not have a cumulative cash loss in excess of $5.0 million from
December 23, 1999 through December 23, 2002. At March 31, 2000, the Company was
in compliance with this covenant.
In April 1999, the Company closed a stock purchase agreement selling $32.5
million of convertible preferred stock to several investors. Under the terms of
the agreement, the Company sold an aggregate of 2,762,500 shares of Series A
convertible preferred stock and 487,500 shares of Series B convertible preferred
stock to members of the investor group, at a price of $10 per share for each
series, or an aggregate consideration of $32.5 million, and received net
proceeds of $30.2 million. At March 31, 2000, the Series A preferred shares were
convertible at a price of $10 per share and the Series B preferred shares were
convertible at $3.75 per share (subject to antidilution adjustments) at any time
following issuance at the discretion of the holder. The Company did not meet
certain performance targets for the twelve months ended December 31, 1999
specified in the terms of the Series B convertible preferred stock, triggering
an adjustment in the Series B conversion price to $3.75 per share from $10.00
per share. As a result of the adjustment, the Company recorded an approximately
$8.1 million non-cash charge for additional preferred dividends to account for
the implied value of the beneficial conversion feature. Both series of preferred
stock are entitled to a 12 percent cumulative annual dividend payable upon
redemption of the stock or in the event of a sale or liquidation of the Company.
Shares may not be redeemed until five years after the original date of issuance,
10
<PAGE>
at which time they may be redeemed at the election of the holders or, under
certain conditions, at the discretion of the Company. The redemption value,
exclusive of accrued but unpaid dividends, of the Series A and Series B
convertible preferred stock is $27.6 million and $4.9 million, respectively. The
difference between the carrying amount and the redemption value of the
convertible preferred stock is being accreted as additional preferred dividends
over the period until redemption.
In December 1999, the Company entered into a Loan and Security Agreement with
Banc of America Commercial Finance Corporation (the "Agreement"). The Agreement
provides for a line of credit of up to $25.0 million (assuming 30 percent
participation by another lender) and expires on December 23, 2002. The interest
rate on the line is prime plus 0.125%, 9.125% at March 31, 2000. The Company had
$4.5 million outstanding under this line at March 31, 2000. There is one
financial covenant under the Agreement as follows: the Company must not have a
cumulative cash loss in excess of $5.0 million from the origination date of the
Agreement through the expiration date of the Agreement. At March 31, 2000, the
Company was in compliance with this covenant.
The Company leases various food processing, production and other equipment in
use at its Clearfield, Utah production facility pursuant to two lease agreements
between the Company and BA Leasing & Capital Corporation ("BA Capital"), an
affiliate of Bank of America. Each lease agreement contains a cross-default
provision stating that any default under any other borrowing or credit agreement
that includes a failure to make payment when due or gives the holder a right of
acceleration constitutes an event of default under each lease agreement. If any
event of default by the Company occurred under the lease agreements with BA
Capital, the Company's manufacturing capacity would be significantly curtailed
or even eliminated if BA Capital were to exercise its right to sell the
equipment. In addition, neither lease agreement contains express provisions
giving the Company a right to purchase the equipment at the end of the lease
terms, which range from five to seven years, depending upon the equipment.
NEW ACCOUNTING PRONOUNCEMENT
In June 1999, the FASB issued Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
137"). SFAS 137 is an amendment to Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS
137 establishes accounting and reporting standards for all derivative
instruments. SFAS 137 is effective for fiscal years beginning after June 15,
2000. The Company does not currently have any derivative instruments and,
accordingly, does not expect the adoption of SFAS 137 to have an impact on its
financial position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
The Company's only financial instrument with market risk exposure is its
variable rate line of credit. At March 31, 2000, the Company had $4.5 million
outstanding under this credit line at an annual interest rate of 9.125 percent.
A hypothetical 10 percent change in interest rates would not have a material
impact on the Company's cash flows.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- ------- -----------------------------------------
The Company issued 75,550 shares of its Common Stock to Dresdner in satisfaction
of $419,303 of the $525,000 interest payment due on the Notes on March 31, 2000.
The Company relied on the exemption from registration provided by Section 4(2)
of the Securities Act of 1933 with respect to the issuance of these shares.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
The annual meeting of the shareholders of the Company was held on February 14,
2000, at which time the following action was taken:
1. The eight nominees for election by the holders of Common Stock and
Preferred Stock and the two director nominees for election by the holders
of the Series A Preferred Stock as directors of the Company were elected.
The voting results follow:
Director Name Shares Voted For Shares Withheld
------------- ---------------- ---------------
Lyle G. Hubbard 9,812,007 163,931
Alexander P. Coleman 9,833,277 142,661
Ronald C. Kesselman 9,831,557 144,381
Richard L. Mazer 9,833,877 142,061
Mary O. McWilliams 9,827,602 148,336
Michael L. Ray 9,828,417 147,521
E. Kay Stepp 9,805,280 170,658
Paul F. Wenner 9,815,245 160,693
Kyle A. Anderson 1,474,750 -
Jason M. Fish 1,474,750 -
ITEM 5. OTHER INFORMATION
- ------- -----------------
Mary Dillon, the Company's Senior Vice President of Retail Sales and Marketing,
has announced her resignation effective June 2, 2000. Her position will be
eliminated as part of the Company's continuing efforts to streamline the
organization and to reflect the Company's reduced emphasis on media advertising.
Ms. Dillon has accepted a position with Quaker Oats Company in Chicago, Illinois
as its Vice President of New Brand Management and Offering Development in its
U.S. Beverages Division, which includes the marketing of Gatorade, a $1.6
billion dollar brand. Her resignation meets the dual objectives of her desire to
return to the Chicago area and the Company's emphasis on a reduced overhead
structure.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) THE EXHIBITS FILED AS A PART OF THIS REPORT ARE LISTED BELOW AND THIS LIST
IS INTENDED TO COMPRISE THE EXHIBIT INDEX:
Exhibit No.
----------
10.1 Loan and Security Agreement dated December 23, 1999 between Banc of
America Commercial Finance Corporation through its Commercial Funding
Division and the Company.(1)
10.2 First Amendment dated December 30, 1999 to Note Purchase Agreement
dated March 27, 1998 between Dresdner Kleinwort Benson Private Equity
Partners LP and the Company.(1)
27 Financial Data Schedule.
(1) Previously filed with the Company's Form 10-Q for the quarter ended December
31, 1999, as filed with the Securities and Exchange Commission on February 9,
2000 and is incorporated herein by reference.
(b) REPORTS ON FORM 8-K:
There were no reports on Form 8-K filed during the quarter ended March 31,
2000.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 12, 2000 GARDENBURGER, INC.
By: /s/ Lyle G. Hubbard
-------------------------------------
Lyle G. Hubbard
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ Lorraine Crawford
-------------------------------------
Lorraine Crawford
Corporate Controller and Acting Chief
Financial Officer
(Principal Accounting Officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
Company's balance sheets and related statements of operations as of and
for the period March 31, 2000 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 1,671
<SECURITIES> 0
<RECEIVABLES> 4,832
<ALLOWANCES> 264
<INVENTORY> 9,851
<CURRENT-ASSETS> 23,380
<PP&E> 12,460
<DEPRECIATION> 4,436
<TOTAL-ASSETS> 46,240
<CURRENT-LIABILITIES> 9,995
<BONDS> 19,500
34,329
0
<COMMON> 11,110
<OTHER-SE> (24,374)
<TOTAL-LIABILITY-AND-EQUITY> 46,240
<SALES> 33,111
<TOTAL-REVENUES> 33,111
<CGS> 16,490
<TOTAL-COSTS> 16,490
<OTHER-EXPENSES> 17,562
<LOSS-PROVISION> 20
<INTEREST-EXPENSE> 903
<INCOME-PRETAX> (1,948)
<INCOME-TAX> (694)
<INCOME-CONTINUING> (11,563)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,563)
<EPS-BASIC> (1.31)
<EPS-DILUTED> (1.31)
</TABLE>
