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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-Q
(Mark One)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 28, 1998.
( ) 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 0-22534-LA
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MONTEREY PASTA COMPANY
DELAWARE 77-0227341
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1528 MOFFETT STREET
SALINAS, CALIFORNIA 93905
(Address of principal executive offices)
TELEPHONE: (408) 753-6262
(Registrant's telephone number, including area code)
------------------------
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 ___
At August 7, 1998, 12,842,613 shares of common stock, $.001 par value, of
the registrant were outstanding.
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<PAGE>
MONTEREY PASTA COMPANY
FORM 10-Q
TABLE OF CONTENTS
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (unaudited) June 28, 1998
and December 28, 1997
Condensed Consolidated Statements of Operations (unaudited)
Second Quarter Ended June 28, 1998 and June 29, 1997 and the
Six Months Ended June 28, 1998 and June 29, 1997
Condensed Consolidated Statements of Cash Flows (unaudited) Six
Months Ended June 28, 1998 and June 29, 1997
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K and S-8
Signature Page
Exhibit Index
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MONTEREY PASTA COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
June 28, December 28,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................... $161,894 $410,228
Accounts receivable, net........................ 2,190,507 2,440,745
Inventories .................................... 1,111,010 1,218,546
Prepaid expense and other ...................... 979,630 1,519,801
------------ ------------
Total current assets.......................... 4,443,041 5,589,320
Property and equipment, net ...................... 5,266,072 5,057,846
Intangible and other assets, net.................. 195,483 101,582
Deposits and other................................ 268,593 280,245
------------ ------------
Total assets.................................. $10,173,189 $11,028,993
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft.................................. $ -- $5,692
Accounts payable................................ 1,175,284 949,036
Accrued liabilities ............................ 564,660 917,132
Current portion of long-term debt.............. 1,762,450 1,273,216
------------ ------------
Total current liabilities..................... 3,502,394 3,145,076
Long-term debt.................................... 1,127,422 523,701
Commitments and contingencies
Stockholders' equity:
Common stock.................................... 39,393,473 42,640,107
Shareholder note receivable..................... -- (562,500)
Accumulated deficit............................. (33,850,100) (34,717,391)
------------ ------------
Total stockholders' equity.................... 5,543,373 7,360,216
------------ ------------
Total liabilities and stockholders' equity.... $10,173,189 $11,028,993
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
MONTEREY PASTA COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
------------------------ -------------------------
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net revenues from continuing
operations.......................... $6,307,531 $5,552,631 $12,290,390 $12,088,133
Cost of sales......................... 3,735,300 3,098,124 7,333,876 6,828,453
------------ ----------- ------------ ------------
Gross profit.......................... 2,572,231 2,454,507 4,956,514 5,259,680
Selling, general and administrative
expenses............................ 1,918,677 2,099,555 3,951,576 5,037,326
Loss on disposition or impairment
of assets........................... 7,519 117,666 7,519 259,680
------------ ----------- ------------ ------------
Operating income (loss)............... 646,035 237,286 997,419 (37,326)
Interest expense...................... (81,761) (50,932) (124,813) (111,369)
Other income, (net)................... (3,933) -- 12,452 --
------------ ----------- ------------ ------------
Income (loss) from continuing
operations before provision for
income taxes........................ 560,341 186,354 885,058 (148,695)
Provision for income taxes............ (17,768) (3,110) (17,768) (14,982)
------------ ----------- ------------ ------------
Net income (loss) from continuing
operations.......................... 542,573 183,244 867,290 (163,677)
Net recovery (loss) from
discontinued operations............. -- 36,882 -- 36,882
------------ ----------- ------------ ------------
Net income (loss) $542,573 $220,126 $867,290 ($126,795)
Net income (loss) per common share and
common equivalent share:
Net income (loss) from continuing
operations.......................... $542,573 $183,244 $867,290 ($163,677)
Dividends to preferred and certain
common stockholders................. -- (64,098) -- (159,098)
------------ ----------- ------------ ------------
Net income (loss) from continuing
operations attributable to common
stockholders........................ $542,573 $119,146 $867,290 ($322,775)
============ =========== ============ ============
Basic and diluted income
(loss) per share:
Continuing operations............... $0.04 $0.02 $0.06 ($0.03)
Discontinued operations............. -- 0.00 -- 0.00
------------ ----------- ------------ ------------
Net income (loss )per common share.. $0.04 $0.02 $0.06 ($0.03)
============ =========== ============ ============
Weighted average common and common
equivalent shares outstanding....... 12,541,812 8,746,683 13,415,656 9,792,397
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
MONTEREY PASTA COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
June 28, June 29,
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) from continuing operations........ $867,290 ($163,678)
Adjustments to reconcile net income (loss) from
continuing operations to net cash provided by
(used in) operating activities:
Depreciation and amortization..................... 487,853 485,518
Loss on disposition of property and equipment..... 7,519 259,680
Expenses paid in common stock options............. 51,000 27,669
Provisions for allowances for bad debts,
returns, adjustments and spoils................. 42,493 (512,245)
Changes in assets and liabilities:
Accounts receivable............................. 207,745 507,213
Inventories..................................... 107,536 368,456
Prepaid expenses and other...................... 551,823 493,298
Accounts payable................................ 226,248 (230,827)
Accrued expenses................................ (352,472) (1,203,167)
------------ ------------
Net cash provided by continuing operations...... 2,197,035 31,917
Net cash used in discontinued operations......... -- (124,701)
------------ ------------
Net cash provided by (used in)
operating activities.......................... 2,197,035 (92,784)
------------ ------------
Cash flows provided by (used in) investing
activities:
Proceeds from sale of assets...................... 5,293 158,896
Purchase of intangibles and other assets.......... (109,599) (94,402)
Repurchase of common stock........................ (2,735,873) --
Purchase of property and equipment................ (693,193) (160,527)
------------ ------------
Net cash used in investing activities.......... (3,533,372) (96,033)
------------ ------------
Cash flows from (used by) financing activities:
Bank overdrafts................................... (5,692) (458,029)
Proceeds from revolving line of credit............ 1,475,467 11,133,844
Repayments on revolving line of credit............ (1,918,084) (11,273,365)
Proceeds from long-term debt and capital
lease obligations................................ 2,503,265 --
Repayment of long-term debt and capital
lease obligations................................ (967,693) (563,781)
Proceeds from issuance of common stock............ 740 1,980,865
Dividends to preferred and certain
common stockholders.............................. -- (7,142)
------------ ------------
Net cash provided by financing activities....... 1,088,003 812,392
------------ ------------
Net increase (decrease) in cash..................... (248,334) 623,575
Cash and cash equivalents at beginning of period.... 410,228 724,729
------------ ------------
Cash and cash equivalents at end of period.......... $161,894 $1,348,304
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
MONTEREY PASTA COMPANY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The condensed consolidated financial statements have been prepared by
Monterey Pasta Company (the "Company") and are unaudited. Certain
amounts shown in the 1997 financial statements have been reclassified to
conform with the current presentation. The financial statements have
been prepared in accordance with the instructions for Form 10-Q and,
therefore, do not necessarily include all information and footnotes
required by generally accepted accounting principles and should be read
in conjunction with the Company's 1997 Annual Report on Form 10-K.
In the opinion of the Company, all adjustments necessary to present
fairly the Company's consolidated financial position, results of
operations and cash flows as of June 28, 1998, and for all periods
presented, have been recorded. A description of the Company's
accounting policies and other financial information is included in the
audited consolidated financial statements as filed with the Securities and
Exchange Commission in the Company's Form 10-K for the year ended
December 28, 1997. The consolidated results of operations for the
interim quarterly periods are not necessarily indicative of the results
expected for the full year.
2. Statement of Cash Flows
Non-Cash Investing and Financing Activities:
In April 1997, the Company's then current Chief Executive Officer
agreed to purchase 550,000 shares of Common Stock based on an
agreement containing various time-served and performance conditions
with a full recourse note due December 31, 1997. A portion of the
shares were repurchasable by the Company at the original price of
$1.88 if the conditions were not met and, therefore, 250,000 shares
were forfeited during 1997. On December 31, 1997, the note in the
amount of $562,500 was converted to non-interest bearing and non-
recourse, and was extended for two years with an expiration of
December 31, 1999. The shares were reclassified as options and the
$51,000 calculated as the fair market value under the Black-Scholes
method was recorded as an expense during the first quarter of 1998
(see Note 8).
3. New Accounting Pronouncements
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 132,
Employers' Disclosures about Postretirement Benefits. SFAS No. 132
standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan
assets that will facilitate financial analysis, and eliminates certain
disclosures that are no longer as useful as they were when previous
related accounting standards were issued.
SFAS 132 is effective for financial statements for years beginning after
December 15, 1997 and requires comparative information for earlier
years to be restated unless the information is not readily available, in
which case the notes to the financial statements should include all
available information and a description of the information not available.
Management has not yet determined whether the Company's current
financial statement disclosures will need to be modified based upon
current operations. Results of operations and financial position will be
unaffected by implementation of this standard.
4. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
June 28, December 28,
1998 1997
------------ ------------
<S> <C> <C>
Production--Ingredients.................. $434,373 $602,428
Production--Finished goods............... 436,827 382,736
Paper goods and packaging materials...... 294,810 288,382
------------ ------------
1,166,010 1,273,546
Allowances for spoils and obsolescence... (55,000) (55,000)
------------ ------------
$1,111,010 $1,218,546
============ ============
</TABLE>
5. Property and Equipment
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
June 28, December 28,
1998 1997
------------ ------------
<S> <C> <C>
Machinery and equipment.................... $4,698,547 $4,459,088
Leasehold improvements..................... 1,811,990 1,809,946
Computers, office furniture and equipment.. 747,747 743,747
Vehicles................................... 310,942 233,942
------------ ------------
7,569,226 7,246,723
Less accumulated depreciation and
amortization............................. (2,699,320) (2,252,842)
------------ ------------
4,869,906 4,993,881
Construction in progress................... 396,166 63,965
------------ ------------
$5,266,072 $5,057,846
============ ============
</TABLE>
6. Notes, Loans, and Capitalized Leases Payable
Components of debt include the following:
<TABLE>
<CAPTION>
June 28, December 28,
1998 1997
------------ ------------
<S> <C> <C>
Credit Facility:
Receivable and inventory revolver........ $510,277 $952,894
Equipment revolver....................... 358,333 --
Equipment term loan...................... 1,750,000 636,371
Capitalized leases payable................. 271,262 207,652
------------ ------------
2,889,872 1,796,917
Less current maturities.................. 1,762,450 1,273,216
------------ ------------
$1,127,422 $523,701
============ ============
</TABLE>
Credit Facility
The Company has in place the following credit facility through
7/22/99:
o Accounts receivable and inventory revolver for up to $1,500,000 with
interest at prime (8.50% at 6/28/98)
o Equipment revolver for up to $500,000 with interest at prime plus .75%
(9.25% at 6/28/98), payable at $13,889 monthly, plus interest
o Term note for up to $2,000,000 plus interest at prime plus .75% (9.25%
at 6/28/98 payable at $83,333 monthly, plus interest
The equipment revolver is amortized as a long term loan in the
accompanying balance sheets.
7. Income Taxes
Federal and State of California income tax for the six months ended
June 28, 1998, were fully offset by net operating loss carryforwards.
The tax expense listed on the Statement of Operations for 1997 and 1998
comparable periods is for certain State taxes.
8. Stockholders' Equity
Common Stock
As disclosed in Company's Form 10-K, on March 5, 1998, the Company repurchased
2,365,066 shares of its common stock from its largest stockholder, Clearwater
Fund IV, Ltd. for a per share price of $1.1375 and a total consideration of
$2,690,000. The repurchase was in response to a notification on February 13,
1998 by the NASDAQ Stock Market, Inc. ("NASDAQ") that the Company's Series A
convertible Preferred stock offering, as amended by the Series A-1 Agreement
in March of 1997 had violated Rule 4460(i)(l)9D)(ii) which requires
shareholder approval prior to the issuance of securities convertible into
common stock equal to, or in excess of, 20% of outstanding shares at the time
of issuance. The NASDAQ required the Company to repurchase the shares, or
face delisting from the National NASDAQ market.
In April 1997, the Company's then current Chief Executive Officer agreed to
purchase 550,000 shares of common stock based on an agreement containing
various time-served and performance restrictions with a full recourse note
due December 31, 1997. Certain of the performance restrictions were not met
and 250,000 shares were forfeited during 1997, leaving 300,000 shares
outstanding at December 28, 1997. The note, with a remaining balance of
$562,500, was converted to a non-interest bearing non-recourse status
effective December 31, 1997 with an expiration date of December 31, 1999.
Because the new note is non-recourse, the shares and related note are treated
for accounting purposes as canceled and replaced with options. The $51,000
fair value of the resulting option grant was recorded as an expense
during the first quarter of 1998.
9. Litigation and Contingencies
There are no material pending legal proceedings, other than routine
litigation incidental to the Company's business, to which the Company
is a party or to which any of its property is subject. The Company's
former restaurant subsidiary, UFO, has been a defendant in several
lawsuits alleging breach of lease relating to restaurants closed in 1995
and 1996, and other vendor related cases. The Company sold UFO in
1996 and contractually UFO continues to have sole responsibility for
such litigation. Although there can be no assurance given as to the
results of such legal proceedings, based upon information currently
available, management does not believe these proceedings will have a
material adverse effect on the financial position or results of operations
of the Company.
On August 5, 1997, Lance Mortensen, former President, Chief
Executive Officer and director of the Company, filed a complaint
against the Company for breach of implied covenant of good faith and
fair dealing relating to a written employment contract. The lawsuit was
settled during May of 1998 through binding arbitration with no current
profit or loss impact.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The following discussion should be read in conjunction with the
financial statements and related notes and other information included
in this report. The financial results reported herein do not indicate the
financial results that may be achieved by the Company in any future
period.
Other than the historical facts contained herein, this Quarterly Report
contains forward-looking statements that involve substantial risks and
uncertainties. For a discussion of such risks and uncertainties, please
see the Company's Annual Report on Form 10-K for the year ended
December 28, 1997. In addition to the risks and uncertainties
discussed in the Annual Report, the risks set forth herein, including
the Company's recent operating losses and ability to attract and retain
qualified management, should be considered.
Background
Monterey Pasta Company was incorporated in June 1989 as a
producer of refrigerated gourmet pasta and sauces to restaurants and
grocery stores in the Monterey, California area. The Company has
since expanded its operations to provide its products to grocery and
club stores throughout the United States. The Company's overall
strategic plan is to enhance the value of the Monterey Pasta Company
brand name by distributing its gourmet pasta products through
multiple points of distribution.
The Company sells its pasta and pasta sauces through leading
grocery store chains and club stores. As of June 28, 1998, more than
3,100 grocery and club stores offered the Company's products. The
Company plans to continue expansion of its distribution to grocery
and club stores in its current market area and to further its penetration
in other geographic regions of the U.S.
Monterey Pasta's objective is to become the leading national
supplier of refrigerated gourmet pasta and pasta sauces through
distribution of its products to grocery and club stores. The key
elements of the Company's strategy include the following:
Create brand awareness by communicating to the
consumer that Monterey Pasta Company provides a
healthful and nutritious line of products and to promote
repeat business by reinforcing positive experiences with
the Company's products.
Introduce new products on a timely basis to maintain
customer interest and to respond to changing consumer
tastes. In order to maximize its margins, the Company
will focus its efforts on those new products that can be
manufactured and distributed out of its Salinas,
California facility and will supplement its existing line of
cut pasta, ravioli, tortelloni, tortellini, and sauces.
Reduce total operating costs through continual evaluation
of administrative and production staffing and procedures.
The Company will consider additional capital
improvements at its manufacturing facility in order to
increase production efficiencies and capacities, and to
reduce the Company's cost of goods.
Expand market share through same-store revenue
growth, addition of new grocery and club store chains,
geographic diversification, and product line expansion,
including creation of additional meal occasions using
Monterey Pasta products.
The Company will continue to direct its advertising
and promotional activities to specific programs customized to suit its
retail grocery and club store accounts. These will include in-store
demonstrations, coupons, scan backs, cross-couponing and other
related activities. There can be no assurance that the Company will be
able to increase its net revenues from grocery and club stores.
Because the Company will continue to make expenditures associated
with the expansion of its business, the Company's results of
operations may be affected.
The success of the Company's efforts will depend on three
key factors: (1) whether grocery and club store chains will continue to
increase the number of their stores offering the Company's products,
(2) whether the Company can continue to increase the number of
grocery and club store chains offering its products, and (3) continued
introduction of new products that meet consumer acceptance.
Grocery and club store chains continually re-evaluate the products
carried in their stores, and no assurances can be given that the chains
currently offering the Company's products will continue to do so in
the future or that such chains will not reduce the number of stores
carrying the Company's products.
Results of Operations
Net revenues from continuing operations were $6,307,000
for the second quarter ended June 28, 1998, as compared to
$5,553,000 for the second quarter ended June 29, 1997. For the six
months ended June 28, 1998, net revenues increased $202,000 to
$12,290,000 from $12,088,000 for the six months ended June 29,
1997. The increase in sales over last year resulted primarily from the
Company's additional club store distribution.
Gross profit was $2,572,000 or 41% of net revenues for the
second quarter 1998, compared to $2,455,000 or 44% for the second
quarter of 1997. For the six months ended June 28, 1998, gross
profit was $4,957,000 or 41% compared to $5,260,000 or 43% for
the six months ended June 29, 1997. This compares to a 41% gross
margin for the year ended December 28, 1997. Gross margins for
the first six months were impacted by the intense new product
development discussed in the "Sales and Marketing" section which
follows.
Selling, general and administrative expenses ("SG&A") for
the second quarter ended June 28, 1998, were $1,919,000, a decrease
of 9% when compared to $2,100,000 in the same quarter last year.
For the six months ended June 28, 1998, SG&A totaled $3,952,000, a
decrease of 21% when compared to $5,037,000 in the same period
last year. Management believes that the current level of SG&A
expenses is consistent with efficient operations, and additional
expenses in future months, mainly in the sales and marketing area,
will be directly associated with increased levels of profitable sales.
Depreciation and amortization expense, included in cost of
sales and SG&A, was $250,000 or 4% of net revenues for the quarter
ended June 28, 1998, compared to $231,000 or 4% of net revenues
for the quarter ended June 29, 1997. For the six months ended June
28, 1998, depreciation and amortization expense was $488,000,
compared to $486,000 for the same period a year ago.
Loss on disposition of fixed assets was $8,000 for the second
quarter ended June 28, 1998, compared to $118,000 for the second
quarter last year. For the six months ended June 28, 1998, loss on
disposition of fixed assets was also $8,000 compared to $260,000 for
the six months ended June 29, 1997.
Net interest expense was $82,000 for the quarter ended June
28, 1998, compared to $51,000 for the same quarter in 1997. For
the six months ended June 28, 1998, net interest expense was
$124,000 compared to $111,000 for the six months ended June 29,
1997. The net increase in interest expense is a result of the
repurchase of 2.36 million shares of stock from the Company's largest
stockholder, Clearwater Fund IV, Ltd., at a cost of $2.7 million,
most of which was borrowed from Imperial Bank, the Company's
lender.
Liquidity and Capital Resources
During the six month period ended June 28, 1998,
$2,197,000 of cash was provided by the Company's continuing
operations, compared to $32,000 cash provided in the first six months
of 1997. The 1998 improvement was primarily related to a
continuing operations profit of $867,000 in first six months of 1998,
compared with a loss of $164,000 in first six months 1997, and a
reduction of accounts receivable, inventory, and prepaid expenses,
combined with an increase in accounts payable relative to year end
1997.
The Company believes that its existing credit facilities, together with
cash flow from operations, is sufficient to meet its cash needs for
normal operations for the next twelve months.
Sales and Marketing
The Company's sales and marketing strategy targets
sustainable growth. Its focus is on increasing sales through expansion
of its club store and retail grocery business, increasing its distribution
through the rapidly growing number of natural and organic food
retailers, and the introduction of innovative new products designed to
meet consumer needs.
The Company enhanced its strong, ongoing relationship with
Costco in the second quarter of 1998, gaining approval for nine new
items to be sold in up to 60 Costco warehouses in the Northeast, Mid-
Atlantic and Southeast States. In the retail sector, the Company added
D & W Food Centers, a Grand Rapids, Michigan based chain with 25
stores.
Monterey Pasta's products are made with no preservatives or
artificial ingredients. Capitalizing on this strength, the Company is
pursuing increased distribution through natural and organic food
retailers, whose growth has exceeded 20% annually in recent years.
The Company estimates there are 450 potential natural and organic
retail grocery locations available for its products.
The Company has introduced a new "Restaurant Style" line
of pastas and sauces which feature the largest ravioli available to the
grocery consumer. The company feels that the uniqueness of these
new, larger products will generate a strong acceptance of the product
line into both retail and club store accounts. The Company also has
introduced a new line of Gourmet Meat Sauces to take advantage of a
trend which shows meat sauces to be the highest growth area of the
prepared sauce category. The product line is unique in that it is the
first refrigerated, fresh line of meat sauces available to the consumer.
The Company's new product offerings have also included the
introduction of items into the growing home meal replacement
("HMR") category. The Company introduced its first three products
in the HMR line in early 1998 in its Direct Store Delivery stores. In
the second quarter, it began introducing these items into additional
retail stores on an expanded basis.
Major Customers
Two of the Company's customers, Costco and Sam's Club
Stores, accounted for 45% and 32%, respectively, of the Company's
sales for the six months ended June 28, 1998. No other customer
accounted for greater than 10% of net revenues for the period.
Business Risks
Certain characteristics and dynamics of the Company's
business and of financial markets generally create risks to the
Company's long-term success and to predictable quarterly results.
These risks include:
Recent Operating Losses: No Assurance of Continued
Profitability. The Company's profitability began to decline in
1994. In the second quarter of 1994, the Company reported its
first operating loss from continuing operations. Since then, the
Company has reported losses in nine of sixteen quarters. The
Company's net income from continuing operations for the second
quarter ended June 28, 1998 was $543,000, a fifth consecutive
profitable quarter. At June 28, 1998, the Company had an
accumulated deficit of $33,850,000. There can be no assurance
that the Company will maintain its recent profitability in the long
term.
Liquidity: Need for Additional Capital. Management believes
that its operations and existing bank lines of credit will provide
adequate liquidity to meet the Company's planned capital and
operating requirements through mid-1999. If the Company's
operations do not provide cash sufficient to fund its operations,
and the Company seeks outside financing, there can be no
assurance that the Company will be able to obtain such financing
when needed, on acceptable terms, or at all. In addition, any
future equity financing or convertible debt financing would cause
the Company's shareholders to incur dilution in net tangible book
value per share of Common Stock.
Hiring and Retention of Key Personnel: Management Transition.
The success of the Company depends on its ability to operate
under new management that was retained in mid-1997, and to
motivate and retain key employees and officers. There can be no
assurance that the Company's new management team will be able
to perform effectively, or that significant management turnover
will not continue in the future. At August 5, 1998 there are no
keyman insurance policies in place.
Impact of Inflation. The Company believes that inflation has not
had a material impact on its operations to date. Substantial
increases in labor, employee benefits, freight, energy, ingredients
and packaging, rents and other operating expenses could
adversely affect the operations of the Company's business in
future periods. The Company cannot predict whether such
increases will occur in the future.
Volatility of Stock Price. The market price of the Company's
common stock has fluctuated substantially since the initial public
offering of the common stock in December 1993. Such volatility
may, in part, be attributable to the Company's operating results
or to changes in the direction of the Company's expansion efforts.
Changes in general conditions in the economy, the financial
markets or the food industry, natural disasters or other
developments affecting the Company or its competitors could also
cause the market price of the Company's common stock to
fluctuate substantially. In addition, in recent years, the stock
market has experienced extreme price and volume fluctuations.
This volatility has had a significant effect on the market prices of
securities issued by many companies, including the Company, for
reasons sometimes unrelated to the operating performance of
these companies. Any shortfall in the Company's net sales or
earnings from levels expected by securities analysts or the market
could have an immediate and significant adverse effect on the
trading price of the Company's common stock in any given
period. Additionally, the Company may not learn of such
shortfalls until late in the fiscal quarter, which could result in an
even more immediate and significant adverse effect on the trading
price of the Company's common stock.
Risks Inherent in Food Production. The Company faces all of the
risks inherent in the production and distribution of refrigerated
food products, including contamination, adulteration and spoilage,
and the associated risks of product liability litigation and declines
in the price of its stock which may be associated with even an
isolated event. The Company has a modern production facility,
employs what it believes is state-of-the-art thermal processing,
temperature-controlled storage, HAACP programs intended to
insure food safety, and has obtained USDA approval for its
production plant. However, there can be no assurance that the
Company's procedures will be adequate to prevent the occurrence
of such events.
Dependence on Major Customers. During the first six months of
1998, two customers accounted for 45%, and 32%, respectively,
of the Company's total net revenues. Loss of either of these
customers, Costco or Sam's Club Stores, would have a material
adverse effect on the Company.
Seasonality and Quarterly Results. The Company's grocery and
club store accounts are expected to experience seasonal
fluctuations to some extent. The Company's business in general
may also be affected by a variety of other factors, including but
not limited to general economic trends, competition, marketing
programs, and special or unusual events.
Competition and Dependence on Common Carriers. The
Company's business continues to be dominated by several very
large competitors which have significantly greater resources than
the Company; such competitors can outspend the Company and
negatively affect the Company's market share and results of
operations. The Company also continues to be dependent on
common carriers to distribute its products. Any disruption in its
distribution system or increase in the costs thereof could have a
material adverse impact on the Company's business.
Marketing and Sales Risks. The future success of the Company's
efforts will depend on a number of factors, including whether
grocery and club store chains will continue to expand the number
of their individual stores offering the Company's products and
whether allowances and other incentives will expand retail
distribution. Expansion into new markets increases the risk of
significant product returns resulting from the Company's supply
of slower selling items to its customers. In addition, grocery and
club store chains continually re-evaluate the products carried in
their stores and no assurances can be given that the chains
currently offering the Company's products will continue to do so
in the future. Should these channels choose to reduce or
eliminate products, the Company could experience a significant
reduction in its product sales. As indicated previously, the
Company remains dependent on the use of slotting allowances and
other incentives to expand retail distribution. In order to reduce
risk, the Company has significantly reduced expansion into new
markets requiring such major expenditures.
Year 2000. Many computer systems experience problems
handling dates beyond the year 1999. The Company is assessing
the internal readiness of its computer systems for handling the
year 2000. The Company expects to implement successfully the
systems and programming changes necessary to address the year
2000 issues, and does not believe the cost of such actions will
have a material effect on the Company's results of operations or
financial condition. There can be no assurance, however, that
there will not be a delay in, or increased costs associated with,
the implementation of such changes, and the Company's inability
to implement such changes could have an adverse impact on the
future results of operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
In February 1998, the Company entered into an agreement to
sublease a portion of the Company's Salinas facility (4,649 sq. ft.)
until August 1998, when the Company expects to occupy the area.
Also in February, 1998 the Company acquired the right to lease the
remainder of the building's 1,365 square feet of office space. In June
of 1998 the Company entered into a sublease with the current tenant
which will expire in August of 1998 when that tenant will vacate the
premises, at which time the Company will occupy the space. By the
end of 1998 the Company plans to occupy the entire building
encompassing 43,680 square feet.
Item 6. Exhibits and Reports on Form 8-K and S-8
The Company filed the following reports on Form 8-K during the
quarter ended March 29, 1998.
Report on Form 8-K filed on January 23, 1998, reported the resignation
of Timothy J. Ryan from the Board of Directors, effective December 31,
1997, the resignations of Directors Kenneth A. Steel and Robert F. Steel
effective January 29, 1998, and the appointment of Gerard P. Melia to
the Board of Directors on January 29, 1998.
Report on Form 8-K filed on March 6, 1998 reported the repurchase of
2,365,066 shares of Common Stock of the Company held by Clearwater
Fund IV. Ltd. for a purchase price of $1.1375 per share.
Filing on Form S-8 on January 26, 1998 was made to register 540,000
shares of company common stock which may be issued as part of the First
Amended and Restated 1993 Stock Option Plan.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MONTEREY PASTA COMPANY
Date: August 7, 1998 By: /s/ R. LANCE HEWITT
-----------------------------------------
R. Lance Hewitt
President and Chief Executive Officer
By: /s/ STEPHEN L. BRINKMAN
-----------------------------------------
Stephen L. Brinkman
Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
Number Exhibit Title
2.1 Agreement and Plan of Merger dated August 7, 1996 by and between
Monterey Pasta Company, a California corporation and Monterey Pasta
Company, a Delaware corporation (incorporated by reference from
Exhibit A to the Company's Proxy Statement for the Special Meeting of
Shareholders held on August 1, 1996, filed with the Securities and
Exchange Commission on June 27, 1996 ("1996 Proxy"))
3.1 Certificate of Incorporation dated August 1, 1996 (incorporated by
reference from Exhibit B to the Company's 1996 Proxy)
3.2 Certificate of Designations of Series A Convertible Preferred Stock
(incorporated by reference from Annex I to the Subscription Agreement
dated July 31, 1996, filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-3) on August 23, 1996 ("1996 S-3"))
3.3 Certificate of Designations of Series B Convertible Preferred Stock
(incorporated by reference from Annex I to the Subscription Agreement
dated August 9, 1996, filed as Exhibit 4.1 to the Company's 1996 S-3)
3.4 Bylaws of the Company (incorporated by reference from Exhibit C to
the 1996 Proxy)
3.5 Certificate of Designations of Series A-1 Convertible Preferred
Stock (incorporated by reference from Exhibit 3.5 filed with the
Company's Annual Report on Form 10-K/A on April 29, 1997, ("1996
Form 10K/A"))
3.6 Certificate of Designations of Series B-1 Convertible Preferred
Stock (incorporated by reference from Exhibit 3.5 filed with the
Company's 1996 Form 10-K/A)
4.1 Subscription Agreement, dated as of July 31, 1996 (incorporated by
reference from Exhibit 4.1 filed with the Company's 1996 S-3)
4.2 Registration Rights Agreement, dated as of July 31, 1996
(incorporated by reference from Exhibit 4.2 filed the Company's 1996
S-3)
4.3 Subscription Agreement, dated August 9, 1996 (incorporated by
reference from Exhibit 4.3 filed with the Company's 1996 Form S-3)
4.4 Registration Rights Agreement, dated as of August 9, 1996
(incorporated by reference from Exhibit 4.4 filed with the 1996 Form
S-3)
4.5 Form of Warrant for purchase of the Company's Common Stock, dated
as of July 1, 1996 (incorporated by reference from Exhibit 4.5 filed
with the Company's 1996 Form S-3)
4.6 Form of Registration Rights Agreement dated April 1996, among the
Company, Spelman & Co., Inc. and investor (incorporated by reference
from Exhibit 10.42 filed with the Company's Original March 31, 1996
Quarterly Report on Form 10- Q on May 1, 1996 ("1996 Q-1 10-Q"))
4.7 Shareholder Rights Agreement dated as of May 15, 1996 between the
Company and Corporate Stock Transfer, as rights agent (incorporated
by reference from Item 2 of Form 8-A filed with the Securities and
Exchange Commission on May 28, 1996)
4.8 Form of Subscription Agreement dated April 1996, among the Company,
Spelman & Co., Inc. and investor (incorporated by reference from
Exhibits with corresponding numbers filed with the Company's 1996
Form 10-K/A)
4.9 Amendment to Registration Rights Agreement dated as of April 20,
1997 among the Company, Spelman & Co., Inc. and investor, amending
the Registration Rights Agreement entered into as of April 1996
(incorporated by reference from Exhibits with corresponding numbers
filed with the Company's 1996 Form 10-K/A)
4.10 Series A Convertible Preferred Stock Exchange Agreement dated as of
March 10, 1997 by and between the Company and GFL Performance Fund
Limited (incorporated by reference from Exhibits with corresponding
numbers filed with the Company's 1996 Form 10-K/A)
4.11 Series B Convertible Preferred Stock Exchange Agreement dated as of
April 2, 1997 by and between the Company and Pangaea Fund Limited
(incorporated by reference from Exhibits with corresponding numbers
filed with the Company's 1996 Form 10-K/A)
4.12 Registration Rights Agreement dated as of December 31, 1996 among
the Company, Sentra Securities Corporation and Investor
(incorporated by reference from Exhibits with corresponding numbers
filed with the Company's 1996 Form 10-K/A)
4.13 Form of Warrant ("Sentra Warrant") for purchase of Company's Common
Stock dated March 1997 issued in connection with the Company's March
1997 Private Placement (incorporated by reference for Exhibits with
corresponding numbers filed with the Company's Pre-Effective
Amendment No. 1 to the Registration Statement on Form S-3 filed on
May 6, 1997 ("1997 Amendment No. 1 to Form S-3"))
4.14* Stock Purchase Agreement between the Company and Kenneth A. Steel,
Jr. dated April 29, 1997 (incorporated by reference from Exhibits
with corresponding numbers filed with the 1997 Amendment No. 1 to
Form S-3)
5.1 Opinion and Consent of Gray Cary Ware & Freidenrich, a
Professional Corporation (incorporated by reference from Exhibits
with corresponding numbers filed with the 1997 Amendment No. 1 to
Form S-3)
10.1* Second Amended and Restated 1993 Stock Option Plan (as amended on
August 1, 1996) (incorporated by reference to Exhibit 10.1 filed
with the Company's 1996 Form 10-K)
10.2* 1995 Employee Stock Purchase Plan (incorporated by reference from
Exhibit 10.15 to the Company's 1994 Form 10-K)
10.3 Blackhawk Plaza Lease of the Company (incorporated by reference from
Exhibit 10.2 to the Company's Registration Statement No.
33-69590-LA on Form SB-2 (the "SB-2"))
10.4 353 Sacramento Street Office Lease dated as of December 27, 1995
with John Hancock Mutual Life Insurance Company, together with
letter agreement dated March 20, 1996 regarding basement storage
(incorporated by reference to the Company's Annual Report on Form
10-K filed April 1, 1996 (the "1995 Form 10- K"))
10.5 Monterey County Production Facility Lease of the Company, as amended
(incorporated by reference from Exhibit 10.03 to the SB-2)
10.6 Amendment No. 1 dated February 1, 1995 and Amendment No. 2 dated
March 1, 1995 to Monterey County Production Facility Lease of the
Company (incorporated by reference from Exhibits with corresponding
numbers filed with the 1995 Form 10-K)
10.7 Christie Avenue Warehouse Lease of the Company (incorporated by
reference from Exhibit 10.04 to the SB-2)
10.8 Loan and Security Agreement dated December 8, 1995 with Coast
Business Credit, a Division of Southern Pacific Thrift and Loan
Association, and Schedule thereto (incorporated by reference from
Exhibit 10.8 to the 1995 Form 10-K)
10.9 Equipment Collateral Security Agreement dated December 8, 1995 with
Coast Business Credit (incorporated by reference from Exhibit 10.9
to the 1995 Form 10-K)
10.10 Secured Promissory Note dated December 8, 1995 in the original
principal amount of $500,000 in favor of Coast Business Credit
(incorporated by reference from Exhibit 10.10 to the 1995 Form 10-K)
10.11 Secured Promissory Note dated December 8, 1995 in the original
principal amount of $750,000 in favor of Coast Business Credit
(incorporated by reference from Exhibit 10.11 to the 1995 Form 10-K)
10.12 Investment Agreement dated July 12, 1995 with the Seychelles Fund,
Ltd. (incorporated by reference from Exhibit 10.12 to the 1995 Form
10-K)
10.13 Master Lease dated August 1, 1995 with Sentry Financial Corporation
(incorporated by reference from Exhibit 10.13 to the 1995 Form 10-K)
10.14 Letter Agreement dated July 26, 1995 between Monterey Pasta
Development Company and California Pasta Company (incorporated by
reference from Exhibit 10.21 to the Company's Quarterly Report on
Form 10-Q for the quarter ended October 2, 1995 ("1995 Q3 10-Q"))
10.15 Asset Purchase Agreement dated July 26, 1995 between Upscale Food
Outlets, Inc. and California Pasta Company (incorporated by
reference from Exhibit 10.22 to the 1995 Q3 10-Q)
10.16 Franchise Termination Agreement and Release dated March 8, 1996
among the Company, Upscale Food Outlets, Inc., Monterey Pasta
Development Company, The Lance H. Mortensen Unitrust dated December
3, 1994, and LBJ Restaurants, LLC (incorporated by reference from
Exhibit 10.16 to the 1995 Form 10-K)
10.17 Acquisition Agreement between the Company and Upscale Food Outlets,
Inc. (incorporated by reference from Exhibit 10.05 to the SB-2)
10.18* Employment Agreement with Lance H. Mortensen (incorporated by
reference from Exhibit 10.06 to the Company's Q3 10-Q)
10.19* Employment Agreement dated September 5, 1995 with Mr. Norman E.
Dean (incorporated by reference from Exhibit 10.20 to the 1995 Q-3
10-Q)
10.20* Consulting Agreement dated May 25, 1995 with Daniel J. Gallery
(incorporated by reference from Exhibit 10.18 to the Company's
Quarterly Report 10-Q for the quarter ended July 2, 1995 ("1995 Q2
10-Q"))
10.21* Consulting Agreement dated May 25, 1995 with Anthony W. Giannini
(incorporated by reference from Exhibit 10.21 to the 1995 Form 10-K)
10.22* Employment Agreement with Mr. David J. Massara (incorporated by
reference from Exhibit 10.18 to the Company's 1994 Form 10-K)
10.23 Trademark Registration -- MONTEREY PASTA COMPANY, under
Registration No. 1,664,278, registered on November 12, 1991 with the
U.S. Patent and trademark Office (incorporated by reference from
Exhibit 10.09 to the SB-2)
10.24 Trademark Registration -- MONTEREY PASTA COMPANY, under Registration
No. 1,943,602, registered on December 26, 1995 with the U.S. Patent
and trademark Office (incorporated by reference from Exhibit 10.24
to the 1995 Form 10-K)
10.25 Trademark Registration -- MONTEREY PASTA COMPANY and Design, under
Registration No. 1,945,131, registered on January 2, 1996 with the
U.S. Patent and trademark Office (incorporated by reference from
Exhibit 10.25 to the 1995 Form 10-K)
10.26 Trademark Registration-- MONTEREY PASTA COMPANY and Design, under
Registration No. 1,951,624, registered on January 23, 1996 with the
U.S. Patent and Trademark Office (incorporated by reference from
Exhibit 10.26 to the 1995 Form 10-K)
10.27 Trademark Registration-- MONTEREY PASTA COMPANY and Design, under
Registration No. 1,953,489, registered on January 30, 1996 with the
U.S. Patent and Trademark Office (incorporated by reference from
Exhibit 10.27 to the 1995 Form 10-K)
10.28 Subscription Agreement dated as of June 21, 1995 with GFL
Advantage Fund Limited (incorporated by reference from Exhibit
10.19 to the 1995 Q2 10-Q)
10.29 Registration Rights Agreement dated as of June 15, 1995 with GFL
Advantage Fund Limited, as amended on October 13 and 19, 1995,
respectively (incorporated by reference from Exhibit 10.2 to the
1995 Q2 10-Q, and Exhibits 10.6 and 10.7 to the Company's S-3
Registration Statement No. 33-96684, filed on December 12, 1995
("1995 S-3"))
10.30 Joint Escrow Instructions dated as of October 1995 (incorporated by
reference from Exhibit 10.5 to the 1995 S-3)
10.31 Note Purchase Agreement dated as of October 19, 1995 with GFL
Advantage Fund Limited (incorporated by reference from Exhibit 10.3
to the 1995 S-3)
10.32 Convertible Note dated as of October 25, 1995, executed by the
Company in favor of GFL Advantage Fund Limited (incorporated by
reference from Exhibits with corresponding numbers filed with the
1995 Form 10-K)
10.33 Trademark Purchase (Burns) (incorporated by reference from Exhibit
10.12 of the SB 2)
10.34 Purchase of Stock and Exhibits (Burns - Mortensen - Hill)
(incorporated by reference from Exhibit 10.13 of the SB-2)
10.35 Non-Recourse Promissory Note (Hill - Mortensen) (incorporated by
reference from Exhibit 10.15 of the SB-2)
10.36 Asset Purchase Agreement dated March 1, 1994 between Upscale Food
Outlets, Inc., Lucca's Pasta Bar, Inc., Timothy John Morris and
Marian Kathryn Morris (incorporated by reference from Exhibit 10.16
to the Company's 1993 Form 10-K)
10.38 Asset Purchase Agreement dated March 1, 1994 between Upscale Food
Outlets, Inc., Lucca's Pasta Bar, Inc., Timothy John Morris and
Marian Kathryn Morris (incorporated by reference from Exhibit 10.16
to the Company's 1993 Form 10- K)
10.39 Franchise Termination Agreement and Release dated as of March 27,
1996, among the Company, Upscale Food Outlets, Inc., Monterey Pasta
Development Company, California Pasta Company, and James G.
Schlicher (incorporated by reference from Exhibit 10.39 to the 1996
Q1 10-Q)
10.40 Stock Purchase Agreement dated April 1, 1996 between Upscale
Acquisitions, Inc. and the Company (incorporated by reference from
Exhibit 10.40 filed with the 1996 Q1 10-Q)
10.41 Placement Agent Agreement dated April 12, 1996 between Company and
Spelman & Co., Inc. (incorporated by reference from Exhibit 10.41
filed with the 1996 Q1 10-Q)
10.44* The Company's 401(k) Plan, established to be effective as of January
1, 1996, adopted by the Board of Directors on June 7, 1996
(incorporated by reference from Exhibit 10.44 to the Company's
Quarterly Report on Form 10-Q on August 13, 1996 ("1996 Q-2 10- Q"))
10.45* Directed Employee Benefit Trust Agreement dated June 17, 1996
between the Company and The Charles Schwab Trust Company, as Trustee
of the Company's 401(k) Plan (incorporated by reference from Exhibit
10.45 to the 1996 Q2 10-Q)
10.46* Employment Agreement dated February 12, 1996 with Mr. Robert J. Otto
(incorporated by reference from Exhibit 10.24 to the 1996 Q1 10-Q)
10.47 Security and Loan Agreement (Accounts Receivable and/or Inventory)
dated July 24, 1997 between the Company and Imperial Bank
(incorporated by reference from Exhibit 10.47 of the Company's
Pre-Effective Amendment No. 3 to From S-3 filed on October 14, 1997
("1997 Amendment No. 3 to Form S-3"))
10.48 Agreement Regarding Employment, Trade Secrets, Inventions, and
Competition dated May 26, 1997 with Mr. R. Lance Hewitt
(incorporated by reference from Exhibit 10.48 of the 1997 Amendment
No. 3 to Form S-3)
10.49 Employment Agreement dated August 25, 1997 with Mr. Stephen L.
Brinkman (incorporated by reference to Exhibit 10.49, in the
Company's September 28, 1997 Quarterly Report on Form 10-Q filed on
November 10, 1998)
10.50 First Amendment to Security and Loan Agreement dated July 24, 1997
between the Company and Imperial Bank (incorporated by reference to
Exhibit 10.50 in the Company's 1997 Form 10-K)
10.51 Second Amendment to Security and Loan Agreement dated July 24, 1997
between the Company and Imperial Bank
16.1 Letter from Deloitte & Touche LLP dated October 31, 1996
(incorporated by reference to the Company's Report on Form 8-K/A
filed November 8, 1996)
21.1 Subsidiaries of the Company (incorporated by reference to the
Company's 1996 Form 10-K)
27.1 Financial Data schedule
- -------------
* Management contract or compensatory plan or arrangement covering executive
officers or directors of Monterey Pasta Company and its former subsidiary,
Upscale Food Outlets, Inc.
SECOND AMENDMENT TO
SECURITY AND LOAN AGREEMENT
This Second Amendment to Security and Loan Agreement
("Amendment") amends that certain Security and Loan Agreement
and the Addendum thereto (the "Addendum"), each dated July 24,
1997, between Monterey Pasta Company ("Borrower") and Imperial
Bank ("Bank") (collectively, the Security and Loan Agreement and
the Addendum, as modified and amended to the date hereof, are
referred to herein as the "Agreement") as follows:
1. Paragraph 9. C. of the Addendum is hereby
amended and restated to read in its entirety as follows:
"c. At all times maintain a minimum working capital
(Borrower's current assets minus current liabilities) of not
less than Seven hundred Fifty Thousand Dollars ($750,000)."
2. This amendment is effective as of June 22, 1998.
3. Except as expressly amended hereby, the Agreement
remains unmodified and in full force and effect.
IN WITNESS WHEREOF, the parties have executed this
Amendment as of June 22, 1998.
"BORROWER"
Monterey Pasta Company
/s/ STEPHEN L. BRINKMAN
by_______________________________
Stephen L. Brinkman, Chief Financial Officer
"BANK"
Imperial Bank
/s/ BRIAN SANTOS
by_____________________________
Brian Santos, Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONDENSED STATEMENT OF OPERATIONS, THE
CONDENSED BALANCE SHEET AND THE ACCOMPANYING NOTES TO THE
CONDENSED FINANCIAL STATEMENTS, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> JUN-28-1998
<CASH> 161,894
<SECURITIES> 0
<RECEIVABLES> 2,190,507 <F1>
<ALLOWANCES> 0
<INVENTORY> 1,111,010
<CURRENT-ASSETS> 4,443,041
<PP&E> 7,965,392
<DEPRECIATION> 2,699,320
<TOTAL-ASSETS> 10,173,189
<CURRENT-LIABILITIES> 3,502,394
<BONDS> 0
0
0
<COMMON> 39,393,473
<OTHER-SE> (33,850,100)
<TOTAL-LIABILITY-AND-EQUITY> 10,173,189
<SALES> 6,307,531
<TOTAL-REVENUES> 6,307,531
<CGS> 3,735,300
<TOTAL-COSTS> 3,735,300
<OTHER-EXPENSES> 1,926,196
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 81,761
<INCOME-PRETAX> 560,341
<INCOME-TAX> 17,768
<INCOME-CONTINUING> 542,573
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 542,573
<EPS-PRIMARY> $0.04
<EPS-DILUTED> $0.04
<FN>
<F1>REPRESENTS NET AMOUNT
</FN>
</TABLE>
