-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ULxlbcueCAgFQniLloNuF6c30RgywpLio1aGjlS2DrSO5VZUtd0c0FBTaJJzUf6U RZF71ek5upJoqq7gQt/NaQ== /in/edgar/work/20000814/0001000096-00-000516/0001000096-00-000516.txt : 20000921 0001000096-00-000516.hdr.sgml : 20000921 ACCESSION NUMBER: 0001000096-00-000516 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPECTRUM ORGANIC PRODUCTS INC CENTRAL INDEX KEY: 0001034992 STANDARD INDUSTRIAL CLASSIFICATION: [2033 ] IRS NUMBER: 943076294 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-22231 FILM NUMBER: 699099 BUSINESS ADDRESS: STREET 1: 133 COPELAND ST CITY: PETALUMA STATE: CA ZIP: 94952 BUSINESS PHONE: 7077788900 MAIL ADDRESS: STREET 1: 133 STREET 2: COPELAND STREET CITY: PETALUMA STATE: CA ZIP: 94952 FORMER COMPANY: FORMER CONFORMED NAME: ORGANIC FOOD PRODUCTS INC DATE OF NAME CHANGE: 19970304 10QSB 1 0001.txt FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000. [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ________________ Commission File No. 333-22997 SPECTRUM ORGANIC PRODUCTS, INC. ------------------------------- (Exact name of small business issuer as specified in its Charter) California 94-3076294 ---------- ---------- (State or other jurisdiction of incorporation (I.R.S. Employer Identification or organization) Number) 133 Copeland Street Petaluma, California 94952 - ------------------------ ----- (Address of principal executive offices) (Zip Code) (707)778-8900 ------------------------- Issuer's telephone number Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan conformed by court. Yes [ ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: Common Stock, no par value, 44,374,189 shares as of August 9, 2000. Transitional Small Business Disclosure Format: Yes [ ] No [ X ] PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENT - ----------------------------- SPECTRUM ORGANIC PRODUCTS, INC. BALANCE SHEET ASSETS (Unaudited) June 30, 2000 ---------- Current Assets: Cash $ 1,200 Accounts receivable, net 4,601,700 Inventories, net 6,220,300 Income tax refunds receivable 31,100 Prepaid expenses and other current assets 157,400 ----------- Total Current Assets 11,011,700 Property and Equipment, net 3,975,500 Other Assets: Goodwill, net 10,144,500 Other intangible assets, net 79,100 Other assets 166,400 ----------- Total Assets $25,377,200 =========== The Accompanying Notes are an Integral Part of the Financial Statements 2 SPECTRUM ORGANIC PRODUCTS, INC. BALANCE SHEET (Continued) LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) June 30, 2000 ------------ Current Liabilities: Bank overdrafts $ 760,100 Lines of credit 5,582,000 Current maturities of notes payable, former stockholder 406,300 Current maturities of notes payable and capitalized lease obligations 1,789,100 Current maturities of notes payable, stockholders 259,500 Accounts payable, trade 5,987,600 Accrued expenses 789,700 ------------ Total Current Liabilities 15,574,300 Notes payable, former stockholder, less current maturities 1,134,200 Notes payable and capitalized lease obligations, less current maturities 124,300 Notes payable, stockholders, less current maturities 315,000 ------------ Total Liabilities 17,147,800 ------------ Stockholders' Equity: Preferred stock, 5,000,000 shares authorized, no shares issued or outstanding -- Common stock, without par value, 60,000,000 shares authorized, 44,374,189 issued and outstanding 8,615,300 Additional paid-in capital 255,600 Accumulated deficit (641,500) ------------ Total Stockholders' Equity 8,229,400 ------------ Total Liabilities and Stockholders' Equity $ 25,377,200 ============ The Accompanying Notes are an Integral Part of the Financial Statements 3
SPECTRUM ORGANIC PRODUCTS, INC. STATEMENT OF OPERATIONS (Unaudited) (Unaudited) Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2000 1999 2000 1999 ------------ ------------ ------------ ------------- Gross Sales $ 12,141,000 $ 7,726,100 $ 23,565,800 $ 14,232,500 Discounts and Allowances 577,300 440,600 994,900 795,700 ------------ ------------ ------------ ------------ Net Sales 11,563,700 7,285,500 22,570,900 13,436,800 Cost of Goods Sold 8,276,300 5,442,300 16,249,900 9,636,600 ------------ ------------ ------------ ------------ Gross Profit 3,287,400 1,843,200 6,321,000 3,800,200 ------------ ------------ ------------ ------------ Operating Expenses: Sales & Marketing 1,727,500 566,900 3,565,100 1,472,100 General & Admin. Expenses 1,003,900 636,400 2,094,000 1,218,700 Writedown of Assets Held for Sale 138,400 -- 138,400 -- Amortization of Goodwill 239,700 -- 458,700 -- ------------ ------------ ------------ ------------ Total Operating Expenses 3,109,500 1,203,300 6,256,200 2,690,800 ------------ ------------ ------------ ------------ Income from Operations 177,900 639,900 64,800 1,109,400 ------------ ------------ ------------ ------------ Other Income (Expense): Interest Expense, net (391,800) (116,300) (700,900) (218,900) Gain on Asset Disposals -- -- 50,000 -- Other 12,600 11,700 11,500 11,700 ------------ ------------ ------------ ------------ Total Other Expenses (379,200) (104,600) (639,400) (207,200) ------------ ------------ ------------ ------------ Income (Loss) Before Income Taxes (201,300) 535,300 (574,600) 902,200 Provision For Income Tax Expense -- 227,400 -- 357,900 ------------ ------------ ------------ ------------ Net Income (Loss) $ (201,300) $ 307,900 $ (574,600) $ 544,300 ============ ============ ============ ============ Basic and Diluted Earnings (Loss) Per Share $ (0.00) $ 0.01 $ (0.01) $ 0.02 ============ ============ ============ ============ Weighted Avg. Shares Outstanding 44,144,188 32,915,192 44,067,520 32,920,870 ============ ============ ============ ============ The Accompanying Notes are an Integral Part of the Financial Statements 4 SPECTRUM ORGANIC PRODUCTS, INC. STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, June 30, 2000 1999 ------------ ------------ Net Income (Loss) $ (574,600) $ 544,300 Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by (Used in) Operating Activities: Provision for allowances against receivables (20,700) 14,300 Provision for reserves for inventory obsolescence (285,000) 234,000 Depreciation and amortization 287,800 150,500 Amortization of goodwill 458,700 -- Loss on asset disposals and write-downs 88,400 -- Imputed interest on notes payable 105,500 -- Increase in cash surrender value of life insurance (10,200) (79,200) Amortization of original issue discount on unsecured & subordinated notes payable 55,200 -- Changes in Assets and Liabilities: Accounts receivable (1,029,500) (806,600) Inventories 651,500 (1,042,100) Prepaid expenses and other current assets 23,900 (652,700) Accounts payable 5,000 (344,800) Accrued expenses (346,400) 262,600 ------------ ------------ Net Cash Used In Operating Activities (590,400) (1,719,700) ------------ ------------ Cash flows from Investing Activities: Purchase of property and equipment (196,800) (269,800) Proceeds from sale of assets 53,000 -- Merger-related expenses charged to Goodwill (127,600) -- ------------ ------------ Net Cash Used in Investing Activities (271,400) (269,800) ------------ ------------ Cash Flows from Financing Activities: Proceeds from bank overdraft 530,700 53,000 Proceeds from lines of credit 20,849,000 6,519,000 Repayment of lines of credit (20,205,000) (6,567,000) Repayment of notes payable, former stockholder (237,500) -- Repayment of notes payable to stockholders (107,400) -- Borrowings on long-term debt 252,100 904,300 Proceeds (Repayment) of notes payable (193,200) 1,101,100 Repayment of capitalized lease obligations (27,400) (20,000) Warrants exercised 600 -- ------------ ------------ Net Cash Provided by Financing Activities 861,900 1,990,400 ------------ ------------ Net Increase In Cash 100 900 Cash, beginning of the year 1,100 500 ------------ ------------ Cash, end of the period $ 1,200 $ 1,400 ============ ============ Supplemental Disclosure of Cash Flow Information: Cash paid for income taxes $ 1,600 $ 60,800 Cash paid for interest $ 584,600 $ 234,500 ============ ============ The Accompanying Notes are an Integral Part of the Financial Statements 5
SPECTRUM ORGANIC PRODUCTS, INC. NOTES TO FINANCIAL STATEMENTS 1. Interim Financial Statements: The unaudited interim financial statements include all adjustments (consisting of normal recurring accruals) which, in the opinion of management, are necessary in order to make the financial statements not misleading. Operating results for the six-month period ended June 30, 2000 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2000. These financial statements have been prepared in accordance with the instructions to Form 10-QSB and do not contain certain information required by generally accepted accounting principles. These statements should be read in conjunction with Spectrum Organic Products, Inc. financial statements and notes thereto included in the Company's Form 10-KSB for the year ended December 31, 1999. 2. Business Combination: On October 6, 1999, Spectrum Naturals, Inc. ("SNI") and Organic Ingredients, Inc. ("OI"), both California corporations, were merged with and into Organic Food Products, Inc. ("OFPI"), also a California corporation. Effective with the merger, the newly combined entity changed its name to Spectrum Organic Products, Inc. Together, SNI prior to the merger and the combined companies after the merger are referred to as "the Company" or "SPOP". As a result of the merger, SNI stockholders received 4,699.53 shares of OFPI stock in exchange for each share of SNI stock previously held, for a total of 32,336,495 shares representing approximately 73.8% of the outstanding common stock after the merger. OI stockholders received 39.5 shares of OFPI stock in exchange for each share of OI stock previously held, for a total of 3,950,000 shares representing approximately 9.0% of the outstanding common stock after the merger. Existing OFPI stockholders held 7,275,665 of the outstanding shares, or approximately 17.2% of the common stock outstanding after the merger. Since a controlling interest in the combined company is held by former SNI stockholders after the merger, the transaction was accounted for as a reverse merger, with SNI as accounting acquirer and OFPI and OI as accounting acquirees. Accordingly, the financial statements present the historical results of SNI as accounting acquirer for all periods presented. Results of operations for OFPI and OI are included from October 6, 1999 forward. Numbers of shares and per-share amounts have been retroactively restated where applicable for all periods presented. 3. Plant Closure: In May 2000, the Company committed to a plan to close its leased facility in Morgan Hill, CA and transfer the production of the OFPI brands to a third-party co-packer. Operations at the Morgan Hill facility ceased on July 21, 2000. Included in cost of sales for the three and six month periods ended June 30, 2000 was a provision of $53,100 for anticipated severance and leasehold expenses associated with the closing of the facility. In addition, a writedown of $138,400 was recorded for anticipated losses on the sale or disposal of equipment and leasehold improvements at the Morgan Hill facility. The equipment and leasehold improvements held for sale were included in property and equipment at June 30, 2000 with a net book value of $875,300. 6 SPECTRUM ORGANIC PRODUCTS, INC. NOTES TO FINANCIAL STATEMENTS 4. Commitments and Contingencies: Litigation and Settlements -------------------------- In 1998, a company that had provided management consulting services for OFPI filed suit alleging unpaid wages and seeking money damages and injunctive relief. In April 2000, a settlement was reached with this company (who is also a stockholder), and on August 10, 2000 the case was dismissed by the courts as a result of the settlement. Under the terms of the settlement and release, SPOP will pay Global Natural Brands, Ltd. a total cash consideration of $145,000, payable $25,000 upon execution of the agreement by Global plus twelve equal monthly payments of $10,000, and $400,000, payable through a transfer of 400,000 shares of SPOP stock. The transfer of shares and the adjustment of the liability for the cash consideration were recorded in the three and six month periods ended June 30, 2000 as a net charge to Goodwill of $187,600, since the litigation preceded the merger. In addition, SPOP shall issue options to purchase 125,000 shares at $2.25 per share at an option term yet to be determined. Management believes that the terms of this settlement will not have a significant effect upon the Company's financial position, results of operations or cash flows. In 1998, OFPI acquired certain natural fruit juice and water bottling operations for cash and common stock. Portions of the common stock consideration were contingent upon earnout factors for the year following the purchase. An estimated accrual of $156,900 for common shares to be released is included in accrued liabilities at June 30, 2000. The shares have not been released, however, as negotiations with the seller regarding the number of shares to be issued are ongoing. Management believes that the outcome will not have a material effect upon the Company's financial position, results of operations or cash flows upon settlement. Liquidity --------- At June 30, 2000, the Company had negative working capital and was in technical default of certain loan covenants with its primary lender. Management is currently in negotiations with the lender to establish new financial covenants and believes that upon completion of those negotiations, the Company will be back in compliance. In addition, the majority shareholder, who holds approximately 70% of the outstanding common stock of the Company, has represented that he has the intent and ability to support the operations of the Company with additional funding for the next fiscal year, as and if necessary. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------- 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 necessarily indicate the financial results that may be achieved by the Company in any future period. 7 Introduction: On October 6, 1999, Spectrum Naturals, Inc. ("SNI") and its affiliate, Spectrum Commodities, Inc. ("SCI"), and Organic Ingredients, Inc. ("OI"), California corporations were merged with and into Organic Food Products, Inc. (the "Registrant"), (collectively "SPOP" or the "Company"), pursuant to the Agreement and Plan of Merger and Reorganization, dated May 14, 1999 (the "Merger"). As a result of the Merger, SNI stockholders received 4,669.53 shares of OFPI stock in exchange for each share of SNI stock previously held, for a total of 32,336,495 shares representing approximately 73.8% of the outstanding common stock after the merger. OI stockholders received 39.5 shares of OFPI stock in exchange for each share of OI stock previously held, for a total of 3,950,000 shares representing approximately 9.0% of the outstanding common stock after the merger. Existing OFPI stockholders held 7,275,665 of the outstanding shares, or approximately 17.2% of the common stock outstanding after the merger. Since a controlling interest in the combined company is held by former SNI stockholders after the merger, the transaction was accounted for as a reverse merger, with SNI as accounting acquirer and OFPI and OI as accounting acquirees. Accordingly, operating results for fiscal year 1999 reflect those of SNI and SCI only. Operating results for fiscal 2000 reflect the newly merged entity from January 1, 2000 through June 30, 2000. Upon the effective date of the Merger, SNI, SCI and OI ceased to exist, the Registrant became the surviving corporation and the Company changed its name to "Spectrum Organic Products, Inc." The Company's operating results could vary from period to period as a result of a number of factors. These factors include, but are not limited to, the purchasing patterns of significant customers, the timing of new product introductions by the Company and its competitors, the amount of slotting fees and new product development and advertising expenses incurred by the Company, variations in sales by distribution channel, fluctuations in market prices of raw materials, competitive pricing policies, and situations that the company cannot foresee. These factors could cause the Company's performance to differ from investor expectations, resulting in volatility in the price of the Common Stock. Investors should carefully consider the following information as well as other information contained in this Report. Information included in this Report contains "forward-looking statements" which can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "should" or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. No assurance can be given that the future results covered by the forward-looking statements will be achieved. The following matters constitute cautionary statements identifying important factors with respect to such forward-looking statements, including certain risks and uncertainties that could cause actual results to vary materially from the future results covered in such forward-looking statements. Other factors could also cause actual results to vary materially from the future results covered in such forward-looking statements. 8 - -------------------------------------------------------------------------------- Results of Operations for the Three and Six Month Periods Ending June 30, 2000 and June 30, 1999 - -------------------------------------------------------------------------------- Net Results: Spectrum Organic Products, Inc. ("SPOP" or the "Company") reported a net loss of $201,300 and $574,600 for the three and six month periods ended June 30, 2000 ("2000"), respectively, compared to net income of $307,900 and $544,300 for the three and six month periods ended June 30, 1999 ("1999"). The net loss in 2000 was primarily due to increased selling, general and administrative expenses, increased interest expense, expenses associated with the plant closure and the amortization of goodwill associated with the merger, partially offset by the increased revenues attributable to the newly-merged companies. Revenues: SPOP's gross sales for the three months ended June 30, 2000 were $12,141,000 compared to $7,726,100 for 1999, an increase of $4,414,900, or 57% over 1999. For the six months ended June 30, 2000 gross sales were $23,565,800 compared to $14,232,500 for 1999, an increase of $9,333,300, or 66% over 1999. The increase in sales in 2000 consists primarily of the revenues relating to the newly-merged OFPI and OI. Excluding the incremental revenues of the product lines obtained with OFPI and OI, SNI's comparable sales increased 6.5% from 1999 reflecting growth in culinary oils, mayonnaise, salad dressings and Spectrum Spread. Nutritional supplement sales in both liquid and capsule forms also grew significantly versus the prior year. Discounts and allowances as a percent of gross sales decreased to 4.8% for the three month and 4.2% for the six month periods ended June 30, 2000, respectively, from 5.6% of gross revenues for both periods in 1999. The decreases are primarily the result of the increase in the proportion of industrial ingredient sales to total sales as a result of the merger. Cost of Goods Sold: The Company's cost of goods sold increased as a percent of sales for the six month period ended June 30, 2000 to 69.0% compared to 67.7% for the same period in 1999. The increase was due primarily to the higher proportion of lower-margin industrial ingredient sales and higher fixed manufacturing costs on the products acquired from OFPI. For the three month period ended June 30, 2000 cost of goods sold decreased as a percent of sales to 68.2% versus 70.4% for 1999. The improvement was the result of a favorable sales mix, which featured higher volumes of nutritional supplements, which more than offset the lower-margin industrial ingredient sales and higher fixed manufacturing costs on the products acquired from OFPI. Management has recently implemented several organizational changes to reduce manufacturing and distribution costs in connection with the merger. As of July 5, 2000 SPOP consolidated warehousing and finished goods distribution at a centralized third-party facility, enabling the Company to close three leased warehouses as of July 15. On July 21, 2000 SPOP ceased manufacturing the OFPI product lines at its leased Morgan Hill, CA facility. The products will now be produced by a third-party co-packer, which will enable the Company to close the Morgan Hill facility. Included in cost of sales for the three and six month 9 periods ended June 30, 2000 was a provision of $53,100 for anticipated severance and leasehold expenses associated with the closing of the facility. As a result of these organizational changes, management believes that operations will become more efficient and per unit production costs will decrease by the end of fiscal year 2000, generating reductions in cost of goods sold as a percent of sales in subsequent periods. Sales and Marketing Expenses: SPOP's sales and marketing expense increased as a percent of sales to 14.2% and 15.1% for the three and six month periods ended June 30, 2000, respectively, versus 7.3% and 10.3% for the same periods in 1999. This reflects the increase in personnel and related costs required to build a sales team capable of supporting the larger organization after the merger. Promotion costs increased as a percent of sales reflecting programs targeted to regain lost market share on OFPI brands and counter competitive pressures in the market place. Management anticipates that the newly organized sales team, targeted market spending, and the introduction of new products will enable the Company to increase its market share in certain categories. General and Administrative Expenses: SPOP's general and administrative expenses for the six months ended June 30, 2000 increased as a percent of sales to 8.9% versus 8.6% for 1999. The increase in 2000 reflected increased personnel and related expenses associated with the new larger organization. The Company completed the integration of the merged entities during the first quarter of 2000. General and administrative expenses declined for the second quarter to $1,003,900 or 8.3% of sales compared to $1,090,100 or 8.9% of sales for the first quarter. Management believes that further improvements are possible as additional efficiencies are achieved. Writedown of Assets Held for Sale: Included in the three and six month periods ended June 30, 2000 was a provision of $138,400 for anticipated losses on the sale or disposal of production equipment and leasehold improvements located at the Company's leased facility in Morgan Hill, CA. Production of the OFPI product lines ceased at that facility on July 21, 2000 and management intends to completely close the facility in the fourth quarter. Amortization of Goodwill: The Company recorded goodwill of $10,820,800 in connection with the Merger. Amortization expense for the six months ended June 30, 2000 was $458,700, based on a twelve-year amortization schedule. Net Interest Expense: SPOP's interest expense for the three and six month periods ended June 30, 2000 was $391,800 and $700,900, respectively, versus $116,300 and $218,900 for the same periods in 1999. The increase in interest expense resulted from higher utilization of the revolving credit line, and the interest expense associated with the default under the private placement notes. Since the notes were not repaid by March 31, 2000, the accrued interest through March 31 has been added to the principal, the interest rate increased from 10% to 15%, and an additional 120,000 common stock warrants to purchase SPOP stock at $.01 per share will be granted. The resulting $70,100 value of the warrants was included in interest expense for the three and six months ended June 30, 2000. 10 The additional borrowing under the revolving credit line was used to pay past due vendors at OFPI, fund the reduction in the Company's term debt as a result of the refinancing, and fund capital expenditures. (See Liquidity and Capital Resources). Other Income: Other income for the six months ended June 30, 2000 includes a $50,000 gain on the sale of the Sunny Farms and Pacific Rim trademarks and related inventories. Year 2000 Compliance: SPOP completed a plan to identify all computer hardware and software, production equipment and services upon which it relies that may have been impacted by the year 2000 problem by December 31, 1999. After identification of the problem areas, the Company verified or took action to ensure that those products or services were year 2000 compliant. As a result of this action, the Company was year 2000 compliant in advance of December 31, 1999. Issues similar to these also faced the Company's customers and vendors. While the Company did not complete an assessment of year 2000 readiness of its customers and vendors, management believes that business with customers and vendors was not significantly disrupted by the year 2000 problem, based on its conduct of normal business operations following December 31, 1999. Seasonality: Historically, the Company has experienced little seasonal fluctuation in revenues. In relation to product purchasing, the Company will seasonally contract for certain products for the entire year at harvest time, or at planting time, to secure raw materials throughout the year. These purchases take place annually from early spring to mid-summer and are effected to reduce the risk of price swings due to demand fluctuations. These annual purchases can create overages and shortages in inventory. Liquidity and Capital Resources: In connection with the merger, the Company paid down the existing debt and lines of credit of SNI, OFPI and OI with a new loan facility totaling $11,717,000 with Wells Fargo Business Credit. The new facility, consisting of term debt and a revolving line of credit, is secured by substantially all assets of the Company, and bears interest at prime plus 1% to 1+1/4%. The balance of the initial proceeds was used for working capital purposes, to purchase raw materials and equipment, to pay certain merger-related commitments, and to provide marketing funds to introduce new products and to introduce existing products into new markets. Advances under the new revolving line of credit are limited to a borrowing base consisting of certain accounts receivable and inventory. Included in the facility are two term notes of $1,067,000 and $150,000 requiring payment over 60 and 18 months, respectively, and a capital expenditure facility of up to $1,500,000 to be repaid over 60 months beginning in August 2000. Due to 11 operating losses following the merger, the Company is in technical default of certain financial covenants that were based on financial projections made at the time the facility was put in place. Management has received waivers from the bank and is currently in negotiations to reset the financial covenants to more accurately match the Company's financial condition and future projections. Also in connection with the Merger, the Company completed a Private Placement of 16 Units in October 1999. Each Unit consisted of a $25,000 unsecured and subordinated promissory note bearing interest at 10%, plus warrants to purchase 10,000 shares of Common Stock at $.01 per share from January 1, 2000 to September 30, 2000. Net proceeds of approximately $370,000 were received, after offering expenses of approximately $30,000. As of April 1, 2000, the Company was in default on the repayment of the promissory notes. As a condition of the default, the accrued interest is added to the principal, the interest rate increased to 15% and the note holders are granted an additional 2,500 warrants per unit for each month the principal remains unpaid up to six months. The warrants granted due to the default have the same terms as those granted with the promissory notes. The Company is currently seeking additional capital from such potential sources as refinancing the existing term debt, the sale of certain surplus assets and issuance of common stock. Management believes that the new credit facility and proceeds from the new sources of capital, if obtained, coupled with anticipated cost savings in manufacturing, should provide adequate funds to meet the Company's estimated cash requirements for the year ending December 31, 2000. There can be no assurances that all of the anticipated savings can be attained by year-end or that additional capital will be available on acceptable terms. However, the majority shareholder has indicated that he has the intent and ability to support the operations of the Company with additional funding for the next fiscal year, if needed. The Company's cash position at June 30, 2000 was $1,200 compared to $1,400 in 1999. During 2000, the Company used $718,000 in cash for operating activities, compared to using $1,719,700 in cash in 1999. The decrease in the use of cash for operating activities was primarily due to lower inventory levels, partially offset by higher balances in accounts receivable. Cash used in investing activities was $143,800 in 2000 compared to $269,800 in 1999, reflecting lower capital expenditures during 2000 as well as the proceeds from the sale of the Sunny Farms and Pacific Rim trademarks. Cash provided by financing activities was $861,900 in 2000 compared to $1,990,400 in 1999. The reduction in funds provided by financing reflects lower borrowing, partially offset by an increase in funds provided from bank overdrafts. The Company's future results of operations and the other forward-looking statements contained in this document, in particular the statements concerning plant efficiencies and capacities, capital spending, research and development, competition, marketing and manufacturing operations and other information provided herein involve a number of risks and uncertainties. In addition to the factors discussed above, other factors that could cause actual results to differ materially are general business conditions and the general economy, competitors' pricing and marketing efforts, availability of raw materials at reasonable prices, risk of uncollectible accounts receivable, risks of inventory obsolescence due to shifts in market demand, timing of product introductions, and litigation involving product liabilities and consumer issues. 12 New Applicable Accounting Pronouncements: In June 1998, the Financial Accounting Standards Board issued SFAS 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133 requires companies to recognize all derivatives contracts as either assets or liabilities on the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. SFAS 133 as amended is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Historically, the company has not entered into derivative contracts either to hedge existing risks or for speculative purposes. Accordingly, the Company does not expect adoption of this new standard on January 1, 2001 to affect its financial statements or results of operations. PART II - OTHER INFORMATION Item 1. Legal Proceedings - -------------------------- In November 1998, Global Natural Brands, Inc.("Global")and its four principals filed a lawsuit against OFPI (the former Registrant) and its four principals, alleging unpaid wages and seeking monetary damages and injunctive relief. Global had provided managerial services to OFPI from April 1998 to October 1998, when OFPI terminated its services. In January 1999, Global amended its complaint by including a securities fraud claim, among other causes of action. Meanwhile, Global sought to obtain a temporary restraining order, a preliminary injunction and a writ of attachment against OFPI without success. In May 1999, OFPI and its principals cross-complained against Global and its principals, seeking damage for breach of contract, breach of fiduciary duty, fraud, negligence and a declaratory relief for indemnity and contribution, plus punitive damages. SPOP assumed the litigation in connection with the Merger and in April, 2000, reached a settlement and release with Global. Under the terms of the settlement and release, SPOP will pay Global Natural Brands, Ltd. a total cash consideration of $145,000, payable $25,000 upon execution of the agreement by Global plus twelve equal monthly payments of $10,000, and $400,000, payable through a transfer of 400,000 shares of SPOP stock. In addition, SPOP shall issue options to purchase 125,000 shares at $2.25 per share at an option term yet to be determined. Management believes that the terms of this settlement will not have a significant effect upon the Company's financial position, results of operations or cash flows. Item 2. Changes in Securities - ------------------------------ None. 13 Item 3. Defaults Upon Senior Securities - ---------------------------------------- None. Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ None. Item 5. Other Information - -------------------------- None. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- None 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: August 14, 2000 SPECTRUM ORGANIC PRODUCTS, INC. By: /s/ Robert B. Fowles ----------------------------------- Robert B. Fowles Chief Financial Officer 14 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1999 JUN-30-2000 1,200 0 5,006,900 405,200 6,220,300 11,011,700 6,019,900 2,044,400 25,377,200 15,574,300 0 0 0 8,615,300 (385,900) 25,377,200 23,565,800 23,565,800 16,249,900 16,249,900 (11,500) 0 700,900 (574,600) 0 (574,600) 0 0 0 (574,600) (0.01) (0.01)
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