Spectrum Organic Products, Inc. (“SPOP” or the “Company”) reported that gross sales for the three months ended September 30, 2000 were $11,411,200 compared to $4,519,400 for 1999, an increase of $6,891,800, or 152% over 1999.
For the nine months ended September 30, 2000 gross sales were $34,977,000 compared to $18,751,900 for 1999, an increase of $16,225,100, or 87% over 1999. The increase in sales in 2000 consists primarily of the revenues related to the newly-merged Organic Food Products, Inc. (“OFPI”) and Organic Ingredients (“OI”) in October, 1999. Excluding the incremental revenues of the product lines obtained with OFPI and OI, Spectrum’s comparable sales for the nine months ended September 30 increased 19% from 1999, reflecting growth in mayonnaise, salad dressings, and Spectrum Spread®, in the culinary category. Nutritional supplement sales in liquid, capsule and powder forms also grew significantly, increasing 24% from the prior year.
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The Company reported a net loss of $636,300 and $1,210,900 for the three and nine month periods ended September 30, 2000 respectively, compared to net income of $105,500 and $649,800 for the three and nine month periods ended September 30, 1999. The net loss was primarily due to increased selling, general and administrative expenses, increased interest expense, non-cash losses anticipated with the closure of an under-utilized manufacturing facility, and the amortization of goodwill associated with the merger with OFPI and OI, partially offset by the revenues attributable to the newly-merged companies.
During the third quarter, Spectrum ceased manufacturing its tomato-based culinary products at its leased production facility in Morgan Hill, California. These products will now be produced by a third-party co-packer, which will enable the Company to close the Morgan Hill facility. Included in the operating results above for the third quarter was an additional provision of $250,000 for anticipated losses on the sale of surplus production equipment at the Morgan Hill facility. The Company is currently in final negotiations to sell this equipment, and anticipates closing the sale in November. During the second quarter, the Company recorded a provision of $191,500 for closing expenses and losses associated with the disposal of the Company’s leasehold improvements at Morgan Hill. Management expects that the year-to-date total of $441,500 will cover the complete cost of closing the facility, and selling off its non-productive assets.
Management believes that the Company’s earnings before interest, taxes, gain or loss on asset disposals, depreciation and amortization (“EBITDA”) is an important indicator of its financial performance. For the three months ending September 30, 2000 SPOP reported EBITDA of $347,200, which is a decrease of $287,600, from the EBITDA of $634,800 reported for the second quarter ended June 30, 2000. The decrease from the second quarter was primarily the result of lower sales coupled with increased promotional programs related to the tomato-based culinary products, which are typically promoted heavily during the third quarter. The decrease in sales was partially attributable to consolidation problems associated with the move to the Company’s new third party distribution facility, which became operational in July.
Spectrum CEO Jethren P. Phillips stated, “Our third quarter results, while disappointing, reflect additional progress regarding the closing of the under-utilized Morgan Hill production facility, as well as the move to a consolidated distribution facility. While these moves were difficult and resulted in one-time expenses and write-downs during our third quarter, Spectrum will become more efficient and enjoy greater margins long-term as a result of these changes. Our management team remains focussed on maximizing Spectrum’s long-term return to shareholders, which occasionally entails making decisions that negatively impact short-term results. Our third quarter was one of those times.”
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By GlobalDataSpectrum Organic Products, Inc. is a leading manufacturer and marketer of organic foods, culinary oils, vinegars and condiments under the Spectrum Naturals®, Millina’s Finest®, Garden Valley Organic(TM), Parrot Brand®, Energy Plus® and Grandma Millina’s Kids Meals(TM) labels. Additionally, the company is a leading manufacturer and marketer of essential fatty acids nutritional supplements under the Spectrum Essentials® label.
The company is organized into two divisions, the Branded/Consumer Division, located in Petaluma, California and the Industrial Food Division, located in Aptos, California. The company headquarters and main processing facility are located in Petaluma.
Spectrum Organic Products, Inc., was formed in October, 1999 by the merger of Spectrum Naturals, Inc., Spectrum Commodities, Inc., Organic Food Products, Inc. and Organic Ingredients, Inc. Following the merger, Organic Food Products, Inc. (stock symbol “OFPI”), the surviving legal entity, changed its name to Spectrum Organic Products, Inc. and began trading on the NASDAQ Bulletin Board under the trading symbol “SPOP”.
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.
The unaudited interim financial statements of the Company 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 three and nine month periods ended September 30, 2000 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2000. The unaudited interim financial statements 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.
