UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
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(Mark One) |
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
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For the quarterly period ended March 30, 2003. |
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
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For the transition period from: to: . |
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Commission File Number 0-22534-LA
MONTEREY PASTA COMPANY
(Exact name of registrant as specified in its charter)
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Delaware |
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77-0227341 |
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(State or other jurisdiction of |
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(IRS Employer |
1528
Moffett Street
Salinas, California 93905
(Address of principal executive offices)
Telephone: (831) 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.
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Yes ý |
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No o |
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
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Yes o |
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No ý |
At May 9, 2003, 14,202,865 shares of common stock, $.001 par value, of the registrant were outstanding.
MONTEREY PASTA COMPANY
FORM 10-Q
Table of Contents
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Condensed
Consolidated Balance Sheets March 30, 2003 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Certification of Chief Executive Officer – Exhibit 99.1 |
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Certification of Chief Financial Officer – Exhibit 99.2 |
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2
MONTEREY PASTA COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
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March 30, 2003 |
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December 29, 2002 |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
6,019,624 |
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$ |
6,838,244 |
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Accounts receivable, net |
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6,889,239 |
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6,058,710 |
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Inventories |
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3,922,946 |
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3,723,072 |
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Deferred tax assets – short term |
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3,921,959 |
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4,068,400 |
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Prepaid expenses and other |
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1,109,847 |
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1,048,120 |
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Total current assets |
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21,863,615 |
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21,736,546 |
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Property and equipment, net |
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15,151,255 |
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14,254,574 |
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Deferred tax assets – long term |
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390,300 |
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765,300 |
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Goodwill, net |
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4,671,754 |
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4,669,254 |
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Intangible assets, net |
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2,164,349 |
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2,239,113 |
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Deposits and other |
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162,777 |
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134,694 |
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Total assets |
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$ |
44,404,050 |
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$ |
43,799,481 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
3,180,085 |
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$ |
3,201,470 |
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Accrued liabilities |
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1,342,706 |
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1,639,918 |
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Current portion of debt |
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6,169 |
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14,964 |
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Total current liabilities |
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4,528,960 |
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4,856,352 |
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Long-term debt |
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— |
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1,785 |
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Commitments and contingencies |
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Stockholders’ equity: |
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Common stock |
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14,203 |
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14,196 |
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Additional paid-in capital |
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44,540,794 |
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44,518,855 |
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Accumulated deficit |
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(4,679,907 |
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(5,591,707 |
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Total stockholders’ equity |
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39,875,090 |
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38,941,344 |
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Total liabilities and stockholders’ equity |
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$ |
44,404,050 |
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$ |
43,799,481 |
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The accompanying notes are an integral part of these consolidated financial statements.
3
MONTEREY PASTA COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
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Three Months Ended |
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March 30, 2003 |
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March 31, 2002 |
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Net revenues |
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$ |
16,077,232 |
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$ |
16,062,327 |
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Cost of sales |
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10,492,634 |
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9,975,185 |
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Gross profit |
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5,584,598 |
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6,087,142 |
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Selling, general and administrative |
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4,124,744 |
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3,812,175 |
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Operating income |
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1,459,854 |
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2,274,967 |
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Loss on disposition of assets |
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— |
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(67,880 |
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Other income, net |
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176 |
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7,225 |
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Interest income, net |
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22,570 |
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43,042 |
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Income before provision for income taxes |
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1,482,600 |
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2,257,354 |
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Provision for income taxes |
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(570,801 |
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(270,882 |
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Net income |
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$ |
911,799 |
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$ |
1,986,472 |
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Basic and diluted income per share |
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$ |
0.06 |
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$ |
0.14 |
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Primary shares outstanding |
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14,200,588 |
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13,860,540 |
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Diluted shares outstanding |
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14,412,116 |
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14,599,802 |
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The accompanying notes are an integral part of these consolidated financial statements.
4
MONTEREY PASTA COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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Three Months Ended |
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March 30, 2003 |
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March 31, 2002 |
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Cash flows from operating activities: |
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Net income from operations |
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$ |
911,799 |
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$ |
1,986,472 |
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Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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Deferred income taxes |
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521,441 |
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— |
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Depreciation and amortization |
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537,150 |
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404,953 |
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Provisions for allowances for bad debts, returns, adjustments and spoils |
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(148,743 |
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67,240 |
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Loss on disposition of property and equipment |
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— |
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67,880 |
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Changes in assets and liabilities: |
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Accounts receivable |
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(681,786 |
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(334,165 |
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Inventories |
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(299,874 |
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(458,065 |
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Prepaid expenses and other |
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10,190 |
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165,400 |
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Accounts payable |
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(21,385 |
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1,252,594 |
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Accrued liabilities |
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(297,212 |
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(120,608 |
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Net cash provided by operations |
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531,580 |
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3,031,701 |
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Cash flows from investing activities: |
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Purchase of property and equipment |
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(1,359,067 |
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(1,136,092 |
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Purchase of trademark, recipes and rights |
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(2,500 |
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(112,177 |
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Net cash used in investing activities |
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(1,361,567 |
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(1,248,269 |
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Cash flows from financing activities: |
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Repayment of long-term debt and capital lease obligations |
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(10,580 |
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(7,730 |
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Proceeds from issuance of common stock |
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21,947 |
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507,143 |
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Net cash provided by financing activities |
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11,367 |
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499,413 |
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Net (decrease) increase in cash and cash equivalents |
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(818,620 |
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2,282,845 |
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Cash and cash equivalents, beginning of period |
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6,838,244 |
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7,232,128 |
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Cash and cash equivalents, end of period |
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$ |
6,019,624 |
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$ |
9,514,973 |
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Supplemental Cash Flow information
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March 30, 2003 |
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March 31, 2002 |
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Cash payments: |
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Interest |
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$ |
335 |
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$ |
2,221 |
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Income Taxes |
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49,360 |
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13,655 |
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The accompanying notes are an integral part of these consolidated financial statements.
5
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 2002 financial statements have been reclassified to conform to 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 2002 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 March 30, 2003, and for the three months then ended, 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 29, 2002. The consolidated results of operations for the interim quarterly periods are not necessarily indicative of the results expected for the full year.
For quarterly reporting purposes the Company employs a 4-week, 4-week, 5-week reporting period. The fiscal year ends on the last Sunday of each calendar year (52/53-week year). The 2002 fiscal year contained 52 weeks and ended on December 29. The current fiscal year contains 52 weeks and will end on December 28, 2003.
2. Business Acquisition and Statement of Cash Flows
On August 23, 2002, the Company purchased the operating assets and inventory of Emerald Valley Kitchen, Inc. a Eugene, Oregon based producer of organic salsas, dips, hummus, and sauces with over 90% of its sales to retail chains. The Company considered this purchase an opportunity to enter the rapidly growing organic food market. The consideration to the sellers consisted of $5,744,000 in cash. Additionally, the Emerald Valley owners are eligible to receive an earn-out based upon Emerald Valley Earnings before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) above predetermined levels starting at $979,000 for the first five years after the acquisition date. The earn-out will be calculated annually at the end of successive twelve-month periods following acquisition. Funding for the transaction came from existing cash balances.
3. New Accounting Pronouncements
In July 2002 the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which addresses financial accounting and reporting for costs associated with exit or disposal activities. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. This Statement also establishes that fair value is the objective for initial measurement of the liability. Severance pay under SFAS 146, in many cases, would be recognized over time rather than up front. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of this Statement did not have a material impact on the Company’s financial condition or results of operations.
In December 2002, the FASB issued SFAS 148, “Accounting for Stock-Based Compensation-Transition and Disclosure,” which provides alternative methods of transition for a voluntary change to fair value based method of accounting for stock-based employee compensation as prescribed in SFAS 123 “Accounting for Stock Based Compensation.” Additionally, SFAS 148 requires more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. The provisions of this Statement are effective for fiscal years ending after December 15, 2002. The adoption of this Statement did not have a material impact on the Company’s financial condition or results of operations.
In November 2002, the FASB issued FASB Interpretation (FIN) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN No. 45 requires a guarantor to recognize, at the inception of a qualified guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. FIN No. 45 is effective on a prospective basis for qualified guarantees issued or modified after December 31, 2002. The adoption of this Interpretation did not have a material impact on the Company’s financial condition or results of operations.
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In January 2003 the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), which requires the consolidation of certain special purpose or variable interest entities. FIN 46 is applicable to financial statements issued after 2002, however, disclosures are required currently if the Company expects to consolidate any variable interest entities. The Company has no variable interest entities and therefore, there are no entities that will be consolidated with the Company’s financial statements as a result of FIN 46.
4. Inventories
Inventories consisted of the following:
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March 30, 2003 |
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December 29, 2002 |
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Production - ingredients |
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$ |
1,685,556 |
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$ |
1,280,970 |
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Production - finished goods |
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1,383,043 |
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1,538,465 |
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Paper goods and packaging materials |
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936,315 |
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940,960 |
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Operating supplies |
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32,532 |
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32,177 |
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$ |
4,037,446 |
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$ |
3,792,572 |
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Reserve for spoils and obsolescence |
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(114,500 |
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(69,500 |
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Net inventories |
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$ |
3,922,946 |
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$ |
3,723,072 |
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5. Property and Equipment
Property and equipment consisted of the following:
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March 30, 2003 |
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December 29, 2002 |
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Machinery and equipment |
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$ |
15,943,148 |
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$ |
15,965,795 |
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Leasehold improvements |
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4,981,724 |
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4,970,075 |
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Computers, office furniture and equipment |
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857,614 |
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724,198 |
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Vehicles |
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363,748 |
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363,748 |
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22,146,234 |
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22,023,816 |
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Less accumulated depreciation and amortization |
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(8,451,725 |
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(7,989,339 |
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13,694,509 |
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14,034,477 |
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Construction in progress |
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1,456,746 |
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220,097 |
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Property, plant and equipment, net |
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$ |
15,151,255 |
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$ |
14,254,574 |
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The Company has construction is progress commitments at March 30, 2003 to complete a spiral chiller in the amount of $55,000, and in the amount of $200,000 to complete a prepared foods line.
6. Credit Facility
On August 1, 2001 Imperial Bank (now Comerica Bank) provided a new multi-year credit facility to the Company. The existing accounts receivable and inventory revolver was amended to expire October 31, 2003 with a commitment of $1.5 million and interest at either prime rate or LIBOR plus 185 basis points for a debt/tangible net worth ratio of less than 1.0:1. LIBOR premium increases 25 basis points for debt/tangible net worth ratios from 1.0 to 1.25:1, with another 25 basis point increase for debt/tangible net worth ratios above 1.25:1. In addition, the Company’s lender approved a $8.5 million non-revolving term facility in the event of a need for major capital expenditures and acquisitions, which expires October 31, 2009. The term loan facility is subject to annual review if unused. If used, it converts to an 84-month term loan. Pricing is at either prime rate or LIBOR plus premiums for the same debt/tangible net worth ratios beginning at 200 basis points over LIBOR and increasing 25 basis points for successive debt/tangible net worth increments. The total credit facility is $10.0 million.
The terms of the Credit Facility prohibit the payment of cash dividends (except with written approval) on the Company’s capital stock and restricts payments for, among other things, repurchasing shares of its capital stock. Other terms of the Credit Facility limit the Company with respect to, among other things, (i) incurring additional indebtedness, (ii) adversely changing the capital structure, and (iii) acquiring assets other than in the normal course of business including specific limits on annual capital expenditures (currently $4.25 million). As of March 30, 2003, there were no violations of any loan covenants and no loans outstanding.
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7. Income Taxes
Deferred tax assets, principally related to the expected benefit from utilization of net operating loss carryforwards (“NOLs”), offset most of the estimated book taxes, with actual cash tax payments of $49,000 year-to-date made during the first quarter. Deferred tax assets remaining on the Balance Sheet at the end of the first quarter to offset future income tax liabilities, are $3,923,000 short term and $390,000 long term (See “Results of Operations,” page 10 for more information on current year’s tax accrual).
8. Litigation
On February 13, 2003, a purported securities class action complaint was filed in the Northern District of California, Wietschner v. Monterey Pasta Company et al., No. C 03-00632 MJJ. On March 12, 2003, a second purported securities class action complaint was filed in the same District, and related to the first-filed case, Moore-Warner v. Monterey Pasta Company et al., No. C 03-1072 MJJ. The complaints purport to be brought on behalf of a class of all persons who purchased the common stock of the Company from July 11, 2002 through December 16, 2003. The complaints allege that the Company and two of its officers and directors issued false statements regarding expected earnings and revenues, in violation of Sections 10(b) and/or 20(a) of the Securities Exchange Act of 1934. No specific amount of damages is claimed. The Company will respond to the lawsuits once a lead plaintiff is appointed and a consolidated or operative complaint is filed or designated.
On February 20, 2003, a purported shareholder derivative complaint was filed in the Superior Court, County of Monterey, Imperial County Employees’ Retirement System v. Hewitt et al., No. M63679. The complaint alleges claims for breach of fiduciary duty, gross negligence, waste, and abuse of control against the directors of the Company, based in substantial part on the same allegations as the securities class action complaints. No specific amount of damages is claimed. On April 15, 2003, the Company and the individual defendants moved to dismiss the Complaint.
Management believes that the allegations in the above referenced cases are without merit and intends to contest them vigorously. The Company will incur legal fees in defending the lawsuits.
There are no other material pending legal proceedings, other than ordinary, routine litigation incidental to the Company’s business, to which the Company is a party or to which any of its property is subject.
9. Stockholders’ Equity
During the first quarter of 2003, 6,474 employee stock purchase plan shares were issued.
We account for employee stock options using the intrinsic value method. We have no current plans to change our accounting. If the fair value method of accounting had been applied, our results would have been:
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Quarter ending |
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3/30/03 |
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3/31/02 |
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Pro forma impact of fair value method |
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Reported net income |
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$ |
912 |
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$ |
1,986 |
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Less: fair value impact of employee stock compensation |
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(321 |
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(263 |
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Pro forma net income |
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$ |
591 |
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$ |
1,723 |
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Earnings per common share |
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Basic—as reported |
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$ |
0.06 |
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$ |
0.14 |
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Diluted—as reported |
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$ |
0.06 |
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$ |
0.14 |
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Basic—pro forma |
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$ |
0.04 |
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$ |
0.12 |
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Diluted—pro forma |
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$ |
0.04 |
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$ |
0.12 |
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8
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 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 29, 2002. In addition to the risks and uncertainties discussed in the Annual Report, the risks set forth herein, including the risks associated with any reduction of sales to two major customers currently comprising a majority of total revenues, the Company’s ability to expand distribution of food products to new and existing customers, attract and retain qualified management, and compete in the competitive wholesale food products industry, should be considered.
Background
Monterey Pasta Company was incorporated in June 1989 as a producer and wholesaler 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 food products through multiple channels of distribution.
The Company is committed to diversifying its offerings with innovative new product line extensions, complementary products, and other gourmet product lines. The Company’s product development team and product development consultants focus on creating new products that innovatively blend complementary tastes, food textures and ingredients while strictly adhering to the Company’s emphasis on freshness, healthfulness and quality. As new products are introduced, selected items will be discontinued to help ensure that the product line is focused on consumer demand, to maximize the Company’s return on its shelf space in grocery and club stores, and to respond to changing trends and consumer preferences.
The goal of the Company is to introduce new products on a timely and regular basis to maintain customer interest and to respond to changing consumer tastes. There can be no assurance that the Company’s efforts to achieve such a goal will result in successful new products or product lines or that new products can be developed and introduced on a timely and regular basis. If the Company’s new products are not successful, the Company’s grocery and club store sales may be adversely affected as customers seek new products.
The Company sells its pasta and pasta sauces through leading grocery store chains and club stores. As of March 30, 2003, approximately 8,700 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. and other parts of the world.
Monterey Pasta’s objective is to become a leading national supplier of refrigerated gourmet food products through distribution of its products to grocery and club stores. The key elements of the Company’s strategy include the following:
• 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 solutions using Monterey Pasta 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 or Eugene, Oregon facilities, and will supplement its existing line of cut pasta, ravioli, tortelloni, tortellini, sauces, gnocchi, pizzas and calzones, borsellini, salsas, dips, hummus, polenta, and soups.
• Reduce operating costs as a percent of sales 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 on a per unit basis.
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• Create brand awareness by communicating to the consumer that Monterey Pasta Company provides a healthful and nutritious line of products and promote repeat business by reinforcing positive experiences with the Company’s products.
• Consider the acquisition of other compatible companies or product lines to expand retail distribution, or the range of product offerings, or to accomplish other synergies where the acquisition will create long-term stockholder value, and be accretive to earnings in the first year.
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, coupon programs, temporary price reduction promotions, 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 acquisition strategy is dependent upon its ability to generate cash from current operations, attract new capital, find suitable acquisition candidates, and successfully integrate new businesses and operations. There is no assurance that acquisitions can be financed from current cash flow, and, if not, that outside sources of capital will be available to supplement internally-generated funds. There is no assurance that management can successfully select suitable acquisition candidates and that these new businesses can be successfully integrated to create long term stockholder value.
Results of Operations
Net revenues were $16,077,000 for the quarter ended March 30, 2003, as compared to $16,062,000 for the quarter ended March 31, 2002. While club store sales were down 23% for the quarter, retail sales (which represented approximately 37% of net revenues for the quarter) were up 63%, of which 27% was related to the Emerald Valley Kitchen acquisition. Part of the decline in the club store sales was due to the 27% decline in Sam’s Club sales compared with the prior year. This decline was felt during a period in which the Company and Sam’s Club were reformulating a program to be launched in May 2003 in which the total number of items per store and the shelf space allocated was increased significantly from first quarter levels. The Costco decline of 20% was partially caused by an overall reduction in total items carried in their refrigerated section, which impacted the Company’s sales.
Gross profit was $5,585,000 or 34.7% of net revenues for the first quarter 2003, compared to $6,087,000 or 37.9% for the first quarter of 2002. This compares to a 36.1% gross margin for the year ended December 29, 2002. The gross margin decline compared with first quarter 2002 and the year-ended December 29, 2002 was a function of write-off of label inventory, an increase in fixed costs associated with the plant expansion (lease cost, depreciation, and salaries) to support a higher sales level, and higher fixed costs in general including salaries and depreciation added to support higher future sales expectations.
Selling, general and administrative expenses (SG&A) for the quarter ended March 30, 2003 were $4,125,000, an increase of $313,000 or 8% when compared to the same quarter last year when they were $3,812,000. The increased SG&A expenses are related to Emerald Valley Kitchen SG&A which was not part of last year’s expenses ($192,000), and increased amortization expense ($62,000) due to the intangible assets acquired with the Emerald Valley Kitchen acquisition, as well as added sales and marketing salaries.
Depreciation and amortization expense, included in cost of sales and selling, general and administrative expenses, was $537,000 or 3% of net revenues for the quarter ended March 30, 2003, compared to $405,000 or 3% of net revenues for the first quarter of 2002. The 2003 numbers reflected an increase in amortization expense of $62,000 over 2002 related to the August 2003 acquisition of Emerald Valley Kitchen. In addition, depreciation increased $70,000 compared with 2002 as a result of depreciation related to the 2002 asset additions, as well as the Construction in progress projects completed in the first quarter of 2003.
There was no gain or loss on disposition of fixed assets for the quarter ended March 30, 2003, compared to a loss of $68,000 during the first quarter of 2002. The loss in 2002 reflected the writeoff of obsolete and abandoned computer hardware, software and office equipment.
Net interest income was $23,000 for the first quarter of 2003, compared to a $43,000 the same period in 2002. The decrease in interest income resulted from decreased money market rates.
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Income taxes for the first quarter of 2003 were $571,000 or 38.5% of pretax income, as compared to $271,000 or 12% of pretax income for the same period in 2002. The 2003 taxes were accrued for book purposes at the full taxation rates, which were mostly offset by deferred tax assets, while the 2002 taxes were accrued primarily for State taxes and Federal alternative minimum tax. On the following page are proforma results if the same rate were applied for both years:
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First quarter ended |
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March 30, 2003 |
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March 31, 2002 |
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Net income before tax |
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$ |
1,483,000 |
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$ |
2,257,000 |
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Tax at 38.5% |
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(571,000 |
) |
(869,000 |
) |
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Income after tax |
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$ |
912,000 |
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$ |
1,388,000 |
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Primary income /sh. |
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$ |
0.06 |
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$ |
0.10 |
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Diluted income/sh. |
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$ |
0.06 |
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$ |
0.10 |
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*2002 numbers are proforma
During 2002, the Company completed a comprehensive study of the nature of certain net operating losses (NOLs) arising in connection with our previously owned subsidiary Upscale Food Outlets, Inc. (UFO) and their likelihood of their being utilized. We concluded that it was more likely than not that they would be utilized. As a result, reserves against these specific deferred tax assets totaling $5,196,000 were released during 2002 and offset against income tax expense. As a result of this evaluation and resulting release of reserves, the Company expects that future income tax expense will be accrued at a more “normalized” combined Federal and State rate approaching statutory rates less certain tax credits and timing differences.
The future disallowance of any previous UFO NOL usage, if it occurs, would increase both income tax expense and amounts actually payable.
Liquidity and Capital Resources
The Company repaid all of its bank debt by the end of third quarter 2000, and currently has only small lease obligations remaining. The Company’s revolving credit facility expires on October 31, 2003 and will have to be replaced or extended by that date.
During the three-month period ended March 30, 2003, $532,000 of cash was provided by the Company’s operations, compared to $3,032,000 cash provided in the first quarter of 2002. The $2.5 million decrease in 2003 was a result of the reduced operating cash income (net income after tax plus change in deferred tax assets and depreciation and amortization expense) level from $2.4 million to $2.0, a decline of $.4 million, and a $2.1 million increase in net working capital items other than cash. The net change in working capital items resulted from a change in accounts payable between cash flow statements of $1.3 million, a $.4 million change in net receivables, and minor changes in other working capital components. The accounts payable change was related to a very high level of payables due to timing of payments at quarter-end 2002, accompanied by a return to a more normal level at quarter-end 2003.
Capital expenditures were approximately $1.4 million in the first quarter of 2003 with major projects including an automated filling machine, a chunky ravioli line, a new telephone system, a prepared foods line, an upgrade of a chiller, and the final payment on the plant expansion at the distribution center.
During the first quarter of 2003, proceeds from the Employee Stock Purchase Plan share purchase was $22,000, while in 2002 $507,000 was generated from the exercise of 193,350 stock options ($492,000), and 3,793 Employee Stock Purchase Plan shares ($15,000).
Critical Accounting Policies and Management Judgements
Accounts Receivable and Allowances
The Company provides allowances for estimated credit losses, product returns, spoilage, and adjustments at a level deemed appropriate to adequately provide for known and inherent risks related to such amounts. The
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allowances are based on reviews of loss, return, spoilage, adjustment history, contractual relationships with customers, current economic conditions, and other factors that deserve recognition in estimating potential losses. While management uses the best information available in making its determination, the ultimate recovery of recorded accounts, notes, and other receivables is also dependent on future economic and other conditions that may be beyond management’s control.
Sales incentives and Advertising Costs
The Company expenses advertising costs as incurred or when the related campaign commences. Sales incentives paid or credited to club stores and grocery chains for shelf space allocations are amortized between six and twelve months depending on the nature of the chain program or agreement. Loss of a major account could create the need to expense the remaining prepaid asset relating to that account in a specific quarter, thereby potentially affecting the results of that quarter. In, addition sales incentives could increase, thereby adversely affecting gross margins.
Goodwill/Intangible Assets
Intangible assets other than goodwill consist of tradenames, and other intangibles and are recorded at cost, net of accumulated amortization. These intangibles are amortized over their respective useful lives, if determinate, ranging from 3 to 10 years. Goodwill and intangibles with indeterminate useful lives are assessed for impairment at least annually. The valuation of these intangibles is generally determined based upon valuations performed by third party specialists and management’s best estimates of fair value. As a result, the ultimate value and recoverability of these assets is subject to the validity of the assumptions used. The Company cannot predict the occurrence of events that might adversely affect the reported value of goodwill that totaled $4.7 million at March 30, 2003. However, the current fair market value of our acquired assets is in excess of carrying values and, accordingly, management believes that only significant changes in cash flow assumptions would result in impairment.
Deferred Tax Asset Valuation Allowance
The Company accounts for corporate income taxes in accordance with SFAS 109, Accounting for Income Taxes, which requires an asset and liability approach. This approach results in the recognition of deferred tax assets (future tax benefits) and liabilities for the expected future tax consequences of temporary timing differences between the book carrying amounts and the tax basis of assets and liabilities. Future tax benefits are subject to a valuation allowance to the extent of the likelihood that the deferred tax assets may not be realized.
The Company has significant deferred tax assets which includes significant amounts of NOLs from the Company’s former restaurant operating subsidiary UFO. These NOLs were previously fully reserved based upon management’s best estimate of ultimate realizeability. During 2002, based upon new evidence and management’s judgments these reserves were substantially reduced. The amount of the reserve is significantly dependent on management’s assumptions regarding future taxable income and the availability of these NOLs to offset future taxable income. The effect on the Company’s net income is significant whenever the estimate of realizability changes, as it did in 2002 (See “Deferred Tax Assets” below). The Company expects to utilize most, if not all of the remaining NOLs in fiscal 2003.
Sales and Marketing
The Company’s sales and marketing strategy is twofold and targets sustainable growth in distribution of its products and the introduction of innovative new products to keep the Company positioned as the category leader in the marketplace.
In keeping with its strategy of bringing innovative, new products to the marketplace, in the first quarter of 2003 the Company worked aggressively to introduce a new line of Baked Stuffed Sandwiches to the marketplace. Initially, the new line contains four flavors. The Company introduced the line to selected divisions of Costco during the quarter, and will continue the introduction during the second quarter. The line will be introduced to retail accounts later in the year.
The Company also began the introduction of a new line of prepared entrees during the quarter. The initial offering consists of three varieties of lasagna and the Company plans to add to the line during the year.
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During the first quarter of 2003, the Company introduced an exciting, new look to its packaging. In sharp contrast to the technology-driven packaging traditionally used in the category, the Company’s new packaging was developed with a consumer focus and an emphasis on appetite appeal to motivate point of sale purchase decisions. The Company will continue the introduction of this new packaging to warehouse club stores during the second quarter, with retail accounts following later in the year.
Major Customers
Two of the Company’s customers, Costco and Sam’s Club Stores (“Sam’s”) including Wal-Mart, accounted for 37% and 30%, respectively, of the Company’s sales for the three months ended March 30, 2003. No other customer accounted for greater than 10% of net revenues for the period.
Deferred Tax Assets
During 2002, the Company completed its evaluation of the likelihood of realizing certain deferred tax assets arising from net operating losses (NOLs) originated in connection with its former restaurant operating subsidiary UFO. As a result, reserves against these deferred tax assets totaling $5,404,000 were released and offset against income tax expense. This credit, together with permanent differences and other current tax effects resulted in a net income tax benefit of $3,128,000. Of these amounts, $4,674,000 in reserves released along with permanent differences and other current tax effects, resulted in a net income tax benefit $3,549,000 during 2002. Utilization of these remaining NOLS and other deferred tax assets will offset substantially all of the federal income taxes otherwise payable for 2003. As of March 30, 2003, remaining net deferred tax assets available to offset future cash taxes are $3,923,000 short term and $390,000 long term.
As a result, future income tax expense for 2003 and thereafter will more closely approach a “normalized” combined tax rate of approximately 38.5%. Results for the full 2003 fiscal year are still expected to be impacted by the release of reserves referred to above.
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:
• No Assurance of Continued Profitability. In the second quarter of 1994, the Company reported its first operating loss from continuing operations. Subsequent to that quarter the Company incurred losses through the first quarter of 1997, after which it regained profitability, which has continued for twenty-four consecutive quarters. At March 30, 2003, the Company had an accumulated deficit of $4,680,000. There can be no assurance that the Company will maintain its profitability in the long or short term.
• Liquidity: Need for Additional Capital. Management believes that its current cash balances, operations, and existing bank lines of credit will provide adequate liquidity to meet the Company’s planned capital and operating requirements for normal operations and capital expenditures through the next twelve months. See Note 6 to the financial statements for a description of credit facility. The disallowance of a significant portion of previously-utilized UFO NOLs might require an unexpected cash outlay. The tax impact of the use of the UFO NOLs through first quarter 2003 is approximately $10.6 million. 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 stockholders to incur dilution in net tangible book value per share of Common Stock.
• Hiring and Retention of Key Personnel. The success of the Company depends on its ability to retain key executives, and to motivate and retain other key employees and officers. On September 3, 2002 the Company announced the hiring of James M. Williams as its new President, effective October 1, 2002, to replace R. Lance Hewitt, who stayed on as Chief Executive Officer through 2002. Mr. Hewitt retired from day-to-day operations effective December 28, 2002 and Mr. Williams was named Chief Executive Officer on the same date. The Company currently has key man insurance policies in place, each in the face amount of $500,000, for its Chairman, R. Lance Hewitt, and its Chief Financial Officer, Stephen L. Brinkman. A policy will be added for Mr. Williams in the future. There can be no assurance that significant management turnover will not occur in the future.
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• Impact of Inflation. Dairy ingredients and energy prices had a significant impact on its operations during 2001. Freight rate increases related to fuel surcharges impacted the first quarter of 2003 by approximately $70,000 when compared with the same period in 2002. Substantial increases in labor, employee benefits, freight, ingredients and packaging, rents and other operating expenses, as well as increases in dairy ingredients and energy prices 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, or their magnitude.
• 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, for which it is insured, and spoilage, and the associated risks of product liability litigation, which may be associated with even an isolated event. Although the Company has modern production facilities, employs what it believes are the necessary processes and equipment in order to insure food safety, and has obtained USDA approval for its California production facilities, there can be no assurance that the Company’s procedures will be adequate to prevent the occurrence of such events. The quality assurance programs and food safety programs similar to those employed in the Salinas, California facilities are in the process of being established for the Eugene, Oregon facility.
• Dependence on Major Customers. During 2002, two customers, Costco and Sam’s Club Stores including Wal-Mart Supercenters, accounted for 37% and 30%, respectively, of the Company’s total revenues. The Company currently sells its products to eight separate Costco regions (approximately 330 stores) which currently make purchasing decisions independently of one another. These regions re-evaluate, on a regular basis, the products carried in their stores. There can be no assurance that these Costco regions will continue to offer Monterey Pasta products in the future or continue to allocate Monterey Pasta the same amount of shelf space. The Company also supplies its products to approximately 450 Sam’s Club stores, and 1,100 Wal-Mart Supercenters and Neighborhood Markets. Purchasing decisions are made at the respective company’s headquarters with input from the store level. The Company is in the sixth year of its relationship with Sam’s. However, there can be no assurance that Sam’s Club stores will continue to carry its products. The Company obtained the Wal-Mart Supercenter business during 2002, so the relationship is relatively new and there is no guarantee of its success. Loss of either of these customers, Costco or Sam’s Club, or a significant reduction in sales to either, would have a material adverse effect on the Company. Additionally, liberalized pricing or allowance terms would create downward pressure on gross margins.
• 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.
• California Energy Supply and Pricing. During 2001, California experienced an energy crisis that could have disrupted the Company’s operations and did increase the Company’s energy expenses. In the event of an acute power shortage, when power reserves for California fall below 1.5%, electricity providers have on some occasions implemented, and may in the future implement, rolling blackouts. If blackouts interrupt the power supply to the Company’s production facilities, such facilities would temporarily be unable to continue production. Any such interruption could result in a loss of revenue as a result of reduced production and, in severe cases, spoilage of food products. In addition, related to the energy crisis, many of the electricity and natural gas suppliers raised their rates substantially during the first six months of 2001. Because the Company has most of its operations in California, its operating costs are affected by an increase in electricity and natural gas prices. As a result, the Company’s operating results could to be affected in some measure by in the future by fluctuations in the price or supply of energy. Electricity prices are similar to the same three-month period a year ago. Natural gas prices in the first quarter of 2003 have increased over 50% from the same three-month period a year ago, after they had declined substantially during the summer and fall of 2002 from their levels in the first five months of 2001. However, these current increases have not had a material impact on the operations of the
14
company during the first quarter. Management cannot predict the level of future energy prices or supply with certainty.
• Volatility of Stock Price. The market price of the Company’s common stock has fluctuated substantially since the initial public offering of the Company’s 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. In addition, 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 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. This could result in an even more immediate and significant adverse impact on the trading price of the Company’s common stock upon announcement of the shortfall or quarterly operating results.
• 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, either in the same measure or at all. 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 carefully evaluates each potential expansion into new markets requiring any major expenditure.
• Dairy Ingredients Prices. During the first ten months of 2001 average price of certain dairy ingredients increased over 40% compared with the average of the prior twelve months, as measured by butterfat prices published by the State of California Department of Food and Agriculture. Because the Company utilizes various dairy ingredients in many of its products, its operating costs will be affected by an increase in those ingredients. The Company’s operating results were affected in the first eleven months of 2001. Although dairy ingredient prices have declined significantly since November 2001, results could be affected in some measure in future months by renewed price increases, if they occur. Dairy ingredients historically tend to be cyclical in nature and subject to declines in price as well as increases. Management cannot predict with certainty the duration or magnitude of the current price cycle.
• Deductible Worker’s Compensation Program. The Company entered into a deductible worker’s compensation program for fiscal year 2003. This program which features a fixed annual payment, a deductible of $250,000 per occurrence, and a $500,000 letter of credit in favor of the insurance company with an annual cost of $7,500, creates a maximum exposure of approximately $2.1 million for claims occurring in 2003. A competitive “guaranteed cost” program would have cost the Company approximately $1.5 million. The Company’s maximum exposure in the event of adverse experience is approximately $600,000. The maximum potential gain is as much as $1.1 million.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk Disclosure
The Company does not hold market risk sensitive trading instruments, nor does it use financial instruments for trading purposes. All sales, operating items and balance sheet data are denominated in U.S. dollars, therefore, the Company currently has no foreign currency exchange rate risk (see “Foreign Currency Risks” section below for further discussion).
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In the ordinary course of its business the Company enters into commitments to purchase raw materials over a period of time, generally six months to one year, at contracted prices. At March 30, 2003 these future commitments were not at prices in excess of current market, or in quantities in excess of normal requirements. The Company does not utilize derivative contracts either to hedge existing risks or for speculative purposes.
Interest Rate Risk
The Company has fixed and variable income investments consisting of cash equivalents. The magnitude of the interest income generated by these cash equivalents is affected by market interest rates. We do not use marketable securities nor derivative financial instruments in our investment portfolio.
The interest payable on our bank line of credit is based on variable interest rates and therefore affected by changes in market interest rates. The Company had no bank debt at the end of the third quarter and has not had bank debt since the third quarter of 2000.
Foreign Currency Risk
The Company’s sales to-date have been made to primarily U.S. customers and, as a result, has not had any significant exposure to factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. However, the Company is now selling and, in future periods, expects to sell more in foreign markets. If sales are made in U.S. dollars, a strengthening of the U.S. dollar could make our products less competitive in foreign markets.
Item 4. Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), within the 90 day period prior to the filing date of this report. Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of that date.
There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in paragraph (a) above.
On February 13, 2003, a purported securities class action complaint was filed in the Northern District of California, Wietschner v. Monterey Pasta Company et al., No. C 03-00632 MJJ. On March 12, 2003, a second purported securities class action complaint was filed in the same District, and related to the first-filed case, Moore-Warner v. Monterey Pasta Company et al., No. C 03-1072 MJJ. The complaints purport to be brought on behalf of a class of all persons who purchased the common stock of the Company from July 11, 2002 through December 16, 2002. The complaints allege that the Company and two of its officers and directors issued false statements regarding expected earnings and revenues, in violation of Sections 10(b) and/or 20(a) of the Securities Exchange Act of 1934. No specific amount of damages is claimed. The Company will respond to the lawsuits once a lead plaintiff is appointed and a consolidated or operative complaint is filed or designated.
On February 20, 2003, a purported shareholder derivative complaint was filed in the Superior Court, County of Monterey, Imperial County Employees’ Retirement System v. Hewitt et al., No. M63679. The complaint alleges claims for breach of fiduciary duty, gross negligence, waste, and abuse of control against the directors of the Company, based in substantial part on the same allegations as the securities class action complaints. No specific amount of damages is claimed. On April 15, 2003, the Company and the individual defendants moved to dismiss the Complaint.
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Management believes that the allegations in the above referenced cases are without merit and intends to contest them vigorously. The Company will incur legal fees in defending the lawsuits.
There are no other material pending legal proceedings, other than ordinary, routine litigation incidental to the Company’s business, to which the Company is a party or to which any of its property is subject.
None
None
None
(a) |
Exhibits |
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99.1 |
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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99.2 |
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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(b) |
Report on Form 8-K |
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Date of Report |
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Item |
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Description |
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February 20, 2003 |
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5 |
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Report of class action and derivative lawsuits |
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MONTEREY PASTA COMPANY |
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Date: May 9, 2003 |
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By: |
/s/ JAMES M. WILLIAMS |
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James M. Williams |
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President and Chief Executive Officer |
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By: |
/s/ STEPHEN L. BRINKMAN |
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Stephen L. Brinkman |
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Chief Financial Officer |
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I, James M. Williams certify that:
1. I have reviewed this annual report on Form 10-Q of Monterey Pasta Company (the “Registrant”);
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of May 1, 2003; (the “Evaluation Date”) and
(c) presented in this annual report our conclusions about the effectiveness of the Registrant’s disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors:
(a) all significant deficiencies in the design or operation of disclosure controls and procedures which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in disclosure controls and procedures; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s disclosure controls and procedures; and
6. The Registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in disclosure controls and procedures or in other factors that could significantly affect the disclosure controls and procedures subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
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Date: May 8, 2003 |
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/s/ JAMES M. WILLIAMS |
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James M. Williams |
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President and Chief Executive Officer |
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I, Stephen L. Brinkman, certify that:
1. I have reviewed this annual report on Form 10-Q of Monterey Pasta Company (the “Registrant”);
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of May 1, 2003; (the “Evaluation Date”) and
(c) presented in this annual report our conclusions about the effectiveness of the Registrant’s disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors:
(a) all significant deficiencies in the design or operation of disclosure controls and procedures which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in disclosure controls and procedures; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s disclosure controls and procedures; and
6. The Registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in disclosure controls and procedures or in other factors that could significantly affect the disclosure controls and procedures subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
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Date: May 8, 2003 |
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/s/ STEPHEN L. BRINKMAN |
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Stephen L. Brinkman |
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Chief Financial Officer |
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3.1 |
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Certificate of Incorporation dated August 1, 1996 (incorporated by reference from Exhibit B to the Company’s 1996 Proxy) |
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3.2 |
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Bylaws of the Company (incorporated by reference from Exhibit C to the 1996 Proxy) |
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4.1 |
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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) |
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4.2 |
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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 Q1 10-Q”)) |
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4.3 |
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Stockholder 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) |
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4.4 |
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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 Exhibit 4.9 filed with the Company’s 1996 Form 10-KA) |
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4.5 |
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Registration Rights Agreement dated as of December 31, 1996 among the Company, Sentra Securities Corporation and investor (incorporated by reference from Exhibit 4.12 filed with the Company’s 1996 Form 10-K/A) |
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4.6 |
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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 from Exhibit 4.13 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)) |
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4.7* |
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Stock Purchase Agreement between the Company and Kenneth A. Steel, Jr. dated April 29, 1997 (incorporated by reference from Exhibit 4.14 filed with the 1997 Amendment No. 1 to Form S-3) |
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10.1* |
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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) |
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10.2* |
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1995 Employee Stock Purchase Plan (incorporated by reference from Exhibit 10.15 to the Company’s 1994 Form 10-K) |
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10.3 |
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Monterey County Production Facility Lease of the Company, as amended (incorporated by reference from Exhibit 10.03 to the SB-2) |
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10.4 |
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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 Exhibit 10.6 filed with the 1995 Form 10-K) |
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10.5 |
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Amendment No. 3 dated September 12, 1997, and Amendment No. 4 dated February 6, 1999 to Monterey County Production Facility Lease of the Company (incorporated by reference from Exhibit 10.5 filed with the Company’s September 27, 1999 Quarterly Report on Form 10-Q dated November 4, 1999 (“1999 Q3 10-Q”)) |
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10.6 |
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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) |
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10.7 |
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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) |
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10.8 |
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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) |
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10.9 |
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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) |
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10.10 |
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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) |
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10.11 |
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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”)) |
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10.12* |
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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 Q2 10-Q”)) |
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10.13* |
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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) |
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10.14 |
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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 Form S-3 filed on October 14, 1997 (“1997 Amendment No. 3 to Form S-3”)) |
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10.15* |
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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) |
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10.16* |
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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, 1997) |
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10.17 |
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First Amendment to Security and Loan Agreement dated July 24, 1997 between the Company and Imperial Bank (incorporated by reference from Exhibit 10.50 in the Company’s 1997 Form 10-K) |
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10.18 |
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Second Amendment to Security and Loan Agreement dated July 24, 1997 between the Company and Imperial Bank (incorporated by reference from Exhibit 10.18 filed with the Company’s 1998 Q3 10-Q) |
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10.19 |
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Security and Loan Agreement dated July 23, 1998 between the Company and Imperial Bank (incorporated by reference from Exhibit 10.19 filed with the Company’s 1998 Q3 10-Q) |
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10.20 |
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Addendum to Security and Loan Agreement dated July 23, 1998 between the Company and Imperial Bank (incorporated by reference from Exhibit 10.20 filed with the Company’s 1998 Q3 10-Q) |
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10.21 |
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Agreement for Handling and Storage Services between the Company and CS Integrated LLC dated February 5, 1999 (incorporated by reference to Exhibit 10.21 filed with the Company’s 1998 Form 10-K on March 17, 1999 (“1998 Form 10-K”)) |
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10.22 |
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Defined Contribution Administrative Service Agreement between the Company and First Mercantile Trust dated December 15, 1999 (incorporated by reference to Exhibit 10.22 filed with the Company’s 1998 Form 10-K) |
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10.23 |
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First Amendment to Security and Loan Agreement and Addendum thereto between the Company and Imperial Bank dated July 23, 1999 (incorporated by reference to Exhibit 10.23 filed with the Company’s April 1, 2001 Quarterly Report on Form 10-Q filed on April 28, 1999) |
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10.24 |
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Agreement for Purchase and Sale of Assets dated as of March 12, 1999, by and among the Company and the shareholders of Frescala Foods, Inc. (incorporated by reference from Exhibit 2.1 filed with the Company’s 8-K on March 17, 1999) |
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10.25 |
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Royalty agreement dated July 12, 1999 between Company and Chet’s Gourmet Foods, Inc. for soups (incorporated by reference to Exhibit 10.25, in the Company’s September 26, 1999 Quarterly Report on Form 10-Q filed on November 9, 1999 (“1999 Q3 10-Q”)) |
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10.26 |
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Storage Agreement Manufactured Products dated August 3, 1999 between the Company and Salinas Valley Public Warehouse for storage and handling of Company’s product in Monterey County, California storage facility (incorporated by reference to Exhibit 10.26, filed with the Company’s 1999 Q3 10-Q) |
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10.27 |
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Commercial Lease dated August 10, 1999 between Company and Salinas Valley Public Warehouse for storage space in Monterey County, California (incorporated by reference to Exhibit 10.27, filed with the Company’s 1999 Q3 10-Q) |
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10.28 |
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Rental Agreement dated September 6, 1999 between Company and Porter Family Trust for storage space in Monterey County, California (incorporated by reference to Exhibit 10.28 filed with the Company’s 1999 Q3 10-Q) |
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10.29 |
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Royalty agreement dated September 15, 1999 between Company and Chet’s Gourmet Foods, Inc. for meatball and sauce item (incorporated by reference to Exhibit 10.29, filed with the Company’s 1999 Q3 10-Q) |
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10.30 |
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Credit Agreement between the Company and Imperial Bank dated August 2, 1999 (incorporated by reference to Exhibit 10.30 filed with the Company’s 1999 Form 10-K on February 18, 2001 (“1999 Form 10-K”)) |
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10.31 |
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First Amendment to Credit Agreement between the Company and Imperial Bank dated August 2, 1999 (incorporated by reference to Exhibit 10.21 filed with the Company’s 1999 Form 10-K) |
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10.32 |
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Commercial lease dated January 1, 2001 between the Company and PTF for Operating Engineers, LLC for storage space in Monterey County, California (incorporated by reference to Exhibit 10.32, in the Company’s June 25, 2001 Quarterly Report on Form 10-Q filed on August 4, 2001) |
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10.33 |
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Second Amendment to Credit Agreement between the Company and Imperial Bank dated August 2, 1999 (incorporated by reference to Exhibit 10.33 in the Company’s September 25, 2001 Quarterly Report on Form 10-Q filed on November 6, 2001 (“2001 Q3 10-Q”)) |
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10.34 |
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Third Amendment to Credit Agreement between the Company and Imperial Bank dated August 2, 1999 (incorporated by reference to Exhibit 10.34 in the Company’s 2001 Q3 10-Q) |
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10.35 |
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Royalty agreement dated February 11, 2001 between Company and William Naim for development of pizza and calzone recipes and process (incorporated by reference to Exhibit 10.35 filed with the Company’s 2001 Form 10-K on February 7, 2001 (“2001 Form 10-K”)) |
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10.36 |
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Fourth Amendment to Credit Agreement between the Company and Imperial Bank dated August 2, 1999 (incorporated by reference to Exhibit 10.36 filed with the Company’s 2001 Form 10-K) |
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10.37 |
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Asset Purchase Agreement dated as of December 8, 2001, by and among the Company and the shareholders of Elena’s Food Specialties, Inc. (incorporated by reference to Exhibit 10.37 filed with the Company’s 2001 Form 10-K) |
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10.38 |
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Limited License for use of Nate’s brand dated as of December 8, 2001, by and among the Company and the shareholders of Elena’s Food Specialties, Inc. (incorporated by reference to Exhibit 10.38 filed with the Company’s 2001 Form 10-K on February 7, 2001) |
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10.39 |
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Fifth Amendment to Credit Agreement between the Company and Imperial Bank dated August 2, 1999 (incorporated by reference to Exhibit 10.39 in the Company’s April 1, 2001 Quarterly Report on Form 10-Q filed on May 7, 2001) |
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10.40 |
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Lease Extension and Modification Agreement between the Company and Marco Warehouse d.b.a. Salinas Valley Public Warehouse dated September 1, 2001 (incorporated by reference to Exhibit 10.40 in the Company’s September 30, 2001 Quarterly Report on Form 10-Q filed on November 7, 2001) |
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10.41 |
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Royalty Agreement dated January 18, 2002 between Company and Toscana Foods, LLC for ravioli with unique rough chopped filling (incorporated by reference to Exhibit 10.41 in the Company’s June 30, 2002 Quarterly Report on Form 10-Q filed on August 9, 2002) |
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10.42 |
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Asset Purchase Agreement dated August 23, 2002 by and among the Company and the shareholders of Emerald Valley Kitchen, Inc. (incorporated by reference from Exhibit 10.42 filed with the Company’s 8-K on August 30, 2002) |
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10.43 |
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Commercial lease dated August 23, 2002 between the Company and Mel Bankoff for plant, warehouse and office space in Eugene, Oregon (incorporated by reference from Exhibit 10.43 filed with the Company’s 8-K on August 30, 2002) |
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10.44 |
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Commercial lease dated January 3, 2003 between the Company and Conrad Family Trust for office space in Salinas, Monterey County, California (incorporated by reference from Exhibit 10.44 filed with the Company’s 2002 Form 10-K filed on February 14, 2003) |
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99.1** |
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Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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99.2** |
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Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
** filed herewith
23