SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15 (d) of the
- ----- Securities Exchange Act of 1934. For the quarterly period
ended December 31, 2000 or
Transition Report Pursuant to Section 13 or 15(d) of the
- ----- Securities Exchange Act of 1934. For the transition period
from _________ to _________.
Commission File Number 01912
SONOMAWEST HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
California 94-1069729
(State of incorporation) (IRS Employer Identification #)
1448 Industrial Avenue, Sebastopol, CA 95472-4848
- -------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 707/824-2548
--------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES: X NO:
------- -------
As of December 31, 2000, there were 1,523,231 shares of common stock, no par
value, outstanding.
SONOMAWEST HOLDINGS, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at December 31, 2000 and
June 30, 2000........................................................3
Condensed Consolidated Statements of Earnings - Three and Six Months
Ended December 31, 2000 and 1999.....................................4
Condensed Consolidated Statements of Cash Flows - Six Months Ended
December 31, 2000 and 1999...........................................5
Notes to Condensed Consolidated Financial Statements.................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................11
Item 4. Submission of Matters to a Vote of Security Holders............11
Item 6. Exhibits and Reports on Form 8-K...............................11
Signature ...............................................................11
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
SONOMAWEST HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
AMOUNTS IN THOUSANDS
CURRENT ASSETS: 12/31/00 6/30/00
- --------------- -------- -------
Cash and cash equivalents $ 7,003 $8,359
Restricted cash (see note 6) 600 -
Accounts Receivable, less allowance for uncollectible accounts of $10 and
$47, respectively 110 110
Prepaid income taxes 316 816
Prepaid expenses 61 87
Current deferred income taxes, net 643 621
-------- --------
Total current assets 8,733 9,993
Real property, net 2,624 2,854
Net assets of discontinued operations 122 122
Investment 329 -
-------- -------
Total Assets $11,808 $12,969
======= =======
CURRENT LIABILITIES:
- -------------------
Accounts payable and accrued expenses $ 148 $ 225
Unearned rents and deposits 162 143
Current maturities of long term debt 55 617
Net liabilities of discounted operations 251 628
-------- --------
Total current liabilities 616 1,613
Long term debt-net of current maturities 1,947 1,974
Deferred income taxes, net 147 147
-------- --------
Total Liabilities 2,710 3,734
-------- --------
SHAREHOLDERS' EQUITY:
Preferred stock: 2,500 shares authorized; no shares outstanding - -
Common stock: 5,000 shares authorized, no par value; 1,523 and 1,522 3,254 2,905
shares outstanding, respectively
Warrants for common stock - 456
Retained earnings 5,844 5,874
--------- -------
Total shareholders' equity 9,098 9,235
--------- -------
Total Liabilities and Shareholders' Equity $11,808 $12,969
========= =======
See Notes to Condensed Consolidated Financial Statements
SONOMAWEST HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
Six Months Three Months
Ended December 31 Ended December 31
----------------- -----------------
2000 1999 2000 1999
---- ---- ---- ----
Rental revenue $ 554 $ 666 $ 311 $465
Operating costs 1,030 964 513 585
Interest and Other income (expense), net 179 (3) 91 45
-------- --------- --------- -------
Loss from continuing operations before income taxes (297) (301) (111) (75)
Benefit for income taxes (120) (120) (45) (30)
-------- --------- --------- -------
Net loss from continuing operations (177) (181) (66) (45)
DISCONTINUED OPERATIONS:
Earnings (loss) from discontinued operations, net of income taxes 147 278 57 (134)
Gain (loss) on sale of discontinued business, net of income taxes - 2,900 - (349)
-------- --------- ---------- -------
NET EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS 147 3,178 57 (483)
-------- --------- ---------- -------
NET EARNINGS (LOSS) $ (30) $ 2,997 $ (9) $ (528)
======== ========= ========== =======
WEIGHTED AVERAGE COMMON SHARES AND
EQUIVALENTS
Basic 1,522 1,520 1,522 1,520
Diluted 1,545 1,551 1,548 1,542
EARNINGS (LOSS) PER COMMON SHARE
Continuing operations:
Basic $ (0.12) $ (0.12) $ (0.05) $ (0.03)
Diluted $ (0.12) $ (0.12) $ (0.05) $ (0.03)
Discontinued operations:
Basic $ 0.10 $ 2.09 $ 0.04 $ (0.32)
Diluted $ 0.10 $ 2.05 $ 0.04 $ (0.32)
Net earnings (loss):
Basic $ (0.02) $ 1.97 $ (0.01) $ (0.35)
Diluted $ (0.02) $ 1.93 $ (0.01) $ (0.35)
See Notes to Condensed Consolidated Financial Statements
SONOMAWEST HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
AMOUNTS IN THOUSANDS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999
CASH FLOWS FROM OPERATING ACTIVITIES 2000 1999
---- ----
Net earnings (loss) $(30) $2,997
Adjustments to reconcile net earnings (loss)
to net cash used for operating activities:
Earnings from discontinued operations, net (147) (278)
Gain on sale of discontinued business, net - (2,900)
Depreciation and amortization expense 242 124
Changes in assets & liabilities:
Prepaid income taxes 500 566
Prepaid and other assets 25 74
Accounts payable and accrued expenses (77) (250)
Income taxes payable - 712
Deferred income taxes, net (22) 748
Unearned rents and deposits 19 -
--------- ----------
Net cash provided by continuing operating
Activities 510 1,793
--------- ----------
Net cash provided by (used for) discontinued operations (230) 13,445
--------- ----------
Net cash provided by operating activities 280 15,238
--------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (11) -
Investments (329) -
Investing activities of discontinued operations - (38)
----------- ---------
Net cash used in investing Activities (340) (38)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under the line of credit - -
Payments on the line of credit - (5,745)
Principal payments of long term debt (589) (1,367)
Issuance of common stock 5 7
Warrant repurchase (112) -
----------- -----------
Net cash used for financing activities (696) (7,105)
----------- ------------
NET INCREASE (DECREASE) IN CASH (756) 8,095
CASH AND CASH EQUIVALENTS, BEGINNING OF
THE YEAR 8,359 548
----------- ------------
TOTAL CASH AND CASH EQUIVALENTS AT THE $7,603 $8,643
END OF THE PERIOD =========== ============
See Notes to Condensed Consolidated Financial Statements
SONOMAWEST HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 2000
Note 1-
The accompanying fiscal 2001 and 2000 unaudited interim statements have been
prepared pursuant to the rules of the Securities and Exchange Commission.
Certain information and disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes these disclosures are adequate to make the information not
misleading. In the opinion of management, all adjustments necessary for a fair
presentation for the periods presented have been reflected and are of a normal
recurring nature except as discussed below. These interim financial statements
should be read in conjunction with the financial statements and notes thereto
for each of the three years in the period ended June 30, 2000. The results of
operations for the three and six month periods ended December 31, 2000 are not
necessarily indicative of the results that will be achieved for the entire year
ending June 30, 2001.
Reclassifications - Certain previously reported amounts were reclassified to
conform to the current presentation with respect to discontinued operations.
Note 2-
Cash and cash equivalents consist of demand deposits and short term money market
accounts.
Note 3-
The Company has committed itself to a $3 million investment in the preferred
stock of a privately held telecommunications company, which is expected to be
funded in fiscal 2001 and 2002. The Company has invested $329,000 as of December
31, 2000. The Company has accounted for the investment using the cost method. It
is expected that the Company will make the remaining investment in several
installments throughout the fiscal years ending June 30, 2001 and 2002.
Note 4-
During the quarter ended December 31, 2000, the Corporation repurchased and
retired 112,000 warrants for $112,000. The warrants represented a right to
purchase 112,000 shares of common stock and had an exercise price of $8 per
share. The warrants were originally assigned a valued of $456,000. Common stock
was increased by the difference between the repurchase price and the originally
assigned value.
Note 5-
The Company's Board of Directors has authorized a program to repurchase up to
375,000 shares of the Company's stock at $8.00 per share in a tender offer. The
tender offer expires, unless extended by the Company, on February 15, 2001. The
tender offer is subject to regulatory filings and approval by the Company's
lender.
Note 6-
During December 2000, the Company entered into an agreement with its sole lender
in order to modify the terms of the lending agreement. As a result, the
financial based debt covenant was amended. The new covenant requires the Company
to maintain a debt service coverage ratio at least 1:15 to 1. Until such time
this ratio reaches 1.25 to 1, the Company is required to maintain unrestricted,
unencumbered cash or marketable securities of at least $600,000. As of December
31, 2000, the Company's debt service ratio was between 1.15 and 1.25.
Consequently, $600,000 is classified as restricted cash on the accompanying
balance sheet. Furthermore, the terms of the loan restrict the Company from
incurring any additional indebtedness during the term of the loan.
Note 7-
In July 1999, the Company consummated an asset purchase agreement (the Purchase
Agreement) with Tree Top, Inc. The Purchase Agreement governed the sale of all
intangible assets (primarily trademarks, know-how, and customer lists) and
certain of the equipment relating to the Company's processed apple products
line. Although the Purchase Agreement excluded other product lines within the
Company's ingredient segment, the Company decided to actively seek buyers for
the remaining product lines of the ingredients segment and has discontinued
production of all ingredients segment products. Consequently, the ingredients
segment has been presented as a discontinued operation in the accompanying
consolidated financial statements for all periods presented.
The purchase price for the sale of the processed apple products line of $12
million was paid in cash at the closing date of the sale on July 30, 1999. In
addition, equipment with a net book value of $1,478,000 was sold for $500,000
and apple product inventories with a cost of $1.7 million were purchased for
$1.9 million. Tree Top, Inc. did not assume any of the Company's liabilities. In
connection with the Purchase Agreement, the Company and certain shareholders,
directors, and management have agreed not to compete with Tree Top, Inc. in
processed apple product lines for a period of three to ten years. In addition,
as part of the transaction, the Company sold the Vacu-dry trademark. Thus, the
Company changed its name to SonomaWest Holdings, Inc. in December 1999.
In February 2000, certain local apple growers filed suit against the Company and
Tree Top, Inc. alleging that this sale and related activities created a monopoly
in the dried apple business in violation of federal and California law. The
growers are seeking treble damages, punitive damages, interest, and attorney
fees, all in unnamed amounts. On August 4, 2000, the Company's motion to dismiss
the complaint was granted with leave to amend. The Company feels the suit is
without merit and intends to continue to defend itself vigorously should an
amended complaint be filed.
In the third quarter of fiscal 2000, the Company decided to dispose of its
organic packaged foods operations. Accordingly, the organic packaged foods
segment is included in discontinued operations in the accompanying consolidated
financial statements for all periods presented. The Company received $1.1
million for all intellectual property, consisting of the Made In Nature brand
name and all related trademarks, and certain dried fruit inventory of the
organic packaged goods segment from Premier Valley Foods, Inc. in May 2000.
Remaining assets of this segment consist primarily of organic orange juice
concentrate inventories, which are being actively marketed by the Company for
liquidation.
Upon the disposal of the Company's remaining ingredients and organic packaged
foods assets, the sole remaining line of business will be its real estate
management and rental operations.
During fiscal 2000, the Company recorded a net after-tax gain of $3.2 million
from the sale of the processed apple product line and the disposal of the
remaining product lines of the ingredients segment and the organic packaged
foods segment. The net after-tax gain included $16.1 million of proceeds from
the sales offset by: a) the write-down of assets related to the discontinued
segments to their estimated net realizable value (assets which were impaired as
a direct result of the decision to discontinue the segments); b) costs incurred
in closing the discontinued segments (consisting primarily of severance costs,
professional fees, relocation costs and lease buy-outs); c) estimated operating
losses to be incurred during the wind-down period; and d) losses on sale of
equipment.
Summarized historical information of the discontinued operations is as follows:
(in thousands) Six Months Ended December 31,
-----------------------------
2000 1999
---- ----
Income statement data:
Revenues $326 $8,877
Costs and expenses (81) (8,413)
---- -------
Operating income 245 464
Income tax expense (98) (186)
---- -----
Income from discontinued operations, net of income taxes $147 $ 278
==== =====
December 31, 2000 June 30, 2000
----------------- -------------
Balance sheet data:
Accounts receivable, net of reserves of $0 and $57 $16 $ -
--- ---
Total current assets of discontinued operations 16 -
Property, plant and equipment, net 122 122
--- ---
Total assets of discontinued operations 138 122
=== ===
Accounts payable - 234
Provision for severance, transaction costs, wind-down costs and 267 394
other liabilities related to the decision to discontinue the segments
--- ---
Total liabilities of discontinued operations 267 628
--- ---
Net liabilities of discontinued operations $ (129) $(506)
====== ======
Note 8 -
Statement of Cash Flows - Interest and income tax payments reflected in the
Consolidated Statement of Cash Flows were as follows:
(in thousands) 2000 1999
---- ----
Interest paid $ 83 $ 166
Income taxes paid $ - $ 220
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
SonomaWest Holdings, Inc. (the "Company") is including the following
cautionary statement in this Form 10-Q to make applicable and take advantage of
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995 for any forward looking statements made by, or on behalf of, the Company.
Forward looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance and underlying assumptions, and
other statements which are other than statements of historical facts. Certain
statements contained herein are forward looking statements and, accordingly,
involve risks and uncertainties which could cause actual results or outcomes to
differ materially from those expressed in the forward looking statements. In
addition to other factors and matters discussed elsewhere herein, these risks
and uncertainties include, but are not limited to, uncertainties affecting the
food processing industry, risks associated with fluctuations in the price and
availability of raw materials, management of growth, adverse publicity affecting
organic foods or the Company's products, and product recalls. The Company's
expectations, beliefs and projections are expressed in good faith and are
believed by the Company to have a reasonable basis, including without
limitation, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectations, beliefs or
projections will result or be achieved or accomplished. The Company disclaims
any obligation to update any forward-looking statements to reflect events or
circumstances after the date hereof.
The financial statements herein presented for the quarters and six months
ended December 31, 2000 and 1999 reflect all the adjustments that in the opinion
of management are necessary for the fair presentation of the financial position
and results of operations for the periods then ended. All adjustments during the
periods presented are of a normal recurring nature unless otherwise stated.
OVERVIEW
Since the Company acquired certain of the assets and liabilities of Made in
Nature, Inc. in June 1998, the Company has operated in three business segments:
industrial dried fruit ingredients, organic packaged foods and real estate. The
Company commenced a strategic reorganization upon the announcement of the
proposed sale of its apple-based industrial ingredients product line in June
1999. In August 1999 the decision was made to sell or discontinue all product
lines in the Company's industrial dried fruit ingredients business segment. In
January 2000, the Company decided to sell or discontinue its organic packaged
foods business. As a result of these decisions, both business segments are
considered discontinued operations and their operating results, results of cash
flows, net assets and liabilities are reflected outside of the Company's
continuing operations. The Company's sole remaining line of business is its real
estate management and rental operations. Additionally, the Company is committed
to a $3 million minority investment in a telecommunications company to be funded
over the next two fiscal years.
DISCONTINUED OPERATIONS
In July 1999, the Company sold the bulk of its apple-based industrial
ingredients product line to Tree Top, Inc., of Selah, Washington. This product
line represented 55% and 81% of the Company's sales for the years ended June 30,
1999 and 1998, respectively. This sale, which was recorded in the first quarter
of fiscal 2000, is an important element of the Company's strategic plan to
improve the return on its investments and increase shareholder value by exiting
businesses with low returns and high capital requirements. The transaction
provided financial resources to support the Company's real estate and other
business opportunities. Following completion of the sale, the Company determined
in August 1999 that the remaining product lines in the Company's vacuum
ingredients segment of its business would be discontinued and held for sale.
These product lines included the Company's dried ingredients, Perma-Pak
long-term food storage, and drink mix businesses. In January 2000, the Company
decided to sell or discontinue its organic packaged goods business. As a result
of these decisions, the Company has classified these business segments as
discontinued operations. Accordingly, the Company has segregated the net assets
of the discontinued operations in the consolidated balance sheets at December 31
and June 30, 2000, the operating results of the discontinued operations in the
consolidated statements of operations for the three and six months ended
December 31, 2000 and 1999 and the cash flows from discontinued operations in
the consolidated statements of cash flows for the six months ended December 31,
2000 and 1999.
For the six months ended December 31, 2000, the Company recorded after-tax
earnings from discontinued operations of $147,000 on revenue of $326,000. This
compares to an after-tax earnings of $278,000 on revenue of $8,877,000 for the
six months ended December 31 1999. The decline in revenue in the discontinued
operations is due to the sale of the apple ingredients and organic packaged
goods businesses in fiscal 2000. After the allocation of selling, general and
administrative expenses between continuing and discontinued operations, the
discontinued businesses generated $245,000 of operating income for the six
months ended December 31, 2000 versus an operating income of $464,000 for the
six months ended December 31, 1999.
The Company is actively marketing all remaining assets of its discontinued
businesses (primarily inventory), but there can be no assurances that there will
be a sale of all or any of the remaining assets.
RESULTS OF CONTINUING OPERATIONS
The Company's continuing line of business consists of the leasing and
development of the Company's real estate. Additionally, the Company has
committed to a $3 million minority investment in a telecommunications company
(of which $329,000 has been invested to date). The Company intends to develop
its real estate largely for agricultural and industrial rental. The current use
permit for the Company's former production site requires that the facility be
used exclusively for diversified agricultural purposes. The Company is
attempting to broaden the use permit to allow other types of activities, but
there can be no assurance that such efforts will be successful. The Company's
other piece of real estate is already zoned for industrial use.
Results of Operations
- ---------------------
The Company's continuing line of business is its real estate management and
rental operations consisting of several buildings and yards on two property
locations. The two properties have a combined leaseable area of approximately
476,000 square feet on 81 acres of land. Twenty-four tenants that have varying
original lease terms ranging from month-to-month to eight years with options to
extend the leases by approximately 278,000 square feet or 58% of the properties'
available lease space. Additionally, the Company has committed to $3 million
minority investment in a telecommunications company. Currently, there are no
other plans to make any additional investments.
Rental Revenue. The Company leases warehouse, cold storage, production, and
office space as well as outside storage space at both of its properties. For the
six months ending December 31, 2000, rental revenue decreased 17% or $112,000 to
$554,000 compared to the corresponding period in the prior year. This decrease
was primarily a result of losing a significant tenant at the Company's former
production facility. This facility is approximately 54% occupied. The Company's
other property is approximately 74% occupied. While the Company and its retained
broker are actively marketing the properties to prospective tenants, there can
be no assurance that tenants will be found in the near term.
Operating Costs. Operating costs consist of direct costs related to
continuing operations and all general corporate costs. Only direct selling,
general and administrative costs related to the ingredients and organic packaged
goods businesses were allocated to discontinued operations in the consolidated
statements of operations. The Company's operating results will be negatively
impacted as long as the tenant rental revenue stream fails to cover existing
operating costs. Cost reduction efforts to minimize any avoidable spending have
been undertaken to minimize negative operating results while the tenant search
continues. For the six months ending December 31, 2000, operating costs
increased 7% or $66,000 to $1,030,000 compared to the corresponding period in
the prior year, this was primarily due to increased legal and professional
costs.
Interest and Other Income (Expense), Net. Interest and other income
(expense) net consists primarily of interest income on the Company's cash
balances, and interest expense on mortgage debt and shareholder loans. In Fiscal
2000, proceeds from the sale of the ingredients business were used to pay off
the Company's revolving bank line of credit and substantially reduce long-term
debt. As a result, for the six months ending December 31, 2000, the Company was
a net investor of cash, generating $260,000 of interest income and incurring
$83,000 of interest expense, while in the corresponding period in prior year it
was a net borrower, generating interest income of $163,000 and incurring
interest expense of $166,000.
Income Taxes. The effective tax rate for the six months ended December 31,
2000 was 40%, or approximately the statutory rate after the federal benefit for
state income taxes.
Liquidity and Capital Resources
- -------------------------------
The Company had cash of $7.6 million at December 31, 2000, and current
maturities of long-term debt of $55,000. In fiscal 2000, the Company used a
portion of the $16.1 million net proceeds from its discontinued businesses to
pay off borrowings under its bank line of credit and retire a significant
portion of its long-term debt. In August 2000, the Company elected to prepay in
full a remaining shareholder note payable (scheduled to mature in 2003), in the
amount of $564,000 plus accrued interest. Although the Company generated
$510,000 from operating activities, the cash balances decreased from $8.4
million at June 30, 2000 primarily as a result of an investment in Metro PCS
(see below), the repurchase of warrants, the shareholder note payoff and
payments of liabilities related to discontinued operations.
During December 2000, the Company entered into an agreement with its sole
lender in order to modify the terms of the lending agreement. As a result, the
financial based debt covenant was amended. The new covenant requires the Company
to maintain a debt service coverage ratio at least 1:15 to 1. Until such time
this ratio reaches 1.25 to 1, the Company is required to maintain unrestricted,
unencumbered cash or marketable securities of at least $600,000. As of December
31, 2000, the Company's debt service ratio was between 1.15 and 1.25.
Consequently, $600,000 is classified as restricted cash on the accompanying
balance sheet. Furthermore, the terms of the loan restrict the Company from
incurring any additional indebtedness during the term of the loan.
The Company has committed itself to a $3 million investment in the
preferred stock of a privately held telecommunications company, MetroPCS, Inc.,
which is expected to be funded in fiscal 2001 and 2002. As of December 31, 2000,
the Company had invested $329,000 on its $3 million commitment. The Company has
accounted for the investment using the cost method. It is expected that the
remaining $2,671,000 is to be funded in several installments throughout the
fiscal years ending June 30, 2001 and 2002.
During the quarter ended December 31, 2000, the Corporation repurchased and
retired 112,000 warrants for $112,000. The warrants represented a right to
purchase 112,000 shares of common stock and had an exercise price of $8 per
share. The warrants were originally assigned a valued of $456,000. Common stock
was increased by the difference between the repurchase price and the originally
assigned value.
The Company's Board of Directors has authorized a program to repurchase up
to 375,000 shares of the Company's stock at $8.00 per share in a tender offer.
The tender offer expires, unless extended by the Company, on February 15, 2001.
The tender offer is subject to regulatory filings and approval by the Company's
lender.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On February 23, 2000 several local apple growers filed a complaint in the United
States District Court for the Northern District of California naming the Company
and Tree Top, Inc. as defendants. The complaint alleged that the July 1999 sale
of the Company's apple ingredients business to Tree Top, Inc. was an unlawful
combination in restraint of trade in the dried apple business under federal and
California law; that the Company conspired with Tree Top, Inc. to monopolize the
dried apple business; and that such acts also constitute unlawful business
practices under the California Business and Professions Code. The suit sought
treble damages, punitive damages, interest and attorney fees, all in unnamed
amounts. On August 4, 2000, the Company's motion to dismiss the complaint was
granted with leave to amend. To date there has been no amendment. The Company
believes the suit was without merit and will defend itself vigorously should an
amended complaint be filed.
On October 10, 2000 the holder of 97,000 warrants to purchase the Company's
common stock filed a complaint in the Superior Court in and for Sonoma County
against the Company. The complaint alleged breach of contract with respect to
the warrants and seeks declaratory relief as to the holder's rights, the
imposition of a constructive trust, damages, and a preliminary injunction baring
the Company from distributing certain cash proceeds resulting from the
liquidation of operating assets. During December 2000, the Company settled the
complaint by repurchasing all outstanding warrants for $112,000.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on November 9, 2000,
the following matters were submitted to a vote of the stockholders of the
Company:
(i) The election of Gary L. Hess, Roger S. Mertz, Fredric Selinger and
Craig Stapleton as directors to serve a one-year term.
Nominees Shares Voted in Favor Shares Withheld
-------- --------------------- ---------------
Gary L. Hess 1,332,144 46,457
Roger S. Mertz 1,332,144 46,457
Fredric Selinger 1,332,144 46,457
Craig Stapleton 1,332,144 46,457
(ii) A proposal to ratify the appointment of Arthur Andersen LLP as the
Company's independent auditors for the fiscal year 2001 was approved by a total
of 1,369,025 votes in favor, 4,956 votes against, and 4,620 shares abstaining.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
27. Financial Data Schedule
b. Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 9, 2001
/s/ Gary L. Hess
- ----------------
Gary L. Hess,
Chief Executive Officer, President and Chief Financial Officer