Eugene weekly., February 13, 2020, Page 9, Image 9

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Popcorn, Property Taxes
and Tortilla Chips
THERE’S A NEW SNACK GAME IN TOWN
By Michael Tobin
W
hat goes around comes around,
and that’s true for money and
caramel corn.
Junction City-based 4Him
Food Group, the parent com-
pany of popcorn manufacturer
Cosmos Creations, filed for
bankruptcy in July 2019, citing the loss of two major
sales accounts in 2015-16 that represented 70 percent
of its revenue.
Internal changes within Costco and Sam’s Club, the
company’s two biggest accounts, led to Cosmos’ losing
business and entering a period of unprofitability, Cosmos
General Manager John Strasheim said in an interview
with Eugene Weekly.
“When you lose 70 percent of your business pretty
quickly, it’s hard to recover,” Strasheim says.
But Cosmos has a future: Hood River-based Juanita’s
Fine Foods, known for those tortilla chips in the red
plastic bag, purchased Cosmos in a deal valued at close
to $11.4 million, with $9.2 million in cash.
From 2015 to 2017, Cosmos did not have to pay prop-
erty taxes when it was the beneficiary of an enterprise
zone exemption in Lane County — an economic develop-
ment incentive that waives businesses’ property taxes
in exchange for promising to create jobs. As of 2017,
the company had 68 employees, 40 more than what it
started with before receiving the exemption, according
to Oregon Department of Revenue records.
As part of a settlement filed in December 2019, Cos-
mos paid Lane County, a secured creditor, $146,368.
That’s more than the $94,140 Cosmos received in
property tax breaks during its exemption, Department
of Revenue records show.
A September 2018 EW investigation found that Lane
County has given out nearly $15 million in said tax breaks
over the last decade. Despite having the ability to exer-
cise oversight over the program, and ensure that the
companies are creating the jobs they report on county
forms, EW’s investigation found that local officials chose
not to do so.
The amount Cosmos paid back
to the county represents unpaid
property taxes, unpaid business
personal property tax and interest
and warrant fees, according to county
spokesperson Devon Ashbridge.
Now, Juanita’s is applying for a spot
in the enterprise zone. Due to the lack
of a completed enterprise zone appli-
cation, it’s unclear how many jobs the
company says it will create as Junction
City is still working with Juanita’s to
resolve issues related to Cosmos, Ja-
son Knope, city manager of Junction
City writes in an email. Knope says
he assumes that once those issues
are resolved, Juanita’s will finish its
application.
But what will happen to Cosmos’
employees? As part of the purchase
agreement, Juanita’s is not responsible for Cosmos’
prior employees, but Strasheim says they are sticking
around. The company now employs about 50 people,
and Strasheim attributes the decrease to the downturn
after losing the Sam’s Club and Costco accounts.
SWEET SIDE ECONOMICS
Business was booming in 2015 for Cosmos. With the
help of sales to Sam’s Club and Costco, the company
posted almost $17 million in revenue in 2015 — a huge
increase from revenue of $300,000 a few years earlier.
But the kernels stopped popping because of changes
at Sam’s Club and Costco. As a result, Cosmos couldn’t
pay back a line of credit from its bank, which then led
to the bank limiting Cosmos’ ability to borrow. Cosmos
had to turn to alternative lenders that provided loans
with high interest rates, according to bankruptcy court
documents. Cosmos stayed open, but couldn’t break even
as quickly as initially thought and the bank scheduled a
foreclosure of Cosmos’ assets on July 3, 2019; Cosmos
filed for bankruptcy on July 2.
In October 2018, Cosmos engaged
middle market investment bank Ar-
mory Securities to solicit potential
suitors. The search yielded two pos-
sible buyers. Boston-based business
advisory firm Gordon Brothers offered
$7.5 million to purchase all of Cosmos’
assets through a reorganization pro-
cess, but Strasheim says that Gordon
Brothers’ price wasn’t reflective of the
company’s value. Summit Investment
Management offered to purchase all of
Cosmos’ existing debt under the condi-
tion that the company could raise an
additional $2.5 million in equity, which
Strasheim says wasn’t possible due
to Cosmos’ debt and unprofitability.
Around March 2019, Strasheim
approached Juanita’s independently
to discuss a transaction and Stras-
heim negotiated for what he described in bankruptcy
documents as “the highest possible purchase price.”
Strasheim preferred to complete the deal outside of
bankruptcy while Juanita’s insisted that it be done
under bankruptcy.
“The idea of the bankruptcy and the sale was to
maximize the value of the assets so that creditors could
receive some money,” says Cosmos attorney Timothy
Solomon of Sussman Shank LLP.
A SWEET AND SALTY FUTURE
In the wake of the sale, Strasheim said that the com-
pany is coming back. He says that while the first quarters
are unprofitable due partially to seasonal trends and
Cosmos’ financial situation, he expects for Cosmos to
be profitable by May or June. Strasheim said that the
company has learned quite a bit about what works and
hasn’t worked for Cosmos and that the company has had
success with its private label products.
New snacks are coming too, with Strasheim saying that
the company will be introducing new lines of tortilla chips. ■
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