U.S.UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORMForm 10-Q
(Mark(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31,
2002 [ ] TRANSITION REPORT PURSUANT TO SECTION 132004OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period fromto
--------------- -----------------Commission file
number:number 1-9083OVERHILL CORPORATION (ExactTREECON RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Nevada 23-2708876 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4800 Broadway, Suite A Addison,
Nevada 23-2708876 (State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification Number)
6004 South U.S. Highway 59
Lufkin, Texas
75001 (Address75901(Address of principal executive offices)
(972) 386-0101 (Registrants's(936) 634-3365
(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)15(d) of the Securities Exchange Act of 1934 during thepastpreceding 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. YesX¨ No----- -----xIndicate by check mark whether the
number of shares outstanding of eachregistrant is an accelerated filer (as defined in Rule 12b-2 of theissuer's classesExchange Act.). Yes ¨ No xAs of
common stock, asJune 14, 2004, there were 18,615,464 shares of thelatest practicable date. Common Stock,issuer’s common stock, $.01 par value,18,615,464 -------------------------------- Outstanding at May 6, 2002OVERHILL CORPORATIONoutstanding.FORM 10-Q
QUARTER ENDED MARCH 31,
2002 - --------------------------------------------------------------------------------2004TABLE OF CONTENTS
------------------
FINANCIAL INFORMATION Page No.1 ------------------------------- -------- Item 1. Financial Statements Consolidated Condensed Balance Sheets as of March 31, 2002 and September 30, 2001 2 Consolidated Condensed Statements of Operations for the Three Months Ended March 31, 2002 and 2001 4 Consolidated Condensed Statements of Operations for the Six Months Ended March 31, 2002 and 2001 5 Consolidated Condensed Statements of Cash Flows for the Six Months Ended March 31, 2002 and 2001 6 Notes to Consolidated Condensed Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16 Item 3. Quantitative and Qualitative Disclosures about Market Risk 20 PART II - OTHER INFORMATION Item 1. Legal Proceedings 21 Item 6. Exhibits and Reports on Form 8-K 22 Signature Page 23 -1-OVERHILL CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED
CONDENSEDBALANCE SHEETS
Assets ------ March 31, September 30, ------------ ------------ 2002 2001 ------------ ------------ (Unaudited)Current assets: Cash $ 1,769,000 $ 686,382 Receivables, net of allowance for doubtful accounts of $626,200 Trade accounts 2,270,120 3,399,591 Current portion of sales contracts 4,780,298 5,029,362 Related parties 2,161,580 1,927,768 Notes 3,933,524 4,191,128 Inventories 16,240,044 16,374,797 Net current assets of discontinued operations 7,039,866 17,271,667 Prepaid expenses and other 2,315,291 2,044,969 ------------ ------------ Total current assets 40,509,723 50,925,664 ------------ ------------ Property and equipment: Land 432,000 432,000 Buildings and improvements 2,919,759 2,722,595 Machinery, equipment and other 3,303,590 3,053,909 ------------ ------------ 6,655,349 6,208,504 Less-Accumulated depreciation (2,642,855) (2,348,410) ------------ ------------ 4,012,494 3,860,094 ------------ ------------ Other assets: Noncurrent receivables, net of allowance for doubtful accounts of $1,033,671 Sales contracts 2,511,135 2,627,468 Related parties 382,444 375,928 Excess of cost over fair value of net assets of businesses acquired 3,612,580 3,612,580 Restricted cash 537,855 522,709 Assets held for sale 1,926,264 1,926,264 Other 1,139,723 1,192,074 ------------ ------------ 10,110,001 10,257,023 ------------ ------------ $ 54,632,218 $ 65,042,781 ============ ============Assets
March 31,
2004
September 30,
2003
(Unaudited) (Note 2) Current assets:
Cash
$ 2,427,932 $ 2,562,705 Receivables, net of allowance for doubtful accounts of $527,183 and $490,800
Trade accounts
1,781,257 2,190,003 Sales contracts
2,186,117 2,295,723 Notes
2,877,376 2,008,960 Related parties
107,778 716,057 Inventories
9,208,081 9,134,123 Prepaid expenses and other
1,137,792 1,045,110 Total current assets
19,726,333 19,952,681 Property and equipment, at cost
Land
658,930 658,930 Buildings and improvements
5,162,256 5,083,791 Machinery, equipment and other
2,202,322 2,269,734 8,023,508 8,012,455 Accumulated depreciation
(3,413,431 ) (3,234,682 ) 4,610,077 4,777,773 Other assets:
Noncurrent receivables, net of allowance for doubtful accounts of $31,200 and $31,200
Sales contracts
416,403 441,387 Related parties
— 338,000 Restricted cash
538,154 537,209 Other
2,269,228 2,507,852 3,223,785 3,824,448 Total assets
$ 27,560,195 $ 28,554,902 The accompanying notes are an integral part
of these
consolidatedcondensed financial statements.-2-OVERHILL CORPORATION AND SUBSIDIARIES- 2 -
TREECON RESOURCES, INC.
CONDENSED CONSOLIDATED
CONDENSEDBALANCE SHEETS (continued)Liabilities and
Stockholders'Shareholders’ Equity------------------------------------
March 31, September 30, ------------ ------------ 2002 2001 ------------ ------------ (Unaudited)Current liabilities: Notes payable $ 11,715,599 $ 13,313,743 Note payable and accrued interest to related party 23,131,239 -- Accounts payable 1,548,255 2,085,200 Advance from related party 850,000 -- Accrued expenses and other 1,245,953 1,066,932 ------------ ------------ Total current liabilities 38,491,046 16,465,875 Notes payable and accrued interest to related party -- 22,337,631 Net long-term liabilities related to discontinued operations 7,871,075 17,668,829 Reserve for credit guarantees 537,855 522,709 ------------ ------------ Total liabilities 46,899,976 56,995,044 ------------ ------------ Stockholders' equity: Common stock, $.01 par value, authorized 100,000,000 shares, issued and outstanding 18,615,464 shares 186,155 186,155 Paid-in capital 28,156,204 28,156,204 Notes receivable from officers and directors (497,250) (497,250) Accumulated deficit (20,112,867) (19,797,372) ------------ ------------ Total stockholders' equity 7,732,242 8,047,737 ------------ ------------ $ 54,632,218 $ 65,042,781 ============ ============
March 31,
2004
September 30,
2003
(Unaudited) (Note 2) Current liabilities:
Notes payable and accrued interest to related party
$ 23,499,458 $ 24,336,841 Accounts payable
1,354,619 845,939 Accrued expenses and other
1,665,719 1,548,934 Current maturities of long-term debt
82,708 284,769 Total current liabilities
26,602,504 27,016,483 Long-term debt, net of current portion
39,560 540,278 Reserve for credit guarantees
538,154 537,209 Total liabilities
27,180,218 28,093,970 Shareholders’ equity:
Common stock, $0.01 par value, authorized 100,000,000 shares, issued and outstanding 18,615,464 shares
186,155 186,155 Paid-in capital
28,156,204 28,156,204 Accumulated deficit
(27,567,757 ) (27,824,802 ) Notes receivable from officers and directors
(394,625 ) (56,625 ) Total stockholders’ equity
379,977 460,932 Total liabilities and shareholders’ equity
$ 27,560,195 $ 28,554,902 The accompanying notes are an integral part
of these
consolidatedcondensed financial statements.-3-OVERHILL CORPORATION AND SUBSIDIARIES- 3 -
CONDENSED CONSOLIDATED
CONDENSEDSTATEMENTS OF OPERATIONS(Unaudited)
For the Three Months Ended March 31, ---------------------------- 2002 2001 ------------ ------------Net revenues $ 10,574,659 $ 8,679,922 Cost of sales 8,443,408 6,529,188 ------------ ------------ Gross profit 2,131,251 2,150,734 Selling, general and administrative expenses 1,868,864 2,288,498 ------------ ------------ Operating income (loss) 262,387 (137,764) ------------ ------------ Other income (expenses): Interest expense (551,628) (566,155) Interest income and other (75,000) 157,594 ------------ ------------ Total other income (expenses) (626,628) (408,561) ------------ ------------ Loss before income taxes and discontinued operations (364,241) (546,325) Income tax benefit 147,460 406,195 ------------ ------------ Loss before discontinued operations (216,781) (140,130) Discontinued operations, net of income taxes 32,876 492,344 ------------ ------------ Net income (loss) $ (183,905) $ 352,214 ============ ============ Net income (loss) per share - basic and diluted: Before discontinued operations $ (.01) $ (.01) Discontinued operations -- .03 ------------ ------------ Net income (loss) per share $ (.01) $ .02 ============ ============
For the Three Months Ended
March 31,2004 2003 Net revenues
$ 10,323,467 $ 9,192,796 Cost of sales
8,314,037 7,779,118 Gross profit
2,009,430 1,413,678 Selling, general and administrative expenses
1,486,508 1,561,488 Operating income (loss)
522,922 (147,810 ) Other income (expenses):
Interest expense
(300,089 ) (564,665 ) Interest income and other
45,619 39,690 Total other expenses
(254,470 ) (524,975 ) Income (loss) from continuing operations before income taxes
268,452 (672,785 ) Income tax expense
— — Income (loss) from continuing operations
268,452 (672,785 ) Discontinued operations, net of income taxes
— — Net income (loss)
$ 268,452 $ (672,785 ) Net income (loss) per share, basic and diluted
$ .01 $ (.04 ) The accompanying notes are an integral part
of these
consolidatedcondensed financial statements.-4-OVERHILL CORPORATION AND SUBSIDIARIES- 4 -
CONDENSED CONSOLIDATED
CONDENSEDSTATEMENTS OF OPERATIONS(Unaudited)
For the Six Months Ended March 31, ---------------------------- 2002 2001 ------------ ------------Net revenues $ 19,351,894 $ 16,930,008 Cost of sales 15,095,467 12,825,071 ------------ ------------ Gross profit 4,256,427 4,104,937 Selling, general and administrative expenses 3,634,256 4,365,837 ------------ ------------ Operating income (loss) 622,171 (260,900) ------------ ------------ Other income (expenses): Interest expense (1,096,192) (1,192,645) Interest income and other (139,286) 585,638 ------------ ------------ Total other income (expenses) (1,235,478) (607,007) ------------ ------------ Loss before income taxes and discontinued operations (613,307) (867,907) Income tax benefit 267,089 623,884 ------------ ------------ Loss before discontinued operations (346,218) (244,023) Discontinued operations, net of income taxes 30,723 760,190 ------------ ------------ Net income (loss) $ (315,495) $ 516,167 ============ ============ Net income (loss) per share - basic and diluted: Before discontinued operations $ (.02) $ (.01) Discontinued operations -- .04 ------------ ------------ Net income (loss) per share $ (.02) $ .03 ============ ============
For the Six Months Ended
March 31,2004 2003 Net revenues
$ 21,724,554 $ 18,894,099 Cost of sales
17,845,199 15,822,999 Gross profit
3,879,355 �� 3,071,100 Selling, general and administrative expenses
3,005,761 3,545,529 Operating income (loss)
873,594 (474,429 ) Other income (expenses):
Interest expense
(689,588 ) (1,148,575 ) Interest income and other
73,039 (9,086 ) Total other expenses
(616,549 ) (1,157,661 ) Income (loss) from continuing operations before income taxes
257,045 (1,632,090 ) Income tax benefit
— — Income (loss) from continuing operations
257,045 (1,632,090 ) Discontinued operations, net of income taxes
— (66,700 ) Net income (loss)
$ 257,045 $ (1,698,790 ) Net income (loss) per share, basic and diluted
$ .01 $ (.09 ) The accompanying notes are an integral part
of these
consolidatedcondensed financial statements.-5-OVERHILL CORPORATION AND SUBSIDIARIES- 5 -
CONDENSED CONSOLIDATED
CONDENSEDSTATEMENTS OF CASH FLOWS(Unaudited)
For the Six Months Ended March 31, -------------------------- 2002 2001 ----------- -----------Cash flows provided by (used in) operating activities: Net income (loss) $ (315,495) $ 516,167 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 270,404 456,772 Provision for doubtful accounts 86,477 147,451 Interest accrual on notes to related party 793,608 793,608 Loss on investment in limited liability company 462,817 40,814 (Income) from discontinued operations (325,449) (760,190) Changes in: Accounts and sales contracts receivable 1,408,391 405,650 Inventories 134,753 (1,206,822) Prepaid expenses and other 19,212 970,742 Accounts payable (536,945) 3,510,281 Accrued expenses and other 238,517 (1,708,694) ----------- ----------- Net cash provided by operating activities 2,236,290 3,165,779 ----------- ----------- Cash flows provided by (used in) investing activities: Notes and other receivables 257,604 (810,882) Receivables from related parties (240,328) (28,016) Capital expenditures, net (422,804) (350,141) ----------- ----------- Net cash (used in) investing activities $ (405,528) $(1,189,039) ----------- -----------
For the Six Months Ended
March 31,2004 2003 Operating Activities:
Income (loss) from continuing operations
$ 257,045 $ (1,632,090 ) Adjustments to reconcile loss from continuing operations to net cash provided by (used in) operating activities:
Depreciation and amortization
337,926 369,782 Provision for doubtful accounts
87,492 275,242 Interest accrual on notes to related party
662,617 994,687 Loss on investment in limited liability company
58,813 51,481 Cash expenses related to discontinued operations
— (9,548 ) Changes in:
Accounts and sales contracts receivable
464,959 2,206,664 Inventories
(73,958 ) 867,978 Prepaid expenses and other
81,296 663,154 Accounts payable
508,680 (236,127 ) Accrued expenses and other
116,785 (410,013 ) Net cash provided by operating activities
2,501,655 3,141,210 Investing Activities:
Capital expenditures, net
(164,397 ) (646,791 ) Notes and other receivables
(287,277 ) (209,916 ) Receivables from related parties
18,025 (96,635 ) Net cash used in investing activities
(433,649 ) (953,342 ) The accompanying notes are an integral part
of these
consolidatedcondensed financial statements.-6-OVERHILL CORPORATION AND SUBSIDIARIES- 6 -
TREECON RESOURCES, INC.
CONDENSED CONSOLIDATED
CONDENSEDSTATEMENTS OF CASH FLOWS (continued)(Unaudited)
For the Six Months Ended March 31, -------------------------- 2002 2001 ------------ -----------Cash flows provided by (used in) financing activities: Net borrowings (principal payments) on line of credit arrangements $(1,598,144) $(1,383,219) Borrowings on other notes payable and long-term debt -- 185,205 Principal payments on long-term debt -- (582,246) Advance from related party 850,000 -- Exercise of common stock options -- 7,500 Repurchase of stock purchase warrants -- (45,938) ----------- ----------- Net cash (used in) financing activities (748,144) (1,818,698) ----------- ----------- Net increase in cash 1,082,618 158,042 Cash - beginning of period 686,382 963,387 ----------- ----------- Cash - end of period $ 1,769,000 $ 1,121,429 =========== =========== Supplemental schedule of cash flow information: Cash paid during the period for: Interest $ 267,445 $ 374,983 Income taxes $ 58,000 $ 50,000
For the Six Months Ended
March 31,2004 2003 Financing Activities:
Net borrowings (principal payments) on line of credit arrangements
$ — $ (1,981,836 ) Proceeds from borrowings on long-term debt
— 174,146 Principal payments on related party note payable
(1,500,000 ) — Principal payments on long-term debt
(702,779 ) (1,828,803 ) Net cash used in financing activities
(2,202,779 ) (3,636,493 ) Net decrease in cash
(134,773 ) (1,448,625 ) Cash at beginning of period
2,562,705 2,327,766 Cash at end of period
$ 2,427,932 $ 879,141 Supplemental Schedule of Cash Flow Information:
Cash paid during the period for:
Interest
$ 17,993 $ 111,655 Income taxes
$ — $ — Supplemental Schedule of Noncash Investing and Financing Activities:
On October 31, 2003, the Company determined that two customers were no longer related parties, and therefore reclassified amounts due from them to accounts and sales contracts receivable ($9,000) and current notes receivable ($581,000) from related party receivables. The customers had previously been considered related parties because they had owned minority interests in Southern Forest Products and Wood Forest Products. Wood Forest Products ceased operations during fiscal year ended September 30, 2003. The Company purchased the minority interest in Southern Forest Products effective September 30, 2002.
The accompanying notes are an integral part
of these
consolidatedcondensed financial statements.-7-OVERHILL CORPORATION AND SUBSIDIARIES Notes- 7 -
TREECON RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
Supplemental Schedule of Noncash Investing and Financing Activities (continued):
In February 2003, SFP sold all its interest in Quantum Fuel & Refining, Inc. to
Consolidated Condensed Financial Statementsa related party and received as consideration the related party’s 24.95% interest in SFP, which then became a wholly owned subsidiary of TTI.During the six months ended March 31,
2002 1.2003, the Company completed the spin-off of its subsidiary, Overhill Farms, Inc., and recorded a charge against retained earnings (accumulated deficit) of approximately $134,000, representing the Company’s net investment in Overhill Farms at the time of distribution.The accompanying notes are an integral part
of these condensed financial statements.
- 8 -
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(Unaudited)
1. NATURE OF BUSINESS AND ORGANIZATIONAL MATTERS TreeCon Resources, Inc., formerly Overhill Corporation
formerlyand Polyphase Corporation (the"Company"“Company”), is a holding company that, through its subsidiaries, currently operates in forestry and timber related businesses. These operations are conducted through theCompany's wholly-ownedCompany’s wholly owned subsidiary Texas Timberjack, Inc.("Timberjack"(“Timberjack” or"TTI"“TTI”) andTTI's majority-ownedTTI’s subsidiaries Southern Forest Products, LLC("SFP"(“SFP”) and Wood Forest Products, LLC("WFP"(“WFP”).ThroughThe operations of WFP ceased during fiscal 2003.Through these entities, the Company distributes, leases and provides financing forloggingindustrial andconstructionlogging equipment and is also engaged incertainthe harvesting and processing of timberand sawmill operations.products.The
Company'sCompany’s Board of Directors, in August 2001, approved a plan to spin off all of its shares of Overhill Farms, Inc.("(“OverhillFarms"Farms”) to the holders of theCompany'sCompany’s common stock.Overhill Farms, a producer of high quality entrees, plated meals, meal components, soups, sauces and poultry, meat and fish specialties, previously comprised the Company's food segment.This spin-off was completed in October 2002. Overhill Farms has been accounted for as a discontinuedoperationsoperation in the accompanying financial statements.2. BASIS OF PRESENTATION
2. BASIS OF PRESENTATION The condensed consolidated financial statements include the continuing operations
and related accountsof the Company, itswholly-ownedwholly owned subsidiaries and itsmajority-ownedmajority owned subsidiaries. All material intercompany accounts and transactionsarewere eliminated. Certain prior year amounts have been reclassified to conform to the currentyearperiod presentation.The accompanying unaudited condensed financial statements
included hereinhave beenprepared by the Company, without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statementsprepared in accordance with generally accepted accounting principleshave been condensed or omitted pursuantfor interim financial information and with the instructions tosuch rulesForm 10-Q andregulations. The Company believes that the disclosures are adequate to makeArticle 10 of Regulation S-X. Accordingly, they do not include all of the informationpresented not misleading. The information presented reflects all adjustments (consisting solely of normal recurring adjustments) which are, inand footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fairstatementpresentation have been included. Additionally, a nonrecurring adjustment was made for the quarter ended December 31, 2002 to recognize a valuation allowance on parent company notes receivable from two former directors of the Company and from an attorney who performed services for the Company and Overhill Farms, Inc. in the past. This adjustment reduced the carrying amount of the notes to the fair market value of the underlying collateral. The net effect of the adjustment was to reduce assets and increase SG&A expenses by $176,000. Operating results for theinterim periods when read in conjunction withthree and six months ended March 31, 2004 are not necessarily indicative of thefinancial statements and the notes thereto included in the Company's latest financial statements filed as part of its Form 10-Kresults that may be expected for the year ended September 30,2001.2004, or for any other period.The condensed consolidated balance sheet at September 30,
20012003 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.-8-3. INVENTORIES- 9 -
For further information, refer to the financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended September 30, 2003.
3. INVENTORIES Inventories are summarized as follows:
March 31, September 30, 2002 2001 ----------- ----------- Logging and construction equipment $12,760,459 $14,469,372 Finished wood products 1,281,070 1,050,468 Unharvested and harvested but unprocessed timber 2,198,515 854,957 ----------- ----------- Total $16,240,044 $16,374,797 =========== =========== 4. TAXES For the period ended March 31, 2002, the Company recorded a tax benefit to the extent that current and prior year operating losses reduce the income taxes attributable to the discontinued operations of Overhill Farms. This benefit amounted to approximately $267,000 for the six months ended March 31, 2002, and the results of operations of Overhill Farms included in the accompanying financial statements are presented net of income tax expense of the same amount. The Company continues to maintain a valuation allowance against all net deferred tax assets that relate to its continuing operations due to uncertainty with respect to the future recoverability of all such amounts. 5. DISCONTINUED OPERATIONS In August 2001, the Company's Board of Directors approved a plan to spin off all of the Company's shares of Overhill Farms to the holders of the Company's common stock. The transaction to effect the spin-off will result in the issuance, expected to be a tax free dividend to the Company's stockholders, of one share of Overhill Farms common stock for every two shares of the Company's common stock owned on the record date as established by the Board. The Company is currently in the process of completing the various steps necessary to effect the spin-off transaction, which is now expected to occur during the Company's third fiscal quarter. These steps include, among other things, obtaining final lender approvals, making necessary changes to Overhill Farms' capital structure to effect the distribution of the dividend, the updating and refiling of information with the Securities and Exchange Commission. In connection with the spin-off, Overhill Farms expects to receive the necessary consents, waivers and amendments, as appropriate, relating to its financing arrangements with Union Bank of California, N.A. ("Union Bank") and Levine Leichtman Capital Partners II, L.P. ("LLCP"). These consents, waivers and amendments are necessary to comply with certain provisions of the agreements with each of Union Bank and LLCP that are affected by the spin-off. Additionally, it is also expected that Overhill Farms will amend and restate its securities purchase agreement and related documents with LLCP. The line of credit with Union Bank expires in November 2002, and the outstanding balance of approximately $11.4 million at March 31, 2002 has accordingly been reclassified from a long term obligation (net long-term liabilities related to discontinued operations) at September 30, 2001 to a current liability (a reduction of net current assets of discontinued operations) in the -9-Company's balance sheet as of March 31, 2002. In connection with the spin-off and Overhill Farms entering into a lease on a new facility in Vernon, California, the line of credit is expected to be amended to provide for borrowings limited to the lesser of $20 million, from $16 million, or an amount determined by a defined borrowing base consisting of eligible receivables and inventories. In addition, interest rates on amounts advanced under the credit line are to be increased by .25% to prime plus .50% or to LIBOR plus 3%. Overhill Corporation is to be released from its guarantee of the credit facility and Union Bank is to release the Overhill Farms common stock that it holds as collateral. Union Bank charged Overhill Farms $120,000 for these amendments. Overhill Farms also has reached agreement with LLCP with respect to certain amendments of its arrangements with LLCP which, among other things, provides consent by LLCP to the lease of the Vernon, California facility. As consideration for this consent and for the additional investment monitoring costs and expenses to be incurred by LLCP, Overhill Farms issued to LLCP 23.57 shares of Series A Convertible Preferred Stock. The designation for the new preferred stock provide the holder with, among other things, a liquidation preference totaling approximately $750,000, voting rights along with holders of common stock, conversion rights and dilution protection. The agreement with LLCP also provides that, after the issuance of the Series A Convertible Preferred Stock and following the spin-off, LLCP shall be entitled to anti-dilution protection so that its warrants and shares of preferred stock will be exercisable for or convertible into an aggregate of not less than 19.5% of Overhill Farms outstanding shares of common stock. The operating results of Overhill Farms have been classified as discontinued operations in the accompanying financial statements for the six months ended March 31, 2002 and 2001 and are summarized as follows: For the Six Months Ended March 31, -------------------------- 2002 2001 ------------ ------------ Net revenues $67,460,774 $78,915,981 Gross profit 10,370,351 13,886,014 Operating income 3,365,443 4,695,382 Income before income taxes 665,443 1,554,349 Net income $ 398,344 $ 930,465 6. ADVANCE FROM RELATED PARTY During March 2002, Mr. Harold Estes made a cash advance in the amount of $850,000 to SFP for the purchase of timber. While the terms of this arrangement with SFP are not formally documented, SFP is repaying such advance in weekly installments of approximately $55,000 which includes interest at prime (approximately 4.75% at March 31, 2002). -10-7. EARNINGS
March 31,
2004September 30,
2003
Forestry equipment
$ 7,603,403 $ 6,839,180 Finished wood products
1,107,558 1,417,931 Unharvested and harvested but unprocessed timber
497,120 877,012 $ 9,208,081 $ 9,134,123
4. PER SHARE DATA The following table sets forth the
computationscalculation ofbasic and dilutednet earningsper share:
For the Three Months Ended March 31, ---------------------------- 2002 2001 ------------ ------------Numerator: Income(loss)before discontinued operations $ (216,781) $ (140,130) Discontinued operations 32,876 492,344 ------------ ------------ Net income (loss) attributable to common stockholders $ (183,905) $ 352,214 ============ ============ Denominator: Denominator for basic earnings per share - weighted average shares 18,615,464 17,827,464 ------------ ------------ Effect of dilutive securities: Stock options -- 109,120 Warrants -- -- ------------ ------------ Dilutive potential common shares -- 109,120 ------------ ------------ Denominator for diluted earnings per share 18,615,464 17,936,584 ============ ============ Net income (loss) per share - basic and diluted: Before discontinued operations $ (.01) $ (.01) Discontinued operations -- .03 ------------ ------------ Net income per share $ (.01) $ .02 ============ ============-11-
For the Six Months Ended March 31, ---------------------------- 2002 2001 ------------ ------------Numerator: Income (loss) before discontinued operations $ (346,218) $ (244,023) Discontinued operations 30,723 760,190 ------------ ------------ Net income (loss) attributable to common stockholders $ (315,495) $ 516,167 ============ ============ Denominator: Denominator for basic earnings per share - weighted average shares 18,615,464 17,825,404 ------------ ------------ Effect of dilutive securities: Stock options -- 75,417 Warrants -- -- ------------ ------------ Dilutive potential common shares -- 75,417 ------------ ------------ Denominator for diluted earnings per share 18,615,464 17,900,821 ============ ============ Net income (loss) per share - basic and diluted: Before discontinued operations $ (.02) $ (.01) Discontinued operations -- .04 ------------ ------------ Net income per share $ (.02) $ .03 ============ ============8. STOCKHOLDERS' EQUITY Stock Options- During the three months ended December 31, 2000, options to purchase 15,000 shares at an exercise price of $.50 per share were exercised. Warrants- During the three months ended December 31, 2000, the Company repurchased warrants covering 210,000 shares exercisable at $1.125per share fortotal consideration of approximately $46,000. 9. INVESTMENT IN LIMITED LIABILITY COMPANYthe periods presented:
For the Three Months Ended
March 31,2004 2003 Numerator:
Income (loss) from continuing operations
$ 268,452 $ (672,785 ) Discontinued operations
— — Net income (loss) attributable to common shareholders
$ 268,452 $ (672,785 ) Denominator:
Denominator for basic earnings per share – Weighted average shares
18,615,464 18,615,464 Effect of dilutive securities:
Warrants
— — Dilutive potential common shares
— — Denominator for diluted earnings (loss) per share
18,615,464 18,615,464 Net earnings (loss) per share – basic and diluted:
Continuing operations
$ .01 $ (.04 ) Discontinued operations
— — Net earnings (loss) per share
$ .01 $ (.04 ) - 10 -
4. PER SHARE DATA (CONTINUED)
For the Six Months Ended
March 31,2004 2003 Numerator:
Income (loss) from continuing operations
$ 257,045 $ (1,632,090 ) Discontinued operations
— (66,700 ) Net income (loss) attributable to common shareholders
$ 257,045 $ (1,698,790 ) Denominator:
Denominator for basic earnings per share – Weighted average shares
18,615,464 18,615,464 Effect of dilutive securities:
Warrants
— — Dilutive potential common shares
— — Denominator for diluted earnings (loss) per share
18,615,464 18,615,464 Net earnings (loss) per share – basic and diluted:
Continuing operations
$ .01 $ (.09 ) Discontinued operations
— — Net earnings (loss) per share
$ .01 $ (.09 ) No dilutive securities were outstanding during the three and six months ended March 31, 2004 and 2003.
5. INVESTMENT IN LIMITED LIABILITY COMPANY TTI has a 49.9% ownership in a construction related limited liability company (the
"LLC"“LLC”), which is accounted for under the equity method.TTI'sTTI’s initial capital investment in the LLC was nominal, and its investment in the LLC is comprised primarily of related party receivables arising from operating advances and financed equipment sales to the LLC, with such sales being transacted primarily at TexasTimberjack'sTimberjack’s cost of acquiring the related equipment. Duringthe six months ended March 31,fiscal 2002, the partnership’s activities were substantially reduced and only minimal activity currently exists. The net related party receivable from the LLC,increased -12-approximately $280,000 since September 30, 2001.included in long term other assets, decreased $212,000 to $317,000 during the six months ended March 31, 2004. Additionally,the Companywe recorded a loss of approximately$463,000 relating$59,000 related toTTI'sTTI’s investment in the LLC during the six months ended March 31, 2004.- 11 -
6. ASSETS HELD FOR SALE During the fiscal year ended September 30, 2000, in exchange for approximately $400,000 of raw timber inventory and the assumption of certain liabilities, SFP acquired all of the outstanding stock of Quantum Fuel & Refining, Inc. (“Quantum”) from TTI’s minority partner in SFP. Quantum’s assets consist primarily of a non-operating refinery in Egan, Louisiana. Liabilities assumed included a $1.0 million note payable, along with accrued interest, to Mr. Harold Estes, President of TTI. SFP acquired the assets of Quantum for resale and had classified the assets as held for sale since the date of acquisition. In February 2003, SFP sold 100% of the stock of Quantum back to TTI’s minority partner in SFP, and received in exchange the aforementioned minority partner’s 24.95% interest in SFP, which then became a wholly-owned subsidiary of TTI.
Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS
Forward-Looking Statements
The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and notes to financial statements included elsewhere in this document. This report, together with our unaudited condensed financial statements and notes thereto, contain forward-looking statements. These forward-looking statements, which generally include the plans and objectives of management for future operations, including plans and objectives relating to our future economic performance and management’s current beliefs regarding revenues we might earn if we are successful in implementing our business strategies.
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations or beliefs, including, but not limited to, statements concerning our operations and financial performance and condition. For this purpose, statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements include statements which are predictive in nature, which depend upon or refer to future events or conditions, which include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” or similar expressions. In addition, any statements concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future company actions, which may be provided by management, are also forward-looking statements. We caution that these statements by their nature involve risks and uncertainties, and actual results may differ materially depending on a variety of important factors, including, among others:
the impact of competitive products and pricing;market conditions, and weather patterns that may affect the cost of timber as well as the market for our equipment;changes in our business environment, including actions of competitors and changes in customer preferences, as well as disruptions to our customers’ businesses;- 12 -
the occurrence of acts of terrorism, such as the events of September 11, 2001, or acts of war;changes in governmental laws and regulations, including income taxes;market demand for new and existing products;other factors as may be discussed in this report and other reports we file with the Securities and Exchange Commission, including those described in Item 7 of our annual report on Form 10-K for the fiscal year ended September 30, 2002.10. SEGMENT INFORMATIONthe “Risk Factors Related to our Business and Industry” described below.Risk Factors Related to Our Business and Industry
The Company is subject to various risks which could have a negative effect on the Company and its financial condition. These risks could cause actual operating results to differ from those expressed in certain “forward looking statements” contained in this Form 10-Q as well as in other Company communications. Before you invest in our securities you should carefully consider these risk factors together with all other information included in our publicly filed documents.
Logging Equipment Industry.The demand for our logging equipment products is directly related to the strength of the logging industry in East Texas. If the demand for timber declines, we will experience a decrease in product demand. A decline in demand for timber can occur due to national economic factors such as decreased construction starts or increased mortgage interest rates. A decline can also occur due to regional or local factors, such as extended bad weather or the closing of paper or saw mills that drive the East Texas logging economy.
We are the authorized distributor of Timberjack and Blount logging equipment. For continued success, we must offer equipment that is technologically advanced and competitively priced when compared to our competition. If our competitors begin to offer equipment with better, more efficient operation, we may be unable to maintain our sales volumes. Also, we must be able to meet or improve upon our competitors’ price and financing offerings.
Timber and Wood Products Industry.Our ability to maintain profitability in the highly competitive timber and wood products industry is contingent upon continued strong demand for our lumber products. If lumber prices drop, we may not be able to sell our products at a profit. Lumber prices are influenced by factors that influence the strength of the construction industry, such as housing starts, interest rates, and overall economic conditions.
Our sawmill and wood treating plant have been in operation for many years, and more efficient equipment is now available. If our equipment must be replaced or upgraded, additional capital investment will increase our depreciation expense.
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Overall Business.Our overall business and our reported results are affected by general economic and political conditions in the United States. This includes wars and other international conflicts and the threat thereof; actions by the United States Federal Reserve Board and other central banks, actions by the United States Securities and Exchange Commission, actions by environmental regulatory agencies, including those related to engine emissions and the risk of global warming; actions by other regulatory bodies; actions by rating agencies, capital market disruptions, investor sentiment, inflation and deflation rates, interest rate levels, customer borrowing and repayment practices, and the number of customer loan delinquencies and defaults; actions of competitors, particularly price discounting; manufacturer production and technological difficulties, changes to accounting standards, the effects of terrorism and the response thereto; and legislation affecting the sectors in which we operate.
Note Payable to Related Party.We currently
operates in two reportable business segments (1)owe a related party (Mr. Harold Estes) $23,499,458 for a note payable that matures October 31, 2004. As theequipment segment, which distributes, leases and provides financing for logging and constructioncollateral pledged against the note payable to Mr. Estes represents all of our ownership of our only continuing operation, Mr. Estes’ foreclosure on this collateral would have an adverse effect on our ability to continue as a going concern.Overview
Our strategy is to be the leading supplier of forestry equipment and
(2)timber products within our market territories. We intend to create value for our stockholders by continuing to execute our growth and operating strategies. We employ thetimber segment,following corporate strategies:Continue to provide high quality products and superior services to our customersSeek internal growth by adding customers and new product linesCritical Accounting Policies
Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which
includes sawmill operationshave been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are described in the notes to the audited financial statements that are included in our annual report on Form 10-K for the year ended September 30, 2003.We believe the following critical accounting policies are related to the more significant estimates and assumptions used in the preparation of our consolidated financial statements.
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Revenue Recognition. We generally recognize revenue when products are shipped, which is when title and risk of loss pass to the buyer, or when services are performed, and provide for estimated returns and allowances at the time of sale. However, a portion of our business relates to the sale of equipment through installment sales contracts. Revenue is recognized on these accounts using the installment method due to frequent late payments, periodic repossessions and related uncertainty with respect to ultimate realization at the time of sale. Under the installment method, we record at the point of sale both a sale and a cost of sale for the total cost of the unit. We initially record gross profit in a deferred profit account to be recognized as proceeds are received, based on the relative percentage of transaction profit to sales price. Given the uncertainty with respect to ultimate collection, interest on installment contracts is recognized on a cash basis.
Allowance for Doubtful Receivables. We account for bad debts on accounts receivable using the reserve method. We establish allowance based on a percentage of parts sales, past bad debt experience, the makeup of the current portfolio and current market conditions. We establish allowances for doubtful notes receivable if, at the date of valuation, management believes it is probable that a loss exists in the portfolio based on an evaluation of the individual notes included in the portfolio, payment history, and the
treatmentexpected credit risk based on subject collateral, if any. We account for bad debts on sales contracts receivable using the reserve method. After reviewing economic conditions, as well as historical trends andsalecollateral values, we evaluate our allowance for doubtful sales contracts based on the estimated loss exposure at any given time in the portfolio, which has historically not been significant in comparison to the total portfolio amount.Our estimates involve a significant amount of
timber products. The Company's food segment,judgment, particularly with respect to notes receivable, whichpreviously had been included as a separate segment,are subject to various forms of collateral for which fair value isclassified as a discontinued operation based upon management's plan to spin off its Overhill Farms, Inc. subsidiary to shareholders. Separate financial dataoften not objectively attainable. Actual results could differ adversely from management estimates resulting in additional losses on receivables over and above the reserves provided. However, we believe our allowances foreach of the Company's operating segments, excluding discontinued operations, is provided below (in thousands): For the Three Months For the Six Months Ended March 31, Ended March 31, -------------------- -------------------- 2002 2001 2002 2001 -------- -------- -------- -------- Net revenues Equipment $ 7,451 $ 6,548 $ 14,077 $ 12,467 Timber 3,124 2,132 5,275 4,463 -------- -------- -------- -------- Consolidated 10,575 8,680 19,352 16,930 Gross profit Equipment $ 1,622 $ 1,680 $ 3,279 $ 3,311 Timber 509 471 977 794 -------- -------- -------- -------- Consolidated 2,131 2,151 4,256 4,105 Operating profit (loss) Equipment $ 261 $ -- $ 610 $ 113 Timber 212 77 391 1 Corporate expenses (211) (215) (379) (389) -------- -------- -------- -------- Consolidated 262 (138) 622 (261) -13-11. SUBSEQUENT EVENTS At March 31, 2002, the Company's notes payable included approximately $7.2 million due to Bank of America, N.A. ("Bank of America") by TTI and SFP under arrangements which had expireddoubtful receivables are fairly stated as of March 31,2002. In early April, pursuant2004.Inventories. Inventories of forestry equipment are valued at the lower of cost or market or, in the case of repossessed and used equipment, net realizable value, based upon the specific identification method. Inventories of raw timber and finished wood products are stated at the lower of average cost or market.
Impairment of Long-Lived Assets.When long-lived asset impairment indicators are present, we evaluate impairment of long-lived assets in accordance with SFAS No. 144 by projecting undiscounted cash flows of the related assets over the remaining estimated useful lives of such assets. If undiscounted cash flow projections are insufficient to
borrowingsrecover the carrying value of the long-lived assets underloan agreements reached with First Bankreview, impairment is recorded for the amount, if any, by which the carrying value of such assets exceeds their fair values. Projections of undiscounted cash flows inherently involve management’s subjective estimates andTrust East Texas ("FB&T")assumptions regarding future expected operating results. Actual results could differ from management estimates- 15 -
Income Taxes.We record deferred income taxes using the liability method to reflect the net tax effects of temporary differences between the carrying amounts of assets and
BancorpSouth Bank ("BancorpSouth"), TTIliabilities for financial reporting purposes andSFP repaid allthe amountsdue and owing to Bank of America. The arrangement with FB&T provides TTI with a $5.0 million revolving line of credit expiring in April 2003, bearing interest at prime plus .5% and collateralized by certainused for income tax purposes. Valuation allowances, if any, are established against deferred tax assetsof TTI. The loan agreement with FB&T provides, among other things, that TTI will maintain a debt to equity ratiobased upon whether or not management believes such assets are more likely than not toexceed onebe recovered, which is a subjective determination based upon considerations of available positive and negative evidence. As of March 31, 2004, we have recorded a valuation allowance against all of our net deferred tax assets that relate toone at any time and provide the bank with specified financial data on a timely basis; and that TTI, without the prior written consentour continuing operations as we currently believe such amount is not likely to be recoverable given our recent history ofFB&T, will not permit any material change in executive management or ownership of TTI, become liable for any indebtedness of Overhill Corporation or its affiliates or to pay any dividends or make other distributions of equity. Amounts advanced by BancorpSouth were pursuant to (1) a 6% term note in the amount of $1.5 million, payable in monthly installments of approximately $67,000 (including interest) through April 2004; and (2) a $500,000 note maturing in June 2002, which bears interest at prime plus .5% and is collateralized by a portion of TTI's major unit inventory. Amounts advanced by BancorpSouth were guaranteed by Overhill Corporation. The loan agreement with BancorpSouth provides, among other things, that TTI will provide the lender with specified financial data on a timely basis, and that without prior approval by the bank, TTI will not pay dividends, loans or advances to its parent, Overhill Corporation, except for the payment of taxes. 12. RECENT ACCOUNTING PRONOUNCEMENTSoperating losses.Recent Accounting Pronouncements
In
November 2001,May 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS No.150, “Accounting for Certain Financial Instruments with Characteristics of Liabilities and Equity,” which is effective at the beginning of the first interim period beginning after June 15, 2003. However, certain aspects of SFAS 150 have been deferred. SFAS No. 150 establishes standards for our classification of liabilities in the financial statements that have characteristics of both liabilities and equity. We will continue to review SFAS No. 150; however, we do not expect SFAS 150 to have a material impact on our financial position, results of operations, or cash flows.In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities.” Under previous practices, certain entities were included in consolidated financial statements based upon controlling voting interests or in other special situations. Under Interpretation No. 46, certain previously unconsolidated entities will be required to be included in consolidated financial statements of the primary beneficiary, as defined. For variable interest entities, often referred to as special purpose entities, created after January 31, 2003, Interpretation No. 46 is effective immediately. We are currently evaluating the impact, if any, of Interpretation No. 46 on our consolidated financial statements.
In December 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” Interpretation No. 45 clarifies the requirement for recognition of a liability by a guarantor at the inception of the guarantee based on the fair value of a non-contingent obligation to perform. Interpretation No. 45 must be applied prospectively to guarantees entered into or modified after December 31, 2002. We are currently in the process of evaluating the impact, if any, of Interpretation No. 45 on our consolidated financial statements.
On July 30, 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, which requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of commitment to an exit or disposal plan. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS No. 146 is not expected to have a material effect on our financial position, results of operations or cash flows.
In November 2001, the FASB issued Statement No. 144,
"Accounting“Accounting for the Impairment or Disposal of Long-LivedAssets" ("SFAS 144")Assets” (SFAS 144). These rules supersede FASB Statement No. 121,"Accounting- 16 -
“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of,"Of”, providing a single accounting model for long-lived assets to be disposed of. Although retaining many of the fundamental recognition and measurement provisions of Statement 121, the new rules significantly change the criteria that would have to be met to classify an asset as held-for-sale.SFASStatement 144 also supersedes the provisions of APB Opinion 30 with regard to reporting the effects of a disposal of a segment of abusiness and requires expected future operating losses from discontinued operations to be displayed in discontinued operations in the period(s) in which the losses are incurred (rather than as of the measurement date as previously required by APB 30.) SFAS 144business. The Statement is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years, although earlier application is encouraged.The Company hasWe adopted SFAS 144 as of October 1,2001. The2001 and such adoptionof SFAS 144did not have a materialeffectimpact onthe Company'sour financialposition,condition, results of operationsorand cash flows.In June 2001, the Financial Accounting Standards Board issued Statement No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), which requires that goodwill no longer be amortized, but instead will be tested at least annually for impairment by reporting unit. The -14-Company has elected to early adopt SFAS 142 as of October 1, 2001. The Company believes that the adoption of SFAS 142 did not have an immediate effect on its financial statements. Had the Company been accounting for its goodwill under SFAS 142 for all periods presented, the Company's net income would have increased by approximately $142,000 ($.01 per share) and $71,000 ($0 per share) for the six months and three months ended March 31, 2001, respectively. -15-ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS Statements contained in this Form 10-Q that are not historical facts, including, but not limited to, any projections contained herein, are forward-looking statements and involve a number of risks and uncertainties. The actual results of the future events described in such forward-looking statements in this Form 10-Q could differ materially from those stated in such forward-looking statements. Among the factors that could cause actual results to differ materially are: adverse economic conditions, industry competition and other competitive factors, government regulation and possible future litigation.Results of Operations
Three Months Ended March 31,
20022004 Compared to Three Months Ended March 31,20012003Net
Revenues - RevenuesRevenues.Net revenues for the three months ended March 31,20022004 increased$1,895,000 (21.8%$1,131,000 (12.3%) to$10,575,000$10,323,467 from$8,680,000$9,193,000 for the three months ended March 31,2001.2003. The increase in revenues resulted from revenue increases at both our business segments – Equipment and Timber Products.The Equipment segment’s net revenues were $6,574,000 for the second quarter of fiscal 2004 as compared to $6,504,000 for the second quarter of fiscal 2003, an increase of $70,000. The increase in net revenues was impacted by increases in equipment sales ($170,000) and service revenues ($20,000). This increase
consistswas partially offset by a decrease in parts revenues ($120,000). Although we experienced a strong lumber market during this quarter, our revenue growth was modest due to wet weather.Our Timber segment’s net revenues were $3,750,000 for the second quarter of fiscal 2004 as compared to $2,688,000 for the second quarter of fiscal 2003, an increase of $1,061,000. During the second quarter of fiscal 2003, the sawmill was closed for approximately three weeks because of a log shortage due to rainy weather. This caused our production to decline substantially, which in turn resulted in a decline in our revenues for the previous quarter. Sales for the quarter ended March 31, 2004 were higher than normal due to increased production levels to take advantage of increased
revenuesprices for larger, longer length timbers. Wet weather and a resulting lack of$992,000raw materials caused a decreased supply and increased market price for these timbers during the quarter ended March 31, 2004.Gross Profit.Gross profit for the second quarter of fiscal 2004 increased $596,000 to $2,009,000 from $1,414,000 for the second quarter of fiscal 2003. This increase is due to improvements at both the Equipment unit and the Timber unit. The Equipment unit’s gross profit margin increased $230,000 to $1,338,000 for the second quarter fiscal 2004 from $1,108,000 for the second quarter fiscal 2003. During the second quarter of fiscal 2003, we made a decision to wholesale our slower moving inventory, which contributed to the reduced Equipment unit’s gross profit in the
timber segment and $903,000 in the equipment segment. Gross Profits - Gross profitsprior quarter. The Timber unit’s gross profit increased $366,000 to $671,000 for the three months ended March 31,2002 remained substantially unchanged for the amounts2004 from $305,000 for the three months ended March 31,2002. For such periods, gross profits for2003. This increase was caused by a temporary shutdown of theequipment segment decreased $58,000 while gross profits formill due to poor weather conditions during thetimber segment increased $38,000.second quarter of the previous year, which caused production efficiencies to decline, resulting in an increase in the cost of the lumber manufactured.- 17 -
Selling,General and Administrative
Expenses -Expenses.Selling, general and administrative expenses (SG&A) for thethree months ended March 31, 2002 decreased $419,000second quarter of fiscal 2004 declined $75,000 (4.8%) to$1,869,000$1,487,000 (14.4% of net revenues) from$2,288,000 during the three months ended March 31, 2001, due primarily to the continued decreases in personnel costs in both operating segments$1,561,000 (17.0% ofTexas Timberjack. Other Expenses - Other expensesnet revenues) for thethree months ended March 31, 2002second quarter of fiscal 2003. SG&A declined $97,000 in the parent company, although the operating unit SG&A increased$218,000 to $627,000$22,000 from$409,000 during the three months ended March 31, 2001, due largely to losses related to Timberjack's 49.9% investment in a construction company accounted for on the equity method. See "Management's Discussion and Analysis--Related and Certain Other Parties". Income Taxes - The Company records a tax benefit to the extent that current and prior year operating losses reduce the income taxes attributable to the discontinued operations of Overhill Farms. Accordingly, the results of operations of Overhill Farms are presented within the consolidated financial statements net of income tax expense of $147,000 for the three months ended March 31, 2002 and $406,000 forthe same period in2001.2003. This reduction in cost is due to the closing of the corporate office in Addison, Texas and the assignment of parent company functions to Texas Timberjack personnel.Operating Income.Operating income increased $671,000 (454%) to $523,000 for the second quarter of fiscal 2004 from a loss of $148,000 for the second quarter fiscal 2003. The improvement in operating income is the result of an increase in the gross profit margin and slightly lower SG&A. We intend to continue to reduce SG&A and manage our cost structure with increased emphasis on increasing gross profit margins as we seek to develop additional revenue opportunities.
Other Income/Expenses.Total other income/expenses for the second quarter of fiscal 2004 improved $271,000 from the second quarter fiscal 2003. This improvement was mostly due to a decline in interest expense of $265,000 (46.8%) to $300,000 for the quarter ended March 31, 2004 from $565,000 for the same quarter in the prior year. This reduction in cost resulted from the refinancing of Harold Estes’ note during the first quarter of fiscal year 2004 and the resulting reduction of the interest rate to 5% from 9%. Interest expense on other debt also declined due to a reduction in the average principal outstanding.
Net Loss. The net result for the second quarter of fiscal 2004 was income of $268,000 ($.01 per share) as compared to a loss of $673,000 (($.04) per share) for the second quarter of fiscal 2003.
Six Months Ended March 31,
20022004 Compared to Six Months Ended March 31,20012003Net
Revenues -Revenues.For the six months ended March 31,2002,2004, net revenues increased$2,422,000 (14.3%)$2,831,000 (15.0 %) to$19,352,000$21,725,000 as compared to $18,894,000 for the six months ended March 31, 2003.Our Equipment unit reported a $488,000 increase in revenues to $14,294,000 for the six months ended March 31, 2004 from
$16,930,000$13,806,000 for the six months ended March 31, 2003. This increase is primarily due to increases in sales of equipment ($619,000). This increase was partially offset by decreases in parts revenue ($75,000), service revenue ($9,000), and interest from sales contracts ($47,000). A continued strong market for timber products, especially oriented strand board (OSB) and dimensional lumber, contributed to the overall higher revenues in the Equipment segment during the six months ended March 31,2001. This2004.- 18 -
Our Timber segment reported an increase in revenues
during the first six months is dueof $2,343,000 toincreased sales of $1,610,000 in the Company's equipment segment, while revenues from the timber segment increased by $812,000. -16-Gross Profits - For the six months ended March 31, 2002, gross profits increased $151,000 to $4,256,000 in the current year from $4,105,000 in the prior year, due primarily to the increase in volume in the timber segment. Gross margin rates in the equipment segment decreased slightly due to a change in sales mix to the lower margin sales of major units from the higher margin parts and service sales. Selling, General and Administrative Expenses - Selling, general and administrative expenses$7,431,000 for the six months ended March 31,20022004 from $5,088,000 for the comparable period in 2003. This increase is due to higher market prices, combined with increased production and sales.Gross Profit. Gross profit for the six months ended March 31, 2004 increased $808,000 to $3,879,000 from $3,071,000 for the comparable period in 2003. Gross profit as a percentage of net revenues increased to 17.9% in 2004 as compared to 16.3 % for the same period in 2003. The gross profit increase was primarily from the Timber segment. The timber operations were able to operate more efficiently during the current period because there was no shut down due to rainy weather.
Selling, General and Administrative Expenses. Selling, general and administrative expenses (SG&A) for the six months ended March 31, 2004 decreased
$732,000$540,000 to$3,634,000$3,006,000 (13.8% of net revenues) from$4,366,000$3,546,000 (18.8% of net revenues) for the comparable period in 2003. SG&A declined approximately $29,000 in the operating units during the six month period, while the parent company SG&A declined $511,000 from the same period in 2003. Part of the decrease was due to a reduction of legal expenses during the first quarter fiscal 2003 incurred in connection with the defense of our class action lawsuit. Also during the first quarter of 2003, in connection with the completion of the spin-off of Overhill Farms, we provided for reserves of $176,000 against notes receivable from two of our directors and from an attorney who performed services for us in the past. Also contributing to the reduction in cost was the closing of the corporate office in Addison, Texas and the assignment of parent company functions to Texas Timberjack personnel.Other Income/Expenses. Total other income/expenses during the six months ended March 31,
2001, due2004, consisting primarily of interest expense, decreased toreductions in personnel costs in both the equipment and timber segments of TTI, together with the adoption by TTI of SFAS 142 effective October 1, 2001, thereby eliminating the amortization of goodwill which amounted$617,000, as compared toapproximately $142,000 during the six months ended March 31, 2001. Other Expenses - For the six months ended March 31, 2002, net other expenses increased $628,000 to $1,235,000 in the current year from $607,000$1,158,000 for the six months ended March 31,2001.2003, a decrease of $541,000 (46.7%). Thisincrease is largely attributableimprovement was mostly due torecorded losses related to Timberjack's 49.9% investmenta decline ina construction company accounted for on the equity method. See "Management's Discussion and Analysis--Related and Certain Other Parties." Income Taxes - The Company records a tax benefit to the extent that current and prior year operating losses reduce the income taxes attributable to the discontinued operations of Overhill Farms. Accordingly, the results of operations of Overhill Farms are presented within the consolidated financial statements net of income taxinterest expense of$267,000$459,000 (40.0%) to $690,000 for the six months ended March 31,2002 and $624,0002004 from $1,149,000 for the same period in2001. Liquiditythe prior year. This reduction in cost resulted from the refinancing of Harold Estes’ note during the first quarter of fiscal year 2004 andCapital Resources Principal sourcesthe resulting reduction ofliquiditythe interest rate to 5% from 9%. Interest expense on other debt also declined due to a reduction in the average principal outstanding.Net Income/Loss. The net result for
the Company are cash flow from operations, cash balances and additional financing capacity. The Company's cash and cash equivalents increased $1,083,000 to $1,769,000 at March 31, 2002 as compared to $686,000 at September 30, 2001. Duringthe six months ended March 31,2002,2004 was a net income of $257,000 ($.01 per share) as compared to a net loss of $1,699,000 ($.09 per share) for theCompany'scomparable period in the prior year.We currently expect to improve on our operating results, primarily through (a) improving gross margins achieved by raising our pricing structure on equipment sales (b) growing revenues on profitable equipment lines (c) increasing production and cost efficiencies at the sawmill operations (d) reducing raw timber inventory costs at the sawmill operations (e) reducing SG&A expenses in both segments and (f) pursuing profitable investments relating to the timber industry.
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Improvement in our operating results may not continue should the East Texas timber market soften, or if the supply of large timbers and decking increases and causes prices to fall. Market conditions and weather patterns may affect the cost of timber, as well as the market for our equipment. Our business may also suffer other adverse changes, such as the impact of competitive products and pricing.
Liquidity and Capital Resources
Historically, principal sources of liquidity are cash flows from operations and additional financing capacity. Our cash and cash equivalents decreased by $135,000 during the first six months of fiscal 2004, as compared to a decrease of $1,449,000 during the first quarter of fiscal 2003.
During the first six months of fiscal 2004, our operating activities resulted in cash provided of
approximately $2,236,000,$2,502,000, as compared to cash provided of$3,166,000$3,141,000 during thecomparablefirst six months of fiscal 2003. During the current period, cash provided resulted primarily from operating income ($257,000), noncash expenses ($1,147,000), reduction in accounts receivable ($465,000), increase in accounts payable ($509,000), and increase in accrued expense and other liabilities ($117,000). Changes in inventories and prepaid expenses and other assets generally offset. As of March 31, 2004, we had a working capital deficit of approximately $6,876,000, resulting from theprevious year. The source of cashreclassification to current liabilities during thecurrent year is related primarilyfirst six months of fiscal 2003 of our note and accrued interest toresults of operations, together with decreases in trade accounts and sales contracts receivable, offset somewhat by reductions in trade accounts payable.Mr. Estes, which has now been renewed through October 2004.During the first six months
ended March 31, 2002, the Company'sof fiscal 2004, our investing activities resulted in a use of cash of approximately$406,000,$434,000, as compared to a use of cash of$1,189,000$953,000 during thecomparable period in the previous year. The Company'sfirst half of fiscal 2003. Our use of cashduringin the currentyearperiod resultedprimarilyfrom capital expendituresby TTI,of $165,000, together withdecreasesan increase of $287,000 in notesand other receivables beingreceivable. This was offset byincreases inan $18,000 source of funds from a reduction of related partyreceivables. Duringreceivables during the six months ended March 31,2002,2004.During the
Company'sfirst six months of fiscal 2004, our financing activities resulted in a use of cash of approximately$748,000,$2,203,000, as compared to a use of cashusedofapproximately $1,819,000$3,636,000 during thecomparable periodfirst six months of fiscal 2003. The use of cash in theprevious year. The cash utilizedcurrent period resulted from repayments on long-term debt of $703,000 and principal payments onTimberjack's lines of credit, and is net of a cash advance made to SFP by Mr. Harold Estes. -17-The aforementioned advance by Mr. Estes, intheamount of $850,000, was made to SFP in March 2002 for the purchase of timber. While the terms of this arrangement are not formally documented, SFP is repaying such advance in weekly payments of approximately $55,000 which include interest at prime (approximately 4.75% at March 31, 2002). The Company'snotepayableto Mr. Esteshas a current balance at March 31, 2002ofapproximately $21.6 million, including accrued interest, is collateralized by the stock and certain assets of Texas Timberjack and matures in October 2002. Since the note's inception in 1994, Mr. Estes and the Company have agreed to a number of extensions of the maturity date and related terms of this note. The Company intends to seek further extension of the maturity date from Mr. Estes prior to the note's maturity. There can be no assurance, however, that the maturity date of the note can be successfully extended on favorable terms, or at all. SFP's Quantum Fuel & Refining, Inc. subsidiary ("Quantum") has a note payable to Mr. Estes. As of March 31, 2002, the note had a total unpaid balance, including accrued interest, of approximately $1.5 million, bearing interest at 12%, with maturity in October 2002 and collateralized by the assets of Quantum. Mr. Estes has agreed to previous extensions of the maturity date with Quantum, including one extension since Quantum's acquisition by SFP. Timberjack intends to seek further extension of the maturity date from Mr. Estes prior to the notes maturity. There can be no assurance, however, that the maturity date of the note can be successfully extended on favorable terms, or at all. At March 31, 2002, Texas Timberjack and SFP had notes payable to Bank of America totaling approximately $7.2 million under arrangements which had expired as of that date. In early April 2002, pursuant to borrowings under new loan arrangements reached with FB&T and BancorpSouth, all amounts due and owing by TTI and SFP to Bank of America were repaid in full. The arrangement with FB&T provides TTI with a $5.0 million revolving line of credit expiring in April 2003, bearing interest at prime plus .5% and collateralized by certain assets of TTI. Following repayment of the Bank of America notes, availability under this credit line amounted to approximately $300,000. Amounts advanced by BancorpSouth were pursuant to (1) a 6% term note in the amount of $1.5 million, payable in monthly installments of approximately $67,000 (including interest) through April 2004; and (2) a $500,000 note, bearing interest at prime plus .5% and collateralized by a portion of TTI's major unit inventory, and which matures June 11, 2002. Amounts advanced by BancorpSouth were guaranteed by Overhill Corporation. TTI has a commitment from BancorpSouth to loan up to an additional $2.0 million, to be collateralized by real estate, the proceeds of which are expected to be used, in part, to repay the $500,000 note upon closing during June 2002. Texas Timberjack guarantees on behalf of various customers certain lines of credit and secured borrowings with banks and financial institutions, primarily related to customer purchases of its equipment products. The portion of the credit lines or secured borrowings guaranteed ranges from zero to 100% on a customer-by-customer basis. Funds held in escrow by the lenders, amounting to approximately $538,000 at March 31, 2002, are included in the consolidated balance sheet as restricted cash and are fully offset by the Company's reserve for credit guarantees. Historically, amounts held in escrow by lenders have been sufficient to cover any -18-losses incurred by Texas Timberjack as a result of these guarantees. However, losses on guarantees significantly in excess of amounts held in escrow by the lenders could have a material impact on the Company's liquidity position and results of operations. Texas Timberjack has a 49.9% investment in a construction related business which operates as a limited liability company. As of March 31, 2002, Timberjack has guaranteed approximately $432,000 of indebtedness of this company. See "Management's Discussion and Analysis--Related and Certain Other Parties." The Company has various other commitments incurred through the ordinary course of its business, primarily noncancelable operating leases related to its facilities and equipment in Bon Weir, Texas and inventory purchase commitments from three companies which supply the majority of its new units and parts. There has been no significant change in the type or amount of these commitments since September 30, 2001. The Company believes, providing that Mr. Estes grants the aforementioned note extensions on acceptable terms,$1,500,000.We believe that funds available to
itus from operations and existing capital resources will be adequate foritsour operating and capital requirementsincluding any cash requirements resulting from the various commitments and contingencies described above,for at least the next twelve months.Related and Certain Other Parties TTIOur note payable to Mr. Harold Estes has a49.9% ownership inbalance as of March 31, 2004 of $23.0 million, plus accrued interest, and matures on October 31, 2004. This is aconstruction related limited liability company (the "LLC"), which is accountedrenewal of a note that matured on October 31, 2003. Subsequent to October 31, 2003, we agreed with Mr. Estes to a further extension of the maturity date to October 31, 2004, under substantially the same terms and conditions except forundera reduction of theequity method. TTI does not exercise control over this minority investment. TTI's initial capital investment in the LLCinterest rate to 5% from 9%. Interest payable to Mr. Estes as of October 31, 2003, totaling approximately $2.1 million, wasnominal and its investment in the LLC is comprised primarily of related party receivables arising from operating advances and financed equipment salesadded to theLLC, with such sales being transacted primarily at Texas Timberjack's costprincipal ofacquiringtherelated equipment. Duringrefinanced note. Principal payments of $1.5 million were made during the six months ended March 31,2002,2004. As thenet related party receivables fromcollateral pledged against theLLC increased approximately $280,000 from September 30, 2001. Additionally, the Company recorded a loss of approximately $463,000 relating to TTI's investment in the LLC for the six months ended March 31, 2002. See "Management's Discussion and Analysis--Liquidity and Capital Resources" for discussion of an advance from and notesnote payable to Mr.HaroldEstesformer ownerrepresents all of our ownership of our only continuing operation, Mr. Estes’ foreclosure on such collateral upon maturity or thereafter would have a material adverse effect on our ability to continue as a going concern.- 20 -
Following is a summarization of our contractual obligations at March 31, 2004:
Future debt maturities at March 31, 2004:
Fiscal Year
Remainder of 2004
$ 68,001 2005
23,553,725 2006
— 2007
— 2008
— Total
$ 23,621,726 Other contractual obligations at March 31, 2004:
In addition to the contractual obligations mentioned above, at March 31, 2004, we had open purchase orders for equipment to be delivered in the subsequent quarter totaling approximately $880,000.
Item 3.Quantitative and
current President of Texas Timberjack and holder of approximately 4,000,000 shares of the Company's common stock. Inconnection with the acquisition of TTI, the Company acquired a note receivable from an officer of TTI collateralized by marketable securities and a receivable from Mr. Estes for insurance premiums paid by TTIQualitative Disclosures about Market RiskInterest Rate Risk – Obligations. We are not currently subject to interest rate risk on
his behalf. Asvariable interest rate obligations as of March 31,2002, such receivables have remained substantially unchanged since September 30, 2001. The former owner2004. However, we are subject to interest rate risk on our fixed interest rate obligations. Based upon outstanding amounts ofQuantum is TTI's 25% minority partnerfixed rate obligations as of March 31, 2004, a hypothetical 10% decrease inSFP. TTI's 25% minority partner in SFP was a guarantor of TTI's and SFP's note payable to, and SFP's revolving line of credit with, Bank of America, N.A. The father of TTI's 25% minority partner is a former officer of SFP. The Company's outstanding receivables from this former officer of SFP, or from companies owned or controlled by him, have not substantially changed since September 30, 2001. -19-ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company'saverage market interestexpense is affected by changes in prime lendingratesas a result of its various line of credit arrangements. If these market rates were to increase by an average of 1% in fiscal 2002, the Company's interest expense for the next twelve monthswould increase the fair value of outstanding fixed rate debt by approximately$80,000, based on the outstanding line of credit balances at March 31, 2002. The Company's Texas Timberjack subsidiary periodically makes advances under promissory notes to certain unrelated individuals and corporations. These notes generally have fixed interest rates ranging from 10% to 18%, are generally due within one year and, in a majority of cases, are collateralized by a variety of marketable assets, primarily timber and land. The value of these notes is subject to market risk due to changing interest rates and the condition of the related collateral. The Company does$64,000.We do not own, nor
does itdo we have an interest in, any other market risk sensitive instruments.-20-PART II - OTHER INFORMATIONItem
1. Legal Proceedings During fiscal 1997, five substantially identical complaints were filed4.Controls and ProceduresThe Company was late in
the United States District Courtfiling its Form 10-Q reports for theDistrict of Nevada againstquarters ended December 31, 2002, March 31, 2003, and June 30, 2003, its Form 10-K report for the fiscal year ended September 30, 2003, and its Form 10-Q report for the quarter ended December 31, 2003. During the time that these reports were due, the Company had a different Board of Directors andcertainChief Executive Officer. The current Board ofits officersDirectors anddirectors. The lawsuits each sought certification as a class actionChief Executive Officer were appointed andasserted liability based on alleged misrepresentations that the plaintiffs claimed resulted in the market price of the Company's stock being artificially inflated. The defendants filed motions to dismiss in each of the lawsuits. Without certifying the cases as class actions, the District Court consolidated several of the cases into a single action. In March 2000, the District Court dismissed the plaintiffs' claims against one of the Company's officers and directors and restricted the plaintiffs from pursuing a number of their claims against the other defendants. The Court also granted the remaining defendants leave to file motions for summary judgment. Motions for summary judgment were thereafter filed, pointing out that there was no evidence to support the plaintiffs' claims. In November 2000, in a lengthy decision addressing the plaintiffs' claims against each of the remaining defendants, the District Court granted the motions for summary judgment, thereby disposing of all of the claims asserted by the plaintiffs. The plaintiffs then filed a motion for rehearing, which the District Court deniedelected in March,2001.2004. Theplaintiffs appealed those decisions to the United States Court of AppealsCompany was also late in filing this Form 10-Q report for theNinth Circuit. Appellate briefs were filed by both sides, and oral argument in the Court of Appeals took place on February 13, 2002. In September 2001, the plaintiffs requested the Ninth Circuit to enjoin the Company's proposedquarter ended March 31, 2004.The spin-off of Overhill
Farms.Farms in October 2002 and the concurrent resignation of William Shatley, the Company’s Chief Financial Officer at the time, left the Company with only its Chief Executive Officer, who remained with the Company without pay to aid in transition, two- 21 -
additional Board Members and no paid employees. The
CourtCEO subsequently resigned in December 2003. This shortage ofAppeals deniedpersonnel and theplaintiffs' requestresignation of the Company’s auditors in November 2003 prevented the Company from filing the reports in a timely manner. The Company was without outside auditors until March, 2004 when Langley, Williams anddirected themCo., L.L.C. was engaged, and at which time the Company was able toaddress their requestgather the information necessary to complete and file the late reports.The information gathered included a note dated November 1, 2002 from an attorney who had performed work for Overhill Farms, Inc. and the Company. The $262,350 note is secured by an unperfected lien on 86,000 shares of Overhill Farms Inc. stock, a former subsidiary of the Company that was spun off in October 2002. The Company has written down the note to the
District Court.value of the stock. In evaluating the Company’s controls and procedures, management concluded that the controls and procedures that allowed the loan evidenced by the note to be made were not adequate. Theplaintiffs thereafter filed an applicationletter to the Audit Committee included in the Report to the Board of Directors issued by Langley, Williams & Co., L.L.C. in connection with theDistrict Court, which restrainedaudit of thespin-offCompany’s financial statements fora few days until a hearing couldthe fiscal year ended September 30, 2003 also mentions this loan and states that the auditors concluded that the controls and procedures that allowed the loan to beconducted with respect to the proposed spin-off. Following an October 11, 2001 hearing at which counsel for all parties appeared, the District Court dissolved its temporary restraining order, thereby allowingmade without proper authorization were not adequate. Since that time the Company has implemented enhanced control measures. These measures have included instituting Board approval procedures for loans and other significant actions and increasing controls on bank accounts.The Company will continue to
proceedevaluate the effectiveness of its controls and procedures on an ongoing basis and will implement further actions as necessary in its continuing efforts to strengthen its control process.Evaluation of Disclosure Controls and Procedures
The Company’s senior management, with the
proposed spin-off. The plaintiffsparticipation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as of the date of this report. Based upon that evaluation, combined with a consideration of the additional procedures described above, the Company’s Chief Executive Officer and Chief Financial Officer concluded that as of the filing date of this report the information required to be disclosed in the reports that the Company files or submits under the Exchange Act has been recorded, processed, summarized and reported as required.Changes to Internal Control over Financial Reporting
Other than as described above, there have
not appealedbeen no significant changes in the Company’s internal control over financial reporting during the period covered by this report thatdecision byhas materially affected, or is reasonably likely to materially affect, theDistrict Court. The Company and its subsidiariesCompany’s internal control over financial reporting.- 22 -
From time to time, we are involved in
certain legal actionsvarious lawsuits, claims and proceedings related to the conduct of our business. Our management does not believe that the disposition of any pending claimsarising in the ordinary course of business. Management believes (based, in part, on the advice of legal counsel) that such litigation and claims will be resolved without material effect on the Company'sis likely to adversely affect our financial condition, results of operations or cash flows.-21-Item
6. Exhibits6.Exhibits and Reports on Form8-K. (a) Exhibits 10.1 Loan Agreement, dated April 12, 2002, by and between First Bank & Trust East Texas, as lender, and Texas Timberjack, Inc., as borrower 10.2 Commercial Promissory Note, dated April 12, 2002, in the principal amount of $5,000,000, payable to First Bank & Trust East Texas, as lender, by Texas Timberjack, Inc., as borrower 10.3 Commercial Security Agreement, dated April 12, 2002, by and between First Bank & Trust East Texas, as lender, and Texas Timberjack, Inc., a debtor 10.4 Letter Loan Agreement, dated April 12, 2002, by and between BancorpSouth Bank, as lender, and Texas Timberjack, Inc., as borrower 10.5 Promissory Note, dated April 12, 2002, in the principal amount of $1,500,000, payable to BancorpSouth Bank, as lender, by Texas Timberjack, Inc., as borrower 10.6 Promissory Note, dated April 12, 2002, in the principal amount of $500,000, payable to BancorpSouth Bank, as lender, by Texas Timberjack, Inc., as borrower 10.7 Commercial Security Agreement, dated April 12, 2002, by and between BancorpSouth Bank, as secured party, and Texas Timberjack, Inc., as debtor 10.8 Unconditional and Continuing Guaranty, executed as of April 12, 2002, by Overhill Corporation, as guarantor, in favor of BancorpSouth, as payee of obligations executed by Texas Timberjack, Inc., as borrower 10.9 Addendum to Unconditional and Continuing Guaranty, executed as of April 12, 2002, by Overhill Corporation and BancorpSouth Bank 10.10 Mutual Release, entered into, effective September 30, 1999, by and between Harold Estes, Overhill Corporation and Overhill Farms, Inc. (b) Reports on Form8-K-
(a) Exhibits
Number Description
31* Certifications Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32* Certification of Chief Executive Officer and 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
(b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 31,
2002. -22-2004. - 23 -
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.
OVERHILL CORPORATION (Registrant) Date: May 13, 2002 By: /s/ James Rudis --------------------------- James Rudis Chairman, President and Chief Executive Officer Date: May 13, 2002 By: /s/ William E. Shatley -------------------------- William E. Shatley Senior Vice President and Chief Financial Officer -23-
| TREECON RESOURCES, INC. | ||||
| (Registrant) | ||||
Date: July 22, 2004 | By: | /s/ Mike Boatman | ||
Mike Boatman | ||||
President and Chief Executive Officer (principal executive officer) | ||||
Date: July 22, 2004 | By: | /s/ Mike Boatman | ||
Mike Boatman | ||||
principal financial officer | ||||
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EXHIBITS FILED WITH THIS REPORT ON FORM 10-Q
| Number | Description | |
| 31 | Certifications Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32 | Certification of Chief Executive Officer and 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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