U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB10-Q
(Mark One)
[ X ] Quarterly Report under Section[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange
Act of 1934OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended SeptemberMarch 30, 19982002
OR
[ ] Transition Report under SectionTRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) of the Securities Exchange
Act of 1934OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _______ to _______
Commission File Number 1-14556
POORE BROTHERS, INC.
-----------------------------------------------------------------
(Exact nameName of small business issuerRegistrant as specifiedSpecified in its charter)Charter)
DELAWARE 86-0786101
-------- ----------
(State or other jurisdictionOther Jurisdiction of incorporation or (I.R.S. Employer
Incorporation or Organization) Identification No.)
3500 S. LA COMETA DRIVE, GOODYEAR, ARIZONA 85338
------------------------------------------------
(Address of principal executive offices)
(602)Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (623) 932-6200
--------------
(Issuer's telephone number)
CheckFORMER FISCAL YEAR END: TWELVE MONTHS ENDED DECEMBER 31
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check whether the Registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the pastpreceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of September 30, 1998,Indicate the number of issued andshares outstanding sharesof each of the issuer's classes of
common stock, as of the Registrant was 7,126,657.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]latest practicable date: 15,694,185 as of March 30,
2002.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheetsbalance sheets as of SeptemberMarch 30, 19982002 and
December 31, 1997..............................................2001................................................. 3
Consolidated Statementsstatements of Operationsoperations for the threequarter ended
March 30, 2002 and nine months ended September 30,1998 and 1997..................March 31, 2001................................. 4
Consolidated Statementsstatements of Cash Flowscash flows for the nine monthsquarter ended
SeptemberMarch 30, 19982002 and 1997.....................March 31, 2001................................. 5
Notes to Financial Statements.......................................consolidated financial statements......................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ......................................... 13
ITEM 3. QUANTITATIVE AND FINANCIAL CONDITION.................................. 8QUALITATIVE DISCLOSURES ABOUT MARKET RISK ........ 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................... 12PROCEEDINGS.................................................. 18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS........................... 12PROCEEDS.......................... 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..................................... 13SECURITIES.................................... 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................. 13HOLDERS................ 18
ITEM 5. OTHER INFORMATION................................................... 13INFORMATION.................................................. 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................... 148-K................................... 18
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
POORE BROTHERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1998 1997
---- ----
ASSETS (unaudited)
Current assets:
Cash and cash equivalents .................. $655,944 $1,622,751
Accounts receivable, net of allowance
of $177,000 in 1998 and $174,000 in 1997 . 1,236,659 1,528,318
Note receivable ............................ -- 78,414
Inventories ................................ 440,790 473,025
Other current assets ....................... 259,907 175,274
------------ ------------
Total current assets ..................... 2,593,300 3,877,782
Property and equipment, net ................. 6,262,939 6,602,435
Intangible assets, net ...................... 2,162,483 2,294,324
Other assets ................................ 107,399 100,673
------------ ------------
Total assets ............................. $11,126,121 $12,875,214
MARCH 30, DECEMBER 31,
2002 2001
------------ ------------
(unaudited)
ASSETS
Current assets:
Cash ........................................................................ $ 95,041 $ 894,198
Accounts receivable, net of allowance of $159,000 in 2002
and $219,000 in 2001 .................................................... 4,771,057 4,982,793
Inventories ................................................................. 2,329,955 1,887,872
Other current assets ........................................................ 527,520 430,914
------------ ------------
Total current assets ...................................................... 7,723,573 8,195,777
Property and equipment, net .................................................... 13,484,567 13,730,273
Intangible assets, net ......................................................... 9,561,933 9,561,933
Other assets ................................................................... 191,029 200,077
------------ ------------
Total assets ................................................................... $ 30,961,102 $ 31,688,060
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................ $ 2,667,621 $ 2,430,857
Accrued liabilities ......................................................... 1,795,388 1,406,845
Current portion of long-term debt ........................................... 2,018,088 2,343,472
------------ ------------
Total current liabilities ................................................ 6,481,097 6,181,171
Long-term debt, net of current portion ......................................... 7,244,349 8,661,255
------------ ------------
Total liabilities ......................................................... 13,725,446 14,842,429
------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $100 par value; 50,000 shares authorized; no shares
issued or outstanding at March 30, 2002 and December 31, 2001 .......... -- --
Common stock, $.01 par value; 50,000,000 shares authorized; 15,694,185
and 15,687,518 shares issued and outstanding at March 30, 2002 and
December 31, 2001, respectively ........................................ 156,942 156,875
Additional paid-in capital .................................................. 21,185,420 21,175,485
Accumulated deficit ......................................................... (4,106,706) (4,486,729)
------------ ------------
Total shareholders' equity ................................................ 17,235,656 16,845,631
------------ ------------
Total liabilities and shareholders' equity ..................................... $ 30,961,102 $ 31,688,060
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................... $507,621 $824,129
Accrued liabilities ........................ 499,573 502,793
Current portion of long-term debt .......... 535,894 1,127,217
------------ ------------
Total current liabilities ................ 1,543,088 2,454,139
Long-term debt, less current portion ........ 4,826,291 5,017,724
------------ ------------
Total liabilities ........................ 6,369,379 7,471,863
------------ ------------
Shareholders' equity:
Preferred stock, $100 par value; 50,000
shares authorized; None issued and
outstanding in 1998 and 1997 ............. -- --
Common stock, $.01 par value; 15,000,000
shares authorized; 7,126,657 and 7,051,657
shares issued and outstanding in 1998
and 1997, respectively ................... 71,267 70,516
Additional paid-in capital ................. 10,875,134 10,794,768
Accumulated deficit ........................ (6,189,659) (5,461,933)
------------ ------------
Total shareholders' equity ............... 4,756,742 5,403,351
------------ ------------
Total liabilities and
shareholders' equity ................... $11,126,121 $12,875,214
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
3
POORE BROTHERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------------------
1998 1997 1998 1997
---- ---- ---- ----
(unaudited) (unaudited) (unaudited) (unaudited)
Net sales ......................... $3,014,738 $3,334,303 $9,475,956 $12,658,902
Cost of sales ..................... 2,295,323 3,011,936 7,108,610 11,139,582
----------- ----------- ----------- ------------
Gross profit ................... 719,415 322,367 2,367,347 1,519,320
Selling, general and administrative
expenses .......................... 941,036 1,009,093 2,724,126 3,020,292
Closing of Tennessee manufacturing
operation ......................... -- 470,021 -- 470,021
Sale of Texas distribution business -- -- -- 150,000
----------- ----------- ----------- ------------
Operating loss ................. (221,621) (1,156,747) (356,779) (2,120,993)
----------- ----------- ----------- ------------
Interest income ................... 12,602 29,266 37,724 109,725
Interest expense .................. (134,340) (141,660) (408,669) (307,053)
----------- ----------- ----------- ------------
Net interest expense .......... (121,738) (112,394) (370,945) (197,328)
----------- ----------- ----------- ------------
Net loss ...................... $(343,359) $(1,269,141) $(727,724) $(2,318,321)
=========== =========== ===========QUARTER ENDED
----------------------------
MARCH 30, MARCH 31,
2002 2001
------------ ------------
(unaudited) (unaudited)
Net revenues .................................. $ 14,277,520 $ 13,266,884
Cost of revenues .............................. 11,760,688 10,394,415
------------ ------------
Gross profit ............................. 2,516,832 2,872,469
Selling, general and administrative expenses .. 1,964,924 2,204,134
------------ ------------
Operating income ......................... 551,908 668,335
Other income, net ............................. -- 12,612
Interest expense, net ......................... (153,884) (296,205)
------------ ------------
Income before income tax provision ......... 398,024 384,742
Income tax provision .......................... (18,000) (16,000)
------------ ------------
Net income ................................. $ 380,024 $ 368,742
============ ============
Earnings per common share:
Basic ...................................... $ 0.02 $ 0.02
============ ============
Diluted .................................... $ 0.02 $ 0.02
============ ============
Weighted average number of common shares:
Basic ..................................... 15,692,387 14,999,765
============ ============
Diluted ................................... 17,439,210 16,965,390
============ ============
Net loss per common share:
Basic ........................... $(0.05) $(0.18) $(0.10) $(0.33)
=========== =========== =========== ============
Diluted ......................... $(0.05) $(0.18) $(0.10) $(0.33)
=========== =========== =========== ============
Weighted average number of
common shares:
Basic ........................... 7,126,657 7,051,657 7,104,335 7,007,091
=========== =========== =========== ============
Diluted ......................... 7,126,657 7,051,657 7,104,335 7,007,091
=========== =========== =========== ============
The accompanying notes are an integral part of these
consolidated financial statements.
4
POORE BROTHERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHSQUARTER ENDED
SEPTEMBER--------------------------
MARCH 30, ------------------------------
1998 1997
---- ----MARCH 31,
2002 2001
----------- -----------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................. $(727,724) $(2,318,321)income .............................................................. $ 380,024 $ 368,742
Adjustments to reconcile net lossincome to net cash provided by
(used in) operating activities:
Depreciation ........................................... 434,244 249,707.......................................................... 348,128 276,071
Amortization ........................................... 150,115 131,841
Bad debt expense ....................................... 68,000 61,000
Loss.......................................................... 9,048 174,506
Valuation reserves .................................................... (15,897) 152,066
Other non-cash charges ................................................ 68,358 37,654
Gain on disposition of business ....................... -- 428,000equipment ...................................... (2,550) (167,450)
Change in operating assets and liabilities:
Accounts receivable .................................... 223,659 (31,572)................................................... 271,982 (2,696,555)
Inventories ............................................ 32,235 187,761........................................................... (486,432) (887,728)
Other assets and liabilities ........................... (109,634) (88,873).......................................... (164,964) (58,868)
Accounts payable and accrued liabilities ............... (319,728) (748,655).............................. 625,307 3,207,438
----------- -----------
Net cash provided by (used in) operating activities ......................................... (170,418) (2,065,968)....................... 1,033,004 405,876
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds on disposal of property ........................ 27,268 770,559
Sale of Texas distribution business ..................... -- 78,414
Purchase of short term investments ...................... -- (1,022,439)
Purchase of property and equipment ...................... (122,016) (2,789,287)..................................... (102,422) (1,835,302)
Proceeds from disposition of property and equipment .................... 2,550 700,000
----------- -----------
Net cash (used in)used in investing activities ............. (94,748) (2,962,753)........................... (99,872) (1,135,302)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock .................. 81,116 1,253,431
Net decrease in restricted certificate
of deposit ............................................. -- 1,250,000
Stock issuance costs .................................... -- (157,575)
Proceeds from issuance of long-term debt ................ -- 1,734,627................................. 10,001 15,000
Payments made on long-term debt ......................... (436,925) (2,069,812)........................................ (633,167) (640,234)
Net increase (decrease) in working capital line of credit ................................. (345,832) 351,607.............. (1,109,123) 1,191,082
----------- -----------
Net cash (used in) provided by financing activities ............................... (701,640) 2,362,278............. (1,732,289) 565,848
----------- -----------
Net (decrease)decrease in cash and cash equivalents ............... (966,806) (2,666,443)....................................................... (799,157) (163,578)
Cash and cash equivalents at beginning of period .......... 1,622,751 3,603,850................................................ 894,198 327,553
----------- -----------
Cash and cash equivalents at end of period ................ $655,944 $937,407...................................................... $ 95,041 $ 163,975
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Summary of non cash investing and financing activities:
Construction loan for new facility ...................... $ -- $998,746
Capital lease obligation incurred - equipment acquisition -- 70,859
Mortgage impounds for interest, taxes and insurance ..... -- 35,990
Note received for sale of Texas distribution business ... -- 78,414
Cash paid during the nine monthsperiod for interest net of amounts capitalized ............................. 397,370 330,223................................ $ 167,267 $ 285,768
The accompanying notes are an integral part of these
consolidated financial statements.
5
POORE BROTHERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
Poore Brothers, Inc. (the "Company"), a Delaware corporation, was organized
in February 1995 as a holding company and on May 31, 1995 acquired substantially
all of the equity of Poore Brothers Southeast, Inc. ("PB Southeast") in an
exchange transaction pursuant to which 1,560,000 previously unissued shares of
the Company's common stock, par value $.01 per share (the "Common Stock"), were
exchanged for 150,366 issued and outstanding shares of PB Southeast's common
stock.transaction. The exchange transaction with PB Southeast has beenwas accounted
for similar to a pooling-of interestspooling-of-interests since both entities had common ownership
and control immediately prior to the transaction. In December 1996, the Company completed an
initial public offering of its common stock. During 1997, the Company sold
its Houston, Texas distribution business and closed its TennesseePB Southeast
manufacturing operation. In November 1998, the Company acquired the business and
certain assets (including the Bob's Texas Style(R) potato chip brand) of Tejas
Snacks, L.P. ("Tejas"), a Texas-based potato chip manufacturer. In October 1999,
the Company acquired Wabash Foods, LLC ("Wabash") including the Tato Skins(R),
O'Boisies(R), and Pizzarias(R) trademarks, and assumed all of Wabash Foods'
liabilities. In June 2000, the Company acquired Boulder Natural Foods, Inc.
("Boulder") and the Boulder Potato Company (TM) brand of totally natural potato
chips.
The Company is engaged in the development, production, marketing and
distribution of innovative salty snack food products that are sold primarily
through grocery retailers, club stores and vend distributors across the United
States. The Company (i) manufactures and distributessells its own brands of salty snack
food products, including Poore Brothers(R), Bob's Texas Style(R), and Boulder
Potato Company(TM) brand batch-fried potato chips, Tato Skins(R) brand potato
snacks and Pizzarias(R) brand pizza chips, (ii) manufactures and sells T.G.I.
Friday's(TM) brand salted snacks under the Poore
Brothers(TM) brand name, as well aslicense from TGI Friday's Inc., (iii)
manufactures private label potato chips for grocery retailers in the southwest,
and also(iv) distributes a variety of other independently manufactured snack food items.products that are manufactured by others.
On October 28, 2000 the Company experienced a fire at the Goodyear, Arizona
manufacturing plant, causing a temporary shutdown of manufacturing operations at
the facility. There was extensive damage to the roof and equipment utilities in
the potato chip processing area. Third party manufacturers agreed to provide the
Company with production volume to assist the Company in meeting anticipated
customers' needs during the shutdown. The Company continued to season and
package the bulk product received from third party manufacturers.
The Company resumed full production of private label potato chips in early
January of 2001 and resumed full production of batch-fried potato chips in late
March of 2001. During the quarter ended March 31, 2001, the Company recorded
approximately $1.4 million of incremental expenses incurred as a result of the
fire, primarily associated with outsourcing production. These extra expenses
were charged to "cost of revenues" and offset by a $1.4 million credit
representing estimated future insurance proceeds. The Company also incurred
approximately $1.7 million in building and equipment reconstruction costs in
connection with the fire and the Company was advanced a total of $1.7 million by
the insurance company. "Other income, net" on the accompanying Consolidated
Statement of Operations for the quarter ended March 31, 2001 includes (i) a gain
of $167,000, representing the excess of insurance proceeds over the book value
of the building and equipment of $533,000 damaged by the fire, and (ii) expenses
not reimbursed by the insurance company of approximately $154,000.
6
POORE BROTHERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Poore
Brothers, Inc. and all of its controlled subsidiaries. In all situations, the
Company owns from 99% to 100% of the voting interests of the controlledwholly owned subsidiaries. All significant
intercompany amounts and transactions have been eliminated. The financial
statements have been prepared in accordance with the instructions for Form 10-QSB10-Q
and, therefore, do not include all the information and footnotes required by
accounting principles generally accepted accounting principles.in the United States. In the opinion of
management, the consolidated financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary in order to make the
consolidated financial statements not misleading. A description of the Company's
accounting policies and other financial information is included in the audited
financial statements filed with the Form 10-KSB for the fiscal year ended
December 31, 1997.2001. The results of operations for the nine monthsquarter ended SeptemberMarch 30,
19982002 are not necessarily indicative of the results expected for the full year.
LOSS PER SHARE
During 1997,Effective January 1, 2002, the Company adopted Statementchanged the fiscal year from the
twelve calendar months ending on December 31 each year to the 52 week period
ending on the last Saturday occurring in the month of Financial Accounting
Standards ("SFAS") 128, "Earnings Per Share". Pursuant to SFAS 128, basicDecember of each calendar
year. Accordingly, the fiscal year of the Company immediately following the
fiscal year ending December 31, 2001 commenced January 1, 2002 and will end
December 28, 2002.
EARNINGS PER COMMON SHARE
Basic earnings per common share is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding during the period.
Exercises of outstanding stock options or warrants and conversion of convertible
debentures were notare assumed to be exercisedoccur for purposes of calculating diluted earnings per
share for the three and nine months ended September 30, 1998 and 1997, asperiods in which their effect waswould not be anti-dilutive.
Three months ended Nine months ended
September 30, September 30,
--------------------------------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Basic loss per share:
Loss available to common shareholders $ (343,359) $(1,269,141) $ (727,724) $(2,318,321)
Weighted average common shares 7,126,657 7,051,657 7,104,335 7,007,791
----------- ----------- ----------- -----------
Loss per share-basic $ (0.05) $ (0.18) $ (0.10) $ (0.33)
=========== =========== =========== ===========
Diluted loss per share:
Loss available to common shareholders $ (343,359) $(1,269,141) $ (727,724) $(2,318,321)
Weighted average common shares 7,126,657 7,051,657 7,104,335 7,007,791
Common stock equivalents -- -- -- --
----------- ----------- ----------- -----------
Loss per share-diluted $ (0.05) $ (0.18) $ (0.10) $ (0.33)
=========== ===========QUARTER ENDED
-------------------------
MARCH 30, MARCH 31,
2002 2001
----------- -----------
BASIC EARNINGS PER SHARE:
Net income $ 380,024 $ 368,742
=========== ===========
6Weighted average number of common shares 15,692,387 14,999,765
=========== ===========
Earnings per common share $ 0.02 $ 0.02
=========== ===========
DILUTED EARNINGS PER SHARE:
Net income $ 380,024 $ 368,742
=========== ===========
Weighted average number of common shares 15,692,387 14,999,765
Incremental shares from assumed conversions-
Warrants 598,530 643,410
Stock options 1,148,293 1,322,215
----------- -----------
Adjusted weighted average number of common shares 17,439,210 16,965,390
=========== ===========
Earnings per common share $ 0.02 $ 0.02
=========== ===========
7
POORE BROTHERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ADOPTION OF SFAS NOS. 141 AND 142
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "BUSINESS
COMBINATIONS," and SFAS No. 142, "GOODWILL AND OTHER INTANGIBLE ASSETS". SFAS
No. 141 requires companies to apply the purchase method of accounting for all
business combinations initiated after June 30, 2001 and prohibits the use of the
pooling-of-interests method. SFAS No. 142 changes the method by which companies
recognize intangible assets in purchase business combinations and generally
requires identifiable intangible assets to be recognized separately from
goodwill. In addition, it eliminates the amortization of all existing and newly
acquired intangible assets with indefinite lives on a prospective basis and
requires companies to assess goodwill for impairment, at least annually, based
on the fair value of the reporting unit. The Company adopted SFAS No. 142 on
January 1, 2002. The following table shows the pro forma impact of this adoption
for the quarter ended March 30, 2002 and March 31, 2001.
QUARTER ENDED
-------------------------
MARCH 30, MARCH 31,
2002 2001
----------- -----------
NET INCOME
As reported $ 380,024 $ 368,742
Add back: Goodwill and trademark amortization 0 163,026
----------- -----------
New basis $ 380,024 $ 531,768
=========== ===========
BASIC EARNINGS PER COMMON SHARE:
As reported $ 0.02 $ 0.02
Add back: Goodwill and trademark amortization 0.00 0.01
----------- -----------
New basis $ 0.02 $ 0.03
=========== ===========
DILUTED EARNINGS PER COMMON SHARE:
As reported $ 0.02 $ 0.02
Add back: Goodwill and trademark amortization 0.00 0.01
----------- -----------
New basis $ 0.02 $ 0.03
=========== ===========
ADOPTION OF EITF ISSUE NO. 01-09
In 2001, the Emerging Issues Task Force (EITF) issued EITF Issue No. 01-09,
"Accounting for Consideration Given by a Vendor to a Customer or a Reseller of
the Vendor's Products" which codified and expanded its consensus opinions in
EITF Issue No. 00-14, "Accounting for Certain Sales Incentives," and EITF Issue
No. 00-25, "Accounting for Consideration from a Vendor to a Retailer in
Connection with the Purchase or Promotion of the Vendor's Products." EITF Issue
No. 01-09 also discusses aspects of EITF Issue No. 00-22, "Accounting for Points
and Certain Other Time-Based Sales Incentive Offers, and Offers for Free
Products or Services to be Delivered in the Future." EITF Issue No. 01-09
addresses the accounting for certain consideration given by a vendor to a
customer and provides guidance on the recognition, measurement and income
8
POORE BROTHERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
statement classification for sales incentives. In general, the guidance requires
that consideration from a vendor to a retailer be recorded as a reduction in
revenue unless certain criteria are met. The Company has adopted the provisions
of EITF Issue No. 01-09 effective January 1, 2002 as required and as a result,
costs previously classified as "Selling, general and administrative expenses"
have been reclassified and reflected as reductions in "Net revenues." The
Company has also reclassified amounts in prior periods in order to conform to
the revised presentation of these costs.
QUARTER ENDED
---------------------------
MARCH 30, MARCH 31,
2002 2001
------------ ------------
NET REVENUES
As originally reported $ 14,277,520 $ 14,159,187
Amounts reclassified 0 (892,303)
------------ ------------
New Basis $ 14,277,520 $ 13,266,884
============ ============
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
As originally reported $ 1,964,924 $ 3,096,438
Amounts reclassified 0 (892,303)
------------ ------------
New Basis $ 1,964,924 $ 2,204,135
============ ============
2. INVENTORIES
Inventories consisted of the following:
MARCH 30, DECEMBER 31,
2002 2001
------------ ------------
Finished goods.............................. $ 1,166,129 $ 588,376
Raw materials............................... 1,163,826 1,299,496
------------ ------------
$ 2,329,955 $ 1,887,872
============ ============
3. LONG-TERM DEBT
The Company's $1.0 million working capital line of credit from First
Community Financial Corporation (the "First Community Line of Credit") was
renewed as of May 31, 1998 for a six-month period. At SeptemberMarch 30, 1998,2002, the Company had over $1.0 millionoutstanding 9% Convertible Debentures
due July 1, 2002 (the "9% Convertible Debentures") in the principal amount of
eligible receivables.$414,990 held by Wells Fargo Small Business Investment Company, Inc. ("Wells
Fargo SBIC"). The 9% Convertible Debentures are secured by land, buildings,
equipment and intangibles. Interest on the 9% Convertible Debentures is paid by
the Company on a monthly basis. Monthly principal payments of approximately
$4,000 are required to be made by the Company on the Wells Fargo SBIC 9%
Convertible Debenture through June 2002 with the remaining balance outstanding
was $240,265due on July
1, 2002. As a result of an event of default (including the failure of the
Company to comply with certain financial ratios), the holder of the 9%
Convertible Debentures has the right, upon written notice and $586,097 at September 30, 1998after a thirty-day
period during which such default may be cured, to demand immediate payment of
the then unpaid principal and December 31, 1997,
respectively.accrued but unpaid interest under the 9%
Convertible Debentures. The Company is currently in compliance with the required
financial ratios.
On November 4, 1998,October 7, 1999, the Company signed a new $2.5$9.15 million Credit Agreement
with Norwest BusinessU.S. Bancorp (the "U.S. Bancorp Credit Inc. ("Norwest"Agreement") which includesconsisting of a $2.0$3.0
million working capital line of credit (the "Norwest"U.S. Bancorp Line of Credit") and, a
$0.5$5.8 million term loan (the "Norwest"U.S. Bancorp Term Loan"Loan A") and a $350,000 term loan
9
POORE BROTHERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(the "U.S. Bancorp Term Loan B"). Borrowings under the NorwestU.S. Bancorp Credit
Agreement were used to pay off a $2.5 million line of credit and a $0.5 million
term loan previously obtained by the First Community Line ofCompany from Wells Fargo Business Credit,
andInc. ("Wells Fargo"), to finance
a portion of the consideration paidrefinance indebtedness effectively assumed by the
Company in connection with the Tejas
Snacks acquisition (see Note 4),of Wabash Foods in October 1999, and
will also beis being used for general working capital needs. The NorwestU.S. Bancorp Line of Credit
bears interest at an annual rate of prime plus 1.5%1%. The U.S. Bancorp Term Loan A
bears interest at an annual rate of prime and maturesrequires monthly principal
payments of approximately $74,000, plus interest, until maturity in NovemberJuly 2006.
The U.S. Bancorp Term Loan B had an annual interest rate of prime plus 2.5% and
required monthly principal payments of approximately $29,000, plus interest, and
matured in March 2001. Pursuant to the terms of the U.S. Bancorp Credit
Agreement, the Company issued to U.S. Bancorp a warrant (the "U.S. Bancorp
Warrant") to purchase 50,000 shares of Common Stock for an exercise price of
$1.00 per share. The U.S. Bancorp warrant is exercisable until October 7, 2004,
the date of termination of the U.S. Bancorp Warrant, and provides the holder
thereof certain piggyback registration rights.
In June 2000, the U.S Bancorp Credit Agreement was amended to include an
additional $300,000 term loan (the "U.S. Bancorp Term Loan C") and to refinance
a $715,000 non-interest bearing note due to U.S. Bancorp on June 30, 2000.
Proceeds from the U.S. Bancorp Term Loan C were used in connection with the
Boulder acquisition. The U.S. Bancorp Term Loan C bears interest at an annual
rate of prime plus 2% and requires monthly principal payments of approximately
$12,500, plus interest, until maturity in August 2002. The Company made a
payment of $200,000 on the $715,000 non-interest bearing note and refinanced the
balance in a term loan (the "U.S. Bancorp Term Loan D"). The U.S. Bancorp Term
Loan D bears interest at an annual rate of prime plus 2% and requires monthly
principal payments of approximately $21,500, plus interest, until maturity in
June 2002.
In April 2001, while the NorwestU.S. Bancorp Credit Agreement was amended to increase
the U.S. Bancorp Line of Credit from $3.0 million to $5.0 million, establish a
$0.5 million capital expenditure line of credit (the "CapEx Term Loan"), extend
the U.S. Bancorp Line of Credit maturity date from October 2002 to October 31,
2003, and modify certain financial covenants. The Company borrowed $241,430
under the CapEx Term Loan in December 2001. The CapEx Term Loan bears interest
at an annual rate of prime plus 3%1% and requires monthly principal payments of
approximately $28,000,$10,000, plus interest, until maturity on May 1, 2000.October 31, 2003 when
the balance is due.
The NorwestU.S. Bancorp Credit Agreement is secured by receivables,accounts receivable,
inventories, equipment and general intangibles. Borrowings under the lineU.S.
Bancorp Line of creditCredit are based on 85%limited to 80% of eligible receivables and 60% of
eligible inventories. As of November 4, 1998,At March 30, 2002, the Company was eligible to borrowhad a borrowing base of
approximately $1,000,000$4,067,000 under the NorwestU.S. Bancorp Line of Credit and $0.5 million under the Norwest Term Loan.Credit. The NorwestU.S. Bancorp
Credit Agreement requires the Company to be in compliance with certain financial
performance criteria, including a minimum cash flow coverage ratio, a minimum
debt service coverage ratio, minimum quarterly net income/maximum net loss,annual operating results, a minimum
annual net income/maximum net
loss,tangible capital base and a minimum quarterly increasefixed charge coverage ratio. At March 30,
2002 the Company was in book net worth, andcompliance with all of the financial covenants except
for the minimum annual
increase/maximum decrease in book net worth.fixed charge ratio for which a waiver of noncompliance was
received from U.S. Bancorp. Management believes that the fulfillment of the
Company's plans and objectives will enable the Company to attain a sufficient
level of profitability to beregain compliance with the minimum fixed charge ratio
and remain in compliance with thesethe other financial performance criteria; however, therecriteria. There
can be no assurance, however, that the Company will attain any such
profitability or beand remain in compliance. Any acceleration under the NorwestU.S. Bancorp
Credit Agreement prior to the scheduled maturity of the NorwestU.S. Bancorp Line of
Credit or the NorwestU.S. Bancorp Term LoanLoans could have a material adverse effect upon
the Company.
As of March 30, 2002, there was an outstanding balance of $2,329,000 on the
U.S. Bancorp Line of Credit, $3,851,000 on the U.S. Bancorp Term Loan A, $50,000
on the U.S. Bancorp Term Loan C, $64,000 on the U.S. Bancorp Term Loan D, and
$221,000 on the CapEx Term Loan.
10
POORE BROTHERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On November 4, 1998, pursuant to the terms of the Wells Fargo Credit
Agreement, the Company issued to Wells Fargo a warrant (the "Wells Fargo
Warrant") to purchase 50,000 shares of Common Stock for an exercise price of
$0.93375 per share. The Wells Fargo Warrant is exercisable until November 3,
2003, the date of the termination of the Wells Fargo Warrant, and provides the
holder thereof certain demand and piggyback registration rights.
3. LITIGATION
The Company is periodically a party to various lawsuits arising in the
ordinary course of business. Management believes, based on discussions with
legal counsel, that the resolution of any such lawsuits will not have a material
effect on the financial statements taken as a whole.
4. BUSINESS SEGMENTS
The Company's operations consist of two segments: manufactured products and
distributed products. The manufactured products segment produces potato chips,
potato crisps and tortilla chips, for sale primarily to snack food distributors
and retailers. The distributed products segment sells snack food products
manufactured by other companies to the Company's Arizona snack food
distributors. The Company's reportable segments offer different products and
services. All of the Company's revenues are attributable to external customers
in the United States and all of its assets are located in the United States. The
Company does not allocate assets based on its reportable segments.
The accounting policies of the segments are the same as those described in
the Summary of Accounting Policies included in Note 1 to the audited financial
statements filed with the Form 10-KSB for the fiscal year ended December 31,
2001. The Company does not allocate selling, general and administrative
expenses, income taxes or unusual items to segments and has no significant
non-cash items other than depreciation and amortization.
MANUFACTURED DISTRIBUTED
PRODUCTS PRODUCTS CONSOLIDATED
------------ ------------ ------------
QUARTER ENDED MARCH 30, 2002
Revenues from external customers ................ $ 13,289,432 $ 988,088 $ 14,277,520
Depreciation and amortization in segment
gross profit .................................. 309,274 -- 309,274
Segment gross profit ............................ 2,422,383 94,449 2,516,832
QUARTER ENDED MARCH 31, 2001
Revenues from external customers ................ $ 12,009,757 $ 1,257,127 $ 13,266,884
Depreciation and amortization in segment
gross profit .................................. 230,059 -- 230,059
Segment gross profit ............................ 2,761,113 111,356 2,872,469
11
POORE BROTHERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table reconciles reportable segment gross profit to the
Company's consolidated income before income tax provision.
QUARTER ENDED
-------------------------
MARCH 30, MARCH 31,
2002 2001
----------- -----------
Consolidated segment gross profit ................ $ 2,516,832 $ 2,872,469
Unallocated amounts:
Selling, general and administrative expenses ... 1,964,924 2,204,134
Other income, net .............................. -- (12,612)
Interest expense, net .......................... 153,884 296,205
----------- -----------
Income before income tax provision ............... $ 398,024 $ 384,742
=========== ===========
6. INCOME TAXES
The income tax provision recorded in the quarters ended March 30, 2002 and
March 31, 2001 are a provision for state income taxes only. For federal income
tax purposes, the Company has net operating loss carryforwards, which it
utilized to reduce its expected federal income tax provision, and which begin to
expire in varying amounts between 2010 and 2018. Each quarter the Company
evaluates whether it is more likely than not some or all of deferred tax assets
will be realized and the adequacy of the valuation allowance. As a result of
historical operating losses, partially mitigated by recent profitability, the
Company continues to fully reserve its net deferred tax assets as of March 30,
2002.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 30, 2002 COMPARED TO THE QUARTER ENDED MARCH 31, 2001.
Net revenues for the quarter ended March 30, 2002 were $14.3 million
representing an increase of $1.0 million, or 8%, from $13.3 million for the
quarter ended March 31, 2001. Revenues for the manufactured products segment
accounted for 93% and 91% of total net revenues in 2002 and 2001, respectively,
while revenues from distributed products accounted for 7% and 9% in 2002 and
2001, respectively. Manufactured products segment revenues increased $1.3
million, or 11%, driven by increased shipments of T.G.I. Friday's(TM) brand
salted snack products offset in part by (i) the deliberate discontinuance of
non-core brands and certain private label customers throughout 2001, and (ii)
the intentional cannibalization of certain branded product sales in order to
expand distribution of T.G.I. Friday's(TM) brand salted snacks in selected
channels. Revenues from the distribution of products manufactured by others
decreased $0.3 million, or 21%, due to the sale of the Company's Texas
merchandising operation in early November 2001. The planned revenue reductions
were implemented to create focus on building the Company's core brands and
improve operating efficiencies.
Gross profit for the quarter ended March 30, 2002, was $2.5 million, or 18%
of net revenues, as compared to $2.9 million, or 22% of net revenues, for the
quarter ended March 31, 2001. The $0.4 million decrease, or 12%, in gross profit
resulted from the increased promotional activity related to new product
introductions despite improved manufacturing efficiencies from higher volume.
Selling, general and administrative expenses decreased to $2.0 million, or
14% of net revenues, for the quarter ended March 30, 2002 from $2.2 million, or
17% of net revenues, for the quarter ended March 31, 2001. The decrease of $0.2
million, or 11%, was primarily due to the adoption of SFAS No. 142 which
eliminated the amortization of all intangibles with indefinite lives.
Net interest expense decreased to $0.2 million for the quarter ended March
30, 2002 from a net interest expense of $0.3 million for the quarter ended March
31, 2001. The decrease of $0.1 million was due to a reduction in the line of
credit borrowings and lower interest rates.
The Company has provided $18,000 and $16,000 for the quarters ended March
30, 2002 and March 31, 2001, respectively, for state income taxes only. No
Federal tax provision was recorded due to the availability of net operating loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Net working capital was $1.2 million (a current ratio of 1.2:1) and $2.0
million (a current ratio of 1.3:1) at March 30, 2002 and December 31, 2001,
respectively. For the quarter ended March 30, 2002, the Company generated cash
flow of $1.0 million from operating activities, principally from operating
results and an increase in accounts payable, invested a net amount of $0.1
million in new equipment, and made $1.7 million in payments on long-term debt.
At SeptemberMarch 30, 1998,2002, the Company had outstanding 9% Convertible Debentures
due July 1, 2002 (the "9% Convertible Debentures") in the principal amount of
$2,219,000.$414,990 held by Wells Fargo Small Business Investment Company, Inc. ("Wells
Fargo SBIC"). The Company was not in compliance with a required interest
coverage ratio of 2:1 (actual of -1.2:1). Such non-compliance has not, to date,
resulted in an event of default because the holders of the 9% Convertible Debentures have granted the Company a waiver effective through June 30, 1999.
After that time, the Company will be required to be in compliance with the
following financial ratios, so long as the 9% Convertible Debentures remain
outstanding: working capital of at least $500,000; minimum shareholders' equity
(net worth) of $4.5 million; an interest coverage ratio of at least 1:1;are secured by land, buildings,
equipment and a
current ratio at the end of any fiscal quarter of at least 1.1:1.intangibles. Interest on the 9% Convertible Debentures is paid by
the Company on a monthly basis. Monthly principal payments of approximately
$20,000$4,000 are required to be made by the Company on the Wells Fargo SBIC 9%
Convertible Debenture through June 2002 with the remaining balance due on July
1, 2002. ForAs a result of an event of default (including the failure of the
Company to comply with certain financial ratios), the holder of the 9%
Convertible Debentures has the right, upon written notice and after a thirty-day
period November 1, 1998 throughduring which such default may be cured, to demand immediate payment of
13
the then unpaid principal and accrued but unpaid interest under the 9%
Convertible Debentures. The Company is currently in compliance with the required
financial ratios.
On October 7, 1999, the Company signed a $9.15 million Credit Agreement
with U.S. Bancorp (the "U.S. Bancorp Credit Agreement") consisting of a $3.0
million working capital line of credit (the "U.S. Bancorp Line of Credit"), a
$5.8 million term loan (the "U.S. Bancorp Term Loan A") and a $350,000 term loan
(the "U.S. Bancorp Term Loan B"). Borrowings under the U.S. Bancorp Credit
Agreement were used to pay off a $2.5 million line of credit and a $0.5 million
term loan previously obtained by the Company from Wells Fargo Business Credit,
Inc. ("Wells Fargo"), to refinance indebtedness effectively assumed by the
Company in connection with the acquisition of Wabash Foods in October 1999, and
is being used for general working capital needs. The U.S. Bancorp Line of Credit
bears interest at an annual rate of prime plus 1% and matures in October 2002.
The U.S. Bancorp Term Loan A bears interest at an annual rate of prime and
requires monthly principal payments of approximately $74,000, plus interest,
until maturity in July 2006. The U.S. Bancorp Term Loan B had an annual interest
rate of prime plus 2.5% and required monthly principal payments of approximately
$29,000, plus interest, and matured in March 2001. Pursuant to the terms of the
U.S. Bancorp Credit Agreement, the Company issued to U.S. Bancorp a warrant (the
"U.S. Bancorp Warrant") to purchase 50,000 shares of Common Stock for an
exercise price of $1.00 per share. The U.S. Bancorp warrant is exercisable until
October 7, 2004, the date of termination of the U.S. Bancorp Warrant, and
provides the holder thereof certain piggyback registration rights.
In June 2000, the U.S Bancorp Credit Agreement was amended to include an
additional $300,000 term loan (the "U.S. Bancorp Term Loan C") and to refinance
a $715,000 non-interest bearing note due to U.S. Bancorp on June 30, 2000.
Proceeds from the U.S. Bancorp Term Loan C were used in connection with the
Boulder acquisition. The U.S. Bancorp Term Loan C bears interest at an annual
rate of prime plus 2% and requires monthly principal payments of approximately
$12,500, plus interest, until maturity in August 2002. The Company made a
payment of $200,000 on the $715,000 non-interest bearing note and refinanced the
balance in a term loan (the "U.S. Bancorp Term Loan D"). The U.S. Bancorp Term
Loan D bears interest at an annual rate of prime plus 2% and requires monthly
principal payments of approximately $21,500, plus interest, until maturity in
June 2002.
In April 2001, the U.S. Bancorp Credit Agreement was amended to increase
the U.S. Bancorp Line of Credit from $3.0 million to $5.0 million, establish a
$0.5 million capital expenditure line of credit (the "CapEx Term Loan"), extend
the U.S. Bancorp Line of Credit Maturity date from October 2002 to October 31,
1999, Renaissance Capital (the holder2003, and modify certain financial covenants. The Company borrowed $241,430
under the CapEx Term Loan in December 2001. The CapEx Term Loan bears interest
at an annual rate of $1,718,000prime plus 1% and requires monthly principle payments of
9% Convertible
Debentures) has agreedapproximately $10,000, plus interest, until maturity on October 31, 2003 when
the balance is due.
The U.S. Bancorp Credit Agreement is secured by accounts receivable,
inventories, equipment and general intangibles. Borrowings under the U.S.
Bancorp Line of Credit are limited to waive80% of eligible receivables and 60% of
eligible inventories, and at March 30, 2002, the Company had a borrowing base of
approximately $4,067,000 under the U.S. Bancorp Line of Credit. The U.S. Bancorp
Credit Agreement requires the Company to be in compliance with certain financial
performance criteria, including a minimum cash flow coverage ratio, a minimum
debt service coverage ratio, minimum annual operating results, a minimum
tangible capital base and a minimum fixed charge coverage ratio. At March 30,
2002 the Company was in compliance with all mandatory principal redemption payments and
to accept stock in lieu of cash interest payments.the financial covenants except
for the minimum fixed charge ratio for which a waiver of noncompliance was
received from U.S. Bancorp. Management believes that the fulfillment of the
Company's plans and objectives will enable the Company to attain a sufficient
level of profitability to beregain compliance with the minimum fixed charge ratio
and remain in compliance with the other financial ratios; however, thereperformance criteria. There
can be no assurance, however, that the Company will attain any such
profitability or be in compliance with the financial ratios upon
the expiration of the waivers. Any acceleration under the 9% Convertible
Debentures prior to their maturity on July 1, 2002 could have a material adverse
effect upon the Company.
7
3. LITIGATION
On October 22, 1998, a jury rendered a verdict, but no judgement has been
entered by the Court, against the defendants, Mark S. Howells and Jeffrey J.
Puglisi (directors of the Company and PB Southeast), and awarded the plantiff
Gossett $90,000. The jury also rendered a verdict, but no judgement has been
entered by the Court, against Gossett and awarded Poore Brothers Southeast
$2,000. As of this date, the defendants have requested the Court to award them
attorneys' fees arising from additional plantiff's claims that were dismissed
earlier in the litigation. The parties have agreed to suspend all further action
and litigation until November 30, 1998 so that the parties may attempt to settle
the case.
In July 1998, the Company settled the litigation with Chris Ivey and his
company, Shelby and Associates. The settlement included the release of all
claims and the dismissal of his lawsuit.
4. ACQUISITION OF ASSETS OF TEJAS SNACKS
On November 4, 1998, the Company signed a definitive purchase agreement to
acquire the business and certain assets of Tejas Snacks, L.P., a Texas-based
potato chip manufacturer. The assets, which were acquired through a newly-formed
wholly-owned subsidiary of the Company, Tejas PB Distributing, Inc., included
the Bob's Texas StyleTM Potato Chips brand, inventories and certain capital
equipment. In exchange for these assets, the Company issued 523,077 unregistered
shares of Common Stock and paid approximately $1.2 million in cash. The Company
utilized available cash as well as funds available pursuant to the Norwest Line
of Credit and the Norwest Term Loan to satisfy the cash portion of the
consideration. Tejas Snacks had sales of approximately $2.8 million for the nine
months ended September 30, 1998. The Company has transferred production of the
Bob's brand to its Goodyear, Arizona facility. The acquisition will be accounted
for using the purchase method of accounting.
5. NEW ACCOUNTING PRONOUNCEMENTS
In July 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and for Hedging Activities",
which is effective for years beginning after June 15, 1999. The SFAS requires
that a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. Upon adoption in the first quarter
of 2000, the Company expects there will be no impact on its financial condition
or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO THE QUARTER ENDED SEPTEMBER
30, 1997
Net sales for the three months ended September 30, 1998 were $3,015,000
down $319,000 or 10%, from $3,334,000 for the three months ended September 30,
1997. Poore Brothers manufactured potato chip sales for the third quarter of
1998 were $2,309,000, down $365,000, or 14%, from $2,674,000. This decrease was
primarily the result of the third quarter 1997 discontinuance of low-fat potato
chips ($110,000) and the elimination of deep discount pricing and promotion
programs.
Gross profit for the three months ended September 30, 1998, was $719,000,
or 24% of net sales, as compared to $322,000, or 10% of net sales, for the three
months ended September 30, 1997. The $397,000 increase in gross profit, or 123%,
occurred despite 10% lower sales. This improvement resulted from the Company's
1997 manufacturing consolidation, benefits from negotiated raw material cost
savings and a continued improvement in manufacturing and operating efficiencies
at the Goodyear, Arizona facility.
Operating expenses decreased to $941,000 for the three months ended
September 30, 1998 from $1,479,000 for the same period in 1997. The decrease of
$538,000, or 36%, compared to the third quarter of 1997 was attributable
primarily to a $470,000 charge recorded by the Company in September 1997 related
to severance, equipment write-downs and lease termination costs in connection
8
with the closing of the Tennessee manufacturing facility. Selling, general and
administrative expenses for the three months ended September 30, 1998 decreased
$68,000 to $941,000, from $1,009,000 during the same period in 1997. Decreases
in administrative payroll costs, advertising and promotional spending, travel
and entertainment and bad debt expense were offset by increases in professional
services related to litigation and organizational changes.
Net interest expense increased to $122,000 for the quarter ended September
30, 1998 from $112,000 for the quarter ended September 30, 1997. This was due
primarily to a decrease in interest income generated from investment of the
remaining proceeds of the initial public offering.
The Company's net losses for the quarters ended September 30, 1998 and
September 30, 1997 were $343,000 and $1,269,000, respectively. The reduction in
net loss was attributable primarily to the increased gross profit and to the
absence of any charges for closing the Tennessee manufacturing facility in 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
Net sales for the nine months ended September 30, 1998 were $9,476,000,
down $3,183,000, or 25%, from $12,659,000 for the nine months ended September
30, 1997. The sale of the Texas distribution business in June 1997 contributed
approximately $1,452,000 to the sales decline, consisting of $1,213,000 in sales
of products manufactured by others and $239,000 in sales of Poore Brothers
manufactured potato chips. An additional $697,000 decrease occurred in sales of
products manufactured by others due to the elimination of several unprofitable
product lines during the second quarter of 1997. Poore Brothers manufactured
potato chip sales for the nine months of 1998 were $7,543,000, down $1,035,000,
or 12%, from $8,578,000 (excluding Texas) for the nine months of 1997. This
decrease was driven principally by lower volume as a result of the Company's
discontinuance of unprofitable promotion programs with certain customers and the
shutdown of the Tennessee manufacturing facility in the third quarter of 1997.
Gross profit for the nine months ended September 30, 1998, was $2,367,000,
or 25% of net sales, as compared to $1,519,000, or 12% of net sales, for the
nine months ended September 30, 1997. The $848,000 increase in gross profit, or
56%, occurred despite 25% lower sales. This increase is a result of the
restructuring actions implemented in 1997, benefits from negotiated raw material
cost savings and a continued improvement in manufacturing and operating
efficiencies at the Company's Goodyear, Arizona facility.
Operating expenses decreased to $2,724,000 for the nine months ended
September 30, 1998 from $3,640,000 for the same period in 1997. This represented
a $916,000 decrease, or 25%, compared to the same period in 1997. The decrease
was primarily attributable: to a $150,000 charge recorded by the Company in June
1997 related to severance, equipment write-downs and lease termination costs in
connection with the sale of the Company's Texas distribution business; a
$470,000 charge recorded by the Company in September 1997 in connection with the
closure of the Tennessee manufacturing facility; and a decrease in selling,
general and administrative expenses. Selling, general and administrative
expenses decreased $296,000, or 10%, to $2,724,000 for the nine month period
ended September 30, 1998 from $3,020,292 for the same period in 1997. A 25%
increase in advertising and promotional spending offset a 25% decrease in
payroll costs. In addition, higher professional service costs in 1998 were
offset by lower sales-related expenses, office expenses and occupancy costs.
Net interest expense increased to $371,000 for the nine months ended
September 30, 1998 from $197,000 for the same period in 1997. This increase was
due primarily to interest expense related to the permanent financing on the
Company's Arizona manufacturing facility and production equipment, and a
decrease in interest income generated from investment of the remaining proceeds
of the initial public offering.
The Company's net losses for the nine months ended September 30, 1998 and
September 30, 1997 were $728,000 and $2,318,000, respectively. The reduction in
net loss was attributable primarily to the increased gross profit and lower
operating expenses, offset by higher net interest expense.
9
LIQUIDITY AND CAPITAL RESOURCES
Net working capital was $1,050,000 at September 30, 1998, with a current
ratio of 1.7:1. At December 31, 1997, net working capital was $1,424,000 with a
current ratio of 1.6:1. The $374,000 decrease in working capital was primarily
attributable to the Company's use of cash for operating activities and payments
on long term debt.
The Company's $1.0 million working capital line of credit from First
Community Financial Corporation (the "First Community Line of Credit") was
renewed as of May 31, 1998 for a six-month period. At September 30, 1998, the
Company had over $1.0 million of eligible receivables. The balance outstanding
was $240,265 and $586,097 at September 30, 1998 and December 31, 1997,
respectively.
On November 4, 1998, the Company signed a new $2.5 million Credit Agreement
with Norwest Business Credit, Inc. ("Norwest") which includes a $2.0 million
working capital line of credit (the "Norwest Line of Credit") and a $0.5 million
term loan (the "Norwest Term Loan"). Borrowings under the Norwest Credit
Agreement were used to pay off the First Community Line of Credit and to finance
a portion of the consideration paid by the Company in connection with the Tejas
Snacks acquisition (see Part II, Item 5), and will also be used for general
working capital needs. The Norwest Line of Credit bears interest at an annual
rate of prime plus 1.5% and matures in November 2001 while the Norwest Term Loan
bears interest at an annual rate of prime plus 3% and requires monthly principal
payments of approximately $28,000, plus interest, until maturity on May 1, 2000.
The Norwest Credit Agreement is secured by receivables, inventories, equipment
and general intangibles. Borrowings under the line of credit are based on 85% of
eligible receivables and 60% of eligible inventories. As of November 4, 1998,
the Company was eligible to borrow approximately $1,000,000 of the working
capital line of credit and $0.5 million under the Norwest Term Loan. The Norwest
Credit Agreement requires the Company to be in compliance with certain financial
performance criteria, including: minimum debt service coverage ratio; minimum
quarterly net income/maximum net loss; minimum annual net income/maximum net
loss; minimum quarterly increase in book net worth; and minimum annual
increase/decrease in book net worth. Management believes that the fulfillment of
the Company's plans and objectives will enable the Company to attain a
sufficient level of profitability to be in compliance with these financial
performance criteria; however, there can be no assurance that the Company will
attain any such profitability or beremain in compliance. Any acceleration under the NorwestU.S. Bancorp
Credit Agreement prior to the scheduled maturity of the NorwestU.S. Bancorp Line of
Credit or the NorwestU.S. Bancorp Term LoanLoans could have a material adverse effect upon
the Company.
As of November 12, 1998,March 30, 2002, there was an outstanding balance of $709,000$2,329,000 on the
NorwestU.S. Bancorp Line of Credit, and $500,000$3,851,000 on the NorwestU.S. Bancorp Term Loan A, $50,000
on the U.S. Bancorp Term Loan C, $64,000 on the U.S. Bancorp Term Loan D, and
$221,000 on the CapEx Term Loan.
At September 30,14
On November 4, 1998, pursuant to the terms of the Wells Fargo Credit
Agreement, the Company had outstanding 9% Convertible
Debentures due July 1, 2002issued to Wells Fargo a warrant (the "9% Convertible Debentures""Wells Fargo
Warrant") into purchase 50,000 shares of Common Stock for an exercise price of
$0.93375 per share. The Wells Fargo Warrant is exercisable until November 3,
2003, the principal
amount of $2,219,000. The Company was not in compliance with a required interest
coverage ratio of 2:1 (actual of -1.2:1). Such non-compliance has not, to date
resulted in an event of default because the holders of the Debentures have
grantedtermination of the Company a waiver effective through June 30, 1999. After that time,Wells Fargo Warrant, and provides the
Company will be required to be in complianceholder thereof certain demand and piggyback registration rights.
In connection with the following financial
ratios, so long as the 9% Convertible Debentures remain outstanding: working
capital of at least $500,000; minimum shareholders' equity (net worth) of $4.5
million; an interest coverage ratio of at least 1:1; and a current ratio at the
end of any fiscal quarter of at least 1.1:1. Interest on the 9% Convertible
Debentures is paid by the Company on a monthly basis. Monthly principal payments
of approximately $20,000 are required to be made by the Company through July
2002. For the period November 1, 1998 through October 31, 1999, Renaissance
Capital (the holder of $1,718,000 of 9% Convertible Debentures) has agreed to
waive all mandatory principal redemption payments and to accept stock in lieu of
cash interest payments. Management believes that the fulfillmentimplementation of the Company's plans and objectives will enable the Company to attain a sufficient
10
level of profitability to be in compliance with the financial ratios; however,
there can be no assurance that the Company will attain any such profitability or
be in compliance with the financial ratios upon the expiration of the waivers.
Any acceleration under the 9% Convertible Debentures prior to their maturity on
July 1, 2002 could have a material adverse effect upon the Company.
As a result of the Company'sbusiness strategy, to expand the Company's operations
through acquisitions and otherwise, as well as general competitive conditions in
the snack food industry,
the Company may incur additional operating losses in the future.future and is likely to require
future debt or equity financings (particularly in connection with future
strategic acquisitions or capital expenditures). Expenditures relating to
marketing,acquisition-related integration costs, market and territory expansion and new
product development and introduction may adversely affect selling, general and
administrative expenses in the future and consequently may adversely affect operating and net
income. These types of expenditures are expensed for accounting purposes as
incurred, while salesrevenue generated from the result of such expansion or new
products may benefit future periods. Management believes that currentthe Company will
generate positive cash flow from operations during the next twelve months,
which, along with its existing working capital together with available
line of credit borrowings, and anticipated cash flows from operations, will be
sufficient to finance the operations ofborrowing facilities, should
enable the Company to meet its operating cash requirements for at least the next twelve
months. ThisThe belief is based on current operating plans and certain assumptions,
including those relating to the Company's future salesrevenue levels and
expenditures, industry and general economic conditions and other conditions. If
any of these plans, assumptions or factors change, or if the Company pursues additional
strategic acquisitions, the Company may require future debt or equity
financingfinancings to meet its capitalbusiness requirements. There can be no assurance that such financingany
required financings will be available or, if available, on terms attractive to
the Company.
YEAR 2000 COMPLIANCECRITICAL ACCOUNTING POLICIES AND ESTIMATES
In December 2001, the Securities and Exchange Commission issued an advisory
requesting that all registrants describe their three to five most "critical
accounting policies". The Year 2000 issueSEC indicated that a "critical accounting policy" is
one which is both important to the portrayal of the Company's financial
condition and results and requires management's most difficult, subjective or
complex judgments, often as a result of computer programs being written using
two digits ratherthe need to make estimates about the
effect of matters that are inherently uncertain. The Company believes that the
following accounting policies fit this definition:
ALLOWANCE FOR DOUBTFUL ACCOUNTS. The Company maintains an allowance for
doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. If the financial condition of the
Company's customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required.
INVENTORIES. The Company's inventories are stated at the lower of cost
(first-in, first-out) or market. The Company identifies slow moving or
obsolete inventories and estimates appropriate loss provisions related
thereto. Historically, these loss provisions have not been significant;
however, if actual market conditions are less favorable than fourthose
projected by management, additional inventory write-downs may be required.
GOODWILL AND TRADEMARKS. Goodwill and trademarks are reviewed for
impairment annually, or more frequently if impairment indicators arise.
Goodwill is required to identifybe tested for impairment between the applicable year. For example,
computer programsannual tests
if an event occurs or circumstances change that more-likely-than-not reduce
the fair value of a reporting unit below its carrying value. An indefinite
lived intangible asset is required to be tested for impairment between the
annual tests if an event occurs or circumstances change indicating that the
asset might be impaired. The Company believes at this time that the
carrying values continue to be appropriate.
INCOME TAXES. The Company has been profitable since 1999; however, it
experienced significant net losses in prior fiscal years resulting in a net
operating loss ("NOL") carryforward for federal income tax purposes of
approximately $4.7 million at December 31, 2001. Generally accepted
accounting principles require that the Company record a valuation allowance
against the deferred tax asset associated with this NOL if it is "more
likely than not" that the Company will not be able to utilize date-sensitive information may recognizeit to offset
future taxes. Due to the size of the NOL carryforward, the Company has not
recognized this net deferred tax asset and currently provides for income
taxes only to the extent that it expects to pay cash taxes (primarily state
taxes) for current income. It is possible, however, that the Company could
15
be profitable in the future at levels which cause the Company to conclude
that it is more likely than not that all or a date
using "00" asportion of the year 1900NOL
carryforward would be realized. Upon reaching such a conclusion, the
Company would immediately record the estimated net realizable value of the
deferred tax asset at that time and would then provide for income taxes at
a rate equal to the combined federal and state effective rates, which would
approximate 40% under current tax rates, rather than the year 2000. This7.5% rate
currently being used. Subsequent revisions to the estimated net realizable
value of the deferred tax asset could result in
system failures or miscalculations.cause the provision for income taxes
to vary significantly from period to period, although the cash tax payments
would remain unaffected until the benefit of the NOL is utilized.
The Company processes much of its data using licensed computer programs
from third parties, including its accounting software. Such third parties have
advised the Company that they have made all necessary programming changes to
such computer programs to address the Year 2000 issue. The Company tested its
systems for Year 2000 compliance during the first half of 1998 and discovered
that certain database information utilized by the Company for purposes of order
entry, billing and accounts receivablesabove listing is not Year 2000 compliant, althoughintended to be a comprehensive list of all of the
underlying database softwareCompany's accounting policies. In many cases the accounting treatment of a
particular transaction is Year 2000 compliant. The Company intends to
implement corrective measuresspecifically dictated by generally accepted accounting
principles, with no need for management's judgment in their application. See the
Company's audited financial statements for the fiscal year ended December 31,
2001 and the notes thereto included in the Company's Annual Report on Form
10-KSB with respect to such database information on or
priorperiod, which contain a description of the Company's
accounting policies and other disclosures required by accounting standards
generally accepted in the United States.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risks to the first quarter of 1999. The Company does not expect to incur
significant expenses in connection with such corrective measures. In addition,which the Company believesis exposed that notwithstanding the foregoing, it has no material
internal risk in connection with the potentialmay
adversely impact of the Year 2000 issue on
the processing of date sensitive information by the Company's computerized
information systems.
The Company is in the process of determining the effect of the Year 2000
issue on its vendors' and customers' systems. There can be no assurance that the
systems of such third parties will be Year 2000 compliant on a timely basis, or
that the Company's results of operations will not be adversely affectedand financial position are
changes in certain raw material prices and interest rates. The Company has no
market risk sensitive instruments held for trading purposes.
Raw materials used by the failureCompany are exposed to the impact of systems operated by third partieschanging
commodity prices. The Company's most significant raw material requirements
include potatoes, potato flakes, wheat flour, corn and oil. The Company attempts
to properly operateminimize the effect of future price fluctuations related to the purchase of
raw materials primarily through forward purchasing to cover future manufacturing
requirements, generally for periods from one to 18 months. Futures contracts are
not used in combination with the forward purchasing of these raw materials. The
Company's procurement practices are intended to reduce the risk of future price
increases, but also may potentially limit the ability to benefit from possible
price decreases.
The Company also has interest rate risk with respect to interest expense on
variable rate debt, with rates based upon changes in the Year
2000.prime rate. Therefore,
the Company has an exposure to changes in those rates. At December 31, 2001 and
December 31, 2000, the Company had $8.0 million and $7.5 million of variable
rate debt outstanding. A hypothetical 10% adverse change in weighted average
interest rates during fiscal 2001 and 2000 would have had an unfavorable impact
of $0.08 million and $0.07 million respectively, on both the Company's net
earnings and cash flows.
16
FORWARD LOOKING STATEMENTS
WHEN USED IN THIS QUARTERLY REPORT ON FORM 10-QSB AND IN FUTURE FILINGS10-Q, INCLUDING ALL DOCUMENTS INCORPORATED BY
THE COMPANY WITH THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), THE WORDS OR PHRASES
"WILL LIKELY RESULT," "THE COMPANY EXPECTS," "WILL CONTINUE," "IS ANTICIPATED,"
"ESTIMATED," "PROJECT," OR "OUTLOOK," OR SIMILAR WORDS OR EXPRESSIONS, ARE
INTENDED TO IDENTIFY "FORWARD-LOOKING STATEMENTS"REFERENCE, INCLUDES "FORWARD-LOOKING" STATEMENTS WITHIN THE MEANING OF SECTION
11
27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND SECTION
21E12E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.AMENDED, AND THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995, AND THE COMPANY WISHESDESIRES TO CAUTION READERS NOTTAKE
ADVANTAGE OF THE "SAFE HARBOR" PROVISIONS THEREOF. THEREFORE, THE COMPANY IS
INCLUDING THIS STATEMENT FOR THE EXPRESS PURPOSE OF AVAILING ITSELF OF THE
PROTECTIONS OF THE SAFE HARBOR WITH RESPECT TO PLACE UNDUE RELIANCE ON ANYALL OF SUCH FORWARD-LOOKING
STATEMENTS. IN THIS QUARTERLY REPORT ON FORM 10-Q, THE WORDS "ANTICIPATES,"
"BELIEVES," "EXPECTS," "INTENDS," "ESTIMATES," "PROJECTS," "WILL LIKELY RESULT,"
"WILL CONTINUE," "FUTURE" AND SIMILAR TERMS AND EXPRESSIONS IDENTIFY
FORWARD-LOOKING STATEMENTS. THE FORWARD-LOOKING STATEMENTS EACH OF WHICH SPEAK
ONLY AS OFIN THIS QUARTERLY
REPORT ON FORM 10-Q REFLECT THE DATE MADE. SUCHCOMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE
EVENTS AND FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT
TO CERTAIN RISKS AND UNCERTAINTIES, INCLUDING SPECIFICALLY THE COMPANY'S
RELATIVELY BRIEF OPERATING HISTORY, SIGNIFICANT HISTORICAL OPERATING LOSSES AND
THE POSSIBILITY OF FUTURE OPERATING LOSSES, THE POSSIBILITY THAT THE COMPANY
WILL NEED ADDITIONAL FINANCING DUE TO FUTURE OPERATING LOSSES OR IN ORDER TO
IMPLEMENT THE COMPANY'S BUSINESS STRATEGY, THE POSSIBLE DIVERSION OF MANAGEMENT
RESOURCES FROM THE DAY-TO-DAY OPERATIONS OF THE COMPANY AS A RESULT OF RECENTLY
COMPLETED STRATEGIC ACQUISITIONS AND THE PURSUIT OF ADDITIONAL STRATEGIC
ACQUISITIONS, POTENTIAL DIFFICULTIES RESULTING FROM THE INTEGRATION OF ACQUIRED
BUSINESSES WITH THE COMPANY'S BUSINESS, OTHER ACQUISITION-RELATED RISKS,
SIGNIFICANT COMPETITION, RISKS RELATED TO THE FOOD PRODUCTS INDUSTRY, VOLATILITY
OF THE MARKET PRICE OF THE COMPANY'S COMMON STOCK, THE POSSIBLE DE-LISTING OF
THE COMMON STOCK FROM THE NASDAQ SMALLCAP MARKET AND THOSE OTHER RISKS AND
UNCERTAINTIES DISCUSSED HEREIN AND IN THE COMPANY'S OTHER PERIODIC REPORTS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION, THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM HISTORICAL EARNINGS ANDRESULTS OR THOSE PRESENTLY ANTICIPATED OR PROJECTED.ANTICIPATED. IN LIGHT OF
SUCHTHESE RISKS AND UNCERTAINTIES, THERE CAN BE NO ASSURANCE THAT THE
FORWARD-LOOKING INFORMATION CONTAINED IN THIS QUARTERLY REPORT ON FORM 10-QSB10-Q WILL
IN FACT TRANSPIRE OR PROVE TO BE ACCURATE. READERS ARE CAUTIONED NOT TO PLACE
UNDUE RELIANCE ON THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN, WHICH SPEAK
ONLY AS OF THE DATE HEREOF. THE COMPANY HASUNDERTAKES NO OBLIGATION TO PUBLICLY
RELEASE THE RESULT OF ANY
REVISIONS THAT MAY BE MADE TO ANYREVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT ANTICIPATED OR UNANTICIPATED EVENTS OR CIRCUMSTANCES OCCURRINGTHAT
MAY ARISE AFTER THE DATE OF
SUCH STATEMENTS.HEREOF. ALL SUBSEQUENT WRITTEN OR ORAL FORWARD-LOOKING
STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE
EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THIS SECTION.
17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 22, 1998,The Company is periodically a jury rendered a verdict, but no judgement has been
entered by the Court, against the defendants, Mark S. Howells and Jeffrey J.
Puglisi (directors of the Company and PB Southeast), and awarded the plantiff
Gossett $90,000. The jury also rendered a verdict, but no judgement has been
entered by the Court, against Gossett and awarded Poore Brothers Southeast
$2,000. As of this date, the defendants have requested the Courtparty to award them
attorneys' feesvarious lawsuits arising from additional plantiff's claims that were dismissed
earlier in the
litigation. The parties have agreed to suspend all further action
and litigation until November 30, 1998 soordinary course of business. Management believes, based on discussions with
legal counsel, that the parties may attempt to settle
the case. Reference is made to "PART II, ITEM 1. LEGAL PROCEEDINGS"resolution of such lawsuits will not have a material
effect on the Company's Quarterly Report on Form 10-QSB for the three-month period ended March
31, 1998 (which was filed with the Commission on May 14, 1998).
In July 1998, the Company settled the litigation with Chris Ivey and his
company, Shelby and Associates. The settlement included the releasefinancial position or results of all
claims and the dismissal of his lawsuitoperations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On November 4, 1998, pursuant to the terms of the Norwest Credit Agreement,
the Company issued to Norwest a Warrant (the "Norwest Warrant") to purchase
50,000 shares of Common Stock for an exercise price of $0.93375 per share. The
Norwest Warrant is exercisable until November 3, 2003, the date of termination
of the Norwest Warrant, and provides the holder thereof certain demand and
piggyback registration rights. The issuance of the Warrant was made in reliance
upon the exemption from registration under the Securities Act of 1933, as
amended (the "Securities Act"), set forth in Section 4(2) as it did not involve
a public offering.
On November 12, 1998, the Company issued 523,077 unregistered shares of
Common Stock in connection with the acquisition by the Company of the business
and certain assets of Tejas Snacks, L.P. The shares were issued in lieu of cash
in satisfaction of $450,000 of the total $1.6 million purchase price. These
issuances were made in reliance upon the exemption from registration under the
Securities Act set forth in Section 4(2) as they did not involve a public
offering.
The Company has agreed to issue 183,263 unregistered shares of Common Stock
to Renaissance Capital in consideration for its waiver of all mandatory
principal redemption payments due under the 9% Convertible Debentures held by
Renaissance Capital for the period from November 1, 1998 through October 31,
1999. The issuance will be made in reliance upon the exemption from registration
under the Securities Act set forth in Section 4(2) as it will not involve a
public offering.
12
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At September 30, 1998, the Company had outstanding 9% Convertible
Debenturesdue July 1, 2002 (the "9% Convertible Debentures") in the principal
amount of $2,219,000. The Company was not in compliance with a required interest
coverage ratio of 2:1 (actual of -1.2:1). Such non-compliance has not, to date,
resulted in an event of default because the holders of the 9% Convertible
Debentures have granted the Company a waiver effective through June 30, 1999.
After that time, the Company will be required to be in compliance with the
following financial ratios, so long as the 9% Convertible Debentures remain
outstanding: working capital of at least $500,000; minimum shareholders' equity
(net worth) of $4.5 million; an interest coverage ratio of at least 1:1; and a
current ratio at the end of any fiscal quarter of at least 1.1:1. Interest on
the 9% Convertible Debentures is paid by the Company on a monthly basis. Monthly
principal payments of approximately $20,000 are required to be made by the
Company through July 2002. For the period November 1, 1998 through October 31,
1999, however, Renaissance (the holder of $1,718,000 of 9% Convertible
Debentures) has agreed to waive all mandatory principal redemption payments and
to accept stock in lieu of cash interest payments. Management believes that the
fulfillment of the Company's plans and objectives will enable the Company to
attain a sufficient level of profitability to be in compliance with the
financial ratios; however, there can be no assurance that the Company will
attain any such profitability or be in compliance with the financial ratios upon
the expiration of the waivers. Any acceleration under the 9% Convertible
Debentures prior to their maturity on July 1, 2002 could have a material adverse
effect upon the Company.None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NoneNone.
ITEM 5. OTHER INFORMATION
On July 9, 1998, the Company filed a Registration Statement of Form S-3,
Amendment No. 1, with the Commission in connection with the registration of
2,604,717 shares of Common Stock, including 300,000 shares issuable upon the
exercise of the Warrant issued by the Company to Westminster Capital, Inc. in
September 1996 and 2,109,717 shares issuable upon conversion of the 9%
Convertible Debentures. The Registration Statement has not to date been declared
effective by the Commission.
On August 14, 1998, Scott D. Fullmer resigned as Vice President - Sales and
Marketing of the Company. In connection with the acquisition of Tejas Snacks,
Kevin M. Kohl and Thomas G. Bigham were made Vice Presidents of Tejas PB
Distributing, Inc.
On August 18, 1998, the Company entered into an agreement with Everen
Securities, Inc. ("Everen") pursuant to which the Company retained Everen as
financial advisor to assist the Company in its pursuit of strategic
acquisitions. Everen is entitled to fees in connection with the Tejas Snacks
acquisition and the Norwest financing pursuant to the agreement.
On November 4, 1998, the Company signed a definitive purchase agreement to
acquire the business and certain assets of Tejas Snacks, L.P., a Texas-based
potato chip manufacturer. The assets, which were acquired through a newly-formed
wholly-owned subsidiary of the Company, Tejas PB Distributing, Inc., included
the Bob's Texas StyleTM Potato Chips brand, inventories and certain capital
equipment. In exchange for these assets, the Company issued 523,077 unregistered
shares of Common Stock and paid approximately $1.2 million in cash. The Company
utilized available cash as well as funds available pursuant to the Norwest Line
of Credit and the Norwest Term Loan to satisfy the cash portion of the
consideration. Tejas Snacks had sales of approximately $2.8 million for the nine
months ended September 30, 1998. The Company has transferred production of the
Bob's brand to its Goodyear, Arizona facility. In connection with the
acquisition, the Company entered into employment agreements with certain key
personnel of Tejas.
On November 4, 1998, the Company entered into the Norwest Credit
Agreement with Norwest which provides the Company with a $2.0 million working
capital line of credit and a $0.5 million term loan. See "PART I, ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION - LIQUIDITY AND CAPITAL RESOURCES."
13
As of November 9, 1998, the closing bid price of the Company's Common
Stock had remained below $1.00 per share for thirty consecutive trading days. As
a result, the Company has received a notice from the NASDAQ Stock Market, Inc.
("NASDAQ") that the Company was not in compliance with the closing bid price
requirements for the continued listing of the Common Stock on the NASDAQ
SmallCap Market and that such Common Stock would be delisted after February 15,
1999 if the closing bid price is not equal to or greater than $1.00 per share
for a period of at least ten consecutive trading days during the ninety-day
period ending February 15, 1999. As of November 13, 1998, the Company has not
satisfied this closing bid price requirement. In the event that the Company is
unable to achieve compliance, it will consider seeking further procedural
remedies to delay or avoid the delisting of the Common Stock or consider listing
in the over-the-counter market of the National Association of Securities
Dealers, Inc.None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
10.1 Separation Agreement and Release of All Claims dated August 14, 1998,
by and between the Company and Scott D. Fullmer. *
10.2 Letter Agreement dated August 18, 1998, by and between the Company and
Everen.*
10.3 Credit and Security Agreement dated October 23, 1998, by and between
the Company (and certain of its subsidiaries) and Norwest. *
10.4 Patent and Trademark Security Agreement dated October 23, 1998, by and
between the Company (and certain of its subsidiaries) and Norwest. *
10.5 Warrant dated November 4, 1998, issued by the Company to Norwest. *
10.6 Agreement for Purchase and Sale of Assets dated October 29, 1998, by
and among the Company, Tejas, Kevin Kohl and Tom Bigham. *
10.7 Employment Agreement dated November 12, 1998, by and between Tejas PB
Distributing, Inc. and Thomas G. Bigham. *
10.8 Employment Agreement dated November 12, 1998, by and between Tejas PB
Distributing, Inc. and Kevin M. Kohl. *
27.1 Financial Data Schedule. *
* Filed herewith.None.
(b) Current Reports on Form 8-K:
(1) Current Report on Form 8-K, reporting the signing of a letter of intent
by and between the Company and Tejas to acquire the business of TejasCompany's December 27,
2001 private placement transaction (filed with the Commission on
September 29, 1998)January 10, 2002).
1418
SIGNATURES
In accordance withPursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
POORE BROTHERS, INC.
By: /s/ Eric J. Kufel
--------------------------------------------------------------------------------
Dated: November 16, 1998May 2, 2002 Eric J. Kufel
President and Chief Executive Officer
(principal executive officer)
By: /s/ Thomas W. Freeze
--------------------------------------------------------------------------------
Dated: November 16, 1998May 2, 2002 Thomas W. Freeze
Senior Vice President, Chief Financial
Officer, Treasurer and Secretary
(principal financial and accounting
officer)
15
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
10.1 Separation Agreement and Release of All Claims dated August 14, 1998,
by and between the Company and Scott D. Fullmer.
10.2 Letter Agreement dated August 18, 1998, by and between the Company and
Everen.
10.3 Credit and Security Agreement dated October 23, 1998, by and between
the Company (and certain of its subsidiaries) and Norwest.
10.4 Patent and Trademark Security Agreement dated October 23, 1998, by and
between the Company (and certain of its subsidiaries) and Norwest.
10.5 Warrant dated November 4, 1998, issued by the Company to Norwest.
10.6 Agreement for Purchase and Sale of Assets dated October 29, 1998, by
and among the Company, Tejas, Kevin Kohl and Tom Bigham.
10.7 Employment Agreement dated November 12, 1998, by and between Tejas PB
Distributing, Inc. and Thomas G. Bigham.
10.8 Employment Agreement dated November 12, 1998, by and between Tejas PB
Distributing, Inc. and Kevin M. Kohl.
27.1 Financial Data Schedule.19