-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RhT2Q79djiu2BaoBlo2fI0z7wzAHOUM/FZK16Vq8v1j/1ts00MYLw45N5+ODxfmx xpgm7E0wbc1nNZTLx07ABQ== 0000950159-02-000328.txt : 20020515 0000950159-02-000328.hdr.sgml : 20020515 20020515144440 ACCESSION NUMBER: 0000950159-02-000328 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENNEXX FOODS INC CENTRAL INDEX KEY: 0001127395 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & GENERAL LINE [5141] IRS NUMBER: 233008972 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-31148 FILM NUMBER: 02651162 BUSINESS ADDRESS: STREET 1: 980 GLASGOW ST CITY: POTTSTOWN STATE: PA ZIP: 19464 BUSINESS PHONE: 6107053620 MAIL ADDRESS: STREET 1: 980 GLASGOW STREET CITY: POTTSTOWN STATE: PA ZIP: 19464 FORMER COMPANY: FORMER CONFORMED NAME: PINNACLE FOODS INC DATE OF NAME CHANGE: 20010123 10QSB 1 pennexx3-02q.txt U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB (Mark One) [X] Quarterly report under Section 13 or 15(d) of he Securities Exchange Act of 1934 For the quarterly period ended March 31, 2002 -------------- [ ] Transition report under Section 13 or 15(d) of the Exchange Act For the transition period from ___________ to _________ Commission file number 000-31148 ------------------------------------------------ PENNEXX FOODS, INC. - -------------------------------------------------------------------------------- (Exact Name of Small Business Issuer as Specified in Its Charter) Pennsylvania 23-3008972 - ----------------------------------- ---------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 980 Glasgow Street, Pottstown, PA 19464 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) 610-705-3620 - -------------------------------------------------------------------------------- (Issuer's Telephone Number, Including Area Code) - -------------------------------------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 ----- ------ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes No ----- ------ APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 25,324,822 --------------------- Transitional Small Business Disclosure Format (check one): Yes No X ----- ------ INDEX PART I FINANCIAL INFORMATION Item 1. Financial Statements.............................................3 Item 2. Management's Discussion and Analysis or Plan of Operation........9 PART II OTHER INFORMATION Item 1. Legal Proceedings...............................................12 Item 6. Exhibits and Reports on Form 8-K................................12 2 PART I FINANCIAL INFORMATION Item 1. Financial Statements PENNEXX FOODS, INC. Balance Sheets
ASSETS March 31, 2002 December 31, 2001 ---------------------- ----------------------- (Unaudited) Current Assets: Cash $ 2,586,371 $2,415,785 Trade Receivables, less allowance of $25,595 2,530,305 2,595,495 Inventory 1,574,702 1,142,223 Prepaid Expenses 241,100 201,843 ---------------------- ----------------------- Total Current Assets 6,932,478 6,355,346 ---------------------- ----------------------- Fixed Assets: Property and Equipment 4,974,548 4,186,944 Less Accumulated Depreciation 1,112,976 947,232 ---------------------- ----------------------- Total Fixed Assets 3,861,572 3,239,712 ---------------------- ----------------------- Other Assets: 60,245 61,772 ---------------------- ----------------------- Total Assets: $ 10,854,295 $9,656,830 ====================== ======================= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current Installments of Capital Lease Obligations $ 242,807 $ 233,000 Accounts Payable 3,111,198 2,100,254 Accrued Expenses 468,665 266,784 ------------------------- ---------------------- Total Current Liabilities 3,822,670 2,600,038 ------------------------- ---------------------- Long Term Liabilities: Capital Lease Obligations Less Current Installments 619,007 677,790 Note Payable 2,500,000 2,500,000 ------------------------- ---------------------- Total Long Term Liabilities 3,119,007 3,177,790 ------------------------- ---------------------- Shareholders' Equity: Common Stock 264,249 264,249 Additional Paid-In Capital 12,097,881 12,097,881 Deficit (8,161,690) (8,169,140) Deferred Compensation (287,822) (313,988) ------------------------- ---------------------- Total Shareholders' Equity 3,912,618 3,879,002 ------------------------- ---------------------- Total Liabilities and Shareholders' Equity $ 10,854,295 $ 9,656,830 ========================= ======================
See accompanying notes to financial statements. 3 PENNEXX FOODS, INC. Statements of Operations (Unaudited)
For the Three Month Period Ended March 31 -------------------------------------------------- 2002 2001 ------------------------ --------------------- Sales $10,924,971 $ 8,017,624 Cost of Goods Sold Meat 7,031,091 5,193,044 Labor 1,200,807 1,285,095 Supplies 1,218,199 786,125 ------------------------ --------------------- Total Cost of Goods Sold 9,450,097 7,264,264 ------------------------ --------------------- Gross Profit 1,474,874 753,360 Operating Expenses 1,417,171 1,089,962 ------------------------ --------------------- Income (Loss) from Operations 57,703 (336,602) Interest (Net of Interest Income) 50,253 68,148 ------------------------ --------------------- Net Income (Loss) $ 7,450 $ (404,750) ======================== ===================== Income (Loss) Per Share Basic $ 0.00 $ (0.03) Diluted $ 0.00 $ (0.03) Weighted Average Shares Outstanding Basic 25,825,655 11,745,333 Diluted 27,208,342 11,745,333
See accompanying notes to financial statements. 4 PENNEXX FOODS, INC. Statements of Cash Flows (Unaudited)
For the Three Month Period Ended March 31 --------------------------------------------------------- 2002 2001 --------------------------- -------------------------- Cash Flows From Operating Activities Net Income (Loss) $ 7,450 $ (404,750) Adjustments Depreciation and Amortization 165,744 143,482 Deferred Compensation 26,166 26,166 Common Stock Issued for: Interest 23,818 Consulting 128,000 Changes in Assets and Liabilities Trade Receivables 65,190 (157,771) Other Receivables 95,410 Inventory (432,479) (293,885) Prepaid Expenses (39,257) (17,908) Accounts Payable 1,010,944 599,723 Accrued Expenses 201,881 14,213 --------------------------- -------------------------- Net Cash Provided By Operating Activities 1,005,639 156,498 --------------------------- -------------------------- Cash Flows From Investing Activities Purchase of Property and Equipment (787,604) (79,840) Other Assets 1,527 6,500 --------------------------- -------------------------- Net Cash Used for Investing Activities (786,077) (73,340) --------------------------- -------------------------- Cash Flows From Financing Activities Line of Credit Advances, Net 100,000 Repayments on Capital Lease Obligations (48,976) (76,333) --------------------------- -------------------------- Net Cash (Used In ) Provided by Financing Activities (48,976) 23,667 --------------------------- -------------------------- Net Increase in Cash 170,586 106,825 Cash, Beginning of Period 2,415,785 - --------------------------- -------------------------- Cash, End of Period $2,586,371 $ 106,825 =========================== ========================== Supplemental Disclosures of Cash Flow Information Interest Paid during the Period $25,622 $44,121 Non-cash Items Debt Converted into Common Stock $100,000
See accompanying notes to financial statements. 5
PENNEXX FOODS, INC. Statement of Shareholders' Equity Three Month Period Ended March 31, 2002 (Unaudited) Common stock $.01 par value 50,000,000 shares authorized ----------------------------- Shares Additional issued or paid-in Deferred issuable Amount capital Deficit Compensation Total ------------------------------------------------------------------------------------------------------- Balance, January 1, 2002 26,424,822 $ 264,249 $ 12,097,881 $ (8,169,140) $ (313,988) $ 3,879,002 Net Income 7,450 7,450 Amortization of compensatory options 26,166 26,166 ------------------------------------------------------------------------------------------------------- Balance, March 31, 2002 26,424,822 $ 264,249 $ 12,097,881 $(8,161,690) $ (287,822) $3,912,618 =======================================================================================================
See accompanying notes to financial statements. 6 PENNEXX FOODS, INC. Notes to Condensed Financial Statements March 31, 2002 1. Basis of Presentation. --------------------- The unaudited condensed financial statements have been prepared by Pennexx Foods, Inc. (the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such SEC rules and regulations; nevertheless, the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements and the notes hereto should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2001. In the opinion of the Company, all adjustments, including normal recurring adjustments, necessary to present fairly the financial position of the Company as of March 31, 2002 and the results of its operations and cash flows for the three month period then ended have been included. The results of operations for the interim period are not necessarily indicative of the results for the year. 2. Accounting Policies. ------------------- There have been no changes in accounting policies used by the Company during the quarter ended March 31, 2002. 3. Summary of Business. ------------------- The Company, incorporated on July 20, 1999 in the Commonwealth of Pennsylvania, prepares case-ready meats for distribution to retailers in the Northeastern United States. It grants credit to its customers without requiring collateral. 4. Inventory. --------- The Company's inventories are valued at the lower of first-in, first-out or market. Inventories at March 31, 2002 consist of the following: Unfinished Beef, pork, veal, lamb $ 516,284 Packaging supplies 718,422 Finished goods 339,996 --------------- $ 1,574,702 =============== 7 5. Note Payable. ------------ The Company has established a $30,000,000 revolving line of credit with its 50% shareholder, Smithfield Foods, Inc. ("Smithfield"). The Company's outstanding balance under the line of credit bears interest at 1% above prime and is secured by all of the Company's assets. The loan will mature in 2006. At March 31, 2002, the Company's outstanding principal balance under the line of credit was $2.5 million and the accrued and unpaid interest was $91,867. 6. Net Income (Loss) Per Share. --------------------------- Basic income /(loss) per share ("EPS") is computed using the weighted average number of common shares outstanding during the period. Diluted EPS is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares consist of common stock issuable upon exercise of stock options. The potential dilutive common shares for the period ending March 31, 2002 are 1,382,687. For the period ending March 31, 2001, there were no dilutive potential common shares because the assumed exercise of the options would be anti-dilutive. 8 Item 2. Management's Discussion and Analysis or Plan of Operation Certain information contained in this Quarterly Report on Form 10-QSB represents "forward-looking" statements (as defined in Section 27A of the Securities Act of 1933, as amended) that involve risks and uncertainties which may cause actual results to differ materially from those predicted in the forward-looking statements. If any of the Company's assumptions on which such statements are based prove incorrect, or should unanticipated circumstances arise, the Company's actual results could materially differ from those anticipated by such forward-looking statements. The differences could be caused by a number of factors or combination of factors, including, but not limited to, those listed under Item 6, "Note Regarding Forward-Looking Statements" filed with the Securities and Exchange Commission on Form 10-KSB for the year ended December 31, 2001. Results of Operations Sales for the three-month period ended March 31, 2002 were $10.9 million, representing an increase of approximately $2.9 million or 36% over sales of $8.0 million from the corresponding period of 2001. This increase was primarily the result of the increase in the volume of products handled (due in part to increasing sales to existing customers as well as sales to new customers) but was also partially due to a change in the mix of products sold in favor of higher priced items. As the diversity of services that the Company offers continues to grow, customers are increasing both the range of products as well as the quantity ordered. Cost of goods sold for the three-month period ended March 31, 2002 was $9.4 million which resulted in a gross profit of approximately $1.5 million or 14% of sales. By comparison, cost of goods sold for the three-month period ended March 31, 2001 was $7.2 million, which resulted in a gross profit of $0.8 million or 9% of sales. The Company's cost of goods sold is comprised of three main components: meat, direct payroll, and supplies. These items accounted for approximately 64%, 11% and 11% of sales, respectively, in the three months ended March 31, 2002 as compared to 65%, 16% and 10% of sales for the corresponding period of the prior year. Direct payroll declined as a percentage of sales in 2002 compared to 2001 due to increasing labor efficiencies. Operating expenses for the three months ended March 31, 2002 were $1.4 million (13% of sales) as compared to $1.1 million (14% of sales) for the corresponding period of 2001. This increase of $0.3 million resulted from increased non-productive payroll expenses, increased depreciation expenses, increased maintenance expenses, increased insurance expenses, and increased freight and commissions expenses due to sales volume and continued growth. Interest expense (net of interest income) for the three-month period ended March 31, 2002 was approximately $0.05 million compared to approximately $0.07 million for the comparable period of 2001. This decrease in interest expense (net of interest income) is principally due to the increase in interest earned on investments. The net income for the three-month period of 2002 was approximately $0.008 million as compared to a net loss of $0.4 million for the first three months of 2001. 9 On April 2, 2002, the Company purchased and will be renovating a new facility located on Tabor Avenue in Philadelphia, PA (the "Tabor Avenue Facility"). The Company intends to consolidate all operations in the new plant when it is refurnished and equipped. The purchase price for the property was $2.0 million. The Company's estimate to renovate and equip the new facility is as follows: Renovation Cost $2.5 million to $4.0 million Equipment Costs $9.0 million to $12.0 million ------------------- ------------------ Total $11.5 million to $16.0 million =================== ================== In addition to these expenses, the Company will also incur moving expenses and other costs associated with the proposed move to the new plant. Although employment will be offered to the existing work force, the Company believes that it will have to replace at least a portion of the work force which chooses not to relocate from Pottstown. As a result, the Company will probably experience, at least temporarily, certain lost efficiencies among workers, and will incur additional costs to train new employees. The Company expects to capitalize the acquisition and renovation costs of the Tabor Avenue Facility as well as the transactional expenses incurred in connection with the purchase. These amounts will be amortized over the estimated 39 year life of the building. The costs of moving and installing equipment in the new plant will be capitalized and depreciated over three years. When the Company vacates the Pottstown plant, it will write-off all remaining unamortized leasehold improvements located there. At March 31, 2002 the amount of such unamortized leasehold improvements was $185,000. Liquidity and Capital Resources At March 31, 2002, the Company had $2.6 million of cash (and cash equivalents). The Company's current ratio at March 31, 2002 was 1.8 to 1.0. Generally, the Company maintains an unfinished inventory of meat supplies equal to approximately 60-75% of estimated weekly sales volume. Purchases are made using the trade credit programs of suppliers, which allow the Company to purchase meat supplies with payment due within seven days. Inventory is purchased generally on a daily basis and in advance (i.e., in anticipation) of customer orders. The Company's working capital decreased from $3.8 million at December 31, 2001 to $3.1 million at March 31, 2002, principally as a result of the purchase of property and equipment (including $0.2 million as a down payment on the Tabor Avenue plant). Inventory at March 31, 2002 was unusually high due to heavy purchases of supplies in anticipation of second quarter volume. Accounts payable increased from $2.1 million at December 31, 2001 to $3.1 million at March 31, 2002 as a result of the Company's efforts to take advantage of credit 10 terms provided by suppliers. Finally, accrued expenses were unusually high at March 31, 2002 as a result of the timing of payroll dates in relation to the quarter ending March 31, 2002. Smithfield has agreed to allow the Company to use up to $18.3 million of the $30 million credit line (see note 5 to financial statements) to allow the Company to purchase, renovate and equip the Tabor Avenue Facility. If the actual costs exceed this amount, the Company will have to get incremental funding approval from Smithfield, use internally generated funds, or secure additional commercial financing. The amount outstanding on the Smithfield line of credit was as follows on the dates indicated: Description March 31, 2002 December 31, 2001 Principal Advances $ 2,500,000 $2,500,000 Accrued Interest $ 91,867 $58,000 ---------------- ----------------- Total $ 2,591,867 $2,558,000 ---------------- ----------------- The Company has also applied for certain economic development related financing for the new facility in an aggregate amount of $10 million. To the extent received, these amounts would be used to repay advances made by Smithfield on the line of credit. The economic development loans, if obtained, would bear below market interest rates. 11 PART II OTHER INFORMATION Item 1. Legal Proceedings The Company is involved in a lawsuit with the landlord at the Pottstown facility. Proceedings began on November 11, 2000 in the Montgomery County Court of Common Pleas. The landlord has alleged that the Company failed to make timely rental payments and is seeking damages and ejectment. The Company's defense is that the rent was withheld because of the landlord's prior failure to honor its obligations to make certain improvements at the property. All rents due to date have either been paid to the landlord or deposited into escrow. Since the commencement of the litigation, the landlord has filed a voluntary petition for protection from its creditors under Chapter 11 of the Bankruptcy Code. As a result, the case has been transferred to the Federal bankruptcy court. If the Company were to lose this suit, whether before the Montgomery County Court or the Federal bankruptcy court, the landlord could eject the Company from the property, and the Company could lose some or all of the benefit of certain improvements made to the property in the aggregate approximate amount of $185,000. The current lease at the Pottstown plant terminated in accordance with its terms on April 30, 2002. However, the Company is nonetheless continuing to use the plant for production because the Tabor Avenue Facility is not yet operational. On April 25, 2002 the landlord filed a motion for partial summary judgment with the United States Bankruptcy Court for the Eastern District of Pennsylvania to evict, eject and dispossess the Company from the Pottstown plant. Because management does not believe the Tabor Avenue Facility will be operational until the end of the third quarter of 2002, if the Court forced the Company to vacate the Pottstown facility before the Tabor Avenue Facility is available, the Company would not have a plant in which to operate, which would, in turn, have a material, adverse effect on the Company's operations. Item 6. Exhibits and Reports on Form 8-K The Company filed no Current Reports on Form 8-K during the three month period ended March 31, 2002. However, the Company filed a Current Report on Form 8-K dated April 2, 2002 in connection with its purchase of the Tabor Avenue Facility. 12 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PENNEXX FOODS, INC. Date: May 15, 2002 By: /s/ Michael D. Queen -------------------------------- Michael D. Queen President By: /s/ George B. Pearcy -------------------------------- George B. Pearcy Chief Financial Officer 13 -----END PRIVACY-ENHANCED MESSAGE-----