-----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, IcypVIwdz7Rzr85an9u2aVdADHVvC70PKfT93VwQ9dKs24Wyhz+88+zE9zQkELg9 9o1N/N02uYdaBr0k+wqs5w== 0000950147-00-000654.txt : 20000503 0000950147-00-000654.hdr.sgml : 20000503 ACCESSION NUMBER: 0000950147-00-000654 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000502 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POORE BROTHERS INC CENTRAL INDEX KEY: 0000944508 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FOOD PREPARATIONS & KINDRED PRODUCTS [2090] IRS NUMBER: 860786101 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-14556 FILM NUMBER: 616726 BUSINESS ADDRESS: STREET 1: 3500 S LA COMETA DR CITY: GOODYEAR STATE: AZ ZIP: 85338 BUSINESS PHONE: 6029326200 MAIL ADDRESS: STREET 1: 2664 SOUTH LITCHFIELD RD CITY: GOODYEAR STATE: AZ ZIP: 85338 10QSB 1 QUARTERLY REPORT FOR THE QTR ENDED 3/31/00 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2000 OR [ ] Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______ to _______ Commission File Number 1-14556 POORE BROTHERS, INC. ----------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) DELAWARE 86-0786101 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3500 S. LA COMETA DRIVE, GOODYEAR, ARIZONA 85338 ------------------------------------------------ (Address of principal executive offices) (623) 932-6200 -------------- (Issuer's telephone number) Check whether the Registrant: (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 [ ] As of March 31, 2000, the number of issued and outstanding shares of common stock of the Registrant was 13,382,132. Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] TABLE OF CONTENTS PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated balance sheets as of March 31, 2000 and December 31, 1999............................................. 3 Consolidated statements of operations for the three months ended March 31, 2000 and 1999..................................... 4 Consolidated statements of cash flows for the three months ended March 31, 2000 and 1999..................................... 5 Notes to consolidated financial statements.......................... 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION............................................. 10 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS................................................... 12 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS........................... 12 ITEM 3. DEFAULTS UPON SENIOR SECURITIES..................................... 12 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................. 12 ITEM 5. OTHER INFORMATION................................................... 12 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................... 12 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS POORE BROTHERS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, 2000 1999 ------------ ------------ ASSETS (unaudited) Current assets: Cash ...................................................... $ 153,539 $ 104,364 Accounts receivable, net of allowance of $194,000 in 2000 and $206,000 in 1999 ................... 3,889,954 3,265,041 Inventories ............................................... 1,383,666 1,221,412 Other current assets ...................................... 319,428 325,146 ------------ ------------ Total current assets .................................. 5,746,587 4,915,963 Property and equipment, net ................................. 13,504,918 13,678,133 Intangible assets, net ...................................... 7,082,353 7,198,283 Other assets ................................................ 252,913 281,601 ------------ ------------ Total assets .......................................... $ 26,586,771 $ 26,073,980 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable .......................................... $ 1,556,388 $ 1,328,720 Accrued liabilities ....................................... 1,043,808 690,931 Current portion of long-term debt ......................... 2,234,183 2,116,226 ------------ ------------ Total current liabilities ............................. 4,834,379 4,135,877 Long-term debt, less current portion ........................ 10,052,308 10,680,840 ------------ ------------ Total liabilities ..................................... 14,886,687 14,816,717 ------------ ------------ Commitments and contingencies Shareholders' equity: Preferred stock, $100 par value; 50,000 shares authorized; no shares issued or outstanding in 2000 and 1999 ............................................ -- -- Common stock, $.01 par value; 50,000,000 shares authorized; 13,382,132 and 13,222,044 shares issued and outstanding in 2000 and 1999, respectively ........... 133,821 132,220 Additional paid-in capital ................................ 17,570,464 17,386,827 Accumulated deficit ....................................... (6,004,201) (6,261,784) ------------ ------------ Total shareholders' equity ............................ 11,700,084 11,257,263 ------------ ------------ Total liabilities and shareholders' equity ............ $ 26,586,771 $ 26,073,980 ============ ============
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 MARCH 31, ------------------------------ 2000 1999 ------------ ------------ (unaudited) (unaudited) Net revenues .......................................................... $ 9,707,837 $ 3,690,858 Cost of revenues ...................................................... 7,287,932 2,928,941 ------------ ------------ Gross profit .................................................... 2,419,905 761,917 Selling, general and administrative expenses .......................... 1,875,019 879,031 ------------ ------------ Operating income (loss) ......................................... 544,886 (117,114) Interest income ....................................................... 1,015 5,806 Interest expense ...................................................... (281,817) (159,304) ------------ ------------ Income (loss) before income tax provision ....................... 264,084 (270,612) Income tax provision .................................................. (6,500) -- ------------ ------------ Income (loss) before cumulative effect of a change in accounting principle ........................................... 257,584 (270,612) Cumulative effect of a change in accounting principle ................. -- (71,631) ------------ ------------ Net income (loss) ............................................... $ 257,584 $ (342,243) ============ ============ Earnings (loss) per common share: Basic- Income (loss) before cumulative effect of a change in accounting principle ............................................... $ 0.02 $ (0.03) Cumulative effect of a change in accounting principle ............... -- (0.01) ------------ ------------ Net income (loss) ............................................... $ 0.02 $ (0.04) ============ ============ Diluted- Income (loss) before cumulative effect of a change in accounting principle ............................................... $ 0.02 $ (0.03) Cumulative effect of a change in accounting principle ............... -- (0.01) ------------ ------------ Net income (loss) ................................................... $ 0.02 $ (0.04) ============ ============ Weighted average number of common shares: Basic ............................................................... 13,260,506 7,832,997 ============ ============ Diluted ............................................................. 13,902,146 7,832,997 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 4 POORE BROTHERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, ---------------------------- 2000 1999 --------- --------- (unaudited) (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ............................................... $ 257,584 $(342,243) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Cumulative effect of a change in accounting principle ......... -- 71,631 Depreciation .................................................. 285,136 147,737 Amortization .................................................. 127,410 72,132 Valuation reserves ............................................ 39,988 21,000 Other non-cash charges ........................................ 61,700 72,357 Change in operating assets and liabilities: Accounts receivable ........................................... (655,433) 120,828 Inventories ................................................... (171,721) 29,116 Other assets .................................................. (38,773) (24,820) Accounts payable and accrued liabilities ...................... 630,543 (223,357) --------- --------- Net cash (used in) provided by operating activities......... 536,434 (55,619) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment ........................................... (111,921) (72,437) --------- --------- Net cash used in investing activities ...................... (111,921) (72,437) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock .......................... 135,238 -- Payments made on long-term debt ................................. (222,163) (154,646) Net increase (decrease) in working capital line of credit........ (288,413) 167,250 --------- --------- Net cash (used in) provided by financing activities......... (375,338) 12,604 --------- --------- Net increase (decrease) in cash .................................. 49,175 (115,452) Cash at beginning of period ...................................... 104,364 270,295 --------- --------- Cash at end of period ............................................ $ 153,539 $ 154,843 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the three months for interest .................. $ 252,931 $ 112,780 Common stock issued for sales commissions ....................... 50,000 --
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. The exchange transaction with PB Southeast was accounted for similar to a pooling-of interests since both entities had common ownership and control immediately prior to the transaction. During 1997, the Company sold its Houston, Texas distribution business and closed its PB 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. The Company is engaged in the production, marketing and distribution of premium salty snack food products that are sold through grocery retail chains in the southwestern United States and through vend distributors across the United States. The Company manufactures and sells its own brands of salty snack food products, including Poore Brothers(R) and Bob's Texas Style(R) brand batch-fried potato chips, Tato Skins(R) brand potato snacks, Pizzarias(R) brand pizza chips, and O'Boisies(R) brand potato crisps, manufactures private label potato chips for grocery store chains, and distributes and merchandises snack food products that are manufactured by others. BASIS OF PRESENTATION The consolidated financial statements include the accounts of Poore Brothers, Inc. and all of its wholly 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-QSB and, therefore, do not include all the information and footnotes required by generally accepted accounting principles. 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, 1999. The results of operations for the three months ended March 31, 2000 are not necessarily indicative of the results expected for the full year. CHANGE IN ACCOUNTING PRINCIPLE The cumulative effect of a change in accounting principle resulted in a $71,631 charge in the first quarter of 1999 and was related to the Company's expensing of previously capitalized organization costs as required by Statement of Position 98-5, "REPORTING ON THE COSTS OF START-UP ACTIVITIES," which was effective for the Company's fiscal year beginning January 1, 1999. 6 POORE BROTHERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED) EARNINGS (LOSS) PER 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 are assumed to occur for purposes of calculating diluted earnings per share for periods in which their effect would not be anti-dilutive. THREE MONTHS ENDED MARCH 31, --------------------------- 2000 1999 ----------- ----------- BASIC EPS: Income (loss) before cumulative effect of a change in accounting principle $ 257,584 $ (270,612) =========== =========== Weighted average number of common shares 13,260,506 7,832,997 =========== =========== Earnings (loss) per common share $ 0.02 $ (0.03) =========== =========== DILUTED EPS: Income (loss) before cumulative effect of a change in accounting principle $ 257,584 $ (270,612) =========== =========== Weighted average number of common shares 13,260,506 7,832,997 Incremental shares from assumed conversions- Warrants 287,392 -- Stock options 354,248 -- ----------- ----------- Adjusted weighted average number of common shares 13,902,146 7,832,997 =========== =========== Earnings (loss) per common share $ 0.02 $ (0.03) =========== =========== 2. LONG-TERM DEBT At March 31, 2000, the Company had outstanding 9% Convertible Debentures due July 1, 2002 in the principal amount of $1,370,067 ($511,020 held by Wells Fargo and $859,047 held by Renaissance Capital). 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 $5,000 are required to be made by the Company on the Wells Fargo 9% Convertible Debenture beginning in July 2000 through June 2002. In November 1999, Renaissance Capital converted 50% ($859,047) of its Debentures holdings into 859,047 shares of Common Stock and agreed unconditionally to convert into Common Stock the remaining $859,047 not later than December 31, 2000. For the period November 1, 1999 through December 31, 2000, Renaissance Capital agreed to waive all mandatory principal redemption payments and to accept 30,000 unregistered shares of the Company's Common Stock and a warrant to purchase 60,000 shares of common stock at $1.50 per share in lieu of cash interest payments. For the period November 1, 1998 through October 31, 1999, Renaissance Capital agreed to waive all mandatory principal redemption payments and to accept 183,263 unregistered shares of the Company's Common Stock in lieu of cash interest payments. 7 POORE BROTHERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. LONG-TERM DEBT (CONTINUED) The Convertible Debenture Loan Agreement contains covenants requiring the maintenance of certain financial performance criteria, including an interest coverage ratio, minimum working capital of $500,000, a current ratio of 1.1:1 and minimum shareholders' equity. At March 31, 2000, the Company was in compliance with all of the financial ratio requirements. In the event of default, the holders of the 9% Convertible Debentures have the right, upon written notice and after a thirty-day period during which such default may be cured, to demand immediate payment of the then unpaid principal and accrued but unpaid interest under the 9% Convertible Debentures. Management believes that the achievement of the Company's plans and objectives will enable the Company to attain a sufficient level of profitability to remain in compliance with the financial ratios. There can be no assurance, however, that the Company will attain any such profitability and remain in compliance with the financial ratios. Any acceleration under the 9% Convertible Debentures prior to their maturity on July 1, 2002 could have a material adverse effect upon the Company. On October 7, 1999, the Company signed a new $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 the previously existing Wells Fargo Line of Credit and Wells Fargo Term Loan and to refinance existing debt of Wabash Foods, LLC in October 1999, and will also be 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 on October 4, 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 commencing February 1, 2000, plus interest, until maturity on July 1, 2006. The U.S. Bancorp Term Loan B bears interest at an annual rate of prime plus 2.5% and requires monthly principal payments of approximately $29,000 commencing April 30, 2000, plus interest, until maturity on March 31, 2001. The U.S. Bancorp Credit Agreement is secured by accounts receivable, inventories, equipment and general intangibles. Borrowings under the line of credit are limited to 80% of eligible receivables and 60% of eligible inventories. At March 31, 2000, the Company had a borrowing base of $2,947,000 and outstanding borrowings of $1,734,000 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 31, 2000, the Company was in compliance with all of the financial covenants. Management believes that the fulfillment of the Company's plans and objectives will enable the Company to attain a sufficient level of profitability to remain in compliance with these financial covenants. There can be no assurance, however, that the Company will attain any such profitability and remain in compliance. Any acceleration under the U.S. Bancorp Credit Agreement prior to the scheduled maturity of the U.S. Bancorp Line of Credit or the U.S. Bancorp Term Loans could have a material adverse effect upon the Company. The Company also assumed from Wabash Foods a $715,000 non-interest bearing note payable to U.S. Bancorp which is due in full on June 30, 2000. On October 7, 1999, 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. 3. LITIGATION The Company is occasionally 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. 8 POORE BROTHERS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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, pretzels and tortilla chips for sale primarily to snack food distributors. The distributed products segment sells snack food products manufactured by other companies to the Company's Arizona snack food distributors and also merchandises in Texas for a fee, but does not purchase and resell, snack food products for manufacturers. 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, 1999. The Company does not allocate selling, general and administrative expenses, income taxes or extraordinary items to segments and has no significant non-cash items other than depreciation and amortization. MANUFACTURED DISTRIBUTED PRODUCTS PRODUCTS CONSOLIDATED ---------- ---------- ------------ 2000 Revenues from external customers $8,435,030 $1,272,807 $9,707,837 Depreciation and amortization in segment gross profit 278,254 -- 278,254 Segment gross profit 2,341,418 78,487 2,419,905 1999 Revenues from external customers $2,593,113 $1,097,745 $3,690,858 Depreciation and amortization in segment gross profit 185,568 -- 185,568 Segment gross profit 689,246 72,671 761,917 The following table reconciles reportable segment profit to the Company's consolidated income (loss) before income tax provision and cumulative effect of a change in accounting principle. 2000 1999 ---------- ---------- Consolidated segment gross profit $2,419,905 $ 761,917 Unallocated amounts: Selling, general and administrative expenses 1,875,019 879,031 Interest expense, net 280,802 153,498 ---------- ---------- Income (loss) before income tax provision and cumulative effect of a change in accounting principle $ 264,084 $ (270,612) ========== ========== 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1999 Net revenues for the three months ended March 31, 2000 were $9,708,000, up $6,017,000 or 163%, from $3,691,000 for the three months ended March 31, 1999. Sales of products manufactured by the Company accounted for 87% and 70% of total net revenues in 2000 and 1999, respectively, while revenues from distributed products accounted for 13% and 30% in 2000 and 1999, respectively. Manufactured product segment revenues increased $5,842,000, or 225%, from sales of branded and private label products. The increase included $3,910,000, of products manufactured by Wabash Foods (acquired in October 1999), and $1,932,000 from branded batch-fried and private label products. Revenues from the distributed products segment increased $175,000, or 16%. Gross profit for the three months ended March 31, 2000, was $2,420,000, or 25% of net revenues, as compared to $762,000, or 21% of net revenues, for the three months ended March 31, 1999. All of the $1,658,000 increase in gross profit was derived from the manufactured products segment due to the impact of higher sales volume which generated improved operating efficiencies. Selling, general and administrative expenses increased to $1,875,000 for the three months ended March 31, 2000 from $879,000 for the same period in 1999. The increase of $996,000, or 113%, compared to the first quarter of 1999 was principally due to increased promotional spending on new and existing products. Net interest expense increased to $281,000 for the three months ended March 31, 2000 from $153,000 for the three months ended March 31, 1999. This $128,000 increase was due to indebtedness related to the Wabash Foods acquisition. LIQUIDITY AND CAPITAL RESOURCES Net working capital was $912,000 (a current ratio of 1.2:1) and $780,000 (a current ratio of 1.2:1) at March 31, 2000 and December 31, 1999, respectively. The $132,000 increase in working capital was primarily attributable to increased receivables due to the increased sales volume. For the three months ended March 31, 2000, the Company generated cash flow of $536,000 from operating activities, principally from cash operating results, invested $112,000 in new equipment and made $222,000 in payments on long term debt. At March 31, 2000, the Company had outstanding 9% Convertible Debentures due July 1, 2002 in the principal amount of $1,370,067 ($511,020 held by Wells Fargo and $859,047 held by Renaissance Capital). The 9% Convertible Debentures are secured by land, building, equipment and intangibles. Interest on the 9% Convertible Debentures is paid by the Company on a monthly basis. Monthly principal payments of approximately $5,000 are required to be made by the Company on the Wells Fargo 9% Convertible Debenture beginning in July 2000 through June 2002. In November 1999, Renaissance Capital converted 50% ($859,047) of its 9% Convertible Debenture holdings into 859,047 shares of Common Stock and agreed unconditionally to convert into Common Stock the remaining $859,047 principal not later than December 31, 2000. For the period November 1, 1999 through December 31, 2000, Renaissance Capital agreed to waive all mandatory principal redemption payments and to accept 30,000 unregistered shares of the Company's Common Stock and a warrant to purchase 60,000 shares of common stock at $1.50 per share in lieu of cash interest payments. The Convertible Debenture Loan Agreement contains covenants requiring the maintenance of certain financial performance criteria including an interest coverage ratio, minimum working capital of $500,000, a current ratio of 1.1:1 and a minimum shareholders' equity. At March 31, 2000, the Company was in compliance with all of the financial ratio requirements. In the event of default, the holders of the 9% Convertible Debentures have the right, upon 10 written notice and after a thirty-day period during which such default may be cured, to demand immediate payment of the then unpaid principal and accrued but unpaid interest under the 9% Convertible Debentures. Management believes that the achievement of the Company's plans and objectives will enable the Company to attain a sufficient level of profitability to remain in compliance with the financial ratios. There can be no assurance, however, that the Company will attain any such profitability and remain in compliance with the financial ratios. Any acceleration under the 9% Convertible Debentures prior to their maturity on July 1, 2002 could have a material adverse effect upon the Company. On October 7, 1999, the Company signed a new $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 the Wells Fargo Line of Credit and Wells Fargo Term Loan and to refinance existing debt of Wabash Foods, LLC, and will also be 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 commencing February 1, 2000, plus interest, until maturity on July 1, 2006. The U.S. Bancorp Term Loan B bears interest at an annual rate of prime plus 2.5% and requires monthly principal payments of approximately $29,000 commencing April 30, 2000, plus interest, until maturity on March 31, 2001. The U.S. Bancorp Credit Agreement is secured by accounts receivable, inventories, equipment and general intangibles. Borrowings under the line of credit are limited to 80% of eligible receivables and 60% of eligible inventories. At March 31, 2000, the Company had a borrowing base of $2,947,000 and outstanding borrowings of $1,734,000 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 31, 2000, the Company was in compliance with all of the financial covenants. Management believes that the fulfillment of the Company's plans and objectives will enable the Company to attain a sufficient level of profitability to remain in compliance with these financial covenants. There can be no assurance, however, that the Company will attain any such profitability and remain in compliance. Any acceleration under the U.S. Bancorp Credit Agreement prior to the scheduled maturity of the U.S. Bancorp Line of Credit or the U.S. Bancorp Term Loans could have a material adverse effect upon the Company. The Company also assumed from Wabash Foods a $715,000 non-interest bearing note payable to U.S. Bancorp which is due in full on June 30, 2000. On October 7, 1999, 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 connection with the implementation of the Company's business strategy, the Company may incur additional operating losses in the future and is likely to require future debt or equity financings (particularly in connection with future strategic acquisitions). Expenditures relating to acquisition-related integration costs, market and territory expansion and new product development may adversely affect selling, general and administrative expenses and consequently may adversely affect operating and net income. These types of expenditures are expensed for accounting purposes as incurred, while sales generated from the result of such expansion may benefit future periods. As a result of the 1997 restructuring actions, the November 1998 Tejas acquisition, and the October 1999 Wabash Foods acquisition, management believes that the Company will generate positive cash flow from operations during the next twelve months which, along with its existing working capital and borrowing facilities, should enable the Company to meet its operating cash requirements. The belief is based on current operating plans and certain assumptions, including those relating to the Company's future revenue levels and expenditures, industry and general economic conditions and other conditions. If any of these factors change, the Company may require future debt or equity financings to meet its business requirements. There can be no assurance that any required financings will be available or, if available, on terms attractive to the Company. 11 FORWARD LOOKING STATEMENTS WHEN USED IN THIS FORM 10-QSB AND IN FUTURE FILINGS 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" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE COMPANY WISHES TO CAUTION READERS NOT TO PLACE UNDUE RELIANCE ON ANY SUCH FORWARD-LOOKING STATEMENTS, EACH OF WHICH SPEAKS ONLY AS OF THE DATE MADE. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL EARNINGS AND THOSE PRESENTLY ANTICIPATED OR PROJECTED. IN LIGHT OF SUCH RISKS AND UNCERTAINTIES, THERE CAN BE NO ASSURANCE THAT FORWARD-LOOKING INFORMATION CONTAINED IN THIS FORM 10-QSB WILL, IN FACT, TRANSPIRE OR PROVE TO BE ACCURATE. THE COMPANY HAS NO OBLIGATION TO PUBLICLY RELEASE THE RESULT OF ANY REVISIONS THAT MAY BE MADE TO ANY FORWARD-LOOKING STATEMENTS TO REFLECT ANTICIPATED OR UNANTICIPATED EVENTS OR CIRCUMSTANCES OCCURRING AFTER THE DATE OF SUCH STATEMENTS. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is occasionally 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. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES .. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits EXHIBIT NUMBER DESCRIPTION ------ ----------- 27.1 Financial Data Schedule * * Filed herewith. (b) Current Reports on Form 8-K: None. 12 SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. POORE BROTHERS, INC. Dated: May 2, 2000 By: /s/ Eric J. Kufel -------------------------------------------- Eric J. Kufel President and Chief Executive Officer (Principal Executive Officer) Dated: May 2, 2000 By: /s/ Thomas W. Freeze -------------------------------------------- Thomas W. Freeze Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer) 13 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION ------ ----------- 27.1 Financial Data Schedule EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED March 31, 2000, INCLUDED WITH FORM 10-QSB, AND IS QUALIFIED IN ITS ENTIRETY BY REFRERENCE TO SUCH FINANCIAL STATEMENTS. 1 U.S. DOLLARS 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1 153,539 0 4,083,725 193,771 1,383,666 5,746,587 15,698,767 2,193,849 26,586,771 4,834,379 10,052,308 0 0 133,821 11,566,263 26,586,771 9,707,837 9,707,837 7,287,932 7,287,932 1,875,019 0 280,802 264,084 6,500 257,584 0 0 0 257,584 0.02 0.02
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