U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Amendment No. 1)
(Mark One)
[ X ] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the quarterly period ended June 30, 1997
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; 0-21857
POORE BROTHERS, INC.
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(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) (Zip Code)
(602) 932-6200
--------------
(Issuer's Telephone Number, Including Area Code)
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 June 30, 1997, the number of issued and outstanding shares of common stock
of the Registrant was 7,051,657.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
1
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Table of Contents
This Form 10-QSB/A (Amendment No. 1) is being filed by the Registrant
for the purpose of amending and restating Items 1 and 2 and Exhibits 11.1 and
27.1 of the Registrant's Quarterly Report on Form 10- QSB for the quarter ended
June 30, 1997, which was filed by the Registrant with the Securities and
Exchange Commission on August 14, 1997. This Form 10-QSB/A (Amendment No. 1)
should be read in conjunction with all subsequent reports filed by the
Registrant with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996....... 3
Consolidated Statements of Operations for the three and six months ended
June 30, 1997 and 1996.................................................. 4
Consolidated Statements of Cash Flows for the six months ended June 30, 1997
and 1996................................................................ 5
Notes to Financial Statements............................................... 6
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition......................................................... 9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................... 13
Item 2. Changes in Securities and Use of Proceeds................................... 13
Item 3. Defaults Upon Senior Securities............................................. 13
Item 4. Submission of Matters to a Vote of Security Holders......................... 13
Item 5. Other Information........................................................... 14
Item 6. Exhibits and Reports on Form 8-K............................................ 15
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
POORE BROTHERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
---------------------- -------------------
1997 1996
---- ----
ASSETS (unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents...................................................... $ 953,473 $ 3,603,850
Restricted certificate of deposit.............................................. 1,250,000
Short term investments......................................................... 2,003,436
Accounts receivable, net of allowance of $136,000 in 1997
and $121,000 in 1996........................................................ 2,189,806 1,912,064
Inventories.................................................................... 475,880 863,309
Other current assets........................................................... 77,614 193,581
---------------------- -------------------
Total current assets......................................................... 5,700,209 7,822,804
Property and equipment, net....................................................... 6,422,862 4,032,343
Goodwill, net..................................................................... 2,233,439 2,295,617
Organizational costs, net......................................................... 148,779 174,614
Other assets...................................................................... 109,826 15,067
====================== ===================
Total assets................................................................. $ 14,615,115 $14,340,445
====================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 964,614 $ 1,318,952
Accrued and other current liabilities.......................................... 403,522 500,192
Current portion of long-term debt.............................................. 621,112 1,818,058
---------------------- -------------------
Total current liabilities.................................................... 1,989,248 3,637,202
Long-term debt, less current portion.............................................. 5,242,598 3,355,651
Other liabilities................................................................. 6,000
---------------------- -------------------
Total liabilities............................................................ 7,231,846 6,998,853
Shareholders' equity:
Common stock, $.01 par value; 15,000,000 shares
authorized,
shares issued and outstanding 7,051,657 (1997), 6,648,824 (1996).......... 70,516 66,488
Additional paid-in capital.................................................... 10,789,769 9,702,940
Accumulated deficit........................................................... (3,477,016) (2,427,836)
---------------------- -------------------
Total shareholders' equity.................................................. 7,383,269 7,341,592
Total liabilities and shareholders' equity.................................. $ 14,615,115 $ 14,340,445
====================== ===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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POORE BROTHERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- ---------------------------------
1997 1996 1997 1996
---- ---- ---- ----
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues............................................. $ 4,203,555 $ 4,702,808 $ 8,937,241 $ 8,168,848
Cost of sales........................................ 3,330,903 3,687,739 7,099,941 6,292,248
-------------- -------------- ------------- -------------
Gross profit.................................... 872,652 1,015,069 1,837,300 1,876,600
Selling, general and administrative expenses......... 1,240,743 933,616 2,645,774 1,906,170
Sale of Texas distribution business.................. 150,000 150,000
-------------- -------------- ------------- -------------
Operating income (loss)......................... (518,091) 81,453 (958,474) (29,570)
-------------- -------------- ------------- -------------
Interest income...................................... 31,911 2,704 74,687 1,949
Interest expense..................................... (84,580) (93,016) (165,393) (185,122)
-------------- -------------- ------------- -------------
Net interest expense............................ (52,669) (90,312) (90,706) (183,173)
-------------- -------------- ------------- -------------
Net loss............................................. $ (570,760) $ (8,859) $ (1,049,180) $ (212,743)
============== ============== ============= =============
Loss per common share and common share
equivalent........................................ $ (0.08) $ (0.00) $ (0.15) (0.05)
============== ============== ============= =============
Loss per common share - assuming full dilution....... * * * *
Weighted average common and common
equivalent shares outstanding..................... 7,004,826 4,232,036 6,982,594 4,250,490
============== ============== ============= =============
</TABLE>
*Anti-dilutive.
The accompanying notes are an integral part of these financial statements.
4
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POORE BROTHERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................................ $ (1,049,180) $ (212,743)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation.......................................................... 119,520 122,332
Amortization.......................................................... 87,894 85,338
Bad debt expense...................................................... 21,500
Loss on disposition of businesses..................................... 150,000
Change in operating assets and liabilities:
Accounts receivable................................................. (220,828) (576,966)
Inventories......................................................... 230,601 (50,432)
Other assets and liabilities........................................ 60,107 (28,423)
Accounts payable and accrued liabilities............................ (607,008) 319,313
------------------- -------------------
Net cash used in operating activities...................................... (1,207,394) (341,581)
------------------- -------------------
Cash flows from investing activities:
Proceeds on disposal of property....................................... 767,859 3,080
Sale of Texas distribution business.................................... 78,414
Purchase of short term investments..................................... (2,003,436)
Purchase of equipment.................................................. (2,275,463) (357,865)
------------------- -------------------
Net cash used in investing activities...................................... (3,432,626) (354,785)
------------------- -------------------
Cash flows from financing activities:
Proceeds from issuance of common stock................................. 1,253,431 1,046,511
Payments on purchase of common stock................................... (56,709)
Stock issuance costs................................................... (162,574) (94,639)
Proceeds from issuance of long-term debt............................... 1,677,793
Payments made on long-term debt........................................ (2,010,723) (91,760)
Net decrease in restricted certificate of deposit...................... 1,250,000
Net increase in working capital line of credit......................... (18,284) 127,000
------------------- -------------------
Net cash provided by financing activities.................................. 1,989,643 930,403
------------------- -------------------
Net increase (decrease) in cash and cash equivalents....................... (2,650,377) 234,037
Cash and cash equivalents at beginning of period........................... 3,603,850 200,603
------------------- -------------------
Cash and cash equivalents at end of period................................. $ 953,473 $ 434,640
=================== ===================
Supplemental disclosures of cash flow information:
Summary of non-cash investing and financing activities:
Construction loan for new facility................................... $ 998,746
Mortgage impounds for interest, taxes and insurance.................. 35,990
Note received for sale of Texas distribution business................ 78,414
Capital lease obligation incurred - equipment acquisition............ 6,479 $ 148,112
Cash paid during the six months for interest, net of amounts
capitalized......................................................... 194,793 220,289
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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POORE BROTHERS, INC. AND SUBSIDIARIES
NOTES TO 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. The exchange transaction
with PB Southeast has been accounted for similar to a pooling 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 disposed of its
Houston, Texas distribution business. See Note 2 to the financial
statements.
The Company manufactures and distributes potato chips under the Poore
Brothers(TM) brand name, as well as private label potato chips, and also
distributes a variety of other independently manufactured snack food items.
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 controlled
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 the Company, all adjustments required to
fairly present the Company's financial position, results of operations and
cash flows as of June 30, 1997 have been made. A description of the
Company's accounting policies and other financial information is included
in the audited December 31, 1996 financial statements filed with the Form
10-KSB for the fiscal year ended December 31, 1996. Included in this filing
are footnotes and information that is new or updated subsequent to the
filing of the Form 10-KSB. The results of operations for the quarter and
six months ended June 30, 1997 are not necessarily indicative of the
results expected for the full year.
Loss Per Share
Loss per common share and common share equivalent ("loss per common
share") is computed by dividing the net loss by the weighted average number
of shares of Common Stock and common stock equivalents outstanding during
each period. Pursuant to the Securities and Exchange Commission Staff
Accounting Bulletin (SAB) No. 83, Company issuance of Common Stock, and
options and warrants to purchase Common Stock granted by the Company during
the 12 months immediately preceding the initial filing date of the
Company's initial public offering have been included in the calculation of
weighted average number of shares of Common Stock outstanding as if the
underlying shares were outstanding for all periods presented (even if
anti-dilutive, using the treasury stock method and an offering price of
$3.50 per share). The effect on loss per common share for the outstanding
options and warrants issued prior to the one year period preceding the
initial public offering have been excluded from the loss per common share
computation as they are anti-dilutive. For 1996, the principles of SAB No.
83 were applied for the first nine months of the year before the initial
public offering became effective. For the first six months of 1997, the
principles of Accounting Principles Board Opinion No. 15 were followed.
Accordingly, the effect on loss per common share of the outstanding options
and warrants in the first six months of 1997 have been excluded from the
computation as they are anti-dilutive. Loss per common share, assuming full
dilution, is not applicable for loss periods as it is anti-dilutive.
6
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2. Restructuring Actions
On June 4, 1997, Poore Brothers of Texas, Inc. ("PB Texas"), a
wholly-owned subsidiary of Poore Brothers, Inc., sold it's Houston, Texas
distribution business to Mr. David Hecht (the "Buyer"), pursuant to an
Asset Purchase, Licensing and Distribution Agreement effective June 1,
1997. Under the Agreement, the Buyer was sold certain assets of PB Texas
(including inventory, vehicles and capital equipment), was granted a
license to be the Company's exclusive distributor in the Houston, Texas
market, and agreed not to distribute any other brand of kettle chips. The
"Sale of Texas distribution business" in the Statement of Operations
reflects a $150,000 one-time charge for the sale of PB Texas. This charge
included amounts related to asset write-downs ($83,000), salaries and
benefits ($57,000), and lease termination costs ($10,000) related to the
disposal of the business in June 1997.
In connection with the Company's sale of the Texas distribution
business in June 1997, $83,000 of the $150,000 in total charges represents
non-cash asset write-downs. Of the $67,000 which requires cash
payments,substantially all will be paid by the end of September, 1997.
3. Long-Term Debt
On June 4, 1997, the Company refinanced its $998,746 construction loan
provided by National Bank of Arizona, for the Company's new 60,000 square
foot manufacturing, distribution and headquarters facility in Goodyear,
Arizona. The new permanent financing, provided by Morgan Guaranty Trust
Company of New York, is a $2 million, 15 year mortgage at 9.03%.
In addition, on June 25, 1997, the Company received funding of $719,007
from FINOVA Capital Corporation on a $930,000, 5-year, 8.71% equipment
lease line for new production equipment installed recently in the Company's
new facility.
The Company's $1 million working capital line of credit automatically
renews as of November 30, 1997 for a one-year period. At June 30, 1997, the
Company had over $1.0 million of eligible receivables.
At June 30, 1997, the Company had outstanding 9% Convertible Debentures
due July 1, 2002 (the "9% Convertible Debentures") in the principal amount
of $2,299,591. The Company was not in compliance with a required interest
coverage ratio of 1.5:1 (actual of -3.0:1). However, the holders of the 9%
Convertible Debentures have granted the Company a waiver effective through
September 30, 1998. 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
$1,000,000; minimum shareholders' equity (net worth) that will be
calculated based upon the earnings of the Company and the consideration
received by the Company from issuances of securities by the Company; an
interest coverage ratio of at least 2.0:1; 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
beginning in July 1998 through July 2002. 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 or alternatively, that the Company will be able to obtain
an extension or renewal of the waivers; however, there can be no assurance
that the Company will attain any such profitability, be in compliance with
the financial ratios upon the expiration of the waivers or be able to
obtain an extension or renewal 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.
4. Litigation
On July 11, 1997, summary judgement was granted in favor of all
defendants, including PB Southeast, a subsidiary of the Company, on all
counts of the Gossett lawsuit. In that lawsuit, James Gossett asserted that
he was entitled to acquire up to 49% of the stock of PB Southeast, pursuant
to an alleged oral agreement with Mark Howells, Poore Brothers' current
Chairman of the Board of Directors. Mr. Gossett also asserted claims based
upon an alleged breach of fiduciary duty and alleged interference with the
business of Poore Brothers Pacific, Inc., a company with
7
<PAGE>
which Mr. Gossett claimed to be associated. In its July 11, 1997 Order, the
Maricopa County (Arizona) Superior Court ruled that there was no oral
contract and that the remainder of plaintiffs' claims could not support a
cause of action against the defendants. Because no final judgment has been
entered by the Court, the time for filing post-judgment motions and/or for
perfecting an appeal has not expired.
5. Pro Forma Financial Statements
On June 4, 1997, PB Texas entered into an Asset Purchase, Licensing and
Distribution Agreement effective June 1, 1997, pursuant to which PB Texas
sold certain assets (including inventory, vehicles and capital equipment)
to Mr. David Hecht (the "Buyer"). In addition, pursuant to the Agreement
the Buyer has been granted a license to be the Company's exclusive
distributor in the Houston, Texas market. The purchase price for the assets
sold by PB Texas was approximately $157,000, 50% of which was paid by the
Buyer in cash at the closing and 50% of which will be paid pursuant to a
one year, non-interest bearing promissory note issued by the Buyer to the
Company. The Company will provide certain financial support to the Buyer,
estimated at $40,000, in connection with the transition of the business to
the Buyer. As a result of this transaction, the PB Texas distribution
operation has been dissolved.
Pro forma information has been provided below for the following periods
- the three months ended June 30, 1997 and 1996; and the six months ended
June 30, 1997 and 1996. The pro forma data is based on the historical
statement of operations, with elimination of all PB Texas transactions. The
revenue decrease associated with the elimination of PB Texas was $447,128
for the three months ended June 30, 1997 and $1,323,427 for the six months
ended June 30, 1997. Costs and expenses were reduced with the elimination
of PB Texas by $506,489 for the three months ended June 30, 1997 and
$1,443,286 for the six months ended June 30, 1997. There was an additional
one time charge of $150,000 in June 1997 associated with the disposition of
PB Texas. Accordingly, the pro forma statements of operations below have
been adjusted to reflect the above mentioned amounts.
POORE BROTHERS, INC.
PRO FORMA STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
-------------------------------------- ---------------------------------------
1997 1996 1997 1996
------------------- ------------------ ------------------- -------------------
<S> <C> <C> <C> <C>
Revenues $ 3,756,427 $ 3,867,748 $ 7,613,814 $ 6,761,641
Cost of sales 2,918,550 2,958,785 5,904,052 5,030,531
------------------- ------------------ ------------------- -------------------
Gross profit 837,877 908,963 1,709,762 1,731,110
Selling, general and administrative expenses 1,146,607 790,147 2,398,377 1,595,961
------------------- ------------------ ------------------- -------------------
Operating income (loss) (308,730) 118,816 (688,615) 135,149
Net interest expense (52,669) (90,144) (90,706) (182,425)
------------------- ------------------ ------------------- -------------------
Net loss $ (361,399) $ 28,672 $ (779,321) $ (47,276)
=================== ================== =================== ===================
Loss per common share and common share
equivalent $ (0.05) $ 0.01 $ (0.11) $ (0.01)
=================== ================== =================== ===================
</TABLE>
6. New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB")
adopted Statement of Financial Accounting Standard No. 128 "Earnings per
Share" ("SFAS 128"), which supersedes and simplifies the standards for
computing earnings per share ("EPS") previously found in Accounting
Principles Board Opinion No. 15, Earnings per Share ("APB 15"). SFAS 128 is
effective for financial statements issued for periods ending after December
15,
8
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1997, including interim periods; earlier application is not permitted. The
Company will provide the required EPS disclosures in its financial
statements commencing with the fiscal year ending December 31, 1997. SFAS
128 requires restatement of all prior period EPS data presented. Pursuant
to the provisions of SFAS 128, the Company's net loss per common share was
$0.08 for the 1997 second quarter, $0.00 for the 1996 second quarter, $0.15
for the six months ended June 30, 1997 and $0.06 for the six months ended
June 30, 1996. The application of the provisions of SFAS 128 would have no
effect on the amounts reported for net loss per common share assuming full
dilution.
In February 1997, FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure." This statement establishes standards for
disclosing information about an entity's capital structure. The Company has
not yet determined the effect, if any, of SFAS No. 129 on the consolidated
financial statements.
FASB Statement No. 130 "Reporting Comprehensive Income," which the
Company will adopt during the first quarter of 1998, establishes standards
for reporting and display of comprehensive income and its components in
financial statements. Comprehensive income generally represents all changes
in shareholders' equity except those resulting from investments by or
distributions to shareholders. The Company has not yet determined the
effect, if any, of SFAS No. 130 on the consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This Statement will change the
way public companies report information about segments of their business in
their annual financial statements and requires then to report selected
segment information in their quarterly reports issued to shareholders. It
also requires entity-wide disclosures about the products and services an
entity provides, the material countries in which it holds assets and
reports revenues, and its major customers. The Statement is effective for
fiscal years beginning after December 15, 1997. The Company has not yet
determined the effect, if any, of SFAS 131 on the consolidated financial
statements.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
Quarter ended June 30, 1997 compared to the quarter ended June 30, 1996
Revenues for the three months ended June 30, 1997 were $4,203,555, down
$499,253 or 11%, from $4,702,808 for the three months ended June 30, 1996.
The PB Texas distribution operation contributed $388,000 to the revenue
decline. An additional $296,000 resulted from the decrease in sales of
products manufactured by others (related products), primarily due to the
elimination of several unprofitable product lines. Poore Brothers
manufactured potato chip revenues, excluding PB Texas, for the second
quarter of 1997 were $2,944,000, up $185,000 or 7% from $2,759,000 for the
second quarter of 1996, driven by expanded geographic markets and increased
sales of low-fat product.
Gross profit for the three months which ended June 30, 1997, was
$872,652, or 21% of revenues, as compared to $1,015,069, or 22% of
revenues, for the three months which ended June 30, 1996. The decrease in
gross profit dollars of $142,417 was primarily due to lower revenues and
secondarily due to higher costs of distributed products.
Selling, general and administrative expenses increased to $1,240,743
for the three months ended June 30, 1997 from $933,616 for the same period
in 1996. This represented a $307,127 increase, or 33%, over the same
quarter of 1996. Included in selling, general, and administrative expenses
were $99,000 of insurance, printing, legal and accounting expenses not
incurred prior to Poore Brothers becoming a public company in December
1996. There was an increase of $52,000 in property related charges
including property taxes, insurance and depreciation due to the new
manufacturing facility and manufacturing equipment. Additionally, the
Company experienced $44,000 in dual occupancy expenses related to the
transition into the new Arizona facility. Due to the expansion of sales
into new regions, the company has incurred $54,000 in increased freight
costs.
9
<PAGE>
During the second quarter of 1997, the Company incurred a one-time
charge of approximately $150,000 in connection with the disposal of its PB
Texas subsidiary. These costs are related to asset write-downs ($83,000),
salaries and benefits ($57,000) and lease termination ($10,000).
Net interest expense decreased to $52,669 for the quarter ended June
30, 1997 from $90,312 for the quarter ended June 30, 1996. This decrease
was due primarily to interest income generated from investment of the
proceeds of the initial public offering and secondarily from lower interest
expense resulting from payments on the Company's indebtedness with a
portion of the proceeds from the initial public offering.
The Company's net losses for the quarters ended June 30, 1997 and June
30, 1996 were $570,760 and $8,859, respectively. The increased net loss was
attributable primarily to the disposition of the Texas operation and the
higher selling, general and administrative expenses.
Six months ended June 30, 1997 compared to the six months ended June
30, 1996
Revenues for the six months ended June 30, 1997 were $8,937,241, up
$768,393 or 9%, from $8,168,848 for the six months ended June 30, 1996.
Sales of Kettle chips grew to $5,056,000, up $418,000 or 9%, from
$4,638,000, for the same six-month period in 1996. The private label
business, launched in the first quarter of 1996, generated revenues of
$462,000 for the first six months of 1997, up $83,000 or 22% from the same
period of 1996. The low-fat business launched during June of 1996,
contributed $272,000 for the first six months of 1997, compared to only
$15,000 during the first half of 1996. Sales of products manufactured by
others increased only $10,000 to $3,147,000 despite the Company's
elimination of several unprofitable lines.
Gross profit for the six months ended June 30, 1997 was $1,837,300 or 21%
of revenues, as compared to $1,876,600 or 23% of revenues for the six
months ended June 30, 1996. Gross profit as a percentage of sales decreased
due to higher labor costs associated with the transition to new equipment
and a new facility, along with higher raw material costs than experienced
in 1996.
Selling, general and administrative expenses increased to $2,645,774 for
the six months ended June 30, 1997, up $739,604 or 39%, from $1,906,170 in
1996. Included in selling, general and administrative expenses in 1997 were
approximately $255,000 of expenses related to severance, relocation, moving
and equipment writedowns. In addition, $123,000 of insurance, printing,
legal and accounting expenses were incurred during the first six months of
1997 that were not incurred prior to the initial public offering that
occurred in December 1996. Due to the expansion into new geographical
regions, the Company has incurred $107,000 of marketing and sales costs, as
well as $94,000 in additional freight costs. Due to the new manufacturing
facility and equipment, there was an increase of $52,000 in property
related charges, including taxes, insurance and depreciation, as well as
dual occupancy expenses of $44,000.
During the second quarter of 1997, the Company incurred a one-time
charge of approximately $150,000 in connection with the disposal of its PB
Texas subsidiary. These costs are related to asset write-downs ($83,000),
salaries and benefits ($57,000) and lease termination ($10,000).
Net interest expense decreased to $90,706 for the six months ended June
30, 1997 from $183,173 for the six months ended June 30, 1996. This
decrease was due primarily to interest income generated from investment of
the proceeds of the initial public offering and secondarily from lower
interest expense resulting from payments on the Company's indebtedness with
a portion of the proceeds from the initial public offering.
The Company's net losses for the six months ended June 30, 1997 and June
30, 1996 were $1,049,180 and $212,743 respectively. The increased net loss
was attributable primarily to disposal of the PB Texas distribution
business along with higher selling, general and administrative expenses.
Liquidity and Capital Resources
10
<PAGE>
Net working capital was $3,710,961 at June 30, 1997, with a current
ratio of 2.9:1. At December 31, 1996, net working capital was $4,185,602
with a current ratio of 2.2:1. The $474,641 decrease in working capital was
primarily attributable to the Company's cash operating loss of
approximately $820,000.
Completion of the new manufacturing, distribution and headquarters
facility, along with the purchase and installation of new equipment,
required funds of $2,275,463. These capital expenditures were funded by the
refinancing of the Company's $1 million short-term construction loan into a
permanent $2 million, 15-year mortgage financing arrangement at 9.03% with
Morgan Guaranty Trust Company of New York, financing of $719,007 from
FINOVA Capital Corporation on 5-year, 8.71% equipment leases and proceeds
of $770,559 from the sale of the Company's old Arizona facilities.
The Company's $1 million working capital line of credit automatically
renews as of November 30, 1997 for a one-year period. At June 30, 1997, the
Company had over $1.0 million of eligible receivables.
In January 1997, the Company sold 337,500 shares of its Common Stock
pursuant to an over-allotment option granted to the underwriter of the
Company's initial public offering. Net proceeds from the sale were
approximately $1,000,000.
At June 30, 1997, the Company had outstanding 9% Convertible Debentures
due July 1, 2002 (the "9% Convertible Debentures") in the principal amount
of $2,299,591. The Company was not in compliance with a required interest
coverage ratio of 1.5:1 (actual of -3.0:1). However, the holders of the 9%
Convertible Debentures have granted the Company a waiver effective through
September 30, 1998. 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
$1,000,000; minimum shareholders' equity (net worth) that will be
calculated based upon the earnings of the Company and the consideration
received by the Company from issuances of securities by the Company; an
interest coverage ratio of at least 2.0:1; 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
beginning in July 1998 through July 2002. 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 or alternatively, that the Company will be able to obtain
an extension or renewal of the waivers; however, there can be no assurance
that the Company will attain any such profitability, be in compliance with
the financial ratios upon the expiration of the waivers or be able to
obtain an extension or renewal 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 expansion of the Company's operations, the Company
may incur additional operating losses in the future. Expenditures relating
to marketing and territory expansion, new product development and equipment
relocation may adversely affect cost of sales and 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 revenue generated from the result of such
expansion may benefit future periods.
Management believes that current working capital, together with
available line of credit borrowings, and anticipated cash flows from
operations, will be sufficient to finance the operations of the Company for
at least the next twelve months. This 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 plans, assumptions or
factors change, the Company may require future debt or equity financing to
meet its business requirements. There can be no assurance that such
financing will be available or, if available, on terms attractive to the
Company.
In February 1997, the Financial Accounting Standards Board ("FASB")
adopted Statement of Financial Accounting Standard No. 128 "Earnings per
Share" ("SFAS 128"), which supersedes and simplifies the standards for
computing earnings per share ("EPS") previously found in Accounting
Principles Board Opinion No. 15, Earnings
11
<PAGE>
per Share ("APB 15"). SFAS 128 is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods;
earlier application is not permitted. The Company will provide the required
EPS disclosures in its financial statements commencing with the fiscal year
ending December 31, 1997. SFAS 128 requires restatement of all prior period
EPS data presented. Pursuant to the provisions of SFAS 128, the Company's
net loss per common share was $0.08 for the 1997 second quarter, $0.00 for
the 1996 second quarter, $0.15 for the six months ended June 30, 1997 and
$0.06 for the six months ended June 30, 1996. The application of the
provisions of SFAS 128 would have no effect on the amounts reported for net
loss per common share assuming full dilution.
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 SPEAK
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.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On July 11, 1997, summary judgement was granted in favor of all
defendants, including Poore Brothers Southeast, Inc., a subsidiary of Poore
Brothers, Inc, on all counts of the Gossett lawsuit. In that lawsuit, James
Gossett asserted that he was entitled to acquire up to 49% of the stock of Poore
Brothers Southeast, Inc. pursuant to an alleged oral agreement with Mark
Howells, Poore Brothers' current Chairman of the Board of Directors. Mr. Gossett
also asserted claims based upon an alleged breach of fiduciary duty and alleged
interference with the business of Poore Brothers Pacific, Inc., a company with
which Mr. Gossett claimed to be associated. In its July 11, 1997 Order, the
Maricopa County (Arizona) Superior Court ruled that there was no oral contract
and that the remainder of plaintiffs' claims could not support a cause of action
against the defendants. Because no final judgment has been entered by the Court,
the time for filing post-judgment motions and/or for perfecting an appeal has
not expired.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
At June 30, 1997, the Company had outstanding 9% Convertible Debentures
due July 1, 2002 (the "9% Convertible Debentures") in the principal amount of
$2,299,591. The Company was not in compliance with a required interest coverage
ratio of 1.5:1 (actual of -3.0:1). However, the holders of the 9% Convertible
Debentures have granted the Company a waiver effective through September 30,
1998. 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 $1,000,000; minimum shareholders'
equity (net worth) that will be calculated based upon the earnings of the
Company and the consideration received by the Company from issuances of
securities by the Company; an interest coverage ratio of at least 2.0:1; 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 beginning in July 1998 through July 2002. 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 or alternatively, that the Company will be able to obtain an
extension or renewal of the waivers; however, there can be no assurance that the
Company will attain any such profitability, be in compliance with the financial
ratios upon the expiration of the waivers or be able to obtain an extension or
renewal 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.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual Meeting of Stockholders of the Company (the
"Meeting") was held on June 12, 1997.
(b) Proxies for the Meeting were solicited pursuant to Regulation
14A under the Exchange Act. There was no solicitation in
opposition to the management's nominees as listed in the proxy
statement and all of such nominees were elected.
(c) At the Meeting, the Company's stockholders voted upon the
election of six directors of the Company. Management's
nominees were Messrs. Mark S. Howells, Eric J. Kufel, Jeffrey
J. Puglisi, Parris H. Holmes, Jr., Robert C. Pearson and Aaron
M. Shenkman. There were no other nominees. The following are
the respective numbers of votes cast "for" and "withheld" with
respect to each nominee. There were no votes cast against or
broker non-votes with respect to any nominee.
13
<PAGE>
Name of Nominee Votes Cast For Votes Withheld
--------------- -------------- --------------
Mark S. Howells 5,220,944 29,675
Eric J. Kufel 5,221,219 29,400
Jeffrey J. Puglisi 5,221,219 29,400
Parris H. Holmes, Jr 5,221,094 29,525
Robert C. Pearson 5,221,219 29,400
Aaron M. Shenkman 5,221,219 29,400
At the Meeting, stockholders also voted upon a proposal to amend the
Company's 1995 Stock Option Plan to increase the number of shares of
the Company's Common Stock reserved for issuance pursuant to options
granted thereunder by 500,000, from 1,000,000 to 1,500,000 shares. The
following votes were cast at the Meeting with regard to such proposal.
For Against Abstentions and Broker Non-Votes
--- --------- --------------------------------
2,978,823 190,358 2,081,438
As such proposal received a majority of the votes cast at the Meeting,
such proposal was adopted. There were no other matters voted upon at
the Meeting.
Item 5. Other Information
None.
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number
Description
10.3 Fixed Rate Note dated June 4, 1997, by and between La Cometa
Properties, Inc. and Morgan Guaranty Trust Company of New York.**
10.4 Deed of Trust and Security Agreement dated June 4, 1997, by and between
La Cometa Properties, Inc. and Morgan Guaranty Trust Company of New
York.**
10.5 Guaranty Agreement dated June 4, 1997, by and between the Company and
Morgan Guaranty Trust Company of New York.**
10.6 Equipment Lease Agreement dated June 9, 1997, by and between Poore
Brothers of Arizona, Inc. and FINOVA Capital Corporation.**
11.1 Statement regarding computation of per share earnings. *
27.1 Financial Data Schedule. *
99.1 Poore Brothers, Inc. 1995 Stock Option Plan**
* Filed herewith.
** Incorporated by reference to the Company's original Form 10-QSB for the
quarter ended June 30, 1997, which was filed with the Securities and
Exchange Commission on August 14, 1997.
(b) Current Reports on Form 8-K:
(1) Current Report on Form 8-K, dated June 4, 1997, regarding the consummation
of the sale by Poore Brothers of Texas, Inc. of its Houston, Texas distribution
business.
15
<PAGE>
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.
By /s/ Eric J. Kufel
--------------------------------------------
Dated: January 22, 1998 Eric J. Kufel
President and Chief Executive Officer
(principal executive officer)
By: /s/ Thomas W. Freeze
--------------------------------------------
Dated: January 22, 1998 Thomas W. Freeze
Vice President, Chief Financial Officer,
Treasurer and Secretary
(principal financial and accounting officer)
16
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
11.1 Statement regarding computation of per share earnings.
27.1 Financial Data Schedule.
17
EXHIBIT 11-1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
POORE BROTHERS, INC.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------------------- -------------------------------
1997 1996 1997 1996
-------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net loss................................................. $ (570,760) $ (8,859) $ (1,049,180) $ (212,743)
-------------- ------------- -------------- ---------------
Weighted average common shares outstanding............... 7,004,826 3,473,624 6,982,594 3,492,078
Common stock equivalents from stock options and
warrants. * 758,412 (1) * 758,412 (1)
-------------- ------------- -------------- ---------------
Total weighted average common shares outstanding......... 7,004,826 4,232,036 6,982,594 4,250,490
-------------- ------------- -------------- ---------------
Loss per common share and common share equivalent........ $ (0.08) $ (0.00) $ (0.15) $ (0.05)
-------------- ------------- -------------- ---------------
</TABLE>
(1) Anti-dilutive common stock equivalents included in accordance with
Securities and Exchange Commission Staff Accounting Bulletin No. 83.
* Not included as they are anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1997, INCLUDED WITH FORM 10-QSB, AND IS QUALIFIED IN ITS ENTIRETY BY
REFRERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 953,473
<SECURITIES> 2,003,436
<RECEIVABLES> 2,325,806
<ALLOWANCES> 136,000
<INVENTORY> 475,880
<CURRENT-ASSETS> 5,700,209
<PP&E> 7,009,345
<DEPRECIATION> 586,483
<TOTAL-ASSETS> 14,615,115
<CURRENT-LIABILITIES> 1,989,248
<BONDS> 5,242,598
0
0
<COMMON> 70,516
<OTHER-SE> 7,312,753
<TOTAL-LIABILITY-AND-EQUITY> 14,615,115
<SALES> 8,937,241
<TOTAL-REVENUES> 8,937,241
<CGS> 7,099,941
<TOTAL-COSTS> 7,099,941
<OTHER-EXPENSES> 2,795,774
<LOSS-PROVISION> 21,500
<INTEREST-EXPENSE> 90,706
<INCOME-PRETAX> (1,049,180)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,049,180)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,049,180)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> 0
</TABLE>
