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]
<PAGE>
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
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
POORE BROTHERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
ASSETS (unaudited)
<S> <C> <C>
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
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
POORE BROTHERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
2000 1999
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
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
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
POORE BROTHERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
--------- ---------
(unaudited) (unaudited)
<S> <C> <C>
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 --
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<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.
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
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 153,539
<SECURITIES> 0
<RECEIVABLES> 4,083,725
<ALLOWANCES> 193,771
<INVENTORY> 1,383,666
<CURRENT-ASSETS> 5,746,587
<PP&E> 15,698,767
<DEPRECIATION> 2,193,849
<TOTAL-ASSETS> 26,586,771
<CURRENT-LIABILITIES> 4,834,379
<BONDS> 10,052,308
0
0
<COMMON> 133,821
<OTHER-SE> 11,566,263
<TOTAL-LIABILITY-AND-EQUITY> 26,586,771
<SALES> 9,707,837
<TOTAL-REVENUES> 9,707,837
<CGS> 7,287,932
<TOTAL-COSTS> 7,287,932
<OTHER-EXPENSES> 1,875,019
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 280,802
<INCOME-PRETAX> 264,084
<INCOME-TAX> 6,500
<INCOME-CONTINUING> 257,584
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 257,584
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
