U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended June 29, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO 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 Registrant 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)
Registrant's Telephone Number, Including Area Code: (623) 932-6200
Indicate by check whether the Registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 16,346,696 as of June 29, 2002.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
Consolidated balance sheets as of June 29, 2002
and December 31, 2001............................................. 3
Consolidated statements of operations for the quarter
and six months ended June 29, 2002 and June 30, 2001.............. 4
Consolidated statements of cash flows for the six months ended
June 29, 2002 and June 30, 2001................................... 5
Notes to consolidated financial statements.......................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS......................................... 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......... 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................... 19
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS........................... 19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..................................... 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................. 19
ITEM 5. OTHER INFORMATION................................................... 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................... 20
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
POORE BROTHERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 29, DECEMBER 31,
2002 2001
------------ ------------
ASSETS (unaudited)
Current assets:
Cash ................................................................. $ 172,469 $ 894,198
Accounts receivable, net of allowance of $241,000 in 2002 and $219,000
in 2001 .......................................................... 5,941,887 4,982,793
Inventories .......................................................... 2,135,554 1,887,872
Other current assets ................................................. 388,613 430,914
------------ ------------
Total current assets .............................................. 8,638,523 8,195,777
Property and equipment, net ............................................ 13,341,955 13,730,273
Goodwill, net .......................................................... 5,354,901 5,354,901
Trademarks, net ........................................................ 4,207,032 4,207,032
Other assets ........................................................... 181,670 200,077
------------ ------------
Total assets ........................................................... $ 31,724,081 $ 31,688,060
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................................... $ 3,157,517 $ 2,430,857
Accrued liabilities .................................................. 2,217,274 1,406,845
Current portion of long-term debt .................................... 1,258,053 2,343,472
------------ ------------
Total current liabilities ......................................... 6,632,844 6,181,174
Long-term debt, net of current portion ................................. 6,456,744 8,661,255
------------ ------------
Total liabilities ................................................. 13,089,588 14,842,429
------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $100 par value; 50,000 shares authorized; no shares
issued or outstanding at June 29, 2002 and December 31, 2001 ....... -- --
Common stock, $.01 par value; 50,000,000 shares authorized; 16,346,696
and 15,687,518 shares issued and outstanding at June 29, 2002 and
December 31, 2001, respectively .................................... 163,466 156,875
Additional paid-in capital ........................................... 21,937,523 21,175,485
Accumulated deficit .................................................. (3,466,496) (4,486,729)
------------ ------------
Total shareholders' equity ........................................ 18,634,493 16,845,631
------------ ------------
Total liabilities and shareholders' equity ............................. $ 31,724,081 $ 31,688,060
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
3
POORE BROTHERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
QUARTER ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
2002 2001 2002 2001
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Net revenues ............................... $ 15,358,319 $ 14,482,055 $ 29,635,839 $ 27,748,938
Cost of revenues ........................... 12,170,534 11,361,325 23,931,222 21,755,740
------------ ------------ ------------ ------------
Gross profit ............................. 3,187,785 3,120,730 5,704,617 5,993,198
Selling, general and administrative expenses 2,369,170 2,417,573 4,334,094 4,621,707
------------ ------------ ------------ ------------
Operating income ......................... 818,615 703,157 1,370,523 1,371,491
Other income (expense), net ................ -- (6,873) 11,341 5,739
Interest expense, net ...................... (151,407) (275,950) (316,632) (572,154)
Income before income tax provision ....... 667,208 420,334 1,065,232 805,076
Income tax provision ....................... (27,000) (16,000) (45,000) (32,000)
------------ ------------ ------------ ------------
Net income ............................... $ 640,208 $ 404,334 $ 1,020,232 $ 773,076
============ ============ ============ ============
Earnings per common share:
Basic .................................... $ 0.04 $ 0.03 $ 0.06 $ 0.05
============ ============ ============ ============
Diluted .................................. $ 0.04 $ 0.02 $ 0.06 $ 0.04
============ ============ ============ ============
Weighted average number of common shares:
Basic .................................... 15,833,473 15,046,655 15,763,714 15,023,340
============ ============ ============ ============
Diluted .................................. 18,079,446 17,708,387 17,843,698 17,563,114
============ ============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
4
POORE BROTHERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
-----------------------------
JUNE 29, 2002 JUNE 30, 2001
------------- -------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 1,020,232 $ 773,076
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation ............................................ 668,239 576,974
Amortization ............................................ 18,407 344,808
Valuation reserves ...................................... 185,142 207,630
Other non-cash charges .................................. 222,314 177,340
Gain on disposition of equipment ........................ (2,564) (167,450)
Change in operating assets and liabilities:
Accounts receivable ..................................... (980,673) (1,946,861)
Inventories ............................................. (411,245) (1,962,709)
Other assets ............................................ (180,014) (215,184)
Accounts payable and accrued liabilities ................ 1,537,091 2,194,532
----------- -----------
Net cash provided by (used in) operating activities 2,076,929 (17,844)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ........................ (280,762) (2,435,792)
Proceeds from disposition of property and equipment ....... 3,406 700,000
----------- -----------
Net cash used in investing activities ............. (277,356) (1,735,792)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock .................... 367,135 63,570
Payments made on long-term debt ........................... (1,266,863) (1,222,233)
Stock and debt issuance costs ............................. -- (8,773)
Net increase (decrease) in working capital line of credit . (1,621,574) 2,813,211
----------- -----------
Net cash (used in) provided by financing activities (2,521,302) 1,645,775
----------- -----------
Net decrease in cash ........................................ (721,729) (107,861)
Cash at beginning of period ................................. 894,198 327,553
----------- -----------
Cash at end of period ....................................... $ 172,469 $ 219,692
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest .................. $ 299,693 $ 560,793
Summary of non-cash investing and financing activities:
Note payable issued to purchase property and equipment .. -- 275,523
Conversion of convertible debenture into common stock ... 401,497 --
The accompanying notes are an integral part of these
consolidated financial statements.
5
POORE BROTHERS, INC. AND SUBSIDIARIES
UNAUDITED 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. In November 1998, the Company acquired the business and
certain assets (including the Bob's Texas Style(R) potato chip brand) of Tejas
Snacks, L.P. ("Tejas"), a Texas-based potato chip manufacturer. In October 1999,
the Company acquired Wabash Foods, LLC ("Wabash") including the Tato Skins(R),
O'Boisies(R), and Pizzarias(R) trademarks, and assumed all of Wabash Foods'
liabilities. In June 2000, the Company acquired Boulder Natural Foods, Inc.
("Boulder") and the Boulder Potato Company(TM) brand of totally natural potato
chips.
The Company is engaged in the development, production, marketing and
distribution of innovative salty snack food products that are sold primarily
through grocery retailers, club stores and vend distributors across the United
States. The Company (i) manufactures and sells its own brands of salty snack
food products, including Poore Brothers(R), Bob's Texas Style(R), and Boulder
Potato Company(TM) brand batch-fried potato chips, Tato Skins(R) brand potato
snacks and Pizzarias(R) brand pizza chips, (ii) manufactures and sells T.G.I.
Friday's(TM) brand salted snacks under license from TGI Friday's Inc., (iii)
manufactures private label potato chips for grocery retailers in the southwest,
and (iv) distributes snack food products that are manufactured by others.
On October 28, 2000 the Company experienced a fire at the Goodyear, Arizona
manufacturing plant, causing a temporary shutdown of manufacturing operations at
the facility. Third party manufacturers provided the Company with production
volume during the shutdown. The Company continued to season and package the bulk
product received from third party manufacturers. The Company resumed full
production of private label potato chips in early January of 2001 and resumed
full production of batch-fried potato chips in late March of 2001. During the
quarter ended March 31, 2001, the Company recorded approximately $1.4 million of
incremental expenses incurred as a result of the fire, primarily associated with
outsourcing production. These extra expenses were charged to "cost of revenues"
and offset by a $1.4 million credit representing estimated future insurance
proceeds. The Company also incurred approximately $2.3 million in building and
equipment reconstruction costs in connection with the fire and the Company was
advanced a total of $3.2 million by the insurance company during the six months
ended June 30, 2001. "Other income, net" on the accompanying Consolidated
Statement of Operations for the six months ended June 30, 2001 includes (i) a
gain of $167,000, representing the excess of insurance proceeds over the book
value of the building and equipment of $533,000 damaged by the fire, and (ii)
expenses not reimbursed by the insurance company of approximately $154,000.
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-Q
and, therefore, do not include all the information and footnotes required by
accounting principles generally accepted in the United States. In the opinion of
management, the consolidated financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary in order to make the
consolidated financial statements not misleading. A description of the Company's
accounting policies and other financial information is included in the audited
financial statements filed with the Form 10-KSB for the fiscal year ended
December 31, 2001. The results of operations for the six months and quarter
ended June 29, 2002 are not necessarily indicative of the results expected for
the full year.
6
POORE BROTHERS, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effective January 1, 2002, the Company changed the fiscal year from the
twelve calendar months ending on December 31 each year to the 52 week period
ending on the last Saturday occurring in the month of December of each calendar
year. Accordingly, the fiscal year of the Company immediately following the
fiscal year ending December 31, 2001 commenced January 1, 2002 and will end
December 28, 2002.
EARNINGS PER COMMON SHARE
Basic earnings per common share is computed by dividing net income 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.
QUARTER ENDED SIX MONTHS ENDED
------------------------- -------------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------
BASIC EARNINGS PER SHARE:
Net income $ 640,208 $ 404,334 $ 1,020,232 $ 773,076
=========== =========== =========== ===========
Weighted average number of
common shares 15,833,473 15,046,655 15,763,714 15,023,340
=========== =========== =========== ===========
Earnings per common share $ 0.04 $ 0.03 $ 0.06 $ 0.05
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE:
Net income $ 640,208 $ 404,334 $ 1,020,232 $ 773,076
Addback: Debenture interest 4,656 9,447 4,790 9,895
----------- ----------- ----------- -----------
Adjusted income $ 644,864 $ 413,781 $ 1,025,022 $ 782,971
=========== =========== =========== ===========
Weighted average number of
common shares 15,833,473 15,046,655 15,763,714 15,023,340
Incremental shares from assumed
conversions-
9% Convertible debentures 207,495 421,000 213,495 441,000
Warrants 582,114 709,494 545,869 679,201
Stock options 1,456,364 1,531,238 1,320,620 1,419,573
----------- ----------- ----------- -----------
Adjusted weighted average
number of common shares 18,079,446 17,708,387 17,843,698 17,563,114
=========== =========== =========== ===========
Earnings per common share $ 0.04 $ 0.02 $ 0.06 $ 0.04
=========== =========== =========== ===========
ADOPTION OF SFAS NOS. 141 AND 142
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "BUSINESS
COMBINATIONS," and SFAS No. 142, "GOODWILL AND OTHER INTANGIBLE ASSETS". SFAS
No. 141 requires companies to apply the purchase method of accounting for all
business combinations initiated after June 30, 2001 and prohibits the use of the
pooling-of-interests method. SFAS No. 142 changes the method by
7
POORE BROTHERS, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
which companies recognize intangible assets in purchase business combinations
and generally requires identifiable intangible assets to be recognized
separately from goodwill. In addition, it eliminates the amortization of all
existing and newly acquired intangible assets with indefinite lives on a
prospective basis and requires companies to assess goodwill for impairment, at
least annually, based on the fair value of the reporting unit. Goodwill must be
tested for impairment as of the beginning of the fiscal year in which SFAS 142
is adopted. The Company has completed its testing of goodwill and has determined
there is no impairment as of January 1, 2002. The following table shows the pro
forma impact of this adoption for the six months and quarter ended June 29, 2002
and June 30, 2001.
QUARTER ENDED SIX MONTHS ENDED
-------------------------- --------------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------
NET INCOME
As reported $ 640,208 $ 404,334 $ 1,020,232 $ 773,076
Add back: Goodwill and trademark amortization 0 163,026 0 326,052
----------- ----------- ----------- -----------
Adjusted net income $ 640,208 $ 567,360 $ 1,020,232 $ 1,099,128
=========== =========== =========== ===========
BASIC EARNINGS PER COMMON SHARE:
As reported $ 0.04 $ 0.03 $ 0.06 $ 0.05
Add back: Goodwill and trademark amortization 0.00 0.01 0.00 0.02
----------- ----------- ----------- -----------
Adjusted $ 0.04 $ 0.04 $ 0.06 $ 0.07
=========== =========== =========== ===========
DILUTED EARNINGS PER COMMON SHARE:
As reported $ 0.04 $ 0.02 $ 0.06 $ 0.04
Add back: Goodwill and trademark amortization 0.00 0.01 0.00 0.02
----------- ----------- ----------- -----------
Adjusted $ 0.04 $ 0.03 $ 0.06 $ 0.06
=========== =========== =========== ===========
ADOPTION OF SFAS NO. 144
In August 2001, the FASB issued SFAS No. 144, "ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS". SFAS No. 144 supercedes SFAS No.
121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF" and the accounting and reporting provisions of APB
Opinion No. 30, "REPORTING THE RESULTS OF OPERATIONS -- REPORTING THE EFFECTS OF
DISPOSAL OF A SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY
OCCURRING EVENTS AND TRANSACTIONS". SFAS No. 144 modifies the method by which
companies account for certain asset impairment losses. The adoption of SFAS No.
144 on January 1, 2002 had no material adverse impact on financial position or
results of operations.
ADOPTION OF EITF ISSUE NO. 01-09
In 2001, the Emerging Issues Task Force (EITF) issued EITF Issue No. 01-09,
"Accounting for Consideration Given by a Vendor to a Customer or a Reseller of
the Vendor's Products" which codified and expanded its consensus opinions in
EITF Issue No. 00-14, "Accounting for Certain Sales Incentives," and EITF Issue
No. 00-25, "Accounting for Consideration from a Vendor to a Retailer in
Connection with the Purchase or Promotion of the Vendor's Products." EITF Issue
No. 01-09 also discusses aspects of EITF Issue No. 00-22, "Accounting for Points
and Certain Other Time-Based Sales Incentive Offers, and Offers for Free
Products or Services to be Delivered in the Future." EITF Issue No. 01-09
addresses the accounting for certain consideration given by a vendor to a
customer and provides guidance on the recognition, measurement and income
statement classification for sales incentives. In general, the guidance requires
that consideration from a vendor to a retailer be recorded as a reduction in
revenue unless certain criteria are met. The Company has adopted the provisions
of EITF Issue No. 01-09 effective January 1, 2002 as required and as a result,
costs previously classified as "Selling, general and administrative expenses"
have been reclassified and reflected as reductions in "Net revenues." The
Company has also reclassified amounts in prior periods in order to conform to
the revised presentation of these costs.
8
POORE BROTHERS, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
2002 2001 2002 2001
------------ ------------ ------------ ------------
NET REVENUES
As originally reported $ 15,358,319 $ 15,707,746 $ 29,635,839 $ 29,866,932
Amounts reclassified 0 (1,225,691) 0 (2,117,994)
------------ ------------ ------------ ------------
New Basis $ 15,358,319 $ 14,482,055 $ 29,635,839 $ 27,748,938
============ ============ ============ ============
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
As originally reported $ 2,369,170 $ 3,643,264 $ 4,334,094 $ 6,739,701
Amounts reclassified 0 (1,225,691) 0 (2,117,994)
------------ ------------ ------------ ------------
New Basis $ 2,369,170 $ 2,417,573 $ 4,334,094 $ 4,621,707
============ ============ ============ ============
2. INVENTORIES
Inventories consisted of the following:
JUNE 29, DECEMBER 31,
2002 2001
---------- ----------
Finished goods ...................... $1,287,853 $ 588,376
Raw materials ....................... 847,701 1,299,496
---------- ----------
$2,135,554 $1,887,872
========== ==========
3. LONG-TERM DEBT
The Company had 9% Convertible Debentures due July 1, 2002 (the "9%
Convertible Debentures") held by Wells Fargo Small Business Investment Company,
Inc. ("Wells Fargo SBIC"). The 9% Convertible Debentures were secured by land,
buildings, equipment and intangibles. Interest on the 9% Convertible Debentures
was paid by the Company on a monthly basis. Monthly principal payments of
approximately $4,000 were made by the Company on the Wells Fargo SBIC 9%
Convertible Debentures through June 2002, and the remaining balance was
converted by Wells Fargo SBIC in June 2002 to approximately 401,000 shares of
the Company's Common Stock.
On October 7, 1999, the Company signed a $9.15 million Credit Agreement
with U.S. Bancorp (the "U.S. Bancorp Credit Agreement") consisting of a $3.0
million working capital line of credit (the "U.S. Bancorp Line of Credit"), a
$5.8 million term loan (the "U.S. Bancorp Term Loan A") and a $350,000 term loan
(the "U.S. Bancorp Term Loan B"). Borrowings under the U.S. Bancorp Credit
Agreement were used to pay off a $2.5 million line of credit and a $0.5 million
term loan previously obtained by the Company from Wells Fargo Business Credit,
Inc. ("Wells Fargo"), to refinance indebtedness effectively assumed by the
Company in connection with the acquisition of Wabash Foods in October 1999, and
is being used for general working capital needs. The U.S. Bancorp Line of Credit
bears interest at an annual rate of prime plus 1%. The U.S. Bancorp Term Loan A
bears interest at an annual rate of prime and requires monthly principal
payments of approximately $74,000, plus interest, until maturity in July 2006.
The U.S. Bancorp Term Loan B had an annual interest rate of prime plus 2.5% and
required monthly principal payments of approximately $29,000, plus interest, and
matured in March 2001. Pursuant to the terms of the U.S. Bancorp Credit
Agreement, the Company issued to U.S. Bancorp a warrant (the "U.S. Bancorp
Warrant") to purchase 50,000 shares of Common Stock for an exercise price of
$1.00 per share. The U.S. Bancorp warrant is exercisable until October 7, 2004,
the date of termination of the U.S. Bancorp Warrant, and provides the holder
thereof certain piggyback registration rights.
9
POORE BROTHERS, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 2000, the U.S Bancorp Credit Agreement was amended to include an
additional $300,000 term loan (the "U.S. Bancorp Term Loan C") and to refinance
a $715,000 non-interest bearing note due to U.S. Bancorp on June 30, 2000.
Proceeds from the U.S. Bancorp Term Loan C were used in connection with the
Boulder acquisition. The U.S. Bancorp Term Loan C bears interest at an annual
rate of prime plus 2% and requires monthly principal payments of approximately
$12,500, plus interest, until maturity in August 2002. The Company made a
payment of $200,000 on the $715,000 non-interest bearing note and refinanced the
balance in a term loan (the "U.S. Bancorp Term Loan D"). The U.S. Bancorp Term
Loan D had an annual interest rate of prime plus 2% and required monthly
principal payments of approximately $21,500, plus interest, and matured in June
2002.
In April 2001, the U.S. Bancorp Credit Agreement was amended to increase
the U.S. Bancorp Line of Credit from $3.0 million to $5.0 million, establish a
$0.5 million capital expenditure line of credit (the "CapEx Term Loan"), extend
the U.S. Bancorp Line of Credit maturity date from October 2002 to October 31,
2003, and modify certain financial covenants. The Company borrowed $241,430
under the CapEx Term Loan in December 2001. The CapEx Term Loan bears interest
at an annual rate of prime plus 1% and requires monthly principal payments of
approximately $10,000, plus interest, until maturity on October 31, 2003 when
the balance is due.
In June 2002, the U.S. Bancorp Credit Agreement was amended to extend the
U.S. Bancorp Line of Credit maturity date by two years to October 31, 2005, and
modify certain financial covenants.
The U.S. Bancorp Credit Agreement is secured by accounts receivable,
inventories, equipment and general intangibles. Borrowings under the U.S.
Bancorp Line of Credit are limited to 80% of eligible receivables and 60% of
eligible inventories. At June 29, 2002, the Company had a borrowing base of
approximately $4,340,000 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 minimum annual operating results, a minimum
tangible capital base and a minimum fixed charge coverage ratio. At June 29,
2002 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 the financial performance criteria. There can be no
assurance, however, that the Company will 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.
As of June 29, 2002, there was an outstanding balance of $1,817,000 on the
U.S. Bancorp Line of Credit, $3,628,000 on the U.S. Bancorp Term Loan A, $13,000
on the U.S. Bancorp Term Loan C, and $191,000 on the CapEx Term Loan.
On November 4, 1998, pursuant to the terms of the Wells Fargo Credit
Agreement, the Company issued to Wells Fargo a warrant (the "Wells Fargo
Warrant") to purchase 50,000 shares of Common Stock for an exercise price of
$0.93375 per share. The Wells Fargo Warrant is exercisable until November 3,
2003, the date of the termination of the Wells Fargo Warrant, and provides the
holder thereof certain demand and piggyback registration rights.
4. LITIGATION
The Company is periodically a party to various lawsuits arising in the
ordinary course of business. Management believes, based on discussions with
legal counsel, that the resolution of any such lawsuits will not have a material
adverse effect on the financial condition or results of operations.
10
POORE BROTHERS, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. BUSINESS SEGMENTS AND SIGNIFICANT CUSTOMERS
For the six months ended June 29, 2002, one national warehouse club/mass
merchandiser customer and one national vending distributor of the Company
accounted for $6.1 million, or 20.6%, and $3.8 million, or 12.8%, respectively,
of the Company's consolidated net revenues. For the six months ended June 30,
2001, one national warehouse club customer and one national vending distributor
of the Company accounted for $4.9 million, or 17.7%, and $3.5 million, or 12.6%,
respectively, of the Company's consolidated net revenues.
The Company's operations consist of two segments: manufactured products and
distributed products. The manufactured products segment produces potato chips,
potato crisps and tortilla chips, for sale primarily to snack food distributors
and retailers. The distributed products segment sells snack food products
manufactured by other companies to the Company's Arizona snack food
distributors. The Company's reportable segments offer different products and
services. All of the Company's revenues are attributable to external customers
in the United States and all of its assets are located in the United States. The
Company does not allocate assets based on its reportable segments.
The accounting policies of the segments are the same as those described in
the Summary of Accounting Policies included in Note 1 to the audited financial
statements filed with the Form 10-KSB for the fiscal year ended December 31,
2001. The Company does not allocate selling, general and administrative
expenses, income taxes or unusual items to segments and has no significant
non-cash items other than depreciation and amortization.
MANUFACTURED DISTRIBUTED
PRODUCTS PRODUCTS CONSOLIDATED
----------- ----------- ------------
QUARTER ENDED JUNE 29, 2002
Revenues from external customers ....................... $14,330,928 $ 1,027,391 $15,358,319
Depreciation and amortization in segment gross profit .. 301,960 -- 301,960
Segment gross profit ................................... 3,086,926 100,859 3,187,785
QUARTER ENDED JUNE 30, 2001
Revenues from external customers ....................... $13,270,757 $ 1,211,298 $14,482,055
Depreciation and amortization in segment gross profit .. 204,483 -- 204,483
Segment gross profit ................................... 3,134,473 (13,743) 3,120,730
SIX MONTHS ENDED JUNE 29, 2002
Revenues from external customers ....................... $27,620,360 $ 2,015,479 $29,635,839
Depreciation and amortization in segment gross profit .. 611,234 -- 611,234
Segment gross profit ................................... 5,509,303 195,314 5,704,617
SIX MONTHS ENDED JUNE 30, 2001
Revenues from external customers ....................... $25,280,515 $ 2,468,423 $27,748,938
Depreciation and amortization in segment gross profit .. 434,542 -- 434,542
Segment gross profit ................................... 5,912,537 80,661 5,993,198
11
POORE BROTHERS, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table reconciles reportable segment gross profit to the
Company's consolidated income before income tax provision.
QUARTER ENDED SIX MONTHS ENDED
-------------------------- --------------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Consolidated segment gross profit ... $ 3,187,785 $ 3,120,730 $ 5,704,617 $ 5,993,198
Unallocated amounts:
Selling, general and administrative
expenses ........................ 2,369,170 2,417,573 4,334,094 4,621,707
Other (income) expense, net ....... -- 6,873 (11,341) (5,739)
Interest expense, net ............. 151,407 275,950 316,632 572,154
----------- ----------- ----------- -----------
Income before income tax provision .. $ 667,208 $ 420,334 $ 1,065,232 $ 805,076
=========== =========== =========== ===========
6. INCOME TAXES
The income tax provision recorded in the quarters ended June 29, 2002 and
June 30, 2001 and for the six month periods then ended are a provision for state
income taxes only. The Company has been modestly profitable since 1999; however,
it experienced significant net losses in prior fiscal years resulting in a net
operating loss ("NOL") carryforward for federal income tax purposes. Generally
accepted accounting principles require that the Company record a valuation
allowance against the deferred tax asset associated with this NOL if it is "more
likely than not" that the Company will not be able to utilize it to offset
future taxes. It is possible that the Company could be profitable in the future
at levels which cause the Company to conclude that it is more likely than not
that all or a portion of the NOL carryforward would be realized. Upon reaching
such a conclusion, the Company would immediately record the estimated net
realizable value of the deferred tax asset at that time and would then provide
for income taxes at a rate equal to the combined federal and state effective
rates, which would approximate 40% under current tax rates, rather than the
effective 4% rate currently being used. Subsequent revisions to the estimated
net realizable value of the deferred tax asset could cause the provision for
income taxes to vary significantly from period to period, although the cash tax
payments would remain unaffected until the benefit of the NOL is utilized. As a
result of historical operating losses, and other factors considered by
management, the Company continues to fully reserve its net deferred tax assets
as of June 29, 2002.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 29, 2002 COMPARED TO THE QUARTER ENDED JUNE 30, 2001.
Net revenues for the quarter ended June 29, 2002 were $15.4 million
representing an increase of $.9 million, or 6%, from $14.5 million for the
quarter ended June 30, 2001. Revenues for the manufactured products segment
accounted for 93% and 92% of total net revenues in 2002 and 2001, respectively,
while revenues from distributed products accounted for 7% and 8% in 2002 and
2001, respectively. Manufactured products segment revenues increased $1.1
million, or 8%, driven by increased shipments of T.G.I. Friday's(TM) brand
salted snack products offset in part by (i) the deliberate discontinuance of
non-core brands and certain private label customers throughout 2001, and (ii)
the intentional cannibalization of certain branded product sales in order to
expand distribution of T.G.I. Friday's(TM) brand salted snacks in selected
channels. Revenues from the distribution of products manufactured by others
decreased $0.2 million, or 15%, due to the sale of the Company's Texas
merchandising operation in November 2001. The planned revenue reductions were
implemented to create focus on building the Company's core brands and improve
operating efficiencies.
Gross profit for the quarter ended June 29, 2002, was $3.2 million, or 21%
of net revenues, as compared to $3.1 million, or 22% of net revenues, for the
quarter ended June 30, 2001. The $0.1 million increase, or 2%, in gross profit
resulted primarily from the increased revenue from manufactured products.
Selling, general and administrative expenses remained flat at $2.4 million,
or 15% of net revenues, for the quarter ended June 29, 2002, compared to 17% of
net revenue for the quarter ended June 30, 2001. The Company's adoption of SFAS
No. 142, which eliminated $163,000 of amortization for goodwill and trademarks
with indefinite lives, was offset in part by increased payroll related costs.
Net interest expense decreased to $0.2 million for the quarter ended June
29, 2002 from a net interest expense of $0.3 million for the quarter ended June
30, 2001. The decrease of $0.1 million was due primarily to a reduction in the
line of credit borrowings and lower interest rates.
The Company provided $27,000 and $16,000 for the quarters ended June 29,
2002 and June 30, 2001, respectively, for state income taxes only. No Federal
tax provision was recorded due to the availability of net operating loss
carryforwards.
SIX MONTHS ENDED JUNE 29, 2002 COMPARED TO THE SIX MONTHS ENDED JUNE 30,
2001.
Net revenues for the six months ended June 29, 2002 were $29.6 million
representing an increase of $1.9 million, or 7%, from $27.7 million for the six
months ended June 30, 2001. Revenues for the manufactured products segment
accounted for 93% and 91% of total net revenues in 2002 and 2001, respectively,
while revenues from distributed products accounted for 7% and 9% in 2002 and
2001, respectively. Manufactured products segment revenues increased $2.3
million, or 9%, driven by increased shipments of T.G.I. Friday's(TM) brand
salted snack products offset in part by (i) the deliberate discontinuance of
non-core brands and certain private label customers throughout 2001, and (ii)
the intentional cannibalization of certain branded product sales in order to
expand distribution of T.G.I. Friday's(TM) brand salted snacks in selected
channels. Revenues from the distribution of products manufactured by others
decreased $0.5 million, or 18%, due to the sale of the Company's Texas
merchandising operation in November 2001. The planned revenue reductions were
implemented to create focus on building the Company's core brands and improve
operating efficiencies.
Gross profit for the six months ended June 29, 2002, was $5.7 million, or
19% of net revenues, as compared to $6.0 million, or 22% of net revenues, for
the six months ended June 30, 2001. The $0.3 million decrease, or 5%, in gross
profit resulted from the increased promotional activity related to new product
introductions in the first quarter of 2002, offset in part by increased gross
profit from higher revenue of manufactured products.
13
Selling, general and administrative expenses decreased to $4.3 million, or
15% of net revenues, for the six months ended June 29, 2002 from $4.6 million,
or 17% of net revenues, for the six months ended June 30, 2001. The decrease of
$0.3 million, or 6%, was primarily due to the adoption of SFAS No. 142 which
eliminated $326,000 of amortization for goodwill and trademarks with indefinite
lives.
Net interest expense decreased to $0.3 million for the six months ended
June 29, 2002 from a net interest expense of $0.6 million for the six months
ended June 30, 2001. The decrease of $0.3 million was due primarily to a
reduction in the line of credit borrowings and lower interest rates.
The Company provided $45,000 and $32,000 for the six months ended June 29,
2002 and June 30, 2001, respectively, for state income taxes only. No Federal
tax provision was recorded due to the availability of net operating loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Net working capital was $2.0 million (a current ratio of 1.3:1) at June 29,
2002 and December 31, 2001. For the six months ended June 29, 2002, the Company
generated cash flow of $2.1 million from operating activities, principally from
operating results and an increase in accounts payable, invested $0.3 million in
new equipment, and made $2.9 million in payments on long-term debt.
The Company had 9% Convertible Debentures due July 1, 2002 (the "9%
Convertible Debentures") held by Wells Fargo Small Business Investment Company,
Inc. ("Wells Fargo SBIC"). The 9% Convertible Debentures were secured by land,
buildings, equipment and intangibles. Interest on the 9% Convertible Debentures
was paid by the Company on a monthly basis. Monthly principal payments of
approximately $4,000 were made by the Company on the Wells Fargo SBIC 9%
Convertible Debentures through June 2002, and the remaining balance was
converted by Wells Fargo SBIC in June 2002 to approximately 401,000 shares of
the Company's Common Stock.
On October 7, 1999, the Company signed a $9.15 million Credit Agreement
with U.S. Bancorp (the "U.S. Bancorp Credit Agreement") consisting of a $3.0
million working capital line of credit (the "U.S. Bancorp Line of Credit"), a
$5.8 million term loan (the "U.S. Bancorp Term Loan A") and a $350,000 term loan
(the "U.S. Bancorp Term Loan B"). Borrowings under the U.S. Bancorp Credit
Agreement were used to pay off a $2.5 million line of credit and a $0.5 million
term loan previously obtained by the Company from Wells Fargo Business Credit,
Inc. ("Wells Fargo"), to refinance indebtedness effectively assumed by the
Company in connection with the acquisition of Wabash Foods in October 1999, and
is being used for general working capital needs. The U.S. Bancorp Line of Credit
bears interest at an annual rate of prime plus 1%. The U.S. Bancorp Term Loan A
bears interest at an annual rate of prime and requires monthly principal
payments of approximately $74,000, plus interest, until maturity in July 2006.
The U.S. Bancorp Term Loan B had an annual interest rate of prime plus 2.5% and
required monthly principal payments of approximately $29,000, plus interest, and
matured in March 2001. Pursuant to the terms of the U.S. Bancorp Credit
Agreement, the Company issued to U.S. Bancorp a warrant (the "U.S. Bancorp
Warrant") to purchase 50,000 shares of Common Stock for an exercise price of
$1.00 per share. The U.S. Bancorp warrant is exercisable until October 7, 2004,
the date of termination of the U.S. Bancorp Warrant, and provides the holder
thereof certain piggyback registration rights.
In June 2000, the U.S Bancorp Credit Agreement was amended to include an
additional $300,000 term loan (the "U.S. Bancorp Term Loan C") and to refinance
a $715,000 non-interest bearing note due to U.S. Bancorp on June 30, 2000.
Proceeds from the U.S. Bancorp Term Loan C were used in connection with the
Boulder acquisition. The U.S. Bancorp Term Loan C bears interest at an annual
rate of prime plus 2% and requires monthly principal payments of approximately
$12,500, plus interest, until maturity in August 2002. The Company made a
payment of $200,000 on the $715,000 non-interest bearing note and refinanced the
balance in a term loan (the "U.S. Bancorp Term Loan D"). The U.S. Bancorp Term
Loan D had an annual rate of interest of prime plus 2% and required monthly
principal payments of approximately $21,500, plus interest, and matured in June
2002.
14
In April 2001, the U.S. Bancorp Credit Agreement was amended to increase
the U.S. Bancorp Line of Credit from $3.0 million to $5.0 million, establish a
$0.5 million capital expenditure line of credit (the "CapEx Term Loan"), extend
the U.S. Bancorp Line of Credit maturity date from October 2002 to October 31,
2003, and modify certain financial covenants. The Company borrowed $241,430
under the CapEx Term Loan in December 2001. The CapEx Term Loan bears interest
at an annual rate of prime plus 1% and requires monthly principal payments of
approximately $10,000, plus interest, until maturity on October 31, 2003 when
the balance is due.
In June 2002, the U.S. Bancorp Credit Agreement was amended to extend the
U.S. Bancorp Line of Credit maturity date by two years to October 31, 2005, and
modify certain financial covenants.
The U.S. Bancorp Credit Agreement is secured by accounts receivable,
inventories, equipment and general intangibles. Borrowings under the U.S.
Bancorp Line of Credit are limited to 80% of eligible receivables and 60% of
eligible inventories. At June 29, 2002, the Company had a borrowing base of
approximately $4,340,000 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 minimum annual operating results, a minimum
tangible capital base and a minimum fixed charge coverage ratio. At June 29,
2002 the Company was in compliance with 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 all financial performance criteria. There can be no assurance,
however, that the Company will 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.
As of June 29, 2002, there was an outstanding balance of $1,817,000 on the
U.S. Bancorp Line of Credit, $3,628,000 on the U.S. Bancorp Term Loan A, $13,000
on the U.S. Bancorp Term Loan C, and $191,000 on the CapEx Term Loan.
On November 4, 1998, pursuant to the terms of the Wells Fargo Credit
Agreement, the Company issued to Wells Fargo a warrant (the "Wells Fargo
Warrant") to purchase 50,000 shares of Common Stock for an exercise price of
$0.93375 per share. The Wells Fargo Warrant is exercisable until November 3,
2003, the date of the termination of the Wells Fargo Warrant, and provides the
holder thereof certain demand and piggyback registration rights.
15
MANAGEMENT'S PLANS
In connection with the implementation of the Company's business strategy,
the Company may incur operating losses in the future and is likely to require
future debt or equity financings (particularly in connection with future
strategic acquisitions, new brand introductions or capital expenditures).
Expenditures relating to acquisition-related integration costs, market and
territory expansion and new product development and introduction may adversely
affect promotional and operating 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 or new products may benefit future periods. 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, will enable the Company to meet its operating cash requirements for
the next twelve months. 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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In December 2001, the Securities and Exchange Commission (the "SEC") issued
an advisory requesting that all registrants describe their three to five most
"critical accounting policies". The SEC indicated that a "critical accounting
policy" is one which is both important to the portrayal of the Company's
financial condition and results and requires management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain. The Company believes
that the following accounting policies fit this definition:
ALLOWANCE FOR DOUBTFUL ACCOUNTS. The Company maintains an allowance for
doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. If the financial condition of the
Company's customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required.
INVENTORIES. The Company's inventories are stated at the lower of cost
(first-in, first-out) or market. The Company identifies slow moving or
obsolete inventories and estimates appropriate loss provisions related
thereto. Historically, these loss provisions have not been significant;
however, if actual market conditions are less favorable than those
projected by management, additional inventory write-downs may be required.
GOODWILL AND TRADEMARKS. Goodwill and trademarks are reviewed for
impairment annually, or more frequently if impairment indicators arise.
Goodwill is required to be tested for impairment between the annual tests
if an event occurs or circumstances change that more-likely-than-not reduce
the fair value of a reporting unit below its carrying value. An indefinite
lived intangible asset is required to be tested for impairment between the
annual tests if an event occurs or circumstances change indicating that the
asset might be impaired. The Company believes at this time that the
carrying values continue to be appropriate.
ADVERTISING AND PROMOTIONAL EXPENSES. The Company expenses production costs
of advertising the first time the advertising takes place, except for
cooperative advertising costs which are expensed when the related sales are
recognized. Costs associated with obtaining shelf space (i.e. "slotting
fees") are expensed in the period in which such costs are incurred by the
Company. Anytime the Company offers consideration (cash or credit) as a
trade advertising or promotion allowance to a purchaser of products at any
point along the distribution chain, the amount is accrued and recorded as a
reduction in revenue. Any marketing programs that deal directly with the
consumer are recorded in selling, general and administrative expenses.
INCOME TAXES. The Company has been modestly profitable since 1999; however,
it experienced significant net losses in prior fiscal years resulting in a
net operating loss ("NOL") carryforward for federal income tax purposes of
16
approximately $4.7 million at December 31, 2001. Generally accepted
accounting principles require that the Company record a valuation allowance
against the deferred tax asset associated with this NOL if it is "more
likely than not" that the Company will not be able to utilize it to offset
future taxes. As a result of historical operating losses and other factors
considered by management, the Company has not recognized a deferred tax
asset for the NOL carryforward and currently provides for income taxes only
to the extent that it expects to pay cash taxes (primarily state taxes) for
current income. It is possible, however, that the Company could be
profitable in the future at levels which cause the Company to conclude that
it is more likely than not that all or a portion of the NOL carryforward
would be realized. Upon reaching such a conclusion, the Company would
immediately record the estimated net realizable value of the deferred tax
asset at that time and would then provide for income taxes at a rate equal
to the combined federal and state effective rates, which would approximate
40% under current tax rates, rather than the effective 4% rate currently
being used. Subsequent revisions to the estimated net realizable value of
the deferred tax asset could cause the provision for income taxes to vary
significantly from period to period, although the cash tax payments would
remain unaffected until the benefit of the NOL is utilized.
The above listing is not intended to be a comprehensive list of all of the
Company's accounting policies. In many cases the accounting treatment of a
particular transaction is specifically dictated by generally accepted accounting
principles, with no need for management's judgment in their application. See the
Company's audited financial statements for the fiscal year ended December 31,
2001 and the notes thereto included in the Company's Annual Report on Form
10-KSB with respect to such period, which contain a description of the Company's
accounting policies and other disclosures required by accounting standards
generally accepted in the United States.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risks to which the Company is exposed that may
adversely impact the Company's results of operations and financial position are
changes in certain raw material prices and interest rates. The Company has no
market risk sensitive instruments held for trading purposes.
Raw materials used by the Company are exposed to the impact of changing
commodity prices. The Company's most significant raw material requirements
include potatoes, potato flakes, wheat flour, corn and oil. The Company attempts
to minimize the effect of future price fluctuations related to the purchase of
raw materials primarily through forward purchasing to cover future manufacturing
requirements, generally for periods from one to 12 months. Futures contracts are
not used in combination with the forward purchasing of these raw materials. The
Company's procurement practices are intended to reduce the risk of future price
increases, but also may potentially limit the ability to benefit from possible
price decreases.
The Company also has interest rate risk with respect to interest expense on
variable rate debt, with rates based upon changes in the prime rate. Therefore,
the Company has an exposure to changes in those rates. At December 31, 2001 and
December 31, 2000, the Company had $8.0 million and $7.5 million of variable
rate debt outstanding. A hypothetical 10% adverse change in weighted average
interest rates during fiscal 2001 and 2000 would have had an unfavorable impact
of $0.08 million and $0.07 million respectively, on both the Company's net
earnings and cash flows.
17
FORWARD LOOKING STATEMENTS
THIS QUARTERLY REPORT ON FORM 10-Q, INCLUDING ALL DOCUMENTS INCORPORATED BY
REFERENCE, INCLUDES "FORWARD-LOOKING" STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND SECTION
12E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995, AND THE COMPANY DESIRES TO TAKE
ADVANTAGE OF THE "SAFE HARBOR" PROVISIONS THEREOF. THEREFORE, THE COMPANY IS
INCLUDING THIS STATEMENT FOR THE EXPRESS PURPOSE OF AVAILING ITSELF OF THE
PROTECTIONS OF THE SAFE HARBOR WITH RESPECT TO ALL OF SUCH FORWARD-LOOKING
STATEMENTS. IN THIS QUARTERLY REPORT ON FORM 10-Q, THE WORDS "ANTICIPATES,"
"BELIEVES," "EXPECTS," "INTENDS," "ESTIMATES," "PROJECTS," "WILL LIKELY RESULT,"
"WILL CONTINUE," "FUTURE" AND SIMILAR TERMS AND EXPRESSIONS IDENTIFY
FORWARD-LOOKING STATEMENTS. THE FORWARD-LOOKING STATEMENTS IN THIS QUARTERLY
REPORT ON FORM 10-Q REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE
EVENTS AND FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT
TO CERTAIN RISKS AND UNCERTAINTIES, INCLUDING SPECIFICALLY THE COMPANY'S
RELATIVELY BRIEF OPERATING HISTORY, SIGNIFICANT HISTORICAL OPERATING LOSSES AND
THE POSSIBILITY OF FUTURE OPERATING LOSSES, THE POSSIBILITY THAT THE COMPANY
WILL NEED ADDITIONAL FINANCING DUE TO FUTURE OPERATING LOSSES OR IN ORDER TO
IMPLEMENT THE COMPANY'S BUSINESS STRATEGY, THE POSSIBLE DIVERSION OF MANAGEMENT
RESOURCES FROM THE DAY-TO-DAY OPERATIONS OF THE COMPANY AS A RESULT OF RECENTLY
COMPLETED STRATEGIC ACQUISITIONS AND THE PURSUIT OF ADDITIONAL STRATEGIC
ACQUISITIONS, POTENTIAL DIFFICULTIES RESULTING FROM THE INTEGRATION OF ACQUIRED
BUSINESSES WITH THE COMPANY'S BUSINESS, OTHER ACQUISITION-RELATED RISKS,
SIGNIFICANT COMPETITION, RISKS RELATED TO THE FOOD PRODUCTS INDUSTRY, VOLATILITY
OF THE MARKET PRICE OF THE COMPANY'S COMMON STOCK, THE POSSIBLE DE-LISTING OF
THE COMMON STOCK FROM THE NASDAQ SMALLCAP MARKET AND THOSE OTHER RISKS AND
UNCERTAINTIES DISCUSSED HEREIN AND IN THE COMPANY'S OTHER PERIODIC REPORTS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION, THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM HISTORICAL RESULTS OR THOSE ANTICIPATED. IN LIGHT OF
THESE RISKS AND UNCERTAINTIES, THERE CAN BE NO ASSURANCE THAT THE
FORWARD-LOOKING INFORMATION CONTAINED IN THIS QUARTERLY REPORT ON FORM 10-Q WILL
IN FACT TRANSPIRE OR PROVE TO BE ACCURATE. READERS ARE CAUTIONED NOT TO PLACE
UNDUE RELIANCE ON THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN, WHICH SPEAK
ONLY AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY
REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES THAT
MAY ARISE AFTER THE DATE HEREOF. ALL SUBSEQUENT WRITTEN OR ORAL FORWARD-LOOKING
STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE
EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THIS SECTION.
18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is periodically a party to various lawsuits arising in the
ordinary course of business. Management believes, based on discussions with
legal counsel, that the resolution of such lawsuits will not have a material
adverse effect on the Company's financial condition or results of operations.
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
(a) The annual Meeting of Shareholders of the Company (the "Meeting") was
held on May 22, 2002.
(b) Proxies for the Meeting were solicited pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended. 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 shareholders voted upon the election of
seven directors of the Company. Management's nominees were Messrs.
Thomas E. Cain, Thomas W. Freeze, Mark S. Howells, Eric J. Kufel,
James W. Myers, 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.
Name of Nominee Votes Cast For Votes Withheld
--------------- -------------- --------------
Thomas E. Cain 13,972,152 199,282
Thomas W. Freeze 14,148,082 23,352
Mark S. Howells 14,147,882 23,352
Eric J. Kufel 14,147,802 23,632
James W. Myers 13,962,982 208,452
Robert C. Pearson 14,138,882 32,552
Aaron M. Shenkman 13,968,182 203,252
ITEM 5. OTHER INFORMATION
None.
19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Current Reports on Form 8-K:
Report regarding the restatement of financial information relating to
EITF 01-09 (filed with the Commission on April 24, 2002).
Report regarding a change in the Company's certifying accountant
(filed with the Commission on May 14, 2002).
Report regarding the execution by the Company and BFS Special
Opportunities Trust PLC of a Waiver and Amendment No. 1 to Share
Purchase Agreement (filed with the Commission on May 29, 2002).
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
POORE BROTHERS, INC.
By: /s/ Eric J. Kufel
---------------------------------------
Dated: August 9, 2002 Eric J. Kufel
President and Chief Executive Officer
(principal executive officer)
By: /s/ Thomas W. Freeze
---------------------------------------
Dated: August 9, 2002 Thomas W. Freeze
Senior Vice President, Chief Financial
Officer, Treasurer and Secretary
(principal financial and accounting
officer)
21