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UNITED STATES
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 27, 2004
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 1-16699
OVERHILL FARMS, INC.
(Exact name of registrant as specified in its charter)
NEVADA 75-2590292
------ ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
2727 EAST VERNON AVENUE
VERNON, CALIFORNIA 90058
(Address of principal executive offices)
(323) 582-9977
(Registrant's telephone number, including area code)
Indicate by check mark 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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.). Yes [ ] No [X]
As of July 29, 2004, there were 14,805,556 shares of the issuer's common stock,
$.01 par value, outstanding.
OVERHILL FARMS, INC.
FORM 10-Q
QUARTER ENDED JUNE 27, 2004
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page No.
- ------------------------------- --------
Item 1. Financial Statements
Condensed Balance Sheets as of June 27, 2004 (unaudited) and
September 28, 2003 2
Condensed Statements of Operations for the Three Months Ended
June 27, 2004 and June 29, 2003 (unaudited) 4
Condensed Statements of Operations for the Nine Months Ended
June 27, 2004 and June 29, 2003 (unaudited) 5
Condensed Statements of Cash Flows for the Nine Months Ended
June 27, 2004 and June 29, 2003 (unaudited) 6
Notes to Condensed Financial Statements (unaudited) 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
Item 4. Controls and Procedures 22
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
EXHIBITS FILED WITH THIS FORM 10-Q 25
ITEM 1. FINANCIAL STATEMENTS
OVERHILL FARMS, INC.
CONDENSED BALANCE SHEETS
ASSETS
June 27, September 28,
2004 2003
------------- -------------
(Unaudited) (Note 2)
Current assets:
Cash $ 919,506 $ 513,622
Accounts receivable, net of allowance for doubtful
accounts of $111,000 12,906,192 10,027,543
Inventories 12,942,267 11,059,923
Prepaid expenses and other 1,125,663 1,077,392
Deferred income taxes 733,758 733,758
------------- -------------
Total current assets 28,627,386 23,412,238
------------- -------------
Property and equipment, at cost 21,809,715 21,286,746
Less accumulated depreciation (9,203,716) (8,035,416)
------------- -------------
12,605,999 13,251,330
------------- -------------
Other assets:
Excess of cost over fair value of net assets acquired 12,188,435 12,188,435
Deferred financing costs, net of accumulated amortization
of $150,606 and $4,934,968 705,228 2,507,028
Deferred income taxes 3,766,786 2,522,239
Other 2,875,574 2,300,857
------------- -------------
19,536,023 19,518,559
------------- -------------
Total assets $ 60,769,408 $ 56,182,127
============= =============
The accompanying notes are an integral part
of these condensed financial statements.
-2-
OVERHILL FARMS, INC.
CONDENSED BALANCE SHEETS (CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
June 27, September 28,
2004 2003
------------- -------------
(Unaudited) (Note 2)
Current liabilities:
Accounts payable $ 8,796,163 $ 7,434,945
Accrued liabilities 3,065,532 3,322,554
Current maturities of long-term debt 885,842 813,649
------------- -------------
Total current liabilities 12,747,537 11,571,148
Long-term debt, less current maturities 50,404,108 44,950,438
------------- -------------
Total liabilities 63,151,645 56,521,586
------------- -------------
Shareholders' equity (deficit):
Series A Preferred stock, $0.01 par value, authorized
50,000,000 shares, issued and outstanding, 23.57 shares -- --
Common stock, $0.01 par value, authorized 100,000,000
shares, issued and outstanding 14,805,556 shares 148,056 148,056
Additional paid-in capital 9,573,562 9,573,562
Warrants to purchase common stock 400 400
Retained earnings (accumulated deficit) (12,104,255) (10,061,477)
------------- -------------
Total shareholders' equity (deficit) (2,382,237) (339,459)
------------- -------------
Total liabilities and shareholders' equity (deficit) $ 60,769,408 $ 56,182,127
============= =============
The accompanying notes are an integral part
of these condensed financial statements.
-3-
OVERHILL FARMS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended
-----------------------------
June 27, June 29,
2004 2003
------------- -------------
Net revenues $ 35,235,833 $ 34,139,886
Cost of sales 31,551,686 30,763,097
------------- -------------
Gross profit 3,684,147 3,376,789
Selling, general and administrative expenses 1,917,153 2,487,835
------------- -------------
Operating income 1,766,994 888,954
Other expenses:
Interest expense (1,430,301) (2,246,002)
Amortization of deferred financing costs (47,953) (1,533,170)
Other 10,022 (34,786)
------------- -------------
Total other expenses (1,468,232) (3,813,958)
------------- -------------
Income (loss) before income taxes 298,762 (2,925,004)
Income tax expense (benefit) 113,230 (1,174,037)
------------- -------------
Net income (loss) $ 185,532 $ (1,750,967)
============= =============
Net income (loss) per share:
Basic $ .01 $ (.14)
============= =============
Diluted $ .01 $ (.14)
============= =============
Shares used in computing net income (loss) per share:
Basic 14,805,556 12,338,797
Diluted 15,208,982 12,338,797
The accompanying notes are an integral part
of these condensed financial statements.
-4-
OVERHILL FARMS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Nine Months Ended
-------------------------------
June 27, June 29,
2004 2003
-------------- --------------
Net revenues $ 96,767,349 $ 106,060,567
Cost of sales 85,916,936 97,994,649
-------------- --------------
Gross profit 10,850,413 8,065,918
Selling, general and administrative expenses 6,320,252 7,923,389
-------------- --------------
Operating income 4,530,161 142,529
Other expenses:
Interest expense (4,659,894) (4,578,447)
Amortization of deferred financing costs (456,867) (2,349,621)
Debt extinguishment expenses (2,778,374) --
Other 76,102 (237,637)
-------------- --------------
Total other expenses (7,819,033) (7,165,705)
-------------- --------------
Loss before income taxes (3,288,872) (7,023,176)
Income tax expense (benefit) (1,246,094) (2,818,962)
-------------- --------------
Net loss $ (2,042,778) $ (4,204,214)
============== ==============
Net loss per share:
Basic $ (.14) $ (.36)
============== ==============
Diluted $ (.14) $ (.36)
============== ==============
Shares used in computing net loss per share:
Basic 14,805,556 11,587,421
Diluted 14,805,556 11,587,421
The accompanying notes are an integral part
of these condensed financial statements.
-5-
OVERHILL FARMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended
---------------------------
June 27, June 29,
2004 2003
------------ ------------
Operating Activities:
Net loss $(2,042,778) $(4,204,214)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,886,501 4,114,383
Provision for doubtful accounts -- 279,046
Noncash debt extinguishment expenses 2,558,374 --
Deferred tax benefit (1,246,094) (2,818,962)
Changes in:
Accounts receivable (2,878,649) 2,077,422
Inventories (1,882,344) 7,710,964
Prepaid expenses and other (622,988) (515,667)
Accounts payable 1,361,218 (5,800,886)
Accrued liabilities (277,767) 930,461
------------ ------------
Net cash (used in) provided by operating activities (3,144,527) 1,772,547
------------ ------------
Investing Activities:
Net additions to property and equipment (522,969) (5,225,709)
------------ ------------
Net cash used in investing activities (522,969) (5,225,709)
------------ ------------
The accompanying notes are an integral part
of these condensed financial statements.
-6-
OVERHILL FARMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
For the Nine Months Ended
-----------------------------
June 27, June 29,
2004 2003
------------- -------------
Financing Activities:
Payments on line of credit $ -- $(11,957,293)
Proceeds from borrowings on short-term debt -- 20,347,272
Proceeds from borrowings on long-term debt 5,000,000 --
Principal payments on long-term debt (522,814) (2,024,058)
Deferred financing costs (403,806) (1,230,658)
Net advances to or on behalf of former Parent -- (946,168)
------------- -------------
Net cash provided by financing activities 4,073,380 4,189,095
------------- -------------
Net increase in cash 405,884 735,933
Cash at beginning of period 513,622 8,115
------------- -------------
Cash at end of period $ 919,506 $ 744,048
============= =============
Supplemental Schedule of Cash Flow Information:
Cash paid during the period for:
Interest $ 4,513,264 $ 3,486,891
Income taxes $ -- $ --
Supplemental Schedule of Noncash Investing and Financing Activities:
The Company, effective upon the completion of its spin-off from its former
Parent in October 2002, netted a total of approximately $11,500,000, consisting
of all accrued income taxes due to and the unpaid receivable due from its former
Parent, against retained earnings (accumulated deficit).
During the nine months ended June 29, 2003, the Company issued a total of
2,937,987 shares of its common stock, for nominal consideration, in connection
with the exercise of warrants and dilution protection rights granted to its
senior subordinated lender.
In connection with bridge financing arrangements during the nine months ended
June 29, 2003, the Company recorded a debt discount of approximately $1,650,000.
The accompanying notes are an integral part
of these condensed financial statements.
-7-
OVERHILL FARMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 27, 2004
(UNAUDITED)
1. NATURE OF BUSINESS AND ORGANIZATIONAL MATTERS
Overhill Farms, Inc. (the "Company" or "Overhill Farms") is a producer of
high-quality entrees, plated meals, meal components, soups, sauces, and
poultry, meat and fish specialties. From May 5, 1995 through October 29,
2002, the Company was a majority-owned subsidiary of TreeCon Resources, Inc.,
formerly Overhill Corporation and Polyphase Corporation (the "former
Parent"). On October 29, 2002, TreeCon Resources, Inc. distributed to its
shareholders, in the form of a tax-free dividend, all of its ownership of
Overhill Farms.
In October 2002, in connection with the above mentioned spin-off transaction,
the Company's Board of Directors authorized a 12,010-shares-for-1 stock
split. Share and per share data as of and for all periods presented herein
have been restated to reflect the stock split.
2. BASIS OF PRESENTATION
The financial statements for periods ended prior to September 28, 2003 were
consolidated to include the accounts of Overhill Farms and its wholly-owned
subsidiary, Overhill L.C. Ventures, Inc., which was liquidated during fiscal
2003. All material intercompany accounts and transactions were eliminated.
Certain prior period amounts have been reclassified to conform to the current
period presentation.
The accompanying unaudited condensed financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and nine
months ended June 27, 2004 are not necessarily indicative of the results that
may be expected for the year ending September 26, 2004 or for any other
period.
The condensed balance sheet at September 28, 2003 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements.
For further information, refer to the financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year
ended September 28, 2003.
-8-
3. INVENTORIES
Inventories are summarized as follows:
June 27, September 28,
2004 2003
------------- -------------
Raw ingredients $ 4,770,494 $ 4,414,292
Finished product 6,588,693 5,313,593
Packaging 1,583,080 1,332,038
------------- -------------
$ 12,942,267 $ 11,059,923
============= =============
4. LONG-TERM DEBT
On October 31, 2003, the Company entered into debt refinancing arrangements
with Levine Leichtman Capital Partners II, L.P. ("LLCP") and Pleasant Street
Investors, LLC ("Pleasant Street"). The Company issued to LLCP a second
amended and restated secured senior subordinated note due October 31, 2006 in
the stated principal amount of $28,858,000. The note has a base interest rate
of 13.5%, subject to increase upon the occurrence of any interest rate event,
as defined in the purchase documents, or event of default, and a maturity
date of October 31, 2006.
Pleasant Street has made two term loans to the Company. The senior Term A
Loan, in the principal amount of $17,800,000, has an annual interest rate on
the in-formula portion of 5.5%. The $5,000,000 Term B Loan amortizes monthly
and carries a base interest rate of 12%. The balance of the Term B Loan has
been reduced to $4,514,000 at June 27, 2004. The interest rates on the Term A
Loan and Term B Loan are subject to increase upon the occurrence of any
interest rate event, as defined in the loan documents, or event of default as
provided in the notes that evidence those loans. The Term A Loan and the Term
B Loan mature on October 31, 2006. The prepayment terms of the Term A Loan
and the Term B Loan provide, among other things, that the Company will make
mandatory prepayments of annual excess cash flow, if any.
The October 31, 2003 debt refinancing has been recorded as a debt
extinguishment. Accordingly, unamortized costs associated with the LLCP and
Pleasant Street debt that existed at October 31, 2003, along with new
amendment fees paid to LLCP and Pleasant Street, were expensed on October 31,
2003. The unamortized costs included original issue debt discounts of
$809,635, unamortized financing fees and expenses of $1,173,519 and
unamortized cost of warrants issued to LLCP in September 2002 of $575,220.
The total expense recognized in connection with the October 31, 2003 debt
extinguishment, including the amendment fees of $184,800 and $35,200 amounted
to $2,778,374.
The Company did not meet the level "A" fixed charges requirement at June 27,
2004, which has triggered an interest rate event. However, the Company did
meet the level "B" fixed charges requirement and therefore, no event of
default, as defined in the loan documents, has occurred. The Company did meet
all of its other level "A" requirements, including the earnings before
interest, taxes, depreciation and amortization ("EBITDA") requirement. The
level "A" fixed charges requirement was not met because of management's
decision to make a capital expenditure in the third quarter of fiscal 2004.
The capital expenditure was made to secure cost savings and to meet the
production requirements of a significant customer. As a result of the
interest rate event, interest rates rose on June 28, 2004 from 5.5% to 7.5%
on the in-formula portion of the Term A Loan, from 12% to 14% on the Term B
Loan, and from 13.5% to 15.5% on the senior subordinated note. The fixed
charges covenant is measured quarterly, and the higher interest rates will
remain in effect until the end of the first full quarter in which the Company
meets the fixed charges requirement.
-9-
The Company believes, based upon forecasted performance for the fourth
quarter of fiscal year 2004, that it is probable that the Company will remain
in compliance with all of its revised financial and other covenant
requirements through September 26, 2004. Accordingly, based upon projected
covenant compliance through June 26, 2005, and as a result of the refinancing
of the obligations described above, all principal amounts payable to LLCP and
to Pleasant Street, other than currently scheduled principal payments, have
been classified as long-term liabilities in the accompanying condensed
balance sheet as of June 27, 2004. In the future, the failure of the Company
to achieve certain revenue, expense and profitability levels could result in
a violation of the amended financial covenants under its financing
arrangements, which could result in acceleration of maturity of the loans,
which could adversely affect the Company's financial condition, results of
operations or cash flows.
5. PER SHARE DATA
The following table sets forth the calculation of net income (loss) per share
for the periods presented:
For the Three Months Ended
---------------------------
June 27, June 29,
2004 2003
------------ ------------
Numerator:
Net income (loss) attributable to common
shareholders $ 185,532 $(1,750,967)
============ ============
Denominator:
Denominator for basic net income (loss)
per share -
Weighted average shares 14,805,556 12,338,797
------------ ------------
Effect of dilutive securities:
Stock options 120,150 --
Warrants 200 --
Series A Preferred Stock 283,076 --
------------ ------------
Dilutive potential common shares 403,426 --
------------ ------------
Denominator for diluted net income (loss)
per share 15,208,982 12,338,797
============ ============
Net income (loss) per share - basic: $ .01 $ (.14)
============ ============
Net income (loss) per share - diluted: $ .01 $ (.14)
============ ============
-10-
For the Nine Months Ended
---------------------------
June 27, June 29,
2004 2003
------------ ------------
Numerator:
Net loss attributable to common shareholders $(2,042,778) $(4,204,214)
============ ============
Denominator:
Denominator for basic net loss per share -
Weighted average shares 14,805,556 11,587,421
------------ ------------
Effect of dilutive securities:
Stock options -- --
Warrants -- --
Series A Preferred Stock -- --
------------ ------------
Dilutive potential common shares -- --
------------ ------------
Denominator for diluted net loss per share 14,805,556 11,587,421
============ ============
Net loss per share - basic: $ (.14) $ (.36)
============ ============
Net loss per share - diluted: $ (.14) $ (.36)
============ ============
For the three months ended June 27, 2004, options to purchase 472,000 shares
at an exercise price of $1.60 per share were excluded from the calculation of
dilutive net income per share, as their effect would be antidilutive. For the
three months ended June 29, 2003 and for the nine months ended June 27, 2004
and June 29, 2003, (1) options to purchase 672,000 shares, (2) warrants to
purchase 200 shares and (3) preferred stock convertible into 283,076 shares
were excluded from the calculation of per share amounts, as their effect, if
any, would be antidilutive.
6. STOCK OPTIONS
The Company accounts for stock-based awards to employees using the intrinsic
value method as prescribed by Accounting Principles Board Opinion No. 25 (APB
25), "Accounting for Stock Issued to Employees" and provides the pro forma
disclosure provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation." Accordingly, compensation expense
for stock options issued to employees is recorded on the date of grant only
if the current market price of the underlying stock exceeds the exercise
price.
-11-
For purposes of pro forma disclosures, the estimated fair value of the
options, based on the Black-Scholes option pricing model, is amortized to
expense over the options' vesting periods. The following is the pro forma
information had the fair value method under SFAS No. 123, as amended by SFAS
No. 148, been adopted (in thousands, except per share amounts):
Three Months Ended Nine Months Ended
------------------------------- ---------------------------------
June 27, 2004 June 29, 2003 June 27, 2004 June 29, 2003
------------- ------------- ------------- -------------
Net income (loss), as reported $ 186 $ (1,751) $ (2,043) $ (4,204)
Deduct: Total stock-based employee
compensation expense determined under
fair value based methods for all awards,
net of related tax $ -- $ (56) $ -- $ (453)
------------- ------------- ------------- -------------
Pro forma net income (loss) $ 186 $ (1,807) $ (2,043) $ (4,657)
============= ============= ============= =============
Net income (loss) per share:
Basic, as reported $ 0.01 $ (0.14) $ (0.15) $ (0.36)
Basic, pro forma $ 0.01 $ (0.15) $ (0.15) $ (0.40)
Diluted, as reported $ 0.01 $ (0.14) $ (0.15) $ (0.36)
Diluted, pro forma $ 0.01 $ (0.15) $ (0.15) $ (0.40)
7. INCOME TAXES
During the nine months ended June 27, 2004, the Company recorded a tax
benefit, and an increase in its deferred tax asset to approximately
$4,500,000 on the accompanying condensed balance sheet at June 27, 2004. The
Company has not recorded a valuation allowance against any of its deferred
tax assets, since it is believed that such assets are more likely than not to
be recoverable through estimated future profitable operations. The Company
currently expects to improve on its current operating results, and continue
profitable operations, primarily through (a) improving gross margins by
streamlining additional costs and continuing to leverage the consolidated
manufacturing and storage facilities to improve manufacturing efficiency, (b)
growing revenues from profitable product lines and increasing its customer
base and (c) returning to reduced future interest costs on outstanding debt
as a result of the October 2003 refinancing of its indebtedness. Failure by
the Company to successfully improve margins, grow revenues and/or maintain
anticipated savings on future interest costs, and maintain profitable
operating results in the near term, could adversely impact the Company's
expected realization of some or all of its deferred tax assets and could
require the Company to record a valuation allowance against some or all of
such assets, which could adversely affect the Company's financial position
and results of operations.
8. CONTINGENCIES
LEGAL PROCEEDINGS
From time to time, the Company is involved in various lawsuits, claims and
proceedings related to the conduct of its business. Management does not
believe that the disposition of any pending claims is likely to adversely
affect the Company's financial condition, results of operations or cash
flows.
-12-
CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of trade receivables. The Company performs
ongoing credit evaluations of its customers' financial condition and
generally requires no collateral from its customers.
For the nine months ended June 27, 2004 and June 29, 2003, revenues from
airline-related customers, a group that is subject to certain business risks,
accounted for approximately 20.7% and 20.8% of total net revenues,
respectively. Additionally, accounts receivable from airline-related
customers accounted for approximately 31.4% and 37.0% of the total accounts
receivable balance at each of June 27, 2004 and June 29, 2003, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The following discussion and analysis should be read in conjunction with our
condensed financial statements and notes to condensed financial statements
included elsewhere in this document. This report, and our condensed financial
statements and notes to our condensed financial statements contain
forward-looking statements, which generally include the plans and objectives of
management for future operations, including plans and objectives relating to our
future economic performance and our current beliefs regarding revenues we might
earn if we are successful in implementing our business strategies.
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are based on current expectations or beliefs, including, but not
limited to, statements concerning our operations and financial performance and
condition. For this purpose, statements of historical fact may be deemed to be
forward-looking statements. Forward-looking statements include statements which
are predictive in nature, which depend upon or refer to future events or
conditions, or which include words such as "expects," "anticipates," "intends,"
"plans," "believes," "estimates," "forecasts," "projects," or similar
expressions. In addition, any statements concerning future financial performance
(including future revenues, earnings or growth rates), ongoing business
strategies or prospects, and possible future company actions, which may be
provided by management, are also forward-looking statements. We caution that
these statements by their nature involve risks and uncertainties, and actual
results may differ materially depending on a variety of important factors,
including, among others:
o the impact of competitive products and pricing;
o market conditions such as the increase in the market price of raw
chicken that occurred in late January and early February 2004 as a
result of the Asian bird flu outbreak in Indochina, recent
increases in the market prices of beef and dairy products, and
weather patterns that may affect the cost of raw material as well
as the market for our products;
-13-
o changes in our business environment, including actions of
competitors and changes in customer preferences, as well as
disruptions to our customers' businesses, such as the Southern
California grocery strike that began in October 2003 and ended in
February 2004;
o the occurrence of acts of terrorism, such as the events of
September 11, 2001, or acts of war;
o changes in governmental laws and regulations, including income
taxes;
o market demand for new and existing products; and
o other factors as may be discussed in this report and other reports
we file with the Securities and Exchange Commission, including
those described in Item 7 of our annual report on Form 10-K for
the fiscal year ended September 28, 2003 under the heading "Risk
Factors Related to Our Business and Industry."
OVERVIEW
Our strategy is to be the leading developer and manufacturer of value-added food
products and provider of custom prepared foods. We intend to create superior
value for our stockholders by continuing to execute our growth and operating
strategies. We employ the following corporate strategies:
o diversify our customer base, focusing on sectors with attractive
growth characteristics, such as foodservice and retail;
o invest in and operate efficient production facilities;
o provide customer service-oriented distribution;
o offer a broad range of products to customers in multiple channels
of distribution; and
o continue to pursue growth through strategic acquisitions and
investments.
In evaluating our financial condition and operating performance, we look for
evidence of progress toward our primary goals: meeting profitability goals on a
customer-by-customer basis, realizing the cost efficiencies made possible by our
new manufacturing facility, and growing profitable sales in order to further
utilize the increased manufacturing capacity provided by our new facility.
Progress towards these goals is apparent in the increase in gross profit as a
percentage of net revenues to 11.2% for the first nine months of fiscal 2004, as
compared to 7.6% for the first nine months of fiscal 2003. Sales have declined,
in some cases due to external factors such as the Southern California grocery
strike, and in other cases due to our decision not to bid aggressively on
business that did not meet our profitability goals.
-14-
CRITICAL ACCOUNTING POLICIES
Management's discussion and analysis of our financial condition and results of
operations is based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates. Our significant accounting policies are described in the notes to the
audited financial statements that are included in our 2003 annual report on Form
10-K for the year ended September 28, 2003. We believe the following critical
accounting policies are related to our more significant estimates and
assumptions used in the preparation of our financial statements.
CONCENTRATIONS OF CREDIT RISK. Our financial instruments that are exposed to
concentrations of credit risk consist primarily of trade receivables. We perform
ongoing credit evaluations of our customers' financial condition and generally
require no collateral from our customers. Our allowance for doubtful accounts is
calculated based primarily upon historical bad debt experience and current
market conditions. Until fiscal 2003, bad debt expense and accounts receivable
write-offs, net of recoveries, had historically been immaterial as we generally
transact the substantial portion of our business with large, established food or
service related businesses. However, a bankruptcy or other significant financial
deterioration of any significant customers could impact their future ability to
satisfy their receivables with us as it did with certain of our airline
customers impacted by the tragic events of September 11, 2001.
For the first nine months of fiscal 2004 and 2003, our revenues from
airline-related customers, a group that is subject to certain business risks,
accounted for approximately 20.7% and 20.8% of total net revenues, respectively.
Additionally, accounts receivable from airline-related customers accounted for
approximately 31.4% and 37.0% of the total accounts receivable balance at each
of June 27, 2004 and June 29, 2003, respectively.
INVENTORIES. Inventories, which include material, labor and manufacturing
overhead, are stated at the lower of cost, which approximates the first-in,
first-out (FIFO) method, or market. We use a standard costing system to estimate
our FIFO cost of inventory at the end of each reporting period. Historically,
standard costs have been materially consistent with actual costs. We determine
the market value of our raw ingredients, finished product and packaging
inventories based upon references to current market prices for such items as of
the end of each reporting period and record a write-down of inventory standard
cost to market, when applicable. We periodically review our inventory for excess
items, and we establish a valuation reserve based upon the age of specific items
in inventory and the expected recovery from the disposition of the items.
A reserve is established for the estimated aged, surplus, spoiled or damaged
products, and discontinued inventory items and components. The amount of the
reserve is determined by analyzing inventory composition, expected usage,
historical and projected sales information, and other factors. Changes in sales
volume due to unexpected economic or competitive conditions are among the
factors that could result in materially different amounts for this item.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED. The excess of cost over
fair value of net assets acquired (goodwill) is evaluated at least annually for
impairment in accordance with FASB Statement No. 142, "Goodwill and Other
Intangible Assets." We have one reporting unit and estimate fair value based on
a variety of market factors, including discounted cash flow analysis, market
capitalization, and other market-based data. No impairment of goodwill was
recorded during fiscal 2003 or during the nine months ended June 27, 2004. At
June 27, 2004, we had goodwill of $12,188,000. A deterioration of our operating
results and the related cash flow effect could decrease the estimated fair value
of our business and, thus, cause our goodwill to become impaired and cause us to
record a charge against operations in an amount representing the impairment.
-15-
INCOME TAXES. During the nine months ended June 27, 2004 we recorded a tax
benefit, and an increase in our deferred tax asset to approximately $4,500,000
on the accompanying condensed balance sheet at June 27, 2004. We have not
recorded a valuation allowance against any of our deferred tax assets, since we
believe that such assets are more likely than not to be recoverable through
estimated future profitable operations. Should our estimates of future taxable
income decline, a valuation allowance might be required, which would result in a
charge to operations.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 27, 2004 COMPARED TO THREE MONTHS ENDED JUNE 29, 2003
NET REVENUES. Net revenues for the three months ended June 27, 2004 increased
$1,096,000 (3.2%) to $35,236,000 from $34,140,000 for the three months ended
June 29, 2003. While we operate as a single business unit, manufacturing various
products on common production lines, revenue from similar customers are grouped
into the following natural categories: retail, foodservice, airlines and weight
loss.
Retail net revenues were $5,310,000 for the third quarter of fiscal 2004 as
compared to $6,700,000 for the third quarter of fiscal 2003, a decrease of
$1,390,000. The decrease in retail sales for the period was completely
attributable to a decrease of market sales by one of our retail customers.
Management continues to believe that existing and new retail customers represent
a near term opportunity for growth. Our current retail customer list includes
four new customers obtained during fiscal 2004, including a previously announced
large multi-national food company. In addition, we continue to see results from
our efforts to expand our penetration in the club store markets. During the
third quarter of fiscal 2004, we shipped our first orders to Wal-Mart, the
nation's largest retailer. We have also retained one of the leading retail
grocery brokers to increase near-term opportunities in this sector. The broker,
together with our internal sales force, will focus both on developing our
Chicago Brothers(R) brand and increasing retail business through our agreement
with Panda Restaurant Group (Panda) to manufacture, market and distribute
Panda's frozen meals to nationwide grocery outlets.
Foodservice net revenues were $14,830,000 for the third quarter of fiscal 2004
as compared to $13,152,000 for the third quarter of fiscal 2003, an increase of
$1,678,000. Based on our active foodservice customer prospect list and the
activity of our existing customers, we maintain our belief that foodservice
sales represent another opportunity for sales growth.
Airline net revenues were $7,954,000 for the third quarter of fiscal 2004 as
compared to $7,003,000 for the third quarter of fiscal 2003, an increase of
$951,000. This was the result of a continuing improvement in air travel and the
maturation of our new airline customer activity. While we are optimistic about
the continuing recovery of the airline industry, we continue to be cautious in
our approach to this area of our business.
Weight loss net revenues were $7,142,000 for the third quarter of fiscal 2004,
as compared to $7,285,000 for the third quarter of fiscal 2003, a decrease of
$143,000.
-16-
GROSS PROFIT. Gross profit for the third quarter of fiscal 2004 increased
$307,000 to $3,684,000 from $3,377,000 for the third quarter of fiscal 2003. The
increase in gross profit was the result of several positive factors. Gross
profit margin as a percentage of net revenues increased to 10.5% for the third
quarter of fiscal 2004 from 9.9% for the third quarter of fiscal 2003 due to the
ongoing realization of planned efficiencies in our new production facility, our
efforts to increase profitability on new accounts, and management's decision to
forgo business that did not meet our profitability objectives. Gross profits for
the quarter were negatively affected by the increases in raw poultry prices due
to the Asian bird flu situation, which created a surge in the export market for
domestically raised poultry. Gross profits for the quarter were also negatively
affected by historic price increases in other commodities. We have reacted to
this increase by increasing our selling price to our customers, where possible,
and by working with customers to reformulate products to reduce costs while
maintaining or improving product quality. At the end of the quarter we began to
see some easing of these higher costs. We continue to closely manage and monitor
this situation and we are renegotiating our raw material contracts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses (SG&A) for the third quarter of fiscal 2004 decreased
$571,000 (23.0%) to $1,917,000 (5.4% of net revenues) from $2,488,000 (7.3% of
net revenues) for the third quarter of fiscal 2003. The decrease in SG&A for the
quarter resulted primarily from reductions in administrative staffing and legal
and accounting services from third quarter of fiscal 2003 levels. We expect that
we will be able to maintain this reduced level of SG&A spending.
OPERATING INCOME. Operating income increased $878,000 to $1,767,000 for the
third quarter of fiscal 2004 from operating income of $889,000 for the third
quarter of fiscal 2003. The increase in operating income for the period is the
result of improvements in gross margins and reductions in SG&A as noted above.
We intend to closely manage our cost structure with increased emphasis on
individual account profitability as we continue to develop additional revenue
opportunities.
OTHER EXPENSES. Other expenses for the third quarter of fiscal 2004, which
consist primarily of various financing-related charges, decreased $2,346,000 to
$1,468,000 from $3,814,000 for the third quarter of fiscal 2003. This decrease
is largely due to a $1,485,000 decline in amortization of deferred financing
costs to $48,000 from $1,533,000 for the third quarter of fiscal 2003. The
amortization expense in the third quarter of fiscal 2003 included the
amortization of costs related to previous financing arrangements. Additionally,
interest expense decreased $816,000 to $1,430,000 from $2,246,000 for the third
quarter of fiscal 2003. All remaining costs associated with previous financing
arrangements were written off as debt extinguishment expense as part of the
October 2003 refinancing. We did not meet the level "A" fixed charges
requirement under our debt agreements at June 27, 2004, which has triggered an
interest rate event. However, we did meet the level "B" fixed charges
requirement and therefore, no event of default, as defined in the loan
documents, has occurred. We did meet all of its other level "A" requirements,
including the EBITDA requirement. The fixed charges requirement was not met
because of management's decision to make a capital expenditure in the third
quarter of fiscal 2004. The capital expenditure was made to secure cost savings
and to meet the production requirements of a significant customer. As a result
of the interest rate event, interest rates rose on June 28, 2004 from 5.5% to
7.5% on the in-formula portion of the Term A Loan, from 12% to 14% on the Term B
Loan, and from 13.5% to 15.5% on the senior subordinated note. The fixed charges
covenant is measured quarterly, and the higher interest rates will remain in
effect until the end of the first full quarter in which we meet the fixed
charges requirement.
-17-
INCOME TAX PROVISION (BENEFIT). Due to operating profits for the third quarter
of fiscal 2004, we recorded a tax provision of $113,000. A tax benefit of
$1,174,000 was recorded for the third quarter of fiscal 2003. The effective tax
rates for both quarters were based upon the estimated annual effective tax rates
of approximately 37.9% in 2004 and 40.1% in 2003. We have not recorded a
valuation allowance against any of our deferred tax assets, which aggregated
approximately $4,500,000 at June 27, 2004, since we believe that such assets are
more likely than not to be recoverable through estimated future profitable
operations. If we fail to successfully improve margins, grow revenues, and
return to profitable operations in the near term, we may not realize some or all
of our deferred tax assets, which could require us to record a valuation
allowance against some or all of those assets, which could adversely affect our
financial position and results of operations.
NET INCOME (LOSS). The net result for the third quarter of fiscal 2004 was a net
profit of $186,000 ($.01 per share) as compared to a net loss of $1,751,000
($.14 per share) for the third quarter of fiscal 2003.
NINE MONTHS JUNE 27, 2004 COMPARED TO NINE MONTHS ENDED JUNE 29, 2003
NET REVENUES. Net revenues for the nine months ended June 27, 2004 decreased
$9,294,000 (8.8%) to $96,767,000 from $106,061,000 for the nine months ended
June 29, 2003. As indicated above, while we operate as a single business unit,
manufacturing various products on common production lines, revenue from similar
customers are grouped into the following natural categories: retail,
foodservice, airlines and weight loss.
Retail net revenues were $16,584,000 for the first nine months of fiscal 2004 as
compared to $23,364,000 for the first nine months of fiscal 2003, a decrease of
$6,780,000. Retail sales for the nine month period were impacted by the Southern
California grocery strike, which was settled in late February 2004, and by
decreased sales to one of our retail customers. Among our retail customers,
recurring sales to Albertson's decreased by over $3,400,000 for the first nine
months, as compared to the first nine months of fiscal 2003. Management
continues to believe that existing and new retail customers represent a near
term opportunity for growth.
Foodservice net revenues were $40,511,000 for the first nine months of fiscal
2004 as compared to $42,253,000 for the first nine months of fiscal 2003, a
decrease of $1,742,000. This reduction was principally the result of activity in
two customer accounts, one of which we decided not to re-bid aggressively based
on our profitability objectives, and a second of which reduced the number of
products offered to its customers. As with retail sales, we maintain our belief
that foodservice sales represent another growth opportunity.
Airline net revenues were $20,003,000 for the first nine months of fiscal 2004
as compared to $22,063,000 for the first nine months of fiscal 2003, a decrease
of $2,060,000. This was largely the result of decreased sales to Delta Airlines,
which stopped offering meals on all but long haul and international flights.
Declines in the first half of fiscal 2004 were partially offset by a recovery in
the third quarter.
Weight loss net revenues were $19,669,000 for the first nine months of fiscal
2004, as compared to $18,380,000 for the first nine months of fiscal 2003, an
increase of $1,289,000.
-18-
GROSS PROFIT. Gross profit for the first nine months of fiscal 2004 increased to
$10,850,000 from $8,066,000 for the first nine months of fiscal 2003. Gross
profit margin as a percentage of net revenues increased to 11.2% for the first
nine months of fiscal 2004 from 7.6% for the first nine months of fiscal 2003
due to (1) the realization of planned efficiencies in our new production
facility; (2) our efforts to increase profitability on new accounts and (3)
management's decision to forgo business that did not meet our profitability
objectives.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A for the first nine months of
fiscal 2004 decreased $1,603,000 (20.2%) to $6,320,000 (6.5% of net revenues)
from $7,923,000 (7.5% of net revenues) for the first nine months of fiscal 2003.
The decrease in SG&A for the first nine months of fiscal 2004 relates primarily
to reductions from the prior year in compensation, professional services, bad
debts and insurance expenses. We expect that we will be able to maintain this
reduced level of SG&A spending.
OPERATING INCOME. Operating income increased $4,387,000 to $4,530,000 for the
first nine months of fiscal 2004 from $143,000 for the first nine months of
fiscal 2003. The increase in operating income for the period, on a lower revenue
base, is the result of improvements in gross margins and reductions in SG&A as
noted above. We intend to continue to closely manage our cost structure with
increased emphasis on individual account profitability as we continue to develop
additional revenue opportunities.
OTHER EXPENSES. Other expenses for the first nine months of fiscal 2004, which
consist primarily of various financing-related charges, increased $653,000 to
$7,819,000 from $7,166,000 for the first nine months of fiscal 2003. The
increase includes a $2,778,000 charge, substantially noncash, for debt
extinguishment expenses related to the write-off of deferred financing costs and
debt issue costs in connection with the refinancing of substantially all
indebtedness in October 2003. The increase also includes an increase in interest
expense of $81,000 due to increases in borrowings and interest rates, which was
offset by decreases in amortization of deferred financing costs of $1,893,000
and other expenses of $314,000. We did not meet the level "A" fixed charges
requirement under our debt agreements at June 27, 2004, which has triggered an
interest rate event. However, we did meet the level "B" fixed charges
requirement and therefore, no event of default, as defined in the loan
documents, has occurred. We did meet all of its other level "A" requirements,
including the EBITDA requirement. The fixed charges requirement was not met
because of management's decision to make a capital expenditure in the third
quarter of fiscal 2004. The capital expenditure was made to secure cost savings
and to meet the production requirements of a significant customer. As a result
of the interest rate event, interest rates rose on June 28, 2004 from 5.5% to
7.5% on the in-formula portion of the Term A Loan, from 12% to 14% on the Term B
Loan, and from 13.5% to 15.5% on the senior subordinated note. The fixed charges
covenant is measured quarterly, and the higher interest rates will remain in
effect until the end of the first full quarter in which we meet the fixed
charges requirement.
INCOME TAX PROVISION (BENEFIT). Due to operating losses for the nine months
ended June 27, 2004, we have provided an income tax benefit of $1,246,000, and
recorded an increase in our deferred tax asset to approximately $4,500,000 on
the accompanying condensed balance sheet at June 27, 2004. A tax benefit of
$2,819,000 was recorded for the first nine months of fiscal 2003. The effective
tax rates for both years were based upon the estimated annual effective tax
rates of approximately 37.9% in 2004 and 40.1% in 2003. We have not recorded a
valuation allowance against any of our deferred tax assets, since we believe
that such assets are more likely than not to be recoverable through estimated
future profitable operations. If we fail to successfully improve margins, grow
revenues and/or maintain anticipated savings on future interest costs, and
return to profitable operations in the near term, it could adversely impact our
expected realization of some or all of our deferred tax assets and could require
us to record a valuation allowance against some or all of those assets, which
could adversely affect our financial position and results of operations.
-19-
NET LOSS. The net result for the nine months ended June 27, 2004 was a net loss
of $2,043,000 ($.14 per share) as compared to a net loss of $4,204,000 ($.36 per
share) for the nine months ended June 29, 2003.
We currently expect continued improvement in our current operating results, and
continued profitability primarily through (a) improving gross margins on
existing business, achieved by streamlining additional costs and continuing to
leverage our consolidated manufacturing and storage facilities to improve
manufacturing efficiency, (b) increasing our customer base, and (c) growing
revenues from existing profitable product lines. As discussed in "Risk Factors
Related to Our Business and Industry," included in Item 7 of our 2003 annual
report on Form 10-K, we may be unable to improve our operating results if we
suffer a decline in our manufacturing efficiency, the loss of major customers,
further declines in air travel, a work stoppage similar to the Southern
California grocery strike, adverse changes in our operating costs, or other
adverse changes to our business. Our profitability may also be adversely
impacted by prolonged increases in raw material costs, such as the increases in
the market price of raw chicken that occurred in late January and early February
2004 as a result of the Asian bird flu outbreak in Indochina, if such raw
material cost increases are not offset by increases in sales prices.
LIQUIDITY AND CAPITAL RESOURCES
Historically, our principal sources of liquidity have been cash flows from
operations and existing financing arrangements. Our cash and cash equivalents
increased by $406,000 to $920,000 during the nine months ended June 27, 2004.
During the first nine months of fiscal 2004, our operating activities resulted
in a use of cash of $3,145,000, as compared to cash provided of $1,773,000
during the first nine months of fiscal 2003. During the first nine months of
fiscal 2004, the use of cash resulted primarily from a $2,879,000 increase in
accounts receivable, a $1,882,000 increase in inventories and a $623,000
increase in prepaid expenses; these were reduced by a $1,083,000 increase in
accounts payable and accruals and by noncash expenses exceeding operating losses
for the period by $1,156,000. As of June 27, 2004, we had working capital of
$15,880,000.
During the first nine months of fiscal 2004, our investing activities resulted
in a use of cash of $523,000, as compared to a use of cash of $5,226,000 during
the first nine months of fiscal 2003. The use of cash in both years consisted
exclusively of additions to property and equipment. The prior year additions
related primarily to the consolidation of most of our operations into our
facility in Vernon, California.
During the nine months ended June 27, 2004, our financing activities provided
cash of $4,073,000, as compared to cash provided of $4,189,000 during the nine
months ended June 29, 2003. The cash provided in 2004 resulted primarily from
new borrowings, net of related deferred financing costs, in connection with the
debt refinancing in October 2003.
-20-
On October 31, 2003, we entered into debt refinancing arrangements with LLCP and
Pleasant Street. We issued to LLCP a second amended and restated secured senior
subordinated note due October 31, 2006 in the stated principal amount of
$28,858,000. The note has a base interest rate of 13.5%, subject to increase
upon the occurrence of any interest rate event, as defined in the purchase
documents, or event of default, and a maturity date of October 31, 2006.
Pleasant Street has made two term loans to us. The senior Term A Loan, in the
principal amount of $17,800,000, has an annual interest rate on the in-formula
portion of 5.5%. The $5,000,000 Term B Loan amortizes monthly and carries a base
interest rate of 12%. The balance of the Term B Loan has been reduced to
$4,514,000 at June 27, 2004. The interest rates on the Term A Loan and Term B
Loan are subject to increase upon the occurrence of any interest rate event, as
defined in the loan documents, or event of default as provided in the notes that
evidence those loans. The Term A Loan and the Term B Loan mature on October 31,
2006. The prepayment terms of the Term A Loan and the Term B Loan provide, among
other things, that we will make mandatory prepayments of annual excess cash
flow, if any.
The October 31, 2003 debt refinancing has been recorded as a debt
extinguishment. Accordingly, unamortized costs associated with the LLCP and
Pleasant Street debt that existed at October 31, 2003, along with new amendment
fees paid to LLCP and Pleasant Street, were expensed on October 31, 2003. The
unamortized costs included original issue debt discounts of $809,635,
unamortized financing fees and expenses of $1,173,519 and unamortized cost of
warrants issued to LLCP in September 2002 of $575,220. The total expense
recognized in connection with the October 31, 2003 debt extinguishment,
including the amendment fees of $184,800 and $35,200, amounted to $2,778,374.
We did not meet the level "A" fixed charges requirement at June 27, 2004, which
has triggered an interest rate event. However, we did meet the level "B" fixed
charges requirement and therefore, no event of default, as defined in the loan
documents, has occurred. We did meet all of its other level "A" requirements,
including the EBITDA requirement. The level "A" fixed charges requirement was
not met because of management's decision to make a capital expenditure in the
third quarter of fiscal 2004. The capital expenditure was made to secure cost
savings and to meet the production requirements of a significant customer. As a
result of the interest rate event, interest rates rose on June 28, 2004 from
5.5% to 7.5% on the in-formula portion of the Term A Loan, from 12% to 14% on
the Term B Loan, and from 13.5% to 15.5% on the senior subordinated note. The
fixed charges covenant is measured quarterly, and the higher interest rates will
remain in effect until the end of the first full quarter in which we meet the
fixed charges requirement.
We believe, based upon forecasted performance for the fourth quarter of fiscal
year 2004, that it is probable that we will remain in compliance with all of our
revised financial and other covenant requirements through September 26, 2004.
Accordingly, based upon projected covenant compliance through June 26, 2005, and
as a result of the refinancing of the obligations described above, all principal
amounts payable to LLCP and to Pleasant Street, other than currently scheduled
principal payments, have been classified as long-term liabilities in the
accompanying condensed balance sheet as of June 27, 2004. In the future, our
failure to achieve certain revenue, expense and profitability levels could
result in a violation of the amended financial covenants under our financing
arrangements and could result in acceleration of maturity of the loans, which
could adversely affect our financial condition, results of operations or cash
flows.
-21-
We believe that funds available to us from operations and existing capital
resources will be adequate for our capital requirements for at least the next
twelve months.
Following is a summary of our contractual obligations at June 27, 2004:
Payments Due By Period
-------------------------------------------------------------------------
Remainder of More than
Total Fiscal Year 2-3 Years 4-5 Years 5 Years
------------- ------------- ------------- ------------- -------------
Debt maturities $ 51,291,193 $ 221,280 $ 1,773,043 $ 49,296,870 $ --
Other contractual
obligations 12,819,069 589,228 3,660,956 2,083,096 6,485,789
Open purchase orders 6,558,358 6,558,358 -- -- --
------------- ------------- ------------- ------------- -------------
Total contractual
obligations $ 70,668,620 $ 7,368,866 $ 5,433,999 $ 51,379,966 $ 6,485,789
============= ============= ============= ============= =============
The October 31, 2003 debt refinancing is the only material change, outside of
the ordinary course of business, in the contractual obligations summarized
above, since September 28, 2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk - Obligations. We are currently subject to interest rate risk
on variable interest rate obligations. A hypothetical 10% increase in average
market interest rates would increase annual interest expense on currently
outstanding debt by approximately $114,000. We are also subject to interest rate
risk on our fixed interest rate obligations. Based upon outstanding amounts of
fixed rate obligations as of June 27, 2004, a hypothetical 10% decrease in
average market interest rates would increase the fair value of outstanding fixed
rate debt by approximately $354,000.
We do not own, nor do we have an interest in, any other market risk sensitive
instruments.
ITEM 4. CONTROLS AND PROCEDURES
Our management, including our Chief Executive Officer and Chief Financial
Officer (our principal executive officer and principal financial officer,
respectively) has concluded, based on its evaluation as of June 27, 2004, that
the design and operation of our "disclosure controls and procedures" (as defined
in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended
("Exchange Act")) are effective to ensure that information required to be
disclosed by us in the reports filed or submitted under the Exchange Act is
accumulated, recorded, processed, summarized and reported to management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding whether or not disclosure is
required.
During the quarter ended June 27, 2004, there were no changes in our "internal
controls over financial reporting" (as defined in Rule 13a-15(f) under the
Exchange Act) that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.
-22-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are involved in various lawsuits, claims and proceedings
related to the conduct of our business. Our management does not believe that the
disposition of any pending claims is likely to adversely affect our financial
condition, results of operations or cash flows.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Number Description
------ -----------
31* Certifications Required by Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32* Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
* Filed herewith
(b) Reports on Form 8-K - No reports on Form 8-K were filed during the
quarter ended June 27, 2004.
-23-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OVERHILL FARMS, INC.
(REGISTRANT)
Date: August 9, 2004 By: /s/ James Rudis
-------------------------
James Rudis
Chairman, President and
Chief Executive Officer
Date: August 9, 2004 By: /s/ John L. Steinbrun
-------------------------
John L. Steinbrun
Senior Vice President and
Chief Financial Officer
-24-
EXHIBITS FILED WITH THIS REPORT ON FORM 10-Q
Number Description
------ -----------
31 Certifications Required by Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
-25-