U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
(Amendment No. 1)
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of he Securities Exchange Act of
1934
For the quarterly period ended September 30, 2001
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[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ___________ to _________
Commission file number 000-31148
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PINNACLE FOODS, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Pennsylvania 23-3008972
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
980 Glasgow Street, Pottstown, PA 19464
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(Address of Principal Executive Offices)
610-705-3620
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal ear, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes No X
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APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 26,006,988
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Transitional Small Business Disclosure Format (check one):
Yes No
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INDEX
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements............................................3
Item 2. Management's Discussion and Analysis or Plan of Operation......10
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
PINNACLE FOODS, INC.
Balance Sheet
September 30, 2001
(Unaudited)
ASSETS
Current Assets:
Cash $ 1,969,968
Trade Receivables, less Allowance of $25,595 3,773,012
Inventory 926,325
Prepaid Expenses 143,255
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Total Current Assets 6,812,560
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Fixed Assets:
Property and Equipment 4,080,680
Less Accumulated Depreciation (810,761)
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Total Fixed Assets 3,269,919
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Other Assets: 33,494
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Total Assets: $ 10,115,973
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Installments on Capital Lease Obligations $ 264,903
Accounts Payable 2,297,613
Accrued Expenses 412,967
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Total Current Liabilities 2,975,483
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Long Term Liabilities
Capital Lease Obligations Less Current Installments 731,814
Notes Payable 2,500,000
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Total Long Term Liabilities 3,231,814
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Stockholders' Equity:
Common Stock 269,134
Additional Paid-In Capital 12,094,296
Deficit (8,114,601)
Deferred Compensation (340,153)
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Total Stockholders Equity 3,908,676
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Total Liabilities and Stockholders' Equity $ 10,115,973
============
See notes to condensed financial statements.
PINNACLE FOODS, INC.
Statements of Operations
(Unaudited)
For the Three Month Period Ended For the Nine Month Period Ended
September 30 September 30
----------------------------------- -----------------------------------
2001 2000 2001 2000
---------------- --------------- ---------------- ---------------
Sales $ 11,964,020 $ 3,833,319 $ 30,932,513 $ 5,949,686
Cost of Goods Sold 11,914,058 4,165,099 30,571,897 6,443,518
---------------- --------------- ---------------- ---------------
Gross Profit 49,962 (331,780) 360,616 (493,832)
Depreciation and Amortization 157,041 113,661 449,466 226,495
General and Administrative Expenses 1,116,210 737,140 2,414,206 1,307,303
---------------- --------------- ---------------- ---------------
Operating Expenses 1,273,251 850,801 2,863,672 1,533,798
---------------- --------------- ---------------- ---------------
Loss from Operations (1,223,289) (1,182,581) (2,503,056) (2,027,630)
Other Expenses
Interest (Net) 11,475 158,985 128,529 201,050
---------------- --------------- ---------------- ---------------
Net Loss $ (1,234,764) $ (1,341,566) $ (2,631,585) $ (2,228,680)
================ =============== ================ ===============
Loss Per Share
Basic $ (0.05) $ (0.14) $ (0.15) $ (0.25)
Diluted $ (0.05) $ (0.14) $ (0.15) $ (0.25)
Weighted Average Shares Outstanding
Basic
Diluted 26,006,988 9,323,380 17,217,513 8,753,300
26,006,988 9,323,380 17,217,513 8,753,300
See notes to condensed financial statements.
PINNACLE FOODS, INC.
Statements of Cash Flows
(Unaudited)
For the Nine Month Periods Ended
September 30
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2001 2000
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Cash Flows Used for Operating Activities
Net Loss $ (2,631,585) $ (2,228,680)
Adjustments
Provision for Doubtful Accounts - 25,595
Depreciation and Amortization 449,466 226,495
Deferred Compensation 78,497 -
Common Stock Issued for:
Interest 23,818 166,000
Consulting 128,000 213,600
Compensation - 125,600
Changes in Assets and Liabilities
Trade Receivables (2,482,818) (1,015,250)
Other Receivables 95,410 (95,410)
Inventory (448,560) (543,261)
Prepaid Expenses (93,421) (14,242)
Accounts Payable (590,262) 2,056,091
Accrued Expenses 136,662 407,829
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Net Cash Used for Operating Activities (5,334,793) (675,633)
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Cash Flows Used for Investing Activities
Purchase of Property and Equipment (868,331) (784,714)
Other Assets (3,347) (26,865)
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Net Cash Used for Investing Activities (871,678) (811,579)
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Cash Flows From Financing Activities
Proceeds from Issuance of Common Stock, Net 5,909,567 944,000
Proceeds from Issuance of Convertible Debt - 1,095,240
Proceeds from Issuance of Debt 2,500,000 320,000
Repayments on Debt - (382,454)
Repayments on Capital Lease Obligations (233,128) (227,140)
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Net Cash Provided by Financing Activities 8,176,439 1,749,646
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Net Increase in Cash 1,969,968 262,434
Cash, Beginning of Year - 92,271
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Cash, End of Period $ 1,969,967 $ 354,705
=========================== ==========================
PINNACLE FOODS, INC.
Statements of Cash Flows
(Unaudited)
(Continued)
Supplemental Disclosures of Cash Flow Information
Interest Paid during the Period $ 116,512 $ 58,638
Non-cash Items
Purchase of Equipment under Capital Lease
Agreements $ 181,775 $ 819,438
Debt Converted into Common Stock 400,000 -
Forgiveness of Debt from Shareholder - 270,000
Common Stock issued for Equipment - 311,325
See notes to condensed financial statements.
6
PINNACLE FOODS, INC.
Statement of Stockholders' Equity
Nine Month Period Ended September 30, 2001
(Unaudited)
Common stock
$.01 par value
50,000,000 shares authorized
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Shares Additional
issued or paid-in Deferred
issuable Amount capital Deficit Compensation Total
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Balance, January 1, 2001 13,367,298 $ 133,673 $ 5,768,372 $ (5,483,016) $ (418,650) $ 379
Net Loss (2,631,585) (2,631,585)
Grant of Compensatory Options 78,497 78,497
Common Stock Issued or Issuable For:
Cash, Net 13,003,494 130,035 5,779,532 5,909,567
Consulting 160,000 1,600 126,400 128,000
Interest 15,879 159 23,659 23,818
Convertible Debt 366,667 3,667 396,333 400,000
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Balance, September 30, 2001 26,913,338 $ 269,134 $ 12,094,296 $ (8,114,601) $ (340,153) $ 3,908,676
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See notes to condensed financial statements.
PINNACLE FOODS, INC.
Notes to Condensed Financial Statements
September 30, 2001
1. Basis of Presentation.
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The unaudited condensed financial statements have been produced by
Pinnacle Foods, Inc. (the "Company") pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"). Certain information and
footnote disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such SEC rules and regulations; nevertheless, the Company believes
that the disclosures are adequate to make the information presented not
misleading. These financial statements and the notes hereto should be read in
conjunction with the financial statements and notes thereto included in the
Company's Registration Statement on Form 10-SB, as amended. In the opinion of
the Company, all adjustments, including normal recurring adjustments, necessary
to present fairly the financial position of the Company as of September 30, 2001
and the results of its operations and cash flows for the three and nine month
periods ended September 30, 2001 have been included. The results of operations
for the interim period are not necessarily indicative of the results for the
year.
2. Accounting Policies.
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There have been no changes in accounting policies used by the Company
during the quarter ended September 30, 2001.
3. Summary of Business.
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The Company, incorporated on July 20, 1999 in the Commonwealth of
Pennsylvania, prepares case-ready meats for distribution to retailers in the
Northeastern United States. It grants credit to its customers without requiring
collateral.
4. Inventory.
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The Company's inventories are valued at the lower of first-in,
first-out or market. Inventories at September 30, 2001 consist of the following:
Beef, pork, veal, lamb $ 265,476
Packaging supplies 463,364
Finished goods 197,485
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$ 926,325
5. Stockholders' Equity.
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In June of 2001, the Company entered into an agreement with Smithfield
Foods, Inc. ("Smithfield") in which Smithfield purchased shares of the Company
which resulted in Smithfield's owning 50% of the issued and outstanding shares
upon completion of the transaction for a purchase price of $6,000,000.
6. Notes Payable.
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During 2001, the Company repaid $400,000 of convertible bonds with its
common stock. The conversion ratio for these borrowings ranged between $1.00 and
$1.50 per share. In conjunction with the Smithfield transaction noted above,
Smithfield provided the Company with a $30,000,000 revolving line of credit. The
Company's outstanding balance under the line of credit bears interest at 1%
above prime and is secured by all of the Company's assets. The loan will mature
in five years. At September 30, 2001, the Company's outstanding balance under
the line of credit was $2.5 million.
7. Stock Options.
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During the first nine months of 2001, the Company granted 375,000 stock
options. The exercise price of these stock options range between $1.00 to $1.25
per share. In addition, options to purchase 25,000 shares were forfeited.
8. Net Loss Per Share.
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Basic loss per share ("EPS") is computed using the weighted average
number of common shares outstanding during the period. Diluted EPS is computed
using the weighted average number of common and dilutive common equivalent
shares outstanding during the period. Dilutive common equivalent shares consist
of common stock issuable upon exercise of stock options. No adjustments to
earnings were made for purposes of per share calculations. There were no
dilutive potential common shares in 2001 or 2000 because the assumed exercise of
the options would be anti-dilutive.
Item 2. Management's Discussion and Analysis or Plan of Operation
Sales for the nine-month period ended September 30, 2001 were $30.9
million, representing an increase of approximately $25.0 million over sales of
$5.9 million from the corresponding period of 2000. This increase was almost
exclusively the result of the increase in the volume of products handled, but
also partially due to a change in the mix of products sold in favor of higher
priced items. As the diversity of services that the Company offers continues to
grow, customers are increasing both the range of products as well as the
quantity ordered. Although the Company perceives an increasing demand for its
services, its existing facilities limit the revenues which can be generated from
its operations. Consequently, the Company has been searching for alternative or
additional production space for some time. Several properties have been
identified, but no lease or Agreement of Sale for any of them has been signed.
Cost of goods sold for the nine-month period ended September 30, 2001
was $30.6 million which resulted in a gross profit of approximately $0.3
million. By comparison, cost of goods sold for the nine-month period ended
September 30, 2000 was $6.4 million, which resulted in a gross loss of
approximately $0.5 million. Operating expenses for the nine-month period ended
September 30, 2001 were $2.9 million as compared to $1.5 for the comparable
period of the prior year. This increase of $1.4 million resulted from costs
associated with increased quality assurance functions, increased insurance
expense, increased general management expense, increased depreciation and
amortization expense, and increased freight and commission expenses. The move of
the majority of operations to the Pottstown facility in the first quarter and
subsequently, the move of all operations to Pottstown in the second quarter was
initiated to control costs more effectively. The Company continues to use the
Philadelphia facility as a storage facility, and occasionally as a production
facility.
Interest expense (net) for the nine-month period ended September 30,
2001 was approximately $0.1 million compared to approximately $0.2 million for
the comparable period of 2000. This decrease in interest expense is due to the
repayment of loans in late 2000 as well as an increase in interest earned on
investments. The net loss for the nine-month period of 2001 was approximately
$2.6 million as compared to $2.2 million for 2000.
The Company has lost money continually since inception; however, the
loss in September, 2001 was significantly lower than the losses in both July and
August of 2001. The principal reason for the magnitude of the loss in July and
August is the Company's agreement to adopt a branded program for one of its
major customers that resulted in significant operational changes and processes
which have now been overcome.
Liquidity and Capital Resources
Until the closing of the Smithfield transactions in June 2001, the
Company had been chronically undercapitalized. Although the Company had a line
of credit with a small bank for a short time period, the line was supported by
personal guarantees of shareholders or officers. The Company's minimal equity
position of $379 at December 31, 2000 resulted from start-up expenses that were
funded through operations and private offerings of capital stock or convertible
debt. The Company currently has no convertible debt outstanding. On May 17,
2001, Smithfield loaned the Company $2.0 million, which the Company repaid on
the closing date of the Smithfield transactions, June 27, 2001.
Although the Company's liquidity problem prior to the closing of the
Smithfield transactions had not prevented the Company from filling orders (i.e.
by preventing the Company from purchasing necessary raw materials or paying its
workforce), it had caused the Company to seek capital infusions repeatedly since
commencement of business and has required the indulgence periodically of Company
vendors.
Generally, the Company maintains an inventory of meat supplies using
the trade credit programs of its suppliers, which allow the Company to purchase
meat supplies with payment due within seven days. The Company's liquidity
difficulty prior to the closing of the Smithfield transactions was exacerbated
by the requirement that it pay for meat supplies sooner than it was able to get
paid by its customers, and because, in the case of the Company's largest
customer, its meat supplier was also the paying agent for the customer. This
paying agent deducted current meat purchases from prior amounts owed to the
Company by the customer before remitting payment to the Company.
By completing the Smithfield transactions, the Company addressed its
liquidity problem in two ways. First, the Company's immediate need for capital
was addressed by the $6 million purchase price paid by Smithfield for its equity
stake in the Company. Second, the Company received a $30 million line of credit
through Smithfield on terms that the Company had not been able to obtain before
establishing the relationship with Smithfield. The amounts which may be borrowed
on the line of credit are limited, however, to the Net Amount of Eligible
Accounts plus the Net Amount of Eligible Inventory (each as defined in the
applicable Credit Agreement) plus such other amounts as Smithfield may, in its
reasonable discretion, allow. The Smithfield transactions should allow the
Company to meet its capital needs for sufficient capital in the immediate
future. Management is cautiously optimistic that operations will improve in the
future; however, if they do not, there is no assurance that the Smithfield
transactions will provide sufficient capital for the Company to operate
successfully on a long-term basis.
Because of the liquidity provided by the purchase of the shares sold to
Smithfield, as well as the working capital available under the Smithfield line
of credit, the Company has terminated the prior arrangement by which it dealt
with a meat supplier that was also acting as paying agent for a large Company
customer. The combination of cash availability under the Smithfield line and the
change referred to in the preceding sentence has increased Company liquidity
significantly. Nonetheless, the Company continues to consume significant amounts
of cash to fund ongoing operating losses and increases in accounts receivable in
excess of the sum of the increase in accounts payable plus the amounts available
under the Smithfield line.
At September 30, 2001, the Company had $2.0 million of cash (and cash
equivalents). The Company's current ratio at September 30, 2001 was 2.29.
Because of the limitations on the amounts which can be borrowed under the
Smithfield line of credit, if the Company continues to consume cash at the rate
which prevailed during the first nine months of 2001, the Company will deplete
its cash resources by the fall of 2002.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PINNACLE FOODS, INC.
Date: December 27, 2001 By: /s/ Tom McGreal
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Tom McGreal, Vice President