U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB/A
(Amendment No. 3)
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES ACT OF 1934
Pinnacle Foods, Inc.
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(Name of Small Business Issuer 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) (Zip Code)
(610) 705-3620
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(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
None
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Securities to be registered under Section 12(g) of the Act:
Common Stock, Par Value $0.01 per Share
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(Title of Class)
INDEX
Page
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PART I 3
Item 1. Business 3
Item 2. Management's Discussion and Analysis or Plan of Operation 9
Item 3. Description of Properties 12
Item 4. Security Ownership of Certain Beneficial Owners and Management 13
Item 5. Directors, Executive Officers, Promoters and Control Persons 14
Item 6. Executive Compensation 15
Item 7. Certain Relationships and Related Transactions 15
PART II 16
Item 2. Legal Proceedings 16
Item 4. Recent Sales of Unregistered Securities 17
PART F/S. Financial Statements 20
PART III 40
Item 1. Index to Exhibits 40
2
PART I
Item 1. Business.
Item 1. is hereby amended and restated in its entirety to read as follows:
Introduction
Pinnacle Foods, Inc. ("Pinnacle" or the "Company") was incorporated on July
20, 1999 in the Commonwealth of Pennsylvania to provide case-ready meat
packaging services to retailers. "Case-ready" refers to meat products that can
be taken out of a box and put directly into a retailer's meat case without any
further processing or packaging. Using what Pinnacle believes is advanced
technology and state of the art facilities, Pinnacle can achieve the trimming,
cutting, wrapping, labeling, and pricing of a retail product with extended shelf
life that cannot be achieved at the store level. Pinnacle's service also allows
its customers to avoid dealing with an increasing shortage of butchers available
to work at retail locations. Unlike some of its competitors which only handle
some species of meat, Pinnacle cuts, packages, processes, and delivers
case-ready beef, pork, lamb, and veal.
Pinnacle's business is regulated in large part by the United States
Department of Agriculture (the "USDA"). Pinnacle has instituted several key
methodologies to ensure that its products are in compliance with the USDA's
inspection methodology, the Hazard Analysis Critical Control Point program
("HACCP"). Pinnacle currently leases two facilities, one located at 980 Glasgow
Street, Pottstown, Pennsylvania, and the other located at 934 North 3rd Street,
Philadelphia, PA. The Pottstown plant is USDA inspected and the Philadelphia
facility was formerly USDA inspected when used for meat processing. (Currently,
the Philadelphia facility is used exclusively for warehousing.)
The table below shows summary selected historical financial information for
Pinnacle for the periods indicated. The information set forth below is only a
summary and shareholders are encouraged to read Pinnacle's historical financial
statements and related notes and Management's Discussion and Analysis of
Financial Condition or Plan of Operation contained elsewhere in this
registration statement.
Six Months Period from Inception
Ended Year Ended (July 20, 1999) through
June 30, 2001 December 31, 2000 December 31, 1999
------------- ----------------- -----------------
Operating Results:
Sales, net $18,968,494 $13,595,490 $237,530
Loss from Operations (987,341) (4,602,117) (504,133)
Net Loss (1,396,821) (4,953,575) (529,441)
Loss Per Share (0.11) (0.52) (0.08)
Financial Position
(at end of period):
Total Assets 10,826,249 4,612,629 1,263,134
Total Liabilities 5,995,123 4,612,250 1,372,575
Shareholders' Equity 4,831,126 379 (109,441)
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Strategically located in the highly populated area of the northeastern
United States, Pinnacle believes it has developed a production process that
requires less skilled labor per pound than that currently being employed by
supermarkets. This process allows the Company to produce what it believes is a
superior product to supply the meat needs of retailers at an efficient price.
The demand for case-ready meat products in the supermarket and the price
club sector, where customers who are members of a wholesale buying club purchase
in bulk, has grown rapidly in recent years as labor, food safety, product
consistency, and consumers' buying habits have all become issues of great
importance. In this environment, the supermarket industry is exploring strategic
alliances with selected vendors to create a vertically integrated supply chain,
which will allow them to manage their needs in these product areas.
The industry segment served by Pinnacle has seen tremendous change in the
past few years. Convenience for the retail consumers, added value for the
retailer to increase margins, a longer shelf life for better inventory
management, and a marketing program geared toward the concept of "sell through"
have become the action plans of forward looking supermarket companies. Because
Pinnacle's process can replace a supermarket's backroom (where the meat is
trimmed, cut, wrapped, labeled and priced), our customers can remove Pinnacle's
products from their shipping container and place them directly into the case for
resale. This plan of retail distribution permits our customers to engage in
"elective marketing," whereby the customer markets (and therefore purchases from
us) only the specific cuts of meat products that the customer wants. A
supermarket that maintains a backroom would produce a greater variety of cuts of
meat product, including some which might not fit the customer's marketing plan.
Substantially all of the production line equipment necessary for Pinnacle's
operations has been obtained from Robert Reiser & Co. Conveyor belts connect key
functions of the Company's equipment, which includes cutting, wrapping, loading,
grinding, labeling, and other equipment. Also included is equipment used to
create a modified atmosphere in each case-ready package. Modified atmosphere
packaging ("MAP") refers to the use of deep barrier foam and plastic trays to
house the meat, and the process of heat sealing the lid tightly, evacuating the
atmosphere in the package, and replacing it with a proprietary mixture including
oxygen. This process extends shelf life, keeps the meat an appetizing bright
meat color (using no additives), and eliminates leakage. Pinnacle has invested
time and product to perform shelf life studies under varying conditions of
temperature and handling abuse to determine the best method of creating the MAP.
Pinnacle's case-ready packaging process is meant to be a high volume and
high efficiency product line process whereby the Company processes whole loins,
cut, packaged, weighed and priced for delivery to the retailer. Waste product is
removed by a rendering contractor.
Customers and Suppliers
Pinnacle has only a few customers because it services primarily large and
medium sized retail supermarket chains of which there are relatively few located
in any particular geographic area. Thus, although Pinnacle's products are sold
at approximately 800 retail locations throughout the Northeastern United States,
the Company directly sells to fewer than ten supermarket chains. In the year
ended December 31, 2000, Pinnacle's largest customer accounted for approximately
51% of revenues and its largest three customers accounted for approximately 95%
of revenues, collectively. For the period from its inception through December
31, 1999, the Company had two customers that accounted for approximately 95% of
revenues. The loss of any single customer would, therefore, have a material
adverse effect on the Company's business. Pinnacle does not have a written
agreement with any customers; orders are placed periodically, usually once or
twice per week. Although Pinnacle was the
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first supplier of case-ready meats to many of its present customers, currently,
Pinnacle is not the exclusive supplier of case-ready meats to any of its
customers.
Historically, Pinnacle has purchased uncut meat from between ten and
fifteen suppliers. Sometimes Pinnacle's customer dictates the source of meat
supply, but in many cases the Company is free to select the supplier. The
Company believes it is on good terms with its suppliers. The meat supply
industry is consolidating and it is, therefore, likely that fewer suppliers will
be available to service the Company's requirements in the future. If Pinnacle
becomes unable to obtain reliable sources of supply because of such
consolidation or for any other reason, it would have an adverse effect on the
Company's business. However, as a result of the recent investment by Smithfield
Foods, Inc. ("Smithfield") (see "Smithfield Transaction") the Company believes
its access to beef and pork will be uninterrupted.
Pinnacle delivers product through the use of three leased tractor-trailers
as well as through independent trucking fleets. Currently Pinnacle delivers
products to a central location for each customer; the customers then
redistribute the product as they deem appropriate. Pinnacle estimates the
practical limitation on its ability to service such centralized distribution
sites is approximately 300 miles from Pinnacle's Pottstown facility.
Employees
Employees at the Company's facilities are represented by Local 56 of the
United Food and Commercial Workers' Union, AFL-CIO (the "Union"). Pinnacle's
collective bargaining agreement with this Union expires in 2004. Pinnacle
employs approximately 200 people at the Pottstown facility. The Philadelphia
facility is currently being used as a storage facility. The Company, therefore,
does not employ anyone at that facility. Pinnacle considers its relations with
its employees to be good.
Competition
Pinnacle's management believes that competition in the market for
case-ready meats is currently based primarily on availability and reliability: a
supplier's ability consistently and reliably to deliver a variety of meat
products. Although Pinnacle knows of no major competitor in its target market
area that cuts and packages all the types of meat which Pinnacle does, there are
some regional case-ready firms that sell some meat products that compete with
Pinnacle. Moreover, Excel, a subsidiary of Cargill, Incorporated, is in the
process of opening a case-ready plant in Hazelton, Pennsylvania which could
compete with the Company. As the number of suppliers that produce a full-line of
case-ready products increases, price will become an increasingly significant
basis for competition.
Pinnacle does not believe that the case-ready concept lends itself well to
the long transportation time required from central meat processors (located
mainly in the Midwest). Once the product is prepared for retail sale (by
portioning, wrapping, labeling, and pricing), its shelf life is set at
approximately eight to ten days; the case-ready meat producer must be in close
proximity to its customers which want the product in its case for as much of its
shelf life as possible to reduce shrinkage. For this reason, Pinnacle believes
that a case-ready packer/processor must be located near its customers.
Pinnacle's management believes that the case-ready meat industry is in its
infancy. Accordingly, it is very likely that as the industry develops, other
companies in the meat packaging and production industries will become
competitors of Pinnacle. These potential competitors may include supermarket
chains, meat packaging companies, slaughterhouses, and other participants in the
food industry. In fact, all the major meat production companies have entered the
case-ready business. If the trend to case-ready distribution continues, Pinnacle
believes it is highly likely that more of them will enter the Northeastern
United States before long. Moreover, Smithfield itself operates a case-ready
pork plant located in
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Virginia. If and when other companies enter or expand their existing operations
in the industry, they will probably have greater financial and other resources,
management experience, and contacts than the Company does. Additionally, these
companies may be able to purchase their raw materials at a lower cost than the
Company can. In the event that any of these things occur, there would likely be
a detrimental effect on the Company's business.
Except for the proprietary mixture used in the MAP and related know-how,
Pinnacle does not own any significant intellectual property rights and is not
dependent on any such property rights. Pinnacle sought and achieved the right to
participate in the program for Certified Angus Beef. This program allows
Pinnacle to produce Certified Angus Beef (CAB) products and to sell these
products to licensed customers. To participate in the CAB program, the Company
went through an application process included an interview of management and a
third party inspection of the Company's facilities and procedures to ensure that
they meet the CAB program standards. Pinnacle is one of the only CAB MAP
producers in the country. Pinnacle believes that retail customers recognize
Certified Angus Beef as a high quality product.
Government Regulation
Like other participants in the meat processing industry, Pinnacle is
subject to various laws and regulations administered by federal, state and other
entities. Management of the Company believes that Pinnacle complies with all
such laws and regulations in all material respects. To ensure compliance, the
Company must file an Application for Federal Meat Inspection (an "Application
for USDA Inspection") pursuant to which a USDA inspector inspects the Pottstown
plant every day that the plant operates. Pinnacle's plants operate under the
USDA's inspection regulations pursuant to a currently effective Application for
USDA Inspection. Pinnacle historically has and will continue to work with the
USDA inspectors to comply with all applicable USDA regulations.
Under the USDA HACCP program, responsibility for inspection of product and
facility has shifted in great part to the processor. Each processor is
responsible to review, write, audit, and maintain records regarding all aspects
of its operations. The processor must review its facility, operations, process
flow, sanitation and people. The processor then must identify any potential
areas (points) that can cause problems with or contaminate product. Pinnacle's
employees must be HACCP certified to be eligible to work at Pinnacle's plants.
Pinnacle has instituted several key methodologies to ensure that its plants,
employees, and products are in compliance with the USDA inspection methodology
and the HACCP program.
Smithfield Transaction
Pinnacle believes it enjoys a strategic advantage as a result of its
experience during the past two years and its geographical location. Seeking to
exploit these perceived strategic advantages, Pinnacle's business has grown each
quarter since its inception. Because of a liquidity crunch, Pinnacle needed a
significant amount of capital to finance the growth already experienced and to
continue this growth. To meet this need, management considered the possibility
of a strategic relationship with a large meat production company. After
identifying Smithfield Foods, Inc. as the most appropriate equity partner and
having Smithfield execute a Confidentiality Agreement, the Company began
negotiating the outline, amount and nature of a potential equity investment by
Smithfield in Pinnacle.
Pinnacle and Smithfield entered into a Stock Purchase Agreement dated May
31, 2001 (the "Purchase Agreement") pursuant to which the Company sold and
Smithfield bought 13,003,494 shares of Company Common Stock, representing a
fifty percent (50%) interest in the Company. Smithfield paid Pinnacle
consideration of $6 million, or approximately $0.45 per share. In the
transaction, Smithfield has
6
acquired a Warrant (the "Warrant") which permits Smithfield to purchase
additional shares of Common Stock under certain circumstances described below.
The parties executed a $30 million revolving credit agreement (the "Credit
Agreement"), a Standstill Agreement which provides limitations on certain
activities in which Pinnacle and Smithfield can each engage (the "Standstill
Agreement"); and related matters (together the "Smithfield transactions"). On
June 27, 2001, the Company held a Special Meeting of Shareholders at which the
Company's shareholders approved the Smithfield transactions.
Mr. Shore, who before the Smithfield transactions was a shareholder of more
than five percent of the issued and outstanding shares of the Common Stock of
Pinnacle, and Mr. Queen, a shareholder, a director and the President of
Pinnacle, are parties to several of the agreements, which together make-up the
Smithfield transactions. In each case, each of Mr. Shore and Mr. Queen is a
party in his individual capacity as a shareholder of the Company. Neither Mr.
Shore nor Mr. Queen received any compensation from the transactions that does
not inure to other shareholders. Pinnacle has agreed to indemnify Messrs. Queen
and Shore and each of Pinnacle's other directors and officers from any claims
arising from the Smithfield transactions.
A summary of the terms of the principal agreements between the Company and
Smithfield is set forth below.
1. The Warrant
The Warrant protects Smithfield's fifty percent equity interest in Pinnacle
from dilution in certain circumstances. The Warrant gives Smithfield the right
to purchase, from time to time, the number of shares of Common Stock issued to
any person other than Smithfield, if such issuance has not been approved by at
least one director of the Company who was nominated by Smithfield or was not
otherwise in compliance with the Standstill Agreement. In particular, Smithfield
will have the right to purchase additional shares of the Common Stock when any
person who currently holds an option to purchase shares of the Common Stock
exercises that option.
The exercise price under the Warrant depends on the circumstances under
which Pinnacle issues the Common Stock. When Pinnacle issues shares of the
Common Stock other than issuances of stock in accordance with or as permitted by
the terms of the Standstill Agreement, the purchase price will be $0.01 per
share. This discount will effectively prohibit Pinnacle from issuing shares of
the Common Stock other than pursuant to the exercise of an existing option or
otherwise in accordance with the Standstill Agreement. The Term of the Warrant
expires after the later of: (1) the date on which the last currently existing
option expires or thirty days after its exercise, and (2) the date on which the
Limitation Period expires (see below).
2. The Standstill Agreement
The Standstill Agreement helps define the business relationship between
Pinnacle and Smithfield. Pinnacle, Smithfield, and shareholders Ellis Shore and
Michael Queen each agree to act in conformity with the parties' understanding of
this business relationship. To this end, Pinnacle, Smithfield, Shore and Queen
have agreed, among other things, (1) not to change the number of directors on
Pinnacle's Board and (2) to vote their shares in order to ensure that Pinnacle's
Board will remain composed of five directors: two nominees of Smithfield, two
nominees of Shore, and one nominee of Queen.
Pursuant to the Standstill Agreement, during the Limitation Period (defined
below), Smithfield is not permitted to:
7
o Directly or indirectly, purchase or tender for any shares of the
Common Stock, or propose, cause or vote in favor of any merger or
consolidation including Pinnacle on the one hand and Smithfield or any
affiliate thereof on the other hand.
o Directly or indirectly, sell or otherwise transfer any shares of
Common Stock, with some limited exceptions.
o Directly or indirectly, solicit proxies in opposition to any
solicitation by Pinnacle's Board.
o Improperly use (including disclose) any customer lists, trade secrets,
and other proprietary information of Pinnacle's acquired by Smithfield
because of the contemplated strategic business relationship.
Furthermore, if Smithfield desires to sell any shares of the Common Stock
in compliance with the limited restrictions referred to above, Pinnacle will
have an assignable right of first refusal to purchase such shares. If either Mr.
Queen or Mr. Shore desires to sell any or all of his shares of Company Common
Stock, Smithfield will have a right of first offer for a period of five days.
The Limitation Period begins on the date of the Standstill Agreement, June
27, 2001, and terminates on the earliest of (1) June 27, 2006, (2) the last day
of the sixth consecutive calendar quarter in which Pinnacle has a net loss
computed in accordance with Generally Accepted Accounting Principles, (3) the
first date on which neither Shore nor Queen are Beneficial Owners of Voting
Securities (as defined in the Standstill Agreement), and (4) the last day of the
calendar quarter on which the net worth of Pinnacle falls below $2 million.
3. Registration Rights Agreement
Under the Registration Rights Agreement, Smithfield may at any time demand
that Pinnacle register the Registrable Shares (as defined in the Registration
Rights Agreement) under the Securities Act of 1933. Under certain circumstances
and as often as such circumstances arise, when Pinnacle or other holders of the
Common Stock propose to register shares of Common Stock, Smithfield may upon
notice to Pinnacle, demand that its shares of Common Stock be included in any
such registration under the Securities Act of 1933 subject to typical black-out
periods and underwriters' cut backs, a so-called piggy-back registration.
Smithfield is required to pay the costs of any demand registration, and must pay
its own costs in connection with any piggy-back registration.
4. Credit Agreement
Under the Credit Agreement, Smithfield agrees, subject to certain
conditions, to extend a $30 million revolving line of credit to Pinnacle.
Pinnacle may borrow from Smithfield under this line of credit an amount equal to
one hundred percent of the Company's eligible accounts receivable and inventory.
Pinnacle may also borrow other amounts within the reasonable discretion of
Smithfield. Absent an Event of Default, Pinnacle will pay Smithfield interest on
its outstanding balances under the line of credit at an annual rate of one
percent (1%) over the prime rate.
The line of credit is secured by a lien on all of Pinnacle's assets,
including after-acquired inventory and accounts receivable (the "Collateral").
Pinnacle also promises not to encumber the Collateral without Smithfield's
written consent. The Credit Agreement defines Events of Default under the line
of credit to include (1) Pinnacle's failure to meet its payment obligations, (2)
Pinnacle's failure to maintain a positive equity position, (3) Pinnacle's
default on other significant obligations, and (4) Pinnacle's becoming bankrupt,
insolvent or otherwise unable to pay its debts when they come due.
8
Available Information
As a reporting company under the Securities Exchange Act of 1934, Pinnacle
will be required regularly to file materials with the Securities and Exchange
Commission (the "SEC"). The public may read and copy these materials at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
Information relating to the operation of the Reference Room may be obtained by
calling 1-800-SEC-0330. The SEC maintains an Internet site (http:\\www.sec.gov)
that contains information relating to issuers that file these materials
electronically.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Item 2. is hereby amended and restated in its entirety to read as follows:
Note Regarding Forward-Looking Statements
This registration statement contains certain forward-looking statements.
The forward-looking statements contained in this registration statement relate
to projected results of operations, earnings, revenues, dividends, cash flows
and capital expenditures, management's future plans and objectives, future
economic performance, business strategies, operating efficiencies, budgets,
competitive positions, growth opportunities for existing and new businesses, and
other matters.
These forward-looking statements, wherever they occur in this registration
statement, are necessarily estimates reflecting the best judgment of the
management of Pinnacle Foods, Inc. and involve a number of risks and
uncertainties that could cause actual results to differ from those suggested by
the forward-looking statements. These forward-looking statements should,
therefore, be considered in light of various important factors, including those
set forth in this registration statement. Results could differ materially
depending on such factors as Pinnacle's inability to generate cash and reduce
debt, business climate, economic and competitive uncertainties, higher
production costs, reduced level of customer orders, environmental and safety
regulations and clean-up costs, adverse legal and regulatory developments, and
adverse changes in economic and political climates around the world. Additional
factors that could cause actual results to differ from estimates or projections
contained in the forward-looking statements include, without limitation:
o the risk of legislative, regulatory or other governmental action
imposing additional restrictions on our operations or to increase the
burden of necessary regulatory approvals for our operations;
o the risk of a significant delay in obtaining or building addition
space for the Company's growing operations, difficulties in achieving
anticipated cost savings, difficulties in achieving other operational
improvements and revenue enhancements, and diversion of management's
focus and resources from other strategic opportunities and from
operational matters during the expansion process;
o the risk that the assumptions and estimates underlying the anticipated
cost savings may prove to be faulty or other factors may adversely
affect the amount, nature or timing of anticipated cost savings;
o future state and federal regulatory and/or legislative initiatives,
including regulatory changes affecting the meat packaging industry and
environmental matters might increase costs beyond the level
anticipated, the development of competition in the case-ready niche of
the meat packaging industry, including: legislative and regulatory
restructuring initiatives, nature and
9
resources of competitors entering the industry, and technological
developments resulting in competitive disadvantages;
o factors affecting meat packaging operations caused by unanticipated
supply shortages (caused by unusual weather conditions, disease, or
other cause), work stoppages (caused by catastrophic weather-related
damage, labor disputes, unanticipated maintenance or repairs,
transportation problems or other cause), all of which may affect
revenues and margins; and
o the risk of pathogen contamination and resulting recall obligations.
Words such as "estimate," "project," "plan," "intend," "expect," "believe,"
"anticipate" and similar expressions are intended to identify forward-looking
statements, although not every forward-looking statement includes these words.
These forward-looking statements are found at various places throughout this
registration statement. Readers are cautioned not to place undue reliance on
these forward-looking statements. The Company will not publicly revise these
forward-looking statements unless required to do so under applicable securities
laws.
Results of Operations
Pinnacle began production in early November 1999. The financial statements
of the Company are included in this registration statement as Part F/S.
Period from Inception through December 31, 1999.
Sales for 1999 were $237,000 but cost of sales were $396,000, which
resulted in a gross loss of $159,000. When combined with general and
administrative expense of $346,000 and interest expense, of $25,000, the Company
had a net loss of $529,000, or $0.08 per share. Management expected that heavy
investment in quality personnel and the costs associated with beginning a new
company would result in start-up losses; however, losses were exacerbated by a
delay from July, 1999 to November, 1999 in commencing production. The delay was
occasioned by protracted negotiations for the lease of the Company's initial
plant, the time required to make certain necessary improvements to the plant to
bring it up to the Company's operating standards, and an unanticipated delay in
receiving orders from the Company's first customers.
Year Ended December 31, 2000
Sales for the year ended December 31, 2000 were $13.6 million. Sales have
steadily increased since December 31, 1999 and the Company has experienced a
dramatic increase in sales since September 30, 2000. Although a portion of the
increase in sales since September 30, 2000 was the result of a temporary
agreement to produce case-ready pork for Smithfield (which provided revenues of
approximately $3.0 million), rising sales to other customers have since replaced
the revenues generated by such agreement. The Company believes the catalyst for
the increase in sales was the announcement by Wal-Mart in 2000 of its intention
to transform its meat operations completely to a case-ready operation. Although
Wal-Mart is not one of the Company's customers, the Company believes that this
announcement accelerated the retail industry's transition to case-ready
operations and that the increased demand for case-ready MAP products due to this
accelerated transition will increase future Company sales.
Cost of sales for the year ended December 31, 2000 was $14.0 million, which
resulted in a gross loss of $0.4 million. An increase in manufacturing overhead
associated with the opening of the Pottstown facility contributed to this
increase. This increase comprised approximately $110,000 in increased labor
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costs. During the summer of 2000, the Company added approximately two hundred
employees at the Pottstown facility to accommodate an anticipated increase in
sales that would occur in the fourth quarter of 2000. The Company believes its
costs of sales during this period reflects higher labor costs per unit of sales
volume than it expects in the future for two main reasons: first, the Company
maintained a larger work-force than was necessary to support its sales during
this period, and, second, the Company believes the efficiency of its employees
will improve as they gain more experience with the production process. The
Company does not believe that the cost of meat supplies contributed
significantly to the increase in cost of sales during this period.
Operating expense for the year ended December 31, 2000 was $4.2 million.
During the year ended December 31, 2000, the Company continued a comprehensive
effort to educate and expand the work force to meet projected sales volume
increases. Meat handlers and managers alike required training in the specialized
process necessary to preserve the maximum shelf life of the product. A portion
of the Company's employees required training to enhance and maintain food safety
standards pursuant to the Company's HACCP plan. These education costs
contributed to the increase in operating expense incurred during this period.
During this period, the Company completed renovations to the Pottstown
facility necessary to comply with USDA requirements. Although most of the cost
of such renovations was capitalized, some features of the renovation were
completed by the Company's own employees in order to expedite the process and to
defray the cost of outside labor. This internal compensation expense of
approximately $110,000 was not capitalized. Operating Expense was higher than it
otherwise would have been for this twelve-month period, in part, due to this
uncapitalized expense.
Interest expense, net for the year ended December 31, 2000 was $0.4
million, and the net loss for the period was $5.0 million or $0.52 per share.
Six months ended June 30, 2001
Sales for the six month period ended June 30, 2001 were $19.0 million,
representing an increase of approximately $16.9 million over sales from the
corresponding period of 2000. This increase was primarily the result of the
increase in the volume of products handled (due in part to increasing sales to
existing customers as well as sales to new customers) 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 the range of products ordered as well as the quantity. The Company
anticipates a continuing growth in sales throughout the remainder of 2001 and
expects revenues to reach between $40 million and $45 million for the entire
year.
Cost of sales for the six month period ended June 30, 2001 was $18.7
million that resulted in a gross profit of approximately $0.3 million. The
Company's Sales did not cover the cost of sales in the corresponding period of
2000. Operating expense for the six month period ended June 30, 2001 was $1.3
million, approximately $0.8 million larger than in the corresponding period of
2000. At the end of the first quarter, the Company moved substantially all of
its Philadelphia operation to the Pottstown facility in an effort to control
production costs more effectively.
Interest expense, net for the six month period ended June 30, 2001, was
$0.1 million, and the net loss for the period was approximately $1.4 million.
While the Net Loss is larger than the loss for the corresponding period last
year, the Company believes that moving our operations to Philadelphia will
reduce future operating costs and improve the Company's net income.
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Liquidity and Capital Resources
The Company's minimal equity position of $300 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.
Until the closing of the Smithfield transactions, 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. On May 17, 2001 Smithfield loaned the
Company $2 million, which the Company repaid on the closing date of the
Smithfield transactions, on June 27, 2001.
Generally, the Company maintains an inventory of meat supplies equal to
approximately 75% of estimated weekly sales volume. Purchases are made using the
trade credit programs of suppliers, which allow the Company to purchase meat
supplies with payment due within seven days. Inventory is purchased generally on
a daily basis and in advance (i.e., in anticipation) of customer orders. 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.
At June 30, 2001, the Company had $4.3 million of cash (and cash
equivalents). The Company's current ratio at June 30, 2001 was 1.55. 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 other
vendors.
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 obtained a $30 million line of credit
through Smithfield on terms that the Company had not been able to achieve before
forging a relationship with Smithfield. The Smithfield transactions should allow
the Company to meet its on-going need for sufficient capital. However, if
revenues do not improve so that the Company begins to make a profit, there is no
assurance that the Smithfield transactions will provide sufficient capital for
the Company to operate successfully.
The Company is exploring the possibility of moving into a new facility to
automate its process more fully. Such a move would require the purchase or lease
of additional processing equipment as well as the costs of acquisition and/or
improvements to such a facility. The Company's line of credit with Smithfield
would allow the borrowing of funds to purchase equipment in the reasonable
discretion of Smithfield. To the extent funds are unavailable under the
Smithfield line of credit, such costs would have to be financed through existing
working capital which may not be adequate.
Item 3. Description of Properties.
Item 3 is hereby amended and restated in its entirety to read as follows:
Pinnacle currently leases two facilities. One facility is located at 980
Glasgow Street, Pottstown, Pennsylvania 19464. The Pottstown facility currently
serves as the Company's executive offices, and the
12
location where it processes red meat, pork, lamb, and veal under USDA
inspection. The Pottstown facility is approximately 40,000 square feet in size.
The lease expires on April 30, 2002, but the Company has two one year renewal
options and an option to purchase the property for 90% its fair market value as
determined by a local appraiser. The current annual base rental obligation for
the Pottstown facility is approximately $93,600. The Company is currently in a
dispute with the landlord of the Pottstown facility. See, "Legal Proceedings."
Pinnacle also leases a facility located at 934 North 3rd Street,
Philadelphia, Pennsylvania 19123. The Philadelphia facility is approximately
15,000 square feet in size, and currently used for warehousing. The lease for
this facility expires on August 31, 2002, but the Company has the option to
renew the lease for an additional three year term. The current annual rental
obligation for the Philadelphia facility is $67,320. The Philadelphia facility
is beneficially owned by the parents of Samuel Lundy, the former President of
the Company.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
Item 4. is hereby amended and restated in its entirety to read as follows:
The following table sets forth, as of November 19, 2001, the number of
shares and percentage of Common Stock beneficially owned by (i) each person who
is known by the Company to own beneficially five percent or more of our
outstanding common stock, (ii) each Company director, (iii) each Company
executive officer, and (iv) all directors and executive officers as a group:
Name and Address (1)
of Individual or Shares of Common Stock Percentage of Common Stock
Identity of Group Beneficially Owned Beneficially Owned
----------------- ------------------ ------------------
Michael D. Queen 1,120,854 (2) 4.29 %
Thomas P. McGreal 75,000 (3) 0.29 %
Dennis Bland 5,000 (4) 0.02 %
C. Brent Moran 112,500 (5) 0.43 %
Joseph W. Luter, IV 0 0.00 %
Michael H. Cole 0 0.00 %
Smithfield Foods, Inc. 13,003,494 50.00 %
All directors and officers as a group 14,316,848 (2)(3) (4) (5)(6) 55.05 %
(6 persons)
______________
(1) The address of Messrs. Joseph W. Luter, IV and Michael H. Cole is c/o
Smithfield Foods, Inc., 200 Common Street, Smithfield, VA 23430. The
address of all other individuals identified in the table is c/o Pinnacle
Foods, Inc. 980 Glasgow Street, Pottstown, PA 19464.
(2) Includes 20 shares owned of record by Mr. Queen as custodian for his son,
as to which Mr. Queen disclaims beneficial ownership. Includes 112,500
shares to which Mr. Queen has a vested option and an additional 25,000
shares to which Mr. Queen will have a vested option within sixty days.
(3) Comprises 75,000 shares to which Mr. McGreal will have a vested option
within sixty days.
(4) Includes 5,000 shares held by Mr. Bland's wife.
(5) Includes 25,000 shares to which Mr. Moran holds a vested option and an
additional 37,500 shares to which Mr. Moran will hold a vested option
within sixty days.
(6) Includes 13,003,494 shares owned by Smithfield that are included in the
table because director Michael H. Cole is the Corporate Secretary of
Smithfield. Messrs. Cole and Luter were nominated to the Board of Directors
by Smithfield pursuant to the Standstill Agreement. See, Part I, Item 1,
"Business -- Smithfield Transaction."
13
Item 5. Directors, Executive Officers, Promoters and Control Persons.
Item 5. is hereby amended and restated in its entirety to read as follows:
The officers and directors of the Company are as follows:
Name Age Position
---- --- --------
Michael Queen 46 President, Treasurer and Director
Thomas K. McGreal 47 Vice President, Secretary and Director
Dennis Bland 39 Senior Executive Vice President and
Chief Operating Officer
C. Brent Moran 49 Director
Joseph W. Luter, IV 36 Director
Michael H. Cole 41 Director
Michael Queen
Michael Queen has been the Company's President since 2000 when he succeeded
Samuel Lundy. Mr. Queen has served as a director of the Company since July 20,
1999 and will hold office under his current term until the Annual Meeting of
Shareholders in the year 2002.
From 1997 to 1999 Mr. Queen was the Vice President of Sales, Marketing, and
Business Analysis at Prizm Marketing Consultants of Blue Bell, Pennsylvania.
Prizm Marketing provided market research, pricing modules, and distribution and
advertising plans for business clients. Prior to that, from 1996 to 1997, Mr.
Queen served as the president of Ocean King Enterprises, Inc. in Folcroft,
Pennsylvania. Ocean King was a specialty seafood appetizer supplier to
supermarkets that had approximate revenues of $3 million in 1997. From 1994 to
1996, Mr. Queen was the Director of Store Operations of Shoprite/Delaware
Supermarkets, Inc. of Wilmington, Delaware, and from 1992 to 1994, Mr. Queen was
a senior products manager at Pathmark Stores, Inc. in Woodbridge, New Jersey.
Thomas K. McGreal
Tom McGreal has been the Company's Vice-President and Secretary since 1999
and was elected to the Board after completion of the Smithfield transaction and
the concomitant expansion of the Board from two to five members. As a Class II
Director, Mr. McGreal will hold office under his current term until the Annual
Meeting of Shareholders in the year 2004.
Mr. McGreal brings to Pinnacle over 24 years in the food industry. From
1998 to 1999, Mr. McGreal served as the operations manager of Rostelli Fine
Foods, a supplier of portion control meats to the foods service industry; from
1996 to 1998, as a consultant to and then president of Twin Brothers, also a
supplier of portion control meats to the foods service industry; and from 1982
to 1995, as the president of NoFer Meat Company a regional supplier of portion
control meats to the food service industry. While working with Twin Brothers,
Mr. McGreal created the first regional processing system for portion control
meats, which set the stage for others nationwide. He was also appointed by his
peers to sit on the Blue Ribbon Committee to re-evaluate and update the Meat
Buyers Guide, a guide used by every meat buyer and manager in the county. Mr.
McGreal has also formulated interactive software for the meat department of
NoFer Meat Company.
14
Dennis Bland
Dennis Bland has been the Company's Senior executive Vice President and
Chief Operating Officer since July 16, 2001. During the past five years, Mr.
Bland served as Procurement Manager or Senior Product Manager at Wakefern Foods
Corporation in Elizabeth, New Jersey. Mr. Bland's responsibilities included
sales, procurement and advertising for the meat division.
C. Brent Moran
Brent Moran has served as a director of the Company since December 10,
1999. As a Class II Director, Mr. Moran will continue to hold office until the
Annual Meeting of Shareholders in 2004. Mr. Moran has over 24 years of
management experience in the food industry. For the last seven years Mr. Moran
has worked at the Alpha Meat Packing Company where he is the head of sales and
marketing. Prior to that Mr. Moran worked at Southland Corporation.
Joseph W. Luter, IV
Mr. Luter is Executive Vice President of Smithfield Packing Company
Incorporated ("SPC"). On June 27, 2001, he was elected to Pinnacle's Board in
concert with the Smithfield transactions and the concomitant expansion of the
Board from two to five members. As a Class I Director, Mr. Luter will hold
office under his current term until the Annual Meeting of Shareholders in the
year 2003.
Since 1993, Mr. Luter has worked for SPC. Between 1995 and 1997, Mr. Luter,
was SPC's Vice President, responsible for Transportation, Distribution and
Quality Control. Between 1997 and 1999, Mr. Luter, served as SPC's Vice
President of Fresh Pork Sales. Between 1999 and 2000, Mr. Luter, served as SPC's
Vice President of Sales and Marketing, Fresh, Processed and International, and
since 2000, Mr. Luter has served as SPC's Senior Vice President, Sales and
Marketing.
Michael H. Cole
Michael Cole is the Secretary and Associate General Counsel of Smithfield
Foods, Inc. On June 27, 2001, he was elected to Pinnacle's Board in concert with
the Smithfield transactions and the concomitant expansion of the Board from two
to five members. As a Class I Director, Mr. Cole will hold office under his
current term until the Annual Meeting of Shareholders in the year 2003. Mr. Cole
has served as Associate General Counsel of Smithfield Foods, Inc. for the past
five years and became the Corporate Secretary during 1999.
Item 6. Executive Compensation.
Item 6 is hereby amended by adding the following sentence: "The Company
does not provide any compensation to its directors in their capacities as such
but does reimburse them for travel and other miscellaneous expenses incurred on
Company business."
Item 7. Certain Relationships and Related Transactions.
Item 7 is hereby amended by amending and restating the final paragraph
thereof to read as follows: "For a description of the dispute between the
Company and Robert V. Matthews, a shareholder of the Company, see Part II, Item
2 `Legal Proceedings.'"
15
PART II
Item 2. Legal Proceedings.
Item 2. is hereby amended and restated in its entirety to read as follows:
The Company had a dispute with a contractor over improvements he made to
the Philadelphia facility. The matter was pending in the Court of Common Pleas
of Philadelphia County under the caption Metro Floor and Deck v. Pinnacle Foods,
Inc. The contractor had demanded $30,000. On November 21, 2000, an arbitration
panel entered an award of $15,000 in favor of the plaintiff. Neither party
appealed the arbitrator's award, which was paid before December 31, 2000.
The Company had a dispute with Rocky Mountain Express Corporation ("Rocky
Mountain"), a carrier that provided delivery services to some of the Company's
supermarket customers. The case, a dispute over the manner of and payment for
Rocky Mountain's delivery services, was pending in the District Court of
Jefferson County, Colorado under the caption, Rocky Mountain Express Corporation
v. Pinnacle Foods, Inc. and Samuel Lundy. The Company settled the case with
Rocky Mountain in the first quarter of 2001 by the payment of $8,500. Pursuant
to that settlement, the parties filed a Joint Motion to Dismiss and, on February
21, 2001, the District Court Judge dismissed the case with prejudice.
The Company is involved in a dispute with the landlord at the Pottstown
facility. Proceedings began on November 11, 2000 in the Montgomery County Court
of Common Pleas. The landlord has alleged that the Company failed to make timely
rental payments and is seeking damages and ejectment. The Company's defense is
that the rent was withheld because of the landlord's prior failure to honor its
obligations to make certain improvements at the property. All rents due to date
have either been paid to the landlord or deposited into escrow. The landlord has
since filed a voluntary petition for protection from its creditors under Chapter
11 of the Bankruptcy Code. The Company has defeated the landlord's initial
attempt to have the case heard before the Federal bankruptcy court. If the
Company were to lose this suit, whether before the Montgomery County Court or
the Federal bankruptcy court, the landlord could eject the Company from the
property, and the Company could lose some or all of the benefit of certain
improvements made to the property in the aggregate approximate amount of
$300,000.
In a letter dated June 12, 2000, The Iowa Packing Company ("Iowa Packing")
expressed concern about the Company's use of the name "Pinnacle Foods, Inc."
Iowa Packing advised the Company that it has been using the name "Pinnacle Food
Group" in connection with its sale of pork products, and requested that the
Company avoid using its corporate name or "Pinnacle Foods" in connection with
the sale of meat products. Iowa Packing has not instituted legal proceedings
against the Company but may do so in the future. The parties are negotiating an
amicable resolution of Iowa Packing's concern which may involve the Company's
promise to forbear from using its corporate name in connection with its sales of
meat products.
During 2000, the Company engaged Robert V. Matthews a shareholder, to
assist the Company in obtaining debt financing to be used for a potential
expansion into New England and for working capital purposes. At the time Mr.
Matthews was also the holder of a note payable by the Company in the face amount
of $0.3 million. The agreement between the Company and Mr. Matthews provided
that the Company would issue 1.1 million shares of Company common stock to him
on February 1, 2001. The agreement further provided that, upon the closing of
debt financing in the amount of at least $9.5 million procured pursuant to the
agreement, the Company would issue a second group of 1.1 million shares of
Company common stock to Mr. Matthews. The Company terminated the agreement in
accordance with its terms on April 6, 2001 at a time when no debt financing had
been closed and only a single proposal for financing in the amount of $2.5
million had been obtained.
16
The agreement also provided that if, prior to the completion of such debt
financing and prior to the termination of the agreement, more than 30% of the
Company's outstanding shares of common stock were sold in a single transaction
or a series of related transactions, Mr. Matthews would be entitled to receive
the second group of 1.1 million shares. The agreement further provided that if
the Company sold new shares at a price of less than $2.50 per share at any time
after Mr. Matthews became entitled to receive the second group of 1.1 million
shares, the number of shares otherwise deliverable pursuant to the agreement
would be increased in accordance with a formula that varies inversely with the
sales price for such newly sold shares. Finally, the agreement granted Mr.
Matthews an option to acquire, for no additional consideration, up to 2,000,000
additional shares of Company common stock if any such debt financing were
forgiven by the lender(s) under specified circumstances. Because none of the
contingencies described in this paragraph occurred, the Company does not believe
it has liability to Mr. Matthews for any shares referred to in this paragraph.
Moreover, the Company has asserted that it was improperly induced to enter
into the agreement by statements and representations made by Mr. Matthews and
disputes its obligation to deliver even the first group of 1.1 million shares of
Company common stock. Mr. Matthews contests the Company's assertions and has
threatened to commence litigation against the Company.
Under the agreement with Mr. Matthews, the Company's debt to him stopped
accruing interest and was required to be converted to shares of Company Common
Stock at a conversion price of $1 per share. This debt was treated as converted
in accordance with this agreement.
Item 4. Recent Sales of Unregistered Securities.
Item 4. is hereby amended and restated in its entirety to read as follows:
The following table sets forth information about all Company securities
sold since the Company was organized in July of 1999, none of which were
registered under the Securities Act of 1933:
17
Date Type of Securities Sold Amount of Price Total Cash
---- ----------------------- --------- ----- ----------
Securities Sold Proceeds
--------------- --------
July 21, 1999 (1) Common Stock (2) 6,000,000 shares $0.01 per share $60,000
November 1, 1999 (3) Common Stock (2) 2,250,000 shares $0.16 per share $360,000
February 1, 2000 (4) Common Stock (2) 640,000 shares $1.00 per share $640,000
May 31, 2000 (5) Convertible Debenture (6) $275,000 Par $275,000
June 29, 2000 (5) Convertible Debenture (7) $300,000 Par $300,000
June 29, 2000(5) Convertible Debenture(8) $100,000 Par $100,000
July 27, 2000 (5) Convertible Debenture (6) $370,240 Par $370,240
July 31, 2000 (9) Common Stock (2) 140,000 shares $1.00 per share _____(10)
August 10, 2000 (5) Common Stock (2) 472,000 shares $0.75 per share $354,000
September 20, 2000 (5) Convertible Debenture (11) $ 350,000 Par $350,000
October 5, 2000 (9) Common Stock (2) 62,300 shares $2.75 per share _____(10)
October 30, 2000 (5) Common Stock (2) 163,000 shares $1.50 per share $250,000
June 27, 2001 (12) Common Stock 13,003,494 shares $0.45 per share $6,000,000
_________________
(1) Shares were sold to four founders and two early investors upon formation of
the Company in an offering exempt from registration pursuant to Section
4(2) of the Securities Act of 1933.
(2) Common Stock, par value $0.01 per share.
(3) Sale made pursuant to Rule 504 promulgated under the Securities Act of
1933. Sales were made to 56 investors in accordance with the requirements
of the rule.
(4) Sale made pursuant to Rule 506 promulgated under the Securities Act of
1933. Sales were made to 18 accredited investors in accordance with the
requirements of the Rule.
(5) Sale made pursuant to Rule 506 promulgated under the Securities Act of
1933. Sales were made to 17 accredited investors in accordance with the
requirements of the Rule.
(6) Debentures are convertible into Common Stock at a price of $0.75 per share.
(7) Debenture is convertible into Common Stock at a price of $1.00 per share.
(8) Debenture is convertible into Common Stock at a price of $1.50 per share.
(9) The shares were sold to a single purchaser in a transaction exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
(10) The consideration paid for the shares was meat processing equipment valued
at fair market value based on the vendor's invoice.
(11) Debentures are convertible into Common Stock at a price of $1.25 per share.
(12) See, Part I, Item 1, "Business -- Smithfield Transaction." The sale was
exempt from registration pursuant to Section 4(2) of the Securities Act of
1933.
18
The Company engaged no underwriters in connection with any such sales, and
no underwriting discounts or commissions were paid.
The Company and Robert V. Matthews, a shareholder and debt holder of the
Company, are parties to an agreement dated November 22, 2000 under which Mr.
Matthews was required to act as an independent debt financing broker and
consultant for the Company. In the agreement, the Company agreed to issue
certain shares to Mr. Matthews; however, the Company disputes his right to
receive these shares. See Part II, Item 2, "Legal Proceedings." If the shares
are required to be issued to Mr. Matthews, the transaction will be exempt from
registration pursuant to Section 4 (2) of the Securities Act of 1933.
Shares were issued to Messrs. Queen and Lundy in consideration for their
guaranteeing the Company's bank debt (see Part I, Item 7, "Certain Relationships
and Related Transactions"). Shares were also delivered for compensation and
consulting services and for the payment of interest in lieu of cash. All such
transactions were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933.
19
PART F/S
Unaudited Financial Statements for the
Three Month Periods Ended June 30, 2001 and 2000,
and for the Six Month Periods Ended June 30, 2001 and 2000
Audited Financial Statements for the
Period Ended December 31, 2000
Notes to the Audited Financial Statements
For the Period Ended December 31, 2000
20
PINNACLE FOODS, INC.
Balance Sheet
June 30, 2001
(Unaudited)
ASSETS
Current Assets:
Cash 4,303,774
Trade Receivables, less Allowance of $25,595 2,693,716
Inventory 862,681
Prepaid Expenses 39,544
-----------
Total Current Assets 7,899,715
Fixes Assets:
Property and Equipment 3,555,911
Less Accumulated Depreciation (622,871)
-----------
Total Fixed Assets 2,893,040
Other Assets: 33,494
Total Assets: 10,826,249
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Installments on Capital Lease Obligations 264,903
Accounts Payable 4,326,210
Notes Payable 300,000
Accrued Expenses 279,268
-----------
Total Current Liabilities 5,170,381
Capital Lease Obligations less Current Installments 824,742
Stockholders' Equity:
Common Stock 266,134
Additional Paid-in Capital 11,811,147
Deficit (6,879,837)
Deferred Compensation (366,318)
-----------
Total Stockholders' Equity 4,831,126
Total Liabilities and Stockholders' Equity 10,826,249
===========
See notes to condensed financial statements.
21
PINNACLE FOODS, INC.
Statement of Operations
(Unaudited)
For the Three Month For the Six Month
Period Ended June 30, Period Ended June 30,
--------------------------------- ----------------------------------
2001 2000 2001 2000
---- ---- ---- ----
Sales 10,950,870 1,359,258 18,968,494 2,116,367
Cost of Goods Sold 11,149,793 1,473,500 18,657,839 2,390,856
-------------------------------------------------------------------------------
Gross Profit (Loss) (198,923) (114,242) 310,655 (274,489)
General & Administrative Expenses 595,298 306,084 1,297,996 457,618
-------------------------------------------------------------------------------
Loss of Operations (794,221) (420,326) (987,341) (732,107)
Other Expenses
Interest (Net) 48,907 186,780 117,056 208,174
Depreciation & Amortization 148,943 70,801 292,424 112,834
-------------------------------------------------------------------------------
197,850 257,581 409,480 321,008
Net Loss (992,071) (677,907) (1,396,821) (1,053,115)
===============================================================================
Loss Per Share
Basic (0.07) (0.08) (0.11) (0.12)
Diluted (0.07) (0.08) (0.10) (0.12)
Weighted Average Shares Outstanding
Basic 13,575,076 8,667,692 12,676,285 8,461,167
Diluted 13,575,076 8,667,692 12,676,285 8,461,167
See notes to condensed financial statements.
22
PINNACLE FOODS, INC.
Statement of Cash Flows
Six Month Period Ended June 30,
------------------------------------
2001 2000
---- ----
Cash flows used for operating activities:
Net Loss (1,396,821) (1,053,115)
Adjustments:
Depreciation & Amortization 293,024 112,834
Deferred Compensation 52,332 -
Common Stock issued for:
Interest 23,818 166,000
Consulting 128,000 -
Compensation - 125,600
Changes in assets and liabilities
Trade Receivables (1,403,522) (343,445)
Other Receivables 95,410
Inventory (384,916) (164,394)
Prepaid Expenses 10,290 -
Accounts Payable 1,438,335 622,322
Accrued Expenses 2,963 120,226
------------- -------------
Net cash used for operating activities (1,141,087) (413,972)
Net cash used for investing activities:
Purchase of property and equipment (343,561) (668,872)
Other Assets 5,204 259
------------- -------------
Net cash used for investing activities (338,357) (668,613)
Cash flows from financing activities:
Proceeds from issuance of stock, net 5,923,418 640,000
Proceeds from issuance of debt - 795,000
Repayments on debt - (110,645)
Repayments on capital lease obligations (140,200) (53,923)
------------- -------------
Net cash provided by financing activities 5,783,218 1,270,432
------------- -------------
Net increase in cash 4,303,774 187,847
Cash, beginning of year - 92,271
------------- -------------
Cash, end of period $ 4,303,774 280,118
============= =============
Supplemental disclosure of cash flow information:
Interest paid during the period $ 51,096 $ 39,301
============= =============
Purchase of equipment under capital lease agreements $ 181,775 $ 344,507
Debt converted into common stock 100,000
See notes to condensed financial statements.
23
Pinnacle Foods, Inc.
Statement of Stockholders' Equity
Six Month Period ended June 30, 2001
Common Stock
$.01 par value
50,000,000 shares authorized
Shares issued Additional Deferred
or issuable Amount paid-in capital Deficit Compensation Total
=================================================================================================
Balance, January 1, 2001 13,367,298 $ 133,673 $ 5,768,372 $(5,483,016) (418,650) $ 379
Net loss (1,396,821) (1,396,821)
Grant of compensatory options 52,332 52,332
Common stock issued or issuable for:
Cash, net 13,003,494 130,035 5,793,383 5,923,418
Consulting 160,000 1,600 126,400 128,000
Interest 15,879 159 23,659 23,818
Convertible Debt 66,667 667 99,333 100,000
-------------------------------------------------------------------------------------------------
Balance, June 30, 2001 26,613,338 $ 266,134 $11,811,147 $(6,879,837) (366,318) $4,831,126
=================================================================================================
See notes to condensed financial statements.
24
Pinnacle Foods, Inc.
Notes to Condensed Financial Statements
June 30, 2001
1. Basis of presentation.
The unaudited condensed financial statements have been prepared by the
Company, pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). Certain information and footnote disclosures 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 Annual Report on Form
10-SB. In the opinion of the Company, all adjustments, including normal
recurring adjustments necessary to present fairly the financial position of
Pinnacle Foods, Inc. as of June 30, 2001 and the results of its operations and
cash flows for the three and six month then ended, have been included. The
results of operations of the interim period are not necessarily indicative of
the results for the full year.
2. Accounting policies.
There have been no changes in accounting policies used by the Company
during the quarter ended June 30, 2001.
3. Summary of business.
Pinnacle Foods, Inc. (the Company), incorporated on July 20, 1999 in the
Commonwealth of Pennsylvania, prepares case-ready meat for distribution to food
retailers in the Northeastern United States. It grants credit to its customers
without requiring collateral.
4. Inventory.
The Company's inventories are valued at the lower of first-in, first-out
cost or market. Inventories consist of the following:
Beef, pork, veal, lamb 319,455
Packaging supplies 277,611
Finished Goods 265,615
---------
862,681
5. Notes payable.
During 2001, the Company repaid $100,000 of convertible bonds with its
common stock. The conversation ratio for this borrowing $1 per share.
At June 30, 2001, the Company had another note payable for $300,000. This
note is unsecured and non-interest bearing. The note holder has the option of
converting the loan into common stock at a conversion rate of $1 a share prior
to August 1, 2001. If the conversion right has not been exercised by August 1,
the note is automatically converted at $1 per share.
25
6. Stock options.
During 2001, the Company granted 375,000 stock options with exercise prices
ranged from $1 to $1.25 per share. In addition, 25,000 shares were forfeited.
7. Net income (loss) per share.
Basic earnings 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
earning 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.
8. Stockholders' equity.
In June 2001, the Company entered into an agreement with Smithfield Foods,
Inc. ("Smithfield") in which Smithfield purchased shares of the Company which
resulted in Smithfield owning 50% of the issued shares for $6,000,000. In
addition, Smithfield provided the Company with a $30,000,000 revolving loan. The
loan will bear interest at 1% above prime and will be secured by all the
Company's assets, and will mature in five years.
9. Smithfield Transaction.
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. 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 June 30,
2001, the Company had no outstanding balance under the line of credit. For
additional information, please see Part I, Item 1, "Business - Smithfield
Transaction."
26
PINNACLE FOODS, INC.
January 1, 2000 through DECEMBER 31, 2000
27
Independent Auditors' Report
Board of Directors
Pinnacle Foods, Inc.
Pottstown, Pennsylvania
We have audited the accompanying balance sheet of Pinnacle Foods, Inc. as of
December 31, 2000, and the related statements of operations, stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America.. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pinnacle Foods, Inc. as of
December 31, 2000, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
/s/ KRONICK KALADA BERDY & CO.
Kingston, Pennsylvania
February 16, 2001, except April 24, 2001
for footnotes 11, paragraphs 2 and 3, and 13.
28
PINNACLE FOODS, INC.
Balance Sheet
DECEMBER 31, 2000
ASSETS
Current Assets:
Receivables:
Trade, net of allowance for doubtful accounts of $25,595 $ 1,290,194
Other 95,410
Inventory 477,765
Prepaid expenses 49,834
-------------
Total current assets 1,913,203
Property and equipment 3,030,574
Less accumulated depreciation 369,846
-------------
Net property and equipment 2,660,728
Other assets 38,698
-------------
$ 4,612,629
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 400,000
Current installment of capital lease obligations 254,179
Accounts payable 2,887,875
Accrued expenses 276,305
-------------
Total current liabilities 3,818,359
Capital lease obligations, less current installments 793,891
Stockholders' equity:
Common stock 133,673
Additional paid-in capital 5,768,372
Deficit (5,483,016)
Deferred compensation (418,650)
-------------
379
$ 4,612,629
=============
See notes to financial statements.
29
PINNACLE FOODS, INC.
STATEMENT OF OPERATIONS
YEAR ENDED
DECEMBER 31, 2000
Sales, net $ 13,595,490
--------------
Cost of sales:
Meat 9,327,104
Labor 2,548,031
Supplies 1,849,842
Other 289,362
--------------
Total cost of sales 14,014,339
--------------
Gross loss (418,849)
--------------
Operating expenses:
Professional fees:
Consulting 2,030,007
Other 251,136
Salaries, wages and related expenses 429,157
Depreciation 333,866
Cleaning 152,455
Utilities 135,977
Rent 130,774
Freight out 129,598
Insurance 101,033
Travel and entertainment 79,354
Office 68,352
Commissions 63,493
Repairs and maintenance 57,536
Taxes 43,762
Waste removal 39,654
Telephone 38,979
Advertising and promotion 38,227
Provision for doubtful accounts 25,595
Equipment rental 18,729
Miscellaneous 15,584
--------------
Total operating expenses 4,183,268
--------------
Loss from operations (4,602,117)
Interest expense 351,458
--------------
Net loss $ (4,953,575)
==============
Loss per share $ (0.52)
==============
Average shares outstanding 9,467,707
==============
See notes to financial statements.
30
PINNACLE FOODS, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED
DECEMBER 31, 2000
Cash flows used for operating activities:
Net loss $(4,953,575)
Adjustments:
Provision for doubtful accounts 25,595
Depreciation 333,866
Common stock issued for:
Compensation 125,600
Interest 226,130
Consulting services 1,896,600
Changes in assets and liabilities Increase in:
Receivables (1,311,097)
Inventory (465,277)
Prepaid expenses (38,452)
Accounts payable 2,678,730
Accrued expenses 236,227
-------------
Net cash used for operating activities (1,245,653)
-------------
Net cash used for investing activities:
Purchase of property and equipment (812,962)
Security deposits (27,366)
-------------
Net cash used for investing activities (840,328)
Cash flows from financing activities:
Proceeds from issuance of common stock 1,238,500
Proceeds from issuance of debt 1,515,240
Repayments on debt (482,454)
Repayments on capital lease obligations (277,576)
-------------
Net cash provided by financing activities 1,993,710
-------------
Net decrease in cash (92,271)
Cash, beginning of year 92,271
-------------
Cash, end of year $ -
=============
Supplemental disclosures of cash flow information:
Interest paid during the period $ 114,125
=============
Non-cash items:
Forgiveness of debt from a shareholder/officer $ 270,000
Common stock issued for equipment 311,325
Purchase of equipment under capital lease agreements 834,749
Debt converted into common stock 995,240
Increase in additional paid in capital
and deferred compensation 418,650
See notes to financial statements.
31
PINNACLE FOODS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 2000
Common stock
------------------------------------
$.01 par value
------------------------------------
50,000,000 shares authorized
------------------------------------
Shares Additional
issued or paid-in Deferred
issuable Amount capital Deficit compensation Total
----------------------------------------------------------------------------------------
Balance, January 1, 2000 8,250,000 $ 82,500 $337,500 $ (529,441) $(109,441)
Net loss (4,953,575) (4,953,575)
Grant of compensatory options 418,650 $(418,650) -
Common stock issued or issuable for:
Cash 1,275,000 12,750 1,225,750 1,238,500
Compensation 785,000 7,850 117,750 125,600
Equipment 202,300 2,023 309,302 311,325
Consulting 1,505,000 15,050 1,881,550 1,896,600
Interest 209,998 2,100 224,030 226,130
Convertible debt 1,140,000 11,400 983,840 995,240
Shareholder/officer debt forgiveness 270,000 270,000
----------------------------------------------------------------------------------------
Balance, December 31, 2000 13,367,298 $ 133,673 $5,768,372 $ (5,483,016) $(418,650) $ 379
========================================================================================
See notes to financial statements.
32
PINNACLE FOODS, INC.
NOTES TO AUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. Business description and summary of significant accounting policies:
Pinnacle Foods, Inc. (the Company), incorporated on July 20, 1999 in the
Commonwealth of Pennsylvania, prepares case-ready meat for distribution to food
retailers in the Northeastern United States. It grants credit to its customers
without requiring collateral.
Inventory:
The Company's inventories are valued at the lower of first-in, first-out cost or
market. Inventories consist of the following:
Beef, pork, veal, lamb $272,000
Packaging supplies 200,000
Finished goods 5,765
--------
$477,765
========
Property and equipment:
Items capitalized as property and equipment are recorded at cost and depreciated
over the estimated useful lives of the assets by the straight line method.
Maintenance and repair cost are expensed as incurred. Improvements that
materially extend the life of an asset are capitalized.
Revenue recognition:
Revenues from sales are recorded upon shipment to customers.
Advertising costs:
These expenses are recorded when incurred. They amounted to $38,227 in 2000.
Start- up costs:
In accordance with Statement of Position 98-5 "Reporting on the Costs of
Start-Up Activities," costs of start-up activities, including organization
costs, are expensed as incurred. Prior to SOP 98-5, start-up costs were
capitalized and amortized into operations over a period of time.
Fair value:
The fair value of the Company's financial instruments approximate the amounts
recorded in the financial statements.
Use of estimates:
Management uses estimates and assumptions in preparing financial statements.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities and the
reported revenues and expenses.
33
2. Loss per share:
Basic loss per share is computed by dividing the loss applicable to common
shareholders by the weighted average number of common share outstanding. Diluted
loss per share is computed by dividing the loss applicable to common
shareholders by the weighted average of common shares outstanding plus the
number of additional common shares that would have been outstanding if the
dilutive potential common shares had been issued. There were no dilutive
potential common shares in 2000 because the assumed exercise of the options
would be anti-dilutive.
3. Cash concentrations:
The Company maintains its principal cash accounts in commercial banks located in
Pennsylvania. Accounts at each bank are insured by the Federal Deposit Insurance
Corporation (FDIC) up to $100,000. At December 31, 2000, cash balances in
commercial banks exceeded the FDIC insurance coverage by $155,000. At December
31, 2000, approximately $17,000 of a cash overdraft was included in accounts
payable.
4. Significant customers:
During the period January 1, 2000 through December 31, 2000, the Company had
three customers that accounted for approximately 51%, 27% and 16% of the
Company's sales. These customers accounted for 59%, 5% and 30% of Company's
accounts receivable at December 31, 2000.
5. Property and equipment:
Property and equipment at December 31, 2000 is comprised of the following:
Equipment $ 2,683,258
Leasehold improvements 304,225
Furniture and fixtures 28,539
Computer 14,552
-----------
3,030,574
-----------
Accumulated depreciation ( 369,846)
-----------
$ 2,660,728
===========
$1,376,117 and $157,404 is included in equipment and accumulated depreciation
for assets that were purchased via capital leases.
6. Notes payable:
Notes payable consists of the following at December 31, 2000:
Note payable (a) $ 300,000
Note payable (b) 100,000
---------
$ 400,000
=========
34
Note payable (a) is unsecured, non-interest bearing effective November 22, 2000
and matures August 1, 2001. The note holder has the option of converting the
loan into common stock at a conversion rate of $1 a share prior to August 1,
2001. If the conversion right has not been exercised by August 1, the note is
automatically converted at $1 a share. The Company paid additional consideration
to the note holder in form of 75,000 shares of common stock at the inception of
the note and an additional 37,500 shares at September 2000. The additional
consideration was recorded as interest expense. The note holder is a
shareholder.
Note payable (b) is unsecured and matures June 30, 2001. It bears interest at
10% per annum. Subsequent to December 31, 2000, this note was converted into
common stock at a conversion rate of $1.50 a share. The Company paid additional
consideration to the note holder of 25,000 shares of common stock at the
inception of the note and an additional 12,500 shares at September and December
2000. The additional consideration was recorded as interest expense.
In addition to the above notes, the Company borrowed approximately $995,000 in
2000 to fund working capital and debt refinancing. These borrowings were repaid
with the common stock of the Company. These borrowings were unsecured and bore
interest between 8% and 10.5% per annum. The conversion ratio for these
borrowings ranged between $0.75 to $1.25 a share.
7. Capital lease obligations:
The Company is a lessee under capital leases for various equipment.
Maturities under capital leases for the five years subsequent to December 31,
2000 are as follows:
2001 $ 357,901
2002 285,660
2003 283,560
2004 300,790
2005 86,003
-----------
Total capital leases payable 1,313,914
Less amounts representing interest 265,844
-----------
Present value of net minimum lease payments $ 1,048,070
===========
8. Stockholders' equity:
Common stock:
There are 50,000,000 shares of common stock, $.01 par value, authorized;
13,367,298 shares issued and outstanding. During 2000, the Company issued
785,000, 202,300, 1,505,000, 209,998 and 1,140,000 of common stock for
compensation, asset purchases, consulting, interest and loan conversions,
respectively. The amounts charged to operations were $125,600 for compensation,
$1,896,600 for consulting and $226,130 for interest. In accordance with
Financial Accounting Standard Board Statement No. 123. "Accounting for
35
Stock-Based Compensation," the valuation of the stock issuances was determined
by the services rendered, asset received or the market value of the stock at the
time of issuance. The stock issued for the loan conversions was determined by
the conversion rights included in the debt agreements. In addition, the Company
sold approximately 1,275,000 for prices ranging from $.75 to $1.50 a share.
Additional paid-in capital:
Included in additional paid-in capital is debt forgiveness from a former
shareholder/officer in the amount of $270,000. In accordance with Accounting
Principles Board Opinion No. 26 "Early Extinguishment of Debt", this transaction
was treated as a capital transaction. This transaction was completed in
conjunction with the shareholder/officer termination from the Company, sale of
his stock and release from his personal guarantee of Company debt. This debt
arose in 1999 ($250,000) and 2000 ($20,000). Interest was due monthly and
calculated at 1% above the prime rate. The proceeds of this debt was used for
working capital. The original maturities were July 2001 and June 2000,
respectively. No gain or loss was recognized on this transaction. Other
transactions included in additional paid-in capital are deferred compensation
expense (see stock option footnote) and the interest expense for the debt
conversion, as required by Emerging Issues Task Force Issue No. 85-17 "Accrued
interest upon conversion of convertible debt."
Stock options:
In 1999, The Board of Directors and shareholders approved a stock option plan in
which incentive stock options and non-qualified stock options may be granted.
The 1999 plan provides for the grant of options to purchase up to 1,500,000
shares. Upon the termination or expiration of any stock options granted, the
shares covered by such terminated or expired stock options will be available for
further grant; 135,000 options were available for grant at December 31, 2000.
The Board of Directors, at the date of grant of an option, determines the number
of shares subject to the grant and the terms of such option. In addition, the
Board of Directors granted 200,000 options outside of the 1999 stock option
plan. All outstanding options vest over four years and terminate between five
and ten years, after grant.
Changes in outstanding common stock options granted are summarized below:
Number Average
of exercise
shares price
------ -----
Balance at beginning of year 50,000 $ .16
Options granted 1,565,000 .36
Options forfeited 150,000 .16
--------- -----
Balance at end of year 1,565,000 $ .36
========= =====
Options exercisable at year-end 12,500 $ .16
36
Exercise prices and remaining contractual lives are summarized below:
Number of Options Option price Remaining life
----------------- ------------ --------------
355,000 $ .16 8.30
450,000 .30 9.68
550,000 .33 9.66
210,000 1.00 9.68
The Company in accordance with an election under generally accepted accounting
principles for stock options has recorded no compensation cost, except for those
shares whose exercise price was less than the fair market value on the
measurement date, for its stock options. The excess between the fair market
value of the shares on the measurement date over the exercise price is recorded
as deferred compensation and will be charged to operations over the vesting
period of four years.
Had compensation cost for stock options been determined based on the fair value
at the grant dates for awards under the plans, the Company's net loss and per
share amounts would have been changed to the proforma amounts disclosed below:
Net loss:
As reported $(4,953,575)
Proforma (4,984,117)
Basic loss per share:
As reported $( .52)
Proforma ( .53)
The fair values were determined using the Black-Scholes option-pricing model
with the following weighted average assumptions:
Dividend yield .00%
Risk free interest rate 6.08%
Expected life 10 years
Volatility 107.10%
9. Income taxes:
The Company has $5,450,000 in federal and state net operating loss carryovers,
which can be used to offset future taxable income. The federal and state net
operating loss carryforwards begin to expire in the year 2019 and 2009,
respectively.
In 2000, the tax benefit of the current year net operating loss carryforward of
$2,131,000 was offset by a valuation provision. The reconciliation between
income tax benefit at the federal statutory rate of 34% and tax on the Statement
of Operations is as follows:
37
Federal income tax benefit
at the statutory rate $1,684,000
State income tax benefit 446,000
Other 1,000
----------
2,131,000
Valuation allowance 2,131,000
----------
Tax benefit per the Statement of Operations $ 0
==========
The components of the Company's deferred tax assets are as follows:
Net operating loss carryforward $2,291,000
Other 15,000
----------
Total deferred tax assets 2,306,000
Valuation allowance 2,306,000
----------
$ 0
==========
The valuation allowance at December 31, 1999 was $175,000.
10. Lease commitments:
The Company leases its Philadelphia and Pottstown locations. The Philadelphia
lease is for a term of 37 months ending August 31, 2002 and requires monthly
payments of $5,500. This property is leased from individuals were are related to
a former shareholder/officer. The Pottstown lease is for an initial term of one
year ending April 30, 2001 with an automatic renewal of three consecutive
periods of one year each unless 60 day notification is given by the Company
prior to the end of the initial term or renewal term and requires monthly
payments of $7,500. Total rent expense under these leases was approximately
$131,000.
Future minimum rentals under these leases, assuming a one year renewal of the
Pottstown lease, are as follows:
2001 $158,000
2002 76,000
11. Related party transaction:
During 2000, the Company engaged a shareholder to assist the Company in
obtaining debt financing to be used for a potential expansion into New England
and for working capital purposes. The shareholder is also the holder of note
payable (a) referred to in footnote 6. The agreement provides that the Company
would issue to the shareholder 1.1 million shares of Company common stock on
February 1, 2001, and upon the closing of debt financing in the amount of at
least $9.5 million procured pursuant to the agreement, a second group of 1.1
million shares of Company common stock.
The agreement also provides that if, prior to the completion of such debt
financing and prior to the termination of the agreement, more than 30% of the
Company's outstanding shares of common stock shall be sold in a single
transaction or a series of related transactions, the shareholder shall be
entitled to receive the second group of 1.1 million shares. The agreement
further provides that if the Company sells new shares at a price of less than
38
$2.50 per share at any time after the shareholder becomes entitled to receive
the second group of 1.1 million shares, the number of shares otherwise
deliverable pursuant to the agreement is increased in accordance with a formula
that varies inversely with the sales price for such newly sold shares. Finally,
the agreement granted the shareholder an option to acquire for no additional
consideration up to 2,000,000 additional shares of Company common stock if any
such debt financing were forgiven by the lender(s) under specified
circumstances.
The Company has asserted that it was improperly induced to enter into the
agreement by statements and representations made by the shareholder and disputes
its obligation to deliver any shares of Company common stock to the shareholder.
The Company also terminated the agreement on April 6, 2001 at a time when no
debt financing had been closed and only a single proposal for financing in the
amount of $2.5 million had been obtained. The shareholder contests the Company's
assertions and the matter may result in litigation.
Because of the pendency of the dispute, the Company is unable to determine with
certainty the actual number of shares, if any, which it will be required to
issue to the shareholder; however, the Company is nonetheless required to treat
the matter in some manner to complete its financial statements. Accordingly, the
Company has chosen to include the initial group of 1.1 million shares in the
foregoing Statement of Stockholders' Equity and has charged $1.65 million
(representing the 1.1 million shares at a price of $1.50 per share) to
operations for the year ended December 31, 2000 on account of the consulting
services allegedly provided by the shareholder pursuant to the agreement.
Despite this presentation, the Company disputes its obligation to deliver any
such shares, and when the matter is ultimately resolved, an appropriate
accounting entry will be made to reflect the difference between the shares
issued in such resolution, if any, and the number of shares recorded on the
foregoing financial statements.
12. Litigation:
In the normal course of business, there are various outstanding legal
proceedings. In the opinion of management, after consultation with legal
counsel, the financial statements of the Company will not be materially affected
by the outcome of such legal proceedings.
13. Subsequent event:
On April 24, 2001, the Company entered into a non-binding agreement with
Smithfield Foods, Inc. ("Smithfield") in which Smithfield will purchase shares
of the Company which will result in Smithfield owning 50% of the issued shares
upon completion of the transaction (approximately 13,500,000 shares) for
$6,000,000. In addition, Smithfield will provide the Company with a $30,000,000
revolving loan. The loan will bear interest at 1% above prime and will be
secured by all of the Company's assets, and will mature in five years.
39
PART III
Item 1. Index to Exhibits.
3.1 Articles of Incorporation (with amendments thereto)
3.1.1 Original Articles of Incorporation *
3.1.2 Articles of Amendments *
3.1.3 Statement of Change of Registered Office *
3.2 Amended and Restated By-laws *
10.1 Employment Agreement by and between Pinnacle Foods, Inc. and
Michael D. Queen dated March 1, 2001 *
10.2 Termination Agreement by and between Pinnacle Foods, Inc. and
Samuel Lundy dated June 9, 2000 *
10.3 Agreement by and between Pinnacle Foods, Inc. and United Food &
Commercial Workers Union Local 56, AFL-CIO dated October 1, 1999
(as amended February 1, 2001) *
10.4 Agreement by and between Pinnacle Foods, Inc. and Robert V.
Matthews dated November 22, 2000 *
10.5 Loan Agreement by and between Pinnacle Foods, Inc. and Robert V.
Matthews dated June 29, 2000 *
10.6 Amended and Restated Lease Agreement between Pinnacle Foods, Inc.
and Theodore C. Asousa and Theodore Asousa, Jr., T/A Asousa
Partnership dated April 1, 2000 with respect to Pottstown
Facility *
10.7 Lease Agreement by and between Pinnacle Foods, Inc. and S. Lundy
& Sons, Inc. dated August 1, 1999 with respect to Philadelphia
Facility *
10.8 Stock Purchase Agreement by and between Pinnacle Foods, Inc. and
Smithfield Foods, Inc. dated May 31, 2001 *
10.9 Warrant Certificate of Pinnacle Foods, Inc. issued to Smithfield
Foods, Inc. dated June 27, 2001 *
10.10 The Standstill Agreement by and between Pinnacle Foods, Inc.,
Smithfield Foods, Inc., Ellis M. Shore and Michael D. Queen dated
June 27, 2001 *
10.11 Registration Rights Agreement between Pinnacle Foods, Inc. and
Smithfield Foods, Inc. dated June 27, 2001 *
40
10.12 Credit Agreement between Pinnacle Foods, Inc. and Smithfield
Foods, Inc. dated June 27, 2001 *
10.13 Indemnification Agreement between Pinnacle Foods, Inc. and Ellis
M. Shore dated June 27, 2001 *
10.14 Consulting Agreement between Pinnacle Foods, Inc. and Ellis M.
Shore dated March 1, 2001 *
10.15 Employment Agreement between Pinnacle Foods, Inc. and Dennis
Bland dated June 28, 2001 **
16.1 Letter on Change in Certifying Accountant **
* Incorporated by reference to Amendment No. 1 to the Registration
Statement on Form 10-SB (filed with the Commission July 9, 2001).
** Incorporated by reference to Amendment No. 2 to the Registration
Statement on Form 10-SB (filed with the Commission August 31,
2001).
41
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this amended registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
PINNACLE FOODS, INC.
Date: November 16, 2001 By: /s/ Michael D. Queen
--------------------------------
Michael D. Queen, President
42