U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB/A
(Amendment No. 2)
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.
--------------------------------------------------------------------------------
(Name of Small Business Issuer in Its Charter)
Pennsylvania 23-3008972
------------------------------- ------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
980 Glasgow Street, Pottstown, PA 19464
---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(610) 705-3620
--------------------------------------------------------------------------------
(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
------------------- ------------------------------
Securities to be registered under Section 12(g) of the Act:
Common Stock, Par Value $0.01 per Share
--------------------------------------------------------------------------------
(Title of Class)
1
INDEX
Page
----
PART I .....................................................................3
Item 4. Security Ownership of Certain Beneficial Owners and Management.....3
PART II .....................................................................3
Item 3. Changes in and Disagreements with Accountants......................3
PART F/S Financial Statements...............................................5
PART III ....................................................................33
Item 1. Index to Exhibits.................................................33
2
Part I
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of October 8, 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 1,095,834 (2) 4.21 %
------------------------------------------------------------------------------------------------------------------
Thomas P. McGreal 75,000 (3) 0.29 %
------------------------------------------------------------------------------------------------------------------
Dennis Bland 5,000 (4) 0.02%
------------------------------------------------------------------------------------------------------------------
C. Brent Moran 75,000 (5) 0.29 %
------------------------------------------------------------------------------------------------------------------
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 1,250,834 (2) (3) (4) (5) 4.81 %
(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) Excludes 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 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 12,500 shares to which Mr. Moran holds a vested option and an
additional 12,500 shares to which Mr. Moran will hold a vested option
within sixty days.
Part II
Item 3. Changes in and Disagreements With Accountants.
The Company engaged Larson, Allen, Weishair & Co., LLP ("LarsenAllen")
to audit the Company's financial statements for the period ended December 31,
1999. Subsequent to the completion of that audit, Pinnacle decided to change
accountants from LarsonAllen to Kronick Kalada Berdy and Co., P.C. ("KKB"). When
the decision to change accountants was made by the Board of Directors, on or
about September 1, 2000, the Company knew of no disagreements between the
Company and LarsenAllen on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure. Furthermore,
LarsenAllen's report on the Company's financial statements (for the period
ending December 31, 1999) did not contain an adverse opinion or disclaimer of
opinion nor was it modified as to uncertainty, audit scope or accounting
principles.
3
In July of 2001, the Company learned that LarsenAllen's audit of the
Company's financial statements for the period ended December 31,1999 did not
meet the SEC's requirements for auditor independence. At that time, in order to
comply with the requirements of this Registration Statement on Form 10-SB, the
Company engaged KKB to audit the Company's financial statements for the period
ended December 31, 1999. The Company believes that LarsenAllen breached its
engagement with the Company and intends to seek compensation from LarsenAllen.
LarsenAllen disputes the Company's claims.
Presently, there are no disagreements between the Company and
LarsenAllen on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, except that the Company
believes that the auditing procedure that LarsenAllen followed should have
complied with SEC requirements for auditor independence. KKB's reports on the
Company's financial statements (for the periods ended December 31, 1999, and
2000) did not contain an adverse opinion or disclaimer of opinion nor was either
modified as to uncertainty, audit scope or accounting principles.
4
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
Audited Financial Statements for the Period Ended December 31, 1999
Notes to the Audited Financial Statements
For the Period Ended December 31, 1999
5
PINNACLE FOODS, INC.
Balance Sheet
June 30, 2001
(Unaudited)
ASSETS
For the period ended June 30, 2001
----------------------------------
Current Assets:
Checking and Savings 4,315,065
Receivables, less Allowance 2,693,716
Inventory 862,681
Other 18,500
Prepaid Expenses 21,045
------------------
Total Current Assets 7,911,005
Fixed Assets:
Property and Equipment 3,538,712
Less Accumulated Depreciation 631,391
------------------
Total Fixed Assets 2,907,320
Other Assets: 33,494
Total Assets: 10,851,820
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Installments on Capital lease obligations 264,903
Accounts Payable 4,316,544
Accrued Expenses 531,881
------------------
Total Current Liabilities 5,113,328,
Capital Lease Obligations less current installments 830,550
Stockholder's Equity:
Common Stock 134,499
Additional Paid-In Capital 11,871,308
Deficit (6,705,382)
Deferred Compensation (392,484)
------------------
Total Stockholder's Equity 4,907,942
Total Liabilities and Stockholder's Equity 10,851,820
==================
6
PINNACLE FOODS, INC.
Statement of Operations
For the Three and Sixth Month Periods Ended June 30
(Unaudited)
For The Three Month Period For The Six Month Period
Ended June 30, Ended June 30,
2001 2000 2001 2000
---- ---- ---- ----
Sales $ 8,017,624 $ 1,359,258 $ 18,968,494 $ 2,116,367
Cost of Goods Sold 7,505,517 1,473,499 18,651,159 2,390,856
---------------------------------------------------------
Gross Profit 512,107 (114,242) 317,334 (274,489)
General and Administrative Expenses 702,580 376,885 1,440,230 570,453)
---------------------------------------------------------
Loss from Operations (190,473) (491,122) (1,122,896) (844,941)
Other Expenses
Interest Expense (Net) 55,562 20,780 84,411 42,173
---------------------------------------------------------
et Loss
N (246,035) (511,907) (1,207,308) (887,115)
========== ========== ========== ==========
Lose per share
Basic (0.01) (0.3) (0.08) (0.06)
========== ========== ========== ==========
Weighted Average Shares 16,804,139 17,309,106 15,309,666 16,054,771
========== ========== ========== ==========
7
PINNACLE FOODS, INC.
January 1, 2000 through DECEMBER 31, 2000
8
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.
9
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
10
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
11
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
12
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
13
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.
14
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.
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.
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.
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.
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.
15
Notes payable:
Notes payable consists of the following at December 31, 2000:
Note payable (a) $ 300,000
Note payable (b) 100,000
---------
$ 400,000
=========
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.
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
===========
16
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 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.
17
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
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%
18
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:
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.
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
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
19
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 $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.
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.
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.
20
PINNACLE FOODS, INC.
JULY 20, 1999 (INCEPTION) THROUGH
DECEMBER 31, 1999
21
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, 1999, and the related statements of operations, stockholders'
equity deficiency and cash flows for the period July 20, 1999 (inception)
through December 31, 1999. 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, 1999, and the results of its operations and its cash flows for the
period July 20, 1999 (inception) through December 31, 1999 in conformity with
accounting principles generally accepted in the United States of America.
KRONICK KALADA BERDY & CO., P.C.
Kingston, Pennsylvania
August 10, 2001
22
PINNACLE FOODS, INC.
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
Current Assets:
Cash $ 92,271
Accounts receivable 100,102
Inventory, packaging supplies 12,488
Prepaid expenses 11,382
-------------
Total current assets 216,243
-------------
Property and equipment 1,071,039
Less accumulated depreciation 35,980
-------------
Net property and equipment 1,035,059
-------------
Other assets 11,832
-------------
$ 1,263,134
=============
LIABILITIES AND STOCKHOLDERS' EQUITY DEFICIENCY
Current Liabilities:
Current installment of:
Capital lease obligations $ 105,000
Notes payable, other 136,512
Accounts payable 209,147
Accrued expenses 40,078
-------------
Total current liabilities 490,737
-------------
Notes payable:
Shareholder 250,000
Other, less current portion 245,942
Capital lease obligations, less current portion 385,896
-------------
881,838
-------------
Stockholders' equity deficiency
Common Stock 82,500
Additional paid-in capital 337,500
Deficit (529,441)
-------------
(109,441)
-------------
$ 1,263,134
=============
See notes to financial statements
23
PINNACLE FOODS, INC.
STATEMENT OF OPERATIONS
JULY 20, 1999 (INCEPTION) THROUGH DECEMBER 31, 1999
Sales, net $ 237,530
-----------
Cost of sales:
Meat 1,485
Labor 176,335
Supplies 218,540
-----------
Total cost of sales 396,360
-----------
Gross loss (158,830)
-----------
Operating expenses:
Professional fees:
Consulting 17,500
Other 32,112
Salaries, wages and related expenses 105,105
Depreciation 35,980
Cleaning 12,493
Utilities 10,699
Freight out 13,375
Rent 29,964
Insurance 14,915
Travel and entertainment 17,339
Office 11,538
Repairs and maintenance 13,987
Taxes 5,767
Waste removal 2,798
Telephone 4,968
Advertising and promotion 11,734
Equipment rental 581
Miscellaneous 4,448
-----------
Total operating expenses 345,303
-----------
Loss from operations (504,133)
Interest expense 25,308
Net loss $ (529,441)
===========
Loss per share $ (0.08)
===========
Average shares outstanding 6,275,992
===========
See notes to financial statements
24
PINNACLE FOODS, INC,
STATEMENT OF CASH FLOWS
JULY 20, 2999 (INCEPTION) THROUGH DECEMBER 31, 1999
Cash flows used for operating activities:
Net loss $ (529,441)
Adjustments:
Depreciation 35,980
Changes in assets and liabilities
Increase in:
Receivables (100,102)
Inventory (12,488)
Prepaid expenses (11,832)
Accounts payable 209,147
Accrued expenses 40,078
-----------
Net cash used for operating activities (368,658)
-----------
Cash flows used for investing activities:
Purchase of property and equipment (530,039)
Security deposits (11,382)
-----------
Net cash used for investing activities (541,421)
-----------
Cash flows provided by financing activities:
Proceeds from issuance of common stock 420,000
Proceeds from note payable - shareholder 250,000
Proceeds from note payable - other 395,443
Repayments on note payable - other (12,989)
Repayments on capital lease obligations (50,104)
-----------
Net cash provided by financing activities 1,002,350
-----------
Increase in cash and cash, end of period $ 92,271
===========
Supplemental disclosures of cash flow information:
Interest paid during the period $ 19,303
===========
Non-cash items:
Purchase of equipment under capital lease agreements $ 541,000
===========
See notes to financial statements
25
PINNACLE FOODS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY DEFICIENCY
JULY 20, 1999 (INCEPTION) THROUGH DECEMBER 31, 1999
Common stock
------------------------------------
$.01 par value
------------------------------------
50,000,000 shares authorized
------------------------------------
Shares Additional
issued or paid-in
issuable Amount capital Deficit Total
------------------------------------------------------------------------------------------
Common stock issued to:
Incorporators 6,000,000 $ 60,000 $ 60,000
Other shareholders 2,250,000 22,500 $ 337,500 360,000
Net loss $ (529,441) (529,441)
-----------------------------------------------------------------------------------------
Balance, December 31, 1999 8,250,000 $ 82,500 $ 337,500 $ (529,441) $ (109,441)
=========================================================================================
See notes to financial statements
26
PINNACLE FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 20, 1999 (INCEPTION) THROUGH DECEMBER 31, 1999
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 inventory of packaging supplies are valued at the lower of
first-in, first-out cost or market. During 1999, the Company did not take
title to the meat that it prepared for the case-ready distribution.
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 costs are expenses as
incurred. Improvements that materially extend the life of an asset are
capitalized.
Revenue recognition:
Revenues from sales are recorded upon shipment to customers and represents
processing fees on customer product. The Company uses the specific
write-off method to provide for doubtful accounts, because management
believes that uncollectible amounts are immaterial. No allowance reserves
for returns and allowances are provided since such amounts are minimal.
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 of financial instruments:
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.
27
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 shares 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.
However, there were no dilutive potential common shares in 1999 because the
assumed exercise of the options would be anti-dilutive. Incorporator shares
are included in the computation effective July 20.
3. Cash concentrations:
The Company maintains its principal cash accounts in a commercial bank
located in Pennsylvania. Accounts at the bank are insured by the Federal
Deposit Insurance Corporation (FDIC) up to $100,000. At December 31, 1999,
cash balances in the commercial bank exceeded the FDIC insurance coverage
by $102,000.
4. Significant customers:
During the period July 20, 1999 through December 31, 1999, the Company had
two customers that accounted for approximately 54% and 40% of the Company's
sales. These customers accounted for 65% and 21% of accounts receivable at
December 31, 1999.
5. Property and equipment:
Property and equipment at December 31, 1999 are comprised of the following:
Equipment $1,016,736
Leasehold Improvements 29,000
Furniture and Fixtures 20,037
Computer 5,266
-----------
1,071,039
Accumulated Depreciation ( 35,980)
-----------
$ 1,035,059
===========
$541,000 and $16,000 is included in equipment and accumulated depreciation
for assets that were purchased via capital leases.
6. Note payable - shareholder:
Note payable - shareholder consists of an unsecured advance from
shareholder/officer of the Company. The proceeds of this debt were used for
working capital. Interest is calculated at 1% above the national prime rate
and is due monthly. The loan principal was originally due on July 31, 2001,
28
but during fiscal year 2000, this debt was forgiven. The 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. The Company incurred $5,900 of interest expense for the note
payable.
7. Notes payable, other:
9.25% note payable, unsecured, due in monthly installments of $6,282,
including principal and interest. Interest is calculated at 9.25%. The note
is guaranteed by two shareholders of the Company. During fiscal year 2000,
the loan was repaid from the common stock sale proceeds. $296,031
15% note payable due in monthly installments of $10,213, including
principal and interest, maturing in September 2000. The note is
collateralized by equipment. 86,423
--------
382,454
Less current portion (136,512)
--------
$245,942
========
8. 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, 1999 are as follows:
2000 $137,415
2001 117,408
2002 116,760
2003 115,854
2004 93,056
--------
Total capital leases payable 580,493
Less amounts representing interest 89,597
Present value net minimum lease payment $490,896
========
9. Stock options:
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 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; 1,450,000 options were available for
grant at December 31, 1999.
29
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. All
outstanding options vest over four years and terminate in five years after
grant.
Changes in outstanding common stock options granted are summarized below:
Number of Shares Avg exercise Price
---------------- ------------------
Options granted 50,000 $ .16
Options forfeited 0
------ -----
Balance at end of year 50,000 $ .16
====== =====
Options exercisable at year-end 0 0
Proforma net loss and loss per share as calculated under Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation,"
was not significant and was not recorded because of the issuance of the
options and the effect of their vesting periods.
10. Income taxes:
The Company has $529,000 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 expire in the years 2019 and
2009, respectively.
In 1999, the tax benefit of the current year net operating loss
carryforward of $175,000 was offset by a valuation provision.
The components of the Company's deferred tax assets are as follows:
Net operating loss carryforward $175,000
Valuation allowance 175,000
--------
0
========
11. Lease commitments:
The Company leases its Philadelphia location. The 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 who are related to a shareholder/
officer who was terminated in 2000, see footnote 6. Total rent expense
under this lease was approximately $30,000.
Future minimum rentals under this lease are as follows:
2000 $66,000
2001 66,000
2002 44,000
30
12. Subsequent events:
Transaction with shareholder:
-----------------------------
During 2000, the Company engaged an individual who became a shareholder in
2000 to assist the Company in obtaining debt financing to be used for a
potential expansion into New England and for working capital purposes. 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 $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.
Smithfield
----------
On June 27, 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 shares upon
completion of the transaction for $6,000,000. In addition, Smithfield
provided the Company with a $30,000,000 revolving loan. The loan bears
31
interest at 1% above prime and is secured by all of the Company's assets,
and will mature in five years.
Other
-----
See notes 6 and 7 for information about subsequent debt transactions.
13. Litigation:
In the normal course of business, there are various outstanding legal
proceedings to which the Company is a party. 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.
32
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
33
10.11 Registration Rights Agreement between Pinnacle Foods, Inc. and
Smithfield Foods, Inc. dated June 27, 2001
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 36
34
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: October 10, 2001 By: /s/ Thomas McGreal
---------------------------------
Thomas McGreal, Vice President
35