SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter February 28, Commission File N0-15696
PIEMONTE FOODS, INC.
(Exact name of registrant as specified in its charter)
South Carolina 57-0626121
(State or other jurisdiction of I.R.S. Employer
incorporation of organization) Identification
400 Augusta Street, Greenville, South Carolina 29601
(Address of principal executive offices)
Registrant's telephone number, including area code: (864) 242-0424
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
The number of shares of common stock outstanding as of February 28, 1998
was 1,558,362.
PIEMONTE FOODS, INC.
INDEX TO FORM 10-Q
Part I Financial Information
Item 1. Financial Statements, unaudited
Consolidated Balance Sheets - February 28, 1998, and March 1, 1997
Consolidated Statements of Operations for the three and
nine months ended February 28 1998, and March 1, 1997.
Consolidated Statements of Cash Flows for the three and
nine months ended February 28, 1997, and March 1, 1997.
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K
Item 7. Subsequent Events
Exhibit 27. Financial data schedule
PIEMONTE FOODS, INC.
CONSOLIDATED BALANCE SHEETS
Assets Feb. 28, 1998 May 31, 1997
Current Assets
Cash & cash equivalents $635,046 $591,153
Accounts receivable, net 1,616,395 1,930,050
Inventories 791,980 855,121
Refundable income taxes 28,462 415,572
Prepaid expenses 183,294 123,320
Total Current Assets 3,255,177 3,915,216
Property, Plant & Equipment, Net 4,267,095 4,744,761
Deferred Charges, Intangible and Other Assets
Excess of cost over fair value of net assets acquired 712,692 737,406
Total Other Assets 712,692 737,406
Total Assets $8,234,964 $9,397,383
Liabilities and Stockholder's Equity
Current Liabilities
Current portion of long-term debt $376,851 $373,009
Prepayment of long-term debt subsequent to May 31, 1997 $0 $1,000,000
Accounts payable, trade 2,109,100 748,793
Accrued expenses 834,916 588,405
Total Current Liabilities 3,320,867 2,710,207
Long-Term Debt 1,841,330 2,124,134
Total Liabilities 5,162,197 4,834,341
Stockholder's Equity
Common Stock 15,444 15,444
Capital in excess of stated value of common stock 2,868,360 2,868,360
Retained earnings 188,963 1,679,238
Total Stockholder's Equity 3,072,767 4,563,042
Total Liabilities and Stockholder's Equity $8,234,964 $9,397,383
See accompanying notes to Financial Statements
PIEMONTE FOODS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended February 28, 1998 and March 1, 1997
Three Months Nine Months
FY98 FY97 FY98 FY97
Net Sales $4,645,809 $6,054,141 $14,583,786 $18,069,872
Operating Expenses
Cost of Goods Sold 4,053,959 5,148,576 11,864,971 15,366,732
Selling, general and administrative 1,698,408 1,397,774 4,144,442 4,278,136
Total Operating Expenses 5,752,367 6,546,350 16,009,413 19,644,868
Operating Income/(Loss) (1,106,558) (492,209) (1,425,627) (1,574,996)
Other Expenses
Interest expense (net) 41,036 41,889 127,502 149,792
(Gain)/Loss on disposal of assets 0 500 (5,638) 500
Equity in loss on European joint vent 0 139,631 0 408,545
Other income (5,279) (5,822) (17,248) (19,080)
Total Other Expenses 35,757 176,198 104,616 539,757
Income/(Loss) Before Income Taxes (1,142,316) (668,407) (1,530,243) (2,114,753)
Income Tax Benefit 28,462 0 39,969 447,000
Net Income/(Loss) ($1,113,853) ($668,407) ($1,490,274) ($1,667,753)
Average Number of Shares Outstanding 1,558,444 1,508,478 1,558,444 1,508,478
Net Loss Per Share ($0.71) ($0.44) ($0.96) ($1.11)
See accompanying notes to Financial Statements
PIEMONTE FOODS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three and Nine Months Ended February 28, 1998 and March 1, 1997
Three Months Nine Months
FY98 FY97 FY98 FY97
Cash Flows From Operating Activities
Net Income/(Loss) ($1,113,853) ($668,407) ($1,490,274) ($1,667,753)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 171,697 171,419 522,794 526,822
Non-Cash Director's Fees 12,750 0 28,250 0
Decrease (increase) in:
Receivables (32,121) (37,176) 285,193 141,712
Inventories 211,769 366,815 63,141 (4,250)
Prepaid expenses (41,700) 39,159 (59,974) (148,453)
Income Tax Refund 0 0 415,572 0
Other assets (976) 13,567 0 30,376
Equity in loss on European joint 0 139,631 0 408,545
Increase (decrease) in:
Accounts payable 215,969 (40,321) 1,360,307 448,359
Accrued liabilities 379,059 (70,219) 218,260 (137,783)
Net cash used in operating activities (197,406) (85,532) 1,343,269 (402,425)
Cash Flows from Investing Activities
Purchases of property, plant and equipm 13,717 (134,247) (26,052) (393,860)
Proceeds from the sale of property, pla 0 0 5,638 0
Investment in European joint venture 0 (61,485) 0 (290,311)
Net cash used in investing activities 13,717 (195,732) (20,414) (684,171)
Cash Flows From Financing Activities
Proceeds from issuance of common stock 0 43,637 0 46,269
Repayment of long-term debt (94,200) (83,809) (1,278,962) (335,238)
Net cash provided by financing activities (94,200) (40,172) (1,278,962) (288,969)
Net increase/(decrease) in cash (277,889) (321,436) 43,893 (1,375,565)
Cash, beginning of period 912,935 604,385 591,153 1,658,514
Cash, end of period 635,046 282,949 635,046 282,949
See accompanying notes to Financial Statements
PIEMONTE FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 1998
NOTE 1 - PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of Piemonte
Foods, Inc. and its wholly-owned subsidiaries, Piemonte Foods of
Indiana, Inc. and Origena, Inc. The consolidated balance sheet as of
February 28, 1998 and the related statements of operations and cash
flows for the nine month period then ended are unaudited. In the
opinion of management, all adjustments necessary for a fair
presentation of such financial statements have been included. Such
adjustments consisted only of normal recurring items with the
exception of those items listed below.
The financial statements and notes are presented as permitted by Form
10-Q, and do not contain certain information included in the company's
annual financial statements and notes.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Working capital at the end of the Third Quarter was ($65,690).
Included in this was an accrual of $350,000 to cover a restructuring
and redirection of the Company. As previously announced, Virgil L.
Clark, CEO was terminated on January 29, 1998. Included in the
$350,000 were actual and expected legal and professional fees
associated with Mr. Clark's departure. The remainder is for personnel
expenses due to downsizing, and fees associated with restructuring the
Company's debt and obtaining additional working capital.
Working capital decreased ($1,039,116) in the third quarter, primarily
the result of the operating loss of ($1,113,853). Receivables have
been reduced by ($285,193) since the beginning of the fiscal year,
which includes a slight increase in the second quarter of $32,121.
As part of a plan to improve cash flow, inventories were reduced by
($211,769) in the third quarter and ($63,141) year-to-date. Accrued
expenses, including non-cash director's fees, increased $379,059 in
the current quarter primarily the result of the $350,000 charge
referred to above. Accounts payable also increased by $215,969 in the
third quarter and $1,360,307 for the year.
Although the Company is not in default in payment to its principal
lender with respect to its long-term debt, it is currently in default
of certain covenants associated with its Loan Agreement, including
covenants relating to the maintenance of net worth, working capital
and debt coverage. The Company is negotiating with its lender to
obtain a waiver of these technical defaults respecting loan covenants.
The lender is currently working with the Company in an effort to
identify sources for debt refinancing as well as additional working
capital.
The Company has recently been unable to meet its obligations to
creditors in a normal timely basis and is continuing negotiations with
its creditors to reach agreements with respect to either discounting
the obligations due creditors and/or delaying payment of such
obligations. There can be no assurance that these negotiations will be
successful and, if not, the Company would have to obtain additional
capital or take other steps to continue its operations on a normal
basis in light of its current shortage of working capital.
RESULTS OF OPERATIONS
Quarter Ended February 28, 1998 Compared to
Quarter Ended March 1, 1997
Revenues for the Third Quarter were $4,645,809 which were 23% lower
than the same period last year. Lower revenues were the combined
result of the fourth quarter 1997 exit from the Company's cake
business in Nashville, and lower sales in Deli and Foodservice. Third
quarter sales showed a decline of ($615,201) or 12% versus the second
quarter of fiscal year 1998. The decline is attributed to pricing
action taken in December to strengthen long-term margins and an
overall softening in the market during the quarter.
While the pricing actions taken in the third quarter should provide
long-term positive results, a negative consequence on the third
quarter was a reduction in overhead absorption, based on reduced sales
and a $211,769 reduction in inventories and therefore production. This
resulted in a net decrease in gross margin from 15.0% in fiscal year
1997 to 12.7% in fiscal year 1998. Overall gross margin dollars
declined by ($313,715) or 34.6% on 23.3% lower sales over the same
quarter a year ago.
The loss from operations in the third quarter of fiscal year 1998 was
($1,106,558), compared to a loss of ($492,209) in the third quarter of
1997. Included in the 1998 loss is unusual expense of $350,000 related
to the restructuring referenced above.
Selling, general, and administrative expenses were $300,634 more in
the third quarter of this year versus the same quarter a year ago, or
($49,366) less when adjusted for the $350,000 charge.
Overall, net loss for the quarter was ($1,113,853), compared to a net
loss of ($668,407) in the same quarter last year. Adjusted for the
unusual item, the net loss in the third quarter would have been
($763,853) or a 14.3% decline on 23.3% lower sales. The overall,
unadjusted, loss for the current quarter was ($0.71) compared to
($0.44) for the same period last year.
Nine Months Ended February 28, 1998 Compared to
Nine Months Ended March 1, 1997
Sales were $14,583,786 or $3,486,086 lower than the same period sales
last year. Lower sales are primarily due to exiting of the Cake
business, and lower sales in Deli/Retail.
Gross Margin improved to 18.6% in the first nine months of this year
versus 15.0% in the same period a year ago, an improvement of $15,675,
on lower sales. The improvement can be attributed to specific actions
taken to increase pricing and to reduce operating costs offset in part
by lower capacity utilization during the third quarter of fiscal year
1998.
SG&A costs for the first nine months were $4,144,442, including the
unusual adjustment of $350,000 compared with $4,278,136 during the
same period a year ago.
Through the first nine months the Company has incurred a net loss of
($1,490,274), including the adjustment, compared to a net loss of
($1,667,753) in the comparable period last year. This reflects a per
share loss of ($0.96) compared to ($1.11) a year ago. The fiscal year
1997 net loss included a tax benefit of $447,000 versus a benefit of
$39,969 in fiscal year 1998. Therefore, before tax losses for the
first nine months of 1998 were ($1,530,243) compared to ($2,114,753)
for the same period last year, an improvement of $584,510 or $934,510
when adjusted for the unusual items referenced above.
Management has taken several actions in recent weeks to improve the
business and to seek to return the Company to profitability. These
actions include a reduction in the workforce, both hourly and salary,
and a refocusing of our product lines. Also, steps have been taken to
restructure the Company's debt and working capital. While there is no
assurance these actions will prove successful, the Company believes
they should result in improved long term growth in both revenue and
profits.
Item 6 Exhibits and Reports on Form 8-K
a) Exhibits required by Item 601 of Regulation S-K
None
b) Reports on Form 8-K
None
Item 7 Subsequent Events
Mr. Richard Stoner, director, announced his retirement from the Board
of Directors effective April 10, 1998, due to health reasons.
Exhibit 27. Financial data schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PIEMONTE FOODS, INC.
Date 04/13/98 /s/ W. Edward Cathey
W. Edward Cathey
Treasurer and CFO