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 ended February 27, 1999 Commission File 0-15696
PIEMONTE FOODS, INC.
(Exact name of registrant as specified in its charter)
South Carolina 57-0626121
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(State or other jurisdiction of I.R.S. Employer
incorporation of organization) Identification
400 Augusta Street, Greenville, South Carolina 29601
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(Address of principal executive offices)
Registrant's telephone number, including area code: (864) 242-0424
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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
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The number of shares of common stock outstanding as of February
27, 1999 was 1,545,176.
PIEMONTE FOODS, INC.
INDEX TO FORM 10-Q
Part I Financial Information
Item 1. Financial Statements, unaudited
Consolidated Balance Sheets - February 27, 1999, and May 30,
1998.
Consolidated Statements of Operations for the Third Quarter
ended February 27, 1999, and February 28, 1998.
Consolidated Statements of Cash Flows for the Third Quarter
ended February 27, 1999, and February 28, 1998.
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Part II Other Information
Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27. Financial data schedule
PIEMONTE FOODS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS Feb. 27, 1999 May 30,1998
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CURRENT ASSETS
Cash & cash equivalents $11,401 $184,009
Accounts receivable, net 657,151 1,058,340
Inventories 432,406 662,904
Prepaid expenses and other current assets 36,549 121,135
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TOTAL CURRENT ASSETS 1,137,507 2,026,388
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PROPERTY, PLANT & EQUIPMENT, NET 1,620,391 3,650,726
DEFERRED CHARGES, INTANGIBLE AND OTHER ASSETS
Excess of cost over fair value of net assets acquired 0 60,015
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TOTAL ASSETS $2,757,898 $5,737,129
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LIABILITIES AND STOCKHOLDER'S EQUITY
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CURRENT LIABILITIES
Current portion of long-term debt in default $2,028,947 $2,131,291
Accounts payable 2,153,650 2,127,017
Accrued expenses 343,378 667,274
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TOTAL CURRENT LIABILITIES 4,525,975 4,925,582
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STOCKHOLDER'S EQUITY
Common Stock 15,451 15,433
Capital in excess of stated value of common stock 2,903,973 2,902,110
Retained earnings (deficit) (4,697,249) (2,105,996)
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TOTAL STOCKHOLDER'S EQUITY (1,777,825) 811,547
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TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $2,748,150 $5,737,129
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SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
PIEMONTE FOODS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months and nine months ended
February 27, 1999 and February 28, 1998
Three Months Nine Months
FY 99 FY 98 FY 99 FY 98
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NET SALES $2,491,476 $4.645,808 $8,957,996 $14,583,786
Operating Expenses
Cost of Goods Sold 2,196,298 4,051,643 7,378,891 11,864,971
Selling, general and administrative 695,086 1,698,408 2,478,795 4,144,442
Asset impairment loss (Note 2) 452,433 0 2,202,433 0
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Total Operating Expenses 3,343,817 5,750,051 12,060,119 16,009,413
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OPERATING LOSS (852,341) (1,104,243) (3,102,123) (1,425,627)
Other Expenses
Interest expense (net) 61,325 41,036 209,478 127,502
(Gain)Loss on disposal of assets 4,522 5,528 84,890 22,886
Other income (9,186) 0 0 0
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Total Other Expenses 56,661 46,564 294,368 150,388
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Income(Loss) Before Income Taxes (909,002) (1,150,807) (3,396,491) (1,576,015)
Income Tax Benefit 0 (28,462) 330 (39,969)
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NET LOSS ($909,002) ($1,179,269) ($3,396,161) ($1,615,984)
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Average Number of Shares Outstanding 1,545,176 1,558,145 1,544,235 1,558,145
NET LOSS PER SHARE ($0.59) ($0.10) ($1.51) ($0.24)
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SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
PIEMONTE FOODS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months and nine months ended February
27, 1999 and February 28, 1998
Three Months Nine Months
FY 99 FY 98 FY 99 FY 98
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CASH FLOWS FROM OPERATING ACTIVITIES
Net Income(Loss) ($449,017) ($1,113,853) ($2,774,609) ($1,490,274)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 82,601 171,697 366,061 522,794
Non-cash directors fees 0 12,750 1,882 28,250
Asset impairment loss 452,433 0 2,202,433 0
Decrease (increase) in:
Receivables 224,303 (32,121) 431,189 285,193
Inventories 304,396 211,768 316,291 63,141
Prepaid expenses 41,007 (41,700) 52,992 (59,974)
Income tax refund 0 0 0 415,572
Other assets 0 (976) 0 0
Increase (decrease) in:
Accounts payable (87,059) 215,969 56,633 1,360,307
Accrued liabilities (132,861) 379,059 (263,905) 218,260
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Net cash provided by (used in) operating activities 435,803 (197,406) 388,967 1,343,269
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment 0 13,717 0 (26,052)
Proceeds from the sale of property and equipment (5,923) 0 0 5,638
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Net cash provided by (used in) investing activities (5,923) 13,717 0 (20,414)
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CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt 102,000 (94,200) 0 (1,278,962)
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Net cash provided by (used in ) financing activities 102,000 (94,200) 0 (1,278,962)
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NET INCREASE(DECREASE) IN CASH 25,980 (277,889) (154,400) 43,893
Cash, beginning of period (14,579) 912,935 169,430 591,153
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Cash, end of period $11,401 $635,046 $15,030 $635,046
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SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
PIEMONTE FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 27, 1999
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 27, 1999 and the related statements of operations and cash
flows for the three month and nine month periods 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.
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.
NOTE 2 - ASSET IMPAIRMENT LOSS
As required by Statement of Financial Accounting Standards No. 121,
the Company recorded an impairment loss on the long-lived assets of
its Illinois facility. Management's evaluation of these assets
indicated that the net realizable value was less than the carrying
value of the assets. Accordingly, the Company recognized an asset
impairment loss of $452,433 on the Illinois assets.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At February 27, 1999 working capital was a negative of $3.4 million
compared to a negative $3.3 million at the beginning of the quarter.
This negative amount includes $2.0 million of long-term debt that is
classified as a current liability. The Company has been unable to
service its bank debt and is in default on its debt agreements. In
January, 1999 the Company and its lender agreed to a period of
forebearance until May 31, 1999 to enable the Company to voluntarily
liquidate certain assets, seek additional investment and otherwise
obtain means to repay the debt in full by that date.
As previously reported, the Company's facility in Chicago was closed
in November, 1998. Equipment from that facility was auctioned in
January, 1999 and net proceeds applied to the bank debt. As part of
the forebearance agreement the Company has also placed its Frankfort,
Indiana facility for sale. Any resulting net proceeds will be applied
to the bank debt. An asset impairment loss of $452,433 was recorded
during the quarter reducing the carrying value of those assets to net
realizable value.
The Company has also been unable to meet its obligations to trade
creditors in a normal and 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.
Over the past year Piemonte eliminated certain unprofitable business
lines and modified and corrected accounts that were unprofitable. The
product line was simplified and the marketing of the core product
lines was emphasized. The employees were reduced and personnel
upgraded, including recruiting a new President and CEO with specific
expertise in marketing, sales and General Management. Piemonte is now
in a position to grow real unit volume of its core products through
marketing and selling activity, new product introduction and
strategically repositioning key products in the current product line.
The losses of the last two years, however, have eroded capital. The
last and critical step in the reformation process is to restore a
level of capital sufficient to sustain operations. At the present
time, however, there is no expectation of additional capital or
refinancing of the existing bank debt. It is unlikely Piemonte can
continue its business without such additional capital or refinancing.
RESULTS OF OPERATIONS
Quarter Ended February 27, 1999 Compared to
Quarter Ended February 28, 1998
Revenues for the Third Quarter were $2.5 million, 46% lower than last
year. Most of the decline is attributable to two customers. One that
switched from Piemonte's "Component Pizza" Program, reducing their
labor costs and improving margin. The second customer stopped
purchasing value added product from Piemonte, switching to direct
purchase from the manufacturer.
Gross margin of 13% for the quarter was same as the 13% of last year.
The restructuring plan implemented in the Third Quarter last year,
coupled with price adjustment and cost reductions, kept costs in line,
though the decline in revenues did have a negative impact on overhead
absorption. Selling, general and administrative expenses were also
reduced as part of that restructing plan.
The operating loss of $852,341 includes a $452,433 loss for the
impairment of asset losses in Chicago. Excluding that, the $399,908
loss from operations was lower than the $1,104,243 loss last year due
to significant reductions in SG&A expenses.
Nine Months Ended February 27, 1999 Compared to
Nine Months Ended February 28, 1998
Revenues for the nine months were $9.0 million, a decline from $14.6
million last year, due to the loss of two more significant customers.
Gross margin for the nine months of 18% was lower than the 19% last
year, the difference being margin lost due to declining revenues.
Operating losses for the nine months of $3,102,123 includes the asset
impairment loss of $2,202,433. Excluding that, the $899,690 loss from
operations was lower than the $1,425,627 loss last year, due to
significant reductions in SG&A expenses.
YEAR 2000 COMPLIANCE
Subsequent to year-end, the Company changed software packages to a Y2K
compliant package. The Company has not communicated with its critical
external relationships to determine the extent to which the Company
may be vulnerable to such parties' failure to resolve their own Y2K
issues. With the exception of utility and banking relationships,
however, it is not anticipated that these relationships are material.
Where practical, the Company will assess and attempt to mitigate its
risks with respect to the failure of these entities to be Y2K ready.
The effect, if any, on the Company's results of operations from the
failure of such parties is not readily estimable.
Part II Item 1 Legal Proceedings
Virgil L. Clark v. Piemonte Foods, Inc. et al: On October 7,
1998, the Company's former CEO. Virgil L. Clark filed suit in
the Court of Common Pleas, Greenville, South Carolina,
claiming that the Company terminated his Employment Agreement
on January 29, 1998 without cause. The lawsuit asks for the
payment of wages, trebled, in the amount of $1,494,231; for
actual and punitive damages in the amount of $2,000,000; and
for interest, costs and attorney's fees. The Company filed
counterclaims and a motion for dismissal based on
Interragatories from Discovery.
Item 5 Other Information
Positions unrelated to company performance were eliminated to
further reduce SG&A expenses.
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
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.
4/13/99 s/Mark Fagan
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Date Mark Fagan
President and CEO