U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File No.
September 30, 1997 0-16161
ORIGINAL ITALIAN PASTA PRODUCTS CO. INC.
32 AUBURN STREET
CHELSEA, MA 02150
TELEPHONE (617) 884-5211
State of Incorporation I.R.S. Employer Identification No.
Massachusetts 04-2877789
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 twelve months (or 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 [ ]
As of November 14, 1997 the number of shares of Common Stock, $.02 par
value, outstanding were 1,899,885.
Original Italian Pasta Products Co. Inc.
INDEX PAGE
NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements: (Current years results are unaudited)
Balance Sheets - As at September 30,1997 and June 30, 1997 3
Statement of Operations:
Three months ended September 30, 1997 and September 30, 1996 4
Statement of Cash Flows:
Nine months ended March 31, 1997 and March 31, 1996 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 6-8
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 8-9
SIGNATURES 9
Computation of Earnings Per Share 10
Original Italian Pasta Products Co. Inc.
Balance Sheet
(Unaudited)
Assets September 30, June 30,
1997 1997
Current Assets:
Cash and Cash Equivalents $ 92,000 $ 70,000
Accounts Receivable, net 398,000 483,000
Inventories (Note 3) 523,000 603,000
Prepaid expenses and other 16,000 33,000
--------- ---------
Total current assets 1,029,000 1,189,000
Property and equipment, net 1,109,000 1,254,000
Other assets, net 47,000 47,000
---------- ---------
Total Assets $ 2,185,000 $ 2,490,000
========== ==========
Liabilities and Shareholders Equity
Current Liabilities:
Current maturities of long-
term debt and capital lease $ 669,000 $ 599,000
Accounts Payable 1,522,000 1,296,000
Accrued Expenses 919,000 871,000
--------- ---------
Total current liabilities 3,110,000 2,766,000
Long-term debt and capital lease 30,000 36,000
Shareholders' Deficit
Preferred stock - $.01 par
value. Authorized - 1,000,000
shares. Issued and
outstanding - None. -- --
Common Stock - $.02 par value
Authorized - 6,000,000 shares.
Issued and outstanding -
1,899,885 shares. 38,000 38,000
Additional paid-in capital 3,912,000 3,912,000
Accumulated deficit (4,905,000) (4,262,000)
----------- -----------
Total Shareholder's
Equity $ (955,000) $ (312,000)
----------- -----------
Total Liabilities and
Equity $ 2,185,000 $ 2,490,000
========== ==========
See accompanying notes
ORIGINAL ITALIAN PASTA PRODUCTS CO. INC.
Statement of operations
(Unaudited)
Three months ended
September 30, September 30,
1997 1996
Net sales $ 1,979,000 $ 2,779,000
Cost of goods sold 1,755,000 1,925,000
Gross profit 224,000 854,000
Selling, general and
administrative expenses 850,000 1,062,000
Gain/(Loss) from operations
operations (626,000) (208,000)
Other Expense/Income:
Interest income -- 1,000
Interest expense (16,000) (9,000)
Other income/(loss) (1,000) 14,000
--------- -------
Income/(Loss) before taxes (643,000) 202,000
Provision for taxes -- --
Net Income/(Loss) after taxes $ (643,000) $ (202,000)
========= ==========
Net income/(loss) per share
(Note 2), primary $ (0.34) $ (0.11)
Net income/(loss) per share
(Note 2), fully diluted $ (0.34) $ (0.11)
Weighted average shares
outstanding, primary 1,900,000 1,900,000
Weighted average shares
outstanding, fully diluted 1,900,000 1,900,000
See accompanying notes
Original Italian Pasta Products Co. Inc.
Statement of cash flows
(Unaudited)
Three months ended
Cash flows from operating September 30, September 30,
activities: 1997 1996
Net Income $ (643,000) $ 202,000
Adjustments to reconcile
net income to net cash used
in operating activities:
Depreciation and Amortization 145,000 149,000
(Increase) Decrease in
accounts receivable 85,000 106,000
(Increase) Decrease in
inventories 80,000 (23,000)
(Increase) Decrease in prepaid
expenses and other 17,000 50,000
(Decrease) Increase in
accounts payable 226,000 137,000
Increase (Decrease) in
accrued expenses 48,000 (15,000)
Increase (Decrease) in
tax provision -- --
(Increase) Decrease in
other assets -- 77,000
-------- --------
Net cash provided by
operating activities (42,000) 279,000
Cash flows from investing
activities:
Purchase of property and
equipment (42,000) (156,000)
-------- ---------
Net cash used by
investing activities (42,000) (156,000)
Cash flows from financing
activities:
Proceeds from debt 122,000 --
Principal payments on deb (58,000) (107,000)
-------- ---------
Net cash used by
financing activities 64,000 (107,000)
-------- ---------
Net increase (decrease) in cash
and cash equivalents 22,000 15,000
Cash - beginning of period 70,000 195,000
------- --------
Cash - end of period $ 92,000 $ 210,000
======= ========
See accompanying notes
Original Italian Pasta Products Co. Inc.
Notes to financial statements
(Unaudited)
NOTE 1: BASIS OF PRESENTATION:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
In the opinion of management, all adjustments (consisting solely of normal
recurring adjustments) considered necessary for a fair presentation have
been included. Results from operations for the three month period ended
September 30, 1997 are not necessarily indicative of the results that may be
expected for the year ending June 30, 1998.
For further information, refer to the financial statements and the footnotes
included in the Company's annual report on Form 10-KSB for the year ended
June 30, 1997.
NOTE 2: NET INCOME (LOSS) PER COMMON SHARE:
Net loss per common share is computed by dividing the net income by the
weighted average number of shares of common stock . Common stock equivalents
have not been included due to their antidilutive effect.
NOTE 3: INVENTORIES:
Inventories, stated at the lower of cost or market, on a first-in, first-out
basis, are comprised of the following:
September 30, June 30,
1997 1997
Raw Materials $ 114,000 $ 101,000
Packaging Materials 116,000 218,000
Finished Goods 293,000 284,000
-------- --------
Total $ 523,000 $ 603,000
======== ========
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS:
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial condition and operating
results during the periods included in the accompanying financial statements.
RESULTS OF OPERATIONS: For the quarter ended September 30,1997 compared to
the quarter ended September 30, 1996.
Net sales for the quarter ended September 30, 1997 were $1,979,000
versus $2,779,000 for the same period last year. This decrease of 29% is
mainly attributable to decreased sales to warehouse club customers.
Gross profit for the quarter ended September 30,1997 came in at 11% of
net sales or $224,000. Last years gross profit was at 31% of net sales or
$854,000. Gross profit is down as the result of lower sales volume.
Selling, General and Administrative expenses decreased to $850,000 or
43% of net sales from $1,062,000 or 38% for the quarter ended September 30,
1996. This decrease is due to lower promotional expenses as well as fixed
sales and administrative costs.
Loss from operations for the quarter ended September 30, 1997 was
$643,000 or 32% of net sales as compared to a loss from operations of
$208,000 or 7% of net sales for the same quarter ended last year.
Interest expense was $16,000 or 1% of net sales for the quarter ended
September 30, 1997 versus $9,000 or 0% for the same period last year.
Net loss per common share, primary was $0.34 for the three months ended
September 30, 1997 compared to a net loss per common share of $0.11, primary
for the same period last year.
Liquidity and Capital Resources:
On October 31, 1997 Danvers Savings Bank agreed to loan the Company an
additional $150,000. This loan bears an interest rate of 2.5% over prime and
must be repaid in total by January 29, 1998. The loan is secured by an
interest in substantially all the Company's assets.
As described above, although the Company has violated certain requirements
of its debt agreements primarily due to not making timely payments. Its
lenders have not declared the Company in default and have allowed the
Company to remain in violation of these agreements. The Company has engaged
an investment banker and is considering various alternatives, including the
sale of the Company, the sale of certain assets or the sale of common shares.
The Company continues to work toward reducing discretionary operating
expenses, such as expenses relating to advertising, product demonstrations
and promotions. The current operating plans indicate that the Company will
experience increased losses. The sum of cumulative net losses are impairing
the Company's ability to continue its operation because those losses were
funded, in part, by debt which must be repaid out of current cash flows.
The Company will attempt to provide working capital through operations and
other alternatives noted above. The Company can provide no assurances that
these efforts will be successful in raising the capital necessary to continue
to meet its working capital requirements.
Intense competition and the resulting loss of certain customers have
affected the Company's profit and loss as well as cash flow. The Company is
finding it difficult to generate sufficient working capital to continue
operations.
At September 30, 1997, the Company's liabilities exceed current assets by
$2,081,000.
The Company has a line of credit available from its primary bank lenders
(the "Bank"). As of March 31, 1997, the Company had drawn down the remaining
$125,000 available at June 30, 1996. In addition, the Bank has agreed to
loan the Company an additional $75,000. Of this amount, the Company has
drawn down $50,000. This loan will be for a period of twenty four months
with a monthly principal payment of $3,125. Payments commenced in February
1997. The Company must repay the $250,000 currently drawn on the line of
credit by making principal payments of $7,083 per month with all such
principal to be repaid on or before December of 1999. The Company is in
technical default on this loan.
In April 1997, the Company entered into an agreement with MBDC, a
Massachusetts development agency, to provide up to $400,000 to the Company
for the purchase of equipment and machinery, leasehold improvements, trade
payables and working capital. The Company has expended $377,133 as of
September 30, 1997. This loan is payable in equal monthly installments of
principal. Interest is payable at prime plus 2 3/4% adjusted monthly. Due to
cross-default provisions in the loan agreement, the Company is in technical
default on this loan.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS:
The Company publishes this Section for the purpose of fulfilling its
legal duty to notify Shareholders and the Securities and Exchange Commission
("SEC") of legal proceedings in which it currently is involved.
I. The Trio's 1991 lawsuit Against the Company
Anthony Trio and Genevieve Trio, d/b/a Trio's v. Original Italian Pasta
Products Co., Inc. and Paul K. Stevens. Suffolk Superior Court (Boston,
Massachusetts), C.A. No. 91-2680-A.
On June 6, 1997, the Massachusetts Appeals Court issued a decision
affirming the trial court's judgment rejecting the Trio's claim that they
could terminate the License Agreement dated July 12, 1985, finding that the
Trios were not entitled to terminate the Agreement or revoke licenses soley
on account of the Company's failure to pay all royalties owed that the
Company was entitled to deduct promotional expenses and freight before
computing "Net Sales" for purposes of computing the royalty, and that the
Company hadthe right to distribute at private label derivative products that
were not flour-based and found that all products presently sold by the
Company fell into one of the two categories. The Trios petitioned the
Supreme Judicial Court for further appellate review of only that part of the
Appeals Court's decision that held that the Trios could not terminate the
License Agreement and revoke the licenses. The Trio's petition was denied on
July 31, 1997, formally ending the case.
II. Trios file Libel Lawsuit Against the Company in 1994
Genevieve Trio and Anthony Trio v. Original Italian Pasta Products Co.,
Inc. and Paul K. Stevens. Middlesex Superior Court (Cambridge,
Massachusetts), C.A. No. 94-6910
On December 5, 1994, the Trios filed their third lawsuit against the
Company and Paul K. Stevens. The complaint alleges that the Company and Mr.
Stevens libeled the Trios by sending shareholders a document, typed on
official stationary, which states that the Trios sought to extort money from
the Comapny. The Trios claim that the documents acuse them of having
committed a crime and constitute lebel per se. The Trios seek an as yet
unspecified amount of monetary damages, as well as interest, costs and
reasonable attorney fees for slander, libel, injuriuos falsehoods, malicious
interference with a contractual right and fraud.
The primary allegations is the language which appears in the "Legal
Proceedings" section of the Forms 10-KSB attached to the Company's 1992 and
1994 Annual Reports constitutes libel. Each of those Forms describes the
allegations in, and the status at year's end of, the Trios' 1991 lawsuit
against the Company. The Form 10-KSB language which the Trios allege is
defamatory, is found in a paragraph describing the Company's countercliams
in the 1991 lawsuit. The contested language is taken directly from statements
contained in the legal pleadings which the Company filed with the Court in
the 1991 lawsuit. The Company has asserted, among other defenses, that the
statement aat issue was one of opinion and not a statement that the Trios
had committed a criminal act, was made in an official document issued in
compliance with the law (the SEC requires the Company to report and describe
the previous litigation in its Form 10-KSB) and was privileged because it
related to and was contained within legal pleadings with the Court.
On September 27, 1996, after the Company moved for summary judgment,
the Court entered judgment in the Company's favor, dismissing all counts of
the Trios' complaint. That ruling is presently on appeal by the Trios.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant had duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ORIGINAL ITALIAN PASTA PRODUCTS CO. INC.
Registrant
November 21,1997
Date /s/ Paul K. Stevens
President
Chief Executive Officer
Original Italian Pasta Products Co., Inc.
Calculation of earnings per share
Three months ended September 30, 1997
PRIMARY FULLY DILUTED
Net Income $ (643,000) $(643,000)
Interest reduction (assumed) -- --
Adjusted net income (643,000) (643,000)
========== =========
Common shares outstanding 1,900,000 1,900,000
Earnings per share $(.034) $(0.34)
======= =======
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