<PAGE>
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 November 30, 1996 Commission File No. 0-15696
PIEMONTE FOODS INC.
(Exact name of registrant as specified in its charter)
South Carolina 57-0626121
(State of other jurisdiction of I.R.S. Employer
incorporation of organization) Identification
400 Augusta Street, Greenville, South Carolina 29604
(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 December 31, 1996 was
1,476,683.
<PAGE>
PIEMONTE FOODS, INC.
INDEX TO FORM 10-Q
Part I. Financial Information
Item 1. Financial Statements, unaudited
Consolidated Balance Sheets - November 30, 1996, and
June 1, 1996.
Consolidated Statements of Operations for the three
and six months ended November 30, 1996, and December
2, 1995.
Consolidated Statements of Cash Flows for the three
and six months ended November 30, 1996, and December
2, 1995.
Notes to Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II Other Information
Item 4 Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27. Financial data schedule
<PAGE>
PIEMONTE FOODS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS November 30, 1996 June 1, 1996
CURRENT ASSETS
Cash & cash equivalents 604,385 1,658,514
Accounts receivable, net 2,086,985 2,265,873
Inventories 1,581,219 1,210,154
Prepaid expenses 706,408 518,796
TOTAL CURRENT ASSETS 4,978,997 5,653,337
PROPERTY, PLANT & EQUIPMENT, NET 4,964,903 5,044,217
DEFERRED CHARGES, INTANGIBLE AND OTHER ASSETS
Excess of cost over fair value of net assets
acquired 753,882 770,358
Investment in joint venture 754,825 794,913
Other assets 81,386 98,195
Total 1,590,093 1,663,466
TOTAL ASSETS 11,533,993 12,361,020
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt 502,857 502,857
Accounts payable, trade 1,579,725 1,091,045
Accrued promotional allowances 65,102 76,163
Accrued compensation and payroll taxes 98,227 143,084
Accrued property taxes 61,293 70,075
Other accrued expenses 270,335 273,199
TOTAL CURRENT LIABILITIES 2,577,539 2,156,423
LONG-TERM DEBT 3,078,095 3,329,524
DEFERRED INCOME TAXES 437,095 437,095
STOCKHOLDERS' EQUITY
Common stock 14,773 14,770
Capital in excess of stated value of
common stock 2,802,934 2,800,305
Retained earnings 2,623,557 3,622,903
TOTAL STOCKHOLDERS' EQUITY 5,441,264 6,437,978
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 11,533,993 12,361,020
See accompanying notes to Financial Statements
<PAGE>
PIEMONTE FOODS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended November 30, 1996 and December 2, 1995
Three Months Six Months
FY97 FY96 FY97 FY96
Net sales 6,034,329 7,984,259 12,015,731 14,626,213
Operating expenses
Cost of goods sold 5,074,139 6,152,109 10,218,156 11,628,158
Selling, general and
administrative 1,514,501 1,692,774 2,880,362 3,197,025
6,588,640 7,844,883 13,098,518 14,825,183
Operating income (loss) (554,311) 139,376 (1,082,787) (198,970)
Other Expenses
Interest expense 75,830 45,357 142,979 84,567
Loss on disposal of assets 0 1,024 0 4,781
Equity in loss on European
joint venture 119,014 0 268,914 0
Interest income (15,100) (8,315) (35,076) (19,440)
Other income (7,766) (13,758) (13,258) (15,308)
171,978 24,308 363,559 54,600
Income (loss) before income taxes (726,289) 115,068 (1,446,346) (253,570)
Income tax benefit (expense) 231,000 (43,726) 447,000 96,356
Net income (loss) (495,289) 71,342 (999,346) (157,214)
Average number of shares
outstanding 1,497,936 1,529,803 1,497,936 1,529,803
Net Income (loss) per share (0.33) 0.05 (0.67) (0.10)
See accompanying notes to Financial Statements.
<PAGE>
PIEMONTE FOODS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three and Six Months Ended November 30, 1996 and December 2, 1995
Three Months Six Months
FY97 FY96 FY97 FY96
Cash Flows From Operating Activities
Net loss (495,289) 71,342 (999,346) (157,214)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 151,468 186,138 355,403 379,706
Decrease (increase) in:
Receivables (185,166)(362,033) 178,888 (522,924)
Inventories (17,312)(246,613) (371,065) (123,305)
Prepaid expenses (182,459) 191,533 (187,612) (56,528)
Other assets 7,383 (40,174) 16,809 (36,421)
Equity in loss on European joint
venture 119,014 0 268,914 0
Increase (decrease) in:
Accounts payable 435,935 229,973 488,680 523,031
Accrued liabilities 281,319 (41,213) (67,564) (62,229)
Net cash provided by (used in)
operating activities 114,893 (11,047) (316,893) (55,884)
Cash Flows from Investing Activities
Purchases of property, plant and
equipment (91,692)(168,947) (259,613) (372,066)
Investment in European joint venture (1,234) 0 (228,826) (308,532)
Net cash used in investing activities (92,926)(168,947) (488,439) (680,598)
Cash Flows From Financing Activities
Proceeds from issuance of common
stock 2,639 (3,751) 2,632 7,908
Advances on credit line 0 0 0 500,000
Repayment of long-term debt (125,715)(152,283) (251,429) (304,566)
Net cash provided by financing
activities (123,076)(156,034) (248,797) 203,342
Net decrease in cash (101,109)(336,028) (1,054,129) (533,140)
Cash, beginning of period 705,494 688,855 1,658,514 885,967
Cash, end of period 604,385 352,827 604,385 352,827
See accompanying Notes to Financial Statements
<PAGE>
PIEMONTE FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 1996
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
November 30, 1996 and the related statements of operations and cash
flows for the six 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.
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.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Working capital at the end of the Second Quarter was $2,401,458.
Versus year-end, the reduction in working capital of $1,095,456 is
primarily in cash as discussed in the First Quarter and an increase
of $488,680 in payables. During the Second Quarter, working capital
was lowered $433,426. This was primarily due to the payables
increase, partially offset by receivables.
During the quarter, $91,692 was spent on capital improvements.
Investments were primarily in the cake icing Facility in Nashville.
Due to the loss this quarter, we are outside of bank covenants on
our long term debt; by covenant, dividend declarations are
restricted. Exhaustive internal reviews of company operations are
continuing; management believes it can comply long-term with the
bank covenants.
RESULTS OF OPERATIONS
Quarter Ended November 30,1996 Compared to
Quarter Ended December 2,1995
Sales for the Second Quarter were $6,034,329 versus $7,984,259 last
year. The decrease in sales were primarily in two of our trade
channels. In Industrial, the reduced volume of several large
customers and the loss of several customers account for $792,946;
approximately one- fourth of this is our joint venture partner's
topping company and was planned. In Fundraising we have lost
$985,272 QTD primarily due to a new competitor entering the
marketplace; this challenge will continue and we are both
retrenching and exploring new avenues of opportunity. Cost of Goods
sold increased from 77.1% PY to 84.1% this year. The reason for
this increase is two-fold: as the volume decreases, our overhead
costs are absorbed over a smaller base, thus increasing per unit
cost, despite lower overhead costs. Also, the higher material
costs could not be totally passed on to our customers as quickly
as they were incurred.
As we continue to reduce SG & A costs, costs were lowered $178,273,
or 10%. This is an area where we continue to control
costs, and expect continued reductions in the future.
Overall, U.S. losses for the Quarter were $376,275 versus $71,342
income last year. On a per share basis, U.S. earnings were
($.25/share) versus $.05/share PY.
The company's share of Holland's losses in the Second Quarter was
$119,014; total joint venture losses were double or $238,028; this
negatively impacted reported earnings $.08/share. The Company's
portion of the joint venture's losses is fully recognized. Our new
audit partners have advised that consolidated financials in which
the joint venture's earnings or losses are recognized under equity
accounting do, in fact, flow through to the parent company; this is
contrary to previous accounting advice. All baking pans required
for production were received by the beginning of the second
quarter; consequently, the start up is now a historical event.
Whereas the joint venture is approaching break-even
<PAGE>
on a cash flow basis, we are not yet at a break-even on a book
basis.
Six Months Ended November 30, 1996 Compared to
Six Months Ended December 2,1995
Sales are $12,015,731 or $2,610,483 lower than last year. Sales
losses are primarily due to Industrial and Fundraising trade
channel loss as discussed above.
Costs of Goods increased to 85% as price increases did not offset
material changes and the effect of volume reductions on overheads
which negatively impacted contribution margins.
SG & A costs for the six months were $2,880,362 or $316,663 lower
than last year. This reflects a 10% reduction.
On a YTD basis, U.S. losses were $730,432, $573,218 greater than
the loss in the prior year, and reflects a per share loss of
$(.49), which is $.39 unfavorable versus last year.
The YTD loss attributable to the joint venture in Holland is
$268,914 or $.18/share. Cumulatively, the Corprate YTD net loss is
$999,346, or ($0.67/share). This is $842,132 or $0.57/share
unfavorable versus prior year,
<PAGE>
Part II Item 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of Shareholders on October 17, 1996,
the following proposals were approved:
1. To reduce the size of the Board to six directors with Board
authority to modify the size from six to nine. Votes for
1,112,282; against 25,122; abstentions 6,094.
2. To ratify the appointment of Ernst and Young LLP as the
Company's independent auditors for the fiscal year ending,
1997. Votes for 1,127,875, against 9,503; abstentions 6,120.
Item 6. Exhibits and 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.
Date____________________ _________________________
Virgil L. Clark
President/CEO
-------------------------
Roy E. Gogel
Vice Pres/CFO
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> MAY-31-1997 MAY-31-1997
<PERIOD-END> NOV-30-1996 NOV-30-1996
<CASH> 604385 604385
<SECURITIES> 0 0
<RECEIVABLES> 2086985 2086985
<ALLOWANCES> 0 0
<INVENTORY> 1581219 1581219
<CURRENT-ASSETS> 4978997 4978997
<PP&E> 4964903 4964903
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 11533993 11533993
<CURRENT-LIABILITIES> 2577539 2577539
<BONDS> 3078095 3078095
<COMMON> 14773 14773
0 0
0 0
<OTHER-SE> 2802934 2802934
<TOTAL-LIABILITY-AND-EQUITY> 11533993 11533993
<SALES> 6034329 12015731
<TOTAL-REVENUES> 6034329 12015731
<CGS> 5074139 10218156
<TOTAL-COSTS> 6588640 13098518
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 171978 363559
<INCOME-PRETAX> (726289) (1446346)
<INCOME-TAX> 231000 447000
<INCOME-CONTINUING> (495289) (999346)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (495289) (999346)
<EPS-PRIMARY> (0.33) (0.67)
<EPS-DILUTED> (0.33) (0.67)
</TABLE>
