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 August 29, 1998 Commission File 0-15696
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 September 30, 1998 was
1,543,294
<PAGE>
PIEMONTE FOODS, INC.
INDEX TO FORM 10-Q
Part I Financial Information
Item 1. Financial Statements, unaudited
Consolidated Balance Sheets - August 29, 1998, and May 30,
1998
Consolidated Statements of Operations for the First Quarter
ended August 29, 1998, and August 30, 1997.
Consolidated Statements of Cash Flows for the First Quarter
ended August 29, 1998, and August 30, 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 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27. Financial data schedule
<PAGE>
PIEMONTE FOODS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Assets August 29,1998 May 30, 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash & cash equivalents $16,550 $184,009
Accounts receivable, net 852,274 1,058,340
Inventories 837,659 662,904
Prepaid expenses and other current assets 144,205 121,135
- -------------------------------------------------------------------------------------------
Total Current Assets 1,850,688 2,026,388
- -------------------------------------------------------------------------------------------
Property, Plant & Equipment, Net 3,463,588 3,650,726
Deferred Charges, Intangible and Other Assets
Excess of cost over fair value of net assets acquired 57,023 60,015
Total Assets $5,371,299 $5,737,129
===========================================================================================
Liabilities and Stockholder's Equity
- -------------------------------------------------------------------------------------------
Current Liabilities
Current portion of long-term debt in default $2,131,291 $2,131,291
Accounts payable 2,075,414 2,127,017
Accrued expenses 605,948 667,274
- -------------------------------------------------------------------------------------------
Total Current Liabilities 4,812,653 4,925,582
- -------------------------------------------------------------------------------------------
Stockholder's Equity
Common Stock 15,433 15,433
Capital in excess of stated value of common stock 2,902,110 2,902,110
Retained earnings (deficit) (2,358,897) (2,105,996)
- -------------------------------------------------------------------------------------------
Total Stockholder's Equity 558,646 811,547
- -------------------------------------------------------------------------------------------
Total Liabilities and Stockholder's Equity $5,371,299 $5,737,129
===========================================================================================
</TABLE>
See accompanying notes to Financial Statements
<PAGE>
PIEMONTE FOODS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended August 29, 1998 and August 30, 1997
<TABLE>
<CAPTION>
FY 99 FY 98
- -------------------------------------------------------------------
<S> <C> <C>
Net Sales $3,404,428 $4,676,967
Operating Expenses
Cost of Goods Sold 2,682,393 3,668,561
Selling, general and administrative 964,211 1,194,919
- -------------------------------------------------------------------
Total Operating Expenses 3,646,604 4,863,480
- -------------------------------------------------------------------
Operating Loss (242,176) (186,513)
Other Expenses
Interest expense (net) 45,238 43,851
(Gain)/Loss on disposal of assets 0 (5,000)
Other income (34,513) (6,640)
- -------------------------------------------------------------------
Total Other Expenses 10,725 32,211
- -------------------------------------------------------------------
Income/(Loss) Before Income Taxes (252,901) (218,724)
Income Tax Benefit 0 0
- -------------------------------------------------------------------
Net Loss ($252,901) ($218,724)
===================================================================
Average Number of Shares Outstanding 1,543,294 1,561,095
Net Loss Per Share ($0.16) ($0.14)
===================================================================
</TABLE>
See accompanying notes to Financial Statements
<PAGE>
PIEMONTE FOODS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended August 29, 1998 and August 30, 1997
<TABLE>
<CAPTION>
FY 99 FY 98
- ----------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net Income/(Loss) ($252,901) ($218,724)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 190,130 170,319
Decrease (increase) in:
Receivables 206,066 396,909
Inventories (174,755) (339,577)
Prepaid expenses (23,070) (18,399)
Increase (decrease) in:
Accounts payable (51,603) 1,126,799
Accrued liabilities (61,326) (91,280)
- ----------------------------------------------------------------------------------
Net cash used in operating activities (167,459) 1,026,047
- ----------------------------------------------------------------------------------
Cash Flows from Investing Activities
Purchases of property, plant and equipment 0 0
Proceeds from the sale of property, plant and equipment 0 8,680
- ----------------------------------------------------------------------------------
Net cash used in investing activities 0 8,680
- ----------------------------------------------------------------------------------
Cash Flows From Financing Activities
Repayment of long-term debt 0 (1,099,048)
- ----------------------------------------------------------------------------------
Net cash provided by financing activities 0 (1,099,048)
- ----------------------------------------------------------------------------------
Net increase/(decrease) in cash (167,459) (64,321)
Cash, beginning of period 184,009 591,153
- ----------------------------------------------------------------------------------
Cash, end of period $16,550 $526,832
- ----------------------------------------------------------------------------------
</TABLE>
See accompanying notes to Financial Statements
<PAGE>
PIEMONTE FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 29, 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 August 29, 1998 and the related statements of operations
and cash flows for the three 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.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At August 29, 1998, working capital was a negative of $2.9 million,
the same level as at the beginning of the quarter. This negative
amount includes $2.1 million of long-term debt that is classified as
a current liability. The Company has been unable to service its bank
debt and has been in violation of certain covenants in its debt
agreements.
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 three new directors to the
Board, each with specific expertise in marketing, sales and
operations. 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. In an
effort to consolidate operations and reduce overhead, the company's
facility in Chicago will be closed effective November 30, 1998.
<PAGE>
RESULTS OF OPERATIONS
Quarter Ended August 29, 1998 Compared to
Quarter Ended August 30, 1997
Revenues for the First Quarter were $3.4 million, 27% lower than
last year. Most of the decline is attributable to two customers, one
that bought a competitor of the Company and another that switched to
that competitor as its supplier.
Gross margin of 21% for the quarter was consistent with last year in
spite of the revenue decline. The restructuring plan implemented in
the Third Quarter last year, coupled with price adjustments and cost
reductions kept costs in line. Selling, general and administrative
expenses were also reduced as part of that restructuring plan.
Overall, the loss of $242,901 for the quarter was 16% higher than
the loss of $218,724 last year, due to the fact that cost reductions
did not offset all of the margins lost by the revenue decline.
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 intends
to contest the suit vigorously.
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
<PAGE>
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.
Nov. 20, 1998 s/T. Patrick Costello
- --------------- ---------------------------
Date T. Patrick Costello
President and CEO
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> AUG-29-1998
<CASH> 16,550
<SECURITIES> 0
<RECEIVABLES> 852,274
<ALLOWANCES> 0
<INVENTORY> 837,659
<CURRENT-ASSETS> 1,850,688
<PP&E> 3,463,588
<DEPRECIATION> (190,130)
<TOTAL-ASSETS> 5,371,299
<CURRENT-LIABILITIES> 4,812,653
<BONDS> 0
0
0
<COMMON> 15,433
<OTHER-SE> 2,902,110
<TOTAL-LIABILITY-AND-EQUITY> 5,371,299
<SALES> 3,404,428
<TOTAL-REVENUES> 3,404,428
<CGS> 2,682,393
<TOTAL-COSTS> 3,646,604
<OTHER-EXPENSES> (34,513)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,238
<INCOME-PRETAX> (252,901)
<INCOME-TAX> 0
<INCOME-CONTINUING> (252,901)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (252,901)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
