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 28, 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
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The number of shares of common stock outstanding as of December 31, 1998 was
1,545,176.
<PAGE>
PIEMONTE FOODS, INC.
INDEX TO FORM 10-Q
Part I Financial Information
Item 1. Financial Statements, unaudited
Consolidated Balance Sheets - November 28, 1998, and May
30, 1998
Consolidated Statements of Operations for the Second
Quarter ended November 28, 1998, and November 29, 1997.
Consolidated Statements of Cash Flows for the Second
Quarter ended November 28, 1998, and November 29, 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 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27. Financial data schedule
<PAGE>
PIEMONTE FOODS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS Nov. 28,1998 May 30,1998
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CURRENT ASSETS
<S> <C> <C>
Cash & cash equivalents $3,629 $184,009
Accounts receivable, net 851,454 1,058,340
Inventories 651,009 662,904
Prepaid expenses and other current assets 92,694 121,135
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TOTAL CURRENT ASSETS 1,598,786 2,026,388
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PROPERTY, PLANT & EQUIPMENT, NET 1,827,281 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 $3,426,067 $5,737,129
===================================================================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
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CURRENT LIABILITIES
Current portion of long-term debt in default $2,130,947 $2,131,291
Accounts payable 2,270,709 2,127,017
Accrued expenses 536,574 667,274
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TOTAL CURRENT LIABILITIES 4,938,230 4,925,582
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STOCKHOLDER'S EQUITY
Common Stock 15,452 15,433
Capital in excess of stated value of common stock 2,903,973 2,902,110
Retained earnings (deficit) (4,431,588) (2,105,996)
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TOTAL STOCKHOLDER'S EQUITY (1,512,163) 811,547
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TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $3,426,067 $5,737,129
====================================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
PIEMONTE FOODS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months and six months ended November 28, 1998 and November 29, 1997
Three Months Six Months
FY 99 FY 98 FY 99 FY 98
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<S> <C> <C> <C> <C>
NET SALES $3,061,822 $5,261,010 $6,466,250 $9,937,977
Operating Expenses
Cost of Goods Sold 2,499,931 4,142,451 5,182,324 7,811,012
Selling, general and administrative 819,498 1,251,115 1,783,709 2,446,034
Asset impairment loss (Note 2) 1,750,000 0 1,750,000 0
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Total Operating Expenses 5,069,429 5,393,566 8,716,033 10,257,046
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OPERATING LOSS (2,007,607) (132,556) (2,249,783) (319,069)
Other Expenses
Interest expense (net) 102,915 42,615 148,153 86,466
(Gain)Loss on disposal of assets 0 (638) 0 (5,638)
Other income (37,831) (5,329) (72,344) (11,969)
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Total Other Expenses 65,084 36,648 75,809 68,859
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Income(Loss) Before Income Taxes (2,072,691) (169,204) (2,325,592) (387,927)
Income Tax Benefit 0 11,507 0 11,507
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NET LOSS ($2,072,691) ($157,697) ($2,325,592) ($376,421)
====================================================================================================================================
Average Number of Shares Outstanding 1,545,176 1,558,145 1,544,235 1,558,145
NET LOSS PER SHARE ($1.34) ($0.10) ($1.51) ($0.24)
====================================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
<TABLE>
<CAPTION>
PIEMONTE FOODS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months and six months ended November 28, 1998 and November 29, 1997
Three Months Six Months
FY 99 FY 98 FY 99 FY 98
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CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net Income(Loss) ($2,072,691) ($157,697) ($2,325,592) ($376,421)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 93,330 180,778 283,460 351,097
Non-cash directors fees 1,882 8,750 1,882 15,500
Asset impairment loss 1,600,000 0 1,600,000 0
Decrease (increase) in:
Receivables 820 (79,595) 206,886 317,314
Inventories 186,650 190,949 11,895 (148,628)
Prepaid expenses 51,511 125 28,441 (18,274)
Income tax refund 0 415,572 0 415,572
Other assets 0 976 0 976
Increase (decrease) in:
Accounts payable 195,295 17,539 143,692 1,144,338
Accrued liabilities (69,718) (62,769) (131,044) (160,799)
--
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Net cash provided by (used in) operating activities (12,921) 514,628 (180,380) 1,540,675
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment 0 (39,769) 0 (39,769)
Proceeds from the sale of property and equipment 0 (3,042) 0 5,638
--
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Net cash provided by (used in) investing activities 0 (42,811) (34,131) (34,131)
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CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt 0 (85,714) 0 (1,184,762)
--
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Net cash provided by (used in ) financing activities 0 (85,714) 0 (1,184,762)
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NET INCREASE(DECREASE) IN CASH (12,921) 386,103 (180,380) 321,782
Cash, beginning of period 16,550 526,832 184,009 591,153
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Cash, end of period $3,629 $912,935 $3,629 $912,935
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</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
PIEMONTE FOODS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 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 November 28, 1998 and the related statements of
operations and cash flows for the three month and six 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 and Indiana facilities. 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 $1,050,000 on the Illinois
assets and $700,000 on the Indiana assets.
<PAGE>
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At November 28, 1998, working capital was a negative of $3.3 million
compared to a negative $2.9 million 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 is in default on its debt agreements. In
December, 1998 the Company and its lender agreed to a period of
forebearance until March 15, 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 will be 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 $ 1.75
million 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 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. It is
unlikely Piemonte can continue its business without such additional
capital or refinancing.
RESULTS OF OPERATIONS
Quarter Ended November 28, 1998 Compared to
Quarter Ended November 29, 1997
Revenues for the Second Quarter were $3.1 million, 42% 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.
<PAGE>
Gross margin of 18% for the quarter was below the 21% 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 $2.0 million includes a $1.75 million loss for
the impairment of asset losses in Chicago and Frankfort. Excluding
that, the $257,000 loss from operations was higher than the $133,000
loss last year due to margins lost by the decline in revenue.
Interest expense was higher due to the unwinding of an interest rate
swap.
Six Months Ended November 28, 1998 Compared to
Six Months Ended November 29, 1997
Revenues for the six months were $ 6.5 million, a decline from $ 9.9
million last year, due to the loss of two significant customers.
Gross margin for the six months of 20% was similar to the 21% last
year, the difference being margin lost due to declining revenues.
Operating losses for the six months, excluding the asset impairment
loss, of $ 500,000 were higher than the $ 319,000 loss last year,
due also to margins lost on declining sales.
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.
<PAGE>
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 5 Other Information
On December 21, 1998 the following management changes were
made. Mr. T. Patrick Costello was elected Chairman of the
Board. Mr. Costello had been CEO since January, 1998. Mr.
Mark Fagan was elected President and CEO. Mr. Fagan has a
marketing and general management background with Procter &
Gamble and A T & T.
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.
1/19/99 s/Mark Fagan
- ---------------------- ----------------------------------------------
Date Mark Fagan
President and CEO
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> NOV-28-1998
<CASH> 3,629
<SECURITIES> 0
<RECEIVABLES> 851,454
<ALLOWANCES> 0
<INVENTORY> 651,009
<CURRENT-ASSETS> 1,598,786
<PP&E> 1,827,281
<DEPRECIATION> (93,330)
<TOTAL-ASSETS> 3,426,067
<CURRENT-LIABILITIES> 4,938,230
<BONDS> 0
0
0
<COMMON> 15,452
<OTHER-SE> 2,903,973
<TOTAL-LIABILITY-AND-EQUITY> 3,426,067
<SALES> 3,061,822
<TOTAL-REVENUES> 3,061,822
<CGS> 2,499,931
<TOTAL-COSTS> 5,069,429
<OTHER-EXPENSES> (37,831)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 102,915
<INCOME-PRETAX> (2,072,691)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,072,691)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (2,072,691)
<EPS-PRIMARY> (1.34)
<EPS-DILUTED> (1.34)
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