<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934 For the Quarterly
Period Ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission File Number 0-10096
STRIKER INDUSTRIES, INC.
(Exact name of Company as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 84-0834953
(state or other jurisdiction of incorporation or (I.R.S. Employer Identification Number)
organization)
</TABLE>
ONE RIVERWAY, SUITE 2450
HOUSTON, TEXAS 77056
(Address of principal executive offices)
(Zip Code)
(713) 622-4092
(Company's telephone number, including area code)
NOT APPLICABLE
(Former name if changed since last report)
Indicate by check mark whether the Company (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 Company 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 May 10 1996, there were 10,599,564 shares of Common Stock, par value
$0.20 per share, outstanding and no shares of Preferred Stock, par value $0.20
per share, were outstanding.
Page 1 of 19
<PAGE> 2
INDEX TO QUARTERLY REPORT ON FORM 10-Q
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<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
- ------- --------------------- --------
<S> <C> <C
Item 1. Financial Statements
Consolidated Balance Sheet 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a
Vote of Security Holders 17
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
- ----------
</TABLE>
Page 2 of 19
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 225,509 $ 141,557
Cash, restricted as to use 360,000 360,000
Accounts receivable -
Trade 739,888 403,742
Other 273,700 152,731
Inventories -
Raw materials 38,847 41,073
Finished goods 126,599 130,910
Spare parts and supplies 247,875 247,875
Prepaid expenses and other current assets 221,320 262,757
-------------- --------------
Total current assets 2,233,738 1,740,645
PROPERTY AND EQUIPMENT, net 16,736,757 16,295,437
DEFERRED COSTS AND OTHER, net 589,610 286,362
-------------- --------------
Total assets $19,560,105 $18,322,444
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Trade accounts payable $ 2,407,628 $ 2,438,271
Accrued liabilities 154,095 215,602
Revolving lines of credit 1,053,806 875,909
Current portion of term loans 343,200 338,069
Current obligations under capital leases 51,462 51,902
-------------- --------------
Total current liabilities 4,010,191 3,919,753
LONG-TERM LIABILITIES:
Notes payable to affiliates 2,500,000 1,200,000
Term loans, net of current portion 1,329,800 1,188,230
Capital leases 54,829 68,717
-------------- --------------
Total long term liabilities 3,884,629 2,456,947
STOCKHOLDERS' EQUITY:
Common stock, $0.20 par value, 25,000,000 shares
authorized, 10,599,564 and 8,687,106 shares issued,
respectively 2,119,913 2,119,913
Stock Subscriptions Receivable -- (236,000)
Additional paid-in capital 13,688,119 13,688,119
Accumulated deficit (4,075,470) (3,559,011)
Foreign currency translation adjustment (67,277) (67, 277)
-------------- --------------
Total stockholders' equity 11,665,285 11,945,744
-------------- --------------
COMMITMENTS AND CONTINGENCIES
-------------- --------------
Total liabilities and stockholders' equity $19,560,105 $18,322,444
============== ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 3 of 19
<PAGE> 4
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
---------------------------------
<S> <C> <C>
REVENUES $1,392,749 $1,911,763
COST OF SALES 1,443,269 1,363,596
------------ ----------
Gross margin (50,520) 548,167
SELLING, GENERAL AND
ADMINISTRATIVE 372,755 361,670
------------- -----------
Operating profit/(loss) (423,275) 186,497
OTHER INCOME (EXPENSE):
Interest expense, net (93,184) (7,130)
Other income, net -- 215
INCOME (LOSS) BEFORE
INCOME TAXES $ (516,459) $179,582
------------ -----------
INCOME TAXES -- --
NET INCOME (LOSS) $ (516,459) $179,582
============ ===========
NET INCOME (LOSS) PER SHARE
$ (0.05) $ 0.02
============= ===========
AVERAGE NUMBER OF
COMMON SHARES
OUTSTANDING 10,599,564 9,951,889
=========== ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 4 of 19
<PAGE> 5
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME/(LOSS) $ (516,459) $ 179,582
Adjustments to reconcile net income/(loss) to net cash used in operating
activities -
Depreciation and amortization 210,011 157,548
Changes in assets and liabilities -
Increase in accounts receivable (457,115) (518,391)
Decrease (increase) in inventories 6,537 193,103
Decrease (increase) in prepaid expenses and other current assets 41,437 (53,335)
(Decrease) increase in accounts payable and accrued liabilities (92,149) (29,950)
----------------- -----------------
Total adjustments to net income (loss) (291,279) (251,025)
---------------- ----------------
Net cash used in operating activities $ (807,738) $ (71,443)
================ ================
CASH FLOWS FROM INVESTING ACTIVITIES:
Gain on pulp hedge contract -- (310,824)
Purchases of property and equipment (648,508) (609,629)
Increase in deferred financing costs and other (306,072) (140,298)
---------------- ----------------
Net cash used in investing activities (954,580) (1,060,751)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from subordinated notes 1,300,000 1,200,000
Proceeds from issuance of warrants -- 850,000
Shareholder advances -- 838,500
Repayment of advances from shareholders -- (1,500,279)
Proceeds from revolving line of credit 1,808,432 --
Repayments of revolving line of credit (1,625,404) --
Payments received on stock subscriptions receivable 236,000 --
Proceeds from term loans 232,500 --
Repayments of term loans (90,930) --
Principal payments under capital leases (14,328) (14,136)
------------------ ----------------
Net cash provided by financing activities 1,846,270 1,374,085
---------------- ---------------
NET INCREASE (DECREASE) IN CASH 83,952 241,891
CASH, beginning of period 141,557 18,739
---------------- -----------------
CASH, end of period $ 225,509 $ 260,630
================ ================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
Page 5 of 19
<PAGE> 6
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Striker and its wholly owned subsidiaries. All material intercompany accounts
and transactions have been eliminated.
Interim Financial Information
The consolidated interim financial statements included herein are unaudited;
however, they include all adjustments of a normal recurring nature which, in
the opinion of management, are necessary to present fairly the consolidated
financial position of the Company at March 31, 1996 and the consolidated
results of operations and the cash flows for the three months ended March 31,
1996 and 1995.
Inventories
Inventories are stated at the lower of cost or market using the average cost
method. The finished goods inventories include materials, direct labor and
plant overhead.
Property and Equipment
In March 1995, the Financial Accounting Standards Board issued statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed of (FAS 121). The
Company has adopted FAS 121 and has completed the analysis required by FAS 121.
The adoption of FAS 121 did not materially affect the Company's consolidated
results of operations or its financial condition.
Property and equipment are recorded at cost. Expenditures for major renewals
and betterments, which extend the original estimated economic useful lives of
the applicable assets, are capitalized. Expenditures for normal repairs and
maintenance are charged to expense as incurred. Due to the trend in market
prices of saturated felt paper and the increase in raw material costs through
the first eight months of 1994, management elected to temporarily suspend
manufacture of saturated felt in August 1994 and redirect production and sales
efforts to dry felt. Management believes that the current market prices and
raw material costs of dry felt offer the Company its best opportunity to
achieve profitable operations. Management also believes, however, that its
investment in its two saturated lines of approximately $1.5 million is fully
realizable because it intends to restart production of saturated felt when the
market conditions for saturated felt paper and its related raw materials
improve. Such conditions would result in production of saturated felt at a
profitable level. The Company is also discussing long-term contracts with
customers at terms which assure profitable operations. There is no assurance
that market conditions will improve in the foreseeable future or that the
Company can successfully negotiate long-term contracts to enable it to
manufacture saturated felt paper at profitable levels. Management will
continue to evaluate its investment in the saturated felt production equipment
and record adjustments to the carrying value, if any, in the period in which it
were to determine that such carrying value is permanently impaired.
Page 6 of 19
<PAGE> 7
Deferred Costs and Other, Net
Deferred costs and other, net, include organization costs and deferred
acquisition and financing costs in 1996 and 1995. The organization costs are
being amortized over a five-year period on a straight-line basis. The deferred
acquisition costs will be added to the cost of the assets acquired after the
acquisition is completed. Deferred financing costs are being amortized over
the life of the related respective financing obtained.
Income Taxes
The Company files a consolidated federal income tax return using the accrual
basis of accounting.
Income taxes include deferred taxes arising from the recognition of revenues
and expenses in different periods for income tax and financial statement
purposes. The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes."
Revenue Recognition
The Company generally recognizes revenue when products are shipped or when the
customer has accepted the product.
Earnings (Loss) Per Common Share
The computation of earnings or loss per share in each year is based on the
weighted average number of common shares outstanding. When dilutive, stock
options and warrants are included as share equivalents using the treasury stock
method. The number of shares used in computing the earnings (loss) per share
was 10,599,564 for the quarter ended March 31, 1996 and 9,951,889 for the
quarter ended March 31, 1995. Primary and fully diluted earnings per share are
the same for each of these years.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from the estimates.
Cash Flow Information
For purposes of reporting cash flows, cash and cash equivalents include cash
and short-term investments which mature within three months of their date of
purchase.
Page 7 of 19
<PAGE> 8
3. PROPERTY AND EQUIPMENT, NET:
The Company's property and equipment consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
Useful Life 1996 1995
----------- ---- ----
<S> <C> <C> <C>
Machinery, equipment and vehicles 5 - 12 years $16,550,114 $15,906,470
Buildings 25 years 855,216 855,216
Computer and office equipment 5 years 716,107 711,244
Land improvements 5 years 140,427 140,427
Machinery, equipment and vehicles 2 - 5 years 236,703 236,703
under capital leases
Land 215,000 215,000
------- -------
18,713,567 18,065,060
Less- Accumulated depreciation and amortization (1,976,810) (1,769,623)
----------- -----------
$16,736,757 $16,295,437
=========== ===========
</TABLE>
4. DEFERRED COSTS AND OTHER, NET:
The Company's deferred costs and other, net, consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Deferred acquisition costs $ 269,267 $ 11,004
Deferred financing costs 188,788 170,404
Deposits 102,190 73,190
Patents 25,454 25,029
Organization costs 82,291 82,291
Less- Accumulated amortization (78,380) (75,556)
---------- ----------
$ 589,610 $ 286,362
=========== ===========
</TABLE>
Page 8 of 19
<PAGE> 9
5. DEBT:
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<CAPTION>
The Company's debt consisted of the following at: March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Subordinated notes payable, 10.75% interest due, due 12/31/98 $2,500,000 $1,200,000
STEPHENS:
Term loan, prime +3% interest, due 5/31/98 816,500 846,050
Revolving line of credit, prime + 3% interest 689,624 520,274
CANADIAN FACILITY:
Term loan, prime + 2.5% interest, due 5/31/98 856,500 680,250
Revolving line of credit, prime +2.5% interest 364,182 355,635
Capitalized lease obligations bearing interest at rates from 10% to 18%
maturing between 1996 and 2000, secured by underlying machinery,
vehicles and computer equipment. 95,036 120,619
------- -------
5,321,842 3,722,828
Less- Current maturities (1,437,213) (1,265,881)
---------- ----------
$3,884,629 $2,456,947
========== ==========
</TABLE>
During the quarter ended June 30, 1995, the Company entered into a financing
agreement consisting of a term loan based upon the liquidation value of certain
of the Company's fixed assets at the Stephens mill and a revolving line of
credit based upon eligible accounts receivable assets (collectively "the
Stephens Facility"). Advances under the Facility are limited to $2,500,000 in
the aggregate and bear interest at prime plus 3%.
On July 28, 1995, the Company's Canadian Subsidiary, Striker Paper Canada Inc.
("Striker Canada"), entered into a financing agreement with a Canadian lender
consisting of a term loan based upon the liquidation value of certain of
Striker Canada's fixed assets and a revolving line of credit based upon
eligible accounts receivable (collectively "the Canadian Facility"). Advances
under the Canadian Facility are limited to $2,000,000 Canadian in the aggregate
and bear interest at Canadian prime + 2.5%.
Interest paid for the three months ended March 31, 1996 and 1995, was $96,134
and $7,165, respectively.
6. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is not a party to any material legal proceedings, other than
various routine claims and disputes arising in the normal course of the
Company's business. The Company does not believe that such claims and
disputes, individually or in the aggregate, will have a material adverse effect
on the Company's operations or financial condition.
Page 9 of 19
<PAGE> 10
During 1995, the Company entered into sales contracts (the Sales Contracts)
with three of its major customers. Under terms of the Sales Contracts, the
customers are required to purchase tonnage in the aggregate which approximates
86% of the Company's production, for a period of eighteen months at prices
based upon the mix of raw materials used in the manufacture of the dry felt and
the market price of the raw materials.
During 1995, the Company entered into an agreement with the Sierra Club
(Sierra) and the Arkansas Department of Pollution Control and Ecology (ADPCE)
to settle claims brought by those parties concerning non-toxic discharges in
excess of state water permits for the Stephens, Arkansas mill. In 1995, the
Company paid a civil penalty to ADPCE and contributed $55,000 to environmental
projects in the state of Arkansas as a result of the agreement with ADPCE and
Sierra. The Company received approval from the ADPCE and the state health
department to construct a closed loop system to bring the Company in compliance
with permit allowances. The closed loop system was completed March 27, 1996
and testing of the system has begun.
7. PULP HEDGE CONTRACT:
During the six months ended June 30, 1994, certain traditional sources of raw
materials used by Striker Paper were not able to provide the quantity of raw
materials required to meet Striker Paper's level of production of dry felt at a
satisfactory price. Accordingly, Striker Paper experienced a dramatic increase
in the cost of its raw materials. In an effort to mitigate its exposure to
rising raw material costs, the Company created a new subsidiary, Striker
Services, to obtain one component of the raw materials, old corrugated
cardboard (OCC), in sufficient quantities to meet its production requirements.
Quantities of OCC obtained in excess of that required to meet the Company's
production level may be sold to third parties at market prices.
As a result of continued concern about rising raw material costs and the
uncertainty of the success of the OCC gathering operations of Striker Services
(SSC), the Company entered into a pulp hedge contract (the Hedge) effective July
1, 1994, to effectively hedge against rising raw material prices. The terms of
the Hedge provided for a term of five years and for a fixed notional amount
which would be an approximation of Striker Paper's pulp needs for production in
Stephens, Arkansas. The Hedge provided that the amount of net gain or loss, as
applicable, would be equivalent to the difference between the designated strike
price, as set forth in the Hedge contract, and the Company's imputed cost. The
Hedge provided that SSC's imputed cost would be the lessor of: (i) SSC's cash
cost (as defined) or (ii) as percent of the market price for OCC as quoted in
industry publications. The Hedge was canceled by the Company effective July 1,
1995. No activity has been recorded since July 1, 1995. For the quarter ended
March 31, 1995, the Company had a gain from the Hedge of $310,824. In prior
periods, the gain from the Hedge had been recorded as reduction of cost of goods
sold. The Company received payment on December 31, 1995 and December 22, 1995
for the Hedge balance outstanding.
Page 10 of 19
<PAGE> 11
8. ASSET PURCHASE OF THOROLD MILL
On May 5, 1995, the asset purchase transaction of the land, building and
equipment of Northern Globe Building Materials, Inc.'s idled dry felt mill in
Thorold, Ontario, Canada (the "Thorold Mill") pursuant to the Asset Purchase
Agreement between Northern Globe Building Materials, Inc. (Northern), dated
March 10, 1995 was consummated. The purchase price of the assets purchased was
1,345,790 shares of common stock of the Company and $250,000 cash. The assets
purchased were recorded at the sum of the estimated market value of the shares
of Common Stock issued ($5.50 per share), cash paid and acquisition costs
incurred in connection with the purchase. The physical properties and assets
purchased were recorded at the total consideration paid of $8,323,237.
The physical properties and assets purchased had formerly been used to
manufacture dry felt paper, but had not been in operation and had been idled
and wholly inactive for more than two years preceding their purchase by the
Company. The Company has reactivated the idled dry felt mill and will produce
dry felt at Thorold, Ontario, Canada for sale to parties in the roofing
industry.
Page 11 of 19
<PAGE> 12
9. SUBSEQUENT EVENTS:
On April 25, 1996, the Company signed an agreement to combine in a merger
transaction with one of the largest privately- owned manufactuters of asphalt
shingles and built up roofing. The transaction, if completed, would create a
combined company with annual revenues in excess of $300 million. The
transaction is contingent upon completion of due diligence, approval by
stockholders of the combining companies, the securing of $160 million in debt
and equity financing to fund the acquisition, including the assumption and
refinancing of debt, and certain governmental approvals. The transaction is
planned for closing by August 1996. Following closing of the transaction,
stockholders' equity of the combined companies is projected to be approximately
$50 million.
OCC has been readily available to the Company over the last six months from
third parties at prices which are below the collection costs experienced by SSC
over the same period. Like many companies engaged in the collection of
recycled fibers, the Company has elected to reduce its current exposure to the
vagaries of OCC pricing vis-a-vis SSC's current collection cost structure.
Management has maintained relationships with third party OCC vendors and
believes it can purchase OCC from these vendors during the near term at costs
below those recently experienced by SSC. However, there can be no assurances
that OCC prices will not increase.
Effective April 1, 1996, the Company sold 100% of the outstanding shares of its
subsidiary, Striker Services, for consideration equal to the adjusted net book
value of Stiker Services after giving affect to the capitalization of the
intercompany account payable owing to the Company by Striker Services. The
consideration is evidenced by the promissory note of the purchaser, bearing
interest at the rate of 8% per annum. The principal of the note is payable on
or before April 1, 1999 and interest is payable in quarterly installments
commencing June 30, 1996. Payment of the note is secured by the purchaser's
pledge and grant of a security interest in favor of the Company in the shares
sold.
The following capsule information represents the Company's consolidated
operating results on a pro-forma basis excluding the operations of SSC for the
quarter ended March 31, 1996.
PRO-FORMA MARCH 31, 1996 RESULTS ADJUSTED FOR DIVESTURE OF
RECYCLING OPERATIONS
Gross margin $ 61,540
Operating loss $ (256,656)
Net Loss $ (349,840)
Page 12 of 19
<PAGE> 13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the financial statements of
the Company included elsewhere in this Form 10-Q:
Results of Operations
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
---------- -----------
<S> <C> <C>
Revenue $1,392,749 $ 1,911,763
Cost of Sales 1,443,269 1,363,596
--------- ---------
Gross Margin (50,520) 548,167
Selling, general and 372,755 361,670
administrative ------------- ---------------
Operating profit/(loss) (423,275) 186,497
Interest expense, net (93,184) (7,130)
Other income - 215
------------- ---------------
Net profit/(loss) before
income taxes $ (516,459) $ 179,582
============== ===============
</TABLE>
COMPARISON OF QUARTERS ENDED MARCH 31, 1996 AND 1995
First quarter results in the roofing industry are the weakest due to
seasonality of demand. First quarter 1996 was particularly slow due to an
unusually long and cold winter. First quarter 1995 was particularly warm
however, and therefore, slaes were stronger than typical. The Company expects
that the remainder of 1996 will be unusually strong due to winter roof damage
and a backlog of reroofing delayed by the harsh winter.
Sales for the quarter ended March 31, 1996 were $1,392,749, a decrease of
$519,014 from sales of $1,911,763 for the quarter ended March 31, 1995. The
decrease in sales is primarily due to a decrease in units (tons) sold and a
decrease in the average realized sales price of dry felt.
Gross margin decreased to a negative $50,520 (3.6 percent of total sales for
the quarter ended March 31, 1996) from a gross margin of $548,167 (28.7 per
cent of total sales for the quarter ended March 31, 1995). The decrease in
gross margin is primarily due to an increase in repairs and maintenance, lower
realized sales prices for dry felt and no pulp hedge gain was realized in the
1996 period.
Selling, general and administrative expenses increased by $11,085 (3.1 percent)
to $372,755 for the quarter ended March 31, 1996, from $361,670 for the quarter
ended March 31, 1995. This
Page 13 of 19
<PAGE> 14
increase was due to an increase in various supplies, other miscellaneous
expenses related to the Company's corporate development and an upgrade of
Company's telephone and data line system.
Interest expense, net, increased to $93,184 for the quarter ended March 31,
1996, from $7,130 for the quarter ended March 31, 1995. This increase is due
to the financing agreements (the Stephens facility and the Canadian facility)
entered into during the year and an additional subordinated note payable.
Because the Company has been in a loss position for financial and income tax
reporting purposes, no current or deferred income tax benefits have been
provided due to the uncertainty of realization.
Cash Flows - Comparison of Quarters Ended March 31, 1996 and March 31, 1995
Cash flows used by operating activities increased to $807,738 for the quarter
ended March 31, 1996 from $71,443 for the quarter ended March 31, 1995. This
increase in primarily due to the increase in operating losses.
Cash flows used in investing activities decreased to $954,580 for the quarter
ended March 31, 1996 from $1,060,751 for the quarter ended March 31, 1995.
This decrease in primarily due the result of no gain recorded from the pulp
hedge contract, however, this decrease was partially offset by the increase in
deferred acquisition and financing costs.
Cash flows provided by financing activities increased to $1,846,270 for the
quarter ended March 31, 1996 from $1,374,085 for the quarter ended March 31,
1995. This increase is primarily due to the funding from the Company's
existing debt facilities (revolving lines of credit and fixed-asset lines of
credit) and funds received for the stock subscriptions.
Liquidity and Capital Resources
For the quarter ended March 31, 1996, the Company had an operating loss and
experienced short term liquidity concerns.
The Company experienced a decrease in current liabilities for the quarter ended
March 31, 1996 from the year ended December 31, 1995. Although the Company
experienced a slight decrease in current liabilities, the Company still has a
working capital deficit of $1,776,453. The balance of current liabilities is
primarily due to capital improvements at the Thorold and Stephens Mills and
corporate development activities not funded by the Company's existing debt
facilities.
After having been idled for two years by its previous owners, the Thorold Mill
needed extensive capital improvements, additions and repairs. These necessary
capital improvements, additions and repairs were partially financed. However,
since the plant was idled while the improvements were made, there was no
production. The Company's cash resources were limited and
Page 14 of 19
<PAGE> 15
consequently the balance of the project was financed by increasing current
liabilities. As of the date of this report, the Canadian projects are near
completion and management expects production to begin in the near future.
Several capital improvements were made to the Stephens Mill during the year
ended December 31, 1995. The improvements and additions made were necessary to
improve efficiency and meet regulatory requirements. These improvements were
only partially financed. As of the date of this report, the Company is
benefiting from the capital improvements made and is producing paper more
efficiently. In addition, the improvements necessary to meet the regulatory
requirements have been completed and are in the final testing stages of the
project.
Management believes that the improvements made to the Stephens and Thorold
Mills will benefit the operations of the Company. The improvements to the
plants will allow production of varying grades of paper (lightweight, medium
weight and heavyweight) more efficiently. This will allow the Company to
produce paper for all geographic markets. In addition, the plants are
geographically dispersed to facilitate distribution to the midwest, southwest,
southeast and northeast markets.
The factors listed above have led to the working capital deficit. Management
has continued to monitor its operational realignment that was implemented
during 1994 that included (a) head count reductions, (b) use of lower cost raw
material vendors, (c) obtaining alternative lower cost raw materials sourcing
and (d) a preventative maintenance program to reduce downtime and repairs.
While the Company continues to monitor its program of operational realignment
and cost reductions, there can be no assurance that such cost reductions will
allow the Company to achieve profitability.
For the Quarter Ended March 31, 1996, the Company issued $1,300,000 of 10.25%
Subordinated Notes (the 1996 Notes) to seven purchasers. The proceeds of the
1996 Notes were used for working capital needs.
Page 15 of 19
<PAGE> 16
Effective April 1, 1996, the Company sold 100% of the outstanding shares of its
subsidiary, Striker Services, for consideration equal to the adjusted net book
value of Stiker Services after giving affect to the capitalization of the
intercompany account payable owing to the Company by Striker Services. The
consideration is evidenced by the promissory note of the purchaser, bearing
interest at the rate of 8% per annum. The principal of the note is payable on
or before April 1, 1999 and interest is payable in quarterly installments
commencing June 30, 1996. Payment of the note is secured by the purchaser's
pledge and grant of a security interest in favor of the Company in the shares
sold.
The following capsule information represents the Company's consolidated
operating results on a pro-forma basis excluding the operations of SSC for the
quarter ended March 31, 1996.
PRO-FORMA MARCH 31, 1996 RESULTS ADJUSTED FOR DIVESTURE OF
RECYCLING OPERATIONS
Gross margin $ 61,540
Operating loss $ (256,656)
Net Loss $ (349,840)
Management believes its existing funds, its cash generated by current
operations and collections on sales and its existing financial arrangements
will adequately fund the cash needs of the Company's operations during the next
year with the sales of Striker Services and further operational realignment.
In order to meet the cash requirements of the Company's operations during the
next year, the Company must begin production at the Thorold plant and operate
within budget to be able to achieve profitable margins. However, to continue
to expand its business and meet working capital requirements, the Company may
need to borrow additional amounts or obtain an additional third-party credit
facility. The Company currently has two existing credit lines, consisting of
revolving lines of credit and term loans collateralized by receivables,
inventories, and fixed assets. The Company remains flexible to pursue
alternative financing arrangements which might include private or public sales
of equity or debt securities.
The accompanying financial statements have been prepared based on the
assumption that the Company will be able to continue operations. An
international investor has agreed to provide additional financial support in
the event the Company does not have available cash or cash equivalents to meet
its then current obligations and continue its normal business operations. This
additional support, not exceeding in the aggregate $3,000,000, during an
18-month period ending September 30, 1996, would only be provided if liquid
assets or financing from other sources cannot be arranged. As of March 31,
1996, no cash has been received from the investor pursuant to this agreement.
The ability of the Company to achieve successful operations and realize its
assets is dependent upon many factors including successful operation of its dry
felt (and ultimately saturating) lines, penetration of existing and new markets
at profitable margin and volume levels and cash liquidity.
Page 16 of 19
<PAGE> 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not a party to any pending proceeding, nor is any of its
property subject to any legal proceeding
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Page 17 of 19
<PAGE> 18
Item 5. Other Information.
(1) On February 25, 1996, the Company issued $1,300,000 in aggregate
principal amount of 10.25 % Subordinated Notes (the "1996 Notes") to seven
international investors, three of which are stockholders. The 1996 Notes
mature on December 31, 1998 and interest is payable quarterly beginning July 1,
1996. The proceeds of the 1996 Notes were used for working capital needs.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the quarter ended March
31, 1996:
Page 18 of 19
<PAGE> 19
SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Company has duly caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized.
STRIKER INDUSTRIES, INC.
DATE: May 16, 1996 BY: /s/ David A. Collins
------------------------- -------------------------------------
David A. Collins
Chief Executive Officer
DATE: May 16, 1996 BY: /s/ Matthew D. Pond
------------------------- -------------------------------------
Matthew D. Pond
Chief Financial Officer
Page 19 of 19
<PAGE> 20
INDEX TO EXHIBITS
27 -- Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 225,509
<SECURITIES> 0
<RECEIVABLES> 1,013,588
<ALLOWANCES> 0
<INVENTORY> 413,321
<CURRENT-ASSETS> 2,233,738
<PP&E> 18,713,567
<DEPRECIATION> 1,976,810
<TOTAL-ASSETS> 19,560,105
<CURRENT-LIABILITIES> 4,010,191
<BONDS> 0
<COMMON> 2,119,913
0
0
<OTHER-SE> 9,545,372
<TOTAL-LIABILITY-AND-EQUITY> 19,560,105
<SALES> 1,392,749
<TOTAL-REVENUES> 1,392,749
<CGS> 1,443,269
<TOTAL-COSTS> 1,816,024
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93,184
<INCOME-PRETAX> (516,459)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (516,459)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
