<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 June 30, 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)
DELAWARE 84-0834953
(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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 August 12, 1996, there were 10,924,564 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
<TABLE>
<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 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a
Vote of Security Holders 18
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>
June 30, December 31,
1996 1995
-------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 16,556 $ 141,557
Cash, restricted as to use 360,000 360,000
Accounts receivable -
Trade 510,088 403,742
Other 640,074 152,731
Inventories -
Raw materials 28,286 41,073
Finished goods 143,454 130,910
Spare parts and supplies 242,943 247,875
Prepaid expenses and other current assets 219,270 262,757
----------- -----------
Total current assets 2,160,671 1,740,645
PROPERTY AND EQUIPMENT, net 16,098,712 16,295,437
DEFERRED COSTS AND OTHER, net 2,036,048 286,362
----------- -----------
Total assets $20,295,431 $18,322,444
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 2,122,882 $ 2,438,271
Accrued liabilities 324,760 215,602
Revolving lines of credit 639,234 875,909
Current portion of term loans 343,200 338,069
Current obligations under capital leases 50,439 51,902
----------- -----------
Total current liabilities 3,480,515 3,919,753
LONG-TERM LIABILITIES:
Notes payable to affiliates 3,800,000 1,200,000
Term loans, net of current portion 1,529,000 1,188,230
Capital leases 44,969 68,717
----------- -----------
Total long term liabilities 5,373,969 2,456,947
STOCKHOLDERS' EQUITY:
Common stock, $0.20 par value, 25,000,000 shares
authorized, 10,924,564 and 10,599,564 shares issued,
respectively 2,184,913 2,119,913
Stock Subscriptions Receivable -- (236,000)
Stock Subscriptions Receivable - employees (275,000) --
Additional paid-in capital 14,098,119 13,688,119
Accumulated deficit (4,514,773) (3,559,011)
Foreign currency translation adjustment (52,312) (67, 277)
----------- -----------
Total stockholders' equity 11,440,947 11,945,744
----------- -----------
COMMITMENTS AND CONTINGENCIES
Total liabilities and stockholders' equity $20,295,431 $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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES $ 1,669,712 $2,186,794 $ 3,062,461 $4,098,556
COST OF SALES 1,498,748 1,958,996 2,942,017 3,322,592
----------- --------- ----------- ----------
Gross margin 170,964 227,798 120,444 775,964
SELLING, GENERAL AND
ADMINISTRATIVE 462,851 393,871 835,606 755,540
----------- ---------- ----------- ----------
Operating profit/(loss) (291,887) (166,073) (715,162) 20,424
OTHER INCOME (EXPENSE):
Interest expense, net (147,415) (62,581) (240,600) (69,711)
Other income, net -- 17,416 -- 17,631
LOSS BEFORE INCOME TAXES (439,302) (211,238) (955,762) (31,656)
INCOME TAXES -- -- -- --
NET LOSS $ (439,302) $ (211,238) $ (955,762) $ (31,656)
=========== ========== =========== ==========
NET LOSS PER SHARE $ (0.04) $ (0.02) $ (0.09) $ (0.01)
=========== ========== =========== ==========
AVERAGE NUMBER OF
COMMON SHARES
OUTSTANDING 10,856,786 9,629,707 10,728,175 9,161,011
=========== ========== =========== ==========
</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>
Six Months Ended
June 30,
1996 1995
------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $ (955,762) $ (31,656)
Adjustments to reconcile net income/(loss) to net cash used in operating
activities -
Depreciation and amortization 243,620 344,219
Changes in assets and liabilities -
Increase in accounts receivable (523,689) (552,489)
Decrease in inventories 5,175 189,969
Decrease (increase) in prepaid expenses and other current assets 43,487 (67,829)
(Decrease) increase in accounts payable and accrued liabilities (206,230) 434,502
----------- -----------
Total adjustments to net income (loss) (437,637) 348,372
----------- -----------
Net cash used in operating activities (1,393,399) 316,716
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Gain on pulp hedge contract -- (467,774)
Appreciation on marketable securities -- 6,822
Redemption(purchase) of certificate of deposit -- (425,000)
Purchases of property and equipment (591,618) (2,157,647)
Increase in deferred acquisition costs (564,734) --
----------- -----------
Net cash used in investing activities (1,156,352) (3,043,599)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from subordinated notes 2,600,000 1,200,000
Proceeds from issuance of warrants -- 879,000
Proceeds from exercise of warrants -- 973,336
Proceeds from issuance of common stock 200,000 --
Shareholder advances -- 1,188,500
Repayment of advances from shareholders -- (2,005,618)
Proceeds from revolving line of credit 2,871,175 1,865,000
Repayments of revolving line of credit (3,107,884) (1,338,404)
Deferred and other costs paid (695,229) --
Payments received on stock subscriptions receivable 236,000 --
Proceeds from term loans 517,500 590,000
Repayments of term loans (171,600) (23,408)
Principal payments under capital leases (25,212) (24,723)
----------- -----------
Net cash provided by financing activities 2,424,750 3,303,683
----------- -----------
NET INCREASE (DECREASE) IN CASH (125,001) 576,800
CASH, beginning of period 141,557 18,739
----------- -----------
CASH, end of period $ 16,556 $ 595,539
=========== ===========
</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 June 30, 1996 and the consolidated results
of operations and the cash flows for the six months ended June 30, 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 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
Page 6 of 19
<PAGE> 7
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.
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. For the
quarter ended June 30, 1996, the Company's organizational costs have been fully
amortized. 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 10,856,786 and 10,728,175 for the quarter and six months ended June 30,
1996, respectively and 9,629,707 and 9,161,011 for the quarter and six months
ended June 30, 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
2. PROPERTY AND EQUIPMENT, NET:
The Company's property and equipment consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
Useful Life 1996 1995
----------- -------- -------------
<S> <C> <C> <C>
Machinery, equipment and vehicles 5 - 12 years $16,287,034 $15,906,470
Buildings 25 years 773,888 855,216
Computer and office equipment 5 years 722,094 711,244
Land improvements 5 years 75,112 140,427
Machinery, equipment and vehicles 2 - 5 years 236,703 236,703
under capital leases
Land 215,000 215,000
---------- -----------
18,309,831 18,065,060
Less-Accumulated depreciation and amortization (2,211,119) (1,769,623)
----------- -----------
$16,098,712 $16,295,437
=========== ===========
</TABLE>
3. DEFERRED COSTS AND OTHER, NET:
The Company's deferred costs and other, net, consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ -----------
<S> <C> <C>
Deferred acquisition costs $ 575,738 $ 11,004
Deferred financing costs, net 879,403 170,404
Deposits 68,276 73,190
Note receivable - TR Recycling 489,723 --
Patents 25,454 25,029
Less-Accumulated amortization - patents (2,546) --
Organization costs 78,025 82,291
Less-Accumulated amortization - organizational costs (78,025) (75,556)
------------- -----------
$ 2,036,048 $ 286,362
============= ===========
</TABLE>
Page 8 of 19
<PAGE> 9
4. DEBT:
<TABLE>
<CAPTION>
The Company's debt consisted of the following at: June 30, December 31,
1996 1995
----------- ------------
<S> <C> <C>
Subordinated notes payable, 10.75% interest due, due 12/31/98 $3,800,000 $1,200,000
STEPHENS:
Term loan, prime (8.25%) +3% interest, due 5/31/98 786,950 846,050
Revolving line of credit, prime + 3% interest 287,643 520,274
CANADIAN FACILITY:
Term loan, prime (6.50%) + 2.5% interest, due 5/31/98 1,085,250 680,250
Revolving line of credit, prime +2.5% interest 351,591 355,635
Capitalized lease obligations bearing interest at rates from 10% to 18%
maturing between 1996 and 2000, secured by underlying machinery,
vehicles and computer equipment. 95,408 120,619
------- -------
6,406,842 3,722,828
Less- Current maturities (1,032,873) (1,265,881)
----------- -----------
$5,373,969 $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%.
During the Quarter Ended June 30, 1996, the Canadian Lender temporarily
suspended principal on the Canadian Facility and refunded Striker Canada all
principal payments made (covering a period from December, 1995 through April,
1996) totaling $125,000 Canadian. This principal refund was prompted by the
Canadian mill being idled during this period while capital improvement projects
were completed. Principal payments resumed May 1, 1996.
Interest paid for the three months and six months, respectively, ended June 30,
1996 and 1995, was $96,134 and $10,982, respectively.
Page 9 of 19
<PAGE> 10
5. CUSTOMER CONTRACTS:
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 of the Stephens mill, 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.
6. COMMITMENTS AND CONTINGENCIES:
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.
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.
The Company began testing of the closed loop system in April. On June 27,
1996, an inspector from the ADPCE performed an inspection in accordance with
the provisions of the federal Clean Water Act, the Arkansas Water and Air
Pollution Control Act, and the regulations promulgated thereunder. The
inspection revealed that the Company was in compliance with the terms of its
permit.
In conjuction with the work performed on the closed water loop system, the
Company removed dirt and sludge from the bottom of the filtering ponds at the
Stephens mill. The dirt and sludge removed from the filtering ponds was placed
on an isolated area of land at the mill. The Company notified the ADPCE and
requested approval for clean-up. The Company received approval from the ADPCE
to re-cover and cap the sludge (the digging up and removal was not required).
The Company began work on capping the sludge August 2, 1996. The Company
anticipates that the project will be completed by August 31, 1996. The work
being performed will bring the Company in compliance with provisions of its
permit as provided by the ADPCE.
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
Page 10 of 19
<PAGE> 11
(SSC), 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,
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 six months
ended June 30, 1995, the Company had a gain from the Hedge of $467,774. 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.
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 activated the idled dry felt mill in July, 1995 to
produce dry felt at Thorold, Ontario, Canada for sale to parties in the roofing
industry. The dry felt mill's production was stopped so that necessary capital
improvement projects could begin. These projects continued through April, 1996
and have been completed. The Company reactivated the dry felt mill on July 17,
1996.
Page 11 of 19
<PAGE> 12
9. SALE OF SUBSIDIARY:
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.
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 Striker 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
beginning 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.
10. SUBSEQUENT EVENTS:
On April 25, 1996, the Company signed an agreement to combine in a merger
transaction with one of the largest privately-owned manufacturers 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. Following closing of
the transaction, stockholders' equity of the combined companies is projected to
be approximately $50 million. The closing of the transaction has been extended
in writing by mutual agreement of the parties to a date no later than November
1, 1996 from the originally anticipated closing deadline of no later than
August 1, 1996.
On July 15, 1996, the Company issued $1,500,000 of 10.25% Subordinated Notes
(the 1996 C Notes) to seven purchasers. The proceeds of the 1996 C Notes were
used for working capital needs.
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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue $1,669,712 $2,186,794 $3,062,461 $4,098,556
Cost of Sales 1,498,748 1,958,996 2,942,017 3,322,592
---------- ---------- ---------- ----------
Gross Margin 170,964 227,798 120,444 775,964
Selling, general and
administrative 462,851 393,871 835,606 755,540
---------- ---------- ---------- ----------
Operating profit/(loss) (291,887) (166,073) (715,162) 20,424
Interest expense, net (147,415) (62,581) (240,600) (69,711)
Other income - 17,416 - 17,631
---------- ---------- ---------- ----------
Net loss before
income taxes $ (439,302) $ (211,238) $ (955,762) $ (31,656)
========== =========== ========== ==========
</TABLE>
COMPARISON OF QUARTERS ENDED JUNE 30, 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, sales were stronger than typical. The affects of the
long and cold winter extended into the second quarter of 1996. The roofing
industry built up inventory levels during late 1995 into early 1996. This has
resulted in supplies that exceeded demand resulting in flat realized sales
prices. This has helped to create a weaker than typical second quarter. The
Company expects that the remainder of 1996 will be strong due to an increase in
demand due to a backlog of reroofing and an increase in new housing starts.
Sales for the quarter ended June 30, 1996 were $1,669,712, a decrease of
$517,082 from sales of $2,186,794 for the quarter ended June 30, 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 $170,964 (10.2 percent of total sales for the quarter
ended June 30, 1996) from a gross margin of $227,798 (10.4 per cent of total
sales for the quarter ended June 30, 1995). The decrease in gross margin is
primarily due to an increase in utilities, lower realized sales prices for dry
felt and no pulp hedge gain was realized in the 1996 period.
Page 13 of 19
<PAGE> 14
Selling, general and administrative expenses increased by $68,980 to $462,851
for the quarter ended June 30, 1996, from $393,871 for the quarter ended June
30, 1995. This increase was primarily due to an increase in payroll and
related costs and professional fees that was partially offset by no expenses of
Striker Services incurred or recorded for the quarter ended June 30, 1996 due
to its sale.
Interest expense, net, increased to $147,415 for the quarter ended June 30,
1996, from $62,581 for the quarter ended June 30, 1995. This increase is due
to the financing agreements (the Stephens facility and the Canadian facility)
entered into during the year and additional subordinated notes 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.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Sales for the six months ended June 30, 1996 were $3,062,461, a decrease of
$1,036,095 from sales of $4,098,556 for the six months ended June 30, 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. Additionally, for
the six months ended June 30, 1995, the Company realized approximately $180,000
of revenue due to the sale of saturated felt products in inventory. There were
no sales of saturated products for the six months ended June 30, 1996.
Gross margin decreased to $120,444 (3.9 percent of total sales for the six
months ended June 30, 1996) from a gross margin of $775,964 (18.9 per cent of
total sales for the six months ended June 30, 1995). The decrease in gross
margin is primarily due to an increase in utilities, 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 $80,066 to $835,606
for the six months ended June 30, 1996, from $755,540 for the six months ended
June 30, 1995. This increase was primarily due to an increase in payroll and
payroll related costs, other miscellaneous expenses related to the Company's
corporate development and an upgrade of Company's telephone and data line
system that was partially offset by no expenses for Striker Services recorded
for the quarter ended June 30, 1996 due to its sale.
Interest expense, net, increased to $240,600 for the six months ended June 30,
1996, from $69,711 for the six months ended June 30, 1995. This increase is
due to the financing agreements (the Stephens facility and the Canadian
facility) entered into during the year and additional subordinated notes
payable.
Page 14 of 19
<PAGE> 15
CASH FLOWS - COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
Cash flows used by operating activities increased to $1,393,399 for the six
months ended June 30, 1996 from cash flows provided by operating activities of
$316,716 for the six months ended June 30, 1995. This increase in primarily
due to the increase in operating losses, an increase in accounts receivable
and a decrease in accounts payable and accrued liabilities.
Cash flows used in investing activities decreased to $1,156,352 for the six
months ended June 30, 1996 from $3,043,599 for the six months ended June 30,
1995. This decrease in primarily due to the reduction in purchases of property
and equipment and the result of no gain recorded from the pulp hedge contract,
however, this decrease was partially offset by the increase in deferred
acquisition costs.
Cash flows provided by financing activities decreased to $2,424,750 for the six
months ended June 30, 1996 from $3,303,683 for the six months ended June 30,
1995. This decrease is primarily due to a reduction in shareholder activity,
additional deferred cost payments and term loan and revolving lines of credit
activity.
Liquidity and Capital Resources
For the six months ended June 30, 1996, the Company had an operating loss and
experienced short term liquidity concerns.
The Company experienced a decrease in current liabilities for the six months
ended June 30, 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 $1,319,844. 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 consequently the
balance of the project was financed by increasing current liabilities. As of
the date of this report, the Canadian projects are complete and production
began on July 17, 1996. The Company anticipates that shipments will begin in
early August, 1996.
Several capital improvements were made to the Stephens Mill during the year
ended December 31, 1995 that extended into the six months ended June 30, 1996.
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
Page 15 of 19
<PAGE> 16
addition, the improvements necessary to meet the regulatory requirements have
been completed and were found in compliance with permits from an ADPCE
inspection.
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 June 30, 1996, the Company issued $1,300,000 of 10.25%
Subordinated Notes (the 1996 B Notes) to seven purchasers. The proceeds of the
1996 B Notes were used for working capital needs.
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 Stricker 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.
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.
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 maintain 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.
Page 16 of 19
<PAGE> 17
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 June 30,
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 17 of 19
<PAGE> 18
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 pending 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.
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.
(2) On June 15, 1996, the Company issued $1,300,000 in aggregate principal
amount of 10.25 % Subordinated Notes (the "1996 B Notes") to seven
international investors, three of which are stockholders. The 1996 B Notes
mature on December 31, 1998 and interest is payable quarterly beginning July 1,
1996. The proceeds of the 1996 B 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 June
30, 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: August 14, 1996 BY: /s/ David A. Collins
---------------------------- ------------------------------------
David A. Collins
Chief Executive Officer
DATE: August 14, 1996 BY: /s/ Matthew D. Pond
---------------------------- ------------------------------------
Matthew D. Pond
Chief Financial Officer
Page 19 of 19
<PAGE> 20
INDEX TO EXHIBIT
EXHIBIT DESCRIPTION
------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 16,556
<SECURITIES> 0
<RECEIVABLES> 1,150,162
<ALLOWANCES> 0
<INVENTORY> 414,683
<CURRENT-ASSETS> 2,160,671
<PP&E> 18,309,831
<DEPRECIATION> 1,211,119
<TOTAL-ASSETS> 20,295,431
<CURRENT-LIABILITIES> 3,730,515
<BONDS> 0
<COMMON> 2,184,913
0
0
<OTHER-SE> 9,256,034
<TOTAL-LIABILITY-AND-EQUITY> 20,295,431
<SALES> 3,062,461
<TOTAL-REVENUES> 3,062,461
<CGS> 2,942,017
<TOTAL-COSTS> 835,606
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 240,600
<INCOME-PRETAX> (955,762)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (955,762)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
