<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[ x ] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended July 31, 1995
-----------------------------------------------
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: 0-1363
-------------------------------------------
MRL, Inc.
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(Exact name of registrant as specified in its charter)
Missouri 43-0614403
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
112 Point West Blvd., Suite 500, St. Charles, Missouri 63301
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(Address of principal executive offices) (Zip Code)
(314) 946-6900
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
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
---- ----
<TABLE>
<CAPTION>
Title of class of Common Stock Number of Shares outstanding as of this report date
------------------------------ ---------------------------------------------------
<S> <C>
Common Stock, par value $.10 per share 2,685,694
---------
</TABLE>
<PAGE> 2
PART I
FINANCIAL INFORMATION
<PAGE> 3
<TABLE>
CONDENSED BALANCE SHEETS
JULY 31 AND JANUARY 31, 1995
<CAPTION>
JULY 31 JANUARY 31
----------- ----------
(Unaudited)
<S> <C> <C>
Assets
------
Current Assets:
Cash and cash equivalents $ 136,000 $ 47,000
Accounts receivable, net 544,000 547,000
Notes receivable 255,000 278,000
Inventories 905,000 853,000
Prepaid expenses and
other current assets 31,000 57,000
Deferred income taxes 97,000 35,000
----------- -----------
1,968,000 1,817,000
Property, plant and equipment, net 328,000 443,000
Other assets 6,000 16,000
Deferred income taxes 269,000 362,000
----------- -----------
$ 2,571,000 $ 2,638,000
============ ============
Liabilities and Shareholders' Equity (Deficit)
----------------------------------------------
Current Liabilities:
Current maturities of long term debt
and capital lease obligations $ 917,000 $ 750,000
Accounts payable 738,000 388,000
Accrued expenses 267,000 245,000
Accrued payroll and payroll taxes 97,000 97,000
----------- -----------
Total current liabilities 2,019,000 1,480,000
Long-Term Obligations:
Long-term debt and capital lease obligations 1,288,000 1,486,000
Less current maturities of
long-term obligations 917,000 750,000
----------- -----------
371,000 736,000
Deferred gain on sale of property, plant
and equipment 176,000 --
Shareholders' Equity (Deficit):
Common stock 279,000 269,000
Additional paid-in capital 1,351,000 1,339,000
Deficit (1,428,000) (989,000)
----------- -----------
202,000 619,000
Less treasury stock (197,000) (197,000)
----------- -----------
5,000 422,000
----------- -----------
$ 2,571,000 $ 2,638,000
============ ============
</TABLE>
-3-
<PAGE> 4
<TABLE>
UNAUDITED
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JULY 31, 1995 AND 1994
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
7/31/95 7/31/94 7/31/95 7/31/94
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $1,150,000 $1,287,000 $2,398,000 $2,795,000
Cost of goods sold 896,000 989,000 1,880,000 2,118,000
----------- ----------- ----------- -----------
Gross profit 254,000 298,000 518,000 677,000
Selling and administrative expenses 411,000 440,000 866,000 975,000
----------- ----------- ----------- -----------
Operating income (loss) (157,000) (142,000) (348,000) (298,000)
Other income (expenses)
Interest expense (43,000) (38,000) (83,000) (80,000)
Gain on sale of assets -- -- 29,000 --
----------- ----------- ----------- -----------
Income (loss) from continuing
operations before income taxes (200,000) (180,000) (402,000) (378,000)
Income taxes (benefit) 107,000 (68,000) 33,000 (140,000)
----------- ----------- ----------- -----------
Income (loss) from continuing
operations (307,000) (112,000) (435,000) (238,000)
Discontinued operations
Gain (loss) from operations of
discontinued segment, net of taxes (4,000) -- (4,000) 425,000
----------- ----------- ----------- -----------
Net income (loss) $ (311,000) $ (112,000) $ (439,000) $ 187,000
=========== =========== =========== ===========
Earnings (loss) per common share:
Continuing operations $ (.12) $ (.04) $ (.16) $ (.09)
Discontinued operations -- -- -- .16
----------- ----------- ----------- -----------
Net income (loss) $ (.12) $ (.04) $ (.16) $ .07
=========== =========== =========== ===========
</TABLE>
-4-
<PAGE> 5
<TABLE>
UNAUDITED
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 31, 1995 AND 1994
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $(439,000) $ 187,000
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 62,000 80,000
Provision for bad debts 2,000 2,000
(Gain) on sale of assets (29,000) (676,000)
Common stock issuance 22,000 --
Changes in assets and liabilities:
(Decrease) increase in accounts payable 350,000 (86,000)
Decrease (increase) in inventories (52,000) 7,000
Decrease in other, net 36,000 26,000
Decrease in deferred income taxes 31,000 110,000
(Decrease) increase in accrued expenses 22,000 (48,000)
Decrease in accounts receivable 1,000 88,000
---------- -----------
Net cash provided by (used in) operating activities 6,000 (310,000)
Cash flows from investing activities:
Capital expenditures (5,000) (5,000)
Proceeds from disposal of fixed assets 7,000 818,000
Collections on notes receivable 279,000 12,000
---------- -----------
Net cash provided by investing activities 281,000 825,000
Cash flows from financing activities:
Proceeds from (payment on) line of credit 107,000 (26,000)
Payments on long-term obligations (305,000) (154,000)
Payment on short-term obligation -- (300,000)
---------- -----------
Net cash (used in) financing activities (198,000) (480,000)
Net increase in cash and cash equivalents 89,000 35,000
Cash and cash equivalents at beginning of year 47,000 99,000
---------- -----------
Cash and cash equivalents at July 31 $ 136,000 $ 134,000
========== ===========
Supplemental cash flow information:
Interest paid $ 71,000 $ 94,000
========== ===========
Income taxes paid $ -- $ 4,000
========== ===========
Schedule of noncash financing and investing activities:
Credit sale of property, plant and equipment $ 338,000 $ --
========== ===========
</TABLE>
-5-
<PAGE> 6
MRL, INC.
UNAUDITED
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note A - In the opinion of the Company, the accompanying unaudited
condensed financial statements contain all adjustments
necessary to present fairly the Company's results of
operations and changes in financial position for the
three month and six month periods ended July 31, 1995 and
1994. All significant intercompany accounts and
transactions are eliminated in consolidation.
The unaudited condensed statement of operations for the
six month period ended July 31, 1994 has been restated to
conform to the presentation of the statement of
operations for the year ended January 31, 1995.
Note B - The composition of inventory for the periods ended July
31, 1995 and January 31, 1995 is as follows:
<TABLE>
<CAPTION>
7/31/95 1/31/95
----------- -----------
<S> <C> <C>
Finished goods $ 73,000 $ 41,000
Work in process 79,000 78,000
Raw materials and supplies 753,000 734,000
----------- -----------
Total inventory $ 905,000 $ 853,000
=========== ===========
</TABLE>
Note C - Notes receivable at January 31, 1995 is a New Mexico Real
Estate Contract (NOTE) receivable from the sale of a
property in Albuquerque, New Mexico that occurred in
fiscal 1994. This New Mexico Real Estate Contract was
sold on February 23, 1995.
Notes receivable at July 31, 1995 is a New Mexico Real
Estate Contract (NOTE) receivable from the sale of the
final property in Albuquerque, New Mexico that occurred
on February 28, 1995. The second note was assigned to
the Company's primary lender, Norwest Business Credit,
Inc. ("Norwest"). This New Mexico Real Estate Contract
was sold in August 1995, with 50% of the net proceeds
being paid to Norwest under terms of the Standstill
Agreement between the Company and Norwest.
Note D - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109") issued in
February 1992. The Company adopted "SFAS No. 109" as of
February 1, 1993.
-6-
<PAGE> 7
<TABLE>
Total income tax expense (benefit) for the three and six
month periods ended July 31, 1995 and 1994 was allocated
as follows:
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Three Months Ended July 31:
Income from
Continuing Operations $107,000 $ (68,000)
Discontinued Operations (2,000) --
--------- ----------
$105,000 $ (68,000)
========= ==========
Six Months Ended July 31:
Income from
Continuing Operations $ 33,000 $(140,000)
Discontinued Operations (2,000) 250,000
--------- ----------
$ 31,000 $ 110,000
========= ==========
</TABLE>
<TABLE>
Income tax expense (benefit) attributed to income from
continuing operations consists of:
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
Three Months Ended July 31, 1995:
U.S. Federal $ -- $ 98,000 $ 98,000
State and Local 9,000 9,000
-------- ---------- ----------
$ -- $ 107,000 $ 107,000
======== ========== ==========
Three Months Ended July 31, 1994:
U.S. Federal $(1,000) $ (58,000) $ (59,000)
State and Local -- (9,000) (9,000)
-------- ---------- ----------
$(1,000) $ (67,000) $ (68,000)
======== ========== ==========
Six Months Ended July 31, 1995:
U.S. Federal $ -- $ 30,000 $ 30,000
State and Local -- 3,000 3,000
-------- ---------- ----------
$ -- $ 33,000 $ 33,000
======== ========== ==========
Six Months Ended July 31, 1994:
U.S. Federal $ -- $(122,000) $(122,000)
State and Local -- (18,000) (18,000)
-------- ---------- ----------
$ -- $(140,000) $(140,000)
======== ========== ==========
</TABLE>
-7-
<PAGE> 8
<TABLE>
The significant components of deferred income tax expense (benefit)
attributable to income from continuing operations for the three and
six month periods ended July 31 are as follows:
<CAPTION>
Three Months Ended Six Months Ended
7/31/95 7/31/94 7/31/95 7/31/94
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Deferred Tax
Expense (Benefit) $(75,000) $(67,000) $(149,000) $(140,000)
Increase in beginning
of period balance of the
valuation allowance for
deferred tax assets 182,000 -- 182,000 --
--------- ---------- ----------- ----------
$107,000 $ (67,000) $ 33,000 $(140,000)
========= ========== =========== ==========
</TABLE>
<TABLE>
The provision for (reduction in) income taxes differs from the
amount of income tax determined by applying the applicable U.S.
statutory federal income tax rate to income from continuing
operations before income taxes as a result of the following
differences:
<CAPTION>
Three Months Ended Six Months Ended
7/31/95 7/31/94 7/31/95 7/31/94
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Computed statutory
tax $(69,000) $(58,000) $(137,000) $(122,000)
Increase (reduction) in
income taxes resulting from:
State income taxes, net of
federal income tax benefit (6,000) (9,000) (12,000) (18,000)
Alternative minimum
tax provision -- (1,000) -- --
Change in the beginning
of the period balance of
the valuation allowance
for deferred tax assets 182,000 -- 182,000 --
--------- ---------- ----------- ----------
Income taxes $107,000 $ (68,000) $ 33,000 $(140,000)
========= ========== =========== ==========
</TABLE>
-8-
<PAGE> 9
<TABLE>
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets at July 31, 1995
and January 31, 1995 are presented below.
<CAPTION>
7/31/95 1/31/95
--------- ---------
<S> <C> <C>
Net operating loss carryforward $1,651,000 $1,442,000
Plant and equipment, principally due
to difference in depreciation 62,000 62,000
Inventories, principally due to additional
costs inventoried for tax purposes
pursuant to the Tax reform Act of 1986 16,000 15,000
Accrued vacation pay 14,000 13,000
Provision for loss on asset sale and
lawsuit settlement 8,000 40,000
Accounts receivable, principally due to
allowance for doubtful accounts 7,000 35,000
Alternative minimum tax carryforwards 5,000 5,000
---------- ----------
Total gross deferred tax assets 1,763,000 1,612,000
Less valuation allowance 1,397,000 1,215,000
---------- ----------
Net deferred tax assets $ 366,000 $ 397,000
========== ==========
</TABLE>
At July 31, 1995, the Company had net operating loss
carryforwards for federal income tax purposes of approximately
$4,600,000 which are available to offset future federal taxable
income, if any, for periods ending from fiscal 2004 through
fiscal 2009. In addition, the Company had alternative minimum
tax credit carryforwards of approximately $5,000 which are
available to reduce future federal regular income taxes, if any,
over an indefinite period.
Note F - Loss per share is computed using the weighted average number of
shares of common stock outstanding of 2,685,694 and 2,585,694
for the three months ended July 31, 1995 and 1994, respectively,
and 2,663,042 and 2,585,694 for the six months ended July 31,
1995 and 1994, respectively.
-9-
<PAGE> 10
MRL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------------------------------
Capital Resources and Liquidity
-------------------------------
The Company did not make the May 1, 1995, Piggott, Arkansas
IRB payment of principal and interest of approximately $84,000. The
payment was made by the Arkansas Industrial Development Commission
("AIDC") (which had guaranteed the IRB payment). The AIDC has also
proposed to make the final $285,000 Piggott, Arkansas IRB payment due
on May 1, 1996. Discussions are in progress to negotiate a long-term
repayment schedule that would begin later in fiscal 1996 for payment
by the Company of the amounts advanced and to be advanced by the AIDC.
However, there is no assurance that agreement regarding such a
repayment schedule will be reached.
As of July 31, 1995, the Company was also delinquent on
approximately $32,000 of principal and interest payments required
under certain other long-term debt and capital lease obligations.
Discussions are also in progress to negotiate repayment schedules on
such obligations; however, there is no assurance that repayment
agreements will be obtained.
As of July 31, 1995, the Company was in violation of the
debt service coverage ratio covenant in its loan agreement entered
into with Norwest Business Credit, Inc. ("Norwest"). This covenant
is contained in the agreement entered into with Norwest for a
standstill period expiring March 31, 1996 (the "Standstill
Agreement"), during which period the Company has agreed to use its
best efforts to obtain alternative financing. Effective August 9,
1995, the Company and Norwest amended the Standstill Agreement to
permanently reduce the line of credit to $475,000 from $900,000 and
to provide for the payment of a minimum interest charge of $5,500 per
month. With the amendment, Norwest waived the default for the periods
ended April 30, 1995 and May 31, 1995 under the Standstill Agreement.
The Company is pursuing alternative lending sources that are more
accustomed to servicing the lower amounts of borrowing levels that the
Company currently requires. However, to date no such alternative
sources have been obtained, and in light of the Company's current
operating losses, there is no assurance that such alternative
financing will be obtained. As a result of the violation, Norwest has
the right to terminate the standstill period, call the loan and
exercise its remedies under the loan agreement. The Company intends
to negotiate with Norwest for an agreement to continue the standstill
period while the Company continues to pursue alternative lending
sources; however, there is no assurance that such an agreement will
be obtained.
The Company is presently borrowing the maximum amount
permitted under the loan agreement based upon the collateral borrowing
base in the loan agreement.
The Company has made personnel reductions in the Utility
Products Group and implemented cost reductions for the entire Company.
However, if the Company continues to experience significant operating
losses, there is no assurance sufficient capital will be available to
meet its obligations.
-10-
<PAGE> 11
On August 11, 1995, the Company received $255,000 in
proceeds from the sale of the New Mexico Real Estate Contract. Under
the Standstill Agreement with Norwest, the Company received 50% of the
net proceeds from this sale and the balance was paid to Norwest, which
payment is a permanent reserve against accounts receivable used in
computing borrowing availability.
After the Company sold the New Mexico Real Estate Contract,
the Company's Board of Directors determined not to repurchase 250,000
shares of MRL, Inc. common stock for $78,125 by September 1, 1995
under an agreement with its former president. The agreement had been
entered into subject to the Board of Directors' approval.
Accounts payable increased $350,000 from January 31, 1995
to July 31, 1995. The increase was directly related to losses
incurred during the first two quarters of fiscal 1996. As a result
of the current level of accounts payable, the Company has experienced
difficulty in obtaining materials from certain of its vendors.
Accounts payable decreased $86,000 for the six month period ended July
31, 1994. The decrease was directly related to funds provided by the
sale of the real estate during the first quarter of fiscal 1995.
Accounts receivable decreased $1,000 from January 31, 1995
to July 31, 1995. Accounts receivable decreased $88,000 for the six
month period ended July 31, 1994, reflecting lower sales in July 1994
when compared to the January 1994 sales.
Inventories increased $52,000 from January 31, 1995 to July
31, 1995. The Company has adopted an inventory reduction program to
more efficiently utilize working capital.
Results of Operations
---------------------
<TABLE>
Sales decreased 11% for the three month period and decreased
14% for the six month period ended July 31, 1995, when compared to the
same periods in fiscal 1995. Changes in sales by operating group, are
as follows:
<CAPTION>
Three Months Ended Six Months Ended
July 31, 1995 July 31, 1995
------------------------------ ------------------------------
Net % Change Net % Change
Increase Over Increase Over
(Decrease) Prior Year (Decrease) Prior Year
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Utility Products $(209,000) (23%) $(442,000) (22%)
Precision Metals 72,000 18% 45,000 6%
------------ ------------
Net Total $ (137,000) $ (397,000)
============ ============
</TABLE>
The decrease in sales for the Utility Products Group in the first
two quarters of fiscal 1996 compared with the same periods in the
prior year is a continuation of the reduced level of demand by this
group's customers. The Company has restructured this group in light
of current reduced sales levels and is negotiating to obtain certain
additional business. However, there is no assurance that higher sales
will be obtained in the foreseeable future under current industry
conditions.
-11-
<PAGE> 12
The Precision Metals Group experienced an increase in sales for
the three month and six month periods ended July 31, 1995, compared
with the same periods in the prior year, primarily from sales to new
customers. The Company believes this is primarily the result of
increased sales efforts. The Company anticipates a continuing growth
in sales from the Precision Metals Group for the balance of fiscal
1996 at reasonable operating margins.
Selling and administrative expenses for the three month and six
month periods ended July 31, 1995 were less than the comparable
periods in the prior year, primarily as a result of the Company's cost
reduction and restructuring efforts.
Interest expense for the three month and six month periods ended
July 31, 1995 was $43,000 and $83,000, respectively. These amounts
reflect a $5,000 and $3,000 increase when compared to the same periods
in fiscal 1995 respectively. The increases were due to higher
interest rates on borrowings in the fiscal 1996 periods.
During the six month period ended April 30, 1994, the Company
realized a $676,000 gain from the sale of the St. Charles real estate
on March 31, 1994, which amount was reflected in discontinued
operations, net of income taxes.
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS No. 109") issued in February 1992. For the
three month period ended July 31, 1995, the Company recorded $105,000
of income tax expense compared to $68,000 of income tax benefit in the
same period in fiscal 1995. For the six month period ended July 31,
1995, the Company recorded $31,000 in income tax expense compared to
$110,000 for the same period in fiscal 1995. For the three month and
six month periods ended July 31, 1995 discontinued operations
contained a $2,000 benefit for income taxes and for the six month
period ended July 31, 1994 discontinued operations contained $250,000
of income tax expense. The valuation allowance for deferred income
taxes was increased by $182,000 during the three month period ended
July 31, 1995, while in the fiscal 1995 periods the valuation
allowance for deferred income taxes was not adjusted. The fiscal 1996
and 1995 income tax expense amounts were recorded as reductions to the
deferred income tax asset and will not require a cash payment.
For the three months ended July 31, 1995, the Company experienced
a $311,000 net loss compared to a net loss of $112,000 for the same
period in the prior year. For the six months ended July 31, 1995, the
net loss was $439,000 compared to net income of $187,000 for the same
period in the prior year. The fiscal 1996 periods were adversely
affected by the decreased sales volume in the Utility Products Group
mentioned above, and the adjustment to the valuation allowance for
deferred income taxes. The six month period ended July 31, 1994
contained the gain from the real estate sale recorded in discontinued
operations.
In August 1995, the Company will record a gain of approximately
$176,000 from the sale of assets when the Company collects the
proceeds from the sale of the New Mexico Real Estate Contract. This
is the amount of the deferred gain on the sale of property, plant and
equipment at July 31, 1995.
-12-
<PAGE> 13
The Company has been contacted regarding a paint warranty issue
by the end user of standby power units supplied during fiscal 1994
with powder coated paint, in connection with substantial paint
imperfections on such units. In late December 1994 the Company's
customer, who had received the standby power units and ultimately
shipped them to the end user, filed a breach of contract lawsuit
against the Company in an amount to be determined, but in excess of
$900,000. The Company has investigated and verified the extent of the
problem, and estimates that it is possible that the cost to correct
the paint imperfections could exceed $1,000,000. It is the opinion
of the Company that the liability for correction of this problem is
the responsibility of an independent vendor that performed the powder
coating for the Company. Should the vendor be unable to satisfy this
liability, which the Company understands is likely to be the case, it
is the opinion of management that the Company has insurance coverage
that will satisfy this liability. However, in December 1994 the
Company's insurance carrier denied coverage. The Company has been
sued for breach of contract with respect to the paint problem and, in
turn, has brought suit against its insurance carrier seeking to be
defended and indemnified by the carrier against this suit. Management
continues to be of the opinion that Company resources will not be
required to satisfy this liability.
On April 4, 1988, the Company sold shares of its treasury stock
to four officers and a key employee of the Company and agreed to
guarantee bank loans obtained by each of these individuals to purchase
the shares. These loans were fully paid by January 31, 1994. The
Company is a defendant in a lawsuit filed by two of such individuals
in which it is alleged that the Company agreed to repurchase their
stock. The suit asks that the Company repurchase the common stock and
reimburse the plaintiffs for interest incurred on the loans used to
finance the stock purchase. The Company received notice that this
suit was dismissed on May 31, 1995 for want of prosection. This suit
may be subject to refiling within one year.
-13-
<PAGE> 14
PART II
OTHER INFORMATION
Item 3. Defaults Upon Senior Securities
-------------------------------
The Company failed to make a required principal and
interest payment on May 1, 1995, of approximately $84,000
on its Piggott, Arkansas industrial revenue bonds. The
payment was made by the Arkansas Industrial Development
Commission ("Commission"), which had guaranteed payment of
the bonds. The Commission has also proposed to make the
final $285,000 bond payment due May 1, 1996. The Company
is in discussions with the Commission regarding a repayment
schedule; however, there is no assurance that the
Commission will agree to a repayment schedule.
The Company has entered into a Standstill Agreement with
its principal lender for a period ending March 31, 1996.
The Company is in default under its loan agreement due to
not meeting various financial covenants. The lender has
agreed not to call the loan during the standstill period so
long as the Company uses its best efforts to refinance the
loan with a third party and otherwise complies with the
loan agreement, including a revised debt service coverage
ratio. As of July 31, 1995, the Company failed to meet
that ratio. As a result, the lender has the right to
terminate the standstill period, call the loan, and
exercise its remedies under the loan agreement. The
Company intends to negotiate with its principal lender for
an agreement to continue the standstill period while the
Company pursues alternative lending sources; however, there
is no assurance that such an agreement will be obtained.
The Company failed to make required principal and interest
payments on June 25, 1995 and July 25, 1995, of
approximately $12,000 per payment on the trade note payable
to one of its vendors. Due to this violation, the total
principal and interest of approximately $136,000 at July
31, 1995 is due and payable. The Company intends to
attempt to negotiate a waiver of the default and a reduced
repayment schedule with its vendor; however, there is no
assurance that such an agreement will be obtained.
Item 5. Other Information
-----------------
William C. Cottle, the former President of the Company,
resigned as a director of the Company effective August 22,
1995.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) See Exhibit Index on Page 16.
(b) There were no Reports on Form 8-K filed during the quarter
ended July 31, 1995.
-14-
<PAGE> 15
MRL, Inc.
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 thereunto duly authorized.
MRL, Inc.
Date: September 13, 1995 By: /s/ Larry J. Stallings
------------------------------------
Larry J. Stallings
President and
Chief Executive Officer
Date: September 13, 1995 By: /s/ Duane E. Obert
------------------------------------
Duane E. Obert
Treasurer and Chief Financial Officer
-15-
<PAGE> 16
<TABLE>
MRL, Inc.
EXHIBIT INDEX
<CAPTION>
Exhibit
Number Description
------- ----------------------------------------
<C> <S>
10(p) Amendment, dated August 9, 1995, to Standstill Agreement
with Norwest Business Credit, Inc., filed herewith.
11 Computation of Weighted Average Number
of Shares, filed herewith
</TABLE>
-16-
<PAGE> 1
Exhibit 10(p)
FIRST AMENDMENT TO STANDSTILL AGREEMENT
---------------------------------------
THIS FIRST AMENDMENT TO STANDSTILL AGREEMENT (this "Amendment") is
made and entered into effective as of the 9th day of August, 1995, by and
between MRL, INC., a Missouri corporation ("Borrower"), and NORWEST BUSINESS
CREDIT, INC., a Minnesota corporation ("Lender").
WITNESSETH:
WHEREAS, Borrower and Lender have heretofore entered into that certain
Credit and Security Agreement dated April 28, 1993, as amended by a First
Amendment to Credit and Security Agreement dated September 1, 1994 (as amended,
the "Credit Agreement"); and
WHEREAS, Borrower has defaulted under the terms of said Credit
Agreement and has requested Lender to forebear from exercising its rights
thereunder for a period of time on certain conditions as more fully set forth
in that certain Standstill Agreement dated April 27, 1995 made by and between
Borrower and Lender (as amended, the "Standstill Agreement"); and
WHEREAS, Borrower has further defaulted under the terms of said
Standstill Agreement and has requested Lender to waive such defaults, which
Lender is willing to do subject to Borrower's agreement to amend the terms of
the Standstill Agreement and the Credit Agreement as herein set forth;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender hereby agree as follows:
1. The first sentence of Paragraph 1(a)(v) of the Standstill
Agreement is hereby deleted in its entirety and the following substituted in
lieu thereof:
(v) Continue to make loan advances to Borrower during the
Standstill Period, which advances, together with the amount of
Borrower's other Obligations presently outstanding, shall not exceed
the amount of Four Hundred Seventy-Five Thousand Dollars ($475,000.00)
in the aggregate (subject to the terms and conditions of the Credit
Agreement as amended herein) and shall be due and payable to Lender
on the last day of the Standstill Period whether pursuant to Paragraph
2(a) or 2(b) herein.
2. Paragraph 1(b)(ii) of the Standstill Agreement is hereby deleted in
its entirety and the following substituted in lieu thereof:
(ii) To have the maximum principal amount of Facility I
Advances and of Borrower's Obligations under the Credit Agreement
reduced to the amount of Four Hundred Seventy-Five Thousand Dollars
($475,000.00), which amount may be further reduced hereafter as set
forth in Paragraph 1(b)(iii) below.
<PAGE> 2
3. Part (a) in the definition of "Borrowing Base" set forth in
Paragraph 3 of the Standstill Agreement is hereby deleted in its entirety and
the following substituted in lieu thereof:
(a) Four Hundred Seventy-Five Thousand Dollars
($475,000.00), or
4. The following new Paragraph 6A. is hereby added to the Standstill
Agreement immediately following Paragraph 6 therein:
6A. Minimum Interest. Section 2.3(b) of the Credit
----------------
Agreement is hereby deleted in its entirety and the following
substituted in lieu thereof:
(b) Notwithstanding the interest payable
pursuant to Section 2.3(a) hereof, the Borrower shall be
liable to the Lender for interest hereunder of not less
than $5,500.00 per calendar month (the "Minimum Interest
Charge") during the term of this Agreement (commencing with
the month beginning August 1, 1995), and the Borrower shall
pay any deficiency between the Minimum Interest Charge and
the amount of interest otherwise calculated under Section
2.3(a) hereof on the date and in the manner provided in
Section 2.3(a) hereof.
5. In consideration of the amendments to the Standstill Agreement
set forth herein, Lender hereby agrees to waive Borrower's defaults under the
year-to-date Debt Service Coverage Ratio as set forth in Paragraph 9 of the
Standstill Agreement (amending Section 6.15 of the Credit Agreement) for the
months ended April 30, 1995 and May 31, 1995. The foregoing waivers shall not
be deemed a waiver of such year-to-date Debt Service Coverage Ratio for any
period or test date other than the two month-end dates set forth above, nor
shall it be deemed a waiver of any other default under any other provision of
the Standstill Agreement or the Credit Agreement. Borrower hereby reaffirms its
agreement to comply with the remaining provisions of the year-to-date Debt
Service Coverage Ratio and of the Credit Agreement, as amended by the Standstill
Agreement and further amended herein.
6. Borrower hereby agrees to release, waive and acquit Lender and
any participant with Lender in the loans outstanding under the Credit Agreement
and under the Standstill Agreement, together with their subsidiaries and
affiliates, their officers, directors, agents, employees, and servants, their
successors and assigns, and the insurers and underwriters of any of them from
any and all claims which Borrower has or may have asserted against Lender or any
participant with Lender under the Standstill Agreement, the Credit Agreement,
any of the other security documents or otherwise, whether such claims resulted
from alleged defaults, nonperformance, negligent performance or otherwise.
7. Borrower hereby agrees to reimburse Lender upon demand for all
out-of-pocket costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) incurred by Lender in the preparation,
documentation, negotiation and execution of
2
<PAGE> 3
this Amendment. All of the obligations of Borrower under this Paragraph 7
shall survive termination of the Standstill Agreement and the Credit
Agreement.
8. All references in the Standstill Agreement to this "Standstill
Agreement" and any other references of similar import shall henceforth mean the
Standstill Agreement as amended by this Amendment. All capitalized terms used
and not otherwise defined herein shall have the respective meanings ascribed to
them in the Standstill Agreement as amended by this Amendment.
9. Except to the extent specifically amended by this Amendment, all
of the terms, provisions, conditions, covenants, representations and warranties
contained in the Standstill Agreement shall be and remain in full force and
effect and the same are hereby ratified and confirmed.
10. This Amendment shall be binding upon and inure to the benefit of
Borrower and Lender and their respective successors and assigns, except that
Borrower may not assign, transfer or delegate any of its rights or obligations
hereunder.
11. Borrower hereby represents and warrants to Lender that:
(a) The execution, delivery and performance by Borrower of
this Amendment are within the corporate powers of Borrower, have been duly
authorized by all necessary corporate action and require no action by or in
respect of, or filing with, any governmental or regulatory body, agency or
official. The execution, delivery and performance by Borrower of this Amendment
do not conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a default under or result in any violation of, and
Borrower is not now in default under or in violation of, the terms of the
Articles of Incorporation or By-Laws of Borrower, any applicable law, rule,
regulation, order, writ, judgment or decree of any court or governmental or
regulatory agency or instrumentality, or any agreement or instrument to which
Borrower is a party or by which it is bound or to which it is subject;
(b) This Amendment has been duly executed and delivered by
Borrower and constitutes the legal, valid and binding obligation of Borrower
enforceable in accordance with its terms; and
(c) As of the date hereof, all of the representations,
warranties and covenants of Borrower set forth in the Credit Agreement, as
amended by the Standstill Agreement, are true and correct and no "Default" or
"Event of Default" (as defined therein) under or within the meaning of the
Credit Agreement, as amended by the Standstill Agreement, has occurred and is
continuing.
12. In the event of any inconsistency or conflict between this
Amendment and the Standstill Agreement, the terms, provisions and conditions of
this Amendment shall govern and control.
3
<PAGE> 4
13. This Amendment shall be governed by and construed in accordance
with the internal laws of the State of Missouri.
14. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR
TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES TO EXTEND OR
RENEW SUCH DEBT, ARE NOT ENFORCEABLE. TO PROTECT BORROWER AND LENDER FROM
MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS REACHED BY BORROWER AND
LENDER COVERING SUCH MATTERS ARE CONTAINED IN THE CREDIT AGREEMENT AND THE
STANDSTILL AGREEMENT AS AMENDED BY THIS AMENDMENT, WHICH AGREEMENTS, AS AMENDED
BY THIS AMENDMENT, ARE A COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENTS
BETWEEN BORROWER AND LENDER, EXCEPT AS BORROWER AND LENDER MAY LATER AGREE IN
WRITING TO MODIFY THEM.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment to Standstill Agreement effective as of August 9, 1995.
MRL, INC.
By: /s/ Larry J. Stallings
---------------------------------
Title: President & CEO
--------------------------------
NORWEST BUSINESS CREDIT, INC.
By: /s/Mark A. Crenshaw
---------------------------------
Title: Portfolio Manager AVP
--------------------------------
4
<PAGE> 1
<TABLE>
EXHIBIT 11
MRL, INC.
COMPUTATION OF WEIGHTED AVERAGE NUMBER OF SHARES
FISCAL 1996 PERIOD
<CAPTION>
DAYS
MAIN- WEIGHTED
DATE BALANCE TAINED SHARE DAYS AVERAGE
<S> <C> <C> <C> <C> <C>
Common shares
outstanding 05/01/95 2,685,694 92 247,083,848
Weighted average
number of shares,
three months ended
July 31, 1995 2,685,694
=========
Common shares
outstanding 02/01/95 2,585,694 41 106,013,454
03/14/95 2,685,694 140 375,997,160
--- -----------
181 482,010,614
Weighted average
number of shares,
six months ended
July 31, 1995 2,663,042
=========
<CAPTION>
FISCAL 1995 PERIOD
<S> <C> <C> <C> <C> <C>
Common shares
outstanding 05/01/94 2,585,694 92 237,883,848
Weighted average
number of shares,
three months ended
July 31, 1994 2,585,694
=========
Common shares
outstanding 02/01/94 2,585,694 181 468,010,614
Weighted average
number of shares,
six months ended
July 31, 1994 2,585,694
=========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed financial statements for period ended July 31, 1995 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JUL-31-1995
<CASH> 136,000
<SECURITIES> 0
<RECEIVABLES> 799,000
<ALLOWANCES> 0<F1>
<INVENTORY> 905,000
<CURRENT-ASSETS> 1,968,000
<PP&E> 328,000
<DEPRECIATION> 0<F2>
<TOTAL-ASSETS> 2,571,000
<CURRENT-LIABILITIES> 2,019,000
<BONDS> 371,000
<COMMON> 279,000
0
0
<OTHER-SE> (274,000)
<TOTAL-LIABILITY-AND-EQUITY> 2,571,000
<SALES> 2,398,000
<TOTAL-REVENUES> 2,398,000
<CGS> 1,880,000
<TOTAL-COSTS> 2,746,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 83,000
<INCOME-PRETAX> (402,000)
<INCOME-TAX> 33,000
<INCOME-CONTINUING> (435,000)
<DISCONTINUED> (4,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (439,000)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
<FN>
<F1>ALLOWANCES ARE NOT REPORTED IN INTERIM STATEMENTS.
<F2>ACCUMULATED DEPRECIATION IS NOT REPORTED IN INTERIM STATEMENTS.
</TABLE>
