<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MAY 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-14203
MERIDIAN NATIONAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 34-1470518
(State of Incorporation) (I.R.S. Employer
Identification Number)
805 CHICAGO STREET, TOLEDO, OH 43611
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number: (419) 729-3918
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
--- ----
As of June 30, 1996, 3,355,145 shares of Meridian National Corporation common
stock were outstanding.
<PAGE> 2
MERIDIAN NATIONAL CORPORATION
PART I
FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements of
Meridian National Corporation are unaudited but, in the opinion of management,
reflect all adjustments (including only normal recurring accruals) necessary to
present fairly such information for the periods and at the dates indicated. The
results of operations for the three months ended May 31, 1996 may not be
indicative of the results of operations for the year ending February 28, 1997.
Since the accompanying condensed consolidated financial statements have been
prepared in accordance with Article 10 of Regulation S-X, they do not contain
all information and footnotes normally contained in annual consolidated
financial statements; accordingly, they should be read in conjunction with the
consolidated financial statements and notes thereto appearing in the Company's
Annual Report on Form 10-K for fiscal year ended February 29, 1996.
2
<PAGE> 3
MERIDIAN NATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
May 31, February 29,
1996 1996
-------------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 104,165 $ 176,667
Accounts receivable - net 8,915,702 8,221,356
Inventories 9,891,370 8,860,574
Assets of discontinued operations 276,561 --
Other current assets 203,720 157,840
---------------- ----------------
Total current assets 19,391,518 17,416,437
Property and equipment, at cost 11,189,628 12,295,459
Less accumulated depreciation and amortization 4,592,557 5,403,083
---------------- ----------------
6,597,071 6,892,376
Other assets 1,049,469 944,453
---------------- ----------------
$ 27,038,058 $ 25,253,266
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 10,527,889 $ 9,006,182
Accounts payable and accrued liabilities 9,592,263 8,904,892
Long-term debt due within one year:
Related parties 74,603 149,206
Other 808,583 799,270
---------------- ----------------
Total current liabilities 21,003,338 18,859,550
Long-term debt due after one year:
Related parties 275,232 596,822
Other 4,686,569 4,891,969
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000 shares authorized:
$100 Series A, 5,000 shares authorized,
4,000 shares issued and outstanding 400,000 400,000
$3.75 Series B, 1,375,000 shares authorized,
206,752 shares issued and outstanding 775,320 775,320
Common stock, $.01 par value, 20,000,000 shares authorized,
3,355,145 shares outstanding (2,755,145 at February 29, 1996) 33,551 27,551
Capital in excess of stated value 10,336,227 10,042,327
Deficit (10,472,179) (10,340,273)
---------------- ----------------
Total stockholders' equity 1,072,919 904,925
---------------- ----------------
$ 27,038,058 $ 25,253,266
================ ================
</TABLE>
See accompanying notes.
3
<PAGE> 4
MERIDIAN NATIONAL CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MAY 31,
-------------------------------------------
1996 1995
------------------ ----------------
<S> <C> <C>
Net sales $ 14,694,720 $ 14,849,762
Costs of sales 12,771,696 13,217,395
----------------- ----------------
Gross margin 1,923,024 1,632,367
Other costs and expenses:
Selling, general and administrative 1,761,836 1,448,259
Interest expense 396,268 361,122
Miscellaneous - net (75,540) (15,772)
----------------- ----------------
2,082,564 1,793,609
----------------- ----------------
Loss from continuing operations before
extraordinary gain (159,540) (161,242)
Income from discontinued operations 36,674 55,819
----------------- ----------------
Loss before extraordinary gain (122,866) (105,423)
Extraordinary gain - extinguishment of debt -- 149,206
----------------- ----------------
Net income (loss) $ (122,866) $ 43,783
================= ================
Earnings (loss) applicable to common stock $ (157,105) $ 9,585
================= ================
Earnings (loss) per common share -
primary and fully diluted:
Income (loss) before extraordinary gain:
Continuing operations ($0.07) ($0.08)
Discontinued operations 0.01 0.02
Extraordinary gain -- 0.06
------------------- ------------------
Net income (loss) ($0.06) $0.00
=================== ==================
Weighted average common
shares outstanding 2,755,145 2,543,929
================== =================
</TABLE>
See accompanying notes.
4
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MERIDIAN NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
May 31,
---------------------------------------------------
1996 1995
------------------- ---------------------
<S> <C> <C>
OPERATING ACTIVITIES
Loss from continuing operations before extraordinary gain $ (159,540) $ (161,242)
Adjustments to reconcile loss to net cash
provided by operating activities:
Depreciation and amortization 220,809 120,129
Changes in operating assets and liabilities:
Accounts receivable (715,936) 727,841
Inventories (1,030,796) (1,024,991)
Other current assets (45,880) (119,514)
Accounts payable and accrued liabilities 607,272 (534,124)
------------------- -------------------
Net cash used in continuing operating activities (1,124,071) (991,901)
Net cash provided by discontinued operating activities 52,349 75,319
------------------- -------------------
Net cash used in operating activities (1,071,722) (916,582)
INVESTING ACTIVITIES
Additions to property and equipment (201,311) (271,242)
Changes in other assets (41,445) 98,667
------------------- -------------------
Net cash used in investing activities (242,756) (172,575)
FINANCING ACTIVITIES
Changes in notes payable 1,521,707 1,143,625
Payments on long-term debt (270,690) (235,444)
Cash dividends paid (9,041) (9,000)
Net proceeds from exchange of warrants -- 37,359
------------------- -------------------
Net cash provided by financing activities 1,241,976 936,540
------------------- -------------------
Decrease in cash and cash equivalents (72,502) (152,617)
Cash at beginning of period 176,667 655,373
------------------- -------------------
Cash at end of period $ 104,165 $ 502,756
=================== ===================
</TABLE>
See accompanying notes.
5
<PAGE> 6
MERIDIAN NATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
1. CAPITAL STOCK
In May 1996 the Board of Directors of the Company authorized the
issuance of 600,000 shares of common stock in exchange for a reduction of
$300,000 to a convertible note payable to an officer and stockholder.
Accordingly, long-term debt due after one year has been reduced and
stockholders' equity has been increased by $300,000 in the accompanying May 31,
1996 condensed consolidated balance sheet.
2. DISCONTINUED OPERATIONS
On July 5, 1996, the Company sold all of the property and equipment of
Meridian Environmental Services, Inc. ("MES"), a wholly-owned subsidiary which
operated the Company's waste acid recycling and disposal business. The assets
were sold for $700,000 to a new company formed by MES management. Of the
$700,000 purchase price, $200,000 is represented by notes due from the
purchaser, payable in varying installments over a period of five years. Of an
approximate $400,000 gain on the sale of the assets, $200,000 will be
recognized during the Company's quarter ending August 31, 1996 and the
remainder will be recognized as the notes are collected.
The accompanying condensed consolidated financial statements have been
restated to separately report the assets and operating results of this
discontinued operation. Net sales of the discontinued operation were $357,000
and $486,000 in the quarters ended May 31, 1996 and 1995, respectively.
3. RELATED PARTY TRANSACTIONS
The Company leases property and equipment from affiliates of certain
officers and directors of the Company. Lease payments to these affiliates
during the three month periods ended May 31, 1996 and 1995 approximated $75,000
and $63,000, respectively. The Company's management believes the terms of the
leases are at least as favorable as those that could have been obtained from
unrelated parties.
6
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4. SUBSEQUENT EVENTS
A registration statement has been filed with the Securities and
Exchange Commission on July 8, 1996 by Environmental Purification Industries,
Inc. ("EPII"), a wholly-owned subsidiary of the Company. The registration
statement relates to a proposed public offering of 1,200,000 shares of Common
Stock of EPII (representing approximately 50% of the Common Stock of EPII to be
outstanding upon completion of the offering) and 1,200,000 redeemable common
stock warrants. Prior to the effective date of the registration statement, the
Company intends to transfer its ownership interests in Environmental
Purification Industries Company ("EPIC"), which operates the Company's paint
waste recycling operations, to EPII.
Additionally, the Company has executed an agreement effective June 28,
1996 to repay a note payable to Haden Purification, Inc. ("HPI"). The terms of
the agreement include, among other things, settlement of the note payable,
which had a balance due of $674,000 on June 28, 1996, in exchange for a payment
of $350,000. The Company is also required to pay to an affiliate of HPI a
throughput charge of $10 per cubic yard of paint waste processed through EPIC's
current paint waste recycling system. The throughput charges are payable
monthly through June 1998 and are estimated to aggregate $170,000.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FIRST QUARTER ENDED MAY 31, 1996
COMPARED TO
FIRST QUARTER ENDED MAY 31, 1995
First quarter sales of $14.7 million represented a 1% decrease over sales
reported in the same quarter in the prior year. The Company reported a loss
from continuing operations before extraordinary gain of $160,000 in the first
quarter compared to $161,000 in the same quarter last year.
As discussed further in Note 2 to the condensed consolidated financial
statements, subsequent to the end of the first quarter of fiscal 1997 the
Company sold all of the property and equipment of its waste acid recycling and
disposal business. Accordingly, operating results for the Company have been
restated for all periods presented to separately report the operating results
of this discontinued operation and discussions of results of operations which
follow pertain only to continuing operations.
Net income for the first quarter of the prior year includes a $149,000
extraordinary gain from the early retirement of a debt obligation at a
discount.
STEEL DISTRIBUTION AND PROCESSING SEGMENT The Company's steel distribution and
processing operations reported net sales of $13.9 million for the first quarter
of fiscal 1997, a 1% decrease over the first quarter of the prior year.
Operating profits for this segment amounted to $568,000, an increase of $30,000
from the first quarter of the prior year.
In March 1995 the Company shutdown its bumper stock pickling business. At that
time, certain changes were made to the pickling facility in order to handle bar
coil product. The Company was unable to secure sufficient bar coil pickling
business to operate profitably during fiscal 1996 and this operation was closed
in March 1996. First quarter sales for this facility decreased $324,000 from
the same quarter of the prior year. Operating losses for this facility amounted
to $26,000 for the first quarter of fiscal 1997 and $46,000 for the first
quarter of the prior year.
Excluding the effects of the shutdown of the bumper stock and bar coil pickling
business, gross margin (net sales less cost of sales) as a percentage of net
sales was 12.5% in the first quarter of fiscal 1997 compared to 10.1% in the
comparable quarter of the prior year. This gross margin increase is
attributable to the increased emphasis on providing value-added processing of
steel
8
<PAGE> 9
products sold to end-user customers, which generally generates higher gross
margins than the steel distribution business. Net sales for the steel service
center in Gary, Indiana, which was acquired in November 1995, amounted to $2.8
million in the first quarter of fiscal 1997.
WASTE MANAGEMENT SEGMENT This segment reflects the results of the operations of
the Company's paint waste recycling operation and excludes the discontinued
operations of the waste acid recycling and disposal operation. Net sales for
paint waste recycling increased to $804,000 in the first quarter of fiscal 1997
from $780,000 in the first quarter of the prior year.
This segment reported a $91,000 operating loss in the first quarter of fiscal
1997, compared to an operating loss of $63,000 for the same quarter last year.
The increased loss principally resulted from higher administrative costs as the
paint waste recycling operation prepares for future expansion of its
operations.
INTEREST EXPENSE Interest expense increased $35,000 (or 10%) in the first
quarter of fiscal 1997. The Company's average outstanding borrowings rose as a
result of the increase in working capital requirements associated with the
expansion of the steel processing business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES The $314,000 increase in selling,
general and administrative expenses is primarily attributable to the
development of the Company's steel service center business.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a $1,612,000 working capital deficit at May 31, 1996,
reflecting a $169,000 working capital decrease from February 29, 1996. This
decrease is primarily a result of capital expenditures and scheduled payments
on long-term debt. Certain components of working capital, including accounts
receivable, inventories, notes payable and accounts payable, historically
fluctuate significantly based upon market conditions, sales volume and steel
purchasing strategies of the Company's steel operations.
The Company's primary sources of liquidity are its cash balances and a
$12 million revolving demand credit line with a bank. Borrowing availability
under the revolving credit line is determined using a formula based upon
eligible accounts receivable and inventories. Violation in the first quarter of
fiscal 1997 of certain covenants contained in the line of credit agreement have
been waived by the bank. In connection with the waivers, the bank has agreed to
amend certain covenants after completion of certain transactions during fiscal
1997. As of May 31, 1996, the outstanding balance of the revolving credit line
amounted to $10,228,000 and unused availability amounted to $1,219,000.
9
<PAGE> 10
The revolving credit line agreement prohibits the payment of cash
dividends on the Company's common stock and allows the payment of cash
dividends on the Company's preferred stock issues only if the Company is not in
default of any provisions in the loan agreement and payment of such dividend
would not result in any defaults.
In the first quarter of fiscal 1997, William D. Feniger, an officer
and stockholder received 600,000 newly-issued shares of common stock in
exchange for a $300,000 reduction of a convertible note payable to him.
As a result of federal environmental regulations issued in 1991,
Environmental Purification Industries Company ("EPIC"), the Company's paint
waste recycling operation is required to and has submitted to the U.S. EPA an
operating permit application under the Resources Conservation Recovery Act of
1980. The final approval for such a permit may take several years and require
additional outlays of funds. During the application and review process, EPIC's
operations continue on interim status and are unaffected. EPIC may be required
to make modifications to its operating procedures or equipment in the future,
although EPIC's management believes its operations meet the requirements
without modification.
EPIC has entered into a license agreement with Aster, Inc. whereby
Aster has granted the Company the exclusive right, except in Mexico, to use
certain patented processes and technology in its paint recycling process. EPIC
has agreed to pay Aster royalties and other fees for ongoing work performed by
Aster to commercialize and to continue to refine the process, formulae and
technology. Minimum monthly payments required under the agreement are $20,000.
EPIC has begun construction of a facility which would utilize the Aster
technology. Planned expenditures for property and equipment amount to
$2,300,000, of which $700,000 was committed as of July 15, 1996. These capital
expenditures will be paid for by a combination of 1.) anticipated proceeds from
a planned initial offering of approximately 50% of the paint waste recycling
operation and 2.) debt financing. There can be no assurance that the planned
public offering will be successfully completed or that additional financing
will be available on economically feasible terms. EPIC currently has no
commitments or arrangements for such debt financing. Without additional funds
from these sources, EPIC would be unable to complete its expansion program.
Otherwise, the Company does not have any material capital expenditure
commitments at this time. Capital expenditures are limited under its loan
agreement with the bank.
The Company has incurred losses over the last two years, has a working
capital deficiency, and has been unable to meet certain loan covenants.
Management has taken certain actions and begun to implement plans to improve
the Company's operating performance and financial position. The following
transactions, which are more fully described above or in the notes to the
10
<PAGE> 11
condensed consolidated financial statements, have been completed to improve the
financial condition of the Company and provide additional working capital:
- Exchange of 600,000 shares of Common Stock of the Company
for a $300,000 reduction of a note payable to an officer and
stockholder.
- The sale of its spent acid recycling operations in July 1996.
- The extinguishment of certain debt at a discount in July
1996.
Additionally, the Company has begun to implement these additional plans:
- An initial public offering of approximately 50% of its paint
waste recycling operations.
- Reduction of certain operating costs and refocusing on the
Company's core steel distribution and processing operations.
Historically, the Company's operations have been funded with cash
generated from operations and bank financing. The Company has also raised funds
through sale of equity securities and has used the proceeds to fund its
investments in EPIC, among other items. As previously discussed, management is
taking measures to improve operating results and the Company's financial
position and accordingly, management believes its existing resources, including
available cash, cash provided by operating activities and the Company's credit
facilities will be sufficient to satisfy its working capital and other capital
requirements for fiscal 1997, except for planned capital expenditures of EPIC
which will be funded from the proceeds of the planned public offering of 50% of
the paint waste recycling operations.
11
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MERIDIAN NATIONAL CORPORATION
PART II
OTHER INFORMATION
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended May 31, 1996.
12
<PAGE> 13
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.
MERIDIAN NATIONAL CORPORATION
(Registrant)
Date: July 18, 1996 By /s/ William D. Feniger
---------------------------------
William D. Feniger
Chairman of the Board of Directors,
President and Chief Executive Officer
Date: July 18, 1996 By /s/ James L. Rosino
---------------------------------
James L. Rosino
Vice President - Finance and
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET OF MERIDIAN NATIONAL CORPORATION
AS OF MAY 31, 1996 AND THE RELATED UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS FOR THE THREE MONTHS ENDED MAY 31, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 104,165
<SECURITIES> 0
<RECEIVABLES> 8,915,702
<ALLOWANCES> 0
<INVENTORY> 9,891,370
<CURRENT-ASSETS> 19,391,518
<PP&E> 11,189,628
<DEPRECIATION> 4,592,557
<TOTAL-ASSETS> 27,038,058
<CURRENT-LIABILITIES> 21,003,338
<BONDS> 4,686,569
<COMMON> 33,551
0
1,175,320
<OTHER-SE> (135,952)
<TOTAL-LIABILITY-AND-EQUITY> 27,038,058
<SALES> 14,694,720
<TOTAL-REVENUES> 14,694,720
<CGS> 12,771,696
<TOTAL-COSTS> 12,771,696
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 396,268
<INCOME-PRETAX> (159,540)
<INCOME-TAX> 0
<INCOME-CONTINUING> (159,540)
<DISCONTINUED> 36,674
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 122,866
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
