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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, 1997
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, 1997, 3,488,246 shares of Meridian National Corporation common
stock were outstanding.
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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, 1997 may not be indicative of
the results of operations for the year ending February 28, 1998. 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 28, 1997.
2
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MERIDIAN NATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MAY 31, February 29,
1997 1997
---------- ------------
ASSETS
Current assets:
Cash $ 16,111 $ 16,778
Accounts receivable - net 10,805,203 11,174,851
Inventories 13,141,582 12,083,532
Other current assets 812,015 678,504
------------ ------------
Total current assets 24,774,911 23,953,665
Property and equipment, at cost 12,219,922 11,963,239
Less accumulated depreciation and amortization 4,335,135 4,151,923
------------ ------------
7,884,787 7,811,316
Other assets 1,884,783 1,935,829
------------ ------------
$ 34,544,481 $ 33,700,810
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 12,291,823 $ 11,138,254
Accounts payable and accrued liabilities 13,021,204 13,132,857
Long-term debt due within one year:
Related parties -- --
Other 3,401,924 1,548,644
------------ ------------
Total current liabilities 28,714,951 25,819,755
Long-term debt due after one year:
Related parties 275,232 275,232
Other 4,109,438 6,311,061
Minority interests 52,310 96,600
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, 3,488,246 shares outstanding 34,882 34,882
Capital in excess of stated value 10,818,545 10,818,545
Deficit (10,636,197) (10,830,585)
------------ ------------
Total stockholders' equity 1,392,550 1,198,162
------------ ------------
$ 34,544,481 $ 33,700,810
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SEE ACCOMPANYING NOTES.
3
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MERIDIAN NATIONAL CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED
MAY 31,
------------------
1997 1996
---- ----
Net sales $19,999,870 $14,694,720
Costs of sales 17,720,334 12,771,696
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Gross margin 2,279,536 1,923,024
Other costs and expenses (income):
Selling, general and administrative 1,786,080 1,761,836
Interest expense 428,639 396,268
Minority interests (44,290) --
Miscellaneous - net (94,283) (75,540)
----------- -----------
2,076,146 2,082,564
----------- -----------
Income (loss) from continuing operations 203,390 (159,540)
Income from discontinued operations -- 36,674
----------- -----------
Net income (loss) $ 203,390 $ (122,866)
----------- -----------
Earnings (loss) applicable to common stock $ 169,192 $ (157,105)
----------- -----------
----------- -----------
Earnings (loss) per common share -
primary and fully diluted:
Income (loss):
Continuing operations $ 0.05 ($0.07)
Discontinued operations -- 0.01
----------- -----------
Net income (loss) $ 0.05 ($0.06)
----------- -----------
----------- -----------
Weighted average common
shares outstanding 3,488,278 2,755,145
----------- -----------
----------- -----------
SEE ACCOMPANYING NOTES.
4
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MERIDIAN NATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MAY 31,
------------------
1997 1996
---- ----
OPERATING ACTIVITIES
Income (loss) from continuing operations $ 203,390 $ (159,540)
Adjustments to reconcile income (loss) to net cash
used in continuing operating activities:
Depreciation and amortization 215,772 220,809
Minority interests (44,290) --
Changes in operating assets and liabilities:
Accounts receivable 369,648 (715,936)
Inventories (1,058,050) (1,030,796)
Other current assets (133,511) (45,880)
Accounts payable and accrued liabilities (111,655) 607,272
----------- -----------
Net cash used in continuing operating
activities (558,696) (1,124,071)
Net cash provided by discontinued
operating activities -- 52,349
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Net cash used in operating activities (558,696) (1,071,722)
INVESTING ACTIVITIES
Additions to property and equipment (256,683) (201,311)
Changes in other assets (60,264) (41,445)
----------- -----------
Net cash used in investing activities (316,947) (242,756)
FINANCING ACTIVITIES
Changes in notes payable 1,153,569 1,521,707
Payments on long-term debt (269,593) (270,690)
Cash dividends paid (9,000) (9,041)
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Net cash provided by financing activities 874,976 1,241,976
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Decrease in cash and cash equivalents (667) (72,502)
Cash at beginning of period 16,778 176,667
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Cash at end of period $ 16,111 $ 104,165
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SEE ACCOMPANYING NOTES.
5
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MERIDIAN NATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
1. 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, 1997 and 1996 approximated $64,000
and $75,000, 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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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FIRST QUARTER ENDED MAY 31, 1997
COMPARED TO
FIRST QUARTER ENDED MAY 31, 1996
First quarter sales of $20.0 million represented record quarterly sales
volume. The sales increase of 36% over sales of $14.7 million in the first
quarter of the prior fiscal year was a result of the growth of the Company's
steel processing and distribution operations as it expands its marketing efforts
throughout the midwest.
STEEL DISTRIBUTION AND PROCESSING SEGMENT The Company's steel distribution and
processing operations reported net sales of $19.1 million for the first quarter
of fiscal 1998, an increase of $5.2 million or 38% over the prior year.
Benefiting from the strong demand for steel products, the sales increase was
spread among all of the Company's steel distribution and processing operations.
Operating profits for this segment amounted to $900,000 for the first
quarter of fiscal 1998, an increase of $333,000 over the prior year. Gross
margin (net sales less cost of sales) as a percentage of net sales was 10.5% in
the first quarter of fiscal 1998 compared to 11.8% in the prior year. The
market for steel products has remained strong during the first quarter of fiscal
1998 as demand for steel products continued at high levels. However, gross
margin percentages have decreased as steel costs have risen over the prior year,
while the Company has not been able to fully pass along the increased costs to
its customers. Management believes the market for steel products during the
remainder of fiscal 1998 will remain strong as economic growth continues at
modest levels, although the summer months will show normal seasonal softness.
WASTE MANAGEMENT SEGMENT This segment reflects the results of the operations
of the Company's paint waste recycling operation. Net sales for paint waste
recycling increased slightly to $860,000 in the first quarter of fiscal 1998
from $804,000 in the first quarter of the prior year. For the past several
years, this operation has operated at or near its processing capacity.
This segment reported a $91,000 operating loss for the first quarter of
fiscal 1998, unchanged from the first quarter of the prior year. The operating
results for this segment have been negatively impacted by costs incurred in the
development and implementation of its second generation paint waste recycling
technology. Implementation of the new process technology will provide
additional process capacity through the expansion of its facilities in Toledo,
Ohio,
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which has been recently completed and has entered the start-up phase of
operations.
INTEREST EXPENSE Interest expense increased $32,000 or 8% in the first quarter
of fiscal 1998. The Company's average outstanding borrowings rose as a result
of the increase in working capital requirements mainly associated with the
expansion of the steel processing business.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity is a $13.5 million revolving
credit line with a bank. Borrowing availability under the revolving credit line
is determined using a formula based upon eligible accounts receivable and
inventories. As of May 31, 1997, the outstanding balance of the revolving
credit line amounted to $12,445,000 and unused availability amounted to
$1,055,000.
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 September 1995, Environmental Purification Industries Company, ("EPI")
entered into a license agreement with Aster, Inc. whereby Aster has granted the
Company the exclusive worldwide rights, except in Mexico, to use certain
patented processes and technology for recycling paint waste, the Polymeric
Recovery System (the "PRS system"). EPI 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. EPI has recently completed a $2.3
million expansion of its paint waste recycling facility which utilizes the PRS
system. Start-up of commercial operation of the PRS system began in July 1997.
The expansion has been financed through borrowings from the bank. Monthly
payments of $21,000 plus interest are required during fiscal 1998, an additional
payment of $150,000 is due on September 30, 1997 and a balloon payment of
$1,906,000 is due in March 1998. The Company is investigating various
opportunities to obtain long-term funding for this project.
The Company had a $3,940,000 working capital deficit at May 31, 1997,
reflecting a $2,074,000 decrease in working capital from February 28, 1997.
This decrease is primarily a result of the classification as a current liability
at May 31, 1997 of the balloon payment of $1,906,000 due in March 1998 on the
borrowings to finance the PRS system expansion, as discussed above. Certain
components of working capital, including accounts receivable, inventories, notes
payable and accounts payable, historically may fluctuate significantly based
8
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upon market conditions, sales volume and steel purchasing strategies of the
Company's steel operations.
As a result of federal environmental regulations issued in 1991, 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, EPI's paint waste recycling operations continue on interim
status and are unaffected. EPI may be required to make modifications to its
operating procedures or equipment in the future, although EPI's management
believes its operations meet the requirements without modification.
The Company has entered into an agreement for a license to use computer
software and for purchase of computer equipment, for an aggregate price of
$265,000. The computer system is to be utilized in the Company's steel
operations and is scheduled to be implemented later in fiscal 1998. Financing
for this and other anticipated implementation costs is provided through leasing
arrangements with both the software and hardware vendors. 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 a working capital deficit and has sustained operating
losses in recent years. Management has taken various steps in recent years to
improve the Company's operating performance and liquidity. Management expects
to realize during fiscal 1998 the full benefit of these actions, which include
the expansion of the steel processing operations, expansion of the paint waste
recycling facility incorporating the PRS system, closing or sale of operations
which were unprofitable or did not fit into the Company's strategic plans and
various cost reductions.
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
EPI, among other items. 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 the remainder of fiscal 1998. In addition, management believes
it will be successful in obtaining long-term funding for the expansion of its
paint waste recycling facility.
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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, 1997.
10
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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, 1997 By /s/ William D. Feniger
------------------------------
William D. Feniger
Chairman of the Board of Directors,
President and Chief Executive Officer
Date: July 18, 1997 By /s/ James L. Rosino
------------------------------
James L. Rosino
Vice President - Finance and
Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<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, 1997 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-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> MAY-31-1997
<CASH> 16,111
<SECURITIES> 0
<RECEIVABLES> 10,805,203
<ALLOWANCES> 0
<INVENTORY> 13,141,582
<CURRENT-ASSETS> 24,774,911
<PP&E> 12,219,922
<DEPRECIATION> 4,335,135
<TOTAL-ASSETS> 34,544,481
<CURRENT-LIABILITIES> 28,714,951
<BONDS> 4,384,670
0
1,175,320
<COMMON> 34,882
<OTHER-SE> 182,348
<TOTAL-LIABILITY-AND-EQUITY> 34,544,481
<SALES> 19,999,870
<TOTAL-REVENUES> 19,999,870
<CGS> 17,720,334
<TOTAL-COSTS> 19,506,414
<OTHER-EXPENSES> (138,573)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 428,639
<INCOME-PRETAX> 203,390
<INCOME-TAX> 0
<INCOME-CONTINUING> 203,390
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 203,390
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
