UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 0-11426
PACKAGING RESEARCH CORPORATION
(Exact name of registrant as specified in its charter)
STATE OF COLORADO 84-0750762
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2582 South Tejon Street, Englewood, Colorado 80110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: 303) 936-2363
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
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable
date.
As of November 14, 1995 there were 3,096,904 shares of Common Stock
outstanding.
<PAGE>
INDEX
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1995 and December 31, 1994 3
Consolidated Statements of Operations -
Three and Nine Months Ended
September 30, 1995 and 1994 5
Consolidated Statements of Cash Flows -
Nine Months Ended
September 30, 1995 and 1994 7
Notes to Consolidated Financial Statements 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 19
Part II. Other Information 24
<PAGE>
September 30, December 31,
ASSETS 1995 1994
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 294,000 $ 2,633,000
Accounts receivable, net of allowance
for doubtful accounts and returns of
$18,000 and $13,000 at September 30, 1995
and December 31, 1994, respectively 2,438,000 592,000
Receivables from affiliates - 393,000
Inventory, net 3,087,000 2,556,000
Notes receivable, including accrued
interest - 1,319,000
Prepaid expenses and other 267,000 362,000
Total current assets 6,086,000 7,855,000
Mama Rizzo's advances - 2,000,000
PROPERTY, PLANT AND EQUIPMENT, at cost: 3,658,000 1,759,000
Less - Accumulated depreciation
and amortization (1,350,000) (1,085,000)
Net property, plant and equipment 2,308,000 674,000
OTHER ASSETS:
Deferred offering costs 215,000 302,000
Goodwill 12,973,000 -
13,188,000 302,000
Total assets $ 21,582,000 $ 10,831,000
<PAGE>
September 30, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
(Unaudited)
CURRENT LIABILITIES:
Trade accounts payable and accrued
liabilities $ 3,907,000 $ 775,000
Accrued customer deductions 1,765,000 -
Current notes payable 1,104,000 -
Customer deposits 312,000 270,000
Total current liabilities 7,088,000 1,045,000
CONVERTIBLE DEBENTURES 1,791,000 2,016,000
NOTES PAYABLE 1,575,000 -
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value;
25,000,000 shares authorized;
3,096,904 (307,692 contingent) and
2,037,253 shares issued and outstanding
at September 30, 1995 and December 31,
1994, respectively 28,000 21,000
Additional paid-in capital 12,147,000 32,018,000
Accumulated deficit (On January 1, 1995,
$24,269,000 of deficit was eliminated
through a quasi-reorganization) (1,047,000) (24,269,000)
Total shareholders' equity 11,128,000 7,770,000
Total liabilities and
shareholders' equity $ 21,582,000 $10,831,000
<PAGE>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
REVENUES $6,904,000 $1,822,000 $13,047,000 $5,464,000
COST OF GOODS SOLD 3,899,000 1,044,000 7,938,000 3,348,000
Gross profit 3,005,000 778,000 5,109,000 2,116,000
OPERATING EXPENSES:
General and administrative 980,000 483,000 2,487,000 1,298,000
Selling and marketing 1,386,000 121,000 3,090,000 408,000
Amortization of intangible
asset 86,000 - 202,000 -
Research and development 12,000 35,000 51,000 85,000
2,464,000 639,000 5,830,000 1,791,000
INCOME (LOSS) FROM OPERATIONS 541,000 139,000 (721,000) 325,000
OTHER INCOME (EXPENSE):
Interest expense (143,000) (80,000) (339,000) (236,000)
Interest income 2,000 102,000 13,000 299,000
Total other income (expense) (141,000) 22,000 (326,000) 63,000
NET INCOME (LOSS) $ 400,000 $ 161,000 $(1,047,000) $ 388,000
PRIMARY INCOME (LOSS) PER
COMMON SHARE $ .16 $ .13 $ (.42) $ .32
FULLY DILUTED INCOME PER
COMMON SHARE: $ .11 $ .09 $ N/A $ .25
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Primary 2,488,753 1,232,344 2,488,753 1,217,305
Fully diluted 3,165,115 2,463,011 N/A 2,463,011
<PAGE>
Nine Months Ended
September 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $(1,047,000) $ 388,000
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 655,000 282,000
Provision for obsolescence and warranty
reserves 70,000 115,000
Provision for losses on accounts receivable 10,000 23,000
Changes in assets and liabilities -
Increase in restricted cash - (108,000)
(Increase) decrease in accounts and
affiliate receivables (300,000) (176,000)
Increase in inventory (79,000) (430,000)
Increase in prepaid expenses and
other assets (153,000) (89,000)
Increase (decrease) in accounts payable
and accrued liabilities 644,000 254,000
Increase (decrease) in customer deposits 41,000 (207,000)
Net cash used in operating activities of
discontinued operations - (165,000)
Net cash used in operating activities (159,000) (113,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Note receivable advances - (3,950,000)
Note receivable collections - 2,864,000
Cash paid to discharge MRI debt (3,000,000) -
Proceeds from disposal of assets 45,000 841,000
Capital expenditures (202,000) (321,000)
Cash paid for acquisition of MRI (388,000) -
Net cash used in investing activities (3,545,000) (566,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash proceeds from short-term borrowings 777,000 -
Repayments of short-term borrowings (557,000) -
Cash proceeds from long-term borrowings 2,815,000 -
Repayments of long-term borrowings (1,670,000) -
Net cash provided by financing activities 1,365,000 -
NET DECREASE IN CASH (2,339,000) (679,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,633,000 682,000
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 294,000 $ 3,000
<PAGE>
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
1995 1994
Cash paid during the period for:
Interest expense (none capitalized) $ 258,640 $(224,000)
Interest income - 114,000
Income taxes - -
<PAGE>
1. Basis of Presentation
The accompanying consolidated financial statements at September 30,
1995 and December 31, 1994, and for the three and nine month
periods ended September 30, 1995 and 1994, have been prepared from
the books and records of Packaging Research Corporation ("PRC" or
the "Company") and its wholly owned subsidiary, Mama Rizzo's, Inc.
("MRI"), without audit. All intercompany accounts and transactions
have been eliminated in consolidation. The statements reflect all
normal recurring adjustments which, in the opinion of management,
are necessary for the fair presentation of financial position,
results of operations and cash flows for the periods presented.
Certain information and disclosures normally included in financial
statements have been omitted under Securities and Exchange
Commission regulations. It is suggested that the accompanying
financial statements be read in conjunction with the annual report
on Form 10-KSB for the year ended December 31, 1994. The results
of operations for the period ended September 30, 1995, are not
necessarily indicative of the operating results for the full year.
Certain prior year amounts have been reclassified to conform with
the current year presentation.
2. Organization and Corporate Restructuring
Organization
Prior to February 17, 1995, the Company was primarily engaged in
the business of designing, manufacturing, marketing and servicing
a complete line of standard and customized precision, high-speed
filling, forming and pumping equipment for a wide assortment of
processed and non-processed food and non-food applications. The
Company's equipment is manufactured exclusively in the United
States and marketed and sold throughout the world.
Effective February 17, 1995, the Company expanded its business to
include the manufacturing and distributing of a premium pasta
sauce.
Corporate Restructuring and Acquisition
Restructuring
On December 16, 1994, the Company's Board of Directors authorized
a quasi-reorganization of the Company's accounts effective January
1, 1995. The Board based this on the fact that the Company had
profitably changed its business from oil and gas to manufacturing.
Acquisition
On February 17, 1995, the Company, through its wholly owned
subsidiary, MRI, consummated the purchase of the assets and certain
liabilities of Mama Rizzo's, Inc. and M.A. Yamin, Inc. ("Mama
Rizzo's"), both Texas corporations, collectively engaged in the
business of manufacturing and distributing pasta sauce under the
name "Mama Rizzo's."
As consideration for the purchase, the Company issued 152,152
shares of the Company's common stock (valued at approximately
$950,000 based upon the quoted market price on the date of closing)
to M.A. Yamin, Inc. ("MAY") for the Mama Rizzo recipes and assumed
through its subsidiary approximately $17 million in liabilities of
Mama Rizzo's, Inc. including $2,000,000 owed to the Company. The
Company negotiated a settlement with Mama Rizzo's principal
creditor (the "Creditor") who was owed approximately $12.2 million
for monies borrowed over time including accrued interest thereon.
In satisfaction for the discharge of this debt, the Company paid
approximately $6.3 million in cash with the remaining balance of
$5.9 million discharged through the issuance of the Company's
common stock at $6.50 per share (the fair market value on the date
of agreement), $2,000,000 of which is contingent upon MRI achieving
$15 million of sales during the year ended December 31, 1995 (Mama
Rizzo's had $12.8 million in sales during 1994). This acquisition
was accounted for under the purchase method of accounting. The
contingent consideration will be reflected as goodwill if recorded.
Management expects that the acquisition will diversify and expand
the Company's revenue base as well as increase long-term
profitability. To date, Mama Rizzo's has incurred substantial
losses as it has developed and grown the business which are
primarily the result of costs associated with purchasing shelf
space and establishing a customer base. Management believes that
the cost of purchasing supermarket shelf space, and a great
percentage of the costs associated with developing the customer
base, are one-time or short term in nature, and, accordingly, will
begin to decrease in the near future. As a result, it is
management's expectation that losses will continue in the short-
term but operating results will improve and profitability will
eventually be attained. Management believes that such improvements
will be attained through reduced product costs, increased sales
volumes and a reduction in advertising and promotional costs as a
percentage of sales. However there is no assurance that
profitability will result.
3. Pro Forma Statements of Operations
Prior to February 17, 1995, the Company was engaged in the
manufacturing, distribution and servicing of machines used in the
food processing industry. Effective February 17, 1995 (as
described in Note 2), the Company acquired the assets and certain
liabilities of Mama Rizzo's, a company engaged in the business of
manufacturing and distributing a premium pasta sauce.
The following table sets forth the pro forma operating results of
the Company for the nine months ended September 30, 1995 and 1994.
The pro forma operating results assume that the acquisition of Mama
Rizzo's had occurred on January 1, 1994, instead of February 17,
1995.
The following unaudited pro forma operating results are not
necessarily indicative of the results of operations had the
transaction been consummated on January 1, 1994.
Pro Forma
Nine Months Ended
September 30, 1995
(unaudited)
1995 1994
Revenue $15,017,000 $16,007,000
Cost of Sales 9,299,000 11,511,000
Gross Profit 5,718,000 4,496,000
Operating Expenses:
General and administrative 2,689,000 2,593,000
Selling and marketing 3,825,000 5,991,000
Amortization of intangible
asset 243,000 243,000
Research and development 51,000 85,000
6,808,000 8,912,000
Loss from operations $(1,090,000) $(4,416,000)
Loss per share $ (.44) $ ( .37)
Weighted average shares 2,488,753 1,634,275
4. DEBT
Convertible Subordinated Debentures
In the fourth quarter of 1993, the Company closed its offering of
3,910 units, each unit consisting of one 8% convertible
subordinated debenture due December 31, 1999, and 100 three-year
warrants, each for the purchase of one share of the Company's
common stock at an exercise price of $6.50 per share that expire in
October of 1996. The debentures are convertible at any time prior
to maturity, unless earlier redeemed, into common stock at a
conversion price of $5.00 per share. As of September 30, 1995,
$2,119,000 of debentures had been converted by the debenture
holders into 423,800 shares of the Company's common stock. In
connection with the underwriting, the underwriters received 85,000
warrants exercisable at $6.50 per share expiring in 1996 and 1999.
<PAGE>
Notes Payable
At September 30, 1995, the Company had the following promissory notes
outstanding.
Current Long-Term Total
Promissory note payable to Norwest Busi-
ness Credit Corporation ("NCBI") secured
by all assets of both the Company and MRI
bearing interest at prime plus 4%, plus
0.5% on amounts committed but unused. $ - $1,402,000 $1,402,000
Unsecured promissory notes payable to
various MRI vendors bearing interest at
an annual rate of 11%, maturing in terms
varying from 9 months to 18 months from
the dates of the notes. 784,000 173,000 957,000
Promissory notes payable to various private
lenders bearing interest at an annual rate
of 15%, maturing on January 5, 1996 or
sooner subject to certain conditions,
convertible at the option of the holders
into PRC common stock at $2.00 per share
secured by all inventory and fixed assets
of the Company and MRI. 250,000 - 250,000
Promissory note payable to MAY, bearing in-
terest at an annual rate of 8%, payable in
equal weekly installments of $6,500, commenc-
ing in May 1995, secured by the Company's
3,000,000 shares of MRI capital stock. 70,000 - 70,000
$1,104,000 $1,575,000 $2,679,000
<PAGE>
5. Earnings Per Share
Earnings (loss) per common share is computed by dividing income
(loss) by the weighted average number of shares outstanding. For
1994 fully diluted earnings per share, conversion of the Company's
$2,000,000 line of credit into 666,667 shares of common stock, the
conversion of the remaining $1,791,000 of debentures into common
stock at $5.00 per share, and satisfaction of the sales contingency
resulting in the issuance of an additional 308,000 shares were
assumed for the calculation.
Commitments and Contingencies
Litigation
In the acquisition by the Company's subsidiary MRI of the assets
and certain of the liabilities of Mama Rizzo's, certain liabilities
and claims were not assumed. Some of those creditors have filed
suit for the collection of their claims against P.S.M.S., Inc., the
Texas corporation formally known as Mama Rizzo's Inc., i.e.,
against the Corporation which owned the Mama Rizzo's business
acquired by the Company's subsidiary. P.S.M.S., Inc. does not
intend to defend those claims. The Company has been advised by
counsel that neither the Company nor its subsidiary should have
liability for those claims or for judgments emanating therefrom.
The Company has, however, agreed under certain circumstances to
indemnify Stephen and MaryAnn Yamin, the former owners of Mama
Rizzo's and MAY, for any personal liability or expenses they may
incur in connection with those unassumed liabilities as well as
MAY.
A certain creditor has obtained a judgment against P.S.M.S., Inc.
for $20,527. On April 10, 1995, this creditor filed an amended
Complaint in that action adding the Company and its subsidiary to
the Complaint, as well as MAY and Steve and MaryAnn Yamin, and
further alleging that it is entitled to recover from the defendants
lost profits on a requirements contract for fresh basil leaves to
the extent of $235,265. The liability of P.S.M.S., Inc. to this
creditor was not assumed by the Company's subsidiary. However, PRC
and the Company's subsidiary have acknowledged that they are liable
for the $20,000 portion plus interest and attorney's fees thereon,
under federal commodities regulations and have taken steps to
satisfy that liability. Their position, however, is that they are
not liable for the larger lost profits claim because they did not
assume any such liability and the foregoing federal regulations do
not apply to it. Accordingly, the Company and its subsidiary
intend to vigorously defend the claim for lost profits on the
grounds that they have no liability to this creditor even if this
creditor has valid claims against P.S.M.S., Inc.
Under the Agreement the Company agreed to employ Mr. Yamin as
President of the business but retained the right to terminate him
at any time for any reason. The Agreement provided that if the
termination were without cause, Mr. Yamin would be entitled to a
severance payment of $150,000. The Company terminated Mr. Yamin's
employment for cause. Mr. Yamin subsequently asserted that there
was not cause for his termination and that he was entitled to
severance and, under the Agreement, to borrow certain funds from
the Company and to cause a corporation controlled by him to sell
back to the Company shares of the Company's stock which had been
received in the Mama Rizzo's acquisition. The Company disputed
these claims and on March 21, 1995 filed in Texas an action for a
declaratory judgment confirming its position. Mr. Yamin filed a
counterclaim against the Company for allegedly misleading him in
connection with its acquisition of Mama Rizzo's.
In May 1995, the Company reached an agreement with Mr. Yamin
whereby all litigation initiated by the Company and Mr. Yamin was
dismissed (the "Yamin Agreement"). Under the terms of the Yamin
Agreement, the Company paid MAY $100,000 in cash and executed a
promissory note in the principal amount of $183,750 bearing
interest at the rate of 8% per annum, payable in equal weekly
installments of principal and interest of $6,500. Such promissory
note is secured by all of the outstanding capital stock of MRI. In
return for the above mentioned consideration, Mr. Yamin caused MAY
to deliver to the Company the 152,152 shares of the Company's
common stock issued to MAY pursuant to the Agreement (which the
Company recorded at $2.00 per share, the market value on the date
of the Yamin Agreement). Additionally, the stock option agreement
between the Company and MAY dated February 16, 1995 for 139,806
shares of the Company's common stock was cancelled.
In conjunction with entering into the Yamin Agreement, the Company
entered into an agreement with the Creditor (the "Creditor
Agreement"), who was owed monies by Mr. Yamin and had commenced
litigation to collect such debts. Under the terms of the Creditor
Agreement, the Company issued 100,000 unregistered shares of its
common stock to the Creditor in return for the Creditor dismissing
the litigation against Mr. Yamin. Further, under the terms of the
Creditor Agreement, the Company has agreed to provide good faith
assistance to the Creditor in attempting to resell such stock once
registered. After January 1, 1997, the Company shall be obligated
to purchase all or any portion of the 100,000 shares (to the extent
not already resold) at a price of $2.00 per share upon thirty days
prior notice.
Contingent Stock
In connection with the Company's acquisition of the assets and
certain liabilities of Mama Rizzo's, the Company negotiated a
settlement with the Creditor. Under this agreement, approximately
$5,935,000 of indebtedness was to be discharged through the
issuance of the Company's restricted common stock of which
$2,000,000 is contingent upon MRI achieving $15 million in sales
during the year ended December 31, 1995.
The Company has become aware that a $2,970,000 note payable from
Mama Rizzo's to the Creditor that was to be assigned to the Company
is no longer held by the Creditor but is held by a third party.
The Company believes that the third party is probably not a holder
in due course of the note and, therefore, should be unable to
assert the note against Mama Rizzo's because it was past due at the
time of the third party's acquisition. The Creditor remains liable
for a prior representation and warranty in favor of the Company
assuring it of the Creditor's ownership of the above described
note.
The Company has reached an agreement with the Creditor whereby the
Company issued to the Creditor the 913,152 shares of common stock
to satisfy the $5,935,000 of indebtedness. In the event MRI's
gross revenues are less than $15 million during calendar year 1995,
the Creditor will exchange the stock certificate for a certificate
representing 605,460 shares of PRC stock.
In return, until June 30, 1997, the Creditor has agreed to vote her
shares in accordance with the recommendations to shareholders by
management of PRC on all matters submitted for a shareholder vote,
if the Creditor in her good faith discretion reasonably determines
that any such management recommendation is in the best interests of
PRC.
<PAGE>
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
At September 30, 1995, the Company had a cash balance of $294,000
compared to $2,633,000 at December 31, 1994. Net cash of $159,000
was used in operating activities during the nine months ended
September 30, 1995.
As previously discussed, during the first quarter of 1995, the
Company, through a wholly-owned subsidiary, completed its
acquisition of the assets and certain liabilities of Mama Rizzo's.
The Company used $3,388,000 in investing activities during the
first nine months of 1995 in connection with the acquisition,
primarily to discharge Mama Rizzo's debt.
During the third quarter of 1995, the Company obtained a $2 million
line of credit facility from Norwest Business Credit Corporation
("NBCI") (the "Norwest Line") to replace the $200,000 line it had
received from a local bank. The Norwest Line is secured by all
assets of both the Company and MRI, bears interest at prime plus 4%
and matures in July 1998. The Company's ability to borrow funds
under the line is limited to the extent of its borrowing base, a
calculation derived from the receivables, inventory and fixed asset
balances of the Company and MRI. Under the terms of the Norwest
Line, the borrowing base was reduced by $400,000 until September
30, 1995, at which time this reserve would be eliminated at the
rate of $100,000 a month, provided the Company achieved certain
performance levels. At September 30, 1995, the Company had
satisfied requirements permitting the reserve to be reduced to
$300,000.
During the second quarter of 1995, the Company raised $750,000 in
financing from certain private investors, including officers and
directors of the Company (the "Bridge Loans"). The Bridge Loans
were convertible into shares of the Company's common stock at the
option of the holders at $2.50 per share, bear interest at an
annual rate of 15%, mature on January 5, 1996 and carried warrants
to purchase shares of the Company's common stock at $2.50 per share
(to the extent not converted) for a period of two years after
repayment. The loans were secured by the inventories and fixed
assets of both the Company and MRI. On July 31, 1995, proceeds
from the Norwest Line were used to make a partial repayment of the
Bridge Loans in the amount of $530,000, which included $30,000 of
accrued interest.
In order to induce the Bridge Loan holders to subordinate the
collateral they held in the Company and MRI to NBCI, the Company
reduced the conversion price of the Bridge Loans and the exercise
price of the warrants to $2.00 per share (the market price on the
date of the subordinated agreements) and extended the warrant
exercise period to four years from the date of the Bridge Loan
repayments. Further, NBCI agreed to allow the Bridge Loan holders
to retain a first security interest in certain assets used for
potato processing that the Company is currently attempting to
resell. Any proceeds from the sale of such assets are first to be
used to discharge the remaining $250,000 due on the Bridge Loans.
However, in any event, the Bridge Loans are due in full on January
5, 1996 to the extent still outstanding.
At September 30, 1995, the Company had a consolidated net working
capital deficit of approximately $1,000,000. Management believes
that this deficit is not representative of its short-term cash
requirements as the Company does not anticipate having to refund
customer deposits ($312,000), and approximately 50% of the accrued
customer deductions ($1,614,000) will be taken against future sales
and not current receivables. The Company believes that the
proceeds from the Norwest Line combined with anticipated cash flow
from operations should be sufficient to satisfy its short-term
liquidity requirements. However, additional capital will be
required on a long-term basis to fund the planned growth programs
of MRI. As of the date of this report, the Company is attempting
to quantify its long-term requirements. The Company is exploring
different alternatives to obtain additional financing, which
options include, but are not limited to, public or private debt
and/or equity offerings. However, there is no assurance that the
Company will be successful in its endeavors to obtain long-term
financing. The failure to obtain such long-term financing could
have a material adverse impact on the Company.
In January 1995, the Company obtained a $3 million line of credit
commitment from a substantial shareholder of the Company which was
to be used to help finance the 1995 operations of MRI. However,
due to the subsequent bankruptcy of this shareholder, the Company
has concluded that this line of credit is not a viable source of
financing.
At September 30, 1995, there were no material commitments for
capital expenditures.
Results of Operations
For purposes of this discussion, the food processing equipment
business is referred to as "PRC" while the pasta sauce business is
referred to as "MRI."
A net loss of $1,047,000 was recorded by the Company during the
nine months ended September 30, 1995 compared to net income of
$388,000 during the same period of the prior year. PRC recorded
net income of $208,000 during this nine month period (excluding
goodwill amortization) whereas MRI recorded a net loss of
$1,286,000. As of September 30, 1995, PRC's backlog was
approximately $1,346,000, the majority of which is expected to be
shipped and recognized as revenue during the remainder of 1995.
Management expects that the PRC product line will be profitable for
the year ended December 31, 1995. The MRI net loss is primarily
attributable to the selling and marketing costs required to compete
in the retail markets. With the introduction of two new products
into the premium pasta sauce segment by Ragu and Campbell's, i.e.,
Five Brothers and Barilla's, respectively, it is anticipated that
such costs will continue to be significant in the future.
Note 3 to the Consolidated Financial Statements presents the
unaudited pro forma results of the Company for the nine months
ended September 30, 1995. The pro forma results of operations
assume that the acquisition of the assets and certain liabilities
of Mama Rizzo's had occurred on January 1, 1994 instead of February
17, 1995. The following discussion pertains to the pro forma
operating results.
Nine Months Ended September 30, 1995 and September 30, 1994
An operating loss of $1,090,000 was recorded for the nine months
ended September 30, 1995 compared to an operating loss of
$4,416,000 for the nine months ended September 30, 1994. The
primary reasons for the $3,326,000 improvement in the operating
loss are improved product costs and the reduction of MRI's selling
and marketing expense both in absolute dollars and as a percentage
of sales.
Revenue decreased $990,000, or 6%, for the nine months ended
September 30, 1995 compared to the prior year. PRC revenues
increased $156,000, or 3%, between years whereas MRI revenues
decreased $1,146,000, or 11%, between years. MRI revenue decreased
due to extensive market expansion that took place during 1994 that
was not repeated during 1995. However, the 1994 growth was derived
from substantial promotional efforts which resulted in significant
losses. See discussions above and below.
The gross profit percentage was 38% for the nine months ended
September 30, 1995 compared to 28% for the same period of the prior
year. The improvement in margin between years is primarily due to
product cost reduction efforts at MRI, the most significant of
which was the reduction in the jar size from 32 ounces to 26 ounces
during late 1994.
General and administrative expenses approximated the prior year
amount.
Selling and marketing expenses decreased $2,166,000, or 36%, for
the nine months ended September 30, 1995 compared to the prior
year. PRC's selling and marketing costs were approximately the
same between years whereas MRI's selling and marketing costs
decreased $2,142,000, or 38%. The decrease in MRI's selling and
marketing costs are the result of extensive promotional efforts
that took place during 1994 that were not repeated during the same
period of 1995. Selling and marketing expenses were 25% of revenue
for the nine months ended September 30, 1995 compared to 37% in the
prior year.
Research and development costs decreased $34,000, or 40% as
compared to the prior year. PRC's development of a new product was
substantially completed in 1994, and research and development
expenditures in 1995 decreased proportionately.
Three Months Ended September 30, 1995 and September 30, 1994
Operating income of $541,000 was recorded for the three months
ended September 30, 1995 compared to an operating loss of $154,000
in the same period of the prior year. The primary reasons for the
improvement of $695,000 were increased revenues and reduced product
costs (see discussion below).
Revenues increased $2,910,000, or 73%, for the three months ended
September 30, 1995 compared to the prior year. PRC's revenues
increased $1,624,000, or 89%, while MRI's revenues increased
$1,286,000, or 59%, between years. The increase in PRC's revenues
is the result of timing of traditional product orders compared to
the prior year. The increase in MRI's revenues is due to increased
sales volume.
The gross margin percentage for the three months ended September
30, 1995 was 44% compared to 34% for the same period of the prior
year. The improvement is primarily due to product cost
improvements at MRI. Cost of goods as a percent of sales improved
10% between years.
General and administrative expenses approximated the prior year
amount.
Selling and marketing expenses increased $900,000, or 185%, for the
three months ended September 30, 1995 compared to the same period
of the prior year. The increase in such costs is primarily due to
increased promotional efforts at MRI as compared to the prior year.
Selling and marketing expenses were 20% of revenue for the three
months ended September 30, 1995 compared to 18% for the three
months ended September 30, 1994.
Research and development costs decreased $23,000, or 66% for the
three months ended September 30, 1995, as compared to the same
period of the prior year. The decrease is due to reduced
expenditures by PRC with respect to a new product which was
substantially completed in 1994.
<PAGE>
PART II - OTHER INFORMATION
Items 1-5 - Not Applicable
Item 6 - Exhibits and Reports on Form 8-K
(a) Not applicable
(b) Not applicable
<PAGE>
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.
PACKAGING RESEARCH CORPORATION
Registrant
Dated: November 14, 1995 By:/s/ ROBERT A. FILLINGHAM
Robert A. Fillingham
President
(Principal Executive Officer)
Dated: November 14, 1995 By:/s/ ROBERT H. PORTER
Robert H. Porter
Chief Financial Officer
(Principal Financial Officer)
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