UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-11426
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 September 6, 1996 there were 3,095,405 shares of Common Stock
outstanding.
<PAGE>
INDEX
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 1996 and December 31, 1995 . . 3
Consolidated Statements of Operations -
Six and Three Months Ended
June 30, 1996 and 1995 . . 5
Consolidated Statements of Cash Flows -
Six Months Ended
June 30, 1996 and 1995 . . 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . 15
Part II. Other Information . 20
<PAGE>
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
ASSETS 1996 1995
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 2,000 $ 806,000
Accounts receivable, net of
allowance for doubtful accounts
and returns of $46,000 and
$54,000 at June 30, 1996
and December 31, 1995, respectively 1,590,000 1,843,000
Inventory, net 2,867,000 2,708,000
Prepaid expenses and other 178,000 63,000
Total current assets 4,637,000 5,420,000
PROPERTY, PLANT AND EQUIPMENT, at cost:
Machinery and equipment 1,238,000 1,220,000
Furniture and fixtures 598,000 596,000
Test and demonstration equipment 767,000 926,000
Leasehold improvements 1,164,000 1,164,000
Vehicles 11,000 11,000
3,778,000 3,917,000
Less - Accumulated depreciation
and amortization (1,545,000) (1,496,000)
Net property, plant and equipment 2,233,000 2,421,000
OTHER ASSETS:
Deferred loan and offering costs 327,000 372,000
Goodwill 13,470,000 13,648,000
13,797,000 14,020,000
Total assets $ 20,667,000 $ 21,861,000
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
<PAGE>
June 30, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
(Unaudited)
CURRENT LIABILITIES:
Trade accounts payable and
accrued expenses $ 2,489,000 $ 3,053,000
Customer deductions 1,100,000 1,362,000
Convertible debentures due
1999-2003 3,200,000 -
Convertible debentures due 1999 1,791,000 -
Bank note payable 1,178,000 -
Vendor notes payable 1,737,000 1,181,000
Other accrued liabilities 614,000 917,000
Total current liabilities 12,109,000 6,513,000
LONG-TERM DEBT
Convertible debentures due 1999-2003 - 3,200,000
Convertible debentures due 1999 - 1,791,000
Bank note payable - -
Vendor notes payable - 53,000
Total long-term debt - 5,044,000
MINORITY INTEREST 221,000 -
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value;
25,000,000 shares authorized;
3,095,405 (307,692 contingent) and
3,095,405 shares issued and outstanding
at June 30, 1996 and December 31, 1995,
respectively 31,000 31,000
Additional paid-in capital 12,491,000 12,699,000
Accumulated deficit (re-adjusted to re-
flect quasi-reorganization effective
January 1, 1995 (4,185,000) (2,426,000)
Total shareholders' equity 8,337,000 10,304,000
Total liabilities and
shareholders' equity $ 20,667,000 $21,861,000
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
REVENUE
Pasta sauce $1,358,000 $2,807,000 $3,456,000 $3,969,000
Precision equipment
sales and service 745,000 947,000 1,913,000 2,174,000
Total Revenue 2,103,000 3,754,000 5,369,000 6,143,000
COST OF GOODS SOLD
Pasta sauce 742,000 1,876,000 1,937,000 2,737,000
Precision equipment
sales and service 506,000 470,000 1,199,000 1,302,000
Total Cost of Goods Sold 1,248,000 2,346,000 3,136,000 4,039,000
Gross profit 855,000 1,408,000 2,233,000 2,104,000
OPERATING EXPENSES:
General and administrative 1,027,000 898,000 1,963,000 1,507,000
Selling and marketing 174,000 325,000 419,000 553,000
Advertising and promotion 363,000 843,000 1,061,000 1,151,000
Amortization of goodwill 86,000 79,000 171,000 116,000
Research and development 12,000 23,000 27,000 39,000
1,662,000 2,168,000 3,641,000 3,366,000
INCOME (LOSS) FROM OPERATIONS (807,000) (760,000) (1,408,000) (1,262,000)
OTHER INCOME (EXPENSE):
Interest expense (174,000) (132,000) (363,000) (196,000)
Interest income 1,000 1,000 3,000 11,000
Miscellaneous 1,000 - 2,000 -
Total other income (expense) (172,000) (131,000) (358,000) (185,000)
INCOME TAXES - - - -
MINORITY INTEREST 7,000 - 7,000 -
NET INCOME (LOSS) $ (972,000) $ (891,000)$(1,759,000)$(1,447,000)
PRIMARY INCOME (LOSS) PER
COMMON SHARE $ (.31) $ (.40) $ (.57) $ (.67)
FULLY DILUTED INCOME PER
COMMON SHARE: $ N/A $ N/A $ N/A $ N/A
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Primary 3,095,405 2,212,188 3,095,405 2,174,999
Fully diluted N/A N/A N/A N/A
The accompanying notes to consolidated financial statements are an integral
part of these consolidated financial statements.
<PAGE>
Six Months Ended
June 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $(1,759,000) $(1,447,000)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 461,000 418,000
Provision for obsolescence and warranty
reserves 43,000 61,000
Provision for losses on accounts receivable 8,000 7,000
Changes in assets and liabilities -
Decrease in accounts receivable 245,000 1,047,000
Increase in inventory (130,000) (323,000)
Increase in prepaid expenses and
other assets (94,000) (4,000)
Decrease in accounts payable
and accrued liabilities (746,000) (478,000)
Increase (decrease) in customer deposits (107,000) 833,000
Net cash used in operating activities (2,079,000) 114,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Consideration paid for acquisition
of subsidiary - (3,000,000)
Proceeds from disposal of assets 97,000 -
Capital expenditures (20,000) (160,000)
Cash paid under loans, promissory note and
settlement agreement with Steve Yamin and MAY - (184,000)
Net cash provided by investing activities 77,000 (3,344,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank financing and
short-term borrowings 2,499,000 777,000
Repayment of bank financing and
short-term borrowings (1,321,000) (27,000)
Proceeds from exercise of stock
option of subsidiary 20,000 -
Net cash provided by financing activities 1,198,000 750,000
NET DECREASE IN CASH (804,000) (2,480,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 806,000 2,633,000
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,000 $ 153,000
<PAGE>
STATEMENTS OF CASH FLOWS
(Unaudited)
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
1996 1995
Cash paid during the period for:
Interest $ 62,000 $ 157,000
Income taxes - -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying consolidated financial statements at June 30,
1996 and December 31, 1995, and for the six and three month
periods ended June 30, 1996 and 1995, 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, 1995. The results of operations for the period ended June
30, 1996, 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 Acquisition
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.
Acquisition
1995 Acquisition
On February 17, 1995, the Company, through MRI consummated the
purchase of the assets and certain liabilities of Mama
Rizzo's, which is engaged in the business of manufacturing and
distributing pasta sauce under the name "Mama Rizzo's."
As consideration for the purchase, the Company initially
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. and assumed through
its subsidiary approximately $16.5 million in liabilities
including $2,000,000 owed to the Company. The Company
negotiated a settlement with Mama Rizzo's principal creditor
("Ms. Peterson") 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 to be discharged through the issuance
of 913,152 shares of the Company's common stock at $6.50 per
share, the fair market value on such date, $2,000,000 of which
was contingent upon MRI achieving $15 million of sales during
the year ended December 31, 1995. Since sales did not achieve
that level, 307,692 shares were forfeitable on January 1,
1996. In a separate transaction, the Board of Directors
permitted Ms. Peterson to have the benefit and voting rights
of 307,692 option shares which are issued shares through 1996,
with the option to purchase the shares at any time in 1996 for
$1.50 per share. Ms. Peterson also owns 100,000 shares from
a settlement from Yamin. At the end of 1995, and June 30,
1996, Ms. Peterson has a total of 1,013,152 shares of the
3,095,405 issued and outstanding stock, or 32.7%. Until June
30, 1997, Ms. Peterson 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 in her good faith discretion she reasonably
determines that any such management recommendation is in the
best interests of PRC.
In acquiring Mama Rizzo's, management recognized that
substantial amounts of capital would be required in order to
discharge the liabilities of Mama Rizzo's and for it to
achieve profitable operations. Commitments for capital were
received by the Company from Oren Benton, its principal
shareholder. However, Mr. Benton filed for Chapter 11
bankruptcy protection shortly after the acquisition and has
not met such capital commitments. The Company has filed a
substantial claim in the Benton Bankruptcy in connection with
such commitments with respect to which recovery is uncertain.
This acquisition was accounted for under the purchase method
of accounting. The Company recorded approximately $13,950,000
of goodwill in connection with the acquisition. In view of
Mama Rizzo's continued poor financial performance, management
has been seriously reviewing various options, including the
sale of Mama Rizzo's and seeking bankruptcy protection against
its creditors during the pendency of a sale.
3. Pro Forma Statements
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 condensed unaudited pro forma
operating results of the Company for the six months ended June
30, 1995. The pro forma operating results assume that the
acquisition of the assets and certain liabilities of Mama
Rizzo's had occurred on January 1, 1995, instead of February
17, 1995. The condensed pro forma results are not necessarily
indicative of the results of operations had the acquisition
been consummated on January 1, 1995, and may not necessarily
be indicative of future performance.
Pro Forma
Six Months Ended
June 30, 1995
(unaudited)
Revenues $ 8,113,000
Operating loss (1,633,000)
Net loss (1,818,000)
Net loss per common share $ (.84)
Weighted average common shares
outstanding 2,174,999
4. DEBT
Convertible Subordinated Debentures
In 1993, the Company issued 3,910 units, each unit consisting
of one 8% convertible subordinated debenture of $1,000 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. 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 both December 31, 1995 and June 30, 1996,
$2,119,000 of debentures had been converted by the debenture
holders into 424,000 shares of the Company's common stock. In
the event of a default in the payment of principal or interest
of senior indebtedness, the debentures shall immediately be
due and payable but no amounts may be paid by the Company with
respect to principal and interest of these debentures until the
senior indebtedness is satisfied. At June 30, 1996, the Company
was in default of senior indebtedness which had not been waived
or cured (see discussion below). The debentures have thus been
reclassified to current liabilities at June 30, 1996.
Convertible Debenture Loan
In December, 1995, the Company entered into a loan agreement
with Renaissance Capital Growth & Income Fund III, Inc.
("Renaissance"), for $3,200,000, at an interest rate of 9%,
convertible into common stock at $1.50 per share, subject to
adjustment of conversion price at January 1, 1997 if the
market price of PRC stock for a specified period prior to that
date is less than $1.50. If not reduced or converted prior,
the debentures will mature on January 1, 2003, although
mandatory principal payments will commence on January 1, 1999.
The loan is secured by all the assets of the Company. The
loan agreement limits the amount of additional indebtedness
incurred by the Company and also requires that certain
financial performance ratios be met. At June 30, 1996, the
Company was in default for failure to meet the minimum current
ratio required by the agreement and for failure to make
required monetary payments of interest. These events permit
Renaissance to exercise various remedies including a
collection of the entire unpaid principal and accrued
interest, but to date it had not elected to exercise any of
these rights or remedies. Thus, at June 30, 1996, the debentures
are classified as current liabilities.
Bank Financing
In July, 1995, the Company entered into an asset based lending
agreement with Norwest Business Credit, Inc. The agreement
provided a line of credit up to $2,000,000, based upon
collateral, inventory, equipment and receivables, at a rate of
prime plus 4% and extended through July, 1998. On December
19, 1995, the loan was paid off with the proceeds of the
Renaissance financing, but $2,000,000 remains available as a
facility for working capital. A fee of .5% per annum is
payable monthly on the unused amount of the facility. At June
30, 1996, $1,178,000 was outstanding under the line of credit.
The loan is secured by all of the assets of the Company, and
the loan agreement requires that certain financial covenants
be met. Because the Company is in default for failure to
comply with these covenants, the bank elected to exercise its
right to increase the interest rate to prime plus 6%. Other
remedies upon default are available to the bank, including
acceleration of the entire unpaid principal and accrued
interest, but to date it had not elected to exercise any of
those rights or remedies. Thus, at June 30, 1996, the bank note
payable was reclassified as a current liability.
Vendor Notes Payable
MRI assumed certain liabilities of Mama Rizzo's which
represent trade payables due at the time of purchase. The
Company has also agreed under certain circumstances to
indemnify Stephen and MaryAnn Yamin, the former owners of Mama
Rizzo's and M.A. Yamin, Inc. for any personal liability or
expenses they may incur in connection with defending Mama
Rizzo's liabilities, trade payables and accrued liabilities
not assumed by MRI. In several cases the amount due has been
agreed to and supported by notes payable over a period of
time. Terms ranged from several months to 24 months, with
interest ranging from none to 11% per annum. At June 30,
1996, MRI was in default for failure to make required payments
of principal and interest under several of the notes, some of
which have been guaranteed by the Company. Thus, at June 30, 1996,
the vendor notes payable were reclassified as current liabilities.
Factoring of Receivables
In June 1996, MRI entered into a factoring agreement with EAR
Capital Group, LLC ("EAR"), for the purchase and sale of
certain MRI accounts receivable. Robert A. Fillingham, Chief
Executive Officer and President of the Company, is one of the
principal owners of EAR. Pursuant to the agreement, EAR is
entitled to receive minimum consideration not to exceed ten
percent (10%) of the highest level of purchase price of the
receivables outstanding during the period ended August 31,
1996. At June 30, 1996, EAR had purchased receivables for a
net purchase price of $99,000. Prior to entering into the
factoring agreement with EAR, the Company pursued without
success all other alternatives for obtaining additional
working capital for MRI, including Renaissance and Norwest
Business Credit. The Company also sought without success
financing from a factoring firm previously utilized by Mama
Rizzo's. The factoring terms between the Company and EAR are
more favorable to MRI than those of the prior factoring
arrangement and such terms were approved by the independent
Directors of the Company and MRI.
5. Minority Interest
From the acquisition date of February 17, 1995 through yearend
1995, Mama Rizzo's, Inc. had been a wholly owned subsidiary
with 3,000,000 shares of common stock issued to the Company.
At the time of the acquisition, MRI options to purchase stock
were granted to some of the officers, directors and employees.
Early in 1996, an exchange offer was made to convert the MRI
options to the Company's options and that offer was accepted
by all but three resigned employees who exercised their rights
and purchased 78,700 shares, resulting in a minority interest
of 2.56%.
6. Earnings Per Share
Earnings (loss) per common share is computed by dividing
income (loss) by the weighted average number of shares
outstanding. For primary earnings per share, the weighted
average impact of the common stock issued in connection with
the acquisition of MRI was included in the calculation. There
is no 1996 fully diluted computation as the effect is anti-
dilutive.
7. Commitments and Contingencies
Mama Rizzo's Debt Extinguishment
The Company has become aware that a $2,970,000 note payable
from Mama Rizzo's to Ms. Peterson that was to be assigned to
the Company is no longer held by her but is held by a third
party. The Company believes that the third party is not a
holder in due course of the note and, therefore, should be
unable to assert the note against the Company or MRI because
it was past due at the time of the third party's acquisition.
Ms. Peterson remains liable for a prior representation and
warranty in favor of the Company assuring it of her ownership
of the above described note.
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.
To date, four creditors of P.S.M.S., Inc., which liabilities
were not assumed by the Company or its subsidiary in the
acquisition of Mama Rizzo's, have commenced lawsuits against
the Company. Two of these claims have been settled for
approximately one-third of the unassumed liabilities,
principally payable over approximately two years. Agreement
has been reached, but not yet finalized, for the settlement of
a third such claim on the same basis. The aggregate amount
payable in these settlements is $246,770.
A fourth claim with respect to a Mama Rizzo's unassumed
liability remains unresolved. This claim involves a liability
of approximately $130,000 and suit has been brought against
the Company and its subsidiary for the collection thereof.
The Company has commenced negotiations for the settlement of
this claim on a basis comparable to the settlements of the
other three claims.
Benton Bankruptcy
As previously discussed, Oren L. Benton, a significant
shareholder of the Company, filed for Chapter 11 bankruptcy
protection on February 23, 1995. The Company has conducted
business with Mr. Benton and his affiliates in the past.
Management does not expect the bankruptcy of Mr. Benton to
have a material adverse effect on the future operations of the
Company other than as discussed in Note 2.
<PAGE>
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
At June 30, 1996, the Company's cash balance was $2,000
compared to $806,000 at December 31, 1995. Net cash used
in operating activities was $2,079,000 for the six months
ended June 30, 1996, compared to net cash provided by
operating activities of $114,000 during the same period
in 1995. The decrease in net cash flow from operations
between periods is primarily due to decreases in
receivable collections, customer deposits, and reduction
of accounts payable and accrued liabilities.
During the first six months of 1996, $77,000 of cash was
generated by investing activities. As previously
discussed, during the first quarter of 1995, the Company
completed its acquisition of the assets and certain
liabilities of Mama Rizzo's. The Company used $3,000,000
during the first quarter of 1995 in connection with the
acquisition.
In 1993, the Company issued 3,910 units, each unit consisiting
of one 8% convertible subordinated debenture of $1,000 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. In the event of a default
in the payment of principal or interest of senior indebtedness,
the debentures shall immediately be due and payable but no amounts
may be paid by the Company with respect to principal and interest
of these debentures until the senior indebtedness is satisfied.
At June 30, 1996, the Company was in default of senior
indebtedness which had not been waived or cured.
In July, 1995, the Company entered into an asset based
lending agreement with Norwest Business Credit, Inc. The
agreement provided a line of credit up to $2,000,000,
based upon collateral, inventory, equipment and
receivables, at a rate of prime plus 4% and extended
through July, 1998. On December 19, 1995, the line was
paid down with the Renaissance financing, but $2,000,000
was available as a facility for working capital. During
the six months of 1996, net cash flow of $1,178,000 was
generated from borrowings under the line of credit.
In December, 1995, the Company entered into a loan
agreement with Renaissance for $3,200,000, at an interest
rate of 9%, convertible into common stock at $1.50 per
share, subject to adjustment of conversion price at
January 1, 1997 if the market price of PRC stock for a
period prior to that date is less than $1.50. If not
reduced or converted prior, the debentures will mature on
January 1, 2003.
In June 1996, MRI entered into a Purchase and Sale
Agreement with EAR Capital Group, LLC ("EAR"), for the
purchase and sale of certain MRI accounts receivable.
Pursuant to the agreement, EAR is entitled to receive
minimum consideration not to exceed ten percent (10%) of
the highest level of purchase price of the receivables
outstanding during the period ended August 31, 1996. At
June 30, 1996, EAR had purchased receivables in the
aggregate amount of $132,000 for a net purchase price of
$99,000.
MRI assumed certain liabilities of Mama Rizzo's which
represent trade payables due at the time of purchase.
The Company has also 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 defending Mama
Rizzo's liabilities not assumed by MRI. Trade payables
and accrued liabilities include amounts due to those
vendors, and in several cases the amount due has been
agreed to and supported by notes payable over a period of
time. Terms ranged from several months to 24 months,
with interest ranging from none to 11% per annum. At
June 30, 1996, MRI was in default for failure to make
required payments of principal and interest under several
of the notes, some of which have been guaranteed by the
Company.
The Company has been unable to make required payments of
principal and interest under various debt obligations.
As a result, management is considering alternatives for
the possible restructuring of its businesses, including
the possible sale of some assets. Proceeds of any such
restructuring would in part be utilized to retire debt of
its secured and unsecured creditors. Restructuring
alternatives being seriously considered by management
include the sale of Mama Rizzo's and its filing for
Chapter 11 bankruptcy protection pending such sale.
At June 30, 1996, there were no material commitments for
capital expenditures.
Results of Operations
A net loss of $1,759,000 was recorded by the Company for
the six months ended June 30, 1996 compared to a net loss
of $1,447,000 for the same period of the prior year.
Consolidated revenues decreased $774,000 between periods
and operating expense and interest expense increased
$275,000 and $167,000 respectively.
The following discussion pertains to the operating
results of the Company's two business segments. 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".
Six Months Ended June 30, 1996 and June 30, 1995
PRC Operating Results
An operating loss of $736,000 was recorded by PRC for the
period ended June 30, 1996, as compared to a net loss of
$423,000 for the same period of the prior year. The
primary reason for the increased loss was a decrease in
revenues and an increase in operating expense.
PRC revenues decreased $261,000, or 12%, between periods
and gross profit decreased $158,000, or 18%. The
decrease in gross profit was primarily the result of
increased cost of goods sold. As a percent of sales,
cost of goods sold increased 3% between periods.
General and administrative expense increased $147,000, or
15%, between periods. This increase was primarily the
result of increased contract labor, payroll and employee
benefit expenses. PRC's general and administrative
expense was 59% of revenue for the period ended June 30,
1996, as compared to 45% for the prior year.
MRI Operating Results
The following discussion pertains to the June 30, 1996
actual compared to June 30, 1995 pro forma operating
results.
MRI recorded a loss from operations of $673,000 for the
six months ended June 30, 1996 as compared to $1,210,000
for the same period of the prior year. The decrease in
loss of $537,000, or 44%, was primarily the result of
decreased operating expenses.
MRI revenues decreased $2,483,000, or 42%, between
periods as a result of decreased promotional efforts
which had resulted in substantial losses in the prior
period. Gross profit decreased $322,000, or 17% between
periods. Cost of goods sold, as a percent of sales, was
56% for the period ending June 30, 1996 and 69% for the
same period in 1995.
MRI operating expenses decreased $859,000, or 28%,
between periods. The primary reason for this decrease
was a decrease of $979,000, or 45%, in selling and
marketing expense. General and administrative expense
increased $107,000, or 15%, between periods. MRI's
general and administrative expense was 24% of revenues
for the period ended June 30, 1996 compared to 12% for
the prior year. MRI's selling and marketing expense was
34% of revenues for the period ended June 30, 1996
compared to 37% for the prior year.
Three Months Ended June 30, 1996 and June 30, 1995
PRC Operating Results
PRC recorded an operating loss of $547,000 for the three
months ended June 30, 1996, compared to an operating loss
of $234,000 for the same period of the prior year. The
primary reason for the increase in loss was a reduction
in gross profit as a result of increased cost of goods
sold. Cost of goods sold was 68% of sales for the three
months ended June 30, 1996 as compared to 50% of sales
for the same period of the prior year.
Revenues decreased $202,000, or 21%, for the three months
ended June 30, 1996, as compared to the prior year.
The gross margin percentage for the three months ended
June 30, 1996 was 32% compared to 50% for the same period
of the prior year.
General and administrative expenses increased $63,000, or
11%, for the three months ended June 30, 1996 compared to
the same period of the prior year primarily due to
increased payroll and insurance costs. General and
administrative expenses were 85% of revenues for the
three months ended June 30, 1996 compared to 60% for the
three months ended June 30, 1995.
Selling and marketing expenses increased $23,000, or 19%,
for the three months ended June 30, 1996 compared to the
same period of the prior year. The increase in such
costs is primarily due to an increase in fixed expense as
the result of the addition of an additional salesperson
to the sales staff. Selling and marketing expenses were
19% of revenue for the three months ended June 30, 1996,
compared to 13% for the three months ended June 30, 1995.
Research and development costs decreased $11,000, or 48%,
between years. In 1995, significant research and
development costs were incurred in the production of a
new model pump which was completed early in 1996.
MRI Operating Results
An operating loss of $260,000 was recorded for the three
months ended June 30, 1996, compared to an operating loss
of $820,000 in the same period of the prior year. The
primary reason for the improvement of $560,000, or 68%,
is the reduction of MRI's selling and marketing expenses
both in absolute dollars and as a percentage of sales
between years.
Revenues decreased $3,419,000, or 72%, for the three
months ended June 30, 1996, compared to the prior year.
The decrease in MRI's revenues is due to fewer marketing
programs during 1996 when compared to 1995.
The gross margin percentage for the three months ended
June 30, 1996, was 45% compared to 32% for the same
period of the prior year. The improvement between years
is due to product cost improvements. Cost of goods sold
as a percent of sales was 55% for the three months ended
June 30, 1996, as compared to 68% for the same period of
the prior year.
General and administrative expenses decreased $102,000,
or 20%, for the three months ended June 30, 1996,
compared to the same period of the prior year. General
and administrative expenses were 29% of revenues for the
three months ended June 30, 1996 compared to 10% for the
three months ended June 30, 1995.
Selling and marketing expenses decreased $1,389,000, or
78%, for the three months ended June 30, 1996 compared to
the same period of the prior year. The decrease in such
costs is primarily due to a reduction in promotional
efforts as compared to the prior year. Selling and
marketing expenses were 29% of revenue for the three
months ended June 30, 1996 compared to 37% for the three
months ended June 30, 1995.
<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: September 6, 1996 By:/s/ ROBERT H. PORTER
Robert H. Porter
Secretary
Dated: September 6, 1996 By:/s/ K. SUE LEMONS
K. Sue Lemons
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000718474
<NAME> PACKAGING RESEARCH CORP
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 2
<SECURITIES> 0
<RECEIVABLES> 1590
<ALLOWANCES> 46
<INVENTORY> 2867
<CURRENT-ASSETS> 4637
<PP&E> 3778
<DEPRECIATION> (1545)
<TOTAL-ASSETS> 20667
<CURRENT-LIABILITIES> 12109
<BONDS> 1791
<COMMON> 31
0
0
<OTHER-SE> 8306
<TOTAL-LIABILITY-AND-EQUITY> 20667
<SALES> 5369
<TOTAL-REVENUES> 5369
<CGS> 3136
<TOTAL-COSTS> 6777
<OTHER-EXPENSES> (2)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 363
<INCOME-PRETAX> (1759)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1759)
<EPS-PRIMARY> (.57)
<EPS-DILUTED> 0
</TABLE>
