SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB/A
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|X| Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the quarterly period ended March 31, 1996.
|_| Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from __________ to __________
Commission file number 0-13826
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PEERLESS INDUSTRIAL GROUP, INC.
(Exact name of small business issuer as specified in its charter)
MINNESOTA 41-1456350
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2430 METROPOLITAN CENTRE
333 SOUTH SEVENTH STREET
MINNEAPOLIS, MINNESOTA 55402
(Address, including zip code, of principal executive offices)
(612) 371-9650
(Issuer's telephone number, including area code)
DISCUS ACQUISITION CORPORATION
(Former name)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 |_|
State the number of shares outstanding of each of the issuer's classes
of common equity, as of May 10, 1996: 5,035,151 shares of Common Stock and
1,227,273 shares of Class B Common Stock.
Transitional Small Business Disclosure Format
Yes |_| No |X|
Part I
Financial Information
Item 1. Financial Statements
PEERLESS INDUSTRIAL GROUP, INC.
Consolidated Balance Sheets
Unaudited
(Dollars in thousands)
March 31, December 31,
1996 1995
-------- --------
ASSETS
Current assets:
` $ 142 $ 108
Accounts receivable 5,596 6,091
Inventories 12,227 14,093
Other current assets 366 510
-------- --------
Total current assets 18,331 20,802
Deferred tax assets 153 153
Property and equipment, net 12,413 12,586
Intangible assets, net 5,931 5,956
======== ========
Total assets $ 36,828 $ 39,497
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 9,750 $ 11,300
Accounts payable 2,715 2,823
Accrued liabilities 2,992 3,770
Current portion of accrued postretirement 670 670
healthcare benefit liability
-------- --------
Total current liabilities 16,127 18,563
Long-term debt, less current portion 7,399 7,767
Accrued pension benefit liability 1,774 1,687
Accrued postretirement healthcare benefit
liability, less current portion 6,470 6,386
-------- --------
Total liabilities 31,770 34,403
-------- --------
Shareholders' equity:
Common stock, no par value;
30,000,000 shares authorized
Common stock; 5,003,901 and
4,971,174 issued and 6,665 6,629
outstanding at March 31, 1996 and
December 31, 1995, respectively
Common stock Class B; 1,227,273 issued and
outstanding at 1,350
March 31, 1996
Accumulated deficit (2,957) (1,535)
-------- --------
Total shareholders' equity 5,058 5,094
-------- --------
======== ========
Total liabilities and shareholders' equity $ 36,828 $ 39,497
======== ========
See accompanying notes to unaudited consolidated financial statements.
PEERLESS INDUSTRIAL GROUP, INC.
Consolidated Statements of Operations
Unaudited
(Dollars in thousands, except per share data)
Three months Three months
ended ended
March 31, 1996 March 31, 1995
----------- -----------
Net sales $ 10,681
Cost of sales 9,855
----------- -----------
Gross profit 826 0
Selling, general and administrative expenses 1,857 90
----------- -----------
Operating loss (1,031) (90)
Interest expense (405)
Interest income 31
Other income 21
----------- -----------
Loss from operations before income taxes (1,415) (59)
Provision for income taxes (7)
=========== ===========
Net loss ($ 1,422) ($ 59)
=========== ===========
Net loss per share ($ 0.24) ($ 0.03)
=========== ===========
Weighted average number of shares outstanding 6,023,482 2,356,140
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
PEERLESS INDUSTRIAL GROUP, INC.
Consolidated Statements of Cash Flows
Unaudited
(Dollars in thousands)
Three months Three months
ended ended
March 31, March 31,
1996 1995
-------- --------
Cash flows from operating activities:
Net loss ($ 1,422) ($ 59)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 1,876 11
Gain on disposal of property
and equipment (21)
Changes in operating assets and
liabilities 440 (173)
-------- --------
Net cash provided by (used in)
operating activities 873 (221)
-------- --------
Cash flows from investing activities:
Disposition (acquisitions) of property
and equipment (307) 3
-------- --------
Net cash provided by (used in)
investing activities (307) 3
-------- --------
Cash flows from financing activities:
Long-term debt:
Borrowings 12,469
Payments (14,387)
Net changes in short-term borrowings (15)
Proceeds from issuance of stock and
exercise of stock options 1,386
Net cash provided by (used in)
-------- --------
financing activities (532) (15)
-------- --------
Increase (decrease) in cash and cash
equivalents $ 34 ($ 233)
Cash and cash equivalents:
Beginning of year 108 2,608
======== ========
End of year $ 142 $ 2,375
======== ========
Changes in operating assets and liabilities:
Accounts receivable $ 495
Inventories 516
Other current assets 144 ($ 102)
Accounts payable (108) 40
Accrued liabilities (778) (111)
Accrued pension benefit and postretirement
healthcare benefit liabilities 171
======== ========
$ 440 ($ 173)
======== ========
See accompanying notes to unaudited consolidtated financial statements.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. Basis of Presentation:
The financial statements included in this Form 10-QSB have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed, or omitted, pursuant to such rules
and regulations. These financial statements should be read in conjunction with
the financial statements and related notes included in the Company's Form 10-KSB
for the year ended December 31, 1995.
The financial statements presented herein as of March 31, 1996 and 1995, and for
the three months then ended reflect, in the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of financial position and the results of operations for the
periods presented. The results of operations for any interim period are not
necessarily indicative of results for the full year.
Effective July 25, 1995, the Board of Directors of the Company voted to change
the Company's fiscal year end from the last Sunday in December of each year to
December 31. This change in financial reporting is reflected in the first
quarter ended March 31, 1996. This change in financial reporting did not have a
material impact on the Company's reported results of operations or cash flows
for the quarter.
2. Acquisition:
The following table presents unaudited pro forma results of operations as if the
Peerless acquisition had occurred at the beginning of fiscal 1995. These pro
forma results have been prepared for informational purposes only and do not
purport to be indicative of what would have occurred had the acquisition
actually been made at January 1, 1995 or of results which may occur in the
future.
Three months ended Three months ended
March 31, 1996 March 31, 1995
Net sales $10,681 $10,727
Net loss ($1,422) ($1,118)
Net loss per share ($0.24) ($0.18)
Weighted average number of
shares outstanding 6,023,482 6,211,174
3. Selected Financial Statement Information:
The following provides additional information for selected consolidated balance
sheet accounts as of March 31, 1996 and December 31, 1995:
March 31, 1996 December 31, 1995
Inventories:
Raw materials $2,332 $1,688
Work-in-process 2,976 5,585
Finished goods 6,414 6,286
Supplies 505 534
------- -------
Total $12,227 $14,093
======= =======
4. Shareholders' Equity:
In January and March 1996, the Company granted 579,000 options and warrants at
an exercise price of $1.10 under the 1994 Plan to employees, consultants,
advisers and Board of Directors of the Company, subject to shareholder approval
increasing the number of shares available for grant under the 1994 Plan from
600,000 to 1,000,000 shares. These options principally vest 20% per year over
five years. In May 1996, the shareholders of the Company approved the increase
in the number of shares in the 1994 Plan from 600,000 to 1,000,000 shares.
In January 1996, the Company issued 1,227,273 shares of Class B Common Stock at
$1.10 per share for $1,350,000 and 32,727 shares of Common Stock at $1.10 per
share for $36,000.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), a new standard of
accounting and reporting for stock-based compensation plans. The Company has not
determined whether it will adopt the expense recognition provisions of SFAS No.
123 for stock-based compensation or the alternative expanded disclosures
including pro forma disclosures as if the fair value based method of accounting
had been followed.
5. Restatement:
The consolidated balance sheets as of December 31, 1995, and March 31,
1996, have been restated to add $447 of inventory costs previously classified as
intangible assets as of December 31, 1995. The consolidated statement of
operations for the quarter ended March 31, 1996, has been restated to add the
$447 increase in first quarter costs of goods sold related to the increase in
inventory as of December 31, 1995, and the $11 decrease in first quarter
amortization of intangible assets. The consolidated statement of cash flows for
the quarter ended March 31, 1996, has also been restated as a result of the
aforementioned adjustments.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. (Dollars in Thousands)
General:
On December 15, 1995, Discus Acquisition Corporation, now Peerless Industrial
Group, Inc., (the Company or Discus) completed the acquisition of Peerless Chain
Company (Peerless) from Bridgewater Resources Corp. Peerless, a Minnesota-based
company, is a manufacturer and distributor of long-standing branded consumer and
industrial chain and other products throughout the United States. Peerless
represents the "continuing operations" of the Company.
Prior to June 7, 1994, the Company operated ten Fuddruckers restaurants located
in Minnesota, Missouri, Nebraska and Wisconsin. The Company sold or discontinued
these operations in 1994 and 1995.
Effective July 25, 1995, the Board of Directors of the Company approved the
change of the Company's fiscal year end from the last Sunday in December of each
year to December 31. This change in financial reporting is reflected in the
first quarter ended March 31, 1996. This change in financial reporting did not
have a material impact on the Company's reported results of operations or cash
flows for the quarter.
The following is a discussion and analysis of the Company's historical results
of operations for the three months ended March 31, 1996 compared with the pro
forma results of operations for the three months ended March 31, 1995 as if the
acquisition of Peerless had occurred on January 1, 1995.
Results of Operations:
The following table sets forth selected historical and pro forma operating
statement data for the Company.
Three months ended Three months ended
March 31, 1996 March 31, 1995
Pro Forma
Net sales $10,681 $10,727
Cost of sales 9,855 9,549
Gross profit 826 1,178
Selling, general and
administrative expenses 1,857 1,947
Operating loss (1,031) (769)
Interest expense (405) (342)
Other income 21
Loss from operations before
income taxes (1,415) (1,111)
Provision for income taxes (7) (7)
Net loss ($1,422) ($1,118)
Net loss per share ($0.24) ($0.18)
Weighted average number of
shares outstanding 6,023,482 6,211,174
Net Sales:
Net sales decreased slightly to $10,681 in the first quarter of 1996 compared to
pro forma net sales of $10,727 for the same period in 1995. The Company
experienced a strong increase in traction chain sales during the first quarter
of 1996 as a result of the severe winter which was offset by lower sales in the
wire form business as the Company discontinued sales of a certain product line
with low margins.
Cost of Sales:
Cost of sales increased to $9,855 or 92.3% of net sales in the first quarter of
1996 compared to pro forma cost of sales of $9,549 or 89.0% of net sales for the
same period in 1995. Margins decreased slightly primarily due to competitive
pricing pressures. Both quarters reflect an inventory valuation write-up
amortization of $1,350 related to the acquisition. The write-up is being
amortized over the estimated inventory turns and is expected to be fully
amortized in the second quarter. Excluding the effect of the inventory write-up
amortization, cost of sales would have been $8,505 or 79.6% of net sales in the
first quarter of 1996 and $8,199 or 76.4% of pro forma net sales in the same
period in 1995.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses decreased to $1,857 or 17.4% of net
sales in the first quarter of 1996 compared to a pro forma expense of $1,947 or
18.2% of net sales for the same period in 1995. SG&A was consistent between the
two periods except for minor reductions in operating costs at the Company
resulting from concluding the acquisition of Peerless. In 1995, SG&A was
slightly higher as the Company had certain expenditures in its search for
potential acquisition candidates.
Interest Expense:
Interest expense was $63 higher at $405 in the first quarter of 1996 compared to
a pro forma interest expense of $342 in the same period in 1995. Interest
expense was higher due to a higher amount of borrowing to support a higher level
of working capital in 1996.
Income Taxes:
Income taxes for the first quarter of 1996 and for pro forma 1995 were the same
as a result of minimum taxes due to various taxing authorities.
Liquidity and Capital Resources:
As described in greater detail in the Company's Annual Report for 1995 on Form
10-KSB, the Company acquired Peerless on December 15, 1995 in a leveraged
transaction, utilizing approximately $2.3 million of existing cash and cash
equivalents that were acquired in June of 1994 from the sale of its discontinued
restaurant operations, $4.2 million in equity raised in late 1995 and early
1996, and approximately $16.5 million in lender and seller financing.
The Company's CIT floating rate financing totaled approximately $14.6 million at
March 31, 1996 and bears interest payable monthly that floats at rates ranging
from .5% to 2.5% over the prime rate. Accordingly, the Company is subject to
interest rate fluctuations. At March 31, 1996, the Company had outstanding $2.5
million of seller financing which carried a fixed interest rate (8%) payable
monthly. In addition, $6.7 million of the original CIT term financing requires
monthly scheduled principal repayments. The Company believes the cash flows from
continuing operations are adequate to fund debt service.
Cash flow from operations was $873. A significant amount of these cash flows are
due to depreciation and amortization, including the $1,350 amortization of the
inventory valuation write-up associated with the acquisition. Cash flow of $440
was provided by changes in operating assets and liabilities.
Net cash used in investing activities was $555. The Company had capital
expenditures of $307 in the first quarter of 1996.
Net cash used in financing activities represents total reduction in debt of
$1,918 offset by proceeds from an equity placement completed in January 1996 of
$1,386. Under the terms of its lending agreement with CIT, the Company must make
monthly payments of principal on its term loans. The CIT revolver is paid down
with collections on receivables and additional amounts are borrowed thereunder
by the Company as needed to finance operations.
Based on an evaluation of operating needs, market conditions and cash flows of
the Company, the Company expects to expend approximately $1.5 million in capital
expenditures during 1996. Approximately 50% of this amount is expected to be
funded under a CAPEX line of credit with CIT. The remainder of the expenditures
is expected to be funded by operations, which are largely supported by the CIT
revolving credit facility.
Management believes that cash generated from operations and amounts available
under its CIT revolving credit facility and CAPEX line of credit will be
sufficient to fund its anticipated capital expenditures and required debt
repayments for the foreseeable future. Funding availability under the CIT
financing agreement is dependent on the Company's maintenance of adequate levels
of borrowing base (inventory and receivables) as well as compliance with
financial and technical covenants. There can be no assurance that additional
financing will not be required or will be available if so required.
The Company did not pay dividends in the first quarter of 1996 and 1995, and
restrictive covenants in the Peerless CIT credit facility significantly limit
the Company's ability to pay dividends.
Part II
Other Information
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security-Holders
No matter was submitted to a vote of security holders through the
solicitation of proxies or otherwise during the first quarter of 1996.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Number Description
27 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K, January 9, 1996 (filed January 22, 1996), Item 5
(disclosing the sale by the registrant to Northland Business
Capital, L.L.P. of 1,227,273 shares of Class B Common Stock
for an aggregate consideration of $1,350,000) and Item 7
(disclosing the stock purchase agreement dated January 9, 1996
between the registrant and Northland Business Capital, L.L.P.
and the certificate of designation of Class B Common Stock).
Form 8-KA, December 14, 1995 (filed February 26, 1996), Item 7
(disclosing financial statements for Peerless Chain Company (a
wholly owned subsidiary of Bridgewater Resources Corp.) and
pro forma financial information for Discus Acquisition
Corporation).
Signatures
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis, State of Minnesota on March 28, 1997.
PEERLESS INDUSTRIAL GROUP, INC.
(Registrant)
By: /s/ Robert E. Deter
_______________________________
Robert E. Deter
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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<ARTICLE> 5
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 142
<SECURITIES> 0
<RECEIVABLES> 5,596
<ALLOWANCES> 0
<INVENTORY> 12,227
<CURRENT-ASSETS> 18,331
<PP&E> 13,019
<DEPRECIATION> (606)
<TOTAL-ASSETS> 36,828
<CURRENT-LIABILITIES> 16,127
<BONDS> 0
0
0
<COMMON> 8,015
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 36,828
<SALES> 10,681
<TOTAL-REVENUES> 10,681
<CGS> 9,855
<TOTAL-COSTS> 1,857
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 405
<INCOME-PRETAX> (1,415)
<INCOME-TAX> (7)
<INCOME-CONTINUING> (1,422)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,422)
<EPS-PRIMARY> (0.24)
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