U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT ISSUED UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the twenty-six week period ended Commission file
December 30, 1996 Number 2-99212-A
PALLET MANAGEMENT SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Florida 59-2197020
(State or other jurisdiction of (IRS Employer Identification
incorporation) Number)
One S. Ocean Boulevard, Suite 305, Boca Raton, Florida 33432
(Address of principal executive offices)
Registrant's telephone number, including area code:
(561) 338-7763
-------------------------------------------
(Former name or address if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or 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 _______
---------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes _______ No _______
APPLICABLE ONLY TO CORPORATE ISSUERS
On December 30, 1996, the Registrant had outstanding 4,849,956 shares of
common stock, $.001 par value.
<PAGE>
PALLET MANAGEMENT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
Year Ended
Dec. 28 Jun 30,
ASSETS 1996 1996
(Audited)
CURRENT ASSETS
Cash $360,041 $16,891
Accounts Receivable - trade, net of allowance
for doubtful accounts 1,594,446 1,181,068
Inventories 1,129,681 1,020,243
Prepaid expenses 172,654 144,197
Income tax refunds receivable 0 517,771
Total current assets 3,256,822 2,880,170
Property and equipment - net of accumulated
depreciation 2,917,288 2,877,809
Other assets 49,174 147,377
$6,223,284 $5,905,356
LIABILITIES
CURRENT LIABILITIES
Notes Payable $1,507,540 $2,150,634
Accounts payable - trade 1,192,415 1,023,591
Accrued liabilities 608,517 614,846
Total current liabilities 3,308,472 3,789,071
LONG TERM DEBT
Deferred income tax 167,972 167,972
Long-term debt 1,945,853 1,578,051
2,113,825 1,746,023
STOCKHOLDERS'EQUITY
Common stock, authorized 10,000,000 shares at
$.001 par value; issued and outstanding 4,849,956
shares at December 28, 1996 and 4,243,216
at June 30, 1996 4,850 4,243
Additional paid in capital 2,647,520 2,041,387
Retained (deficit) earnings (1,851,383) (1,675,368)
800,987 370,262
------- -------
$6,223,284 $5,905,356
<PAGE>
PALLET MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
13 Weeks Ended 26 Weeks Ended
Dec. 28, 1996 Dece. 30, 1995 Dec. 28, 1996 Dec. 30, 1995
Net sales $5,289,066 $4,396,959 $9,019,756 $8,223,369
Cost of goods sold 4,752,318 3,861,051 8,263,432 7,298,419
--------- --------- --------- ---------
Gross profit 536,748 535,908 756,324 924,950
Selling, general and administrative
expense 507,396 846,393 $976,040 $1,490,296
------- ------- ------- ----------
Operating profit 29,352 (310,485) (219,716) (565,346)
Other income (expense)
Other income 70,809 25,644 223,329 44,116
Interest expense (78,371) (87,582) ($179,629) ($184,594)
Earnings before income taxes 21,790 (372,423) (176,016) (705,824)
Income tax expense (benefit) $0 (74,225) $0 ($162,775)
Net earnings (loss) $21,790 ($298,198) ($176,016) ($543,049)
------- ---------- ---------- ----------
Net (loss) earnings per
common share $0.01 $(0.07) $(0.04) $(0.13)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Pallet Management Systems, Inc.
Consolidated Statement of Cash Flows
13 Weeks Ended 26 Weeks Ended
Dec.28,1996 Dec.30,1995 Dec.28,1996 Dec. 30,1995
Cash flows from operating activities:
Net earnings (loss) $21,791 ($298,198) ($176,015) ($543,049)
Adjustments to reconcile net
earnings (loss) to net cash provided
by (used in)operating activities:
Depreciation 95,520 96,226 184,857 187,138
(incr.) Decr. in operating assets:
Accounts receivable (100,852) (4,287) (413,378) (21,661)
Inventories (84,309) 205,207 (109,438) 333,523
Prepaid expenses (67,113) (198,036) (28,457) (244,580)
Income tax refund receivable 0 0 517,771 0
Other assets 84,696 2,264 98,203 17,763
Incr. (Decr.) in operating assets:
Accounts payable (97,526) 584,275 168,824 (107,814)
Accrued liabilities and taxes (67,601) (149,179) (6,329) (152,163)
Deferred credits 0 10,938 0 19,171
Net cash (used in) privided by
operating activities (215,394) 249,210 236,038 (511,672)
Cash flows from investing activities:
Purchase of fixed assets (204,776) (234,156) (224,336) (539,143)
Net cash (used in) investing
activities (204,776) (234,156) (224,336) (539,143)
Cash flows from financing activities:
Proceeds from lenders 173,472 118,770 (275,291) 425,607
Capital contributed 606,740 0 606,740 430,032
Net cash provided by financing
activities 780,212 118,770 331,449 855,639
INCREASE IN CASH 360,042 133,824 343,151 (195,176)
Cash at beginning of period 0 119,672 16,891 448,692
Cash at end of period $360,042 $253,496 $360,042 $253,516
</TABLE>
<PAGE>
Note 1. Consolidated Financial Statements:
The consolidated balance sheets as of December 30, 1996 and June 30,
1996, the consolidated statement of operations and cash flows for the thirteen
and twenty-six week periods ended December 28, 1996 and December 30, 1995 have
been prepared by the company without audit. In the opinion of management, all
adjustments necessary to present fairly the financial position, results of
operations and cash flows for the periods reported have been made. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements and the notes
thereto as of June 30, 1996.
Certain prior year amounts within the accompanying financial statements
have been reclassified to conform to the current year presentation. In addition,
the weighted average of shares outstanding has been revised to reflect a
two-for-one stock split which occurred on October 3, 1996. Certain shareholders,
consisting primarily of officers and directors, waived their right to this
dividend resulting in an increase of 814,286 shares. All stock data and per
share amounts in the consolidated financial statements have been restated to
give effect to the stock split.
Note 2. Net Loss per Share of Common Stock:
Net loss per share was computed using the weighted average number of shares
outstanding based on the consolidated results of the company for the period
presented.
Note 3. Stockholders' Equity:
During the thirteen and twenty-six week period ended December 28, 1996
stockholders' equity changed for the following items:
13 Weeks 26 Weeks
Dec. 28, 1996 Dec. 28, 1996
Common stock sold 607 607
Additional paid-in capital 606,133 606,133
Current net earnings (loss) $ 21,790 (176,016)
$ 628,530 $ 430,724
========== =========
<PAGE>
Pallet Management Systems, Inc.
Management's Discussion and Analysis or Plan of Operation
December 28, 1996
PART I
ITEM 2. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis should be read in conjunction with the
financial statements appearing as Item 1 to this Report. These financial
statements reflect the consolidated operations of Pallet Management Systems,
Inc. (the Company) for the thirteen and twenty - six weeks periods ended
December 28, 1996 and December 30, 1995.
Results of Operations
General
The Company provides a complete range of pallet services to its customers.
These services include: production and sale of new pallets, pallet remediation,
pallet recovery, repair and sale of used pallets, mobile-on-site pallet repair
and total integrated pallet management services. Pallet remediation is defined
as the systematic collection, repair, return and reuse of pallets that creates a
closed - loop pallet return system between the manufacturer, their customers and
vendors. Integrated pallet management services consists of sorting,
distributing, retrieval and warehousing of pallets and packaging units.
The Company plans to continue manufacturing new pallets; however, the main
focus of expansion is to develop facilities nationwide and to continue
implementation of the pallet remediation program. This program is designed to
offer an integrated pallet network of facilities to its national customers
resulting in major cost savings and permit the customer to effectively utilize
their packaging budgets.
Customers include large retail and wholesale distributors such as Allied
Signal, Coca-Cola, Disney, Dupont, Food Lion, K-Mart, Pepsi Co., Wal-Mart, the
US Government and Chep USA (the country's largest pallet pool rental company).
<PAGE>
Thirteen Weeks Ended December 28, 1996 Compared to Thirteen Weeks Ended
December 30, 1995
For the thirteen week period ended December 28, 1996 net sales increased to
$5,289,000 from $4,397,000 for the comparable 1995 period.
During the thirteen week period ended December 28, 1996 new pallet sales
increased 42.5% to $3,684,000 from $2,586,000, pallet recycling (pallet
remediation, depot and repair services and sales of used pallets) decreased by
11% to $1,605,000 from the $1,811,000 recorded for the same thirteen week period
ended December 30, 1995. The Company experienced a $339,000 (40%) reduction in
Selling, General and Administrative expenses for the thirteen week period ended
December 28, 1996 when compared to December 30, 1995. Other income increased to
$71,000 from $26,000 a result of maintaining a positive cash position. The
Company experienced a $9,000 (10%) decrease in interest expense for the thirteen
week period ended December 28, 1996. This decrease is a result of positive cash
flow from operations and newly contributed capital. The Company did not record
any tax effect on the net loss as the Company utilized 100% of it's net loss
carry back on the June 30, 1996 Federal Income Tax return. Consequently, the
current years net operating loss will only affect the current and future tax
filings. A net earnings of $22,000 or $.01 per share during the thirteen week
period ended December 28, 1996 compared to a loss of $298,000 or $.07 per share
recorded for the same period last year was realized by the Company. The gross
margin for the thirteen week period was approximately 10% as compared to 12%
achieved for the same thirteen week period a year prior. The reduction in gross
margin was due rising cost of lumber. However, the Company anticipates gross
margin recovery in late spring or early summer as lumber prices begin to
decline.
<PAGE>
Pallet Management Systems, Inc.
Management's Discussion and Analysis and Liquidity and Capital Resources
December 28, 1996
During the thirteen week period ended December 28, 1996, the Company made a
substantial investment in equipment to automate the manual recycling process in
the Lakeland, Florida facility. This automated line is "state-of-the-art" in
terms of pallet recycling. In addition, the Company expanded its Orlando,
Florida facility by relocating to a new 15,000 square foot facility.
The Company's board of directors approved on December 3, 1996, a dollar for
dollar exchange of outstanding notes into newly formed "A Units". Each A Unit
consisted of one share of the Company's common stock, and one two year warrant
to purchase one share of the Company's common stock at an exercise price of
$1.25. 606,740 A Units were purchased of which 576,740 were held by Company
board members.
Twenty-six Weeks Ended December 30, 1996 Compared to Twenty-six Weeks Ended
December 30, 1995
For the twenty - six week period ended December 28, 1996 net sales increased
to $9,020,000 from $8,223,000 for the comparable 1995 period.
During the twenty - six week period ended December 28, 1996 new
pallet sales increased 19.7% to $5,971,000 from $4,987,000, pallet recycling
(pallet remediation, depot and repair services and sales of used pallets)
decreased by 2.5% to $3,048,000 from the $3,129,000 recorded for the same twenty
- - six week period ended December 30, 1995. The Company experienced a $514,000
(18.2%) reduction in Selling, General and Administrative expenses for the twenty
- - six week period ended December 28, 1996 when compared to December 30, 1995.
Other income increased to $223,000 from $44,000 a result of the sale (to a
related party) of certain non-operating real estate coupled with maintaining a
positive cash position. The Company experienced a $5,000 (2.7%) decrease in
interest expense for the twenty - six week period ended December 28, 1996. This
decrease is a result of positive cash flow from operations and newly contributed
capital. The Company did not record any tax effect on the net loss as the
Company utilized 100% of it's net loss carry back on the June 30, 1996 Federal
Income Tax return. Consequently, the current years net operating loss will only
affect the current and future tax filings. A net loss of $176,000 or $.04 per
share during the twenty - six week period ended December 28, 1996 compared to a
<PAGE>
loss of $543,000 or $.013 per share recorded for the same period last year was
realized by the Company. The gross margin for the twenty six week period was
approximately 8.4% as compared to 11.2% achieved for the same twenty - six week
period a year prior. The reduction in gross margin was due to lower production
levels experienced during the first eight weeks of the fiscal year coupled with
the seasonal rising cost of lumber. However, the Company anticipates gross
margin recovery during the late spring or early summer as lumber prices begin to
stabilize and possibly decline.
Mr. Eugene Dignoti Sr. resigned from the company as Chief Operating Officer
and member of the Board of Directors to pursue non-pallet
related activities during the first thirteen week period of the fiscal year.
His duties were assumed by existing management and the company
does not anticipate seeking an immediate replacement.
The Company closed its Hartford Connecticut operation and is currently
servicing this customer base through affiliated companies.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $360,000 cash on hand at the end of the twenty - six week
period ending December 28, 1996, versus $17,000 at the beginning of the fiscal
year. This increase in cash is attributable to receipt of the income tax
receivable of $518,000, decreases in other assets by $98,000, accrued
liabilities by $6,000 and newly contributed capital of $606,740. These cash
increases were offset by decreases in accounts receivable by $413,000, inventory
by $109,000, prepaid expenses $28,000, accounts payable by $169,000, purchase of
fixed assets of $224,000 and $275,000 net repayments on corporate debt.
<PAGE>
Pallet Management Systems, Inc.
Other Information
December 28, 1996
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulations S-B.
None.
(b) None.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on behalf by the undersigned
thereunto duly authorized.
PALLET MANAGEMENT SYSTEMS, INC.
Dated: April 2, 1997 By: Zachary M. Richardson, President
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the twenty-six week period ended December 30,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> SEP-19-1996
<PERIOD-END> DEC-28-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,594,446
<ALLOWANCES> 58,000
<INVENTORY> 1,129,681
<CURRENT-ASSETS> 3,256,822
<PP&E> 2,917,288
<DEPRECIATION> 95,520
<TOTAL-ASSETS> 6,223,284
<CURRENT-LIABILITIES> 3,308,472
<BONDS> 0
0
0
<COMMON> 4,849,956
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,223,284
<SALES> 5,289,066
<TOTAL-REVENUES> 5,289,066
<CGS> 4,752,318
<TOTAL-COSTS> 5,259,714
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,371
<INCOME-PRETAX> 21,790
<INCOME-TAX> 0
<INCOME-CONTINUING> 21,790
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,790
<EPS-PRIMARY> $.01
<EPS-DILUTED> $.01
<PAGE>
</TABLE>
