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 thirty-nine week period ended Commission file
March 29, 1997 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 Number)
incorporation)
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 March 29, 1997, the Registrant had outstanding 4,849,956 shares
of common stock, $.001 par value.
<PAGE>
PALLET MANAGEMENT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year Ended
Mar. 29 Jun 30,
ASSETS 1997 1996
---- ----
(Audited)
CURRENT ASSETS
Cash 190,692 $16,891
Accounts Receivable - trade, net of allowance
for doubtful accounts 1,833,003 1,181,068
Inventories 1,240,594 1,020,243
Prepaid expenses 240,936 144,197
Income tax refunds receivable 0 517,771
Total current assets 3,505,225 2,880,170
Property and equipment - net of accumulated
depreciation 2,838,117 2,877,809
Other assets 102,714 147,377
$6,446,056 $5,905,356
---------- ----------
LIABILITIES
CURRENT LIABILITIES
Notes Payable $1,884,798 2,150,634
Accounts payable - trade 1,208,376 1,023,591
Accrued liabilities 736,755 614,846
----------- ----------
Total current liabilities 3,829,929 3,789,071
LONG TERM DEBT
Deferred income tax 167,972 167,972
Long-term debt 1,911,828 1,578,051
---------- ---------
2,079,800 1,746,023
STOCKHOLDERS' EQUITY
Common stock, authorized 10,000,000 shares
at $.001 par value; issued
and outstanding 4,849,956 shares at March 29,
1997 and
June 30, 1996 4,850 4,243
Additional paid in capital 2,647,520 2,041,387
Retained (deficit) earnings (2,116,043) (1,675,368)
------------ ------------
536,327 370,262
6,446,056 5,905,356
</TABLE>
<PAGE>
PALLET MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
13 Weeks Ended 39 Weeks Ended
-------------- --------------
Mar. 29, 1997 Mar. 30, 1996 Mar. 29, 1997 Mar. 30, 1996
------------- ------------- ------------- -------------
Net sales $5,837,773 $ 4,686,409 $ 14,857,529 $ 12,909,778
Cost of goods sold 5,539,614 4,175,395 13,803,046 11,473,814
---------- ---------- ---------- ----------
Gross profit 298,159 511,014 1,054,483 1,435,964
Selling, general and
administrative expense 526,809 878,717 1,502,849 2,369,013
------- ------- --------- ---------
Operating profit (228,650) (367,703) (448,366) (933,049)
Other income (expense)
Other income 34,511 12,933 257,840 57,049
Interest expense (70,521) (104,387) (250,150) (288,981)
-------- --------- --------- ---------
Earnings before income
taxes (264,660) (459,157) (440,676) (1,164,981)
Income tax expense
(benefit) $0 (18,500) $0 (181,275)
---- ---------- ----- -----------
Net earnings (loss) ($264,660) ($440,657) ($440,676) ($983,706)
----------- ---------- --------- ----------
Net (loss) earnings per
common share $ (0.06) $ (0.10) $ (0.10) $ (0.23)
-------------- ------------ -------------- -----------
</TABLE>
<PAGE>
PALLET MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
13 Weeks Ended 39 Weeks Ended
-------------- ---------------
Mar. 29, 1997 Mar. 30, 1996 Mar. 29, 1997 Mar. 30, 1996
------------- ------------- ------------- --------------
Cash flows from operating activities:
Net earnings (loss) (264,659) (440,657) (440,674) (983,706)
Adjustments to reconcile
net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation 97,399 94,603 282,256 281,741
(Incr.) Decr. in operating assets:
Accounts receivable (238,557) (1,072,940) (651,935) (1,094,601)
Inventories (110,912) 11,721 (220,350) 345,244
Prepaid expenses (68,282) (145,930) (96,739) (390,510)
Income tax refund receivable 0 0 517,771 0
Other assets (53,540) (46,551) 44,663 (28,788)
Incr. (Decr.) in operating assets:
Accounts payable 15,961 (130,349) 184,785 (238,163)
Accrued liabilities and income taxes 128,236 687,115 121,907 534,952
Deferred credits 0 0 0 19,171
Net cash (used in) privided by
operating activities (494,354) (1,042,988) (258,316) (1,554,660)
Cash flows from investing activities:
Purchase of fixed assets (18,228) (45,325) (242,564) (584,468)
Net cash (used in) investing activities (18,228) (45,325) (242,564) (584,468)
Cash flows from financing activities:
Proceeds from lenders 343,232 978,277 67,941 1,403,884
Capital contributed 0 0 606,740 430,032
Net cash provided by financing activities 343,232 978,277 674,681 1,833,916
(Decrease) Increase in cash
(Decrease) Increase in Cash (169,350) (110,036) 173,801 (305,212)
Cash at beginning of period 360,042 253,496 16,891 448,692
Cash at end of period 190,692 143,460 190,692 143,480
</TABLE>
<PAGE>
Pallet Management Systems, Inc.
Notes to Financial Statements
March 29, 1997
Note 1. Consolidated Financial Statements:
The consolidated balance sheets as of March 29, 1997 and June 30, 1996,
the consolidated statement of operations and cash flows for the thirteen and
thirty-nine week periods ended March 29, 1997 and March 30, 1996 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 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
reflect the stock split.
Note 2. Net Loss per Share of Common Stock:
Net loss per share was computed using the consolidated results of the
company for the periods presented and the weighted average shares
outstanding at the end of each period.
Note 3. Stockholders' Equity:
During the thirteen and thirty-nine week periods ended March 29, 1997
stockholders' equity changed for the following items:
13 Weeks 39 Weeks
March 27, 1997 March 27, 1997
Common stock sold 0 607
Additional paid-in capital 0 606,133
Current net earnings (loss) $ (264,660) (440,675)
------------- -------------
$ (264,660) $ 166,065
============= ===========
<PAGE>
Pallet Management Systems, Inc.
Management's Discussion and Analysis or Plan of Operation
March 29, 1997
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 thirty-nine week periods ended
March 29, 1997 and March 30, 1996.
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).
Thirteen Weeks Ended March 29, 1997 Compared to Thirteen Weeks Ended March 30,
1996
Net sales increased 24% to $5,838,000 from $4,686,000 during the
thirteen-week period ended March 29, 1997 when compared to March 30, 1996.
During the thirteen week period ended March 29, 1997 new pallet sales
increased 42% to $4,066,000 from $2,860,000, pallet remediation (pallet
recycling, depot and repair services and sales of used pallets) decreased by
2.9% to $1,772,000 from the $1,826,000 recorded for the same thirteen week
period ended March 30, 1996. This decrease is a result of eliminating
unprofitable customers and increased competition in Florida. The Company
experienced a $352,000 (40%) reduction in Selling, General and Administrative
expenses for the thirteen week period ended March 29, 1997 when compared to
March 30, 1996. Other income increased to $35,000 from $13,000 a result of
maintaining a positive cash position. The Company experienced a $34,000 (32%)
decrease in interest expense for the thirteen-week period ended March 29, 1997.
This decrease is a result of an improved cash flow deficit due to the conversion
of debt to equity in December 1996. The Company did not record any tax effect on
the net loss as the Company utilized 100% of its 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 $265,000 or $(.06) per share during the thirteen week period ended March 29,
1997 compared to a loss of $441,000 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 5.1% as compared to 10.9% achieved for the same
thirteen week period a year prior. The reduction in gross margin was primarily
due to the unusually rapid increase in the cost of lumber. The Company
anticipates gross margin recovery in late spring or early summer as lumber
prices are expected to decline and index pricing to customers takes effect.
<PAGE>
Pallet Management Systems, Inc.
Management's Discussion and Analysis and Liquidity and Capital Resources
March 29, 1997
Thirty-nine Weeks Ended March 29, 1997 Compared to Thirty-nine Weeks Ended
March 30, 1996
Net sales increased 15% to $14,858,000 from $12,910,000 during the
thirteen-week period ended March 29, 1997 when compared to March 30, 1996.
During the thirty-nine week period ended March 29, 1997 new pallet sales
increased 101% to $10,037,000 from $4,987,000, pallet remediation (pallet
recyclling, depot and repair services and sales of used pallets) increased by
54% to $4,820,000 from the $3,129,000 recorded for the same thirty-nine week
period ended March 30, 1996. The Company experienced a $866,000 (36.5%)
reduction in Selling, General and Administrative expenses for the thirty-nine
week period ended March 29, 1997 when compared to March 30, 1996. This decrease
is a result of the Company's effort to consolidate, streamline and eliminate
unnecessary expenditures. Other income increased to $201,000 from $57,000 as a
result of the sale (to a related party) of certain non-operating real estate
coupled with the Company's improved cash position in the current fiscal year.
The Company experienced a $39,000 (13%) decrease in interest expense for the
thirty-nine week period ended March 29, 1997. This decrease is a result of an
improved cash flow deficit due to the conversion of debt to equity in December
1996. The Company did not record any tax effect on the net loss as the Company
utilized 100% of its net loss carry back on the June 30, 1996 Federal Income Tax
return. Consequently, the current year's net operating loss will only affect the
current and future tax filings. A net loss of $441,000 or $.10 per share during
the thirty-nine week period ended March 29, 1997 compared to a loss of $984,000
or $.23 per share recorded for the same period last year was realized by the
Company. The gross margin for the thirty-nine week period was approximately 7.1%
as compared to 11.12% achieved for the same thirty-nine week period a year
prior. The reduction in gross margin was primarily due to the sharp increase in
the cost of lumber. The Company anticipates gross margin recovery during the
late spring or early summer as lumber prices begin to stabilize and possibly
decline and index pricing to customers take effect.
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 proposal
to convert $606,740 outstanding Company notes into equity (newly formed "A"
Units). Each "A" Unit consists 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. The Company issued 576,740 "A" Units to Company board
members.
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.
<PAGE>
Pallet Management Systems, Inc.
Other Information
March 29, 1997
LIQUIDITY AND CAPITAL RESOURCES
The Company had $191,000 cash on hand at the end of the thirty-nine
week period ending March 29, 1997, versus $17,000 at the beginning of the fiscal
year. This increase in cash is attributable to the receipt of the income tax
receivable of $518,000, a decrease in other assets by $45,000, increases in
accounts payable by $185,000, accrued liabilities by $122,000 and newly
contributed capital of $606,740. These cash increases were offset by increases
in accounts receivable by $652,000, inventory by $220,000, prepaid expenses
$97,000, purchase of fixed assets of $242,000 and $68,000 net repayments on
corporate debt.
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: May 13, 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 thirteen week period ended March 29,
1997 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> DEC-29-1996
<PERIOD-END> MAR-29-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,833,003
<ALLOWANCES> 63,000
<INVENTORY> 1,240,594
<CURRENT-ASSETS> 3,505,225
<PP&E> 2,838,117
<DEPRECIATION> 97,399
<TOTAL-ASSETS> 6,446,056
<CURRENT-LIABILITIES> 3,829,929
<BONDS> 0
0
0
<COMMON> 4,850
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,446,056
<SALES> 5,837,773
<TOTAL-REVENUES> 5,872,284
<CGS> 5,539,614
<TOTAL-COSTS> 6,066,423
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70,521
<INCOME-PRETAX> (264,660)
<INCOME-TAX> 0
<INCOME-CONTINUING> (264,660)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (264,660)
<EPS-PRIMARY> $(.06)
<EPS-DILUTED> $(.06)
<PAGE>
</TABLE>
