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 March 28, 1998
Commission
file 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 March 28, 1998, the Registrant had outstanding 1,713,839 shares of
common stock, $.001 par value.
<PAGE>
PALLET MANAGEMENT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Mar. 28, Jun. 30,
ASSETS 1998 1997
_______ ________
(Audited)
CURRENT ASSETS
Cash $222,238 $237,447
Accounts Receivable - trade, net of allowance
for doubtful accounts - $37,623 1,611,317 1,724,957
Inventories 1,158,856 902,396
Prepaid expenses 147,099 98,079
---------- ----------
Total current assets 3,139,510 2,962,879
Property and equipment - net of accumulated
depreciation 2,928,072 2,780,882
Other assets 120,330 39,666
----------- ------------
$6,187,912 $5,783,427
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable $360,997 $2,507,648
Accounts payable - trade 1,450,344 1,215,076
Accrued liabilities 391,784 583,966
----------- ------------
Total current liabilities 2,203,125 4,306,690
LONG TERM LIABILITIES
Deferred income tax 70,888 70,888
Long-Term debt 2,906,706 1,137,976
------------ ------------
$ 2,977,594 $1,208,864
STOCKHOLDERS' EQUITY
Common stock, authorized 100,000,000 shares at $.001 par value; issued and
outstanding 1,713,839 shares at March 28, 1998 and 1,212,489
at June 30, 1997 1,714 1,212
Additional paid in capital 3,609,095 2,825,006
Retained earnings (deficit) (2,603,616) (2,558,345)
----------- -----------
1,007,193 267,873
--------- -------
$6,187,912 $5,783,427
========== ==========
</TABLE>
<PAGE>
PALLET MANAGEMENT SYSTEMS
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
13 Weeks Ended 39 Weeks Ended
-------------- --------------
Mar. 28, Mar. 29, Mar. 28, Mar. 29,
1998 1997 1998 1997
Net sales $6,718,390 $5,837,773 $16,463,025 $14,857,529
Cost of goods sold $5,964,884 5,539,614 14,874,197 13,803,046
---------- --------- ---------- ----------
Gross profit 753,506 298,159 1,588,828 1,054,483
Selling, general and administrative expense
508,649 526,809 1,411,390 1,502,849
------- ------- --------- ---------
Operating profit (loss) 244,857 (228,650) 177,438 (448,366)
Other income (expense)
Other income 60,161 34,511 60,161 257,840
Interest expense (74,195) (70,521) (282,870) (250,150)
-------- -------- --------- ---------
Earnings before income taxes 230,823 (264,660) (45,271) (440,676)
Income tax expense (benefit) 0 0 0 0
- - - -
Net earnings (loss) $230,823 ($264,660) (45,271) ($440,676)
======== ========== ======== ==========
Net earnings (loss) per common share $0.13 ($0.23)3 ($0.03)($0.40)
----- -------- --------------
Diluted earnings (loss) per common share $0.06 * 0.06 * 0.06 * 0.06
----- -- ---- - ---- - ----
* exercise of warrants and options would be anti-dilutive
</TABLE>
<PAGE>
PALLET MANAGEMENT SYSTEMS
CONSOLIDATED STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
13 Weeks Ended 39 Weeks Ended
-------------- --------------
Mar. 28, Mar. 29, Mar. 28, Mar. 29,
1998 1997 1998 1997
Cash flows from operating activities:
Net earnings (loss) $230,823 ($264,659) (45,271) ($440,674)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation 104,727 97,399 302,772 282,256
(Incr.) Decr. in operating assets:
Accounts receivable (329,201) (238,557) 113,640 (651,935)
Inventories 102,657 (110,912) (256,461) (220,350)
Prepaid expenses (52,092) (68,282) (49,020) (96,739)
Income tax refund receivable 0 0 0 517,771
Other assets (41,884) (53,540) (80,663) 44,663
Incr. (Decr.) in operating assets:
Accounts payable (167,944) 15,961 235,268 184,785
Accrued liabilities and taxes 128,23654) (192,182) 121,907
Deferred credits 0 0 0 0
- - - -
Net cash provided by (used in)
operating activities (176,468) (494,354) 28,083 (258,316)
--------- --------- ------ ---------
Cash flows from investing activities:
Purchase of fixed assets (140,057) (18,228) (449,962) 242,564
--------- -------- --------- -------
Net cash (used in) investing activities (18,228)7) (449,962) (242,564)
---------- --------- ---------
Cash flows from financing activities:
Borrowing from (Payments to) lenders 6,589 343,232 (377,921) 67,941
Capital contributed 2,700 0 784,591 606,740
----- - ------- -------
Net cash (used in) provided by
Financing activities 9,289 343,232 406,670 674,681
----- ------- ------- -------
INCREASE (DECREASE) IN CASH (307,236) (169,350) (15,209) 173,801
Cash at beginning of period 529,474 360,042 237,447 16,891
------- ------- ------- ------
Cash at end of period $222,238 $190,692 $222,238 $190,692
======== ======== ======== ========
</TABLE>
<PAGE>
Pallet Management Systems, Inc.
Notes to Financial Statements
March 28, 1998
Note 1. Consolidated Financial Statements:
The consolidated balance sheet as of March 28, 1998, and the consolidated
statement of operations and cash flows for the thirteen week and thirty-nine
week periods ended March 28, 1998 and March 29, 1997 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, 1997.
Certain prior year amounts within the accompanying financial statements
have been reclassified to conform to the current year presentation.
Note 2. Net Earnings (Loss) per Share of Common Stock:
Net earnings (loss) per share was computed using the weighted average
number of shares outstanding based on the consolidated results of the Company
for the periods presented. On January 29, 1998, the shareholders voted for a
one-for-four reverse stock which took place February 16, 1998. All stock data
and per share amounts in the consolidated financial statements have been revised
to reflect this reverse stock split. A reconciliation of weighted average shares
outstanding for purposes of computing basic earnings per share and diluted
earnings per share for the thirteen week period ended March 28, 1998 is as
follows:
weighted average shares outstanding - basic earnings per
common share 1,713,120
assumed exercise of warrants and options 2,634,741
assumed repurchase of shares from proceeds of assumed
exercise of warrants and options, at average market
value during period (432,652)
weighted average shares outstanding diluted earnings
per common share 3,915,209
Note 3. Stockholders' Equity:
During the thirteen week and thirty-nine week periods ended March 28, 1998
stockholders' equity changed for the following items:
13 Weeks 39 Weeks
Mar. 28, 1998 Mar. 28, 1998
------------- -------------
Common stock sold 2 502
Additional paid-in capital 2,698 784,089
Current net income (loss) 230,823 (45,271)
<PAGE>
Pallet Management Systems, Inc.
Management's Discussion and Analysis or Plan of Operation
March 28, 1998
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 28,
1998 and March 28, 1998.
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 and pallet recycling.
Pallet recycling encompasses 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 which create a closed-loop pallet return
system between the manufacturer, their customers and vendors. The remediation
program is focused on the non-grocery pallet segment of the packaging industry.
Integrated pallet management services consists of sorting, distributing,
retrieval and warehousing of pallets and packaging units. The primary industries
which use pallets are; chemical and fluid, printing, paper and fiber, steel and
metal, automotive, grocery.
Manufacturing of new pallets for niche markets and used pallet sales and
services are the majority of the Company's business today. Plans for expansion
are focused on consolidating a system within the pallet industry through a
network of affiliated pallet companies to implement remediation networks. Once
in place, this system is designed to offer national customers a major saving in
their distribution costs by providing better utilization of their packaging
resources.
Customers include large retail and wholesale distributors such as Allied
Signal, Bethlehem Steel, Chep (the world's largest pallet pool rental company),
Coca-Cola, Disney, Dupont, Food Lion, Friendly's, Iams, K-Mart, Office Depot,
Pepsi Co., Staples, Siemens, Westvaco, the US Government and Walt Disney World.
Thirteen Weeks Ended March 28, 1998 compared to Thirteen Weeks Ended
March 29, 1997
For the thirteen week period ended March 28, 1998 net sales increased to
$6,718,390 from $5,837,773 for the comparable 1997 period. This 15.1% increase
was due primarily to increased sales of new specialty pallets to niche markets
and increased sales in remediation.
During the thirteen week period ended March 28, 1998 new pallet sales
increased 20.2% to $4,888,000 from $4,066,000 and pallet recycling ( depot and
repair services and sales of used pallets) decreased by 6.9% to $1,699,000 from
the $1,826,000 recorded for the same thirteen week period ended March 29, 1997.
The sales decrease in pallet recycling was in used GMA pallet sales as
remediation sales increased 135%. The gross margin for this thirteen week period
was 11.2% as compared to 5.1% achieved for the same thirteen week period a year
prior. This increase in gross margin was due to better utilization of raw
material resources, improved product mix, increased remediation sales, and
customer price increases. The Company experienced a $18,160 (3.4)% decrease in
Selling, General and Administrative expenses for the thirteen week period ended
March 28, 1998 when compared to March 29, 1997. This decrease is a result of
management's goal of an overall reduction in overhead expenses. The Company
experienced a $3,674 (5.2%) increase in interest expense for the thirteen week
period ended March 28, 1998. This increase is a result of increased borrowings
resulting from the increased sales. The company entered into a new financing
agreement with a new lender, as discussed below, that has enabled the company to
move forward with its expansion plans. A net profit of $230,823 or $0.13 per
share was realized during the thirteen week period ended March 28, 1998 compared
to a loss of ($264,660) or ($0.23) per share recorded for the same period last
year. The Company did not record any tax effect on the income due to a reduction
in the valuation allowance previously established.
During this thirteen week period, the Company continued to up-grade its
computer equipment and systems. In addition, new state-of-the-art manufacturing
equipment was ordered and installed at the Lawrenceville facility. This
equipment was not fully
<PAGE>
operational until after the completion of this thirteen-week period.
The Company's board of directors approved a one for four reverse stock
split which was ratified by the shareholders on January 29, 1998. The split took
effect February 16, 1998.
Thirty-nine Weeks Ended March 28, 1998 compared to Thirty-nine Weeks
Ended March 29, 1997
For the thirty-nine week period ended March 28, 1998 net sales increased
10.8% to $16,463,025 from $14,857,529 for the comparable 1997 period.
During the thirty-nine week period ended March 28, 1998 new pallet sales
increased 12.9% to $11,328,000 from $10,037,000, pallet recycling (pallet
remediation, depot and repair services and sales of used pallets) increased by
54.2% to $4,825,000 from the $3,129,000 recorded for the same thirty-nine week
period ended March 29, 1997. This increase was mainly in remediation, and depot
and repair services. Sales of used pallets has decreased as profits in that
market have become very thin. The gross margin for the thirty-nine week period
was 9.7% as compared to 7.1% achieved for the same thirty-nine week period a
year prior. This increase in gross margin was due to an increase in
manufacturing efficiencies, termination of unprofitable customers, improved raw
material utilization and changed product mix and customer price increases. The
Company experienced a $91,459 (9.1%) decrease in Selling, General and
Administrative expenses for the thirty-nine week period ended March 28, 1998
when compared to March 29, 1997. This decrease is a direct result of
management's overall objective of reducing overhead expenses. The Company
experienced a $32,720 (13.1%) increase in interest expense for the thirty-nine
week period ended March 28, 1998 as a result of increased borrowing due to
increased sales. A net loss of $(45,271) or ($0.03) per share was realized
during the thirty-nine week period ended March 28, 1998 compared to a loss of
($440,676) or $(0.40) per share recorded for the same period last year. The
Company did not record any tax effect on the loss.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $222,238 of cash on hand at the end of the thirty-nine
week period ending March 28, 1998, versus $237,447 at the beginning of fiscal
year 1998. This decrease in cash is attributable to various components of
company operations. The Company completed a $1,000,000 private placement during
this thirty-nine week period. The Company also secured a $3,700,000 line of
credit in a financing agreement signed with American Commercial Finance
Corporation, a wholly-owned subsidiary of HPSC). This amount was subsequently
increased to $3,900,000. This new funding replaces the previous $2,500,000
financing from NationsBank. The increased line of credit is at approximately the
same terms as NationsBank with additional inventory and equipment financing,
which was not previously available. With the change in lending institutions from
NationsBank to American Commercial Finance Corporation, outstanding debt was
reclassified from short-term to long-term due to favorable debt ratio covenants.
When the company switched from NationsBank, where debt covenants where out of
ratio, to American Commercial Finance Corporation, the
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
One-for-four reverse stock split on or about February 16, 1998. Authorization of
100,000,000 shares of common stock.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
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.
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 8, 1998 By: Zachary M. Richardson, President
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financialinfomration extracted from the
financial statements contained in the Company's Form 10-QSB and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-28-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,648,940
<ALLOWANCES> 37,623
<INVENTORY> 1,158,856
<CURRENT-ASSETS> 3,139,510
<PP&E> 2,928,072
<DEPRECIATION> 302,772
<TOTAL-ASSETS> 6,187,912
<CURRENT-LIABILITIES> 2,203,125
<BONDS> 0
0
0
<COMMON> 1,714
<OTHER-SE> 1,005,479
<TOTAL-LIABILITY-AND-EQUITY> 6,187,912
<SALES> 16,463,025
<TOTAL-REVENUES> 16,523,186
<CGS> 14,874,197
<TOTAL-COSTS> 1,431,390
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 262,870
<INCOME-PRETAX> (45,271)
<INCOME-TAX> 0
<INCOME-CONTINUING> (45,271)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (45,271)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
