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 27, 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
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 27, 1997, the Registrant had outstanding 1,712,489 shares
of common stock, $.001 par value.
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PALLET MANAGEMENT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Dec. 27, Jun. 30,
ASSETS 1997 1997
(Audited)
CURRENT ASSETS
Cash $529,474 $237,447
Accounts Receivable - trade, net of allowance
for doubtful accounts 1,282,116 1,724,957
Inventories 1,261,512 902,396
Prepaid expenses 95,008 98,079
Total current assets 3,168,110 2,962,879
Property and equipment - net of accumulated
depreciation 2,892,743 2,780,882
Other assets 78,445 39,666
---------- ------------
$6,139,298 $5,783,427
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable $2,047,750 $2,507,648
Accounts payable - trade 1,618,288 1,215,076
Accrued liabilities 415,338 583,966
------------ -----------
Total current liabilities 4,081,376 4,306,690
LONG TERM DEBT
Deferred income tax 70,888 70,888
Long-Term debt 1,213,364 1,137,976
--------- ---------
1,284,252 1,208,864
--------- ---------
STOCKHOLDERS' EQUITY
Common stock, authorized 100,000,000 shares at
$.001 par value; issued and outstanding 1,712,489
shares at December 27, 1997 and 1,212,489
at June 30, 1997 1,712 1,212
Additional paid in capital 3,606,397 2,825,006
Retained (deficit) earnings (2,834,439) (2,558,345)
----------- ------------
773,670 267,873
------- ----------
$6,139,298 $5,783,427
========== ==========
</TABLE>
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PALLET MANAGEMENT SYSTEMS
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
13 Weeks Ended 26 Weeks Ended
Dec. 27, 1997 Dec. 28, 1996 Dec. 27, 1997 Dec. 28, 1996
Net sales $5,168,237 $5,289,065 $9,744,636 $9,019,756
Cost of goods sold 4,698,320 4,752,318 8,909,313 8,263,432
Gross profit 469,917 536,747 835,323 756,324
Selling, general and
administrative expense 458,247 442,557 902,741 $864,977
Operating profit 11,670 94,190 (67,418) (108,653)
Other income (expense)
Other income 0 5,971 0 9,940
Interest expense (111,920) (78,371) (208,675) (179,629)
Earnings before income taxes (100,250) 21,790 (276,093) (278,342)
Income tax expense (benefit) 0 0 0 0
Net earnings (loss) (100,250) 21,790 ($276,093) ($278,342)
Net (loss) earnings per
common share $(0.07) $0.02 $(0.20) $(0.26)
(reflects 1 for 4 reverse split)
</TABLE>
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PALLET MANAGEMENT SYSTEMS
CONSOLIDATED STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
13 Weeks Ended 26 Weeks Ended
Dec. 27, 1997 Dec. 28, 1996 Dec. 27, 1997 Dec. 28, 1996
Cash flows from operating activities:
Net (loss) earnings ($100,250) $21,791 ($276,094) ($176,015)
Adjustments to reconcile net (loss)
earnings to net cash provided by (used in)
operating activities:
Depreciation 98,961 95,520 198,045 184,857
(Incr.) Decr. in operating assets:
Accounts receivable (101,737) (100,852) 442,841 (413,378)
Inventories (122,570) (84,309) (359,118) (109,439)
Prepaid expenses 63,139 (67,113) 3,072 (28,457)
Income tax refund receivable 0 0 0 517,771
Other assets (24,214) 84,696 (38,779) 98,204
Incr. (Decr.) in operating assets:
Accounts payable 93,360 (97,526) 403,212 168,824
Accrued liabilities and taxes (171,832) (67,601) (168,628) (6,329)
Deferred credits 0 0 0 0
Net cash provided by (used in)
operating activities (265,143) (215,394) 204,551 236,038
Cash flows from investing activities:
Purchase of fixed assets (221,201) (204,776) (309,905) (224,336)
Net cash (used in) investing activities (221,201) (204,776) (309,905) (224,336)
Cash flows from financing activities:
Borrowing from (Payments to) lenders 70,275 173,472 (384,510) (275,291)
Capital contributed 781,891 606,740 781,891 606,740
Net cash (used in) provided by
Financing activities 852,166 780,212 397,381 331,449
INCREASE (DECREASE) IN CASH 365,822 360,042 292,027 343,151
Cash at beginning of period 163,652 0 273,447 16,891
Cash at end of period 529,474 $360,042 529,474 $360,042
</TABLE>
<PAGE>
Pallet Management Systems, Inc.
Notes to Financial Statements
December 27, 1997
Note 1. Consolidated Financial Statements:
The consolidated balance sheets as of December 27, 1997 and June 30,
1997, the consolidated statement of operations and cash flows for the thirteen
week and twenty-six week periods ended of December 27, 1997 and December 28,
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, 1997.
Certain prior year amounts within the accompanying financial statements have
been reclassified to conform to the current year presentation.
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
periods presented. On January 29, 1998, the shareholders voted for a
one-for-four reverse stock split for stockholders of record on or about February
10, 1998. All stock data and per share amounts in the consolidated financial
statements have been revised to reflect this reverse stock split.
Note 3. Stockholders' Equity:
During the thirteen week and twenty-six week periods ended December 27,
1997 stockholders' equity changed for the following items:
13 Weeks 26 Weeks
Dec. 27, 1997 Dec. 27, 1997
Common stock sold 500 500
Additional paid-in capital 781,391 781,391
Current net loss (100,250) (276,093)
======== =======
$681,641 $505,798
========= =======
<PAGE>
Pallet Management Systems, Inc.
Management's Discussion and Analysis or Plan of Operation
December 27, 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 twenty-six week periods ended
December 27, 1997 and December 28, 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 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 that creates 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 to consolidate the pallet industry through a network of
affiliated pallet companies to implement the remediation system. Once in place,
this system is designed to offer national customers a major saving in their
distribution costs and permit them to effectively utilize their packaging
budgets through the re-use of their pallet and packaging resources.
Customers include large retail and wholesale distributors such as
Allied Signal, Coca-Cola, Disney, Dupont, Food Lion, K-Mart, Pepsi Co., Iams,
Bethlehem Steel, the US Government and Chep (the world's largest pallet pool
rental company).
Thirteen Weeks Ended December 27, 1997 compared to Thirteen Weeks Ended
December 28, 1996
For the thirteen week period ended December 27, 1997 net sales
decreased to $5,168,000 from $5,289,000 for the comparable 1996 period. This
decrease was due to the loss of several unprofitable or marginal customer
accounts for which the Company out-sourced manufacturing.
During the thirteen week period ended December 27, 1997 new pallet
sales decreased 15% to $3,111,000 from $3,684,000 and pallet recycling (pallet
remediation, depot and repair services and sales of used pallets) increased by
15% to $1,844,000 from the $1,605,000 recorded for the same thirteen week period
ended December 28, 1996. The gross margin for the thirteen week period was 9% as
compared to 10.1% achieved for the same thirteen week period a year
<PAGE>
prior. This decrease in gross margin was due to an increase in lumber prices not
immediately passed on to customers. The Company experienced a $16,000 (4%)
increase in Selling, General and Administrative Expenses for the thirteen week
period ended December 27, 1997 when compared to the comparable period ended
December 28, 1996. This increase is a result of additional management hired to
handle expanding pallet recycling operations. Other income decreased to $0 from
$6,000 as a result of the sale of rental real estate. This sale was shown as
additional paid-in capital for fiscal year 1997. The Company experienced a
$34,000 (43%) increase in interest expense for the thirteen week period ended
December 27, 1997. This increase is a result of additional borrowing and
interest points amounting to $25,000 paid to NationsBank for default of certain
debt covenants. A net loss of $100,000 or ($.07) per share was realized during
the thirteen week period ended December 27, 1997 compared to a gain of $22,000
or $.02 per share recorded for the same period last year. The Company did not
record any tax effect on the loss.
During this thirteen week period, the Company completed a $1,000,000 private
placement from which the proceeds will be used to purchase equipment designed to
improve manufacturing and recycling efficiency and expand the remediation
program with an improved computer systems, and working capital. The Company also
received a Commitment Letter from a major financial institution to replace the
Company's financing debt with NationsBank. It is anticipated that this will
close before the end of February.
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 is
expected to take effect February 16, 1998.
Twenty-six Weeks Ended December 27, 1997 compared to Twenty-six Weeks Ended
December 28, 1996
For the twenty-six week period ended December 27, 1997 net sales
increased 8% to $9,744,636 from $9,019,756 for the comparable 1996 period.
During the twenty-six week period ended December 27, 1997 new pallet
sales increased 2% to $6,083,221 from $5,971,000, pallet recycling (pallet
remediation, depot and repair services and sales of used pallets) increased by
13% to $3,436,276 from the $3,048,000 recorded for the same twenty-six week
period ended December 28, 1996. The gross margin for the twenty-six week period
was 8.6% as compared to 8.4% achieved for the same twenty-six week period a year
prior. This increase in gross margin was due to an increase in manufacturing
efficiencies and termination of unprofitable customers. The Company experienced
a $37,754 (4%) increase in Selling, General and Administrative expenses for the
twenty-six week period ended December 27, 1997 when compared to December 28,
1996. This increase is a result of additional management hired to handle
expanding pallet recycling operations. Other income decreased to $0 from $9,940
as a result of the sale of rental real estate. This sale was shown as additional
paid in capital for fiscal year 1997. The Company experienced a $29,046 (16%)
increase in interest expense for the twenty six week period ended December 27,
1997. This increase is a result of additional borrowing and interest points
amounting to $25,000 paid to NationsBank for default of certain debt covenants.
A net loss of $276,093 or ($.20) per share was realized during the twenty-six
week period ended December 27, 1997 compared to a loss of $278,342 or ($.26) 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 $529,474 cash on hand at the end of the twenty-six
week period ending
<PAGE>
December 27, 1997, versus $237,447 at the beginning of fiscal year 1998. This
increase in cash is attributable to increases in accounts payable by $93,360 and
capital contributed by $781,891 and decreases in prepaid expenses by $63,139.
The Company completed a $1,000,000 private placement during this period.
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.
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: February 13, 1998 By: Zachary M. Richardson, President
<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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-27-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,282,116
<ALLOWANCES> 64,397
<INVENTORY> 1,261,512
<CURRENT-ASSETS> 3,168,110
<PP&E> 2,892,743
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,139,298
<CURRENT-LIABILITIES> 4,081,376
<BONDS> 0
0
0
<COMMON> 1,713
<OTHER-SE> 263,023
<TOTAL-LIABILITY-AND-EQUITY> 6,139,297
<SALES> 9,744,636
<TOTAL-REVENUES> 9,744,636
<CGS> 8,909,313
<TOTAL-COSTS> 9,812,054
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 208,675
<INCOME-PRETAX> (276,093)
<INCOME-TAX> 0
<INCOME-CONTINUING> (276,093)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (276,093)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
