U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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Commission file number 0-21436
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PRINS RECYCLING CORP.
---------------------
(Exact name of small business issuer as
specified in its charter)
New York 11-2929211
-------------------------------- -------------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization Identification No.)
400 Kelby Street, 6th Floor, Fort Lee, New Jersey 07024
-------------------------------------------------------
(Address of principal executive offices)
(201) 886-1600
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(Issuer's telephone number)
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(Former name, former address and former fiscal
year, if changed since last report)
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 .
---- ----
As of May 9, 1996, 13,192,573 Common Shares, $.001 par value, of the registrant
were outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
See pages F-1 to F-5.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 COMPARED WITH
THE THREE MONTHS ENDED MARCH 31, 1995.
Net sales for the three months ended March 31, 1996, decreased to
$9,854,607 from $16,808,045 for the three months ended March 31, 1995, a
decrease of 41%. The decrease was due to a substantially lower average selling
price for all tonnage sold of $76 per ton compared to $152 per ton for the three
months ended March 31, 1995. Total tonnage sold increased to approximately
129,000 from approximately 111,000. The first quarter of 1996 includes revenues
of $2,366,234 and tonnage sold of approximately 22,500 from 1995 acquisitions
completed subsequent to March 31, 1995. Net sales includes brokerage revenues of
$763,114 and $2,302,287, respectively, and tonnage of approximately 8,700 and
14,000, respectively, for the three months ended March 31, 1996 and 1995.
The Company incurred a gross loss of $74,217 for the three months ended
March 31, 1996, compared to a gross profit of $5,787,309 for the three months
ended March 31, 1995. The decrease was due to the impact of long-term fixed
price contracts, a decline in the average selling prices of the Company's
recyclables and costs related to inefficiencies prior to the physical
consolidation of recent acquisitions.
Selling, general and administrative expenses for the three months ended
March 31, 1996, increased to $2,420,014 from $1,814,161 for the three months
ended March 31, 1995, an increase of 33%. The increase in selling, general, and
administrative expenses was largely due to 1995 acquisitions completed
subsequent to March 31, 1995 and an additional provision for uncollectible
accounts. As a percentage of net sales, selling, general and administrative
expenses increased to 25% from 11%. The increase in selling, general, and
administrative expenses as a percentage of net sales was primarily due to the
decline in the average selling price for all tonnage sold.
Depreciation and amortization expenses for the three months ended March 31,
1996, increased to $968,021 from $352,321 for the three months ended March 31,
1995, an increase of 175%. This increase was due in part to depreciation on
additions to machinery and equipment in the Company's Material Recovery
Facilities in Boston, Pittsburgh, and Newark as well as amortization of
additional goodwill incurred in connection with the acquisitions completed
subsequent to March 31, 1995.
<PAGE>
No provision for income taxes was required for the three months ended March
31, 1996, compared to a provision of $1,409,718 for the three months ended March
31, 1995. In the three months ended March 31, 1996, the Company provided a
valuation reserve offsetting income taxes recoverable due to pre-tax operating
losses.
LIQUIDITY AND CAPITAL RESOURCES
As of May 14, 1996, the Company is in need of additional capital. Although
the Company is exploring several alternatives, there can be no assurance that
additional capital can be obtained by the Company on terms and within a time
period satisfactory to the Company.
As of March 31, 1996, the Company had the following credit facilities: (i)
a revolving credit line of $10,000,000 (subject to available collateral) from
Midlantic Bank, N.A., of which the Company had outstanding $4,414,146 (ii)
four-year equipment term loans from Midlantic Bank, N.A., of $5,429,956, and
(iii) a $1,500,000 three-year term loan from Midlantic Bank, N.A. Substantially
all of the Company's assets are pledged to secure such credit facilities. At
March 31, 1996, the Company had fully utilized its availability with respect to
its revolving line of credit. Since December 31, 1995, the Company has repaid
$4,472,592 of debt related to the above-mentioned credit facilities.
The Company incurred a net loss in the quarter ended March 31, 1996, and
had a working capital deficit of approximately $3.5 million. In addition,
selling prices of waste paper have continued at low levels beyond the quarter
ended March 31, 1996. Management believes the Company will continue to incur
operating losses if the average selling price for all tonnage sold does not
materially increase from current levels, unless other material operational
changes are effected, including, but not limited to, the renegotiation of
long-term fixed price contracts with its suppliers of recyclable materials. The
Company can give no assurances that such material operational changes will be
effected.
During the quarter ended March 31, 1996, the Company completed the sale of
332,000 shares of common stock resulting in net proceeds of approximately
$1,680,000 and the sale of $12,000,000 principal amount of 8% convertible
subordinated debentures resulting in net proceeds of approximately $11,280,000
(See Notes to Consolidated Financial Statements). These funds were used to repay
certain outstanding indebtedness and for working capital. In addition,
management has instituted a plan to reduce operating costs by renegotiating
certain of its long-term fixed price supply contracts, consolidating facilities
and reducing the number of employees. However, management has concluded that due
to the prevailing market conditions for its products, the Company will need to
raise additional working capital through the issuance of additional debt or
equity or through the sale of assets. Any such transaction will require the
approval of the Company's principal bank lender. Further, any additional sales
of common stock equivalents may require the approval of the Company's
shareholders, which approval cannot be assured. There can be no assurance that
such additional debt or equity offerings or asset sales can be arranged and
completed on terms satisfactory to the Company. The Company has engaged a
<PAGE>
financial advisor to assist it in exploring strategic alternatives to maximize
shareholder value including the potential sale of all or part of the Company.
On April 12, 1996, the Company and its principal bank lender entered into
an amendment (the "Amendment") to its Revolving and Term Loan and Security
Agreement, as amended, (the "Debt Agreement"). The principal result of the
Amendment is to change the terms of certain financial covenants contained in the
Debt Agreement. The amended covenants require the Company to achieve certain
operating results for the quarters ended June 30, 1996, September 30, 1996, and
December 31, 1996. These operating results contemplate increased average selling
prices of the Company's products during the third and fourth quarters of 1996
and a plan to reduce operating costs. No assurance can be given that such price
increases or reduction in operating costs will occur or that the Company will be
able to satisfy these financial covenants.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheets at March 31, 1996
(unaudited) and December 31, 1995......................................F-2
Consolidated Statements of Operations for the Three
Months Ended March 31, 1996 and 1995 (unaudited).......................F-3
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1996 and 1995 (unaudited).......................F-4
Notes to Consolidated Financial Statements.............................F-5
<PAGE>
PRINS RECYCLING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31,
1996 December 31,
(Unaudited) 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................. $ 1,896,779 $ 1,097,352
Accounts receivable, net of allowance for doubtful accounts 6,878,649 7,015,666
Inventories ............................................... 615,635 865,952
Equipment lease receivable--current portion ............... 293,985 292,574
Recoverable income taxes .................................. 1,480,326 1,480,326
Due from officer stockholders ............................. 269,498 219,498
Prepaid expenses and other current assets ................. 1,033,457 3,013,536
----------- -----------
TOTAL CURRENT ASSETS .............. 12,468,329 13,984,904
Property, plant and equipment, net of accumulated depreciation 20,042,036 20,405,791
Equipment lease receivables, net of current portion ........... 518,737 523,033
Intangibles and goodwill, net of accumulated amortization ..... 18,022,037 18,538,441
Other assets .................................................. 1,895,849 1,201,337
----------- -----------
$52,946,988 $54,653,506
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................ $ 6,785,472 $ 9,620,536
Accrued liabilities ..................................... 1,326,879 2,645,399
Amounts payable to banks--current portion ............... 6,231,337 10,245,121
Obligations under capital leases--current portion ....... 706,137 760,764
Notes and advances payable--current portion:
Related parties ............................. 571,044 3,761,374
Others ...................................... 360,657 295,990
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TOTAL CURRENT LIABILITIES ....... 15,981,526 27,329,184
LONG TERM DEBT:
Amounts payable to banks--less current portion .......... 5,112,765 5,571,574
Obligations under capital lease--less current portion 1,214,590 1,080,516
Notes and advances payable--less current portion:
Related parties ............................. 2,891,074 2,460,707
Others ...................................... 413,634 267,019
Convertible Debentures .................................. 12,000,000 --
DEFERRED TAXES ................................................ 50,500 50,500
COMMITMENTS and CONTINGENCIES
STOCKHOLDERS' EQUITY .......................................... 15,282,899 17,894,006
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................... $52,946,988 $54,653,506
=========== ===========
</TABLE>
See accompanying notes
F-2
<PAGE>
PRINS RECYCLING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
March 31,
-----------------------------
1996 1995
------------ -------------
Net sales .................................... $ 9,854,607 $16,808,045
Cost of goods sold ........................... 9,928,824 11,020,736
----------- -----------
Gross profit (loss) ............. (74,217) 5,787,309
Selling, general and administrative expenses . 2,420,014 1,814,161
Depreciation and amortization ................ 968,021 352,321
----------- -----------
Total operating expenses ........ 3,388,035 2,166,482
Operating income (loss) ......... (3,462,252) 3,620,827
Interest expense - net ....................... 577,772 92,462
----------- -----------
Income (loss) before income taxes (4,040,024) 3,528,365
Income taxes ................................. -- 1,409,718
----------- -----------
Net income (loss) ............... $(4,040,024) $ 2,118,647
=========== ===========
Net income (loss) per share .................. $ (0.38) $ 0.21
=========== ===========
Weighted average common shares outstanding ... 10,572,507 10,151,940
=========== ===========
See accompanying notes
F-3
<PAGE>
PRINS RECYCLING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
----------------------------
1996 1995
------------- ------------
<S> <C> <C>
CASH PROVIDED BY (USED IN) OPERATIONS:
Net income (loss) ........................................................ $ (4,040,024) $ 2,118,647
Adjustments to reconcile net income (loss) to cash provided by operations:
Depreciation and amortization ......................................... 968,021 352,321
Provision for losses on accounts receivable ........................... 121,560 32,000
Gain on sale of assets ................................................ (8,512) (15,027)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ............................ 137,017 (3,539,676)
(Increase) decrease in equipment lease receivables .................... 2,885 (21,000)
(Increase) decrease in inventory ...................................... 250,317 (241,252)
(Increase) decrease in stockholder's loans receivable ................. (50,000) 267,684
Decrease in prepaid expenses and other current assets ................. 1,980,079 267,515
(Increase) decrease in other assets ................................... 25,488 (321,744)
Increase (decrease) in accounts payable and accrued liabilities ....... (4,153,584) 2,226,331
Increase in taxes payable ............................................. -- 1,172,541
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATIONS ...................................... (4,766,753) 2,298,340
CASH (USED IN) INVESTING ACTIVITIES:
Purchases of property, plant and equipment ............................... (186,348) (5,146,399)
Proceeds from sale of assets ............................................. 115,000 32,522
---------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES ........................................ (71,348) (5,113,877)
CASH PROVIDED BY FINANCING ACTIVITIES:
Increase (decrease) in borrowings under bank lines of credit ............. (439,939) 3,302,984
Repayment of debt principal and capital lease obligations ................ (7,125,891) (1,690,287)
Proceeds from other borrowings ........................................... 241,696 --
Proceeds from issuance of convertible debentures ......................... 11,280,000 --
Proceeds from issuance of common stock ................................... 1,681,662 --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES ...................................... 5,637,528 1,612,697
NET INCREASE (DECREASE) IN CASH ............................................... 799,427 (1,202,840)
CASH AND CASH EQUIVALENTS - Beginning of period ................................ 1,097,352 4,005,296
----------- -----------
CASH AND CASH EQUIVALENTS - End of period ...................................... $ 1,896,779 $ 2,575,451
=========== ===========
</TABLE>
See accompanying notes
F-4
<PAGE>
PRINS RECYCLING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(Unaudited)
1. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in
accordance with Article 10 of Regulation S-X and, therefore, do not include
all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in accordance with
generally accepted accounting principles. Reference is made to the
Company's annual report for the year ended December 31, 1995 filed on Form
10-KSB.
The financial statements for the periods ended March 31, 1996 and 1995 are
unaudited and include all adjustments which, in the opinion of management,
are necessary for a fair statement of the results of operations for the
period then ended. All such adjustments are of a normal and recurring
nature. The results of the Company's operations for any interim period are
not necessarily indicative of the results of operations for a full fiscal
year.
On April 24, 1995, the Company issued 1,106,667 shares of its common stock
in exchange for all of the outstanding common stock of Paper Chase
Exchange, Inc. ("Paper Chase"). Paper Chase collects, markets and sells
waste paper and other secondary fibers to paper mills. The merger has been
accounted for as a pooling of interests and, accordingly, the accompanying
consolidated financial statements reflect the merger of Paper Chase for the
three month period ended March 31, 1995. There were no intercompany
transactions between Prins Recycling Corp. and Paper Chase prior to the
merger.
Certain other reclassifications were made to the Company's prior period
financial statements to conform to the 1996 presentation.
2. CREDIT FACILITIES
As of March 31, 1996, the Company had the following credit facilities: (i)
a revolving credit line of $10,000,000 (subject to available collateral)
from Midlantic Bank, N.A., of which the Company had outstanding $4,414,146
(ii) four-year equipment term loans from Midlantic Bank, N.A. of
$5,429,956, and (iii) a $1,500,000 three-year term loan from Midlantic
Bank, N.A. Substantially all of the Company's assets are pledged to secure
such credit facilities. At March 31, 1996, the Company had fully utilized
its availability with respect to its revolving line of credit. Since
December 31, 1995, the Company has repaid $4,472,592 of debt related to the
above-mentioned credit facilities.
F-5
<PAGE>
On April 12, 1996, the Company and its principal bank lender entered into
an amendment (the "Amendment") to its Revolving and Term Loan and Security
Agreement, as amended, (the "Debt Agreement"). The principal result of the
Amendment is to change the terms of certain financial covenants contained
in the Debt Agreement. The amended covenants require the Company to achieve
certain operating results for the quarters ended June 30, 1996, September
30, 1996, and December 31, 1996. These operating results contemplate
increased average selling prices of the Company's products during the third
and fourth quarters of 1996 and a plan to reduce operating costs. No
assurance can be given that such price increases or reduction in operating
costs will occur or that the Company will be able to satisfy these
financial covenants.
3. BUSINESS TRANSACTIONS
In January 1996, the Company issued 332,000 shares of its Common Stock in a
private placement (the "Private Placement Shares"). In exchange for such
shares, the Company received net proceeds of $1,679,787. In addition, the
Company issued warrants to the placement agent to purchase 29,880
additional shares at $5.56 per share. These warrants expire in January
2001. If during the twelve-month period following the issuance of the
Private Placement Shares, the Company sells any shares of its common stock
for a price lower than $5.56 per share, the purchase price per share of the
Private Placements Shares shall be adjusted downward to equal the lower
price. If an adjustment of the purchase price is required, the Company will
issue such number of additional shares of its common stock to ensure that
the total number of shares delivered to the purchaser multiplied by the
adjusted purchase price equals the purchase price set forth in the
agreement. If, by way of such adjustment, the total number of Private
Placement Shares held by the purchaser would exceed 4.99% of the Company's
total outstanding stock, the Company must effect the adjustment by cash
refund to the extent necessary to avoid exceeding this limitation.
In February 1996, the Company issued $12,000,000 of 8% convertible
subordinated debentures (the "Debentures"). The Company received net
proceeds of $11,280,000. The Debentures are convertible into shares of the
Company's common stock at the option of the Debenture holders at a variable
percentage of the market price, as defined, of the Company's common stock
(the "Conversion Price"), depending on the date of conversion as follows:
for Debentures converted during the first 90 days after closing, the
Conversion Price shall be 80% of the market price; Debentures converted
from 91 days after closing until 180 days from closing shall have a
Conversion Price equal to 78% of the market price; Debentures converted
after 180 days from closing shall have a Conversion Price equal to 76% of
the market price. Interest on the unconverted principal amount of the
debentures is payable in either stock or cash at the option of the Company,
payable quarterly in arrears. Any Debentures remaining outstanding on the
second anniversary of the closing date will be automatically converted into
shares of the Company's common stock on such date at 76% of the then market
price. As of May 13, 1996, $6.5 million principal amount of the Debentures
have been converted into approximately 2.4 million shares of the Company's
common stock.
F-6
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Reports on Form 8-K
Form 8-K dated February 20, 1996.
Item 5. Press release announcing Clifford H. Straub, Jr. joined Prins
Recycling Corp. as Vice President and Chief Financial Officer.
Form 8-K dated February 28, 1996.
Item 5. Press release announcing that Prins Recycling Corp.
raised $13 million in private placements of subordinated
convertible debentures and common stock.
Form 8-K dated March 25, 1996.
Item 5. Press release announcing that Prins Recycling Corp.
retained Goldman, Sachs & Co. to assist it in assessing and
pursuing strategic alternatives to enhance shareholder value.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
May 14, 1996 PRINS RECYCLING CORP.
/s/ Clifford H. Straub, Jr.
----------------------------------------
Clifford H. Straub, Jr.
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,896,779
<SECURITIES> 0
<RECEIVABLES> 8,277,813
<ALLOWANCES> (1,399,164)
<INVENTORY> 615,635
<CURRENT-ASSETS> 12,468,329
<PP&E> 23,064,590
<DEPRECIATION> (3,022,554)
<TOTAL-ASSETS> 52,946,988
<CURRENT-LIABILITIES> 15,981,526
<BONDS> 0
0
0
<COMMON> 10,807
<OTHER-SE> 15,272,092
<TOTAL-LIABILITY-AND-EQUITY> 52,946,988
<SALES> 9,854,607
<TOTAL-REVENUES> 9,854,607
<CGS> 9,928,824
<TOTAL-COSTS> 9,928,824
<OTHER-EXPENSES> 3,266,475
<LOSS-PROVISION> 121,560
<INTEREST-EXPENSE> 577,772
<INCOME-PRETAX> (4,040,024)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,040,024)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,040,024)
<EPS-PRIMARY> (.38)
<EPS-DILUTED> (.38)
</TABLE>
