U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1996
Commission File No. 0-24504
GREENSTONE INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 52-1827142
-------------------------------- ----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
6500 Rock Spring Drive, Suite 400, Bethesda, Maryland, 20817
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(301) 564-5900
- --------------------------------------------------------------------------------
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ].
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $.001 par value, outstanding as of July 31, 1996: 6,116,313
shares
1
<PAGE>
GREENSTONE INDUSTRIES, INC.
INDEX
Part I. Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets:
June 29, 1996 (unaudited) and December 30, 1995 (audited) 3
Consolidated Statements of Operations (unaudited):
Three months ended June 29, 1996 and July 1, 1995 Six
months ended June 29, 1996 and July 1, 1995 5
Consolidated Statements of Cash Flows (unaudited):
Six months ended June 29, 1996 and July 1, 1995 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
2
<PAGE>
GREENSTONE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 29, December 30,
1996 1995
----------------- -----------------
(Unaudited)
<S> <C>
Current assets
Cash and cash equivalents $ 1,354,103 $ 275,697
Accounts receivable net of allowance of $216,013 and $243,900 at June
29, 1996 and December 30, 1995, respectively 4,191,901 5,275,252
Notes receivable 147,694 105,280
Deferred income taxes 599,890 750,500
Inventories (Note 2) 1,647,264 1,452,924
Prepaid expenses and other assets 775,881 688,487
----------------- -----------------
Total current assets 8,716,733 8,548,140
Property, plant and equipment
Property, plant and equipment at cost 16,091,788 14,885,015
Accumulated depreciation (4,997,379) (4,016,827)
----------------- -----------------
Net property, plant and equipment 11,094,409 10,868,188
Intangible assets, net 4,144,563 4,179,650
Deferred income taxes 381,576 381,576
Deposits 516,499 519,547
Other noncurrent assets 136,964 169,537
----------------- -----------------
Total assets $24,990,744 $24,666,638
================= =================
</TABLE>
Accompanying notes are an integral part of these financial statements
3
<PAGE>
GREENSTONE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 29, December 30,
1996 1995
------------------ -----------------
(Unaudited)
<S> <C>
Current liabilities
Accounts payable $ 2,950,084 $ 3,891,086
Accrued liabilities 745,320 1,115,896
Deferred revenue 216,320 257,479
Line of credit 1,048,000 594,500
Current maturities of notes to related parties 950,964 1,034,417
Current maturities of long-term debt 413,003 468,835
------------- -------------
Total current liabilities 6,323,691 7,362,213
Notes to related parties, less current maturities 2,084,133 2,561,043
Long-term debt, less current maturities 5,407,043 5,474,280
------------- -------------
Total liabilities 13,814,867 15,397,536
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares authorized,
Series A - 54,546 shares issued and outstanding at June 29,
1996 and December 30, 1995 545 545
Series B - 16,000 shares issued and outstanding at June 29,
1996 and December 30, 1995 160 160
Series C - 496,759 issued and outstanding at June 29, 1996
and December 30, 1995 4,968 4,968
Series D - 32,502 and 0 shares issued and outstanding at June
29, 1996 and December 30, 1995, respectively 325 --
Common Stock $.001 par value, 20,000,000 shares authorized,
6,075,374 and 5,481,561 issued and outstanding at June 29,
1996 and December 30, 1995, respectively 6,075 5,482
Additional paid in capital 10,906,575 9,238,772
Retained earnings 257,229 19,175
-------------- -------------
Total stockholders' equity 11,175,877 9,269,102
============== =============
Total liabilities and stockholders' equity $24,990,744 $24,666,638
============== =============
</TABLE>
Accompanying notes are an integral part of these financial statements
4
<PAGE>
GREENSTONE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 29, 1996 July 1, 1995 June 29, 1996 July 1, 1995
-------------- --------------- ----------------- ---------------
<S> <C>
Net sales $9,419,352 $9,104,959 $19,441,823 $17,973,885
Cost of sales 5,841,642 6,933,545 12,035,818 13,051,777
-------------- --------------- ----------------- ---------------
Gross profit 3,577,710 2,171,414 7,406,005 4,922,108
Operating expenses
Selling and distribution 1,559,329 1,493,421 3,139,255 3,071,475
General and administrative 1,719,224 1,491,692 3,463,153 2,559,026
-------------- --------------- ----------------- ---------------
Income (loss) from operations 299,157 (813,699) 803,597 (708,393)
Interest expense 209,539 102,332 414,398 195,114
Other (income) expense (4,553) 19,533 (4,278) (2,188)
-------------- --------------- ----------------- ---------------
Income (loss) before income taxes 94,171 (935,564) 393,477 (901,319)
Income tax expense (benefit) 37,197 (359,761) 155,423 (352,554)
-------------- --------------- ----------------- ---------------
Net income (loss) $ 56,974 $ (575,803) $ 238,054 $ (548,765)
============== =============== ================= ===============
Net income (loss) per share $0.01 $(0.11) $0.04 $(0.11)
============== =============== ================= ===============
Weighted average common equivalent
shares outstanding 6,851,515 5,210,729 6,776,305 5,198,740
============== =============== ================= ===============
</TABLE>
Accompanying notes are an integral part of these financial statements
5
<PAGE>
GREENSTONE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 29, 1996 July 1, 1995
--------------- ---------------
<S> <C>
Operating activities
Net income (loss) $ 238,054 $ (548,765)
Adjustments to reconcile net income to net cash provided by operations
Depreciation and amortization 1,044,876 592,971
Provision for deferred income taxes 150,610 (152,554)
Provision for bad debts 32,155 61,623
Loss on the sale of property, plant and equipment 52,211 54,053
Change in operating assets and liabilities
Receivables 1,008,782 (442,880)
Inventories (194,340) (681,746)
Prepaid expenses and other assets (51,773) 16,283
Deferred revenue (41,159) --
Accounts payable (948,375) 704,535
Accrued liabilities (363,203) 306,742
--------------- ---------------
Net cash provided (used) by operating activities 927,838 (89,738)
Investing activities
Payments for businesses acquired, net of cash received (83,539) (338,677)
Expenditures for property, plant and equipment (1,219,782) (1,504,353)
Proceeds from the sale of assets 15,100 37,570
--------------- ---------------
Net cash used in investing activities (1,288,221) (1,805,460)
Financing activities
Advances under short-term borrowings 5,674,299 800,000
Repayment of short-term borrowings (6,017,799) --
Borrowing under long-term debt 113,568 --
Repayment of long-term and related party debt -- (507,956)
Net proceeds from the sale of Preferred Stock 1,668,721 --
--------------- ---------------
Net cash provided by financing activities 1,438,789 292,044
--------------- ---------------
Net increase (decrease) in cash and cash equivalents 1,078,406 (1,603,154)
Cash and cash equivalents at beginning of the period 275,697 1,823,311
--------------- ---------------
Cash and cash equivalents at end of the period $1,354,103 $ 220,157
=============== ===============
</TABLE>
Accompanying notes are an integral art of these financial statements
6
<PAGE>
GREENSTONE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended June 29, 1996
are not necessarily indicative of the results that may be expected for the year
ended December 28, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in GreenStone's annual
report on Form 10-KSB for the year ended December 30, 1995.
Principles of Consolidation
The consolidated financial statements include the accounts of GreenStone
Industries, Inc. and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
2. Inventories
The components of inventory consist of the following:
June 29, December 30,
1996 1995
-------------- ----------------
Raw materials $1,099,000 $1,022,700
Finished goods 426,300 329,200
Insulation equipment 122,000 101,100
============== ================
$1,647,300 $1,453,000
============== ================
3. Long-term Debt
In March of 1996, the Company amended its $5,500,000 senior credit agreement,
extending the maturity through December 1997, and amended certain other
provisions including the financial covenants. The Company is required to
maintain certain financial covenants pertaining to net worth, leverage, current
ratio and interest coverage and currently is restricted from paying cash
dividends. The Company has classified $4,000,000 under the amended credit
agreement as a long-term liability, because it expects this amount to remain
outstanding through June 29, 1997.
7
<PAGE>
GREENSTONE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
4. Stockholders' Equity
In January of 1996, the Company sold 188,500 shares of Series D Convertible
Preferred Stock for $10 per share through a private placement. The Series D
Convertible Preferred Stock has no voting rights and accrues dividends of $0.70
per share, with no dividend accrued in the first year. Each share is convertible
into the number of shares of Common Stock equal to the $10 face value per share
divided by 80% of the average closing bid price of the Common Stock for the 15
days prior to the notice of conversion. As of June 29, 1996, 155,998 shares of
the Series D Preferred Stock have been converted into 590,759 shares of Common
Stock.
8
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
(Unaudited)
Three months ended June 29, 1996 compared with the three months ended July 1,
1995.
Net sales increased $314,000, or 3%, to $9.4 million for the three months ended
June 29, 1996 from $9.1 million for the three months ended July 1, 1995. The
increase results from sales contributed by companies acquired in 1995, which was
offset by lower sales from existing facilities.
Gross profit increased $1.4 million, or 64%, to $3.6 million for the three
months ended June 29, 1996 from $2.2 million for the three months ended July 1,
1995. As a percentage of net sales, gross profit increased to 38% for the three
months ended June 29, 1996 from 24% for the three months ended July 1, 1995. The
increase is due primarily to lower paper costs and increased product prices.
Selling and distribution expenses increased $66,000 to $1.6 million for the
three months ended June 29, 1996 from $1.5 million for the three months ended
July 1, 1995. Higher costs related to companies acquired in 1995 were offset by
lower transportation costs at existing facilities.
General and administrative expenses increased $228,000, or 15%, to $1.7 million
for the three months ended June 29, 1996 from $1.5 million for the three months
ended July 1, 1995. The increase results from costs contributed by companies
acquired during 1995 which was offset by decreased costs from existing
facilities.
Interest expense increased $107,000, or 105%, to $210,000 for the three months
ended June 29, 1996 from $102,000 for the three months ended July 1, 1995 as a
result of additional debt related to capital expenditures and debt issued or
assumed in connection with the 1995 acquisitions. Other income increased $24,000
to $5,000 during the three months ended June 29, 1996 as compared to other
expenses of $19,000 during the same period in 1995 due to interest income earned
on temporary investments.
Income tax expense increased $397,000 to $37,000 for the three months ended June
29, 1996 as compared to a benefit of $360,000 for the same period of 1995. The
increase is attributable to higher income from operations.
As a result of the factors discussed above, net income increased $633,000 to
$57,000 for the three months ended June 29, 1996 as compared to a net loss of
$576,000 for the three months ended July 1, 1995.
Six months ended June 29, 1996 compared with the six months ended July 1, 1995.
Net sales increased $1.4 million, or 8%, to $19.4 million for the six months
ended June 29, 1996 from $18.0 million for the six months ended July 1, 1995.
The increase results from sales contributed by companies acquired in 1995, which
was offset by lower sales from existing facilities.
Gross profit increased $2.5 million, or 51%, to $7.4 million for the six months
ended June 29, 1996 from $4.9 million for the six months ended July 1, 1995. As
a percentage of net sales, gross profit increased to 38% for the six months
ended June 29, 1996 from 27% for the six months ended July 1, 1995. The increase
is due primarily to lower paper costs and increased product prices.
Selling and distribution expenses were level at $3.1 million for the six months
ended June 29, 1996 and July 1, 1995. Higher costs related to companies acquired
in 1995 were offset by lower transportation costs at existing facilities.
General and administrative expenses increased $904,000, or 35%, to $3.5 million
for the six months ended June 29, 1996 from $2.6 million for the six months
ended July 1, 1995. The increase results from costs contributed by companies
acquired during 1995 and expenses related to the Company's acquisition and
growth strategy.
9
<PAGE>
Interest expense increased $219,000, or 112%, to $414,000 for the six months
ended June 29, 1996 from $195,000 for the six months ended July 1, 1995 as a
result of additional debt related to capital expenditures and debt issued or
assumed in connection with the 1995 acquisitions.
Income tax expense increased $508,000 to $155,000 for the six months ended June
29, 1996 as compared to a benefit of $353,000 for the same period of 1995. The
increase is attributable to higher income from operations.
As a result of the factors discussed above, net income increased $787,000 to
$238,000 for the six months ended June 29, 1996 as compared to a net loss of
$549,000 for the six months ended July 1, 1995.
Liquidity and Capital Resources
In January of 1996, the Company raised $1.7 million, net of related expenses, in
a private placement of its Series D Convertible Preferred Stock. The Company
will use the proceeds to partially fund future acquisitions and for general
corporate purposes.
In March of 1996, the Company amended its senior credit facility with a
commercial bank, extending the revolving line of credit through December of
1997.
The Company's working capital totaled $2.4 million as of June 29, 1996 and $1.2
million as of December 30, 1995. The increase in working capital results
primarily from proceeds of the sale of Series D Convertible Preferred Stock.
Net cash provided by operations increased $1 million to $930,000 for the six
months ended June 29, 1996 as compared to cash used of $90,000 for the same
period of 1995. The increase is the result of higher earnings and changes in
working capital during the second quarter of 1996.
Historically, the Company has financed its operations with internally generated
funds, equity, and with working capital lines of credit for short-term financing
needs. To date, the Company has been able to obtain additional financing for the
operation of its business. Management believes that the funds on hand, including
capital raised in January of 1996, together with expected operating cash flows,
will provide the Company with adequate liquidity to operate its business for at
least the next twelve months. However, the Company may seek to finance business
expansion, including potential acquisitions, with additional borrowing
arrangements or equity financing.
10
<PAGE>
GREENSTONE INDUSTRIES, INC.
Part II. Other Information
Item 1. Legal Proceedings
The case of John J. Lee v. Pacific Rim Recycling, San Francisco,
California Superior Court No. 965657 concerning a spill of
asbestos-containing materials on the San Francisco-Oakland Bay Bridge
by Pacific Rim in 1993 has been dismissed as to all claims except
actual property damage to the plaintiff. The Company expects to settle
the remaining claim for less than $10,000. Pacific Rim no longer
transports asbestos materials.
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
From 8-K
April 8, 1996 - Form 8-K filed with respect to a press release
regarding the addition of Donald Frueh to the Company's Board of
Directors.
May 3, 1996 - Form 8-K filed with respect to a press release regarding
the Company's earnings for the quarter ended March 30, 1996.
11
<PAGE>
GREENSTONE INDUSTRIES, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GREENSTONE INDUSTRIES, INC.
----------------------------------------------------
(Registrant)
August 9, 1996 John R. Bernardi /s/
- ----------------------- ----------------------------------------------------
Date John R. Bernardi
Chief Financial Officer
(Duly Authorized Officer and Principal Financial and
Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 1,354,103
<SECURITIES> 0
<RECEIVABLES> 4,555,608
<ALLOWANCES> 216,013
<INVENTORY> 1,647,264
<CURRENT-ASSETS> 8,716,733
<PP&E> 16,091,788
<DEPRECIATION> 4,997,379
<TOTAL-ASSETS> 24,990,744
<CURRENT-LIABILITIES> 6,323,691
<BONDS> 8,855,143
0
5,998
<COMMON> 6,075
<OTHER-SE> 11,163,804
<TOTAL-LIABILITY-AND-EQUITY> 24,990,744
<SALES> 9,419,352
<TOTAL-REVENUES> 9,419,352
<CGS> 5,841,642
<TOTAL-COSTS> 7,400,971
<OTHER-EXPENSES> 1,719,224
<LOSS-PROVISION> 41,078
<INTEREST-EXPENSE> 209,539
<INCOME-PRETAX> 94,171
<INCOME-TAX> 37,197
<INCOME-CONTINUING> 56,974
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,974
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
