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 September 28, 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 October 30, 1996:
6,201,429 shares
1
<PAGE>
GREENSTONE INDUSTRIES, INC.
INDEX
Part I. Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets:
September 28, 1996 (unaudited) and December 30, 1995 (audited) 3
Consolidated Statements of Operations (unaudited):
Three months ended September 28, 1996 and September
30, 1995 Nine months ended September 28, 1996 and
September 30, 1995 5
Consolidated Statements of Cash Flows (unaudited):
Nine months ended September 28, 1996 and September 30, 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>
September 28, December 30,
1996 1995
----------------- -----------------
(Unaudited)
<S> <C>
Current assets
Cash and cash equivalents $ 1,271,431 $ 275,697
Accounts receivable net of allowance of $293,569 and $243,900 at
September 28, 1996 and December 30, 1995, respectively 4,715,245 5,275,252
Notes receivable 171,573 105,280
Deferred income taxes 587,980 750,500
Inventories (Note 2) 1,663,517 1,452,924
Prepaid expenses and other assets 1,047,348 688,487
----------------- -----------------
Total current assets 9,457,094 8,548,140
Property, plant and equipment
Property, plant and equipment at cost 16,543,629 14,885,015
Accumulated depreciation (5,453,626) (4,016,827)
----------------- -----------------
Net property, plant and equipment 11,090,003 10,868,188
Intangible assets, net 4,024,875 4,179,650
Deferred income taxes 381,576 381,576
Deposits 378,265 519,547
Other noncurrent assets 162,870 169,537
----------------- -----------------
Total assets $25,494,683 $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>
September 28, December 30,
1996 1995
------------------ -------------------
(Unaudited)
<S> <C>
Current liabilities
Accounts payable $ 3,290,783 $ 3,891,086
Accrued liabilities 1,002,559 1,115,896
Deferred revenue 187,290 257,479
Line of credit 1,080,000 594,500
Current maturities of notes to related parties 907,726 1,034,417
Current maturities of long-term debt 438,308 468,835
----------------- -------------------
Total current liabilities 6,906,666 7,362,213
Notes to related parties, less current maturities 1,833,984 2,561,043
Long-term debt, less current maturities 5,336,082 5,474,280
----------------- -------------------
Total liabilities 14,076,732 15,397,536
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares authorized,
Series A - 54,546 shares issued and outstanding at
September 28, 1996 and December 30, 1995 545 545
Series B - 16,000 shares issued and outstanding at September
28, 1996 and December 30, 1995 160 160
Series C - 496,759 issued and outstanding at September 28,
1996 and December 30, 1995 4,968 4,968
Series D - 6,667 and 0 shares issued and outstanding at
September 28, 1996 and December 30, 1995, respectively 67 -
Common Stock $.001 par value, 20,000,000 shares authorized,
6,173,438 and 5,481,561 issued and outstanding at September
28, 1996 and December 30, 1995, respectively 6,173 5,482
Additional paid in capital 10,906,735 9,238,772
Retained earnings 499,303 19,175
------------------ -------------------
Total stockholders' equity 11,417,951 9,269,102
------------------ -------------------
Total liabilities and stockholders' equity $25,494,683 $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 Nine Months Ended
September 28, September 30, September 28, September 30,
1996 1995 1996 1995
--------------- --------------- ----------------- -----------------
<S> <C>
Net sales $10,791,562 $10,961,963 $30,233,385 $28,935,847
Cost of sales 6,668,332 8,257,417 18,704,150 21,309,193
--------------- --------------- ----------------- -----------------
Gross profit 4,123,230 2,704,546 11,529,235 7,626,654
Operating expenses
Selling and distribution 1,865,897 1,718,876 5,005,152 4,790,352
General and administrative 1,668,973 1,614,271 5,132,126 4,173,361
--------------- --------------- ----------------- -----------------
Income (loss) from operations 588,360 (628,601) 1,391,957 (1,337,059)
Interest expense 207,381 198,073 621,779 392,996
Other (income) expense (19,143) (6,919) (23,421) (8,981)
--------------- --------------- ----------------- -----------------
Income (loss) before income taxes 400,122 (819,755) 793,599 (1,721,074)
Income tax expense (benefit) 158,048 - 313,471 (352,554)
--------------- --------------- ----------------- -----------------
Net income (loss) $ 242,074 $ (819,755) $ 480,128 $(1,368,520)
=============== =============== ================= =================
Net income (loss) per share $ 0.04 $ (0.14) $ 0.07 $ (0.25)
=============== =============== ================= =================
Weighted average common equivalent
shares outstanding 6,892,452 5,705,860 6,832,331 5,368,968
=============== =============== ================= =================
</TABLE>
Accompanying notes are an integral part of these financial statements
5
<PAGE>
GREENSTONE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 28, September 30,
1996 1995
--------------- ----------------
<S> <C>
Operating activities
Net income (loss) $ 480,128 $(1,368,520)
Adjustments to reconcile net income to net cash provided by operations
Depreciation and amortization 1,620,811 1,222,141
Provision for deferred income taxes 162,520 (193,656)
Provision for bad debts 49,669 74,151
Loss on the sale of property, plant and equipment 52,211 37,317
Change in operating assets and liabilities
Receivables 444,045 (295,423)
Inventories (210,593) (662,100)
Prepaid expenses and other assets (210,912) (20,274)
Deferred revenue (70,189) -
Accounts payable (600,303) 89,462
Accrued liabilities (113,337) 596,123
--------------- ----------------
Net cash provided (used) by operating activities 1,604,050 (520,779)
Investing activities
Payments for businesses acquired, net of cash received (83,539) (323,247)
Expenditures for property, plant and equipment (1,671,623) (2,049,335)
Proceeds from the sale of assets 15,100 164,963
--------------- ----------------
Net cash used by investing activities (1,740,062) (2,207,619)
Financing activities
Advances under short-term borrowings 8,326,299 1,600,000
Repayment of short-term borrowings (8,655,732) -
Borrowing under long-term debt 113,568 350,000
Repayment of long-term and related party debt (321,110) (975,665)
Deferred debt issuance costs - (69,248)
Net proceeds from the sale of Preferred Stock 1,668,721 -
--------------- ----------------
Net cash provided by financing activities 1,131,746 905,087
--------------- ----------------
Net increase (decrease) in cash and cash equivalents 995,734 (1,823,311)
Cash and cash equivalents at beginning of the period 275,697 1,823,311
--------------- ----------------
Cash and cash equivalents at end of the period $ 1,271,431 $ -
=============== ================
</TABLE>
Accompanying notes are an integral part 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 nine month period ended September 28,
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:
September 28, December 30,
1995 1995
----------------- ----------------
Raw materials $1,116,800 $1,022,700
Finished goods 418,100 329,200
Insulation equipment 128,600 101,100
================= ================
$1,663,500 $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 September 28, 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 September 28, 1996, 181,833 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 September 28, 1996 compared with the three months ended
September 30, 1995.
Net sales decreased $170,000, or 2%, to $10.8 million for the three months ended
September 28, 1996 from $11.0 million for the three months ended September 30,
1995. The decrease results from lower sales from existing facilities and the
recycling operation, which were offset by sales from insulation manufacturing
companies acquired in 1995.
Gross profit increased $1.4 million, or 52%, to $4.1 million for the three
months ended September 28, 1996 from $2.7 million for the three months ended
September 30, 1995. As a percentage of net sales, gross profit increased to 38%
for the three months ended September 28, 1996 from 25% for the three months
ended September 30, 1995. The increase is due primarily to lower paper costs.
Selling and distribution expenses increased $147,000 or 9% to $1.9 million for
the three months ended September 28, 1996 from $1.7 million for the three months
ended September 30, 1995. The increase is due to higher costs associated with an
increased marketing effort which were offset by lower transportation costs at
existing facilities.
General and administrative expenses increased $55,000, to $1.7 million for the
three months ended September 28, 1996 from $1.6 million for the three months
ended September 30, 1995.
Interest expense increased $9,000, or 5%, to $207,000 for the three months ended
September 28, 1996 from $198,000 for the three months ended September 30, 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 was $158,000 for the three months ended September 28, 1996.
No tax provision was made for the same period of 1995 due to operating losses
incurred.
As a result of the factors discussed above, net income increased approximately
$1.0 million to $242,000 for the three months ended September 28, 1996 from a
net loss of $820,000 for the three months ended September 30, 1995.
Nine months ended September 28, 1996 compared with the nine months ended
September 30, 1995.
Net sales increased $1.3 million, or 4%, to $30.2 million for the nine months
ended September 28, 1996 from $28.9 million for the nine months ended September
30, 1995. The increase results from sales contributed by companies acquired in
1995, which was partially offset by lower sales from existing facilities.
Gross profit increased $3.9 million, or 51%, to $11.5 million for the nine
months ended September 28, 1996 from $7.6 million for the nine months ended
September 30, 1995. As a percentage of net sales, gross profit increased to 38%
for the nine months ended September 28, 1996 from 26% for the nine months ended
September 30, 1995. The increase is due primarily to lower paper costs.
Selling and distribution expense increased $215,000, or 4%, to $5.0 million for
the nine months ended September 28, 1996 from $4.8 million for the nine months
ended September 30, 1995. Higher costs related to companies acquired in 1995
were partially offset by lower transportation costs at existing facilities.
General and administrative expenses increased $959,000, or 23%, to $5.1 million
for the nine months ended September 28, 1996 from $4.2 million for the nine
months ended September 30, 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 $229,000, or 58%, to $622,000 for the nine months
ended September 28, 1996 from $393,000 for the nine months ended September 30,
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 $666,000 to $313,000 for the nine months ended
September 28, 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 $1.8 million to
$480,000 for the nine months ended September 30, 1996 as compared to a net loss
of $1.4 million for the nine months ended September 30, 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 $2.6 million as of September 28, 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 $1.1 million to $1.6 million for the
nine months ended September 28, 1996 as compared to cash used of $521,000
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.
Material Agreements
The Company announced on September 10, 1996 that it has signed a non-binding
letter of intent to be acquired by Louisiana-Pacific Corporation. Subsequently,
on October 28, 1996, the Company signed a definitive merger agreement with
Louisiana-Pacific Corporation. Under the terms of the agreement public
shareholders of GreenStone will receive $5.25 per share in cash, while
management and certain non-public shareholders will receive restricted
securities of Louisiana-Pacific of the equivalent value. Closing of the
acquisition is subject to regulatory filings and approval by the Company's
shareholders, among other things.
10
<PAGE>
GREENSTONE INDUSTRIES, INC.
Part II. Other Information
Item 1. Legal Proceedings
Not Applicable
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
September 17, 1996 - Form 8-K filed with respect to a press release
regarding the signing of a letter of intent to be acquired by
Louisiana-Pacific Corporation.
October 31, 1996 - Form 8-K filed with respect to a press release
regarding the signing of a definitive merger agreement with
Louisiana-Pacific Corporation.
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)
November 8, 1996 /s/ John R. Bernardi
- -------------------- ----------------------------------------------------
Date John R. Bernardi
Chief Financial Officer
(Duly Authorized Officer and Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 1,271,431
<SECURITIES> 0
<RECEIVABLES> 5,180,387
<ALLOWANCES> 293,569
<INVENTORY> 1,663,517
<CURRENT-ASSETS> 9,457,094
<PP&E> 16,543,629
<DEPRECIATION> 5,453,626
<TOTAL-ASSETS> 25,494,683
<CURRENT-LIABILITIES> 6,906,666
<BONDS> 7,170,066
0
5,740
<COMMON> 6,173
<OTHER-SE> 11,406,038
<TOTAL-LIABILITY-AND-EQUITY> 25,494,683
<SALES> 30,233,385
<TOTAL-REVENUES> 30,233,385
<CGS> 18,704,150
<TOTAL-COSTS> 23,709,302
<OTHER-EXPENSES> 5,132,126
<LOSS-PROVISION> 83,332
<INTEREST-EXPENSE> 621,779
<INCOME-PRETAX> 793,599
<INCOME-TAX> 313,471
<INCOME-CONTINUING> 480,128
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 480,128
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
