SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
Commission file number 0-4979
SQUARE INDUSTRIES, INC.
______________________________________________________________________
(Exact name of Registrant as specified in its Charter)
NEW YORK 13-2610905
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
921 Bergen Avenue, Jersey City, New Jersey 07306
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 798-0090
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 issuer was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
Yes [X] No [ ]
Shares of Common Stock outstanding at March 31, 1995: 1,166,356
<PAGE>
SQUARE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
PART I.
Page No.
Consolidated Balance Sheets -
March 31, 1995 (unaudited) and December 31,
1994 (audited) 2-3
Consolidated Statements of Operations - for
the three months ended March 31, 1995
and 1994 (unaudited) 4
Consolidated Statements of Cash Flows for
the three months ended March 31, 1995 and 1994
(unaudited) 5-6
Notes to Consolidated Financial Statements 7-10
Management's Discussion and Analysis of Results of
Operations and Financial Condition 11-13
PART II.
Other Information 14
SIGNATURES 15
<PAGE>
<TABLE>
SQUARE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, 1995 December 31, 1994
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 1,945,000 $ 1,226,000
Trade and other receivables 560,000 781,000
Prepaid expenses 1,872,000 1,660,000
Other current assets 412,000 555,000
Prepaid and refundable income tax 486,000 353,000
--------- ---------
Total current assets 5,275,000 4,575,000
--------- ---------
Property, Equipment and Improvements, Net 25,038,000 25,067,000
---------- ----------
Other Assets:
Deferred expenses 1,887,000 890,000
Security deposits and other assets 2,009,000 1,932,000
--------- ---------
3,896,000 2,822,000
--------- ---------
$34,209,000 $32,464,000
=========== ===========
<FN>
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
SQUARE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, 1995 December 31, 1994
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Accounts payable $ 718,000 $ 830,000
Accrued expenses 4,738,000 4,400,000
Accrued local rent tax (Note 4) 1,202,000 1,189,000
Current portion of long-term debt (Note 2) 1,145,000 1,210,000
Other liabilities 413,000 479,000
--------- ---------
Total current liabilities 8,216,000 8,108,000
--------- ---------
Deferred Rent 2,574,000 2,433,000
--------- ---------
Long-Term Debt-less current portion (Note 2) 18,496,000 17,059,000
---------- ----------
Deferred Taxes 174,000 174,000
------- -------
Security Deposits - Customers 266,000 257,000
------- -------
Stockholders Equity:
Common stock, $.01 par value;
authorized 2,000,000 shares;
issued 1,218,389 shares and
1,205,689 shares 12,000 12,000
Common stock, subscribed 12,500 shares as
of December 31, 1994 -0- 119,000
Additional paid-in capital 3,278,000 3,158,000
Retained earnings 1,635,000 1,529,000
Less:
Treasury stock at cost, 52,033 shares as of
March 31, 1995 and 12,837 shares as of
December 31, 1994 (236,000) (59,000)
Notes receivable for common stock subscribed -0- (119,000)
Cumulative translation adjustment (206,000) (207,000)
--------- ---------
4,483,000 4,433,000
--------- ---------
$34,209,000 $32,464,000
=========== ===========
<FN>
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
SQUARE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
For The Three Months Ended
March 31,
1995 1994
---- ----
<S> <C> <C>
Revenues:
Parking $15,332,000 $14,072,000
Gasoline station 959,000 916,000
---------- ----------
16,291,000 14,988,000
---------- ----------
Cost and Expenses:
Operating Costs - parking 12,712,000 13,203,000
- gasoline station 975,000 934,000
Provision for local rent tax (Note 4) 15,000 15,000
General and administrative expenses 1,849,000 1,796,000
Interest - net 488,000 377,000
Write-off of assets -0- 478,000
--------- ---------
16,039,000 16,803,000
---------- ----------
Earnings (loss) from parking and
service station operations 252,000 (1,815,000)
Provision (Benefit) for Income Taxes (Note 6) 146,000 (610,000)
------- ---------
Net Income (Loss) $ 106,000 $ (1,205,000)
=========== =============
Earnings (Loss) per share (Note 5): $ 0.09 $ (1.01)
========= ===========
Computation of Shares -
Weighted average of common stock
outstanding and subscribed (Note 5) 1,188,175 1,192,721
========= =========
<FN>
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
SQUARE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
For The Three Months Ended
March 31,
1995 1994
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ 106,000 (1,205,000)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Amortization of:
Deferred expenses 9,000 9,000
Lease acquisition costs 4,000 34,000
Excess of cost over fair market value
of net assets acquired -0- 53,000
Depreciation and amortization 417,000 437,000
Write-off of assets -0- 478,000
Equity adjustment for
foreign currency translations 1,000 (22,000)
Increase (decrease) in cash from
changes in assets and liabilities:
Trade and other receivables 221,000 (243,000)
Prepaid expenses and other
current assets (127,000) (299,000)
Prepaid and refundable
income taxes (133,000) (828,000)
Deferred expenses, net (1,006,000) 25,000
Security deposits and
other assets (81,000) 225,000
Accounts payable, accrued expenses,
accrued local rent tax and
other liabilities 173,000 642,000
Deferred rent 141,000 (309,000)
Security deposits - customers 9,000 33,000
------- -------
Net cash used in operating activities (266,000) (970,000)
--------- ---------
</TABLE>
<PAGE>
<TABLE>
SQUARE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
For The Three Months Ended
March 31,
1995 1994
---- ----
<S> <C> <C>
Cash Flows From Investing Activities:
Additions to land, buildings, equipment
and improvements $ (388,000) $(206,000)
----------- ----------
Net cash used in investing activities (388,000) (206,000)
--------- ---------
Cash Flows From Financing Activities:
Proceeds from borrowings 1,700,000 2,450,000
Payments and current maturities
on long-term debt (328,000) (243,000)
Proceeds from exercise of stock options 1,000 1,000
------ ------
Net cash provided by financing activities 1,373,000 2,208,000
--------- ---------
Net Increase in Cash 719,000 1,032,000
Cash, Beginning of Period 1,226,000 623,000
--------- -------
Cash, End of Period $1,945,000 $1,655.000
========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest 495,000 404,000
Income taxes, net of refunds received 255,000 (75,000)
Supplemental Schedule of Noncash Financing Activities:
In March 1995, an officer/stockholder agreed to satisfy the balance of his note
receivable to the Company including accrued interest of $57,637 by transferring
as of March 16, 1995, 39,196 shares of common stock to the Company. The market
value of the stock at the date of the transfer was $176,382. As a result of this
payment, the Company issued to the officer/stockholder 12,500 shares of common
stock.
<FN>
See accompanying notes to financial statements
</TABLE>
<PAGE>
SQUARE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
NOTE 1 - The accompanying consolidated balance sheet as of March 31, 1995
and the consolidated statements of operations for the three months
ended March 31, 1995 and 1994 and the consolidated statements of
cash flows for the three months ended March 31, 1995 and 1994,
respectively, are unaudited, but in the opinion of the Company, all
adjustments (consisting of normal recurring accruals) necessary to
present fairly the results of operations for such periods have been
made. The financial statements should be read in conjunction with
the Annual Report on Form 10K of the Company, for the year ended
December 31, 1994.
The Company changed its fiscal year end from the last day in
February to December 31st. As a result, the comparative 1994
financial statements have been restated to conform to current
period presentation.
The accompanying consolidated financial statements include the
accounts of a foreign subsidiary and all domestic subsidiaries.
All significant intercompany accounts and transactions have been
eliminated.
The results of operations for the three months ended March 31, 1995
and March 31, 1994 respectively, (unaudited) are not necessarily
indicative of the results to be expected for the full year.
NOTE 2 - Long-term debt consisted of the following:
<TABLE>
<S> <C> <C>
Interest Rate March 31, 1995
------------- --------------
Notes Payable 7.25% - 10% $ 1,358,000
Mortgages payable 7% - 11% 4,189,000
Bank Loan:
Facility I Prime + 2% 12,180,000
Facility II 11.35% 1,914,000
----------
19,641,000
Less current portion 1,145,000
----------
$18,496,000
===========
</TABLE>
<PAGE>
NOTE 2 - (continued)
Facility I, as last amended on October 11, 1994, provides for a line
of credit of $12,800,000, and is subject to the aggregate face
amount of outstanding letters of credit plus unpaid drawings not
exceeding $1,500,000. All outstanding amounts under Facility I,
mature May 31, 1997. On October 11, 1994, the Facility I interest
rate was adjusted to prime + 2%, a 1/2% increase in the rate which was
effective as of July 1, 1994, an increase from the previous rate of
prime + 1%. The prime rate was 9% at March 31, 1995.
Facility II is a term loan to be paid in consecutive quarterly
payments. The amount of the quarterly payments is $225,425, with
the last payment to be made on May 31, 1997. The Company may elect,
with the consent of the bank, to convert all or part (but not less
than $1,000,000) of the Facility II term loan into a Designated Rate
Loan, meaning a term loan for a period chosen by the Company in
excess of one year and bearing interest at a fixed-rate then
designated by the bank.
Certain subsidiaries of the Company periodically acquire land/or
buildings with a view to their future use in whole or in part as
parking facilities. The properties are generally purchased subject
to long-term mortgages. The mortgages vary in their payment terms
and interest rates, some requiring only the payment of interest
during the first five years.
The mortgages payable are collateralized by the underlying assets
which have a book value of $5,807,400. The two facility loans are
collateralized by the stock of subsidiaries of the Company, except
those whose stock may not be pledged because of prohibitions in
leases and mortgages.
Debt covenants, under the Credit Agreement as amended, include a
limitation on indebtedness under mortgage obligations and financial
covenants as to maintenance of minimum net worth, total liabilities
to net worth and operating cash flow ratios. The covenants were
amended as of October 11, 1994. Prior modifications of the
covenants had been made as of June 14, 1994, June 14, 1993, and June
4, 1992. The modifications were made effective respectively as of
August 31, 1994, February 28, 1994, February 28, 1993, and May 31,
1992 and thereby cured the prior defaults by the Company and
permitted the Company to be in compliance with the financial
covenants as of the effective date and for the period through the
date hereof.
Aggregate maturities on long-term debt are as follows:
<PAGE>
<TABLE>
<C> <C>
Year Ending March 31,
---------------------
1996 $ 1,145,000
1997 991,000
1998 12,318,000
1999 1,063,000
2000 3,837,000
Remainder 287,000
---------
$19,641,000
===========
</TABLE>
NOTE 3 - FOREIGN OPERATIONS (CANADA)
Summarized information relating to the Canadian operation is as
follows:
<TABLE>
<S> <C> <C>
March 31, 1995 December 31, 1994
Total assets $603,000 $589,000
Total liabilities 1,301,000 1,231,000
Deficiency in assets (698,000) (642,000)
</TABLE>
For the three month periods ended March 31, 1995 and March 31, 1994,
net loss for the Canadian operation was 55,000 and 81,000,
respectively.
NOTE 4 - LOCAL RENT TAX
The Company received notices of determination from a municipal local
authority for commercial rent tax which relate to the period June
1, 1978 through May 31, 1987 assessing the Company, net of payments,
an aggregate of $907,005. The Company believes that the provision,
which covers these assessments, possible future assessments, and
related expenses through March 31, 1995, is adequate.
NOTE 5 - EARNINGS PER SHARE
For the three month periods ended March 31, 1995 and March 31, 1994,
earnings per share has been computed using the weighted average
number of shares of common stock outstanding and the dilative effect
of common stock equivalents. Common stock equivalents were not
included in the computation of loss per share for the three months
ended March 31, 1994 since their effect was antidilutive.
NOTE 6 - INCOME TAXES
The provision for income taxes of $146,000 for the three month
period ended March 31, 1995 is based on the effective tax rate
expected for the year and includes (I) federal income taxes, (ii)
income taxes of state and local jurisdictions for which the
Company s operations were profitable and for which no net operating
loss benefit is available and (iii) minimum corporate taxes for
certain subsidiaries. No changes have been made to the deferred tax
asset valuation allowances since management is not able to conclude
that realization of these deferred tax assets is more likely than
not as a result of the Company s earnings history. Reductions to
the valuation allowance will be recorded when, in the opinion of
management, the Company s ability to generate taxable income for a
period of time is more certain.
The income tax benefit of $610,000 for the three month period ended
March 31, 1994 was primarily the result of the recognition of
refunds of prior years state taxes which were not previously
recorded in the amount of $249,000.
NOTE 7 - CONTINGENCIES
Litigation:
Various lawsuits against the Company have arisen in the course of
the Company's business. In certain of these matters, large and/or
indeterminate amounts are sought. In the opinion of the Company,
any uninsured ultimate liability which could result from such
litigation would not have a material adverse effect on the Company's
financial position or the results of its operations.
Letters of Credit:
As of March 31, 1995, the Company's contingent debt amounted to
approximately $613,000 under standby Letters of Credit issued
pursuant to terms of its line of credit (Facility I).
NOTE 8 WRITE-OFF OF ASSETS
During the quarter ended March 31, 1994, the Company wrote off
leasehold acquisition costs, deferred expenses, and other
miscellaneous charges relating to certain locations.
<PAGE>
SQUARE INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Results of Operations
- ---------------------
The improved operating results recorded for the 1994 fiscal year (the
10 months ended December 31, 1994) continued into the current year. Parking
service revenues for the three months ended March 31, 1995 (the "First 1995
Quarter") were greater by $1,260,000 (9.0%) than those for the three months
ended March 31, 1994 (the "1994 Three-Month Period"). The principal reason
for the continued improvement was the mild winter weather in the regions in
which the Company operates as compared with one of the most severe winters
in the Company's history in 1994, causing a sharp curtailment of traffic
near the Company's parking locations. Also contributing to the increase was
an increase in the aggregate capacity of the parking locations operated by
the Company (55,583 cars as of March 31, 1995 as compared to 49,830 cars as
of March 31, 1994) despite a net reduction of five locations as compared
with the 1994 Three-Month Period.
The increase in revenues was achieved while parking operating costs
were reduced by $491,000, or 3.7%. As a result, such costs, as a percentage
of parking revenues, was reduced to 82.9% for the First 1995 Quarter from
93.8% for the 1994 Three-Month Period. The lower costs were principally the
result of a net reduction of five in the number of parking locations
operated by the Company. Since the close of the 1994 Three-Month Period,
the Company has entered into two labor agreements and anticipates the
execution of a third agreement which has resulted, and will result, in
modest increases in labor costs.
The Company's gasoline station operation remained marginal due to the
intense competition which adversely affects the industry and the area in
which the Company's station is located. Operation of the station produced
losses of ($16,000) and ($18,000), respectively, for the First 1995 Quarter
and the 1994 Three-Month Period. The increase in revenues and operating
costs of $43,000 and $41,000 between the comparative three-month periods
was the result of higher gasoline and oil prices.
General and administrative expenses increased by $53,000, or 3.0%, but
decreased to 12.1% from 12.8% as a percentage of parking revenues (gasoline
station operations require insignificant amounts of such expenses) for the
First 1995 Quarter as compared with those for the 1994 Three-Month Period.
The slight increase reflects principally modest increases in salaries and
professional fees, partially offset by reductions due to the fewer locations
under supervision and operating economies.
The increase of $111,000 in interest expense between the two
three-month comparative periods was primarily the result of the higher
interest rates caused by both increases in the rate provided by the
amendments effected in June and October 1994 to the Company's credit
facility and increases in the prime rate.
As a result, there was a swing of $2,067,000 in earnings before
provision for income taxes-- earnings of $252,000 for the First 1995 Quarter
as compared to a loss of ($1,815,000) before benefit for income taxes for
the 1994 Three-Month Period..
The comparatively large provision of $146,000 for income taxes for the
First 1995 Quarter, a rate of 57.9%, is the result of (i) the exclusion of
the approximately $55,000 loss from the Company's Canadian operations in the
determination of the provision for federal income taxes, and (ii) minimum
corporate taxes imposed by the States of New York, Pennsylvania and New
Jersey and the City of New York. The income benefit of ($610,000 ) for the
three months ended March 31, 1994 was attributable to the loss for the
period partially offset by the foregoing minimum corporate taxes.
Liquidity and Capital Resources
As of March 31, 1995, the Company had a working capital deficit of
($2,941,000) as compared to the working capital deficit of ($3,533,000) as
of December 31, 1994. The reduction of $592,000 in the deficit was
primarily due to a $719,000 increase in cash funds primarily derived from
a net increase of $1,372,000 in long-term debt under the credit facility,
partially offset by a $338,000 increase in accrued expenses partially due
to provisions for increased labor costs which may arise under collective
bargaining agreements currently being negotiated and for an increase in
payroll taxes arising primarily from increases in unemployment tax rates of
all the states in which the Company operates.
The Company's Credit Agreement with its bank lender was amended on
June 14, 1993, as of February 28, 1993, to modify the financial covenants
as of and for the period ended the latter date and through February 28, 1994
as to the maintenance of minimum net worth, total liabilities to net worth
and operating cash flow. A June 13, 1994 amendment, effective as of
February 28, 1994, extended the maturity of the credit facility from
June 30, 1994 to June 30, 1995, increased the interest rate as of July 31,
1994 by 1/2% per annum, modified the financial covenants retroactive to
December 1, 1993 and provided for the payment to the lender of a $50,000
fee. The retroactive modification of the covenants permitted the Company
to be in compliance with the covenants as of February 28, 1994 and through
June 13, 1994. On October 11, 1994, the agreement was further amended to,
among other things, extend the maturity of the facility to May 31, 1997,
increase the interest rate as of October 11, 1994 to prime plus 2%, modify
certain financial covenants retroactive to August 31, 1994, and provide for
the payment of an additional $50,000 fee to the lender. The covenant
modifications permitted the Company to comply with the covenants as of
August 31, 1994 through the date hereof.
Net cash used in operating activities was $266,000 for the First 1995
Quarter as compared to net cash of $970,000 used in the 1994 Three-Month
Period for such activities. The principal causes for the difference are the
materially better operating results, faster payment of receivables, and the
much greater amounts of prepaid and refundable income taxes for the 1994
Three-Month Period due to consolidation of certain subsidiaries and
overpayment of taxes in prior periods, partially offset by a material
increase for the First 1995 Quarter in deferred expenses (net), primarily
due to adjustments of rents.
Cash used in investing activities, consisting of additions to land,
buildings, equipment and improvements amounted to $388,000 for the First
1995 Quarter--$182,000 more than amounts expended or accrued during the 1994
Three-Month Period for this purpose. The Company anticipates capital
expenditures of not more than $1,500,000 for the year ended December 31,
1995 to be financed from the Company's operations, borrowings and joint
ventures with equity co-venturers.
The Company derived net cash from financing activities of $1,373,000
and $2,208,000, respectively, during the First 1995 Quarter and the 1994
Three-Month Period, with the difference resulting from greater borrowings
under the credit facility during the year earlier period and larger loan
payments during the current year period.
As a result of the foregoing, the Company increased its cash balances
by $719,000 and $1,032,000, respectively, for the First 1995 Quarter and the
1994 Three-Month Period.
As of May 1, 1995, the Company had borrowed the full amount under its
line of credit. It believes that the funds which are available from time
to time under its bank loan facility, additional mortgage loans with respect
to properties acquired or developed and funds generated from its operations
will be sufficient to finance its capital and operational requirements for
the 12 months ended March 31, 1996.
<PAGE>
PART II--OTHER INFORMATION
Item 6. --Exhibits and Report on Form 8-K
(a) None
(b) No reports on Form 8-K have been filed during the quarter ended
March 31, 1995.
<PAGE>
SIGNATURES
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.
SQUARE INDUSTRIES, INC.
/s/Sanford Harwood
Sanford Harwood
Assistant Chairman
/s/Marvin Fruchtman
Marvin Fruchtman
Treasurer and
Chief Financial Officer
Dated: May 11, 1995
