U.S. 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 thirteen-week period ended
March 31, 2001
Commission File Number 000-24405
PALLET MANAGEMENT SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Florida 59-2197020
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation)
2855 University Drive, Suite 510, Coral Springs, Florida 33065
--------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code:
(954) 340-1290
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(Former name or address if changed since last report)
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 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
--- ---
On May 10, 2001, the Registrant had outstanding 4,065,612 shares of common
stock, $.001 par value.
PALLET MANAGEMENT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
March 31, June 24,
2001 2000
------------ ------------
(unaudited)
ASSETS
CURRENT ASSETS
Cash $ 206,495 $ 577,052
Accounts receivable - trade, net of allowance
for doubtful accounts $ 3,013,520 $ 4,885,302
Inventories $ 1,538,819 $ 2,259,110
Other Current Assets $ 320,498 $ 237,577
------------ ------------
Total current assets $ 5,079,332 $ 7,959,041
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Property and equipment - net of accumulated
depreciation $ 5,781,817 $ 4,407,092
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OTHER ASSETS
Vanderloo Pallet Machine - CIP $ -- $ 647,213
Palletnet - CIP $ -- $ 233,266
Other $ 88,018 $ 104,384
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Total other assets $ 88,018 $ 984,863
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Total assets $ 10,949,167 $ 13,350,996
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,205,845 $ 1,190,138
Current portion of capital lease obligations $ 74,748 $ 70,608
Accounts payable $ 2,453,943 $ 2,760,217
Accrued liabilities $ 286,877 $ 814,077
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Total current liabilities $ 4,021,413 $ 4,835,040
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LONG TERM DEBT
Long-term debt $ 3,666,468 $ 5,414,685
Capital lease obligations $ 136,167 $ 182,805
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Total long-term liabilities $ 3,802,635 $ 5,597,490
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Total liabilities $ 7,824,048 $ 10,432,530
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STOCKHOLDERS' EQUITY
Preferred stock, authorized 7,500,000 shares at $.001 par Value; no shares
issued and outstanding Common stock, authorized 10,000,000 shares at
$.001 par value; issued and outstanding 4,065,612 shares at December
30, 2000 and
June 24, 2000 $ 4,066 $ 4,066
Additional paid in capital $ 7,269,556 $ 7,269,556
Accumulated deficit $ (3,872,503) $ (4,079,156)
Notes receivable from stockholders $ (276,000) $ (276,000)
------------ ------------
Total stockholders' equity $ 3,125,119 $ 2,918,466
------------ ------------
Total liabilities and stockholders' equity $ 10,949,167 $ 13,350,996
------------ ------------
The accompanying notes are an integral part of these financial statements.
2
PALLET MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
13 Weeks Ended 40 Wks Ended 39 Wks Ended
March 31, 2001 March 25, 2000 March 31, 2001 March 25, 2000
------------ ------------ ------------ ------------
Net sales $ 12,374,407 $ 14,155,057 $ 53,457,722 $ 44,250,399
Cost of goods sold $ 11,593,615 $ 13,376,852 $ 49,833,376 $ 42,787,547
------------ ------------ ------------ ------------
Gross profit $ 780,792 $ 778,205 $ 3,624,346 5 $ 1,462,852
------------ ------------ ------------ ------------
Selling, general and administrative expense $ 802,917 $ 842,733 $ 3,005,820 3 $ 3,371,015
------------ ------------ ------------ ------------
Operating profit (loss) $ (22,125) $ (64,528) $ 618,526 ) $ (1,908,163)
------------ ------------ ------------ ------------
Other income (expense)
Other income (expense) $ 29,717 $ 6,301 $ (9,918) $ 5,337
Interest expense $ (111,981) $ (119,619) $ (401,955) $ (394,945)
------------ ------------ ------------ ------------
Total other income (expense) $ (82,264) $ (113,318) $ (411,873) $ (389,608)
------------ ------------ ------------ ------------
Income (loss) before income tax expense $ (104,389) $ (177,846) $ 206,653 $ (2,297,771)
Income tax expense (benefit) $ -- $ -- $ -- $ --
Net income (loss) $ (104,389) $ (177,846) $ 206,653 $ (2,297,771)
------------ ------------ ------------ ------------
Net earnings (loss) per common share $ (0.03) $ (0.04) $ 0.05 $ (0.58)
Diluted earnings (loss) per common share * * $ 0.05 *
* exercise of warrants and options would be anti-dilutive
The accompanying notes are an integral part of these financial statements.
3
PALLET MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
40 Wks Ended 39 Wks Ended
March 31, 2001 March 25, 2000
-------------- --------------
Cash flows from operating activities:
Net income (loss) $ 206,653 $(2,297,771)
----------- -----------
Adjustments to reconcile net income (loss) to net cash provided
by/(used in) operating activities:
Depreciation $ 386,171 $ 466,488
Loss on disposal of assets and investments $ 47,040 $ 214,952
(Increase) Decrease in operating assets:
Accounts receivable $ 1,871,782 $(1,706,186)
Inventories $ 720,291 $ (109,365)
Other assets $ 813,923 $ 598,318
Increase (Decrease) in operating liabilities:
Accounts payable $ (306,274) $ 2,472,731
Accrued liabilities,and
current maturities of leases and debt $ (503,041) $ 125,134
----------- -----------
Net cash provided by/(used in)
operating activities $ 3,236,545 $ (235,699)
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Cash flows from investing activities:
Other assets $ -- $ (470,039)
Purchase of fixed assets $(1,807,936) $(1,152,605)
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Net cash used in investing activities $(1,807,936) $(1,622,644)
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Cash flows from financing activities:
Net Borrowings from lenders $ 1,031,297 $ 1,718,925
Net Payments of long term debt $(2,830,463) $ --
----------- -----------
Net cash provided by/(used in) financing activities $(1,799,166) $ 1,718,925
----------- -----------
Increase/(Decrease) in cash $ (370,557) $ (139,418)
Cash at beginning of period $ 577,052 $ 262,117
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Cash at end of period $ 206,495 $ 122,699
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The accompanying notes are an integral part of these financial statements.
4
Pallet Management Systems, Inc.
Notes to Financial Statements
March 31, 2001
Note 1. Consolidated Financial Statements:
The consolidated balance sheet as of March 31, 2001, the
consolidated statements of operations and cash flows for the forty week
period ended March 31, 2001 and thirty-nine week period ended March 25,
2000 and consolidated statements of operations for the thirteen week
periods ending March 31, 2001 and March 25, 2000 have been prepared by
the Company without audit in accordance with generally accepted
accounting principles for interim financial information and with
instructions to Form 10-Q. 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 necessary to present fairly the financial
position, results of operations and cash flows for the periods reported
have been made. Operating results for the forty weeks ended March 31,
2001 are not necessarily indicative of the results that may be expected
for the year ended June 30, 2001. These consolidated financial
statements should be read in conjunction with the financial statements
and the notes thereto included in the Company's annual report filed on
Form 10-KSB as of June 24, 2000.
Certain prior year amounts within the accompanying financial
statements have been reclassified to conform to the current period
presentation.
Note 2. Debt Agreement
The Company has a revolving loan and three term loans with La
Salle Business Credit in a three year agreement, which commenced April
14, 2000. As of March 31, 2001 the Company was in full compliance with
all loan covenants.
Advances under the revolving agreement are based on the sum of
85% of eligible accounts receivable, plus the lesser of 55% of eligible
inventories or $2,500,000. Interest is paid monthly at the bank's prime
rate. Principal is due in April 2003, with possible year to year
renewals thereafter. The revolving agreement is collateralized by
substantially all of the assets of the Company. At March 31, 2001, the
Company had $ 2,450,000 of availability under the revolving agreement.
The three term loans as of March 31, 2001 were at $1,261,000,
$1,583,000 and $1,031,000. These loans are collateralized by
substantially all the assets of the Company.
Note 3. Inventories
Inventories consisted of the following at March 31, 2001:
Raw material $ 885,524
Work in process $ 381,330
Finished goods $ 271,965
-----------
TOTAL $ 1,538,819
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5
Note 4. Net Earnings (Loss) per Share of Common Stock:
Net earnings (loss) per share of common stock was determined
by dividing net income (loss) applicable to common shares by the
weighted average number of common shares outstanding during each
period. Diluted earnings/(loss) per common share reflects the potential
dilution that could occur assuming exercise of all issued and
unexercised stock options. A reconciliation of the net income/(loss)
and numbers of shares used in computing basic and diluted
earnings/(loss) per common share is as follows (in thousands, except
per share data):
40 Weeks Ended 39 Weeks Ended
March 31 March 25
2001 2000
---- ----
Basic earnings/(loss) per common share:
Net income/(loss) $ 207 ($2,298)
Weighted average common shares
outstanding for the period 4,065 3,955
Basic earnings per share of
common stock $ 0.05 ($ 0.58)
Diluted earnings/(loss) per common share:
Net income/(loss) $ 207 ($2,298)
Weighted average common shares
outstanding for the period 4,065 3,955
Increase in shares which would
result from exercise of stock options 256 *
Weighted average common shares,
assuming conversion of the above
securities 4,321 *
Diluted earnings/(loss) per share of
common stock $ 0.05 *
* exercise of warrants and options would be anti-dilutive
Note 5. Litigation
In June 1999, the Company was named as a co-defendant in a
lawsuit whereby the plaintiff is alleging damages of up to $300,000
related to lost income from a facility and other property formerly
leased to the Company in Jessup, Maryland. Management believes the
claim is without merit and intends to vigorously contest the claim. St.
Paul Insurance is currently paying defense costs. The outcome of the
action as well as the extent of the Company's liability, if any, can
not be determined at this time.
6
Note 6. Revenue Recognition
Sales revenue is generally recorded upon the delivery of goods or the
acceptance of goods by the customer according to contractual terms and
represents amounts realized, net of discounts and allowances.
Note 7. Accounting for Software Related Costs
The Company accounts for the costs of computer software developed or
obtained for internal use in accordance with Statement of Position 98-1
which generally requires the capitalization of costs incurred during
the application development stage of computer software meeting certain
characteristics. All costs incurred during the preliminary project
stage and post implementation / operation stage are expensed as
incurred.
7
PART I
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation
The following discussion and analysis should be read in
conjunction with the financial statements appearing as Item 1 to this
Report and the Form 10-KSB for the year ended June 24, 2000. The
financial statements in this Report reflect the consolidated operations
of Pallet Management Systems, Inc. (the "Company" or "Pallet
Management") for the thirteen-week and forty-week periods ended March
31, 2001 and for the thirteen-week and thirty-nine week periods ended
March 25, 2000.
The following discussion regarding Pallet Management and its
business and operations contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act 1995. These
statements consist of any statement other than a recitation of
historical fact and can be identified by the use of forward-looking
terminology such as "may," "expect," "anticipate," "estimate" or
"continue" or the negative thereof or other variations thereon or
comparable terminology. The reader is cautioned that all
forward-looking statements are necessarily speculative and there are
certain risks and uncertainties that could cause actual events or
results to differ materially from those referred to in such forward
looking statements, including the limited history of profitable
operations, dependence on CHEP, competition, risks related to
acquisitions, difficulties in managing growth, dependence on key
personnel and other factors discussed under "Factors That May Affect
Future Results" in the Annual Report on Form 10-KSB for the year ended
June 24, 2000. Pallet Management does not have a policy of updating or
revising forward-looking statements and thus it should not be assumed
that silence by management of Pallet Management over time means that
actual events are bearing out as estimated in such forward looking
statements.
Results of Operations
---------------------
General
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Pallet Management has grown to be one of the largest pallet
companies in the more than $6 billion North American pallet industry,
by providing value-added products and services to its customers. Pallet
Management has many customers which are Fortune 1000 companies,
including Honeywell, CHEP, DuPont, IAMS, Mitsubishi, Monsanto, Scotts
Company, and various governmental agencies.
The majority of our Company's revenues have traditionally been
generated from providing high quality, specially engineered pallets to
manufacturers, wholesalers and distributors. As supply chain logistics
has become more complex, our existing customers as well as prospective
customers are seeking new ways to streamline distribution and reduce
costs, which is opening a huge service oriented market for our Company.
With this shift in focus toward services and cost efficiency, our
Company has started providing "state of the art" logistical services
known as reverse distribution. Reverse distribution is simply defined
as maximizing the use of transport packaging, the base of which is the
pallet, by reusing assets to reduce the overall cost per trip. This
shift in focus toward supply chain cost efficiency by our customer base
is by far the most dramatic shift in focus and provides the most
opportunity for our Company.
8
Our Company has two lines of revenue, manufacturing and
services, with manufacturing currently accounting for 97% of the
Company's net sales:
Manufacturing: We have two primary categories of
manufacturing: CHEP grocery pallets and specially engineered niche
market pallets. We have multi-year contracts to manufacture high
quality pallets for CHEP, the world's largest pallet rental pool.
A significant portion of Pallet Management's current business
is the sale of pallets and services to CHEP, which is part of the
worldwide CHEP organization that manages the largest pallet rental pool
worldwide, with more than 134 million pallets and over 20 million
containers in 36 countries. CHEP services the retail, grocery and
automotive industries with high quality pallets and containers. The
Company focuses on non-standard, specialized packaging and does not
compete with CHEP in its markets.
Pallets that are uniquely engineered to transport a specific
product are classified as niche market pallets. Besides CHEP, our
Company's customer base is primarily composed of customers who require
niche pallets. These types of pallets are lower volume and higher
margin than CHEP pallets.
Services: The Company provides three types of services:
1) Retrieval, sortation, repair, warehousing and return, 2) reverse
distribution, and 3) other products.
First - Retrieval, sortation, repair, warehouse and return services
enable our customers to better utilize their packaging assets. Besides
being environmentally friendly, a properly repaired used pallet will
provide the customer significant savings over having to buy a new
pallet. Pallet users currently discard a large portion of new pallets
after one use. The condition and size of these pallets vary greatly.
The pallets are sorted and repaired as needed, placed in storage and
made available for return to service. Pallets that can be repaired have
their damaged boards replaced with salvaged boards or boards from new
stock inventoried at the facility. Pallets that cannot be repaired are
dismantled and the salvageable boards are recovered for use in
repairing and building other pallets. Pallet Management sells the
remaining damaged boards to be ground into wood fiber, which is used as
landscaping mulch, fuel, animal bedding, gardening material and other
items. Despite recent increases in levels of automation, pallet return
operations remains a labor-intensive process.
Second - Reverse distribution can carry the retrieval, sort, repair,
warehouse, and return services one step further by contracting with a
customer to manage, track and provide valuable management information
related to their pallet flow. As part of the Company's strategy to use
the Internet to improve the functionality of its service offerings, it
developed PalletNetTM . PalletNet is a service brand providing a
logistics and information system that manages the flow of shipping
platforms and containers throughout industrial supply chains (excluding
the grocery industry). The principal services PalletNet offers include
9
reverse distribution, single source national contracts, high quality
shipping platforms and transport packaging, recovery, repair, recycling
and export packaging. These physical activities are supported by
leading edge technology that enables users to improve shipping asset
controls and reduce cost and waste from the supply chain, while
improving inventories and enhancing customer satisfaction. By coupling
PalletNet with the Internet, the Company is creating value for the
customer through lower costs and improved efficiencies. The PalletNet
e-portal is a browser-based user interface combined with three levels
of security management which delivers unlimited, safe access to
customers who can view exactly where their shipping platforms and
containers are in the supply chain at any given moment. The system also
offers a full range of personalization options, so each company can
configure PalletNet to their operations. In addition, PalletNet has the
capacity to use either bar codes or radio frequency identification tags
to track individual pallets and the equipment transported on them.
These new, "state of the art", logistics and information system
capabilities provide customers and Pallet Management the technical
support requirements to manage an efficient reverse distribution
operation and management of valuable transport packaging from any
location in which they can access the Internet.
Third - Pallet Management functions as a wholesale distributor of other
various returnable transport packaging such as plastic and metal
pallets; collapsible plastic bulk boxes; wood, plastic, and metal slave
pallets; wooden boxes and crates; and various other products. Due to
lack of demand, sales of pallets made from materials other than wood
are minimal.
In order to fulfill the increasing demand for transport
management services, Pallet Management plans to expand its service
offerings and service revenues by hiring additional key sales personnel
during this fiscal year. Though expanding sales of services will not
require any significant capital expenditures, it will increase SG&A as
a percentage of sales until newly hired sales personnel are trained. In
addition, the cycle for completing a sale of services is significantly
longer than that for selling manufactured pallets. We anticipate that
service will become a greater percent of net sales as we expand our
sales personnel.
Thirteen Weeks Ended March 31, 2001 compared to Thirteen Weeks
Ended March 25, 2000
For the thirteen-week period ended March 31, 2001, net sales
decreased 13% to $ 12,374,000 from $14,155,000 for the comparable
fiscal year 2000 period. This decrease is due to reduced demand for new
pallets as well as services.
During the thirteen-week period ended March 31, 2001,
manufacturing sales decreased 11% to $ 12,011,000 from $13,507,000. The
decrease in manufacturing sales was primarily due to the reduction of
orders received by our major customer at our Alabama, Indiana and
Illinois facilities, as well as a general slow down of orders received
in the niche pallet sales at the Lawrenceville, Virginia location.
Service sales decreased by 44% to $363,000 from $ 648,000.
This decrease in service sales is primarily due to the reduction of
repair services made at the Petersburg, Virginia facility as a result
of reduced demand from the facility's key customer.
10
Pallet Management had a 5% reduction in its selling, general
and administrative expenses from $ 843,000 to $ 803,000 for the
thirteen week period ended March 31, 2001 when compared to the thirteen
week period ended March 25, 2000. The selling, general and
administrative expenses were reduced based on management initiative to
hold down costs during the reduced order period as well as the
elimination of a level of management.
A loss of ($104,000) or ($.03) per share was realized during
this thirteen-week period ended March 31, 2001 compared to a net loss
of ($178,000) or ($.04) per share recorded for the thirteen-week period
last fiscal year. Compared to the same period last year, we were able
to reduce the losses on less sales due to operational and management
improvements, as well as cash flow management improvements. Management
has successfully concentrated its efforts on reducing variable and
semi-variable costs when order demands slow down. Pallet Management
anticipated this third quarter slow down at the end of the previous
quarter and made necessary adjustments to its staffing and production
requirements. In addition, losses were also experienced as pine lumber
prices dramatically decreased to historically low levels thus
decreasing our inventory valuation and making pallet component
production for our other assembly facilities uneconomical. This
resulted in lost cost savings during the decreased market for lumber.
Forty Weeks Ended March 31, 2001 compared to Thirty-nine Weeks
Ended March 25, 2000
For the forty-week period ended March 31, 2001, net sales
increased 21% to $ 53,458,000 from $ 44,250,000 for the thirty-nine
week period ended March 25, 2000.
During the forty-week period ended March 31, 2001,
manufacturing sales increased 27% to $ 51,997,000 from $ 40,873,000 for
the thirty-nine week period ended March 25, 2000. The increase in
manufacturing sales was primarily due to the opening of two new
facilities during fiscal year 2000. The impact of those two facilities
can be seen in the six month period ended December 2000. The current
thirteen-week period shows a decrease from the same period the year
before primarily due to the reduction of orders in all four of the
manufacturing facilities.
Service sales decreased by 57% to $ 1,461,000 from the
$3,377,000 recorded for the thirty-nine week period ended March 25,
2000. The decrease in services is primarily due to the closing of the
Lakeland service facility in December 1999 when the facility's major
customer opened its own facility near-by. Another contributing factor
to reduced service sales was the reduction of repair services made at
the Petersburg, Virginia facility as a result of reduced demand from
the facility's key customer.
We experienced an 11% decrease in selling, general and
administrative expenses from $ 3,371,000 to $ 3,006,000 for the
forty-week period ended March 31, 2001 when compared to the thirty-nine
week period ended March 25, 2000. This decrease was a result of
additional management costs related to the sales volume increase and
expenses related to expanding our reverse distribution business during
11
the thirty-nine week period ended March 25, 2000. During the forty-week
period ended March 31, 2001, management was reorganized and these
additional costs have now been addressed and streamlined as we improved
our operational structure. Additionally, during the forty-week period
ending March 31, 2001, we incurred less expenses due to the closing of
two administrative facilities in 1999.
A net income of $ 207,000 or $0.05 per share was realized
during this forty-week period ended March 31, 2001 compared to a net
loss of ($2,298,000) or ($0.58) per share recorded for the thirty-nine
week period ended March 25, 2000. During the thirty-nine week period
ended March 25, 2000 management positions were eliminated and
substantial charges were incurred totaling $690,000. Costs included in
selling, general and administrative expenses consisted of $32,000 for
legal and accounting expenses related to a postponed equity offering
and The Nelson Company transaction, $67,000 for closing the Cary, North
Carolina and Richmond, Virginia offices and $192,000 for custom
software which is outdated and no longer used. Costs included in cost
of goods sold consisted of $77,000 for equipment at the Bolingbrook,
Illinois facility that is not economically efficient and no longer used
and $250,000 related to the closing of the Lakeland, Florida facility.
During the forty-week period ended March 31, 2001, we have increased
sales, streamlined our costs within our manufacturing plants, and hired
new management to spearhead our goals toward profitability. By
anticipating and planning for the reductions to the order rate, Pallet
was able to maintain its profitability on a year-to-date basis. During
the beginning of the fourth quarter, Pallet Management Systems has
experienced an increase in demand and sales.
Liquidity and Capital Resources
-------------------------------
Pallet Management Systems had $206,000 cash on hand at March
31, 2001, versus $577,000 at the beginning of the fiscal year. The
decrease in cash is primarily attributed to the use of $1,799,000 in
investing activities for the purchase of our Vanderloo Nailing Machine
in Indiana and the capitalization of our Palletnet software costs
netting a change of $ 1,808,000, which was offset by $3,237,000
generated from operating activities. The cash used in financing
activities is primarily due to repayments on the revolver and term
loans to LaSalle Business Credit ($2,830,000) offset by additions to
our capital line and other financed activities of $1,031,000. The
repayment of the revolver to gain a lower average outstanding balance
was caused by utilizing a zero balance account and only funding the
revolving loan when payables were presented to the bank. This resulted
in a decrease in interest expense estimated at $125,000 annually.
The $ 3,237,000 in cash generated from operating activities is
primarily due to accounts receivable decreasing over the forty week
period ended March 31, 2001 by $ 1,872,000, the decrease to inventory
levels of $ 720,000, the capitalization of the Vanderloo Machine from
construction in progress, and the fiscal year to date net income of $
207,000. The decrease in outstanding accounts receivable is caused by
the more timely customer payments for the forty-week period ending
March 31, 2001 along with the decreased receivables from our major
customer which accompanied the lower order rate. The Company decreased
its borrowings from LaSalle Business Credit by $ 1,799,000 over the
12
forty-week period ended March 31, 2001. This decrease was made up of a
reduced revolver borrowing base plus principal payments on our term
loans of $2,830,000 born from effective cash management offset by the
addition to the capital loan for a portion of the Vanderloo Nailing
Machine of $1,031,000. During the forty-week period ended March 31,
2001, we capitalized costs primarily associated with the Vanderloo
Nailing Machine, which was put into production at our Indiana facility,
and these assets were capitalized for $1,421,000.
The Company believes that existing cash on hand, cash provided
by future operations including PalletNet services, additional available
borrowings under its current line of credit, and a net working capital
of $ 1,058,000 as of March 31, 2001, will be sufficient to finance its
operations and expected working capital and capital expenditure
requirements for at least the next twelve months. The Company expects
the order trend to pick back up in the thirteen-week period ended June
30, 2001.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In June 1999, the Company was named as a co-defendant in a
lawsuit whereby the plaintiff is alleging damages of up to $300,000
related to lost income from a facility and other property formerly
leased to the Company in Jessup, Maryland. Management believes the
claim is without merit and intends to vigorously contest the claim. St.
Paul Insurance is currently paying defense costs. The outcome of the
action as well as the extent of the Company's liability, if any, can
not be determined at this time.
13
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.
PALLET MANAGEMENT SYSTEMS, INC.
Dated: May 11, 2001 By: /s/ Zachary M. Richardson
------------------------------
Zachary M. Richardson, President
Dated: May 11, 2001 By: / s/ Marc. S. Steinberg
---------------------------------------
Marc S. Steinberg, Treasurer, Vice President of
Finance and Secretary (Principal Financial and
Accounting Officer)
14