SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition from ___________________ to ________________________
Commission file number 0-4979
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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
--------------
Not Applicable
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Former name, former address and former fiscal year,
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 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 September 30, 1995: 1,166,356
SQUARE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
PART I. Page No.
--------
Consolidated Balance Sheets -
September 30, 1995 (unaudited) and December 31,
1994 (audited) 3
Consolidated Statements of Operations - for
the nine and three months ended September 30, 1995
and 1994 (unaudited) 5
Consolidated Statements of Cash Flows for
the nine months ended September 30, 1995 and 1994
(unaudited) 6
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of Results of
Operations and Financial Condition 13
PART II.
Other Information 17
SIGNATURES 18
2
SQUARE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1995 December 31, 1994
(Unaudited) (Audited)
----------- ---------
ASSETS
Current Assets:
Cash $ 1,793,000 $ 1,226,000
Trade and other receivables 786,000 781,000
Prepaid expenses 1,582,000 1,660,000
Other current assets 549,000 555,000
Prepaid and refundable income taxes 292,000 353,000
----------- -----------
Total current assets 5,002,000 4,575,000
----------- -----------
Property, Equipment and Improvements, net 24,766,000 25,067,000
----------- -----------
Other Assets:
Deferred expenses (net of amortization) 2,295,000 890,000
Security deposits and other assets 2,410,000 1,932,000
----------- -----------
4,705,000 2,822,000
----------- -----------
$34,473,000 $32,464,000
=========== ===========
See notes to consolidated financial statements
3
SQUARE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1995 December 31, 1994
(Unaudited) (Audited)
----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,159,000 $ 830,000
Accrued expenses 4,523,000 4,400,000
Accrued local rent tax (Note 4) 1,232,000 1,189,000
Current portion of long-term debt (Note 2) 652,000 1,210,000
Other liabilities 231,000 479,000
---------- ----------
Total current liabilities 7,797,000 8,108,000
---------- ----------
Deferred Rent 2,856,000 2,433,000
---------- ----------
Long-Term Debt - less current portion (Note 2) 18,692,000 17,059,000
---------- ----------
Deferred Taxes 174,000 174,000
---------- ----------
Security Deposits - Customers 292,000 257,000
---------- ----------
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 1,825,000 1,529,000
Less:
Treasury stock at cost, 52,033 shares as of
September 30, 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 (217,000) (207,000)
----------- -----------
4,662,000 4,433,000
----------- -----------
$34,473,000 $32,464,000
=========== ===========
See notes to consolidated financial statements
4
SQUARE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For The Nine Months Ended For The Three Months Ended
September 30, September 30,
------------------------- ---------------------------
1995 1994 1995 1994
------ ------ ------ -----
Parking service revenue $45,328,000 $44,093,000 $14,624,000 $14,768,000
Service station revenue 3,071,000 2,984,000 1,100,000 1,041,000
---------- ---------- ----------- -----------
Total revenues 48,399,000 47,077,000 15,724,000 15,809,000
---------- ---------- ----------- -----------
Costs and expenses:
Cost of parking services 37,103,000 38,702,000 11,799,000 12,653,000
Operating costs - service station 3,112,000 3,029,000 1,086,000 1,057,000
General and administrative expenses 5,455,000 5,244,000 1,894,000 1,754,000
Provision for local rent tax (Note 4) 45,000 45,000 15,000 15,000
Interest 1,518,000 1,317,000 498,000 470,000
Write-off of assets 316,000 478,000 316,000 -0-
---------- ---------- ---------- ----------
Total costs and expenses 47,549,000 48,815,000 15,608,000 15,949,000
---------- ---------- ---------- ----------
Earnings (Loss) from Parking and
Service Station Operations 850,000 (1,738,000) 116,000 (140,000)
Provision (Benefit) For Income Taxes
(Note 6) 554,000 (587,000) 174,000 (47,000)
--------- ---------- -------- ---------
Net Earnings (Loss) $ 296,000 $ (1,151,000) $ (58,000) $ (93,000)
========= ============= ========== ==========
Earnings (Loss) Per Share (Note 5) $ 0.23 $ (0.96) $ (0.05) $ (0.08)
========= ============= ========== ==========
Computation of Shares -
Weighted average of common stock
outstanding and subscribed (Note 5) 1,262,474 1,192,809 1,166,356 1,192,852
========= ========= ========= =========
See notes to consolidated financial statements
5
SQUARE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For The Nine Months Ended
September 30,
--------------------------
1995 1994
--------- ---------
Cash Flows From Operating Activities:
Net earnings (loss) $ 296,000 $(1,151,000)
Adjustments to reconcile net earnings (loss) to net cash provided by
(used in) operating activities:
Amortization of:
Deferred expenses 31,000 26,000
Lease acquisition costs 13,000 76,000
Excess of cost over fair market value
of net assets acquired -0- 103,000
Depreciation and amortization 1,159,000 1,264,000
Write-off of assets 316,000 478,000
Equity adjustment for foreign currency translations (10,000) (19,000)
Increase (decrease) in cash from
changes in assets and liabilities:
Trade and other receivables (5,000) 120,000
Prepaid expenses and other current assets 20,000 (97,000)
Prepaid and refundable income taxes 61,000 (486,000)
Deferred expenses, net (1,439,000) (32,000)
Security deposits and other assets (491,000) (216,000)
Accounts payable, accrued expenses,
accrued local rent tax and other liabilities 247,000 684,000
Deferred rent 423,000 (221,000)
Security deposits - customers 35,000 31,000
--------- ---------
Net cash provided by (used in) operating activities 656,000 560,000
--------- ---------
See notes to consolidated financial statements
6
SQUARE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For The Nine Months Ended
September 30,
-----------------------------
1995 1994
----------- ----------
Cash Flows From Investing Activities:
Additions to land, buildings, equipment
and improvements $(1,165,000) $(774,000)
----------- ----------
Net cash used in investing activities (1,165,000) (774,000)
----------- ----------
Cash Flows From Financing Activities:
Proceeds from borrowings 2,223,000 4,015,000
Payments and current maturities on long-term debt (1,148,000) (3,370,000)
Proceeds from exercise of stock options and warrants 1,000 1,000
----------- ----------
Net cash provided by financing activities 1,076,000 646,000
----------- ----------
Net Increase in Cash 567,000 432,000
Cash, Beginning of Period 1,226,000 623,000
----------- ----------
Cash, End of Period $1,793,000 $1,055,000
=========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $1,181,000 $1,131,000
Income taxes, net of refunds received $819,000 $(108,000)
Supplemental Schedule of Noncash Financing Activities:
An officer/stockholder satisfied the balance of his note receivable to the
Company, including accrued interest of $57,637, which note had been issued in
connection with the exercise of a warrant to purchase shares of common stock by
transferring 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, the Company
issued to the officer/stockholder 12,500 shares of common stock.
See notes to financial statements
7
SQUARE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE 1 - The accompanying consolidated balance sheet as of September 30,
1995 and the consolidated statements of operations for the nine and
three months ended September 30, 1995 and 1994 and the consolidated
statements of cash flows for the nine months ended September 30, 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 period
ended December 31, 1994.
The Company changed, effective December 31, 1994, 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 nine and three months ended
September 30, 1995 are not necessarily indicative of the results to be
expected for the full year.
NOTE 2 - Long-term debt consisted of the following:
Interest Rate September 30, 1995
------------- ------------------
Bank Loan:
Facility I Prime + 2% 11,753,000
Facility II Prime + 2% 1,688,000
Notes Payable to Officers 10.25% 500,000
Notes Payable 7.25% - 10% $ 1,221,000
Mortgages Payable 7% - 11% 4,182,000
----------
19,344,000
Less current portion 652,000
----------
$18,692,000
===========
8
NOTE 2 - (continued)
Facility I 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. Facility II is a term
loan that was payable in consecutive quarterly payments of $225,425.
On October 31, 1995, Amendment No. 10 to the Company's bank loan
agreement was executed. The amendment provides for an extension of the
maturity dates of the Facility I principal to June 30, 1998 with
respect to $61,900, to September 30, 1998 with respect to $150,000 and
to December 31, 1998 with respect to $11,541,100 and extends the
quarterly installment payment dates for Facility II to calendar
quarters ending in the period June 30, 1996 to June 30, 1998. The
amendment provides for prepayment of principal to the extent of 50% of
the Company's cash flow above designated levels. The amendment also
provides that commencing November 1, 1995 interest is to be paid at
the rate of 4% per annum with the balance of the interest rate (the
Bank's prime plus 2% per annum) to be accrued and deferred. The
portion deferred will be paid or forgiven depending on the Company
achieving reductions in its operating expenses from those for the year
ended December 31, 1994 as follows: if the amount of the reduction as
of December 31, 1995 is at least $500,000, the amounts deferred during
November and December 1995 will be forgiven; if the amount of the
reduction as of December 31, 1996 is at least $600,000, the amounts
deferred during 1996 will be forgiven; and if the amount of the
reduction as of December 31, 1997 is at least $700,000, the amounts
deferred during 1997 and 1998 will be forgiven. The failure to achieve
the designated level of reduction for any period will result in the
obligation to pay the amount deferred during the applicable period.
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.
On June 28, 1995 two principal officers loaned $500,000 to the Company
with interest payable at the same rate as the Facility I loan. As a
condition of Amendment No. 10, the officers agreed to a revision of
their loans, changing the terms from demand loans to loans to be
repaid following the payment of the Facility loans with provisions for
prepayment to the extent of 50% of the principal payments paid to the
Bank under the credit agreement after the Bank has received post -
October 31, 1995 principal payments of at least $1,000,000 and for the
deferral of the interest in excess of 3.99% per annum (the loan
interest rate to December 31, 1995 is 10.25% and prime plus 2%
thereafter) until the Facility loans have been paid in full.
9
Under their amended loan agreement, they surrendered their rights to
collateral which was to be provided under the original loan agreement
and subordinated their loans to the Company's obligations under the
Credit Agreement. In consideration of the original extension of the
loans and the foregoing amendment, the Company issued to each of the
officers a five year non-transferable Warrant to purchase 75,000
shares of the Company's Common Stock at a price of $6.40 per share,
the average of the closing sales prices of the Common Stock on NASDAQ
for June 28, 1995, and the two immediately prior days in which trades
were effected in the stock.
The consolidated Balance Sheet as of September 30, 1995 gives
retroactive effect to Amendment No. 10 to the Company's credit
facility agreement and the amendment of the loan agreement with two
principal officers of the Company.
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 $6,076,200. 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.
Aggregate maturities on long-term debt are as follows:
Year Ending September 30,
-------------------------
1996 $ 652,000
1997 1,002,000
1998 920,000
1999 12,654,000
2000 3,838,000
Remainder 278,000
---------
$19,344,000
===========
10
NOTE 3 - FOREIGN OPERATIONS (CANADA)
Summarized information relating to the Canadian operation is as
follows:
September 30, 1995 December 31, 1994
------------------ -----------------
Total assets $634,000 $589,000
Total liabilities 1,456,000 1,231,000
Deficiency in assets (822,000) (642,000)
For the nine month periods ended September 30, 1995 and September 30,
1994, net loss for the Canadian operation was $178,000 and $220,000,
respectively.
NOTE 4 - 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 September 30, 1995, is adequate.
NOTE 5 - EARNINGS PER SHARE
Earnings (loss) per share has been computed using the weighted average
number of shares of common stock outstanding and subscribed and the
dilutive effect, if any, of common stock equivalents outstanding.
Common stock equivalents were not included in the computation of loss
per share for the nine months ended September 30, 1994 and for the
three months ended September 30, 1995 and 1994 since their effect was
anti-dilutive.
NOTE 6 - INCOME TAXES
The provision for income taxes of $554,000 for the nine month period
ended September 30, 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, (iii) minimum corporate taxes for certain subsidiaries and
(iv) an adjustment during the three-months ended September 30, 1995
for under-accruals in prior periods for federal and state income taxes
for prior periods. 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
11
Company's ability to generate taxable income for a period of time is
more certain.
The income tax benefit of $587,000 for the nine month period ended
September 30, 1994 reflects the benefit applicable to the loss for the
period less minimum corporate taxes for certain subsidiaries.
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 September 30, 1995, the Company's contingent debt amounted to
approximately $1,025,500 under standby Letters of Credit issued
pursuant to terms of its line of credit (Facility I).
NOTE 8 WRITE-OFF OF ASSETS
During the nine months ended September 30, 1995 and 1994, the Company
wrote off leasehold acquisition costs, deferred expenses, fixed
assets, and other miscellaneous charges relating to certain locations.
12
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 nine months ended September 30, 1995 (the "1995
Nine-Month Period") were greater by $1,235,000 (2.8%) than those for the
nine-months ended September 30, 1994 (the "1994 Nine-Month Period"). For the
three months ended September 30, 1995 (the "1995 Three-Month Period") parking
service revenues which were $144,000 (1.0%) less than those for the three months
ended September 30, 1994 (the "1994 Three-Month Period") would also have been
higher but for a $562,000 payment made to the Company during 1994 in settlement
of a dispute as to a parking location. The principal reason for the continued
improvement was a net increase in parking capacity of approximately 2,400 cars
which was effected during the nine months ended September 30, 1995 and increased
patronage largely due to 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 which caused a sharp curtailment of traffic near the Company's
parking locations.
The Company achieved a reduction of parking operating costs of
$1,599,000 (4.1%) between the nine-month comparative periods and $854,000 (6.7%)
between the three-month comparative periods, which resulted in reductions as
percentages of parking revenues from 87.8% to 81.9% between the nine-month
comparative periods and from 85.7% to 80.7% between the three-month comparative
periods. The lower costs were principally due to economies in operations,
primarily staff reductions, and a net reduction of two in the number of parking
locations operated by the Company, including termination of unprofitable
locations which were responsible in part for the $478,000 of asset write-offs in
the 1994 Nine-Month Period, partially offset by a modest increase in labor costs
resulting from two labor agreements the Company executed during nine months
ended September 30, 1995. Two additional labor agreements are expected to be
executed by December 31, 1995 and to result in a further modest increase 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. Revenues increased, primarily as a result of
increased gasoline prices, by $87,000 (2.9%) between the comparative nine-months
periods and $59,000 (5.7%) between the comparative three-month periods.
Operation of the station produced losses for the 1995 and 1994 Nine- Month
Periods of ($41,000) and ($45,000), respectively, and a slight operating profit
13
of $14,000 for the three months ended September 30, 1995 as compared to an
operating loss of ($16,000), for the three months ended September 30, 1994.
General and administrative expenses increased by $211,000 (4.0%)
between the nine- month comparative periods and $140,000 (8.0%) between the
three-month comparative periods. The increases reflect principally modest
increases in salaries and travel expenses and the cost incurred with respect to
a proposed real estate transaction which was terminated, partially offset by
reductions due to the fewer locations under supervision and operating economies.
As a result, such costs as a percentage of parking revenues (gasoline station
operations require insignificant amounts of such expenses) increased from 11.9%
to 12.0% between the nine-month periods and from 11.9% to 13.0% between the
three-month periods.
The increases in interest expense of $201,000 (15.3%) and $28,000
(6.0%), respectively, between the nine-month and three-month comparative periods
were primarily the result of the higher interest rates caused by increases in
the rate provided by amendments effected in June and October 1994 to the
Company's credit facility, increases in the prime rate, and, with respect to the
three-month comparative periods, increased borrowings.
For the three months ended September 30, 1995, the Company effected a
write-off of unamortized assets of $316,000 related to certain unprofitable
locations as compared to asset write-offs of $478,000 taken during January and
February, 1994.
The 65.2% provision for income taxes for the 1995 Nine Month Period,
and the provision of $174,000 despite pre-tax earnings of $116,000 for the 1995
Three Month Period are due principally to (i) minimum corporate income taxes
imposed by the state and City of New York and the states of Pennsylvania and New
Jersey, (ii) the non-deductibility for income tax purposes of the loss suffered
by the Company's Canadian operations ($178,000 and $73,000, respectively for the
nine and three- month periods), (iii) income taxes in jurisdictions in which the
Company's operations were profitable and for which no net operating loss was
available and (iv) an adjustment during the three-months ended September 30,
1995 for under-accruals in prior periods for federal and state income taxes for
prior periods.
Liquidity and Capital Resources
As of September 30, 1995, the Company had a decrease of $738,000 in its
working capital deficit ($2,795,000) from the working capital deficit
($3,533,000) as of December 31,1994, principally as a result of the extension of
the maturity dates of the Company's Facility II loan installments provided by
the amendment to the credit agreement discussed below.
Operating activities provided net cash of $656,000 for the 1995
Nine-Month Period as compared to $560,000 for the 1994 Nine-Month Period; the
difference principally the result of the materially better operating results,
partially offset by a material increase in deferred expenses, principally due to
adjustments of rents.
14
Additions to land, buildings, equipment and improvements amounted to
$1,165,000 net for the 1995 Nine-Month Period, a $391,000 increase in the net
amount expended or accrued during the 1994 Nine-Month Period for this purpose.
The Company anticipates capital expenditures of not more than $1,500,000 for
the full year ending 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 $1,076,000
and $646,000 respectively, during the 1995 Nine-Month Period and the 1994
Nine-Month Period, with the difference principally resulting from loans of
$500,000 from its officers in July 1995 and lower loan payments during the 1995
Nine-Month Period.
As a result of the foregoing, the Company increased its cash balances
by $567,000 as compared with an increase of $432,000 for the 1994 Nine-Month
Period.
On October 31, 1995 the Company's credit agreement with its Bank lender
was amended to provide more favorable terms with respect to principal payments,
interest payments and the financial covenants. The maturity dates of the
Facility I credit loan principal were extended to June 30, 1998 with respect to
$61,900, September 30, 1998 with respect to $150,000 and December 31, 1998 with
respect to the balance, which as of September 30, 1995, amounted to $11,540,753,
and the quarterly installment payment dates for the Facility II term loan in the
aggregate principal amount of $1,688,100 were deferred to the calendar quarters
ending in the period June 30, 1996 to June 30, 1998. The amendment provides for
prepayment of principal to the extent of 50% of the Company's cash flow above
designated levels. The amendment also provides that commencing November 1, 1995
interest is to be paid at the rate of 4% per annum, with the balance of the
interest rate (the Bank's prime plus 2% per annum) to be accrued but deferred.
The portion deferred will be paid or forgiven depending on the Company achieving
reductions in its operating expenses from those for the year ended December 31,
1994 as follows: if the amount of the reduction as of December 31, 1995 is at
least $500,000, the amounts deferred during November and December 1995 will be
forgiven; if the amount of the reduction as of December 31, 1996 is at least
$600,000 the amounts deferred during 1996 will be forgiven; and if the amount of
the reduction as of December 31, 1997 is at least $700,000, the amounts deferred
during 1997 and 1998 will be forgiven. The failure to achieve the designated
level of reduction for any period will result in the obligation to pay the
amount deferred during the applicable period at the end of such period.
As a condition of the amendment to the credit agreement, Messrs.
Lowell Harwood and Sanford Harwood, respectively Chairman and Assistant
Chairman, entered into an amendment of their loan agreement with the Company
relating to loans by them in the aggregate amount of $500,000, changing them
from demand loans to loans to be repaid following the payment of the Facility
loans with provisions for prepayment to the extent of 50% of the principal
payments paid to the Bank under the credit agreement after the Bank has received
post - October 31, 1995 principal payments of at least $1,000,000 and for the
deferral of the interest in excess of 3.99% per annum (the loan interest rate
after December 31, 1995 is the Bank's prime rate plus 2%) until the Facility
15
loans have been paid in full. Under their amended loan agreement, they
surrendered their rights to collateral which was to be provided under the
original loan agreement and subordinated their loans to the Company's
obligations under the credit agreement.
The Company believes that funds generated from its operations and
additional mortgage loans with respect to properties acquired or developed will
be sufficient to finance its capital and operational requirements for the 12
months ended September 30, 1996.
16
Part II - Other Information
Item 5. Other Information
See "Management's Discussion and Analysis of Results of Operations and
Financial Condition" for information with respect to (i) Amendment No. 10
executed on October 31, 1995 to the Company's Credit Agreement with NatWest Bank
N.A. (the "Bank") extending the maturity dates of the Company's Facility I and
Facility II loans, providing for a deferral and possible forgiveness of the loan
interest in excess of 4% per annum and modifying the financial covenants; and
(ii) an amendment to the loan agreement between the Company and Messrs. Lowell
Harwood, Chairman, and Sanford Harwood, Assistant Chairman, Secretary and
Director, making their demand loans in the aggregate amount of $500,000 payable
after the Facility loans have been paid in full, subject to prepayments of 50%
of the loan principal payments to the Bank after the Bank has received after
October 31, 1995 principal loan payments in the amount of $1,000,000, deferring
that portion of the loan interest in excess of 3.99% per annum to the date the
Facility Loans have been paid in full (the interest rate after December 31, 1995
is the Bank's prime rate plus 2%), subordinating the loans to the Company's
obligations to the Bank and eliminating the Company's obligation to collaterize
the loan.
In consideration of the original extension of the loans and the
foregoing amendment, the Company issued to each of Messrs. Lowell and Sanford
Harwood a five year non-transferable Warrant to purchase 75,000 shares of the
Company's Common Stock at a price of $6.40 per share, the average of the closing
sales prices of the Common Stock on NASDAQ for June 28, 1995, the date of the
original loan agreement and the two immediately prior days in which trades were
effected in the stock.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
10(a) Copy of Amendment No. 10, dated October 31, 1995 to the Credit
Agreement between the Company and NatWest Bank N.A..
10(b) Copy of Amendment, dated October 31, 1995, to the Loan Agreement
between the Company and Lowell Harwood and Sanford Harwood.
10(c) Form of Warrant, dated October 31, 1995, issued to each of
Lowell Harwood and Sanford Harwood.
27. Financial Data Schedule
b) No reports on Form 8-K have been filed during the quarter ended
September 30, 1995.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has fully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SQUARE INDUSTRIES, INC.
s/ Sanford Harwood
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Sanford Harwood
Assistant Chairman
s/ John Kowal
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John Kowal
Controller and Chief Financial Officer
Dated: November 13, 1995
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